All’s Well That Ends… Well?

All’s Well That Ends… Well?

The first week of 2021 ended with US equities higher, but we're really stretching the boundaries when it comes to the old "all's well that ends well" adage. The cynical among us like to joke that no matter what happens between a given Monday and Friday, "it's all good" as long as stocks post a weekly gain. I'm not sure if that applies to weeks that include the President of the United States inciting a riot on Capitol Hill, but as usual, I'll leave it to readers to make their own judgement. Sma
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6 thoughts on “All’s Well That Ends… Well?

  1. H, it sounds like you’re dismissive of the idea that tax hikes are coming when you say, “just like the tax hikes that many swear are bound to accompany expensive stimulus measures”, but aren’t they kind of necessary? And, before you go all MMT on me, let me clarify what I mean by that.

    As I understand it, as a gross simplification, there are two ways to look at funding the stimulus. The traditional view is that the stimulus is funded by borrowing, and that borrowing eventually needs to be paid back. The alternative viewpoint, through the lens of MMT, is that governments don’t need to borrow money to fund a spending priced in a currency they issue, they can simply “print” more money (at least until the true limit on spending, inflation, begins to rear its head).

    From the traditional viewpoint, tax increases are necessary to pay back the debt raised to fund the stimulus, unless the stimulus can generate sufficient growth that the resulting increase in revenues is enough to pay back the debt. Looking at it this way, higher taxes seem likely.

    From the alternative viewpoint, it seems to me that most of the advocates of MMT also come from the progressive end of the political spectrum. This means that they tend to be very concerned about the yawning gap in wealth distribution. Assuming the stimulus is successful, it will go to those most in need. Those people will spend that money almost immediately (because they need it). Given the structure of the modern economy, this means that the vast majority of that money will flow directly into the coffers of large corporations, which are almost entirely owned by those in the top 10%. Unless confiscatory taxes are put in place on the wealthy and/or corporations, this will result in a large transfer of wealth to the top 10%. Since this would lead to a further widening of the already yawning gap in wealth distribution, it seems likely that anyone taking this view would also push for higher taxes.

    Based on the above, it seems to me that regardless of what a policymaker’s view is on the theoretical underpinning of funding the stimulus/deficit spending, the likely outcome will be a push for higher taxes (albeit for completely different rationale).

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