I'd rather have a large supply side driving costs down and improving my quality of life than otherwise.
For example, what's the value of having a parent at home full-time? What's the value of having both parents home for dinner? A bunch of studies have shown that one of the best predictors for having successful, well-adapted children is how much time the family spends together. But how do you quantify that? You won't know what the exact payoff is until 10-15 years later, when the kids are well into their own careers and having their own children. And it varies a lot from kid to kid - someone who's performing well academically with a supportive peer group needs a lot less parental involvement than a loner with no friends who's threatening to blow up the school.
Or another example: when I went to college, I believe the fin-aid formula was that the college would take 100% of my assets, based on my age and income. That meant my gap year was revenue neutral - it didn't matter how much I worked or what I worked on, I wouldn't be able to keep any of it. But that gave me the freedom to observe and to try things out, without the stress of trying to make a lot of money, and in the process I found my eventual career.
You don't want to run an economy like this - there needs to be some accountability so that people work on things that are actually useful. But a high school grad who's time-limited to one year of work isn't going to accomplish anything actually useful anyway - instead, that gap year is an investment in perspective, a way to understand more of the world before you commit to four years in college.
The same thing often comes up in research - a short-sighted focus on increased economic output leads you to miss opportunities that have no obvious dollar value attached, but can be big economy-changers in the long run. How long did it take GMail to become profitable, and would it have existed had Google had the same quarterly bottom-line orientation that most public companies do? How about Google itself? If Larry and Sergey had done the economically rational thing in 1995, would we still be searching on AltaVista? Is Twitter making money yet?
I agree, but I'd rather put that decision in the hands of each individual and not a bunch of central planning bureaucrats. You're assuming that people aren't capable of weighing all the costs (dollars or otherwise).
I'm very much in favor of finaid working the way it does, because it also opens up the possibility of bright children from backgrounds who simply would not be able to afford it going to elite colleges. That's supposed to be the point of education - level the playing field, so that even if you're born to garment-worker immigrants, you can make it big in your own lifetime. If it means that middle class families have some skewed incentives, I don't care.
I'm less sure about the tax issues. I'd like to see the tax code simplified in general, if only because tax preparation is so inefficient now. And I think disincentives in tax rates may cause more harm than the revenue collected from them does good.
So does a mugger's threat, somewhat more starkly.
http://schiffforsenate.com/?q=media/how-government-programs-...
Synopsis:
In 1918, a factory worker at Ford Motor Company earned $5 per day and kept all of it. In 32 days he would earn $160, enough to cover the annual tuition at Yale University.
Also, Ford workers at that time were making above-average salaries. They weren't the lower-middle-class to middle-class auto workers of today, they were solidly upper-middle-class. And 32 days is like 12% of his salary, so it wasn't exactly cheap for him (though far better than the 30-40% we see now).
Finally, it's disingenuous to compare 1918 colleges to 2008 colleges. Two major events really shook up the post-high-school landscape in those 90 years: the GI Bill and Vietnam. The GI Bill sent like 5 million people to college in the 40s-50s who otherwise couldn't have afforded it. Then Vietnam made college compulsory for middle-class or upper-middle-class men looking to avoid military service. Throw in desegregation, affirmative action, and co-education, and it's pretty clear that college went from being the domain of the brilliant and affluent to being open to the majority of Americans who finish high school. This total structural shift and basic re-definition of college makes pre-70s tuitions irrelevant to today's system.
If you want, you can also toss in the degree to which the job market has changed to requiring skilled workers with some form of post-secondary education. While some of this is likely a result of the education levels of the labor-supply, at least part of it is due to our changing industrial and commercial landscape.
Which is a reasonable assumption. We wouldn't need laws if people could rationally weigh up the costs and benefits of their actions.
As long as the tax code isn't too complicated and it doesn't change constantly, then how is the government meddling? There are just free people making their own decisions; their decisions just have slightly altered outcomes depending on the environment they're made in.
I agree with almost everything that anarcho-capitalists say...but many of them don't seem to realize that under such a diaspora many (most) people will continue to live within semi-coercive organizations, because not everyone has the same preference for personal freedoms that they do. so yes, some will actively choose decreased economic output in favor of other things that they desire.
How is discouraging people to save and pay their debts good for anyone or society as a whole?
(It's a semi-serious question. Credit card companies encourage people to buy things they can't afford and then carry the balance - it's how they make money. And the Federal Reserve attempts to cause continual low-level inflation, such that savings are worth less and debts are easier to pay back the longer you carry them. I don't really support either practice, but there are lots of things America is doing to discourage savings and encourage debt.)
