Soaking the rich

by John Quiggin on August 22, 2011

Matt Yglesias[1] says

Many on the right and center indicate that in order to restore the economy, President Obama needs to do more to cater to the whims of rich businessmen. Many on the left feel that this is exactly wrong and that in order to restore the economy, President Obama needs to do more to stick it to the rich and dispossess them. History suggests that both are wrong.
He goes on to give plenty of evidence for the wrongness of the first proposition, and none at all for the second.

As has been pointed out many times, the Great Compression in income distribution during the 1950s and 1960s, driven in part by policies designed quite explicitly to “stick it to the rich”, was also a time of full employment and steadily growing economic growth. And, while the success of those policies made it sensible to focus on other issues, such as civil rights[2], rather than seeking to push economic redistribution even further, the situation is exactly the opposite today.

When the top 1 per cent have 25 per cent of all income and this share is steadily growing, a government that doesn’t soak the rich can’t do much more than spread the pain a bit more evenly, whether this means cutting services to balance the budget without higher taxes on the bottom 99 per cent, or squeezing out a bit of extra revenue to preserve essential parts of the welfare state.

There doesn’t seem to be much in the way of substantive disagreement here. In this recent post, Yglesias (if I read him correctly) endorses a top marginal tax rate of 80 per cent, close enough to the 90 per cent rate I advocated not long ago (this was really a rhetorical flourish, not an actual policy proposal).

So the problem seems to be one of strategy, but I’m not sure what it is. I admit that I can’t see a promising way forward at present (the revolts in Wisconsin and Ohio are the best signs), but I can see that reversing the flow of income to the top 1 per cent is a crucial precondition. I also can’t work out whether Yglesias is proposing to shelve the issue of income distribution and try to make progress on other fronts (a strategy I regard as doomed to failure) or has something else in mind.

fn1. It seems to be all Yglesias all the time here at CT, but this reflects the fact, in the current US scene, the groups with whom productive discussion is possible are quite limited. The right lives in a parallel universe and the Very Serious centre defines itself by the presumption that both right and left are, and always must be, equally wrong (Cass Sunstein bases his entire worldview on this presumption) . There is no point in debating specific issues with these groups except to the extent that it may be possible to convince individual rightists and centrists to stop being rightists and centrists. That leaves someone like me talking to neoliberals (in the US sense) on my right and to those to my left who are interested in positive discussions of policy and political strategy (a subset of a group that is not all that large in the first place).

fn2. In this context, let me point out the absurdity of the inevitable claim that the benefits of the Great Compression were only for white males. It was, of course true that, in 1950, Jim Crow ruled and women were subject to all kinds of economic and other discrimination, but these things were products of the highly unequal society in which they emerged. Racial and gender inequality reinforced, and was supported by, economic inequality. During the Great Compression, Jim Crow was swept away, the Voting Rights Act was passed, women gained the right to equal pay and protection against various kinds of discrimination. The Congress even passed the Equal Rights Amendment, which would have been another big step forward if the ratification effort had not been caught up in the rightwing reaction of the 1970s. The fact is that the Great Contraction produced more progress in civil rights, in the US and elsewhere, than any comparable period before or since.

{ 88 comments }

1

Matthew Yglesias 08.22.11 at 2:14 am

There’s just two different issues here. One is what needs to be done to return the economy to something resembling its pre-2008 full employment state. The second is what would be optimal tax policy for the long term.

In the post you linked to, I was talking about the first issue. In a different recent post, I wrote about the latest from Diamond and Saez on optimal taxation and they endorse the view that if you first did major base-broadening reform the federal income tax should have a top rate in the 70-80 percent range. I don’t see a serious contradiction between that view and the view that you don’t actually need to achieve this in order to obtain substantial reductions in the current unemployment rate.

2

Freddie 08.22.11 at 2:24 am

Part of the thing about Yglesias is that he posts so much and has done for so long that people are constantly writing blog posts in response to opinions he has already minorly evolved from. Which is good, in a context-free sense: it’s better that he constantly adapt than that he stick to a rigid set of beliefs. But it can be disconcerting to argue against him, or even worse, argue with others about his positions, because it isn’t hard at all to find two posts separated by mere months or even weeks where he expressed entirely inconsistent views. This is particularly a challenge given that he is so deeply opposed to stating first principles, constantly attacking such a thing as immaterial or irrelevant. The nice thing about principles is that they have a certain consistency to them, whereas the focus on policy above (and to the exclusion of) all else creates a lot of wobbling back and forth as you find new policy positions that you think better achieve the principles you refuse to argue.

3

Freddie 08.22.11 at 2:28 am

You’ll note, too, that a certain waffling on policy positions is probably a mark of an engaged mind, whereas if that happened with principles, we’d be talking about something more disturbing. So I don’t mean that as criticism, really.

4

Meredith 08.22.11 at 2:46 am

I’m struck by the (if you’ll pardon the word) rhetoric of “…cater to the whims of rich businessmen” and “stick it to the rich and dispossess them.” Well, what serious person wouldn’t think both positions to be wrong? Straw men, false either/or…. To tackle just one of these straw men: How about imagining the many people on the left who are more than willing, indeed eager to learn from experienced people in business (and finance — I’d distinguish the two), and who simultaneously believe that the rich should pay much higher taxes in order to promote the flourishing of the society that has provided necessary conditions for their enrichment? (In other words, no one is speaking of “sticking it to” the rich or “dispossessing” them.)

5

FuzzyFace 08.22.11 at 2:48 am

Top rate of 70-80%? And what happens when the founders of new businesses such as Google or Facebook decide that it now makes more sense to start their businesses in Australia or Canada or Israel or some other company then relatively friendly to capital?

A great deal of the prosperity of the 1950s can be directly attributed to the fact that we were the only industrialized democracy left intact after World War II. We had a monopoly in a lot of businesses. Auto makers could sell just about anything they wanted to, at just about any price, and there was plenty to go around, which meant their union workers could make a lot of money, too.

But now we have serious competition from Japan and Germany and India and other nations. We can’t control the markets as easily. Now the Internet lets people run businesses across countries easily. It would not be a major hardship for many countries to relocate their headquarters in another country if we tried to soak too much.

Tax the super-rich more, by all means. But make it “paying your fair share” (such as repealing the Bush tax cuts, for which they was never any good justification). But push too hard and we could lose all the revenues they currently pay.

6

hartal 08.22.11 at 2:49 am

I agree that we need productive discussion.

Yglesias as well as Rogoff has recommended an inflation target–I believe that this is MY’s main policy proposal to reduce unemployment; at his blog Faultlines Raghuram Rajan has raised some concerns about policy aimed to achieve it. I would love to read counter-criticism, but I don’t find engagement. Rajan’s complete fail on the issue of GSE culpability does not mean that everything he writes is wrong.

I have another concern. Given that the top one percent has made much of their fortunes on the basis of the workforces in their foreign operations and by providing financial services to the world’s wealthy, why should their wealth be redistributed only within the nation-state? America’s super-wealthy operates on a global scale.

There is another question I got from DeLong that Quiggin has not addressed. As I understand it from his National Review piece (congratulations by the way), Quiggin blames contractionary fiscal and monetary policy on bondholders. But DeLong has already pointed out that the super-wealthy have diversified portfolios and could suffer major losses in a second downturn. So how do we account for tight money and austerity policies?

7

sheenyglass 08.22.11 at 3:05 am

Google was founded by two Phd students at Stanford. As their income was low to non-existent, I doubt the top marginal tax rates of US even entered the equation; the cost of two plane tickets to Germany or Japan would have ruled it out even if it did. The existence of excellent the educational institution which brought them together was much more important. Billionaires may invest in companies that have been formed, but it is less clear that they create new technologies in their garage. Perhaps their butlers do that.

