It's the economy, stupid

The trivially obvious necessity of higher taxes on the rich

Richard Parncutt
March 2016

 rp

The newspaper is full of bad news. We can't afford good education for our children, it seems. We can't afford universal health care for people whose health has failed them. We can't afford to stop climate change, which is going to destroy the world of our children after we die. We can't afford to build infrastructures for refugees, who are dying in boats trying to cross the Mediterranean. We can't afford official development assistance to help developing countries emerge from poverty, and we can't afford social services to eliminate poverty in rich countries. We can't afford to improve the situation of people who vote for extreme right parties, so they will stop hating the wrong people and threatening our entire democratic system. Governments can't afford to repay national debts, nor do they have clear plans for sustainably reducing them, which is threatening the entire economy.

The most important political problems are solved with money, and that is the first important lesson. Money can't buy you love, but money can solve political problems. Am I allowed to say that? It's obvious.

So where is the money for these tasks going to come from? Ask a stupid question... In fact, we are awash with money. A large proportion of the world's money is locked away in tax havens. For decades, the rich have been getting gradually richer, and the reasons are well-known: globalisation, technology, and a long period of peace among industrialised countries. Besides, anyone who has ever played the board game "Monopoly" knows that capitalism naturally expands the wealth gap. So it is absolutely unsurprising that the number of ridiculously rich people is increasing. Where is the money? Stupid question.

It's obvious that the money we so urgently need has to come from the pockets of the rich, and it is also obvious how to make that happen: taxation. Please note here that I am not making a political demand. I am simply saying something that is terribly obvious. If we are interested in the truth, we should start by telling it. Which raises a fundamental question: Are we interested in the truth or not? I mean really, I am asking a serious question and I would like a serious answer. Do we want to tell our children that the truth is ok unless for some reason you don't want to tell it, and then you should just lie? Is that the kind of world we want to live in?

The strange thing about this particular truth is, as soon as you say it people start to object. They immediately start to list all the reasons why you can't get the rich to pay more tax, as if it wasn't obvious already, and as if they were enjoying living in a society in which education and health care are not properly financed, climate change is going to destroy developing or tropical countries later this century, refugees are dying or being treated like criminals, developing countries are being exploited so they can never drag themselves out of poverty, and a third of the population of so-called rich countries are seriously thinking about voting for the extreme right. People react to the idea of taxing the rich as if all of these things were ok or as if you can't change them. This is called victim mentality.

The solution to victim mentality in this case is simply to tell the truth. Taxing the rich is the obvious solution to the listed problems, and it has always been the obvious solution. Taxation has always been oriented to the amount the people are capable of paying, and without this idea, we would not have the national states that we have today. There is nothing new about this, and nothing has ever happened to question its validity. There are not many universal truths in human affairs (sociology, politics and so on) but if there are, this is one of them. You can distort the truth as much as you want, but it will not change these obvious facts.

Yet as soon as you remind people of the fundamental importance of taxing the rich, they start talking kind of strange, like. What they say is largely comprised of what philosophers call logical fallacies. It's as if you had said: "I need some examples of logical fallacies for my philosophy class tomorrow. Could you give me some please?"

Some people think that if I want to increase taxes for the rich I must be a communist. And communists are bad people. Both statements are false. Take the first one. I believe in the capitalist system. I absolutely support capitalism if it is carried out honestly and fairly with appropriate democratic controls. I know that capitalism is the main reason for our high standard of living in industrial countries today. And I know that capitalism will only work sustainably if the rich pay more tax. Capitalism cannot work if people don't have any money to buy things. The widening wealth gap is not only risking all the problems listed above - it is also risking capitalism itself (not to mention democracy, in case you care about that). As for the second statement, I know lots of people who call themselves communists and none of them are bad people. Quite the opposite: they want the best for everyone. This is obviously what communism is about. It is what the word means. If communists are advocating a violent class revolution, then of course that is not good, and I reject it. But the idea of violent revolution is not part of the word "communist", and I don't remember ever meeting a communist who wanted that. Maybe I am missing something;-) And a further thing: there is an awful lot of violence in today's world, and it is obvious that it is being driven by capitalism and not communism. Need I say more?

Another logical fallacy is this: You can't make the rich pay more tax, therefore it is not correct that increasing taxes for the rich will solve the main political problems. Both parts of this statement are logically incorrect. In a democratic society, of course you can make the rich pay more tax, it's simply a matter of voting for representatives that will make the appropriate changes. And even if you could not do that, it would not change the second part of the statement, that increasing taxes on the rich is the easiest way to solve the listed problems. This is true regardless of whether it is practically possible to implement it.

