20 ms·

A major part of the value of any fiat currency comes from the fact that the institution with a monopoly on violence collects its dues in that currency. If you d

by sfifs 4y ago

A major part of the value of any fiat currency comes from the fact that the institution with a monopoly on violence collects its dues in that currency. If you don't pay your taxes and fines in your nations currency, you go to jail or worse. The desire to avoid this creates the demand for the fiat currency. Other similar laws mandate businesses accept the fiat for discharge of private debts with consequences for not doing so etc. The other piece that folks often conflate to extrapolate their intuition of how a household or a small business budget operates to how a country budget operates (the comment above on instant gratification). As a household, if you face a risky economic situation (economic depression, loss of jobs etc), the natural response is to reduce spending and increase savings. If you aggregate across households at a country level, this leads to lower demand, so reduction in jobs as less consumption which leads to further economic downturn, reduction in willingness of banks to lend, lower government income (as lower taxes) etc. The right government response is to spend more countercyclically and help create jobs to spur back demand through deficit spending. Then as economy improves, tax receipts go up and deficit goes down.

gitfan86 4y ago
The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions. Yes the govt has created a moral hazard where they can always just create more money to solve a problem, but inserting a ponzi scheme does not fix that
- kodyo 4y ago
  Inflation is value confiscation. It's a tax. It reduces the burden of the greatest debtor (government) at the expense of everybody who holds dollars and produces value. What do I get out of it?
  - gitfan86 4y ago
    You get to live in a functioning economy. If you want to live in a society were the banks and wealthy individuals can make significant income by doing literally nothing, that is fine, but the rest of us would like to live in a world where goods and services are produced at a rate similar to how they are produced today.
    - carlosjobim 4y ago
      > You get to live in a functioning economy. Young people who have worked hard their whole lives cannot afford a home to start a family. In what way does "the economy" function? > If you want to live in a society were the banks and wealthy individuals can make significant income by doing literally nothing You just described exactly how current society works.
      - gitfan86 4y ago
        Function means that most people that want jobs have jobs and most people that want to purchase goods and services are able to purchase goods and services. Imagine if you went to a grocery store and it was completely empty. That is the situation in Haiti currently. That is a nonfunctional economy. Functional does not mean that everyone has everything they want at the price they want.
        carlosjobim 4y ago
        We have whole generations who are extremely productive in the economy, but are being denied the basic necessity of having their own home. That is a non-functioning economy. Well, of course it functions greatly for those who are in the position to exploit such an arrangement. It's like a sheep farmer thinking he is successful because he decided to kill all lambs every spring instead of letting them grow to adults. Sure, the meat tastes nice now, but he has destroyed his future for short term gains. > Functional does not mean that everyone has everything they want at the price they want. Nobody is demanding anything close to that, people want the basic necessities and have no way of getting them. Or should they just keep working hard and be grateful that they're not in Haiti. The absolute best thing a young, enterprising person from a Western country can do today is to move out of that hemisphere and establish themselves in another country. That step gives a massive increase in quality of life, as well as a much better prospects for the future.
      - imtringued 4y ago
        You don't seem to understand what literally nothing means. When there is deflation you do nothing. You don't even go to work. You don't even look at your bank account or the money. You don't think about it. You just wait and do nothing. It is the equivalent of taking a drug that makes you feel good. You won't find the need to actually accomplish anything. If there is inflation, then banks actually have to do their bank related tasks to earn the money, people actually have to sit at their desks.
- scottiebarnes 4y ago
  > The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions. What's this statement based on? As a thought experiment, say a load of survivors wash upon a deserted island, eventually settling into economic roles. I don't think their economy or productivity grinds to a halt because there isn't enough liquid currency. They are constrained by their access and production of real world resources.
  - gitfan86 4y ago
    Imagine one person on the island is good at fishing. He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity.
    - scottiebarnes 4y ago
      > He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. Sounds like his problem is lack of demand, not currency liquidity. > But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity. Ok, but that kind of breaks the island economy experiment, given that he was already trading fish in a closed system for some other good or currency.
      - gitfan86 4y ago
        That is my point. A barter system works just fine with you only have a few people on a small island producing a small number of good and services. When you have a large number of goods and services available you need a medium of exchange that has good liquidity.
nathias 4y ago
this is the story they sell you, but the reallity is just that they export the cost of a recession to the poor
carlosjobim 4y ago
Very well put! Just to add, this is also the reason why every nation has extremely complicated taxation systems, taxing income, property, sales transactions and everything else under the sun. Sometimes people suggest a more simple and fair way for tax collecting, but the rulers need to tax every aspect of human existence, or else people would just instantly switch to other assets for storing and exchanging value, which would mean the total collapse of government and the rulers losing their strangle hold on the population.
NhanH 4y ago
People are not against government spending because they are misguided, or because they are extrapolating a "wrong" intuition. They are against it because as you said, the response are supposed to be cyclical, and at this point it is looking like a straight line. When was the last "spend less" behavior of the cycle? Or are you claiming that the US has been in the situation of "risky economic situation (economic depression, loss of jobs etc)" for the past 15 years?
- kodyo 4y ago
  The US has been in a risky economic situation since it went off the gold standard. Possibly since it created the Federal Reserve Act. Slow-moving train wrecks are still train wrecks.
  - codersfocus 4y ago
    Explain why you think the monetary supply should in any way be tied to the ability to process gold ore?
    - dmpk2k 4y ago
      It limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer. If you're not worried about the long-term consequences of both the fiscal and monetary policy of the United States, I don't know what to say. M2 to the moon.
      - kube-system 4y ago
        It is possible to have too much of a good thing. If you limit inflation too much, you grind the economy to a halt and people starve.
