Incentives and the Working Girl

PAUL McGOULDRICK

Tax rebates, public service jobs, and the lengthening of the periods for which people are entitled to unemployment benefits are remedies for the current recession which will do more to kill than to cure. Even if politicians were unworldly altruists and hence disinclined to play games with public service jobs, the political realities dictate such high levels of pay ($9,000 a year is currently quoted for openers) that hiring more than a small fraction of the unemployed would bust the federal budget beyond the fondest dreams of Senator Hubert Humphrey. Tax rebates are as bad or worse because of different side effects. They are highly inequitable because they dribble nearly all of the individually small, collectively huge, cuts among those who keep their jobs during a recession. Practically none goes to the unemployed, who bear most of the burdens of slowing down inflation. And as the New New Economics of the monetarists has demonstrated, tax rebates and cuts have disproportionately small effects on employment because the additions to spendable income are nearly all offset when the Treasury sells bonds to finance the resultant deficit and hence crowds out private borrowing and spending. And if the Federal Reserve seeks to avoid this by purchasing excess bonds with newly created money—off we go into accelerating inflation, once again.

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Paul McGouldrick

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PAUL McGOULDRICK

Tax rebates, public service jobs, and the lengthening of the periods for which people are entitled to unemployment benefits are remedies for the current recession which will do more to kill than to cure. Even if politicians were unworldly altruists and hence disinclined to play games with public service jobs, the political realities dictate such high levels of pay ($9,000 a year is currently quoted for openers) that hiring more than a small fraction of the unemployed would bust the federal budget beyond the fondest dreams of Senator Hubert Humphrey. Tax rebates are as bad or worse because of different side effects. They are highly inequitable because they dribble nearly all of the individually small, collectively huge, cuts among those who keep their jobs during a recession. Practically none goes to the unemployed, who bear most of the burdens of slowing down inflation. And as the New New Economics of the monetarists has demonstrated, tax rebates and cuts have disproportionately small effects on employment because the additions to spendable income are nearly all offset when the Treasury sells bonds to finance the resultant deficit and hence crowds out private borrowing and spending. And if the Federal Reserve seeks to avoid this by purchasing excess bonds with newly created money—off we go into accelerating inflation, once again.