Don't Ask the Obvious...

Ezra Klein is a decent blogger for the Washington Post. He has scored several very good interviews including this latest with Glenn Hubbard. Unfortunately, even though he starts toward it with the high income vs. low income tax cut for growth question he still fails to ask meaningful question of this conservative economist, namely: "Why would giving a tax cut to an employer cause them to hire when they otherwise wouldn't?"

If hiring is the right economic decision then it is the right decision no matter what. If hiring is the wrong economic decision then it is wrong. Now, I realize that reduced taxes in some areas do affect how much it costs to hire a worker and that will shift whether or not hiring is the correct economic decision in a small subset of cases, and that even a small subset creates positive feedback (i.e. consumption) that will lead to more jobs at other places. But the areas of taxation that provide that benefit are NOT INCOME!!! Business side payroll tax deductions could do it, conversion to a single payer healthcare system could do it, and maybe some other business/corporate tax code cleanup/reduction could help, but personal income isn't it.

A reduction in income taxes to a small business owner does not reduce the cost of hiring an employee or the level at which that hire becomes economically justified. It only gives the already well off individual more money. That's it.

Further complaint about Ezra's interview, and that question and response in particular: Hubbard's theory requires that there is lots of demand, that companies want to hire but can't because, despite all this demand which should bring them more money, they don't have enough money. But since the problem is low demand, which means that no matter how much money a company has on hand, hiring may not be justified because...there is insufficient demand, then why is increasing demand the wrong choice?

The real answer is: Hubbard wants rich people to have more money, and sees the tax code as an easier way to do that than real economic stimulus.