Support for that kind of argument is surfacing in unlikely quarters.
The International Monetary Fund used to be so entwined with American government thinking that its preferred market-friendly recipe was known as the Washington Consensus. Now, the Fund is cautiously backing redistributive measures -- falling foul of the Trump administration in the process.
In October, the IMF said rich countries can share their prosperity more evenly, without sacrificing growth, by shifting more of the tax burden onto high earners. It warned that “excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth.”
‘Broken System’
The U.S. is already experiencing some of those strains.
During last year’s election campaign, both major parties effectively broke in half. In both cases, an outsider candidate scored unexpected wins by running against the party establishment, and railing at an economic system they said was rigged against ordinary Americans.
Self-described socialist Bernie Sanders surprised pundits by mounting a serious challenge in the Democratic contest. Trump won his party’s nomination and the presidency. He told voters he had experience on the buy-side of American politics, having paid for favors from both parties, and so was well-placed to fix a “broken system” dominated by corporate lobbyists.
Now, Trump is about to hand corporations -- which are already making high profits by historical standards -- a giant tax cut. The bill “addresses problems we don’t have, and makes existing problems worse,” said Alan Krueger, an economics professor at Princeton University. “Especially the deficit, inequality, health care, and infrastructure investment.”
If the tax changes end up helping markets most, they’ll be widening a gap noted last month by JPMorgan Chase’s chief investment strategist, Jan Loeys. There’s not much sign of “economic overheating,” which happens when companies start spending more on wages and other inputs, Loeys argued. “Financial overheating, in contrast, is well advanced,” he wrote. “It merits monitoring a lot more closely for signs of bubble-trouble.”
Even Trump’s Treasury has flagged the danger. Last week, the Office of Financial Research made its annual report to Congress on the vulnerabilities of the financial system. It was sanguine about most of them, from inflation and bank solvency to debt levels.