Hacker News new | comments | ask | show | jobs | submit login
South Korea's program of higher wages and taxes – so far, it's not working (nytimes.com)
163 points by aetherson 37 days ago | hide | past | web | favorite | 228 comments

It's interesting to see contrasting articles on taxes & growth. There's this article about how South Korea raised taxes in a bid to grow faster and failed, but there are also plenty of articles about how Kansas's attempt to lower taxes in a bid to grow faster also failed [1], as well as predictions that California's high taxes would hamper growth (which hasn't really happened yet).

What if the actual conclusion is that it just doesn't matter. Growth is driven by other factors, like when a brilliant but insufferable physicist moves back home to be close to his mother [2], and is a function of individual, private firms performing functions of the economy more efficiently than existing incumbents. Tax policy follows as a consequence, and can go in either direction: either the newly-rich individuals think "Oh well, I've got plenty of money to spare, I can afford to burn some to ensure the people around me live decent lives", or they think "I want to keep more of this money to myself so I can decide how to allocate it." Regardless, wealth brings power, and so they have the ability to shape local government policy based on their particular worldview.

If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research, ensuring that the results are public (to their citizens, at least), and encouraging bright young people from across the world to immigrate to their jurisdictions.

[1] https://www.cbpp.org/research/state-budget-and-tax/kansas-pr...

[2] https://en.wikipedia.org/wiki/William_Shockley#Career

What fixes an economy is...to fix whatever is broken about it. If your tax rate is 99% and it is causing massive tax accounting shenanigans to suck up otherwise valuable time and energy, reducing the tax rate is good. If your tax rate is 1% and your government can't do anything to maintain law and order, raising the tax rate is good.

If your tax rate is not the problem, then neither raising nor reducing it will fix the problem. Perhaps, in South Korea, the tax rate was not the problem.

The US had its lowest recorded murder rates (the most reliable crime statistic, since bodies are hard to either fake or ignore) recorded a decade before the 16th amendment was ratified[1][2]. Interestingly, the passage of the Dick Act[3] immediately preceded an at least fourfold spike in murders that has persisted ever since.




That was a time where America was rapidly urbanizing, where the populations of NYC, Chicago were increasing by like 30% a decade. The cities of the south really came into their own at this point, think Atlana. LA tripled in population from 1900 to 1910, and nearly doubled again from 1910 to 1920.

We had absolutely massive demographic shifts over the initial decades of the 20th century, and you're seriously going to pick income tax as the culprit of crime rising? Compared to 1900, 1920s America had a much different identity.

I wasn't going to respond to your parent as it was a blatant shitpost, but since there is a legitimate post here I got to say that I am actually curious what caused the quadrupled murder rate in just two years (1905-1907). There were no significant organized crime or changes in homicide reporting I could find, and the closest disturbance I could find seemed to be the Black Patch Tobacco Wars happening in Tennessee and Kentucky.

Wish we had more historians hanging around here

It seems that the number if states reporting their data changed during those years, only ten until 1905, and I'd bet that's the cause.


Almost certainly the way it was recorded.

My point wasn't to prove that income tax causes murders, it was to disprove that income tax prevents them.

You didn't prove or disprove anything because correlation does not imply causation. Unless you have a study to show that people are murdering each other specifically because of income tax it could have been due to literally anything else.

For instance, the divorce rate in Maine in perfectly correlated to per capita consumption of margarine, but one doesn't cause the other (http://tylervigen.com/spurious-correlations) -- or, for instance, the Dick Act was passed just a few years before WWI but it certainly didn't cause that either.

My favorite is that umbrella usage is highly correlated to rain.

My favorite is that trolling is highly correlated to the internet.

Since correlation is a consequence of causation, the absence of correlation suffices to disprove claims of causation.

I think it’s fair to say that what you spend that income tax on is vastly more relevant. Yes, I agree, the very act of taxing people and then spending it on, say, NASA (or burning it) doesn’t change the gun murder rate but nobody’s every made that assertion. The assertion is you can spend it on evidence based programs like gun control to reduce the murder rate — and there’s plenty of evidence in other countries that it works. The lack of correlation you spoke of isn’t relevant to the topic per se because the taxation act is a means to solutions, not a solution.

Taxes are one of the weakest ways to influence an economy (a complex system) or society at large for that matter.

Donella Meadows:


(in increasing order of effectiveness)

12. Constants, parameters, numbers (such as subsidies, taxes, standards).

11. The sizes of buffers and other stabilizing stocks, relative to their flows.

10. The structure of material stocks and flows (such as transport networks, population age structures).

9. The lengths of delays, relative to the rate of system change.

8. The strength of negative feedback loops, relative to the impacts they are trying to correct against.

7. The gain around driving positive feedback loops.

6. The structure of information flows (who does and does not have access to information).

5. The rules of the system (such as incentives, punishments, constraints).

4. The power to add, change, evolve, or self-organize system structure.

3. The goals of the system.

2. The mindset or paradigm out of which the system — its goals, structure, rules, delays, parameters — arises.

1. The power to transcend paradigms.

Serious, non-snarky question: WTF does this even mean? How is "the power to transcend paradigms" the most effective way to intervene in a system? How do you create a policy or a set of actions to actually influence an economy based on "the power to transcend paradigms"?

It seems to me that subsidies and taxes are obvious ways to shift the mindset of the system or "transcend paradigms" since we know taxes actually influence behavior. Look at sin taxes on smoking in the U.S., which not only directly reduced smoking but in turn have helped fund anti-smoking propaganda, which together have helped the rate of smoking in the U.S. plummet. Is this what is meant by "transcending paradigms" or "shifting mindsets"? If so, doesn't that really mean that taxes or subsidies can be one of the most effective ways to influence an economy?

It would help to read the context of that list [0]. She's discussing the different ways that you can change a system (its leverage points). Changing paradigms can cause the system to be changed substantially. But you're still acting within a narrow constraint (that of the paradigm you've changed to). Versus going beyond paradigms, and recognizing the value and potential in each of them. Synonyms of paradigm shift might also be culture change or mindset change.

The purpose of the leverage points is to change the system at a fundamental level. Changing taxes doesn't (until you hit extremes) cause that. The system continues to behave in the same way but with increased or reduced constraints. Consider birth control policies. Eliminating birth control (making it illegal, so not really eliminating it) can cause an initial increase in children born until a new stable point is reached. Once you make birth control legal again, unless there has been a culture change in the interim, the birth rate will drop to the prior level.

Taxes and subsidies are the same. They don't change the system at a fundamental level (or don't do so easily), they only alter its external behavior. But once they're restored to their prior levels the system will probably return to its same behavior.

As a tax example: Perhaps we want to encourage people to save money for retirement, so we give them a tax break on their IRA contributions. This seems to help, people are saving more for retirement (as measured by IRA contributions increasing). We remove the tax break, do they continue to contribute (it's now a part of the culture) or do they stop contributing (they only did it for the tax benefit)?

If they continue, then you managed to create a substantive culture change. But most likely you'll get a drop of contributions.

[0] http://donellameadows.org/archives/leverage-points-places-to...

That is a helpful explanation of Donella's thought process (thank you), but it doesn't really get to the heart of my question: how do you cause a cultural change or mindset change?

There are a limited number of ways to have any substantial effect on a bottom-up system like the economy in a free society. You can pass laws forbidding some activity, or offering benefits to try to encourage some activity. You can raise taxes to make an activity prohibitively expensive compared to the desired alternative. You can educate (or propagandize) the population to recognize or believe something. You can conscript people and force them to behave in a certain way (tough in a free society). There aren't too many other options.

When we're discussing how to increase growth, it's not really helpful to say that we should ignore one of the primary levers we have to play with, because that lever isn't nearly as powerful as "changing the paradigm". Okay, great, but what specific actions should we take (i.e. what lever should we play with) to change the paradigm, other than the lever we're talking about?

I'm trying to answer your question, and it's hard.

Really, though, you have to use all the leverage points (or a subset of them). The point of the list was not: Which of these will achieve the desired external behavior the best? The point is: Which of these will actually alter the system itself so that it doesn't regress when removed?

Prohibition didn't eliminate alcohol consumption, it only changed how it was acquired. It made use of a number of the leverage points but fundamentally the US was still a nation of alcohol consumers. Tobacco use has been reduced in the US, but not eliminated, through education and taxes on tobacco products. Education (at least for my generation, now mid-30s) seems to have had a huge impact and actually changed the way it's viewed (so it achieved a paradigm shift).

To change the system (and maybe the paradigm) you'll have to use several of them. Raise taxes on the product (#12). Increase information flow about the consequences of tobacco use (#6). Reduce the positive feedback loop of using it by making it "uncool" (#7). Introduce alternatives that provide the chemical fix (nicotine) without (as much of?) the health consequences via patches and gum (#4).

To directly attack the paradigm itself, you have to use education and propaganda. Which will have varying effectiveness. For points #1 and #2 to be useful, you either have to be an individual with an open mind and the ability to introspect, or a learning organization. That latter part gets harder and harder the larger the organization becomes. A small team can alter its course more easily than a small business, which is more adaptable than IBM or the US population.

Interesting, thanks for the explanation. In your example of what it took to change the system re smoking, you've described the effects of the "levers" that I listed above. In other words, Donella's list is better viewed is descriptive, not prescriptive. Maybe a better way to describe her list would be not as "places to intervene in a system", but lenses through which to view the changes wrought by the levers we have?

Anyways, it still seems to me that taxes are one of the primary tools we have to effect change, and the taxes themselves (individually or together with what we then do with the money generated) can fulfill most, if not all, of the categories on Donella's list.

> how do you cause a cultural change or mindset change?

You're right to call this out. It's the most difficult and elusive thing to achieve. However, it has been happening pretty continuously since the dawn of civilization. Thomas Kuhn sat down to study it in the 50's or 60's and published "The Structure of Scientific Revolutions." That book is one of the best treatments of this subject area to date. It is the book that popularized the term "paradigm shift."


So that is, you wait for the gatekeepers to die.

Concrete example of “changing the paradigm” in economic history might be transitioning from an agrarian economy to an industrial economy. Even if you get literally all the details wrong, just doing something like that in the first place can lead to massive improvements, at least until you catch up and run into the constraints of getting the details wrong. (Example: the Soviet Union).

At a policy level? "Diversity" jumps to mind.

