Useful facts about economics for lefties

Two useful resources for lefties:

1. via Duncan, an IMF research paper on how increasing workers' wages is key to preventing future financial crises:

"For long-run sustainability a permanent flow adjustment, giving workers the means to repay their obligations over time, is therefore much more successful than a stock adjustment, unless the latter is extremely large.

Any success in reducing income inequality could therefore be very useful in order to reduce the likelihood of future crises...[for example] a switch from labor income taxes to taxes on economic rents, including on land, natural resources and financial sector rents...And as far as strengthening the bargaining powers to workers is concerned, the difficulties of doing so have to be weighed against the potentially disastrous consequences of further deep financial and real crises if current trends continue."

If we want to reduce the risk of another economic crisis, and are worried about the level of debt which households and government has, then the evidence here is that it is essential to strengthen the bargaining power of workers against investors (defined as the top 5% wealthiest).

2. The Realignment Project demolishes the arguments put forward by right-wingers in favour of the Laffer Curve:

"A progressive counter to this theory would be to ask – what about government spending, or in other words, social consumption? Because what the Laffer Curve leaves out, and this is endemic of conservative thought, is what taxes pay for. Keep in mind that the premise of the Laffer Curve is that revenues decline because people stop working when taxes eat up their income. However, if we think of taxes as financing the collective or social consumption of goods – what scholars sometimes call the “social wage;” think things like Social Security and other forms of government-provided income – then a decrease in after-tax wage income might be matched by an increase in the social wage, such that real income doesn’t change at all and eliminating any disincentive effect. Indeed, when we think about the actual distribution of income, taxes, and public benefits, for many people the change in income might actually be positive."

Specifically, government action to create jobs can create all kinds of positive benefits:

"By showing how the huge dead-weight loss of unemployed labor – both in terms of lost consumption and lost production – has to be included as an “opportunity cost” inherent in the laissez-faire model, the Baxter Cycle shows that government efforts to provide equal protection against unemployment can actually raise production and produce a more prosperous, more secure, and more just outcome.

And ultimately, this is why conservatives want to believe in an economic law that limits the size of government and proclaims the futility of expansion – because a government that can alter that balance between individual and social consumption threatens the assumed inevitability of the free market. And a theory that suggests to the contrary that the people have the ability to change how consumption is organized for the better is quite powerful weaponry in the rhetorical battle over taxation and government."