Paul Krugman has responded to my recent story on his promotion of the payroll tax cut. And he makes some very excellent points. Ultimately, he says the payroll tax cut idea is dead in the water because the Republicans have already rejected the idea:
“Remember, the Obama administration extracted such a cut as the price for its surrender on the Bush tax cuts — and it has been trying to get that cut extended, as the only economic stimulus it considers politically possible. And the GOP has turned it down flat.
How can that be, when Republicans love tax cuts? The answer is, they don’t. They love tax cuts for the rich. Tax cuts for ordinary workers, many of whom will be those hated lucky duckies whose incomes are too low to pay income tax, are if anything something Republicans dislike.
Also, the GOP is against any idea that (a) comes from Obama (b) might help the economy before the 2012 election.
Again, this is why you have to pay attention to politics. Straight economics is necessary, but won’t get you to the full reality.”
He’s right. The Republicans do not want to help Obama and they appear intent on enacting a game plan similar to what I described as their playbook for winning in 2012. But the fact that they’ve come out and rejected the tax cut in advance means nothing. For instance, President Obama made it pretty clear that he was going to reject any debt ceiling agreement that involved a balanced budget agreement last week. But you didn’t see John Boehner roll over like a dog and take his ball and go home. No, he turned into a bull dog and ultimately, the Republicans ended up getting something for nothing. THAT’S POLITICS. It’s called tough negotiating.
I completely agree with Dr. Krugman that the Republicans have no desire to help Obama, but that doesn’t mean you can’t get political with this issue, get tough and send a loud message to the American people that the Republicans are using politics as a ploy to avoid helping the American people.
The message is loud and clear at this juncture. America is not bankrupt. Bond markets are not concerned about solvency. We do not have hyperinflation. We can afford more aid. And at this fragile political juncture we can’t be choosers about how the deficit is increased (but we certainly need higher deficits resulting in an increase in private sector net financial assets). We just have to accept that any fiscal policy is going to be better than no fiscal policy or even worse, a drain as the stimulus from 2009 rolls off and acts as an austerity equivalent revealing a private sector still mired in a balance sheet recession. At worst, in 2012 when the economy is still weak, you can at least turn and say you tried something rather than just rolling over….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.