[quote=“csbrown28, post:1, topic:48119”]
I’ve written walls of text, most of which has fallen on deaf ears…So I’m going to keep this as simple as possible and see where it goes.
Put simply. Let’s imagine we’ve gone back 250 years. We’ve just won our independence and the government is created and it’s mandate is to provide certain services. Things like creating all of the infrastructure to support the three branches of our government, creating the military, perhaps the post office and whatever other services you think the government is responsible for. It really makes no difference.
But, like today, the system back then (for the sake of this example) runs on a fiat system as we do today and just like today there is a Federal Reserve on day one. The government announces that it will spend it’s money and it will require taxes. Failure to pay taxes will result in some form of punishment including loosing your freedom.
Where does the money come from in a fiat system to pay for things? Well, the government simply creates the money and spends it into the economy. Now on day one, perhaps it creates some of what we now know as Washington DC, new buildings, roads bridges ect… It forms a military, post office, it builds embassy’s in other countries it wishes to maintain relations with. It hires lots of people to provide services for the military, to build the buildings, to make buggies and carriages to provide logistics ect…Lots of secretaries and horse and carriages, companies that make pens and paper…The list of things is endless and it pays of all of this with money it’s created. The people that do the work, knowing that they will have to pay taxes earn money so they can pay the government what it demands.
Now let’s say for the sake of argument that all of this cost $50 million dollars (A lot of money 250 years ago).
Now, the government simply creates $50 million and spends it into the economy to purchase all of the things that it requires. It makes a note of all the money it spends. So the Federal Reserve starts it’s first day negative $50 million dollars or $50 million dollars in debt and the private sector is $50 million in surplus and everything balances to zero. People that provided services did work and built things of real value to earn the dollars that the government has spent.
Now to keep things simple, the first year, the balance of trade is even to the penny. Whatever was traded was imported so the balance equals exactly zero.
Now the government is $50 million in deficit and since it’s year one it’s $50 million in debt.
That $50 million is in the hands of all the people that were required to make all of the stuff the government needed to begin.
If it wanted to run a balanced budget it would have to tax the $50 million, all $50 million back out of the economy, right?
That would leave the economy with zero dollars, right? Why would anyone do work if the tax for that work were 100%?
Is there another way to balance the budget?
Can someone explain to me, based on the system we have now how the system could achieve a balanced budget and still have money in the economy to spend.
[/quote]Government doesn’t really make money. It does print or create bits of paper we perceive as having value, so we use it as money. It also bans other forms of currency, monopolizing the market with its money.That said, the money has value, but the government doesn’t create value at all.
The money has value because it represents the value of things people produce, and it’s only worth what they think it’s worth relative to that production. If the government prints $50 million and spends it, it doesn’t create a single penny worth of value. It buys $50 million in production, probably inefficient in the actual economics sense of the word. Folks get paid that $50 million, and the government is in debt $50 million. It created money but not production or value. That already existed prior to the government running a printing press.
Let’s assume the government didn’t print $50 million now. The same folks will need to buy things. They’ll trade their goods and services or find another medium of exchange to handle the transactions. They’ll spend $50 million or $100 million, whatever it is they can do. The production and value are all still there regardless of the involvement of the government. Trade still happens. Money still happens, and all of it gets spent one way or the other.
When the government prints $50 million (and/or taxes $50 million) it diverts the resources of production from their best and highest value and use. That means one dude doesn’t get to buy the pair of shoes he wanted because the government crafted a cobblestone no one really wanted.
So far as I can tell, you are just reiterating Paul Krugman’s approach to economics. He suggested a couple of years ago that an alien invasion would spur economic growth as governments started spending to fight off the invasion. If it were true and if what you’re saying is true, we might as well just direct our government to purchase everything for all the money it can print. We’ll all be loaded with money because debt doesn’t matter. It’s some kind of weird variation on the broken windows theory.
It was refuted perfectly and succinctly in 1850 by Frederic Bastiat in “The Law.” Jim the glazier gets to make money fixing the window broken by moron kid, but poor Clyde the watchmaker goes without because poor Frank the butcher has to replace the window. That’s all the government does when it diverts productivity. It makes sure Jim gets paid for work that didn’t need doing, and Clyde gets screwed. But in some circles, this is called economic development.
Government can create fiat money. It cannot create value. It can diver production, but it cannot create production.
Furthermore, I balance a budget every month. If I can do it, so can Uncle Sam. My state balances a budget every year. It’s required by law. While in reality my state has debt, it doesn’t have quite the same debt as a place like California. Over in employee retirement though, we can all see just how horrible spending tomorrow’s money can get. Sure, they don’t print the money, and Uncle Sam does, so it’s all different. But it really doesn’t change the basic economic principals. You keep telling folks to forget Econ 101, but Econ 101 and 102 should be a required course for all Americans. Higher economics classes, deeper understanding, don’t refute the material in Econ 101. They augment and better explain what you might learn in Econ 101.