Interview with Economics Professor Sita Slavov

The following post is an interview with Prof. Sita Slavov.

Sita Slavov teaches Principles of Economics II, Intermediate Microeconomics, Economics of the Public Sector, Econometrics, Game Theory, Economics of Information, and a Core seminar at Occidental College. According to her bio on the Economics Faculty page of the Oxy website, "Her research interests include the political economy of intergenerational transfers and the design of Social Security. One of her current research projects examines the risk associated with privatizing Social Security compared to the risk present in the current pay-as-you-go system." She has written over a dozen published articles and working papers and served as a senior economist for the White House Council of Ecocomic Advisers from Aug.2007-June 2008.

Are you familiar with the recently passed HIRE Act? Do you think it will be effective?

It's hard to say how effective it will be. In general, temporarily
cutting the payroll tax for *all* workers is a good fiscal stimulus
policy. It encourages firms to hire and, compared to other kinds of
tax cuts, puts more money in the pockets of low-income individuals.
It's certainly better than large amounts of federal spending without
careful cost-benefit analysis (like a lot of the ARRA spending). But
I question the value of additional stimulus at this point. The
economy has started to recover, so to a certain extent, the credit
will go to firms who would have hired people anyway. That is wasted
money. Also, the HIRE act doesn't cut payroll taxes for everyone --
only for workers who have been unemployed for two months -- and this
can create problems. Ideally, an employer should hire the best
candidate for a job. Tax considerations should not influence this
decision. But the best candidate for a job may not be someone who has
been unemployed for 2 months. So, a firm may hire someone who is not
as productive just to take advangate of the credit.

What would you propose, if you were a legislator, to boost the job market?

If I were a legislator, I would give existing stimulus plans a chance
to work and focus on policies that strengthen the job market in the
long run. Taxes on income discourage work, and highly progressive
taxes discourage education (because the resulting higher incomes are
taxed more heavily). Federal taxes are highly progressive -- the top
20% of households pay more than two thirds of all federal taxes
combined. Taxes should be made lower and flatter. Lowering the tax
burden on investment can also increase investment and boost
productivity and wages.

What can the American public do that you think is important? What about business owners?

The American public can lower its expectations of government. The
same goes for business owners. The government is facing serious
long-run budget problems. Still, we want the government to fix the
economy, subsidize our car and home purchases, pay for our health
care, make us feel safe -- and not raise our taxes. But the reality
is that if we want all these "goodies" from the government, we have to
be willing to pay for them -- we can't just shift the entire bill onto
the few people who make more than $250,000 a year. Larger welfare
states and safety nets in Europe are paid for by higher taxes on
everyone, not just the super rich. We need to do a better job of
recognizing this basic tradeoff and stop expecting the government to
give us everything want.

Is there any way to increase job security so that this spike in unemployment would happen again?

Business cycles are inevitable, so it is almost guaranteed that we
will experience high unemployment again. There is very little the
President or Congress can do to prevent recessions. The goal for
policymakers should be to try to manage business cycles as well as
possible. They can try to reduce the severity of recessions through
monetary and fiscal policy, and provide a safety net (e.g.,
unemployment insurance) for those who are hit the hardest. Also, a
well-functioning labor market with minimal regulation can adjust more
quickly to changing conditions.