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Comment by encoderer | Hacker News Reader

If I got an extra $100 or so on my paycheck, it would have very little economic utility. It would just be added to my pile of savings.

But if you take that $100 from me and give it to an unemployed person, they are going to spend 100% of that, guaranteed.

Moreover, I'm not following you on the "less the sizable bureaucratic overhead" comment. You make it seem as if the gov't takes $100 from me, burns $10 in the White House Furnace, and gives $90 to the unemployed person.

On the contrary, every dollar of "bureaucratic overhead" is income for somebody -- a government contractor, supplier or employee. I've never understood why people act like the money the government spends just vanishes from the economy. Yes, a small, small fraction of it goes overseas. But it's so small it cannot be described as "sizable."

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If I got an extra $100 or so on my paycheck, it would have very little economic utility. It would just be added to my pile of savings.

Nonsense. That's great that you'd save the $100, but even if you do that it still has economic utility, presuming you're putting it into a bank account. It then gets lent out to businesses or reinvested into the economy. The bank isn't sitting on a giant pile of money.

The bank isn't sitting on a giant pile of money.

I thought banks were sitting on giant piles of money (thanks to the Fed), hence the low interest rates?

In a sense, yes, but that's mainly on the books and it depends on which interest rate you're referring to. You're right, much of the bailout money was used to cushion the capital accounts of these institutions. However, banks are businesses too and at the moment happen to be making tremendous profits, much of it due to the spreads they're getting on the low lending rate from the Feds.

Except that we're not having a capital shortage, we're having a demand shortage. There's plenty of money to be lent out, but there's no demand for it. So it really is the case that that money being spent is better than that money being saved.

I didn't say it had NO economic utility. I said it had very little. And it doesn't. Not compared to what it would if I'd actually be spending it.

http://en.wikipedia.org/wiki/Broken_window_fallacy

Short version: Money spent for unproductive reasons doesn't add to net wealth.

The broken window fallacy considers the case in which both the transferer and the transferee spend all of the money. A large part of encoderer's point was that he was unlikely to spend as much of the money as the transferee. Saving helps nobody right now.

If the solution to a lagging economy is to have more money be spent, give it all to hardened drug addicts. They'll quickly spend whatever we hand out.

Or here's a better scheme. How good do you want the economy to be this year? GDP of $100 trillion? Great, I can make that happen. Have the government print a $100 trillion bill and give it to me. (Or hand-written is fine.) I'll use it to buy a $100 trillion candy bar from my friend over there, then he'll burn it. Boom, $100+ trillion GDP, zero inflation, recession over. We'll all buy yachts!

The point is that moving money around does not inherently create prosperity. It can help if the act causes resources to be used more efficiently, but figuring out how to do that is incredibly hard. Politicians (or anyone really) trying to do it at a national level are like monkeys at the controls of a nuclear reactor. They're vastly out of their collective league. Theoretically they could make the situation better, but don't count on it.

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