        dmpk2k 4y ago
        At this point you are probably correct. That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US? Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.
dkrich 4y ago
Except that we’ve had one of the greatest economic booms in history and the deficit has exploded. The government has lost sight of fiscal responsibility and society is completely addicted to easy money.
- pas 4y ago
  Investments that have a positive ROI are worth doing. Deficit spending is never bad per se. Arguing about the ROI of a road, education, a new shiny F35 feature, foos stamps, etc. are of course completely valid. Neither society nor the government is one big hivemind. There are small government advocates (who usually turn out to be cruel totalitarian dickheads), there's a new wave of young people who parrot "eat the rich" and usually turn out to be clueless idiots cosplaying as leftists, who also say things like "just pay for everything out of thin air". It's big, it's completex, it's hard, emotions run high, there's a chance of things turning for the worse, while a lot of things are inching toward the better.
  - zpeti 4y ago
    Except there are almost no programs where the government can actually deliver positive ROI, and the government never has any motivation to actually do this and report on it. I think in almost all cases except where private markets can’t deliver (for example police, army, possibly roads), private markets will almost always use money (or resources) much better.
    - bolanyo 4y ago
      I don't think this is true. If you look at the projects funded by the Roosevelt New Deal (where the stated purpose of the spending was to reboot the economy and create employment, rather than chasing a particular return), a lot of them returned many, many times the government's investment. For example, the Tri-Borough Bridge, the Hoover Dam, the paintings of Jackson Pollock.
    - wongarsu 4y ago
      Infrastructure and education are two fields where it is often easy to demonstrate positive ROI. Of course not every project is good, but in general both drastically increase the productivity of their society. Food stamps and pension funds are a bit harder, since they mostly boil down to three arguments: ethics, crime and stability. People tend to turn to crime when they have no viable other means, so feeding them is a way to reduce crime, and crime would cost more. Also people who are desperate are more likely to revolt, which is either very costly to the government or entirely prevents them from doing other activities with positive ROI in the future. So they are cost centers, but arguably necessary. Postal service, telephone, internet and public transit would also fall in the infrastructure category. Societal benefit is often much larger than the willingness of the individual to pay for it, so it makes sense to have them either run or subsidized by the state. Universal healthcare can deliver positive ROI by being more effective than the private alternative. As a society we want citizens to be healthy, because healthy people are happy and productive, and don't infect other healthy people. I completely agree that governments should regularly run and publish ROI calculations, or maybe there should be an independent watchdog that does this. And a lot of money seems to be wasted because people on all levels of government have the wrong incentives. On the other hand, one of the major reasons why the idea of governments is so widespread is that they regularly do provide positive ROI overall.
OscarCunningham 4y ago
I'm not convinced it's tax collection specifically that gives value to the dollar. If the US government collected some taxes in bitcoin it would still have to pay its obligations on existing dollar-denominated bonds. So it would sell the bitcoin in exchange for dollars, thus creating demand for dollars. I think that if people increasingly wanted to use cryptocurrency over dollars, the Fed would nevertheless be able to maintain the value of the dollar even as they got less common. Eventually the currency would disappear when the last dollar was traded to the Fed to pay off the last dollar-denominated bond, and I think dollars could maintain their value until that happened, even as the government started collecting taxes in other currencies.
- samus 4y ago
  You ignore the other way more relevant use case: if I want to buy something at a store, the store is required to accept the nation's official currency. It might accept other currencies, but my guess is that it would be illegal to give customers any benefits or reactions if they use other currencies.
  - ezymandias 4y ago
    Not so in the US: > Is it legal for a business in the United States to refuse cash as a form of payment? > There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise. https://www.federalreserve.gov/faqs/currency_12772.htm https://www.federalreserve.gov/faqs/currency_12772.htm
    - wizofaus 4y ago
      How on earth is their tax liability determined if they don't take payment in USD?
      - overthrow 4y ago
jxramos 4y ago
This is an interesting point not well broadcast I don’t think. I was just daydreaming the other day about the Amish HN post regarding their leaving South Dakota and wondered about why they couldn’t pay their taxes in grain or some other substance. Why can’t we barter with the government? I couldn’t advance that curious questioning any further, but your statements above may be the piece I was missing. I wonder where specifically the law is written on the books around this subject. That would be a worthy reference to post here for rich context.
- AnimalMuppet 4y ago
  Or, in a free market, why didn't some business play middleman - bartering grain with the Amish for whatever they wanted, selling the grain, and paying their taxes?
chiefalchemist 4y ago
Fiat currency owes its value to the threat of violence and/or loss of liberty? We are effectively bullied into buying into the system? And have little recourse but to comply? Makes sense, but I do need to think about it. That said, on the weekend I did listen to a podcast where at one point taxes were (indirectly) described as behaviour modification. re: The right gov response... In theory yes, but only if the system's purpose is to maximize the benefit to all. On the other hand, if the system's purpose is to tilt the game to favor the few then responses can take many forms, as long as they enforce the tilt. A simple graph of income inequality and wealth distribution tells us all we need to know.
- imtringued 4y ago
  >That said, on the weekend I did listen to a podcast where at one point taxes were (indirectly) described as behaviour modification. Just wait until you hear about this thing called the law and the police force... For example, when the government introduces laws that prevent underage children from working, they do behaviour modification and they will even outright admit it and they won't even think they are wrong. Really insidious stuff, if you ask me.
  - chiefalchemist 4y ago
    To clarify, taxes are generally seen as a "harmless" means for the government to collect revenue. The fact is, the act isn't that innocent.
- jackcosgrove 4y ago
  > if the system's purpose is to tilt the game to favor the few I wouldn't say it's the purpose, since banks are better at extending loans than the government such that losses are minimized, but getting first dibs on newly created money, and taking a small cut of it, is an incredible privilege.
  - chiefalchemist 4y ago
    Yes. But when that privilege is abused then things go sideways. Given the concentration of wealth and it's getting more so, I'd say were deep into sideways.

