Paul Krugman Juggles Apples and Oranges until He has the Perfect New Economic Stew:  Government Subsidies for Idle Workers.

Abstract: Paul Krugman juggles fruits from different cannery bins[1] in a classic circus performance that rings of the Russian Circus in its halcyon days. He has an impressive array of hoops and ropes and noise makers to entice the marginalized into accepting his little story for today. He now, quite audaciously, compares the current unemployment rates of Germany with the U.S. using some A, B, C alphabetic soup analogy that would be received as an insult to even an imbecile as he unashamedly ignores the trends of the last 25 years of both countries and focuses only on 2009’s year’s difference between A and B to make his sorry point. Tables that date back to 1980 are provided here to illustrate this omission. He then muses and wanders upon the plethoric wonderlands of socialistic mechanisms that attack capitalism for a general solution to his problem  but brushes dangerously close to the concept of temporary tax  cuts now being conjured as new ideas by the worried left who now see Obama’s ‘recovery’ as a sham and a joke. The suggestion of a formal tax cut for business is forbidden fruit in krugmanical séances and is properly omitted here by the Nobel Prize Laureatte. Lamenting the fact that 787 billion dollars did not moderate the upcoming depression-levels of unemployment Krugman searches for government subsidies in various veiled and jaded forms to keep little fingers busy and happy and arrives at Kurzarbeitergeld—the German worker subsidy system. The idea is wonderful except it seems to produce a net loss in tax revenues which prompts us to wander aimless in the ether for an explanation as who will pay for this.  As usual, there is no discussion of costs and only abuse for capitalism—the process that embarrassingly provides nearly all the tax revenues for this planet.  This is a classic bit of anything-but-capitalism-goes form of ‘objective’ thinking offered in the classic liberal manner and the facts smothered by the quest for something ‘different.’  Apparently, the stimulus was not ‘different’ enough and we need a bigger one. The collapse of our currency in a swamp of inflation would be ‘different’ too.

The New York Times (that is known affectionately as the Walter Duranty Papers[2] in honor of their most beloved Pulitzer Prize winner) may be likened to watching and then expertly commenting on some new and sensational TV programs while the set is disconnected. The intellectually myopic structure of their articles is a curious blend of rote propaganda[3][4][5][6], noisy and erratic pandering to special interest groups such as unions and certified Ouija board prophecy whose original concept can be traced back to 1848. No matter what happens in the world, the analysis of any event must be viewed through the prismatic lens of progressive visualizations. Persuasion is always more important than truth and failure is always more important than success if that success includes any contribution from capitalism.

Today, we venture into an exciting admixture of economic partial truths and associated political nostrums guided with song and tinsel waving by our resident economist Paul Krugman[7][8][9][10][11][12] as his works provide guidance, and hopefully, a platform for aggressive government action by those currently in power. We are treated to an analogy on comparative government policies [sans details of course] and we are thrilled to learn how many planes and surfaces and points of singularity can be geometrically warped into an ostensibly coherent message in a single setting.

The premise:

“Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.

Don’t you think Country A might have something to learn from Country B?”[13]-- Free to Lose By Paul Krugman Op-Ed Columnist Published: November 12, 2009 [Emphasis is mine in all quotes.]

Here are the unemployment data with the caveat that the GDR data are not included here before 1990.

The chart is shown in this link: http://i235.photobucket.com/albums/ee208/ryckpb/GermanvsUSUnemployment.jpg

Moving right along with reality:

Consider, for a moment, the predictable intellectual shallowness of this unsophisticated offering:  We are offered the prospect of comparing two singular and isolated data points plucked from the mass of information circulating in our universe and instantly incorporated into some economic theory as if they defined some eternal trends. What direction does a point point to? Anywhere!  What we might learn about from this riddle is the starting point for an exciting expansion of government and a new form of progressive socialism where the government subsidizes those who have had their work hours reduced in lieu of being laid off. But, that is an old story—not a new one.

