Bernankulosis At the L.A. Times
The Los Angeles Times editorial board detaches itself from the oddly shaped conference table of reality and soars, borne on the ornithopter wings of Ben Bernanke's perpetual motion machine, with today's article "You can't fault the Fed: It's done its part to stimulate the economy. Now if only Congress would try harder."
The subhed contains the gist of the editorial: Monetary stimulus (expansion of the money supply) has proven to be a dud, so fiscal stimulus (shovel-ready work) needs to be the next step to recovery.
This is incorrect. Former chairwoman of the president's council for economic affairs Christina A. Romer lost her job (or maybe got her job in the first place) because she forgot this very discovery: Monetary stimulus may provide a temporary boost, but fiscal stimulus does not.
While conceptual errors like that one are more dangerous, seen-it-with-your-own-two-eyes errors are more fun to ridicule. What kind of Phillip and Nancy Garrido-style enclosure is Times publisher Eddy Hartenstein keeping my old friends in, that they react to plain daylight with the following degree of blinking incomprehension?
The real fault lies with Congress, which hasn't been doing enough to stimulate the economy. That's the loudest message from Tuesday's election. Voters weren't mad at Democrats for trying to stimulate the economy; they were mad at them for not doing it effectively.
It is no exaggeration to say that racism, homophobia, misdirected "voter anger," strafing of Mexican children, or any other irrelevant issue you want to name all provide better explanations for Tuesday's vote than this one.
But Fed-centric dementia is a crafty ailment. It expresses itself not in incoherent ranting but in a verbal empire of intricate dimension. Here's part of the ed board's detailed prescription for prosperity:
Rather than extending $700 billion in Bush-era tax cuts to individuals and partnerships with the highest incomes over the next 10 years, why not use some or all of that money to suspend payroll taxes for new hires for the next two years? That would be a growth-oriented tax cut. Or how about temporarily slashing taxes on foreign earnings that U.S.-based multinational companies bring into this country, then using the resulting spike in revenue to finance a payroll tax holiday or other stimulus effort?
That last bit makes no sense as written, but you can figure it out if you read the linked Wall Street Journal article by Cisco CEO John Chambers and Oracle president Safra Catz. (And I'm glad to see my old ed board pals have given up their fight against the advanced, job-killing "hyperlink" technology available to users of the World Wide Web -- the graphical and multimedia portion of the Internet.) The idea is that the government could lure multinationals to reinvest some of their overseas profits domestically by reducing the federal tax rate, from its current 35 percent to about five percent.
The tax cut is worth doing for its own sake, but taxes are not the only thing that makes the United States an unattractive place to invest. Inflated labor costs, artificially high real estate prices, constrictive work rules and regulatory instability all make the United States a less competitive option than other land masses around the planet. That's why American companies do so much business overseas. It's true that if taxes were drastically lowered more money would get repatriated -- but nowhere near the entire one trillion dollars ($1,000,000,000,000) Chambers and Katz estimate American companies earn from their foreign operations. At five percent of a trillion, Chambers and Katz call that $50 billion in tax revenue. They can get away with giving the highest-of-high-end estimates because they're only making the case that a tax cut would bring in oodles of revenue.
But the Times is taking that figure and presuming it will be high enough to finance a "holiday" of some kind. This is the kind of subtle madness Bernankulosis causes: The victim puts a dream cart in front of a dream horse, and things work out in a way real life never does, because in a dream there is a place for everything.
