Greece's financial troubles have slipped from the headlines lately, but the financial apocalypse that began there with the Great Recession continues. Now the Organization for Economic Cooperation and Development has made it clear it wants the rest of the developed world to imitate Greece, as it stated in a recent report:
Fiscal redistribution through taxes and transfers plays a crucial role in containing the impact of market income inequality on disposable income… Policies aimed at promoting growth should consider how growth will have an impact on many other outcomes, and how to ensure that those policies avoid the “grow first, distribute later” assumption that has characterised the economic paradigm until recently. It is now clear that growth strategies need to consider from the outset the way in which their benefits will be distributed to different income groups. … Inequalities tear at the fabric of our societies. Inequality of incomes translates seamlessly into inequality of opportunities for children, including education, health and jobs, and lower future prospects to flourish individually and collectively. …inequalities are reaching a tipping point.
Strengthening inheritance and gift taxes can support inclusive growth. … Inheritance taxes can…help achieve intergenerational equity goals. …In order to be effective, inheritance taxes must also be combined with taxes on gifts and wealth transfers during the taxpayers’ lifetime, as well as with measures to address avoidance and evasion.
Sufficiently generous unemployment benefits and social-assistance systems with a wide coverage are also a key.Boiled down, the OECD is saying the poor have given the rich an ultimatum: pay us or we'll tear your society apart. But Greece's problems come from its attempt to pay the extortioner. For decades it sought to reduce inequality by taxing the rich and giving to the poor. Eventually, taxing the wealthy didn't provide enough revenue to pay the poor so the government had to borrow from wealthier nations to keep the extortion payments going. By 2008 it could no longer repay the debt. And if extortion doesn't motivate us, the OECD threatens economic growth:
Widespread increases in income inequality are a source of concern…for their potential impact on economic performance. …recent OECD work estimates that rising inequality between 1985 and 2005 might have contributed to knocking more than 4 percentage points off growth between 1990-2010.
Mainstream economics assumes growth just happens. It’s autonomous, as they say. Profits automatically re-invest themselves in the appropriate plants and equipment. That’s why CEO’s make too much in the fevered imagination of the left. They don’t do anything that a monkey with two bananas couldn’t do. And since growth just happens, no amount of taxation will hinder it. But the OECD claims that inequality can hinder growth.
OECD economists appear to be completely ignorant of economic history. Nobel-Prize winner Robert Fogel wrote in Escape from Hunger and Premature Death that freer markets reduced inequality in the England from about 90 as measured by the Gini index in 1700 to about 45 by 1900. The US probably followed a similar trajectory. The US then continued to reduce inequality to about 30 in the 1960s. It has risen since then to around 35 and the left is hysterical.
Economists obsessed with inequality should ask themselves how is it that inequality has been rising in the West, including socialist Europe, during decades in which we have become more socialist? The US implemented the welfare state in the 1930s. Then in the 1960s the US launched Johnson's Great Society war on poverty with vastly increased payments to the elderly and poor. Clinton put minor restrictions on welfare payment in the 1990s, but today the US is spending vastly more on reducing inequality than ever in its history, yet inequality is growing. How is that possible?
The answer is that socialism increases inequality. Socialism has never reduced inequality. Some of the greatest inequality in the world existed in the communist nations of the USSR and China. Inequality is off the charts in the socialist paradise of North Korea. Socialism increases equality among the masses by making everyone equally poor, but the elite, such as Al Gore, become increasingly rich. While 30 million people were starving to death in the USSR and China the elite in the Communist Party lived liked princes.
Arnold Kling predicted that mainstream economics will become increasingly socialist and the OECD is proving him correct. Of course, it's well known that Richard Ely founded of the American Economic Association to promote German style socialism in the US. Catering to the OECD's obsession with inequality will plunge all of the West into the sink hole of socialism behind Greece.