generals3 said:
The laffer curve is a reality.
Not in the way it's often employed.
The Laffer curve is really about government revenue; it states that if the government excessively taxes something, it reduces economic activity sufficiently such that government revenues actually decrease. For instance, tax car manufacture too much, people stop making cars. It thus should be used as justification for tax cuts to
increase government revenue. However in practice when used as a base for policy (Reagan, Trump) it has failed - presumably because it turns out that the optimal tax band for government revenue is higher than its proponents have believed. Although honestly, I think they've known that and it's just been an excuse for ideological tax cuts.
Tax cutting for economic efficiency is better explained by concepts such as deadweight loss, and I agree that it's a thing. However, I am not convinced by the correlation between modest differences in taxation across Europe and economic growth. Relatively lower tax countries like Germany or Netherlands don't actually do significantly better than some higher tax countries like Denmark or Sweden. Denmark I think has the highest taxation in the EU, but unemployment is under 4%, which is superb by EU standards. The UK has lower taxes still than continental Europe, and yet does not perform particularly better either.
But then, taxation rates are not particularly my bugbear.
When Hollande announced his "super tax" on high wages we saw a large influx of rich French people looking to buy homes here in Belgium. When we increased excise on alcohol in Belgium the income from alcohol excise dropped. Not because Belgians massively quit drinking but because people bought their alocohol in France, Luxembourg, etc. In a globalised world where movement of people and capital is extremely easy (and especially for the rich) taxation has a significant diminishing return. Especially so when you can move somewhere just two hours away by train to dodge those taxes. You have to build your policies within the limitations the world has given you.
That's why the hard left is bound to fail and create more frustation than anything else. When i see the program of the communist party and continuously read "We will increase tax X or Y and this will generate at least x million/billion ? revenue" I can't help but feel sorry for the naive people who believe that. It should not be "at least" but "at most".
I agree that globalisation and so on has hampered the ability of nations to carry out forms of national policy such as the above for the reasons you say. And I greatly agree that giving people reasonably well paid jobs is a great answer.
Wouldn't someone be better off having a decently paid job instead of living off welfare?
Wouldn't it be better to increase the legal pension age to be able to fund better pensions to pensioners?
Wouldn't it be better for the unqualified if unqualified immigration was brought to a quasi halt and thus reduce the downwards wage pressure and unemployment in that category?
1. Yes
2. Maybe
3. Controversial
1) If you look at the USA and UK, they're great at creating jobs, but the jobs are often very insecure and badly paid. In France there may be unrest at high unemployment and lack of opportunities, but in the USA and UK there's unrest at unrewarding, undignified jobs that barely pay the rent. French and German productivity, let's note, is about 30% higher than the UK. Sure, France might have more unemployment, but it's workers are getting a lot more value created. Britain has mostly just chucked millions of people shit jobs, which people are then unhappy and unfulfilled doing.
2) I'm not thrilled at working until I'm 70. I'm not even sure many people could. In particular, the life expectancy of the working classes is significantly less than the middle classes (at least in the UK) by about 8 years. It seems to me like saying the poor can work until they drop - which of course saves lots of state pension payments. I'm much happier with the system the UK has created of automatic pension enrolment for all workers, so they'll (nearly) all have their own pensions come retirement. The problem is that it will take ~40+ years to really have effect.
3) We've had people bandying round this claim in political circles for years, but in economic circles the real evidence is very weak. Some studies suggest that low skill immigration has reduced real terms income growth per capita for the poorest by something like 5% in a 25 year period 1992-2017 in the UK. But that has to be viewed in the context of wages increasing by about 45% in real terms over the same period for that income group. So a worker who got ?200 a week in 1992 got (inflation adjusted) ?290 in 2017, but would have got ?300 without immigration. That's close to nothing.
Set against that is that immigrants overwhelmingly do jobs, supporting economic productivity and paying taxes. They're not only helping business, but they're helping pay those state pensions, and the health service, and social services. So perhaps the person in the above model might have an extra ?10 a week in salary, but he/she might have to pay more taxes or take a cut to public services that would potentially more disadvantageous.
What I will grant you is that some countries have potentially not benefitted as much from immigration as the UK, and they potentially might have worse returns and find restricting immigration more useful. What I'd suggest as even better, however, is they need better systems of education, social inclusion and work opportunities to make better use of their immigrants. Help them make the best of themselves - then everyone benefits.
* * *
All countries are different, and so there's unlikely to be a "one size fits all" answer. Maybe France needs labour deregulation, Italy needs to stomp out corruption, the UK needs better lower pay jobs, and so on. But fundamentally I think that the economic system is failing large sections of the country all across the rest - rising wealth inequality, etc. I can't help but look at a lot of the mainstream right and find that their answer to that is... nothing at all. It's not a problem to them, because they're not the people losing out. So it's business as usual, with the modern "bread and circuses" to pacify the plebs being nationalism and anti-immigration.
I think the current dominant paradigm of Western capitalism is breeding discontent. I am however no hard leftist and I don't advocate socialism, but rather widepread reform of how capitalism operates to better benefit wider society. In some cases, that may involve liberalisation and deregulation, in others social services, education and so on. Clamping down on tax havens, financial sector reforms. Centralised industrial strategies. In the end, I think the left is showing greater will to experiment (and I accept sometimes it may fail) with change than the right.
