Managing a contracting economy - Politics Forum.org | PoFo

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#15094102
Both neoliberals and conservatives are hopeful that future prosperity can be taxed to make up for the huge deficits being generated to bale out the COVID economy. But what if the economy limps along for the foreseeable future?

Does anyone have plans for a permanently contracting economy? Some options: Reductions in salaries and/or hours worked and executive compensation to keep more people employed instead of laid off. Repurposing vacant properties: Converting, for example, office or retail space into residential use or indoor agriculture.

Given that employees may have to move often to get new jobs as old ones dry up, traditional pension plans, already shrinking, could be replaced, perhaps by an enhanced Social Security system that includes larger copayments by government.

High job mobility may also call into question the value of a home as an investment as frequent relocation costs would eat into equity. Medicare-for-all would also seem to be a more efficient than a system in which one constantly changes health plans, often with gaps, as one constantly changes jobs.

Economic contraction will likely deflate high housing prices but the opportunity for young families to exploit that is sometimes countered by deliberate attempts to keep vacant properties off the market. Perhaps a tax on vacant housing would discourage that.

Ultimately, the only way to pay off some government deficits may be through high estate taxes on the accumulated wealth of the rich.

There may be a self-correcting mechanism. As the unemployed put off becoming parents, the contracting population will create labor shortages, which will raise wages. A similar trend, fueled by high parenthood costs, may have already been in place before the pandemic hit.
#15101279
Robert Urbanek wrote:There may be a self-correcting mechanism. As the unemployed put off becoming parents, the contracting population will create labor shortages, which will raise wages.

Not if immigration continues at the high levels it has been.

Furthermore there is a problem because government forecasts for tax revenue are based on the assumption that population will continue expanding, and thus that the tax base will continue to increase.
Obviously this is not a sustainable view.


I agree though that moderate labor shortages are going to be required before anything returns to prosperity.
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