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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

by 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.

by Lazare 8y ago

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.