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notices and features - Date published:
5:32 pm, November 15th, 2016 - 61 comments
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The current rise of populism challenges the way we think about people’s relationship to the economy.We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. ...
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@McFlock
Put this here because it was OT in thread.
It’s not just creation money though – you have to include it’s destruction. The cycle should go:
Government >> economy >> government
The money’s return to government is actually it’s destruction. Under those conditions then inflation can be minimal.
As for the exchange value – that needs to be set by a formula (essentially imports/exports) rather than the wishful thinking of the speculators.
How is money going back to the government destruction?
Because when it’s returned to the government it’s matched against previous spending.
Spend into the economy (+1)
Return to government (-1)
total = 0
The government should actually run at a slight deficit to match population growth and the easy way to do that is a UBI.
spend into the economy(+1)
return to government (-1)
tax rate 100%
spend available for provision 0
output 0
savings 0
confidence 0
exchange rate …..won’t matter as it won’t be wanted (or needed)
Completely wrong.
Spend available for provision of government services is the amount needed to provide those services – no more, no less.
This spending then gets spent into the private sector causing multiplier effect (usually around 3 times).
Overall tax @ 33% to have return to government balance.
It would be government spending, including the UBI, that provides the entire money supply for the economy to work. This:
1. Removes poverty
2. Eliminates the business cycle
3. and removes the need for infinite exponential growth on a finite world.
lol….so zero imports and zero savings …thats a realistic model…not
Why would there be zero imports/exports?
And we don’t need savings. In fact, savings seem to be a large part of the problem with our present financial system.
That said, there’s nothing stopping people from putting money in the bank. They just won’t get any interest on it.
why?…because you claim a tax rate of 33% and a multiplier of 3 …that requires a zero savings and import rate
and we don’t need savings? would love to hear your explanation of how anyone is going to purchase anything that costs more than say a weeks “wages”( while eating and being housed)…and that also suggests all ownership will have be by the state for there will be no ability for private investment…and placing it in a bank (even at zero interest) still removes it from circulation and negatively impacts ME
but the best of all is how you propose to administer the inevitable demand for more. and the inflationary spiral that creates.?..even in a totally closed economy which while possible is extremely unlikely
You said that when you claimed it was 100% tax rate. Now that you’re informed that it’s actually 33% you’re saying the same thing.
Your maths is wrong.
$1 is spent into the economy
This produces $1 of economic value
$0.33 is taxed back out from that $1
Leaving $0.67 in the economy which goes round again to be taxed again
Meanwhile, the government has spent more into the economy
You need to think of the economy as a constant flow.
Money in >> stuff happens >> Money out >> Money in
It’s not Money in >> Money out and that’s it, nobodies got any money and nothing happened as you seem to think.
No we don’t. Savings aren’t needed to buy cars. It’s supposedly needed to make investments but it’s not needed for that either.
And, of course, people would still be able to put money aside to buy larger stuff.
And how did I propose to do that?
There’s no inflationary spiral as the money is balanced. Unlike now where the money into the system isn’t balanced resulting in high house price inflation.
“You said that when you claimed it was 100% tax rate. Now that you’re informed that it’s actually 33% you’re saying the same thing.
Your maths is wrong.”
lol. nothing wrong with my basic arithmetic but does appear to be something wrong with your understanding of the multiplier effect which you cited..
.ME ratio= 1/ propensity to save, propensity to tax and propensity to import
so your example 3 = 1/ 0 + 0 .33 + 0 …. change any factor (imports or savings i.e.) and your multiplier will change.
will return to your other misconceptions when I have some time
Possible. The multiplier effect won’t be the same in a Sovereign Money financial system as in the current system.
I’m thinking that it would be more of a measure of how many transactions money will go through before it’s fully returned/destroyed. I was making an assumption, based upon the present multiplier usually being ~3, that it would be about the same.
Thinking about it some more that assumption is most likely low which means that the overall tax rate would be lower. Would probably need a FTT.
“No we don’t. Savings aren’t needed to buy cars. It’s supposedly needed to make investments but it’s not needed for that either.”
