Why Tax Increases Can Be Expansionary

In my quest to rationalise my desire for the state to control every aspect of people’s lives, I have formulated and collected together a few reasons that tax increases may actually be expansionary. This is an ex post justification, in light of apparent empirical evidence that they don’t have the negative effects so often attributed to them.

To understand why tax increases might be expansionary, we don’t have to abandon the logic of ‘econ101′ entirely – that is, if you reduce the reward somebody gets for doing something, or increase its cost, they will do it less. However, a couple of real world mechanics – which are omitted from economic thinking – can use this logic to conclude that tax increases could potentially be expansionary:

(1) Many productive activities are tax-deductible. Profits that are reinvested are not taxed; similarly, corporation tax is deducted from the cost of employing someone. So the higher these taxes, the greater the incentive to engage in these activities. There is potentially a point where the negative impact of the tax outweighs these positive effects, but we don’t appear to be anywhere near it.

(2) Economic rents are highly pervasive, particularly at the top. Taxing this activity discourages it and hence encourages productive activity. According to Michael Hudson, this was the intent of the original income tax. A clear example of this effect is the Land Value Tax – if landlords are charged for sitting on their land doing nothing, it encourages them to make some money, or sell the land to someone who does.

There are also some other mechanisms that suggest tax increases might be expansionary, some of which I have explored in earlier posts:

(3) The fact that the income effect is stronger than the substitution effect can mean that higher income tax makes people produce more; that is, when faced with higher taxes, people will have to work longer hours to recoup their post-tax income. This adds to gross national product.

(4) Cutting taxes at the top can simply inflate the price of positional luxury goods and hence do nothing to help real production; if that money were redistributed, it would be spent on ‘normal’ goods and hence have more impact on growth.

(5) Governments can spend your money better than you, so higher taxes and spending will increase the productive potential of the economy.

(6) Another interesting proposition from James Kroeger: tax and spend means more money is spent.

The crux of the argument is that it is reasonable to say the population as a whole has a Marginal Propensity to Consume (MPC) of less than one – they save some of their income. The government, on the other hand, has an MPC of at least one. Hence, should money be taxed and spent, there is a high possibility that this increases national income.

Kroeger also notes that people often confuse the expansionary effects of borrowing with those of tax cuts. To fund tax cuts, the government often has to borrow to sustain current levels of spending. However, in this case it is the borrowing that is expansionary, rather than the tax cuts. To truly see the effects of reducing taxes, we’d have to reduce taxes and spending by the same amount.

Another point worth noting is that, whilst taxes might have a deadweight loss in the area to which they are applied, the money that would have been spent does not disappear – it can go into other areas. In other words: if you tax cars then people might spend less on cars, but they’ll also have more to spend elsewhere. So taxes are more likely to change the composition of national income than the total.

Some of these effects are stronger than others; maybe some are negligible or based on faulty reasoning. But the overall combination of conflicting effects makes the story far less clear cut than the basic ‘econ101′ approach to taxes would have you believe.

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  1. #1 by SR819 on June 5, 2012 - 6:01 pm

    Interesting arguments, and as an undergraduate student I was never exposed to these sorts of ideas at all. According to all my lecturers, you can’t really make a positive argument for progressive taxation. There was this crazy model we were shown in macroeconomics where a proportional income tax decreases investment, decreases consumption, decreases the capital stock and decreases output not just in this period but in future periods as well. Of course we were also shown the conventional model of deadweight loss when adding an ad valorem tax.
    I cannot understand why the idea of a “balanced budget” multiplier is so unbelievable to economists. Let’s say the government taxes a certain amount and then uses the revenues to increase spending by the same quantity. Like you say, each pound the government spends gets spent, while the consumer will only cut back spending by a fraction of the decrease in spending. Surely the net effect will be a positive impact on output?
    When I tried to make this point to the lecturer once, he completely ignored the argument, and pointed out that a tax cut aimed at top earners will apparently shift the LRAS vertical curve to the right, increasing potential output in the long run. This complete disregard of other mechanisms that are much more realistic but go against neoliberal economists’ ideological viewpoint is why the subject is a complete pseudoscience and of as much value as astrology.

