Comment by mseebach | Hacker News Reader

Comment by mseebach | Hacker News Reader

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> They find that enacting any of these policies by growing the federal debt — that is, without raising taxes to pay for it — would substantially grow the economy. The effect fades away within eight years, but GDP is left permanently higher. The big, $12,000 per year per adult policy, they find, would permanently grow the economy by 12.56 to 13.10 percent — or about $2.5 trillion come 2025. It would also, they find, increase the percentage of Americans with jobs by about 2 percent, and expand the labor force to the tune of 4.5 to 4.7 million people.

> They also model the impact of the plan if it's paid for with taxes. That amounts to large-scale income redistribution, which, the authors argue, would stimulate the economy, because lower-income people are likelier to spend their money in the near-term than rich people are. Thus, they find that a full $12,000 a year per adult basic income, paid for with progressive income taxes, would grow the economy by about 2.62 percent ($515 billion) and expand the labor force by about 1.1 million people.

So, borrowing and spending 300 million adults * $12,000/adult/year = $3.6 trillion/year would grow the economy by $2.5 trillion? And raising it in taxes would grow the economy by just half a trillion?

Or what am I missing?

Also this:

> because lower-income people are likelier to spend their money in the near-term than rich people are

But what about the long term? We can debate the finer points about when and how much etc, but it remains uncontroversial that rich people invest nontrivial amounts in long term stuff. With near-70% top average (not marginal!) tax rates, this will go down by a lot. How will this redistribution from long-term investments to near-term spending affect the economy over the long term? Yes, fewer yachts and private jets (there are also people employed supporting those, and the net employment benefit suggested is already quite modest), but would an Elon Musk or Jeff Bezos subject to a 70% tax rate invest in the next SpaceX/Blue Origin (not to mention thousands of other startups backed by angels and personal/friends&family savings)?

I did my bachelors in economics, and one of our textbooks taught that all other things being equal (ceteris paribus), more wealth equalisation (taking from the richer and giving to the poorer) means less wealth creation in the long term. Why? Wealth will naturally concentrate in the hands of those more capable of creating it: if Jo is making 2% per annum return and Jane is making 4% per annum return, and they both start with the same amount, then Jane's share of the total wealth pool will continuously increase relative to Jo. The key thing to note is that as Jane's producing twice as much from her wealth as Jo, if we take resources from Jane to give to Jo then they'll be used less effectively, slowing overall growth.

To illustrate, imagine they both start with $1000 each. The total wealth pool is hence $2000, and they both have 50% each, perfect equality. Now, let's look 50 years in the future, assuming the previously mentioned interest rates per annum compounding annually. According tohttp://www.moneychimp.com/calculator/compound_interest_calcu..., Jo will have $2,691.59 and Jane will have $7,106.68. The total wealth pool is $9,798.27. Jo hence now has 27.47%, and Jane has 72.53%. They're both less equal, but they're also both wealthier, and the overall wealth pool has increased.

Now, let's look ahead another 50 years. If no wealth transfer occurs, Jane will have $50,504.92 and Jo will have $7,244.65, with the total wealth pool being $57,749.57. If we equalise wealth, however, such that both have $4,899.13, then in 50 years Jane will have $34,816.57 and Jo will have $13,186.44, for a total wealth pool of $48,003.01. This is 83.12% of the total wealth pool that there would be if no wealth transfer took place. This effect is applies similarly if wealth redistribution happens every year through redistribution of income.

In this sense there is hence a direct tradeoff between economic growth and wealth transfers from richer to poorer in the long term (all other things being equal).

Good thing our society doesn't optimize for maximum absolute wealth growth in a vacuum, else we'd have 1 person with all of the country's wealth.

> If we equalise wealth, however, such that both have $4,899.13, then in 50 years Jane will have $34,816.57 and Jo will have $13,186.44, for a total wealth pool of $48,003.01

Have you considered second order effects here? What if additional wealth allows "Jo" to increase their per annum return because they invest it in a business or education?

> In this sense there is hence a direct tradeoff between economic growth and wealth transfers from richer to poorer in the long term (all other things being equal).

I have a BA in Economics as well, and ceteris paribus models stop being useful past the 2nd year of study. I don't think they're ever useful except to illustrate the most basic concepts to freshmen and laymen. When you apply such models to the real world, you end up with a situation I described in the 1st paragraph.

In this case, the condition assumes that the rate of wealth creation is fixed and unalterable on a scale of 50 years. It also falsely assumes (just world fallacy) that wealth is already allocated in such a way as to belong to people with high (unalterable) wealth creation potential.

>Good thing our society doesn't optimize for maximum absolute wealth growth in a vacuum, else we'd have 1 person with all of the country's wealth.