The German Kurzarbeitergeld scheme:

“One particular measure that deserves close attention is the reduced-hours compensation scheme (Kurzarbeitergeld), which has been very successful in Germany. Under this scheme companies can radically reduce the working hours of staff. The affected employees are, however, not laid off but compensated with up to 60% of their net salary (67% if childcare is involved) for up to 24 months by the federal government.”[16]-- A shift in spending to save jobs By Henning Meyer guardian.co.uk,Thursday 17 September 2009

Is Krugman aware of this interesting measure?

“This story isn’t hypothetical. Country A is the United States, where stocks are up, G.D.P. is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a hit to its G.D.P. when world trade collapsed, but has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment.”-- Free to Lose  By Paul Krugman

“The alternative would be policies that address the job issue more directly. We could, for example, have New-Deal-style employment programs.”-- Free to Lose  By Paul Krugman

Failed attempts:

Apparently the promises of Obama celebrated and orchestrated by Romer and Summers with song and dance were not the right thing to do. Notice that tax cuts for corporations and a reduction in ‘fees’ and nasty rules not to mention  restraining unionism are not mentioned. The unions already had a version of this pay-for-no-work swindle at GM and the shrunken remains of Chrysler. It is customary to avoid any mention of tax cuts in the presence of liberals owing to their tendency to fall ill and desecrate the rugs and wall paper with certain aromatic effluviums.  We hear nothing to the effect that the stimulus was phony from the onset and destined to fail anyway as it only boated government with metastatic disease and failed to halt the unemployment rates even though the books were cooked to say so.

The Christine Romer Prophecy:

“…, even with the large prototypical package, the unemployment rate in 2010Q4 is predicted to be approximately 7.0%, which is well below the approximately 8.8% that would result in the absence of a plan.”[17][18]--CNSNews.com Monday, July 06, 2009

The Christine Romer Un-Prophecy: Did Romer recant?

“Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009,” Romer said. “By mid-2010, fiscal stimulus will likely be contributing little to growth.”[19]— Christine Romer Oct. 22

I thought we were at 10.2% unemployment and rising with no end to the misery. Is it possible the stimulus was only a seedy payback to loyal voters, SEIU thugs and to bloat government? The frantic effort to tell us that ‘jobs were saved’ is also a sick joke. Oh! NO, we saved jobs at only an expenditure of printed money to the tune of $92,000 per job![20] And, we only spent $24,000 per car on the Clunker Follies and a mere $43,000 on the housing scam. [21] Now, that is ‘government’ by liberal standards.

Success revealed:

“And that’s what the Germans have done. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.”-- Free to Lose  By Paul Krugman

Two points for Krugman! He has found a solution by probing the lower reaches for more socialism! Well, at least this does not involve the dreaded tax cuts and he does not have to denigrate the evil Tax-cut Zombies[22] ring for a while. We can just print money and subsidize lost work time! What an idea!

An analysis of this novelty:

So, on a theoretical basis and or illustration, we can assume we have a nation with a factory and in this widget factory we have some employees who are busy assembling widgets and then the sales drop so the manager decreases full employment to, say 50%, for 2 of his 10 employees and the government picks up the tab.  Now, “9” employees work fewer company hours to match the lower widget sales and the employer pays 5% less for labor. That works? We can thus assume that the good news must be that productivity is maximized or sustained [no idle hands and fingers] and that the general efficiency of widget production is maintained. But, since the government is now subsidizing the missing salaries for 5% of the workforce we wonder where this money comes from? If the entire state depended upon Widgets GmbH to fuel the total tax receipts then they now short 5% in revenues—are they not? Surely, the government cannot tax the employee at his full rate!  Or can they? This is not quite double dipping as one of the employees would have been laid off and those tax proceeds lost anyway and some unemployment expenditures would have been necessary.  There is something fundamentally out of step with business reality here. The government is subsidizing excess capacity! This is a farce. This is inefficient and must affect the tax rate or widget prices and lower tax returns from the widget company.