2. is basically the work of many think-tanks...

to shape beliefs and discourse in the direction of a particular perspective or worldview.

think socialism versus free-market capitalism versus libertarianism. two-party politics in the United States could be thought of as a paradigm.

these are the types of paradigms under evaluation. altering one of these at this layer has cascading effects on policies etc.

1. is basically the ability to create effective think-tanks to shape beliefs and discourse.

> The power to transcend paradigms.

What is the level of peer-support for this amongst mainstream economists? It sounds like woo.

Context matters here. This list is from Thinking In Systems and it simply presents a high level model for leverage points at which to intervene in a system. It doesn't specify any system in particular and the author notes that you have to intervene at the level that is both effective and possible. It's not as if the recommendation is "a paradigm shift is required".

Economists don't tend to concern themselves with this. You're better off looking to philosophers, sociologists, etc.

Christianity -> Science is a notable example of a paradigm shift.

Hunter-gather -> Argiculture is another such shift.

Also, it probably doesn't sell many comic books.~

It is woo. My translator says it means, "to invite me to do a TED talk, send a DM".

Donella Meadows passed away 19 years ago, in 2001.


Just leave off items #1 and #2 if it bugs you. The rest of the list shows a progression, and changing the goals of a system undoubtedly creates greater change than twiddling knobs.

For an example of #3... I dunno, change the definition of GDP. That affects a ton of stuff.

Why is it you think that this is woo?

In the absence of strong evidence to the contrary, strong claims are de facto woo, except when presented as highly tenuous hypotheses or theories. The default is skepticism, although economists seem to get a pass.

Or just the use of the phrase “transcend paradigm” - all it needs is a PowerPoint slide deck with a marble background pattern.

I like this list enough that I intend to read more by Meadows, but it seems to me that tax policy isn't just limited to #12, but can play a notable role in #11 down through #5. Particularly #5 and #6. In fact, a lot of the items on the list aren't entirely distinct from one another.

That doesn't mean the list is bad -- I think it's powerful enough to try and articulate as many semi-distinct inflection points for a system as one can. Just that I'm not sure that the ranking is pure.

The thing is that History doesn't like to drop green fruits, even beating the tree and strong wind, They only fall when they are mature and ripe to fall. You can add minerals and water in the soil around the tree, you can cut some leaves to let the sun directly hits the fruit, but no matter what stick you beat the tree or the wind is Hurricane, History doesn't like to drop fruits that are not mature and ripe.

Are those ranked by perceived impact?

Yes. The closer to 1, the greater the impact to the fundamental system. The purpose of those leverage points are not just to change the external behavior of a system but to change the system itself.

You can change the external behavior of an economy by increasing/decreasing taxes. But this may not alter the fundamental system itself.

Consider #9: Length of delays relative to rate of system change.

This is precisely what the Agile and Lean movements wants (OODA and PDCA loops). By reducing the delay (compared to Waterfall and comparable approaches) between doing something and getting feedback, they can adjust their processes and systems to meet customer demands more reliably. This is much more impactful than parameter changes (#12) which is: hire 10 more people, or give the best devs a 25% bonus. Those may help to motivate people, but they don't alter the fundamental system (ok, mass hiring can alter the fundamental system, but often not in the desired way).

On the other hand, introducing delays can stabilize a system. So reducing delays isn't the right choice for every circumstance.

Waterfall versus Agile is a useful and relatable example of different paradigms. Thanks for that.

> If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research, ensuring that the results are public (to their citizens, at least), and encouraging bright young people from across the world to immigrate to their jurisdictions.

Which could be accomplished by raising taxes.

Raising taxes, particularly in the US to pay for social services like healthcare and education would also have a huge effect on growth and productivity. It's not really the level of taxes that matters it's that you spend money on things that enabled people to pursue innovation/employement/art/etc and not get burnt out on administrative bullshit and constant stress from preventable things.

It's funny that the model we ended up with is that social activities of government can only be funded by budget-constrained financing where deficits are viewed with alarmism, with taxes not really causing strong growth/shrink effects.

On the other hand commercial activities can be funded via issuing currency through fractional reserve banking - causing national and global asset bubbles with periodic recessions and terrible effects on growth and productivity.

I think we need to move to different mental models of both to advance past our current economically induced problems.

> social activities of government can only be funded by budget-constrained financing

> commercial activities can be funded via issuing currency through fractional reserve banking

It's because the benefits of social activities cannot be captured and its value extracted. Commercial activity can - and therefore, there's motive for somebody to fund it to get richer.

Tax policy has a huge impact on growth. However what matters much more than quantity of tax is the quality of tax.

Money is public credit and varies in quality depending upon what it is secured by. Broad-based sales and payroll taxes are the worst possible quality of tax which undermine their own base. Sales taxes destroy commerce and payroll taxes which shift the tax burden from old savers onto young workers make it harder for families to afford having kids as early.

Land value and property income taxes are the best quality of tax, because the state simply confiscates a portion of the free lunch which would otherwise be privately captured by landlords, without discouraging any productive economic activity.

Louisiana is an example of a state with very poor tax "quality": low property tax, large property tax exemptions for businesses, and high sales taxes. It has negative real GDP growth per capita.

The public is frequently malinformed by experts as to what taxes are the best quality, because many tax 'reform' advocacy organizations actually advocate that the governments use the worst possible quality tax because they hypothesize that it will cause voters to advocate for lower government spending.

A large amount of Louisiana's employment is in resource extraction. Petroleum refining, petroleum, and coal products are the LA's largest exports. As a result, the drop in oil prices since 2014 have had a large effect on Louisiana's economy.

That said, I agree that property tax is probably the least bad tax.

Better is inflation.

Taxing pollution, instead of taxing productive activity, is a quality tax. Instead of spending money to combat pollution, people are incentivized to find solutions. Instead of punishing productive people to get government money, polluters are punished.

Pollution taxes can only work for post-industrial countries that are able to run on mostly service industry and import everything that requires manufacturing. As thus, they would be fine for most European countries but crappy for industrializing countries like India.

Even in a developing country like India or China, a pollution tax would be an effective (and lucrative) defense against opportunistic "race to the bottom" behavior. There are plenty of emerging industries, even in manufacturing, that don't depend on polluting the environment for their viability.

And the ones that do need to pay the cost of their actions. Taxing pollution means society can control the incentive tipping point to optimize cost-benefit.

> Tax policy has a huge impact on growth.

I don't think this is true except at very high levels of taxation.

The taxation styles and rates of the U.S. and the E.U have been wildly different for the last 40 years, but the growth rates have been very similar.

> If this is correct, tax policy is a huge distraction, and if governments really want to jump-start growth they should be funding basic research

... which requires taxes, which makes tax policy not a huge distraction.

... but much less than what any current government currently spends.

The entire DARPA budget is $3.44B this year, half as much as the wall that's currently shutting down our entire government, and less than 1/1000th of the total federal budget. The NSF gets $7.8B, a little more than the wall and about 1/500th of the budget. NASA gets $20B.

As I understood, estimates for that wall range between 25 and 75 billion USD depending on who you ask. And this being government contracts, it might very well balloon to 100 billion or more if you factor in surprises and corruption.

Other than that, I agree... NASA isn't getting enough funding. As are climate initiatives in the US. And the same goes for similar agencies and initiatives in the EU where I live.

I'm more skeptical about DARPA, but to their credit they're not just enablers of death; they're also working on some certifiably good stuff, like fighting human trafficking [1].

[1]: https://www.darpa.mil/program/memex

DARPA is IMHO one of the most ironic agencies on the planet: it's an organization whose fundamental purpose is evil (let's kill people better) that has managed to invent some of the best technological developments in history. The Internet, the GUI, time-sharing, TOR, and virtual reality are all DARPA-offshoots.

Wouldn't effective defense of a nation-state require putting resources behind projects that lead to "killing people better?" If so, would the purpose of effectively defending a nation-state be evil?

Yes. :-)

There are a lot of different ethical systems, but almost all of them consider killing people to be evil. Sometimes people quibble about whether killing people in self-defense or defense of others is evil, eg. "Would it be evil to go back in time and kill Hitler?" But note the asymmetry: it may be debatable whether killing Hitler is justified, but everyone save some very fringe movements believes that Hitler himself was evil.

We put up with nation-states because of survivorship bias. There are two kinds of people: those who live under the jurisdiction of a modern nation-state, and those who are now dead. From the surviving individual's POV, it's better to be the person for whom's benefit your country kills, than the person killed by them.

Consider the following hypothetical:

You're a female rape victim. The rapist broke into your house and performed said act. 6 months pass, and you decide to buy a gun (a glock, say) and take self-defense classes which include weapons training. You now stash the gun under your pillow at night, and you live alone.

Would effective self-defense (ostensibly, including the likelihood of killing a potential perpetrator) be evil?

I don't see how you get out of this puzzle.

The only thing I can think of is something like St. Augustine's argument that it can be sinful to do something, but still be a morally right act (or morally right thing to do). One of his points is that this is one of the perplexing aspects of the human condition.

But if we follow Augustine down this path, then we don't really end up with a conclusion that you wanted to drive at. You want to say putting resources behind a nation-state defending itself is evil, and is evil tout court. Augustine's argumentative path won't get you there.

Now, you could say individual self-defense is not the same as nation-state self-defense. That's fair. But, let's now walk our way down this path a bit. Is there a relevant and substantive difference between individual self-defense and the self-defense of a village of 50 native american indians soon to be snuffed out by Custer? How about 1,000? At what point do we say too many people in the collective ('nation-state') makes effective self-defense evil, in general.

I don't think that's accurate. Christianity, at least, forbids murder but not killing in general.

>There are a lot of different ethical systems, but almost all of them consider killing people to be evil.

This is too strong a claim.

You're evil. You'd rather Hitler rocks up and the Allied forces weren't able to defend because they didn't invest in military technology or have an army because that would be evil.

At some point you just have to get a grip on reality.

> NASA gets $20B.

Which is about 3.5 walls and about 1/200th of the budget.

> 3.5 walls

The $5.7B that Trump is asking for isn't enough to build the whole wall, it's just the amount he wants now. Cost estimates for the wall vary but they're all larger than $20B.

The silver lining is that $20B is still a tiny fraction of the cost for the Iraq war (a cost that one notable presidential candidate was historically quite comfortable with paying. No, I don't mean Bernie) That's progress, I guess!

