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.