- js reader version
- view hidden posts
- tags and related articles
by Joseph Stiglitz and Simon Johnson
Wednesday, Sep. 19, 2012 at 1:44 AM
The role of the state and the necessity of common action is a main theme in the political debate. Regulation ensures the same rules for everyone in competition. Conservative politicians in the US underrate the importance of publically provided education, technology and infrastructure.
FINANCING THE STATE
ROMNEY MUST GET THE MESSAGE
By Joseph Stiglitz
The rich of a society may not cheat in financing the state. Otherwise the market economy cannot survive as a system.
[This article published September 7, 2012 is translated from the German on the Internet, http://m.ftd.de/artikel/70086146.xml?v=2.0. Joseph Stiglitz is a professor of economics at Columbia University and a Nobel Prize winner for economics.]
The income taxes of Mitt Romney have developed into a great theme in the US election campaign. Is this only a political detail or is it actually important? It is not only important for Americans. The role of the state and the necessity of common action is a main theme of the present political debate in the US. The private sector is very important for a modern national economy but alone is not enough for its success. The necessity of regulation, for example, was clear through the financial crisis that began in 2008.
Regulation ensures the same rules for everyone in competition. In addition, modern national economies depend on technological innovations that presuppose basic research financed by governments. This is an example for a public good – something from which we all profit but which can only be made available insufficiently (if at all) by the private sector alone. Conservative politicians in the US underrate the importance of publically provided education, technology and infrastructure. National economies whose governments provide these public goods are much more successful than those that abstain.
But public goods cost money. Everyone should share in their financing. There can be different opinions about what this means. But those at the top of the income pyramid who pay 15 percent of their declared income (money in tax havens like the Cayman Islands and elsewhere does not need to be reported to US authorities) certainly do not pay a proper amount. An ancient proverb says a fish begins to stink from the head. When presidents and their relations do not pay fair taxes, how can we expect everyone else to do that? And if no one pays fair taxes, how can we then finance the public goods we need?
The presupposition for the tax system in democracies is a spirit of trust and cooperation. If everyone put as much time and resources into avoiding taxes as the rich, the tax system would either break down or much more monitoring and pressure would be necessary. Both alternatives are unacceptable. A market economy cannot function if every agreement has to be enforced legally. It can only survive if the system is generally seen to be fair. New research has shown that the view that the economic system is unfair undermines both cooperation and initiative. More and more Americans think their economic system is unfair. This perceived injustice is reflected in the tax system.
The billionaire Warren Buffet said he would only pay the taxes he had to pay. However something is fundamentally wrong in a system that taxes his earnings less than the earnings of his secretary. He is right about that. If Romney took a similar position, he could be pardoned. A rich politician at the peak of his power who champions higher taxation of the rich could change the course of history. But Romney has decided against that. Obviously he does not understand that a system that taxes speculation less than hard labor distorts the economy. A large part of the money heaped up by the richest consists of what economists call profit. This arises out of the need to secure a larger share in existing wealth, not out of the expansion of the total wealth.
At the top of the income pyramid, we find more and more monopolists who gain their income by restricting production and anti-competitive actions and corporate executives who exploit legal loopholes to get a larger share in business profits for themselves (leaving little for the workers). Today aggregate demand is weak in nearly all industrial countries which leads to higher unemployment, lower wages, greater inequality and ultimately less consumption. The vicious circle is closed. The connection between inequality and economic weakness is recognized ever more intensively.
There is another vicious circle: economic inequality leads to political inequality and vice versa. This is intensified by a tax system exempting people like Romney – who emphasizes he had to pay “at least 13 percent” taxes in the last ten years – from having to contribute a fair share.
Perhaps Romney is not a tax evader. Only the US tax authorities can make that judgment. But he certainly evades taxes to a great extent in light of the top US income tax rate of 35 percent. The problem is obviously not only Romney. On the larger plane, his kind of tax avoidance makes hard financing public goods. Without public goods, a modern national economy cannot survive. Without public goods, faith in the fundamental fairness of the system is undermined and the cohesion of society is weakened.
HOW THE US UNDERSTANDS “FISCAL-CONSERVATIVE”
By Simon Johnson
The amount of debts is politically unimportant. That is the Reagan principle of the “fiscal conservatives.” When the world is unstable, it takes shelter in the dollar – even though the US is the cause of the instability.
[This article published September 7, 2012 is translated from the German on the Internet, http://m.ftd.de/artikel/70085636.xmi?v=2.0. Simon Johnson is a former chief economist of the IMF, co-founder of the economic blog The Baseline Scenario and professor of economics at MIT.]
In most countries, being “fiscally conservative” means emphasizing the budget deficit and the debt level and setting these themes at the top of the political agenda. In many countries of the Eurozone, “fiscal conservatives” are a powerful group today. Their focus is on strengthening state revenues and bringing spending under control. Even in Great Britain, leading (fiscal-) conservatives seem willing to raise taxes and limit future spending.
The United States functions completely differently. To US “fiscal conservative” politicians, it is more important to lower taxes irrespective of the effects on the US budget deficit and the total sum of outstanding debts. One of these politicians is Paul Ryan, Republican candidate for the office of vice-president running in November alongside the presidential candidate Mitt Romney.