Yeah instead we spent it on a 1.1T tax cut for the 1%.

Or borrowing foreign currency, or printing money, which does jump-start growth.

The idea that higher taxes would bring growth is weird, religious, and the opposite of what should happen. It's the same as the discredited Reinhoff-Rogoff debt-to-GDP paper searching for an invisible force that punishes irresponsibility; the "Invisible Dad" as it were.

Shifting taxes to people who consume with a lower proportion of their income (the rich) to people who spend a higher portion of their income (the poorer) is good; but raising taxes on the rich without transferring it to the poor (either in direct payments, employment, or structural improvements) has to mean that you're transferring it out of the country. It's an identity; using personal debt to pay down public debt.

Well, I think it is a matter of scale. It's not that tax policy isn't important, it's that the things people tend to change most easily are not as important as the things which are more difficult. When people say hyperbolic things about changes which are small in the grand scheme of things, it gives you the impression that nothing could matter as much as they're saying it does.

As for California in particular, I can tell you that their tax policy (along with all of their other policies, including firearms policy which is somehow more asinine than here in Canada, and their policy on corporate boards which is profoundly unjust) is a major turn-off for myself, and if you look at migration between states in the U.S, you'll find that a lot of other people feel the same way.

People aren't leaving California because of the weather, you know.

Your claim about California migration sounded biased to me, so I looked up the US census data [1].

  2010: -130,416 (net migration out of California)
  2011: -94,122
  2012: -73,864
  2013: -96,915
  2014: -79,892
  2015: -129,409
  2016: -142,932
  2017: -137,895
Compared to population [2], we get:

  2010: -0.35%
  2011: -0.25%
  2012: -0.19%
  2013: -0.25%
  2014: -0.21%
  2015: -0.33%
  2016: -0.36%
  2017: -0.35%
Conclusion: migration out did spike up starting in 2015. Now, what is it correlated with? You said it was due to taxes, firearms policy, and board policy.

Tax changes in 2014/2015: I didn't see any major tax changes [3].

Firearms policy changes in 2014: Long gun serial numbers required to be recorded on new sales. Police can confiscate guns from high-risk individuals for three weeks (signed in 2014, took effect in 2016). [4]

Firearms policy changes in 2015: Firearm Safety Certificate required for all guns (previously only required for handguns). [4]

Board policy change: Passed in 2018. [5]

My take: Migration out of California has increased, but it's not clear why. My personal guess would be cost of living.

[1] https://www.census.gov/data/tables/time-series/demo/geograph... [2] https://www.google.com/publicdata/explore?ds=kf7tgg1uo9ude_&... [3] http://www.library.ca.gov/Content/pdf/crb/reports/FinalVersi... [4] https://en.wikipedia.org/wiki/Gun_laws_in_California [5] https://www.wsj.com/articles/california-moves-to-mandate-fem...

It correlates well with housing prices:


2012 was the nadir of housing prices, and they've been rising rapidly since 2014.

California is losing lower income population(sub $55k) but it's being replaced at higher rates with higher income($200k+ income). For the economy of California, tax policy is a net benefit as higher income people generate more tax revenue and require less government aid. You could argue it has a negative social aspect as it pushes out lower-income families.


My point is that, taken together, the effects of many of California's policy decisions (which includes tax [which exacerbates people's displeasure with other policies, when they don't go well], which has been bad for a lot longer than just the decade you show) are compounding.

Cost of living is a huge one, but a large part of urban California's cost of living has to do with consumer and [metropolitan] housing policy. It is exceedingly difficult to get anything built in major Californian cities, and once you do have it, the conditions for keeping it are onerous. The various committees and authorities in the state seem to regularly produce unjust outcomes (even from reasonable policies) and don't seem to care when they do.

I think people are broadly willing to pay higher state and local taxes *as long as the services they receive function well, and the outcomes are reasonable.

> My point is that, taken together, the effects of many of California's policy decisions (which includes tax [which exacerbates people's displeasure with other policies, when they don't go well], which has been bad for a lot longer than just the decade you show) are compounding.

I understand your point, I just don't think you've provided the evidence to back it up. From where I'm sitting, it looks like you started with the conclusion ("I don't like CA policy") and then rationalized it from some personal experiences ("people like me are moving out of state"). [1]

California's population is increasing at the same rate as the US as a whole—about 1% per year—even after people leaving is taken into account. To put it another way, CA's population increases about 1.35% per year total, and about 0.35% move to other states. There's nothing particularly interesting going on with the migration numbers that I can see.

[1] Not implying that's what you said or actually think, just that it's what your thought process looks like to me.

> I understand your point, I just don't think you've provided the evidence to back it up. From where I'm sitting, it looks like you started with the conclusion ("I don't like CA policy") and then rationalized it from some personal experiences ("people like me are moving out of state"). [1]

I certainly did not provide much evidence to back anything up, you are right. I'm mainly just sharing my anecdotes: namely that I have made major life decisions based on the relation between tax policy in particular and policy more broadly, and the effect that that has on quality of life.

I do take a bit of issue with the implication that because no particular correlation exists between policies of the last eight years and emigration, that there is no measurable relationship between emigration and policy. I know in the most concrete sense that there are at least a handful of people who primarily justify their choice to avoid or leave California in terms of the direct or proximate impact of policy (and the cost of that undesirable policy in terms of taxes).

The problem with drawing conclusions between emigration & policy is that it ignores the other side of the coin: immigration. There are a number of people who come to California specifically because it embraces the policies you hate: high taxes (with high social services) and gun control. For any large & reasonably controversial issue, the sides balance out, and the net effect on migration is due to more fundamental issues like the availability of jobs & housing (and, of course, the ability to migrate in the first place).

The cause of migration (if it is a fact and not random coincidence) is the result of many different long term things. Changes as fast back as 1990 might be the cause of the current migration. It sometimes takes that long for things to work through the system.

FYI, this is only domestic migration. Overall, California’s population is actually growing

> My take: Migration out of California has increased, but it's not clear why. My personal guess would be cost of living.

Understanding "why" also requires looking at where people are migrating to and why. Quite possible that the destination affects the numbers, especially if it's consistently a common destination, more than the source.

In 2012 there was a significant increase in income and sales taxes which were phased in over several years: https://en.m.wikipedia.org/wiki/2012_California_Proposition_...

California’s population actually increased by 2 million in the last decade contrary to popular myths

Perhaps I'm just naive with regards to tax policy, but the idea of raising or lowering taxes in order to drive growth always seemed strange to me. I've always taxes were a way to fund a functioning government and pay for all the common infrastructure and services that make life pleasant. If you have excellent public schools, and well-maintained roads, and an efficient governing body, wouldn't that be a place ripe for growth, regardless of tax rate?

More money spent on government projects does not guarantee a proportionally greater benefit, and comes at the expense of other factors which are necessary for growth, such as private investment. Most of the things a healthy economy needs do not come from government and are not paid for via taxes.

As a simple counter-example, let's say 100% of income were taxed and spent on the best educational and transportation systems money can buy. You'd have excellent schools and the best roads, but zero incentive for anyone to work, much less start a business. The capital needed to produce the goods people want would be consumed without replacement. That's a recipe for economic collapse, not growth.

The response to both dramatically increased taxes (as in South Korea), and dramatically decreased taxes (as in Kansas and the US), would seem to point to the fact that taxes as they affect growth mostly don't matter.

It is. Most of the places where people live and work are higher tax places.

The lowest tax places are usually places dominated the lowest value-add businesses -- like resource extraction. They don't really care about people because they don't need them.

It’s not really a comparable situation. US states compete for resources within a national economy. South Korea is a national economy. And California and Kansas differ in many ways other than tax rates. California’s high state taxes are a mechanism for monetizing California’s other economic advantages to fund their state government, while lower state taxes in states like Kansas are a mechanism for attempting to compensate for their other economic disadvantages.

The mistake is in focusing obsessively on any one variable rather than addressing the entire system. California is definitely economically worse off in some ways than alternate-universe-low-tax California, but in exchange they have more tax revenue and hence potentially better schools and highways. It’s all tradeoffs and matters of degree. Confiscatory 90%+ income tax rates were not sustainable after the immediate postwar era, and might have even been a bad idea at the time, but it doesn’t make sense to overreact to that mistake when it’s long been fixed and there are more obvious bottlenecks.

I agree. I used to live in a shitty city, filled with pollution, rather expensive, bad roads, high crime rates, etc... For various reasons, the central government decided (that was like 15 years ago), to invest in another city that is 130km from the said city. It invested in infrastructure, schools, cleanliness and tourism. 15 years later, the clean city is practically a ghost town. The shitty city is shittier but it has gone through an economical and population boom.

Turns out, people from the shitty city were more successful on average; and they decided to stay where their families are. People from the nearby cities didn't decide to move to the shitty one but did so because that's where jobs are.

If there is anything that I learned by traveling cities:

1. Jobs matter. More than you think. They are what attract people to a city.

2. Family relations matter. More than you think. It seems it is what attract people back and make them invest their life savings in a house, small business, etc...

>Growth is driven by other factors, like when a brilliant but insufferable physicist moves back home to be close to his mother [2], and is a function of individual(.)

This is true in the short term as the individuals already exist and their prior experience is already locked in. The long term problem is that of failure to create a new generation of high performing individuals, either through a collapse in birthrates (already underway for at least 1 full generation) or a failure to entice high potential individuals to participate in meaningful endeavors (arguably happening right now). Humans have a defined lifespan and their life trajectory is largely determined by outside factors even if their potential isn't.

>"It's interesting to see contrasting articles on taxes & growth. There's this article about how South Korea raised taxes in a bid to grow faster and failed, but there are also plenty of articles about how Kansas's attempt to lower taxes in a bid to grow faster also failed [1], as well as predictions that California's high taxes would hamper growth (which hasn't really happened yet)."

Should this be surprising? I thought that was pretty much what the laffer curve was about: https://en.wikipedia.org/wiki/Laffer_curve

economy is a clusterfuck of causality. trying to find what caused something is super hard

in this case, the correct conclusion is probably "it's too early to tell". economies can take a while to equilibriate, and the article mention a 1-year timeframe from which they draw their conclusion.

i'd also guess that south korea, while more developed than many countries, is not quite developed enough to extract surplus value from the various value chains its economy participates in. that would matter because their businesses would have less profit leeway to absorb costs like a higher minimum wage in the short term.

