Yesterday's post focused on the many, many economists who have reminded us that FDR's New Deal didn't work, and the recently-passed so-called stimulus bill won't, either. I wrote, in part, of Gary Becker's and Kevin Murphy's Wall Street Journal piece,
"In this, they are in agreement with Dick Armey and his harking back to Hayek in noting that Keynes never explained the mechanism whereby a government can make similar, economic-productivity seeking resource allocations that individuals and households make at the microeconomic level."
I concluded by observing,
"What is missing from Congress' and the administration's calculations is a common sense notion of how one can really effect immediate spending on what our society believes are the most important projects, from an economic and productivity perspective."
Just a week ago, in a Wall Street Journal editorial entitled "Forget About Survival of the 'Fittest,' NYU professor of psychology Gary Marcus noted that it is not the case that we can assume all Americans spend money or make financial decisions equally wisely. Using some examples of the evolution of species, Marcus contends that, in fact, the process results in 'good enough' adaptation far more often than it results in perfection.
Why does this have bearing on the current topic of economics, the stimulus bill, and resource allocation? Because the manner in which money is allocated and used- either saved or spent, and how- affects what happens to the trillion dollars that the current administration and Congress have just put down on the roulette table for all of us American taxpayers.
Perhaps, rather than borrow a trillion dollars, and then dole it out in many politically-motivated ways to many Americans, with the poorest getting the most money, we should just halt tax collections for a year or two. Last year's federal tax take was, conveniently, about a trillion dollars.
Thus, rather than channel this immense pile of money through the very leaky, sticky bucket that is Washington, the states and municipalities, why not just not ask for taxes, instead?
Talk about instant stimulus! It doesn't get more immediate than that! Plus, you avoid the Keynesian problem that government can't replicate the economic resource allocating behavior of the best, most rational and successful citizens.
In an email to my business partner concerning what I took away from Marcus' editorial, I wrote,
"Might the lessons not be these?
If you are fit to amass wealth by earning high incomes, you are probably fairly rational. Thus, your spending of your greater-than-average wealth is fairly sensible, economic and rational.
If, however, you are poor, and underachieve, and the government gives you the equivalent of $10K/household, you may not use it at all rationally, economically, or sensibly.
Thus, extreme transfers of, say, $1T from those who made it, or will have to repay it, to those who would/could never earn it, pretty much insure, as Hayek would expect, less-than-economic use of the money.
Might not poorly-educated, not-so-intelligent young sports and entertainment phenoms be another good example of this? How many of those superstars end up poor and destitute before they turn 40 or 50?"
He replied,
"That’s why tax cuts would likely maximize optimum decision-making at the end points of the system: Specifically, a higher proportion of any overall tax cut would flow to the largest taxpayers, i.e., those “fit to amass wealth by earning high incomes,” and their superior decisions will maximize the productivity."
Furthermore, rather than innumerable local governments asking for federal spending on local projects that they would never bother to pay for locally, now, local and state governments, aware of an extra trillion dollars available in taxpayer pockets, could float their best projects, with the costs properly assumed locally. If the projects were genuinely necessary, economically productive, and worthwhile, communities will undertake the spending to complete them.
If not, then they weren't worthwhile expenditures of our money in the first place.
Clearly, the senseless act of the federal government borrowing a year's worth of tax receipts, just to sprinkle it back onto taxpayers according to its own, politically-driven resource allocation methods, is more wasteful and of dubious value than simply letting each of us keep our tax payments this year.
The more economically successful, rational Americans will thus be in a position to most influence near-term prosperity and growth by exercising their already-proven economic judgments with even more money. The size of the stimulus would actually be greater than that of the so-called stimulus bill, and we would all be comforted knowing that our most productive, economically-driven decision-makers were given the most money with which to make fresh economic decisions.
For the purpose of national survival and growth, we would give the "fittest" members of our society the most resources with which to facilitate those objectives. They have always been the ones to provide jobs for the less fit. Why should we expect it to work differently now? Certainly, nobody believes that the federal government is better at knowing which businesses and jobs to create than our most economically fit citizens are, do they?
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