Economics anyone? The relationship between spending and taxation.

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Hobbes' Choice
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Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Fri Sep 29, 2017 12:06 am

It is claimed that a nation cannot spend unless you tax. it is claimed that to spend more than a nation taxes gives you a deficit, and that a deficit is bad.

But, since the nation is the creator and source of all money, money being the sovereign responsibility and guarantor of money, then it is clear that the above idea is false; backwards.

Rather than you cannot spend unless you tax the truth is you cannot tax unless you spend , the deficit is meaningless, as all money is effectively debt - the entire amount of money in circulation is the actual deficit.

In other words the government's financial deficit is everyone else's financial success.

Since Thatcher Reagan we've been sold the mantra that government finances are like a household - you can't spend unless you earn (tax), and yet whenever they want more they just print it. Since 2008 the Uk has created £435 billion is quantitative easing. So the sort of house they have has a garden shed in the back where they print money put it in a wheel barrow and dump it outside the nearest bank where they give it away in bonuses to reward their workers for failing.

We've been sold the mantra private good, public bad. So all the assets have been lost in massive giveaways to Tory voters. The result is more inequality, poverty, homelessness, and the indignity of the Publicly owned French power selling the UK electricity.

By this ideology if you buy a pen for 10p and put it is a box, and sell it for £1 you are 'making money', and growing the economy. Being private this is seen as good.
However if you are a teacher drawing a wage and teach 30 children to read, write, count, paint pictures, and much more besides you are taking money from the country, eating up the wealth, and being paid by the government that is bad.

But in what way does the first example create wealth whilst the second is seen as a burden on the state?

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Re: Economics anyone? The relationship between spending and taxation.

Post by FlashDangerpants » Fri Sep 29, 2017 1:49 pm

It's long been known that if you have a central bank with which to print money, you are able to print as much as you need to fulfil your debts. However monetary financing causes inflationary spirals which is why we usually don't do it.

I think you have missed the point of QE rather dramatically. I don't blame you, nobody who reads the Guardian or the Mail or any other standard news source has ever had the purpose explained to them so far as I can see. But this is it... QE was done to create inflation because at the time it was launched we were facing a deflationary spiral. It worked and it was a fine idea. But over time we probably still need to destroy most of that money with a long slow wind down process to keep it from spiking prices in the medium term. the important thing to understand about it is that it is a Monetary Policy, which means it is nothing to do with rewarding people, or paying for stuff, it is entirely about how to make prices not go mental - and if prices didn't, then it worked.

You probably shouldn't use a monetary policy aimed at preventing a looming deflationary spiral as your inspiration for a new business as usual. Although the option is there, you can continue your own logic if you like and go with ... as the government is the guarantor of all money, inflationary spirals are imaginary, and the government can tell everyone to imagine extra zeroes at the end of their banknotes until the problem goes away.

It's also rather obvious that you cannot tax unless you spend - you must after all at least spend enough to have tax collection.

I think you've gone a bit beyond with the all money is debt thing too. You appear to be assuming that the reverse also applies, and that the two things are identical. This is not the case; money is still money and debt is still debt. Debts must be repaid with money, and money cannot be summoned out of thin air without an effect on prices. It isn't impossible to summon money to pay state debts, it's just not a good idea.

The teacher and the pen maker create different sorts of wealth. The pen maker creates something which is easy to measure and tax called Added Value. The teacher contributes to the education of children which is a Public Good (although well educated children receive Private Benefit also). This isn't a matter of ideological spite, left and right alike can both see what is easy to measure and what is difficult to define there. I've never heard anybody say that teachers aren't a productive asset just because their productivity is difficult to measure.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Fri Sep 29, 2017 6:19 pm

FlashDangerpants wrote:
Fri Sep 29, 2017 1:49 pm
It's long been known that if you have a central bank with which to print money, you are able to print as much as you need to fulfil your debts. However monetary financing causes inflationary spirals which is why we usually don't do it.

