Nubby Tony Wells Mega Moderator Location: Omaha, NE Join Date: 07/08/2008 Age: Possibly Wise Posts: 191 Rally Car: SP Evo IX #112 |
As far as sectoral balances, that accounting principle holds true. As part of my job I wrote an accounting package so I was forced to learn the basics of accounting and it's just double-entry bookkeeping, when someone enters a payable into the system for a vendor that supplies us with material, the two accounts will be accounts payable (liability) and an inventory account (asset), and the magnitude of the entries will be identical, except one will be a debit, the other a credit. The vendor will make some profit on the sale, but if you look at our company as one sector and the vendor as another sector, the transfer across the sector is in balance, profit is realized by the vendor when its income is greater than its expenses, and that's internal to the vendor. This is basic accounting and isn't in dispute.
So back to sectoral balances, you can look at the macro accounting and there's 3 sectors, domestic public sector, domestic private sector and the foreign sector. We run a persistent trade deficit, therefore the foreign sector will always be in surplus. And as the primers shows, that means that either the domestic public sector or the domestic private sector must run run a deficit. The three sectors must add to zero. If the domestic public sector wants to run a surplus, then by the accounting identity the domestic public sector must run a deficit. We have fiat currency and a floating currency with a central bank and a treasury. What really opened my eyes was the fact that the government doesn't finance its spending via taxes. Taxes drive money as the primer says, by levying taxes you give money value because there will always be demand for the money of account which in the US is the dollar because you can't pay your taxes in fish or bread or gold or silver or Euros. Taxes also serve another purpose, they take money out of the domestic private sector and can be used as macro policy for stabilizing the economy. Low taxes during slumps, high taxes during booms are countercyclical and would help stabilize the business cycle. Pure JM Keynes. The federal reserve wants to hit target overnight interbank lending rates (fed funds rate) and if banks build up surplus reserves at the Fed, they will want to loan those to other banks to get better than the 0.25% the fed pays on reserves. This has the tendency to drive the fed funds rate down, the way the Fed deals with this is to have an open market sale of bonds which offer a higher rate of return, it's like moving money from a checking to a savings account. The government absolutely does not need to borrow money to finance its operations, government bonds exist as macro economic policy to control interest rates. Something else to be mentioned is that all the IOUs issued by the federal government are denominated in it's money of account, the dollar, and the Fed has the power to create as much money as it wishes, which means that federal government can only go into a self-imposed default, there is nothing else that prevents it from always meeting it's financial obligations. I'm not doing the primer justice, but the first section isn't theory, it's an explanation of how the government actually spends and taxes, and it's showing that a sovereign that has the power to issue money in its money of account looks absolutely nothing like a household balance sheet. The deficit and debt, those are simple accounting entries, they don't mean to the government what they mean to a household, firm or state, county or municipal government that don't have the power to issue currency. When it's said that the federal government is running a deficit, there's nothing capricious or evil about it, all it means is it has spent more than it has taxed. The only thing we should be concerned about are the exogenous effects of that. The government can "afford" anything that is for sale in its money of account. It could buy everything in the entire US that's for sale and not run out of money. It doesn't need to borrow money, and bonds aren't even borrowing instruments, they're instruments to target interest rates. There are obvious downsides to the government spending too much, but it has nothing to do with deficits or debt. So in a nutshell, the government doesn't need to borrow money from anybody to spend nor does it. Deficit spending simply means the government spends more than it takes in taxes, and if the domestic private sector wants to run a surplus, the government must spend more than it taxes due to the sectoral accounting identity. Taxes don't pay for the government, they exist to create demand for the currency and to extinguish money in the domestic private sector. Once again I haven't done the primer justice, go read the first 15 or 20 posts. |
Nubby Tony Wells Mega Moderator Location: Omaha, NE Join Date: 07/08/2008 Age: Possibly Wise Posts: 191 Rally Car: SP Evo IX #112 |
The stuff I read doesn't subscribe to any one camp although it all leans left to some degree. Thoma, Waldman, Konczal, Kwak/Johnson, etc... One of my favorites is Steve Randy Waldman's "interfluidity" which leans pretty radical which makes it interesting. |
