The IMF says it’s time for the world to pivot in the direction of more redistributive policies.
In a post dated Thursday, the Fund’s David Amaglobeli, Vitor Gaspar and Paolo Mauro delivered what could fairly be characterized as a somewhat stark warning, although they presented it as an opportunity for governments to seize the moment.
The pandemic, they said, “is intensifying the vicious circle of inequality,” which they called a “pre-existing condition.” You could also call it a comorbidity.
In addition to recapping some obvious conclusions from recent research which showed, among other things, that countries with inadequate access to healthcare experienced higher COVID-19 mortality rates than caseloads and age structure would predict, the Fund noted that the virus is exacerbating inequities of all sorts.
In education, for example, “children from poorer families have been disproportionately affected” by school closures. The excerpt (below) neatly encapsulates the plight of lower-income groups, minorities and women during the crisis:
Lower-skilled and younger workers have experienced more job losses than those in higher-skilled occupations. Likewise, disadvantaged ethnic groups and informal sector workers have been harder hit. And women, who tend to be overrepresented in sectors most affected by COVID-19 such as hospitality and retail, have been particularly affected by the pandemic, especially in poorer countries.
That marks a stark contrast with the most fortunate members of society, and especially with the world’s richest people.
Regular readers are familiar with the figure (below), but I’d politely ask that you consider it again in the context of Joe Biden’s infrastructure plan, unveiled on Wednesday. Just 25 people out of 7.7 billion enjoyed a windfall exceeding a half-trillion dollars in net personal wealth gains during 2020.
Read that again. There are almost 8 billion people on Earth. 25 of them generated enough on paper during the pandemic to pay for nearly a quarter of the Biden infrastructure proposal. And yet, some are still opposed to the idea of a global, cross-country wealth tax aimed at trimming these fortunes.
Time and again, I’ve suggested that this is wholly untenable. And an IMF working paper from February underscored as much.
The paper, called “Pandemic and Progressivity,” was based on a survey designed “to elicit people’s views” on the following four issues (I’m quoting directly from the paper in the bullet points below):
- Increasing taxation as a way of financing additional expenditures caused by the pandemic and the need to foster the economic recovery;
- Introducing a temporary tax explicitly linked to this goal;
- Permanently increasing the degree of progressivity of taxation (with variations such as increasing taxation on people with above-average incomes, only the very rich, multinational corporations, etc.);
- Reducing or further increasing various expenditure categories, such as health, education, military, etc.)
The results were telling, albeit not surprising. Among the findings: “Respondents who have experienced serious illness or job loss caused by the COVID-19 pandemic, or who personally know someone who has, favor progressive taxation to a greater extent than others in the sample.”
That adds to the debate around whether personal experience changes people’s perception of public policy and/or shapes their attitudes around redistribution. While the IMF admitted “it’s too early to determine how long lasting such effects will be,” the survey results clearly indicated that “individuals directly harmed by the pandemic are more likely to favor redistributive policies.”
Of course, lots (and lots) of people have been affected by the pandemic. When you include people who, while perhaps not directly affected themselves, know someone who was, that number is huge. The implication is that quite a few people who may not have previously been inclined to support redistributive policies are now more inclined to do so.
There’s an enormous amount of nuance to parse. The full paper is 42 pages long. Those interested can access it here. The figure (below) shows that four years prior to the pandemic, most people around the world favored a more progressive tax regime.
The timing of the IMF’s Thursday blog post was convenient, to say the least. It spoke directly to all of the issues Biden seeks to address both with the infrastructure package unveiled on Wednesday and a forthcoming plan aimed at addressing inequality.
“Policies should be embedded in medium-term fiscal frameworks and complemented by actions that strengthen transparency and accountability,” the IMF went on to write, before cautioning that “experience with past pandemics shows that the stakes are high because trust in government can quickly deteriorate and contribute to greater polarization.”
That may as well be a direct allusion to what happened in 2020 in the US, when societal rifts erupted in street protests, one of which (Lafayette Square) was put down by the Trump administration in a show of force that eventually prompted Mark Milley, the chairman of the Joint Chiefs of Staff, to apologize for participating in a spectacle that suggested the country was on the brink of becoming a real-life authoritarian state. “I shouldn’t have been there,” Milley said last summer. “My presence in that moment and in that environment created a perception of the military involved in domestic politics.”
In the same Thursday piece, the IMF wrote (without naming nations, of course) that “resolute actions by governments to deliver needed services and foster inclusive growth can help build social cohesion.”
One takeaway is that if redistributive policies aren’t implemented with a sense of urgency, the citizenry might decide to force the issue. I think it’s fair to suggest that at least part of the hurry when it comes to the Biden administration’s efforts to revamp American capitalism and create an economy that “works for everyone,” may be attributable to concerns that people’s patience with the existing order has run out.