Richard Thaler in the NYT business section with the stated-as-gospel-truth chestnut that “high tax rates distort incentives” (read: I’m a capital fund manager now so I represent the wealthy, and I stand with N. Gregory Mankiw, that Big Establishment Mouthpiece, in defending the wealthy) that completely misses the Big Picture that America is falling apart, turning into a feudal society with attendant loss of productivity and distortions of aggregate demand. Just for fun I got the top marginal tax rates from the Tax Foundation for married filing joint (here) and plotted them against real GDP growth, smoothed and with postwar trend:
So if correlation were causation, we’d want to raise top marginal tax rates! But of course the hidden variable causing both is a (disintegrating) social contract.
That these mainstream guys can stare at the Big Picture—gigantic debt-to-GDP ratio, extreme concentration of wealth and income, banana republic national economic management—the biggest transfer of wealth from the middle class to the wealthy in history—all historical precursors of depression—and continue to spout the same of principles of macroeconomics platitudes indicates severe brain damage to me. Or just possibly an intellect compromised by where the corpus is getting its bread and butter.
The failure of our political system to make an intelligent choice on the tax deal (CBO estimates $900 billion added to deficit over five years) almost guarantees that there will be a credit markets catastrophe within a few years and a further collapse of U.S. domestic effective demand. Is this evidence of a higher intelligence at work in our social dynamics? Suggestive that only in the most extreme crisis will people become mobilized enough to attempt truly rational and just solutions to what ails us? And are the forces of the status quo ready to throw the U.S. economy down the drain to preserve, for some interval, their relative position? Because if the happiness literature has taught us anything, it is that relative position drives us human monkeys, and that all that stuff about “growth is good” has merely put us on a hedonic treadmill that goes nowhere fast. Above a certain level of real income, happiness appears to depend mostly on relative position and relative “socioeconomic status.”
Until the American people demand that sacrifice be shared the country will continue to split apart, methinks, into the lords and the serfs… or something we can hardly imagine.