Why Americans Should Pay More Taxes: A Nobel Winner's View On Productive Economies

Wall Street Journal ^ | October 16, 2006 | Mark Whitehouse

[Tolerance Sucks Rocks]

NEW YORK -- When the new field of political economy emerged in the 18th century, it concerned itself largely with two questions: how societies get rich, and how they can justly divide that wealth. The thinking of this year's winner of the Nobel Memorial Prize in economics, Columbia University professor Edmund Phelps, hews close to that tradition, seeking the roots of prosperity and ways to maintain economic justice -- not only in today's world, but across generations.

In choosing Prof. Phelps, the Nobel committee focused on his work in the area of inflation and unemployment. But that isn't all Prof. Phelps has done over the years. He has delved into various questions relevant to policy makers, such as how economies become more productive, what kind of tax system creates the best incentives, and how much a society should save and invest.

In an interview at Columbia, Prof. Phelps discussed, among other things, why he thinks Americans should be paying higher taxes and doing more to increase the wages of the poor.

The Wall Street Journal: Many economists believe that the U.S. is acting irresponsibly by spending more than it produces and building up large debts. Your "golden rule" of capital accumulation states that each generation must save a certain amount so that future generations can enjoy the same standard of living. Should we be concerned?

Prof. Phelps: When you apply the golden rule, you have to look at the world economy. Certainly the world as a whole has saved enough. China, for example, should get good marks for doing a lot of saving. I would, however, have to give bad marks to the U.S. government, which has run persistent budget deficits at a time when we have to start climbing up the mountain of pension obligations that will come due...

[facedown]

Yet another example in which the Nobel Prize has been awarded for ideology rather than accomplishment.

[Marylander]

DeadC,
Thanks for reminding us of the fundamentals. Very well put.

[Tolerance Sucks Rocks]

If these two guys are so smart and have a few bucks why can't they figure out that they can afford porcelain veneers?

Maybe because they have better things to do than trying to attract dumb blondes?

[rlmorel]

"...I don't like thinking that we bought, say, crop subsidies..."

Or, Turkey Basters for Lesbians...

[tx_eggman]

It's always the "professors" with their noses buried in a book their entire lives who believe as this guy does. They really don't offer anything to society, imo, they just have the luxury of getting paid to sit around and indulge their curiosities, while everyone else has to work!

"The most fundamental fact about the ideas of the political left is that they do not work. Therefore we should not be surprised to find the left concentrated in institutions where ideas do not have to work in order to survive." --Thomas Sowell

[Arrowhead1952]

In choosing Prof. Phelps, and awarding the Nobel Memorial Prize in economics to him, the committee is ignorant about economics.

Higher taxes don't do anything but cause inflation. This professor is teaching Robin Hood to college kids. No wonder we have so many liberal 20 year olds in the USA.

This Nobel award is comparable to jimma catta getting the Nobel Peace award. The entire Nobel process should be taken with a grain of salt.

[jpl]

Our tax system is just fine, it's the welfare state that is unsustainable. If this professor wants some proof, all he needs to do is look to the western European nations, which generally have far higher tax rates than we do.

Alfred Nobel must really be rolling around in his grave.

[avile]

and they now vote dem

[isthisnickcool]

Maybe because they have better things to do than trying to attract dumb blondes?

Or smart blondes, or dumb redheads, etc.

[isthisnickcool]

They really don't offer anything to society, imo...

Kind of like Congressional pages and lawyers?

[GeorgefromGeorgia]

I agree, it appears that Marxism's influence on economics in the West continues. I thought the Labor Theory of Value was discredited. The success of middle and upper class individuals is rarely at the expense of the poor. This Marxist concept of class warfare and exploitation seems to believe that our economy is a pie that gets no bigger and is "cut" buy the exploiting capitalists at the expense of the proletariat.

[RatRipper]

Correct. I was a bank examiner for 25 years and have been a banker for two years. I have observed thousands of borrowers and bank customers in my reviews. To a large extent, the key to financial success is not how much you make, but how much you spend. Sure you have to have reasonable income, But there are lots of "low or moderate" income people with a couple hundred G's in the bank.

The principles are the same for macro-economics and government spending, which is why I am livid with Republicans right now . . . but not angry enough to for Democrats. They are still far worse.

[Mad Dawgg]

"When are these idiots going to realize that no matter how fancy you get with your explanations of how "socialism can work if we do it THIS way", that it won't? Never. Ever."

I believe it was the Iron Lady herself who said: "The problem with Socialism is eventually you run out of other people's money."

[fwdude]

Wow!

Thomas Sowell for President!

[Mad Dawgg]

"To a large extent, the key to financial success is not how much you make, but how much you spend."

AND, what you spend it on. Poor people buy "things", wealthy people invest in assets that gets them even MORE income.

[MadIvan]

This professor obviously never heard of the "crowding out" effect. The removal of money from the private sector into the hands of the government has an effect of removing efficient investment from the economy. Governments don't measure things in terms of productivity, profit and loss and wealth creation - private investors do. Thus virtually anything government does has a lower economic yield than what the private sector would do, and has a distorting effect on the free market.

Government should get the hell out of the way, not become a leviathan.

Regards, Ivan

[Little Ray]

The poor don't pay taxes. The lower 50 % of incomes pay about 3% of the taxes. Raising taxes might push more of 'em in to a taxpaying bracket.
On the other hand, it might just fuel inflation.

The professor is correct about "unsustainable" but wrong about tax rates. We have an unustainable spending rate. We need to stop spending, not raise taxes.

[JZelle]

"The thinking of this year's winner of the Nobel Memorial Prize in economics, Columbia University professor Edmund Phelps... "


I stopped reading here.

[Calvin Locke]

Apparently, the Economics committee is bound and determined to make that prize as useless as the "Peace" prize.

Except to those that get the cash award.

[mcashman]

Another reason is because we invest rather than save, and have highly efficient equities markets.

That's why the Chinese have to save - they have nothing better to do with their money - which, by the way, is fully owned by the state, if they are really Communists.