    • #2 by Unlearningecon on June 6, 2012 - 11:28 am

      Your economics education sounds awful. My professors are pretty moderate and it’s still pretty unbearable…

      • #3 by SR819 on June 6, 2012 - 11:45 am

        Yeah it was pretty awful. Every lecture was like a speech by George Osborne or Iain Duncan Smith. I was actually planning on doing a masters in the subject in my first year but 3 years of neoliberal indoctrination meant I couldn’t wait to finish studying this rubbish and begin the process of “unlearning” everything I’ve been taught (which is why I like reading this blog :))
        Another point about taxes is what Chris Dillow has mentioned on his blog and you allude to as well. If a CEO actually decides to stop working because of the a high top marginal rate of income tax, that is not the end of the story, because the firm would have to hire a replacement, who may end up being more productive than the previous CEO, and that may result in a positive effect on GDP.
        The evidence of the positive supply side effects of neoliberal structural reforms like cutting top taxes on growth is weak as well. From Dillow again,
        “… in the 22 years we had a 40p top tax rate, UK GDP growth averaged just 2%. That compares to the 2.5% growth we had in the previous 22 years – a time when the top tax rate hit 83% on earned income.”
        Of course the after the 40p rate was introduced, other supply side reforms were brought in as well, like weakening unions. You’d have thought that this was enough time to shift the LRAS to the right wouldn’t you?

    • #4 by James Kroeger on June 14, 2012 - 1:36 am

      When I tried to make this point to the lecturer once, he completely ignored the argument, and pointed out that a tax cut aimed at top earners will apparently shift the LRAS vertical curve to the right, increasing potential output in the long run.

      The only time that lecturer’s claim could ever be plausible is if (1) there are zero unemployed resources in the economy = full-employment, (2) the extra revenue collected by the government through its tax hike was spent, not on economic investments, but on mere transfer payments (in a full-employment economy!!), and (3) the money the wealthy would be giving up to the government would have been spent on real economic investments and not on consumption or on the bidding up of asset-prices in secondary markets = pure inflation.

      While I can’t fully embrace your astrologer analogy, I do admit that econometricians in particular do practice a variation of astronomy when they venture into the art-not-science of economic forecasting.

  2. #5 by john77 on June 5, 2012 - 7:31 pm

    i) The original income tax was only on unearned income of the well-to-do. I don’t know who Michael Hudson is, nor do I care, but it is a matter of well-attested historical record that the intent of the first income tax was to pay for the cost of the Napoleonic Wars – and it was repealed inn the first budget following the Battle of Waterloo.
    ii) The Americans you quote have (one hopes) failed to do their homework (if not they fail ethics 1010. Taxable income is not the same as gross income when the top rate is deemed excessive and there are complex tax codes as it is cheaper to hire a tax adviser. The income of higher rate UK taxpayers did not rise by more than 70% overnight when Howe cut the top rate of tax from 98% to 60%, but he *increased* tax receipts thereby and a lot of tax accountants and tax lawyers were made redundant.
    iii) The second paper talks about maximising “social welfare”, not GDP.
    iv) There is a vast quantity of empirical evidence that shows excessive tax rates *do* have negative effects
    v) Please enclose the first sentence in inverted commas to show that it is self-mockery, lest some libertarian takes it seriously
    vi) It is not actually true that profits that are reinvested are not taxed (although there are allowable deductions for certain of them under narrowly-defined conditions).
    vii) Karl Smith’s essay is wrong, firstly because he ignores the effect, widely observed in the real world, of DIY (one of the biggest growth industries in the private sector after tax consultancy and insolvency under New Labour) where individuals undertake unskilled work rather than a paying a craftsman to do a skilled job when tax increases reduce their income; secondly he ignores non-deductibility of expenses – for some commuters it makes more sense to stop working altogether than to pay for a season ticket out of a reduced after-tax income.Thirdly, he indulges not just in non sequiturs but in drawing a conclusion at direst odds to his stated data. Higher income people have increased their work relative to low-income people so we should assume reducing top tax rates has no effect!?
    viii) Marginal Propensity to Consume was *greater than one” under Blair/Brown. Household debt rose by more than ONE TRILLION POUNDS (net of that written off as part of the one million plus personal insolvencies in that period). Slightly punctures your assumption?
    ix) Governments “can” spend my money better than I, but we are not discussing the miniscule level of taxation required to fund the police force that would be required to prevent theft and murder plus armed forces sufficient to prevent invasion (sewage was funded by local government rates) so I am looking for an example relevant to a tax rate of more than 10p in the £
    x) More money is spent on bureaucratic paper-pushers collecting and spending the tax-payers’ money (and wasted by taxpayers filling in forms) – which *subtracts* from social welfare on any plausible definition thereof
    I agree that life is more complicated than econ 101 assumes, but please can you correct it to *some* people often confuse…

