Monday, August 8, 2016

Bill Mitchell — Reducing income inequality

The recent political ructions such as the Brexit outcome in the UK, the popularity of Donald Trump and Bernie Sanders in the US, the growing extremist popularist movements in Europe and elsewhere, and the scrape-in victory of the incumbent conservative government in Australia at the recent federal elections, have been attributed in no small part to a growing resentment against rising income (and wealth) inequality. A ‘progressive manifesto’ has to address this issue and work out ways that the gap between real wages and productivity growth is eliminated so that workers can rely more on wages growth to fund their consumption growth rather than credit. This blog continues to discuss the elements of such a Manifesto and today we focus on the question of income inequality and ways in which productivity growth can be better shared.
Bill Mitchell – billy blog
Reducing income inequality
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Gary Hart said...

Tom Hickey: I posted on the post asking Prof. Mitchell why he didn't mention Reagan's tax cuts but he hasn't replied. Let me ask you a question. I have been reading MMT for over five years now and it seems that its proponents are shy about mentioning taxes. Is that the case or do they agree with a progressive income tax and taxes on economic rent?

Tom Hickey said...

Different MMT economists have different policy views relating to taxation and expenditure. These kinds of fiscal policy decisions depend on conditions.

I don't recall any of them making anything big of "economic rent" in those words. It’s not something they focus on as Michael Hudson does. They think that focus on economic rent is misplaced, but they are not against addressing its a policy issue either. They see the real issue as using fiscal policy to optimize employment of a society's available real resources.

Here is Warren Mosler on rents, which comes up in the comments at his place when he allowed comments and responded in "the good old days."

February 11th, 2011 at 7:34 am
I agree on the use of a federal property tax to replace most federal taxes.
As for financial rent, my proposals for the financial infrastructure eliminate most of what you’d be taxing, hopefully making that moot.
And as for monopoly rent, that’s all about effective anti trust regulation, etc.
So the only economic rent that ultimately lends itself to taxation is real estate?

Bill Mitchell has written against Henry George's emphasis on an LVT, arguing that the emphasis is in the wrong place.

This is the second part in my discussion about Henry George and Modern Monetary Theory (MMT). In general, there is nothing particularly incompatible between the introduction of a broader LVT at the Federal level to replace or reduce other taxes currently levied and the insights provided by MMT. However, once you understand MMT, you realise that the discussion of the design of the tax system is quite different than just raising income from the most ‘efficient’ means. The Georgists would do well to come to terms with that and demonstrate how a land value tax (LVT) would work to free up real resources to give the real space for governments to spend. There doesn’t appear to be any analysis provided by Georgists to calibrate the impacts on non-government spending of such a tax and how this would alter the tax mix required to maintain full employment spending levels and satisfy the socio-economic spending goals of government. There are other things that might be done as well (if not prior to imposing a LVT) which would reduce the likelihood of property price bubbles. Finally, the obsession with the single LVT as a saviour is in denial of the causes of recessions and the the role that financial capital plays in destabilising economic systems. A LVT alone will do little to resolve those problems.

Henry George and MMT – Part 2

Gary Hart said...

thank you

Gary Hart said...

Tom Hickey: Don’t you see the fallacy in not using a tax in order to keep the rich and the financiers (the rentiers) from draining the economy of its wealth? In a scenario where the government just adds more money to the economy with no direction to where it is going,the rentiers just capture the excess and maybe all of it if they can direct the flow to themselves. If they decide to take their money and go elsewhere, then the dollar will devalue leaving us with the inflation that we talk about so much. Take QE, the big banks got all of the money and inflated the asset market while the rest of went begging. Professor Mitchell did a great job of pointing out that income is key, but Reagan cut taxes for the rich and added taxes to rest of us and that was a big part of what the good professor is talking about. Would you agree with that? Tax cuts for the rich don’t go into the real economy but into the rentier economy.

Jeff65 said...

"In a scenario where the government just adds more money to the economy with no direction to where it is going"

Why would this happen? No one in mmt proposes this that I have heard.

Jeff65 said...

"In a scenario where the government just adds more money to the economy with no direction to where it is going"

Why would this happen? No one in mmt proposes this that I have heard.

Ben Jamin' said...

Of course LVT isn't about raising income to pay for public services. It is merely an equal share of the value that nature supplies for free. That we may or may choose to pool our share of the rent to pay for public services is a separate issue entirely.

An LVT would be a prerequisite for a peaceful and prosperous anarchy, where there is no State spending.

In fact, the aggregate rental value of land puts a natural limit on what is ethical and thus efficient for the State to spend (or redistribute). Plus some other Pigouvian taxes on negative externalities.

Anything else, other than a straight Poll Tax, is an abrogation of property rights which leads to distorted incentives and a misallocation of resources.

Resource allocation is where the action begins and ends. After all, in the long run, productivity is (almost) everything.

Matt Franko said...

" the government just adds more money to the economy with no direction to where it is going,the rentiers just capture the excess and maybe all of it "

What do you mean by 'excess'?

Savers will save some of ANY leading govt spending yes as usual... why is this "excess" its not "excess"..... you are conflating "excess" with savings of the cohort that saves a portion of their income...

So what are you saying... that if nobody saves then thee is no "excess"?

Kaivey said...

I was thinking about the Basic Income they other day when I was talking about it to my girlfriend. But it dawned on me that if the government gave everyone £200 per week house prices and rents would soon shoot up and and the One Percent would get everyone's Basic Income instead. It's a racket.

There's not enough houses, and as having somewhere nice to live is a basic human right, people will just work all the hours given to be able to afford one. They would have become debt slaves to their overlords.

As the private sector doesn't seem to be able to build enough affordable homes, then the government should step in and build them.

Calgacus said...

Absolutely right, Kaivey.