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Comment by DigitalJack | Hacker News Reader

I see this point of view a lot in my internet wanderings. Honestly I don't understand the line of thinking.

What do people think "the rich" do with their money? Store it under a mattress? Keep it in an underground vault so they can go swim in it while laughing maniacally?

Of course they don't. They invest it. They put it in Treasuries, Mutual Funds, Individual Stocks, CDs, Money Markets, Plain Old Checking Accounts.

That money is most definitely not sitting still. It is out there flowing through the economy, financing mortgages, construction, businesses, and probably anything else you can think of.

The only reason to tax the rich as far as economic stimulation goes, is if you believe the Government can do better with the money than the market can. If that is what you believe, fine, just say so and state that as your argument.

But this idea that somehow money is sequestered when owned by rich people is absurd.

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Yes and no. They also use it to buy and store commodities, in the believe that money will devalue and it is better to store it as gold or similar. This line of thinking pretty much creates no value - the money does get kept in a underground vault, albeit rarely in the shape of a swimming pool.

Where any investment happens also matters - I suspect that recently most of the value of investments have gone to raising the quality of living conditions for the middle classes in China and India, rather than in America or Western Europe. In a sense, the planting is being done overseas, and the harvesting is happening at home. One may argue that this is morally desirable, but it's not clear that it is the outcome that would be chosen by enlightened American or European self-interest.

Interest rates being as low as they are also seems to imply that there are few solid value-creating investments to be had at home in a retail sense - otherwise it would be trivial to invest money at a higher rate of interest and become quickly more rich.

One final point - money is power. When money is so heavily concentrated in the hands of very few people, you have the same very few people being very powerful economically and picking winners and losers. This happens to be exactly the problem that a lot of people who are for market-driven economies have with socialism/communism - power concentrated is too prone to failure and not as great a driver for progress as power diluted.

> They also use it to buy and store commodities, in the believe that money will devalue and it is better to store it as gold or similar

Yes, and it's worth noting that this pushes food prices up, which, in turn, pushes poor people down.

I think the Keynesian contention right now is exactly that anyone who has money at this moment is choosing not to invest it in things that will employ people.

That is, despite record low interest rates, most people and corporations who have money are in fact choosing to "keep it under the mattress", refusing to invest it. There are lots of companies out there sitting on mountains of cash, not spending it.

Of course, they're not literally keeping it under the mattress. They instead keep it in extremely low yielding US treasuries, which is the economic equivalent. Now, if the government was to invest this money which they are able to borrow so cheaply, that might change things... This would be the "fiscal stimulus" that many Keynesian economists are advocating until employment and/or inflation both go up.

Of course this is not in itself an argument for increased taxation on the rich. That's an orthogonal issue, IMHO.

The problem as I see it is that we don't really know how the hell the economy works. Economic theory seems to be bad at real-world predictions, albeit it is useful for describing what we see.

All we can say is that giving tax breaks to the rich doesn't seem to work. Maybe it should. In theory it sounds like it should. But it doesn't. Or, at least, it hasn't.

Giving tax-breaks to the middle class does seem to work.

In short, we don't know why the economy works the way it does, so our best bet is to go do the things we were doing when the economy was strong. Maybe that would help.

Yes, the rich invest their money. But if we accept the guess that the economy is becoming less labor intensive and more global, their investment does do less to create american jobs, because it makes more sense to invest in such places.

Also, even for the same investment: financing a construction of a house, a 100K dollar paid by someone to buy a house, gives more social value than rich guy saving 100K that are being lent as a mortgage.

And of course there's the problem of concentration of power via money , vs distributed power.

> The only reason to tax the rich as far as economic stimulation goes, is if you believe the Government can do better with the money than the market can.

I think this is a very important point. There's been an important ongoing debate in some European countries, on taxes paid vs. benefits provided by the state. It's a natural tendency for some kinds of state to become increasingly dependent on tax money, be it through self-expansion (hiring more and more public servants) or provision of extra benefits to society. While this was no big deal in the post-WWII, it has become increasingly relevant with the consequent improvements in life expectancy and decrease in birth rate.

OTOH, the market is purely profit-oriented and profit is seldom in agreement with the public interest. "The rich" won't care to pay my unemployment benefits when I lose my job or my hypothetical child's health expenses.

Directly or indirectly a lot of the money gets invested in the US government's debt, which crowds out private sector investment. So it just funds the deficit, so the government spends the money anyway. May as well tax them.

Try getting VCs to fund you with the interest on their sidecars, and then tell me that all the rich spend their money on new businesses. :|

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