The BBC give undue prominence to the letter supporting the government's borrow'n'spend policies. This idea that the government can 'kick start' the economy or 'provide an economic stimulus' is an inverted pyramid of piffle, of course.
Luckily, Philip Booth and Richard Wellings at the IEA 'blog have saved me the hassle of explaining why these policies are doomed to failure with this:
There are two main points. Widening the fiscal deficit does not increase so-called “aggregate demand” – it simply transfers demand and economic resources from where they are valued to where they are less valued. Secondly, the problem of funding the deficit does matter. If credibility is lost, there is a long-term cost in terms of the rate of interest on government borrowing.
You have to take into account the deadweight cost of subsidies; the deadweight costs of the extra borrowing and the deadweight costs of the taxes that will have to be collected in future. All of these added together mean that borrow'n'spend is clearly a negative sum game.
PS, a system based purely on taxing land values, paying for the core functions of the state - in particular those things that increase land values - and then dishing out the rest as a Citizen's Dividend does not have any deadweight costs, of course. But in the real world, we don't have those sort of taxes and the government is not dishing out money as a Citizen's Dividend - it is throwing massive amounts of money at its family and friends.
Another one bites the dust
2 hours ago
15 comments:
Not to mention the EU
I too have blogged on this
The biggest and best cut would be to stop the gravy going to Brussels by Eurostar and Securicor delivery
That would put us in the black immediately.
HNL, well obviously :)
Will he announce the election this weekend?
JH, I dunno. Does it make any difference to anything, seeing as everybody assumes it'll be on 6 May?
Could someone please explain how putting up government spending is supposed to help the economy in the long term. It's so obvious to me that it can't, I can't even imagine any bullshit that would try and prove otherwise.
B, if you like one-sided economics, then it's very easy to explain or justify, you mention things like 'the multiplier effect' and so on.
But if you believe in two-sided economics, where one man's income is another man's expense, then it is impossible to explain.
Yep - you're right. It alters nothing in the final context.
So then, a question. What's the best way to start a revolution? Bloodless or bloody - I don't really mind.
L, bloodless, I'm a bit squeamish about that.
You saw the "revolution" that happened after the Climategate leaks.
We just need that to happen to more government departments.
Dunno about deficits.The Gov has shewn you can just create the money
by Quantitative Easing so why borrow? Guess who said taxation is like attempting to re-cycle used tin cans? Ezra Pound.
There is surely some point in demand stimulus.Land and money can be hoarded (ie kept off the market)
workers cannot sit down and hoard their labour;they are one payment from poverty.You drag hoarded land onto the market by a tax; you drag hoarded money onto the market by inflation,resulting from deficit spending.
People always assail Gesell and Keynes as redistributors of wealth: they are in fact proponents of markets; markets where all the factors of production are in play.Laissez -faire provides holders of money and land with the opportunity to do nothing; not join the market.They provide market solutions and the no-market situation we have now.
DCB: "Laissez -faire provides holders of money and land with the opportunity to do nothing; not join the market."
Agreed that taxes on land encourage people to put it to good use, but you cannot 'hoard money'. It is physically impossible.
All financial assets (i.e. money) have an equal and opposite financial liablity (i.e. somebody else's debt). Ergo, if you put money in the bank, the bank is lending it on to somebody else who is doing something productive with it (hopefully!)
Even if you put coins and notes under the bed, you are helping the government finance itself. And
If you withdraw money from circulation and bury it in the garden how does that help create a market?
I am not sure whether you believe banks empty your deposit account and lend it onto somebody else.Suppoing he loses it in some shady venture,your account will remain empty.You could say the bank is liable to repay you the lost by somebody else money,but loans are assets in your well-kept book.
Do you believe banking increases the money supply? If not what does and how?
DCB: "If you withdraw money from circulation and bury it in the garden how does that help create a market?"
When you say 'money', do you means 'coins and notes'? Hopefully yes, or the rest of your question does not make sense.
I reply thusly:
"If all coins and notes in existence fell behind the back of the sofa, or down a drain or were burned or used as loo paper and flushed away, would society be collectively poorer?"
Answer is obviously 'No', and the taxpayer in this case would actually be a lot richer, because a lot of government liabilities would never have to be repaid.
I take it you haven't done any background reading on double entry bookkeeping and banking yet?
DCB, you surpassed yourself with this:"I am not sure whether you believe banks empty your deposit account and lend it onto somebody else."
[I'm not sure what level of reality we're operating on here, but I'll try to stay with the real world]
Traditionally, that is exactly what a bank or building society is supposed to do! They take your money and lend it to somebody else, i.e. convert coins and notes into a loan.
They convert on type of financial asset (coins and notes, backed by the government) into another type of financial asset (a mortgage, backed by the borrower).
But you as a depositor are unaffected by this -whether the bank leaves your coins and notes in a safe or lends them to somebody else, the deal is that you, as a depositor, are entitled to go to a branch and demand to be repaid in coins and notes.
OK, in a more modern context, coins and notes are fairly unimportant, and banks create the mortgage and the deposit simultaneously (without waiting for the deposit to be made first), but the same general principle applies.
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