Economics is, as the first economist for Google put it, "intellectual prostitution". You can justify any policy with the right amount of jargon. The interesting bit isn't really the economics but the moral assumptions behind it. To tax or to not tax the rich, to raise the minimum wage, to redistribute wealth, are all moral issues. And nothing gets people more riled up than differing moral opinions

Agreed, tax policy overall is just an ineffective lever for growth. It may help on the margins (tax break to build a factory, tax break on electric cars, tax increase to fund national health and education programs) but it doesn't spur the fundamental earth shaking innovation that advanced economies need to grow at a clip above 2-3%.

Very different to compare a country’s policy versus a state in the context of a country with a much larger % share of taxes.

To your point - other things matter too: access to great engineering schools that are open to professors moonlighting, flexibility of labor and capital, etc.

The reason for the contradictory findings is that tax rates are one of what, hundreds or thousands of variables to economic output?

It shouldn’t be surprising that a change in tax rate can be overpowered by other factors.

> What if the actual conclusion is that it just doesn't matter.

You're probably right with respect to growth.

Other commenters are going to glibly point out that you need taxes to pay for basic research or whatever. Yeah, I think they miss the point too.

If the country wanted to, it could not raise a single tax dollar and 10x its research spending. A country isn't a household, its balance sheet can have debt permanently, etc. etc.

No, I think taxes matter for justice and equality. And the whole reason cost effectiveness entered our debate is that rich people, like you're correctly pointing out, have opinions, and tax policy is a consequence of that.

But if overall rich people are aligned against higher taxes, which is the case in history most of the time, they're effectively aligned against equality and justice.

And save me the downvotes if you don't understand how property taxes, for example, that differ between neighborhoods, can be about justice as much as they are about funding school districts.

Or that the healthcare mandate was absolutely about justice, and that calling it a tax was a workaround precisely for the reasons I described: that we've become obsessed with positivist or legalistic (instead of normative) dialogue, so it was the only way to get ACA passed.

I love tax policy on HN, because it really brings out of the woodwork people who do care about what's good for the country, and people who don't.

Would you please not use HN for ideological battle? It's not what this site is for. Discussions like this are predictable, therefore off topic here. And get more tedious and nasty as they go along.


I don't necessarily disagree, but I want to point out a charitable interpretation of the opposing viewpoint, which is that tax redistribution protects people from the consequences of their own decisions and incentivizes bad behavior.

Under this viewpoint, parents who manage to afford to live in a wealthy neighborhood and send their kids to good schools have sacrificed a lot - in continued education, in long work hours, and in taking careers that are in-demand rather than ones that might be prestigious or enjoyable - for that privilege. It's unjust to take their sacrifice away from them and give it to folks who dropped out of college and spent their 20s playing video games, just because the latter group is now reaping the consequences of their decisions. Moreover, it means that now there is no reason to study & work hard and go into professions that people will pay a lot for, because your money is just going to go to people who don't.

Whether you hold this viewpoint or your "taxes = justice" viewpoint hinges a lot on the factual question of whether you believe that one's station in life is primarily due to outside factors or whether it's due to your own actions. I suspect you'd find very strong correlations between the former worldview & Democratic political preferences and the latter with Republican political preferences, though obviously it won't be 100%. Personally I think it's a little of both, so I tend to identify as a moderate. But I'll point out that this worldview, on a societal level, is itself self-fulfilling: if most of the society believes it, they create a redistributive welfare state, which means that your success is dependent upon outside factors, which then justifies the original belief in the first place. While if most of the society disbelieves it, they create a cutthroat individualist economy, which highly incentivizes individuals to make decisions that will put them on top, which means your success is dependent upon your own actions, which then justifies the original belief in the first place.

To muddy the waters further, when a society with a cutthroat individualist economy encounters a redistributive welfare state, the former has a tendency to conquer the latter. After all, it's their own damn fault that they've coddled their weak and have no strong leaders that can lead the fight. So the latter type of society tends to fall into irrelevance or disappear even if the majority of people involved would actually prefer it.

That last part is a good summary of companies going at it. The incumbent with crushing pension liability, bureaucracy, or rent seeking getting wiped out by a cutthroat competitor.

Raising tax rates has nothing to do with making the rich pay their fair share. The countries with the highest tax rates have the least progressive tax systems even in terms of income rate bands. Trying to tax the rich doesn't work because it is either a) unworkable or b) dramatically harms investment. Scandinavian countries both have high income tax rates in general and large (regressive I might add) taxation on goods and services precisely because the rich are not actually paying for government expenditures.

Countries with higher taxes have made a different tradeoff about the cost of taxation( borne mostly by the middle class) compared to the benefits of large fiscal outlays by the government.

>> I love tax policy on HN, because it really brings out of the woodwork people who do care about what's good for the country, and people who don't.

Maybe instead of arguing about tax policy using canards you could come up with a coherent argument based on actual policy outcomes?

> A country isn't a household, its balance sheet can have debt permanently, etc. etc.

> I think taxes matter for justice and equality

Thank you for saying this. I wish the president of my country (which is not the US!) understood this. And that running a country is also not like running a business.

> But if overall rich people are aligned against higher taxes, which is the case in history most of the time, they're effectively aligned against equality and justice.

> I love tax policy on HN, because it really brings out of the woodwork people who do care about what's good for the country, and people who don't.

What's the point of discussing this with you? Here, I'll try:

But if overall poor people are aligned for higher taxes, which is the case in history most of the time, they're effectively aligned against doing work and freedom.

> A country isn't a household, its balance sheet can have debt permanently, etc. etc.

Is that really different than a household?

The problem with a debt isn't that you have to pay it off. Actually, your creditors were prefer that you didn't and instead pay them interest until the day you die after which they'll collect the debt from your estate.

The problem with debt is that you have to pay interest all of the time. Countries with debt are necessarily purchasing less goods and services for their citizens then if they didn't have to spend some portion of their income paying the interest.

So, the fundamental reason why it's better (all else being equal) to avoid being in debt is the same in either case. Its not about the future day when you'll have to pay the debt, it is interest you are paying now.

The difference is that a country isn't a person with its own wants that it's presumably satisfying with its purchase. When a country pays interest, it is effectively transferring money from its taxpayers to its bondholders. Very often, the bondholders are other parts of the government (28% of US government debt), private citizens (32%), or the Federal Reserve (11.2%). If the U.S. government has less money with which to purchase goods and services, it just means the private sector has more money with which to purchase goods and services, which in many cases is what you want.

There was some concern about China being a large holder of U.S. treasuries a decade or so ago, but that concern has abated as China has unpegged their currency and unwound some of their treasury holdings, and because the debt is denominated in U.S. dollars and so the U.S. government could always inflate it away to nothing if China tried anything funky. The "bad consequences" of the U.S. <=> China current-account deficit have largely already come home to roost - that's what's fueling the rise in real estate prices bought by Chinese investors which is making homes unaffordable for Americans in west coast states.

The household analogy would be an adult child who pays rent to live in their parents' basement, which the parent may either spend on the child or plans to return to them via inheritance when the parent dies. Sure, you're spending money, and sure, it means that you have less money for spending on other things. However, it just means that other people closely associated with you spend that money instead, and if they don't, it comes back to you anyway.

You analogy makes no sense to me.

I presume that the parent is the government and the adult child is the citizen. That would suggest that the rent is taxes. But that would leave there being no debt in the analogy which would rather defeat the point of it. So I have no clue how this is supposed to work.

> I think taxes matter for justice and equality.

There is nothing inherently just or equal about coming with guns to people and taking a percentage of their earned resources.

> I love tax policy on HN, because it really brings out of the woodwork people who do care about what's good for the country, and people who don't.

And I love it because it brings out holier-than-thou virtue signalers, who think that they know better than everyone how to spend other people's resources, while denigrating their contributions.

The road to hell is paved with good intentions. "Caring about what's good for the country" is not nearly enough to be able to bring positive change even to a subset of people in the country. But it does bring some virtual internet points, I concede that.

Would you please not post ideological battle comments or flamewar comments to HN? This is what we're trying to avoid here.


>There is nothing inherently just or equal about coming with guns to people and taking a percentage of their earned resources.

There's nothing just about people believing they "earned" those resources by their hard work alone, and not understanding that there were huge infrastructure costs that enabled them not just to do the work and earn money, but even to stay alive -- and that they have to pay to sustain it.

From the roads their cars (and they suppliers and customers cars) drive on, to the airports, to the government funded internet (from the research of ARPANET, to CERN (www), to the trillions spent subsidizing telcos), to the primary schools and high schools they went to, to the fire department that helps them to avoid burning when their houses catch fire, from the FDA and relevant law enforcement that helps them avoid dying from the first crook wanting to sell crap as food or medicine, to the contract laws and their enforcement that help them stay in business, to the criminal laws and their enforcement that protect them from being at the mercy of anyone who'd fancy killing them, from the military that prevents them from being the subjects or prisoners or sex slaves of some foreign power that wanted to expand, and on and on...

It would only be _just_ their "earned resources" if they made them in the jungle, hunting or growing their food alone.

It might be a two-sided transaction, but we don't really have a choice, do we?

If we knew then what we know now, maybe people wouldn't have wanted the government to subsidize the automobile by creating our road system's infrastructure. Hey, maybe people won't even want the internet in another twenty years. And I know for a fact that plenty of people in the US don't appreciate the way law enforcement keeps them "safe". Same for the military.

I find this whole, "let me laundry-list things the government does, many of which it didn't really ask for permission to serve, as a justification for its existence," to be a fairly empty excuse for taxation. I appreciate what I get on some level, but I recognize that the government isn't 100% perfect and that my successes aren't that dependent on, say, my high school guidance counselor.

>It might be a two-sided transaction, but we don't really have a choice, do we?

We don't have a choice with any LAW. It's what the society has decided, with the means the society has to decide things (elections, and so on).

>I find this whole, "let me laundry-list things the government does, many of which it didn't really ask for permission to serve, as a justification for its existence"

That's what elections are for -- and even more so, active participation in politics every day (including with violent protests when it calls for it).

If the population hardly deserves the title of "citizen" (active participant in the politics of the polis), and just casts a vote every 4 years (if that), then they don't get to complain that they pay more taxes than they want, or the government does X which they don't want.

