How to Create Jobs: Krugman vs Becker | Hacker News Reader

How to Create Jobs: Krugman vs Becker

gregmankiw.blogspot.com

12 pointscwan12 comments

To respond to Becker's point about the recession ending-don't count on it. There's still a fundamental correction in the economy working itself out right now and the government is doing its best not to let it happen. Banks are still failing, job cuts are still occurring, and there is a lot of debt out there still that needs to be either defaulted on or paid off. Cash for clunkers raised GDP output slightly but that's just one quarter's worth and things are likely to resume on their old course again now.

The establishment is patting themselves on the back right now for saving us all and we'll see if they're right.

I thought Becker was phoning this one in. I was much more persuaded by Krugman's argument over Beckers. Becker's didn't even get to the freaking point until the last two paragraphs. Then he basically said. "Uh cut taxes. Especially corporate taxes." With exactly no supporting evidence as to why that would help. All of our stimulus money we sent banks and corps has basically gone to play the market, and has saved zero jobs. So why would cutting taxes directly lead to job growth? In this climate I don't see it happening like they think.

It might be worth noting that Krugman won his prize "for his analysis of trade patterns and location of economic activity" while Becker got it for studying "a wide range of human behaviour and interaction, including nonmarket behaviour".

In other words, Krugman is the one who actually studies the economy.

It might be worth noting that Becker is hugely respected among economists, while Krugman is considered to be a bit of an asshat, sort of like the Malcom Gladwell of the field.

In other words, Becker is the one who is actually considered a real economist.

Nope, it's not worth noting.

I agree with you somewhat: Krugman’s nobel work wasn’t directly about government stimulus or tax policy, and in any case I’m sure both Krugman and Becker are plenty familiar with broad trends in economic research.

Realize though that Becker’s argument is that we should increase employment by cutting corporate income taxes, which cuts he suggests will pay for themselves because they’ll spur enough GDP growth to reduce the debt-to-GDP ratio.

It’s a pretty laughable argument, and its only real claim to credibility is Becker’s stature. And to be fair to Aaron, Mankiw’s links explicitly call both Becker and Krugman “Nobelists,” and thus imply that we should trust Becker’s unsupported predictions.

Not exactly sure what makes it a laughable argument. Corporate taxes are a relatively small percentage of US government receipts: http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY.... It's not that inconceivable that reduced taxes in one area could produce outsized economic benefits - at least no more than thinking that there is a spending multiplier that Krugman has been assuming.

Not exactly unsupported either. Mankiw linked to some additional research November 21st though it related to economic growth versus job growth: http://gregmankiw.blogspot.com/2009/11/new-research-on-fisca...

"We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions."

It is also useful to note that "the absolute Retained Profit provides the strongest correlation with employment change" at least according to one study (and obviously reduced taxes would result in higher earnings) - http://books.google.ca/books?id=As8OAAAAQAAJ&pg=PA143...

One more recent study to add to the debate: http://www.kauffman.org/newsroom/kauffman-foundation-analysi... - finds that young startups create the most jobs.

What makes it laughable is that we are currently facing enormous unemployment, and our economy is in gigantic trouble. State and local governments are going bankrupt right and left, our federal debt is proportionally bigger than it has been in half a century, the only thing keeping our banking system afloat is massive government bailouts and the implied promise to do more of them if things get worse, we're running gigantic trade and current accounts deficits, consumers are saddled with unprecedented amounts of debt, and commercial real estate could collapse at the drop of a hat. &c. &c.

Cutting business taxes might be a reasonable idea, especially if we can target it specifically at increasing employment – we should be doing everything we can to save/create jobs – but it’s not going to get us out of this mess by itself, by a long shot. Also, we should accept that we’re going to have to pay for such measures down the road, and if they pay for themselves it is only going to be over a longer time period. Stimulus is an investment in the future benefit of full production.

"Stimulus is an investment in the future benefit of full production."

It's sort of pointless to try to create jobs for the sake of creating jobs - especially if they all go away once stimulus stops - in which case it's just another entitlement program. It would seem to be a massive leap to assume that implementing half measures to sustain marginal businesses will "pay for themselves".

Governments at both the state level and federal level overspent relative to the size of the economy during the good years. What would be laughable is to tax further or create greater burdens on business to pay for the mistakes of governance. The massive increases in debt also do not come without risk.

From Arnold Kling on "the anti-stimulus" - http://econlog.econlib.org/archives/2009/05/the_anti-stimul....

Stimulus and cash for clunkers may well increase interest costs for everyone (interest charges to businesses are additive to that charged to the US government). If true, this will almost certainly mean less profitability and less jobs in the future. If anything, the history of central planning shows that governments cannot sustainably create jobs, they can only provide the environment for businesses and individuals who flourish to create jobs.

To test whether reducing corporate income taxes will spur economic growth and reduce government debt, just apply a thought experiment at the extremes: compare what would happen if the income tax were 100% with 0%. At 100% income tax, corporations would have no reason to employ anyone, so the unemployment rate would go up. The unemployed people would be a cost to the government, increasing government debt. At 0% income tax, corporations would hire more because each worker's net contribution would directly increase profit. More employment reduces government costs, increases government revenue, and reduces government debt.

So it seems that the argument that decreasing income tax rates would not decrease government debt is the laughable argument. It at least doesn't work at the extremes.

I'm not convinced corporations would necessarily hire more people due to lower tax rates. If sales forecasts don't look promising, the additional workers' net contribution may be negative even with a 0% tax rate.

The argument is that even in that case they'll at least fire fewer people than they would with the original tax rate.

But yeah, the big problem facing companies right now is not excessive corporate tax.

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