Also the idea of rich people moving to avoid higher taxes is seriously undermined by how many super rich people still live in NYC (with some of the highest taxes in the country – NY state plus city) compared to how many live in lower tax states. And that would be a move without a language barrier. Actually I think I might have read an Yglesias post make that very point.

8

Walt 08.22.11 at 3:27 am

FuzzyFace, how do you think a company like Facebook gets created? An entrepreneur alights from heaven and chooses which tax haven to bless with the miracle of firm creation?

In the particular case of Facebook, it was a success because it had people on it that other people wanted to link to, and this is entirely because it started at a place like Harvard.

9

Omega Centauri 08.22.11 at 4:19 am

I’m with Meredith and fuzzy face. Rhetoric such as “sticking it to the rich”, might play well in leftish circles, but is far too obviously a strawman that can be easily knocked down by the opposition. That and the fact, that anything over 50% really does feel confiscatory -especially to the centrists we need to carry! I suspect 50%, with maybe a comparable marginal rate for the inheritance tax, should help create some compression, as well as raise a lot more revenues than we get a present. This is far more along the lines of “paying their fair share”. Our society still thinks that getting rich is to be celebrated, and not punished.

10

heckblazer 08.22.11 at 4:46 am

If the US raised the top income tax rate to 70%-80% nothing would change for the founders of Google and Facebook. Their fortunes are from capital gains, and the tax rate for long term gains is currently capped at 15%.

11

John Quiggin 08.22.11 at 5:08 am

@MY I guess I still see a false equivalence here. The views put forward by the businesspeople you cite are just plain wrong while (on your account) those on the left are just putting their well-supported policy proposals in the wrong part of the agenda. I don’t think the term “restoring the economey” does the work you want here.

Restoring the economy requires both a short-run fiscal and monetary policy involving (among other things) large budget deficits and a credible plan for restoring budget balance (indeed surplus) in the long run. I can’t see how the second part can be achieved without a substantial increase in taxes on the top 1 per cent. It seems to me to be artificial to use “restoring the economy” to refer only to the short-term component of macro policy.

And even on the short term part of the policy, a fiscal stimulus financed by an inflationary expansion of the money supply would harm bondholders and help cash-constrained households, so it would also have strongly redistributive effects. That is, after all, a large part of the reason why the wealthy are resisting it so vigorously.

12

Matt McIrvin 08.22.11 at 5:13 am

@hartal, I think what Yglesias is implying is that they really don’t know what is good for them, like the champions of the gold standard in the 1930s, because of their subcultural biases.

An alternative that occurred to me is that the super-rich really care more about relative than absolute wealth; they’ll willingly take large financial hits if it’s needed to keep the rest of us down.

13

dictateursanguinaire 08.22.11 at 5:28 am

“the Very Serious centre defines itself by the presumption that both right and left are, and always must be, equally wrong”

Right on. This tendency is annoying and all too common. It rests of a view of politics that is truly bizarre – that somehow, the government is always going counter to the wishes of “the vast majority of this middle class nation” (in a way, it falls prey to Rousseau’s ‘general will’ fallacy, i.e. thinking that such a thing exists) – but, despite this rather radical conclusion, it’s consistently chalked up, not to power inequalities or corporate governance or structural issues, but “bickering” and “partisanship” and all these other issues which a) don’t show any causal mechanism b) have always existed, even during far more prosperous and equitable periods and c) conveniently lead to tepid conclusions that require nothing of the speaker. I’m not sure what this group wants; if they want policies traditionally (i.e. Golden Age) associated with “centrism”, they have failed to realize that, in today’s political climate, that sort of preference gets one tagged as a “far leftist.” Of course it’s possible that they simply have an incoherent and naive theory of politics that is idealistic to the point where anything wrong with the country is considered, ultimately, the result of human egos getting in the way of rational debate and nothing else. I don’t think a realistic and full grasp of history could lead anyone, no matter where they stand politically, to take such a heavily technocratic, sanguine view of politics.

14

Meredith 08.22.11 at 5:47 am

“There’s just two different issues here. One is what needs to be done to return the economy to something resembling its pre-2008 full employment state. The second is what would be optimal tax policy for the long term.” MY
There’s something so forceful about the two-fold claim here that you might almost forget that there might be a third position (or even a fourth, fifth…), and you might fail to notice the assumptions buried in the alternatives presented.
Why choose pre-2008 full employment state as a “return” goal? I assume MY is talking later 1990s’ through the Bush years, not, say, late 1950’s-early 1960’s (when I was still a child, but MY had not yet been born). What is an optimal unemployment rate (besides the unrealizable 0%)? And is employment in a crappy low-wage, no-to-minimal benefits job okay? Why talk a “return” rather than an aspiration to something better than has existed in the (US) past?
Indeed, what would optimal tax policy be? There are endless, honest difficulties to answering that question, but the fundamental one that MY never seems to address: cui bono?

15

Henri Vieuxtemps 08.22.11 at 6:51 am

And is employment in a crappy low-wage, no-to-minimal benefits job okay?

Well yes, I get the impression that to Yglesias it’s not only okay, but highly desirable. The barbers, cab drivers, and all the rest of the ordinary people should be placed in a highly competitive unregulated environment, so that more (hopefully all) of them are working, dividing the crumbs remaining after the innovative, technologically advanced, job-creating elite takes its share. Work is a virtue in itself, arbeit macht frei.

16

reason 08.22.11 at 7:19 am

Matt McIrvin @12
“An alternative that occurred to me is that the super-rich really care more about relative than absolute wealth; they’ll willingly take large financial hits if it’s needed to keep the rest of us down.”

It could be – because of the effect that James Kroeger keeps pointing out – that worrying about relative wealth is not irrational. If the things you really care about are in strictly limited supply (the best land, the best food, memberships in the best golf clubs), then increases in absolute wealth just increase the prices of these things.

17

Trost 08.22.11 at 8:04 am

@ John Quiggin

Trifles:
In the post you call the 50s/60s the Great Compression and in fn2 the Great Contraction. That kind of confused me, especially since Rogoff calls the current economic downturn the Second Great Contraction, which is entirely different from your Great Contraction/Compression.

And anyway, isn’t Compression way more fitting for what you mean than Contraction (being a non-native English speaker and too lazy to look even at an online dictionary, I’m not entirely sure of this).

D’oh! I’ll fix this ASAP

18

Tim Worstall 08.22.11 at 8:53 am

“Restoring the economy requires both a short-run fiscal and monetary policy involving (among other things) large budget deficits and a credible plan for restoring budget balance (indeed surplus) in the long run. I can’t see how the second part can be achieved without a substantial increase in taxes on the top 1 per cent.”

Growth perhaps?

Which, as the OECD points out, can be boosted by changing the tax mix, not the level of taxation.

http://freethinkingeconomist.com/2010/03/25/while-i-do-hate-the-argument-from-authority/

Tax immovable property and consumption more, incomes less and capital and corporations much less.

19

Cian 08.22.11 at 9:44 am

Without having time to read the OECD report, I’d simply point out that different people have found different things about tax composition. I don’t think particularly robust conclusions are possible on the matter.

20

Nick L 08.22.11 at 10:01 am

@12 & 16

Agreed, and the same considerations for intrinsically scarce goods apply to labour-intensive services. Many of the consumption goods that the rich purchase are in this category: fine dining, staying at luxury resorts, hiring ‘help’ (servants). The more equal and wealthy a society the more expensive these things are, as anyone who has holidayed in Switzerland or Sweden will know. So yes, it is perfectly rational for the rich to weigh the value of inequality (living like a medieval king surrounded by flunkies) versus the value of greater absolute wealth (more iphones and other trinkets).