I think you have missed the point of QE rather dramatically. I don't blame you, nobody who reads the Guardian or the Mail or any other standard news source has ever had the purpose explained to them so far as I can see. But this is it... QE was done to create inflation because at the time it was launched we were facing a deflationary spiral. It worked and it was a fine idea. But over time we probably still need to destroy most of that money with a long slow wind down process to keep it from spiking prices in the medium term. the important thing to understand about it is that it is a Monetary Policy, which means it is nothing to do with rewarding people, or paying for stuff, it is entirely about how to make prices not go mental - and if prices didn't, then it worked.
No i get that completely. Creating money is inflationary. In the case of the current round of QE there was no inflation cause because the deflationary condition. My gripe with QE is what you do with it. If your really want to stimulate the economy the last thing you should do with QE is hand it out to the banks. It would have been far more effective to use it to fund projects, spend on public services, or even offer mortgage relief. What has been happening is that banks have been holding on to it and off shore account have swollen as a result, tax free.

You probably shouldn't use a monetary policy aimed at preventing a looming deflationary spiral as your inspiration for a new business as usual. Although the option is there, you can continue your own logic if you like and go with ... as the government is the guarantor of all money, inflationary spirals are imaginary, and the government can tell everyone to imagine extra zeroes at the end of their banknotes until the problem goes away.
But adding a few zeros is a very good way of reducing the value of people's savings. All that potentially inflationary unused capacity in the Virgin Islands, Cayman Islands, Panama etc... I'm all for that. But the establishment who run the government are unlikely to do that - unless we have a change.

It's also rather obvious that you cannot tax unless you spend - you must after all at least spend enough to have tax collection.

I think you've gone a bit beyond with the all money is debt thing too. You appear to be assuming that the reverse also applies, and that the two things are identical. This is not the case; money is still money and debt is still debt. Debts must be repaid with money, and money cannot be summoned out of thin air without an effect on prices. It isn't impossible to summon money to pay state debts, it's just not a good idea.
Well money can be summoned out of thin air, and all money is basically debt. Summoning money is making debt. Read what it says on your five pound note. "We promise to pay the bearer the sum of FIVE POUNDS".
I think you are making the mistake of thinking like a punter, whilst you need to think as a government with sovereignty over currency. The rules for you and me simply do not apply to governments, which can never run out of money.

The teacher and the pen maker create different sorts of wealth. The pen maker creates something which is easy to measure and tax called Added Value. The teacher contributes to the education of children which is a Public Good (although well educated children receive Private Benefit also). This isn't a matter of ideological spite, left and right alike can both see what is easy to measure and what is difficult to define there. I've never heard anybody say that teachers aren't a productive asset just because their productivity is difficult to measure.
If you have not heard that, then you have led a sheltered life. Have you never heard someone say why should I pay so much tax, I don't have any children; sick parents; etc..

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Re: Economics anyone? The relationship between spending and taxation.

Post by FlashDangerpants » Fri Sep 29, 2017 7:08 pm

Hobbes' Choice wrote:
Fri Sep 29, 2017 6:19 pm
FlashDangerpants wrote:
Fri Sep 29, 2017 1:49 pm
It's long been known that if you have a central bank with which to print money, you are able to print as much as you need to fulfil your debts. However monetary financing causes inflationary spirals which is why we usually don't do it.

