The "economic activity" fallacy, and the effect of unspent money

I've been having an argument on Reddit - where else - with someone who thinks it's necessary to progressively tax people's income, rather than spending. I argued that money that never gets spent on consumption doesn't compete for consumer goods, so you're really not redistributing as much as you think by taxing income. I pointed out that to achieve real redirection of resources from profligate to worthwhile, you need a progressive tax on spending. (Possibly a much larger tax than you could afford to put on income, and possibly much easier to collect.)

Then, this person goes and writes the following gem:

Building yachts for the wealthy isn't the problem. That actually increases wealth and gives people jobs. The problem is more the vast wealth parked in non-productive derivatives and stocks

This is so dumb that it stopped me right in my tracks. I just can't not stop here, and expound about how dumb this is.

Money is a proxy for human time. When you have $100 million being spent - not stored in a vault somewhere, but spent, meaning, used to recruit human effort - on a boat that's meant for the enjoyment of a single person, that's the most mind-boggling waste I can imagine. All of that time spent on that boat is wasted time, from everyone else's perspective, except the person who enjoys the boat. (Then the person doesn't enjoy the boat, and just keeps it parked somewhere, racking up further expenses.)

Sure, the people who worked on that boat got paid, which helped them feed their families. But if they didn't work on the boat, their work time would be available for something else. Imagine, just imagine, how many people would benefit from the amount of human work that $100 million buys.

I argue that, if the economy ran on gold, this person would be complaining that the entire economic problem is that the gold is parked in warehouse X, instead of in warehouse Y. Or they would think that, because it's parked in a warehouse, instead of many people's pockets, it somehow affects how resources are distributed. Resources don't get distributed due to money parked, they get distributed due to money changing hands. Money that doesn't change hands simply doesn't affect anything; the economy adjusts to the portion that's actually being spent.

If some guy right now had $1 trillion dollars in cash, that wouldn't affect the economy or resource distribution at all, if he didn't try to spend them. Only if he did try to spend them, it would affect the economy because then this money would be competing with everyone else's. He could buy up all the food and gasoline and burn it, so there's nothing left for anyone else, and my Reddit friend would argue that this is valuable economic activity, because people got paid. Meanwhile, prices of food are up 10x and everyone's starving.

What matters is what people spend their time on. Polishing mirrors, dusting, and tending the gardens of someone's 11th villa, that no one will even step foot in, is a waste of time if there ever was any. And this person would want this waste to happen, because it's "economic activity". Ridiculous.

Yachts don't become magically worthwhile just because it takes a lot of people to make them. It's the difference between a thousand slaves being employed to make the pyramids for the glory of the pharaoh, or a thousand people working on providing services to each other. Both are economic activity, but one is not equal to the other. An economy which employs most people in yacht building is closer to the pyramid scenario.


Frank Enria said…
In the point of view of Marx, may be not, but to ypur mind, the society should stake goods and technologies, and has this approach brought prosperity to Africa?
denis bider said…
I don't think most people understand what the problem in Africa is. In current climate, it's social and political suicide to discuss the real reasons for Africa's problems.

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