We don't need no stinking taxes

[specklebang]

What do you think the outcome of giving every American who paid taxes, no matter how little or much, $10,000.00 instead?


I can see some problems with a billion but I honestly thought that instead of supporting the banks so generously, they should have sent everyone a $10K VISA card, useful only for new products (not paying off your mortgage) expiring in 6 months.

Out of curiosity, what do you think the outcome of printing and giving every American a billion dollars would be?



If the regulations are more costly than taxes would be, yes.

 

[gavinfielder]

I'm well aware of the fact that we could, in theory, simply print in order to meet our obligations. That doesn't account for your claim that we would lack the need for deficit spending all while gutting revenue to the bone as you've proposed.

The need for public deficit that I mentioned is a matter of sectoral balances and has everything to do with trade balance. With a trade surplus, capital flows into the private sector without the need for public deficit.

 

[Lakryte]

This is also a long-term solution--the budget can be expanded and contracted as needed.

In short, I have no idea, and it depends on the situation. But it's certain that with a strong economy, we'd need less welfare, have more opportunity, and can handle even sizeable interest rates.

No idea? Well how much is spent is incredibly important if spending is financed by money creation. The more money spent, the more upward pressure there will be for prices to rise. And if money is spent by creating more of it, the resulting inflation will be not better than taxation. If we ended all taxes in our current economy, and financed current levels of spending through the creation of money, inflation would be a serious problem.

 

[Republic Now!]

What do you think the outcome of giving every American who paid taxes, no matter how little or much, $10,000.00 instead?

I don't have the economic expertise to say. I'd imagine a lot of people would spend it, some would save it. I don't think it would do much long term, depending on how people used it.

I can see some problems with a billion but I honestly thought that instead of supporting the banks so generously, they should have sent everyone a $10K VISA card, useful only for new products (not paying off your mortgage) expiring in 6 months.

I want to be clear here that I'm not straw manning JP and suggesting he would support such I thing (I'm pretty sure he wouldn't), but I'm just curious what he thinks the result would be.

If people were required to spend it right away it would probably spike consumption for the six months and then have no real lasting effect there afterwords.

 

[gavinfielder]

No idea? Well how much is spent is incredibly important if spending is financed by money creation. The more money spent, the more upward pressure there will be for prices to rise. And if money is spent by creating more of it, the resulting inflation will be not better than taxation. If we ended all taxes in our current economy, and financed current levels of spending through the creation of money, inflation would be a serious problem.

Why do you think I mentioned interest rates?

Of course we're talking long term, so the fact that we also have a long way to go before hitting 100% reserve banking might be inconsequential, but there's nothing to suggest that interest rates alone can't be deflationary enough to combat inflation of a suitably reduced government during an economic boom.

 

[gavinfielder]

I want to be clear here that I'm not straw manning JP and suggesting he would support such I thing (I'm pretty sure he wouldn't), but I'm just curious what he thinks the result would be.

In that case, I suppose it becomes an interesting question.

The first market reaction would be market shock and loss of confidence, resulting in 1) bond selloffs and rising yields, 2) increased demand for foreign securities as well as investment in foreign economies, and 3) an immediate drop in demand for USD on the forex markets, and in that sense, it's an immediate devaluation of the currency. Since most of our low-value manufacturing happens overseas, though, this would immediately force a lot of prices upward. It's unlikely in any normal situation, but in this extreme case the sociological reaction in forex markets combined with our trade deficit would likely cause cost-push inflation.

Domestically... the housing market would quickly recover, unemployment would drop rapidly. Of course, there'd be a lot of people leaving their jobs, and I can't begin to think what effect that would have. The stock market would skyrocket, and probably remain volatile. The real question becomes when we reach our limit to production. We produce a lot of stuff, and we're only at roughly 85% capacity now, but giving everyone a billion dollars would mean a hell of a lot of consumption, and we wouldn't be able to domestically produce to the demand. If domestic supply become scarce, it'd definitely cause additional demand-pull inflation.

On the other hand, it may be adding a quadrillion dollars to the market, but it's also an instant relative wealth redistribution. Living in the city where a lot of people are struggling and communities are pulling together--I can't imagine the money would all go to waste, now that people know what economic hardship is. I'd imagine a lot of new nonprofits starting up and new community-organized social services being funded with the new money. It'd be great, if not for the inflation.

