John Tamny starts his attack with yet another episode of how stupid the writers at the National Review really are:
Clinton seeks to expand the earned-income tax credit (EITC). Though the credit was brought into the policy mix by no less of a free-marketeer than the late Milton Friedman, it should be remembered that income subsidies will only serve to expand the supply of lower-skilled workers. While an expanded EITC would add to worker pocketbooks with one hand, it would potentially reduce wages with the other as a rising supply of labor would chase low paying jobs and drive down incomes.
Let’s recast this in terms of the incidence of a subsidy. It is true that employers will get a portion of this subsidy in the form of lower wages but Tamny is trying to say that more than 100% of the subsidy would accrue to employers. He continues to confuse himself on other fronts:
On the subject of outsourcing, Clinton contradicts herself in decrying the movement of jobs overseas. This outsourcing is, among other things, the result of rising wage pressures at home, such that companies seek lower-cost labor elsewhere. Were firms to underutilize the finite supply of stateside labor with low-value work, lower pay would be the result since investors would be unwilling to pay a high price for something that could be done more cheaply elsewhere. Clinton forgets that without capital, there are no wages, and no jobs. On the corporate-taxation front, Clinton contradicts her push for higher wages with her desire to make “corporations pay their fair share of taxes.” She forgets that without profit, there is no investment.
If the first thing that a visitor from another planet had read on the U.S. economy was this passage, our visitor might have been led to believe that the U.S. under George W. Bush had undergone a rise in its national savings rate which drove up real wages. But real wages have not been dramatically rising – which is not surprising as the fiscal irresponsibility of this Administration has reduced national savings. If Senator Clinton wants to commit ourselves to the fiscal responsibility that we saw during her husband’s Administration, maybe we will see more savings and investment, which could restore real wage growth. But the readers of the National Review are not allowed to think in terms of the Solow growth model. Rather – they are asked to believe in the free lunch fantasies of Lawrence Kudlow and his ilk.