In BriefA new study by the New England Complex Systems Institute attempts to use mathematical means to produce an apolitical outlook on the economy. Its findings suggest that tax cuts for the wealthy won't have the desired effect.
More so than ever before, the vast majority of wealth is held by a minuscule minority of people. Although this systemic inequality is already proving to be a recipe for economic disaster, there are conflicting arguments on how best to address the situation.
A new study suggests that tax cuts alone aren’t enough to make the changes that are required. Instead, more direct forms of wealth redistribution are necessary if society is to adopt a meaningful level of financial equality. This isn’t about Marx. It’s about the math.
Research performed by the New England Complex Systems Institute simplifies the way money progresses through the economy into two predominant cycles. The consumer cycle sees workers earn wages and use that cash to buy products. The production cycle revolves around capitalists pouring their wealth into the means of production, which is responsible for both the jobs held by workers and the products that they buy.
These two cycles must be in harmony if the wider economy is to flourish – and, at the moment, that isn’t the case. Workers don’t have enough income to buy products, which has led to three recessions and the financial crisis of 2008 since the 1980s.
Although the New England Complex Systems Institute’s study aims to use math to provide an objective look at a topic that’s often obscured by political leanings, the organization isn’t the first to argue that tax cuts aren’t an effective way of making the US economy more egalitarian. Tax cuts for the richest sectors of society implemented by the Reagan administration, and Margaret Thatcher in England, played huge factors in how the present socio-economic situ came to be.
Anyone can learn about the history and origins of neoliberal politics in David Harvey’s work, A Brief History of Neoliberalism. But we don’t need to read politico-economic history to know that the same tired tactic of entrusting the top one percent to take care of the remaining 99 percent isn’t going to reverse the process of growing inequality. To the contrary, this math-based scientific study suggests that easy-to-understand actions like raising the minimum wage and eliminating student debt can free the lives of less wealthy or impoverished people attain the financial stability required to spend more money and stimulate the consumer cycle.
These strategies are assented to by legitimate authorities across the world. Indeed, earlier this month the International Monetary Fund (IMF) warned against the practice of cutting taxes for the most wealthy, highlighting the risk of stymying global economic growth. More specifically, there are concerns that changes to the tax code, as proposed by the Trump administration, will only serve to reinforce income equality in the US.
“In our simulations, while tax cuts for higher income groups may generate greater gains in GDP through higher investment and labor supply, they also exacerbate income polarization and inequality, both already at historical highs,” read a blog post published by the IMF in September 2017.
Redistributing wealth on a national or international scale is a complex process, with scarce means of rapid implementation – but it’s absolutely clear that something needs to be done if we’re to make positive changes to a system that favors those at the top to the detriment (and potential ruin) of everyone else.