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Indeed. That's consistent with most proposals(including negative income tax) and the few real world implementations such as the Alaskan benefit. The government

by chipsy 13y ago

Indeed. That's consistent with most proposals(including negative income tax) and the few real world implementations such as the Alaskan benefit. The government can always opt to print for its expenditures - there is nothing stopping them from doing so, and it's a typical last resort of desperate leaders, but economic prescriptions avoid it since it lowers confidence, which has destabilizing effects beyond inflation.

scotty79 13y ago
Why government printing money for its expenditures is considered bad? I know that it's tempting for government to print money uncontrollably. But what if printing money was proprly offset by increasing reserve requirement so that banks would create less money with credit at the same time?
- chipsy 13y ago
  This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily contested, and one of the reasons why I started to dislike my study of economics, because the theory has to make some big assumptions to get any result. The rationale given to not do this is that any policy change from the government is going to affect expectations of the future - if (on balance) most economic actors are rational and know that there will be inflation in the future, they will take steps _now_ to protect themselves from the side effects. If you change policy on both ends, expectations about the economy become uncertain - more so than if there's no change - which means that the market will start to move its investment towards other countries with more predictable economies. Here's a Wikipedia article describing the original proposition that this theory was built on: http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposit...
  - scotty79 13y ago
    I think that any potential incentive for the investments to leave could be properly offset by lowering or abolishing taxes.

by chipsy 13y ago

scotty79 13y ago

Why government printing money for its expenditures is considered bad? I know that it's tempting for government to print money uncontrollably. But what if printing money was proprly offset by increasing reserve requirement so that banks would create less money with credit at the same time?

chipsy 13y ago
This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily contested, and one of the reasons why I started to dislike my study of economics, because the theory has to make some big assumptions to get any result. The rationale given to not do this is that any policy change from the government is going to affect expectations of the future - if (on balance) most economic actors are rational and know that there will be inflation in the future, they will take steps _now_ to protect themselves from the side effects. If you change policy on both ends, expectations about the economy become uncertain - more so than if there's no change - which means that the market will start to move its investment towards other countries with more predictable economies. Here's a Wikipedia article describing the original proposition that this theory was built on: http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposit...
- scotty79 13y ago
  I think that any potential incentive for the investments to leave could be properly offset by lowering or abolishing taxes.