No - it’s not nonsense. It’s my whole point - and what you don’t seem to grasp.
Yes, it is an individual asset to Joe. But to the private sector as a whole - it is a drain (a burden, a tax) when Joe loans the money to the gov’t. It’s money the private sector cannot use. And when Joe gets paid back - he only gets paid back with other private sector money. So there is no net gain to the private sector if Joe gets paid back but Jim now is owed 1M. In effect, Jim paid Joe back. No net gain to the private sector there. Still just the original drain when Joe lent it. And if the gov’t actually pays down debt - then at that time there is a plus to the private sector. A return of capital. (Assuming no increased taxes.) But there still was the original burden to the private sector in the year Joe lent the money.
You just keep focusing on the individual. Forget the individual. Think about the private sector as a whole.
Yes, it’s a new concept. A new way of thinking that I am presenting. But I am still undaunted. The deficit is a tax. No different to the private sector (at that time) as if it were taxed.
That doesn’t make a lick of sense. Joe is private sector. The asset column of his balance sheet is the same after he purchased the bond as it was before. How the hell can “the private sector as a whole” be drained if Joe himself is not being drained??
Again, not true. In the illustration I chose, the government bought asphalt (from a private company, obviously) with Joe’s bond money.
Ah, yes, now here’s a burden. But it’s in 2016, not 2011.
No drain. The money went to Jerry the Asphalt guy the day after Joe lent it to the government.
Again, you’re off the mark at almost every point. If the government pays down the debt, there is still a net loss to the private sector because the government did not use the borrowed funds for uses as valuable as those they would have been put to by private sector borrowers. But this is the case regardless of whether the government manages to pay down its debt or not.
Nope.
This is your whole problem, your methodology is crap. Forgetting the individual is where collectivists go wrong from square A. Please read Mises’s view on this (brief).
Part of the deficit is, indeed, a tax. You are conflating the part of the deficit funded by central bank monetization (inflationary) and the part of the deficit funded by private sector non-consumption (non-inflationary).
The money Joe was “taxed” went to Jerry the Asphalt guy the day after Joe was “taxed.”
Taxed and borrowed are interchangeable when it comes to gov’t spending. It makes no difference. The gov’t returns both to the private sector. If taxes are a burden to the private sector - then so is borrowing.
That’s why it makes no difference to the private sector as a whole. Both are immediate drains. Not future drains. The only thing that matter is gov’t spending. That’s the tax on the economy.(*)
This quote sums up exactly where you’re going wrong. You are looking at things from the government’s point of view but then declaring that these things also hold from the private sector’s point of view. This is simply not true.
The government doesn’t care whether it gets money through loans that it “promises” to repay or through direct taxation or currency devaluation. All that matters to the government is that it has money in its fists. However, the private individual deciding to buy a government bond does so on the basis of a (possibly mistaken) calculation that he believes he can earn a profit from purchasing and either holding the bond to maturity or reselling it to someone else to hold. Taxation is a burden in the sense that nobody sends in taxes voluntarily because nobody ever calculates that it’s to their own advantage to send in taxes. Taxes are a simple loss to one’s balance sheet. Bond purchase, however, is the result of calculation that one can benefit from the purchase of the bond.
Now, this doesn’t make the sale of bonds by government legitimate, to be sure. The government has no business promising to repay Peter with Paul’s money. But to say that all government debt without exception is indistinguishable from taxation in the present is ludicrous. You only do a disservice to truth by insisting on promulgating this. Since you cannot be persuaded by reason, my only request is that you be sure to prominently qualify your “theory” as one completely of your own devising and not, in any way, representative of the views of libertarians or Austrians or anybody else, for that matter. This is right up there with the “Money as Debt” crap.
It’s you that are doing disservice to the truth by reasoning that gov’t borrowing is not, in effect, the same as taxes.
People argue, “oh - the private sector has loads of money available to it” because taxes are low. But the burden on the private sector is not based on taxes. It’s based on gov’t spending. That burden today is 27%.
So long as the gov’t spends the money - it’s money that the private sector loses. If people refuse to lend the money to the gov’t - then the gov’t would not be spending it in the first place. So no deficit spending = no additional tax burden on the private sector.
But so long as the gov’t is able to borrow it - it is in effect a tax on the private sector. It will either never be paid back to the private sector, or paid back through printing, or paid back from others in the private sector. It’s impossible for the gov’t to unspend the money. Once it’s spent - it’s spent.
You are simply wrong on this. I used to believe as you did - but the concept has sunk in on me. And it’s oh so clear to me now. Gov’t spending is the real tax on the private sector. Be it - monetization, taxes, or borrowings. They all impose a burden on the private sector the year they occurred.