American politicians were not always caught in this mindset. In 1960, the advisors of President Dwight D. Eisenhower recommended lowering taxes to pave the way for his vice-president to become president. Eisenhower refused – in part because he did not especially like or trust Nixon but above all because he wanted to leave behind a more balanced budget to his successor.
Why are US- fiscal conservatives so little concerned about their state debts nowadays compared to their colleagues in other countries?
The political-economic course of the US changed dramatically when the international monetary system collapsed in 1971 and the US could not maintain a fixed rate of exchange between the dollar and gold any longer. That fixed rate was the cornerstone of the Bretton Woods system after the war. This system broke down because the US did not want a tightened monetary policy or a stricter budgetary policy. The contentment of US voters was more important to President Nixon than maintaining a global system of fixed exchange rates.
Strangely enough, the end of the Bretton Woods system promoted the use of the US dollar in the world instead of undermining its dominant international role. Much was written in the last four decades about a possible decline and fall of the dollar. Nevertheless foreign investors have substantially more US dollar reserves today than in 1971.
Investors always want to have more dollar-assets when the world appears unstable – even if the US caused the instability itself when mammoth US banks ran into trouble or Americans fought a political battle over their state finances. The trial of strength of the last years over the debt ceiling waged in Congress may cost the US its AAA-rating from Standard & Poors. However the credit costs for the US government are lower now than they were at that time.
What did America make out of the most favorable financing in the history of humanity?
America did little as to productive investments, strengthening education or maintaining the basic infrastructure. But it did much in introducing tax cuts that raise consumption and lower tax revenues. That is the inheritance of George W. Bush with his “temporary” tax cuts introduced in the first years after the turn of the millennium.
Americans have adopted political philosophies that regard state debts merely as a distraction. Former Vice-president Dick Cheney said: “Reagan taught us deficits are unimportant.” During his term in office, Reagan lowered taxes and increased the deficit and nevertheless did not have to suffer any negative political consequences.
Report this post as:
GUIDE TO REBEL CITY LOS ANGELES AVAILABLE
lausd whistle blower
Help KCET and UCLA identify 60s-70s Chicano images
UCLA Luskin: Casting Youth Justice in a Different Light
Change Links April 2018
Nuclear Shutdown News March 2018
Join The Protest Rally in Glendale on April 10, 2018!
Join The Protest Rally in Glendale on April 10, 2018!
Spring 2018 National Immigrant Solidarity Network News Alert!
Anti-Eviction Mapping Project Shows Shocking Eviction Trends in L.A.
Steve Mnuchin video at UCLA released
Actress and Philanthropist Tanna Frederick Hosts Project Save Our Surf Beach Clean Ups
After Being Told He's 'Full of Sh*t' at School Event, Mnuchin Demands UCLA Suppress Video
Resolution of the Rent Strike in Boyle Heights
What Big Brother Knows About You and What You Can Do About It
Step Up As LAPD Chief Charlie Beck Steps Down
Our House Grief Support Center Hosts 9th Annual Run For Hope, April 29
Don’t let this LA County Probation Department overhaul proposal sit on the shelf
Echo Park Residents Sue LA Over Controversial Development
Former Signal Hill police officer pleads guilty in road-rage incident in Irvine
Calif. Police Accused of 'Collusion' With Neo-Nazis After Release of Court Documents
Center for the Study of Political Graphics exhibit on Police Abuse posters
City Agrees to Settle Lawsuit Claiming Pasadena Police Officer Had His Sister Falsely Arre
Professor's Study Highlights Health Risks of Urban Oil Drilling
Claims paid involving Pasadena Police Department 2014 to present
Pasadenans - get your license plate reader records from police
LA Times Homicide Report
More Local News...
What does the Quran Say About Islamic Dress??
Biodiversité ou la nature privatisée
The Market is a Universal Totalitarian Religion
Book Available about Hispanics and US Civil War by National Park Service
The Shortwave Report 04/20/18 Listen Globally!
The Republican 'Prolife' Party Is the Party of War, Execution, and Bear Cub Murder
Paraphysique de la dictature étatique
Book Review: "The New Bonapartists"
The West Must Take the First Steps to Russia
Théorie générale de la révolution ou hommage à feu Mikhaïl Bakounine
The Shortwave Report 04/13/18 Listen Globally!
“Lost in a Dream” Singing Competition Winner to Be Chosen on April 15 for ,000 Prize!
The World Dependent on Central Banks
Ohio Governor Race: Dennis Kucinich & Richard Cordray Run Against Mike DeWine
March 2018 Honduras Coup Again Update
Apologie du zadisme insurrectionnel
ICE contract with license plate reader company
Black Portraiture(S) IV: The Color of Silence...Cuba No...Cambridge Yes
Prohibiting Micro-Second Betting on the Exchanges
Prosecutors treat Muslims harsher than non-Muslims for the same crimes
Amy Goodman interview on cell phone safety
Mesa, Arizona police officer kills unarmed white man
Israeli leaders should be prosecuted for war crimes
Paraphysique de l'autorité
Two Podcasts on fbi corruption
Fbi assassins assault & try to kill DAVID ATKINS
More Breaking News...