TOPICS IN POLITICAL ECONOMY

JOBS LOOKING FOR WORKERS: UPDATE

Another report on jobs looking for workers, this time in a lengthy, well-researched front page Wall Street Journal article.  Problem:  I don't think very many of the Occupy Wall Street types are trained/capable of doing them.

By one account, 83% of manufacturers report a "moderate or severe" shortage of skilled production workers to hire. At Union Pacific railroad a 27-year old who can install fiber optic cable is offered $48,000 annually plus overtime, plus a traditional pension. BA college degree not required.

Pass the word to high school administrators and counselors - and to parents of teen age children.

DEFICIT REDUCTION: THREE CHEERS FOR SENATOR TOOMEY

The clock is running out for Congress's "super committee" to come up with credible spending cuts and additional tax revenue to avoid disruptive meat axe cuts throughout the budget or "kicking the can" down the road, again, with very unpleasant consequences in financial markets.

There still is light at the end of the tunnel.  The good news is that forty House Republicans joined with 60 House Democrats in a letter to the Committee to urge it to  "consider all options for mandatory and discretionary spending and revenues" to reduce the deficit, over time, by $4 trillion.

In addition, some Tea Party types appear to have learned to how to add and discovered that even draconian spending cuts alone will not achieve desired goals.

The Toomey Proposal.These developments have now been followed up this week by super committee member Senator Toomey's eminently sensible proposal to raise tax revenues by almost $300 billion over the next decade.  This would be done largely by limiting tax breaks for those itemize deductions on their income tax returns. 

At the same time, the top tax rate would fall from 35% to 28% and the bottom rate from 10% to 8%. The net effect of the Toomey proposal is to raise taxes for individuals earning over $174 thousand and married couples making over $212 thousand and raise $290 billion in revenue.

Senatory Toomey's initiative follows closely the proposal developed by Martin Feldstein and his colleagues, discussed and advocated in this blog earlier in the year (April 19).

The Arithmetically-Challenged.  It is now liberal Democrats who appear to be arithmetically-challenged.  They don't understand that you can reduce marginal tax rates for upper income types and if you plug tax deduction loopholes at the same time, you can actually increase their total tax bill. Take a look at this post by a Daily Kos contributor, inspired by a New York Times article, for a sample of this illiteracy.

Let's hope that super committee negotiations will now revolve around the ratio of spending cuts to tax revenue increases. If liberal Democrats want more tax revenues and fewer spending cuts they should specify which remaining loopholes should be plugged.

Caveat: super committee members of both parties should not think they can outsmart financial markets by clever accounting tricks and dubious assumptions. Yes, the Greeks got away with it for several years, but they - and the rest of the Euro bloc - are now paying the price for that deception.

 

IS THE U.S. IN DECLINE?

The best "big picture" economic historian today is Harvard Professor Niall Ferguson. The favorite big picture topic of the day, "decline of the U.S." is explored in a recent and extremely well-produced 22 minute video discussion between him and Wall Street Journal editor John Bussey.

Alternatively, you can read the post on his web site which contains a summary of his analysis.  Here is an excerpt which contains most of his prescription to rejuvenate public policy in this country:

What we need to do is to delete the viruses that have crept into our system: the anticompetitive quasi monopolies that blight everything from banking to public education; the politically correct pseudosciences and soft subjects that deflect good students away from hard science; the lobbyists who subvert the rule of law for the sake of the special interests they represent—to say nothing of our crazily dysfunctional system of health care, our overleveraged personal finances, and our newfound unemployment ethic.

I take particular note of his last citation, suggesting that the European "dole mentality" is creeping into American life.  Ferguson does not buy the pessimists' argument that we are in an "inexorable" absolute decline. And he is careful to point out that there is little basis for alarm over rising living standards in China. But he makes a strong case that we are currently on a track where an absolute decline in the U.S. is a distinct possibility.

The full exposition of Ferguson's analysis is contained in his latest book, "Civilization."