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Damon_Coburn

Is there any mechanism in place that covers these issues? 1) privatized education partially or fully supported by the government 2) open access to private credit unions or a national credit union while still allowing free private banks 3) the accumulation of wealth by the government to the point that it can run on interest and other revenues alone without any taxation. I'd love to see how this kind of scenario would work out.
Education is covered by tasks, this includes the option of private schools or universities. I think there is no option for public funding of private education facilities, will forward the idea...

Can you elaborate "open access to private credit unions" further, especially in comparison to the current state? There is Bank Reform where the state gets majority of shares of each bank, so government can (more or less) control them all.

The state can make some money by interest, but it's usually not enough to cover all expenses. Interesting challenge though. Zwinker2 However, citizens will get upset if you save more and more of their money. Once the savings hit 100% GDP, you will notice increasing numbers of extremists.
There's no such thing possible. The monetary system exists because of government taxation. Without government taxation there would be no universal accepted currency in both public and private transactions. It would be just barter.
A government who has lost its ability to tax its own currency, destroys the value of that currency.
Even in times of gold, people didn't pay their taxes or go to the market to make transactions with raw metal ore. They went through the mints, which were government institutions. The mints issued coins of a certain standard, weight, and depiction.
And as for the government positive debt and budget surpluses, such a thing would cripple an economy. Government creates fiat by circulating currency in its expenditures and it destroys it via taxation. It's no mystery as to why budget surpluses trigger recessions. The government deficit equals the net savings of the private sector in a given year.
Taxation allows for economic activity to happen in noninflationary environment. As such, fiscal policy can fuel the economy with aggregate demand or it can drain the economic of excess aggregate demand.

@Sheep
Ars-Regendi is not realistic when it simulates positive indebtedness and huge budget surpluses. Regardless of the trade surplus - those are foreign savings (foreign currency). When I see states that have billions and billions up to trillions in budget surplus, I see the government destroying the savings of the private sector. Double entry bookkeeping. You can't have a reserve drain without a reserve add and vice-versa. When the government is running a deficit, it credits the account of the private sector and it debits its own account in the process. When the government is running a surplus, it credits its own account, and it debits the account of the private sector.

Note: the green represents the world's trade balance against the US. When the green is in the negatives, the world had a net commercial deficit vis-a-vis the US.

Ars-Regendi should incorporate sectoral balance accounting in its simulation engine. There are 3 sectors: government, private sector, foreign sector (capital account). All 3 can't be in a state of surplus at the same time. Someone needs to run the deficit, so the others can run the surplus. And the only one able to run deficits without going bankrupt is the government.

Flows are derived from the National Accounting relationship between aggregate spending and income. So:
(1) Y = C + I + G + (X – M)
where Y is GDP (income), C is consumption spending, I is investment spending, G is government spending, X is exports and M is imports (so X – M = net exports).
Another perspective on the national income accounting is to note that households can use total income (Y) for the following uses:
(2) Y = C + S + T
where S is total saving and T is total taxation (the other variables are as previously defined).
You than then bring the two perspectives together (because they are both just “views” of Y) to write:
(3) C + S + T = Y = C + I + G + (X – M)
You can then drop the C (common on both sides) and you get:
(4) S + T = I + G + (X – M)
Then you can convert this into the familiar sectoral balances accounting relations which allow us to understand the influence of fiscal policy over private sector indebtedness.
So we can re-arrange Equation (4) to get the accounting identity for the three sectoral balances – private domestic, government budget and external:
(S – I) = (G – T) + (X – M)
The sectoral balances equation says that total private savings (S) minus private investment (I) has to equal the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents.
Another way of saying this is that total private savings (S) is equal to private investment (I) plus the public deficit (spending, G minus taxes, T) plus net exports (exports (X) minus imports (M)), where net exports represent the net savings of non-residents.
All these relationships (equations) hold as a matter of accounting and not matters of opinion.
Thus, when an external deficit (X – M < 0) and public surplus (G - T < 0) coincide, there must be a private deficit. While private spending can persist for a time under these conditions using the net savings of the external sector, the private sector becomes increasingly indebted in the process.

CAR12345

I would like that to be implented, Sheep?
In a private message to me, Damon_Coburn wrote

Damon_Coburn Wrote:
Sounds like you've been brainwashed to me. Your argument doesnt hold up in the real world. Wealth is created, not merely exchanged back and forth. Also, taxation does not create currency. It is created by fiat, but that does not necessarily entail taxation as the means that it must be acquired or exchanged. Governments can also provide services for fees and charge interest for loans. For much of our nations history the federal operated with almost no direct taxation except tariffs and the sale of natural resources like land.


Going past the ad hominem, let me adress your post.

Money is not commodity. It never was. Money is a liability issued by the government. Sine ancient Persia, the sole purpose of money was to provision the government. It all started with debt tokens which the village elders issued. They created a certain nr of them, then they taxed it after a certain period of time. The people that didn't have those debt tokens were required to perform military work - help out in setting up and maintaining the palisade, learning to fight etc. That was the purpose of government - protection against invaders and establishing common law (courts). Those people who had the tokens were relieved of performing the military work.