The exception being if there's a tyrannical government, or opaque procedures out of their reach, or the control has been shifted away from their reach and they're e.g. a protectorate (which also can happen).

You are really fast in switching the discussion from “taxes should be used to as a wealth redistribution scheme” to “hey it’s kind of like paying for the resources you might have used”. I am all for paying taxes that fund the public goods, but half of the things you’ve mentioned are not them. And most certainly this is not what’s being advocated by the proponents of the “justice and equity”.

>I am all for paying taxes that fund the public goods, but half of the things you’ve mentioned are not them

Which half exactly?

>And most certainly this is not what’s being advocated by the proponents of the “justice and equity”.

Well, I'm one of the proponents of “justice and equity”, and this is what I'm advocating (among other things). If you make more money, you also take more advantage of these infrastructures (someone who makes $10/hour flipping burgers doesn't depend on those infrastructure as much as someone making millions running a company whose operations crucially depend upon all those things being present).

Can you suggest an alternative way to fix the negative effects of inequality?

Can you describe your desired outcome? Do you want almost everyone to be relatively “equal” like in the late USSR or current North Korea? If not then I guess “inequality” is not the thing you need to look at.

That's why I said fixing the effects of inequality, not necessarily fixing inequality. What I mean by that is things like unequal access to the courts (the average person doesn't have the resources to fight a corporation that wrongs them), problems with campaign finance, and the unavailability of affordable housing in much of the country.

Basically I feel that a person who puts in a reasonable effort (spends 45 to 55 hours a week working, commuting, learning skills, and/or looking for work) should be able to generally live the American Dream which I would define as something along the lines of owning a house, providing for your needs, raising a family, improving yourself, participating in culture, and generally having the freedom to choose your lifestyle.

When I say choose your lifestyle, I don't mean that everyone can become a rockstar or drive a Ferrari. Rather I mean things like: Do I want to live in the city or the country? Is it important to me to live near people that share my religion or culture? Is living near my parents important? Am I a Southerner, a Yankee, or a Texan? Do I want to live the mainstream American lifestyle or be more of a hippy?

Odd they only interviewed business owners and employers, and not the people who benefit from higher wages.

Of course, this article scratches its head because it is assuming SKorea = USA and South Koreans = 'Muricans. Maybe we should look at the biggest driver of the economy in the US: consumer spending. Giving workers higher wages causes a boom in spending and a boom in economic growth (see: the wage increases in the 1990's and the largest boom in latter 20th century history). Maybe SKoreans just don't need to own piles of crap like americans? Maybe we should look at what historically the biggest driver of the SKorean economy is, and see if raising wages would actually increase that.

Too bad the article is so thin on actual economic history and, um, knowledge.

There's some truth to what you're saying but the idea that you "give workers higher wages...(to create) a boom in spending", as if wages were some kind of perpetual motion machine is not accurate. If everyone was paid more for no reason, that creates inflation since it artificially alters supply and demand even though no new value was created in the labor market. Prices for everything would simply increase.

But even this, is a simplistic view. Inflation typically causes previously issued corporate debt to drop in price and newly issued fixed rate instruments to increase in yield. The problem with that is that increased yield cost corporations more money to borrow when they refinance their existing debt. Now companies are in trouble from two angles: One, a higher cost of labor due to inflation, and two, from higher costs of borrowing money. As a result, companies increase prices even further, which starts an upward spiral where wages can't keep up. By the way, this is the cause of the recent meltdown in US Stocks over the last 4-6 months.

If this process is allowed to run without any controls, you'll wind up with a hyperinflationary environment, similar to Argentina, where the dollars in your bank account are worth 40% less than they were the previous year. People wind up unable to afford anything beyond day-to-day goods like food and housing, consumerism, the main driver of most Western economies, slows to a crawl (You can't save for an iPhone when it costs double what it did last year), industries that rely on discretionary income go out of business, and the economy contracts and collapses on itself.

I know this is a bit dramatic, but it can and does happen. It can happen even without a trigger, but if you suddenly increased the minimum wage in a tight labor market you're basically throwing gasoline on the fire that is inflation.

You just made a very persuasive argument that increasing minimum wage will spike inflation. But I don't think this is true when you look at the data. We've recently increased minimum wage a lot over the last 8 years, but inflation hasn't really moved at all.

And from a theory standpoint minimum wage increases should have very little effect on inflation. Standard inflation theory is too much money in the economy. And too much demand for goods, causes too much demand for workers. This causes a tight labor market which drives wage rates which get passed onto consumers through increased prices. But minimum wage workers have the least amount of negotiating power, and since the minimum wage is higher than their market wage they by definition can't negotiate. Which makes it impossible for them to drive inflation.

> One, a higher cost of labor due to inflation, and two, from higher costs of borrowing money. As a result, companies increase prices even further, which starts an upward spiral where wages can't keep up.

Inflation does have some serious problems, but the idea that wages can't keep up with inflation doesn't make any sense. How can wage driven inflation drive inflation higher than wages?

I'm also not sure borrowing money is any more expensive. The nominal interest rate increases, but the real interest rate decreases. There is a large boon to current borrowers when inflation unexpectedly increases, and a boon to loaners when inflation unexpected decreases.

Well you have to be careful with the data.

Firstly, inflation stats don't track every price. In particular they don't track house prices (directly) or the prices of financial instruments like debt, stocks, etc. So money printing that pours into the stock market will cause a market bubble whilst inflation stats stay stubbornly low.

Secondly it's possible businesses have adapted to increased minimum wage laws by simply automating those jobs away. I see a lot of robotic airline checkin desks and McDonalds order takers these days.

Imagine a bond pays out $10,000 in 30 years. Now if the interest rate is 0 that bond is worth $10,000. But if the interest rate is 10% then that bond is worth $573.

So if the interest rate goes from 10% -> 0 we would have 1700% inflation. Which is crazy especially if all other goods and services in the economy remain unchanged.

Why would that be crazy? Isn't that a circular definition of crazyness? Inflation is whatever statisticians say it is - if inflation stats were very different to how they are now, why would that would be crazy? Maybe it's crazy that we constantly read about asset bubbles yet inflation stays flat? The intuitive definition would imply inflation should swing up and down wildly given the huge size of the bubbles in question.

In reply to your second post, which I think is essentially the same as this one, it makes no sense to say it'd give "a false impression inflation is happening". Inflation is whatever set of prices we want to include. If we arbitrarily exclude some because we think inflation stats should look a certain way, that's the tail wagging the dog - this data exists to inform decision making, not tell us what we want to see.

They don't track financial assets because those jump around a lot based on interest rates(because of how interest rates effect future discounted cash flows). So this can give you the false impression that inflation is happening when it isn't and vice versa.

This is like wanting to go faster, but being afraid to press the gas pedal, because you're afraid to go too fast and get into an accident.

To get inflation, you need enough of an increase in demand to create bottlenecks (not enough sellers to meet demand). But an increase in demand (hopefully somewhat less than that) is also what you need for economic growth.

In fact, that's what economic growth is for. People benefit from being able to buy more of what they need. This is a good thing!

Getting the balance right can be tricky, but they're not opposites.

I agree this can lead to inflation, but the 90's kept it solid even with the boom, right?

The problem with this cycle: wage increase -> cost of labor increase -> goods increase -> wage increase -> inflation is, and here's where I get all Che, a fundamental problem with capital. Unless only some people see their wages increase, it keeps a lid on inflation, because there will always be exploitable labor.

So I go back to the late 1990's: why did the economy boom and wages rise without inflation? Simple: the notion of labor increases driving inflation ignores the fact that very very rich people are taking the bulk of the profits and if they weren't so intent on taking every last penny, then labor costs would NOT be passed on to the consumer.

As long as CEOs feel entitled to unlimited pay, there will always be inflation.

What the heck that's ironic. Primary driving factor for SKorean economy is export. Which means americans buying shit.

That... that is very ironic. Makes even more sense that growth wouldn't respond to wage increase. Huh.

>Odd they only interviewed business owners and employers, and not the people who benefit from higher wages.

It's not odd at all, just biased.

NYT often has a bias for capital over labor.

This article is overly simplistic, and all but guaranteed all these generic discussions about tax and growth rate, far detached from economic/social situation of Korea.

South Korea has some serious problems.

- Living as South Korean is hard and stressful. Really hard and stressful. It has one of the highest suicide rate, highest elderly poverty rate among OECD, and again one of the longest working hours. Not to mention extreme competition at school.

- As a result, less and less Koreans are getting married, and less babies are born, because people cannot afford to marry and have babies. These days a lot of young people say they cannot afford to be in a relationship! We are turning into a country of "involuntary celibates."

- This of course means there will be less and less young people to sustain the economy, which will start a positive feedback loop. Immigration might help but it can only help so much.

The government is thus forced to do something. Increased minimum wage, more public sector jobs, better enforcement of workplace safety laws (which have been basically toothless): these are desperate attempts to make people stop feeling like walking next to a cliff (and hopefully to make more babies). If these policies also bring immediate economic growth, that's great, but that's not the primary objective, as far as I'm concerned.

If young people cannot afford to marry and start families, then... they need more and better jobs, and to get to keep more of their income. I.e., more growth and lower taxes.

You suggest "more growth" and "lower taxes" as a solution. The former is more of an objective rather than a solution; every single government wants "more growth" but how to achieve that is a completely different story. About "lower taxes", South Korea already tried that option for 9 years and it had spectacularly failed. (BTW, income and corporation tax in SK is generally much lower than the US, so apparently "even lower tax" that you might suggest won't likely work.)

There's certainly a point where lowering tax rates cannot help much (diminishing returns). But raising tax rates from that point might have an outsize effect, depending perhaps on how much (but still assuming not that much of a change).

As to growth, you're absolutely right that it's not as simple as wishing it. But the same is true for raising wages: sure, it's trivial to raise the statutory minimum, but for that to have the intended effect is a different story, unless the intended effect was more unemployment.

People who are earning minimum wages generally don't pay tax. In order for them to keep more of their income, yes, they will actually need lower tax, i.e., minus tax, i.e., welfare.

And guess how we fund welfare?

Many people who earn more than minimum wage and do pay taxes also find life unaffordable.

Why would anyone expect higher taxes to increase growth?

