The Atlantic cites a 65-year study indicating that “tax cuts don’t lead to economic growth” (h/t Tom Hickey). On closer inspection, the study finds more specifically that tax cuts on the wealthy fail to promote economic growth while exacerbating inequality. This should not be surprising to anyone cognizant of basic macroeconomic principles, but to make that point is not to downplay the value of the study. Many have made claims contrary to the findings of the study. If we consider the effects of taxes more generally, our conclusion is likely to be less sweeping. The effects of taxation vary depending on what particular tax we have in mind and the context in which that tax operates. The matter can be considered both in terms of demand effects and so-called incentive effects.
Let me start, in reference to the title of this post, by apologizing to anyone who does not celebrate Christmas. If it’s any consolation, Christmas enthusiasts are just as likely to be offended by the post as anyone else. Being someone who considers himself neither atheist nor theist, agnostic nor Gnostic, human nor inhuman, even I am quite offended. If this is difficult to believe, it will be easier to swallow by the post’s end.
Male primates exhibited a wide range of mating behaviors during the eighties. Freewheeling, intimidation tactics, overconfidence, guilt trips, and wailing and gnashing of teeth all played their parts. The collective response to these advances was somewhat mixed. All this is evident in the pop music of the day.
Okay, I’m in holiday mode now, even though every hard-working blogger knows that there are no holidays for a blogger. If I think of something serious to post between now and the New Year, I will certainly do so, but sprinkled throughout will probably be a couple of posts fit for the silly season. Hopefully there will be some music, although I’m struggling to find anything sufficiently “on point”. Or maybe there will be a bit of film, or comedy. In the meantime, we will have to satisfy ourselves with a smattering of numerology. Actually, that might not be accurate. Whatever it is will soon become clear.
Most people have probably wondered, at one time or another, why national currencies gain wide acceptance. Why, for instance, do so many Americans choose to hold and transact in dollars rather than some other currency?
A currency-issuing government is not revenue constrained. It is always able to purchase whatever is available for sale in its own currency. This simple reality is partially concealed by a variety of contrived hoops through which modern day governments require themselves to jump. There are at least two different ways in which we can see past the confusion. The easiest way is to stand back and look at the big picture, both from the standpoint of logic and by considering the monetary and fiscal authorities as two parts of the same entity, the consolidated government sector. For the eagle eyed, this approach may appear to overlook potentially consequential details in the way governments actually spend. In practice, the monetary authority plays one set of roles, the fiscal authority plays another, and many governments have introduced various restrictions on the way in which the two can interact. The present post begins with a bird’s eye view of government spending, and then turns to a more detailed consideration of the way in which self-imposed constraints and convoluted operational procedures complicate but do not undermine the sovereignty of a currency-issuing government. The case of the US government is taken throughout as an example, but much of the discussion is also broadly applicable to other currency-issuing governments.
I’ve been pondering whether it is possible to reconcile a number of notions within the same economic story about long-run growth and accumulation:
- An accelerator-type determination of private investment;
- A possible tendency, under laissez-faire capitalism, for profitability to fall as accumulation proceeds;
- Capitalism as prone to financial instability;
- A state able either to attenuate crisis tendencies or, cajoled by democratic pressure from below, push the system beyond capitalism;
- A capitalist state able to “manage”, to a degree, the rate of profit.
It is possibly a tall order. The following is intended as just a rough sketch of what I have in mind. I might go deeper into some aspects of the argument in future posts, as it raises various questions, but think it would be better to catch any glaring faults now before carrying the exercise further.
An effect of being trained in mainstream economics but then encountering alternative approaches is to experience a growing realization — or at least a creeping suspicion — that most of what has been taught is the opposite of the truth. Even when the story told contains some truth, it is likely to have been turned on its head. Thanks to Kalecki and Keynes, for example, it becomes clear that demand (spending) determines supply (income), including in the long run. Spending, in a monetary production economy, must come before production can commence. Thanks to Post Keynesians, it becomes evident that loans create deposits, not the reverse. There could be no deposit prior to the decision to extend the first private or public loan (unless through government spending). Thanks especially to Sraffians, it has been established that profit cannot be a remuneration for (marginal) productive contribution. We can conceptualize profit as unpaid labor (Marx) or due to ownership (Sraffians, Post Keynesians).
[Preface. If this post seems confused, it reflects my own confusion. If at times it seems pessimistic, it reflects a sense of pessimism that not often, but occasionally, afflicts me. If its conclusion seems wildly optimistic, it is because in the end I am optimistic.]
On the left, it sometimes feels as if we spend a lot of time in a losing battle. When the general population rejects or shows little interest in our latest set of progressive proposals and votes for political candidates even more right wing than the last, it’s common to engage in a little hand wringing, accuse ourselves of having failed to devise or effectively articulate a practical vision, and go back to the drawing board wondering how we can do things better next time. Meanwhile, the general population continues along a well trodden path of embracing war, environmental destruction, extreme inequality, mass unemployment and mean-spirited attacks on the poor along with policies tinged with racist or nationalistic overtones.
Most economies around the world have been in the doldrums since the Global Financial Crisis of 2007/8 and the Great Recession that followed. Unemployment in some European nations has been at levels not seen since the Great Depression. Although the situation is not as dire in all nations, economic activity remains well below potential virtually everywhere. The result is needless human suffering.