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Comment by nazgulnarsil | Hacker News Reader

People that don't understand economics always want to talk about this big nebulous pool of money that apparently sits in vaults somewhere actively making the rich richer and the poor poorer. This is simple hogwash. the vast majority of the wealth is tied up in the working capital of the corporations that these ultra-wealthy run. The people we should be focusing on helping aren't the 'poor'. Give them money and it disappears. On the other hand, if you give small business owners (who represent the vast majority of millionaires, and employ about 75% of the people in the US) you get new jobs and new products. remember the old adage about giving a man a fish vs teaching a man to fish? If you HAVE to subsidize something subsidize free fishing polls, not free fish.

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To be fair, the article wasn't advocating the taxing of capital. It was advocating the taxing of income.

Also, money never just "disappears" from the economy unless you destroy it. Who do you think buys the goods and/or services that your rich capitalists create, thereby enabling them to make new jobs and new products? In large part, it's the poor people. Or at least, the somewhat poorer people.

the is dead weight loss in the collection of taxes. A great deal of money is spent on projects that don't improve things or on things like servicing the debt. Money is destroyed all the time.

precisely. we can't forget that money is just an abstract representation of the productivity of people. It is constantly created as things people want are produced and destroyed as those things are consumed.

Supply side economics has a fundamental flaw: it lowers aggregate demand. The middle class has been able to make up for this over the last 30 years in two ways - by having women join the workforce, and by taking on more and more debt. Debt can be piled on for quite a long time, but when the credit bubble pops, you get what we are going through now. And when consumers find out that debt is not income, and they retrench in their spending, then there is no market for the goods all the saintly business owners are making. This is the worst case scenario.

I know you use the phrase saintly business owner as a form of sarcasm, but you do realize that you're posting on a board that started dedicated to hacking and startups, right? I mean, a lot of people on here are either saintly business owners or want to become one.

Be careful using such a broad brush.

Supply side economics has a fundamental flaw: it lowers aggregate demand.

I can't make heads or tails of this. if oversupply occurs prices decrease.

Supply, demand, and price are all related: http://en.wikipedia.org/wiki/Supply_and_demand

Supply side economics does not really increase supply. That's just the moniker. Supply side economics means tax cuts for the well to do, who will supposedly then create the jobs that will grow the economy. But this rests on the middle class stagnating - something that has in fact happened in the last 30 years. The top 1% control 22% of wealth (as of 2006), compared to 8% in 1980. For comparison's sake, the last time this percentage was this high was 1928. If you don't think there's a high correlation between income inequality and levels of debt, then you are fooling yourself.

There's a point at which the middle class being too poor puts the entire economy at risk. We are there now. Being an acolyte of supply side economics today is like being a communist in 1989 - you can keep believing in the true faith, but it's been refuted in the real world.

what are you talking about? income inequality doesn't mean anything if everyone's standard of living is increasing. Would you prefer YOUR standard of living to go DOWN just so you can have the satisfaction of watching the rich get poorer? I would much rather have everyone get richer even if that means the rich get richer. You're comparing percentages but you're neglecting that on a per capita basis the 78% of 2006 is much much larger than the 92% of 1980. It's not even close.

whose debt are you talking about? household debt or government debt? if the former it is up to people not to live beyond their means, if the latter the government is simply stealing from us. Where we are at now has nothing to do with the middle class and everything to do with government intervention in 1995 and again 2000 and 2001.

what the hell has modern macroeconomics done to our country? all over the place I see specious analysis such as this comparing numbers that either don't mean anything, are inaccurately measured, or can't be shown to be an indicator of other things.

edit: I pulled up some numbers

GDP in 1980: $2.7 trillion

GDP in 2006: $13.2 trillion

Population in 1980: 226.5 Million

Population 2006: 298.4 million

GDP per capita 1980: $11,920

GDP per capita 2006: $44,000

$11,920 in 2006 dollars according to the CPI: $28,824

we're not quite twice as wealthy, but we're far FAR richer now than in 1980. Income inequality means nothing.

You are wrong. Everyone's standard of living is not increasing. Quite the opposite. Adjusted for inflation, median incomes have stagnated or declined in the last 30 years. Household debt has skyrocketed oftentimes as people have simply tried to keep up. Yes, some people have lived ostentatiously beyond their means, but many others are just trying to stay afloat, and deal with the rising costs of everything as their paychecks stay the same. Conservatives told people that incomes did not matter because their investments (stocks and houses) were rising in value. This fallacy has been utterly exposed.

