Cutting the deficit, post 2017 tax reform

[Horatio Parker]

I agreed that surpluses come from collecting more in taxes than oulays. And that money has to go somewhere. They do go somewhere. Paying back a loan doesn't remove money from the economy, it goes back to the lender.

Let's keep things separate - surpluses from loans. A govt surplus becomes an accounting identity, one in black as opposed to red. And that's it, money journey over, and there is less money in the private sector(sometimes you want that).

The govt's spending potential is unchanged by any surplus or deficit. It may influence decisions to spend, but that's not the same thing. The govt can potentially buy everything for sale in its currency. And it can do that regardless of taxes, deficits or surpluses.

In the case of a bank loan, the amount repaid cancels out the amount of the loan, or nets to zero. Nothing new is created.

 

[Jason Harvestdancer]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan. It can buy goods or services with the excess, or it can deposit it in a bank. Therefore again the money is going somewhere. It is a Keynesian belief that saving is ultimately bad, one that I do not share.

But it is absurd to put no limits on the ability of the government to purchase anything. Such an attempt would show the currency doing a show much similar to what is going on with Venezuelan currency.

Again, you're not addressing the concept of "what is money". I'll add to that "what is currency and how is it different".

 

[dismal]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan. It can buy goods or services with the excess, or it can deposit it in a bank. Therefore again the money is going somewhere. It is a Keynesian belief that saving is ultimately bad, one that I do not share.

But it is absurd to put no limits on the ability of the government to purchase anything. Such an attempt would show the currency doing a show much similar to what is going on with Venezuelan currency.

Again, you're not addressing the concept of "what is money". I'll add to that "what is currency and how is it different".

There is a pretty standard definition of "money" in an economics class. It's something that functions as a medium of exchange, store of value, unit of account and sometimes one or two others. A given currency is a form of money if it performs these functions.

 

[Jason Harvestdancer]

No help from the audience.

 

[dismal]

No help from the audience.

Don't worry, he's impervious to commonly accepted economic principles.

 

[laughing dog]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan. It can buy goods or services with the excess, or it can deposit it in a bank. Therefore again the money is going somewhere. It is a Keynesian belief that saving is ultimately bad, one that I do not share.

it is not a Keynesian belief that saving is ultimately bad. Where do you get such ridiculous ideas?

 

[Horatio Parker]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan. It can buy goods or services with the excess, or it can deposit it in a bank. Therefore again the money is going somewhere. It is a Keynesian belief that saving is ultimately bad, one that I do not share.

But it is absurd to put no limits on the ability of the government to purchase anything. Such an attempt would show the currency doing a show much similar to what is going on with Venezuelan currency.

Again, you're not addressing the concept of "what is money". I'll add to that "what is currency and how is it different".

Money in this context is basically a tax credit issued by the govt. I don’t know why you harp on this. This about our dollar economy. What is your point here? The Treasury doesn’t issue conch shells, wampum or bitcoin.

Govt saving is irrelevant, as it has zero impact on the govts ability to spend. That you cling to it as some kind of moral beacon shows you don’t understand macro.

I’m not suggesting that govt buy all goods and services. I’m pointing out the only operational restraint in govt spending is the availability of real goods and services. IOW there are no inherent financial restraints on anything we have real resources for.

 

[Horatio Parker]

No help from the audience.

Don't worry, he's impervious to commonly accepted economic principles.

This from one admittedly unaware of aggregate demand.

 

[Jason Harvestdancer]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan. It can buy goods or services with the excess, or it can deposit it in a bank. Therefore again the money is going somewhere. It is a Keynesian belief that saving is ultimately bad, one that I do not share.

But it is absurd to put no limits on the ability of the government to purchase anything. Such an attempt would show the currency doing a show much similar to what is going on with Venezuelan currency.

Again, you're not addressing the concept of "what is money". I'll add to that "what is currency and how is it different".

Money in this context is basically a tax credit issued by the govt. I don’t know why you harp on this. This about our dollar economy. What is your point here? The Treasury doesn’t issue conch shells, wampum or bitcoin.

Govt saving is irrelevant, as it has zero impact on the govts ability to spend. That you cling to it as some kind of moral beacon shows you don’t understand macro.

I’m not suggesting that govt buy all goods and services. I’m pointing out the only operational restraint in govt spending is the availability of real goods and services. IOW there are no inherent financial restraints on anything we have real resources for.

It's not a moral point, it's a practical point. Calling it a "moral beacon" shows you aren't even equipped to understand the point I'm making.

If the US government runs a surplus, the money from the surplus is used to pay down the debt. I hope we can agree on that much at least.

Well, if the US government is paying down the debt, that means the money is going to the holders of the debt. It isn't disappearing. Everyone with treasury bonds as a form of savings or investment, they're going to get their cash. Many retirement plans include government bonds. China and Japan also have a lot of bonds. So the debt holders get the money, so the money doesn't disappear.

