Let’s Raise Taxes (2)

I just returned from listening to a charming, erudite and, for a refreshing change, fact-based presentation by highly respected economist, Kenneth S. Rogoff. The event, hosted by Canada 2020 and supported by The Centre for Global Challenges, brought together senior policy makers, practitioners and journalists to hear and converse with Rogoff on the implications of his new book, This Time is Different: Eight Centuries of Economic Folly. The broad thrust of this quite academic book bursting with historical data: remarkably similar debt crises have been a recurrent feature of our economic history for centuries and they are invariably followed by similar kinds of responses and eventual recovery. Quite apart from the general weirdness of this kind of quantitative economic history (empires and countries disappear, wars occur, large segments of human population suffer but this is all secondary to the inevitable economic cycles), the talk was insightful and instructive on several fronts.

First and foremost for me was Rogoff’s unequivocal view that taxes must be raised. While admittedly he was not talking explicitly about Canada, he reiterated what is a broad consensus that we will not grow ourselves out of our current problems and, therefore, more taxes is the way to go. He gave as an example that income taxes in the U.S. were only 10% of GDP, unacceptably low given history and current circumstances.

Yes, he also believes that we need a gradual tightening of spending and here he distanced himself from Paul Krugman who insists on more rather than less spending for fear of a double dip recession or lacklustre recovery. He did at the same time generously admit how often Krugman has been both off-side most economists and absolutely right in his predictions.

Rogoff also wondered aloud whether much of the stimulus spending and money for bail-outs was wasted, again recognizing that economists of repute were deeply divided on this.

But he did not equivocate on taxes, and while he acknowledged President Obama’s tax increase on the rich, he believes we will all have to pay more. This is not some raving lefty here. Nor is he blind to the virtual impossibility of raising taxes any time soon. He knows that most people in most developed countries just aren’t there. And he concludes, ” I don’t know what the plan is.”

So, if the cycles of crisis and recovery are recurrent and inevitable, why does any of this matter? Says Rogoff, the next crisis could come in five years, fifteen to twenty years or seventy-five to a hundred years and how fast matters profoundly for human well-being. Our policy choices do indeed matter.

I also noted his emphasis on the importance of putting a price on carbon, most efficiently achieved through a carbon tax, an issue he claims has achieved substantial consensus among economists.

His slide show and some interesting discussion on Europe, the euro, and the G20 will go up on the Centre for Global Challenges site in the next few days, but a few personal conclusions:

1) When you hear the phrase “economists say”, ask which ones. As in every discipline, economists disagree profoundly on the big issues: regulation, stimulus, fiscal and monetary policy. ( Just check out Rogofff’s public dispute with Stiglitz.) Rarely is there an issue that merits the preface “economists say”. Economists say a lot of things, often contradictory. This is inevitable, even healthy, but not to be forgotten.

2) When economists do pretty much agree on an issue – more taxes, especially value added and carbon taxes for example – nobody seems to listen. Or more accurately, policy makers listen to the parts that are easiest.

3) Economists add enormous value to public policy debates, especially when they are one voice, and not so loud that they drawn out the others.

7 Responses to “Let’s Raise Taxes (2)”
  1. Wetzlar says:

    It is interesting to observe how the Right always argues that the only way to address large deficits is by cutting government spending, when in fact these deficits could just as easily be eliminated by increasing taxes. The U.S. is witnessing an interesting ‘shell game,’ in which the deficits accumulated to save Wall Street are now supposed to be eliminated by reducing social benefits for the taxpayers who went into debt by rescuing Wall Street. When the dust clears, we simply have a net transfer of wealth from the taxpayers to Wall Street to cover the costs of the latter’s reckless speculation gone wrong. Of course, when that same reckless speculation succeeds, the profit goes entirely to the wealthy. No gambler can ever lose if someone else covers his losses while he gets to keep his gains.