That’s not what I’ve argued. You clearly are not comprehending what I’m writing. I am pointing out that not all government borrowing is the same as taxation in the present. All government borrowing is taxation (eventually). But only some (during QE, the vast majority) of government borrowing is inflationary, that is, taxation in the present (even inflation is deferred somewhat because it takes time to ripple through the economy).
I’m not people.
It’s actually much, much higher than this. The official statistics of government spend for all levels of government in the US comes to about 50% GDP. When you factor in that GDP is itself skewed by a good 5%-10% due to inflation, you realize that as much as 60% of the entire economy is public sector spending.
Agreed. Sooner or later, the private sector will lose that money. My only contention is with your assertion that a bond purchase is taxation in the present. That’s simply, flatly and in every other way incorrect.
Now you’re talking about something else, the crowding effect of all government spending (whether from revenues or deficit) on the private sector. There is no need to double-count this and you are only muddying the waters by insisting on evaluating it in terms of bond purchases.
Duh. No one in this thread is disputing that. My contention is solely with your assertion that a bond sale by the government represents a tax in the present.
You’re pretty close to being correct… the only problem is that you must factor out private bond purchases because they are not inflationary. The money which the government “borrows” from the Federal Reserve is not being withheld from expenditure somewhere else in the economy. Therefore, it is inflationary, it causes prices to generally rise from the level that otherwise would have obtained. However, the money which the government borrows from the private sector is not being spent on the other uses it otherwise would have gone to. In order for Joe to buy the $1M bond, he must not buy $1M of something else. His money is only being spent in one place: wherever it is the government spends it.
One last example to try and explain my rational to you, Clayton:
Let’s say that the gov’t today cut taxes to ZERO. But the gov’t still spent 3.7T. They were able to borrow the entire amount in my hypothetical. (No foreign sources or inflation for argument’s sake.)
Would the burden that year on the private sector be zero to you in that example?
(My contention is the real burden on the private sector would still be 3.7T that year. Unchanged. Because the gov’t is still removing the same amount of money from the private sector that year - and it doesn’t matter whether it was taxed or borrowed. It doesn’t matter whether it was voluntary or involuntary. It is a burden the private sector must pay that year since the gov’t did, in fact, spend the money - and money unavailable (to buy asphalt for private projects - for example) to the private sector that year.)
No, it would not be zero but it would not be 3.7T, either. The 3.7T represents the voluntary savings of the bond purchasers, not a “drain from the private sector”. Price increases due to government purchasing - which cannot be measured - would be the burden created by the bond sales. The bond purchasers have enabled the government on the expectation that the government will be able to tax back that 3.7T plus interest. In the meantime, the burden experienced by the private sector in the present would be limited to the increase in prices of things caused by government spending.
No, you’re looking at the wrong side of the equation. The bond purchasers are the ones who have been “drained” of the 3.7T and it does matter that that was their own choice. The burden on the public created by the bonds is the price increases that result from government spending. Actually, the burden would be more complex than just price increases, it would be the general distortion in the market created by the government’s spending patterns. By giving bond investors the opportunity to purchase bonds in an enterprise that will collect its future revenues forcibly, the bond investors themselves are no longer completely subject to market discipline, that is, they are enabling investments that would never have occurred (and, necessarily, quashing investments that would have occurred) had no government existed and offered a bond sale based on future tax revenue expectations. But that’s completely different than saying “3.7T has been drained from the private sector.”
Yes, and the bond purchasers money is part of the private sector. It is money coming out of the private sector. The private sector as a whole is 3.7T poorer. It makes no difference in real terms whether that money was taxed or borrowed. It was taken. That’s all the matters.
As far as their own choice - you keep getting hung up on focusing on the individual instead of the private sector as a whole. Choice/no choice makes no difference to the private sector as a whole. It is money that will not be spent by the private sector. It will be spent by the gov’t. And the individuals that made the choice can ONLY be repaid in the future by others in the private sector. That’s all that matters - the effect on the private sector as a whole.
Anyways, give it time. The concept is sound. Gov’t spending is the real tax. It explains perfectly why the private sector will continue to struggle so long as the gov’t doesn’t cut spending. Regardless of the tax and deficit split of said spending. This is something Republicans do not understand. They only think about tax side of the equation. But the real burden on the private sector is 27% of the GDP. So cutting taxes won’t do chit to help the private sector. Only cutting spending gov’t spending.
I don’t understand where you’re going with this - on the one hand, you want to exaggerate the present effects of the deficit and, on the other hand, you use ridiculously lowball numbers to describe government spending in terms of GDP.
Of course. That’s because all government spending - taxed or borrowed - is paid for from the private sector sooner or later. No need to exaggerate the case and say that all government borrowing is paid for right now. It just is not.