Thread by @SMiltim

In his attempt to deactivate the yellow jacket movement, President Macron has invited citizens to participate in town meetings to debate the issues affecting French society in a letter that frames the discussion within Neoliberal ideology.

One particular phrase called my attention. « Mais l’impôt, lorsqu’il est trop élevé, prive notre économie des ressources qui pourraient utilement s’investir dans les entreprises, créant ainsi de l’emploi et de la croissance.»

Translates as "But, when the tax is too high, it deprives our economy of resources that could be productively invested in firms, thus creating jobs and growth". This statement is totally wrong.

It is another formulation of the crowding out theory, the idea that, within a limited endowment of resources, what the state spends the private sector cannot and viceversa. For that to be true an economy would have to be at full employment.

European economies have not been at full employment in decades. See this report that @billy_blog brought to my attention yesterday:
civitas.org.uk/content/files/…
The EU is the club of severe and high unemployment.

Macron is implicitly saying that, by reducing taxes, the state will decrease spending and viceversa. Remember that European leaders, captured as they are by the mainstream Economics dogmas, is committed to a balanced fiscal budget.

So, if taxation comes down, so must state spending; and, if state spending goes up, so must taxation.

Macron says that if taxes were lower, then more resources would be available for investment. That is a fallacy.

Lower taxes would indeed increase disposable incomes. This, in the current scenario of a slowing down economy could be desirable. France has probably entered into technical recession already. That's what the IPI suggests.

But what lower taxes do is increase disposable incomes, not investment. This extra income could be spent, thus increasing demand, or saved. In the latter case, if the government also decides to cut state spending, then you'll get lower aggregate spending.

With the French economy in the doldrums, lower taxes are unlikely to have much of a stimulus. Why would anyone invest in an economy that is slowing down?

There's a logical flaw in stating that lower taxes will automatically lead to higher investment and jobs. It's the classical ruse that Neoliberals use to justify lower taxes for the wealthy.

So, while I would welcome a decrease in taxation, especially for the population that is now rioting and protesting in the street, it is also critical that no state spending cuts are introduced, quite the contrary.

Deficit spending will introduce new money in the economy, maintain the level of aggregate spending, help France avoid entering into a new recession and then, maybe, change the expectations of businesses.

If businesses start to see an increase in aggregate demand they might decide to invest and hire. But this will not happen automatically.

Neoclassical Economics is so burdened by this type of logical flaws that it is not a science, it is basically an ideological underpinning for the regressive policies that European politicians have been inflicting on the population for decades.

Expect to see more gilets jaunes dans les rues and more far right electoral victories.

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