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Post by Orac on Oct 6, 2024 15:15:59 GMT
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. I'm not being facetious here, but I am genuinely uncertain now what your point is. I was not attempting to argue that it is impossible for the government to borrow money and spend it such a way that it represents a net productive advantage (that the construction outweighs the destruction). I would limit myself to saying this is quite unlikely given the politics of the UK. On the subject of the role government as a whole, your point is absolutely taken..government can pull some absolute production miracles if it restricts itself to its intrinsic domain of competence. For instance, even the most fiscally conservative 'tight wad' type is unlikely to complain too hard about a bridge being built. - hey, it may have been corrupt and wasteful, but at least the public got something out of this. It's clear not all of the captured resources went into various self-serving gravy trains because we have a bridge now. The example you cite is even more appropriate - the government can turn a shit-hole around by enforcing law and order. Arresting shoplifters, chasing burglars, pursuing fraud, protecting the innocent from robbery and assault, removing drug-dealers and other threatening people from business doorways, punishing vandalism, coming down like a ton of bricks on organised crime and protecting bordersIe - all the things that conservatives say the government should be doing, but many western governments seem weirdly reluctant to do. Would you allow someone to take a loan out in your name if they refused to do their job ? |
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Post by Zany on Oct 6, 2024 15:46:01 GMT
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. I'm not being facetious here, but I am genuinely uncertain now what your point is. I was not attempting to argue that it is impossible for the government to borrow money and spend it such a way that it represents a net productive advantage (that the construction outweighs the destruction). I would limit myself to saying this is quite unlikely given the politics of the UK. On the subject of the role government as a whole, your point is absolutely taken..government can pull some absolute production miracles if it restricts itself to its intrinsic domain of competence. For instance, even the most fiscally conservative 'tight wad' type is unlikely to complain too hard about a bridge being built. - hey, it may have been corrupt and wasteful, but at least the public got something out of this. It's clear not all of the captured resources went into various self-serving gravy trains because we have a bridge now. The example you cite is vent more appropriate - the government can turn a shit-hole around by enforcing law and order. Arresting shoplifters, chasing burglars, pursuing fraud, protecting the innocent from robbery and assault, removing drug-dealers and other threatening people from business doorways, punishing vandalism, coming down like a ton of bricks on organised crime and protecting bordersIe - all the things that conservatives say the government should be doing, but many western governments seem weirdly reluctant to do. Would you allow someone to take a loan out in your name if they refused to do their job ? I disagree that our Western governments aren't doing them (Except maybe this last most dreadful one) Governments might not do it to the extent you desire but they certainly make it better than it would be without them, and considerably better than many other countries. Take Mexico for instance and tell me your government does nothing in comparison. My overall point is that governments take investment to improve the country they represent. Some of the investment is easy to measure 'your bridge example' some less so, pure science, art and theatre. How to measure it? If we do it purely in money returned we can't consider research into dementia as the old produce no goods and cost a lot to keep alive. Yet no one would say dementia research is a waste of that investment, why? because we do look after our parents and therefore there is a cost to this and anything that reduces that cost is still investment. There is an argument that we should lower our standard of living, perhaps live in flats shared with our parents. It would kill us and it would save the country money. But here's a better saving, how about if the civilised world banned billionaires. (Not millionaires) You want to live in our civilised world hand over your dosh. Some one was describing the difference between a million and a billion the other day, they said they used seconds to demonstrate the difference. 1 million seconds equals about 11 days 1 Billion seconds equals about 32 years. Its huge. No one ever needs a thousand stacks on a million pounds. Let alone Steve Bezos's 204,000 stacks of a million pounds. |
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Steve
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Post by Steve on Oct 6, 2024 15:53:07 GMT
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.
Worth reading their para 4.10 about that chart. It appears to be the OBR assumptions rather than the result of data driven analysis. Surely the supposed long term benefits of the government borrowing to invest depend on how wise those investments are. IMHO the track record of governments of all colours is poor compared to private business. |
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Post by equivocal on Oct 6, 2024 16:21:41 GMT
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.
