Post Reply  Post Thread 

Tax Cut or Spending Increase for Short Term Improvements

Author Message
Metalsie
Junior Member
*


Posts: 8
Words count: 276
Group: Basic
Joined: Dec2015
Status: Offline
Reputation: 0
Experience: 43
Glory Points: 70
Medals: 3

Post: #1
Tax Cut or Spending Increase for Short Term Improvements

Say one wants to raise prosperity in the short term, which policy is better? By short term, I mean a time period of 4 years.

21.02.2016 16:49
Find all posts by this user Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,963
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #2
RE: Tax Cut or Spending Increase for Short Term Improvements

Metalsie Wrote:
Say one wants to raise prosperity in the short term, which policy is better? By short term, I mean a time period of 4 years.

I presume you're referring to Ars-Regendi, and not to a real life country. My answer is a combination of both. Wink


https://www.patreon.com/SerbanVCEnache
21.02.2016 17:01
Find all posts by this user Quote this message in a reply
Metalsie
Junior Member
*


Posts: 8
Words count: 276
Group: Basic
Joined: Dec2015
Status: Offline
Reputation: 0
Experience: 43
Glory Points: 70
Medals: 3

Post: #3
RE: Tax Cut or Spending Increase for Short Term Improvements

Heh, I was asking for real-life policy. I get the impression that a tax cut would be better in a smaller time frame, but then again I have no knowledge of these things.

21.02.2016 17:08
Find all posts by this user Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,963
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #4
RE: Tax Cut or Spending Increase for Short Term Improvements

Metalsie Wrote:
Heh, I was asking for real-life policy. I get the impression that a tax cut would be better in a smaller time frame, but then again I have no knowledge of these things.

Ok, then. First of all, you'd need to prioritize. What are your specific goals? What parts of the economy or society would you like to improve?
Government spending adds income directly to the economy & it has a multiplier effect. Reduction in fiscal drag leaves more income into the economy - but it's not a guarantee that people will spend those extra dollars or save them. So you need to figure out the economy's propensity to spend & propensity to save.
For instance, if you want to increase Aggregate Demand in the economy to a certain target for your goals (say 1 trillion dollars) - you're going to have to spend less than 1 trillion if you're gonna reach that AD target via a spending increase & you're going to spend more than 1 trillion if you're gonna reach that same AD target via a tax cut. Usually, it's easier to sell politically a lower fiscal deficit figure, because the vast majority of people understand the monetary system completely backwards.
Also, if you want to increase the well being of the average household, you'll want to cut taxes on labor & consumption - and not cut taxes for the rich. The former helps out the entire economy. The latter helps out only the 1%.


https://www.patreon.com/SerbanVCEnache
21.02.2016 17:38
Find all posts by this user Quote this message in a reply
yangusbeef
Unregistered


Post: #5
RE: Tax Cut or Spending Increase for Short Term Improvements

It tends to be more beneficial in the long term to reduce taxation, as it tends to lead to a greater real increase in income and market production capacity. Increases in spending have historically been shortly after a war has begun, as the government must raise war taxes to cover part of the costs, while taking loans, producing fiat currency, and selling securities to provide for the other costs(often called war bonds.) It usually still retains a huge debt, but that is beside the point. The results from this massive increase in spending(I am talking about the thereafter war), tends to be a humongous amount of growth; however, it holds hidden consequences. In order to perpetuate the growth the government begins investing more and more into banks, infrastructure, and health. These actions, however,tends to over liquidify the economy, making a bubble. By over liquidify, I am referring to higher spending by the government per capita than the private sector. The system of fiat currency, growth, and government investment eventually collapses under the weight of inflation and maintaining international securities and bills, and it thereby defaults, usually resulting in massive financial reversal and larger regulations, even though the government was the cause instead of the private sector.

