How should I respond?

Economics Economics Questions
1

Hi all,

I’ve been reading these forums for a while now and found them to be informative. So, I signed up in hopes of maybe getting some help with a debate I’m having on another forum. Now, I will admit that I am absolutely terribe (though I hope to get better) at it. Especially when it comes to communicating concepts that I find extremely obvious. Though, my own knowledge is pretty spotty nowadays. I’m sure that doesn’t help things. Here is the latest part of the debate about wealth distribution:

X: “And when redistribution goes from rich to poor, like a mosquito biting a hippo, the result turns into MORE money for the rich, as the now-less-poor people SPEND money that would have otherwise just sat in a hedge fund.”

My response: Simple example: I own a very successful apple orchard. I pay a $100 monthly tax that goes to help the needy. If the recipient then visits my orchard and purchases $100 worth of apples, I get my original $100 back but I lose $100 worth of apples. I have the same amount of money I did before paying the tax but now I have less apples. It’s a net loss. If the recipient chooses to spend the money elsewhere I will have the same number of apples but will be $100 poorer. Net loss. So how am I better off? I thought I was going to get more money as you said above.

X:Again, you need to get past this simplistic one-to-one image of the American economy. That may have been how things worked in 1682, but not now.

Here’s what really happens.

–You and all the other businesses pay your monthly $100 tax to help the needy.
–This money employs professionals such as public health nurses, social workers, teachers, home-care providers, police officers, etc, who bring enhanced services to the needy.
–Those professionals buy stuff. Lots of it. Including apples. (And I’m not kidding. The hippie type of person motivated to become a helping professional just LOVES the idea of buying apples from local orchards. Hey, you might even decide to open up a pumpkin patch and a strawberry field, to keep them happy year 'round.)
–Emboldened by the thriving local market, people open small businesses.
–Some of those businesses might be, oh, say, little restaurants who are very excited to be able to buy locally-grown apples for their tarts, fritters, salads, and ciders.
–Those businesses, small as they are, probably need a helper or two. These entry-level jobs expand the employment market for the needy people of the town.
–The needy people, having the benefit of programs and services to support them, find that they have the transportation, wardrobe, training, medication and counseling to go after those local jobs.
–Now being employed AND supported, the needy people aren’t needy anymore.
–They, like the professionals and the small businesspeople, start shopping their heads off.
–They even shop at apple orchards. After all, their boss puts those apples in the pastries, which are awesome, and their social worker mentioned she loves to go to there once a week or so to buy her own apples that she eats at home.
–You are doing WAY more business than you would have been if you and the other bigger fish in town had saved your $100/month.

How should I respond to this, so that it’s easily understandable? I thought my own example was clear, but I guess not? I always regret getting into debates but I get the feeling that the opposite side is being deliberately obtuse.

2

So he is claiming that the hedge fund does nothing with the $100? How do they make money? How do they afford to operate? They either spend the money or save it. In doing so they create a multitude of other spending. How is it more efficient to take money from one person and give it to others than it is for a person to spend or save his money as he sees most beneficial? How is it more fair to steal(literally taking your money against your will) your money, and give it to someone who has done nothing other than breathe, than it is to allow you to spend the money that you have earned by putting out goods and services?

3

His “example” is a bizzare application of the parable of the broken window; all of those “advantages” to the public professions comes at a net cost to the business. If given the choice between $100 and 0, I venture that most people would choose the former. Moreover, it is extremely doubtful that 100% of your tax reciepts are going to help the needy anyhow, and he just begs the question of why there should be wealth redistribution. He missed the point of your example, hard.

Let’s reverse his example:

-You keep your monthly $100.

-You use some of the money to improve your business, some goes in the bank, and some you spend for your own interests.

-The money used to improve your business draws greater interest in your orchard, and customers are more satisfied with their exchange and tell their friends about the quality of your orchard.

  • The money put into the bank is in turn used to further investment, for hard working people who wish to open their own school, a bookstore, or some other sort of business. More competition in the market serves to signal prices downward, allowing the needy better access to goods at a lower price.

  • The money you keep for yourself, say 300 dollars at the end of the year or so, is spent on taking your kids to the movies, buying them christmas presents, and then you donate what is left over.

You benifit, your customers benifit, other businesses benifit, and even the needy benifit. Voluntary exchange works, there is no need to force everyone else to help the needy because of his arbitrary perception of what someone “deserves”.

4

Call him a parasite and Rochembeau him.