21

john b 08.22.11 at 10:32 am

Following on from Hellblazer, anyone who makes a salaried income above a few hundred K is being vastly overpaid. They aren’t wealth creators – they’re lawyers, accountants, management consultants and investment bankers who parasitically transfer money from wealth creators to themselves; or they’re sports/movie/pop stars, who’re reliant on the media machine that requires them to be based in the relevant economy anyway (you can’t exactly be a Major League baseball player and live & work outside the US…)

22

Chris Bertram 08.22.11 at 10:33 am

One very good reason for businesses not to relocate is that if they did so they would lose the lobbying and protection (and potential bailouts in some cases) that they get from the government where they are located. When your lobbyist and protector is the most powerful nation on earth, that’s worth quite a bit.

23

Alex 08.22.11 at 10:35 am

Yes, the era of high VAT tax rates has been a real frenzy of growth.

The benefit of VAT over income tax is that income tax taxes savings twice. However, tax neutrality is only one possible good. Another is “British families not having to struggle putting food on the table while Worstall enjoys his siesta”.

As for growth? Short run growth requires a suitable Keynesian stimulus. In the long run (aside from being dead), growth comes through productivity rises, not savings.

And as for the idea of the rich upping and leaving if fairer tax rates were put in place, well aside from this problem being over-egged, for those leeches who prefer their wealth to humanity, there’s always capital controls.

24

Alex 08.22.11 at 10:40 am

One very good reason for businesses not to relocate…

Surely the problem of business relocation can easily be solved for most industries by simply eliminating multinational businesses. Such companies are either centrally planned (in which case are probably inefficient, and certainly unaccountable), or have internal markets. In which case, why not break them up, and make the internal market an external one, across borders?

25

Steve LaBonne 08.22.11 at 10:51 am

When your lobbyist and protector is the most powerful nation on earth, that’s worth quite a bit.

It always amuses me- well, actually infuriates me- that those singing paens to our Galtian overlords somehow always manage to overlook the fact that a high proportion of their revenue derives from direct government subsidies (there’s a reason why the DC area is recession-proof- there’s never austerity for defense contractors) or from rents (eg. government enforcement of lobbyist-designed intellectual “property” “rights”.)

As a class they give back to the country far less than they take from it. The lot of them can piss off to Somalia as far as I’m concerned.

26

Matt McIrvin 08.22.11 at 11:11 am

The servant problem was actually what I was thinking of.

I’m not sure it even has to take the form of a conscious thought that “we need to keep the economy shrinking so that the people will be desperate to serve us”. The people involved probably do think their favored policies will lead to greater growth. But the moral/aesthetic preference for tight money, low taxes and smaller social safety nets takes precedence over actual growth.

27

Pete 08.22.11 at 11:22 am

Alex@24: surely any business that sells across borders counts as a multinational? Would you ban people from having local sales forces?

The technology world is extremely dependant on multinational supply chains. It’s simply not feasible to have everyone manufacture locally, and it may not be feasible to express the desired relationship in an international contractual form. See various failed privatisations for why the contractual form matters; Coase was right.

28

Pete 08.22.11 at 11:32 am

On reading all the comments, suprisingly I agree with Tim that we should put more on property taxes. I’m also going to post a more radical idea: a tax on intellectual property. I’m not going to lay out too much detail, but it should be possible to specifically tax licensing fees (note that these are often used for tax avoidance in intra-company transfers), and it ought to be possible to tax submarine patents and abandonware back into the public domain.

29

Jack Strocchi 08.22.11 at 12:18 pm

Pr Q said:

It seems to be all Yglesias all the time here at CT, but this reflects the fact, in the current US scene, the groups with whom productive discussion is possible are quite limited. The right lives in a parallel universe and the Very Serious centre defines itself by the presumption that both right and left are, and always must be, equally wrong. There is no point in debating specific issues with these groups except to the extent that it may be possible to convince individual rightists and centrists to stop being rightists and centrists.

Interesting, Dr Knopfelmacher used to say the same thing about debating with Nazis (before the war) and Communists (after the war). I guess that this narrowing of the legitimate ideological spectrum represents moral progress of sorts. But its a bit sad, for all sides of the spectrum.

Pr Q said:

That leaves someone like me talking to neoliberals (in the US sense) on my right and to those to my left who are interested in positive discussions of policy and political strategy (a subset of a group that is not all that large in the first place).

Talking to neo-liberals and $2.50 will get you a nice conversation and a cup of coffee. But progressive political change? No.

There is another potential Left-wing group out there that has a spectacular record of policy success and a large, if amorphous, pool of potential political support.

I mean the nationalist Left. The Left that none dare name.

The nationalist faction of the Left is implicitly the most popular among the general public (look at the poll ratings for the Army, NASA, tariff protection etc). It was the political driver of Left-wing success in the US, during both the Progressive and New Deal phases. And the policy successes of nationalistic Leftism speak for themselves. Not for nothing was “nationalisation” the foundation stone of progressive statism.

But nationalism is now associated with oiks, red-necks, ockers and is therefore untouchable in the social status sense. That makes for impressive moral posturing but political impotence. Ever since the US Left abandoned nationalism (some time around the Vietnam War) it has gone into spectacular decline.

Its not as if the globalist Left has been anything more than a busted flush. After World War One, international communism was literally as useful as a hole in the head (ask the Poles!). And Left-wing multiculturalism is now showing signs of exhaustion.

The Left has nothing to lose by abandoning globalism, except a noisy and irritable gaggle of cultural special interest groups. With no general ideological program, beyond shaking down the sorry descendants of the WASPs. I bet they are sorry now!

In fact post-Cold War globalism, whether Left-wing or Right-wing, has been a big disappointment, at least for most Americans. US citizens have been repeatedly told how great the global game will be. But all they have to show for it is a mountain of debt to China, several unfinished wars in the Middle East and southern borders that leak like a sieve.

Maybe Orwell was onto something.

30

liberal 08.22.11 at 12:41 pm

Steve LaBonne @26 wrote,

It always amuses me- well, actually infuriates me- that those singing paens to our Galtian overlords somehow always manage to overlook the fact that a high proportion of their revenue derives from direct government subsidies (there’s a reason why the DC area is recession-proof- there’s never austerity for defense contractors) or from rents (eg. government enforcement of lobbyist-designed intellectual “property” “rights”.)

Exactly right. This should be the point of emphasis. Blithering on about some abstract notion of the rich’s fair share, or their obligation to that society which enabled them to get rich, is weak tea.

The fact is that the majority of the wealth of the rich was accrued via rent-collection. Soaking the rich has nothing to do with class envy or wishy-washy notions about the social contract, and everything to do with clawing back ill-gotten gains.

Not sure why Steve, though, mentions so-called intellectual property rights (which are worthy of mention, of course), and not the biggest source of rents, land ownership.

31

Other Pete 08.22.11 at 12:52 pm

I’m also going to post a more radical idea: a tax on intellectual property. I’m not going to lay out too much detail, but it should be possible to specifically tax licensing fees (note that these are often used for tax avoidance in intra-company transfers), and it ought to be possible to tax submarine patents and abandonware back into the public domain.

Can you say a bit more about this? I can see why it’s intuitively appealing – IP is impossible to move offshore, there’s a huge amount of basically unproductive patents being kept around for the purposes of squashing competitors, patents and trademarks have to be registered and are thus easy to tax.

On the other hand:

1) Would it work for copyrights?
2) How do you deal with inevitable “innovation tax” lobbying campaign?

32

Tim Worstall 08.22.11 at 1:02 pm

“Surely the problem of business relocation can easily be solved for most industries by simply eliminating multinational businesses.”

A bit harsh perhaps? To take our very small (3 people) business. An example transaction. We bought some raw material in one of the ‘stans. Refined it in Russia. Converted it (made an alloy from it) in Holland. Supplied the material to Taiwan.

How many companies should this be split up into? And do I need a different company if I use the Chinese or US convertors?

