tag:blogger.com,1999:blog-1513588060557517621.post6026011993056466561..comments2023-03-22T12:40:49.113+01:00Comments on Notes on the Next Bust: QE4 and the Limits of the Fed PutAri Andricopouloshttp://www.blogger.com/profile/00181838814176635218noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-1513588060557517621.post-67098991558520371652015-05-23T09:56:44.848+02:002015-05-23T09:56:44.848+02:00Hi Tim. It's good to hear from you again.
In ...Hi Tim. It's good to hear from you again.<br /><br />In England we had a popstar making fun of the opposition leader for proposing a mansion tax. "You might as well tax this cup" she said, holding up her cup. She got some quite a lot of support. Everyone opposed always brings up an apocryphal granny in a £3m house who will be forced to move out.<br /><br />My point really is that all of these new taxes, whether sensible or not, face huge opposition. Which is a real shame, but maybe we have to look at other ways.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-1513588060557517621.post-31228593179551410812015-05-23T07:39:53.281+02:002015-05-23T07:39:53.281+02:00removing the tax deductibility of interest, wealth...removing the tax deductibility of interest, wealth taxes, property taxes on high value properties - out of all these I think property taxes would be the best. timleehttps://www.blogger.com/profile/17227844876752332125noreply@blogger.comtag:blogger.com,1999:blog-1513588060557517621.post-60186728902062261302015-05-22T09:21:06.146+02:002015-05-22T09:21:06.146+02:00Hi Marko,
Don't think that my day job preclud...Hi Marko,<br /><br />Don't think that my day job precludes me from agreeing with you about redistribution. In fact I do agree. I have notes for a post where I look at ways to fix the problem without printing money - including removing the tax deductibility of interest, wealth taxes, property taxes on high value properties and other ways to increase spending without disincentivising work.<br /><br />However the problem here is practical. My back of the napkin calculations would suggest that, assuming money is spent through the relatively high multiplier of government spending, we need a minimum of 5% more government spending per year without further taxation. Assuming a 50% difference between the government multiplier and the rich persons MPC, this means that we need to raise 10% of GDP in extra taxes.<br /><br />According to this source: http://www.oecd.org/social/OECD2014-FocusOnTopIncomes.pdf<br />in the US, the top 1%, who have the lowest propensity to spend, receive around 20% of the pre-tax income. They already pay tax. So in order to get the money from the rich it would take a tax rate of maybe 75%. This may not be practical to implement in this mobile world. Certainly in no country other than the USA.<br /><br />Ideally we would be able to tax corporations more, but then they would move their headquarters. A removal of the tax deductibility of interest payments (as suggested by the Economist this week) would raise a huge tax revenue and discourage borrowing. But the companies involved would just move jurisdictions to avoid it. <br /><br />Pension funds could be hit with a wealth tax. But this would be pretty unpopular.<br /><br />The easy thing about Central Bank money printing is that a) it is unavoidable by loopholes and b) no-one really realises the exctent that they are being taxed more.<br /><br />We clearly do need redistribution. Redistribution to encourage consumer spending and redistribution to reward work rather than rent-seeking. How we do it is a matter of what the most practical way to achieve this.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-1513588060557517621.post-56690929035851353252015-05-22T02:59:22.433+02:002015-05-22T02:59:22.433+02:00I agree with you that QE4 ( and 5 , to infinity? )...I agree with you that QE4 ( and 5 , to infinity? ) is almost inevitable , but it also wouldn't surprise me if the Fed went ahead first with their tightening exercise before reversing course. This might even have benefits that offset some of the certain damage , e.g. , it might serve to finally convince the non-believers that demand-deficiency is the order of the day.<br /><br />I think you miss one obvious solution in your list , but , noting your day job , I can understand why. Reversing , even partially , the increase in income and wealth inequality may be all that's required to restore a sustainable level of demand. The large debt overhang means that the response wouldn't be immediate , but it would strengthen as that burden was worked down.<br /><br />One deficit- and debt-neutral way to speed up the recovery while new policies work against the income inequality angle : Use accumulated excess private wealth to fund govt spending. Consider this : private net worth/gdp was ~ 3.3-3.5 for decades before it started rising sharply , and now sits at around 4.5. That's a whole year's worth of gdp that you could argue is fair game as a resource to be used in restoring the economy to sustainable growth. That's 20 years at 5% of current gdp in stimulus potential, not that anything nearly that extreme would be required. If the expropriation focused only on the very rich , the lost consumption via wealth effects would be at most a few cents on the dollar , whereas the gdp gain from govt spending could be very nearly 100 cents per dollar.<br /><br />Is it possible politically ? Probably not , as long as politics is in the back pockets of the rich , but sooner or later something has to give. Maybe Bernie Sanders will be the next FDR. Ha!<br /><br />MarkoAnonymousnoreply@blogger.com