Didn’t mention cars, but if you maintain savings are not needed (though you then contradict yourself by stating monies can be put aside for larger stuff….otherwise known as savings) one can only assume that either the government will lend or gift monies for large purchases or that money itself will cease to be.
“And how did I propose to do that?”
you haven’t ….and that is the point.You have ignored the increasing demand by a society that only has to bring political pressure to obtain more or the same for less, how does your model propose to deal with that? This speaks to the inflationary spiral that would be created.
If what you have outlined here is a genuine model then you should at least be up front and admit the only way it would have a chance of successfully operate (at least briefly) would mean the end of private ownership, a completely closed economy that is likely to become increasingly unsophistocated and a totalitarian state that is mandated by the majority with no protection for dissenters….think we’ve seen where that leads..
So basically, you’re borrowing against the government’s income next year, as opposed to the government’s income this year. And if the money back doesn’t meet the money you’d spent, it’s inflationary.
How is that different from the standard bonds the reserve bank lends to banks? I can see why “lending” it to central government for infrastructure development rather than just to inflate the banking sector, but what you describe still requires conventional, basic budgeting, not a currently untapped source of revenue.
Nope.
Government creates the money
Spends it into the economy
Taxes money back out of the economy (destroys money)
No borrowing at all.
The economy is a continuous cycle.
Nope. Growing economy requires a growing volume of money. Of course, sovereign money can also be used to turn the economy into a Stable State Economy.
These would no longer exist. Banks would not be able to borrow from the RBNZ.
Also, the government borrowing from the private sector would also not exist.
I never called it income because it’s not income.
It’s the base driver of the economy.
But you said that to maintain the overall level at zero change (to avoid inflation), the government had to “destroy” a dollar for every dollar it created.
The money only does any good if the government spends it, gives it to other people. Pays a UBI, pays road workers, whatever.
To get it back to destroy it, the government needs to levy a tax or gain profit from a transaction.
You’re plugging extra money into the economy this year, but you need to avoid creating inflation by taking back a matching amount of money in taxes.
Let’s say you have annual tax revenue of 100bil in a country with a gdp of 300bil. You want to buy everyone a UBIferrari, at an additional cost of 40bil, so you print the required cash. Next year you need to raise $140bil in taxes and destroy 40bil of it, and your gdp is 340bil, so you’ve got ~12% increase in gdp and cash supply while the invented cash is still in the economy.
So you’re still left with government expenditure cuts or tax increases to maintain the monetary balance.
But the government doesn’t buy everyone a Ferrari now does it? Really, why would you come up with such a stupid example?
What it does is spend money to provide government services (Police, justice, etc). and the UBI. These people now have money which they want to spend. They spend it into the private sector.
As the money moves through the economy it’s taxed in various ways (returned to government). These taxes result in the money being destroyed.
Which bit about the government spending being balanced by taxes didn’t you understand?
And, no, you wouldn’t have to cut government services – ever. In fact, doing so would probably cause a recession because the money that the government is spending is the full and total supply of money for the economy.
I really can’t make it any simpler.
Government creates money
Government spends money into the economy via government services
Government taxes money back out of the economy destroying the money
It’s not necessarily to finance government spending but it is necessary to keep money circulating, other wise it goes stagnant and festers in speculative property prices.
If Graham Hart spent the amount of money McFlock suggests in what’s called the permanent money hypotheses Graham would explode in 20 secounds because of the heat generated from spending, so Graham simply can’t spend that amount of money, the role of taxation is to put it back into the hands of those who will spend.
Later curve: http://www.investopedia.com/terms/l/laffercurve.asp
Permanent money hypotheses: http://www.investopedia.com/terms/p/permanent-income-hypothesis.asp
Taxes?
Or stimulus from deficit spending, or even cutting corporate taxes can cause inflation, (at the risk of receiving a ban for mentioning Trumps name) Trumpism, there are so many ways to boost demand, my point is if MrFlock would try google first he wouldn’t come across as such an asshole
I chose an absurd example (actually “UBIferrari”) because the what is irrelevant to the discussion: it could be a UBI, earthquake repairs, or a moonbase.
