20

The problem with Obama's carrots and sticks plan

President Barack Obama speaks in Las Vegas, Nev.

Kai Ryssdal: The housing plan the White House came out with today, follows in line with what the president proposed in the State of the Union this week -- trying almost anything to get the economy going again.

Commentator Amity Shlaes is a little worried.


Amity Shlaes: Carrot and stick. Stick and carrot. The pair represents an age-old tool for changing behavior. President Obama plans to build much of his election-year policy agenda around carrots and sticks. In Obama's world, businesses and business people are the rabbits in need of behavioral change.

Obama wants to reward companies that create jobs here in the United States. One of the carrots is a tax credit for companies that move operations back here. Another would double tax breaks for high-tech factories making products here.

These are juicy carrots. But the sticks put forward by Obama are hefty. The president wants to eliminate a tax break for moving expenses when a company ships operations overseas. He also wants to close a tax loophole that allows companies to move some types of profits to overseas tax shelters.

The president figures that businesses will tolerate the pain of the sticks for the reward of the carrots. He thinks if he pokes the stick in one corner, they'll hop over to the corner where the carrots are.

But the trouble with this argument is that the U.S. economy is not a rabbit cage. And business people -- entrepreneurs especially -- don't respond well to prods from a stick. Any stick. If they get a glimpse of the rod, they'll leap away for sure -- but it might just be to somewhere outside the United States. Our cage. And the carrots of cheaper labor there overseas might even be tastier.

Maybe the president is forgetting the goal, which is making the economy grow faster. Enough carrots, and businesses will grow. And they'll create jobs. But pick up even just a few sticks, and you won't get recovery. Instead, we'll all be looking at an empty cage and asking: Where are the rabbits?


Ryssdal: Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations. Take a second to send us your thoughts -- write to us.

About the author

Amity Shlaes is author of the biography “Coolidge,” and she directs the economic growth project at the Bush Presidential Center.
Log in to post20 Comments

Pages

What is really terrifying is the mentality that social security, medicare, and pensions could never go away. I love it when someone goes "it's against the law not to honor a contractual agreement like a pension plan!!!" Look, anyone can "agree" to anything for posterity; whether they can actually fulfill their part of the bargain is dependent upon so much. I can agree to pay you $1000 dollars a week for the rest of your life but if I run out of money or die- I can't fullfill the unreasonable contractual expectation. There is also the reality of perception. For example, I worked in a store where someone had mislabelled a case of Heineken Beer with 99 cents on it. A customer runs up to the counter with it and says: "you have to sell it to me for this price." I responded: "No, I dont because you know it's wrong." The same thing will happen with all these kickbacks and entitlement schemes; there will be no money to pay it and even the recepients will know it.

Information theory tells us that if the message being transmitted is known ahead of time with high probability, then no information is transmitted. I was reminded of this law when listening to the piece by Amity Schlaes. Speakers from certain think tanks can reliably be expected to deliver the following message: “The solution is lower taxes and less regulation. Now, what was the problem again?” Normally, there is some effort to make it sound like an analysis, creating a certain amount of noise in the transmission. By contrast, I found this piece refreshing in its candor. “I don’t really have anything to say about the economy, so let me just talk about rabbits.”

Thoughts on Amity Shlaes carrot and stick analogy, regarding Obama's efforts to encourage American business to re-invest profits inside the US- she doesn't really seem to discuss any sticks at all. Tax rewards are offered to keep jobs in the US. She interprets a common-sense withdrawal of tax rewards for off-shoring jobs as punishment with a stick, instead of just withholding a carrot. This illustrates an entitlement mentality on the part of globalized capital and its apologists. They deserve all sweet treats from government all the time, anything less is unfair punishment. They are entitled to ever greater profits, in an environment free of "uncertainty". They are entitled to cut the American labor force out of the picture altogether. Consequent loss of American purchasing power can be made up in the BRIC economies, or by marketing to our own 1%. American workers' and voters' interests lie in fair dealing with companies willing to accept profits earned by re investment in America. If companies insist on pushing to the bottom of the global labor market while stripping out and exporting capital created here, our response needs to be, ok, you're free to leave, but the wealth created by American workers in their domestic market stays here, via taxes or whatever other mechanisms can be created to allow workers in Omaha to compete for jobs with workers in Lincoln, not in rural Hunan.

