Misleading the public on tax: burdens, incentives, well-being and society

taxThis post was inspired by the platitudes on tax currently making the headlines in the UK during the current leadership contest for the Conservative party, the winner of which will become Prime Minister. But the issues apply far more widely, to any country with a functioning economy and tax system!

Following the resignation of the UK’s Conservative Prime Minister, Boris Johnson, around a dozen candidates are expected to declare themselves in the running for leadership of the party and the next premier. Many have already stated their intention to do so. They have started by setting out some policy pledges. They have all promised to cut taxes, within varied time frames, from day one to when circumstances allow, though the majority seem to want to go ahead swiftly.

In the midst of global economic, social, and geopolitical crises, perhaps circumstances will not allow for some time. But whatever happens, the competition to be the next UK Prime Minister looks to be stimulating an unhealthy mix among the candidates of fantasy and lies with regards to prospective policymaking.

Announcing the wish to cut taxes may make some headlines (and that is probably the point), but so far such statements are disappointingly devoid of economic, social or fiscal context. The pressure for politicians to overpromise, ultimately leading them to underdeliver, may be difficult to avoid, but it keeps pouring fuel on the fire of cynicism with regards to the political class. It is helpful in this kind of situation to soberly contend with some of the misleading rhetoric and analysis regarding taxation, and the public spending which it funds, lest we forget amidst all the excitement regarding future cuts to the former. Continue reading

Many middle ways – introduction to a new series

keynesI have long been attracted to analyses in economics and politics which focus on the potential of a ‘middle way’ between free markets and state central planning in order to marry prosperity, social justice and liberty. John Maynard Keynes was a champion of such an approach to economic management. Although I have explored Marxism and find Marxist analyses of capitalism interesting and insightful, I have never been drawn to full-blooded socialism or communism, at least in the form that they have taken in societies across the world to date. At the same time, a fully free market system, if such a thing were possible, even under capitalism (and I am not convinced that it is) seems to me to be just as objectionable and if it were to exist, it would in my view do a poor job of attaining and sustaining the above three outcomes. In between the two, there is space for many varieties of socioeconomic system, probably capitalist, at least until it evolves into something better, which certainly need not be socialism. Continue reading

Wealth, welfare and well-being – what do we want from our (political) economy?

This post draws on a variety of unconventional yet renowned economists to reconsider the values and goals of economic activity and challenge aspects of the conventional wisdom, arguing that economics would benefit from being more controversial and open to debate.

Economics has been called the science of rational choice. An older definition holds that it is concerned with the production, distribution and consumption of wealth. Some of today’s progressives, which this writer often aspires to be, hope for a capitalism (and beyond) that can somehow reconcile sustainable prosperity, justice and liberty. However it must be acknowledged that attaining these three in a satisfactory way can be fleeting, and requires constant work, both in thought and deed. Continue reading

J.K. Galbraith and the cult of economic growth

JKGalbraithJohn Kenneth Galbraith’s The Affluent Society was one of the first non-textbooks on economics I ever read, when it was recommended to me as a schoolboy just starting out on an economics course prior to applying to university. It made a lasting impression on me. Galbraith was a brilliant and compelling writer of books for the layman, managing to entertain without trivialising, and to inform without overwhelming the intellect. He was very much a progressive Keynesian, with a deep concern for the poor and disadvantaged in society.

I am increasingly of the view that economists, politicians and the rest of society need to question rising GDP as a shibboleth of policymaking. I also remain aware that at the moment economic growth is needed to generate valuable employment providing the goods and services which many of us desire. Some of these are surely more necessary than others, and poorer countries need the rising income that comes with successful development more than the richest countries. Technological progress and structural change are also bound up with rising output. These factors are difficult to disentangle from one another, but we have not always had GDP as a central measure of economic progress, and perhaps it is time to incorporate alternative measures into our assessment of the latter, in ways which sustain it without wreaking unsustainable impacts on society and nature in which the economy is embedded. Here is the Open University’s Marcus Davison in a short extract from his chapter on financialisation in a wide-ranging book which is sharply critical of the nature of modern finance: Continue reading

Kate Raworth on the importance of framing in economics

DoughnutEconomicsI have just finished Kate Raworth’s Doughnut Economics, which was for me a really good read, full of inspirational and clearly articulated ideas on the need to transform economic thinking for a world of sustainable human development. Here is a taster from her introduction, on the role that framing plays in shaping our thinking, in economics and beyond. If we want to persuade others, we need to set the frame of the argument, verbally and visually.

