Tax the Rich?

Interesting “Ted Talk”: should we tax the rich

The speaker argues that, yes, we should. He really attacks the theory that the rich are job creators by advancing a pretty simple Keyensian argument: that what really matters in an economy is aggregate demand. When consumers demand things, then businesses can hire people, which in turn feeds consumer demand. The rich don’t spend that much, they mostly save, and so it would be better to put this money either into the pockets of poorer people, or into public services that benefit poor and middle class Americans. He argues that this isn’t going to reduce “jobs” because more people will be spending, and that will induce businesses to hire more.

A few comments.
1. This is not even close to a remotely new idea. Why not have an actual economist like Paul Krugman on TED? For some
reason, Keynes seems more risqué when coming from the mouth of a capitalist, I guess.


2.The big problem here is that It assumes that “low aggregate demand” is the cause of unemployment. That is just a theory. There are lots of economists who argue unemployment is caused by structural factors: a mismatch between the skills in the economy and the technology that is out there. In the structural story, you need entrepreneurs to come along and use this new labour for something. Jobs are not created, but “discovered”. And, in this climate you don’t want high taxes on capital gains to deter potential investors. You want to make it easier for business people to do business.

3. It assumes that fiscal policy can increase demand, and therefore jobs. Once again, there is tones of economic literature on this and it’s not clear that things work this way in practice.

4. Ignores many “micro” effects of taxation on peoples behaviour.

5.Assumes the government will act in a benign manner. But governments are not perfect and they respond to political incentives.

Overall, the talk does a good job of conveying the idea in 5 minutes. But it’s an overly simplistic idea, it’s not new or really that innovative, and it’s not without its problems.