A traitor to his class?
Monday, September 20, 2010 at 10:32AM
Skeptic in Tax policy

Garrett Gruener's op ed in today's LATimes deserves a read. It's a call from "one of the fortunate few in the top echelon of American earners" for raising tax rates on the rich back to the levels of the prosperous 1990s. Echoing some of my themes, he says this:

The supply-side, trickle-down economic policies of the last decade benefitted people like me, but the wealth didn't trickle down. So while we did quite well, people who live from paycheck to paycheck didn't.

When inequality gets too far out of balance, as it did over the course of the last decade, the wealthy end up saving too much while members of the middle class can't afford to spend much unless they borrow excessively. Eventually, the economy stalls for lack of demand, and we see the kind of deflationary spiral we find ourselves in now. I believe it is no coincidence that the two highest peaks in American income inequality came in 1929 and 2008, and that the following years were marked by low economic activity and significant unemployment.

What American businesspeople know, and have known since Henry Ford insisted that his employees be able to afford to buy the cars they made, is that a thriving economy doesn't just need investors; it needs people who can buy the goods and services businesses create. For the overall economy to do well, everyday Americans have to do well.

And then Gruener denies the whole supply-side argument for low tax rates on high earners:

Remember, paying slightly more in personal income taxes won't change my investment choices at all, and I don't think a higher tax rate will change the investment decisions of most other high earners.

What will change my investment decisions is if I see an economy doing better, one in which there is demand for the goods and services my investments produce. I am far more likely to invest if I see a country laying the foundation for future growth. In order to get there, we first need to let the Bush-era tax cuts for the upper 2% lapse. It is time to tax me more.

Meanwhile, Paul Krugman demolishes the idea that our current problem is not a deficiency in aggregate demand but is instead a mismatch of skills to jobs—a structural problem that just needs to left to work itself out or perhaps be assisted with retraining and education.

Every single major industry has seen a rise in involuntary part-time work; so has every major occupation. There's no hint that any major kind of labor, in any sector, is in short supply.

He goes on to present a chart showing that employers' dissatisfaction with the quality of labor has declined markedly in the Great Recession.

This strongly suggests that it's a weak labor market for everyone out there, and businesses have no trouble finding the workers they need; they just don't know what to do with those workers, given weak demand.

Article originally appeared on realitybase (http://www.realitybase.org/).
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