    • #6 by Unlearningecon on June 6, 2012 - 11:31 am

      This comment is just too much of a mess for me to offer a substantive response. You misinterpret some claims, veer off on tangents, throw a bunch of irrelevant partisan points at Labour and fail to see the big picture. It’s also completely unclear which parts of my post correspond to which of your roman numerals.

  3. #7 by SR819 on June 5, 2012 - 9:02 pm

    iv) There is a vast quantity of empirical evidence that shows excessive tax rates *do* have negative effects

    But all those papers are statistically dubious. They simply throw in a few regressors, include GDP/Capita as the dependent variable and run an OLS regression. Most economists have absolutely no idea of how to carry out proper statistical investigations and how to interpret your results, and the limitations of using these sorts of techniques to estimate the values of certain parameters. Moreover, people like Card and Kreuger have found evidence of publication bias in the Econometric journals regarding minimum wage studies (studies that showed no effect of the minimum wage on unemployment were not published). There’s probably something similar going on here, with only papers that show the negative effect of high tax rates getting through the filter. It’s hardly surprising given that the whole discipline is effectively serving the interests of Wall Street, so you wouldn’t expect any of the main journals to publish research that goes against their paymasters’ interests.

    • #8 by john77 on June 6, 2012 - 8:57 am

      The two papers quoted don’t actually show that they don’t!!
      Piketty Saez and Stantcheva draw a graph of GDP growth not against the top rate of tax but the *change over a period in the top rate of tax”, Diamond and Saez calculate the top marginal rate of tax on income by adding an average sales tax to federal income tax and ignoring state income taxes!! Then they argue for higher taxes to promote social welfare not GDP growth.
      There *is* a publication bias in most academic journals that limit publication to those papers that can stand up to peer review. *That* may be why papers showing no effect of minimum wage on employment don’t get published.
      Since I am in favour of higher top tax rates in the USA and UK, in order to reduce taxes on lower earners and/or the budget deficit, this doesn’t help my argument.

      • #9 by Unlearningecon on June 6, 2012 - 11:31 am

        Diamond and Saez was more about social welfare but I was referring to Mike Kimel’s work on the upside down laffer curve.

    • #10 by john77 on June 6, 2012 - 12:39 pm

      Mike Kimel’s paper is interesting but his analysis is seriously flawed by use of taxsquared as a substitute for delta tax and ignoring state income taxes. Total US income tax ranges from 35% in Texas to 48% in New York City. Clever trick to assume a quadratic because then you are bound to get a parabola as the solution. Also to ignore the impact of income tax on those on lower incomes.
      Statistically worse than dubious but pretty good as a blog post.

  4. #11 by James Kroeger on June 6, 2012 - 1:51 pm

    Good to see you taking on this topic, Unl…

    >>…if you reduce the reward somebody gets for doing something, or increase its cost, they will do it less…<like< taking home less after-tax income, but that is not the same thing as actually doing less, is it?

    A business-owner/manager finds out that the government will increase his company's excess profits tax-rate. Is he really going to start producing less product if demand is still there? He might want to cut costs even more, but since that is what he is always doing anyway, what is going to change?

