There are no loans. All money you have came from the Government. what I’m suggesting ie the Government replacing lost spending with its own does NOT raise aggregate demand in any significant way, it’s a stabilizing policy.
Government deficit in this case keeps income of workers and employment unchanged relative to before.
It may be inflationary if the Govt decides to build new industries as that Increases aggregate demand. But keeping existing production doesn’t do that.
I think it was Abba Lerner who said that imports cause unemployment and output losses only if there is no full employment policy in place by the Government.
Where do you think the Government gets any money in general? You may say taxes. But where do people get the money to pay taxes? The Government itself.
That’s what I’m saying, spending creates income. Spending logically comes before taxation because if Gov doesn’t spend people won’t have money to pay taxes. The two sources of widely used money are
Government spending
Bank lending
Banks make their own money ie your deposits at bank convertible to Government money, to prevent bank runs, the Central Bank provides reserves on demand. By managing reserves, the interest rate is maintained at target set by the CB.
Many governments take out loans. But you are hoping for a circular economy to work where government pays for subsidies and wages, then they tax people and companies and make some of that back. But that money will run out. Not to mention people are going to be using that money for foreign products where parts of it flow outward and not back to government coffers.
No I am saying all money that exists comes from Government or Government authorised commercial banks.
Also economy is circular. Money goes round. Money is only deleted when you pay your debts whether tax debts or commercial bank debt.
Not to mention people are going to be using that money for foreign products where parts of it flow outward and not back to government coffers.
Nope. Money never goes out of the country. All money exists as electronic entries at banks or Central bank. When you exchange say Euro for Dollars, you are giving Euros to a bank who then gets the Euros and gives you Dollars from the market. The amount of Euros doesn’t change.
But yes imports are a drain on demand, which is exactly why any leakage from imports must be countered to prevent drop in output and employment.
This is why US Govt must run fiscal deficits to counter Trade Deficits given rest of the world’s desire to accumulate US dollar assets. Otherwise the local private sector will be indebted.
Your proposed economy is pretty bonkers. Government pays for subsidies and wages, then hopes to make back it all with taxes on those same wages. And all this to prop up a manufacturing industry fighting a subsidy war agains the likes of China and USA. The small country in question is going to go bankrupt
Not to mention, in this scenario the country isn’t taking loans since those don’t exist but is just printing money? I didn’t really understand that part. How is it all funded initially, until this circular perpetual motion machine takes over?
I’m not proposing anything this is how all economies work. This is just the accounting reality.
Gov can’t take a loan when people don’t have money. Spending will always come before income. That part is just standard Keynesian economics. Keynes limited it to private sector but it’s exact same for Government.
Please tell me, a new country is formed on another planet. The newly formed state wants to spend, it imposes tax obligations. How will people pay taxes when money hasn’t been spent yet?
What you’ve described definitely doesn’t sound regular. Interest rates don’t exist, printing more and mormoney to pay for stuff doesn’t cause inflation etcc.
Spending before income, sure. But this plant isn’t actually making an income since it has to fight against Chinese, American manufacturing and they can out-subsidise their manufacturing so much so that your domestic manufacturing isn’t competitive anymore. That’s the whole issue.
Now as it stands, the government takes a loan they have to pay interest on to subsidise manufacturing and they’re hoping to get the money back (unless they want to keep taking loans) through taxes. You’ll just lose out money without any tangible benefit. You could use that money to pay for roads at least!
There are no loans. All money you have came from the Government. what I’m suggesting ie the Government replacing lost spending with its own does NOT raise aggregate demand in any significant way, it’s a stabilizing policy.
Government deficit in this case keeps income of workers and employment unchanged relative to before.
It may be inflationary if the Govt decides to build new industries as that Increases aggregate demand. But keeping existing production doesn’t do that.
I think it was Abba Lerner who said that imports cause unemployment and output losses only if there is no full employment policy in place by the Government.
You can read the book I linked if you want to.
Where does the government get the money to pay the workers and the subsidies?
Where do you think the Government gets any money in general? You may say taxes. But where do people get the money to pay taxes? The Government itself.
That’s what I’m saying, spending creates income. Spending logically comes before taxation because if Gov doesn’t spend people won’t have money to pay taxes. The two sources of widely used money are
Government spending
Bank lending
Banks make their own money ie your deposits at bank convertible to Government money, to prevent bank runs, the Central Bank provides reserves on demand. By managing reserves, the interest rate is maintained at target set by the CB.
Many governments take out loans. But you are hoping for a circular economy to work where government pays for subsidies and wages, then they tax people and companies and make some of that back. But that money will run out. Not to mention people are going to be using that money for foreign products where parts of it flow outward and not back to government coffers.
No I am saying all money that exists comes from Government or Government authorised commercial banks.
Also economy is circular. Money goes round. Money is only deleted when you pay your debts whether tax debts or commercial bank debt.
Nope. Money never goes out of the country. All money exists as electronic entries at banks or Central bank. When you exchange say Euro for Dollars, you are giving Euros to a bank who then gets the Euros and gives you Dollars from the market. The amount of Euros doesn’t change.
But yes imports are a drain on demand, which is exactly why any leakage from imports must be countered to prevent drop in output and employment.
This is why US Govt must run fiscal deficits to counter Trade Deficits given rest of the world’s desire to accumulate US dollar assets. Otherwise the local private sector will be indebted.
Your proposed economy is pretty bonkers. Government pays for subsidies and wages, then hopes to make back it all with taxes on those same wages. And all this to prop up a manufacturing industry fighting a subsidy war agains the likes of China and USA. The small country in question is going to go bankrupt
Not to mention, in this scenario the country isn’t taking loans since those don’t exist but is just printing money? I didn’t really understand that part. How is it all funded initially, until this circular perpetual motion machine takes over?
I’m not proposing anything this is how all economies work. This is just the accounting reality.
Gov can’t take a loan when people don’t have money. Spending will always come before income. That part is just standard Keynesian economics. Keynes limited it to private sector but it’s exact same for Government.
Please tell me, a new country is formed on another planet. The newly formed state wants to spend, it imposes tax obligations. How will people pay taxes when money hasn’t been spent yet?
What you’ve described definitely doesn’t sound regular. Interest rates don’t exist, printing more and mormoney to pay for stuff doesn’t cause inflation etcc.
Spending before income, sure. But this plant isn’t actually making an income since it has to fight against Chinese, American manufacturing and they can out-subsidise their manufacturing so much so that your domestic manufacturing isn’t competitive anymore. That’s the whole issue.
Now as it stands, the government takes a loan they have to pay interest on to subsidise manufacturing and they’re hoping to get the money back (unless they want to keep taking loans) through taxes. You’ll just lose out money without any tangible benefit. You could use that money to pay for roads at least!
Interest rates exist. It’s set by the central bank.
Please read the book to understand more. This has been a long thread.