Scott Sumner  

The Key to victory: Run against Piketty-nomics

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This is good news:

New Zealand's NZX 50 Index increased 1.1 percent, driven higher by power-company stocks, after John Key won a third term as prime minister. Key, a former head of foreign exchange at Merrill Lynch & Co., led his National party to a 48 percent victory in New Zealand's weekend election, securing the first single-party majority in the South Pacific nation's parliament since at least 1996. The main opposition Labour Party, which wanted to introduce a tax on capital gains and raise the minimum wage, suffered its worst defeat since 1922.
Perhaps Labour got their ideas from Paul Krugman.

When right-of-center parties are elected, they generally disappoint. Although right-of-center economists favor free markets, most conservative politicians do not. Abe (Japan) and Modi (India) are two recent examples of conservatives who promised reforms and failed to come through (thus far). Fortunately New Zealand is different.


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COMMENTS (14 to date)
Tracy W writes:

Right-of-centre in NZ is not that close to conservative. The conservatives in NZ often go to Winston Peters (populist politician) or the left-wing like the Labour Party (people nostalgic for the 1950s-70s).

There's also occasional attempts at a right-wing Christian/conservative party but they don't get above 5% of the vote.

Is Piketty's major proposal not a tax on capital wealth, rather than gains? I remember him favouring the former as less inhibiting to investment. I'm also uncertain whether he talks about the minimum wage at all, though I could be wrong.

David R. Henderson writes:

@Unlearning Economics,
Yes, Piketty does talk about the minimum wage.

Daniel Kuehn writes:

Ya, minimum wage makes a short appearance in the book although since he thinks most of the problems are at the top of the distribution it doesn't figure prominently in his policy discussions (if at all - I'd have to check).

I'm more curious about Unlearningecon's point about capital gains tax. I also don't recall that being "Piketty-nomics", in fact my whole take-away was precisely that we should be moving away from any sort of income tax. Again I don't have the book on me and I'd have to check, but this doesn't appear obviously related to Piketty unless by Piketty-nomics we just mean "not Sumner-nomics".

ted writes:

@Daniel Kuehn

My solid impression is that Piketty is in favour of both high global wealth taxes AND steep progressive income taxes. I just listened to his EconTalk interview and I certainly came out with that.

If you look up the word in the transcript, clearly he either correlates it with high growth or at least he doesn't find it harmful, and he's optimistic about having a "more progressive tax system", world-wide. He also mentions "tax fairness" several times in the sense of high [income] taxes.

Scott Sumner writes:

Tracy, This particular government (whether conservative or not) has been relative good (free market) on economics issues.

Unlearning Economics and Daniel. I recall Piketty favoring minimum wage laws and capital gains taxes. But if you find that he doesn't, I'll correct the post.

His book ranges far outside the narrow issue of capital. For instance, he argues that neoliberal policy reforms did not lead to higher growth.

Daniel Kuehn writes:

Scott -
He definitely supports minimum wage laws, and it kind of depends on what you mean by "favor capital gains tax". As ted says (and I agree), he's not opposed to progressive income taxes as a tool. I was just saying that I think of Piketty-nomics as "rely less on progressive income taxes and more in progressive wealth taxes". I'm just not sure what Piketty in particular has to do with this.

RPLong writes:

Excellent insight about right-of-center parties. Add Canada's Harper-era Conservatives to the list, although in fairness one could make the argument that they have delivered mixed results as far as market reforms go.

Yancey Ward writes:

Piketty is supporting an increase in the gains tax if he is supporting steeply progressive income taxes. In any case, gains are taxed by the wealth tax, too.

Tracy W writes:

Scott: I agree. I voted for them.

Although the bit I'm really delighted about is that Winston Peters doesn't have the balance of power *again*.

If you haven't listened to Piketty's conversation with Russ Roberts yet, do so. It is full of revealing moments.

After Piketty's near-pure reliance on the Broken Window Fallacy (about 47 minutes in), there was this;

...if anything I think top managers are getting even more nontaxable perks like, you know fancy jet or big officers or fancy cars or beautiful hotels and restaurants today than what they did in the 1960s or 1970s. So the view that there was as much inequality in the 1960s than you have today... I think this is just wrong.

In fact, the use of Rolls Royces as 'tax shelters' in 1970s England was so well established that Milton and Rose Friedman used it in their Free To Choose bestseller. You can listen to them discussing it in 1976 here. Rose first mentions Rolls Royce at about 13:30, and Milton carries the ball from there.

Andrew_FL writes:
e thinks most of the problems are at the top of the distribution

Don't that just beat all. It really is true that people complaining about inequality don't want to lift the bottom. They only want to bring the top down. The other point is merely an afterthought.

Supposedly, I guess, if the gains of the top are the losses of the bottom it must "logically follow" that the losses of the top are the gains of the bottom.

Really, even if one did accept the first point, it would not in fact follow that bringing down the top-gains ill gotten or not-would enrich the bottom.

To the point of this post, it seems illogical to think that a successful political campaign in one country must necessarily work anywhere else. Unless I am misunderstanding the message you intended to convey with that title.

Key's National government has been pretty decent, all up. They've presided over a substantial cut in income tax rates (with a small increase in our comprehensive value-added tax, the GST), they've refused to give in to populism on wealth/capital taxation.

Note though that Key's first move, since the election, has been to start a push on reducing child poverty.

ThomasH writes:

What is the fixation of this blog with Paul Krugman? This is the second reference to him today.

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