September 10, 2010
Even During Painful Time, the Urge to Redistribute
To be fair, Kenneth Rogoff does maintain some balance:
While tax cuts enhance long-term productivity, expanding the government sector is hardly a recipe for economic vitality. There are surely many useful activities for the government to undertake in a market economy, but a frenzied orgy of stimulus spending is not conducive to rational discussion of what they should be. And of course, there again is the matter of the soaring national debt.
The problem comes with the reasons that Rogoff dislikes the tax-cutting solution. First, he argues against increasing public debt, which should only require that tax cuts be coupled with reductions in government spending.
A second problem with tax cuts is that they might well have only a limited impact on demand in the short run, with the private sector hoarding a significant share of the funds to repair badly over-leveraged balance sheets.
Here, Rogoff merely chooses to ignore human nature. Private sector entities with "over-leveraged balance sheets" will "hoard" until they feel secure, whether tax cuts help them to do so or not. They will also continue to be reluctant to hire and expand businesses, and by continuing to confiscate their resources through taxation, the government will only prolong this healing process. Moreover, Rogoff's central theme is that economic recovery is going to take "many years."
So, given the long-term recovery, why not go with a long-term solution? That's Rogoff's third and most mystifying reason for disliking tax cuts:
By some measures, nearly half of all Americans do not pay any income tax already, so cutting taxes skews an already very unequal income distribution. Deferred maintenance on income equality is one of many imbalances that built up in the U.S. economy during the pre-crisis boom. If allowed to fester, the political consequences could be severe, including trade protectionism and perhaps even social unrest.
Continued high unemployment and economic uncertainty won't cause social unrest? Rogoff should look around. Easing government confiscation from the half of the population that actually pays for it is unfair because the others contribute not at all? That's a truly remarkable sentiment; apparently it is the role of government to take from productive Americans merely for the sake of taking. And what's this about "maintenance of income equality"? I'd prefer maintenance of a bustling economy with plenty of opportunity for those willing to seek it. A moment's thought should lead any reasonable person to the conclusion that it's better to advance though others profit more than to wallow in stagnation.
Because he takes off the table tax cuts that would allow the private sector to repair itself at a more rapid pace, Rogoff winds up suggesting that the Federal Reserve should buy up government bonds and private debt. That means "printing money," which means inflation. I'm not a Harvard economist, by any means, but my understanding is that inflation would make it more difficult to pay off debt, generally. Thus, those who benefit from government handouts and who manage to sell their debt to the Fed would benefit at the expense of those — most likely throughout the broad economic middle — who must continue to pay off the same amount of debt with dollars that are individually less valuable.
Somehow, the question seems to come back to this: Is the redistribution of wealth worth continued all around hardship for everybody who isn't politically connected? It would seem to be one uberclass or another.
And what's this about "maintenance of income equality"? I'd prefer maintenance of a bustling economy with plenty of opportunity for those willing to seek it. A moment's thought should lead any reasonable person to the conclusion that it's better to advance though others [sic] profit more than to wallow in stagnation.
Never mind that in this economy there is clearly not "plenty of opportunity for those willing to seek it." You ask, what is it about income equality? For those that don't know it, it's a matter of natural rights.
Whenever there are in any country uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right." --Thomas Jefferson to James Madison, 1785.Posted by: Russ at September 10, 2010 10:21 AM
I actually think that buying private sector debt was one of the more promising ideas to stimulate the economy, at least at the beginning of the crisis. It would have simultaneously recapitalized the banks and removed part of the incentive for individuals to hold their money out of circulation. It also made sense if you took an overall view of society, where "we" would essentially be refinancing some of "our" high-interest debt at the much lower federal borrowing rate. It would still be unfair at the individual level and could have created a large problem with moral hazard if it weren't properly designed, but if you take a broad view it wasn't so bad. Now that the banks don't need the help, though, it is far less justifiable.
I do agree with you that his worrying that income inequality makes us vulnerable to protectionist demagogues makes no sense. Persistent high unemployment is a far greater problem in both the short- and long-term, so if we have a solution that would solve that but cause higher income inequality (or, as I like to call it, whining) we should jump on it. Overall, it comes down to the same perspective that advocates for absorbing private debt -- if we can add to our GDP by increasing one guy's income or reduce the national debt by reducing one guy's interest rate, we are all better off, as long as you don't spend all of your energy worrying about how you personally fared in comparison to that guy.
Posted by: Mario at September 10, 2010 10:36 AM225 years ago Thomas Jefferson could not have anticipated the "advances" in politics and government that would result in all new means of producing uncultivated land (unused capital) and unemployed poor. When government sets about enacting major legislation affecting the cost of labor (Obamacare) and finance (Finreg) in ways that are as yet not fully understood; When the author of the healthcare bill admits he doesn't even know what's in it; and when businesses can't be sure if the government is done changing the rules, either through regulation or legislation; then the only sensible course is to hold onto your cash and wait for the dust to settle.
Posted by: David P at September 10, 2010 12:07 PM225 years ago Thomas Jefferson could not have anticipated the "advances" in politics and government that would result in all new means of producing uncultivated land (unused capital) and unemployed poor.
There's some truth to that. But let's consider that Jefferson is arguing that extreme income inequality violates a natural right, that is those that are endowed by our creator, because these are things that every man would have in a natural state (without society). Would Jefferson really hold a different view of the nature of god? I'm not so sure. Something to consider when you hear "pursuit of happiness" defined as some abstract concept or as a type of social Darwinism.
Posted by: Russ at September 10, 2010 12:58 PMOnce again, the Liberal Fascist lies by misquoting Jefferson. Jefferson's letter to Madison is not about the benefits of government redistribution of income or wealth. It is about the tyranny of government insiders (in this case, the royal classes) holding enormous estates in a wholly undeveloped condition for gamekeeping and hunting parties.
The situation that Russ misquotes here is analogous to wealthy liberal municipalities passing open-space and zoning laws to prohibit development that would spoil the exclusiveness of their landscapes. Thomas Sowell wrote about this in much detail in his "Economic Facts and Fallacies".
You can't trust Leftists to tell the truth about anything.
Posted by: BobN at September 11, 2010 4:08 PM
""You can't trust Leftists to tell the truth about anything""
posted by BobN
Life must be a easier... with such a simplistic outlook.
"is analogous to wealthy liberal municipalities passing open-space and zoning laws to prohibit development that would spoil the exclusiveness of their landscapes."
This now extends to the exclusion of what their own beliefs call for: electricity-generating windmills.
I think windmills are a bad idea because they 1.) can exist only if consumers pay too much for electricity and 2.) exist to solve a non-existent problem (anthropogenic global warming).
Liberals who oppose them believe in AGW but have placed saving the planet second to the maintenance of a pristine view.
You know you're on to something when the name calling starts!
btw, that's not a misquote. I believe that what you mean is that I'm taking the quote out of context, but you're mistaken. And you've clearly never read the letter if you can hold that Jefferson was not talking about "government redistribution of income or wealth." In fact, that's exactly what he was talking about. Here's the preceding section of the text...
But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor... [my emphasis]
Disagree with him if you like, but don't pretend he didn't write it.
Posted by: Russ at September 13, 2010 1:12 PMThe earth is given as a common stock for man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be furnished to those excluded from the appropriation. If we do not the fundamental right to labour the earth returns to the unemployed.
Gasp! Did Jefferson just say that with private property ownership comes a societal responsibility to provide employment for all? Sing it with me! This land is your land, this land is my land...
Posted by: Russ at September 14, 2010 9:32 AM