Worth reading their para 4.10 about that chart. It appears to be the OBR assumptions rather than the result of data driven analysis. Surely the supposed long term benefits of the government borrowing to invest depend on how wise those investments are. IMHO the track record of governments of all colours is poor compared to private business. As far as I can see, the chart exactly matches the findings in the abstract which the sky analysis completely misrepresents.
I agree with your second sentence. Then again and as I've said throughout this thread, the type of spending (fiscally efficient v fiscally inefficient) is more important than quantum.
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Post by Zany on Oct 6, 2024 17:35:04 GMT
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.
Worth reading their para 4.10 about that chart. It appears to be the OBR assumptions rather than the result of data driven analysis. Surely the supposed long term benefits of the government borrowing to invest depend on how wise those investments are. IMHO the track record of governments of all colours is poor compared to private business. I feel the comparison is unfair. Business by its very nature only invests in things that make money and quickly dumps them if they don't That's why you wont get business investment in wellness clinics. But do wellness clinics get people back to work earning money? |
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Post by equivocal on Oct 6, 2024 17:42:02 GMT
Worth reading their para 4.10 about that chart. It appears to be the OBR assumptions rather than the result of data driven analysis. Surely the supposed long term benefits of the government borrowing to invest depend on how wise those investments are. IMHO the track record of governments of all colours is poor compared to private business. I feel the comparison is unfair. Business by its very nature only invests in things that make money and quickly dumps them if they don't That's why you wont get business investment in wellness clinics. But do wellness clinics get people back to work earning money? Fair point, but when you consider some of the disasters like the NHS and PO computer systems and HS2, government doesn't appear to be terribly skilled in bringing home projects. |
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Post by Zany on Oct 6, 2024 18:43:07 GMT
I feel the comparison is unfair. Business by its very nature only invests in things that make money and quickly dumps them if they don't That's why you wont get business investment in wellness clinics. But do wellness clinics get people back to work earning money? Fair point, but when you consider some of the disasters like the NHS and PO computer systems and HS2, government doesn't appear to be terribly skilled in bringing home projects. Yes I agree. Not sure of the solution, it seems obvious, just do it like private companies do, but it seems even when private companies to government work the cost goes miles north. My brother was chief technical officer (changed the name of his job, don't want people tracing me) for Cambridge university group. He said the university insist they want no risk contracts which means the contractor has to build in every possible contingency and the cost goes through the roof. For me this just retells how risk averse public servants have become (where box ticking is everything) and why government projects cost so much. |
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Steve
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Post by Steve on Oct 6, 2024 20:01:01 GMT
Fair point, but when you consider some of the disasters like the NHS and PO computer systems and HS2, government doesn't appear to be terribly skilled in bringing home projects. Yes I agree. Not sure of the solution, it seems obvious, just do it like private companies do, but it seems even when private companies to government work the cost goes miles north. My brother was chief technical officer (changed the name of his job, don't want people tracing me) for Cambridge university group. He said the university insist they want no risk contracts which means the contractor has to build in every possible contingency and the cost goes through the roof. For me this just retells how risk averse public servants have become (where box ticking is everything) and why government projects cost so much. Jeez and some think Cambridge is a fount of smart thinking But you're right that private business does often look for relatively quick returns. It's not a complete rule though, when Cunard funded the RMS Queen Mary 2 they probably were looking something like the payback over 40 years the QE2 project gave. |
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Post by Zany on Oct 8, 2024 19:31:41 GMT
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Post by brownlow on Oct 10, 2024 15:34:23 GMT
Brownlow, why is it costing so much of the tax take in interest payments? Mainly because (a) the govt issued a load of index-linked bonds in the days of ultra low interest rates, and we've since had sharp interest rate hikes following inflation. (b) the BoE is doing a ton of QT, i.e. selling bonds back into the secondary market, pushing prices down, thus yields and borrowing costs up. The BoE shouldn't be doing this, and is arguably in breach of its charter:
The Bank of England is misusing its fiscal powers : www.ft.com/content/5209be99-3f6b-4ba3-b3f3-49b544f71c28 |
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Post by brownlow on Oct 10, 2024 15:39:54 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. OK, but what does that mean? Remember, govt spending is a component of GDP, not something subtracted from it like our spending is subtracted from our incomes. If it means govt "balancing its books", the last UK govt that tried gave up after bringing GDP growth to a near standstill. As Keynes once said in response to an interviewer's concerns about the 'unbalanced budget': "But, my dear sir, you will never balance the budget through measures which reduce the national income."
