Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 5, 2024 21:57:47 GMT
Sounds like Ponzi Lite scheme Except there in no ever increasing membership. Really? What about all the use of immigration etc to keep boosting the number in employment paying tax? |
|
|
|
Post by Zany on Oct 5, 2024 22:33:07 GMT
Except there in no ever increasing membership. Really? What about all the use of immigration etc to keep boosting the number in employment paying tax? That's not how a ponzi scheme works. It invites people to join by itself. It doesn't require a separate entity to constantly supply new fodder. |
|
Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 5, 2024 22:48:04 GMT
I did say Ponzi Lite. But the principle is very similar that we require ever increasing numbers of members to be able to meet the promises made to earlier members
|
|
|
|
Post by Zany on Oct 6, 2024 7:34:53 GMT
I did say Ponzi Lite. But the principle is very similar that we require ever increasing numbers of members to be able to meet the promises made to earlier members Well you know I agree with you on why we have constant immigration. To grow GDP. But that doesn't mean its the only way to grow GDP. Question is: Is selling bonds Loans or Investments. |
|
|
|
Post by Orac on Oct 6, 2024 8:57:03 GMT
Does that mean the govt can just spend without limit? Of course not. The same arithmetic applies in reverse. The constraint is always INFLATION. Pump more financial assets into the economy than it can absorb as production, and prices will be bid up above real (inflation adjusted) incomes. It's a balancing act, which means balancing the economy - not the govt's budget, which is not the economy, but a buffer stock with which to balance the economy. Which is why the deficit has to be kept within the level of growth in the economy. But we've not been doing that and the future projection as linked to in my OP is not looking good on that especially when we're already spending £74B a year just paying interest on the debt. Yes. It's semantics and nothing more When you take out a personal loan, the arrangement is something like this. The lender gives you money and you pay that amount of money back to the lender. This means that the borrower has to effectively 'pay more' for everything he gains in the period of the loan because he must pay an extra amount before he can buy anything. However, from the perspective of the borrower, if everything he bought had a higher price, he would be in the same situation - ie he has to work more to gain x. On a broader note - I know money is a central object in economics, but i feel it often confuses matters and allows people to engage in deception. It makes reality far clearer , if you can, to think about economics in terms of goods and work. |
|
Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 6, 2024 10:10:51 GMT
|
|
|
|
Post by Orac on Oct 6, 2024 10:27:13 GMT
It's a little know fact that the first draft of that song had the lyric, 'goods services make the world go around' |
|
Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 6, 2024 10:27:25 GMT
I did say Ponzi Lite. But the principle is very similar that we require ever increasing numbers of members to be able to meet the promises made to earlier members Well you know I agree with you on why we have constant immigration. To grow GDP. But that doesn't mean its the only way to grow GDP. Question is: Is selling bonds Loans or Investments. To the provider of the money it's a loan they are giving, to the seller of the bonds it's politically convenient to badge them as investments. I'm sure Rachel Reeves is going further down that road with this talk of changung the government accounting rules The awkward truth is that a 1% increase in government spending does not produce a 1% increase in real GDP, nothing like it. Don't take my word for it, here's a recent (but hard to read) OBR working paper on the point obr.uk/docs/dlm_uploads/Public-investment-and-potential-output_August-2024.pdf Here's a much simpler summary of it from Sky News: news.sky.com/story/budget-2024-how-fiscal-rules-are-impeding-long-term-investments-and-what-rachel-reeves-can-do-about-it-13227758
' . .it was a chin-scratchy working paper that asked the question: if the government invests in something - say, a road or a railway, or a new school building - how long does it generally take for that investment to come good?
