Comment by rsj_hn | Hacker News Reader

Comment by rsj_hn | Hacker News Reader

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The thing is, it is really foolish to make economic policy based on what, as the economist Brad deLong likes to call our East African Plain Ape brain, thinks of as fair. That's just atavistic sentiment. If you run an economy based on these types of emotions, you will end up with a terrible economy in which people are worse off.

Instead, we want to make economic policy based on what will do the most good, not what we think of as being "fair" or "equitable".

The idea of "fairness" says you should shut down gifted programs because they don't support "equity" -- another name for fairness. The smart policy is to have gifted programs even if the result does not seem fair to you. Because that improves living standards for everyone. Having those people drive innovation in the economy is a good thing, even if they are not racially balanced according to whatever bucket system you are using. Constantly worrying that someone else might have more than you is a great way to create an impoverished society, even though that is what the Plains Ape brain worries about.

Now we already disproportionately tax people -- quite a bit. There is no need to disincentivize entrepreneurship in order to satisfy our base instincts for "fairness". If you want to raise marginal rates -- fine, do that. If you want to eliminate the preferential tax treatment for long term capital gains, fine, do that. I'm happy treating all income the same and taxing it according to a single progressive rate. But I would not support taxing paper wealth or unrealized gains merely as a result of repricing of assets. There are other tax reforms that are less harmful to capital formation.

Modern societies are not capital constrained, so capital formation is superfluous. The world is awash in excess capital among the rich, so providing government subsidies to facilitate further capital formation among the rich will not improve living standards.

What you're describing is the failed mentality of the early 1980's : the idea that the wealthy are "better" at capital allocation than everyone else. What it leads to is not some utopia, but simply bigger yachts, and more expensive sports teams, and more expensive land, while the human capital of the poor goes neglected and untapped.

What does the most good for living standards is the government investing in humans and households without capital. More broadly distributed capital, in other words.

You have cause and effect backwards. The modern world is not capital constrained because capital formation is (in certain locations) superfluous. When it is not, it is.

> Modern societies are not capital constrained, so capital formation is superfluous

So modern economies are not constrained for money, since money is just paper you can print.

But we are not talking about financial capital, but real capital. E.g. entrepeneurs taking big risks to start businesses instead of just getting some cushy sinecure. And the problem is that although the government can print money, Elon Musk can't. He has to risk his own money and his own time, in order to place big bets. He is the one working 14 hour days, creating new fields, while everyone else tells him it's a crazy idea that will never work.

As you start to punish those people and become angry at them for succeeding (ignoring the massive survival bias) they start saying screw it, and don't make those big bets, or move to a different country and place big bets there.

And it is the ability to organize production in innovative ways that is scarce in the society, not paper and ink to create money. So we should focus our economy on rewarding and encourgaging that type of entrepeneurship, and fostering the growth of productive ecosystems, because that creates the surplus wealth that gives value to the government's paper and ink.

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