Knowing and Making

Barbara Kiviat at Time writes about the jobs bill Harry Reid is trying to pass: The bill would temporarily exempt employers from paying Social Security payroll taxes for new hires, and give a $1,000 tax credit for new workers kept at least a year. This type of move isn't really about creating jobs, but about accelerating those that would have been created anyway. (I've yet to find a businessperson yet who has said he or she would create a job out of thin air just to grab a tax break.) Not right. The point of tax breaks is to move the margin. Indeed, nobody will create a whole job just to get a $1000 tax break (let's say $3000 including the payroll taxes). But the case that matters is where the employer's gain from employing someone would have been $29,000 and the cost $30,000. A net loss, meaning no job. The subsidy changes the equation; the cost goes down to $27,000 - and suddenly it's worthwhile for the hire to take place. What's more, the government wil...

In two opposing ways, time is affecting global growth. The first is scary. So much of global growth is based on investment (50% of GDP in China!) that we are spending a huge proportion of our current efforts in hope of future return. The problem with future expectations is that they are incredibly volatile. Unlike ongoing present-day commitments or projects, our expectations of the future can easily change by 50% - in either direction - overnight. All it takes is a message in the media, spreading from one journalist or blogger to the next, and within a few days everyone thinks a disaster is coming. If a third of everything we do is based on working towards potential future returns, and our expectation of those returns falls by half, suddenly most of that investment no longer seems viable. This is the terrifying prospect - imagine a 20% fall in economic activity within a year with all the multiplier effects that would have. Enough to stop you wanting to get out of bed in the morning. Na...