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Comment by sunsu | Hacker News Reader

“Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.

The problem is not that the wealthy won't invest if they are taxed at higher rates. Its that they will have LESS to reinvest with after gains are taxed. Its strictly a matter of who you believe distributes resources more efficiently: the government or the people.

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Of course "efficiently" depends completely on what property you're trying to optimize for. Individuals work for themselves, government (theoretically) works for the people. It is not a given that "the people" will be more efficient for all such properties.

You misunderstand the context of efficiency. We're talking about efficiently allocating limited capital resources. This is done by 'prices.' The government by definition cannot efficiently allocate capital because there exists no market signal from capital consumers as to how the scarce resources should be best utilized. The government can only guess and spend.

I don't think I misunderstand the context. The definition that people generally use when discussing this is making some fundamental assumptions that simply do not hold up. Efficiency for efficiency's sake is meaningless--its always in the pursuit of some greater goal. For the private citizen, that goal is different than for a government. It is a flawed argument to assume that the government does, or should, have the same goal as a private citizen.

There's a fixed amount of labor capital in the US. Who decides how it should be allocated? Let's pretend you believe we need to hire more teachers. Are you right? If you were the government, you'd wave your hands and make it so. But are you wasting labor on teachers we don't fully utilize? Perhaps we could have really benefited from additional plumbers. How can we know?

The only known way to answer those questions is by asking the capital markets. We all share the goal of best utilizing every citizen to raise our collective standard of living. More broadly, it is in everyone's best interest to efficiently use every type of scare capital resource we are afforded. Waste helps no one.

Now, the fact that the capital markets are distorted and borderline useless today is another discussion. Higher taxes won't solve that problem either.

The capital markets also tell us that we shouldn't invest in clean energy, or basic scientific research. I would hate to see what education would look like in some parts of the country if we let capital markets determine resource allocation. The point is there are certain things that the market simply cannot value correctly, but clearly do hold value to society. These are the types of things that government is well suited for.

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