“Pre-analytic vision. Worldview. Paradigm. Frame. These are cousin concepts. What matters more than the one you choose to use is to realise that you have one in the first place, because then you have the power to question and change it. In economics, that’s an open invitation to look afresh at the mental models we employ in describing and understanding the economy. But it is no easy thing to do, as Keynes discovered. Coming up with his groundbreaking theory in the 1930s was, he admitted, ‘a struggle of escape from habitual modes of thought and expression…The difficulty lies not in the new ideas, but in the old ones which ramify, for those of us brought up as most of us have been, into every corner of our minds.’

The possibility of shaking off old mental models is enticing, but the quest for new ones comes with caveats. First, always remember that ‘the map is not the territory’, as the philosopher Alfred Korzybski put it: every model can only ever be a model, a necessary simplification of the world, and one that should never be mistaken for the real thing. Second, there can be no correct pre-analytic vision, true paradigm or perfect frame out there to be discovered. In the deft words of the statistician George Box, ‘All models are wrong, but some are useful.’ Rethinking economics is not about finding the correct one (because it doesn’t exist), it’s about choosing or creating one that best serves our purpose – reflecting the context we face, the values we hold, and the aims we have. As humanity’s context, values, and aims continually evolve, so too should the way that we envision the economy.

There may be no perfect frame waiting to be found but, argues the cognitive linguist George Lakoff, it is absolutely essential to have a compelling alternative frame if the old one is ever to be debunked. Simply rebutting the dominant frame will, ironically, only serve to reinforce it. And without an alternative to offer, there is little chance of entering, let alone winning, the battle of ideas.

Lakoff has for years drawn attention to the power of verbal framing in shaping political and economic debate. He points, by way of example, to the notion of ‘tax relief’ widely used by US conservatives: in just two words, it frames tax as an affliction, a burden to be lifted by a heroic rescuer. How should progressives respond? Certainly not by arguing ‘against tax relief’ because repeating that phrase merely strengthens the frame (who could be against relief, after all?). But, says Lakoff, progressives too often try to set out their own views on tax with lengthy explanations, precisely because no concise alternative frame has been developed. They desperately need an alternative two-word phrase to encapsulate their view and counter the other. In fact the frame of ‘tax justice’ – which instantly invokes community, fairness and accountability – has been fast gaining traction internationally as global scandals over tax havens and corporate tax avoidance have hit the headlines. Having a powerful way to frame the matter has no doubt helped to channel public outrage and mobilise widespread demand for change…

Visual frames, it gradually dawned on me, matter just as much as verbal ones. That realisation drove me to look back at the images that had dominated my own economic education and I saw for the first time just how powerfully they summed up and reinforced the mindset I had been taught. At the heart of mainstream economic thinking is a handful of diagrams that have wordlessly but powerfully framed the way we are taught to understand the economic world – and they are all out of date, blinkered, or downright wrong. They may lie hidden from view but they deeply frame the way we think about economics in the classroom, in government, in the boardroom, in the media, and in the street. If we want to write a new economic story, we must draw new pictures that leave the old ones lying in the pages of last century’s textbooks.”

Kate Raworth (2018), Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist, Penguin Random House, p.22-4.

