How do you grow an economy to help get it out of debt?

[ksen]

nah

 

[SimpleDon]

That is not a violation of simple math.

If you really believe that then you have no understanding of math. I take it you aren't a math major.

ETA:
You don't happen to be one of the economic advisers for Greece are you?

Economics isn't just a simple question of math as I have explained. Or more exactly you are not looking at the whole picture to which to apply the math. Sovereign government debt is private savings. Reducing government debt can only be done by reducing national savings. It is simple math applied to simple accounting, really just bookkeeping. Every liability is also an asset to someone else. You can't reduce the liability without reducing the asset. Government debt equals private savings.

Maybe this will help. Debt is money. And money is debt. Banks loaning creates money. Paying back loans destroys money. The government spending creates money. The government taxing destroys money. If the government spends more than it taxes the net effect is more money in the economy, more private savings and more government debt. If the government taxes more than it spends the net result is less money in the economy, less private savings and less government debt. Similarly the banks loaning more money in aggregate than is being paid back plus interest then the banks in aggregate are increasing the amount of money in the economy. If they take in more then they are decreasing the amount of money in the economy.

(You must realize that the only money that matters to the economy is the money that is circulating in the economy. Money sitting in the Fed's reserve accounts are effectively out of the economy. There also has to be accounting for what is variously called the velocity of money or the slightly more sophisticated idea of liquidity preference, both finally the same thing for our discussion here, the aggregate of people's decisions whether to save or to spend money.

Also intentional trade has to be accounted for, whether some other countries are willing to contribute to your economy, a current account or trade surplus, or whether you are contributing to boost other countries' economy as the US is doing now, a current account or a trade deficit. But these are also just bookkeeping.)

 

[skepticalbip]

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.

No it can not. In a democratic society, it can only raise tax rate to the limit that the citizens will allow (analogous to how much the business will pay employees or how much customers will pay for goods and services). In a totalitarian state, it can only take all that is. Exceeding the limit in a democratic state will result in the government being removed by the citizens. Totalitarians are stopped by the reality that they can't take more than their is. In either case the spending limits are dictated by the available funds.

 

[dismal]

Pretty sure Puerto Rico can't print money. So I guess they are not different in this respect. And this does not really change the fact that if they spend more money than they take in the difference must come from somewhere. This could be the somewhere.

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.

It's not a "special case". There are many government borrowers that can't print money. A lot more than those who can. The state of Illinois can't print money. The City of Cleveland can't print money. Germany can't print money.

I think the important issue here is that Puerto Rico was probably aware it could not print money when it incurred the debt it has, so it would not have been prudent of them to count on money printing as a source of future money.

2. The ability to tax

Puerto Rico can and does tax. This does not really change the fact that if they spend more money than they take in the difference must come from somewhere. This is part of the money they take in.

And this ability to tax makes Puerto Rico different than a household or business.

It gives it a potential source of revenue that households don't have. It does not magically falsify the statement that if it spends more money than it takes in the money must come from somewhere.

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.

I am happy to think of them as different when it comes to the ways in which they are actually different.

Stating this like it's a blanket truth when there are important and relevant ways in which they are the same being discussed is not productive.

 

[SimpleDon]

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.

All I am saying is that the PUR or the PIIGS government are the wrong one to solve the problem because they can't print their own currency. The problem was so large that it should be kicked up to the sovereign governments. I agree with you that the non-sovereign governments shouldn't run budget deficits continuously. They also shouldn't have been asked to bailout their own banks.

 

[Loren Pechtel]

Another practical problem would be reigning in creditors' expectations that they should get paid everything back after obviously lending someone too much money.

So now even states are stupid, only bankers should be responsible for their actions?

- - - Updated - - -

Sovereign state budgets are not equivalent to a household or a business budget.

The economics are the same, though, whether household or country. Spending more than you take in eventually leads to catastrophe.

 

[Loren Pechtel]

In what relevant way are they different?

1. The ability to print money
2. The ability to tax

There's two relevant differences.

I'll throw in a third for free:

3. State's are effectively immortal

Printing money on a small scale is inflation--a hidden tax. On a large scale it destroys the economy.

Raising taxes is simply increasing income, the same as working more hours in the household.

The economic model is the same.

The immortality of the state is actually a reason against it--the household will eventually die, any debt left at that point vanishes. The state doesn't have this.

