Hey Presto

Joseph Stiglitz has a Nobel prize in economics.  To be pedantic, he received the Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel in 2001.

About a week ago, Stiglitz wrote a piece in Project Syndicate titled – How Costa Rica Gets It Right.  Given the author and the subject matter, this article was not surprisingly picked up in the Guardian.

In this article Stiglitz writes about the utopia that is Costa Rica:

The country is a beacon of Enlightenment – a world leader in democratic, sustainable, and inclusive economic growth.

Except that Costa Rica’s GDP per capital is kinda middling.  Spart-dunno.  Perhaps less than 10% of those authoritarian cesspools of Luxembourg and Switzerland and perhaps 20% of that of Australia.  But hey.  Joe has a Nobel in economics.  Maybe he knows something we mere mortals don’t.  Here he writes:

Like citizens of a few other countries, Costa Ricans have made clear that inequality is a choice, and that public policies can ensure a greater degree of economic equality and equality of opportunity than the market alone would provide.

That’s right.  Costa Ricans perhaps made a choice that they can be equal.  Equally un-rich (as in poor).  But hang on.  Is not a “a greater degree of economic equality” code for equality of outcome?  Equality of opportunity and equality of outcome.  Maybe Costa Rica is a Utopia.

But this is the best part of Stiglitz’s analysis:

But for all of its successes, Costa Rica faces two critical problems: a persistent, structural fiscal deficit and a gridlocked political system. The economics of fiscal deficits are easy: boost economic growth, raise taxes, or lower expenditures.

Yes.  The persistent structural fiscal deficits clearly have no relation to the public policy goal of equality of outcome.  But to fix the budget by boosting economic growth and raising taxes (or cutting taxes)?  Really?  Maybe they can get Wayne Swan to advise?  Does the NAB have a subsidiary in Costa Rica?  Perhaps Ken Henry can write them a report.

Sparty knows.  How about a Parliamentary study delegation.  It’s a bit chilly in Canberra now and one hears that the beaches of Costa Rica are lovely.

Now Sparticus is not a Keynesian, but when he was studying economics, he seems to recall that increasing taxes and/or lowering expenditures was considered “contractionary fiscal policy”.  Can someone please explain how you can concurrently boost economic growth while enacting contractionary fiscal policy?

First reply gets a Nobel Prize.

Follow I Am Spartacus on Twitter at @Ey_am_Spartacus

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26 Responses to Hey Presto

  1. Herodotus

    Monty will shortly drop by with his worn out chicken cadaver to totally refute this.

  2. Bruce of Newcastle

    How odd that so many Costa Ricans want to migrate to the US.

    Central American Immigrants in the United States (2017)

    In 2015, El Salvador, Guatemala, and Honduras were the top three origin countries in Central America, followed by Nicaragua, Panama, Costa Rica, and Belize (see Table 1).

    Maybe there’s a reason for this?

    Drug traffickers are pushing deadly violence to record levels in a tranquil corner of Latin America (Jan 2018)

    Michael Soto, the deputy director of Costa Rica’s judicial investigation body, said 48% of the deaths stemmed from gang violence, while 25% were related to drug trafficking. Fights and other causes, like domestic violence, led to the rest. Seventy-two per cent of the homicides were committed with firearms, the most common cause.

    I suspect the rate of Costa Rican migration to the US is only going to increase.

  3. Rafe

    They are big on renewable energy too. Helps to have a small no growth economy.

  4. Rafe

    Samuelson was good on the Soviet economy too. Going gangbusters and overhauling the US. Whoops!

  5. ACTOldFart

    So Costa Rica’s GDP per capita is pretty ordinary. But surely, if the mighty Stiglitz is so in love with the place, it must be a fair and equitable society, where the wealth is well distributed? Well, according to our mates at the OECD:

    “Measured by the Gini coefficient, disposable income inequality in Costa Rica was 0.49 in 2015, more than 50% above the OECD average of 0.32*. Income inequality in Costa Rica is high by international standards and, in contrast with most other Latin American countries, it has increased in recent years.”

    So maybe not such a paradise for the average Jose after all.

    * The higher the Gini, the more unequal a place is.

  6. Entropy

    Now Sparticus is not a Keynesian, but when he was studying economics, he seems to recall that increasing taxes and/or lowering expenditures was considered “contractionary fiscal policy”. Can someone please explain how you can concurrently boost economic growth while enacting contractionary fiscal policy?

    By rendering the iron fist of government into an invisible hand?

  7. Ƶĩppʯ (ȊꞪꞨV)

    leftoids have some sort of fatal attraction towards grime and flith

  8. JohnL

    Don’t forget that Obama is also the Nobel laureate.
    Stiglitz may be an idiot but nowhere as dangerous as Obama!

  9. Did I not hear that Bowing was heard to say the other day that Shortarse was going to give more tax cuts than Turdball and lower the deficit more than Turdball at one and the same time?? Apart from this supreme analingus on his part, clearly Bowing (as in scraping) has identified his double breasted leader as an economic genius who should be nominated for the no bull prize.

  10. Spring is coming

    One simply negatively gears his or her governments reverse indexed expenditure tax break cuts and Shazam prosperity everywhere .

    You get a new car and you get a new car and you get a new car , we all get new cars!!!

  11. duncanm

    Strange,

    why do the citizens of Costa Rica need to government to help equalize outcomes?

    Surely, if that’s what they overwhelmingly want, they would be voluntarily passing money about without government overhead.

