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

["Joerg Wenck" <j.wenck@xxxxxx>]

Paul,

let me try to answer. Maybe I get it right.
1) First, we need to distinguish between commodities/services satisfying basic needs and other commodities/services. There is no inherent shortage of resources preventing the provision of food, housing, medical care and education to everyone. Rather than living in an age of scarcity, we seem to suffer from a lack of talent to manage abundance. States are laying off teachers so they get paid for not teaching. Finance would be immediately and readily available if a political consensus existed to not just talk about "freedom from want" but realize the possible. Consensus on maximizing the redistributive properties of the tax system, however, would be much harder - if not impossible - to achieve. Next, there would be bureaucratic delay per tax collection against increased efforts at tax evasion. Additional welfare would only be gained if the assumption of resource sufficiency for realizing "freedom from want" proved wrong. "The unequal distribution of consumption between the rich and the poor ... is the ethical and social problem": true with respect to basic commodities.

2) There are three dimensions to the distribution of non-basic commodities:
- the "real" dimension (Consumption of one commodity may preclude consumption of another commodity. Some activities are mutually exclusive - reflecting on the consumption their pursuit involves).
- the temporal dimension
- the social dimension
We are confronted with an alternative here: Should we optimize distribution along the temporal dimension? Or should we optimize distribution along the social dimension? Enter the (fictitious) Robert McTeer-Warren Mosler dispute. McTeer seems to have urged all Americans buy an SUV to keep the economy afloat. That amounts to a call for maximizing everybody´s consumption of gas at this point in time. If the U.S. were a closed economy, it would take four years for this bonfire to fizzle out. While there is still a lot of oil to be pumped in the Middle East, it is definitely preferable to take a different road and tax consumption to spread out scarce resources over time - not to mention the fact that such a course of action might have reduced the incentive to go to war in Iraq. A GM executive was reported to have said at the unveiling of a new GM-fuel cell prototype that "in the future America will need different reasons to go to war". This is a classic example of underestimating scarcity along the temporal dimension: fuel cells do not generate energy - they store it and therefore cannot reduce fossil-fuel use per se. Commodity consumption should generally be negatively "incentivized".

3) "An increase in private aggregate demand in such a case is probably more desirable than many forms of politically acceptable government spending": I would think that the political acceptability of government spending can probably be graded according to two criteria. The first would be if government stimulus affects demand, supply, or both (income-tax exemptions vs. the Bush dividend-tax cut vs. a payroll tax-cut ). The second criterion would favour market decisions over public works. This would apply to designing the incentives for an energy infrastructure modernization, e.g. (In fact, according to correlation data collected by Salá-i-Martin, adherence to this rule is of major importance if public spending is supposed to spur - and not be a drag on - economic growth).

Joerg Wenck











*********** REPLY SEPARATOR  ***********

On 30.05.2003 at 19:58 pdavidso wrote:

>>===== 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
>home phone and fax # (865)692-0802
>email pdavidson@xxxxxxx
>http://econ.bus.utk.edu/davidsonextra/Davidson.html