Forget about a "driveway moment" as I listened this piece yesterday. This was practically a road rage moment. I practically frothed as MS Shales bemoaned the pure suffering of business. Thirty two years of absolutely nothing but carrots for Wall Street and business and they ran the economy and the country into the ground. Now we are supposed to give them more leeway, tax breaks, special privileges and coddling? I suggest that MS Shales see that old Jimmy Stewart movie, "Harvey", because the rabbit she imagines is far from hare raising which has gone on for 3 decades. How completely tone deaf a commentary that was.

Let us forget, for the moment, that Ms Shlaes has completely botched the whole carrot/stick/rabbit/horse metaphor. What she seems to be arguing is that we have an unlimited supply of carrots. Whenever we want carrots, they magically appear or, like money, they grow on trees.
That isn't the case.
Carrots must be dug out of the earth, sorted, washed, bagged and shipped to grocery stores. Usually by undocumented workers.
What Ms Shlaes wants to do is give the biggest, fattest, juiciest carrots to the biggest, fattest, juiciest rabbits hoping they will excrete jobs. I don't think that is fair to the rabbits who stay here, play by our rules and pay, in taxes, for the upkeep of their cages.
I seriously doubt Ms Shlaes has ever cleaned out a rabbit cage.

This commentary is a thinly-veiled threat that we've heard dozens if not thousands of times: If you don't give us a free ride, we won't give you jobs.

Well, they've gotten lower tax rates and an enormously larger share of the country's wealth, but they haven't created any jobs to speak of. They got their free ride but failed to deliver on their part of the deal. Thus the converse kicks in: If you won't create jobs, then no more free ride for you.

Actually, her threat is empty anyway: Chinese wages are rising and the workers are demanding to be treated like human beings. Indian workers job-hop their way to better pay. Meanwhile, US wages have been stagnant for 40 years. Your cost-effective workers are right here.

Warren Buffett and some others notwithstanding, one of our big problems in the US today is obscenely rich people who have no sense of responsibility or fairness. Ms. Shlaes' remarks exemplify this: She's (apparently) been fantastically successful, yet we must not ask her to share any of that vast wealth with the country that provided the opportunities and resources that she exploited so successfully. Entrepreneurs don't succeed in isolation, and it's most unbecoming when they pretend that they do.

It's crazy to ask taxpayers to pay corporations to move jobs overseas. Ms. Shlaes' words betray the attitude that the bottom 99% owes the top 1% something. All we owe you is a day's work for a day's pay. Fund the cost of moving your operations yourselves.

Removing tax breaks lets the decision-making process focus on the business case, not the tax implications. As any entrepreneur knows, it should be all about the business case. President Obama is on the right track both fiscally and capitalistically.

Comon' people (criticizing this commentary), lighten up! I don't know much about the history of carrots, sticks, rabbits, or donkeys, whatever, but I do see the metaphor and get her points -- that's all that matter. The message is delivered in a playful way. This is supposed to be half entertainment half informative.

ya know, Steve, alot of us get no chuckles out of a merry little public celebration of the death of what we thought was a durable social contract. We get a liberal education, then more training based on the job market, we start a little business, we expect to rise or fall based on our efforts. Big business sees opportunity to grow from profitable to more profitable by moving capital to markets controlled by authoritarian regimes that can still disappear labor activists, where they can dump untreated sludge in the rivers. No chuckles about losing our intended lives to that.

I honestly thought this segment was written by a high school student, the way she repeatedly misused the "carrot and stick" analogy. To find that "Amity Shlaes is a senior fellow in economic history at the Council on Foreign Relations" is, well, mildly terrifying.

This was really one of the silliest things I've ever heard on Marketplace. Please don't use this commentator again. The whole piece was badly conceived and whatever its point of view it was just a boring, bad, uninteresting rhetorical strategy.

Pages

With Generous Support From...