Thought experiment, part II

Continuing on the topic of my previous post

Let’s consider another pair of scenarios – In Universe A the economy goes into recession, and the need for business form approvals drops from 1000/day to 900/day. In Universe B, new software is installed that makes the existing forms processors 10% faster.

In Universe B, the rational thing to do is to fire 100 people, and let the 900 remaining continue to do the work that used to be done by 1000. (I’m fudging a hair on the math, but you get the point, I hope). But this is a form of austerity, and it would be a bad thing, if we follow the Keynesian doctrine.

And if we consider Universe A – the need for processors has dropped, and from a pure dollars-and-cents approach, it makes sense to reduce the staff to meet the demand. But this is also a bad thing, if we follow Keynesian doctrine (in fact, it is probably worse, because of the underlying recession).

But I don’t really see that. In both cases, the government can return that money to the people in the form of lower taxes. In both cases, the people spend that money on things that they want, or save it (which has a follow-on effect on interest rates and borrowing costs). In both cases, the people are free to do what they want with the money. And I can assure you that what they _don’t_ want is for their tax dollars to be spent employing someone to stand around and do nothing.

Which brings me to my current mental model – while I don’t have a problem with the existence of taxes and a government, I do find it morally wrong to take money from someone via taxes if the resulting use of that money is going to be less productive than the use the taxpayer would put it to. I’ll elaborate with another thought experiment in part III.

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