The fact is that you’re still tying government expenditure to government income. In a particularly inefficient way. Because, like most economic theories, your model is to simplistic.
You want to spend money now in order to tax it back later. But rather than doing it with bonds (and addidng a “debt servicing” line item to the annual budget that’s a small proportion of what you actually borrowed), by flooding the economy in new money you necessitate getting it back as soon as possible. The end sum might be zero, but in my example you’ve still increased the money supply by 40bil until you’ve taxed it back. And artificial boom/bust cycle.
And how would you tax it back – monthly or quarterly variations in PAYE? How would that effect folks’ wallets? Or annually bounce the tax rate 15% up or down depending on what you want to build this year? you reckon that’s electorally sustainable? Again, for simply the same result: government expenditure that’s constrained by government income.
Read the theory again
We’re not starting at zero. We already have the government taxing and spending.
The government shouldn’t borrow money – ever. It has no need to as it can create money and not have interest charged on it. Just so long as it then destroys that money through taxation.
Why do people insist that the government has to pay interest on money?
And that is why your thinking fails. You think that the economy is static rather than a continuous flow.
Can you point me to where I said it would be otherwise?
What I said is that government spending through government services and the UBI should be the total money available to the economy. That this would stabilise the economy eliminating the ‘business cycle’ and poverty.
I don’t believe the economy is either static or a continuous flow.
I think there are lag times and elastic relationships throughout the economy, and my concern with your plan is that it causes a surge throughout the system, followed by a corresponding low pressure zone. And that causes more stress to individuals in the system, breaking some of them.
Whereas conventional tax/borrow and spend government policies don’t have that lag period where there’s a sudden boost in money supply on top of everything else.
But it doesn’t and that thinking is that of a static model.
The sudden boost in money supply that we’re seeing now is from the private banks creating huge amounts of money in lending for houses and offshore buyers of our housing.
Well, perhaps there is some niche economic definition of “static” – but I meant it in the conventional meaning of lacking in movement, action or change. Which is impossible in a system that has pressure waves, which by definition are change. But either way, simply saying that the model is “widget” doesn’t mean it’s wrong.
How does one create cash and avoid inflation in the period between when government pays the people and when it taxes that amount back off them?
The current boost in money supply is intentional policy by the reserve bank which is using a blunt tool to face a complex problem: a largely stagnant economy with one single sector that’s massively overinflated in price due to long term supply shortfalls.
That is a separate issue to whether your concept of printing (then destroying) money adds any advantage over the current conventions of managing government accounts.
Bruh. Economics is uncertain
See, you’re thinking that one thing happens and then the next thing happens at a later time when both will be happening simultaneously. The former is static model thinking.
Actually, it’s been the intentional policy of the government for the last ~30 years who legislated what the RBNZ was going to do, gave it the tools to do that and removed capital movement restrictions.
Actually, it gives advantage to the entire economy and not just the governments books:
1. By removing the private banks ability to create money it stabilises the economy from that direction. No more banks creating huge amounts and then panicking and stopping creating any thus throwing the country into recession/depression
2. They’ll be no need to borrow offshore to utilise our own resources as they’ll be plenty of money available
3. By ensuring that there is a constant influx of money into the system via the UBI ensures that there will always be a demand for businesses to supply
4. The UBI will ensure that everyone who wants to will be able to get a good education
5. The UBI will allow people to be entrepreneurial by ensuring that they don’t drop into poverty if their idea fails
6. The removal of interest bearing debt from government removes the need for continued growth
It seems to me that you’re trying to have it both ways: you said “As the money moves through the economy it’s taxed in various ways (returned to government). “. That means there’s a lag between when the money is distributed and when the same amount of money is finally returned via taxes. If there’s a lag then there’s a period of substantially increased money supply. If there’s no lag, then you’re not “creating” money, you’re simply transferring tax revenue into expenditure in exactly the same way it’s currently done.
Yes and no. It bypasses the fractional reserve system (which is merely a multiplier of the OCR tool, not an integral part), but that doesn’t mean that the banks will contribute any less to boom and bust speculative cycles.
