At TNR today, John Judis has a must-read piece that challenges much of today’s economic policy orthodoxy. Instead of worrying about how much we can tax the very wealthy without inhibiting their life-giving, job-creating pollination of economic growth via capital investment, says Judis, we ought to recognize that higher taxes prevent the rich from destabilizing speculation at the expense of the consumption that actually drives growth:
When firms suffer from global overcapacity or merely from domestic overproduction – when a glut arises of automobiles, ships, textiles semiconductors or fiber optic cable — as happened in the late 1920s and again in the earlier part of the last decade, the wealthy, joined by corporate treasurers and bankers, have tended to pour their money into speculation rather than productive investment. The financial sector has become a casino for the rich, where they have gambled away funds that could have fueled the economy. So redistributing income through tax policy isn’t just fair; it is one way to began restructuring the economy to prevent future slowdowns and crashes.
So according to this perspective, we should no long think of progressive tax rates as a furtive effort to snatch some resources from the natural aristocracy of economic life. Inequality tends to produce not only offenses to justice, but the kind of instability that afflicts us so notably today.