- - - Updated - - -

You did if your claim is that a state can continually spend more than it takes in.

That is not a violation of simple math.

And I presume you think 1 + 1 = 3?

- - - Updated - - -

ksen is a Subtraction Truther.

10-7=3 is just what they want you to believe!

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?"

And you're acting like the accountant.

 

[Jayjay]

In what relevant way are they different?

1. The ability to print money
2. The ability to tax

There's two relevant differences.

I'll throw in a third for free:

3. State's are effectively immortal

I don't see how being immortal is relevant. Sure, a state never has to pay back all the debt like mere mortals, but they still need to keep the amount of debt manageable.

As fo ability to tax, a household effectively can "tax" itself just like a country.

Third, Puerto Rico can't print its own money. What they are doing is the next best thing: reduce the value of money of its residents.

 

[ksen]

Man, look at you guys go!

 

[dismal]

Another practical problem would be reigning in creditors' expectations that they should get paid everything back after obviously lending someone too much money.

So now even states are stupid, only bankers should be responsible for their actions?

It does seem oddly inconsistent to me that someone whose religious beliefs require them to think borrowing and spending is the key to prosperity would criticize lenders for lending to the sick.

It seems like the Imprudent Lender would be revered as some sort of scared healer in the Keynesian church.

 

[fromderinside]

Anyone willing to consider reducing corruption outside of government or putting in place severe financial penalties for individuals who are even suspected of corruption anywhere?

 

[dismal]

Anyone willing to consider reducing corruption outside of government or putting in place severe financial penalties for individuals who are even suspected of corruption anywhere?

Did you mean to put this in the Hillary thread?

 

[SimpleDon]

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.

Chapter 21 of The General Theory has to do with the theory of prices, not government spending. The reference to Book 3 is nonsense.

Perhaps you meant Chapter 3 of the The General Theory which is the start of the explanation of effective demand, which is really what the whole rest of the book is about.

When Keynes said that excess government spending increases demand he was stating a fact, not putting forward a theory. What do you believe that excessive government spending does in relation to demand?

I just remembered, you don't understand the concept of economic demand, do you? From Investopedia,

"DEFINITION of 'Demand' An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa."

Government spending increases the level of demand in the overall economy. If there is adequate production capacity to fill the government demand the spending will boost the overall economy. If the production capacity doesn't exist, meaning the economy is running at full capacity, then the demand from the government will create inflation.

Keynes relied on the idea of effective demand, the idea that demand for one product can be constrained by effects from different markets. Basically what happens when the market for a product or the market for a factor of production like labor or a raw material is not at equilibrium, or even more basically you can't buy it if it is not made or if you don't have money to buy it even if you want to and you are willing to meet the price. Simple stuff really, but not fully realized before Keynes. Especially because of the conclusion to which it inevitably leads.

It leads to the conclusion that the economy is not supply driven, that it isn't any longer constrained by lack of capital, that in fact the economy in 1936 was demand driven and that in the future, i.e. now, it will become even more demand driven. The death of Say's law, the idea that supply creates its own demand, in aggregate of course. That in the modern industrial economy capital is only money. And the supply of money is not constrained. Especially in the fiat money system that replaced the barely there gold standard of 1936.

 

[dismal]

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.

Chapter 21 of The General Theory has to do with the theory of prices, not government spending. The reference to Book 3 is nonsense.

I use the King James version.

 

[coloradoatheist]

I would have hoped that we learned the lesson from the 2007 crisis that creating demand for the sake of demand is bad. We had plenty of demand with the money that went through the housing sector but it caused a huge bubble in just that area and everything crashed. So paying people to dig holes creates the same problem, you have to keep paying the people to dig holes. The hope is that you can do something productive with that money instead of digging holes. Japan is another big example, they built a lot of bridges to nowhere and there economy stagnated even with the the new demand. Of course if $1 trillion isn't enough stimulus we'll just get there if they spend $3 trillion.

 

[SimpleDon]

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.

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.

Actually the generally held opinion now is that the money supply should over the medium term, years not months, not decades, should grow by the nominal growth in the economy. That if real GDP grows by 3% and inflation is 2% then the money supply should grow by 5%.