    He might want to raise his prices to make up for the expected drop in after-tax profit, but doesn't a profitable company always charge as high a price as it can? If not, why is it still in business?

    The arguments against the minimum wage are similar. "They will just raise prices to make up for their higher costs!" Well, that might be their intention, and they may very well try to do so, but if they are in a truly competitive market, it ain't going to happen.

    "They will reduce their work-force!" Really? Let's say some fast-food franchise owner decides to reduce his staff to protest an increase in the minimum wage…it won't last long if any of her competitors decide to absorb the cost and continue to compete on quality of service.

    The owner/manager who deliberately understaffs her operation because of a tax hike is a fool because he is deliberately putting himself at a competitive disadvantage. Fast-food is precisely the kind of business that would be seriously affected by such decisions (long lines and poor service quickly inspire customers to go elsewhere).

    Everything about this argument has always been complete rubbish. How many firms treat the hiring of labor as something it decides to do "if the price is right this week"? Firm managers hire people ONLY if they need them to keep their business running well enough to satisfy their customers.

    They don't ever—save for temporary lulls in management oversight—keep more people on the payroll in a competitive market than they need to. They do not run charities, which is what their paid-for politicians would like you to believe.

    Look at it this way…if your after-tax unit costs increase, leaving you with a smaller per unit return, wouldn't your incentive—to make the most net profit you possibly can—remain exactly the same? Aren't you still going to try to sell as many as you can, as long as you are making any kind of per unit profit at all?

    I think the far more compelling argument is that increase tax rates on income actually motivate people to work harder, not less. Cutting the taxes of people/firms that are currently comfortable with their market share may inspire them to work harder (if they thought it would only be for a limited time), or it might do nothing of the sort.

    They might be just as easily persuaded to do nothing at all…except enjoy the extra income the government gave them for not doing a blessed thing.

    Keep up the good work, Unl…

  5. #12 by James Kroeger on June 6, 2012 - 11:32 pm

    “…if you reduce the reward somebody gets for doing something, or increase its cost, they will do it less.”

    This assumption is widespread throughout the conservative economic world, but it ultimately makes very little sense if you actually bother to question it. Yes, certain [highly-stylized] circumstances can be imagined in which the assumption appears to make sense, at least at first blush, but there are many other circumstances one can imagine where the opposite is true.

    For example, here in the U.S., many workers have been forced by chronic high unemployment and ‘competitive pressures’ to accept lower wages, but not surprisingly, this unhappiness does not translate into people quitting their jobs. (Especially true when the company cutting wages has long been an industry leader in that category—even with lower wages, it may still be better than most other alternatives).

    A business-owner/manager/would-be-entrepreneur may SAY that his incentive would increase if a higher return on his invested efforts were provided to him by the government, but would it really make any difference at all? I mean, if you’re already doing everything in your power in terms of your efforts to optimize your income, how much more than ‘everything in your power’ are you going to be able to summon up?

    In truth, most of the individuals earning the highest incomes in the private sector are already—and have always been—wasting no efforts in their pursuit of great wealth. They are not holding anything back. Increasing the net [nominal] return of people who are already quite wealthy is far more likely to persuade some to work LESS since they don’t need to produce as much to enjoy the same high income; at the margin, leisure becomes more attractive.

    If you were to increase their taxes instead, many would perhaps claim that they will work less, but would they really? If you are running a business, are you going to want to give up some market share because you are disappointed with your return?

    In business, you seek to sell as many units of stuff as you can, because your per-unit revenue exceeds your per-unit costs. In what way would shrinking that return give you an incentive to sell fewer units? Why wouldn’t it make you want to sell more?

    And what about business investments? So your after-tax income shrinks due to an tax increase…how does that change your incentives to invest, especially when your reason for investing is either to reduce your per-unit costs, or to achieve a competitive advantage over rival firms, or to avoid being left behind re: new innovations?

    It wouldn’t.

