tag:blogger.com,1999:blog-2277215496195926573.post8615341643227070821..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: The bank subsidy no one has spotted.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2277215496195926573.post-22372531899422236642016-03-10T10:46:45.111-08:002016-03-10T10:46:45.111-08:00Well I am always one for having a reason to gripe ...Well I am always one for having a reason to gripe at the highly privileged and cosseted banking sector .They are without doubt given kid glove treatment all the way by governments and central banks.As a business person myself I do look on with envy.The last crisis did without doubt cause inflation in house prices,which we as taxpayers are undoubtedly having to pay for,as well as suffering government cut backs in certain services too...eg they just stopped collecting my green refuse bins...so thanks banking sector, way to go!<br /><br />So I agree this is a another subsidy to our wonderfully inept fools running our private banking sector.<br /><br />I am off to tip my refuse at the local branch of RBS.Anonymoushttps://www.blogger.com/profile/14758456556310738132noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-71920720537864971782016-03-10T01:00:53.602-08:002016-03-10T01:00:53.602-08:00Yes: where there is market failure, i.e. market fo...Yes: where there is market failure, i.e. market forces are not working properly, subsidies can increase GDP. Same goes for taxes: e.g. tax on alcohol probably cuts alcohol consumption, and sober workers are more productive workers. But before implementing a subsidy or tax, you first have to prove market failure, i.e. prove that the market price doesn’t maximise GDP. The normal assumption made by 90% of economists is that the market price for a commodity is the best price or the GDP maximising price.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-52472884977631132702016-03-09T10:47:23.026-08:002016-03-09T10:47:23.026-08:00Ralph> Subsidies mis-allocate resources and thu...Ralph> Subsidies mis-allocate resources and thus reduce GDP.<br /><br />This is not a universal law.<br /><br />With some internet search, I found two econometric case studies where subsidies actually -increased- GDP.<br />http://www.ufv.br/der/wpapers/econo_apl/WP-01-2011.pdf<br />http://www.slideshare.net/ashishagarwal7967/effect-of-subsidies-on-gdp<br /><br />erikdesonvillehttps://www.blogger.com/profile/03768276748717698836noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-86050613954063515922016-03-08T23:05:09.424-08:002016-03-08T23:05:09.424-08:00As usual, getting to grips with your comment invol...As usual, getting to grips with your comment involved me in a fair amount of head scratching and additional caffeine intake.<br /><br />Re the definition of the word subsidy, your definition (a payment by government etc) is the standard definition. But I suggest that a failure by government to charge a firm for something it ought to be charged for amounts to a subsidy as well. E.g. if firms in a particular industry emit a lot of pollution, and government charges them for that externality, except in the case of one firm which has good political connections, that amounts to a subsidy of the latter firm.<br /><br />In the case of private banks which create and lend out money, they can only do that (as explained above) by “cheating” so to speak: that is, no one needs, at least initially, to endure the main cost involved in making a loan, namely abstaining from consumption. Instead, abstinence from consumption is forced on taxpayers. That strikes me as a simple straightforward case of an externality: i.e. cost imposed on the community at large by the relevant firm. And the fact that those firms (private banks) are not charged for that externality equals a subsidy in my books.<br /><br />Re your second and third paragraphs, where you increase your spending, I agree that forces government to take some deflationary measure like raising taxes. But that’s different: you’ve acquired the means to spend (i.e. money) by legitimate means. I.e. you haven’t engaged in an activity where somehow or other you’ve managed to avoid the normal costs involved in making widgets, making loans or whatever.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-60169989226446619392016-03-08T17:41:45.038-08:002016-03-08T17:41:45.038-08:00This article is confusing and fundamentally mistak...This article is confusing and fundamentally mistaken because misuses the term "subsidy". <br />A subsidy is negative tax, i.e. a payment by the government to a firm or household.<br />Raising taxes to manage the economy is not a subsidy to anybody.<br /><br />My consumption is not subsidised even though it may cause the government to raise taxes (or take other deflationary action). This is so irrespective of whether I finance my consumption by reduced saving or by borrowing.<br /><br />Note that it is my spending that may require macroeconomic adjustments by the government. Banks may facilitate that spending, but neither they nor myself is being subsidised.<br />Note also that retailers and wholesalers, like banks, also facilitate my spending. However, neither these, nor banks nor myself is being subsidised when I decide to spend.<br />KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.com