Still, JP's not wrong--normally hyperinflation only happens when productive capacity is demolished, as in natural disasters or wars. It's certainly not going to happen when we're stuck below approximately 85% of our maximum.

 

[Bigfoot 88]

Inflation is a tax as well.

At some point people will have to concede that the more money left in the private sector, the higher our standard of living grows. That is the bottom line, period.

 

[Lakryte]

Why do you think I mentioned interest rates?

Of course we're talking long term, so the fact that we also have a long way to go before hitting 100% reserve banking might be inconsequential, but there's nothing to suggest that interest rates alone can't be deflationary enough to combat inflation of a suitably reduced government during an economic boom.

Reduced government does not cause rising prices...it is the expansion of the money supply that does. And regardless the government would not be reduced if it did everything it does now, financing it through money expansion instead of taxes.

 

[JP Hochbaum]

Out of curiosity, what do you think the outcome of printing and giving every American a billion dollars would be?

That would obviously be inflationary, but no one here is suggesting this.

 

[JP Hochbaum]

Oh I know exactly what you are talking about and it is still beyond lunacy.

It is exactly how every monetary soveriegn nation does it. Not lunacy, reality.

 

[Republic Now!]

That would obviously be inflationary, but no one here is suggesting this.

Of course, and I'm not implying that anyone is. What I'm trying to get at though is, at some level, pumping money into the economy is going to cause large amounts of inflation, so that is something that has to be acknowledged. By the intermediate value theorem, we can say that it is somewhere between where we are now and printing a billion dollars for every citizen. At what point do you believe that to be?

 

[Republic Now!]

In that case, I suppose it becomes an interesting question.

The first market reaction would be market shock and loss of confidence, resulting in 1) bond selloffs and rising yields, 2) increased demand for foreign securities as well as investment in foreign economies, and 3) an immediate drop in demand for USD on the forex markets, and in that sense, it's an immediate devaluation of the currency. Since most of our low-value manufacturing happens overseas, though, this would immediately force a lot of prices upward. It's unlikely in any normal situation, but in this extreme case the sociological reaction in forex markets combined with our trade deficit would likely cause cost-push inflation.

Domestically... the housing market would quickly recover, unemployment would drop rapidly. Of course, there'd be a lot of people leaving their jobs, and I can't begin to think what effect that would have. The stock market would skyrocket, and probably remain volatile. The real question becomes when we reach our limit to production. We produce a lot of stuff, and we're only at roughly 85% capacity now, but giving everyone a billion dollars would mean a hell of a lot of consumption, and we wouldn't be able to domestically produce to the demand. If domestic supply become scarce, it'd definitely cause additional demand-pull inflation.

On the other hand, it may be adding a quadrillion dollars to the market, but it's also an instant relative wealth redistribution. Living in the city where a lot of people are struggling and communities are pulling together--I can't imagine the money would all go to waste, now that people know what economic hardship is. I'd imagine a lot of new nonprofits starting up and new community-organized social services being funded with the new money. It'd be great, if not for the inflation.

I think, quite simply, hyperinflation would have to occur, just to keep people working. If it didn't, then production would grind to a halt while demand would skyrocket, which would lead to hyperinflation.

Still, JP's not wrong--normally hyperinflation only happens when productive capacity is demolished, as in natural disasters or wars. It's certainly not going to happen when we're stuck below approximately 85% of our maximum.

How do we measure maximum productive capacity specifically?

 

[gavinfielder]

How do we measure maximum productive capacity specifically?

You can't, at least not in any way I can think of. I suppose you could take the country's GDP at a time of really low unemployment. Outside of that, though, there's no telling what our GDP could be now if it were suddenly maximized, since there have also been innovations since it was at its peak.

 

[gavinfielder]

Reduced government does not cause rising prices...it is the expansion of the money supply that does.

It's much more correct to say that expanding the money supply beyond the productive capacity of an economy would cause inflation.

And regardless the government would not be reduced if it did everything it does now, financing it through money expansion instead of taxes.

Your point?

 

[JP Hochbaum]

Of course, and I'm not implying that anyone is. What I'm trying to get at though is, at some level, pumping money into the economy is going to cause large amounts of inflation, so that is something that has to be acknowledged. By the intermediate value theorem, we can say that it is somewhere between where we are now and printing a billion dollars for every citizen. At what point do you believe that to be?