A) a disincentive to pay debts since they will be cheaper in the future
B) a disincentive to save since your money will have less purchasing power in the future
It is a somewhat unusual tax, in that your tax rate is based on what proportion of your assets are in dollars. Does someone know what the rate per year on dollar assets is and how to calculate it? You would need to know how much money the Fed prints in a year. Do they publish it or was that what auditing the fed was about?
Also for A), banks probably factor in inflation while setting the interest rate for a loan. So, the relevant variable, i guess, is unexpected inflation rather than the value of inflation itself. The debtor benefits only when the loan market makes low estimates.
In a time of economic slowness, it benefits the society as a whole more if you increase your marginal spending (spend more cents of every dollar), because that keeps money flowing through the system. Of course, that means we'd want to create incentives to pay debts off and save when the economy's going well (which also has the benefit of controlling growth).
In America, we've become more and more dependent on consumer spending as the engine of our economy, so we keep incentivizing it beyond reason, even in boom times. That's what's causing the personal debt levels we're seeing.
To be clear, if I can make 40% more money with at most 10% more effort, I might consider it. But after a point the extra after-tax income is not worth the time and quality of life I forfeit. The whole point of earning extra money, beyond the ability to buy "things," is to buy more time and an enhanced quality of life. If it does not accomplish that, then the extra money has negative value.
The article points to work disincentives created as unintended consequences of (a combination of) other apparently unrelated policies. Are you suggesting that since work disincentives are not bad, its okay for them to be created this way?
I'm not sure it's disincentive to work as such.
It seem more like a disincentive to make more than $60K/year if you're not going to make $200K.
There's still an incentive to work to avoid homelessness.
Perhaps it could be called a disincentive to work hard.
Going to "work" is not the only way an individual can be beneficial to society.
Don't underestimate the beneficial effect of one person being able to stay home, look after a house, cook fresh food, save on childcare, consume less fuel etc etc.
In a nutshell, it's the story of kids playing baseball and accidentally hitting a ball through someone's window. The fallacy is that by breaking the window, they've helped out the economy. The homeowner will now pay the glazier to fix it, whose wife will now have money to buy a new dress, etc.
It's a fallacy because it ignores the productivity that the money would have resulted in had it been used for its original intent. Perhaps his car needs new tires, or whatever -- but there was something that the homeowner would have preferred but for the necessity created by the ball.
By analogy, perhaps the hypothetical second parent, who is now staying home, might instead be a doctor helping people, or a teacher, or even a garbage collector. Whatever, it's something that we would have gotten had it not been for this disruption.
PS: This also depends on how much the primary income is, how much time it takes, and how old the children are. If a family with three young children is supplementing a 140k primary income with a full time job that pays less than 50k it’s probably of little net benefit. If on the other hand it’s 40k and 40k and the children are in school it’s probably a significant net gain. Time is also a factor; one of the better and more common setups for families with school age children is a teacher parent. They share the same breaks, and the added stability can be a huge help.
The broken window fallacy says that purely destructive actions don't actually stimulate the economy in a useful way. In no way is one adult staying home to perform "home work" logically equivalent (at least, not in my opinion).
It's not that something is destructive. It's also not that something involves monetary transactions or not.
The point is that some external agent forces someone to change their plans, foregoing what they originally intended. (Economics deals with making choices between the available alternatives; money is only the tip of that iceberg)
In the parable as I outlined it, the employment of the glazier is presented as a positive outcome, while ignoring that the homeowner is now unable to buy his new tires, and thus the homeowner has lost the tires and the garage has lost that business.
In the stay-at-home-parent scenario, there's a visible gain of a parent giving the child a close bond and (presumably) good upbringing. But the fallacy hides the fact that had someone else not meddled, that parent would be doing something else that also has a positive outcome (else an employer wouldn't be willing to pay for it).
We can see that in both examples, the person whose behavior was forced now must be satisfied with a plan that is inferior to their initial intent. And assuming that all are rational actors (as economists generally do), then we can conclude that the total utility thus delivered (over the entire economy) is lower than that of the initial intent.
But it is not true when dealing with any one particular agent. You can often say what would have happened but for one particular agent.
How much money does a billionaire need to live from day to day? The same as any other normal person. Yes, they are likely to consume more luxury goods, but in the end, it does not cover the fact that the more money you have, the easier it is to get even more.