> Under President Moon Jae-in, South Korea has raised taxes and the minimum wage in the name of economic growth. So far, it hasn’t worked out as planned.

That's not how that works at all. Whoever made this "plan" apparently skipped Macroeconomics 101.

> Growth has slowed, unemployment has risen and small-business owners like Moon Seung are complaining.

Any Economics undergrad would tell you that's exactly the expected outcome.

Raising taxes hurts growth and increases unemployment because you are reducing the profitability of all businesses.

Raising minimum wage increases unemployment because you are raising the cost of labor.

And small businesses often pay the highest price for these policies.

When I took Economics 101 I was told that there was one school that says "taking people's money away will make the economy worse because they know how to spend it best," and another school that says, "the economy is powered by money changing hands, so if you take away money that would otherwise have sat around and use it to buy random items, you will force the economy to be more active than it would otherwise have been."

> the economy is powered by money changing hands

The economy is powered by creation and exchange of value. Money changing hands is mistaking the incentive for the act itself.

Most economic schools of thought advocate stimulus during recessions to stop a slowdown of money changing hands, but this is a short-term measure. Money isn't the economy and there's no reason to believe making money fly around willy-nilly will help the economy in a permanent way.

Exactly. The key factor in growth is the production of goods an services.

To easily demonstrate: imagine everyone stopped producing goods and services tomorrow in the US.

Everyone would still have the exact same amount of money, but you will not be able to use it to buy a fresh loaf of bread (since none are being baked) or have your car serviced.

The value of money will drop to zero. It won't matter at all if it changes hands; indeed, it won't, since there won't be anything to buy.

Thinking "money changing hands" powers the economy is thus mistaking effect for a cause.

> Money changing hands is mistaking the incentive for the act itself.

I think there's more to it than that. There is no particular reason to think that money changing hands benefits the economy, or society, but there is at least one party that does benefit: the government. Every time money changes hands the government takes a share in the form of income and/or sales taxes. Ergo, there is reason for the idea that higher monetary velocity is better to be popular among both politicians and the economists who advise them.

I reject the idea that money is sitting around idle. Very little is - most people keep a little idle cash in their wallet and a few coins in a jar: the rest is in banks and other investments were the money is not idle it is working. When you take the money away you don't remove it from changing hands, you just remove me from the changing hand.

It it good or bad to remove someone from their money? That depends a lot and is subject to lots of complex debate.

Keynesian stimulus is intertemporal not redistributive.

The latter makes intuitive sense. If you give money to the poor and needy, they will spend it on things they need (food, cars, etc..) so the money will end up back in corporations' hands anyway.

You are assuming any of that money will end up with the "poor and needy", instead of hiring more bureaucrats whose function is often to hinder economic activity and growth by numerous rules and regulations.

Econ undergrads might say that raising taxes hurts growth, as might highschool students. Policy experts and professional economists are very much divided on the issue. There is plenty of evidence where raising taxes appears to produce economic growth, where it doesn't make any difference, and where it appears to hinder growth.

Raising the minimum wage also redistributes money to low wage earners, who tend to spend their all money, as opposed to richer people who save. Increases to the velocity of money results in economic growth. That's one of the counterarguments to the minimum wage argument. Society is complex and when you change the minimum wage it has rippling effects on employment, housing, consumer spending, investment and so forth. On top of that you have psychological effects and signalling issues. Predicting the consequences of a minimum wage hike is hard.

The real world is not Macro 101, and pretending policy questions like these are trivial is very very silly.

> There is plenty of evidence where raising taxes appears to produce economic growth

Please cite such evidence.

> Raising the minimum wage also redistributes money to low wage earners, who tend to spend their all money, as opposed to richer people who save.

Raising minimum wage increases the cost of labor, which will reduce hiring and trigger layoffs. Minimum-wage earners are the most vulnerable class of employees, the most easily dismissed and replaceable. As such, they will be the first to be laid off as profits decline, especially when these profits are declining as a direct result of the cost of employing them

Rising cost of labor also hurts growth directly, especially when its due to government intervention and not voluntary free-market forces.

> The real world is not Macro 101, and pretending policy questions like these are trivial is very very silly.

Except in this case all these "policy experts" and "professional economists" were apparently wrong, and instead of increasing growth, these changes hurt it substantially, just as Macro 101 would predict.

So score one for basic economic good sense versus the "policy experts".

>Rising cost of labor also hurts growth directly, especially when its due to government intervention and not voluntary free-market forces.

Fine by me. A nation that does not have either strong (and not hindered by law) unions or a minimum wage to support the most vulnerable (your mention of which in the context of your comment comes across as libertarian concern trolling) does not deserve to "grow".

>Raising minimum wage increases the cost of labor, which will reduce hiring and trigger layoffs.

My solution to this is simple - abolish the wage. But I'm interested to hear to what extent this is true where minimum wages have increased so far, and whether it must necessarily happen. Taking the argument to its extreme, we ought not to pay anyone at all, since any amount >0 is a rising cost of labour and since growth is important, we out to minimize the cost of labour to zero or even lower.

I'm thankful for the fact that the eight hour work day and humane conditions, thanks to the socialists and social democrats of the 19th and 20th c. have prevailed over your "voluntary free market forces".

> A nation that does not have either strong (and not hindered by law) unions or a minimum wage to support the most vulnerable (your mention of which in the context of your comment comes across as libertarian concern trolling) does not deserve to "grow".

Increasing minimum wage is liable to cause a host of well-known unintended and paradoxical adverse consequences:


To you it seems like a simple way to benefit the poor, but in reality it raises unemployment - a far graver problem - among these very poor you are ostensibly trying to protect.

You can flame that as "concern trolling", but these are not just very real concerns - they are real consequences that have been observed numerous times across history, including in this very case in Korea, where unemployment has risen substantially as a result of the recent minimum wage raises.

> My solution to this is simple - abolish the wage.

Truly an excellent practical suggestion for the modern growth economy.

Your comment offers zero practical solutions, or anything but empty moral posturing and inciting inflammatory language.

It's a bit subtler than that.

On paper, if you increase wages and taxes to subsidize demand, you encourage consumption. And it actually works ... provided consumers a) aren't over their ears in debt (which they are) and b) are buying from locals (which they aren't, at least for industrial goods).

The French learned this the hard way during a short period in the early 1980s. They did exactly that, and it drove consumption up as expected, but this actually ended up helping more competitive manufacturers from their trading partners.

Korea is already super consumerist and much more service oriented country than the US.

Exactly. Such a policy should work, on paper at least, in places like China or some SE Asian countries. It won't in places like South Korea or other places where consumers are mostly indebted (in which case they repay them instead of consuming more) or buying cheap goods from China or SE Asia (in which case manufacturers from those countries benefit most).

Does this hold up for an economy that is primarily export driven?

It's not like money paid as taxes just evaporates. It's spent, i.e. put right back into the economy.

Except much of it is spent hiring more bureaucrats whose function is often to hinder economic activity and growth by numerous rules and regulations.

These very same people would be contributing to growth if they worked in the private sector and produced goods and service. Instead, they create either zero or negative growth.

What do those bureaucrats do with the money that is paid with taxes? Spend it on economic activity.

You take a person that could be producing goods and services in the private sector, and pay him to work in the public sector, where he produces no such goods or services, and often is tasked with creating and enforcing regulations that limit economic freedom.

Clearly you're going to end up with lower economic growth.

The fact he would spend his salary on purchases is small comfort, especially when he'd likely earn a larger salary to spend in the private sector.

It's a false premise that taxation does not produce a good or service. E.g. USPS, defense contracts, farm subsidies, etc.

It's not clear that you're going to end up with lower economic growth. For example, taxing some level of income that would otherwise not be spent on economic activity (e.g. savings or equity investments) and spending it on things that do result in economic active results in higher economic growth.

Not always, sometimes they try to engineer the economy and kill growth.

The government is generally bad at spending money efficiently, since they are a local monopoly and have few incentives to do so...which is why markets work better at this.

That depends on what you mean by efficient.

Let's say you want to build a road that connects 12 houses. You can do that without the government. You just need everyone to agree on who contributes what, who you hire to do the work, what happens if something goes wrong, who else is allowed to drive on the road, how maintenance happens, who polices the rules, and so on, and so forth.

This does occasionally work out in real life, but mostly people bitterly argue over the whole thing and it never happens. Having a government set some sort of policy and doing the planning is usually far more effective, even if it pays more than is necessary for the actual work that gets done. The government may pay more per mile of road, but the road has a higher odds of getting built.

This is a BS statement that doesn't actually say anything beyond expressing this trite idea that government is always bad.

"The government" is not a singular entity, it's a collection of tens of thousands of smaller entities, all of which operate mostly independent of one another and whose relative "efficiency" is based almost entirely on the people working there. One town may have a school or fire department which operates extremely well under a very tight budget, while the town over might poor money into a corrupt and expensive institution which fails to provide more than basic services.

In this respect, it's no different than any other business. Some Walmarts are clean, tidy, and well run, others are a mess. But you wouldn't go around claiming that "The retail" is inefficient because of this fact.

Also, not every government department should be efficient. The military is often held up as the hallmark of an inefficient bureaucracy, but the fact is, we don't want a military that's cost-effective, we want a military that's combat-effective, no matter the cost. But we also have a post office that can mail a letter to the middle of Alaska for less than a dollar.

Your comment about the market working better at "this" (whatever this is, anyway) is equally as lazy.

The difference (and it makes all the difference in the world) is that as a consumer of Walmart, you can simply choose to shop elsewhere (Amazon, Target, CVS, mom and pop, etc). Wal-Mart cannot survive if it performs under consumer expectations for too long (see Sears, KMart, etc).

Governments are monopolies. The only incentive they have to be efficient is the leadership changes that possibly occur with each election cycle. Given the wide range of services and issues that governments must tackle, it's likely that voters have only a few key issues in mind when they go to the ballot box. With each change in leadership, a different set of priorities takes precedence. Sometimes long standing, mediocre services, continue unabated and unimproved for decades at a time with little to no innovation.

You're right but also wrong - people generalise about "the government" even though it's a large collection of entities because on average their performance is characterisable as worse than "the market" would be. Whilst you can have incredibly efficient and well run government departments, there's no particular incentive for people to run their departments well, doing so is difficult and so the noticeable trend is that they aren't.