    Australia has a lower Gini coefficient than Costa Rica (ie: Australia is ‘more equal’), their taxes are very low, and they don’t even tax foreign income – so I’m not sure what Stiglitz is on about.

  12. This is probably anti-PC, but don’t stop.

  13. Up The Workers!

    What shade of skin pigmentation are we throwing out Nobel Peace Prizes to, this week?

  14. Joe Stiglitz, Robert Reich, Paul Krugman, Robert Skidelsky, John K. Galbraith. Add to that our own Andrew Leigh, John Quiggin, Stephen Koukoulas, Saul Eslake.

    What would be a suitable collective noun for this group?

  15. Egor

    Market capitalism or approximations thereof is like gravity. An undeniable natural law, it’s the only way an economy can function successfully in perpetuity and not demand half of my life and work product by force to subsidise your arse.

  16. John Comnenus

    Sparticus is no Keynesian…let me suggest how cutting government spending is not contractionary but concurrently stimulatory and repairs the deficit.

    The first and most important thing for Spartacus to understand is that every single dollar raised in tax originates in the private sector. Therefore anything that constrains the private sector will generate less tax revenue. More government spending always reduces private sector spending now and in the future.

    Now:
    At any given time the economy is 100% and the public sector x% and the private sector y%. If you increase x at any given point of time it is always at the expense of y in the short term.

    In the future:

    Increased government spending now demands higher taxes to repay the spending in the future. Those taxes come from the private sector. So increased spending now will lower growth in the future because higher taxes are a disincentive to do whatever is taxed higher. Higher taxes on cigarettes = less smoking. Higher taxes on business = less business and hence employment. Higher taxes on income = less income and private consumption.

    The only way to repair a budget deficit is to cut the taxes on the private sector to grow the private sector so it can generate more tax revenue. Every extra dollar of government spending gets in the way of that goal.

    The worst government policy is to raise taxes and spending. The best government policy to reduce spending and cut taxes.

    But that’s not what government spending and taxes are for. They are really about power and control. Money is power and the bureaucracy always wants more power and therefore seeks more money. Defecits are great for bureaucrats because they are a down payment that ensures more future government control and power.

  17. John Comnenus

    David,

    The collective noun would be an ‘idiocy’ or a ’meritlessocracy’.

  18. Nerblnob

    I’m no economist but wasn’t Stiglitz last seen pushing Venezuela as a model to follow?

    If I was Costa Rican I’d be very afraid.

  19. Nerblnob

    Rafe
    #2713097, posted on May 17, 2018 at 5:43 pm
    They are big on renewable energy too.

    UN crony wind and solar programs zero in on small countries with weak economies.

    I just ran into a bunch of Zambians in the UK on a wind turbine exchange program.

  20. IainC

    (David) Joe Stiglitz, Robert Reich, Paul Krugman, Robert Skidelsky, John K. Galbraith. Add to that our own Andrew Leigh, John Quiggin, Stephen Koukoulas, Saul Eslake.
    What would be a suitable collective noun for this group?
    A “dismal of economists”, perhaps, to use the traditional denotation for the “science” itself.
    One other point that interests me as a non-economist. John Comnenus states “every single dollar raised in tax originates in the private sector” but this isn’t strictly true, since those on the public purse do hand some back in tax. I do understand the process of “I (the Government) give you (the Public Servant) $100, you give me back $15 (in PAYG), so I gave you net $85”. Now, I assume that the Government counts this $15 as juicy tax revenue to distribute, instead of netting $85 as an expenditure with no tax incoming. Is this actually the case, so that the more the Government pays Public Servants the more tax revenue it claims it has? Can it be this dismal? Shouldn’t Treasury report a Net (ie real tax from the private sector) Tax Received, being all tax received minus that received from tax beneficiaries (ie fake public sector tax receipts)?

  21. Tator

    John Comnenus,
    Prefer the term “A Womble of Keynesians”

  22. Tator

    IainC,
    aaaaah, the glories of churn. A case could be made to not levy income taxes on Federal public servants AND reduce their salaries by the same amount of taxes not levied. Would be both a tax cut AND an expenditure cut in more ways than one as it reduces the workload on the ATO AND Federal HR departments who don’t have to work out withholding PAYG taxation any more. Who is the moron who thought it was a good idea to levy taxes on the same people who are paid by such taxes.
    I actually sat down one day as was very bored and worked out from ATO stats the real net tax paid in income tax by excluding government employees. As there was zero differentiation between state and federal, there was a huge number of public servants employed around Australia. From a very rusty memory, it was around 2/3rds the income tax take that came from the private sector. So a lot of it is just a money go round without even welfare churn involved.

  23. Mullumhillbilly

    Even in the better suburbs of capital San Jose, the modest houses of the honest burghers have barred windows and razor wire topped fences. The cost of living is first world, while unskilled wages are third world. Zero military expenditure while under Uncle Sams implied umbrella allows for free university, but a political corruption and a labyrinthine bureaucracy to rival that of India add to the huge debt eating at the heart of the economy. Infrastructure is lacking, and traffic in the city is a major obstacle to productivity. Vida ! It’s a great place to visit if you like nature tourism !!

  24. IainC: Spartacus said every dollar raised in tax originated in the private sector. ie, the revenue used to pay public servants only becomes available after it has been first collected (stolen?) from the private sector. The passage of time must be considered; this is not a world of instantaneous actions and consequences.

  25. Mullumhillbilly

    Pura Vida ! ( eaten by gremlins)

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