    But in our present ‘sound-bite’ democracy, it is unimaginable that the voters would ever think the issue through far enough to discern these deceptions. What passes for ‘thought’ in the present form of democratic deliberation might go as deep as to notice that deficits are high and must be brought down, but no farther. I will never forget what a voter interested enough in Canadian politics to call a radio talk show on political issues said about her vote for Mike Harris: “I voted for him because I wanted lower taxes, but I never realized that would mean spending cuts!” If this is the political sophistication of even an interested observer, imagine how the mass of the electorate ‘thinks.’ And if electoral thinking is that primitive, the mechanical counting of voter preferences at the ballot box every few years may in no meaningful sense ‘represent’ the actual democratic will, if by that we understand what informed people would rationally want. If we say the way out of this problem is to educate the electorate, then the question arises, who is to have the right to educate them, for that person or party will shape and control the democratic will, which is of course the very opposite of democracy. Here we arrive at the paradoxes of democracy first discerned by Carl Schmitt 80 years ago, but his solutions are unfortunately equally unacceptable.

    • himelfarb says:

      Your talk radio quote says it all. The right has successfully de-linked taxes and services though the so-called progressive parties are now so afraid to raise these issues that they have become complicit. No question that raising or even restoring some reasonable level of taxation to meet our challenges is a hard sell. On the other hand, we haven’t really tested whether a tough and courageous politician could in fact foster a more honest discussion on services, public goods and taxes. “Sound bite” politics is absolutely a serious problem but it may be a function of too many sound bite politicians who know no other way or who look to the weekly polling numbers as their only guide or who are lousy communicators. No question today the rhetoric of tax cuts is the easy way but I cannot let myself believe that it’s the only way. Don’t you think that a savvy political leader who made a smart case for smart taxes, who inspired us to care about intergenerational fairness, and who was able to withstand the inevitable deluge that would pour down on her initially could prevail in the end?

  2. joeblow says:

    Mr. Himelfarb says that the right has successfully delinked taxes from services. I think we can put this more generally, in a way that connects up to Wetzlar’s comment. Things are framed as a choice between government and liberty: raise taxes, grow government, provide services and create a society inimical to human freedom; or cut taxes, eliminate government, cut services and create a society favourable to human freedom. This is a variant I think of what some academics see as a paradox at the heart of a liberal-democracy.

    I find myself siding with Mr. Himelfarb that a leader who made a smart case for smart taxes, etc., could attract a constituency in Canada (after experiencing a deluge of criticism). But given how things are framed, part of the smart case should include a story of government as an instrument of human liberty, and of community as an instrument of pluralism. It seems to me that the financial crisis and the Gulf oil fiasco make a case for this story stronger than ever. So let the smart case for raising taxes be part of a larger vision for a progressive politics that provides clarity about the kind of community progressives stand for.

  3. himelfarb says:

    Welcome back Joe. I agree that we have to make the case that liberty requires a healthy political community and society and therefore cannot be realized without “government”. As you know, some of these arguments are set out in “The Assault on Government”. But to make that case I think we are going to have to be quite concrete about how government can be made better and even how it might be reinvented in light of new and unfamiliar challenges and the very diversity of interests you cite. As for the recent crises, melting finances and spilling oil, self-styled progressive politicians have not been very effective in making their case and have pretty much “wasted” these crises because they were too often on the wrong side of the issues beforehand – having largely supported privatization and deregulation – and are only reluctantly willing to embrace tough regulations even now. Interesting to watch folk take credit in Canada for the many decades old banking regulations that helped insulate us from the worst, given that many of those same folk were criticizing those same regs just months before. In any case, these crises have now been turned on their heads so the financial crisis is now being defined as a fiscal crisis that will require cuts to government and the oil crisis is now “proof” of the impotence of government. How quickly things turn.

  4. Alexandre says:

    Former New York governor Eliot Spitzer also argues that the US is in economic dire straits because tax rates are too low. See: http://www.slate.com/id/2245781/

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  1. […] que ma visite-éclair dans la capitale a été fascinante. En compagnie d’Alex Himelfarb et de quatre étudiants gradués de Glendon (Jenilee Ward, Edgar Bartolome, Marie-Anitha Jaotody et […]

  2. […] que ma visite-éclair dans la capitale a été fascinante. En compagnie d’Alex Himelfarb et de quatre étudiants gradués de Glendon (Jenilee Ward, Edgar Bartolome, Marie-Anitha Jaotody et […]

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