Why is there no straight talk about the economy?

As a damage-limitation exercise, it appeared to avoid extreme policies. :)

If you believe that then it is probably your patriotic duty to go out and spend 100,000, which you think you will get back and which will boost the economy.

The metaphor is becoming overstretched, but I agree that the government again spends some or all of the money they get back in tax. Doesn't alter the fact that they get back what they spend, so can then spend it again.

Prudence must force them to be careful not to overdo it, creating inflationary pressures, and I presume that there must be some daily evaluation of the amount of money that's floating around, and some processes to create or destroy money as required to keep things in balance. Though it seems to me that any calculations of the 'proper' size of the money supply, based on GDP or whatever, must be largely empirical. Or political.

The government gives everyone with whom they deal, private or public, more than they get back in taxes _from_that_first_person_ . But they get all the money back from the others down the line, quite quickly. As for 'negating the tax take', that doesn't seem to have any meaning.

I was talking about following from person to person a fixed amount of additional cash given by the government to some individual (or group). Not about looking through the wrong end of a telescope to see what 50 million taxpayers pay, which sheds little light on what is going on.

Come off it. I can't tax you if I need cash (and if I gave you money for some valid purpose, I wouldn't get much back. Unlike the government). Ditto for Tesco. (It would be another matter if everyone and every company in the country went out and spent all they could. Some or even all of the cash might then return to the spenders, unless the government hung on to the taxes and didn't spend).

So you say that no tax is taken except from the first person?

I was talking about the amount of extra money remaining in circulation, which declines from 100 to 90 to 81 to ... 7.98 to ... You seem to have confused the amount remaining with the amount of tax taken at each step (which I didn't spell out at all because I thought that was obviously 10%). Each person pays 10% tax and spends the remainder, in the simplified case giving it all to one other person though in reality smaller amounts would be given to a number of others (which doesn't affect the calculation if everyone pays the same tax).

No double counting. Is there an ulterior motive in claiming so?

I'm not keen on large government, but that's all we get from any parliament. Only difference is who they hit and who they pay.

Of course the whole business is complicated when all the interwoven transactions are taken into account, which is why it helps to look at simpler situations first.

Even economists don't agree.

I still don't know what figures minus what figures result in a 'deficit', and the idea (much encouraged) that it's akin to an individual who overspends is just plain wrong.

I get maybe 0.0000001% of the money I spend back. Tesco get maybe 2%, The government maybe 40%. The difference is scale, nothing else.

Erm, yes, and they do. Trouble is they are currently spending more than they get back.

Money supply is controlled by the BoE, and is adjusted to meet the inflation target they are set.

Yes.

What is the "quite quickly" you keep referring to? Government also spends money "quite quickly" - in fact more quickly hence the deficit...see below.

In cashflow terms, the money going out should balance the money coming in. But it doesn't because there is a deficit of about 150 billion.

While ignoring government spending...

SFW? What difference does it make whether the inflow is taxation (in the case of the govt) or spending in store (in the case of Tesco)? The principle in terms of cashflow is the same.

Yes... see below.

No it doesn't. You are assuming the government just hangs around holding onto the tax receipts while 25 transactions take place from person to person. The government can't do that - they have to pay benefits, public sector salaries etc, just as fast as people pay tax.

When Bill pays his 10 tax and Joe gets his 90 off Bill, the govt will pay Joe 10 in benefits or public sector salary (say), so Joe now has 100. He then pays 10 tax and pays Henry 90. Henry gets 10 in benefits/salary and pays 10 tax and pays the next person 90... etc. The cashflow is equal both ways, or would be if the government weren't running a deficit.

This is on average of course - in reality some people will get no benefits/salary and others will get much more than 10%.

Erm, basic arithmetic accuracy?

What the goverments pays out minus what they take in. Simples.

Erm, no. It's exactly the same. Perhaps you missed the news about Greece?

If the gov't. get only 40% that can only be the result of money leaving the country in improbably huge amounts (at least I hope it's improbable; surely not even a politician could be so foolish as to get into such a mess).

If true - and I'm not claiming it isn't - then as far as I can see it must be because more money leaves the country than returns.

I doubt if there's a formula. More likely they look to see what happened, then tweak things a bit more until they see the desired result. IOW empirical.

If you did some work for the gov't., were paid 100, had to give back 10 in tax and then did something with the remainder, you'd do it within a few days at most. Unless you put banknotes under the mattress, the cash would remain in circulation. If you bought gold, the supplier would receive your cash. If you put it in the bank, the bank would use it to earn interest by lending to someone who would spend it in turn. The cash would be taxable income for most of the people down the line (wage costs are said to be the largest of all costs) so it wouldn't be long before the gov't. had it all.

