Epilogue

Epilogue

These are short essays.They focus quite narrowly on questions of fiscal policy and

public finance.Originally meant for widely separated audiences,they often repeat

tropes and themes.Readers accordingly will encounter economists assuming can

openers and the budget effects of selling the Pentagon more than twice.William

Vickrey's range of imagery was not especially large,and his pedagogy did not shrink

from repetition-as all who can remember him rising from the back of the room to

declaim on the 1.8 percent unemployment rate of 1926 can attest.

Nevertheless,even taken together,these essays form a remarkable body of economic

thought.Vickrey was a master draftsman of compact,lucid prose.He dealt with material

that was inherently difficult,and that has become more so for economists brought up

in the late phases of our present pre-Keynesian revival.Yet I defy the reader to find

here an unclear concept or a wasted phrase.If you have not understood something

there is only one remedy,and that is to read it again.

Two themes predominate in these pages.One concerns the relationship between

fiscal deficits,public debts,and'chock-full employment.'Vickrey's personal courage

－make that,indifference to the predominant view-and his relentless logic are best

illustrated in these passages,particularly in his insistence on the necessity of large

public deficits and growing public debt.He was a rare specimen,a totally honest

policy economist,who preferred to be completely without audience rather than to

compromise his position.How many of us can say the same?

With honesty came a clarity of thought,even prescience.In his 1993 paper Fifteen

Fatal Fallacies of Financial Fundamentalism'Vickrey writes:"There is a serious danger

that the bidding up of asset prices could create a bubble of unsustainable values that is 

likely to collapse disastrously,as occurred in 1929 after the budget surpluses of the

preceding years.'Such a pity he did not live to see the end of the 1990s.No one would

have been less surprised by the bust of 2000 and the Great Stagnation that has followed.

In this area,incidentally,it is possible that Vickrey underestimated the capacity of

the authorities to delegate,through guarantees and insurance schemes,the creation of

the necessary deficits to private parties,permitting the public sector proper to appear

to run a budget surplus at full employment,and slowing the decline in consumer

spending thereafter by permitting a continuing cash-out of home equity.This is a

phenomenon I have elsewhere called the Keynesian Devolution.But,one can be sure

Vickrey would have fitted this into his scheme. 

The second large theme here concerns inflation,a topic of greater urgency in the

1980s and early 1990s than today.Vickrey was a firm opponent of sacrificing

employment and output to price stabilization.Here he stood on nearly neoclassical

ground:fully-anticipated inflation can for the most part be compensated,while it is

unanticipated changes in the inflation rate that cause difficulties.But'unanticipated

reductions in inflation are as unfair to debtors as unanticipated increases are unfair to

creditors.'In any event,Vickrey wrote,unanticipated inflation is merely equivalent to

＂legitimized embezzlement;'the unemployment required to get rid of it is akin to

139

140 Full Employment and Price Stability

arson.'It is a sizzling comment on the monetary policy obsessions of the 1980s.In

several places he treats the theoretical underpinnings of monetary scorched-earth policy

the Non-Accelerating-Inflation-Rate-of-Unemployment,as one of the most vicious

euphemisms ever coined.'

To deal with inflation-embezzlement without committing unemployment-arson

Vickrey thought economists should get busy on the design of new policy instruments

Vickrey's practical streak prevented him from aligning with schemes for tradeable

rights to raise prices,but he had an alternative:tradeable rights to gross mark-up.or

value added.If value-added can be taxed,as it is universally in Europe,why can't it

also be controlled?The effect would be to put a three-way choice in front of firms

enjoying an unusual run of monopoly advantage:either lower your prices,or pay an

indemnity to other firms(by purchasing their excess warrants for gross mark-up)or

else pay a penalty tax.The disappearance of inflation as a policy issue in the 1990s

somewhat takes the edge off of this idea,but one cannot help wondering whether,if it

had been in effect,it might not have spared us the present predations of producers of

software,pharmaceuticals and other monopolized products.

Finally,one reads with pleasure Vickrey's crisp excursions into the structure of

taxation.Vickrey opposed special treatment of capital gains,and indeed advanced a

scheme for cumulative assessment that would raise the effective rate on long-term

capital gains and bring about something close to neutrality between the taxation of

capital and ordinary income.Yet Vickrey favored abolition of the corporate income

tax,which has a'double effect on the economy,not only removing purchasing power

from the income stream,but in addition discouraging new investment that would add

to this income stream.'Vickrey saw that,when combined with an offsetting increase

in upper tax brackets on the individual income tax,this step would have a progressive

and a stimulative effect on economic activity.He also saw,in related essays,the brutal

inefficiency that results from excessive taxation of real property at the local level.He

would have been a vocal advocate of revenue sharing in the current state and local

fiscal crisis.

And so we have Vickrey in a nutshell:deficits and debt large enough to assure

chock-full employment,monetary policy at ease and in the background,extra

instruments to control inflation and monopoly power,and taxes altogether progressive,

neutral and fair.

Is it a lost cause?Certainly two or three years ago,in that short moment of intense

and ill-founded satisfaction with the Third Way of tight budgets and low interest

rates,Vickrey's prescriptions would have had trouble getting heard.But now,in the

spreading wreckage all around us,things may be different.Public deficits are again

large,breaking the spell of budget balance-except that they are not quite large enough

to move the economy back toward full employment.Most now recognize that monetary

policy has been,for some years,pushing on a string.And the foundations of our

policies to control monopoly power,to tax,and to distribute the burdens of government

across federal levels are all ripe for overhaul,once the electorate decides,as it surely

will some day,to make a change in political leaders.

At that moment,this small book will reveal its full value.

James K.Galbraith

72:

#9.coin…

A Market in Rights to Gross Markups

A similar problem arises with gross receipts

taxes which discriminate in favor of vertically

integrated operations and against operations

where a product will pass through several hands

on its way to the market.In Europe,this has

been dealt with satisfactorily by shifting from

sales and gross receipts taxes to a“value added”

tax based on the gross markups of sales over

previously taxed inputs.This suggests that

Lerner's concept be implemented in terms of

free competitive market in rights or warrants to

gross markups.Warrants would be issued to

firms on the basis of gross markups in a

corresponding preceding period with adjust-

ments for changes in employment and invested

capital.Firms experiencing favorable changes in

their cost structure and lowering their prices

accordingly would have excess

rants to sell

to those with unfavorable experience needing to

increase their prices.A firm ending the

accounting period wih gross markups exceeding

what it has retained or purchased warrants for

would be subject to a penalty tax.However,this

penalty tax would not be expected to be a

significant source of revenue,only an enforce-

ment measure,the tax being set somewhat above

the market price at which the markup warrants

for the period were trading.

Gross markups would be determined in a

manner comparable to those used in assessing

value added taxes in Europe.Adjustments for

changes in employment could be based on social

security data,and for investment on income tax

data.There seems to be no serious problem of

administrative feasibility.These adjustments

would be determined in such a way that the

aggregate of warrants issued would correspond

to the aggregate sale price of the product