Re: Krugman on the Deflation quagmire; reply Warren' and Chris

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Warren Mosler <mosler@xxxxxxxxxxxxxx> =====
>>
>POINT IS, I TEND TO 'CARE' MORE ON DISTRIBUTION OF
>CONSUMPTION RATHER THAN DISTRIBUTION OF NOMINAL
>WEALTH.  AND THE TAX STRUCTURE CAN BE EASILY DIRECTED
>ALONG THOSE LINES.  CONSUMPTION TAXES CAN BE LEVIED ON
>THINGS WE DON'T WANT CONSUMED, AND THE SUCCESS OF THE
>TAX MEASURED BY HOW LITTLE IT COLLECTS, ETC.
>
>SEE 'SOFT CURRENCY ECONOMICS' AT MOSLER.ORG
>
>WARREN
>
>
>--- "Niggle, Christopher"
><Christopher_Niggle@xxxxxxxxxxxx> wrote:
>>    But tax
>> systems also influence
>> the post-tax income distribution, and there is much
>> historical evidence (and
>> common sense argument and ethical considerations as
>> well) in support of the
>> proposition that too much income inequality is bad
>> for society.  Hence,
>> reducing the progressivity of our tax structure with
>> the kind of tax changes
>> implemented under the Bush regime is probably a bad
>> thing in spite of the
>> mild stimulus it might effect with respect to
>> aggregated demand.  And
>> reductions in tax revenue support the desire of
>> right wing small government
>> nuts to reduce social services and investment in
>> public capital.
>>

Warren and Chris are talking ar cross purposes. Warren is correct that it is
the unequal distribution of consumption between the rich and the poor that is
the ethical and social problem.

but as long as the marginal propensity to consume is greater than zero, even
if it is less than unity and the magnitude were to become smaller as income
increase, the more the inequality of income the more the inequality in
consumption. [Warren avoids this conclusion because the old woman who lives in
a shoes is presumed to have a marginal proensity to consume of zero.]

But then one might think Warren might favor a progresive consumption tax--
Ignoring the politcal unpopularity of  such a tax --the administrative costs
of such a tax would be horrendous compared to an income tax -- moreover in a
global economy, one need only purchase his/her consumption goods in a tax
haven country to avoid the tax-- so avoidance would be great.

Perhaps we could have Warren's workers in the ELR labor force become tax
collectors of this progressive consumption tax --) thereby creating an almost
unending demand for elr workers-- who as part of their job would get tax paid
trips to the Cayman islands and other lush tax-haven places!

Chris is correct in arguing that if one taxes the people with smaller AVERAGE
[and marginal?) propensities to consume and redistributes this income to the
poor, it not only reduces income inequality and consumption inequality but it
does something positive to imncrease effective private demand -- and I must
again argue, that an increase in private aggregate demand in such a case is
probably more desirable than many forms of politically acceptable government
spending.

The query for Warren is the following:

If the rich old maid who lived in the shoe is never going to spend her wealth
--why should she care if we took her income from her via taxes and gave it
people? The poor could improve their standard of living if they received this
extra purchasing power.  It would be an absolute welfare gain --since the old
lady who lived in a shoe would not(according to Warren's hypothesis) change
her standard of living, but the people who received the benefits via either
more social progammes, child tax credits, negative income taxes, etc would be
able to increase their standfard of living substantially.

>> I think Keynes made the same argument many times;
>> the "arbitrary and
>> excessive inequality" he disapproved of was bad
>> because it reduced aggregate
>> demand but also for ethical and political reasons.

Keynes was not happy about wealthy rentiers-- see his "euthansia of the
rentier" argument-- butin the last chapter of the GT he indicated that some
inequality of income is desirable, when he noted it is better for a man to
tyrannize his bank balance than his neighbor-- but we could all get use to the
entrepreneurial game if the inequality stakes were lower.

paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
office phone #;(865)974-4221; office fax# (865)974-1686 or (865)974-4601
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