Re: Refuting supply-side economics

From: The Trucker (mikcob_at_verizon.net)
Date: 09/30/04 

Date: Wed, 29 Sep 2004 20:05:26 -0700

William F Hummel wrote:

> 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.

!!!>>>><<<<<!!!! Horsecrap !!!!!!!>>>>>><<<<<<<!!!!!

This statement is wrong on two counts, one of which has already been
covered by Roy L. The remaining count is that the statement wrongfully
assumes that the beneficiaries of the government spending that provokes
the borrowing will remain as "tax payers" when the debt is to be
repaid. Tax policy can and will change and those who benefit now
may or may not be those who pay in the future. In real life there is
no such thing as "tax payers in the aggregate".

The point made by Roy is that the cost is not equal in any case
just as the next lines indicate: There is a _cost_ to borrowing
and that clearly shows that there _IS_ a difference.

> 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.

As we see, there is a _cost_ to borrowing that would not exist if the
taxes had been paid or money printed at square one.

>>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.

All receive initial value. But the bondholders will receive additional
value at the expense of the rest.

>>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.

So what's the down side? If an elected government _knows_
that there will be no offering of bonds to "sterilize" government
deficit spending; the congress _knows_ they will need to raise
taxes so as to cover their spending, then there will be a lot less
deficit spending. Seems like a pretty good deal to me. If and
when the economy needs more base money then issue a citizen's
dividend in equal amounts to all taxpayers. Seems to me that the
people who are to be held accountable would be on a much shorter
leash.

> 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.

The Fed can make funds available at interest and all such interest
inures to the people at large. If there is too much money in the
system then the Fed can increase the reserve requirement and/or
raise the rates for borrowed reserves, and all "interest" will
accrue to the elected government just as a tax. The Fed can create
money through loans to banks or by simply issuing a citizen's
dividend (a better way to do the job). But only the elected
government should suck "reserves" out of the economy and this it
should do by cutting back on spending, or by raising taxes.

> 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.

Actually, there is no need for the Treasury to borrow unless the
elected government isn't doing its job of collecting taxes. Seems
to me that if the Treasury could not offer bonds at interest and
instead just printed whatever money it might need, then that would
remove a lot of very serious distortions in the economy. The Fed
can increase or decrease reserve requirements as needed. 

-- 
"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

Relevant Pages

  • Re: We Needed A Big Gas Tax Like We Need a Scathing Case of Herpes
    ... good money, but not too high to cause investment in alternatives. ... don't trust the government to "redistribute" anything, ... Unfortunately in many states these taxes go directly into the states general funds and never do get spent on improving the roads if the roads in my area are any indicator. ... Just apply the state's sales tax rate. ...
    (rec.autos.makers.ford.mustang)
  • Re: Refuting supply-side economics
    ... >>unproductive for taxpayers because all the things the government spends this money ... >>tax dollars when all tax dollars are exchanged for government goods and services ... >Taxing or borrowing represent equal cost to the tax payers. ...
    (sci.econ)
  • Re: social secuirty bankruptcy in 2010?
    ... Fund may redeem them at its discretion at any time for par value. ... money comes from the US government, ... when the Trust redeems its bonds the money comes for the US ... Borrowing from SS and not paying the debt back through ...
    (soc.retirement)
  • Re: OT - Government bailouts, buyout and guaranteed loans
    ... government DOES NOT HAVE THIS MONEY sitting around to be making these ... THEY WILL BORROW THIS MONEY FROM US. ... if the government creates it I won't have to pay ... You will pay it as a hidden tax, and everyone that has a dollar in their ...
    (rec.gambling.poker)
  • Re: The economy and the Democrats
    ... players with piss poor money management skills. ... tax liability or file no tax return. ... income taxes are not the only taxes. ... entitlement, welfare and give away programs, and the government growth ...
    (rec.gambling.poker)