

Economics Commentary: Washington Could Use Less Keynes and More Hayek - DanielBMarkham
http://online.wsj.com/article/SB123371237124446245.html

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three14
There are clearly cases where the government _can_ spend money better than the
self-interested individual, namely on public goods. If the stimulus package
were restricted to say, building useful infrastructure, energy research, and
basic medical research, would all the followers of the Austrian school really
say that it's a criminal waste?

I keep seeing criticisms of the silly part of Keynes like burying money in
mineshafts, without any criticism of the more rational point that expenditures
have to start somewhere.

I work with a company that among other things makes printers. They've had a
lot of layoffs recently, mostly because of the forecasted downturn in demand.
There's a downturn because other businesses aren't going to be buying
printers, because they have their own economic problems. If the
"malinvestment" in various industries was corrected with better investments
elsewhere, there's a good chance that the new industries would also need
printing, but right now, the company is laying people off. Their suppliers in
turn will have to lay people off. I suppose that they will need fewer people
cleaning the building, who in turn will need less child care, who in turn...
and none of this is really malinvestment. (Very technically, for the moment it
is, since it's bad to invest in most industries in a downturn, but printing in
general is still useful.) It's just lots of people losing their jobs.

How do all the Austrians want to get things going again?

~~~
DanielBMarkham
I can't speak for the Austrians -- all this stuff is beyond me. I follow along
with the home game but I see parts in all camps that make sense.

Having said that, you know we already have this huge pool of money we can
spend without borrowing anything. It's all the money people have made in
various investments and savings over the years but don't want to cash out
because of the capital gains tax. Why not eliminate that for three years or
so? Wouldn't you see hundreds of billions of dollars come out of investments
and go into buying new things? (Perhaps more investments, perhaps tangible
goods) The upside of that is that the money will be going where people think
the most value is -- that's the same places that are going to thrive over
time. Now is the perfect time. I doubt folks are going to invest heavily in
the stock market when it's tanking. Instead they'll go for houses,
collectibles, other items of value. This is where your floor is anyway. So
you're stimulating the pieces of the economy that have the most traction.

Or how about creating an income-tax-free zone for businesses with under 50
employees for five years? It's well known that businesses that size which are
growing (think startups, except it might be a startup doing house-cleaning)
are the driving force of the economy. Why not inject more capital into those
businesses, allowing them to take their money-making machine -- their business
-- and step on the gas?

Public expenditures on shovel-ready projects are the ideal, that is if you
don't want to let the people spend their own money but would rather spend it
for them on things that are "good for them". Practically speaking, however,
seems like these public spending measures get burdened with political payoffs.
This is natural since the body making the appropriations, Congress, is a
political body, not a bunch of economists sitting around trying to see where
the best public spending should go.

We may be able to drop money out of helicopters, like Bernake once said, but
then again Keynesian theory has to have a limit. It's not a panacea, right?

~~~
three14
I feel like the anti-tax advocates tend to compare apples and oranges. "Let's
look at the real world with politicians, vs. an idealized world that is tax-
free," and lo! the idealized tax-free world is better. In real life, cutting
taxes means all kinds of things. For instance, low taxes means more corporate
profits, and in many corporations, rational behavior for the people at the top
is to take that profit as salary and bonuses. Real corporations aren't
supernatural investment machines. They're just groups of people. If the people
at the top can't manipulate their own salaries, or their interests are aligned
with the long term interests of the company, then you might get good outcomes,
but in general you have the same guarantee that you do with the government -
none.

~~~
DanielBMarkham
I'm sorry. I don't follow you here.

 _They're just groups of people. If the people at the top can't manipulate
their own salaries, or their interests are aligned with the long term
interests of the company, then you might get good outcomes_

So, assuming for a moment that no taxes just affects corporations, if
corporate executives can't manipulate their salaries that's good, because why?
Because the extra money would go to shareholders instead of just one schmuck?

How much money do you think the average CEO of a company with less than 50
employees makes? I'll give you a hint: these guys aren't riding around in $50
Million jets. And at that level, for every buck you pull out of the biz for
your salary, that's one less dollar to fund the money machine. A lot of the
startup essays and books talk about that, it's basic startup economics. When
young and growing, take as little away from the business as possible.

If I have 100,000 CEOs with an average extra $5K to spend next year, doesn't
that stimulate the economy? And that's assuming they took the money out. In
reality, for those companies to be where they are, most all of any extra money
is going towards growth: jobs, products, marketing, media, etc. Let's not
forget that for them to have any extra corporate money at all, _they have to
have earned it_. It's not like it appears by magic. That means they already
know how to make money given the right resources. It's their money really, not
ours. Why not let the engine run a little faster? Wouldn't that create more
jobs in more diverse industries? Jobs that were based on sound, proven
business models? What kind of job is based on a one-time government
expenditure? Sounds like a job where it goes away once the money runs out. The
other guy, the guy that got the job at the growing company, he's hooked into
an already-increasing slot that's proven to work during a recession: it only
gets better with time.

~~~
three14
Sorry, I wasn't responding directly to your specific suggestion. I agree that
a tax stimulus to small companies is at least somewhat more likely to be
useful than a stimulus to large companies. A _general_ tax cut, the kind
that's more likely to be politically successful, would certainly channel a lot
of money into large corporations as well as small corporations.

It's not PC to say this on HN, but I think that startups are also a mixed bag.
Exit events are probably as bad for the economy as bonuses at large companies.
If you would assume that a company is worth the expected present discounted
value of all future earnings, I bet many companies are bought for much more
than their value, and the money is then used with the same lack of efficiency
as huge bonuses at a big corporation.

