Why does the EU insist that procyclical fiscal policy will help us now...

hatrickpatrick

...when it's arguably what got us into this mess in the first place?

IE, would it not be a better idea to let us use the bailout to stimulate the economy now, and save the slash and burn austerity for the near-ish future when the economy would hopefully be in a much better state to cope with it?

I mean the way I see it they'd be much more likely to get all their money back and our economy would be much more likely to recover... Procyclical fiscal policy is widely regarded as what f*cked us in the first place, so how can we imagine that it will help in the reverse?
Just a thought. I could be wrong.

ei.sdraob

They are not thinking or care about Ireland.

All they care about are local elections and how to kick the can down the road for some other politician to sort out.

I feel like a fool for believing that EU will come to our help and can not be any worse than our politicians, bigger the fool I was. They are not even trying to understand the problems that led us here.

hatrickpatrick

ei.sdraob wrote: »

They are not thinking or care about Ireland.

All they care about are local elections and how to kick the can down the road for some other politician to sort out.

I feel like a fool for believing that EU will come to our help and can not be any worse than our politicians, bigger the fool I was. They are not even trying to understand the problems that led us here.

Whether they care about Ireland per se isn't all that relevant. If one Eurozone country falls, the shockwaves will cause financial tsunamis across the board, as we have all discovered already to our cost...

ei.sdraob

hatrickpatrick wrote: »

Whether they care about Ireland per se isn't all that relevant. If one Eurozone country falls, the shockwaves will cause financial tsunamis across the board, as we have all discovered already to our cost...

Thats the thing, they are not thinking about the big picture, not even attempting to identify on the elephants in the room

I keep asking what does corporation tax has to do with the causes of the crisis only to get "moral" responses completely ignoring the situation the country is in, or how we got here.

edit: some guy on Bloomberg discussing Portugal pointing out that the EU are not even attempting to address eurozone problems. There is simply no confidence in EUrozone anymore.

View

hatrickpatrick wrote: »

...when it's arguably what got us into this mess in the first place?

IE, would it not be a better idea to let us use the bailout to stimulate the economy now,

They are loaning us the money so we can spend 66% more than we take in in taxes. That is a stimulus - imagine the shape of the economy in a month or two's time were that spending to stop right now.

Seriously, how much more Government borrowing and spending do you want to engage in?

ei.sdraob

View wrote: »

They are loaning us the money so we can spend 66% more than we take in in taxes. That is a stimulus - imagine the shape of the economy in a month or two's time were that spending to stop right now.

Seriously, how much more Government borrowing and spending do you want to engage in?

Not all of the "loan" is going into the economy a good chunk is going into certain black holes and straight back out

View

ei.sdraob wrote: »

Not all of the "loan" is going into the economy a good chunk is going into certain black holes and straight back out

The money from the NPRF and the IMF is going to the banks (i.e. 10 billion + 25 billion contingency). The money from the other EU member states (i.e. 50 billion) is going to cover our day-to-day expenditure "drug habit".

From a libertarian perspective, the other member states should probably either: a) have told us to s&d off and let's us go "cold turkey" while we figure our day-to-day expenditure issues out, or alternatively, b) have said they would loan us 25 billion instead (to lessen the blow of a) a little bit but not much).

Part of me thinks they probably should have done so as politically speaking we are in massive denial about the mess we are in. Who has gone to jail from the banks or been fired from the bank regulator yet? As for cutbacks, we just haven't gotten round to them - government spending today is higher than in Q2 2007 when the problem with it first emerged...

ei.sdraob

View wrote: »

The money from the NPRF and the IMF is going to the banks (i.e. 10 billion + 25 billion contingency). The money from the other EU member states (i.e. 50 billion) is going to cover our day-to-day expenditure "drug habit".

From a libertarian perspective, the other member states should probably either: a) have told us to s&d off and let's us go "cold turkey" while we figure our day-to-day expenditure issues out, or alternatively, b) have said they would loan us 25 billion instead (to lessen the blow of a) a little bit but not much).

Part of me thinks they probably should have done so as politically speaking we are in massive denial about the mess we are in. Who has gone to jail from the banks or been fired from the bank regulator yet? As for cutbacks, we just haven't gotten round to them - government spending today is higher than in Q2 2007 when the problem with it first emerged...

Ive been talking about quick sharp cuts for some time now, alas people called me all sorts of things for suggesting that expenditure is brought in line with income, and the celtic tiger era fat is shed.

You dont need to lecture me about cuts :rolleyes: my record on this site speaks for itself, cuts will be made one way or another there is no longer any choice, the banking problem remains tho and keeps getting worse...

We have 2 problems here (3 if corporation tax situation continues) expenditure and banks they are different and more importantly need to be recognised. The EU is failing to identify the root issues and is wasting time.

View

ei.sdraob wrote: »

Ive been talking about quick sharp cuts for some time now, alas people called me all sorts of things for suggesting that expenditure is brought in line with income, and the celtic tiger era fat is shed.

You dont need to lecture me about cuts :rolleyes: my record on this site speaks for itself, cuts will be made one way or another there is no longer any choice, the banking problem remains tho and keeps getting worse...

I have read your previous posts. I don't fully agree with them, given what has already been done at this stage. However, I give a much greater weighting to the day-to-day expenditure issue than you do.

ei.sdraob wrote: »

We have 2 problems here (3 if corporation tax situation continues) expenditure and banks they are different and more importantly need to be recognised. The EU is failing to identify the root issues and is wasting time.