An economy based upon reduced taxation evades most of the problems, at least at the national level. State or provincial government will take over most of the weight with internal improvements, allowing for more specialized economic growth, which is more stable. The only responsibility by the government at that point is national defense, police, as well as interstate infrastructure, all of which will pore to be noticeably cheaper than the original investment. The market economy will take over, pouring capital into the system as thousands of banks begin to surface due to free banking and conservative regulation. There will be extremely minimal inflation as there will be no fiat national currency - only specie in the form of individual state or private bank notes, which are redeemable and influenced by natural inflation. In that way you get a flourishing economy, with massive growth, correct capital, huge infrastructure projects, and of course business and labor incentive. The only scenario that can possibly reverse such a golden age is a financial reversal, which can be repelled by a national bank, who will have branches in all states. Or at least a national state bank, in which the National government will charter the bank and give it liquidity through securities and treasury deposits. It will be slower than direct investment, but it will lead to a much more autarkic and self sustaining, stable, society.
Ars Regendi is rather unrealistic in this aspect, as it misses many key aspects of the economy that are telling of a future recession.

24.02.2016 00:07
Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,963
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #6
RE: Tax Cut or Spending Increase for Short Term Improvements

No, increases in productivity are gained off of government investment in public infrastructure. Government investment crowds in private investment. Private firms wouldn't be expanding their business in the territory, if government didn't create roads & bridges, if it didn't bring water & sewer, if it didn't invest in R&D.
Furthermore, higher taxation during war time & issuance of war bonds has nothing to do with "gaining more revenue to cover war spending" - it's done to drain Aggregate Demand from the economy. It's done to lower private sector spending from competing with government spending over resources. Because, during war times, it's important ensure a steady flow of goods to the soldiers & to the plants producing war items. And you don't want the private sector to have an expansion during this critical time.
War bonds are perfect for this - because people purchase them, rather than purchasing extra output, and they'll see higher paybacks in the future - which they'll get to spend on output after the war is won. That's how you keep economic growth, win the war, and ensure a private expansion after the war is won. And you achieve the boom even with 90% tax on the highest income tear. Take that, 1%, and stuff it.
What's important is to win the war & keep stability at home.
The notion that free banking somehow is a tool against inflation is a myth.
See this http://socialdemocracy21stcentury.blogsp...ralia.html And this http://socialdemocracy21stcentury.blogsp...tland.html
Furthermore, there will always be fiat money. Either emitted by government or by private institutions. There will never be enough commodities to go around to make all public & private IOUs convert into them.
Government spending doesn't lead to inflation or collapse of the economy. This is preposterous. A careful study of all hyperinflations of history shows the following causes: loss of a war, collapse of output, political instability, brazen corruption, finally end of a fixed exchange rate with a strong currency. The overproduction of money is ALWAYS the CONSEQUENCE of a crisis o hyperinflation, NEVER the cause of it. You incur balance sheet recessions when government net spending gets too low, rendering the private sector's credit scheme unsustainable.


It's nothing new under the sun. Since ancient times, the public authority built the infrastructure - and the citizens profited from it & expanded their businesses on top of that. Caesar built roads, bridges, aqueducts etc. Charlemagne did the same. And what did emperor Vespasian say after he was offered a labor-saving machine for transporting heavy columns? He declined with the words: "I must always ensure that the working classes earn enough money to buy themselves food." Vespasian understands that the plebs will only receive money with which they can buy food, only if they work for it. Obviously, the notion of unemployment benefits like we have today or a basic income would have been totally alien in their times & society. So what Vespasian is arguing, whether he realizes or not, is that he wants to ensure the plebs with purchasing power, rather than directing that purchasing power to the sellers & builders of said devices.


https://www.patreon.com/SerbanVCEnache

This post was last modified: 24.02.2016 17:27 by Helsworth.

