More Economics Folklore on the Left, Part II of II

Follow-up on Part I, with more of my pet peeves.

Taxing the Rich and Corporations

I’m all for taxing capital (i.e., “the rich” and corporations). I wouldn’t blanch at a wealth tax. My point is that they don’t solve the problem people think they do.

To be sure, the existing tax system could be much more productive and progressive. It could finance a historically significant expansion of public spending. What it cannot do is finance social-democracy. Those who think it can have not checked the numbers, or they live in some fairy-land where you don’t need taxes for public spending.

Thanks to my friends at Citizens for Tax Justice, liberals have focused more on the distribution of the tax burden than on the overall distribution of fiscal policy (taxes and spending, together). It has been a crutch, in keeping with the old rhyme, “Don’t tax you, don’t tax me, tax the fellow behind that tree.” We can have more nice things, but you won’t have to pay for them. This persuades nobody, and for good reason, since tax increases do tend to be taken over by a logic of expansion, though it does tend to devalue the nice things to free stuff.

Social-Democracies rely on mass taxation, including consumption taxes such as the value-added tax, essentially a sales tax. They reduce inequality with spending, not taxes. That means a tax share of GDP of forty percent or more. The U.S. (Federal, state, and local combined) is hovering well under 30. Taking it up to 35 would drive the right crazy. The job for the Left is to sell the spending. Then the taxes can be accepted.

I did a panel years ago in Canada, selling the same spiel. To the foreigners it was a commonplace. Only in the U.S. do we have blinders on this question. It has something to do with the unjustifiable elevation of deficit reduction over new spending, and the unwelcome, illiberal, unconstructive mania for “pay-fors” in budget debates. Thankfully we hear less of that these days. Of course we never need ‘pay-fors’ when it comes to military spending.

Trump has his own nutty take on how to spare you from taxes. You won’t have to pay taxes because foreigners will pay them. Just like you don’t pay sales taxes because the store pays them.

Finance Vs. Manufacturing

I was on this kick myself for a while. It’s an old populist thing (real populism, not the rubbish currently referred to), the bankers versus the producers. “We don’t make things anymore in the U.S.” Actually, we make plenty, it just takes fewer workers.

The fact is that most corporations engage in financial manipulations, so the separation between manufacturing and finance is more mythical than real. As Marx put it, capitalists are about turning money into more money (“M-C-M”).

It is true that the “FIRE” sector (finance, real estate, insurance) has grown relative to manufacturing and the rest. I also take the point that financialization facilitates the mobility of capital and the weakening of the labor movement.

It is reasonable for an industrial policy to consider ways to expand sectors that pay well, also known as “high value-added.” The Biden Administration is onto that, albeit mostly through the use of corporate subsidies and tax credits.

Health Insurance Is Killing Us

It is natural to fixate on the inscos, since they are the intermediaries between patients and the medical care they need and buy. Like everyone else, I’ve been enraged by the denial of coverage in crucial situations.

The fact is the insurance companies, predatory though they may be, are still intermediaries. U.S. health care costs have been burgeoning like mad for decades because of the prices charged by health care providers. That means physicians, facilities with fancy machines, and big Pharma. Nobody here wants to rip the underpaid souls who provide nursing care and custodial services.

Medicare For All with current pricing would blow up health care costs all the more. The power of M4A would lie in its monopoly power to jam the providers, hints of which we see now in the reduction of a handful of drug prices for some fortunate patients. Even a British system would be handicapped because it would have to do business with the private sector, though a ton would be saved if, like the Brits, the doctors were all public employees. It’s not such a wild idea for the U.S. That’s how the Veterans Administration works.

A big unmet need, something you discover in old age, is that there is scant coverage for those with chronic, debilitating conditions that require some kind of assistance. If you come out of the hospital after a major health care episode, Medicare only provides limited-time support (meaning less than three months) for rehabilitation and the like.

If you want to go on Medicaid, you have to have no money or spend all your money (or have the foresight to set up a special trust for it five years in advance). And the Medicaid benefits have to be paid back upon the decease of the beneficiary, if there is any money left in that trust account. Moreover, the facilities available to those on Medicaid are a wretched sight. I wouldn’t wish residence in them on my worst enemy.

Kamala’s recent foray in this field plays to an important gap in U.S. welfare state benefits. I predict the price tag will surprise people, though it won’t put my nose out of joint. We will end up in an ObamaCare situation where the politics of the sticker price will contract the benefits provided. We will still end up better off, though it might not be much to write home about. That’s how reform works. Two steps forward, one step back.