How to Fix Globalization—for Detroit, Not Davos
- Date Posted:
- Is Database:
- Database
Regulation should support businesses prioritizing societal well-being, not just profit. Effective regulation can enable ethical businesses to compete fairly, balancing profit with broader societal values. @LHSummers, The American Interest.
"...LHS: Let’s take the global dimension first. We have done too much management of globalization for the benefit of those in Davos, and too little for the benefit of those in Detroit or Dusseldorf. Over the last two decades, better intellectual property protection for Mickey Mouse and Hollywood movies has been an A level economic issue. Better global tax cooperation, so that tech companies’ profits do not locate themselves in cyberspace and entirely escape taxation, has been a B-level issue….. More broadly, we need a reconsideration of what economists would call the role of high-powered incentives. The profit motive is a very positive thing. It drives businesses to be more efficient. It drives businesses to create new product. It drives economies forward. But profit can also be an incentive to the exploitation of workers. It can be an incentive to the exploitation of consumers. In a world where firms compete too ruthlessly for market share, if somebody cuts a corner, there can be overwhelming pressure for everyone to cut that corner in order to survive—whether it is maintaining insufficient capital in a financial institution, using a deceptive marketing practice that addicts customers, or producing in a way that is invisibly unsafe. So the case for regulation is not to be anti-business. Regulation needs to be supported because it enables the vast majority of businesses who want to do right by society to do so and still be able to compete. That’s how the case for regulation needs to be framed. We should not be waging jihad against business. We should be waging jihad against those who put profit ahead of every other value in the society. And that’s where in the emphasis on profit, we have gone a bit awry...."
Lawrence Summers, "How to Fix Globalization—for Detroit, Not Davos,"The American Interest, May 22, 2020, https://www.the-american-interest.com/2020/05/22/how-to-fix-globalization-for-detroit-not-davos/
Summers interview, he continues to bash the wealth tax but this is the most interesting bit
Ed Comment: “….Add to the data base as a contrary opinion. There are some insight here but then there are times when I think he goes off the rails. For example he says “Now we’re saying that we have to cut the taxes on those companies and cut the calculus class from your kid’s high school, because otherwise we won’t be able to attract companies to the United States, and you have to pay higher taxes and live with fewer services.” We have done nothing but expand government spending while holding or reducing middle class taxes. meanshwil we are being eating alive by retiring baby boomers, not tax cuts. Of course he says, “We have an economy where there’s a very strong propensity to save, in part because of redistribution towards those with high incomes…” Rognlie disproves that. “… in part because of uncertainty and demographic developments, and where because of what I call a broad “demassification” of the economy, there’s a much lower propensity to invest than was previously the case.” I think investment has shifted from capital investment whose prices have fallen faster than inflation. He scuffs at the idea of government on boards then says, “My advice to policymakers would be to focus maximum energy on public investment. That’s an agenda that will involve larger taxation” Why? because government has proven to be a much better investor that the private sector and therefore it’s worth diverting resources from the private sector to government? He proposes raising the capital gains tax. But let’s work the math. Let’s say investments earn 6%, with inflation at 2% and the tax rate is raised to 50% (mine is almost there now with NY at 12+% and no state deduction). 6% times 50% is 3% less 2% inflation is 1% real return after tax and inflation. Divided by 4% before taxes and after inflation (+6%-2%) is a 75% tax rate (=1%/4%). And that doesn’t include the corporate tax at 20%. So it’s really 7.5% x 20% = 6% etc. so it’s really 1/(7.5-2=5.5) is an 82% tax rate on investment returns. And he thinks it’s a good idea to raise it?! Come on. He depends on his audience not know how to work the math. And that doesn’t include 50% estate taxes or 5% to 8% sales taxes....”