33

Dave 08.22.11 at 1:30 pm

The top 1% are paying the highest percentage of taxes in history. This is because the top 1% are taking home the highest percentage of top-line revenue in our nation’s history. If the top 1% want to pay less taxes they should pay their workers higher wages.

The problem with our economy is this: The Chinese have pegged the Yuan 6 to 1 against the dollar. This means a CEO gets six Chinese workers for every one American worker. It’s as if the commies came to this country and destroyed our factories with tanks and guns!!! If we pay off our national debt and all unions take a 95% pay cut it will still not make a difference. A CEO will still get six Chinese workers for every one American worker. Pegging the Yuan to the dollar is an ACT OF WAR!!!

No factories means no customers. We will have no economic recovery without manufacturing. Without a strong middle class our dollar will collapse. Marx said laissez faire capitialism is always followed by communism because unfettered greed would result in a government’s currency collapse. Once the government’s currency collapses, people in bread lines will demand MORE GOVERNMENT, not less. See you in the bread lines comrade!!

But do not worry, as soon as the Chinese Yuan is allowed to freely float against the dollar ALL our CEO jobs will be outsourced. Then the sons and daughters of privilege will have to grovel at the feet of the communist Chinese. Oh well, too bad. Can you say “gwai lo”, sure you can.

34

K. Williams 08.22.11 at 1:58 pm

“a fiscal stimulus financed by an inflationary expansion of the money supply would harm bondholders and help cash-constrained households, so it would also have strongly redistributive effects. That is, after all, a large part of the reason why the wealthy are resisting it so vigorously.”

John, do you have any evidence for this at all? Where is the evidence that the wealthy are opposing fiscal stimulus because it would hurt bondholders and therefore have redistributive effects?

35

Barry 08.22.11 at 3:05 pm

08.22.11 at 8:53 am

Another: “Restoring the economy requires both a short-run fiscal and monetary policy involving (among other things) large budget deficits and a credible plan for restoring budget balance (indeed surplus) in the long run. I can’t see how the second part can be achieved without a substantial increase in taxes on the top 1 per cent.”

Tim Worstall: “Growth perhaps?”

Since a major feature of the last few decades in the USA is that the fruits of growth go increasingly to the top few %, *and* that neoliberal/neoclassible economic reforms have conclusively failed, perhaps we should file such ideas (‘grow the economy and have a wicked good safety net’) into the trashcan where they should be.

36

K. Williams 08.22.11 at 3:09 pm

“Since a major feature of the last few decades in the USA is that the fruits of growth go increasingly to the top few %, and that neoliberal/neoclassible economic reforms have conclusively failed, perhaps we should file such ideas (‘grow the economy and have a wicked good safety net’) into the trashcan where they should be.”

Right, because the one stretch of time in the last twenty years when the US economy grew exceptionally fast (the late 1990s) also was a time when jobs weren’t created and the incomes of the working and middle classes didn’t grow at all.

Oh, wait, that’s wrong — actually the growth boom of the late nineties saw a huge number of jobs created and the incomes of every quartile rise. But I guess we should still toss the idea of economic growth as beneficial to workers into the trashcan.

37

Barry 08.22.11 at 3:19 pm

. Williams 08.22.11 at 3:09 pm
” Oh, wait, that’s wrong—actually the growth boom of the late nineties saw a huge number of jobs created and the incomes of every quartile rise. But I guess we should still toss the idea of economic growth as beneficial to workers into the trashcan.”

Nice strawman, but you seem to have gotten the straw from the cattle stables. My point is that you people are urging us to not consider distribution of growth, but just to maximize it, under two fraudulent claims:

1) The fruits will be redistributed, and
2) That the policies which you people support actually maximize growth.

Please note that the growth spurt in the late 90’s:

1) Followed tax increases which were universally opposed by the right, who predicted disaster,
2) Were supposed to stifle innovation and risk-taking,
3) Had *exactly* the opposite effects that the entire right (and ‘Econ 101’) predicted.

38

Pete 08.22.11 at 3:35 pm

@Other Pete about IPR taxes:
The politics of getting it implemented are very hard given how much governments are in thrall to IPR lobbyists on those issues. I think the best way is to point out that there is money in it to be had without increasing income tax.

A straightforward tax on licensing fees is the easiest to implement but doesn’t give you any other policy benefits and would probably result in screaming about destroying the creative industry. The question of location and jurisdiction is fiddly too.

For copyright, a compromise might be workable of short copyright terms for which extension can be bought for specific things. Combine that with a registry and there are real benefits to the abandonware situation: if something’s old, then either it’s in the registry, which makes it easier to talk about licensing, or it’s been definitively abandoned by the creator who believes there’s not enough value left in it to be worth registering.

39

K. Williams 08.22.11 at 4:29 pm

“Nice strawman, but you seem to have gotten the straw from the cattle stables. My point is that you people are urging us to not consider distribution of growth, but just to maximize it, under two fraudulent claims:

1) The fruits will be redistributed, and
2) That the policies which you people support actually maximize growth.”

“You people” — classic. Anyway, I’m not making any claims about either 1) or 2). I’m saying that the one period in the last twenty years when we had high growth rates — as opposed to the tepid recovery of the early-to-mid 1990s or the Bush years — was also a time when ordinary workers (down to those in the lowest quartile) saw their wages rise sharply. That is, the rising tide lifted just about all boats. So the argument that the benefits of economic growth will necessarily be captured largely by the top 1% is just empirically wrong.

“Please note that the growth spurt in the late 90’s:
1) Followed tax increases which were universally opposed by the right, who predicted disaster,
2) Were supposed to stifle innovation and risk-taking,
3) Had exactly the opposite effects that the entire right (and ‘Econ 101’) predicted.”

First of all, Econ 101 does not predict that small increases in marginal tax rates (which is what the 1993 Clinton tax hike represented) will have massive effects one way or the other, so using the economic boom of the late 1990s to discredit “Econ 101” is ridiculous. Second, the narrative is a bit more complicated than you make it out to be, since the boom was coterminous with the cutting of the capital-gains tax rate. Perhaps it’s a coincidence (it’s certainly possible) that cutting the capital-gains tax was followed by an enormous boom in capital investment and innovation, but it certainly doesn’t demonstrate that tax cuts on the wealthy are disastrous for economic growth.

40

LFC 08.22.11 at 5:02 pm

further to K Williams @35 —

Re the notion that a stimulus financed by an expansion of the money supply would hurt bondholders — how could it hurt them?
1) When the supply of money goes up, the ‘price’ of money — i.e., interest rates — should, ceteris paribus, go down. But interest rates (in the US) are already very low.
2) Or putting basically the same point a bit differently: when the gov’t “prints” more money, it perhaps doesn’t have to borrow as much (sell as many treasury bonds). But I would think this effect would have to be pretty big to hurt bondholders.

IANAE, so possibly the above is wrong.

41

MPAVictoria 08.22.11 at 5:10 pm

“So the argument that the benefits of economic growth will necessarily be captured largely by the top 1% is just empirically wrong.”

The above is not intended to be a factual statement.

42

Henri Vieuxtemps 08.22.11 at 5:12 pm

I don’t think, despite the bubble economy in the late 1990s, “ordinary workers (down to those in the lowest quartile) saw their wages rise sharply” is correct.

http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1967-2003.svg

43

LFC 08.22.11 at 5:22 pm

P.s. to my 41
I suppose, on second thought, JQ’s point is that increasing the money supply could lead to inflation which, by lowering the dollar’s value, would also lower the value of treasury bonds. But again, ISTM this effect would have to be fairly big to have an effect on bondholders in a context where inflation has been fairly low. Just guessing, really, but I’m not convinced that, e.g., Rick Perry opposes “printing money” b/c bondholders are whispering in his ear. More likely someone once told Perry that printing money was a Bad Thing.

