11/14/2017

Who Is The Real Market Fundamentalist?

Mateusz Machaj, Foundation for Economic Education

Calling names nowadays is very common. It is much easier to categorize someone, to put him or her in the imagined intellectual box, rather than engage in meaningful discussion and honest rational exchange. This mode of action is even more widespread if it allows for mild insults, suggesting lack of vision and critical thinking. Such is the case with a famous label of a “market fundamentalist.” Apparently, one supporting market solutions is a “fundamentalist,” because one is not interested in sensible reasoning but only in blindly following trivial suggestions of the apparent market “religion.”

Yet, think about it for a second. What really constitutes being a market fundamentalist? Surely any fan of such a label would tell you: that is a person who believes the market can take care of virtually everything. That there is no reason to worry about any real-world problems on the administrative level because somehow things would take care of themselves spontaneously without government interference. Fair enough.

Now in contraposition to this, consider some of the strongest statist propositions in different fields: monetary policy, fiscal policy, and labor policy.

Who’s Being Fundamentalist?

Contemplate fiscal policy based on taxing capital in various forms. Proponents of levying taxes believe they are not a big burden to the economy. Who cares if high taxes are shrinking the amount of available funding? Market theory will tell you that with levied taxes, retained earnings are shrinking and there is less money for the company. To the proponent of high taxes, that should be no problem. Somehow the business will still manage to support high levels of economic growth. It can still take care of itself, and the potential consequences of lower social wealth and overall production can be avoided. Is that not a strong belief in an amazing potential of the market? Is treating the economy as tax-proof not putting too much faith in the market mechanism?

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The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

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