On a more serious note, people tend to conveniently forget that taxation is coercive. There are a lot of folks who conflate voluntary charity with government wealth transfer. Just keep hiting that point home to them. The whole ¨Why don’t you give your own money instead of forcing others to do so at the point of a gun.¨ also works. Unfortunately most people have a logical disconnect when it comes to taxation and violence, but hopefully it will sink in after a while.

5

I think X believes that if the rich are allowed to keep their money, they will all engage in a mass saving spree and that the economy will therefore grind to a screeching halt. No, rich people can spend money at least as well as government-employed social workers can.

Another question is: What happens to the money in a hedge fund? X seems to be of the opinion that a hedge fund is like a giant mattress in which money sits completely idle. If that is the case, then what good are they? Why not just use a giant mattress?

See if you can respond with a timeline of the money in a hedge fund. I don’t know it, but perahps other on this thread can help put one together for you?

6

X wrote:

–Now being employed AND supported, the needy people aren’t needy anymore.

And if you want to be a wiseguy, you can say: “If the needy aren’t needy any more, then they don’t need any more of my money, then, do they?” Thomas E. Woods explains how, as a general rule, people like X tend to underestimate the need of the needy, and how the need is constantly growing, never satisfied: Why Free Markets Matter. If only we were dealing with a mosquito on the back of a hippo…

7

I would reply something like this:

No, the simple example is used as a framework for my argument. I could easily have said automobile manufacturer if I had liked and it would have worked the same.

So the money I earn through my effort is redistributed to the needy. What if I need that money? I’m $100 poorer now, do I qualify as needy now? If so, whose money do I get?

Public sector jobs = destruction of wealth. There isn’t one position listed here that could not be provided for by the private sector if there was a demand for it. Everyone who is taxed to create these public sector jobs is still at a loss. The redistribution did not make anyone “richer”, it just made the more enterprising individuals poorer.

But they are buying it with money stolen from me and given to them. I’m still at a loss. The fact that the people who receive the redistributed funds purchase items with it is irrelevant because, while I get my $100 back in the form of currency, I lose $100 worth of inventory. I’m still at a loss.

Wrong. Disillusioned with seeing profits taxed and given to other people–who are profiting from doing nothing–there is no incentive for anyone to open up their own business. They too will lose $100 month of their income and see it redistributed to others.

Despite the tax, some business do open; however, due to the tax, they’re not able to hire as many people as they need to run their operation efficiently.

But the enterprising people are having their wealth taken from them, so they are able to purchase less of the transportation, wardrobe, training, medication, and counseling that they (or their family members) need. This affects the demand for those services in the area by those who would normally be able to pay for them, were it not for the tax.

With the redistributed money…

Where they exchange MY $100 in currency for MY $100 worth of inventory!

Beg pardon?! How am I “doing WAY more business”? Oh, I know, because people spend the redistributed tax moneys from the other “bigger fish” at my orchard. I see. That first $100 may not mean anything, since I’m still at a loss, but that second $100 spent at my orchard will make whole my loss from the taxes I am forced to pay. Every $1 spent after is (finally!) a profit for me. Oh, wait, those other “big fish” are at a loss still. Damn. Society-As-A-Whole = Still Poor. Fail.

How about this: The money that I and the other big fish save–instead of having to pay a tax–goes to the bank. That bank makes a loan to one of those needy people who has the idea of starting a private defense agency or an insurance company that protects the assets of those living in the area. Or maybe someone decides to open up a for-profit medical clinic.

I know, imagine that… people operating in a mutually beneficial fashion amongst each other without government intervention. I must be one of those “hippie type of people”.

Your example was clear. What he’s doing is attacking the simplified construct you created with what amounts to nothing more than an ad hominem. Then he goes on with his example of “the state is great!” by amplifying all the ways that redistributing the wealth of one person to another makes everyone “better off”.

Never regret getting into a debate. Just make sure you’re as prepared as you can be; and know that each experience gives you more ‘ammunition’ for the next one. Most statist arguments are similar. Once you’re familiar with them and can identify the base argument behind their examples, you can easily pick them apart. There’s plenty of resources here on the website… and there’s plenty of friendly and informative folks on the forum, as well.

Good luck!

8

A big problem that I see in his reasoning is that he assumes consumption creates wealth, when in fact it is literally the destruction of wealth. So increasing consumption without the corresponding increase in production actually impoverishes the society. Production is the only way to create a wealth… and the only way to expand production (making society wealthier) is thru savings (under-consumption) and investment.

When excess earnings are taxed away and given to others to consume, a shortage of savings is created and it becomes impossible to expand production.

His scenario does not address savings or investment. So im not sure how he makes the leap from more consumption to more wealth.