The empire either borrows money for  this 5% subsidy or prints more money or increases the taxes on the Widget company 5% higher to make up for the loss in revenue. How does this all work out? Is there an attempt to make this system tax neutral?

If the company is taxed 5% more on only 90% of production then that will probably tear away some profits due to economies of scale.  If the government prints 5% more money and uses that to pay the half idle employees  then the money supply increases by 5% and inflation comes along and the Widgets must be price elevated by 5% or else more workers have to be laid off.

Notice that everybody apparently loses by this scenario as there is no way to subsidize defunct or inefficient elements of business with government-derived tax funds without creating a greater problem.  Notice too that if one employee was laid off [instead of two cut back 50%] and received half his salary as an unemployment benefit then this would be a 5% loss to the system.

 I can only see a 5% loss [or more] here. Any suggestions on how go get around this?

But, who pays for this and how??

We already have ‘different’ [read different from socialistic] methods to encourage employment and growth and these two nasty words are tax cuts and fewer government rules and regulations.

The tax credit idea revealed:

“One version of the approach, to be unveiled next week by the Economic Policy Institute, a labor-oriented research organization, would give employers a two-year tax credit if they increased the size of their work force or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker’s salary.”[23]-- Support Is Building for a Tax Credit to Help Hiring By Catherine Rampell

Published: October 6, 2009 [Emphasis is mine in all quotes.]

The payroll tax is complicated and includes income tax withholding and Social Security taxes. [24] It is difficult to believe that ‘stringy strings’ would not be attached to any such program and that such entanglements would differ greatly from the TARPie’s Pox.[25] [26] CEOs taking this potentially poisoned pill might have their businesses constrained by those who whoop and slobber and squawk at the stars along with the mystical palm readers in our government and be subject to a mountain of paperwork and extra tax forms. The ‘savings’ offered under this plan is minimal as it costs many thousands to hire and train a new employee but when some business reasons compels a CEO to lay off an employee the reasons may be significantly other than just financial. What happens if the employer finds out that the employee is on drugs or a thief or an idiot? Do we subsidize this person? Probably so in the warped context of liberal thinking.  

Okay, let’s think about this tax  credit in Widget terms: If we really want to eliminate the federal tax proceeds of a new hire for 2 years and that tax is X [as above] then where does the money to replace this lost revenue come from?  For a company with 10 employees we now subsidize the new employee with the amount of their tax liability—some 40% or so counting FICA and FICM taxes. Thus, we have a 4% problem like the one we had at 5% under the Widget follies supra.

A critical inspection of this table and associated chart seems to make anyone wonder why we should choose the German system since the US unemployment rate is considerably lower from 1984 to 2008 [with one exception], a mere quarter of a century, but, then the lefties are not so excited when they survey the full facts and tend to cherry pick out jewels that give bit of scintillation to their notions.  This is part of their show-and-tell mentality where any bauble that sparkles or shines and could be traded for a lollipop is an instant advance in their culture.  Three such ‘discoveries’ of this galactic magnitude qualifies you for entrance into the Ivy League and start off with an independent study and a guaranteed  PhD in any area you wish or invent. This  full data range is not mentioned in the mumblings of Krugman in this little propaganda piece and only the last entries in the table seems to act as the magic  fulcrum that drives this approbation of the German system. All that was necessary to trash the 1980 to 2008 levels and elevate them to absurd heights would have been for the greens to have won control in Germany and instituted more of their phony EcoNazi[27]programs such as CO2 elimination.  And, that may come soon if they watch their British brothers closely and heed predictions of destruction such as bestowed upon the world their fearless leader the Princeling of Wails, or Flop Ears the Dolt.[28].

Maybe we should be different and start reading other economists other than Krugman or one of his tribe. Losing is not free in capitalism.

rycK

Comments: ryckki@gmail.com