Assuming this trend continues until the debt it paid off, and the US government continues to run a surplus, the US government needs to decide on what to do with the surplus. That will probably mean tax cuts, but there are other options. One of the other options is to put it in a bank, accumulate the positive reserve that Keynes theorized about but none of his intellectual heirs give a damn about.

Money in the bank doesn't disappear either. The way banks generally operate is to loan out the funds at interest so that the bank might profit from the loan of the funds. Putting money in the bank doesn't remove it from the economy, it injects it into the economy.

So therefore, in general but not in particular, running a surplus doesn't destroy any money.

 

[Horatio Parker]

There's nothing the govt can do with a surplus that it can't already do.

Where do you think the money to pay down the national debt comes from? From higher taxes or reduced govt spending, either way the private sector will have in aggregate fewer dollars. Once again, the national debt is a record of dollars spent into the economy and not taxed back.

 

[dismal]

No help from the audience.

Don't worry, he's impervious to commonly accepted economic principles.

This from one admittedly unaware of aggregate demand.

Wrong again. You're truly gifted at being wrong. I don't know why anyone would ever listen to you.

 

[Horatio Parker]

This from one admittedly unaware of aggregate demand.

Wrong again. You're truly gifted at being wrong. I don't know why anyone would ever listen to you.

Happy to oblige.

 

[Jason Harvestdancer]

There's nothing the govt can do with a surplus that it can't already do.

Where do you think the money to pay down the national debt comes from? From higher taxes or reduced govt spending, either way the private sector will have in aggregate fewer dollars. Once again, the national debt is a record of dollars spent into the economy and not taxed back.

I already agreed that the money to pay down the debt comes from tax revenues, so there's no point in asking me where it comes from. And it goes to the bond holders. Who are in the private sector. So it comes from private sector tax payers and goes to private sector bond holders.

The only real difference is that instead of coming from private sector tax payers and going to private sector benefit receivers, it is now coming from private sector tax payers and going to private sector bond holders. That means the dollars aren't disappearing.

 

[Horatio Parker]

There's nothing the govt can do with a surplus that it can't already do.

Where do you think the money to pay down the national debt comes from? From higher taxes or reduced govt spending, either way the private sector will have in aggregate fewer dollars. Once again, the national debt is a record of dollars spent into the economy and not taxed back.

I already agreed that the money to pay down the debt comes from tax revenues, so there's no point in asking me where it comes from. And it goes to the bond holders. Who are in the private sector. So it comes from private sector tax payers and goes to private sector bond holders.

The only real difference is that instead of coming from private sector tax payers and going to private sector benefit receivers, it is now coming from private sector tax payers and going to private sector bond holders. That means the dollars aren't disappearing.

Treasuries represent dollars spent into the economy. When you tax to retire them, you have removed that amount from the economy, in the same way that when they are deficit spent into the economy, the amount of dollars is increased. For the purposes of the sectoral balances, there's no difference between treasuries and cash. One pays interest, and the other doesn't. That the bond holders now have cash instead of treasuries doesn't in any way increase the amount of private assets, it's a swap.

It's simple accounting. National debt is credit on the private side and liability on the govt side. Change one side, you change the other. Pay down debt, remove assets from the private sector.

You're a libertarian, but you prefer the govt to save over private citizens. You can't make this stuff up.

Here's an article on Keynes and MMT:

http://bilbo.economicoutlook.net/blog/?p=31681

there is no foundation in the idea that fiscal balances should ever be balanced much less over the course of some discrete economic cycle (peak to trough to peak).

Keynes’ views in this context were relatively conservative and mistaken.

1. Issuing debt to match fiscal deficits does not reduce the inflation risk of the initial spending, whether that spending be government or non-government.

It just swaps one financial asset – a saving balance (deposit) for a government bond. Moreover, the latter carries an income flow which is likely to be larger than the former.

2. There is no reason to believe that continuous fiscal deficits will be inflationary. Extending Keynes’ own logic, deficits are required when non-government spending is insufficient to generate sales that would justify firms fully employing all available labour.

As long as firms can continue to respond to nominal demand growth through increased output growth, there is no major likelihood of an inflation breakout.

In other words, a deficit could easily be a ‘steady-state’ policy position to support full employment when the other sectoral balances (external and private domestic) were in particular states.

For a nation such as Britain, we note the following:

1. A fairly sizeable external deficit which drains domestic spending in net terms (more cash flows out via imports than flows in via exports) and is not going to go away anytime soon and is not a problem anyway, given it means the British people enjoy advantageous real terms of trade (foreigners are willing to send them real goods and services in exchange for bits of paper – financial assets).

2. The private domestic sector is already highly indebted and cannot be expected to sustain even higher debt levels.

3. There is considerable idle capacity – unemployment, underemployment etc.

In this context, a continuous fiscal deficit is indicated.

There's some interesting historical context as well. Read the whole thing.