44

ehj2 08.22.11 at 5:43 pm

There’s seven billion people here and we’re learning it’s a fragile small place. Some two-percent of us imagine they “own” half of what we measure as valuable. That’s a lot of rocking-the-boat potential in the hands of two-percent and we need to adjust that.

At the end of the day, there’s no such thing as “your side of the boat is sinking.” There’s nowhere else for the two-percent to go with the marbles they imagine are theirs. Those with half the capacity on a sinking boat should be doing half the work to fix it. They aren’t. We need to put a gun equivalent to their heads before the lower decks are flooded and there’s no bringing this ship back.

45

Steve LaBonne 08.22.11 at 5:45 pm

The problem is that they control the guns, real and equivalent.

46

K. Williams 08.22.11 at 5:58 pm

“I don’t think, despite the bubble economy in the late 1990s, “ordinary workers (down to those in the lowest quartile) saw their wages rise sharply” is correct.”

Are you kidding me? Look at the chart that you yourself linked to. Between 1996-2000, here’s gain in household income:

20th percentile: 11%
50th percentile: 8%
80th percentile: 10%
90th percentile: 10%
95th percentile: 11%

That’s about as even a distribution of economic growth as you can imagine, and it happened because the boom created jobs and brought wages up across the board. Extraordinary that you can post a link and then not even look at the numbers in it.

47

K. Williams 08.22.11 at 6:00 pm

Following up on LFC’s comments @41 and 44, I’d still like to see JQ offer up some evidence — any evidence — that the wealthy’s concern about their bondholdings is the reason why we’re not getting more fiscal stimulus. Bill Gross and Mohamed el-Erian, who run Pimco (the biggest bond fund) have been loudly calling for more short-term stimulus as well as saying any long-term deal should include more tax hikes on the wealthy. So again, where is the evidence that bondholders are the source of the problem?

48

ehj2 08.22.11 at 6:07 pm

Dear Steve, @46

The problem in my mind is they own all the words.

The whole premise of a free market economy is perfect and liquid information so that investors can invest wisely. What we have now is absolutely antithetical to intelligent investment in democracy, state craft, and world governance itself. We’re in some kind of weird self-destructive race to the bottom, in terms of everything. We all know there’s a Commons and we’re raping it as fast as we can.

I don’t think they’d shoot us if we voted to modify free speech just a little bit. They can buy their ads, but they have to begin and end with the words, “98% of credentialed scientists adamantly disagree with us, but we here at blah-blah-blah corporation think” whatever …

If they speak to economics, they have to actually reference supporting material from the Congressional Budget Office.

They have to include — and prominently at the bottom of the screen for the duration of the ad — a site link to which they publish academically credentialled data and get utterly smashed by some obnoxious Department of Homeland Security if said data doesn’t exist.

I’m sure this can be fleshed out better by political types (I’m an engineer), but validated knowledge widely disseminated has to be part of the solution.

49

Landru 08.22.11 at 6:10 pm

JQ: I can see that reversing the flow of income to the top 1 per cent is a crucial precondition.

Saddle up! But I’m very disappointed at the extremely narrow focus on tax rates as the first, second and third lines of offense:

@31: Soaking the rich has … everything to do with clawing back ill-gotten gains.

Clawing back ill-gotten gains is a fine leisure-time activity. But progressive taxation always struck me as a very blunt instrument with which to do this, like saying “it’s OK if some people cheat at the game, because we’ll claw their gains back later and restore something closer to a fair/just distribution.” Wouldn’t it be better and sounder in the long run if we instead try and make sure that fewer gains are gotten so ill-ly?

Where’s the discussion of how to reduce rent-seeking opportunities? and to have the wage system reward those who actually create wealth? (Was it on a different thread?) Better than blunt taxation, this would attract the good inventors, the kind who actually make things, while scaring away the rentiers and manipulators. If educated economists can’t suggest such improvements, then what are we paying them for?

50

ehj2 08.22.11 at 6:23 pm

Landru, (@50)

Well spoken. If educated economists can’t suggest improvements that encourage useful production, then what are we paying them for?

If we tax away the bulk of monies not earned via useful production, we’ve met your goal. And we’ve done it the simplest way possible and we’ve encouraged lounging coupon clippers to go do something useful.

51

ehj2 08.22.11 at 6:27 pm

Mia culpa.

Is “coupon clipper” the left-wing equivalent to right wing “Cadillac Welfare Queen.”?

Reagan of course invented the term and it was illusory (imaginary, fairy-tale, fantasy, a bald-faced lie) even when he said it to sell what he was selling.

But are there coupon clippers in this century?

52

John Quiggin 08.22.11 at 7:29 pm

@50 I agree, and I didn’t mean to imply an exclusive focus on taxation, important though that is. In particular, I see a contraction in the wealth and power of the financial sector as critical. I’ve written a fair bit about this and the broader social democratic agenda we need.
http://www.whitlam.org/whitlam/images/whitlam_perspectives_1.pdf

But there’s only so much you can cover in a blog post.

53

matt 08.22.11 at 7:38 pm

It’s absurd and stupid to suggest that Zuckerburg would have taken his Harvard roots and his Silicon Valley connections and jaunted off to Australia to start Facebook if US tax rates were higher.

54

Landru 08.22.11 at 8:39 pm

JQ @52: Thanks for the link; I’ll have a look. BTW, I enjoyed your book, so you can count yourself among the educated economists whose work is worth paying for!

55

ehj2 08.22.11 at 8:45 pm

Dear JQ,

At my age I don’t even know what the right words are anymore.

I’m so in your corner there isn’t vacuum between me and the rope, I’m so supportive of everything you say there isn’t dust I haven’t moved or dirt I haven’t stacked or damns I haven’t built. I’ve been around the world a few times.

Given a sudden discovery of alien weapons that might place me in charge, I’d give you the magical wand and bow out to the edges of the stars.

There are people who care about other people and you’re one of them.

I pray I’ve never written anything that made that unclear.

56

John Quiggin 08.22.11 at 9:11 pm

@ejh2 I was caught by the famous CT renumbering bug, replying to Landru. I think all three of us are in pretty close agreement!

57

roger 08.22.11 at 9:35 pm

I think, JQ, that your problem with the promising way forward has to do with the lack of the other strategic step. For surely the second part of the program is not using the tax on the wealthy to pay down the debt or something stupid like that – it should be coupled with radical tax decreases for the non-wealthy. A good Edgeworthian liberal policy is in order here, serving a very modest re-alignment of the American wealth profile – say shifting the national wealth belonging to the bottom eighty percent from 25 to 35 percent, and the wealth belonging to the top 20 percent from 75 percent to 65. And making this an automatic stabilizer kinda thing – whenever wealth inequality gets out of whack, we automatically raise taxes on the wealthiest, or loan money at below par rates to the non-wealthiest via the Government (since, as we should always and forever be pointing out, they so obligingly loan the wealthiest money at below par rates and they will do it even if it costs 16 trillion dollars).

58

Sock Puppet of the Great Satan 08.22.11 at 9:48 pm

“Google was founded by two Phd students at Stanford.”

In the Comp. Sci. faculty at Stanford. Where the professors drive really, really nice cars and are on first-name terms with the Sand Hill Road VCs and angels.

If the VCs at Sequoia said Google had to be HQ’d in Zug, it’d be headquartered in Zug.

[Awesome Epic Fail I found by googling who first funded Google: Excite’s CEO refusing to buy Page & Brin’s idea for $750K despite the urging of Vinod Khosla.]

59

mpowell 08.22.11 at 10:11 pm


Restoring the economy requires both a short-run fiscal and monetary policy involving (among other things) large budget deficits and a credible plan for restoring budget balance (indeed surplus) in the long run. I can’t see how the second part can be achieved without a substantial increase in taxes on the top 1 per cent. It seems to me to be artificial to use “restoring the economy” to refer only to the short-term component of macro policy.