What we should have learned from the German hyperinflation of the early 1920's is that we shouldn't ever ask a country to pay reparations that are far beyond their capacity to pay. Germany successfully paid for the costs of World War I during it without debt by printing money when it was their own currency in their own economy. The reason that the hyperinflation occurred after the war was because they had to devalue their currency against a fixed foreign currency, nominally gold but actually the English Pound, the trade settlement currency of the time. The reparations were a debt in a foreign currency.

The same problem occurred with the only other example of hyperinflation in the twentieth century, in Zimbabwe. Due to a widespread and very botched land reform they had to import most of their food. To do this they had to buy tremendous quantities of foreign exchange, US and Canadian dollars and South African rand, as much as 60% of their GDP.

Once again, the US except for a couple of years in the 1830's has always had a national debt. England has had a national debt continuously since the 16th century. This refuting of your point about nations eventually having to pay the piper certainly fits comfortably into the definition of "long term."

Inflation is the best way to pay off a national debt. The complete national debt that Reagan ranted against that fought World War I and II, that got us through the depression, that paid for my graduate studies in advanced killing in Vietnam, was less than a trillion dollars before the economics named after him blew it up into double, triple and finally into nearly twenty times in the interests of pumping up the incomes of the already wealthy.

And a lesson that we learned in vivid surety in the recent recession is that the Fed can produce all of the money that it wants to but if banks aren't lending and consumers aren't borrowing that the money has absolutely no impact on the economy. And if the consumers are borrowing and the banks are lending the lack of reserves doesn't limit the economy because banks can always borrow money to cover the reserve requirement, thanks to one of the many deregulation delusions put into force by the deluded who have faith in deregulation, in spite of centuries of empirical evidence against it and supporting tight regulation of the financial sector.

The Fed has tried desperately to create inflation in the last seven years by printing money with absolutely no success. They tried to double the currency supply and it didn't impact the economy at all. The QEs ran the stock markets up in yet another asset bubble but as we all now know here the stock markets have little to no impact on the real economy that the 99% depend on for their livelihoods, the economy of making real things for consumption.

The Friedman monetarism apologists are left with the extremely thin gruel of "stock market wealth effects" to try to justify this building yet again of a stock bubble by the Fed and the redistribution of income to the already wealthy from everyone else.

So let's add up your score on this post. Oh, I am sorry, once again you are completely wrong. No surprise there, after all you are the very definition of deluded, a libertarian. Better luck in another life with a better worldview.

 

[SimpleDon]

c

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.

2. The ability to tax

Puerto Rico can and does tax. This does not really change the fact that if they spend more money than they take in the difference must come from somewhere. This is part of the money they take in.

And this ability to tax makes Puerto Rico different than a household or business.
.

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.

What makes a sovereign government different from a household or a business is that no household and no business depresses the economy and destroys private savings by paying off debt.

 

[fromderinside]

Anyone willing to consider reducing corruption outside of government or putting in place severe financial penalties for individuals who are even suspected of corruption anywhere?

Did you mean to put this in the Hillary thread?

Yeah, put a non-government corruption in a career government politician's thread. Time for a visit to EyeMart dismal.

I meant to put in this thread to suggest that career politicians, especially those in administrative positions, tend to be corrupt by nature. Need go no further than Jendel, Christie, Bush, or one of those other nice people who recommend giving the store to the fat cats.

 

[fromderinside]

Chapter 21 of The General Theory has to do with the theory of prices, not government spending. The reference to Book 3 is nonsense.

I use the King James version.

Great. Taking advice from Leviticus and Revelations to put 'merica on the bigoted and heretic finding path. Your shepherd is calling. Something about spilt milk.

 

[fromderinside]

I would have hoped that we learned the lesson from the 2007 crisis that creating demand for the sake of demand is bad. We had plenty of demand with the money that went through the housing sector but it caused a huge bubble in just that area and everything crashed. So paying people to dig holes creates the same problem, you have to keep paying the people to dig holes. The hope is that you can do something productive with that money instead of digging holes. Japan is another big example, they built a lot of bridges to nowhere and there economy stagnated even with the the new demand. Of course if $1 trillion isn't enough stimulus we'll just get there if they spend $3 trillion.

We've been practicing that no hole digging approach for sometime now. How about a few hole for sewer and water, for fiber, for irrigation, and the like. While they're at it they can build a few bridges to replace those falling down.