(4) Is Taxation Theft?

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Continued from here.

Nick Johnson replies to my comment:

Thanks for your response. Re the role of profitability which you were unclear on: there is an explanation for the stagflation of the 1970s by some Marxist thinkers, which blames policies which aimed to expand demand in combination with falling profitability in the private sector. The claim is that, perhaps due to wage inflation causing a ‘profit squeeze’, investment rates fell, slowing growth. In response governments tried to expand demand, but this did not restore profits, merely raised inflation, so that economies experienced slowing growth/rising unemployment in combination with higher inflation. 

Eventually the ‘solution’ to stagflation was to restore profitability in the private sector by triggering a recession via higher interest rates (the Volcker shock in the US), which was certainly harsh and damaged the livelihood of many workers, but did restore profits and laid the foundations for renewed growth once interest rates came down again. The Keynesian left generally don’t like this story, and I admit that I remain uncomfortable with its implications too, since it forces one to accept that capitalism is often brutal, despite the hopes of social democrats who believe in reforms that can make the system a bit ‘nicer’. 

Perhaps if more effective incomes policies to restrain wages and/or industrial policies, which encourage restructuring in the private sector, could help to restore profitability, then such episodes could have different outcomes and avoid the suffering of mass unemployment. I remain hopeful, but considering the historical record across many countries, crises of capitalism seem inevitable, and need to be managed as well as possible.

My reply:

Thank you, Nick, for you clear explanation. I’ll keep it at the back of my mind as well as the other points you are making in your reply, when getting round to looking more thoroughly both into the Marxian and the MMT analysis of stagflation.