Throw all the money that they tax from you in the sea?
OR
Spend that money?
As far as my knowledge in economics goes, number one is the same as the government cutting the money supply, thereby having a deflationary effect. No resources are misallocated by government spending but consumption is hampered(leads to slowdown in production).
Spending that money has an inflationary effect on the things spent on which means there is a misallocation of resources. In other words, (over)production happens in things that consumers do not want.
I think Lew Rockwell entertained the possibility of number one in “Speaking of Liberty” but African nations who channel taxes into paying debt to the IMF suffer more than if the taxes are spend on domestic economy. Maybe this is because the paying IMF debt will make them export more instead of promote local economic development so it falls under number two. Can anybody shed light on this issue as well?
Let’s see. If I borrowed a bunch of money to finance my mafia operation and then payed it off by “exporting” the regional wealth. Yes, you would think that would be a bit deleterious to that region.
An inflationary boom that misallocates capital and inevitably leads to a depression is like running over someone in a car. The deflationary contraction of the money supply is like backing up the car and running over the body a 2nd time. Deflation by money supply contraction can be as damaging as an inflationary boom. The solution is to prevent the inflationary boom from happening in the first place. You don’t want the gov’t to step in and reflate a deflating money supply - which itself is maintaining inflation. The gov’t needs to step aside and let the economic correction happen abruptly, including a correction in the money supply.
It’s not inflationary when gov’t steals the money from your pocket and spends it for you. The resulting gov’t intervention in the economy does create some distortion though. It’s only inflationary when they print their own money and they go try to buy the fixed amount of real wealth in the economy while you simultaneously try to spend your own money on those same goods.
If you want to understand this more you can read some from this book. The car in reverse example is on page 15 (introduction page xv).
Mises also refers to the fact that deflation can never repair the damage of a priori inflation. In his seminar, he often likened such a process to an auto driver who had run over a person and then tried to remedy the situation by backing over the victim in reverse. Inflation so scrambles the changes in wealth and income that it becomes impossible to undo the effects. Then too, deflationary manipulations of the quantity of money are just as destructive of market processes, guided by unhampered market prices, wage rates and interest rates, as are such inflationary manipulations of the quantity of money.
Intentional deflationary manipulation of the money supply does not undo the damage caused by the previous inflation.
When government taxes it redistributes wealth; by taxing some people more than others it changes what percentage of total goods each person gets.
When government spends it adds a whole new evil. Government spending takes goods out of the market. Now people not only get a different percentage of total goods, but the total amount of goods available to be divided is smaller.
So, after the damage of taxation has been done, after theft has occurred, incentives have been broken you just…throw the money away? No my friend, if I have to chose among these two, I would of course go for spending them. Almost any government expenditure is better than no expenditure. Where they seem very inefficient is only as compared
to the private use of the same funds if untaxed.
Whereas the same doesn’t hold for newly created money: after new money has been created, as long as it sits idly, I can do no damage. But with taxed funds, of course you spend them.
That makes no sense. What does it matter how they got the money? You’re saying that once they’ve got money sometimes it’s good to spend and sometimes it’s not good.
If they can’t give people back the money (redistribute it in the same way as they got it), then the next best thing is to destroy it (as long as we’re talking about fiat money). They should have nothing to do in the market. Any way they would spend it would create bad signals in the market. And as mentioned by others, it would also use up resources in a deleterious manner. So that means it would create a fake boom AND it would raise prices for citizens.
If you think that government taxed money is a form of savings that can be used legitimately then you’re wrong. You have to consider what you see and what you don’t see. If they destroy the money, then they put back those savings in market actors, who are the only ones who can properly use them. As I said: if they’d spend it they would crowd out private activity.
Not legitimate at all. Do not get me wrong. But we’re implicitly assuming that giving them back (or not taking them at all) is somehow unfeasible.
It’s here that we disagree.
Now, I taxed some funds and am facing the choice: to spend them or not to spend them. Not sponging them would be deflation. Let’s see where does that bring us.
I destroy the, say, 1000 dollars. Those from whom I was buying until now receive less income, as do those that buy form them, as do those that buy….you can see the chain here. Now, at some point of the chain, prices will begin to adjust to the decreased money supply. But, just as in inflation, the adjustment will not be immediate nor proportional: those who lost the money earlier will be paying normal prices with lower incomes, while those further down the chain will pay lower prices with unabated incomes. So, even when deflating, you send wrong signals to the market and affect wealth redistribution.
What fault can we find with those who supply the government with paper? Because it will be them who shall loose and its them who we punish in advocating the destruction of taxed funds.
So, I believe it is clear that not spending would be more foolish than spending (there is a reason Austrian economists prescribe a constant supply of money).