I think you have missed the point of QE rather dramatically. I don't blame you, nobody who reads the Guardian or the Mail or any other standard news source has ever had the purpose explained to them so far as I can see. But this is it... QE was done to create inflation because at the time it was launched we were facing a deflationary spiral. It worked and it was a fine idea. But over time we probably still need to destroy most of that money with a long slow wind down process to keep it from spiking prices in the medium term. the important thing to understand about it is that it is a Monetary Policy, which means it is nothing to do with rewarding people, or paying for stuff, it is entirely about how to make prices not go mental - and if prices didn't, then it worked.
No i get that completely. Creating money is inflationary. In the case of the current round of QE there was no inflation cause because the deflationary condition. My gripe with QE is what you do with it. If your really want to stimulate the economy the last thing you should do with QE is hand it out to the banks. It would have been far more effective to use it to fund projects, spend on public services, or even offer mortgage relief. What has been happening is that banks have been holding on to it and off shore account have swollen as a result, tax free.
My issue there is that those are not monetary concerns you are raising. You can't usefully fund projects with created money in this context unless the project is going to begin immediately and end on a tight schedule. Offering mortgage relief sounds like helicopter money which we already discussed and is quite likely to be used in the next financial crisis depending on how the winding down and destroying of QE money plays out. The winding down and destroying is important by the way and helicopter money cannot be destroyed.

But probably the main issue I am trying to get at is that it is widely viewed as a dreadful error of judgment to mix fiscal and monetary policies. It leads to political meddling for the sake of short term popularity which is what happened in Argentina a couple of years ago, and ended abruptly with a crisis. Monetary policy is about maintaining price stability, it isn't about doing social justice, which is an area for other policies.

QE worked very well, it wasn't misdirected, it was money piled into the only available asset class that has the scale and liquidity to be used to amend the formula MV = PQ so that P stays within a safe range. That formula is exactly and entirely what the whole project is for and taking it any other direction risks undermining the point.
Hobbes' Choice wrote:
Fri Sep 29, 2017 6:19 pm
You probably shouldn't use a monetary policy aimed at preventing a looming deflationary spiral as your inspiration for a new business as usual. Although the option is there, you can continue your own logic if you like and go with ... as the government is the guarantor of all money, inflationary spirals are imaginary, and the government can tell everyone to imagine extra zeroes at the end of their banknotes until the problem goes away.
But adding a few zeros is a very good way of reducing the value of people's savings. All that potentially inflationary unused capacity in the Virgin Islands, Cayman Islands, Panama etc... I'm all for that. But the establishment who run the government are unlikely to do that - unless we have a change.
Are you actually willing to accept hyperinflation as a means of shrinking offshore savings, or do you think it is something you can just flirt with?
Hobbes' Choice wrote:
Fri Sep 29, 2017 6:19 pm
It's also rather obvious that you cannot tax unless you spend - you must after all at least spend enough to have tax collection.

I think you've gone a bit beyond with the all money is debt thing too. You appear to be assuming that the reverse also applies, and that the two things are identical. This is not the case; money is still money and debt is still debt. Debts must be repaid with money, and money cannot be summoned out of thin air without an effect on prices. It isn't impossible to summon money to pay state debts, it's just not a good idea.
Well money can be summoned out of thin air, and all money is basically debt. Summoning money is making debt. Read what it says on your five pound note. "We promise to pay the bearer the sum of FIVE POUNDS".
I think you are making the mistake of thinking like a punter, whilst you need to think as a government with sovereignty over currency. The rules for you and me simply do not apply to governments, which can never run out of money.
Sure, the rules that apply to you and me are different to those which apply to a state. However the choices they make have consequences. And the consequences of the choices you propose are hair raising.

Never technically running out of money because you have a central bank is one thing... but never being able to raise sovereign debt in your own currency again because no idiot would buy it (as is the case for Argentina for instance) due to it being in a cycle of decreasing value; not being able to finance imports because you have tanked your currency (see Venezuela); and ultimately being forced to abandon your own worthless currency and run your entire nation on imported dollars (see Zimbabwe) are the other outcomes from that line of thinking.
Hobbes' Choice wrote:
Fri Sep 29, 2017 6:19 pm

The teacher and the pen maker create different sorts of wealth. The pen maker creates something which is easy to measure and tax called Added Value. The teacher contributes to the education of children which is a Public Good (although well educated children receive Private Benefit also). This isn't a matter of ideological spite, left and right alike can both see what is easy to measure and what is difficult to define there. I've never heard anybody say that teachers aren't a productive asset just because their productivity is difficult to measure.
If you have not heard that, then you have led a sheltered life. Have you never heard someone say why should I pay so much tax, I don't have any children; sick parents; etc..
Well, that sounds like something Henry would say. But it doesn't sound like something even the worst Tory would to be honest.

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Re: Economics anyone? The relationship between spending and taxation.

Post by vegetariantaxidermy » Sat Sep 30, 2017 12:32 am

From what I've observed, right wing Govts. take a lot of taxes, do a hell of a lot of borrowing, and spend as little on people as they can (unless it's themselves), while crowing about wastage (all the things that make the general standard of living good for everyone). Why can't people see that? Why are so many people such stupid, selfish, vile pieces of shit these days? The idiots don't even care or seem to notice that their taxes don't go down, even though there is far less expenditure on the things that are helpful to a lot of people.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Sir-Sister-of-Suck » Sat Sep 30, 2017 5:15 am

This is an interesting discussion, one I will have to observe from the sideline since you two guys understand a lot more about this issue than I do.
vegetariantaxidermy wrote:
Sat Sep 30, 2017 12:32 am
From what I've observed, right wing Govts. take a lot of taxes, do a hell of a lot of borrowing, and spend as little on people as they can (unless it's themselves), while crowing about wastage (all the things that make the general standard of living good for everyone). Why can't people see that? Why are so many people such stupid, selfish, vile pieces of shit these days? The idiots don't even care or seem to notice that their taxes don't go down, even though there is far less expenditure on the things that are helpful to a lot of people.
I think criticizing people for not wanting to do more with their money is a slippery slope I don't see an end to. People can always give out more at some expense. Bill Gates could sell off his investments, unpaid property and businesses, and properly live off 99 percent of his money given away to charity, but that would be an absolutely absurd thing to expect of him. I think in general, measuring 'selfishness' in this quantitative way by what someone is not doing for society, is much more paradoxical and less reasonable than calling someone selfish based on if they're directly taking something away from society for their own gain.

While I do believe people have a right for what they worked with their own hands, there's a 'small-government' philosophy that often comes into play, and they just don't see paying more taxes as an efficient way to make those standards of living better for others. They know that a lot of this money will actually get lost in government regulation. I used to be a lot more for infrastructure reform, until I started to compare the cost of government managed property to privately managed property. Almost everything is more expensive when the government builds it, because they employ union workers rather than private contractors who are often negotiated, and have their prices driven down. It's not even because I'm unwilling to cough up the money to make it happen, but because it's too disheartening when you realize something is done so much better by the free market. And the beauty is that we can use the free market to help others instead, with charities.

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Re: Economics anyone? The relationship between spending and taxation.

Post by vegetariantaxidermy » Sat Sep 30, 2017 7:57 am

Sir-Sister-of-Suck wrote:
Sat Sep 30, 2017 5:15 am
This is an interesting discussion, one I will have to observe from the sideline since you two guys understand a lot more about this issue than I do.
vegetariantaxidermy wrote:
Sat Sep 30, 2017 12:32 am
From what I've observed, right wing Govts. take a lot of taxes, do a hell of a lot of borrowing, and spend as little on people as they can (unless it's themselves), while crowing about wastage (all the things that make the general standard of living good for everyone). Why can't people see that? Why are so many people such stupid, selfish, vile pieces of shit these days? The idiots don't even care or seem to notice that their taxes don't go down, even though there is far less expenditure on the things that are helpful to a lot of people.
I think criticizing people for not wanting to do more with their money is a slippery slope I don't see an end to. People can always give out more at some expense. Bill Gates could sell off his investments, unpaid property and businesses, and properly live off 99 percent of his money given away to charity, but that would be an absolutely absurd thing to expect of him. I think in general, measuring 'selfishness' in this quantitative way by what someone is not doing for society, is much more paradoxical and less reasonable than calling someone selfish based on if they're directly taking something away from society for their own gain.

While I do believe people have a right for what they worked with their own hands, there's a 'small-government' philosophy that often comes into play, and they just don't see paying more taxes as an efficient way to make those standards of living better for others. They know that a lot of this money will actually get lost in government regulation. I used to be a lot more for infrastructure reform, until I started to compare the cost of government managed property to privately managed property. Almost everything is more expensive when the government builds it, because they employ union workers rather than private contractors who are often negotiated, and have their prices driven down. It's not even because I'm unwilling to cough up the money to make it happen, but because it's too disheartening when you realize something is done so much better by the free market. And the beauty is that we can use the free market to help others instead, with charities.
That doesn't relate to anything I wrote.

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Re: Economics anyone? The relationship between spending and taxation.

Post by marjoram_blues » Sat Sep 30, 2017 9:20 am

Hobbes' Choice wrote:
Fri Sep 29, 2017 12:06 am
It is claimed that a nation cannot spend unless you tax. it is claimed that to spend more than a nation taxes gives you a deficit, and that a deficit is bad.

But, since the nation is the creator and source of all money, money being the sovereign responsibility and guarantor of money, then it is clear that the above idea is false; backwards.

Rather than you cannot spend unless you tax the truth is you cannot tax unless you spend , the deficit is meaningless, as all money is effectively debt - the entire amount of money in circulation is the actual deficit.

In other words the government's financial deficit is everyone else's financial success.

Since Thatcher Reagan we've been sold the mantra that government finances are like a household - you can't spend unless you earn (tax), and yet whenever they want more they just print it. Since 2008 the Uk has created £435 billion is quantitative easing. So the sort of house they have has a garden shed in the back where they print money put it in a wheel barrow and dump it outside the nearest bank where they give it away in bonuses to reward their workers for failing.

We've been sold the mantra private good, public bad. So all the assets have been lost in massive giveaways to Tory voters. The result is more inequality, poverty, homelessness, and the indignity of the Publicly owned French power selling the UK electricity.

By this ideology if you buy a pen for 10p and put it is a box, and sell it for £1 you are 'making money', and growing the economy. Being private this is seen as good.
However if you are a teacher drawing a wage and teach 30 children to read, write, count, paint pictures, and much more besides you are taking money from the country, eating up the wealth, and being paid by the government that is bad.

But in what way does the first example create wealth whilst the second is seen as a burden on the state?
It's been a long-time since I studied economics, and all I seem to recall are the words:
micro, macro, supply and demand. So much for showing my ignorance.

I see this is being discussed under political philosophy * ( observant, eh? ) and that there are claims and counterclaims being made about the relationship between spending and taxation.
I don't understand the conclusion that 'the government's financial deficit is everyone else's financial success'. How does everyone's financial success follow from governments financial deficit?

The mantra 'private good, public bad' has not been 'bought' by everyone.
Nor has 'public good, private bad'.
Private and public services are mixed in e.g. health provision. Also, transport. Some good, some bad.

It does seem clear to me that private companies who bid for national services benefit from the networks already in place via public taxation and it seems that the minimum is carried out to maintain or improve. Quick Profit is the name of the game, with the next round of bidding unrealistic so that the contract is won. Usually, at the expense of the consumer.

Hospital property, built by taxpayers money, now sold off cheap to private developers. But I can't be sure that this sell-off philosophy is particularly Tory. For sure, any money gained in public sell-offs should be returned to public purse. There is no transparency; also personal greed whether by Tory or Labour councillors is not often held up as corrupt.

Long-term issues - safety and security - are of no concern to private companies. School buildings collapse due to cheap products. And best not to mention Grenfell tower, a powerful testimony to the lack of concern by private contractors who are difficult to pin down and hold responsible.

It is not good enough that all parties promise the earth and are not held accountable for either lies or incompetence.

Unfortunately, the intrinsic value of public employees and their service is not recognised. It is invisible to bean counters. It's all about quantity not quality.

Oh, I didn't realise I had so much to say -
* anyway, I was wondering about what the *philosophy of economics has to say on the matter...

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Sat Sep 30, 2017 11:37 am

vegetariantaxidermy wrote:
Sat Sep 30, 2017 12:32 am
From what I've observed, right wing Govts. take a lot of taxes, do a hell of a lot of borrowing, and spend as little on people as they can (unless it's themselves), while crowing about wastage (all the things that make the general standard of living good for everyone). Why can't people see that? Why are so many people such stupid, selfish, vile pieces of shit these days? The idiots don't even care or seem to notice that their taxes don't go down, even though there is far less expenditure on the things that are helpful to a lot of people.
People are deliberately distracted by false fears such as immigration. The Daily Mail serves up a daily diet of hate. Pretty soon the sheeples have their eyes off the obvious and are thrashing around to blame foreigners for their woes.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Sat Sep 30, 2017 11:47 am

Sir-Sister-of-Suck wrote:
Sat Sep 30, 2017 5:15 am
This is an interesting discussion, one I will have to observe from the sideline since you two guys understand a lot more about this issue than I do.
vegetariantaxidermy wrote:
Sat Sep 30, 2017 12:32 am
From what I've observed, right wing Govts. take a lot of taxes, do a hell of a lot of borrowing, and spend as little on people as they can (unless it's themselves), while crowing about wastage (all the things that make the general standard of living good for everyone). Why can't people see that? Why are so many people such stupid, selfish, vile pieces of shit these days? The idiots don't even care or seem to notice that their taxes don't go down, even though there is far less expenditure on the things that are helpful to a lot of people.
I think criticizing people for not wanting to do more with their money is a slippery slope I don't see an end to. People can always give out more at some expense. Bill Gates could sell off his investments, unpaid property and businesses, and properly live off 99 percent of his money given away to charity, but that would be an absolutely absurd thing to expect of him. I think in general, measuring 'selfishness' in this quantitative way by what someone is not doing for society, is much more paradoxical and less reasonable than calling someone selfish based on if they're directly taking something away from society for their own gain.

While I do believe people have a right for what they worked with their own hands, there's a 'small-government' philosophy that often comes into play, and they just don't see paying more taxes as an efficient way to make those standards of living better for others. They know that a lot of this money will actually get lost in government regulation. I used to be a lot more for infrastructure reform, until I started to compare the cost of government managed property to privately managed property. Almost everything is more expensive when the government builds it, because they employ union workers rather than private contractors who are often negotiated, and have their prices driven down. It's not even because I'm unwilling to cough up the money to make it happen, but because it's too disheartening when you realize something is done so much better by the free market. And the beauty is that we can use the free market to help others instead, with charities.
Thanks for the opinion but I not sure you are on the argument yet.
The free market is not better, because it is privately owned and tends to act like a syphon which takes wealth out of the system and depresses the economy. it does so by a continual downwards pressure on wages, and a tendency to gain monopoly control. As low paying successful businesses grow they absorb the more generous businesses and by doing that gain economies of scale by which they are more able to compete. This has led to the growth of massive corporations whose earnings are greater than the GDPs of some smaller countries.
Without regulation they are empowered to seize assets and make land grabs with massive buying power and the ability to pay-off corrupt politicians. Once they secure the rights they can then exploit local workers in sweat-shops and then sack workers in their home countries.

The point of all this is that the less you pay working people the less they have to spend in the local economy. Low demand means low supply, fewer goods move around in the market. It also means a lower tax revenue.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Sat Sep 30, 2017 11:59 am

marjoram_blues wrote:
Sat Sep 30, 2017 9:20 am
I see this is being discussed under political philosophy * ( observant, eh? ) and that there are claims and counterclaims being made about the relationship between spending and taxation.
I don't understand the conclusion that 'the government's financial deficit is everyone else's financial success'. How does everyone's financial success follow from governments financial deficit?
This sounds odd, but it is perfectly sensible. A deficit is the evidence that the government is spending on the infrastructure roads, schools, defence, police, etc... Services that have to be provided and provide the playing field for all business to run and for people to live their lives.
If the government carries a surplus this means that they are effectively taking out potential capacity from the country. A surplus is bad news in every kind of way. It is simply holding back wealth and value. Balancing the fiscal position is a recipe for stagnation. It is the government's duty to push forward with development and that can only be achieved by carrying a deficit, or by hitting the country with more tax, which in any event puts the brakes on development.
Since 1979 the neoliberal wast has made a lot out of deficits, but controlling the deficit has just meant a shrinking of the state and services going out to private enterprise which has been MORE expensive due to profiteering, and has meant that governments have lost their assets, which enable them to safely carry large deficits.
Deficits are not relevant. They in no way act as a measure of the government's or the country's success. They have become the fetish of the US, EU and UK, but this has led to inequality and austerity.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Londoner » Sat Sep 30, 2017 1:02 pm

Without saying where my own view lies, let me put the argument that an opponent of Hobbes might make.

Certainly a government can, and should, borrow - if the economy is growing at a rate that is more than the cost of borrowing. (And unlike an individual, who at some stage has to pay back the principle of any loan, the state will live for ever so can always roll-over the debt and only has to pay the interest).

But the calculation has to be made; the deficit really does have to be matched by growth. If it isn't, then you are not borrowing to invest, but rather to pay for current expenses. You can only do that for so long before lenders become concerned and demand higher rates of return. Then you are into a viscous circle of needing even higher growth just to cover those extra borrowing costs.

(We cannot get out of that by printing more money, since lenders are perfectly capable of taking account of that and will demand higher interest in order to compensate for the reduced value of the currency).

So, by all means we could run a permanent deficit if that results in higher growth, but it is one thing to say it and another to do it.

The problem is not that we are running a surplus in government and this is sucking growth out the economy, so that we should rebalance one against the other. The problem is that both are in deficit. Government is running a deficit because the private sector is in no shape to borrow; rather than extracting money from the general economy, the government is propping it up.

To put it another way, we have been paying out interest on the assumption that this will be covered by growth - but now we have had to readjust our expectations. We do not expect so much growth, so we cannot afford the interest, so we need to reduce the borrowing.

Will this adversely effect ordinary people? Certainly. The realisation that you are not as rich as you thought you were is never going to be pleasant. You can argue about how the pain should be shared out, but there is unavoidably going to be pain.

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Re: Economics anyone? The relationship between spending and taxation.

Post by FlashDangerpants » Sat Sep 30, 2017 1:26 pm

Deficits are no particular indicator that a government is investing at all, let alone well. Otherwise one might wonder why Greece went bankrupt while being so spectacularly well run as to have a giant deficit and therefore magnificent prospects?

Of course Greece isn't free to print currency, so consider Venzuela...

They also ran up massive deficits, and unlike some other countries we could be looking at, they did a lot of valid investing with it in new housing and clinics which should have worked pretty well for them. That's good investing which should pay off.

But they fucked up in other ways.

They expropriated private property (all the oil services firms that made their only important industry work) and then they demanded levels of cash from that industry which were impossible to maintain alongside investment in new wells etc even when Oil was > $100/barrel. By the time the price fell, Venezuela was already pumping much less oil than before because too many pipes were shut at once for emergency maintenance.

So as the oil industry gave shrinking returns even when the commodity traded at its highest levels ever, they printed money.
But prices went up because inflation and nobody seemed to want that. So then they made the fuck up that got them where they are today.
They printed more money, and they started banning people from putting up prices.

All of this was shit that they could do because, as has been pointed out, they are a country not a person and they make the laws. There's no rules saying they cannot privatise stuff, or print money, or tell people what prices they are allowed to sell their product for. It's just that there is a real world in which we live, and there are still consequences to choices.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Sat Sep 30, 2017 3:08 pm

Londoner wrote:
Sat Sep 30, 2017 1:02 pm
Without saying where my own view lies, let me put the argument that an opponent of Hobbes might make.

Certainly a government can, and should, borrow - if the economy is growing at a rate that is more than the cost of borrowing. (And unlike an individual, who at some stage has to pay back the principle of any loan, the state will live for ever so can always roll-over the debt and only has to pay the interest).

But the calculation has to be made; the deficit really does have to be matched by growth. If it isn't, then you are not borrowing to invest, but rather to pay for current expenses. You can only do that for so long before lenders become concerned and demand higher rates of return. Then you are into a viscous circle of needing even higher growth just to cover those extra borrowing costs.

(We cannot get out of that by printing more money, since lenders are perfectly capable of taking account of that and will demand higher interest in order to compensate for the reduced value of the currency).

So, by all means we could run a permanent deficit if that results in higher growth, but it is one thing to say it and another to do it.

The problem is not that we are running a surplus in government and this is sucking growth out the economy, so that we should rebalance one against the other. The problem is that both are in deficit. Government is running a deficit because the private sector is in no shape to borrow; rather than extracting money from the general economy, the government is propping it up.

To put it another way, we have been paying out interest on the assumption that this will be covered by growth - but now we have had to readjust our expectations. We do not expect so much growth, so we cannot afford the interest, so we need to reduce the borrowing.

Will this adversely effect ordinary people? Certainly. The realisation that you are not as rich as you thought you were is never going to be pleasant. You can argue about how the pain should be shared out, but there is unavoidably going to be pain.
This all sounds reasonable. And if the government were a business, such prudence would be essential. However the government has proven time and again that it has no need to borrow money to spend money.
Clearly this is not simply a perfect magic money tree, but as the government is supposed to be in control of the money supply it has the right to make as much as it thinks the economy needs.
There have been some interesting books on this subject.

Eventually the pain is worse if you fail to maintain roads, schools and housing. If you keep cutting police and fire services the shit is going to hit the fan.
But there is a solution, And that is to make corporations which benefit from the country's infrastructure pay more. Google, Amazon, and other massive corps cheat by having an office address in Switzerland, or the Cayman Islands where they can get away without paying tax. There is more than enough untapped tax from new corp money to double the fund for the NHS and schools. It just takes the political will to do it.

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Re: Economics anyone? The relationship between spending and taxation.

Post by Hobbes' Choice » Sat Sep 30, 2017 3:10 pm

FlashDangerpants wrote:
Sat Sep 30, 2017 1:26 pm
Deficits are no particular indicator that a government is investing at all, let alone well. Otherwise one might wonder why Greece went bankrupt while being so spectacularly well run as to have a giant deficit and therefore magnificent prospects?

Of course Greece isn't free to print currency, so consider Venzuela...

They also ran up massive deficits, and unlike some other countries we could be looking at, they did a lot of valid investing with it in new housing and clinics which should have worked pretty well for them. That's good investing which should pay off.

But they fucked up in other ways.

They expropriated private property (all the oil services firms that made their only important industry work) and then they demanded levels of cash from that industry which were impossible to maintain alongside investment in new wells etc even when Oil was > $100/barrel. By the time the price fell, Venezuela was already pumping much less oil than before because too many pipes were shut at once for emergency maintenance.

So as the oil industry gave shrinking returns even when the commodity traded at its highest levels ever, they printed money.
But prices went up because inflation and nobody seemed to want that. So then they made the fuck up that got them where they are today.
They printed more money, and they started banning people from putting up prices.

All of this was shit that they could do because, as has been pointed out, they are a country not a person and they make the laws. There's no rules saying they cannot privatise stuff, or print money, or tell people what prices they are allowed to sell their product for. It's just that there is a real world in which we live, and there are still consequences to choices.
Venuzuela made the mistake of incurring the wrath of the USA. There is nothing else to say on that subject.
Greece would have done well to leave the EU, and return to the Drachma, for the reasons I have alluded to above. It is only vested interests in the Greek rich who hold EU currency that they did not do so.

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