This second part here, the credible plan for budget balance, I’ve heard this from JQ over and over again. But I still don’t get it. How does a credible plan for budget balance in 2015 matter one iota for what happens to the macro economy in 2012/2013? I mean, I’m pretty sure you don’t believe in Ricardian equivalence, is this your version of the confidence fairy? Is it a marketing campaign trying to sell hard keynesian to The Serious People? I think that I understand the problem that long term fiscal deficits are supposed to cause. I don’t understand how they are supposed to be a problem in the short term when our economy is in its current state.

If you think raising taxes on the wealthy will grow the economy in 2012, please say so. If you think increased fiscal stimulus will cause crowding out or excess inflation in the US economy in 2012, please say so. Or if you think there is some mechanism by which the projected deficit in 2015 or similar date will matter this year, the next or the following, please explain what it is. The explanation cannot be: well, we need budget balance over the whole economic cycle. Putting aside the debate of whether that is true in a meaningful sense, how would it create a problem for us in the short term if we are not adequately planning for this?

60

John Quiggin 08.22.11 at 10:56 pm

“The explanation cannot be: well, we need budget balance over the whole economic cycle. Putting aside the debate of whether that is true in a meaningful sense, how would it create a problem for us in the short term if we are not adequately planning for this?”

Isn’t it sensible to think about the long term as well as the short term?

61

Steve LaBonne 08.22.11 at 11:40 pm

Isn’t it sensible to think about the long term as well as the short term?

If my house is burning down, I’m not really all that concerned at the moment about how my pension fund is doing. There’ll be plenty of time for that after the fire is put out. Not to mention that there’s no effective way to bind the hands of future Congresses anyway.

62

Yarrow 08.22.11 at 11:49 pm

Couldn’t find the Whitlam social democratic agenda paper at the given link; did find it at http://www.whitlam.org/__data/assets/pdf_file/0003/82992/whitlam_perspectives_1.pdf

63

John Quiggin 08.23.11 at 12:22 am

On the point raised by Hartal and some others, I think that the way politics works here is that, most of the time, interests, rather than people, are represented. So S&P represents bondholders qua bondholders, while say, the Chamber of Commerce (I’m not fully au fait with the US scene in this respect) represents employers qua employers, even though there is a lot of overlap between the groups.

There’s a (somewhat slippery) analogy with the kind of identity politics in which people seek, with some success, to represent say “the gay community” or “the Catholic community” even though few of their supporters identify themselves exclusively with a single community of this kind.

And then there are the Republican and Democratic parties, which need another kind of analysis.

64

K. Williams 08.23.11 at 1:32 am

“On the point raised by Hartal and some others, I think that the way politics works here is that, most of the time, interests, rather than people, are represented. So S&P represents bondholders qua bondholders, while say, the Chamber of Commerce (I’m not fully au fait with the US scene in this respect) represents employers qua employers . . .”

But John, that’s not the claim you made. You didn’t say that bondholders had, in theory, an interest in opposing stimulus. You said that “the wealthy are resisting [stimulus] so vigorously” largely because fiscal stimulus financed by money-supply expansion would hurt bondholders’ interests. But you provide no evidence that the wealthy are, in fact, leading the opposition to fiscal stimulus, nor, for that matter, that the American “wealthy” care more about interest rates/low inflation than about economic growth. And this kind of vague, unsourced take on the American political scene by someone who is “not fully au fait with the US scene” is distressingly common here.

65

Borepatch 08.23.11 at 1:36 am

At what point do people demand any sort of efficiency (if you can use the word) from governmental agencies.

It seems that any time cuts are mooted, libraries and National Parks are the first things to get shut down. Nobody believes that the government has taken even first steps to spending the tax revenue more wisely, and so the “strategy” to get to 80% marginal rates starts from FAIL.

You’d think that if the public actually saw some “shared sacrifice” – and particularly the reduction of high visibility but idiotic governmental funding like NASA’s “Space Aliens are going to destroy us because of Global Warming” paper, you might be able to have this conversation.

Does anyone really believe that government – especially the Federal government – has cut back in any way? If not, why would anyone expect the public to support *anything* in the way of tax hikes?

It seems that the social contract is that people will pay for good government, and that government has an obligation to show that it’s performing.

66

Peter H 08.23.11 at 3:17 am

You’d think that if the public actually saw some “shared sacrifice” – and particularly the reduction of high visibility but idiotic governmental funding like NASA’s “Space Aliens are going to destroy us because of Global Warming” paper, you might be able to have this conversation.”

Actually, it wasn’t government-funded.

67

mclaren 08.23.11 at 3:23 am

To return the American economy to full employment in its pree-2008 state is simple: ban the internet, make computers and robots and software illegal, kill all the mathematicians and programmers, and burn everyone who mentions the word “algorithm” or “automation” or “expert system” at the stake.

Good luck with that, buckaroo.

68

Peter H 08.23.11 at 3:26 am

At what point do people demand any sort of efficiency (if you can use the word) from governmental agencies.

Does anyone really believe that government – especially the Federal government – has cut back in any way? If not, why would anyone expect the public to support anything in the way of tax hikes?

It seems that the social contract is that people will pay for good government, and that government has an obligation to show that it’s performing.

(1) If you don’t think state & local governments haven’t made significant cuts since the recession began, then you aren’t paying attention.

(2) Something like 60% of the federal budget goes to Medicare, Medicaid, Social Security & Defense spending. The idea that you could eliminate the deficit just by tackling waste & abuse has no basis in reality.

69

Peter H 08.23.11 at 3:26 am

At what point do people demand any sort of efficiency (if you can use the word) from governmental agencies.

Does anyone really believe that government – especially the Federal government – has cut back in any way? If not, why would anyone expect the public to support anything in the way of tax hikes?

It seems that the social contract is that people will pay for good government, and that government has an obligation to show that it’s performing.

(1) If you don’t think state & local governments haven’t made significant cuts since the recession began, then you aren’t paying attention.

(2) Something like 60% of the federal budget goes to Medicare, Medicaid, Social Security & Defense spending. The idea that you could eliminate the deficit just by tackling waste & abuse has no basis in reality

70

Peter H 08.23.11 at 3:27 am

At what point do people demand any sort of efficiency (if you can use the word) from governmental agencies.

Does anyone really believe that government – especially the Federal government – has cut back in any way? If not, why would anyone expect the public to support anything in the way of tax hikes?

It seems that the social contract is that people will pay for good government, and that government has an obligation to show that it’s performing.

(1) If you don’t think state & local governments haven’t made significant cuts since the recession began, then you aren’t paying attention.

(2) Something like 60% of the federal budget goes to Medicare, Medicaid, Social Security & Defense spending. The idea that you could eliminate the deficit just by tackling waste & abuse has no basis in reality

71

john c. halasz 08.23.11 at 3:39 am

“That leaves someone like me talking to neoliberals (in the US sense) on my right and to those to my left who are interested in positive discussions of policy and political strategy (a subset of a group that is not all that large in the first place).”

Really. Have you even tried? Aside from the fact that “left” neo-liberalism is an entirely fictitious construction of a basically center-right ideology, (and “Big Media Matt”, a paid opinionator for a DLC-type organization, is only “left” in the same sense that Megan McArdle is “scholarly”), have you ever really tried to engage with the more structural analysis to your left, like, say, maybe reading David Harvey?

http://www.lrb.co.uk/v33/n03/benjamin-kunkel/how-much-is-too-much

Is it that you attribute some magical intentionality to “policy analysis”, regardless of context, such that only those who respond in such narrow terms could constitute “worthy” interlocutors, which turn out to be DLC “policy wonk” hacks? Maybe this is a much more representative example of what center-left U.S. opinion is really like:

http://www.nakedcapitalism.com/2011/08/corrupt-obama-administration-pressuring-new-york-attorney-general-to-support-mortgage-whitewash.html

Or are you just engaged in the usual exercise of boundary-patrolling and hippy-punching, to maintain “political viability’?