For examples of this you need to look no further than your local bank and see what premium rates they offer for people with high balances. Index funds offer ultra low expense rates for people with a lot of money. With a large proportion of money, it becomes possible for you to manipulate the markets by buying out competition, and becoming a monopoly: which is arguably the equilibrium state for any free-market. The monopoly is the most profitable situation for any business, and this is at odds with society.
So the more money you acrue, the higher your money/work rate becomes. This is a perverse incentive for the large corporation owners to not work as hard; and also to lay off workers during recessions. What sane company would be hiring when workers/consumers have less money to spend?
And the less work that is put into the economy, the worse off the economy is. This cruel cycle is why the economy was in a deflationary spiral and why "Helicopter" Ben is printing money as fast as he can.
This has a communist vibe, but in the end there is simply no argument that it is much better for the country to utilize the resources and wealth to stimulate the economy as a whole than letting a few people sit on it so they can get richer by doing nothing with it.
The poor and middle class can't just create their own wealth because they don't own "the means of production" or the intellectual property horded by megacorps and protected by megacorp lawyers and lobbyists.
It is analogous to not letting DeBeers sit on a stockpile of diamonds, except instead of diamonds, it is money, food, gas, homes, etc...
in the end there is simply no argument that it is much better for the country to utilize the resources and wealth to stimulate the economy as a whole than letting a few people sit on it so they can get richer by doing nothing with it.
Not only is it false that there's "no argument", but your statement is completely wrong.
If there were no argument, you wouldn't be seeing arguments from prominent economists like Greg Mankiw, Bryan Caplan, and Tyler Cowen. And indeed, they've got good arguments. The idea that burning through money to stimulate the economy comes from the Keynesian tradition -- but we know from the 70's double-shot of inflation and unemployment that the Keynesian model is wrong (the question is, "just how wrong?").
But your statement that they're sitting on their wealth doing nothing with it is the biggest demonstration that you're off base. As far as I know, nobody rich is doing this. If they're stashing it under their mattress, I don't think they'd have gotten rich in the first place. If they've got it invested in stocks or bonds or even banks, then it's not idle and doing nothing. It's helping other people finance their businesses, buy houses, whatever. But it's definitely doing something useful. In fact, it's doing something so useful that the people using the money are willing to rent it from them.
Contrast this to government spending, which according to Keynesian theory could be used by paying people to dig holes and fill them back in, so long as the government is doing this. In the Keynesian model (that Obama and the rest of the government is using), the money does not get used productively. When the rich guy rents his money to someone willing to pay for it, it's much more likely to find good use.
You are absolutely incorrect. They aren't doing this. They are pulling out of the US economy and putting them in Euros, gold, or Chinese factories. Did you somehow forget the complaints of a credit crunch that banks weren't lending any money?
Do you really think they are dumb enough to keep investing in the US when dollars are being printed non-stop? If so you are way off base.
If there were no argument, you wouldn't be seeing arguments from prominent economists like Greg Mankiw, Bryan Caplan, and Tyler Cowen. And indeed, they've got good arguments. The idea that burning through money to stimulate the economy comes from the Keynesian tradition -- but we know from the 70's double-shot of inflation and unemployment that the Keynesian model is wrong (the question is, "just how wrong?").
Then why aren't they the ones making the decisions if they are so correct? And the government doesn't simply just spend money for the sake of spending it. It usually (not always of course) goes into projects that benefit the public for decades such as better roads, power, and homes.
And Keynesian model being wrong because of the 70's? That is simply naive. Inflation was due to fears of Opec increasing oil prices and moving off the gold standard. Inflation was already rising when Nixon implemented his limits on wage/price increases. US Debt as a fraction of the GDP was even decreasing during this period.
http://g-ecx.images-amazon.com/images/G/01/askville/4889596_...
Describing this as Keynesian is absolutely inane.
That would depend on your understanding of inflation. The monetarist views, which it seems to me have proven themselves out most successfully in the real world, say that nothing of the sort can happen. Inflation is caused by one thing, and that's an increase in the money supply. http://en.wikipedia.org/wiki/Inflation#Monetarist_view
and moving off the gold standard
Well, yes, but that's precisely the point. The end of Bretton Woods was already a done deal by the time we're talking about. We were well into the era that the Keynesians though they could play games "stimulating" the economy by injecting money, bringing down unemployment by so doing. The fact that this didn't achieve their goals is exactly what I was talking about, and one of the reasons you should be listening more to the Monetarists like Friedman, rather than to Keynes.
That is plain wrong.
Think about what would happen if the scarcity of crucial goods like food and shelter increased by 1000%. Would there be inflation? I'd put my money on it!
Well, yes, but that's precisely the point.