    • #13 by James Kroeger on June 7, 2012 - 9:58 pm

      You might want to read through the posts in this thread again…you may discover that we are talking about the impact of tax increases/cuts on the incentives of the wealthy—the only ones who are affected by the high marginal tax rates being discussed…

  6. #14 by rob on June 7, 2012 - 2:51 am

    Assuming that increasing taxes encourages people to work harder – would that be a good thing ? Without the tax an individual will choose a combination of leisure and working that maximizes his utility. With the tax he may choose a different combination that involves more work , but logically it affords him less utility than before. Total output may increase but these taxed individuals will be worse off. Others may be better off either because some of the tax money is redistributed to them or because they benefit from lower prices as a result of the increased output.

    Does that justify the taxes ? If you think it does then may I suggest that rather than bothering with taxation to achieve your (presumably light-hearted) attempt to “to control every aspect of people’s lives” you just support the reintroduction of slavery and control people’s working hours and output levels directly.

    • #15 by Unlearningecon on June 7, 2012 - 12:27 pm

      Without the tax an individual will choose a combination of leisure and working that maximizes his utility.

      Forgive the snark, but have you ever looked out of the window? This really isn’t what happens, individuals have very little control over their hours. I also object to the idea that people maximise their utility: it’s nothing more than an assertion that their acts maximise their utility, and how do we measure this? By looking at their acts! Circular. Also falsified by experiments such as this.

      Others may be better off either because some of the tax money is redistributed to them or because they benefit from lower prices as a result of the increased output.

      Or, potentially, the money spent on public services will do him more good than ‘working a job he hates to chase crap he doesn’t need’, to paraphrase the fight club view of advertising. Witness: Scandinavian countries generally have higher reported happiness than Anglo-American ones.

      • #16 by rob on June 7, 2012 - 3:02 pm

        I don’t think you can jump form the (correct) observation that people don’t live in a Rothbardian paradise where they can exactly choose the optimum balance between work and leisure , to the assumption that they have no control over it at all so the state needs to step in and work it all out for them. At the margin (which is where it matters) people can choose to work a second job/take overtime etc so these utility-optimizing choices are real even in an imperfect world.

        This is all predicated of course on the fact the we are free, utility maximizing individuals (albeit living under a lot of constraints – many of them introduced by the state) – but is that an unreasonable starting point ?

        I prefer the approach where individuals are free to find their own level of happiness to yours – where apparently its a competition between different state-systems to see which can provide the highest level of happiness to their citizens (actually I’m pretty sure that Stalinist Russia would score highly here – haven’t you seen those pictures of all those happy worker/peasants celebrating the success of the latest 5-year plan?)

      • #17 by Unlearningecon on June 12, 2012 - 3:12 pm

        It’s not about ‘working it all out for them’ – in the absence of the state, capitalism will have working hours as high as possible (demonstrated by all of recorded history). What it’s actually about is the state acting in the interests of the people and being the biggest bully, forcing capitalism to have reasonable working hours. The idea that the state is the only one with power is laced throughout your comment, and is simply false – employers are fewer in number, and many depend on wages to subsist, which tips the balance of power towards the former.

        These choices do not occur at the margin – they are lumpy. Working hours in full time jobs are generally inflexible, certainly downwards. Working hours in part time jobs are more flexible but at the same time the employee has certain constraints and can’t pick and choose his hours too much. The’ utility versus disutility of labour’ model completely ignores these rigidities.

        And being ‘free’ has nothing to do with being a utility maximising individual; the former is a value-laden, subjective term open to discussion, whilst the latter is an empirical proposition about human behaviour. Everybody loves a system where people should be free, it’s not specific to libertarians (propertarians). We just disagree that things like private property and contracts, which basically serve to strengthen the power of those who have resources over those who don’t, are the best path to this.

        Stalinist Russia is irrelevant.

      • #18 by john77 on June 12, 2012 - 9:32 pm

        Your ignorance of history and of capitalism shines like a beacon. The large majority of capitalists now and throughout recorded history are/have been self-employed with no non-family employees. .
        Even your pastiche of a capitalist would not have working hours as high as possible – he would have working hours that maximised profits, so stopping when an employee’s tiredness resulted in poor quality work. It is better from everyone’s point of view, including the capialist’s to have two or three eight-hour shifts than one sixteen-hour shift. You may have failed to notice that the main group affected by the European Working Hours Directive were junior hospital doctors employed by Aneurin Bevan’s NHS.