Borrowing, either directly or by simply printing cash and borrowing that off future taxpayers, is a sign of insufficient taxation right now.
That is a benefit of a UBI in particular, but yes does apply to other government expenditure if it’s done wisely. IMO most importantly the government expenditure needs to go into the regions so it can flow back into the urban centres then the corporates, rather than just swilling around a few key CBDs.
Nah. That’s what the education system is for.
Fair enough, but this isn’t about the benefits of a UBI, it’s about how some UBI proponents intend to pay for it.
but printing money simply substitutes interest payments for boosts to inflation. Growth is therefore still necessary.
Nope because the taxes would go up at the same time that spending goes up. If spending doesn’t go up then taxes don’t go up.
And we’re not starting at a zero point. We already have a monetary flow. There’d be a transition period when inflation may be a little higher than normal but I doubt if it would last long.
Yeah, actually, it does:
1. The banks will no longer be able to leverage minimal funds into massive loans. They’re strictly limited to what they have on deposit for on-lending and the people who so deposited it won’t be able to spend it either thus removing that piece of leveraging as well
2. If a few people lose their money from speculation so what? The constant flow of money from the government will ensure that loss with have minimal feed on effects. Mostly, the banks won’t suddenly stop creating money and throwing us all into recession as happened in the GFC
Creating money which is then spent directly into the economy producing economic activity now is not borrowing.
People need to be able to afford to go and get that education and that’s what the UBI will do.
But creating money doesn’t automatically translate into inflation – as the vast printing of money around the world after the GFC proved.
So how does that differ with what blinglish currently does every year?
Ok, so there will be inflation, now we’re just quibbling over how large and sustained it will be.
It wasn’t the creation of money that created the GFC, it was the outright frauds that were committed with that money, that then made the banks terrified of lending money to each other in order to settle daily debts and tallies. They created a pyramid of bad loan packages, then as soon as the music stopped playing all the bankers dropped those hot potatoes so they wouldn’t get caught with their pants down (abuse of allegorical language intentional 🙂 ).
It is if taxpayers have to make it up, even in the near-immediate future.
Well, yes it does. That’s why they did it: boost GDP with the corresponding effect on inflation. Because they were at extreme risk of deflation and depression.
Maybe if we take a step back because interest rates set the rate at which you can borrow from the reserve bank but they are apart of the cost when settling transactions between different banks, and banks hang on to reserve in case the housing sector has a massive run on for cash, and they never pass on full rate cuts. But if you take interest away banks themselves still have guides to take on crises, and that’s just in case there’s a fiscal demand for cash.
The current system actually borrows the money at interest. The government borrows from private banks which create the money at the time. The addition of interest means that it can never be fully paid back which means we have an expanding monetary base.
Never mind the fact that the private banks also create money when they make a loan to private individuals as well.
Sovereign Money gets rid of that. It has the continuous creation and destruction of money needed to keep the economy moving but it doesn’t have the interest component that forces growth. A stable state economy would work.
The entire banking sector is a Ponzi Scheme – see above – which is why it fell over.
No it doesn’t.
Yes, that is one of the reasons why they printed so much money but the inflation didn’t actually eventuate. The other reason, and probably the main one, that they printed so much was to prop up the banks. If the Ponzi Scheme that the private banks run collapsed the way it should have then, yes, we would have been in a depression.
Of course, the best thing that they could have done to prevent a depression is implement a UBI and let the banks collapse. Instead they gave it all to the banks which then kept it instead of loaning it out for productive activity.
A UBI would have prevented a recession, kept local businesses going and allowed the market to correct for the banks fraudulent activities.
Bullshit. Of course it can be paid off, with interest.
And the “sovereign debt” equivalent of interest is the systemic costs of the inflation it creates, even temporarily.
or it did eventuate and without it the world would have gone into a deflationary spiral.
agreed.
Nah. The best thing they could have done was buy all the bad loans at crap market rates and renegotiate sustainable repayment terms for the borrowers, thereby starting one of the biggest state housing programmes in decades if not history.
Profit gouging (especially by multinationals, e.g. bank interest) is also destruction of money, if there’s a weak tax regime (or tax haven) and no reciprocal investment back into NZ
Similarly, GST & income tax is a highly regressive drag on the economy and devalues the work of the many, whereas the top few % rich in assets pay relatively no tax. In fact, because of the property bubble there are thousands of lucky/privileged/entitled Aucklanders whose net tax is probably less than zero.
On Planet Key, the wealthy pay no tax, and the poor get taxed on all income over $1
No it’s not. It may be effectively removed from circulation in the economy but it hasn’t been destroyed. It still exists and can be spent.
As I said in the rest of that sentence. Unfortunately, Aussie banks are destroying value by extracting billions from the NZ economy per year without commensurate spend back in to NZ
Yep, the dead-weight loss of profit. I’m quite aware of it but it not destroying the money. It can still be spent and it’s usually spent on assets thus driving asset price bubbles.
Monbiot has just written about Neoliberalism, the bastards behind the idea and how we are getting screwed and will always be screwed..
https://www.theguardian.com/commentisfree/2016/nov/14/neoliberalsim-donald-trump-george-monbiot
On Planet Key a severely unstable man is stopped by police after stalking a couple armed with a knife. They let him go to kill the very next day.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11748624
On the same Planet Key a journalist has his home ransacked by police after highlighting government corruption.
More public service incompetence, the sooner we privatize everything, the better.
Blame the workers. First port of call when something goes wrong.
Same with privatisation, offset the blame, a whole bunch of people with their hands in the air singing ‘It wasn’t me’ til you get to the poor shmo on minimum wage at the bottom of the ladder ‘It’s all his fault!’.
He says after fight clubs and death have been found in privatised prisons – due to the lack of standards in the privatised prisons.
Predictable response, sad, but predictable…
More of this national government and there worshipers failing to take any responsibility for anything the have wreaked over the last 8 years of office.
Nothing to do with chronic lack of resourcing in Police and cutting mental health services so that Bill English can put some nice numbers in a fucking spreadsheet…
If you are brave enough, this is Watkins’ fluff piece on Key. No analysis of the situation, just a gentle combing of John Key’s hair.
http://www.stuff.co.nz/national/politics/86503566/a-warning-to-expect-the-worst
No thanks, can’t stand that prick. The MSM have been drooling over him for a decade. WTF is wrong with them.
Then, if you really want to be sick in your mouth, watch this pan and scan drivel to dramatic orchestral music from the Horrid.
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11748647
This is awful broadcasting. And this is what the Horrid want to do with the NZOA funding changes. They want to contest for public funding to produce this kind of crap.
Brave enough to tell the truth. Good on you Jeremy Corbyn.
http://www.independent.co.uk/news/uk/politics/donald-trump-lastest-news-jeremy-corbyn-grow-up-us-immigration-mexico-andrew-marr-a7414576.html
There’s no dedicated post today so put it here.
Noam Chomsky on Trump’s White House
http://www.truth-out.org/opinion/item/38360-trump-in-the-white-house-an-interview-with-noam-chomsky
Ha ha. I was lucky enough just now to watch the super big Moon-rise at about 68degrees from North in Blenheim. A lovely golden colour and just huge. Don’t think I will be around to see the next one.
This was my take on the super moon. It was last month though at moon-set facing east from the base of Mt Wellington where I live.
http://i.imgur.com/IlwdpNM.jpg
I’m calling it “night flight”.
cool photo. Too much cloud here.
It’s rubbish here tonight but I’ll get up early to have a look west again tomorrow am.
Nice one, weather in Auckland has been too crap for the last couple of days, I’ve seen nothing but grey
I do hope you have at least another 18 years in you. The full moon will be even closer on 26 November 2034. And there’s a total solar eclipse directly over the South Island in 2028 to tide you over.
Oh ianmac saw the same moon at the same time from the same place! Next one in November 2034.
We’ll both be around to see that one, yeah?
The picture header is in poor taste
Why?
This should be fun…..
The Harry Leslie Smith –
https://twitter.com/Harryslaststand/status/797843761757876224