Hacker News Reader

Comment by ramanujan | Hacker News Reader

You take the Keynesian view. It's difficult to discuss this in more than a soundbite, but the Hayekian view is well explained by these two videos:

  http://www.youtube.com/watch?v=d0nERTFo-Sk
  http://www.youtube.com/watch?v=GTQnarzmTOc

Well worth watching if you haven't seen them.

In short, the opposite/Hayekian view contends that taxation is seizure of resources from profitable/efficient entities and redistribution towards unprofitable/inefficient entities. We saw this in extremis in the bank bailout, and more controversially in microcosm with individual redistribution.

If you accept this -- that "profitable" correlates with "efficient", and conversely, though the correlation is not perfect -- then taxation is not a Robin Hood sort of thing that increases well being, but rather a move that ties the legs of the efficient sectors of the economy -- those that can post a profit even in tough times -- to those that are already underwater.

View on HN

The Hayekian view here seems patently false according to Moody's research firm, which determined in 2008 that the most cost effective stimulus was food stamps and the least effective was business incentives such as tax breaks for buying new equipment.

http://money.cnn.com/2008/01/29/news/economy/stimulus_analys...

Oh yeah, reference Moody's, they did such an awesome job rating mortgage securities a few years ago.

My own wholly unfounded reasoning goes as this: give a broke guy some food stamps, he'll spend it on food. So the government is essentially buying this guy food. Food and groceries happen to be some of the the lowest-margin sectors of the economy - Safeway's operating margin hovers a little under 3%. So yeah, the guy will spend it right away, but you're not making much money out of this. The broke guy just wants to feed himself.

Give that same money to someone who's actively trying to make more money out of it (e.g, a business), they have much more incentive to use it efficiently.

I'm a SF liberal, I totally believe feeding the poor should have government support. But it makes a poor economic argument to me.

I think your reasoning is unfounded.

Safeway's doesn't have a huge margin, but so what? They employ people directly and indirectly: cashiers, truckers, stock clerks, people who work in canneries, farmers, chemists who formulate fertilizers, etc. It isn't as if a dollar spent at Safeway's ends up in an incinerator while a dollar spent at Apple mates with another dollar to make change.

Sure, but the study tries to find the most cost-effective way of providing stimulus. If you don't care how efficiently that money is used then we might as well just employ a fuck-ton of people building bridges to Hawaii.

What does margin have to do with it? Why is using the money efficiently important? What is your definition of efficiency?

Lets assume he is dirt poor, rather than broke. Everyone needs food and groceries. If he spends the food-stamps on food, he will likely spend the money that he would have spent on groceries on something else. By giving food stamps, you've given him a surplus of money, so he'll buy something that he needs but can do without, or a luxury good that he wants.

Lets assume now he is rich. We give him a tax break equivalent to the food-stamps (or even the same food stamps). He's already buying everything he wants and putting some in the bank. With the food stamps, he is able to put more in the bank. If the money is in the bank, it can be loaned to the poor guy, but it is actually (eventually) taking money out of the economy when it is loaned... the poor guy has to eventually pay it back to the bank with a few % interest.... it isn't actually getting 'spent' on anything.

If Safeway makes 3% on everything this guy buys, that's 3% additional wealth that wouldn't otherwise be there, right?

Meanwhile if you give it to a more profitable business, they'll make much more out of it. We're not pissing around stimulus dollars to feed poor people or make them richer. We want to increase the total amount of value in the economy.

Your now-he-can-buy-luxuries argument is bullshit. Great, let the government subsidize iPads, that'll get the economy going.

Sure, but you are arguing for short-term spending vs long term capital investment. Basically you are arguing that you don't need to get more sleep, you'll just have a red-bull tonight. So the red-bull is better than getting more sleep in general.

If you take all the money (100%) from people who build and make things and give it to people who don't have jobs to spent, in the short term things will be bought and everything thing will appear stimulated. In the long run your entire economy will collapse as your capital base erodes. The basic Keynesian error is to not distinguish between purely consumptive (why don't create jobs to build ships, fill them full of gold and new technology, and then drive them into the Pacific and sink them?) and productive goods which actually build economic wealth and raise the standard of living.

That's just completely divorced from reality. There are so many areas of the economy that could not reasonably be directly profitable on their own, but magnify the profit of the overall economy. Many of these things are funded by taxes.

The problem with the Hayekian view is that it's one-size fits all. People who think Keynesian economics works in certain situations have the great depression to back them up. And they're likely to sympathize with a Hayek type view during good times when there's no need for the government to stimulate demand.

Reply on news.ycombinator.com