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#1 is not how macroeconomics works, not without some quite controversial assumptions.

by judk 13y ago

gjm11 13y ago
Explain? Joe is a hedge fund manager. His job consists of arranging for one bunch of random rich people (his fund's clients) to get a little bit richer at the expense of another bunch of random rich people (other people trading in the same markets). For doing this, his clients pay him $10M/year. The government takes $3M/year of this (note: all numbers in this comment are made-up nonsense), which it uses for building roads and paying schoolteachers and paying for some people's healthcare. End result: Joe's clients, in exchange for Joe's skill at siphoning money out of the stock market (or wherever) to them, have in effect paid $7M to Joe and paid $3M to build roads, provide medical services to poor people, provide education to everyone, etc. What controversial assumptions are necessary to make that end result (1) plausible and (2) positive-sum despite the net uselessness of Joe's work? In some cases one can argue that the useful things done with tax revenue need to be offset against the reduced incentive to work created by the existence of taxes. Not in this case, I think. Joe's work is, to a very good approximation, completely valueless to society, and it does good overall only by being taxed. And if the prospect of being paid only $7M/year makes Joe quit hedgefundery in favour of some easier and less stressful but less well-paid profession, the chances are he'll do more good there. (More precisely: If the world's Joes collectively decide to do a bit less hedge fund management and a bit more engineering or something, that's probably all to the good.) (It may sound as if I'm criticizing Joe. I'm not. He's not doing any harm to speak of, I think his earnings do a lot of good by being taxed, and of course he may be doing other useful things with some of that money.)

#1 is not how macroeconomics works, not without some quite controversial assumptions.

by judk 13y ago

#1 is not how macroeconomics works, not without some quite controversial assumptions.

gjm11 13y ago

Explain? Joe is a hedge fund manager. His job consists of arranging for one bunch of random rich people (his fund's clients) to get a little bit richer at the expense of another bunch of random rich people (other people trading in the same markets). For doing this, his clients pay him $10M/year. The government takes $3M/year of this (note: all numbers in this comment are made-up nonsense), which it uses for building roads and paying schoolteachers and paying for some people's healthcare. End result: Joe's clients, in exchange for Joe's skill at siphoning money out of the stock market (or wherever) to them, have in effect paid $7M to Joe and paid $3M to build roads, provide medical services to poor people, provide education to everyone, etc. What controversial assumptions are necessary to make that end result (1) plausible and (2) positive-sum despite the net uselessness of Joe's work? In some cases one can argue that the useful things done with tax revenue need to be offset against the reduced incentive to work created by the existence of taxes. Not in this case, I think. Joe's work is, to a very good approximation, completely valueless to society, and it does good overall only by being taxed. And if the prospect of being paid only $7M/year makes Joe quit hedgefundery in favour of some easier and less stressful but less well-paid profession, the chances are he'll do more good there. (More precisely: If the world's Joes collectively decide to do a bit less hedge fund management and a bit more engineering or something, that's probably all to the good.) (It may sound as if I'm criticizing Joe. I'm not. He's not doing any harm to speak of, I think his earnings do a lot of good by being taxed, and of course he may be doing other useful things with some of that money.)