First, if you’re a simple soul and/or of a socialist disposition, you’ll agree
with the IMF because taxing the rich for you is a priority.
Second, if you’re a bit more sophisticated you’ll argue that the IMF proposal
is a good one because taxing the rich does not greatly affect the weekly
spending of the rich, so government finances improve, while there isn't much of
a cut in aggregate demand, and hence much of a cut in numbers employed.
Third, if you’re really sophisticated, you’ll object to the IMF idea on the
grounds that the question as to what the optimum distribution of wealth is is
ENTIRELY SEPARATE from the question as to questions surrounding stimulus,
deficits, national debts, etc. To illustrate, if for the sake of argument the
distribution of wealth is currently at its optimum (which it doubtless isn't),
it is not very clever to disturb that optimum with a view to dealing with an
entirely separate issue: stimulus, deficits, national debts, etc.
That’s a bit like arguing that because the resistance between your car
tyres and the road varies inversely with tyre pressure, therefor you should
keep the pressure at double the car manufacturer’s recommended pressure with a
view to improving fuel consumption. Over inflating car tyres does indeed bring
better fuel consumption, but it’s at the expense of tyre wear, the car’s
handling characteristics, etc. So on balance, over-inflating is not a brilliant
idea.
To put all that yet another way, the above IMF idea contravenes the
Tinbergen principle. Jan Tinbergen
was a Nobel Prize winning economist, and his principle was roughly along the
lines that each policy objective requires one policy instrument, and moreover,
if a given objective needs adjusting, that should be done with or via the
relevant policy instrument, not via some other policy instrument (which is what
the IMF proposes).
A bigger national debt?
However, unsophisticated folk will object to that Tinbergen argument on
the grounds that if the rich aren’t taxed, that means a correspondingly larger
deficit, which in turn leads to a larger national debt.
I gave the answer to the latter point in this post.
And the point I made there was essentially the same as Keynes dictum: “Look
after unemployment and the budget will look after itself”. Or in plain English:
“Stuff the deficit and debt: they are total and complete non-problems.”
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