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Wednesday, 30 December


Spain in limbo but has not rejected austerity Bill Mitchell – billy blog

On the Sunday before last (December 20, 2015), Spain conducted a general election, which has left the nation in limbo. Alex Tsipris, the Greek Prime Minister, still trying to hang on to the image that he is a progressive leader in some way, tweeted once the results were known that “Austerity has now been politically defeated in #Spain, as well. Parties seeking to serve society made a strong showing #20D”. I wonder who he is trying to kid … “as well” – as well as where? Certainly not in Greece, which was the implication of his tweet. And, to be clear, certainly not in Spain. While the conservative Popular Party (PP), which has overseen the most recent imposition of austerity and is firmly pro-EU and pro-euro, did not gain an absolute majority, they did win the most seats (123 in the Spanish parliament) and were well ahead of the other major austerity party, yes, the Spanish Socialist Party (PSOE), which won 90 seats). Even the left-wing We Can party (Podemos), who won 69 seats is not planning to exit the common currency. There is no hope of an anti-austerity coalition forming.

The Eurozone is biased, by design, towards austerity. I say that because the fiscal rules embedded in the Stability and Growth Pact (SGP) and its extensions (the six-pack, two-pack, and the fiscal compact) are so restrictive that in a crisis, the Member States’ fiscal balances will too easily breach the allowable ceilings and trigger the Excessive Deficit Mechanism.

In other words, in many cases, the cyclical responses alone (the so-called automatic stabilisers) will likely push the fiscal balances beyond the permitted threshold and force the governments to introduce pro-cyclical fiscal contraction – that is, discretionary cuts to the net government spending at a time when the non-government spending cycle is also contracting – which is the anathema of responsible fiscal management.



Do we need a global tax to stop rising inequality (crosspost from Crooked Timber seminar on Piketty) John Quiggin

One of the more depressing features of Capital in the 21st Century is the air of inevitability attached to the much-discussed r > g inequality. This is exacerbated, on the whole, by the fact that Piketty’s proposed policy response, a progressive global tax on wealth, seems obviously utopian.

What about a much simpler alternative: increasing the rate of income tax applied to the very rich, and removing preferential treatment of capital income? Piketty’s own work with Saez yields the conclusion that the socially optimal top marginal rate of taxation, after taking account of incentive effects, would be 70 per cent or more. Such rates prevailed, at least nominally, in the mid-20th century, without obvious ill effects. Again, Piketty provides the relevant evidence.

So, is there something about a globalised world economy that renders a return to high marginal rates of taxation impossible?

One crucial objection has been tested and refuted. Over the course of the 20th century, numerous small countries and some larger ones (notably Switzerland) established themselves as tax havens, willing to accept bank deposits and other capital flows from citizens of other countries and shield them from the efforts of the governments of those countries to collect taxes, or penalise tax evasion. Given the benefits of being a tax haven, it seemed likely that some jurisdictions would simply reject any attempt at an international effort to combat tax evasion.

The OECD put this proposition to the test when, in 2000, it listed a number of jurisdictions, such as Andorra and Liechtenstein as un-cooperative tax havens, because they declined to implement proposed standards of transparency and exchange of information. All of these jurisdictions ultimately capitulated and were “whitelisted”. The label “tax haven”, once sought-after, is now repu...


Why we'll have to pay polluters to stop polluting, as soon as possible Peter Martin

Get set for a scorcher.

None of what you've been noticing is wrong, it really is much hotter than in your childhood.

And it's getting hotter. The US National Aeronautics and Space Administration says this year will almost certainly be the hottest on record, following on from last year which was the hottest year recorded.

So far, nine out of the world's hottest 10 years on record have begun with the number 2. That means they took place after the year 2000 rather than in the 1900s, when most of us grew up.

The good news is that the Paris talks showed our leaders are on to it. Ministers including Julie Bishop committed first to holding the increase in the global average temperature to "well below" two degrees (where most of the Arctic melts) and then to "pursuing efforts" to limit it to 1.5 degrees.

It's already one degree hotter than it was before industrialisation. The emissions pledges taken to Paris would have kept the increase to only about 2.7 degrees. That's why the ministers pledged to come back every five years with new and tougher targets and to explain how they are going to meet them.

The implications are jaw-dropping. The a...

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