March 28, 2020
My friends and I had lots of back-and-forth via email about the stimulus package. At a headline $2 trillion, the package is nearly three times the size of the American Recovery and Reinvestment Act of 2009, also unprecedented in its time.
The package is a bailout—potentially unfair—but also accelerates GDP growth, which makes everyone richer—at least, in theory. It's the same dilemma I face living in California: high taxes, but perhaps making everyone better off? Here's what I wrote explaining it to a friend:
Here's a thought experiment I think illustrates the problem. The core of the issue is fairness vs. riches.
You're a parent with $100,000 inheritance. You have two kids, Diligent Daniel and Slacker Steve, and trying to figure out how much to give each.
Diligent Daniel has his shit together and knows how to handle money. If he receives $50,000, he'll invest it well, maybe start a business, and probably turn the $50K into $500K. Slacker Steve, on the other hand, is going to blow the $50K on hookers and blow, and quickly turn his inheritance into zero.
So what do you do? One way of looking at it is that fair is fair, they're your kids, and you have to treat them equally – it's their money to spend, after all.
Another way of looking at it suggests you should give more money to Diligent Daniel, because he's going to take whatever you give him and multiply it 10x. So maybe, if you gave Daniel $75K and Steve $25K, Daniel's going to turn the $75K into $750K, buy a huge lake house for the entire family that Slacker Steve can visit, and enjoy, and he'd probably be happier, even though he got less money in the first place. Weird how that works.
In a sense, this is really close to the problem the government faces. Family wealth is GDP. And how much the government can tax, which funds everything the left wants – unemployment benefits, schools, job training, healthcare – ultimately rests on how much GDP we have, because GDP directly influences the tax base.
So if you think the stimulus will increase the overall pie (GDP) does it make sense to do it, even though it's not fair?