The Off Topic Topic

[DGuller]

There is progressivity when you add UBI.  The aggregate tax on your total spending will start at negative infinity with zero spending, and cap out at the VAT rate as your spending approaches infinity.

That's true if you define "progressivity" as "sort of vaguely lefty-ish and nice to poor or working people." In that case adding UBI is progressive because some poor people get money they presumably didn't have before and are therefore better off.

However, when it comes to taxation a progressive tax - as I understand it - by definition means you are taxed progressively more the higher your income (and potentially, you are taxed more, the higher the wealth). Your proposal is the antithesis of progressive in this case, as it is explicitly designed to eliminate progressive taxation.

Also - it seems to me that the scheme is completely impractical unless you institute a global authority to collect this VAT. If I make my money here (whereever "here" is) and spend my money in Dubai and Thailand then there is no tax revenue for here. That seems very easy to exploit.

On a practical level it would also significantly encourage an underground economy (with the attendant corruption and organized crime) to avoid the VAT. Alternately, you'd need to institute a massive bureaucracy to track and tax every economical exchange - because typically people spend money in many more places than they earn them.

It's potentially an interesting thought experiment, but in the real world it's going to be disastrous nonsense.

I already addressed the progressivity argument.  The combination of VAT+UBI will result in an increasing rate of total tax as percentage of consumption the higher your consumption goes, so it is progressive with respect to your total spending.  People spending more will pay a higher aggregate rate, there is nothing vague about it.

As far as underground economy, my understanding is the difference between VAT and a sales tax is that VAT creates incentives to report everything, whereas the sales tax creates incentives to not report.

[Barrister]

The problem with such velocity arguments is that they sound like a parable of broken window reworded.  I don't see how it's self-evident that increasing velocity of money is beneficial in and of itself, even if it comes at a cost of destroying something valuable.  It may be that in a very depressed economy where a lot of people can contribute a useful service but don't, such a wasteful priming of the pump may be beneficial overall:  you waste a book, but you create a bunch of services from underemployed people that would never have otherwise been created.  However, I don't see how it applies to normal economic conditions.

I've heard it more in terms of "digging a hole" - that in order to "stimulate" the economy the government could pay one group of workers to dig a big hole, then pay another group of workers to fill in the hole.  Nothing accomplished - but look at all the fiscal stimulus!

The thing is - it's not entirely wrong.  Paying those workers to dig a big hole is a form of stimulus - those workers have more money in their pocket.  So yeah, if all you're going to do with that money is hide it under your mattress for 30 years as a society we would be better off if you paid someone to dig a big hole then fill it in.

But yes - it would be better if you spent that money on something more efficient - something with more productivity.

Instead of a big hole, if you pay those workers to dig a well.  The workers now still have the money, but you have a well which allows you to get water for your crops.  You've now increased overall productivity as well.

The implicit assumption is that these workers have nothing else to do, and would be sitting idle if not for your various potential hole digging jobs.  It may be true during a depression, which is already highly wasteful situation, and thus even paradoxical wasteful solutions can still improve on it, but it's not true in general.  In general you wouldn't hire them to dig anything, unless you actually need that hole badly enough to pay the market price for it.

There's all kinds of assumptions here - we're discussing things at a very basic level (which is where I belong to discuss economics).

But no, the basic point still stands.  Lets say you're going to pay someone to dig a hole for $1000.  Yes, if the person is unemployed that then is an extra $1000 in his pocket.  But also if he takes it as a second job.  Or if he turns down another job that pays $900, he's still $100 richer - and the guy with the $900 can still spend the money on something else.  Or if you can't find someone to dig you a $1000 hole, you still have the $1000 to spend on something else (as long as you don't just put it under your mattress).

[DGuller]

There's all kinds of assumptions here - we're discussing things at a very basic level (which is where I belong to discuss economics).

But no, the basic point still stands.  Lets say you're going to pay someone to dig a hole for $1000.  Yes, if the person is unemployed that then is an extra $1000 in his pocket.  But also if he takes it as a second job.  Or if he turns down another job that pays $900, he's still $100 richer - and the guy with the $900 can still spend the money on something else.  Or if you can't find someone to dig you a $1000 hole, you still have the $1000 to spend on something else (as long as you don't just put it under your mattress).

I am also discussing at a very basic level, consciously trying to minimize the second-order effects which are real, but tend to invite a lot of unsupported paradoxical claims.