The answer, according to the report, was: actually quite a long time. Imagine the government spends a chunk of money - 1% of national income - on investment this year. In five years' time that investment will only have created 0.4 per cent of GDP. In other words, in net terms, it's costed us 0.6% of GDP.'
|
|
Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 6, 2024 10:30:08 GMT
It's a little know fact that the first draft of that song had the lyric, 'goods services make the world go around'  oh very good, we need more posts like that But actually your goods, services and work point is a good one worth further discussion. |
|
|
|
Post by Zany on Oct 6, 2024 11:19:40 GMT
Which is why the deficit has to be kept within the level of growth in the economy. But we've not been doing that and the future projection as linked to in my OP is not looking good on that especially when we're already spending £74B a year just paying interest on the debt. Yes. It's semantics and nothing more When you take out a personal loan, the arrangement is something like this. The lender gives you money and you pay that amount of money back to the lender. This means that the borrower has to effectively 'pay more' for everything he gains in the period of the loan because he must pay an extra amount before he can buy anything. However, from the perspective of the borrower, if everything he bought had a higher price, he would be in the same situation - ie he has to work more to gain x. On a broader note - I know money is a central object in economics, but i feel it often confuses matters and allows people to engage in deception. It makes reality far clearer , if you can, to think about economics in terms of goods and work. The difference I see is in what you call a loan. If I borrow 5k for a holiday and with interest it costs me 6k, then my holiday costs 6k and its a loan. If I borrow 5k to buy a second van to improve my business sales and with interest it costs me 6k, but over the period of the loan I make an extra 8k then its an investment. |
|
|
|
Post by equivocal on Oct 6, 2024 12:16:20 GMT
Well you know I agree with you on why we have constant immigration. To grow GDP. But that doesn't mean its the only way to grow GDP. Question is: Is selling bonds Loans or Investments. To the provider of the money it's a loan they are giving, to the seller of the bonds it's politically convenient to badge them as investments. I'm sure Rachel Reeves is going further down that road with this talk of changung the government accounting rules The awkward truth is that a 1% increase in government spending does not produce a 1% increase in real GDP, nothing like it. Don't take my word for it, here's a recent (but hard to read) OBR working paper on the point obr.uk/docs/dlm_uploads/Public-investment-and-potential-output_August-2024.pdf Here's a much simpler summary of it from Sky News: news.sky.com/story/budget-2024-how-fiscal-rules-are-impeding-long-term-investments-and-what-rachel-reeves-can-do-about-it-13227758
' . .it was a chin-scratchy working paper that asked the question: if the government invests in something - say, a road or a railway, or a new school building - how long does it generally take for that investment to come good?
The answer, according to the report, was: actually quite a long time. Imagine the government spends a chunk of money - 1% of national income - on investment this year. In five years' time that investment will only have created 0.4 per cent of GDP. In other words, in net terms, it's costed us 0.6% of GDP.'
I don't the Sky analysis is what the report says at all. In fact, it can't be right because every penny spent by government on investment adds a penny to GDP; this is implicit in the definition of GDP. I think the report says that a 1% increase in investment increases potential outtput by 0.4% after 5 years and by ~1% after around 12 years. |
|
|
|
Post by Orac on Oct 6, 2024 13:18:34 GMT
Yes. It's semantics and nothing more When you take out a personal loan, the arrangement is something like this. The lender gives you money and you pay that amount of money back to the lender. This means that the borrower has to effectively 'pay more' for everything he gains in the period of the loan because he must pay an extra amount before he can buy anything. However, from the perspective of the borrower, if everything he bought had a higher price, he would be in the same situation - ie he has to work more to gain x. On a broader note - I know money is a central object in economics, but i feel it often confuses matters and allows people to engage in deception. It makes reality far clearer , if you can, to think about economics in terms of goods and work. The difference I see is in what you call a loan. If I borrow 5k for a holiday and with interest it costs me 6k, then my holiday costs 6k and its a loan. If I borrow 5k to buy a second van to improve my business sales and with interest it costs me 6k, but over the period of the loan I make an extra 8k then its an investment. Sure ..i don't think there is much controversial in that distinction. An investment is a plan to use resources to make more resources available. We can look at other scenarios though. Imagine our van man takes out a loan, but the next day the government decides it needs a new HR departmental HQ for the Ministry of Silly walks. Our van man had only planned on paying one loan, but now he and his customers have to pay two. In yet another scenario, the government announces the HR expansion on the day before van man would take out his loan. He sensibly changes his plans and doesn't buy a van. |
|
Steve
Hero Protagonist
Posts: 3,698
|
Post by Steve on Oct 6, 2024 13:52:32 GMT
To the provider of the money it's a loan they are giving, to the seller of the bonds it's politically convenient to badge them as investments. I'm sure Rachel Reeves is going further down that road with this talk of changung the government accounting rules The awkward truth is that a 1% increase in government spending does not produce a 1% increase in real GDP, nothing like it. Don't take my word for it, here's a recent (but hard to read) OBR working paper on the point obr.uk/docs/dlm_uploads/Public-investment-and-potential-output_August-2024.pdf Here's a much simpler summary of it from Sky News: news.sky.com/story/budget-2024-how-fiscal-rules-are-impeding-long-term-investments-and-what-rachel-reeves-can-do-about-it-13227758
' . .it was a chin-scratchy working paper that asked the question: if the government invests in something - say, a road or a railway, or a new school building - how long does it generally take for that investment to come good?