The EU - specifically the member states - have a solution (the so-called 6 pack) which they are going with. That doesn't preclude them coming up with another solution at a later date.

As it is, look at the two problems - expenditure and banking. Even if you believe banking is the be all and end all (of problems), the existence of the first must be dealt with for political reasons. The banking issue might be excused as a one-off in the wake of the 2008 crash and a solution to that put in place on the basis that it is a one-off problem. However, there is no way that can be sold at domestic level if the expenditure issue has not been tackled. The obvious opposition attack would be "Look at how much they are spending, you are just giving away our tax-payers money and they will do it again in future".

Remember, our Taoiseach will go to the European Council as the second best paid political leader in the entire EU, despite us being bankrupt. And, we'll wonder why the other leaders look funny at him, when he'll starts on the "We can't afford to pay" line.

hinault

View wrote: »

I have read your previous posts. I don't fully agree with them, given what has already been done at this stage. However, I give a much greater weighting to the day-to-day expenditure issue than you do.



The EU - specifically the member states - have a solution (the so-called 6 pack) which they are going with. That doesn't preclude them coming up with another solution at a later date.

As it is, look at the two problems - expenditure and banking. Even if you believe banking is the be all and end all (of problems), the existence of the first must be dealt with for political reasons. The banking issue might be excused as a one-off in the wake of the 2008 crash and a solution to that put in place on the basis that it is a one-off problem. However, there is no way that can be sold at domestic level if the expenditure issue has not been tackled. The obvious opposition attack would be "Look at how much they are spending, you are just giving away our tax-payers money and they will do it again in future".

Remember, our Taoiseach will go to the European Council as the second best paid political leader in the entire EU, despite us being bankrupt. And, we'll wonder why the other leaders look funny at him, when he'll starts on the "We can't afford to pay" line.

Some valid points, especially those that concern public expenditure.

I think there is an issue of credibility as well. At every point since this crisis developed in Ireland in 2008, the Irish government has consistently understated the depth of the problem to our Eurozone partners. Figures for budget deficits, costs for the bank guarantee, banks provisions for bad loans, NAMA business plans have all been amended/changed throughout the period since September 2008.

Elements in this country went as far as blaming the Eurozone banks for the profligacy of the Irish banking sector. It is clear that the behaviour of the Irish banks caused the financial crisis in Ireland, not the Eurozone.

Taking all of this in to account, I can understand why other countries might want to get further concessions from Ireland.

Mike Clerk

I dont think the European Union really thinks of Ireland they are dominated by bigger powers like Britain,France and Germany.

carpejugulum

hatrickpatrick wrote: »

...when it's arguably what got us into this mess in the first place?

IE, would it not be a better idea to let us use the bailout to stimulate the economy now, and save the slash and burn austerity for the near-ish future when the economy would hopefully be in a much better state to cope with it?

I mean the way I see it they'd be much more likely to get all their money back and our economy would be much more likely to recover... Procyclical fiscal policy is widely regarded as what f*cked us in the first place, so how can we imagine that it will help in the reverse?
Just a thought. I could be wrong.

Recover to what? Because the Irish economy is currently at the level it was without the bubble credit but with much more debt.We have to have austerity and realistically grow the economy without growing the government budget.

Sand

hatrickpatrick wrote: »

...when it's arguably what got us into this mess in the first place?

IE, would it not be a better idea to let us use the bailout to stimulate the economy now, and save the slash and burn austerity for the near-ish future when the economy would hopefully be in a much better state to cope with it?

I mean the way I see it they'd be much more likely to get all their money back and our economy would be much more likely to recover... Procyclical fiscal policy is widely regarded as what f*cked us in the first place, so how can we imagine that it will help in the reverse?
Just a thought. I could be wrong.

As already pointed out, Ireland is already engaged in a huge stimulus program on borrowed money over the past 5 years with not much to show for it. Tiny open economies are the least suited to borrow and spend recovery programs.

But more to the point - our EU colleagues would need to be extremely naive to believe Irish politicians would seriously tackle spending in the midst of an economic boom. Irish politicians can barely summon the courage to publicly disagree with a trade union even when the country teeters on the brink of bankruptcy. The EU wont trust us to delay austerity because they know as soon as the pressure is off, austerity will never happen - instead politicians will spend and spend and spend.

Its not a particularly Irish problem - look at what has happened since Draghi's public declaration that the ECB will do whatever it takes to save the Euro - the Eurozone crisis is over, according to the governments.

Just a note, the thread is two years old...

KyussBishop

The thread is pretty old alright, but it's just as relevant now, and shows how we're still in pretty much the same unresolved mess as 2 (or 5) years ago.


Austerity isn't even a necessary undertaking in the first place, as there is no sense in pulling back spending until you reach full economic capacity (usually signified by full employment); otherwise you're just constraining your own tax intake, and wasting the productive potential of all that idle labour.

Austerity prevents the economy from reaching its full growth potential, because of how it forces so much labour to remain idle; you don't have to fund stimulus/spending with Ireland taking on more debt, as there are multiple EU level policies that can be undertaken to provide that funding, from recycling of surplus savings through issuing centralized bonds (which are sold on bond markets, not sold to individual governments), and through monetary financing (limited by inflation).

