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Post by brownlow on Aug 21, 2024 21:00:49 GMT
The best run countries in the world with highest GDP per capita do have budget surpluses, it's already a fact for them. It's a fact that they are economic powerhouses too, so it already does exist and isn't impossible in the slightest The "it" in question, however, is the assertion that ALL countries should maintain govt surpluses. I've pointed why they can't (hardly an original argument). Might be wrong, but the above isn't a couterargument.
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Post by brownlow on Aug 21, 2024 21:10:07 GMT
You don't need to get it back in tax, you need to get no less back as national income (GDP) so that your debt to GDP ratio doesn't increase . GDP = C + I + G + X-M where G = govt spending (except transfers such as welfare payments). It's a component of - not something subtracted from - national income. People struggle with this because they think the same doctors treating the same patients; the same teachers teaching the same pupils etc; in the private sector adds to GDP, but is subtracted from GDP in the public sector. Like their own spending is subtracted from their income. The common confusion of macroeconomics with a household budget. You and I can save our way out of debt, but the economy cannot, because "saving" reduces total income by the same amount. In the economy as a whole, total spending = total income (± net exports, X-M in GDP), since one man's spending is another's income. It's why austerity doesn't work. Next, you ask, why can't we just spend our way to infinite GDP? The answer is, of course, INFLATION. We should assess public spending proposals on their potential to cause inflation - not the govt's fiscal "deficit". The govt does not need to balance its budget, it needs to balance the economy, and can never run out of its own currency. This article on the matter seems relevant www.econlib.org/library/Topics/Details/aggregatedemand.htmlThe crux is going to be how much increasing net government spend benefits GDP after considering how much of the spend increases 'M' and the further indirect impacts on interest rates and domestic production. Just assuming it'll all be wonderfully fine as per Truss/Kwartangonomics is reckless. Well, the 'M' in ISLM models isn't quite the same 'M' as in GDP. ISLM models assume "loanable funds", i.e. that banks intermediate between savers and borrowers, which they don't:
Yes (re Truss/Kwarteng), bond traders evidently knew that tax cuts for the rich wouldn't result in growth. The market itself refuted the market fundamentalism of Tufton St. But govt spending isn't really dependent on the whims of bond traders. Govts including ours increased spending by vastly more before that, while their central banks forced bond traders to accept below-inflation yields. |
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Steve
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Post by Steve on Aug 21, 2024 21:49:18 GMT
When your spending plans depend on the willingness of the market to lend you money for government bonds at affordable rates then that spending is very much constrained by bond traders. Try to ignore that and you end up in a Greece debt driven death spiral.
£3.1B we borrowed last month. That's ~ £50 for every man, woman and child added to the national debt with its interest burden.
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Post by Deleted on Aug 21, 2024 21:58:18 GMT
The best run countries in the world with highest GDP per capita do have budget surpluses, it's already a fact for them. It's a fact that they are economic powerhouses too, so it already does exist and isn't impossible in the slightest The "it" in question, however, is the assertion that ALL countries should maintain govt surpluses. I've pointed why they can't (hardly an original argument). Might be wrong, but the above isn't a couterargument.
They should aim for it yes, it's not possible in reality and not at times of war etc, but it is not something to be disregarded chasing infinite debt to sustain unsustainable spending either. |
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Steve
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Post by Steve on Aug 21, 2024 22:26:02 GMT
The best run countries in the world with highest GDP per capita do have budget surpluses, it's already a fact for them. It's a fact that they are economic powerhouses too, so it already does exist and isn't impossible in the slightest The "it" in question, however, is the assertion that ALL countries should maintain govt surpluses. I've pointed why they can't (hardly an original argument). Might be wrong, but the above isn't a couterargument.