Another common logical fallacy: If you increase taxes on the rich, the rich will just move their money elsewhere. Therefore it is not true that increasing taxes on the rich will solve the listed problems. The first of these two statements is misleading, and the second is false. Let's start with the second. It obviously does not follow from the first, because it is true regardless. As for the first statement, we know from countries with high taxes on the rich (Scandinavia is often cited) that the rich sometimes move their money away from such countries and they sometimes don't. We also know that the problem could be solved by an international agreement to globally harmonise wealth taxes. Again, this is an obviously true statement, but people are afraid to talk about it. They are afraid of giving the impression of being unrealistic or naive. But the truth is simple: If we don't talk about this, it will never happen, and if enough people talk about it, it will happen. If we want people to elect political representatives who are going to put this solution on the agenda at the appropriate international meetings, we have to talk about it! And when other people at those meetings start using victim language, saying "We can't do that",  the obvious answer is: Tell the truth! It is lying to say "we can't do that" when in fact we can do it. Besides, how else are we going to solve the above list of problems? Not by looking into a crystal ball, that's for sure.

If a politician is promoting victim mentality (as people often do) and saying "we can't do that", you can be sure that he or she cannot offer a clear alternative solution. If you ask again, they will present ad-hoc arguments that distract from the main issues, or they will pretend to know more than you about economics and introduce some obscure economic terminology in an attempt to impress you. It's a tried and tested strategy, but it is also dishonest, and there is also an obvious consequence: politicians should either cooperate, discussing important issues in an honest, direct, and cooperative fashion, or resign. Lying and distorting the truth are obviously not an option for politicians in a democratic system (if indeed the system is democratic); every voter will agree with that statement. It follows logically that even if most politicians are lying or distorting the truth on wealth tax, then they should all be exposed; and if they don't start speaking honestly, that should be the end of their political career.

Speaking of economics, you would expect any academic discipline to focus most of its research and teaching on the most important current questions ("hot topics"). The question of why and how to tax the rich is obviously the most important economic issue of our time, because the consequences of either succeeding or failing to tax the rich have massive consequences for everybody - rich, middle class, working class, industrial nations and developing nations alike. Every day, some 20 000 children die unnecessarily of hunger, curable disease, preventable disease or violence in developing countries, a problem that could have been solved by now if for example tax havens had been ended in the late 20th Century, the rich countries had met their development commitments since then, and there had been reasonable restrictions on the arms trade. These are central economic issues, but how many economists are talking about them, and of those, how many are clearly stating the obvious truths? Thomas Pikerty recently made a big splash by publishing the first good book on the wealth gap for years (Capital in the 21st Century); suddenly economists started talking about it as if it was a surprising new topic, and suddently the media started talking about wealth tax. What he was advocating was the only sustainable solution to most of the world's current problems. Then the topic disappeared as if nothing had happened. People don't want to solve problems, it seems. They would rather wallow in them, and then pass them onto the next generation.

This state of affairs is all the more surprising when you read how economists describe their own discipline. On the Wikipedia page "Economics" (16.3.2016), I read that "Economics is the social science that describes the factors that determine the production, distribution and consumption of goods and services." Well, it is surely a truism that the rising wealth gap and the tax havens are distorting all aspects of production, distribution and consumption - locally, nationally and globally. So why is the concept of the wealth gap, as measured by the GINI index, completely absent from this long Wikipedia entry? Unbelievable but true: you can't even find the words "rich" and"poor" on this page! Reading further, "The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, house) and νόμος (nomos, custom or law), hence rules of the house (hold for good management)." What more important "rule of the house" is there than to levy taxes fairly and to ensure that they are paid? There can be no economy without taxation, and their can be no healthy economy without fair taxation, as every first-year economics student should learn. But you won't read that on this page, nor are first-year students learning it, to my knowledge. Reading further, "...broad distinctions within economics include those between positive economics, describing what is, and normative economics, advocating what ought to be". That raises the obvious question of what "ought to be" about wealth tax? You won't find an answer on this page, although the answer could easily be written in one sentence. Reading on, "The ultimate goal of economics is to improve the living conditions of people in their everyday life." LOL. If economists were really concerned to improve the living conditions of people in their everyday life, they would all be advocating higher taxes for the rich and megarich. But hardly any are actually doing that, and if you ask them about it, you often get a lot of ifs and buts instead of a straight answer. Sure, the problem is a complex one, but the main solution is simple. So what's wrong with talking about it? Is taxation a taboo topic? Don't mention the war.

It is not as difficult as it may seem to solve this problem. Several countries already have wealth taxes, and there are many other ways of taxing the rich, including transaction and environment taxes. It is obvious that all such taxes must urgently be promoted, if we are to solve the world's main political problems. Anything else is nonsense. If we asked the electorate for their opinions, of course they would vote in favor of more wealth taxes, if it means that 1% of the people will pay more and 99% get more. So the question boils down to whether we are prepared to tell the truth or not, and whether we are prepared to actually be democratic (and not merely talk about it).

Or do we prefer to live in a world of delusion, where people are not prepared to take responsibility for the words that they say?
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