Monday, February 20, 2017

Taxes, Economic Growth, and the Vast Sweep of History

A bit of Paul Krugman:
Kansas, dominated by conservative true believers, implemented sharp tax cuts with the promise that these cuts would jump-start rapid growth; they didn’t, and caused a budget crisis instead. Last week Kansas legislators threw in the towel and passed a big tax hike.

At the same time Kansas was turning hard right, California’s newly dominant Democratic majority raised taxes. Conservatives declared it “economic suicide” — but the state is in fact doing fine.
All the evidence seems to be that within the Overton window of American politics, nothing the government does has much of an effect on economic growth. Raising taxes, cutting taxes, passing regulations, repealing them –so far as I can see none of it has much impact on the big economic numbers. Maybe the details matter in particular industries and particular cities, but the economy as a whole just seems to rumble on, hearing its own drummer.

This has been much on my mind lately. Maybe, I have been thinking, the middle-class economy of the 20th century was mainly a product of vast techno-socio-environmental forces, and all the sound and fury of politics was window dressing. Not entirely; a glance at North Korea will show you that. But the economy is evolving in similar ways across the whole planet, and I have a sense that we are in the grip of gigantic forces we cannot control and barely understand.

Personally I dislike some of the changes taking place, especially ever-increasing inequality and the disappearance of middle class jobs you can get without years of post-secondary education. I would like to think that some combination of actions by our government would reverse those trends. But I am not at all sure. I worry that in economic terms the 20th century was a dream time born of technological and organizational changes, when we had just the right amount of automation to make workers productive but so much as to displace them completely, and just the right amount of bureaucracy to create lots of jobs but not enough to halt all progress.

I do think politics matters; even if everything is constrained by these vast, impersonal forces, we can still  make things more or less pleasant. But I suspect that the transformation so many long for, from Sanders leftists to Trump nationalists, is simply beyond our power.


Shadow said...

I agree we are in the grasp of forces we are not entirely in control of. Although never explicitly stated, this was one of Trump's messages. He swears he can control them, but I doubt it. But concerning taxes, could it be that a tax increase or tax cut could be bad or good or a wash depending on many economic factors at the time the tax is levied? Should taxes be something we are ideological about? Ideally I would think taxes would come and go, removing some and adding others as spending, needs, and economic indicators change.

The type of tax matters too. Taxing non-prepared foods in a supermarket, like vegetables and fruits, is regressive I think, and not unlike taxing the air we breath. There is no such federal tax, but there are some states that levy such a tax.

John said...

I suspect taxes do have some effects. I was just writing about the big numbers -- GDP growth, unemployment, etc. And I was just writing about the range of taxation we have in America over my lifetime, not 99% taxation or the like.