The evidence that this stereotype is true is overwhelmingly strong, so, it's perfectly legitimate to set policy around it.

Depends for what, the private sector is very inefficient to build large scale infrastructure for example.

> It's not like money paid as taxes just evaporates. It's spent, i.e. put right back into the economy.

That's not how taxes work. It actually does evaporate. Money is an IOU from the government that it guarantees it will accept as payment. The government doesn't actually need to give itself an IOU (it doesn't make sense except as a way to keep track of internal accounting obligations); it burns the IOUs it gets back in order to preserve the value of its still circulating IOUs.

It's always important to remember that governments print money, they don't discover it. The government doesn't need it from you, it needs you not to have it in order to keep it somewhat scarce.

Ultimately the purpose of taxes is to force citizens to use the currency the government produces, which in turn, makes their currency valuable to citizens.

> Raising minimum wage increases unemployment because you are raising the cost of labor.

You have no evidence of this.

And, even if true, it would only be true if the cost of labor was a significant input to cost of production.

In fact, most of the minimum wage increases in the US are currently resulting in "effect, if any, is so small as to be unmeasurable."

Obviously, you can raise the minimum wage to the point where it is 99% of the cost of production and that would be severely detrimental. However, given the stagnation of the minimum wage over the last decades in the US, apparently the minimum wage has quite a bit of room to increase before its contribution to the cost of production becomes an issue.

> Raising minimum wage increases unemployment because you are raising the cost of labor.

Not paying a livable wage just socializes the burden to the taxpayers.

> But joblessness hit an eight-year high in August of 4.2 percent after the new minimum wage took effect, though it has since improved. Growth was at 2 percent in the third quarter compared with the same period a year earlier, down from 2.8 percent in the second quarter.

A 4.2 percent unemployment rate is remarkably low, and 2% growth in a quarter, isn't bad either.

Increasing taxes and raising the minimum wage is certainly not going to lead to increased economic growth or lower unemployment. The primary benefit of such moves, is to improve the quality of life for the middle-class and lower-middle-class. Neither of which was mentioned in the article, which is surprising considering that's the primary motivation and metric against which it should be measured.

Presumably that 2% growth is annualized.

But 2% annual growth is normal for developed economies. The USA with 4% under Trump is really kicking it and that looks unsustainable.

Also I thought economists believed 5% unemployment was something of a lower bound, that there's always a bit of natural unemployment as people move around between jobs - you can't actually ever hit zero.

So I'm not sure from these stats why South Korea thinks they have a growth or employment problem. It doesn't look like it. The primary driver of economic growth in advanced economies with stable populations is productivity increases and those come from technological advancement, which isn't going to be much affected by minimum wages.

Once your economy gets to a developed state the only way to see a significant bump in growth is through innovation.

Look at the top 100 counties in terms of real GDP growth, not a lot of Western style counties there.

South Korea has a reputation for a very educated work force, if I were a citizen I'd probably be advocating for policies that can fully take advantage of that over generic solutions such as raising or cutting taxes.

> if I were a citizen I'd probably be advocating for policies that can fully take advantage of that

what are some of the examples of these policies.

I don't have specific ideas, I'm not well versed enough in policy or economics to provide a specific solution.

However in general I think the pattern of increasing R&D budgets, and smart deregulation is key. You need to provide an environment where there is adequate resources to validate new ideas and an infrastructure to quickly get those ideas to market.

Maybe stop mandating people use Internet Explorer for online shopping, as an example.

Wow, I read about that like seven years ago and it was somewhat laughable. Now I feel terrible for them.

As someone who is usually fairly "socialist" I always mostly disagree when people want to use the government, or companies for that matter, to promote innovation. There is already a mechanism for innovation called the market. You probably want the market regulated and you don't want to leave everything up to the market. But still, if you want innovative companies you should leave their success and failure to the market. Research and regulation can be decided on as you go along. What you should be focusing on is how to get people in a position to innovate in the first place.

Innovative companies don't rise and fall by 10% tax increase or decrease. They often make no money at all until the make a lot. The only people who are concerned about taxes are those who already have money. If you want to lower barriers you need to fix education, costs of living and security. You can't have every incentive saying to stay the course at a traditional job and expect new things to happen. These days everyone expects a large sum of money for themselves to fund their own company. That isn't something you get or can allocate for new things, especially not at scale. Because they are by nature new. So almost every industry started scrappy. Provide an advanced scrappy society and innovation will happen.

People often say "But if this is such a good idea why aren't people in those kinds of countries innovating?". They are. It is just that it is marginal in the beginning and then it gets too large to notice. People think it came out of nowhere, which it sort of did. Even in the US a lot of the innovation, if not most, is related to the relative safety of the university system and subsequent industries. A lot of the famous entrepreneurs from the earlier days of the tech industry are people who were relatively well off if not rich, at least in terms of education or family, who I guess weren't that excited about their prospects and therefor also didn't have much to lose. In a good way. They could go work in a garage startup for a few year and still get the normal job later. They didn't have to, or didn't know to, worry about a mortgage. At least not yet.

You always want to start something new from a position of, if not strength, at least abundance. The zero to hero idea is flawed. If you don't have unrealized potential either in yourself, your idea or the market there isn't something that can succeed. So you want to have more opportunities than you can realize. You want to have more motivation, time or skill than you need. Otherwise you are just going to do what needs to be done, which usually isn't innovation.

Then on top of that you can do all kinds of things. But without the underlying foundation innovation at scale isn't going to happen. Even doing targeted research, you always need more people and better education than you think. For every success there is a hundred average efforts. Which is okay. That is how everything, from science to music scenes, is built. Cities often wonder why their initiatives isn't working, but if you aren't prepared to take on ten thousand new people in a year your industry isn't going to happen. It is going to plateau before you even notices it exists.

At the end of the day, innovation is made by people. You optimize for people and you get new industries. That is every successful city for decades if not centuries. I guess most people wouldn't say that about the Bay Area today, but at one point it was far better than the alternative for a lot of people. Which is why they ended up there.

If you believe that the best place to innovate is inside a big corporate lab, or a scrappy startup garage, or both, the answer would be "lower taxes," with the answer to the immediate next question ("for who?") being determined by your balance of preferences between industry labs and the Woz's garage.

Alternatively you could create very high taxes on large organizations and capital gains, then offer significant tax incentives to invest in R&D. This is more or less what gave us Bell Labs.

you're leaving out publicly funded labs at universities, which is where e.g. Google's "garage" days were spent.

Public labs are nice for society because they're extraordinary cheap relative to their corporate counter-parts (grad student = 30k/yr with no benefits, research scientist = 200+k/yr with full benefits)

Most startups aren't profitable so lowering income taxes will have zero impact on them. You could make a case for lowering some employment taxes to encourage hiring.

The korean economy is at the moment ill and rotting away. The youngsters expect to be employed by the big corps earning big bucks while having insane job security. Samsung pays massive salaries , 15-17 salaries a year and companies face insane conditions due to super strong labor unions.

No the real change would be to cut the bullshit for korean laborers. Korean workers spend insane amount of time at work DOING ABSOLUTELY nothing because their supervisor has some work to finish and is unable to delegate / manage better.

Koreans have serious issues with productivity and the country should aim to ease the burden on both workers and companies.

It won't. That's not what taxes are for.

"The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.

Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity."

Taxes for Revenue is Obsolete - Beardsley Ruml (Chair of New York Fed 1946)


South Korea is overtaxed for the size of government it has. As is any nation with any long term unemployment.

That’s not true if you have free movement of capital across the national border. Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. That statement may have been true in 1946 when the US was the only non-shattered developed economy in town but it’s hardly axiomatic.

>>"Debt is a claim on future productivity of the nation, and if a necessary share of the national income is not being claimed through taxes to service the debt, capital will exit to brighter climes. "

What debt? The grandparent is telling you that debt is not necessary to finance a state that control its own floating currency.

> debt is not necessary to finance a state that control its own floating currency

It is if you wish to avoid runaway inflation. Even countries which have cast off the fetters of the gold standard (or equivalent) have found that there are still limits to the rate at which they can issue currency. Moreover, once the implications sink in people just index prices (including wages and interest rates) to the expected rate of inflation and you're right back where you started.

> you're right back where you started

That's kind of the point. Enforce taxes so that people have less money or print money and raise inflation so that the money people have is worth less, either way the real consideration is how much of the nation's productivity you are using, not how you are getting the money.

Taxes don't cause people to have less money - they're purely a redistributive process

If a government spending is in surplus taxes means retiring money from the economy.

Yes, but that's a separate point isn't it? If the government spends every penny it taxes, that only moves purchasing power from one sector to another.

I don't read that? The quote says that taxes are not needed by a country that does not promise to convert its currency into gold etc. It says nothing about whether that country had issued debt outstanding or not.

I totally agree, but that's because I've read more details about this idea elsewhere. Could you (or someone else) please post citations to more explanations?

This article doesn't differentiate between tax and wage increases.

Any business which needs to pay minimum wage in order to maintain a profit is in a precarious situation. A rising minimum wage is far from the only risk to the business; even simple economic growth is going to capsize them eventually as more local jobs pay higher wages.

While we will blame the loss of these jobs on the minimum wage hike, I think it's safe to say these jobs were going away in the near term anyway.

Or growth might improve the situation for marginal businesses. But raising the minimum wage will certainly push them out. Maybe that's a good thing: releasing resources for better uses. But maybe it's a bad thing too. I wouldn't raise the minimum wage just to push marginal businesses out.

The thing that gets glossed over in most tax debates is that every tax system has its own wrinkles.

For instance in Switzerland you pay tax on the imputed rent of a home you own. In Denmark you can can come as a foreigner and pay 27% for several years. In the UK you can claim non dom and avoid tax on all overseas income. In Malta corporations pay 35% but get back 30 quite soon.

The brackets and deductibles are also all wildly different.

And most importantly the taxes are paying for very different levels of service.

So there's no sensible way to compress that into a headline without asterisks.

That's not to say I don't think it's a worthwhile debate, just that a number of commentators seem to be going directly to economic theory, which generally does not address these wrinkles.

no workers were interviewed for this article, only bosses

I am trying to understand the logic behind higher taxes for growth, is it because the domestic consumption is so low, that government decided to tax and spend "Bigly"? If they are spending bigly, what are they spending on?

