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"The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Now

by nkassis 16y ago

"The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Now this model can be sustained as long as the economy grows faster than the interest you have to pay. This is why deficits spending isn't in itself that bad, it's the size of the deficit that's the issue. (probably oversimplified the whole issue but that's what I got from second semester of macroecon)

sskates 16y ago
Sorry, the government can't create wealth for free. If the government wants to allocate dollars, it must at some point come from taxes (pulling dollars in the economy back out of it) or inflation (printing more dollars and decreasing the value currently held dollars). Now, the economy may grow such that the amount of wealth in the future is much larger than the amount we have now, and therefore represents a smaller fraction of the economy, but the fact remains that the wealth comes from somewhere.
- nkassis 16y ago
  What if the money allocated by the gov ends up creating more wealth than it would have previously? This is important to consider I think. This kind of program in my view can be a good idea if it creates more wealth than taken from the economy. I know it's unpopular to say this but government can create wealth (internet, space, health research...) that I don't think would have happened without.
nika 16y ago
When you borrow money, you create a bond, right? So you have the money you borrowed (the principle) that you spend into the economy, and yet there's also this new bond out there. That bond is an asset. That bond is an increase in the money supply. Borrowing money is the mechanism by which the currency is inflated.
anamax 16y ago
> "The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Not so fast. Borrowed money is money that is unavailable for other purposes. That happens immediately. It's not like the borrowed money was under a mattress. The payback is from taxes or inflation, and the latter works only if the inflation is a surprise to the lender. Expected inflation is factored into the interest rate.

by nkassis 16y ago

sskates 16y ago

Sorry, the government can't create wealth for free. If the government wants to allocate dollars, it must at some point come from taxes (pulling dollars in the economy back out of it) or inflation (printing more dollars and decreasing the value currently held dollars). Now, the economy may grow such that the amount of wealth in the future is much larger than the amount we have now, and therefore represents a smaller fraction of the economy, but the fact remains that the wealth comes from somewhere.

nkassis 16y ago
What if the money allocated by the gov ends up creating more wealth than it would have previously? This is important to consider I think. This kind of program in my view can be a good idea if it creates more wealth than taken from the economy. I know it's unpopular to say this but government can create wealth (internet, space, health research...) that I don't think would have happened without.

nika 16y ago

When you borrow money, you create a bond, right? So you have the money you borrowed (the principle) that you spend into the economy, and yet there's also this new bond out there. That bond is an asset. That bond is an increase in the money supply. Borrowing money is the mechanism by which the currency is inflated.

anamax 16y ago

> "The money must come from taxes or inflation," that's not how gov economics work. You borrow that money, hence you only pay the interest (until you can't). Not so fast. Borrowed money is money that is unavailable for other purposes. That happens immediately. It's not like the borrowed money was under a mattress. The payback is from taxes or inflation, and the latter works only if the inflation is a surprise to the lender. Expected inflation is factored into the interest rate.