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Old 04-04-2009, 08:59 AM
atlas1882 atlas1882 is offline
Join Date: Apr 2009
Posts: 1
Default Re: Something Epic (Mark Kleiman & Megan McArdle)

Originally Posted by x9#z6 View Post
Megan doesn't like to see policies that distribute more wealth downwards but doesn't mind policies that distribute wealth upwards. It's pretty simple, Megan is simply pro-welfare...for the wealthy. Also, WTF is she talking about with the CT mansion stuff????
I'm not sure where you came up with the interpretation that Megan condones policies which distribute the tax receipts of lower income individuals to higher income individuals. I must have missed that part of the diavlog.

With respect to the argument involving the CT mansion, I agree that the conversation was a bit confused, but I actually think Megan was making an extremely important and valid point, namely, that while money is fungible, capital is heterogeneous. Here's another example in two parts that might help clarify the point: First, lets say that GM owns several manufacturing facilities in Detroit that they wish to sell. Lets also hypothesize that there are three potential buyers interested in the properties: Toyota, Maytag, Visa. Each of those three potential buyers is going to value the GM property at different levels. The facilities are going to be more valuable to Toyota since the modifications that they will have to make to the machinery to configure it to produce their models will be small compared to Maytag who will have to replace much of the infrastructure to move from producing cars to producing washing machines. Lastly, Visa, who may only be interested in the location of the land underneath will place an even lower value on it since they will likely have to raze the entire structure and replace it to accommodate their new service center. Megan's point with respect to taxing the income of the extremely affluent is similar: the income you are taking was previously invested in a particular mix of goods and services that is unlikely to correspond to mix you would prefer to replace it with. For instance, lets say you are going to take an additional $1 billion from Warren Buffet and plan to use it to provide medical services for the homeless. Megan's argument is that you will not get $1 billion worth of medical services at their current price unless Warren Buffet was already spending that money on the same type of medical services you preferred to begin with. If instead he was spending that money on luxury yachts, you have now eliminated the demand for those yachts which will likely translate into layoffs for the shipbuilders, but the resources you have displaced are not set up to provide the services you want: shipbuilders aren't doctors. In order to get doctors to provide even more medical services than they were providing prior to the Buffet tax, you will have to pay them more money. If they were working 30 hours a week before, and you want them to work 40 hours a week now, chances are that you will have to increase their salary to considerably more than 33% higher than it's previous level because the combination of the diminishing marginal utility of income and the higher marginal tax rates that they will face.

I agree that the concept is not as easy to understand as some others in economics, but it is this type of dilemma that rests at the heart of the inability of central planners to coordinate economic activity through fiat. The free market won't deliver a perfect allocation of resources, but it will do a better job than any available alternative, because only a free market can efficiently create reliable information regarding people's preferences.
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