24.02.2016 08:41
Find all posts by this user Quote this message in a reply
yangusbeef
Unregistered


Post: #7
RE: Tax Cut or Spending Increase for Short Term Improvements

Helsworth Wrote:
No, increases in productivity are gained off of government investment in public infrastructure. Government investment crowds in private investment. Private firms wouldn't be expanding their business in the territory, if government didn't create roads & bridges, if it didn't bring water & sewer, if it didn't invest in R&D.
Furthermore, higher taxation during war time & issuance of war bonds has nothing to do with "gaining more revenue to cover war spending" - it's done to drain Aggregate Demand from the economy. It's done to lower private sector spending from competing with government spending over resources. Because, during war times, it's important ensure a steady flow of goods to the soldiers & to the plants producing war items. And you don't want the private sector to have an expansion during this critical time.
War bonds are perfect for this - because people purchase them, rather than purchasing extra output, and they'll see higher paybacks in the future - which they'll get to spend on output after the war is won. That's how you keep economic growth, win the war, and ensure a private expansion after the war is won. And you achieve the boom even with 90% tax on the highest income tear. Take that, 1%, and stuff it.
What's important is to win the war & keep stability at home.
The notion that free banking somehow is a tool against inflation is a myth.
See this http://socialdemocracy21stcentury.blogsp...ralia.html And this http://socialdemocracy21stcentury.blogsp...tland.html
Furthermore, there will always be fiat money. Either emitted by government or by private institutions. There will never be enough commodities to go around to make all public & private IOUs convert into them.
Government spending doesn't lead to inflation or collapse of the economy. This is preposterous. A careful study of all hyperinflations of history shows the following causes: loss of a war, collapse of output, political instability, brazen corruption, finally end of a fixed exchange rate with a strong currency. The overproduction of money is ALWAYS the CONSEQUENCE of a crisis o hyperinflation, NEVER the cause of it. You incur balance sheet recessions when government net spending gets too low, rendering the private sector's credit scheme unsustainable.


It's nothing new under the sun. Since ancient times, the public authority built the infrastructure - and the citizens profited from it & expanded their businesses on top of that. Caesar built roads, bridges, aqueducts etc. Charlemagne did the same. And what did emperor Vespasian say after he was offered a labor-saving machine for transporting heavy columns? He declined with the words: "I must always ensure that the working classes earn enough money to buy themselves food." Vespasian understands that the plebs will only receive money with which they can buy food, only if they work for it. Obviously, the notion of unemployment benefits like we have today or a basic income would have been totally alien in their times & society. So what Vespasian is arguing, whether he realizes or not, is that he wants to ensure the plebs with purchasing power, rather than directing that purchasing power to the sellers & builders of said devices.

How ironic for you to use false information like that(I am referring to the image.) the collapses before the civil war WERE caused by debt, but not in the form of national debt, but instead in the form of state debt, who over invested into state improvements. Also, in 1832 the national bank was not rechartered, destabilizing the financial sector and making financial reversals more prevalent. In all of those cases, it was the GOVERNMENT'S fault. Also, it is unfair to compare the debt decrease, as often times it was caused by the selling off of land or the forced confiscation of assets from the public, as well as abominable tariffs.

Finally, you ignore the MAJOR consequence of infrastructure and government influence in general, it often over compensates for public necessities, greatly hurting farmers as it introduces untold amounts of competition from different parts of the country, making some goods worthless and hurting production. Ha, war bonds are good alright... Except when they are forcibly put into the population through the confiscation of their goods and incredibly high taxation just like in the period you are talking about! Securities provide the government with short term income, but it must eventually be paid off, securities made many governments default throughout history.


Last point: before the Civil War, the United States had NO fiat currency at all, and they had humongous growth and MINIMAL inflation.

This post was last modified: 24.02.2016 17:28 by Helsworth.

