4 ms·

Interesting that they try to pin the failure of the Bretton Woods system on some shadowy backroom figures instead of 1) the US inflating the dollar well past th

Interesting that they try to pin the failure of the Bretton Woods system on some shadowy backroom figures instead of 1) the US inflating the dollar well past the amount of gold backing it, 2) governments cashing in their dollars for gold @ $35/oz and making a profit by selling it on the international market for its true market value and 3) the French calling for a return to a true gold standard...because who doesn't like to blame the French? My understanding of the main argument put forth in the article is that capital controls are the answer to global inequality?

Lazare 8y ago
Yeah. Netting it down to the essence, the proposed explanation for the collapse of Bretton Woods seemed to be "USD inflation". Which is sure, plausible enough, I suppose. Unfortunately they then threw up their hands, ignored everything we know about inflation in general or that inflationary period in specific, and come up with some weird story about how 70s stagflation was actually caused by South American dictators stashing money in Swiss bank accounts and then lending the money to the Italian government to build motorways. A+ for imagination, but yeah, actually, the US just printed a ton of money. It's not a huge mystery! > My understanding of the main argument put forth in the article is that capital controls are the answer to global inequality? And yes, that was the other big weakness. Their argument for capital controls seems to mostly be "inequality was better when we had capital controls, so clearly capital controls caused lower inequality". There's no real attempt to outline a mechanism for this. There's an implication that capital controls allowed higher marginal taxes which in turn financed higher spending, but if you actually look at government spending, this is clearly nonsense. The UK has been spending between 35% and 45% of GDP on government since the 1950s, with no correlation between the start or end of Bretton Woods. Extremely high marginal tax rates may lead to good song lyrics, but they don't necessarily collect a lot of actual money.
- yuhong 8y ago
  The fun thing is that while I focus mostly on the US debt-based economy, the UK don't seem to be much better today.
- hristov 8y ago
  Obviously, if there is higher tax rate on higher incomes this will reduce inequality even if the net amount of taxes collected stays the same.
  - Lazare 8y ago
    That's a lot less obvious than you'd think, in large part because people have so much scope to react to changes in tax rates by restructuring their income, sheltering it, etc. The impact of taxation on inequality is empirically much lower than the impact of spending. You can see this, eg, by looking at the Nordic countries, which have relatively flat taxes skewed towards regressive taxes like a VAT, but low inequality, while countries like the US have very progressive income tax structures but high inequality. The difference, at a very high level, is that Denmark spends money on the poor, and the US spends it on the upper middle class. :) You can see this clearly looking at the first graph here: https://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-abroad/ https://lanekenworthy.net/2008/02/10/taxes-and-inequality-le... Inequality is reduced via spending, not taxes; taxes are primarily useful as a revenue source.
hristov 8y ago
You are right that the article did not mention a lot of important factors in bringing down Brenton Woods. The most important being the deficit spending of the US due to the vietnam war and the resulting inflationary pressure on the dollar. The second most important was England's delusional attempts to keep the pound expensive in relation to the other european currencies despite the fact that the french and german economies were clearly outperforming England. So you have a point there. Regarding your last sentence, I think the point of the article is that capital controls perhaps acted to prevent a lot of the inequality that emerged after they were lifted. There is no doubt that the years under bretton woods saw the fastest economic growth and improvement in living standards of average people in Western Europe and the US recorded in known history. Perhaps bretton woods was not the only thing to thank for that, but perhaps it had some influence. It also cannot be denied that the lack of capital controls allows corrupt leaders to whisk large amounts of money away from countries in distress or in political turmoil.

Lazare 8y ago

Yeah. Netting it down to the essence, the proposed explanation for the collapse of Bretton Woods seemed to be "USD inflation". Which is sure, plausible enough, I suppose. Unfortunately they then threw up their hands, ignored everything we know about inflation in general or that inflationary period in specific, and come up with some weird story about how 70s stagflation was actually caused by South American dictators stashing money in Swiss bank accounts and then lending the money to the Italian government to build motorways. A+ for imagination, but yeah, actually, the US just printed a ton of money. It's not a huge mystery! > My understanding of the main argument put forth in the article is that capital controls are the answer to global inequality? And yes, that was the other big weakness. Their argument for capital controls seems to mostly be "inequality was better when we had capital controls, so clearly capital controls caused lower inequality". There's no real attempt to outline a mechanism for this. There's an implication that capital controls allowed higher marginal taxes which in turn financed higher spending, but if you actually look at government spending, this is clearly nonsense. The UK has been spending between 35% and 45% of GDP on government since the 1950s, with no correlation between the start or end of Bretton Woods. Extremely high marginal tax rates may lead to good song lyrics, but they don't necessarily collect a lot of actual money.

yuhong 8y ago
The fun thing is that while I focus mostly on the US debt-based economy, the UK don't seem to be much better today.
hristov 8y ago
Obviously, if there is higher tax rate on higher incomes this will reduce inequality even if the net amount of taxes collected stays the same.
- Lazare 8y ago
  That's a lot less obvious than you'd think, in large part because people have so much scope to react to changes in tax rates by restructuring their income, sheltering it, etc. The impact of taxation on inequality is empirically much lower than the impact of spending. You can see this, eg, by looking at the Nordic countries, which have relatively flat taxes skewed towards regressive taxes like a VAT, but low inequality, while countries like the US have very progressive income tax structures but high inequality. The difference, at a very high level, is that Denmark spends money on the poor, and the US spends it on the upper middle class. :) You can see this clearly looking at the first graph here: https://lanekenworthy.net/2008/02/10/taxes-and-inequality-lessons-from-abroad/ https://lanekenworthy.net/2008/02/10/taxes-and-inequality-le... Inequality is reduced via spending, not taxes; taxes are primarily useful as a revenue source.

hristov 8y ago

You are right that the article did not mention a lot of important factors in bringing down Brenton Woods. The most important being the deficit spending of the US due to the vietnam war and the resulting inflationary pressure on the dollar. The second most important was England's delusional attempts to keep the pound expensive in relation to the other european currencies despite the fact that the french and german economies were clearly outperforming England. So you have a point there. Regarding your last sentence, I think the point of the article is that capital controls perhaps acted to prevent a lot of the inequality that emerged after they were lifted. There is no doubt that the years under bretton woods saw the fastest economic growth and improvement in living standards of average people in Western Europe and the US recorded in known history. Perhaps bretton woods was not the only thing to thank for that, but perhaps it had some influence. It also cannot be denied that the lack of capital controls allows corrupt leaders to whisk large amounts of money away from countries in distress or in political turmoil.