The answer, according to the report, was: actually quite a long time. Imagine the government spends a chunk of money - 1% of national income - on investment this year. In five years' time that investment will only have created 0.4 per cent of GDP. In other words, in net terms, it's costed us 0.6% of GDP.'
I don't the Sky analysis is what the report says at all. In fact, it can't be right because every penny spent by government on investment adds a penny to GDP; this is implicit in the definition of GDP. I think the report says that a 1% increase in investment increases potential outtput by 0.4% after 5 years and by ~1% after around 12 years. And meantime you've been paying interest on the loan for that government spend. And whoever lent the government that money hasn't lent it to a business that have a better record of creating real growth from investment. In the extreme the Government could spend £billions paying people to dig holes and more £billions paying people to fill them in (some of our infrastructure projects look very much like this in net terms). It wouldn't be net productive but it might look like adding GDP however the lack of goods/services produced (see Orac's point above) would mean we'd have to drag in more imports with the inflationary results. |
|
|
|
Post by equivocal on Oct 6, 2024 14:09:10 GMT
I don't the Sky analysis is what the report says at all. In fact, it can't be right because every penny spent by government on investment adds a penny to GDP; this is implicit in the definition of GDP. I think the report says that a 1% increase in investment increases potential outtput by 0.4% after 5 years and by ~1% after around 12 years. And meantime you've been paying interest on the loan for that government spend. And whoever lent the government that money hasn't lent it to a business that have a better record of creating real growth from investment. In the extreme the Government could spend £billions paying people to dig holes and more £billions paying people to fill them in (some of our infrastructure projects look very much like this in net terms). It wouldn't be net productive but it might look like adding GDP however the lack of goods/services produced (see Orac's point above) would mean we'd have to drag in more imports with the inflationary results. If the government spent money on digging and filling holes, then the only effect would be the multiplier effect which, as you say is diminished by expenditure on imports. These effects are transitory and unless the spending is continued fizzle out to nothing. On the other hand a one off investment in, say housing or infrastructure has both the multiplier effect (consumption) and increased production (supply) as the investment is utilised by the private sector.
This chart from the report:
Shows the transitory and ever decreasing multiplier effect in yellow and the ongoing increasing production effect.
Which is nothing like suggested in the Sky report.
|
|
|
|
Post by Zany on Oct 6, 2024 14:35:30 GMT
The difference I see is in what you call a loan. If I borrow 5k for a holiday and with interest it costs me 6k, then my holiday costs 6k and its a loan. If I borrow 5k to buy a second van to improve my business sales and with interest it costs me 6k, but over the period of the loan I make an extra 8k then its an investment. Sure ..i don't think there is much controversial in that distinction. An investment is a plan to use resources to make more resources available. We can look at other scenarios though. Imagine our van man takes out a loan, but the next day the government decides it needs a new HR departmental HQ for the Ministry of Silly walks. Our van man had only planned on paying one loan, but now he and his customers have to pay two. In yet another scenario, the government announces the HR expansion on the day before van man would take out his loan. He sensibly changes his plans and doesn't buy a van. Now you're talking about waste. That's an entirely different subject on whether the loan/investment is well spent. No different to if van man buys himself a sports car with the loan. As for what the government take from business, they have taken far more profit from my business over the years that I ever have. But that's the price of business in a civilised country. I also don't have to pay protection money or buy my kids back from kidnappers or even live in a fortified house. |
|