Benefits every country in Europe, including Germany (due to increased economic activity), and resolves the economic crisis in Europe, but prevented due to politics; primarily by Germany trying to hold other countries in economic turmoil, for their own political/economic benefit (but if they stay on this course it's going to backfire and destroy the Euro).

G Power

ei.sdraob wrote: »

Thats the thing, they are not thinking about the big picture, not even attempting to identify on the elephants in the room

as far as i'm concerned they most likely have us all exactly where they want us. if our politicians and their bosses felt the pain like we are you'd see things changing very quickly but as far as the people in "control" are concerned they've got fantastic lifestyles.

Rightwing

I'm very much in favour of austerity and I laud the Europeans for taking the tough route. It's easy to do what Obama is trying to to in America, and eventually wipe them out with a debt mountain and out of control deficits.

Austerity isn't easy, but no one ever said it was going to be.

murphaph

HatrickPatrick....
Just how much more borrowing do you want the state to engage in?

Our children and their children will already be cursing this generation for what it has done to them. Enough is enough. Time to live within our means and if that means a dramatic reduction in our overall standard of living then so be it. Over and out.

KyussBishop

Again, the country doesn't have to borrow to continue spending with the proper EU policies; I posted this only a handful of posts back:

KyussBishop wrote: »

The thread is pretty old alright, but it's just as relevant now, and shows how we're still in pretty much the same unresolved mess as 2 (or 5) years ago.


Austerity isn't even a necessary undertaking in the first place, as there is no sense in pulling back spending until you reach full economic capacity (usually signified by full employment); otherwise you're just constraining your own tax intake, and wasting the productive potential of all that idle labour.

Austerity prevents the economy from reaching its full growth potential, because of how it forces so much labour to remain idle; you don't have to fund stimulus/spending with Ireland taking on more debt, as there are multiple EU level policies that can be undertaken to provide that funding, from recycling of surplus savings through issuing centralized bonds (which are sold on bond markets, not sold to individual governments), and through monetary financing (limited by inflation).

Benefits every country in Europe, including Germany (due to increased economic activity), and resolves the economic crisis in Europe, but prevented due to politics; primarily by Germany trying to hold other countries in economic turmoil, for their own political/economic benefit (but if they stay on this course it's going to backfire and destroy the Euro).

Head The Wall

Reposting it again does not alter the fact that most people don't believe what you are saying. It's not that they missed it but they don't think your magic idea is even half believable.

KyussBishop

Head The Wall wrote: »

Reposting it again does not alter the fact that most people don't believe what you are saying. It's not that they missed it but they don't think your magic idea is even half believable.

I don't care what people believe; if they are factually wrong about something, I point that out.

You don't speak for people beyond yourself either; those that disagree with me are free to engage in argument and speak for themselves (something which, an argument, your post is entirely lacking).

Rightwing

KyussBishop wrote: »

The thread is pretty old alright, but it's just as relevant now, and shows how we're still in pretty much the same unresolved mess as 2 (or 5) years ago.


Austerity isn't even a necessary undertaking in the first place, as there is no sense in pulling back spending until you reach full economic capacity (usually signified by full employment); otherwise you're just constraining your own tax intake, and wasting the productive potential of all that idle labour.

Austerity prevents the economy from reaching its full growth potential, because of how it forces so much labour to remain idle; you don't have to fund stimulus/spending with Ireland taking on more debt, as there are multiple EU level policies that can be undertaken to provide that funding, from recycling of surplus savings through issuing centralized bonds (which are sold on bond markets, not sold to individual governments), and through monetary financing (limited by inflation).

Benefits every country in Europe, including Germany (due to increased economic activity), and resolves the economic crisis in Europe, but prevented due to politics; primarily by Germany trying to hold other countries in economic turmoil, for their own political/economic benefit (but if they stay on this course it's going to backfire and destroy the Euro).

I agree austerity does prevent growth, but a diet also prevents an over weight individual from becoming even more over weight.

The question we should be asking is, do we want to be over weight / having mountains of debt and major deficits?

I pick austerity / diet any day.

ezra_pound

KyussBishop wrote: »

I don't care what people believe; if they are factually wrong about something, I point that out.

You don't speak for people beyond yourself either; those that disagree with me are free to engage in argument and speak for themselves (something which, an argument, your post is entirely lacking).

Yes. You're right. I believe in your magic money tree. Everyone else is wroing for not believing in it.

Keep pointing out the truth man!

These non believers just fail to see that governments tax money only to destroy it. Keep preaching to the blind and they too, like me may come around and see the light.

Money really does grow on trees!

From a recently converted doubter.

KyussBishop

Rightwing wrote: »

I agree austerity does prevent growth, but a diet also prevents an over weight individual from becoming even more over weight.

The question we should be asking is, do we want to be over weight / having mountains of debt and major deficits?

I pick austerity / diet any day.

Again, ignoring flawed analogies, as pointed out in the exact post you are quoting, further national debt does not need to be leveled upon Ireland, in order to provide funding.

It's right there in the post you quote, so that is extremely selective reading...actually, it's right in the same sentence you are highlighting:

KyussBishop wrote:

Austerity prevents the economy from reaching its full growth potential, because of how it forces so much labour to remain idle; you don't have to fund stimulus/spending with Ireland taking on more debt, as there are multiple EU level policies that can be undertaken to provide that funding, from recycling of surplus savings through issuing centralized bonds (which are sold on bond markets, not sold to individual governments), and through monetary financing (limited by inflation).