by sfifs 4y ago

gitfan86 4y ago

The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions. Yes the govt has created a moral hazard where they can always just create more money to solve a problem, but inserting a ponzi scheme does not fix that

kodyo 4y ago
Inflation is value confiscation. It's a tax. It reduces the burden of the greatest debtor (government) at the expense of everybody who holds dollars and produces value. What do I get out of it?
- gitfan86 4y ago
  You get to live in a functioning economy. If you want to live in a society were the banks and wealthy individuals can make significant income by doing literally nothing, that is fine, but the rest of us would like to live in a world where goods and services are produced at a rate similar to how they are produced today.
  - carlosjobim 4y ago
    > You get to live in a functioning economy. Young people who have worked hard their whole lives cannot afford a home to start a family. In what way does "the economy" function? > If you want to live in a society were the banks and wealthy individuals can make significant income by doing literally nothing You just described exactly how current society works.
    - gitfan86 4y ago
      Function means that most people that want jobs have jobs and most people that want to purchase goods and services are able to purchase goods and services. Imagine if you went to a grocery store and it was completely empty. That is the situation in Haiti currently. That is a nonfunctional economy. Functional does not mean that everyone has everything they want at the price they want.
      - carlosjobim 4y ago
        We have whole generations who are extremely productive in the economy, but are being denied the basic necessity of having their own home. That is a non-functioning economy. Well, of course it functions greatly for those who are in the position to exploit such an arrangement. It's like a sheep farmer thinking he is successful because he decided to kill all lambs every spring instead of letting them grow to adults. Sure, the meat tastes nice now, but he has destroyed his future for short term gains. > Functional does not mean that everyone has everything they want at the price they want. Nobody is demanding anything close to that, people want the basic necessities and have no way of getting them. Or should they just keep working hard and be grateful that they're not in Haiti. The absolute best thing a young, enterprising person from a Western country can do today is to move out of that hemisphere and establish themselves in another country. That step gives a massive increase in quality of life, as well as a much better prospects for the future.
    - imtringued 4y ago
      You don't seem to understand what literally nothing means. When there is deflation you do nothing. You don't even go to work. You don't even look at your bank account or the money. You don't think about it. You just wait and do nothing. It is the equivalent of taking a drug that makes you feel good. You won't find the need to actually accomplish anything. If there is inflation, then banks actually have to do their bank related tasks to earn the money, people actually have to sit at their desks.
scottiebarnes 4y ago
> The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions. What's this statement based on? As a thought experiment, say a load of survivors wash upon a deserted island, eventually settling into economic roles. I don't think their economy or productivity grinds to a halt because there isn't enough liquid currency. They are constrained by their access and production of real world resources.
- gitfan86 4y ago
  Imagine one person on the island is good at fishing. He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity.
  - scottiebarnes 4y ago
    > He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. Sounds like his problem is lack of demand, not currency liquidity. > But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity. Ok, but that kind of breaks the island economy experiment, given that he was already trading fish in a closed system for some other good or currency.
    - gitfan86 4y ago
      That is my point. A barter system works just fine with you only have a few people on a small island producing a small number of good and services. When you have a large number of goods and services available you need a medium of exchange that has good liquidity.

