I love reading Louis Woodhill. Today’s column contained a few gems. This:
The notion that handing out unemployment checks will boost the economy (via fiscal “stimulus”) is pure Keynesian fantasy. Whatever good they may do, unemployment benefits amount to paying people not to work. What is amazing is not that more of our long-term unemployed started getting jobs after we stopped paying them not to work, but that this result surprised so many left wing economists and politicians.
OK, now, let’s say that you wanted a new career as an economic terrorist. Your mission would be to reduce U.S. RGDP growth, depress LFP, suppress total employment, and reduce real wage growth. Lucky for you, a handy guidebook has been published for economic terrorists, and it is available on the Internet. It is called “President Obama’s FY2016 Budget.”
President Obama’s budget appears to raise taxes on capital by about 0.86% of GDP. Given that tax increases impact the incentive to invest, not just the cash flows available to invest, the negative effect on economic growth of Obama’s tax hikes could be very large. However, if all Obama’s new taxes accomplished were to reduce U.S. nonresidential investment “dollar for dollar,” the impact would be to reduce our long-term RGDP growth rate by 0.37 percentage points. This is because a change of 1.00 percentage point of GDP in nonresidential capital investment can be expected to produce a 0.43 percentage point change in RGDP growth.
According to the Congressional Budget Office’s (the CBO’s) latest forecast, under the current tax regime, the long-term growth rate of America’s “potential GDP” is only 2.1%. If so, Obama’s tax plan would limit RGDP growth to no more than 1.73% (and possibly less due to incentive effects).
As it happens, Americans know exactly what an RGDP growth rate like this feels like. It feels like the last 14 years under Bush 43 and Obama, during which RGDP growth averaged 1.78%. During this period, we moved 13.2 million FTE jobs away from full employment, real median family incomes fell, and Social Security and Medicare went (effectively) bankrupt.
Read the entire column here.