The difference between taxed and inflated funds, is that spending inflated funds increases the money supply, and not spending them leaves it unchanged. While with taxed funds, it the opposite. That’s why I draw a line.
Yes, you shouldn’t continue a distortion. The government pays people to build bridges to nowhere. Seems a rather sensible thing to stop wasting those resources.
Government spending is a distortion itself. Stopping that distortion is the right thing to do. Ending the building of bridges to nowhere is not ‘unfair’.
I guess you mean ‘who the government supplies with paper’? The fault is not with those people, the fault is that by supplying people with paper that you are stealing from other people. If I want to give my neighbor free food then that’s fine. What is not fine is stealing that food from my other neighbor. It is precisely the same if person A was a mugger and had the choice to buy goods with the money or to burn the money up.
Austrian economists prescribe a constant supply of money? All of them? Most of them? The most prominent of them? What are you saying?
Guido Hulsmann says any supply of money is fine and the market can adjust to changes in any direction. Hans Hoppe says the same. Joseph Salerno says the same.
The amount of money doesn’t matter to an individual consumer, only his total purchasing power does. You can achieve exactly the same situation in regards to people’s individual total purchasing power through taxation and through inflation. Yet you would prescribe different actions in those cases even though they are exactly the same for all citizens after the fact.
The most prominent of them. At least according to my own preference scale.
“the market can adjust to changes in the money supply in any direction”? Do not tell me! Do you mean that, eve though we have had 100 years of inflation, we still have at least some free market?! It’s preposterous!
Who denied that? Why do I get the impression that you believe I’m advocating taxation? Do not.
All I’m saying is that after funds have been taken form someone, it makes a lot of sense to ask how where they taken: if by monetary fraud, than destroying them will leave the general situation exactly is it would have been without inflation at all. That’s a very desirable course of action.
If money where taken by taxation, than the negative effects have already worked their way. The taxed party has already lost, as well as those who depended on his monetary payments. There’s nothing you can do now (by the tennets of the thread) to change that. What you must decide now is this: would it be better if you spend some money you found on the sidewalk or that you burn it (assume away your own preferences)?
On one hand you are right when pointing out that spending the taxed money will induce some people to make things that will no longer be needed next year (when, by the tennets of the thread, taxation will cease). In this sense, spending will induce malinvestment, but no further redistribution of wealth.
On the other hand, destroying the funds will set deflation going, which will entail maladjustment in the economy (redistribution of wealth), but no malinvestments.
Thus, we “gain” a malum and lose an other. I’m afraid there’s no way to decide (praxeologicaly)which of these two curses is the lesser evil. It will depend on everyone’s preferences. So whatever we do, someone will gain, and someone else will loose.
Practically there’ no “right” way to answer this. But than again, practically this situation would never arise: you can hallway give the money back to the taxpayers.
Money can not be wasted. Only resources can. When government takes in money and refuses to spend, nothing is wasted. All resources are still consumed by the private economy, only at a lower price level.
When government purchases resources and removes them from then economy then waste exists.
Austrians economists, those associated with the Mises institute at least, prescribe a market determined supply of money. The market will determine the exact amount, no artificial ceilings and floors need be constructed.
You seem to not be familiar with what Bastiat called “What is seen and what is not seen.” If government spends money and builds a bridge in Alaska that bridge is what is seen. What is not seen is what use that concrete would have been put to if the government had not bought that bridge.
People say “Wow, we have a new bridge thanks to the government”, but they never stop to wonder what those resources: concrete, steel, labor, etc, would have been used to build if left in private hands.
You went wrong because you failed to see money for what it is, a medium of exchange. Spending money transfers things. In our bridge case, it causes the bridge to be where the government wants it to be instead of where the market would have put it.
The difference is, destroying money does not destroy natural resources. Is does distort savings and definatley will screw up the structure of production, but at the very least those scarce resources, steel, fuels, ect… have not been wasted on erroneous projects.
Having the money spent arbitrarily is precisely where the malinvestment comes from. If the government threw money in the sea people would naturally start stocking up on alternative units of exchange. The market would adjust, having it arbitrarily spent is where natural resources are wasted however. What are your thoughts on that?
hmmm it depends on if it is fiat paper currency or commodity money. If they threw a bunch of paper into the ocean it wouldnt be nearly as bad as if they threw a bunch of gold or silver in. Of course it sucks that they may be taxing your money away from you disproportionately. Of course its different if they taxed 1 million people $1 or if they taxed you individually $1 million dollars. Your lack of purchasing power would not be fully offset by a drop in the price level. It seems like a bad deal all the way around, I dont know.