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. Last Updated: 07/27/2016

Spare Cash Is the Best Test

The New York-based economist Doug Henwood likes to judge the health of the U.S. economy not so much by looking at the numbers as by checking how often the words "recession" and "crisis" appear in the press. But there is an even simpler method: Ask people if they have any spare cash lying around.

Recently, my wife had to do just this. With the March 8 holiday approaching, we set about collecting money to buy gifts for the women who work in our child's kindergarten. This ritual dates back to the Soviet era. Ours is a private kindergarten, and the parents who send their children there are model members of Moscow's middle class. They're all well dressed, and half of them drive their children to school in the morning. Previously we had had no problem collecting for the gift fund, but this year for some reason everyone was a little short and we raised half as much as we had last year.

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A few days later I spoke with a high-ranking official at one of the "alternative" labor unions. Most of the "alternative" organizations have managed to acquire offices and to develop their own sources of revenue in the 10 to 12 years of their existence, which is to say, they aren't hurting for money. But this official unexpectedly began to complain. "It's strange," he said. "Most of the time we do fine financially. But recently we've had nothing but problems."

Next I talked with an executive at a major textile company. Not long before he had told me that his company had recovered all of the losses it incurred during the 1998 financial crisis. The executive, an old acquaintance of mine, gave me a glass of expensive whiskey and said: "Something's not right. On paper everything adds up. But in the past the company always had uncommitted resources available. Now we don't."

The government seems to be sensing the same thing. The money hasn't dried up, but there never seems to be enough to go around. Despite rising share prices and encouraging economic indicators, officials at all levels are complaining about the lack of ready money.

We're revisiting old questions that were seemingly answered long ago. Government sources have leaked information about an impending review of the country's Tax Code. If the press is to be believed, the government is planning to raise the much ballyhooed "lowest income-tax rate in Europe." Some form of progressive tax will be restored, and the procedures for collecting the unified social tax will be reviewed. Mikhail Delyagin, a long-time foe of liberal economic policy, has been appointed to advise the government.

Correcting mistakes is never a bad thing, of course. But this is economics, and any step taken by the government is political. Talk of cutting taxes is profitable for any politician, while raising taxes is never a pleasant task. The difference between responsible and irresponsible politicians is that the former don't promise, or do, what they know they will later have to undo. When the government shifts into reverse, it admits its own incompetence.

But here we're talking about more than just a mistake. Our leaders' actions are based on two basic principles. The first of these holds that lowering taxes is a good thing in itself, and that the economy will respond with a burst of growth. But the economy has stalled.

The government's second principle arises from the firm belief that by giving handouts to the rich, it will improve the situation in the country and strengthen its own hold on power. The natural course of events, however, has placed the government in the position of a person who tries to take back a gift he has just given. Not a pretty sight.

The government can't admit that it has been guided by false principles. It has antagonized the very middle class that it hoped would serve as its support base, and hasn't been able to cultivate any new friendships.

A more even-handed Tax Code will only benefit the country. But money won't be pouring back into state coffers anytime soon, even if the tax system is "fixed" once more.

Not so long ago, the government could indeed have laid its hands on a certain amount of "spare" money floating around the country. It's even conceivable that our leaders might have spent this money on something useful (like paying teachers' salaries). But, alas, this spare money is no more.

This is not yet a crisis. It's just a shame.

Boris Kagarlitsky is a Moscow-based sociologist.