Liam Byrne is making a structural change on cyclical grounds

No good ever comes from this sort of thing. There are indeed swings and roundabouts in the economy and policies to deal with swings and roundabouts are fine. There are also structural issues in an economy and policies to deal with structural issues are equally fine. But imposing structural policies to deal with swings and roundabouts is one of those things likely to fail. As is the other way around of course.

But that is what is being done here:

A failure by Rachel Reeves to back a “windfall of wealth taxes” in her budget risks fuelling the rise of the populist right, a former Labour ­cabinet minister has warned.

Liam Byrne, a senior figure in the New Labour government and chair of the Commons business and trade committee, said that the rise of Reform UK at the last election meant the chancellor and Keir Starmer must urgently consider raising funds to deal with inequality.

The bit about Reform is just a bit of polish on the log of the argument. Which is really this:

The average wealth of the top 1% has risen by £2.2m since 2010, about 41 times more than the rise in average wealth of the rest of society, according to new research commissioned by Byrne for the updated version of his book The Inequality of Wealth: Why It Matters and How to Fix It.

Wealth inequality has increased we must tax to reduce it.

Now, we have our mutterings about wealth inequality. We insist that it’s badly, wrongly, measured. For absolutely nothing the State does to reduce it is counted as reducing it. The old age pension, a below market rate tenancy, free health care, they all reduce wealth inequality substantially. Except, they don’t reduce it one iota the way we measure wealth inequality. So we don’t believe a single word that comes out of the fork-tongued mouths of those talking about wealth inequality.

But this is rather simpler, the mistake here.

Since 2010 we’ve had a deliberate attempt to increase the value of assets. That’s what quantitative easing was - reduce the return on risk free assets, push people into taking more risk in search of yield, increase the capital value of assets producing a yield and thereby expand wealth inequality. QE was deliberate policy and that’s what that policy was - we want to increase wealth inequality so that people do more investing in creating wealth.

This is now being used as an excuse to tax wealth more? Really?

Further, we’ve already started quantitative tightening. Which raises the return on risk free assets, reduces the attraction of risk bearing ones and so lowers the value of those assets - QT deliberately and specifically reduces wealth inequality. We have, that is, already solved this pitiful excuse anyway.

The rise in wealth inequality is a cyclical change resulting from monetary policy - one already in the process of being solved too. But it’s being used to lead to a structural change in capital taxation. No good will come from applying policies for the wrong reasons.

That’s before we get to the idiocy of the policies themselves of course.

Hmm, what’s that? Liam Byrne is a politician you say? Ah, yes, we’d forgotten that and him. Well, no wonder it’s bad economic policy then.

Tim Worstall