Thursday 2 December 2010

Economics: it's all about optics -- 2 part special !

part 1
Well this is just shocking: Survey suggests Economic Action Plan didn't create many jobs

The Conservatives have long boasted that the Economic Action Plan helped save hundreds of thousands of jobs during the recession. But the parliamentary budget officer has found that the recipients of the money don't see it that way.
See, the Conservatives big problem here was pretending that the Action Plan was actually going to work. If they were smart, they would have instead said "look, we don't want to do this because everyone knows that Keyensian economics is a steaming pile of crap, but the Liberals, NDP and Bloc forced us to."

In case you don't remember, their economic update almost exactly two years ago contained no fiscal stimulus. They were going to let monetary policy do it's thing, and try to limit budget deficits. But, the opposition parties had a conniption and banded together threatening to bring down the house and form government. So here we are, billions more in debt with apparently few jobs to show for it.

So like I said, the Conservatives might have been better off implementing it in a more begrudging way. However, that would have been bad for us because, as the AWAP Economic Policy Division theorized last year, if -- if -- stimulus works at all, it works by creating more optimism: people see money being spent and they get encouraged that the economy is being kick-started and they spend their own money. That would all be undermined if the government admitted that it's policy was going to fail.

Bottom line: This stimulus package was never implemented to create jobs. It was implemented so that people could see the government implementing something.

Manitoba scrapped it's small business tax today. Back when they put this in the budget I questioned the benefit of doing it. I mean .. 1% .. is that really too onerous?

The old argument goes that we should help small business because they employ the most workers (besides the government, I guess), but could that be because we punish larger businesses for hiring workers with our regressive payroll tax? I encourage you to read Brian Gilchrist's new blog post that demonstrates this (and points out a blatant error with the CTV story). Small business may be the engine of our economy in Manitoba, but if I were a province I would rather be crusing around in a V12 Jaguar than putting around in a 2CV.

Besides, just how much does this really help a small business? How many jobs are going to be created by saving a business somewhere up to $4,000? I suppose if a small company was hemming and hawing over whether to hire another part time employee, this may tip them over the edge, but not all small businesses are cupcake bakeries. Many are individual consultants, accountants, etc. that set up as corporations for tax and liability purposes. They are unlikey to hire any new employees.

Also consider that all small business owners need to get paid themselves, and when they do get paid they get heavily taxed.

click to enlarge:

The government can pretend that they are friendly to small business owners, but that's really a bit of a myth.

The government can also pretend that they're interested in job growth, but that's also a myth. Our provincial neighbours have small business tax rates in the 2.5-2.4% range. Small businesses are not going to go flocking to other provinces if we tax them at 1 or 2%. If the government were concerned about jobs and economic growth they would instead focus on chipping away at the payroll tax. But reducing a payroll tax for big companies that earn more that $1.5m in income does not have the same panache as eliminating the small business tax for a bakery that makes soft moist oh-so-tasty cupcakes with colourful icing, and those little spinkly things on top. Mmmmmm.

How can anybody possibly disagree with reducing taxes on a cupcake bakery? It's impossible! ....Unless you're a twisted cupcake bakery hater.

Like I said, it's all about optics.

related: Dobbin


Gustav Nelson said...

Well said Peanut!

The sad part about the Action Plan is that people are buying into it and believing that it worked.

unclebob said...

panash or panache or something else but it is pure bs when the local bakery owner accidentally drank a little jonestown koolaid that was fed to him

cherenkov said...

Thanks Gustav.

Bob: yes, there was something seriously fishy about that news story.

Thanks for pointing out the spelling error. I reinstalled Firefox during my virus troubles and lost my spell check for some reason.

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