Willem Buiter and Anne Sibert are really tough on Barack Obama today, calling his Patriot Employer Act "reactionary, populist, xenophobic and just plain silly". Andrew Leonard doesn’t even attempt to defend Obama on the merits, instead painting this Act as a politically-motivated attempt to win Ohio and therefore the presidency.
Economists pride themselves on understanding how the world is. But doesn’t that imply that their calculus include political reality? …
Barack Obama is playing to win. This may dismay some economists. Maybe they should try winning an election in the American midwest in 2008.
In fact, though, Obama’s proposal, while hardly at the top of any sensible economist’s wish-list, is not nearly as harmful as Buiter and Sibert make it out to be.
Buiter and Sibert break the act into six parts. The first they admit would have very little practical effect, and the only harm would be an inchoate "contempt for laws and institutions". The second, third, and fourth parts they attack on identical grounds: that they would increase employers’ labor costs, and "not every employer in the United States can provide these subsidies and still make enough of a profit to stay in business". They don’t seem to have followed the minimum-wage debate very closely (small increases in a low minimum wage don’t seem to reduce employment), and in any case it’s perfectly politically defensible to say that people who can’t get by without paying their employees a living wage shouldn’t be in business.
The fifth part is the one saying that employers should continue to pay employees’ salaries when they’re members of the National Guard and called for active duty. Buiter and Sibert say this just gives employers an incentive to fire (or not hire) employees who are in the National Guard – something which is surely true at the margin, but no one knows how big an effect that would be. And finally, part six Buiter and Sibert actually agree with.
Overall, then, I think the amount of harm the Obama bill would cause is really rather small, and it might actually do some good for working families. Obama’s apologists don’t need to defend it on regrettable-political-necessity grounds, it’s actually reasonably defensible on its merits.
Update: The Economist is on pretty much the same page.