No, it is not precisely the point. The economy was already declining when Nixon moved off the gold standard. Why do you think he wanted to do it in the first place?
And if your theory was correct, then why did the economy recover? Last time I checked, we didn't move back to gold in 1980.
"Velocity of money is often assumed to be constant, and the real value of output is determined in the long run by the productive capacity of the economy. Under these assumptions, the primary driver of the change in the general price level is changes in the quantity of money."
Monetarists never claim that inflation is always and everywhere a monetary phenomena unless they're dumbing things down for the press. They claim that in the long run it's a monetary phenomena. There's still room in the monetarist model for short-term supply spikes like the OPEC oil crises of 1973 and 1979 that the grandparent poster alludes to.
I'd also take issue with your statement that "you should be listening more to the Monetarists like Friedman, rather than to Keynes." They are not diametrically opposed. Friedman accepted Keynes; in fact, one of the reasons that monetarism was successful was because Friedman was one of the first people to accept Keynes on his own terms and then point out situations where Keynesian economics was unable to explain the observed data. Monetarism should be viewed as a refinement of Keynesianism, not a replacement.
Whoa: way, way, way oversold. Your making a blanket argument on a very complicated subject from a single data point. What about the sustained growth in the 40's through 60's due to New Deal, WWII, and Great Society spending? Economics is hard, and poorly suited to ideological statements like that.
Anyone sane would look at the evidence and say that Keynesian stimulus works sometimes, and not others, and that the details matter a lot. Only political partisans would make a statement like yours.
Sure, and you quoted my qualifier, too. I did say that the question is, "just how wrong?" (Not that there isn't an ideology I favor, but I don't think I was whitewashing to sell it)
You'll note that some of the credit in the early 60s has to be given to anti-Keynesians. Kennedy's tax cuts broke from the Keynesian model, and were successful. And if you'll buy into Hayek a little, I'll assert that the WWII boom (no pun intended) can't be credited to following any particular school, but is simply because the economic question is easy when you can get the whole society on the same page, working toward the same goal.
The broken window fallacy is usually used to highlight the importance of opportunity cost and unintended consequences. In the parable, the broken window results in some very visible benefits - the glazier has money, his wife has a new dress. But it's a fallacy because we don't know what the glazier would be doing otherwise. Perhaps he would've created a beautiful stain glass window, which causes his business to spike up afterwards as his skills increase, which means his wife can afford a series of socialite parties, which bring together people who would never have met, etc.
As Retric points out, I think the fallacy is more likely to work in the other direction here. The benefits of working are very obvious - you get more income, you can afford to buy more things, you live more comfortably. The opportunity costs are more subtle - perhaps your kid grows up hating you, perhaps they fall in with a bad crowd and start doing drugs, perhaps they never make it over the mathematical hump that prevents them from being a famous physicist. It's different for every kid, and you won't know for years.
Good economists admit that there are things that count that can't be counted, and recognize the limits of their models.
Better to have people choose between two good options than to make one option lousy.
As a believer in personal property rights, I think that those individuals who care about the poor should be free to give their money to the poor. But I don't think that their moral high horse gives them a right to use other people's money.
Now, if (as your second paragraph suggests) you really believe that taxation is so fundamentally evil that it cannot be justified whatever its good consequences, then of course the above will leave you entirely unmoved. But if you are prepared to consider trading off harms against benefits, then I don't think you're entitled to dismiss the possibility that some redistributive taxation is a good thing overall; in particular, you can't just say "if people want to give money to the poor then let them do so" unless you have good reason to think that the sort of situation I described above doesn't obtain.
I consider it good for individuals to engage with each other in purely voluntary ways. That is the source of happiness, wealth, health, and life. All else is a waste of my limited time on earth.
It's not obvious that policies intended to do X actually help X very much. In fact, there are so many counter-examples (I'm sure you can think of many yourself) that suggesting that the absence of government policy to do X would result in X not being done falls flat. Most of the time, people overall are better off without a government policy concerning them.
Anyway, I think it's pretty obvious that most people are better off if more (other) people are literate.
Note, though, that even people who want the government to do less aren't saying "we'll do nothing", they're saying "we want to choose which things to do ourselves". No one needs a law or regulation to spend their own money, it's only required when you want someone else's money spent without having to convince them they should.
Canada pays 55% of a salary for a year in the form of Employment Insurance for maternity leaves that can be 1 year for a mother and up to six months for a father.
I would be willing to bet that at least a full year of paid maternity leave is quite standard in northern Europe.
Some countries (the Netherlands, for instance) even pay their citizens to have children.
It's the US that is different here.