I read that one way to decrease the money supply is for the gov't. to issue government bonds, and the Russians say that banks are buying bonds instead of making loans because they think that's safer. Which if true is pretty strange - bail out the banks and they give the money straight back again. Of course the bonds will be 'assets', safe ones, on their balance sheets.

I today heard someone say it was just short of a trillion. (Think of a number, and adjust to suit the politico's point.)

No, I was making the point that they got back what they spent. So the tax take would always equal what they spent - IF the money stayed in the country. Obviously they don't get successive tax bites back on cash which goes overseas in debt interest, purchase of the goods we no longer make, etc., so unless exports equal those payments there's a problem. I assume - but no one makes it clear - that that must be the cause of this deficit they keep talking about, and if that is correct then I can't see slashing government jobs having the desired effect of decreasing the deficit. It might increase it instead, by putting some exporting companies out of business because their domestic sales disappear. (It might help if in the long run wages etc. were halved so that no one could buy goods, which could then be exported if the exporting companies still existed. But that's a big 'if'.)

Tesco don't get to tax the suppliers they pay. The gov't does get to tax the people they pay.

Yes. And if everything is working smoothly the outgoings will continue to equal the tax take no matter how much the gov't. increases its spending. Of course excessive spending would lead to severe inflation, but one hopes they wouldn't go daft. (Then again, they're politicians....)

Much too simple. As far as I can see the major problem must be related to international money transfers, but that's not mentioned. It's like these company balance sheets which actually tell nothing about the true situation, as has been painfully proved on several recent occasions.

Not.

If they were relying on loans from 'the markets' which might be code for China, India, and the Muslim oil countries, I can easily see a problem if someone decided to pull the plug. It'd be like banks refusing to remortgage when the term expired.

An American senator wondered aloud, a couple of years ago, whether some of these institutions were guided by political ends rather than by their own pecuniary self-interest. Seemed a distinct possibility to me.

"Stop killing Muslims in their hundreds of thousands, or we'll rattle your chain till you choke." That might be their message.

What is this obsession you have with money leaving the country? Hint - it's bugger all to do with that. If money left the country never to return the govt could just print more without causing inflation.

Yes.

Nope.

Erm, no it wouldn't.

Eg the govt pay 100 in housing benefit. Tax free. That 100 is used to pay rent. Tax free. The landlord uses 80 of that 100 to pay his mortgage in 2 weeks time. Tax free. The other 20 is used for maintenance costs and profit, maybe 3 tax. The bank uses the mortgage interest to pay a saver interest, but not till the end of the month in

So there you go, a series of transactions which probably took a few months and the govt got about 25% of it back in tax. Meanwhile they'll have been spending...

That's probably the total debt, not the annual deficit.

FFS, not this crap again...

You really don't get it, do you?

I see you've snipped the bit where I explained why that is utter bullshit. Not a lot of point continuing this, is there? Try the conspiracy newsgroups. You could join the loonies who claim that the fractional reserve system creates money out of thin air...

Or set up a political party and campaign on a policy of stopping money leaving the country to make the deficit disappear.

Or you could try thinking about it a bit harder.

Luckily Wikipedia has an article which explains how fractional reserve banking works.

Otherwise some people might believe you.

I've done that, and it seems that I'm talking to someome with religious convictions.

BTW, have you wondered why not a single politician, economist, journalist or even trade union leader is arguing that govt spending doesn't matter cos they get it all back (if they could only stop money going abroad...)?

Either you're the most brilliant economist in the world and have solved the debt crisis of every single country in the world, or your thought process is flawed. I've tried pointing out why it's the latter. When you win the Nobel prize for economics I'll concede being wrong.

Ta ta.

In message , Andy Pandy writes

I think the former more likely to happen than the latter...

No one argues that. It's obvious that it matters.

If the gov't. spends hugely on guns and bombs to fight a war, even when the spending doesn't include purchases from abroad the spending distorts the economy so that people who might be engaged in productive work (which could help exports) are instead producing goods with only limited export potential. And what potential there is often involves sales to other countries' terrorists.

If the gov't. was foolish enough to spend huge sums on peanuts (they were, once, but called them groundnuts to conceal what they were up to) that would also distort the economy in unhelpful ways.

If the gov't. suddenly *stops* spending on anything, companies go out of business and people become unemployed. When unemployment is widespread, they don't get new jobs, not for a long time and sometimes never. That can represent a very large amount of work which is lost permanently. You can't catch up - ordinary mortals can't work 24 hours a day to do so. In the medium term lost work can mean lost exports.

Your explanation makes no sense.

Many of the things we think we know are quite wrong. There are endless examples of the counter-intuitive, not to mention the plainly incorrect. For example, mathematicians know that some infinities are larger than others, which on the face of it sounds crazy. Flat-earthers once thought it obvious that the earth must be flat, with what in their time was apparently good reason. Others could plainly see that the sun went round the earth. And we still think that nothing can be in two places at once.