KyussBishop

ezra_pound wrote: »

Yes. You're right. I believe in your magic money tree. Everyone else is wroing for not believing in it.

Keep pointing out the truth man!

These non believers just fail to see that governments tax money only to destroy it. Keep preaching to the blind and they too, like me may come around and see the light.

Money really does grow on trees!

From a recently converted doubter.

Yes, when posters can not come up with anything better than labeling someones position as "magic/magic money tree", it is pretty clear they don't have any actual countering arguments.

Are you going to engage in an actual argument, or only smears?

ezra_pound

KyussBishop wrote: »

Again, ignoring flawed analogies, as pointed out in the exact post you are quoting, further national debt does not need to be leveled upon Ireland, in order to provide funding.

It's right there in the post you quote, so that is extremely selective reading...actually, it's right in the same sentence you are highlighting:

He just doesn't believe in the magic tree. The important thing is to get government and the ecb to believe. Focus attention on converting the people who really matter.

ezra_pound

KyussBishop wrote: »

Yes, when posters can not come up with anything better than labeling someones position as "magic/magic money tree", it is pretty clear they don't have any actual countering arguments.

Are you going to engage in an actual argument, or only smears?

But I believe. I'm agreeing with you.

That is your argument right?

ezra_pound

KyussBishop wrote: »

Yes, when posters can not come up with anything better than labeling someones position as "magic/magic money tree", it is pretty clear they don't have any actual countering arguments.

Are you going to engage in an actual argument, or only smears?

I've made so many counter arguments in the past that I gave up and converted. Now I believe.

Head The Wall

KyussBishop wrote: »

I don't care what people believe; if they are factually wrong about something, I point that out.

You don't speak for people beyond yourself either; those that disagree with me are free to engage in argument and speak for themselves (something which, an argument, your post is entirely lacking).

Likewise until what you are claiming actually happens I will point out that you are wrong.

You are the only one here regurgitating this all the time, does that not tell you something?

KyussBishop

Head The Wall wrote: »

Likewise until what you are claiming actually happens I will point out that you are wrong.

You are the only one here regurgitating this all the time, does that not tell you something?

If you have an argument against anything I've posted in this thread, provide it; asserting "you are wrong" (which is the only response anyone has posted here) is not an argument.

The majority of the policies I've posted do not even rely upon MMT either.

ezra_pound

KyussBishop wrote: »

If you have an argument against anything I've posted in this thread, provide it; asserting "you are wrong" (which is the only response anyone has posted here) is not an argument.

The majority of the policies I've posted do not even rely upon MMT either.

Nobody agrees with mmt until they get taken to room 101, you know that. I have learnt to love mmt. It was painful, but I learnt to love it.

ezra_pound

... even I, once a brazen inflation scaremonger now love the sound of those sweet words 'mmt says so', and 'you clearly don't understand inflation and what causes it'.

But this is love, not reason. It is the love that comes out of hours of torturous misery. We don't need to engage with these nonbelievers with reason. They'll come to love the modern money tree theory. It will be painful torture not reason that will convert them but in the end they will learn to love it.

darkhorse

KyussBishop wrote: »

Yes, when posters can not come up with anything better than labeling someones position as "magic/magic money tree", it is pretty clear they don't have any actual countering arguments.

Are you going to engage in an actual argument, or only smears?

I got that in a few threads, KB. I don't know why some people just are'nt interested in producing facts, instead of "Ah, he's got no credibility, or he does'nt know what he's talking, even though you could quoting from a Harvard educated business person.

darkhorse

Rightwing wrote: »

I agree austerity does prevent growth.
I pick austerity any day.

It looks silly presented in this context, does'nt it?

Correct me if I'm wrong, but too much austerity breeds stagnation in an economy.

darkhorse

ezra_pound wrote: »

He just doesn't believe in the magic tree. The important thing is to get government and the ecb to believe. Focus attention on converting the people who really matter.

ezra_pound wrote: »

But I believe. I'm agreeing with you.

ezra_pound wrote: »

I've made so many counter arguments in the past that I gave up and converted. Now I believe.

But the government, the ecb and the ep do believe, cause they are on lotto type salaries and expenses, so as far as they are concerned there really is a money tree, and they even named it, it's called eu taxpayers.

KyussBishop

darkhorse wrote: »

I got that in a few threads, KB. I don't know why some people just are'nt interested in producing facts, instead of "Ah, he's got no credibility, or he does'nt know what he's talking, even though you could quoting from a Harvard educated business person.

Indeed; there's not much that can be done, when there is not any counterargument presented, just disparagement (it seems well below posting standards...).

The main problem I have with it, is that it's hard to contest it, when describing the type of behaviour with appropriate words, leads to getting warned, so it just devolves into the same small band of posters trying to shout-down any arguments involving "money creation" every time it comes up (so it's not really possible to ignore it, as it's not just the odd post), with a restricted ability for me to respond to that, other than stating "you don't provide any argument".

Head The Wall

Well in theory I could just make the cure for cancer, the reality of it is very different though.