nathias 4y ago

this is the story they sell you, but the reallity is just that they export the cost of a recession to the poor

carlosjobim 4y ago

Very well put! Just to add, this is also the reason why every nation has extremely complicated taxation systems, taxing income, property, sales transactions and everything else under the sun. Sometimes people suggest a more simple and fair way for tax collecting, but the rulers need to tax every aspect of human existence, or else people would just instantly switch to other assets for storing and exchanging value, which would mean the total collapse of government and the rulers losing their strangle hold on the population.

NhanH 4y ago

People are not against government spending because they are misguided, or because they are extrapolating a "wrong" intuition. They are against it because as you said, the response are supposed to be cyclical, and at this point it is looking like a straight line. When was the last "spend less" behavior of the cycle? Or are you claiming that the US has been in the situation of "risky economic situation (economic depression, loss of jobs etc)" for the past 15 years?

kodyo 4y ago
The US has been in a risky economic situation since it went off the gold standard. Possibly since it created the Federal Reserve Act. Slow-moving train wrecks are still train wrecks.
- codersfocus 4y ago
  Explain why you think the monetary supply should in any way be tied to the ability to process gold ore?
  - dmpk2k 4y ago
    It limits the rate of monetary inflation. It is much harder to dig a shiny metal out of the ground than adding more zeros in a computer. If you're not worried about the long-term consequences of both the fiscal and monetary policy of the United States, I don't know what to say. M2 to the moon.
    - kube-system 4y ago
      It is possible to have too much of a good thing. If you limit inflation too much, you grind the economy to a halt and people starve.
      - dmpk2k 4y ago
        At this point you are probably correct. That said, if the US were in a better financial situation, how would 1-2% inflation (as far as I can tell, this roughly the rate that gold is currently being extracted) lead to people starving in the US? Obviously, reality is much more complicated, but I just want to understand the reasoning. Assume 0% inflation if you prefer.

dkrich 4y ago

Except that we’ve had one of the greatest economic booms in history and the deficit has exploded. The government has lost sight of fiscal responsibility and society is completely addicted to easy money.

