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.

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