Let's not think in terms of money, because money by itself doesn't bring any utility.  Let's thing of goods and services, which is what we ultimately want to get with the money.  If everyone is already fully utilized (so everyone who really wants a second job already has one), then your hole digging job is going to displace some other job by some mechanism.  For example, maybe you outbid someone who did want to dig a well.  If you spend your money under the mattress to pay someone to dig a hole and then fill it, now there is some other useful job that can't be done. 

How can you increase the societal welfare by reducing the number of useful jobs a hole digger does?  He could've dug a well, but now he just dug a hole and filled it.  I think that's as basic as it gets.  I think complex Keynesian arguments can sometime just serve as a way to make your thinking abstract enough to make yourself not worry about apparent paradoxes.

[Barrister]

I am also discussing at a very basic level, consciously trying to minimize the second-order effects which are real, but tend to invite a lot of unsupported paradoxical claims.

Let's not think in terms of money, because money by itself doesn't bring any utility.  Let's thing of goods and services, which is what we ultimately want to get with the money. If everyone is already fully utilized (so everyone who really wants a second job already has one), then your hole digging job is going to displace some other job by some mechanism.  For example, maybe you outbid someone who did want to dig a well.  If you spend your money under the mattress to pay someone to dig a hole and then fill it, now there is some other useful job that can't be done. 

How can you increase the societal welfare by reducing the number of useful jobs a hole digger does?  He could've dug a well, but now he just dug a hole and filled it.  I think that's as basic as it gets.  I think complex Keynesian arguments can sometime just serve as a way to make your thinking abstract enough to make yourself not worry about apparent paradoxes.

But your assumption is almost always false.  Society is never "fully utilized".  People always make a series of decisions about how to spend their time and labour.

You probably don't want a second job - you work hard enough as it is.  But if someone offered you $100 to dig a hole on a Sunday afternoon would you take it?  Probably not.  $1000?  Maybe (I would).  But at some amount of money you will find it a better use of your time to go dig that hole and get paid then to not dig the hole.

And this is all true of goods, not just labour.  If there's a surplus of an item you can get an awful lot for $100, if there's a shortage you can only get a little, but except for very short-term supply constraints you'll always be able to buy some amount of an item.

And just to be clear - I would not consider myself to be a Keynesian at all (sorry Joan!), but that's not to say there isn't some merit to their insights.

It's like when we talk about wokeism or intersectionality (or whatever lebel).  I fundamentally don't agree with most of their stated policy proposals, but there's still something to be gained by considering their ideas.

[DGuller]

I am also discussing at a very basic level, consciously trying to minimize the second-order effects which are real, but tend to invite a lot of unsupported paradoxical claims.

Let's not think in terms of money, because money by itself doesn't bring any utility.  Let's thing of goods and services, which is what we ultimately want to get with the money. If everyone is already fully utilized (so everyone who really wants a second job already has one), then your hole digging job is going to displace some other job by some mechanism.  For example, maybe you outbid someone who did want to dig a well.  If you spend your money under the mattress to pay someone to dig a hole and then fill it, now there is some other useful job that can't be done. 

How can you increase the societal welfare by reducing the number of useful jobs a hole digger does?  He could've dug a well, but now he just dug a hole and filled it.  I think that's as basic as it gets.  I think complex Keynesian arguments can sometime just serve as a way to make your thinking abstract enough to make yourself not worry about apparent paradoxes.

But your assumption is almost always false.  Society is never "fully utilized".  People always make a series of decisions about how to spend their time and labour.

You probably don't want a second job - you work hard enough as it is.  But if someone offered you $100 to dig a hole on a Sunday afternoon would you take it?  Probably not.  $1000?  Maybe (I would).  But at some amount of money you will find it a better use of your time to go dig that hole and get paid then to not dig the hole.

And this is all true of goods, not just labour.  If there's a surplus of an item you can get an awful lot for $100, if there's a shortage you can only get a little, but except for very short-term supply constraints you'll always be able to buy some amount of an item.

And just to be clear - I would not consider myself to be a Keynesian at all (sorry Joan!), but that's not to say there isn't some merit to their insights.

It's like when we talk about wokeism or intersectionality (or whatever lebel).  I fundamentally don't agree with most of their stated policy proposals, but there's still something to be gained by considering their ideas.

Okay, so I now forgo a day of entertainment and rest, and do something pointless for $1000.  I haven't created anything useful for that $1000, so there is still the same amount of goods for everyone to buy.  Yeah, I can buy more of them, but because there is $1000 more in circulation, everyone else collectively can buy less of them by the same amount.  So all of us collectively still enjoy the same set of goods and services, but now I just waste a day to work for some guy who has money burning a hole in his mattress.