This is where you stand, if it was that simple why hasn't it happened. You haven't provided any credible examples or explanations

KyussBishop

If you actually want to discuss it, rather than just disparage it (and I'll talk about MMT here, since it is that which you're disparaging; which btw, most of the policies I discussed earlier do not depend on), then tell me, in the context of the US for sake of simplicity:
What negative effect is there, to the US government using money creation to supplement public spending, and limiting that spending based on hitting the inflation target?

Note that this is money-creation/spending limited by the inflation target, which by definition, immediately makes hyperinflation scaremongering a load of nonsense.

View

KyussBishop wrote: »

Indeed; there's not much that can be done, when there is not any counterargument presented, just disparagement (it seems well below posting standards...).

The arguments against your favourite theory have already been presented specifically that such actions would have an inflationary effect.

Given that inflation has been over target for most of the last two years, policies which would add to inflation have had little to no chance of finding favour given the political make-up of the member state governments.

Perhaps if inflation continues to fall that situation might alter but unless it does so they are unlikely to be implemented.

Going Forward

Rightwing wrote: »

I'm very much in favour of austerity and I laud the Europeans for taking the tough route. It's easy to do what Obama is trying to to in America, and eventually wipe them out with a debt mountain and out of control deficits.

Austerity isn't easy, but no one ever said it was going to be.

This must be the best ever post on Boards.
Frame it.

(Flagellating myself and family as I tpye this.)

KyussBishop

View wrote: »

The arguments against your favourite theory have already been presented specifically that such actions would have an inflationary effect.

Given that inflation has been over target for most of the last two years, policies which would add to inflation have had little to no chance of finding favour given the political make-up of the member state governments.

Perhaps if inflation continues to fall that situation might alter but unless it does so they are unlikely to be implemented.

That's not an argument against it, it's explicitly part of the policy, that it considers inflation, and is capped by the inflation target; address the actual argument instead of straw-manning it, once-again.

How on earth does it matter if government spending can be inflationary, when it is limited by the inflation target which will be targeted for reaching anyway? (Ireland btw, is well below inflation targets; which itself is an adjustable policy)

Bank lending, depends on central bank shoring-up of bank reserves through money creation, and is inflationary as well; it's a simple difference between private (bank lending) vs public (government spending) money creation.


The entire point people seem to miss, is that you need to look at what you're spending on, to determine how inflationary it is, and also to look at how inflation works; that's the entire point of my reframing government spending, based on the inflation target, instead of on taxes; to try and encourage people to actually think in those terms.

For one, if the spending is actually going into increasing economic activity, then it's (directly or indirectly) leading to an increase in the production of goods, and has a very low inflationary effect (since inflation is about too much money, chasing too few goods, and in general, about supply/resources bottlenecks).


The wider point as well, is that you can actually look at policies which avoid future inflation (such as from the future shortage of oil supplies, causing oil price increases), by trading a short-term inflation now (to build new power infrastructure not dependent upon oil), to avoid the much higher and persistent inflation in the future.

The "but that's inflationary" argument applied to that, fails on its own terms, because it would veto that short-term increase in inflation, and end up with a much larger and more persistent/costly inflationary increase in the future.


Again, the point is to get people thinking about inflation and how it actually works, because the "but that's inflationary" argument entirely misses the point, when that inflation may be extremely small and/or counteracted by future benefits.

ezra_pound

KyussBishop wrote: »

That's not an argument against it, it's explicitly part of the policy, that it considers inflation, and is capped by the inflation target; address the actual argument instead of straw-manning it, once-again.

How on earth does it matter if government spending can be inflationary, when it is limited by the inflation target which will be targeted for reaching anyway? (Ireland btw, is well below inflation targets; which itself is an adjustable policy)

Bank lending, depends on central bank shoring-up of bank reserves through money creation, and is inflationary as well; it's a simple difference between private (bank lending) vs public (government spending) money creation.


The entire point people seem to miss, is that you need to look at what you're spending on, to determine how inflationary it is, and also to look at how inflation works; that's the entire point of my reframing government spending, based on the inflation target, instead of on taxes; to try and encourage people to actually think in those terms.

For one, if the spending is actually going into increasing economic activity, then it's (directly or indirectly) leading to an increase in the production of goods, and has a very low inflationary effect (since inflation is about too much money, chasing too few goods, and in general, about supply/resources bottlenecks).


The wider point as well, is that you can actually look at policies which avoid future inflation (such as from the future shortage of oil supplies, causing oil price increases), by trading a short-term inflation now (to build new power infrastructure not dependent upon oil), to avoid the much higher and persistent inflation in the future.

The "but that's inflationary" argument applied to that, fails on its own terms, because it would veto that short-term increase in inflation, and end up with a much larger and more persistent/costly inflationary increase in the future.


Again, the point is to get people thinking about inflation and how it actually works, because the "but that's inflationary" argument entirely misses the point, when that inflation may be extremely small and/or counteracted by future benefits.

That's right chief.

Just one thing. How do we ensure that the extra money created goes directly into producing goods thus preventing inflation? I don't understand. surely it just enters the financial system?

KyussBishop

ezra_pound wrote: »

That's right chief.

Just one thing. How do we ensure that the extra money created goes directly into producing goods thus preventing inflation? I don't understand. surely it just enters the financial system?

The policy isn't supposed to prevent inflation, it spends up to the inflation target (which can be adjusted), instead of up to the limit of tax intake.