      • #19 by Unlearningecon on June 13, 2012 - 6:14 am

        Yes, the 18th & 19th centuries, with their short work weeks, low amount of industrial accidents, lack of child labour, and fantastic conditions, clearly demonstrate your point.

      • #20 by john77 on June 13, 2012 - 12:08 pm

        There weren’t any factories for the first sixty-odd years of the eighteenth century.
        Which rather does prove my point.
        You try to pick 8% of recorded history to say that I am wrong and one third of your hand-picked counter-example is a period to which your sarcasm is irrelevant.

      • #21 by Unlearningecon on June 13, 2012 - 3:29 pm

        Pedantry. I merely implied that in the 18th C, factory workers worked under bad conditions. That my examples do not cover an arbitrarily large period of time does not render them insufficient to demonstrate my point.

      • #22 by john77 on June 13, 2012 - 3:53 pm

        You claimed that ALL OF RECORDED HISTORY showed capitalism had working hours as long as possible. I pointed out that was inconsistent with recorded history. You then claimed that the eighteenth and nineteenth centuries prove your point, despite factories not existing for most of the eighteenth century.
        We are now down to your claim that one-third of the eighteenth century and part of the nineteenth century comprise *all* of recorded history.
        And that the vast majority of capitalists who have/had no employees have/had working hours as high as possible throughout history.
        I should never accuse the latter claim of pedantry – just insanity.

      • #23 by Unlearningecon on June 14, 2012 - 1:18 pm

        Oh come on – are you unfamiliar with a turn of phrase?

        Let’s get down to the crux of the argument: in absence of regulation and political pressure, history suggests that capitalism will have working hours high, conditions poor, and will happily employ children. Do you dispute this?

      • #24 by john77 on June 14, 2012 - 6:20 pm

        It seems that my thorough justification of a previous comment and information for the ignorant critic has been suppressed.

      • #25 by Unlearningecon on June 14, 2012 - 6:33 pm

        Believe that if you want but I very rarely delete comments, and never just because they disagree with me. You went on a bit of a rant – at one point you appeared to be suggesting you could beat me up and then proceeded onto some irrelevant anecdotes. It was simply a continuation of your semantic arguments to try and evade the indisputable fact that, in the absence of legislation, capitalism’s history with working conditions is incredibly poor.

      • #26 by john77 on June 14, 2012 - 7:32 pm

        Now try looking at the need for employers to offer better conditions in terms of pay and working hours and other matters in order to attract labour and then at Bournville and Port Sunlight and Letchworth and all the Almshouses set up by capitalists.
        Compare the treatment of children by capitalists and non-capitalists – maybe I went on a bit of a rant but capitalists have so much less evil that you need to know that.

      • #27 by Unlearningecon on June 14, 2012 - 7:36 pm

        Maybe you weren’t threatening me, but I still don’t see how any of this is relevant? I don’t want my comments section flooded by the same person.

        ‘Capitalists’ – at least most of them, particularly is this day and age – are not evil. There is no overarching conspiracy or puppet master. Having said that, capitalism as a system has historically proven to create bad working conditions, long hours and child labour, in the absence of democratic organisation and legislation.

      • #28 by john77 on June 14, 2012 - 8:35 pm

        And you then suppress my comment showing why your claim was ridiculous. If you confused 8 stone with 80 kilograms, that would be perfectly understandable and excusable, but smearing me is not.
        Basically I am pointing out that capitalism has over the last four or five millennia improved the living conditions of humanity and reduced the number of hours that men and women need to work to obtain a tolerable standard of living and you are, in the teeth of the evidence that the poorest in western capitalist societies have a better standard of living than the median in allegedly non-capitalist societies, alleging that capitalism, ipso facto, rather than a handful of unenlightened (stupid) employers treat employees badly.