There's a big marginal-propensity-to-consume argument. Poor people spend a much larger proportion of their income than rich people, so if you redirect money from rich people to poor people, you redirect it from hoarding & speculation toward economic activity.

It's unclear at which threshold this actually occurs, as it implies that rich people are either sitting with their money in the bank or playing speculative games with it rather than investing it in productive enterprises that will spend it on innovation. South Korea's experience indicates that may not be the case, at least in South Korea, or it could indicate that government expenditures aren't actually reaching poor people, or it could indicate poor people blew it all on Bitcoin rather than spending it on useful things. Anyway, that's the theory, whether it applies to reality is still an open question.

Rich people don't hoard cash. That wouldn't be a smart move, because it would erode in value every year.

Instead, they typically move it into Bonds (Debt), or Stocks, which both fuel the economy because they create liquidity and spur economic growth. Also, most wealthy people are into philanthropy and pay a massive amount of taxes. In fact the top 1% of taxpayers pay roughly 37% of all income taxes.

Well, that's only if you believe that "consumption" is a good thing that is supposed to be encouraged.

In reality, it is the opposite. Consumption, is by definition the destruction of resources.

I am not sure why people believe that the destruction of resources is something that we should be promoting.

Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.

> Instead, we should be promoting savings, and the preservation of resources, as well as the creation of capital.

Production and consumption are both necessary. If you don't save and invest then production capacity will decline and there will be less available to consume in the future; but on the other hand if you don't consume then all that production capacity goes to waste and you derive no benefit from saving and investing. The balance is the critical aspect. Both policies which promote over-consumption at the expense of saving and policies which encourage over-investment at the expense of consumption miss the mark and destroy value by moving the economy away from the optimum balance.

Funnily enough I happened to read an O Henry story today that is exactly about this:


As is usual with O Henry the sting is in the tail :)

You cannot consume more than you produce, but there is no point to producing more than you consume -- not for long anyways.

It's not that consumption is bad -- consumption is merely the flip side of production. It's what is being consumed that matters. But even frivolous-looking consumption isn't entirely bad, else we'd never consumed arts, would we? But you'll find that humans want some entertainment, down time, etc.

Of course, there is such a thing as bad consumption, demand for wasteful goods and services, and malinvestment. But consumption is no more inherently bad than is production.

> but there is no point to producing more than you consume -- not for long anyways.

Of course there is. This is the definition of savings and capital creation.

The more a society saves, the more we are able to invest in capital, and therefore produce way more in the future.

Capital creation is how societies as a whole become better over time. It is the definition of investing in our future.

You can only accumulate and save so much non-productive stuff. You can have a granary with several years' worth of seed. You can have an oil reserve. But you don't want to have a factory sitting unused (it rots, it depreciates). You don't want cash burning a hole in your pocket -- you want to reinvest this (yes, into raising production, but you'll need demand to increase to, otherwise... see below). And you're not going to build an ever-larger {grain, oil, cash, whatever} reserve.

Capital creation isn't like having a grain reserve in case of drought. In a steady state you don't want to be producing much more than is consumed, not for long -- you should be producing just enough more than consumption, on average, to allow for some waste.

Of course, the context is global. You can produce much more than you consume locally, if you export, but globally, producing more than is consumed for long is just another way of wasting resources. You can always try to stoke demand if you built too much production capacity, or if you want to build more production capacity, naturally, and you can produce more than is consumed while you're doing this. But in the long run you shouldn't produce much more than is demanded.

Seems like it:

> Past tax cuts did little for growth or the wealth gap, Mr. Yoon said. Instead, Mr. Moon aims to improve the incomes of average Korean families so they will consume more, thus reducing the economy’s reliance on exports and, with them, the ups and downs of the global economy. (Exports accounted for 43 percent of South Korea’s gross domestic product in 2017, compared with 20 percent for China.)

Check out Michael Pettis’s writings re China and its growth model. There’s a long and glorious tradition in SE Asia of squeezing domestic consumption to the benefit of investment and mercantilist policies. While this boosts growth, and has contributed to S Korea becoming a first world country, it also creates significant imbalances, notably growth in inequality and a larger corporate/production sector. Rebalancing is painful (China has been desperately trying to avoid this, including all the activity it is trying to import through OBOR) and the change S Korea is seeing is actually predictable - the corporate sector has to shrink while the consumption market expands.

That's what I'm curious about - ok, you got this extra cash, whatcha doing with it? Is the money going into tech advancement, education? Is this a long term play towards expanding markets or capabilities or is it a neat way to get closer to/further into the black?

Moon Jae-In’s term started in May of 2017. There is not a lot of data in 18 months to parse here, so also not many conclusions to make.

The top post about taxes not mattering references changes that happened in ~5 years.

Changes happen over the scale of decades.

You don't want to make bad policies today that turn your country into the USSR tomorrow.

Is a slight slowdown in the economy fault of new president's policies or rather just economic cycle? My assumption is that in the short run labour cost to the economy will increase, but in the medium to long run the positive effects could be more noticeable: accumulation of savings, growth if taxes were invested sensibly by government (i.e. in R&D).

Why would you expect higher taxes to heat up the economy? That’s in the same boat as raising interest rates.

An interest rate is a price for a specific commodity (time preference on lent money)... it is nothing like taxes.

Interest rates (when controlled by a market) are a signal of how receptive a market is to investment in new capital or business, lower rates encouraging expansion and higher rates put on the brakes.

So for instance if the market is already growing at a healthy clip and a bank could invest money in existing business and get a higher return, they will not lend to you at a lower rate, unless your expected innovation or business can exceed the existing marketplace yield... which would cause you to accept a higher interest rate.

Taxes merely move buying power by edict to other enterprises. There is no tacit communication of any information, there is no price, and the only information used is the whims of the few individuals redirecting the spending.

higher taxes can be used for infrastructure, education, healthcare, unemployment, pensions, ... all of those make either the workforce more competitive and keep people from falling into poverty. people who have money (even though when they don't have a job) still buy things.

i'm a big believer that small income disparity is better. mr. moon, the auto parts maker, probably still earns a multitude of what most of his employees make. if you earn 5 times of what a minimum wage employee makes and the really rich guys earn 7 times of the min wage, you're still considered rich. a ten times wage gap between what the poor and the middle class makes is, imo, just not good for a healthy population.

You raise taxes and redistribute money from the wealthy to the less-wealthy. It is not, like, outlandish to hear the claim that this would improve the economy, or at least be no worse for the economy than not doing it.

I mean, it may not be true -- I don't tend to think that it's true -- but this should not be the first time that you've heard it.

Obviously raising taxes and then setting the money raised on fire, or putting it in a bank vault, or shipping it overseas, would not help your economy. That's not what Korea is doing.

If the cash is redistributed, theoretically you increase buying power, both state and individual. Holding all other variables steady.

However that also causes inflation. Holding all other variables steady.

Which isn't necessarily a bad thing - it encourages companies to spend on expansion instead of hoarding, and reduces the value of debt.

I really think the new kind of start up financing is going to explode. It is just inevitable, under the standard VC system, that there is going to be conflicts of interest. The VC's are going to push for growth and an IPO as quickly as possible in order to ensure that their money is protected. On the other hand, the CEO's of the startup's recognize the need for growth, but would like to do so in a more sustainable, organic method.

This new method of raising capital that the article mentions might not be the best method, but it offers a new approach. It offers something different, and I believe, will allow for other new methods to arise that will better support the entrepreneur.

I love how it's more important to have high economic growth than to pay people a living wage.

What exactly is the alternative that everyone here is suggesting? Lower taxes and the growth will somehow give these people more money? Really? No. It may increase growth, but that money will go to the people on top and the people on the bottom will be exactly where they were.

At least in this case, the money is redistributed to people who need it.

> Lower taxes and the growth will somehow give these people more money? Really?

Lowering tax rates can actually increase a country's total tax receipts. Having more GDP not only means more stuff per person, but also more stuff to tax.

That said, the goal of a country is not even to maximize its tax receipts in the first place. Taxes are one way that a country achieves its goals. A country's goals are going to be a mixed bag, anything from redistribution wealth to the poor as you've said, to reducing tax burdens on its citizens.

Do we really believe that lowering taxes increases tax receipts ? I don’t think any tax experts believe it anymore. There have been number of examples, like Bush Tax cuts and Kansas tax cuts that didn’t increase tax revenue

In the general sense, which is the sense I meant it, it's obvious. When you tax 100% and 0%, then your tax revenue goes to zero. When you tax 99% and 1%, they're a bit more than zero, but not by much. At some equilibrium, you maximize tax revenue. If the current tax is above that equilibrium, then logically you will increase tax revenue by lowering the tax rate. AKA the Laffer Curve.

If the economy shrinks, everyone will get paid less one way or another. Growth has the opposite effect. You might complain about inequality, but pursuing policies that discourage growth (and maybe lead to a recession) definitely will not help. You can't just dictate higher wages, because all that does is increase the unemployment/underemployment rate.

no mention of the crypto crash here which funneled massive amounts of cash outside the country. Many koreans invested everything they had into crypto. They were completely scammed!


Korea seems to be the sort of place where they could pull back from a policy like this, without a decade of idiotic bickering.

Raising taxes will not result in growth. The government has to think like a company and invest in the right opportunities to make more money and create better jobs. Maybe its time we rethink the role of our government. Instead of asking us for taxes, maybe they pay us back.

philjohn 37 days ago [flagged]

Put the Ayn Rand down and join the real world please.

Also - case in point - Kansas. Lower taxes, and they now can't fund schools properly - which means no educated workforce 10-20 years down the line.

Please don't do personal attacks on HN or take the thread further into ideological flamewar, regardless of how lame another comment was.


Many, many businesses are barely making it - so taxes them more goes right to their bottom line. Perhaps the tax rate on business should be progressive, so that businesses working to stay afloat don't sink, and those that are chock full of cash can pay the standard rate.

Better yet would be to create programs that offset taxes by opening/hiring more employees. I'd personally like to see the money stay in the private sector than go to the government directly. Hiring more people still increases taxes through personal income taxes.

A business tax is paid on profits, so it has little to no effect on struggling businesses.

False. If your small business is barley making it - any and all money goes directly back into the company for survival. If you're on the edge of going under, any additional money you can keep on the table increases the chances of survival.

Applications are open for YC Summer 2019

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact