I’m sitting in a macroeconomics strategy review held by my employers economics team, and they are staring dumbfounded at the french sovereign bond yield and it is evident they don’t know exactly why this is happening, nor what to do with it. The French government and opposition seems to also have no better ideas, seemingly paralyzed.
Everyone can see that France needs some change to their fiscal system, but even the most expert policymakers are scratching their heads. The only two options seemingly on the table feel unworkable:
- Savings, cut spending, is something the french populace seem unwilling to accept
- Taxes will surely slow an already strained economy
Half of the debate thinks that the people can take it, they just need to work harder. The other half believes the economy can afford to pay out a bit more. Neither are correct (although perhaps some are closer).
Not to sound too grandiose, because it isn’t my idea at its core, but myself and my co-author have written a paper that can explain what is going on.
Pinning the Wage to Scarcity and Technology by Johan Båge, Stella Wilson :: SSRN
That’s a somewhat heavy macroeconomics theory paper, so here’s one analogy of what we have developed: we split “capitalism” into two
- Good capitalism: Returns from capital that come from real growth, development, innovation.
- Bad capitalism: Returns from capital that does not develop and improve the economy. The academic term is economic rent and rent seeking.
And then the policy you want is simple: Tax the bad capitalism, don’t tax the good capitalism. If this sounds familiar, it’s quite close to the 150 year old theory of Henry George and Georgism. How do you tax the bad capitalism? Well, some parts of it are hard, and some are less hard, but the theoretically most effective method is using both a tax and a benefit, specifically a Land Value Tax (LVT) that pays out a Universal Basic Income (UBI).
(If you’re wondering if you can skip the UBI and just have LVT, you can’t, otherwise farmers get screwed, and grandma living off her pension loses her home, and various other problems caused by only having LVT)
That’s it. You’re welcome. If I sound annoyed it’s because I am. None of this pain and hardship and confusion is necessary. France just needs to read my paper.
If you’re interested in understanding a bit further, we’ve made an explainer video in the style of 3blue1brown here: