skepticalbip
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I think what he is actually telling us is that 7-10=0 but only if the government does it.
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How do you grow an economy to help get it out of debt?
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I think what he is actually telling us is that 7-10=0 but only if the government does it.
The boss calls in a mathematician, an economist and an accountant.
He asks the mathematician, "What's the answer to 2+2?"
The mathematician, using the latest in math theories and axioms, explains that 2+2=4.
The boss thanks the mathematician who leaves the office.
The boss asks the economist, "What's the answer to 2+2?"
The economist pulls out charts and graphs and explains to the boss that 2+2=4.
The boss thanks the economist who also leaves the office.
The boss asks the accountant, "What's the answer to 2+2?"
The accountant looks around, closes the door, lowers the blinds, dims the lights and walks up and whispers in the boss's ear, "What do you want 2+2 to equal?"
SimpleDon
Veteran Member
Puerto Rico's situation is analogous to Greece's. They have run up a large debt in a currency that they have no control over. There is only two options for dealing with the debt. They have to pay the debt out of their economy's savings, austerity, running a government surplus by a combination of increased taxes and reduced spending. Or someone else has to write down the debt or shoulder the debt and pay it off for them.
Both approaches have serious problems. Austerity can fail because while deficit spending boosts the economy, the converse is also true. Running a surplus required to pay off the debt depresses the economy. A depressed economy produces less tax revenue forcing even more tax increases or reduced spending which depresses the economy even more in turn requiring ever increasing amounts of austerity. If the debt is large enough and the term to reduce the debt is short enough it is impossible for the government to pay back the debt because the economy and tax revenues decay faster than than the debt can be paid back. The depressed economy produces high unemployment requiring more government spending. The net result is even more debt, not less.
Writing off the debt has the problem of creating a moral hazard. It encourages the bad behavior, running up the debt, that created the problem in the first place. For example, relying on government debt decreases temporarily the pressure to collect taxes. Increased government spending is always welcome but the rigor of tax collection is not so welcome.
The obvious solution is to combine the approaches, to write down part of the debt or to transfer part of the debt to the government that controls the currency that the debt is in, to lengthen the term of the debt remaining so that the impact on the economy in any one year isn't too serious. To let inflation write down the debt over time. To cause enough pain to avoid the moral hazard, but to reduce the debt, the interest rate and the term of the debt to avoid the cascading, 'surplus producing a bad economy reducing revenue' problem with austerity.
What is standing in the way of implementing this obvious solution? An almost perfect storm of bias, flawed thinking and misunderstanding of the economics involved. For example, belief,
Both approaches have serious problems. Austerity can fail because while deficit spending boosts the economy, the converse is also true. Running a surplus required to pay off the debt depresses the economy. A depressed economy produces less tax revenue forcing even more tax increases or reduced spending which depresses the economy even more in turn requiring ever increasing amounts of austerity. If the debt is large enough and the term to reduce the debt is short enough it is impossible for the government to pay back the debt because the economy and tax revenues decay faster than than the debt can be paid back. The depressed economy produces high unemployment requiring more government spending. The net result is even more debt, not less.
Writing off the debt has the problem of creating a moral hazard. It encourages the bad behavior, running up the debt, that created the problem in the first place. For example, relying on government debt decreases temporarily the pressure to collect taxes. Increased government spending is always welcome but the rigor of tax collection is not so welcome.
The obvious solution is to combine the approaches, to write down part of the debt or to transfer part of the debt to the government that controls the currency that the debt is in, to lengthen the term of the debt remaining so that the impact on the economy in any one year isn't too serious. To let inflation write down the debt over time. To cause enough pain to avoid the moral hazard, but to reduce the debt, the interest rate and the term of the debt to avoid the cascading, 'surplus producing a bad economy reducing revenue' problem with austerity.
What is standing in the way of implementing this obvious solution? An almost perfect storm of bias, flawed thinking and misunderstanding of the economics involved. For example, belief,
- That government debt is the same as personal debt.
- That government spending has little or no impact on the economy.
- That the economy is supply side driven.
- That the best way to a good economy is to increase investment by directing money to the rich and away from everyone else.
- That the money loaned out by the banks is the depositors' money or the banks' money.
- That money is a desirable product of the economy.
- That sovereign governments can save money as in the opposite of debt, for example, a lockbox for excess payroll taxes.
- That government debt is always an evil unless it was built up by lowering taxes.
- That government is evil, is largely not needed and only harms the economy.
- That private enterprise can do what government does better and cheaper.
- That the cause of the high debt was profligate, unnecessary spending.
Tristan Scott
Senior Member
To answer the question in the OP, what the government can do is what Bush I and Clinton did and that is to initiate targeted tax increases. At the same time, as the extra revenue is hitting the books, the IRS can slightly tweak the withholding codes to further spike revenues-of course congress would have to cooperate by targeting the increased revenues towards high return programs such as infrastructure.
Then the boss calls in an ideologically blinded ideologue and asks "what's the answer to 2+2?".
And the ideologically blinded ideologue says "whatever I need it to be to convince myself my ideology is correct".
Meanwhile, back in reality it still turns out that if you spend more money than you take in the difference must be made up with something.
Putting your hands over your years and chanting "nananananananana" about the math it does not make money magically appear to cover your bills.
SimpleDon
Veteran Member
A sovereign government can. A government that has control of its own currency. The US has never had zero debt except for a brief period in the 1830's. And reducing the debt to zero then precipitated the worse depression that we ever had.
The debt of a sovereign country is also the private savings of the country. Savings is an economic good because it buffers downturns. You can't pay down the national debt without reducing the savings, or increasing private debt, the other side of the savings coin. Either increase the instability and the vulnerability of the economy to downturns.
See, it is quite easy to understand once you put aside your biases and actually think about the situation.
I don't think anyone is arguing against the idea that governments that can print their own currency can gain currency by printing their own currency.
This does not happen to be a thread about a government that can print its own currency.
coloradoatheist
Veteran Member
The question about borrowing is if the entity can borrow or make enough to service its debt levels. It's true as an individual, company or national level. I don't know enough about Puerto Rico to know if they can do what is required to service their debt. Do they have enough productivity in their economy to do something with money they borrow?
I believe Chapter 21, Book 3 of the Gospel according to Keynes says you borrow the money and spend it and the economy booms because demand.
The mythical hell that occurs when no one will lend you money anymore is known as "The Long Run" which is an apocalyptic time in which we are all dead.
SimpleDon
Veteran Member
Yes, you are correct. The only government that should be building up debt is the sovereign government, the one that controls its own currency. The US government in the case of PUR and the ECB and the European community in the case of the PIIGS. All got into trouble in the recovery from the 2008 recession and all for pretty much the same reason, that they were forced to take on debt to bailout their banks after the financial crisis. All should have done a much better job of regulating the banks, but that is true of nearly every country on earth, save Germany and some others, countries that didn't fall for the deregulation delusion.
Yes, the state and territorial governments in the US and the member nations of the European Union have to run nominally balanced budgets. But they shouldn't have been forced to bailout the banks, that is something that the sovereign governments should have done.
And yet everyone in the territory of the former Yugoslavia is still under a sovereign government.
Yes, you are correct as noted above. But don't let it go to your head, it is not true for the overall sovereign governments.
skepticalbip
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And even printing money doesn't allow a functioning government to spend more that it takes in. Printing excess money devalues the currency so is a tax on the savings of all its citizens - the government get control of half the nations wealth by doubling the currency supply through doubling its scrip. It also discourages other nations from lending. Double the currency supply and the value of savings of citizens is halved and prices of goods is doubled. Printing money can be a means of paying off existing debt but does not change the economic fact that long term spending of more than the nations earns will collapse the government. Just look at Germany's hyperinflation of 1923. They printed money to pay off their war debt from WWI.
Ok. I already said that Puerto Rico is a special case in that it's not a state of the US or its own sovereign state.
And this ability to tax makes Puerto Rico different than a household or business.
I never said it wouldn't have to come from somewhere. I said governments should not be thought of the same way that businesses and households are thought of since they are different and household/business budgets are not equivalent to a government budget.
skepticalbip
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No it does not. Governments supposedly are providing services to its citizens. Taxes are the government's "wages" for services rendered. The same as the head of households earn income from providing services to their employer and businesses earn income by supplying goods or services to its customers.
You don't understand the difference between taxes and earned wages?
If a government decides it needs more revenue it can adjust its tax rate whenever it wants.
A head of household cannot raise her income quite that easily and with the power of law.
coloradoatheist
Veteran Member
It can raise taxes, but it has economic impact too, so it has to decide on which taxes and which impact.
Axulus
Veteran Member
It most certainly cannot adjust the rate whenever it wants. Doing so usually requires a long drawn out political battle that is prone to fail in the legislature.
skepticalbip
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No it does not. Governments supposedly are providing services to its citizens. Taxes are the government's "wages" for services rendered. The same as the head of households earn income from providing services to their employer and businesses earn income by supplying goods or services to its customers
Just because you want something to be true doesn't make it so.
So? Those considerations don't change the fact that if the government decides it needs more revenue it is simply a vote away.
Yeah, it can adjust rates whenever it wants.
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lol, ok buddy
skepticalbip
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nm