The allure of financial markets lies not in their predictability but in their seeming potential for it. While the economy and these markets experience ebb and flow in discernible cycles, perfect repetition is a myth. A year marked by a wheat shortage often gives way to a bountiful harvest the next, contingent upon no natural disasters thwarting the yield.
Financial systems are inherently dynamic. They expand and contract, endlessly adapting and evolving in response to shifting inputs, innovations, and the interactions of the people and resources that drive them.
The economy is also influenced by government actions and central planners’ decisions. A light governmental touch nurtures a vibrant and innovative economy, while a heavy-handed approach tends to stifle it, creating a sluggish, predictable environment.
Moreover, the integrity of a currency and the availability of credit deeply impact economic vitality. An economy backed by robust currency and tight credit is industrious and honest, whereas one reliant on inflated monetary systems and easy credit tends toward wastefulness and deceit.
Preparing for an Alien Invasion
Shifts in attitudes toward government and credit occur over generations. One era may indulge in borrowing and spending, fostering widespread social welfare programs, while another may prioritize saving and debt reduction, exhibiting skepticism towards political promises.
Graphs and models fall short of predicting these behavioral shifts or the effects of groundbreaking technological advancements that reshape societies. Yet, academic economists often attempt to articulate the economy’s complexities with a precision reminiscent of calculating the area of a circle, even garnering Nobel Prizes for their efforts, sometimes to laughable ends. With pie charts and aggregate statistics in hand, they offer theoretical frameworks governing the economic machinery, frequently proposing programs to enhance their findings.
Among the more persistent figures in contemporary economic discourse is Paul Krugman, a 2008 Nobel laureate. His opinions are unyielding, often presented with an air of superiority. Few challenges escape his perceived expertise, as he seemingly has solutions to manifold problems.
A few years back, Krugman’s enthusiasm for Keynesian economics led him to an unusual stance: he suggested that to propel economic growth, significant borrowing aimed at preparing for an alien invasion could be beneficial.
This notable illustration of Krugman’s theoretical ventures sets the stage for what follows…
Washington’s Latest Match Made In Hell
The recent mid-term elections underscore a strong public desire for a comfortable life supported by an expansive government role. Alexandria Ocasio-Cortez, at just 29 years old, has been elected to the House of Representatives from New York’s 14th district, embodying this sentiment.
As a self-proclaimed socialist, Ocasio-Cortez aims to fulfill her constituents’ demands for free schooling, free healthcare, and even guaranteed income for jobs that often resemble adult daycare.
One proposed solution was her suggestion to raise the marginal tax rate on top earners to 70 percent, diverting these funds into a comprehensive “Green New Deal” intended to combat climate change.
In a recent article titled The Economics of Soaking the Rich, Krugman endorsed Ocasio-Cortez’s tax plan, arguing that tax policies concerning the wealthy should focus solely on revenue generation. He stated:
“Tax policy toward the rich should have nothing to do with the interests of the rich, per se, but should only be concerned with how incentive effects change the behavior of the rich, and how this affects the rest of the population.
“In essence, when taxing the wealthy, our primary concern should be maximizing revenue. The ideal tax rate on very high earners is the one that generates the most income.”
Krugman referenced academic studies suggesting that the optimal tax rates for high earners might reach 73 percent or even exceed 80 percent. By his own logic, Ocasio-Cortez’s proposal might fall short of achieving true economic redemption for the public.
However, Ocasio-Cortez and Krugman appear to have formed a partnership fraught with peril. Should a Green New Deal financed by a 70 percent tax rate be implemented, it is likely to yield outcomes starkly different from Krugman’s optimistic projections. As history shows, both economies and their constituents adjust to the extent of planning and governmental intervention imposed upon them.
Thus, the promised utopia of individuals profiting from selling solar power back to utilities may ultimately crumble. Instead of increased revenue, we may witness an accumulation of debt coupled with disillusionment.
Sincerely,
MN Gordon
for Economic Prism
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