 

[Canard DuJour]

Well, if there is a surplus and no debt, then the government has to find something to do with the money other than paying back the loan.

It doesn't because it's a currency issuer, not a currency user.

Imagine if you could change my bank balance just by keystrokes. If you want a $100 worth of goods or services from me, you change my bank balance by +100. If you want to tax me by $100, you change my bank balance by -100. A Jason surplus just means you've marked my balance down more than you've marked it up. A Jason deficit means the opposite. You don't actually need or want - or, arguably, even receive - my money. You want

a) the goods or services (a school, say, or a semester's teaching) and

b) to maintain the value of the units by which you mark accounts up and down i.e. their exchangeability for goods and services.

Now you could do both just by marking bank balances up and down (and everyone from Mynski to Milton Friedman has argued that you should). However, you don't own my bank and in order to change my balance you have to change my bank's balance at your bank. And your bank doesn't have money, it has reserves, which are a kind of meta-money banks like mine use to settle up with each other "overnight" and to borrow from each other. Your bank creates these reserves out of nothing with keystrokes (you pretend it's not your bank, but everyone knows it is really). And when you mark my account up, you issue a bond, which gives someone like me or my bank the opportunity to swap reserves in what is basically a demand deposit for basically an interest-bearing savings account at your bank. You don't have to, but it gives you a powerful and crafty tool for controlling currency users' spending and saving (tyrannical control freak that you are). You call it "borrowing" but it's really nothing like what I have to do when I need to get money from other currency users.

 

[Jason Harvestdancer]

It is true that when money is used to pay back a bond holder, it removes the bond from the economy. But that doesn't mean the money is removed, it is now in the hands of the bond holder where there used to be a bond. It is true that government debt is a credit on the private side and a liability on the government side. Pay it back and while the credit and liability are erased, the money isn't.

Borrow money, a credit and a liability are formed. Money goes from lender to borrower. Money that was in lenders hands is now in borrowers hands.
Pay back, a credit and a liability are erased. Money goes from borrower to lender. Money that was in borrowers hands is now in lenders hands.
This works even if one of the two parties is the government.
Treasuries represent dollars borrowed.

You're confusing debt/credit and money, because as I pointed out several times already and you haven't been able to respond, you need to contemplate "what is money".

 

[Horatio Parker]

It is true that when money is used to pay back a bond holder, it removes the bond from the economy. But that doesn't mean the money is removed, it is now in the hands of the bond holder where there used to be a bond. It is true that government debt is a credit on the private side and a liability on the government side. Pay it back and while the credit and liability are erased, the money isn't.

Borrow money, a credit and a liability are formed. Money goes from lender to borrower. Money that was in lenders hands is now in borrowers hands.
Pay back, a credit and a liability are erased. Money goes from borrower to lender. Money that was in borrowers hands is now in lenders hands.
This works even if one of the two parties is the government.
Treasuries represent dollars borrowed.

You're confusing debt/credit and money, because as I pointed out several times already and you haven't been able to respond, you need to contemplate "what is money".

The cash returned to the bond holder came from the holder originally as cash; there's nothing new about it. It was swapped from cash to bond and then back at retirement. Private holdings are unchanged. However, an equal amount has been removed either thru taxation or reduced spending.

Again, treasuries represent dollars spent into the private sector. Reducing them reduces private assets, no two ways about it.

 

[Jason Harvestdancer]

Again, treasuries represent dollars spent into the private sector AND borrowed from the private sector. Reducing them put the money back into the private sector.

Money removed via taxation or reduced spending is put back into the economy through debt payback. The bond holders now are dollar holders. If you are right about how paying down debt makes money disappear then the bond holders are now nothing holders.

You're looking at separate pieces of the transaction and claiming that if money goes into the part you aren't looking at then it disappears. "If I can't see it then it's not there" is not an argument. Most people learn object-permanence at about age 1 or 2.

 

[Horatio Parker]

Again, treasuries represent dollars spent into the private sector AND borrowed from the private sector. Reducing them put the money back into the private sector.

Money removed via taxation or reduced spending is put back into the economy through debt payback. The bond holders now are dollar holders. If you are right about how paying down debt makes money disappear then the bond holders are now nothing holders.

You're looking at separate pieces of the transaction and claiming that if money goes into the part you aren't looking at then it disappears. "If I can't see it then it's not there" is not an argument. Most people learn object-permanence at about age 1 or 2.

1. Govt spends. Private sector assets increase.
2. Govt issues debt equal to spending. Private assets are swapped, net assets are unchanged.
3. Taxes are increased or spending reduced. Private assets are decreased.
4. Govt retires debt. Private assets swapped, net assets are unchanged.

 

[Jason Harvestdancer]

1. Govt spends. Private sector assets increase. Govt taxes. Private sector assets decrease. Net assets are unchanged.
3. Taxes are increased or spending reduced. Private assets are decreased. Debts are paid down. Bondholders receive cash. Private assets are increased. Net assets are unchanged.