September 6, 2011
New economic czar promises more of the same: Malaise
Persistent high unemployment is the most pressing economic problem. The official jobless number has been stuck above the 9 percent level for most of this year. The news that President Obama has picked Alan Krueger, a labor economist, to head the three-man Council of Economic Advisers ought to be good news. It should be a sign that the president is finally taking the jobs situation seriously – if only Mr. Kreuger’s academic research and his policy work didn’t suggest otherwise.
Mr. Krueger is associated closely with the ill-conceived “Cash for Clunkers” scheme, which granted a credit of $3,500 to $4,500 to trade in an older vehicle toward a new car, after which the used models had to be crunched up. About 700,000 perfectly good used vehicles were destroyed as part of the program, but, according to Edmunds.com, 575,000 of the new car sales that resulted would have taken place even in the absence of the government incentive. The automotive news website estimated that the misguided program cost taxpayers a whopping $24,000 per vehicle sold. Apart from this direct expense, it’s not clear that the clunker project achieved its ostensible environmental objective of removing polluting cars from the roads. There certainly is no doubt that by reducing the supply of old rides, the program drove up the cost of used cars – something that hits the poor the hardest.
Similarly, the Social Security payroll tax cut of 2 percent was part of Mr. Krueger’s agenda. While tax cuts are a good thing, this temporary reduction was made for all the wrong reasons. Employers do not make long-term hiring decisions based on short-term incentives. Jump-starting job creation is going to require more than gimmicks.
On the academic front, Mr. Krueger co-authored a 1993 article with David Card that suggested an increase in the minimum wage did not negatively impact employment in New Jersey. Other economists have looked at the data and concluded that the exact opposite was the case. The extra cost for employers resulted in a decline in jobs in the Garden State.
The Princeton economist has mused over such disastrous policy ideas as the imposition of a European-style value-added tax (VAT) in the United States. Mr. Krueger hedged his views on the idea, but it’s not something worthy of serious consideration. In almost every country where it has been levied, it has added to the net burden on consumers. We’re not undertaxed. No VAT has ever replaced an income tax – it’s just a new tax layered on top of an old tax. As a consumption tax, a VAT disproportionately hurts the poor. A VAT wouldn’t even help solve our current fiscal mess because the eurozone nations already have VATs and they are no closer to fiscal balance.
Mr. Krueger doesn’t represent much of a change from the failed Carter-Obama fiscal policies that have America teetering on the brink of economic collapse. The Obama administration remains fixated on wealth redistribution and searching for short-term fixes to long-term structural problems. Expect the unemployment lines to grow even longer in the weeks ahead.
Nita Ghei is a contributing Opinion writer for The Washington Times.