The person must be trading with others somehow to be gaining those 4% returns; they could only end up with all the wealth if literally nobody else saved any money. And if nobody else saved any money, there'd be no economic growth at all if not for the person with all the wealth.

>Have you considered second order effects here? What if additional wealth allows "Jo" to increase their per annum return because they invest it in a business or education?

Jo started with the same amount of wealth as Jane; he had no less opportunity to invest it in a business/education, invest it in something to increase in something that increased his investment returns, than she did.

>In this case, the condition assumes that the rate of wealth creation is fixed and unalterable on a scale of 50 years. It also falsely assumes (just world fallacy) that wealth is already allocated in such a way as to belong to people with high (unalterable) wealth creation potential.

It doesn't assume the latter, it assumes Jane and Jo started with the same amount of wealth, and shows that given this condition it will result in more wealth being allocated to the people with more wealth creation potential. Starting from the same point, Jane and Jo have equal chance to increase their ability to create wealth.

This argument breaks down in a couple of different ways but lets just look at one:

Assuming there is no wealth redistribution then you had Joe and Jane have $19.128.28 and $69,330.20 respectively. Lets say they both die on the same day and leave all their wealth to Joe Junior ($19,128.28) and Jenny ($69,330.20).

Now it turns out that Joe Junior works hard and is really smart. He can get a 5% per annum return. Meanwhile Jenny is a bit of a flake but can still get 1% per annum from her investment.

After 50 years Joe Junior has $219,351.63 and Jenny has $114,022.65. So the hardworking Joe has turned his more modest beginning around and overtaken the less hardworking Jenny. The total wealth pool is now $333,374.28.

However if we had equalised their wealth on the death of their parents so that they had both started with $34,816.57. Jackie would then have ended up on $57,260.44 while Joe Junior would be on $399,255.53 for a combined wealth of $456,515.97 - significantly more than if wealth equalisation had not taken place

So that is one way it makes sense for the economy a a whole to redistribute wealth. Another is the fact that both Joe Junior and Jackie may have seen fixed costs (Medical bills?) on their life journeys. Jackies initial capital advantage measn she could weather those a lot more efficently then Joe Junior even if the return on her wealth she is generating is less.

And of course the same is true without having to wait for the next generation. Just because person A made good use of their resources for 10 years is no indication that they will always continue to do so and so are going to generate the best return on those resources - and the opposite is also true. That said while past performance is no indicator of future success it is a whole lot better then nothing.

TL;DR While completely flat wealth distribution is obviously a daft idea a simple argument shows some level of movement seems to be in the best interest of the economy as a whole.

>This argument breaks down in a couple of different ways but lets just look at one:

>Assuming there is no wealth redistribution then you had Joe and Jane have $19.128.28 and $69,330.20 respectively. Lets say they both die on the same day and leave all their wealth to Joe Junior ($19,128.28) and Jenny ($69,330.20).

I'd argue this is a categorically different case as it's taking wealth from a dead person. From economic perspective I agree there's less of an argument that this reduces growth.

>And of course the same is true without having to wait for the next generation. Just because person A made good use of their resources for 10 years is no indication that they will always continue to do so and so are going to generate the best return on those resources - and the opposite is also true. That said while past performance is no indicator of future success it is a whole lot better then nothing.

If past performance is some indicator of future success, then would it be fair to say that if a redistribution policy ignores this, and takes into account no other factors correlated with potential future returns in determining whom to redistribute to, then on average it will still result in transfer from better investors to worse investors? An opposed to e.g. redistribution in the form of scholarships to poor but well-performing students, which could increase overall growth.

Indeed. The counter argument, however, is the suggestion that Jane's higher returns are at least partially due to her ability to extract favours from the government. Perhaps her mis-managed bank was shored up in a crash, while Jo's better managed construction business went bankrupt.

Now, some heretics might suggest that it's better to stop the government doing people favours, instead of semi-blindly taxing Jane's gains for Jo's benefit and hoping most of it came from government favours (never mind that Jo is now extracting a kind of favour from the government herself), but such ideas don't get a lot purchase.

What else are they going to do with the money but invest it? Even if they let it sit in a relatively conservative investment, a bank is still probably going to be investing their money. In my opinion, the more important impact of higher taxes on investors is what that does to the total pool of investment money over time, since they are likely to reinvest a lot of their earnings. But that is also the exact thing a progressive tax system is meant to do -- shrink their wealth and redistribute it to others.

If the cost of ensuring that every person in the US has food, health care and housing is SpaceX, that's OK by me.

The advancements from SpaceX are certainly cool, and have likely dropped the price of many services I consume; but that extra bit of convenience is hardly worth leaving so many in society behind.

Not to mention, if everyone was not tied to selling their time/body/skills just to survive, what other advancements could arise?

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