And with time, those debt tokens evolved into actual currency - metal coins of a certain standard, weight, and depiction. Because public debts could only be settled with such coins, their value was transferred to private transactions as well, and they were used also as a means to store value.
Government taxation creates a constant demand for its own money.
Now with the growing population and production, private debts rose as well. So where did the money came to allow for that growth, and to settle those debts? It came from two places - unearthing new metal or simply invading other peoples and looting the metals from them. Then melting all of that and minting new coins.

Civilizations achieved growth and prosperity via their own monetary systems, not via barter.

Now you say that currency is created by fiat. It seems you don't understand what fiat is. Its government issued liability without the arbitrary constraint of tying the money to a commodity. Also, a gold standard is nothing more than a government price fixing.
A government with monetary sovereignty, indebted in its own currency cannot go bankrupt. Government levies taxes and demands payment in the currency over which it alone has sovereignty. And in order to allow for the private sector to net save, the government must tax less than it spends, or spend more than it taxes.
Accounting 101. (the ancients knew this, Luca Pacioli just reinvented the wheel). Every surplus has a corresponding deficit. Every credit a debit. One man's payments are another's incomes. Someone's loan is another man's savings. Every liability has a corresponding asset. And they all net to 0! The horizontal transactions within the private sector net to 0. The only way there can be a positive net in the private sector is via vertical transactions - i.e. government spending more than it taxes.
Government must first spend its currency before it can tax it. Therefore, public spending finances taxation, not vice-versa. And as for public debt, it serves several functions, like providing private institutions with savings and controlling short term interest rates in the market. But it does not "finance" the deficit or public spending.
The government is not a household.

And as for your last statement about your federal government back in the day, of course it didn't require today's taxation. But the local governments levied their own taxes. In contemporary times, the federal government is the money sovereign, the rest of us, including local governments, are currency users. The congress was express in their goal. No state can issue its own legal tender. That's because they wanted a universal accepted currency to exist in the country. A sane approach to organizing society, wouldn't you say? Well it was. For every other country applied the same principle. That's why you can't pay american taxes in japanese currency, or chinese taxes in raw ore or spanish bullions from centuries ago.

And as for private banks. They are not constrained by reserves. The FED does not have direct control over deposits. When a bank makes a loan to someone - an asset and a liability are both created. You take hold of the liability, and the bank takes hold of the asset (the deposit). Loans create deposits, not the other way around.
Private credit creation can fuel economic growth short term, but it's not sustainable. When private debt levels get too high, the private sector's deleveraging process begins. And that puts negative pressure on the economy.
The only NET ASSETS that can be created in the economy come from the government deficit. It can't come from anywhere else. Accounting 101. You can't have a reserve drain without a reserve add.

I encourage you watch the Modern Money and Public Purpose seminars.
The Historical Evolution of Money and Debt


Governments Are Not Households

Damon_Coburn

I never said we should use a gold standard. That was someone else. Also saying that the government cannot go bankrupt is a technicality. Of course they can always print more money or issue it electronically as is now done, but this does not ensure the money will retain value. Government can effectively bankrupt a nation through its monetary policy. Since a high debt results in either high taxation or inflation through printing more currency. Both of which consume and destroy wealth or net savings. You must also realize that we are a global economy. The fact that our government accepts our money as payment does not mean that other nations will. The US is currently the worlds reserve currency, but that is likely to change very soon. If a nation devalues its currency it reduces the standard of living of its citizens especially in regards to goods it purchases from other nations. Since we are a global economy, when a nation devalues its currency it harms also those it trades with through the distortion of markets and reducing the beneficial trade of resources that could otherwise occur. Also your theory again implies that governments with low to no debt would not be able to grow, yet they are at a much faster rate than those loaded with debt and high deficit spending. If deficit spending creates surplus in the private sector, how would you explain this? Why then does not every nation with a sovereign currency deficit spend their nations into abundant prosperity with a huge surplus in the private sector? The rational reason is that it does not work. Money is not the same thing as wealth. Government is a parasite upon wealth. A necessary one to be sure, but it feeds off of the wealth created by the labor and investments of others. If its appetites become too large it stifles our ability to prosper. Money is naturally generated in the private sector through deposits. When a dollar is spent, it is then deposited, lent out at interest and spent again. This process repeats with economic activity and generates wealth without any deficit spending at all. In fact government deficits slow this process of money creation down through taxation and printing money without it having been created through normal economic activity. When currency is created in the private sector, it occurs because something of value has been added (a good or service) to purchase or exchange, while when it is simply printed the money is increased but the value is not because they have created no new good or service first.

StatlerNWaldorf

Damon,

You're very new to the game. I see that you haven't acquired any experience points yet, and you are concurrently running both of your first states, neither of which is older than 21 quarters.

