A Growth Strategy
J. H. Moromisato
The Economist, a popular weekly magazine covering global economic and political affairs, manages to keep us abreast of the important news happening throughout the four corners of the world; and it does it with penetrating analysis on a wide array of subjects, and with a style of its own. The magazine’s main weakness, though, is that its editors are strong believers of supply-side economics—that slow, or lack of economic growth is mostly due to lack of investment; thus all their economic advises, which they push with undisguised passion, centers around more investment, especially that from governments, even those, as the U.S., that are already saddled with very high fiscal debts.
In one of its recent issues (May 24th-30th 2014), in its leader “In need of new oomph”, it shows concern about the ‘disappointingly weak… [world’s economy]’, and mentions the standard solutions, “”that the central banks loosen monetary conditions further and keep them loose for longer,” but only to add that “over-reliance on central banks may be a big reason behind the present sluggishness.” It ends up proposing two “more balanced growth strategies”: One, to “boost public investment in infrastructure”, and two, “a blitz of supply-side reforms.” That has never really worked anywhere it had been applied–Remember that the much vaunted U.S. economic growth following the supply-side policies of the Reagan and following administrations went almost exclusively to fill the pockets of the top 1%.
The glaringly obvious solution, to substantially increase taxes on top earners—the 0.5% in the U.S.—is never mentioned, even as a possibility. That would of course be contrary to the editor’s belief in supply-side economics—based on low taxes for the rich.
As I have shown in my recent book, “A Theory of Tax Fairness”, unfair taxation, especially in the U.S., is the biggest cause of reduced economic demand at both ends of the income scale: the very rich do not want to consume their income; and the poor lack the income needed to consume. In addition, insufficient taxes prevent the government from filling such demand gap. Higher taxes on the very rich will increase government spending, increase the level of employment, and provide the poor with sufficient income to increase their own demand; that is the virtuous cycle that leads to economic growth.