That extra money gives people jobs, giving them enough money to spend on paying bills, paying down debt, and buying essential goods, as well as giving them greater disposable income for non-essential goods; that's all money going directly into peoples hands, increasing aggregate demand in general, which pumps private industry (and the production of goods plus availability of private jobs) back up.


Since you haven't presented any problems with limiting spending by the inflation target, instead of by taxes, that would (for a government in control of its own currency, like the US or a federal EU) also fundamentally change the role of taxes; copied from my post in another thread (for others benefit mainly, as I can predict the trite response you will have to it, judging by every one of your posts in the thread thus far):

Lets say that this is a representation of how government finances currently work:
||Gov Current Account||Revenue Account||Private sector
Operation||Assets||Assets||Assets
Taxation||||+Tax||-Tax
Revenue to current account||+Tax||-Tax||
Government spending||-Spending||||+Spending

Now lets change this, and allow government to spend through money creation (we need to add the central bank for this); this is shown by 'Current account top-up', which would only happen when the current account hits 0 (when all tax funds have been used up):
||Central Bank||Gov Current Account||Revenue Account||Private sector
Operation||Money supply||Assets||Assets||Assets
Taxation||||||+Tax||-Tax
Revenue to current account||||+Tax||-Tax||
Current account top-up||+Money creation||+Money creation||||
Government spending||||-Spending||||+Spending


Here is where the whole perspective change happens: If a government can spend through money creation (limited only by an inflation target of 2-4%) then this is equivalent to taking taxes out of the money supply itself.

This is effectively exactly the same as the previous table, you just change the operation above, 'Revenue to current account', to 'Destroy taxes' below (taking the taxed money directly out of the money supply itself):
||Central Bank||Gov Current Account||Revenue Account||Private sector
Operation||Money supply||Assets||Assets||Assets
Taxation||||||+Tax||-Tax
Destroy taxes||-Tax||||-Tax||
Current account top-up||+Money creation||+Money creation||||
Government spending||||-Spending||||+Spending


So, what is the purpose of taxation, for a government with control over its own currency?
Such a government does not need taxes in order to fund spending, do they? (they can always source it from money creation)

There are economic limits to this though, because you don't want to cause excessive inflation beyond 2-4%, so government can spend up to the inflation target limit; this means, that for a government with control over its own currency, taxes are used to manage inflation.


So additionally, not only would government spending be limited by the inflation target, government can specifically use taxes to manage inflation, and can also direct taxes directly into parts of the economy that are overheating and causing inflation (allowing much more specific management of inflation, as a part of government policy).

johnnyskeleton

There are economic limits to this though, because you don't want to cause excessive inflation beyond 2-4%, so government can spend up to the inflation target limit; this means, that for a government with control over its own currency, taxes are used to manage inflation.

Inflation is currently about 1.7%. So how much could we borrow and spend to keep it within your 2-4% target?

As regards an increase in goods, what goods exactly? Do you accept that if someone can make a good that is wanted and can sell for a profit, it will probably be made right now? So most stimulus packages run at a loss ie the value of the goods is lower than the cost to make them. An example would be that at an Irish factory would have to sell a pair of jeans it produces for €40 but in order to compete with china they have to sell them for €20, thus being subsidized by €20 per pair. Thus only part of the increase in spending is matched by goods.

Moreover, this will only last as long as the stimulus and those jobs will go afterwards. This also discourages other jeans companies from setting up because their main competitor is state backed.

In terms of the source of the funds, it doesn't really matter whether Ireland or the eu borrows the money, it is still borrowed money on top of existing deficit spending. If the ecb prints the extra money in 2013, are they going to keep printing it in 2014, 2015 and so on?

So additionally, not only would government spending be limited by the inflation target, government can specifically use taxes to manage inflation, and can also direct taxes directly into parts of the economy that are overheating and causing inflation (allowing much more specific management of inflation, as a part of government policy).

So you're saying we should spend more and tax more? People who work hard to set up profitable businesses should have their profits taken away from them to sustain unprofitable state enterprises?

No thanks.

By the way, I think there is one point that we can all agree on - the governments policy of cutting its capital budget ie that which creates some jobs and infrastructure, to keep current spending going ie social welfare and ps wages, was a very bad policy.

KyussBishop

johnnyskeleton wrote: »

Inflation is currently about 1.7%. So how much could we borrow and spend to keep it within your 2-4% target?

I'm not talking about borrowing, my post makes very clear this kind of funding comes from money creation (and is talking in the context either of the US or a federal EU).

The amount of money you can create and spend, depends upon what you are spending the money on; if the money goes indirectly into the production of goods and in raising employment and economic activity in general (which it would, by going into workers hands through wages), there is a very low inflationary cost from that, since inflation is caused by too much money chasing too few goods (which production of would be increased), and is caused by resource bottlenecks (the most important of which, being labour shortages upon reaching full employment, hence when full employment is reached, spending stops and is cut back to avoid inflation).

johnnyskeleton wrote: »

As regards an increase in goods, what goods exactly? Do you accept that if someone can make a good that is wanted and can sell for a profit, it will probably be made right now? So most stimulus packages run at a loss ie the value of the goods is lower than the cost to make them. An example would be that at an Irish factory would have to sell a pair of jeans it produces for €40 but in order to compete with china they have to sell them for €20, thus being subsidized by €20 per pair. Thus only part of the increase in spending is matched by goods.

