Tax cuts for top earners fail because the theory is broken

by Ha-Joon Chang

Tax breaks for the wealthy were meant to trickle through society to benefit all. It didn’t work and inequality just got worse, says an economist

ADVOCATES of trickle-down economics argue that, when the rich get extra income, they invest it and create more jobs – and a higher income – for others. Those people, in turn, spend their extra money. Eventually the effect trickles down the whole system, making everyone better off, in absolute terms.

So, what seems like a moral outrage – giving more to people who already have more – is in theory a socially benign action.

The trouble is it hasn’t worked. In the past three decades, states with pro-rich policies have seen economic growth slow, except in countries like China and Vietnam that needed to jump-start socialist economies.

In the UK, upward income redistribution since 1980 has seen the share of the top 1 per cent rise from 5 per cent of national income to over 10 per cent. Yet the annual growth rate of income per person has fallen from 2.5 per cent between 1960 and 1980 to 1.8 per cent between 1980 and 2013.

One reason is that the rich have not kept their end of the bargain – they didn’t invest more; and inequality, linked to poorer health and societal damage, worsened. Investment as a share of GDP used to be 18 to 22 per cent in the 1960s and 1970s but since then has been 14 to 18 per cent, except for a few years at the end of the 1980s.

Moreover, concentration of income at the top has boosted the political influence of the super-rich, allowing them to push for policies that benefit themselves but create harm in the long run. For example, the UK financial sector successfully lobbied for “light-touch regulation”, which enabled it to earn a lot but led to the 2008 financial crisis.

It is well established that a less equal society has lower social mobility. When talented people from less privileged backgrounds cannot move up the social ladder, the economy’s long-term dynamism suffers. An increasing number of studies show that, above a certain level, higher inequality harms growth. Some are by the International Monetary Fund and Organization for Economic Cooperation and Development, which didn’t use to be concerned about inequality.

Despite these failings, some politicians still back measures that benefit the wealthy, often citing trickle-down economics. In the UK, the Conservatives cut taxes for the top earners while in government. They want to slash inheritance tax for wealthier estates and cut the numbers paying higher-rate tax. The UK Independence Party has a similar stance on higher-rate tax and wants zero inheritance tax.

The 35-year experiment with trickle down economics has failed for most people. Unfortunately, there is too much money and power at stake for its true beneficiaries to accept this reality and end this approach.

This article appeared in print under the headline “Defying gravity”

Ha-Joon Chang is an economist at the University of Cambridge. His latest book is Economics: The user’s guide (Pelican)

Courtesy: Newscientist
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Australia – Regional unemployment hits 12-year high

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The unemployment rate in regional Australia has risen to 7.3 per cent, a 12-year high, as job demand shifts increasingly to major cities with the winding down of the mining construction boom.

Regional Australia has not experienced unemployment rates this high since March 2003, with regional NSW recording the largest increase in jobless rates in the past three months, particularly in the Hunter Valley and Newcastle – big coal-producing regions.

Regional Australia Institute (RAI) says analysis of this week’s Bureau of Statistics quarterly employment data shows the unemployment rate in regional Australia, in non-seasonally adjusted terms, remains structurally higher than in capital cities.

Read more » The Age
See more » http://www.theage.com.au/federal-politics/political-news/regional-unemployment-hits-12year-high-20150424-1msjaq.html

Devastation in Nepal after huge earthquake

A huge earthquake has shattered Nepal on Saturday, causing widespread destruction and loss of life.

People covered in debris are being dragged from under crumpled buildings, and ancient temples have morphed into piles of rubble. As night fell the death toll has already hit 700 people, with the magnitude 7.8 quake also causing deaths in neighboring countries.

Strangers in the poor nation came together to search for survivors in the destruction, as they braced for news of a possible death toll in the thousands.

Read more » Mashable
See more » http://mashable.com/2015/04/25/nepal-earthquake-photos/#:eyJzIjoidCIsImkiOiJfbG5ieHk4am80cmV4ZmJzbSJ9

Sabeen, the one who never backed down

By HASSAN BELAL ZAIDI

The fingers type, but I don’t feel them moving. The ears sense a commotion, but I cannot hear. The eyes fight back tears, but it’s futile to resist.

How can you feel, how can you react, how can you respond, when the news ofa friend’s death hits you, right between the eyes?

But Sabeen was far more than a friend, she was a beacon; an island of calm in a sea of madness.

The Second Floor, conceived and modelled in her own image, was the physical embodiment of her intangible love for all things; food, the arts, knowledge and ideas, and, of course, people.

As bleeding heart liberals go, Sabeen’s was the bloodiest heart I have ever come across. Sabeen did a lot more than just help people. She championed causes, thought outside the box and wanted, with every breath, to make a difference.

Also read: Sabeen Mahmud — a profile

A leading light of the #PakistanForAll and #ReclaimYourMosque campaigns, she was usually the first to hit the streets and the last to go home.

When they came for the Shias of Alamdar Road, she was at Numaish from the very beginning to the bitter end.

When they came for the Christians of Peshawar, she was right there at the heart of the human chains that protected churches on Sunday mass.

Always one to challenge convention, always one to take the unpopular stand, always one to side with the underdog; Sabeen Mahmud never backed down from a fight.

Continue reading Sabeen, the one who never backed down