pas 4y ago
Investments that have a positive ROI are worth doing. Deficit spending is never bad per se. Arguing about the ROI of a road, education, a new shiny F35 feature, foos stamps, etc. are of course completely valid. Neither society nor the government is one big hivemind. There are small government advocates (who usually turn out to be cruel totalitarian dickheads), there's a new wave of young people who parrot "eat the rich" and usually turn out to be clueless idiots cosplaying as leftists, who also say things like "just pay for everything out of thin air". It's big, it's completex, it's hard, emotions run high, there's a chance of things turning for the worse, while a lot of things are inching toward the better.
- zpeti 4y ago
  Except there are almost no programs where the government can actually deliver positive ROI, and the government never has any motivation to actually do this and report on it. I think in almost all cases except where private markets can’t deliver (for example police, army, possibly roads), private markets will almost always use money (or resources) much better.
  - bolanyo 4y ago
    I don't think this is true. If you look at the projects funded by the Roosevelt New Deal (where the stated purpose of the spending was to reboot the economy and create employment, rather than chasing a particular return), a lot of them returned many, many times the government's investment. For example, the Tri-Borough Bridge, the Hoover Dam, the paintings of Jackson Pollock.
  - wongarsu 4y ago
    Infrastructure and education are two fields where it is often easy to demonstrate positive ROI. Of course not every project is good, but in general both drastically increase the productivity of their society. Food stamps and pension funds are a bit harder, since they mostly boil down to three arguments: ethics, crime and stability. People tend to turn to crime when they have no viable other means, so feeding them is a way to reduce crime, and crime would cost more. Also people who are desperate are more likely to revolt, which is either very costly to the government or entirely prevents them from doing other activities with positive ROI in the future. So they are cost centers, but arguably necessary. Postal service, telephone, internet and public transit would also fall in the infrastructure category. Societal benefit is often much larger than the willingness of the individual to pay for it, so it makes sense to have them either run or subsidized by the state. Universal healthcare can deliver positive ROI by being more effective than the private alternative. As a society we want citizens to be healthy, because healthy people are happy and productive, and don't infect other healthy people. I completely agree that governments should regularly run and publish ROI calculations, or maybe there should be an independent watchdog that does this. And a lot of money seems to be wasted because people on all levels of government have the wrong incentives. On the other hand, one of the major reasons why the idea of governments is so widespread is that they regularly do provide positive ROI overall.

OscarCunningham 4y ago

I'm not convinced it's tax collection specifically that gives value to the dollar. If the US government collected some taxes in bitcoin it would still have to pay its obligations on existing dollar-denominated bonds. So it would sell the bitcoin in exchange for dollars, thus creating demand for dollars. I think that if people increasingly wanted to use cryptocurrency over dollars, the Fed would nevertheless be able to maintain the value of the dollar even as they got less common. Eventually the currency would disappear when the last dollar was traded to the Fed to pay off the last dollar-denominated bond, and I think dollars could maintain their value until that happened, even as the government started collecting taxes in other currencies.

samus 4y ago
You ignore the other way more relevant use case: if I want to buy something at a store, the store is required to accept the nation's official currency. It might accept other currencies, but my guess is that it would be illegal to give customers any benefits or reactions if they use other currencies.
- ezymandias 4y ago
  Not so in the US: > Is it legal for a business in the United States to refuse cash as a form of payment? > There is no federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law that says otherwise. https://www.federalreserve.gov/faqs/currency_12772.htm https://www.federalreserve.gov/faqs/currency_12772.htm
  - wizofaus 4y ago
    How on earth is their tax liability determined if they don't take payment in USD?
    - overthrow 4y ago

jxramos 4y ago

This is an interesting point not well broadcast I don’t think. I was just daydreaming the other day about the Amish HN post regarding their leaving South Dakota and wondered about why they couldn’t pay their taxes in grain or some other substance. Why can’t we barter with the government? I couldn’t advance that curious questioning any further, but your statements above may be the piece I was missing. I wonder where specifically the law is written on the books around this subject. That would be a worthy reference to post here for rich context.

AnimalMuppet 4y ago
Or, in a free market, why didn't some business play middleman - bartering grain with the Amish for whatever they wanted, selling the grain, and paying their taxes?

chiefalchemist 4y ago

Fiat currency owes its value to the threat of violence and/or loss of liberty? We are effectively bullied into buying into the system? And have little recourse but to comply? Makes sense, but I do need to think about it. That said, on the weekend I did listen to a podcast where at one point taxes were (indirectly) described as behaviour modification. re: The right gov response... In theory yes, but only if the system's purpose is to maximize the benefit to all. On the other hand, if the system's purpose is to tilt the game to favor the few then responses can take many forms, as long as they enforce the tilt. A simple graph of income inequality and wealth distribution tells us all we need to know.

imtringued 4y ago
>That said, on the weekend I did listen to a podcast where at one point taxes were (indirectly) described as behaviour modification. Just wait until you hear about this thing called the law and the police force... For example, when the government introduces laws that prevent underage children from working, they do behaviour modification and they will even outright admit it and they won't even think they are wrong. Really insidious stuff, if you ask me.
- chiefalchemist 4y ago
  To clarify, taxes are generally seen as a "harmless" means for the government to collect revenue. The fact is, the act isn't that innocent.
jackcosgrove 4y ago
> if the system's purpose is to tilt the game to favor the few I wouldn't say it's the purpose, since banks are better at extending loans than the government such that losses are minimized, but getting first dibs on newly created money, and taking a small cut of it, is an incredible privilege.
- chiefalchemist 4y ago
  Yes. But when that privilege is abused then things go sideways. Given the concentration of wealth and it's getting more so, I'd say were deep into sideways.