Friday, May 4, 2007
Larry Elliott, economics editor
Thursday January 25, 2007
The Guardian
A backlash against the economic insecurity caused by globalisation is looming in the west unless governments tackle growing inequality by raising taxes on the rich, economists said in Davos yesterday.
After years in which workers have received an ever-smaller share of national incomes, business leaders arriving for the World Economic Forum were told to expect a reversal of pro-rich tax policies.
Robert Shiller, a Yale economics professor, said: "We need mechanisms to adjust tax systems so that they become more progressive if inequality gets worse.
"There are people left behind [by globalisation]. We need to take steps now to design a plan so that if inequality gets worse, governments raise taxes on the wealthy. It's got to be that way."
Professor Nouriel Roubini, chairman of Roubini Global Economics, said the old social contract in which governments ensured good wages, social security and health care was under pressure from the rise of
Besides higher taxes on the rich, governments needed to invest in training, education and be prepared to subsidise wages. "We have to do something or the backlash is going to be very, very severe", he said.
Stephen Roach, chief economist at Morgan Stanley, said there were signs that inequality was leading to political shifts. "Look at the shares of national income in the major economies of the developed world. The share going to labour is at historic lows; the share going to capital is at historic highs.
"The [political] pendulum is moving left towards politicians more in favour of pro-labour economic policies. There is potential for a shift in the relationship between labour and capital."
The warnings came as a PricewaterhouseCoopers poll of senior executives found that the longest sustained period of economic growth since the second world war had left more than 90% expecting their businesses to grow in the coming year - twice the figure five years ago.
Prof Roubini said there was a risk in the
"The Goldilocks economy is being threatened by the three bears. I worry about a
Jacob Frenkel, vice-chairman of the American International Group, disagreed. He said the depth of financial markets and the pro-market policies followed by governments would make for smoother transitions than in the past.
"The reality is we see a lot of ugly bears grow horns and become bulls."
-------------------------------
Reflections:
The economists suggestion on higher taxes on the rich would definitely help to reduce the inequalities that are present within societies, however, this suggestion has many flaws, that would cause its own set of problems if implemented.
Higher taxes would first reduce the inequalities because it means that the richer pay much more, thus they will have lesser money. These taxes would then be used to improve social services, as well as used to provide subsidiaries and financial aid to the poor, helping them to progress along with the country.
This seems to be a good plan to help the poor that are left behind by globalization to get back on their feet, and be closer to the rich in terms of financial power. However, economist fail to deal with another problem that would arise with the implementation of this suggestion. That problem would be whether it is fair to “take” money from the rich to help the poor.
The rich might not be happy with this idea, and will be infuriated that they are treated this way, if taxes are raised because people want to reduce wealth inequalities. They might think that economist are just jealous that they are reach and cannot be as rich as them, therefore, they go through unscrupulous means to try to make themselves poorer. This would not be healthy for both the country, the poor, and the businessman themselves.
The rich, being professional in the areas of expertise, provides a lot of contribution to the development of the economy by investments. Heavy investments mean one thing – that the government and its economy will stand to gain because these investments would make them richer. If taxes were raised, some rich businessmen would pull out of the investments, or even invest elsewhere. This would result in the lesser investments in the country itself and thus would result in decline in economic development. Decline in economic development would have knock on effects on the poor in the country because it means less funds to help the poor.
Many argue that the rich people have so much more money than they need, but the fact is, no one is willing to contribute a large portion of their money to help the development of things that do not even affect them. In fact, the poor getting richer might even pose a future threat to them. Thus, they would not be willing to pay higher taxes.
Businessman would also be unhappy about the fact of why they are the ones providing the funds to help the poor and it is not the government who are helping the poor instead.
The fact that many major business man do not want to pay taxes, are shown in the fact that many businesses are registered in off shore islands, or countries with low taxes. This way, businessman would have to pay minimal or no taxes at all, and continue using their money to invest in more businesses, and reaping profits along the way.
However, it is agreeable that the rich should contribute some of their excess wealth to help the very poor out of poverty and lead a decent modern life. After all, they are the ones with so much extra cash and are the ones who live a life of extravagance. Thus, It seems that the only possible and logical way is to increase the taxes of the rich for funding.
Therefore, despite the fact that it would be very unfair to increase the taxes of the rich to high rates, it has to be implemented. A solution could be reached; the rich should no doubt be taxed more, but not at outrageously high rates, thus, in this way, governments have more taxes to use for funding and the rich do not have to pay too much of taxes. And it is only through this way, that one of the main ideals of globalization can be reached, and that is progress for the world as a whole.
Future Perfect; Economic Expert 6:21 AM
