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Home Publications Blogs Beat the Press The French Don't Need Rich People to Spend Money

The French Don't Need Rich People to Spend Money

Saturday, 03 March 2012 08:59

An article in the NYT on a proposal by French presidential candidate Francois Hollande to raise the top marginal tax rate on people earning more than $1.3 million a year to 75 percent told readers:

"Many economists argue that a 75 percent tax bracket — compared with the current top bracket, 48 percent — would be self-defeating, driving high-paying jobs and the spending that comes with them to countries like Britain and Switzerland."

It is unlikely that many economists complained about the prospective loss of spending associated with rich people leaving the country. While most countries (including France) are suffering from inadequate spending at the moment, economists are more typically concerned with too much spending in an economy, hence the obsession with deficit reduction.

Private sector spending on current consumption pulls away resources from investment in the future in the same way that public sector spending on consumption does. If rich people opted not to spend, most economists would argue that the resources would be freed up for investment.

Comments (6)Add Comment
Keynes Would Not Be Among Those "Most Economists"
written by Paul, March 03, 2012 10:58
"Consumption — to repeat the obvious — is the sole end and object of all economic activity. Opportunities for employment are necessarily limited by the extent of aggregate demand. Aggregate demand can be derived only from present consumption or from present provision for future consumption."
The General Theory of Employment, Interest and Money, p. 104.

Nor is investment possible without consumption:
"[C]apital is not a self-subsistent entity existing apart from consumption. On the contrary, every weakening in the propensity to consume regarded as a permanent habit must weaken the demand for capital as well as the demand for consumption." Id. p. 106.
Economy knows whether consumption come from rich or poor?
written by AndrewDover, March 03, 2012 11:35
"If rich people opted not to spend, most economists would argue that the resources would be freed up for investment."

Why does that not apply to poor or average people?

It'll work beutifully
written by votersway, March 03, 2012 3:46

Everything will be perfect if balanced trade regulations and proper capital controls are put in place. Those who want to leave France permanently should be free to do so - after paying the taxes of course.
Regulation Quality is the Key
written by votersway, March 03, 2012 3:53
The problem is that economics ignores the major driving force – regulations. It’s the forgotten elephant in the economic room.

The focus has to be changed to studying policies and regulations, the effects of loopholes and conflicts of interests – they create the chaos. Balanced trade and balanced budgets are required for stable performance.

Progressive taxation isn't problem, it has worked very well before.

Read more here: http://votersway.com
Almost no economists worry about a lack of demand in normal times
written by dean, March 03, 2012 9:35
It would be great if the NYT paid attention to economists who are concerned about lack of demand. It doesn't. To the vast majority of economists (e.g. Ben Bernanke, Larry Summers, Christine Romer, Martin Feldstein etc.) this is a non-issue. If the NYT wants it to suddenly be an issue that would be great, but it would be a revolutionary transformation of its reporting.
Re Poor People Opting Not to Spend
written by Beth in OR, March 05, 2012 1:50
Poor people opt daily not to spend because they don't have enough money. Choosing between paying the rent or keeping the electricity on (esp. in winter) or choosing food over medicine is brutal and common.

"Poor" means zero "disposable" income. All income is consumed with basic costs of living, and may in fact be insufficient to cover those costs. If rent, food, and utilities are paid in full; there is no extra money as a result, but there may be less debt.

I guess you could say we invest in not going to debtors' prison. Now, homeless people opt not to spend on the basics, but I've seen no benefit to that option. Rich people could opt not to spend and still have food and multiple homes, health care, cars, heat, a/c, easy travel, etc.

Sorry, shorter answer: When poor people opt not to spend, they die.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.