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Showing posts from December, 2011

Political wisdom, fiscal malpractice

Political wisdom, fiscal malpractice. That would be my description for the much ballyhooed "payroll tax cut" supported by a bipartisan chorus of political leaders. The cut is good politics — and fiscal malpractice.

Let's begin with some basic facts on the payroll "tax" situation:

Most of us with 401K or similar retirement plans invest between 3% to 6% and employers match some portion of this contribution. That's basically how Social Security is also structured: the employee and employer contribute to the fund.

The previous and supposedly standard payroll deduction for Social Security is 6.2% of your first $110,100 of income. With the "temporary" reduction, workers are contributing only 4.2% of that income to Social Security. If you are self-employed, you normally pay 12.4% to Social Security, but with the "reduction" you are paying "only" 10.4% (the employer's 6.2% plus the employee's 4.2% rates).

The so-called "$…

Risky Simplicity: Debt is Growth

Some of my friends and colleagues in the "orthodox economics" camps have tried to make the case that debt is necessary at times for growth, or at least stability. While there is merit to this line of reasoning, it is also a risky simplification of economic realities. To argue their point, these traditionalists point to household spending.

One friend, a left-leaning political scientist with solid economics knowledge, described it thusly:
All of us assume debt to improve our lives, and government is no different. We take out loans on homes, cars, our educations, and to finance our businesses. Government has to do the same. You've taken on debt, I've taken on debt, and we did it for better futures. Arguments for a larger stimulus and more investment in some projects would have made sense ten years ago, but today those arguments ignore the experiences of Japan and southern Europe, where "investments" by the government did not revive flagging economies. I do pl…