      • #29 by Unlearningecon on June 14, 2012 - 10:47 pm

        My god John, it isn’t a conspiracy. You have repeatedly shown with your comments on this blog that you have a hard time staying on topic and keeping your comments – both in length and volume – to a minimum. I didn’t suppress your opinion because it made me look wrong; I deleted your comment because it meandered and made very little sense. If I were worried about looking wrong I wouldn’t start fights with people all the time, as I do.

        You have STILL not disputed the claim that working conditions in the 18th & 19th C were awful, because you know you can’t. Also the idea that peasants worked under anything like these kind of conditions pre industrial revolution is simply not true – they had a large amount of time off and at least some degree of control over their working conditions. This is why, in many cases, they had to be forced into factories.

        In any case, we are completely off topic. For future reference I will be moderating your comments if they meander too much and go off topic, as well as stepping in if you flood a particular thread, so try and keep it on topic and concise, please – I sincerely hope I don’t have to moderate anything.

      • #30 by john77 on June 14, 2012 - 11:31 pm

        OK – I accept that you have to limit my comments which can run to 40 pages. But saying that workers who *chose* to flock to the cities were “forced into factories” is plain stupid. [The game laws introduced by the Normans in the eleventh century were not, as you have previously claimed, part of a late-eighteenth century conspiracy.]
        I do not dispute that a few capitalists were greedy but Dickens’ “Mr Gradgrind” is not representative of the majority of capitalists and the evils that you attribute to capitalism are more common in non-capitalist societies. If you want to say that Blankfein or Diamond is greedy, go ahead but as a capitalist who, most of the time, employs no-one I find the slur that capitalism per se treads on the neck of the workers both ridiculous and offensive.

  7. #31 by gastro george on June 7, 2012 - 3:36 pm

    … individuals (albeit living under a lot of constraints – many of them introduced by the state) …

    Is it out of place to observe that more constraints are probably imposed by employers … and the availability or not of employment?

    • #32 by rob on June 7, 2012 - 4:17 pm

      1. Many of the constraints imposed on employees actually have their origin in legislation (much of it well-intentioned) that limits choice.

      2. People have the choice whether to accept employment (or not) if they don’t like the constraints. I know you will say that if the alternative is unemployment then its not much of a choice. However people do have the choice to set up things like workers co-operatives where there would be less constraints but on the whole they tend not to do this either in times of high or low unemployment.

  8. #33 by gastro george on June 7, 2012 - 8:41 pm

    Heh, actually I was referring to UE’s: “… individuals have very little control over their hours. …”.

    OK, it’s anecdotal, but you’ll probably find that that state gives you more choice in this respect than employers would in the absence of state intervention. I’ve been trying to get reduced (UK) hours for a number of years, and have always been turned down, most notably by a (French) manager who was in receipt of the 35 hour week plus generous parental leave thanks to the enlightened French state. And I’m in IT, which you would think would be more flexible. But, hey, that’s the real world …

  9. #34 by Mike Sax on June 8, 2012 - 11:42 pm

    Hey Econ! Spending enough time at Money Illusion this is the kind of heretical thought you don’t hear too much. To be sure I share your perverse desire to control every aspect of the economy.

    As far as the idea that tax hikes can be stimulative to me it matters what type of tax hikes you’re talking about.

    And the supply siders feel the same way. So Norquist doesn’t really hate all tax increases as he proved last December when he said it’s fine if the payroll tax cut expries.

    I would say that right off the bat it’s plausbie even from a negative inference-I can’t help but remember that the pre Bush tax cuts was much better than the post Bust tax cuts economy.

    One advantage we’d get if the Bush tax cuts expired is that we’d never have to hear any breast beating about deficits again either.

    If the Bush tax cuts expired, the rationale for deep spending cuts would be gone. So I’m with you and apprecaite you speaking such a blashphemy

    • #35 by Unlearningecon on June 12, 2012 - 3:25 pm

      Thanks. And may I say I enjoy your tireless efforts to bring Sumner into the real world.

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