Saturday, 20 September 2014

Ways of Taming Capitalism

Free market capitalism is a system that works very well for a small number but not always very well for regular working people. I propose a tax system that would radically redistribute income from the most economically fortunate to those who work for low wages.

There are various responses to this which have been tried at various times and to various degrees, and it is worth mapping out the differences. We can distinguish between redistributive and predistributive ways to make capitalist societies fairer. (It is arguable that all the approaches are really redistributive in the traditional sense of the term, though I will follow the recent trend in distinguishing Predistribution as a separate approach).

In the redistributive camp are proposals that would take tax revenues and spend them to improve the position of the worst off in society. There are many ways of doing this, and I will briefly outline these in the diagram below.

The proposals above are not all mutually exclusive. However, since all - if they are to make a real difference - are going to have high costs and/or economic effects it is unlikely to be practical to have more than one at a time.

My proposal (in italics above) is a form of hourly earning subsidy. The only other hourly 
income subsidy proposal I know of is that proposed by Nobel-Prize winning Economist Edmund Phelps in his book Rewarding Work. Phelps' proposal would provide money to employers in exchange for the employment of full-time, low-paid workers. This money would then be passed on to the workers in higher wages. My proposal would instead take account of the number of hours that people work (up to a maximum), and provide a subsidy to them if their lifetime average is below a certain level. My argument is that there is no reason to limit the subsidy to those in full time work.

I have discussed Universal Basic Income/Negative Income Tax proposals in previous blogs, and plan to discuss the others in future blogs.

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