Debt Rattle Valentine’s 2014: Inequality Leads to War and Crisis
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Harris & Ewing “Iced T, Washington, D.C.” Jan 28, 1922 I don’t think that to make my case in this point, I need to state my opinion, but I will add a
[See the full post at: Debt Rattle Valentine’s 2014: Inequality Leads to War and Crisis]“Repeat after me: The lowest tax rates for higher incomes lead to crisis.”
RAGE RAGE RAGE RAGE RAGE!!!!!! 🙁
I just finished reading Thom Hartmann’s “The Crash of 2016: The Plot to Destroy America–and What We Can Do to Stop It” (spoiler – unless you like heavily biased, Democratic party apologist and “Economic Royalist / Bankster” conspiracy theory I’d take a pass – a shame too as he references the work of Steve Keen, Chris Martenson and Chris Hedges whose works I appreciate), and found myself off-put by his similar conclusion.
While I can appreciate that income distribution is an important issue and seems to occur prior to financial crashes and large-scale conflict, I think to suggest it is the cause is wrong… Or at least not the entire story.
I would like to see what was happening in terms of monetary policy, interest rates and inflation/deflation at all of those times you’ve highlighted, Ilargi. Its just a guess, but I wonder if we would see loose monetary policy, low interest rates and excessive liquidity in all of those periods leading up to clear income inequality. If so, it might suggest that income inequality is not so much the problem but a symptom of something bigger/worse that has been discussed in detail here at TAE.
Cheers,
VariableJust a note on marginal tax rates: One argument is that the effective tax rate difference between the 1950s and now is not as great as the marginal rate difference because of changes in the tax code. I don’t know how right it is and I think the rich (top 10%) were certainly taxed more heavily in the 20 years after WWII. The same rich exerted the political power to change things. And change they did.
“I would like to see what was happening in terms of monetary policy, interest rates and inflation/deflation at all of those times you’ve highlighted, Ilargi. “
There’s your homework for the weekend, Variable.
Income inequality? While I agree it is a problem and sucks etc….it is really small potatoes now…the whole system is about to implode and it won’t make a difference if you were rich or poor when the collapse happens. With such an intrinsic system and no cheap easy to get oil. I think you should be feeling sorry for the rich who can’t do a damn thing with their hands except type letters to their lawyers. When the system does crash all that paper money that they are holding could be worthless….what are they going to do?….scary for them…..Ted
“There’s your homework for the weekend, Variable”
No fair! I’m in Bangkok, Thailand this weekend… trying to avoid protests and/or rubber bullets meant for protesters…
Cheers,
VariableThe primary effect of very high tax progressive tax rates at the top is not to take the money and redistribute it but rather it discourages the payment and even seeking of very high pay. This for the most part nowadays would mostly apply to top executives of corporations, assuming their options were treated as ordinary income. After them it would apply mainly to entertainers/sports stars. That would leave out a large swath of the very wealthy who gain their wealth from capital gains. (There is the carried interest thing too but no space for that here but that has to stop too)
I propose that much higher capital gains taxes, which fall according to the length of time the asset is held, would be a far more effective strategy to fight our malaise but it’s really too late isn’t it. For it is the quest for inflating assets which more than anything shapes our economy, the entire political economy and our culture. Well this will not happen either. Capital gains taxes will disappear eventually.
“The primary effect of very high tax progressive tax rates at the top is not to take the money and redistribute it but rather it discourages the payment and even seeking of very high pay”.
I hear that song and dance all the time but have never seen any proof of it in real life. If someone offers me an extra $10 in salary but taxes me at a 90% marginal rate, I’ll still take it. An extra $1 is an extra $1 after all.
Maybe there is some weight to what you are arguing for the working class – i.e. if I had to work my arse off for that extra $10 only to be taxed at 90% then yes, I may not opt to pursue the extra $1 of income. But if I’m a CEO who makes $500,000 a year and could make $900,000 though taxed at 90% on the additional income, they’d definitely do so as I’m pretty sure even the hardest working CEO does not work that much crazily harder than the laziest CEO and could justify the additional $40,000 (not to mention any tax saving/deferring schemes they could also take advantage of). If there are people who wish to leave $1 / $40,000 on the table for more leisure time then so be it – I’m sure there is someone who will step up and take that money, or will do that “harder” job for reasons other than monetary gain.
More to the point of my original comment about monetary policy & interest rates vs. income inequality – it seems obscene payments of $500,000 to $900,000 to CEO’s are only possible once monetary policy has become loose and liquidity is overflowing. Trying to justify that a CEO (i.e. one person!) is “worth” 10x or more employees seems as ridiculous as justifying paying $600,000+ for a house in inner-city Toronto.
Or in other words, income inequality seems to only be possible when realistic valuation is out the window – something that seems to occur every time the system gets flushed with excess liquidity.
Wish I could find more to support that argument, but working from a smartphone with intermittent WiFi in a 2-star hotel isn’t conducive to drafting guest posts on TAE 🙁
Hopefully you won’t hold it against me for batting this one back to you (or asking someone else in the community to do the legwork of investigating the chicken/egg riddle that is excess liquidity vs. income inequality).
Cheers,
VariableI’m talking the multiple millions salaries. It has to be understood that the numbers don’t really mean that much in and of themselves but the important thing is the relative pay. If the highest paid quarterback or CEO was on million a year not six they would be just as satisfied because they were number one.
When the top tax rate was 90% let me assure you that this was a powerful dis incentive to seeking higher pay not only for the recipients but the payers too. Boards of directors don’t like to pay taxes and giving money to execs so they could pay taxes on it would have little appeal. You don’t hear much on in now but in the 2000’s there was endless talk about executive wage inflation and studies were done and they always recommended that corporate boards stop the inflation. They didn’t.
In the corporate world who doubts for a moment that top management has fetishized short term profits, or the appearance of profit, to boost their income over most all other considerations. Taking it one step further those seeking top executive status are more and more those driven by greed. Not that corporate top executives were ever kindly seekers of good for all but I certainly recall that top execs used to be quite a bit more believable when they talked about serving the larger good. Now your likely to get huge raise if you take a public dump on the very idea of some, any, common good.
Quite a few good observations. What I was going for is:
1) It’s not so much a matter of political or ethical leanings, low (income) tax rates are evidently disruptive to societies. They must be, because they coincide with unemployment, low pay for workers, misery. While higher rates are conducive to prosperity. It’s simply what history says. But in today’s discussion, it’s often perceived as counter-intuitive.
2) Current US income tax rates are terribly low from a historical point of view. It’s important that people keep themselves from accepting them as “normal”. They’re not. At all. They haven’t been this low in over 80 years, and times with higher rates have consistently been more prosperous.
Other than that, yes, capital gains taxes need to be raised in sync with income taxes, since they involve income.
And it’s undoubtedly true that virtual money sloshing around in a system sticks to the top more than the bottom. And it doesn’t stop there: while sloshing around, it moves money from the bottom to the top, by mixing real with virtual. I’ve clamored for restructuring of all bank debt a thousand times, precisely because of this. The virtual money doesn’t just come from what central banks issue as stimulus, it also includes all the – often years old – lost wagers that haven’t been settled because banks are exempt from “normal” accounting.
The entire picture, when viewed as a whole, is guaranteed to blow up societies.
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