24.02.2016 14:51
Quote this message in a reply
Helsworth
Heathen
****


Posts: 8,854
Words count: 1,597,963
Group: Super Moderators
Joined: Nov2008
Status: Offline
Reputation: 146
Experience: 859
Glory Points: 260
Medals: 11

Post: #8
RE: Tax Cut or Spending Increase for Short Term Improvements

State governments (currency users) are not the same as the Federal government (which is the currency issuer).
Balance sheet recessions come on the heels of government surpluses (that's what the automatic stabilizers do during a private sector expansion - if no active counter-cyclical policy is taken by government). "Paying off" the national debt means destroying nongovernment sector financial savings.
When I refer to Gov spending, I include both local & federal/national govs. Government spending net of taxes is equity for the nongovernment sector. The nongovernment sector is composed of the foreign & domestic private sectors.
I didn't have a handier picture with the dates, so that's why I posted that one. The message regarding the "debt snakes" (aka the deficit hawks) was not meant for you. Included also in that list should have been the Clinton surpluses - which helped to trigger the GFC. But the mainstream didn't call it a depression, but rather a recession. However, the old definition of a depression was unemployment above 10%.


A gold standard is nothing more than a government policy - a self imposed constraint. A gold standard is NOT the creation of the so-called free market. It's still chartalism. The growth you're talking about & the low inflation came from net exports (from the foreign sector building up debt against the US) - and the low inflation was a key aspect of the industrial revolution (high gains in productivity).

Gov bonds aren't "forced" on people - they're just an option for those who have the money to purchase them. I recommend you read this: Gold standard & fixed exchange myths:
http://bilbo.economicoutlook.net/blog/?p=2562

Also, the classical gold standard era is a myth. There wasn't even enough gold & silver to "back up" demand deposits. And this was well before free-floating nonconvertible fiat regimes came to be.



Supply-side economics is bunk. If you want to increase the wealth gap, make the 1% richer, the 99% poorer, and maintain people in a constant state of involuntary unemployment & poverty - by all means, do what Reagan & Thatcher did. Minimize national government debt, so that you can force households to acquire more bank debt, just to be able to purchase basic goods & services. Let all the GDP growth go into profits & just barely into wages.




I'm sorry, many of the claims you make have no basis in reality. Until you come to terms with stock-flow consistent accounting - I'm afraid you're going to continue to have skewed views of things, particularly because you ignore the other half of the balance sheet.


https://www.patreon.com/SerbanVCEnache

This post was last modified: 24.02.2016 18:03 by Helsworth.

24.02.2016 17:45
Find all posts by this user Quote this message in a reply
yangusbeef
Unregistered


Post: #9
RE: Tax Cut or Spending Increase for Short Term Improvements

I suppose this will lead to perpetual argument then. I will just leave what has been said.

24.02.2016 18:14
Quote this message in a reply
Post Reply  Post Thread 

Possibly Related Threads...
Thread: Author Replies: Views: Last Post
  [The Economist] American taxes are unusually progressive. Government spending is not. Ajay Alcos 0 911 27.11.2017 15:56
Last Post: Ajay Alcos
  Ellis Winningham: Finding Cuts to Pay For Federal Spending is Obsolete Helsworth 3 1,894 06.12.2016 23:30
Last Post: VineFynn
  Government spending = unemployment yangusbeef 65 11,714 02.12.2015 10:56
Last Post: Helsworth
  Mises refutes cyber-libertarians on public spending and debt Helsworth 0 1,396 08.12.2014 16:41
Last Post: Helsworth
  Long-Term Unemployment High, Regardless of Education Helsworth 0 1,020 09.04.2014 19:59
Last Post: Helsworth
  Warren Mosler, MMT to Washington: There Is No Long-term Deficit Problem! Helsworth 0 1,289 11.03.2013 19:27
Last Post: Helsworth
At Long-term socio-economic benefits through the use of genetically modified crops Titian 4 1,468 20.09.2012 00:13
Last Post: great peace
Exclamation Spending in Turkey Raistein 1 978 13.01.2012 16:43
Last Post: Helsworth

View a Printable Version
Send this Thread to a Friend
Subscribe to this Thread | Add Thread to Favorites

Forum Jump: