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.