Re: Refuting supply-side economics

From: William F Hummel (wfhummel_at_comcast.net)
Date: 09/26/04 

Date: Sun, 26 Sep 2004 18:52:12 GMT

On Sat, 25 Sep 2004 17:30:32 -0400, "Mark Monson" <m_monson@ztech.com>
wrote:

>In the case of the government borrowing money at interest, this scheme is
>unproductive for taxpayers because all the things the government spends this money
>on come from the produce of the nation. Taxpayers receive more benefit from their
>tax dollars when all tax dollars are exchanged for government goods and services
>rather than part of the taxes being used to pay interest on public debt.

Taxing or borrowing represent equal cost to the tax payers. Interest
on government bonds is simply the cost of deferring the tax payment to
cover government spending. In either case, the public gets the same
amount of NET (after interest) government spending , whether the
result of that spending is good or bad.

>The bond holder as bond holder is the privileged recipient of tax dollars without
>giving anything of value to taxpayers in return.

No. The taxpayers receive value in whatever the government spends the
money on, just the same as the bond holders (most of whom are tax
payers). I've explained this in some detail in another post.

>Expenditures over revenue can be made up by the government spending base money into
>circulation, later corrected through taxation so as to avoid inflation.

No! Taxes would be a very blunt tool for controlling the base money
supply. The tax code is a political football and can only be changed
with great difficulty and much time delay. Furthermore for a given
tax code and tax rate schedule, revenues vary significantly from month
to month and year to year.

The government now spends about 2,300 billion a year while bank
reserves total only about 60 billion. To avoid unacceptable
fluctuations in the overnight interest rate, bank reserves must be
continuously controlled. This requires close cooperation between the
Treasury and the Fed. The Treasury borrows every week as required to
recapture its spending, and the Fed adds or drains small amounts for
fine control. Your concept would create serious problems for the
economy in general and business in particular.

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