72

Henry 08.23.11 at 1:06 pm

John – (a) there are quite a lot of people to our left who have interesting and useful things to say about politics, and John speaks to them, as to others. He may not always agree with them, but he does speak to them. Nor is it incorrect to observe that the US left is both small, and that many US leftists are not very interested in practical politics.His notion of who the interesting people to talk to on the left are may differ from yours, but that is not necessarily a fault on his part.

(b) it is rather rich to accuse someone of engaging in “the usual exercise of boundary-patrolling” in a comment which is itself an extended and quite explicit exercise in boundary-patrolling. And the “political viability” bit is complete and utter bollocks, as I think you’d realize if you thought about it for a moment coolly, rather than in anger – why on earth should an Australian social democrat, who rejoices in being attacked by the gutter press of his own country for being a dangerous Marx-tinged radical, _care_ about his ‘political viability’ in US political debates? I don’t want to sound too harsh but this really is a rather arsey comment.

73

mds 08.23.11 at 1:11 pm

To return the American economy to full employment in its pree-2008 state is simple

I’m with mclaren. If I had a time machine, I’d use it to go back to 2007 and stop the people who were about to invent both the internet and factory automation, thereby leading to the abrupt enormous increase in structural unemployment that began in 2008. Those jobs that were lost to computers trading CDOs ain’t coming back, baby.

74

Dragon-King Wangchuck 08.23.11 at 1:57 pm

re: false equivalence

I remember reading this left-right nonsense and going to make another mark in the negative side of teh ledger for BM Matt – then I noticed that he elaborated on that point the very next day.

Some people said I was drawing a false equivalence in yesterday’s post on the business attitude toward economic recovery measures, which I don’t mean to do. What I’m saying is that from a left-wing perspective, sometimes people have the mentality that a potential solution to a problem can’t be “real” unless the proponent of the proposed solution successfully identifies who the “bad guys” are who are plotting to strangle the economy for their own enrichment.

See, he didn’t mean to imply some sort of “both sides do it” nonsense, despite that being exactly what he typed. What he meant was there are some unnamed and unspecified kooks on teh Left that hate prosperity and think anyone with a seven figure net worth is some sort of super-villain that hates orphans and kittens.

Well who can argue with that? Certainly seems reasonable to me.

75

Robert 08.23.11 at 2:13 pm

I read John Q.’s comment about engaging or not engaging with the left as gratuitously hostile myself.

But I wondered who within the economics profession John Q. thinks should or should not be engaged as well. Some relationships may exist between certain tendencies in the profession and certain intervals on political spectrum. But such correlations are not tight enough, in my opinion, for this not to be a separate question.

76

Tim Worstall 08.23.11 at 3:38 pm

“The whole premise of a free market economy is perfect and liquid information”

It is?

Sounds slightly strange though. If we had perfect and liquid inflation then getting all the smart guys in a few rooms, heck a few office blocks, and having them direct the economy might just work.

It’s the very fact that we don’t and can’t have perfect and liquid information which means that such planning doesn’t work: thus we have to turn to markets instead.

77

mpowell 08.23.11 at 3:55 pm


Isn’t it sensible to think about the long term as well as the short term?

Wait a minute, so are you now acknowledging that sticking it to the rich is not important for the short term economic picture? That position makes a lot more sense to me, but there is really quite a big difference here. We are not talking about our ideal political policies here. Not always at least. Quite a lot of the time we are debating what needs to be done here and now to fix the problems facing us. And given the way politics works, it is always better to focus on fixing the problems that need addressing today because you’re only going to get so much of what you want.

The reason that I am trying to make a big deal out of this is because there is a huge lie being pushed around Washington these days, which is that we can’t solve our current problems until we solve our long term fiscal ones. I have never seen a coherent form of this argument which is supported by any defensible macroeconomic theory so I call it a lie. And it is a lie which is consistently pushing policy in the wrong direction, ie slashing government benefits and functions. You could probably say this is the reason for that lie. You’re not doing anyone favors by supporting this lie, which is what I believe you are doing when you do not clearly differentiate between policies intended to improve the long term fiscal picture and policies intended to improve the short term macroeconomic picture. Your suggestion is, in fact, that addressing the long term fiscal picture through tax policy will help the short term as well. But I don’t think you really believe this, so please stop.

78

mpowell 08.23.11 at 4:00 pm

@76: Time to review some basic economic theory. You can show that under certain conditions of perfect information, etc, that free markets give certain optimal results. Absent these conditions it’s just an open, unproven empirical debate for the most part. Once you give up perfect information, etc, you can’t rest on theory any more. You’re stuck in the mud debating whether in any given case free market distortions will be better or worse than government intervention. To a certain brand of libertarian, this is obstacle, but realistically it is quite a big deal. There is really quite a lot of evidence in favor of government intervention in a wide variety of cases, from the FDA to banking regulations.

79

Yarrow 08.23.11 at 4:16 pm

jch @ 71: Or are you just engaged in the usual exercise of boundary-patrolling and hippy-punching, to maintain “political viability’?

I’m to the left of John Quiggin, and pretty hippie-ish. (E.g., I think demonstrations with giant puppets are about as likely to contribute to major social improvements as electoral –or vanguardist– politics.) I don’t feel punched. Barely even snubbed.

Certainly better to have CT top-posters fixated on Yglesias than McArdle!

80

john c. halasz 08.24.11 at 1:09 am

Henry @ 72:

Well, Quiggin does definitely “boundary patrol”, especially to his putative left, though that’s scarcely unique to him. (It’s as old as Aristotle, assuming the mean between the extremes to prove your reasonableness: “I’m not a revanchist Trotskyist, nor a infantile Maoist, but an obedient Stalinist!”)

Be that as it may, I offered 2 links. The first one, for any interested readers, dealt with the long term structural issues, backwards, but then, by the same token, forwards. MNC/Wall St. sponsored globalization, combined with technical change, often in synergy, has through successive waves brought about a re-structuring of corporate rents and quasi-rents, arbitraging not just wages, but currencies, taxes, and regulations, which, of course, is behind the wage-suppression and growing inequality, such that we’re no longer in a “Fordist” era, in which unionized semi-skilled workers can leverage to gain participation in those pools of rents, but rather in a “Walmartist” era, in which those rent pools no longer exist, but have been stove-piped to the top. You’d think that such an analysis might be relevant to the topic at hand, but there’s no hint of it from JQ. And I could easily come up with a package of programmatic policy proposals , which yes, would include wage-and-income compression through the tax-and-transfer system, (though arguing over a 90% top income bracket is silly and trivial, rather than instituting a progressive consumption tax, i.e. a high VAT combined with a mostly negative income tax, and directly taxing wealth and not just income, among other reasons to dampen speculative tendencies). But that alone doesn’t answer to the underlying problem of the need to re-structure production (and CA imbalances), from which employment and those taxable incomes would derive. And even the most complete and well-considered such program wouldn’t have the slightest chance of enactment, which just brings up those questions of political-economy that JQ elides and evades: just why are all the worst policy options prevailing and much better policy analysis and knowledge being shunted aside? (JQ says he is against “financialization”. Sure, but when did he discover that? From his analysis of the “equity premium puzzle” or did that go the way of the “great moderation”?)

