Response to JJ Jackson's the Spiraling Cost of "Free"

This article is response to JJ Jackson's The Spiraling Cost of "Free"

Jackson begins with a simple enough premise. Nothing is free. And this is true. Most freebie web sites sell your e-mail address to marketers. You pay for the freebie with spam mail. Google seems free, but you pay for it by looking at paid advertisements (all those links on the right hand side of the page). Agreed, nothing really is free (although Google feels pretty close to free).

Jackson then uses this "nothing is free" premise to argue against redistributive tax policies - in oversimplified terms, that we shouldn't tax the rich to help the poor. The logical transition is actually quite compelling. The problem is that, while Jackson uses some theory and logic, these only thinly disguise Jackson’s pure opinion.

For the most part, Jackson relies on the "trickle down" theory. The idea is that the rich should have lots of money since they will spend this money, which eventually even trickles down to the lowly peons. This idea appears similar to an economic concept called the money multiplier. The idea is that a theoretical tax cut that costs the government $1,000 in lost revenue will be used to purchase something. So Adam pays $100 less in taxes, saving $10 and spending $90 buying something from Bob. Bob saves $9 of his $90 and spends the other $81 buying something from Colin. This continues, and everybody essentially has more money as a result of the tax cut. Depending on how much people save, the $1,000 tax cut ends up injecting over $2,000 in benefits to the taxpayers. These concepts have been studied empirically (in the real world), and are generally true. Jackson probably even knows a thing or two about Keynesian economics.

Sound confusing? Don't worry. Here's a quick recap:

Money multiplier theory - $1 of tax cut leads to more than $1 of benefit for taxpayers, since part of the original $1 passes to others.
Trickle down theory - If the rich are given $1, everybody will benefit by more than $1, since part of the original $1 "trickles down" to the poor.

Really, the theories aren't that different.