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Comment by legitster | Hacker News Reader

You're thinking of a "fiscal multiplier" - which is only applicable when you are distributing from a central source like a government or a bank. https://en.wikipedia.org/wiki/Fiscal_multiplier

Otherwise this is a common Broken Window fallacy - your example forgets that that dollar you spent would have been spent elsewhere. So all of those multipliers would have happened regardless of who gets the dollar (a key problem with Trickle-Down economics).

If you have to pay $5 more per loaf because of the Jones Act, we don't generate greater than $5 of economic activity because I will be buying less bread and you will be selling less of it. So there will be somewhere between $1 and $5 in economic deadweight loss.

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Yes, I linked to the wrong Wikipedia page. Thanks. But no, it's not an instance of the broken window fallacy.

Let's say the store owner buys the bread directly from China, and by doing so can offer bread at 20% less than before.

So, I pay $0.80 for bread. The store owner saves 20%, which is $0.16. And let's say pay $0.40 for the bread from the Chinese supplier, leaving the baker with $0.24 to spend. I also have an additional $0.20 to spend. If I spend it, the merchant I spent it with saves 20% and spends the other $0.16, then the total GDP contribution is 0.80 + 0.20 + 0.24 + 0.16 = 1.4. I spent $1, but only only received a multiplier of 1.4 instead of 1.8 in the original case. This should be pretty obvious because any money sent overseas stops being multiplied, even if you end up spending the same amount of money total. This, of course, assumes there is a trade deficit with the overseas country.

So... firstly I think you are confused about the nature of the Jones Act. It only affects the domestic shipping industry. There is no overseas country to deal with. And to the extent that the Jones Act creates deadweight loss, it only penalizes the deal with the local baker.

>This should be pretty obvious because any money sent overseas stops being multiplied, even if you end up spending the same amount of money total.

Even given the above, I have no idea why you would assume this to be true. If someone in a foreign country is paid in US Dollars, the most likely thing to do with it is buy US goods or assets. (In the case of China, that is most likely US securities, but it's still not lost to the US economy).

Again, the multiplier effect is only applicable when dealing with an external input to a system. Otherwise, you are arguing that simply raising prices creates economic growth which is clearly not true.

> Again, the multiplier effect is only applicable when dealing with an external input to a system. Otherwise, you are arguing that simply raising prices creates economic growth which is clearly not true.

No, that's not what I'm arguing. I'm arguing that the multiplier of a single dollar is based on the percentage of that dollar that stays in the local economy.

> Even given the above, I have no idea why you would assume this to be true. If someone in a foreign country is paid in US Dollars, the most likely thing to do with it is buy US goods or assets. (In the case of China, that is most likely US securities, but it's still not lost to the US economy).

Yes, that's why I mentioned that my argument is predicated on there being a trade deficit. The U.S. runs a massive trade deficit, so clearly not all the dollars end up back in the U.S. economy. Buying treasuries isn't really relevant because each dollar the government takes in in exchange for a treasury needs to be paid back out.

>There is no overseas country to deal with.

There would be if you ended the act and all local shipping manufacturers shutdown so the country had to buy all their ships from Norway.

More likely South Korea, where most of Europe's ships already come from.

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