That's for consumers and private industry to decide; consumers will be working for the money, and they will decide where to spend it, and industry will ramp up production as aggregate demand increases.

The problem right now is the lack of money in consumers hands (thus there is no point in industry producing more goods, or ramping up production now; you can't increase demand from the supply side), and the high private debt loads that have become unsustainable; these are problems largely caused by unemployment, and increased taxes, both of which can be solved through government use of money creation and adjustment of fiscal policy.

Money creation that goes through the private banking system is debt-based, and thus must only be used for purposes that return a profit (a highly risky and uncertain task in the current economy, due to the severe lack of consumer demand); money creation going through government is not debt based (thus does not need to return a profit), and can be used to directly create jobs, where the wages for that pump up private industry through consumer demand.

johnnyskeleton wrote: »

Moreover, this will only last as long as the stimulus and those jobs will go afterwards. This also discourages other jeans companies from setting up because their main competitor is state backed.

The government spending on providing jobs lasts until private industry has reabsorbed all of the workers away from the jobs program; once all of that labour is re-employed in private industry, there is a labour supply shortage which requires the spending to be cut to prevent inflation.

If there is to be significant inflation before private industry reabsorbs all of the workers, that needs to be caused by some other serious supply shortage in private industry; there isn't any indication of that happening, and that would be a problem current austerity policies have to deal with as well, so would be a totally separate issue, not specifically relevant to these policies, if the problem existed.

johnnyskeleton wrote: »

In terms of the source of the funds, it doesn't really matter whether Ireland or the eu borrows the money, it is still borrowed money on top of existing deficit spending. If the ecb prints the extra money in 2013, are they going to keep printing it in 2014, 2015 and so on?

There is no borrowing (if contesting the money-creation issues, is better to discuss in terms of the US or something, to separate the much wider set of arguments I applied to the EU at the start of the thread); as described above, the funding goes on up to the point of hitting the inflation target (which itself is an adjustable policy), which allows significant room for spending up to full employment (since spending all becomes about inflation management, i.e. about resource management and avoiding supply bottlenecks, not about taxes or borrowing).

johnnyskeleton wrote: »

So you're saying we should spend more and tax more? People who work hard to set up profitable businesses should have their profits taken away from them to sustain unprofitable state enterprises?

No that's not what I said; spend up to the point of hitting the (possibly adjusted) inflation target, and then (if at less than full employment) use tax to control inflation in specific parts of the economy where it occurs, and when full employment is reached, start cutting back spending.

The taxes don't come at the same time as, and are not proportionate to government spending (making this completely different to how current government funding works); they are reactionary to approaching/hitting the inflation target.

johnnyskeleton wrote: »

By the way, I think there is one point that we can all agree on - the governments policy of cutting its capital budget ie that which creates some jobs and infrastructure, to keep current spending going ie social welfare and ps wages, was a very bad policy.

Well, with these policies it's not an either/or, though we can agree that government creating jobs is better; with these policies, you could pretty much end social welfare (it would still exist, just barely utilized) and have everyone in the job program, earning and spending instead.

Much less of a waste of resources, and far better for those who have fallen out of work in private industry, and also is an automatic stabilizer for private industry during economic crisis.

antoobrien

KyussBishop wrote: »

So, what is the purpose of taxation, for a government with control over its own currency?

Fundamental flaw - no government (including the UK or US) has total control over their currency. And for any monetary mechanism that calls for unchecked inflation (which is the effect of printing more money to pay bills) needs both absolute control over the currency - i.e. no outside factors - and absolute control over the economy - which we know is not possible and has failed rather spectacularly.

KyussBishop

You don't need total control over the currency (just central bank co-operation), and even then, having total control or not is a policy choice; the spending with these policies is specifically limited by the inflation target (which can be adjustable); using money creation for public purposes rather than private-only (i.e. private bank lending) does not mean unchecked inflation (specifically because, that would be limited by the inflation target); none of this requires absolute control over the economy (that is asserted and there is no argument behind it).

That is a lot of non-sequiturs, and conditions I never stated (thus straw-men), and I also specifically addressed some of those problems repeatedly in every single post thus far.

antoobrien

KyussBishop wrote: »

You don't need total control over the currency (just central bank co-operation),

so it actually does need total control then because all central banks have to agree not to do anything that will affect the currenices of every other central bank

KyussBishop wrote: »

and even then, having total control or not is a policy choice; the spending with these policies is specifically limited by the inflation target (which can be adjustable);

Inflation targets are notoriously flaky and hard to achieve, and as we have seen in Ireland (not to mention Zimbabwe) in the last 10 years once inflation starts it is very hard to stop without damaging the economy.

KyussBishop wrote: »

using money creation for public purposes rather than private-only (i.e. private bank lending) does not mean unchecked inflation (specifically because, that would be limited by the inflation target); none of this requires absolute control over the economy (that is asserted and there is no argument behind it).

There's no economic difference between giving money to banks to loan and spending it on bills.

KyussBishop wrote: »

That is a lot of non-sequiturs, and conditions I never stated (thus straw-men), and I also specifically addressed some of those problems repeatedly in every single post thus far.

The only strawman on show here is the propensity to ignore all challenges as strawmen. At this stage it's like trying to talk to a creationist.

