A Dangerous Experiment

Here is a take on the G20 commitment to cut deficits and reduce debt. David Leonhardt, not quite echoing Paul Krugman’s dire warnings, does set out the question with clarity.  Will the G20 deficit and debt targets lead to greater private sector confidence and spending to fill the space left by the end of stimulus or will they set off a new cycle of economic weakness and private sector cuts?  This is partly a question of timing, that is, whether it’s too early for austerity but it’s also partly about how best to achieve sustainable growth.

He wonders why the decision to cut government spending found such unanimity.  Some countries, he suggests, are so deeply in trouble that arguably they had no choice, Greece of course but maybe England too.  But Leonhardt also points to the impact of the extremely loud voices who have an interest in denying the value of stimulus and of government spending more generally.  So cutting trumps stimulus and investing. It’s a dangerous experiment – for now and for the longer term.

However we slice it, it does seem clear that developed countries have made promises to their citizens that they cannot keep at current rates of taxation and therefore something has to give sooner or later. Tuesday’s market performance suggests that the question is not off in the far distance.  Nobody wants to pay more taxes and most politicians would far rather cut than tax but I am not alone in wondering how we hope to make the numbers add up.  Our aging population will mean more pressure on health and social services and, of course,  elderly benefits and, at the same time, lower revenues.

Surely now is the time for a serious discussion of the cost of the promises to citizens for education and innovation, health, social services and greening the economy and how we might pay – or which ones are we ready to give up on.  Now is past time for a discussion of taxes, how to raise them fairly and with least economic impact – or to confront what we must give up instead, what services we cut, what capacities we lose, what opportunities we miss.  Let’s have the discussion. It cannot be avoided indefinitely.

2 Responses to “A Dangerous Experiment”
  1. Wetzlar says:

    Since wealth attracts wealth, the private economy functions to concentrate ever greater wealth where it has the least utilitarian value — in the hands of those who experience diminishing returns of happiness for each additional dollar of income they have. A rationally democratic state, however, would spend its resources to do the greatest good for the greatest number, and so it would distribute wealth according to real human need rather than the imagined ‘need’ of the few for luxuries. Thus the greater the proportion of the GNP under government control, the greater the social utility, and the more substantively democratic the society would become, since the objective need of each person would be maximally respected in the allocation of resources.

    A limit on this principle is that some inequality of wealth has to be tolerated to prime the pump of capitalism by concentrating sufficient surpluses for private investment. But the population exaggerates the importance of this factor in part because of ideological indoctrination by the predominant social forces and in part because of the ‘lottery mentality.’ Since everyone irrationally expects or hopes to be a winner in the capitalist lottery, people like to see the capitalist reward system being intensified, because this means they can entertain themselves with even more grandiose dreams of success. In this they are like people who eagerly pay a dollar to buy a lottery ticket whose real value in terms of the chance of the prize offered is only ten cents; but just as lotteries are always profitable for those who run them, the right-wing proponents of augmenting the capitalist reward system for ‘the good of the economy’ always convince the peope they are right, since hope always persuades better than sober logic.

    One way to coax Canadians out of this peculiar mentality might be to discuss more actively in the political process the examples of other countries with higher taxes but still with greater levels of personal prosperity than Canadians enjoy, such as socialist Norway. There the state ownership of large industries and the generous social support system have neither caused the capitalist system to stagnate nor robbed people of their initiative to work. When Canadians learn that some European countries pay their university students $18,000 a year for expenses in addition to providing free tuitiion, or that paid maternity leave is set by statute at one year, along with a 3-month paternity leave, or that 6 weeks of annual paid vacation are also required by law for all, they are astonished and enthused, but they fail to ask themselves, as they should, why this cannot be done here without ruining the economy, since such generosity and government control over much of the economy has not had this effect in the socialist Nordic countries. It seems that the Canadian Left at this historical moment has lost its courage to present these kind of bold arguments, however.

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