Who actually has asserted that? There's a strong argument that some years a budget deficit is the right thing and that long term a deficit is OK as long as it is less than GDP growth as then the debt:GDP ratio falls. But when that is~100% you become so so beholden to the market. |
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Post by Deleted on Aug 22, 2024 4:16:38 GMT
I've argued they should in principle, but that's not always possible in the real world and no a long term deficit isn't a great idea. I point to the highest GDP per capita countries in the world to make my point for me, many of them are rich ex Soviet Eastern Euro nations
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Post by brownlow on Aug 22, 2024 19:19:50 GMT
When your spending plans depend on the willingness of the market to lend you money for government bonds at affordable rates then that spending is very much constrained by bond traders. Try to ignore that and you end up in a Greece debt driven death spiral. £3.1B we borrowed last month. That's ~ £50 for every man, woman and child added to the national debt with its interest burden. And what I'm saying is that govt spending doesn't really depend on that. The full funding rule (govt must match its deficit with bond issuance) is a synthetic rule imposed by govt on itself. It's the difference between a famine and a diet. You can always change diet rules. The govt can always deficit spend via the 'Ways and Means' facility without issuing bonds, as it did during the pandemic. Or it can instruct its central bank to buy its bonds in the secondary market, thereby imposing a price floor on them. Japan and China do it routinely. Other central banks like ours did it during QE, forcing bond traders to accept below-inflation yields. Re "Greece death spiral": Greece doesn't issue the currency in which it issues bonds. The Greek "death spiral" stopped as soon as the ECB indicated willingness to buy Greek debt, thereby imposing a price floor (which it should have done in the first place).
Re "£3.1B we borrowed last month": IOW financial ASSETS held either by households or financial institions such as pension funds on their behalf. Govt "debt" IS treasury bonds, which are the holder's ASSET, not liability. The difference between a £1,000 note and £1,000 gilt is that the latter pays interest.
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Post by brownlow on Aug 22, 2024 19:28:00 GMT
The "it" in question, however, is the assertion that ALL countries should maintain govt surpluses. I've pointed why they can't (hardly an original argument). Might be wrong, but the above isn't a couterargument.
They should aim for it yes, it's not possible in reality and not at times of war etc, but it is not something to be disregarded chasing infinite debt to sustain unsustainable spending either. If all countries tried to maintain simultaneous budget surpluses, trade deficit countries would find their GDP shrinking faster than their debt, i.e. increasing debt-to-GDP ratios, even if they managed to cut nominal spending. The attempt would risk triggering a global recession. You and I can save our way out of debt. An economy - or the global economy - cannot. No additional money is accumulated. All that happens is that the existing money supply turns over more slowly, there are fewer transactions, the economy shrinks.
Of course no country should "chase infinite debt", but finite deficit spending is - evidently - sustainable, and often necessary..
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Post by Zany on Aug 22, 2024 20:19:56 GMT
But that 'throw a £ at the economy and we'll get it back and more in taxes' never works. You only ever get a % back and the rest goes on buying stuff a significant % of which is imported which doesn't actually create UK jobs and worse creates a run on the £ causing inflation which always vests its harm mostly on the poorest. You don't need to get it back in tax, you need to get no less back as national income (GDP) so that your debt to GDP ratio doesn't increase . GDP = C + I + G + X-M where G = govt spending (except transfers such as welfare payments). It's a component of - not something subtracted from - national income. People struggle with this because they think the same doctors treating the same patients; the same teachers teaching the same pupils etc; in the private sector adds to GDP, but is subtracted from GDP in the public sector. Like their own spending is subtracted from their income. The common confusion of macroeconomics with a household budget. You and I can save our way out of debt, but the economy cannot, because "saving" reduces total income by the same amount. In the economy as a whole, total spending = total income (± net exports, X-M in GDP), since one man's spending is another's income. It's why austerity doesn't work. Next, you ask, why can't we just spend our way to infinite GDP? The answer is, of course, INFLATION. We should assess public spending proposals on their potential to cause inflation - not the govt's fiscal "deficit". The govt does not need to balance its budget, it needs to balance the economy, and can never run out of its own currency. Thanks for this Brownlow. I would really love to understand it, it feels so counter intuitive. |
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Post by Zany on Aug 22, 2024 20:29:09 GMT
But that 'throw a £ at the economy and we'll get it back and more in taxes' never works. You only ever get a % back and the rest goes on buying stuff a significant % of which is imported which doesn't actually create UK jobs and worse creates a run on the £ causing inflation which always vests its harm mostly on the poorest. Depends what. Investing in UK energy will stop imports. Government investment in medical developments could increase exports. Some government investment might even get the super rich to join in internal investment. |
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Steve
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Post by Steve on Aug 22, 2024 21:45:29 GMT
But that 'throw a £ at the economy and we'll get it back and more in taxes' never works. You only ever get a % back and the rest goes on buying stuff a significant % of which is imported which doesn't actually create UK jobs and worse creates a run on the £ causing inflation which always vests its harm mostly on the poorest. Depends what. Investing in UK energy will stop imports. Government investment in medical developments could increase exports. Some government investment might even get the super rich to join in internal investment. How many times have we seen this 'if we just spend more money we don't have, we'll save money really' delusion over the years? If those schemes were really such certain then private money would fund them. |
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Steve
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Post by Steve on Aug 22, 2024 21:50:38 GMT
When your spending plans depend on the willingness of the market to lend you money for government bonds at affordable rates then that spending is very much constrained by bond traders. Try to ignore that and you end up in a Greece debt driven death spiral. £3.1B we borrowed last month. That's ~ £50 for every man, woman and child added to the national debt with its interest burden. And what I'm saying is that govt spending doesn't really depend on that. The full funding rule (govt must match its deficit with bond issuance) is a synthetic rule imposed by govt on itself. It's the difference between a famine and a diet. You can always change diet rules. The govt can always deficit spend via the 'Ways and Means' facility without issuing bonds, as it did during the pandemic. Or it can instruct its central bank to buy its bonds in the secondary market, thereby imposing a price floor on them. Japan and China do it routinely. Other central banks like ours did it during QE, forcing bond traders to accept below-inflation yields. Re "Greece death spiral": Greece doesn't issue the currency in which it issues bonds. The Greek "death spiral" stopped as soon as the ECB indicated willingness to buy Greek debt, thereby imposing a price floor (which it should have done in the first place).
Re "£3.1B we borrowed last month": IOW financial ASSETS held either by households or financial institions such as pension funds on their behalf. Govt "debt" IS treasury bonds, which are the holder's ASSET, not liability. The difference between a £1,000 note and £1,000 gilt is that the latter pays interest.
Greece was only rescued because it was part of the Euro club and even then it was made to pay a high price for its years of spending more than it was earning. The death spiral mechanism is still very true. When the markets realised Greece was never going to reform its ways, its credit rating fell.. As a result no one would loan it even more money at preferential interest rates, anything but. And it needed those further loans to pay the interest on previous loans. It could easily happen here except we are not in the EU or Euro Club so we'd have to go to the IMF who would be very very strict about cutting government spending before getting their cheque book out. |
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Post by Deleted on Aug 23, 2024 7:05:13 GMT
They should aim for it yes, it's not possible in reality and not at times of war etc, but it is not something to be disregarded chasing infinite debt to sustain unsustainable spending either. If all countries tried to maintain simultaneous budget surpluses, trade deficit countries would find their GDP shrinking faster than their debt, i.e. increasing debt-to-GDP ratios, even if they managed to cut nominal spending. The attempt would risk triggering a global recession. You and I can save our way out of debt. An economy - or the global economy - cannot. No additional money is accumulated. All that happens is that the existing money supply turns over more slowly, there are fewer transactions, the economy shrinks.
Of course no country should "chase infinite debt", but finite deficit spending is - evidently - sustainable, and often necessary..
There's no proof your first theory is true necessarily, it's a fact there are countries with real trade surpluses, even England managed that historically. I already said debt is necessary in some cases so why are you restating what I already admitted was the case? That doesn't make it a bad idea to attempt to trade your way to a surplus, that's what countries should ideally aim for in normal times. The economics of Gordon Brown don't work and never did work |
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Post by Deleted on Aug 23, 2024 10:43:26 GMT
The way to enduringly cut the numbers of poor is to create more employment. Even that will not help much if the jobs are low paid or part time and living costs especially housing remain so high. Which is why a large chunk of the poor are already in employment. Getting Britain building again needs to be a major part of the solution, both providing more reasonably well paid jobs in the construction sector whilst also ultimately providing more affordable housing options for more people as more housing units get built. |
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Steve
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Post by Steve on Aug 23, 2024 10:49:06 GMT
Yes and we need a manufacturing strategy that has employment as a priority. Not everyone can be a surgeon, software designer, top artist etc but nearly everyone of working age needs a decent income, a social life and a belief they are valued.
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