The other link was a clue to what the actual “left” climate of opinion might be like. And Yves Smith is an elite “insider”, (Harvard B.A. and M.B.A.), and, by her own account, a maybe slightly left-of-center middle-of-the-roader during the Reagan administration, but the political spectrum has since swung way to the right. (Incidently, she did excellent work in the build up to the crisis, which lots of us, though not the mainstream economics profession, foresaw, in explicating actual financial practices and economics, rather than Fama-type theoretical fantasies about them, whereas mainstream economic theory tends to abstract precisely from the realities of actual sectoral business and financial practices). It’s true that the U.S. left is amorphous and vaguely defined, (though one might start with Krugman at one end and gradually shift into further climates-of-opinion). But if you want to engage with it, maybe you should make some actual effort to find it, and not assume it’s not interested in policy or practical politics rather than excluded from it by the available “official” options. A good deal less condescension, please.

So Quiggin is attacked by the Murdoch press down under. Well, maybe that’s because, if I infer right, he has his own column and presence in the Aussie press. (Though I wonder just why he should care or bother with us USonians, since Oz is one of the few developed economies to have escaped recession in the GFC, no doubt from having been swept up into the Greater East Asian Co-Prosperity Sphere 2.0). But he did remark, on an Aussie blog called “Left Flank”, as an off-shoot of the same Marx commentary that he posted at CT, that he felt he wasn’t being sufficiently respected, especially by the commenters at CT. Sheer. Professorial. Superciliousness.

“Political viability” is just another way of saying “political strategy”(JQ) or “political theory”(HF). The flaw is in the assumption that there is some sort of “good” intentionality that policy analysis and proposals can appeal to, without any consideration of the power-relations in which they must needs be embedded. Which is to say, that such a concern severely constricts the available options and analysis. Which is why the likes of MY appear to be so sexy and appealing as interlocutors, despite their ignorance and inanity, as a result of both gate-keeping and network effects. (I actually waited for some other commenter to pick up on JQ’s implicit sneer, before finally posting a comment). Of course, CT has its own interests in such effects, and I do understand the academic dulce et decorum style, by which one can produce a stream of comments from vaguely liberal masters of the obvious and earnest rationalizers of the status quo. But,- and I think I’ve made such a remark here before,- setting up posts to argue with the center-right (or worse) blogosphere leads to a perversely self-affirming style of argument, rather than allowing for a perhaps more incisive discussion.

So maybe, in the properly pronounced language, I’m an arsehole. But at least it’s a conscientiously, even,-dare I say,- “authentically”, achieved status.

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john c. halasz 08.24.11 at 1:20 am

As to Egypt, this article is surprisingly good, given its source:

http://www.foreignpolicy.com/articles/2011/08/18/the_road_to_tahrir

But as to Ginis, even leaving aside their rough nature and the discrepancies and infrequencies in their calculation, there is little point in comparing them between rich developed nations and poor “developing” nations. Though to support BobbyMac’s point, from memory, here are some strings: Sweden, 24, Aus, 30.5, Canada, 32.1, U.K., 34, U.S.A., 46.7. On the “developing” side: Russia, 42, Red China, 47, Mexico, 47.8, and Brazil, 56, (down from 62). O.K., so where does the U.S. fit on this rough measure and why? (Big hint, it’s still the HQ of globalized finance).

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ezra abrams 08.24.11 at 2:05 am

I think there are two fallacies here
1) people are motivated by money. this is one of those commensense ideas that is wrong; in particular, I have spent the last 20years working in biotech startups, and most of the successfull people I have met (some 7 or 8 figure) are not motivated by money (although they themselves might deny it) what makes them succesfull is precisely that they are motivated by something else, like building their business.
2) there is a shortage of capital.
in fact, the opposite is true: there is an excess of capital

add to this the “i earned it, it is my money” and you can explain most of why taxing the rich is a good idea

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John Quiggin 08.24.11 at 5:22 am

At this point, I don’t think the boundary separating me from jch requires any patrolling.

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Tim Worstall 08.24.11 at 7:44 am

@78 “There is really quite a lot of evidence in favor of government intervention in a wide variety of cases, from the FDA to banking regulations.”

I don’t doubt at all that there’s evidence favouring intervention in certain cases. I’m not sure I’d use the current FDA as one of them though.

I’ve long argued, for example, in favour of intervention over climate change. Just a different intervention than the one that’s actually being tried. Which is where my real problem with government intervention arises: not that at times intervention isn’t needde, rather that the actual intervention we get is so appallingly counter-productive.

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John Quiggin 08.26.11 at 12:19 am

Very belatedly responding to mpowell

1. By “budget balance over the cycle” I mean “fiscal policy consistent with a stable ratio of public debt/net worth to total income”

2. Not planning for this is a big problem. You only have to look at the Bush tax cuts, enacted 10 years ago or so with a bogus expiry date to see the difficulties in entering into commitments that can’t be sustained in the long run.

3. I get the impression you have some more fundamental objection than those you are making. Maybe you can spell it out.

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mpowell 08.26.11 at 6:31 pm

@85: Hey, I almost didn’t check back in on this thread again…

Somehow we are talking about the same issue with quite a few points of agreement not on the big picture. I understand your position on the need to maintain a stable ratio of public debt/GDP over the long run and I agree with the desirability of promoting a tax structure that will make this feasible (w/o leaving the elderly to starve or millions without decent health care).

But what I would like to see are more voices clearly distinguishing between the long term picture on fiscal stability and policy actions that can improve the economy in the short to medium term. And I think this is particularly important because the elites in the United States are trying very hard to push the false narrative (for their own anti-egalitarian motives) that budget balance is a necessary component of short term economic health.

There is a rough division here between tactical political issues and the underlying economics. I don’t see any real need to raise taxes on the wealthy right now (unless this can be paired with a tax cut on the middle class) because, in my view, budget balance is about balancing resources produced with claims on those resources. Since most real resources cannot be saved, whether the government of the US generates more or less debt during a time of underutilization is not particularly relevant to achieving that balance at a future date of greater resource utilization. So I don’t see any underlying economic motivation to require deficit reducing tax cuts on the wealthy in the short term. On the political side, I can see some reason to believe this is a good opportunity to ‘soak the rich’, but the negative implications of talking up deficit-hawkery right now seem far more relevant and dangerous. What is your thinking on the matter? Is this just a political issue, as you suggest with your comment on the Bush tax cuts? Is it a short term economic one?

You also published an article recently describing your ‘hard keynesian’ position. And here again, you appeared to describe how your preferred policy would involve up front commitments by governments to run stable long term fiscal balances before short term stimulus could be discussed. The other rhetorical approach would be to emphasize the need for short term stimulus but follow by saying -‘okay, we still need long term fiscal balance of course’. And I think the latter approach would be more appropriate.

You may have the view that in the short term, yes, we really need to raise taxes on the wealthy for economic reasons. I don’t think you have this view, though I’m not 100% sure. But assuming you don’t, the primary objection I have here is your choice of emphasis and coupling of long term problems with short term ones. I don’t think it makes prudent policy-making more likely.

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John Quiggin 08.27.11 at 3:30 am

I think we are in furious agreement. At least in the EU context, Henry and I argued that a commitment to longterm budget balance was necessary to get Northern European support for fiscal stimulus in the short run. Feel free to argue the contrary before this one slides off the page.

In the US context, it’s a bit hypothetical. If we could get Obama to advocate anything decent and a majority in Congress to push it through, we would be in a very different world and political calculations would differ correspondingly. Maybe it would be better to focus exclusively on short run stimulus. Certainly focusing on that rather than a spurious ‘grand bargain’ with the Repubs would be a big improvement.

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mpowell 08.28.11 at 8:11 pm

Yeah, I guess I agree with your point on Northern Europe. That’s a much different political environment than the US. One take-away for me on Yglesias’ point though is that if US liberals get a grand bargain where spending is cut and taxes on the top 2% increased, this will most likely result in economic contraction, a Republican government and then a reduction in those top tax rates. I think we probably agree on this point, my position is that under those circumstances, it doesn’t make much since to criticize Yglesias here (since I think his argument was close enough in spirit to this point).

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