Stepping back for a more holistic vision

599px-The_Blue_MarbleLast night I watched an episode of the BBC documentary Earth From Space, which used satellite imagery to observe the patterns, colours and structures of the natural and man-made world from space. Each episode provided a commentary on different aspects of the Earth, zooming in to examine in some detail the activities that such an elevated view draws one in to see. It was truly fascinating, and made me think about the consequences of the pictures taken of Earth as a whole in the early 1970s, known as The Blue Marble. This became a symbol of the environmental movement, and spoke to many of the frailty of the natural world as a whole. Around the same time, The Limits to Growth report was published and, though it remains controversial, it continues to inspire popular resistance to and criticism of the growth trends of industrial economies and populations across the world. Continue reading

Questions of fairness in political economy – what should we do?

This post is a thought experiment, for myself as much as for my readers. It is laid out as a series of questions on some of the most important topics in political economy and economics. At its heart, it tries to stimulate thinking about the highly loaded and subjective notion of fairness, and ultimately asks: what is fair, and what is unfair? Careful readers will note that the way many of the questions are framed presupposes certain value judgements. The order in which the topics are presented is not intended to imply that some are more vital than others, but maybe they reveal something about the author himself.

Taxation and public spending

Is it helpful to see taxation as theft or as the price we pay for organising a civilised society?

Which is fairer for the poorer members of society, and which for the wealthy: taxation that is progressive or regressive? Which of these choices creates greater incentives for productive activity?

Do high rates of tax penalise economic success?

Is it fair for wealthier individuals to pay a larger proportion of their income in tax than poorer ones?

Should we tax income more from wages, or from profits?

Should we rely more on taxing income or consumption?

Should we tax wealth at a higher rate than we tax income?

Should we emphasise the taxation of wealth in the form of housing, land or financial assets?

If the distribution of income and wealth is perceived as unfair, and even inefficient, should the government rely more on redistribution via taxation and public spending, or predistribution via changes to the regulation of the economy, so that income and wealth prior to taxation and public spending are more equally distributed?

Is it fair that those with the highest incomes, who are required to pay the greatest absolute amount of tax, are more able to employ those who can help them evade or avoid it? Continue reading

Pathways to a progressive capitalism

To some the notion of a capitalism that can fulfill progressive goals is anathema. In today’s world of multiple crises, we may seem some way from such a society. But there are plenty of innovative thinkers who do not think that replacing capitalism is the only way to solve our major economic, social and environmental problems. That is not to say that capitalism will necessarily be with us forever. It remains a historically specific mode of organisation of the economy, and at some point humanity may evolve past it. But there is no doubting its tremendous power to transform the world, for good and ill. Reform-minded progressives are about harnessing this power to achieve and sustain what is in their eyes the good, and to undo and prevent the negative aspects. Continue reading

Economics and nature – approaches, problems, solutions

599px-The_Blue_MarbleIt is sometimes easy to forget the ‘other’ crises facing the world as we become absorbed in dealing with Covid-19. Opinions may differ, but climate change and, more broadly, humanity’s impact on planetary ecology, have not gone away. Stark inequalities of income and wealth, within and between many nations, are also key to much dissatisfaction, distress and conflict.

This post will look at some of the approaches used to study the economics of the ‘environment’, or ‘nature’, as some would have it. It identifies some of the problems addressed by these approaches, as well as some possible solutions, and raises some questions usually neglected by mainstream economics. These include ideas studied by political economy, such as treating economic growth and development as a process of socioeconomic (and natural) transformation, rather than a linear process of factor substitution and accumulation subject to random shocks. Continue reading

John Weeks on the politics of environmental action

An interesting piece by John Weeks, Professor Emeritus of economics at SOAS, with insights on environmentalism as well as the impacts of neo-liberalism on public policy. An excerpt and link to the full piece below:

A central characteristic of neo-liberal ideology is to render contentious public policy issues apolitical. As I show in my forthcoming book, Debt Delusion (Chapters 6 and 7), misrepresenting economic policies as apolitical was central to the construction of the reactionary neo-liberal agenda. While the neo-liberal grip has weakened, especially over economic policy in Britain, it remains powerful. An outstanding example is the UK debate over membership in the European Union, which the centre presents as a choice between civilization and chaos.

The Politics of Environmental Action (full article) – via Brave New Europe