Quote:
Originally Posted by cdelena
Since the top 25% of the earners (~$65,000 and up) pay 86% of the taxes it looks like your proposal will not come close to paying for the current stimulous package. And since Congress wants huge spending to their favorites (and irresponsible state governments) there is no chance it would be considered.
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Hi cdelena,
You are certainly correct on the latter point but there is no issue of paying for it. Its already being paid now with deflation. When government goes into debt it is purely nominal. The debt is not intended to be repaid but circulate as money. Thus when government spends, it typically shows up as inflation or when the Fed sells bonds higher interest rates.
It is also good to focus on the economic activity rather than financial accounting. Consider a work force. If the government raises taxes to pay their salary the work force will work now and not on some private project. It will increase the cost of labor by a simple shift in demand. If instead government borrowed the workers would still work now but with a bigger money supply chasing workers. It will show as inflation. If the Fed sold bonds it would drive up interest rates and discourage borrowing to hire these same workers. However during deflation there is no need to act against inflation.
As of now we want inflation to replace the lost credit thus there is no need to finance anything. The problem is when this is coupled with passing it out to the privileged few which they are doing now.
Have a look at a this historical case.I have posted it before but is essential to understanding the issue. The island had all the labor and materials it needed but no money. As unemployment goes up we will simply idle ourselves that some people will mistake as saving. This island was not saving anything before they issued currency.
Guernsey's monetary experiment
The island was especially in need of a new market house, and a committee was set up to take care of it. The committee went to see the governor to explain the situation to him:
“We need a new market, but we have no money to build it.”
“With what material are you going to build a market?” asked the governor.
“With stone and wood.”
“Do you have it in the island?”
“Certainly, and in plenty.”
“Do you have workers?”
“Yes again. But it is money that is lacking.”
“Could not your parliament issue money?” asked the governor.
In the case of inflation then obviously nothing would be idle and there would be a large real cost to diverting productive labor which would appear as inflation. In that case it would not be diverting them from idleness. Once the economy started up again I would use targeted excise taxes on energy and other conspicuous consumption.
The other more important lesson was how much the bankers hated a currency they were not charging interest on.