The gains in GDP have more or less gone entirely to the top 10%, and in particular, the top 1% of the population. This makes everyone else feel like the pie isn't growing - because it isn't for them. Now that their stocks and homes are worth substantially less, and their credit is drying up, people have to spend less. And this fall in aggregate demand has disastrous consequences - not just here, but abroad as well, for all the countries that depended on exporting things to US consumers (Germany, Japan, and China).

Income inequality is of course not in itself a bad thing; it is the consequence of an economy where risk and work are rewarded. The question is extreme income inequality. Obviously this is a subjective matter. You may not think we have extreme inequality now, but when it's at the highest level it's been in 80 years, I'd venture that it is extreme. And extreme inequality often leads to falling aggregate demand and debt deflation. In short, a depression. If you think income inequality means nothing, you know nothing.

your own numbers refute that. look at your original percentages. do basic math.

the amount the wealthy control has almost tripled, but the amount of overall wealth has almost quintupled.

imagine that the nation's wealth is represented by a dollar and I control 8% of it. Over time the wealth of the nation doubles but my percentage control has grown to 22%.

before I got 8 cents and the rest of the nation got 92 cents to share.

now we have 2 dollars that I get 22% of...44 cents.

the rest of the nation now has $1.56 to share. Discounting the fact that i'll probably reinvest part of my 44 cents, the nation is still much wealthier than before.

If you HAVE to subsidize something subsidize free fishing polls, not free fish.

What a great quote. Did you hear that from somewhere, or did you just come up with it?

I think you hit on a pretty good point about our economy - there is a very long tail of employers and producers in our country. When people think of the 'corporations' or the 'rich', they think of Exxon Mobile and Bill Gates, and fail to realize that the vast majority of our employers, 'rich', and GDP producers are not these companies or people but the small business owners. It's easy to sell higher taxes on Exxon Mobile and Bill Gates, but it's the local pet store owner, or community bank is who is ultimately affected the most by taxes.

well ideally we would have no subsidies at all. if investors were taxed less there would be more investment money for small businesses and we wouldn't need the government stepping in. It bothers me the extent to which government creates problems and then justifies its existence by stepping in to 'solve' them. Hacker News is a natural environment for free market ideology because anyone that has ever tried to start a small business has immediately realized how inimical the state is to commerce. It's been so bad for so long that we all have Stockholm syndrome.

but yes, I just came up with that fish bit, and will be using it again in the future :)

I don't get the fascination with taxes. Being a business owner my fascination is with sales and revenue. If my taxes are cut I don't create jobs or give raises, quite honestly, that doesn't even enter into the equation. My goals is to do the most work with the fewest jobs. If my sales increase and my employees can't do their job then I add jobs. Job creation is a function of sales and productivity. Not taxes.

At an individual level it is hard to gauge the effect of lowered taxes on productivity and employment. This is why we have to step back and look at the aggregated data across all businesses. For the theory to work, there must be at some point businesses who are on the edge of whether to hire or not. High volume low margin businesses I would think have the most direct relationship between taxes and employment.

There's another aspect to hiring that we should consider. If you receive a tax break, you can pass the savings on to customers in lower prices or bring more customers in through advertising. You are right, just because you have the money doesn't mean go hire more people. Smart business owners know that hiring people should only be done when the value they could bring the business outweighs the cost. The point is that lower taxes can let you expand or market to more customers, and as business grows, you will employ more people to keep up with demand.

Taxes dictate how many new sales you have to make to hire another person, and vice versa. Just because you're ignoring them when running your business doesn't mean they're not affecting you.

Speaking of equations, here they are: http://highered.mcgraw-hill.com/sites/0070891540/student_vie...

"Give them money and it disappears". Yeah, I wish they'd stop eating their money and using it as toilet paper, so it could actually do some work in the economy.

Yeah, they can afford junk food so the system must be working, right?

I'm confused - are you being sarcastic in agreement?

Sigh.

Subsidize fishing polls, not fish.

Very nice analogy. As a libertarian, its always created a little bit of cognitive dissonance in my mind when I've had a think about something and come to the conclusion that the government should engage in some wealth redistribution to achieve certain goals. This helps sort some of that out. Hope you don't mind if I borrow it the next time I defend my views in libertarian circles...

Now I am terribly sorry, I've tried mightily to resist, but in these polls, do you suppose most salmon polled would be for or against these new tax brackets?...apologies.

not at all. I find that easy to remember quips and analogies are far more effective than any long winded refutation of socialism or explanations of economic principles. I find that all too often libertarians in trying to convince others are unaware of how the language they are using is self-defeating because of the negative connotations of terms used by mass media.

you heard the one about walmart taking $40 a month out of your paycheck and then giving you milk for 'free'? :)

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