Re: Refuting supply-side economics

From: The Trucker (mikcob_at_verizon.net)
Date: 09/25/04 

Date: Sat, 25 Sep 2004 09:56:52 -0700

William F Hummel wrote:

> On Thu, 23 Sep 2004 22:30:54 -0700, The Trucker <mikcob@verizon.net>
> wrote:
>
>>William F Hummel wrote:
>>
>>> On Tue, 21 Sep 2004 23:07:38 -0700, The Trucker wrote:
>>>
>>>>William F Hummel wrote:
>
>>>>> Simply spending intrinsically worthless fiat money into
>>>>> circulation, and never recapturing it through taxes and bond sales (if
>>>>> necessary) is a prescription for hyperinflation.
>>>>
>>>>The same will result from bond sales. It just takes longer.
>>>
>>> Another example of how a little knowledge is dangerous. Bond sales
>>> are precisely what prevent a hyperinflation.
>>
>>Such Republican thievery merely increases the gap between rich and
>>poor.
>
> I don't expect the trucker to understand this, but the gap between
> rich and poor is NOT affected by deficit spending and the resulting
> bond sales. The gap is affected only by HOW the government deficit
> spends.

Puff right on up, Hummel.

> Let's look at a simple example. Suppose the government budget is
> currently in balance, with 100B in spending and 100B in taxes. The
> government now decides to spend 10B more this year, and has the
> following choice. Levy a 10% surcharge on all taxpayers this year, or
> sell 10B of one-year bonds.

You see it that way because of your myopia; your inability to see
anything not already learned and cast in stone. Our representative
government also has the option of creating the money and spending
it into existence without borrowing anything at all.

> To make the example concrete, assume the market interest rate on
> one-year bonds is 5%. In the borrowing option, that means the
> government must pay 10.5B at the end of the year to those who bought
> the bonds. So the government would have to increase taxes by 0.5B for
> the year or borrow 10.5B. [For simplicity we are ignoring the
> interest on interest, which is small in one year.]

But that 0.5B will need to be paid each year forever.

> In the taxing option, the taxpayers cough up 10B at the beginning of
> the year. In the borrowing option, the taxpayers cough up 10.5
> billion at the end of the year, assuming the 10B in bonds is not
> rolled over. In terms of present value, the cost of these two options
> is exactly the same to the tax payers. Note that those who have no
> tax liability get a free ride in either case.

Those who have no tax liability MAY have one on the future. Ergo, they
MAY not escape the borrowing option while the definitely will escape
the direct tax in the surcharge option.

> How about the bond buyers? They are simply investing their existing
> savings.

And those who live hand to mouthand have no savings do not get this
benefit.

> In truth, they could have invested them elsewhere and
> generally received a better return.

And if this option of government bonds was not available then they
would be much more inclined to actually _invest_ instead of poking
the money in a government backed safe.

> There is nothing about the 10B
> deficit spending that creates a special benefit for the bond buyers.

Other than the inscapable fact that they now have a nice secure place
to draw interest (rent) as a result of not paying their taxes.

> The net beneficiaries of the deficit spending are those who receive
> the contracts, and the workers they hire.

The use of the funds is a different matter, but if we can burn the
money in a military furnace as opposed to investing it in
infrastructure then the rich will be all the richer. 

-- 
"I know no safe depository of the ultimate powers of society but
the people themselves; and if we think them not enlightened enough
to exercise their control with a wholesome discretion, the remedy
is not to take it from them, but to inform their discretion by
education." - Thomas Jefferson.  http://GreaterVoice.org

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