[HVC]

But you're only looking at the first level, the hole digging, and ignoring that you'll spend the money. Assuming you don't pay someone else to dig a hole that money is now in the market where it will be used to build a product or create a service. Something that wouldn't have happened if the guy that wanted a hole dug just hid the 1000 under their mattress.

I don't understand why you assume such a finite amount of goods and services. If that were true the economy would always be stagnant or receeding.

[Barrister]

Okay, so I now forgo a day of entertainment and rest, and do something pointless for $1000.  I haven't created anything useful for that $1000, so there is still the same amount of goods for everyone to buy.  Yeah, I can buy more of them, but because there is $1000 more in circulation, everyone else collectively can buy less of them by the same amount.  So all of us collectively still enjoy the same set of goods and services, but now I just waste a day to work for some guy who has money burning a hole in his mattress.

But there isn't the same amount of goods and services.

I mean I think we just demonstrated that with services.  Depending on how much you pay a service may or may not be available.

I agree with HVC - you have this odd "zero sum" view of economics which really isn't born out in the real world.

[Grey Fox]

How do you tax investment income in that system?

When it gets spent on goods or services.

That's a problem. Our capital class would only grow richer.

[DGuller]

Okay, so I now forgo a day of entertainment and rest, and do something pointless for $1000.  I haven't created anything useful for that $1000, so there is still the same amount of goods for everyone to buy.  Yeah, I can buy more of them, but because there is $1000 more in circulation, everyone else collectively can buy less of them by the same amount.  So all of us collectively still enjoy the same set of goods and services, but now I just waste a day to work for some guy who has money burning a hole in his mattress.

But there isn't the same amount of goods and services.

I mean I think we just demonstrated that with services.  Depending on how much you pay a service may or may not be available.

I agree with HVC - you have this odd "zero sum" view of economics which really isn't born out in the real world.

My view is not zero sum.  My view is that a sum doesn't increase if you're not adding anything positive to it.

[HVC]

How does adding cash into the market not add anything to it. Once the hole is dug the payment gets into the market for purchases and thus create new goods and service.

Question, do you think stimulus spending works?

[DGuller]

How does adding cash into the market not add anything to it. Once the hole is dug the payment gets into the market for purchases and thus create new goods and service.

Question, do you think stimulus spending works?

  How does adding cash into the market all on its own add anything to it, other than a few pieces of paper?  Are you saying that the central bank can just print some money, put it into the market, and voila, goods magically appear?  That's basically the argument you've already been making with the hole, except you made me break my back for a day rather than just give me the cash for nothing.  Central bank can mitigate the dynamics that impede the creation of goods and services, when that is called for, but I don't think simply adding cash to the market does anything other than inflate the prices.

As for stimulus spending, I think it can work when the economy is depressed, when goods and services that can be created are not created because of a negative feedback loop.  Even in that case, even if that works and better than doing nothing, I'm not sure that it's the optimal solution:  intuition tells me that if you can create some good while being obviously wasteful, then an even better solution is out there that does not involve being wasteful.  Just because you have a good move doesn't mean that you don't have a better move.  I definitely do not believe that stimulus works in all cases all the time, that's just broken window thinking.

[Jacob]

Intuition tells me that you are eliding a whole bunch of complexities in pursuit of an intellectually satisfying but sterile simplification.

[DGuller]

Intuition tells me that you are eliding a whole bunch of complexities in pursuit of an intellectually satisfying but sterile simplification.

Stripping away complexities that obfuscate clear reasoning rather than aid it is what I always try to do, hopefully successfully at times.  That's not to say that there is anything wrong with writing one-liners that add nothing but make you sound sophisticated, but I personally enjoy reasoning things out in detail much more.

[HVC]

You say stimulus spending only works when the economy is depressed, but the 1000 didn't just materialize from thin air under the mattress.  It was removed from the market. Doesn't that in and of itself depress the market? Spending the money adds it back to the market.

And while the central bank can increase cash flow, isn't it just funneling more money into mattress man's mattress (that's more so directed to Yi than yourself)

[HVC]

Veering off to an aside, and going back to apple (sorry BB ), the central bank would have to print 166 billions dollars worth of cash to make up for their mattress stash.


*edit* that's 2.5  times Portugal's annual tax revenue as a comparison.

*edit 2* this is kind of an interesting list: Countries Tax Revenue