Although these disagreements are meaningful, they do not discount the shared goal of promoting multi-sectoral analysis of business cycles. Thornton (Tip) Parker, at New Economic Perspectives, puts forth two ideas to further this goal. His first idea revolves around the issue of wealth and income concentration that I noted above:
The wealthy use much of their money just to make more money by gambling through hedge funds, leveraged buy-out funds, and other financial schemes. They take some out of the economy by spending in other countries and hiding from taxes with off-shore accounts. They are not using much to make productive investments to create more jobs that would provide good pay and benefits in this country. Too much of what high earners receive leaks out of the Main Street economy to Wall Street, and often to other countries.
I do not think that MMT and MS consider the leak adequately. They explain why the government must create more new dollars to offset private sector and foreign surpluses. But they do not explain how to prevent many of those dollars from flowing up and increasing the wealth concentration. I suspect that more dollars flow out of the Main Street economy through the leak than as payments for net imports. Just the need of many middle and lower income families to borrow ensures that some of their income will flow up in the form of interest and finance charges. (Margrit Kennedy has recently estimated that thirty-five to forty percent of all purchases go to interest.)
The effect of concentration might be analyzed by dividing households into two subgroups, one for the wealthy (say top 10%) and one the rest. Showing each subgroup’s surplus or deficit in relation to the rest of the private sector and the foreign and government sectors would show how much of a problem inequality really is.
I know of no easy way to do that, but conceptually, it would debunk the idea that income inequality is an envy, special pleading, or made-up class warfare issue. It would also show that taxes can do more than just prevent inflation, they can be used to limit the leak of money out of the productive parts of the economy.Though this research project faces significant challenges, the potential results could vastly improve current policy discussions both among Post-Keynesians and in the broader political arena.
Related posts:
Debt Inequality Remains Major Headwind To Growth
Bubbles and Busts: IMF - Leveraging Inequality
Bubbles and Busts: Forgotten Lessons from Japan's Lost Decades
Hayekian Limits of Knowledge in a Post-Keynesian World