Stop cherry picking the nice effects and ignoring the bad ones of the policies you are espousing, as well as trying to talk away the gaping holes in your theories.

KyussBishop

antoobrien wrote: »

so it actually does need total control then because all central banks have to agree not to do anything that will affect the currenices of every other central bank

No; where are you getting this from? Central banks could just use an inflation target policy, with the ability to put money creation through government, instead of all through the private banking system.

It's money creation going for public purposes rather than private; that is the primary difference at the central bank level.

antoobrien wrote: »

Inflation targets are notoriously flaky and hard to achieve, and as we have seen in Ireland (not to mention Zimbabwe) in the last 10 years once inflation starts it is very hard to stop without damaging the economy.

Inflation targets are easy to achieve, when you utilize taxation to specifically dampen prices in parts of the economy that are overheating.

antoobrien wrote: »

There's no economic difference between giving money to banks to loan and spending it on bills.

There is a massive difference; the person pays their bills!

One way (government spending) lets people pay off debt and buy goods, and helps pump up the private economy again, the other way (private lending) just allows people to go into debt.

antoobrien wrote: »

The only strawman on show here is the propensity to ignore all challenges as strawmen. At this stage it's like trying to talk to a creationist.

This is a strawman: "And for any monetary mechanism that calls for unchecked inflation"
I specifically addressed the inflation targeting aspect of this in just about every single post here in this thread, so that was nothing other than a straw-man.

I have replied to every challenge, strawman or not, so don't go whinging that I'm trying to evade arguments, as you know that's nonsense; I've addressed every one.

antoobrien wrote: »

Stop cherry picking the nice effects and ignoring the bad ones of the policies you are espousing, as well as trying to talk away the gaping holes in your theories.

What bad ones? You have failed to nail any negative effects of these policies.

antoobrien

KyussBishop wrote: »

No; where are you getting this from?

Economic history. For your system to work, all the central banks have to work together, signing off the same hymn sheet. One of the reasons for the creation of the EMU, later the Euro is that the central banks all had diverging targets which caused problems for "free trade" within the EEC/EU.

KyussBishop wrote: »

Central banks could just use an inflation target policy, with the ability to put money creation through government, instead of all through the private banking system.

It's money creation going for public purposes rather than private; that is the primary difference at the central bank level.

There is no difference. Cash, like gold is fungible. Once it's out, its out your control and at the end of the day, all money ends up in private hands.

KyussBishop wrote: »

Inflation targets are easy to achieve, when you utilize taxation to specifically dampen prices in parts of the economy that are overheating.

We and others have tried that and failed. How is your system different.

KyussBishop wrote: »

There is a massive difference; the person pays their bills!

One way (government spending) lets people pay off debt and buy goods, and helps pump up the private economy again, the other way (private lending) just allows people to go into debt.

What about the assets acquired, goods and services bought with that debt? I buy something using my credit card - debt - allowing me to pay for it at a rate of my choosing. Meanwhile I have my good/service/asset.

KyussBishop wrote: »

This is a strawman: "And for any monetary mechanism that calls for unchecked inflation"
I specifically addressed the inflation targeting aspect of this in just about every single post here in this thread, so that was nothing other than a straw-man.

It's only a strawman if you ignore the consequences of actively pursing inflation in the first place. You state that tax can be used to control inflation, well that has been show to fail.

KyussBishop wrote: »

I have replied to every challenge, strawman or not, so don't go whinging that I'm trying to evade arguments, as you know that's nonsense; I've addressed every one.


What bad ones? You have failed to nail any negative effects of these policies.

Inflation devalues wages while increasing costs. Spending from the top does not rise all boats equally, so unless all wages rise at the same rate as costs (good luck with that) you're devaluing money while making goods more expensive.

This means more money is required. I suggest you pick up a book on the economic history of the Weimar Republic to see where that leads.

KyussBishop

KyussBishop wrote: »

Lets say that this is a representation of how government finances currently work:
||Gov Current Account||Revenue Account||Private sector
Operation||Assets||Assets||Assets
Taxation||||+Tax||-Tax
Revenue to current account||+Tax||-Tax||
Government spending||-Spending||||+Spending

Now lets change this, and allow government to spend through money creation (we need to add the central bank for this); this is shown by 'Current account top-up', which would only happen when the current account hits 0 (when all tax funds have been used up):
||Central Bank||Gov Current Account||Revenue Account||Private sector
Operation||Money supply||Assets||Assets||Assets
Taxation||||||+Tax||-Tax
Revenue to current account||||+Tax||-Tax||
Current account top-up||+Money creation||+Money creation||||
Government spending||||-Spending||||+Spending


Here is where the whole perspective change happens: If a government can spend through money creation (limited only by an inflation target of 2-4%) then this is equivalent to taking taxes out of the money supply itself

As an accountant rather than an economist the first table pleases me - everything balances.

The second doesn't please me - an asset has been created from nothing and the table doesn't balance.

I recognise that accounting and economics aren't the same thing - but money is supposed to reflect what is happening in the economy, creating money from thin air doesn't change anything.

Separately - you say this would only be used up to a certain point of inflation.
Supposing this worked - how would the mechanism be managed when spending plans are set out for a year in advance and inflation figures are only know in arrears - could the tap be switched on and off at will? What if we hit the inflation target early - do we cut spending, raise taxes?

How would you distinguish between inflation caused by other factors and inflation caused by money creation?