A responsible voice

Thomas Cooley is the former dean of the NYU business school. He has written a column about the current economic debate which contains this essential nugget:

"In the U.S., by narrowing the focus of this discussion to the expiration of the Bush tax cuts, the administration has sabotaged our recovery. Uncertainty is the enemy of capital formation. From a business perspective the only thing that is certain, gimmicks aside, is that there will be higher taxes on the income from capital. Not only do we not have an austerity plan, we don't have any plan. We do have a commission on the deficit that is supposed to report by the end of this year. But keep in mind that the delay and uncertainty is very costly. This is not the Manhattan Project. Germany delivered a fiscal plan in weeks. The U.K. delivered a fiscal plan in weeks. There are three components of any feasible plan: spending (we need to spend less), taxation (we need to collect more) and distortions (we need a tax system that distorts fewer decisions). Sadly we never get to a discussion of distortions."

In short, Cooley is lamenting the lack of any real debate about economic policy that is not forced into incorrect and even silly comparments by the politics of the Administration. Stimulus is always presented as one-shot quick fix types of items: shipping money to states to temporarily support the wages of state workers; performing odd jobs that need doing and calling them shovel ready projects and the like. fiscal policy is just put off as too complicated to address. Tax policy is always focused on "targeting the tax". The market is never to decide in what to invest. The decision on where to focus investment is always to come from the government, the same government that has been so uniformly inept at promoting growth until now.

Think of the green jobs promotion. The US government has now pushed billions of dollars into these so-called green jobs. Right now, those jobs exist, but if the price of oil falls in the next year or so, many will no longer make sense. Indeed, only further government subsidies will allow them to continue. Eventually the market will defeat even the most determined effort by the government to keep them in place. In the 1970's the US Department of Energy created the Synfuels Corporation. This entity built plants in North Dakota to create gasoline from materials other than petroleum. When the world oil price fell, the Synfuels corporation was shut down. The truth is that the government should not be in the business of selecting winners and losers in the economy. These government selections are the distortions that Coooley is discussing.