tag:blogger.com,1999:blog-2277215496195926573.post1148763478986825693..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Government borrowing is pointless.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-2277215496195926573.post-38644399634662462802012-01-25T01:33:32.104-08:002012-01-25T01:33:32.104-08:00Vimothy,
No, I’m not saying governments should no...Vimothy,<br /><br />No, I’m not saying governments should not run deficits (or surpluses). As I said under the “Borrowing with a view to stimulus” heading above, deficits / surpluses are OK, but debt is not needed to do this, as pointed out by Keynes and Milton Friedman.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-41598403404618642822012-01-24T12:20:01.468-08:002012-01-24T12:20:01.468-08:00Ralph,
So when you write, "govt borrowing is...Ralph,<br /><br />So when you write, "govt borrowing is pointless", you are arguing that the govt should run a balanced budget?<br /><br />Incidentally, I'm not sure whether changes in taxes have any first order effects on the stock of cash held by the public. It seems to me that first order effects are on income, with any possible second order effects on cash working though that channel.<br /><br />That said, I know that here in the UK, cash as a percentage of GDP is on a long run secular downwards trend, which looks pretty invariant to the tax rate.vimothynoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-43835134037772484442012-01-24T10:14:43.290-08:002012-01-24T10:14:43.290-08:00Vimothy,
If government does not fund itself via b...Vimothy,<br /><br />If government does not fund itself via borrowing, it will for the most part replace that with increased tax. That won’t cause household stocks of cash to drop by much because governments spend money as quickly as they grab off the private sector. There may in addition be a bit of money printing (or the opposite, money “extinguishing”), but that tends to be small compared to the total amount of tax collected.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-63829724428028855902012-01-24T05:18:30.138-08:002012-01-24T05:18:30.138-08:00Ralph,
"The stock of cash that the private s...Ralph,<br /><br />"The stock of cash that the private sector wants to hold has very little to do with government’s annual funding needs."<br /><br />Isn't that the problem? If you want the govt to fund its expenditure by issuing new money, someone is going to have to hold that money.<br /><br />How much money? Well, given that the stock of public debt is $10 trillion, and the fact that reserves are quantitatively insignificant in normal pre-crisis times, that implies that, if govt debt were zero, the stock of money held by the public must be $10 trillion. <br /><br />Or maybe it's just new borrowing. In that case, the money stock is going to grow by something like 4% of GDP per year ($0.5 trillion at current levels), cet par.<br /><br />Either way, the magnitudes are way off.vimothynoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-91796640721534489932012-01-22T22:56:05.676-08:002012-01-22T22:56:05.676-08:00Vimothy,
I think you are confusing stocks and f...Vimothy, <br /><br />I think you are confusing stocks and flows. The stock of cash that the private sector wants to hold has very little to do with government’s annual funding needs. For example, the average household might feel comfortable with $500 in the bank or $1,000 or $5,000: I’ve no idea what the figure is. If the figure is $500, then the average household will turn over its stock of cash quicker than if the figure is $5,000.<br /><br />Obviously the US government will need to reduce its reliance on borrowing at some stage, i.e. find an alternative source of funding. But like most people, I reach that conclusion from looking at how fast the national debt is rising, not from looking at the private sector’s stock of cash.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-56549302309913391602012-01-22T16:08:46.000-08:002012-01-22T16:08:46.000-08:00Ralph,
The most obvious problem is that the deman...Ralph,<br /><br />The most obvious problem is that the demand for cash doesn't approach anywhere near the govt's need for funding. If you take the US, then (IIRC) cash held by the public is something like $1 trillion, and public debt is something like $10 trillion. Since $10 trillion > $1 trillion, it's clear that the govt is going to need to do something else to fund its expenditure.vimothynoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-21789548151854049402012-01-22T07:38:19.879-08:002012-01-22T07:38:19.879-08:00Shouldn't it be the other way round?
Sovereig...Shouldn't it be the other way round?<br /><br />Sovereign Monetary Governments can lend money to capital projects, I'm mainly thinking energy here, and get a useful income stream from the interest repayments over the life of the project, water/sewerage is another example along with rail and other inter/national infrastructure.<br /><br />Given that these projects have long lifetimes, 50-150 years say, this means that all the consumers pay for their use of the capital produced by the government lending rather than present day consumers unnecessarily "funding" projects that will benefit future generations too.<br /><br />This is the complete opposite/inverse of PFI of course, reversing the wealth flows such expensive borrowing schemes achieve.WillORNGhttps://www.blogger.com/profile/03759801640058517521noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-50161190351064699092012-01-22T06:28:24.444-08:002012-01-22T06:28:24.444-08:00I believe governments borrow because to do otherwi...I believe governments borrow because to do otherwise would admit that they don't need to. To admit they don't need to would be to admit that a large part of a politician's job is irrelevant. Another reason is that the "debt" allows politicians to use the fear "card' in order to push their agenda, e.g smaller government, end safety net programs, etc.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-46524704029822725112012-01-22T02:08:11.656-08:002012-01-22T02:08:11.656-08:00Bosscauser & Dr.G, Re the idea that government...Bosscauser & Dr.G, Re the idea that government bonds provides the private sector with something to invest in or with “net financial assets” as MMTers tend to say, I covered that in the final section above under the heading “No government borrowing…”<br /><br />However I put that final section online about five minutes after the main body of the post, so it’s possible you didn’t see it.<br /><br />Dr.G: re the idea that government debt is needed so as to control interest rates and thus demand, I partially covered that under the heading “Borrowing so as to damp down demand”. <br /><br />However, I agree that point could do with more attention, so I’ve added an “P.S.” above.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-68382649994039809102012-01-21T16:16:21.309-08:002012-01-21T16:16:21.309-08:00Govt borrowing is a legacy of the gold standard.
...Govt borrowing is a legacy of the gold standard.<br /><br />In the current Fiat currency regime, borrowing by the Govt is not necessary for funding. Govt issuance of bonds provides the financial sector with risk free investment vehicles, and is used by the central bank to manage bank reserves and thus enforce the interest rate target.<br /><br />There is no need whatever, for govt to ever pay off it's debt, and indeed, should the govt retire debt, it will pull networth from the civilian sector of the economy, and thus spending power.<br /><br />Most notably, the surplusses of the last years of the Clinton Administration, led to the dot-com crash of 2000-2002.<br /><br />INDYDr. George W. Opriskohttp://www.publicresearchinstitute.orgnoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-19711910809993296752012-01-21T10:59:07.205-08:002012-01-21T10:59:07.205-08:00The government borrows because of demand for the b...The government borrows because of demand for the bonds. I buy bonds through my 401K because they can't unlike every stock on the planet lose their face value.<br /><br />Foreign governments and companies as they win the trade game and buy bonds because burying American dollars in their back yards is silly and trusting the stock market is even sillier. <br /><br />They have to be able to park the money for the future and if the U.S bonds default we are all unemployed and dead anyways.<br /><br />Business's have problems borrowing because their future income from sales is a greater risk for lenders than simply holding U.S bonds.<br /><br />And, let's not forget, the government is like the Titanic an changing course is near impossible.bosscauserhttps://www.blogger.com/profile/02270577642295797014noreply@blogger.com