To offset inflation from adding currency to the market you have to use that currency to produce things. Hence why a policy of full employment is the way to do this. Plus when you have more people with buying power, businesses increase the goods they produce to meet that demand.

Inflation from printing money only occurs if production stays the same or decreases. This is why we saw Weimar and Zimbabwe, they had major production drops, and decided to print their way out of it, instead of focusing on increasing production.

 

[imagep]

Completely ignoring everything else you said for a moment, why would a zero-tax policy imply a "flow" of businesses and jobs into the U.S.? Yes, U.S. corporate taxes are the highest in the world so their elimination would be superb, but what about all of the other regulatory requirements? Or do you imply that all of these should be repealed as well?

The way I understand it, while our top corporate tax RATE may be the highest, our effective tax rate on corporations is one of the lowest.

 

[imagep]

What do you think the outcome of giving every American who paid taxes, no matter how little or much, $10,000.00 instead?


I can see some problems with a billion but I honestly thought that instead of supporting the banks so generously, they should have sent everyone a $10K VISA card, useful only for new products (not paying off your mortgage) expiring in 6 months.

I would have prefered they give everyone a prepaid Amex card. Some of my competitors don't take amex - but I do.

 

[imagep]

I don't have the economic expertise to say. I'd imagine a lot of people would spend it, some would save it. I don't think it would do much long term, depending on how people used it.

Savings is differed demand, thus if some people did save it, long term demand would be ensured.

I want to be clear here that I'm not straw manning JP and suggesting he would support such I thing (I'm pretty sure he wouldn't), but I'm just curious what he thinks the result would be.

If people were required to spend it right away it would probably spike consumption for the six months and then have no real lasting effect there afterwords.

If it would have been done in early 2008 (it actually was done, but on a much smaller scale), there would have been a lot of people getting their mortgages caught up, and thus the banking failure may have never have happened. I would have imagined that a lot of people would have also purchased new cars, thus auto company bailout might could have been avoided.

I would also have expected manufactures to crank up production to meet demand, thus the unemployment rate would have never gone up as high as it did, we would have had less spending on unemployment benefits, and fewer people on welfare. Naturally, with more people employed, there would have been a larger tax base, and we wouldn't have seen the huge drop in tax revenues at both the state and federal levels. We could have avoided the loss of 600,000 state and local guberment employees.

 

[imagep]

How do we measure maximum productive capacity specifically?

We have an approximate measure, which we call the "potential GDP". It's based on the assumption of 5% unemployment (I think). You can google it.

 

[imagep]

It's amazing to see some "liberals" promoting tax cuts and smaller government, and "conservatives" arguing against both.

What a crazy world we live in.

 

[specklebang]

AMEX? Surely you jest. You're one of only 11 businesses that take that card. Their rates are too high.

And what about the concept itself?

I would have prefered they give everyone a prepaid Amex card. Some of my competitors don't take amex - but I do.

 

[imagep]

AMEX? Surely you jest. You're one of only 11 businesses that take that card. Their rates are too high.

And what about the concept itself?

Oh the concept was great, I was touting that concept in the full/winter of '08/09. If we would have done that, I believe that we would have jump started the economy, and at a lower cost to deficit spending that what we incured through the spendulas bill, all the bailouts, and lost tax revenue.

the reason I would have prefered amex though is exactly what you stated. It would give ME a competitive advantage.

 

[specklebang]

It seems that our fearless leaders only like to give money to two classes:
The very poor and
The very rich.

When it comes to the ordinary working taxpayer - you're on your own. No freebies, no special tax rates.

Oh the concept was great, I was touting that concept in the full/winter of '08/09. If we would have done that, I believe that we would have jump started the economy, and at a lower cost to deficit spending that what we incured through the spendulas bill, all the bailouts, and lost tax revenue.

the reason I would have prefered amex though is exactly what you stated. It would give ME a competitive advantage.

 

[Lakryte]

It's much more correct to say that expanding the money supply beyond the productive capacity of an economy would cause inflation.

Yes, but prices will be higher than they would have been absent such expansion.

Your point?

That printing money instead of taxing it doesn't solve any problems.

 

[gavinfielder]

Yes, but prices will be higher than they would have been absent such expansion.

"Yes, but I'm now going to ignore it and claim something contrary, as if I didn't read anything."

That printing money instead of taxing it doesn't solve any problems.

Oh, so now taxes are good for the economy?

How about that debt ceiling and default crises? Those really get the job done, right?