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Steve
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Post by Steve on Oct 10, 2024 16:24:57 GMT
Which is why the deficit has to be kept within the level of growth in the economy. OK, but what does that mean? Remember, govt spending is a component of GDP, not something subtracted from it like our spending is subtracted from our incomes. If it means govt "balancing its books", the last UK govt that tried gave up after bringing GDP growth to a near standstill. . . How many times do I have to say I'm not arguing to 'balance the books' It's about not over doing the deficit |
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Post by brownlow on Oct 10, 2024 16:33:30 GMT
brownlow I copied your last post to my son, here's his synopsis. Is it close. Ok so the only bit I think I can understand is that most government debt is bonds and that the way that works for everyone is essentially that bond buyers are investors in government, hence "debt" is the wrong term Company Inc. buys bonds from the government because they need an asset that will go up in value over time Government sells the bond because they need cash now to make the tangible improvements to the country (i.e. infrastructure) to make economic growth possible (I bet that ruined your son's evening..)
BIB still sounds like the govt runs out of money and borrows in order to spend etc. That isn't what happens. As the UCL study states,
"We find, first, that the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation from, or debt issuance to, the private sector."
IOW, the £ is a fiat currency. The UK Government creates £s in the process of spending. It can never run out of £s.
As Alan Greenspan (a fiscal conservative Fed Chairman) once said, "a government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit."
While the govt creates all the £s it spends, it doesn't create all the £s we spend. The govt also licenses banks to lend £s into existence, which is where most of the £s we spend come from. Tax payers, however, cannot create £s, and couldn't ultimately fund govt spending with bank credit.
As the papers I've cited explain, the govt taxes and "borrows" for other reasons, having to do with maintaining private sector demand for £s - the value of the currency - and controlling interest rates (draining excess reserves created in the process of deficit spending). However, the banking system now operates with permanent excess reserves and the BoE maintains base rate by paying interest on reserves (basically paying banks not to lend at below that rate). The full funding rule is now redundant, though govt bonds are still necessary as safe collateral for the private financial system.
Getting there. Bond holders are almost never repaid with 'the tax take'. That would entail govt running a surplus, which would actually deplete private sector savings. The bonds are nearly always rolled over (see again the Fed paper). Govt "borrowing" is not like any other sort of borrowing. If you or I borrow from someone else in the private sector, we deplete their savings. If we borrow from a bank, we incur debt, not savings. Govt "borrowing" creates private sector savings (see again sectoral balances) in direct proportion to govt debt.
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Steve
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Post by Steve on Oct 10, 2024 17:16:00 GMT
Only if you constrain the money supply and if you do that with a profligate government then true productive activities are strangled.
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Post by brownlow on Oct 10, 2024 17:52:32 GMT
Only if you constrain the money supply and if you do that with a profligate government then true productive activities are strangled. OK, what spending is "profligate"? Adequately funding healthcare, education and infrastructure? Demonstrably not.
I suspect that perfectly intellgent people have trouble getting their heads round things like QE, central bank monetary policy, and sectoral balances because they're always trying to reconcile them with the following bedrock belief:
"Let us never forget this fundamental truth: the State has no source of money other than money which people earn themselves. If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay—that “someone else” is you. There is no such thing as public money; there is only taxpayers' money."
- Margaret Thatcher, 1983.
It sounds like common sense, but is flat false in every particular (as Thatcher will have known).
Tax payers cannot create money. Buying and selling, including wage labour, all sums to zero. Other than bank credit, which also sums to zero (minus interest), or a trade surplus (which Thatcher eliminated), there is ONLY public money, i.e. that created by net govt spending.
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