Economists fight for the truth

Einen falschen Weg gibt es nicht nur im Strassenverkehr, sondern auch bei der Wirtschaftspolitik.
Scientists don’t always agree. (Image: Kenny Eliason / unsplash)

The coronavirus pandemic has impressively shown how disagreement among virologists can play out. Now economists are arguing, and this could be fatal for Switzerland.

Disagreement among scientists in public is never good. If Switzerland has learned anything from the coronavirus pandemic, it is this: Differing views among experts about the benefits of protective masks or the effects of vaccination are not necessarily right or wrong.

But they can cause great uncertainty as well as undesirable developments.

Tax the rich?

For example, there is currently a worldwide discussion about simply charging the rich for the latest government spending packages and aid measures for the energy crisis via higher taxes. This, the logic goes, would be the best solution for everyone.

In Germany the dispute has now gone so far that the Wirtschaftsweisen, the German government’s highest advisory body, which is recommending tax increases for the ultra-rich. Partial financing through an increase in the top tax rate or an ‘energy solidarity surcharge’ for higher earners, the expert report said.

Immediately, however, criticism was voiced that the measure would completely miss the target.

Rebuttal from professors

“You have to have a very good reason if you want to raise income taxes in the middle of the crisis,” said Clemens Fuest, president of the Munich-based Ifo Institute, in an interview with “Welt TV“. Fuest is, after all, also a well-known economics professor.

To consolidate government finances, he said, this is the wrong way to go. “You could also cut spending to service debt,” Fuest continued.

Perpetual levies

Michael Hüther, director of the employer-affiliated Institut der deutschen Wirtschaft (IW), argues similarly. A temporary surcharge on income tax or a temporary increase in the top tax rate seems “politically naïve, as the example of the perpetual solidarity tax shows,” said Hüther.

Wanting to postpone the adjustment of the cold progression means accepting a tax increase that is not legitimized, the IW head said.

He was referring to the circumstances in which the solidarity surcharge to finance German reunification still exists decades later in the ‘big canton in the north’ and, with rising inflation, the state automatically collects more taxes.

Justification of the action

But economist Ulrike Malmendier immediately returned to defending proposals by the Council of Economic Experts to introduce a solidarity surcharge or raise the top tax rate to finance the consequences of the energy crisis.

“We should not keep borrowing more and more money and pumping it into the economy without knowing where it will come from,” the economist told the newspaper Welt. “The financing options will never sound great for everyone, there will always be a group that doesn’t like them.”

Other proposals on how to finance higher spending did not make it into the annual report, she said, because the economic experts could not find a common position on them.

Cautionary example

In Switzerland, too, the idea of using this concept to fleece the rich, for example, to reduce coronavirus aid packages, or to specifically skim profits from energy companies, regularly comes up.

Impressively, the effects of such measures are currently being seen in Colombia, and this should be a warning to Switzerland. The first left-wing president of the South American country, Gustavo Petro, urgently needs money to finance all of his election promises to the lower class. His government has therefore just decided to generate the equivalent of around four billion francs in additional revenue by raising taxes on oil, coal and gold mining companies. 

In addition, the country wants to impose an additional tax of 2 percent on rich people who earn a high monthly income of 2,000 Swiss francs or more by local standards. This was done after the proposal to abolish the tax exemption of the Catholic Church was successfully lobbied away.

Currency slump

Against the dollar, however, the national currency – the Colombian peso – has since slumped by about 20 percent since Petro came to power. Buyers of Colombia’s top exports, oil and coal, are already looking for other suppliers. Inflation has officially skyrocketed to over 10 percent.

Many Colombians therefore felt a shiver run down their spines last week when their new President Petro paraded with Nicolás Maduro, the President of Venezuela, in Caracas.

Leuthard and Maduro

Soon Colombians may also suffer from hyperinflation, like the inhabitants of their neighboring country, and have nothing good to eat, according to fears in many places, as research by revealed.

And also in Switzerland there was such a moment not so long ago, which almost brought the hearts of observers to a standstill. This was when the then Swiss President Doris Leuthard courted the socialist President of Bolivia, Evo Morales, in Switzerland.

So these disputes among economists about the right concept are not that far removed from Switzerland.


Economists fight for the truth

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