Its going to take some time for you to understand how the game works. I still don't understand it, although I've gotten alot better at gameplay recently. In time you will as well. For now, it is time for you to try out your ideas in practice, and see what works, and what doesn't.

After you have mastered the basics of the game's mechanics, perhaps your viewpoints will become more insightful. I would ask that you consider allowing your ideas to mature a bit, so they will be better developed and ready for consideration.

As for the back-and-forth between you and Hels, please consider moving this discussion to the Real Politics & History thread. While the game does try to simulate real life, it appears that the back and forth you two are engaged in is more appropriate for that forum than a thread whose topic is game mechanics.
Demon Corpsburn, don't waste any effort.
I often tried to explain to Helsworth that money in itself is useless and that we should concentrate on real values. It's quite surprising that even though he buries us his 0-equations over and over and over again he still thinks that money matters. Once one simply ignore money and concentrate on real values, i.e. capital, it can be seen clearly that there are plenty of mistakes.

Note to self: try to finish all the discussion I entered with Helsy but never bothered to complete.

Anyway, I do support Waldy's suggestion to move this thread or at least part of it to another section.
Ars Regendi is one of the best (macro) economic simulations out there but it still has its flaws (and there is no shame in that) so there is a considerable difference between how the game works and what we write about.

Helsworth Wrote:
@Sheep
Ars-Regendi is not realistic when it simulates positive indebtedness and huge budget surpluses.


That's Malone's decision, will forward it to him. But don't expect anything: Even if he agrees, he won't be eager to do a major game design overhaul just for the sake of realism.

Damon_Coburn Wrote:
I never said we should use a gold standard. That was someone else. Also saying that the government cannot go bankrupt is a technicality. Of course they can always print more money or issue it electronically as is now done, but this does not ensure the money will retain value. Government can effectively bankrupt a nation through its monetary policy. Since a high debt results in either high taxation or inflation through printing more currency. Both of which consume and destroy wealth or net savings. You must also realize that we are a global economy. The fact that our government accepts our money as payment does not mean that other nations will. The US is currently the worlds reserve currency, but that is likely to change very soon. If a nation devalues its currency it reduces the standard of living of its citizens especially in regards to goods it purchases from other nations. Since we are a global economy, when a nation devalues its currency it harms also those it trades with through the distortion of markets and reducing the beneficial trade of resources that could otherwise occur. Also your theory again implies that governments with low to no debt would not be able to grow, yet they are at a much faster rate than those loaded with debt and high deficit spending. If deficit spending creates surplus in the private sector, how would you explain this? Why then does not every nation with a sovereign currency deficit spend their nations into abundant prosperity with a huge surplus in the private sector? The rational reason is that it does not work. Money is not the same thing as wealth. Government is a parasite upon wealth. A necessary one to be sure, but it feeds off of the wealth created by the labor and investments of others. If its appetites become too large it stifles our ability to prosper. Money is naturally generated in the private sector through deposits. When a dollar is spent, it is then deposited, lent out at interest and spent again. This process repeats with economic activity and generates wealth without any deficit spending at all. In fact government deficits slow this process of money creation down through taxation and printing money without it having been created through normal economic activity. When currency is created in the private sector, it occurs because something of value has been added (a good or service) to purchase or exchange, while when it is simply printed the money is increased but the value is not because they have created no new good or service first.

Once again you've proven that you ignore accounting. Aggregate demand precedes production. New orders precede an increase in production.
Capitalism means producing stuff in order to sell them at a profit. Capitalism falls on its ass, when producers can no longer sell. And as a result of that, they reduce production, until aggregate demand resumes growth. Private money creation creates no net assets. Once you've contracted a loan, a debit and a credit have been simultaneously created. You the client get to hold the loan (the liability), and the banks gets to hold the deposit (the asset). Between you the net is 0. The only one that can destroy net assets and produce them is the government via FISCAL means, vertical transactions. By spending more than it taxes, it allows the private sector to have positive net savings. And by spending less than it taxes, it turns those net savings negative. All you're above lines are sheer ideological drivel. And it's because ideological reasons that economists have lost touch with reality, in order to pursue and aggrandise their own fraudulent theories and policy prescriptions.

Stop leaning your ear to so-called economists and look at the facts. (S-I)+(G-T)+(X-M)=0 So long as there's unused resources, free labor, and spare production capacity - the constraints of society are not physical. If the GDP output gap is negative, that means the government is taxing too much or not spending enough to cover that gap. When an economy is functioning already at full output, and the government is expanding the fiscal deficit, then yes, that's going to cause inflation. But that's not the present case, not in the US, not in the EU, and not in many other countries.

@Titian
Dude, you try to ignore money, and tell what you'll use as accounting unit in order to measure economic activity. You know why human societies evolved from barter to monetary systems? Because the former couldn't sustain a growing population. Even tribal societies augmented their barter systems with debt tokens.

@Sheep
Thanks for the forward, I appreciate it. ^^ And I don't expect Malone to change that short to mid term. Such a thing would require a lot of work and impact the game on all sides.

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