The more you learn about how an economy actually works, or doesn’t work as was recently the case, the more you realize some supposed leadership types have no idea what they are talking about. Literally no idea.
Take for example Republican presidential candidate Rick Santorum’s scolding of Americans for their ‘immoral’ lifestyles and their tolerance of alternative lifestyles. Professor Robert Reich makes a legitimate point that Santorum may be scolding the wrong folks.
There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”
Meanwhile, Paul Krugman claims applying austerity policies in our current slump not only doesn’t work, but makes things worse. And of course Krugman supplies a link to a new academic paper about to be published that provides a factual based argument against austerity. Krugman says it’s the equivalent of the ancient medical treatment of bloodletting: A purge that instead of helping, makes the patient sicker.
Brad DeLong and Larry Summers have a paper in progress about fiscal policy in a liquidity trap; some of the analytics here. The bottom line, fleshed out with a lot of evidence, is one that others — including me and Christy Romer — have been arguing for a while: expansionary fiscal policy under these conditions doesn’t just aid the economy in the short run, it may well even improve the long-run fiscal prospect. And austerity may be self-defeating even in fiscal terms.
If this is right (and I think it is), austerity-loving pundits and policy makers really are like medieval doctors who believed in treating illness by bleeding their patients, making the patients even sicker, leading to more bleeding.
Meanwhile, over at Economist’s View, professor Mark Thoma highlights some recent work by economist Peter Diamond who, along with economist Emmanuel, believes the optimal maximum tax rate on income is somewhere between 50% and 70%.
…Diamond also pointed to some of his own recent research, with economist Emmanuel Saez of the University of California at Berkeley, which found that the optimal marginal income tax rate on the highest earners — those making $400,000 or more per year — is well above the current 36 percent, or even the 39 percent level that existed during the 1990s.
“The Washington debate right now is between the Bush and Clinton tax rates on the top,” Diamond said. But his work with Saez shows that a more efficient rate for raising revenue — without significantly deterring the wealthy from trying to earn more — is “somewhere between the tax rate at the top in Reagan’s first administration, which was 50 percent, and the tax rate at the top from the Johnson years up to the Reagan change, which was 70 percent.” …
And from a related article published from an MIT economics forum:
To be sure, the basic numbers on economic inequality in the United States are striking, as detailed at the event. In 1980, the top 1 percent of U.S. households earned about 10 percent of the nation’s income; today that top percentile receives about 25 percent of income. The top 10 percent of households accounted for a bit more than 30 percent of income from World War II until about 1980, but now receives 50 percent of all income
Beezer here. As Krugman always does, Thoma provides a link to the original article. Funny how these academics insist on linking to the underlying papers instead of making statements without proper research to back them up. Of course, if you don’t have any research to support your opinions it’s impossible to provide any. Austerity is exactly the wrong policy. We are not overtaxed, or at least the wealthy certainly are not overtaxed. And if anyone has displayed anti-social or immoral behaviour it’s been coming from the top down, not the bottom up. But none of this is about truth anyway. It’s all about power and suppressing competition. Not capitalistic, and not Democratic either.