His scenario really should read like this:

The apple growers earn $200. They can live a good life off of $100, so the other $100 should be taxed away and given to the needy.

This money is paid to bureaucrats. They earn a good living and pay their excess income in taxes like everyone else. (fair is fair after all)

With all this increased consumption, bold people want to start their own businesses.

But there are no savings from which they can borrow from to start their businesses. Because let’s remember that any money earned beyond what they “need” to consume to live a good life is confiscated and given to the needy who then consume it.

So now the apple grower only gets back pennies on his dollar, because no new jobs were created. Some people may be a little better off but the apple grower is not.

Now what if we let the apple grower keep his money?

The apple grower earns $200 but only consumes $100. He takes the $100 and invests it in a new irrigation system that now doubles his production.

He can now sell his apples for half the price. The needy and everyone else for that matter now can get twice as many apples for the same amount of money before.

With the extra money that everyone used to spend on apples, some people now spend on shoes, while others save the extra money and build shoe stores and factories.

All the new shoe stores and factories create a demand for unskilled labor. The needy are now able to get jobs & payless for their apples.

Everyone wins.

9

Hi all,

Thanks for the responses. I will think about them while I craft a response. I figure that it’s a good thing that I discovered debate as a weakness. It’s kind of embarassing not being able to communicate ideas and arguments in an understandable way. As someone who suffers from ADD, it’s very difficult to keep track of responses, arguments and multiple posts but I need to learn. I think I mistake a lot of things for being “obvious” or just plain “self-evident” and forget that not everyone sees things that way.

If anyone wants to follow the thread, here’s the link: http://intjforum.com/showthread.php?t=45154&page=3

My username is the same. Keep note of Blueback. He’s particularly abrasive.

10

I think it would be useful to have a permanent “I need helping pwning n00bs” thread. One stop shopping for all the arguments that get thrown at us on the internet from folks with mainstream opinions.

11

I decided to drop of the debate since that thread was being trolled and I was receiving abusive PMs(private messages). It really astounds me the way that people can speak so authoritatively about things they know so little about. Here’s some more:

X: "First of all, what does “go the extra mile for the state” even mean? I could reply that capitalism forces people to “go the extra mile for their employer” and be just as right, because the statement is so vague.

“Having their hard work given to others”–right. Because in social democracies and/or socialist countries, the state police come around every Monday. They search your house for possessions, force you to cash money out of your bank account, and then take everything down to the well-known Redistribution Office, where criminals, drug addicts, and homeless people can paw through the merch and take what they want.

It doesn’t work that way. When people (mostly rich people and corporations which have gotten away with loopholes) pay even slightly more taxes, the roads get better, the schools hire more teachers, medical co-pays go down or disappear, grandma can afford to hire in-home help, tuition at state universities goes down, the public sector hires more people, those people spend money, more small-to-medium businesses open, they hire people, those people spend money, and voila, ordinary families see so much coming back to them from their relatively small individual investment that (unless they’ve been brainwashed by ideologues) they are willing to pay. Nobody likes it, but they understand that IT IS IN THEIR OWN SELF-INTEREST."

BTW, I like Joe’s idea.

12

I’m also wondering how it’s even possible to argue with a person who thinks that government has the right to do what it does? Clearly, I think that what government does is immoral, violent and unethical. Two different value systems here.

13

He’s still ignoring capital. Grill him on this point. When you factor in capital, the argument turns decisively in your favor, Arcanist. Without that money, he can’t invest in capital that furnishes more jobs, which allows production, which lowers prices. Furthermore, these jobs pay people money, which gives them money to spend.

The essential problem with almost all economic fallacies is ignoring The Forgotten Man and having no understanding of capital.

14

I joined the forum since it looked interesting anyway (and coincidentally I’m an INTJ) so I’m here for backup, Arcanist. I hope you don’t give up, I think we can pin them with the forgotten man and their faulty tariff theories. Here’s what I posted:

Her: Did you miss the part about how the “cheap products” are foreign products? Do you really believe that it increases wealth in America when we buy cheaper stuff made in China?

Me: It does. Being able to buy cheaper products leaves more cash in American consumer’s wallets which they can spend, invest, or save. Do you really believe it’s better for me to pay $10 for an American product if I can buy the same product from an importing country for $5? If I buy from the latter I have an extra $5 that I can spend elsewhere in the economy, if I buy from the American company under the pretense of “helping” our economy I would only be keeping an inefficient business afloat, and wasting $5 that could have gone to efficient businesses.

When (if) she replies I’ve got my copy of Economics in One Lesson on hand to help debunk her ‘tariffs-will-solve-everything’ theory.