Nubby Tony Wells Mega Moderator Location: Omaha, NE Join Date: 07/08/2008 Age: Possibly Wise Posts: 191 Rally Car: SP Evo IX #112 |
I addressed the accounting issue a little earlier, there's no dispute on sectoral balances among academics, that's just accounting 101 on a macro level. I've thought about this a bit since reading the MMT primer, the idea of government "waste", and you could say "Why not pay $1000 for a hammer if the government has a money tree?" I'm gray on this, but I think it comes down to efficiency. If a hammer should only cost $10, you pumped an extra $990 into either the domestic private sector or foreign sector with a dubious return on your spending but still have to deal with the exogenous effects of spending that $1000. The government needs to buy stuff, bombs, hammers, etc... and overpaying is just inefficient from a macro policy standpoint. But like I said, I'm fuzzy on this and would have to see if the MMT-ers address it. To say that the government has little success in programs it implements isn't exactly true, between Medicare and Social Security you have two programs that have all but eliminated poverty among the elderly. That's something good. And Medicaid means that when mom or dad end up in a nursing home they don't move into your spare bedroom when their assets run dry which is worth quite a bit. The efficiency of those programs can be argued, but Medicare for example has a lower administrative overhead cost than private insurance which makes sense, there's no profit motive, no shareholders and federal employees are paid according to the GS pay scale tables which top out around $170,000 / year and are much less unequal than the private sector. What MMT is showing, is that the government is a currency source when it spends, and it's a currency sink when it taxes and a deficit is just a case when it issues more of its currency than it destroys, and the federal debt is simply the cumulative sum of year-over-year deficits and surpluses. This is the big takeaway, there is no sin inherent in federal spending over what is collected in tax revenue, it's all denominated in the money of account, the Dollar, and the federal government giveth and it taketh away. If the domestic private sector wants to run a surplus, since we have persistent trade deficit, the federal government has no choice but to deficit spend -- the sectoral accounting identity demands it. What the government "ought" to spend money on is a matter of debate. We know we can afford it, MMT shows us that. |
Pete Pete Remner Senior Moderator Location: Cleveland, Ohio Join Date: 01/11/2006 Age: Midlife Crisis Posts: 2,022 |
Something like 40% of all bankruptcies are due to medical debts. (And you can be saddled with these debts against your will - fun fun!) How many houses, cars, etc are not being bought because of bad credit because of this? How much is that hurting the economy? How many people can't get a job because they have bad credit? Pete Remner Cleveland, Ohio 1984 RX-7 (rallycross thing) 1978 Silence is golden, but duct tape is silver. |
aj_johnson A.J. Johnson Infallible Moderator Location: Pendleton OR Join Date: 01/07/2011 Age: Settling Down Posts: 1,381 Rally Car: 88 Audi 80 |
Understood and I agree with you. I missed my point. The financial compensation per individual and their job/ability does not drive progress. Progress and R&D is driven by the money, and competetion derived from a competitive market. Without the competitive market funding, and to some extent drive to think outside the box is reduced. Hence using Canada as an example because of their efforts to reduce that by collaboration with other countries with non social systems. Also- the "ted talk" is interesting... Just because "conventional wisdom" is wrong doesn't suddenly erase the fact that it is conventional wisdom, and people feel the need to be financially motivated.
If you feel the need to go greater than 30 years we'd have to leave out canada who started their social medicine program in 1984. Canada provides a good example of a country who has gone out of their way to make sure advancement doesn't stop, but cannot do it internally. The saying "If you want something done right, do it yourself" did not come from a profiteers standpoint. I also struggle to see how you jumped from this There is a wonderful "Ted Talk" about the falsehood of performance being linked to compensation. It is linked, but in an inverse realtionship; Pay people more and they---after a very low threshold, do less.. http://www.ted.com/talks/dan_pink_on_motivation.html to being upset about this. Plenty of MEDICINE type research in USA, and genetics--usually funded by the big bad Gubbymint in various ways, performed by low-rent lab rat students, profits privatised---the typical socialise the risks, privatise the profit model that the US pioneered and the greedy people decided was a bright idea---that we see all over By that logic who cares if a few parties get a bunch of money if results aren't based on compensation anyway. They should be happy with what they got? I'm gonna have to call you with dimensions later, we'll chat then. Typing this shit out is exhaustive and time consuming. |
aj_johnson A.J. Johnson Infallible Moderator Location: Pendleton OR Join Date: 01/07/2011 Age: Settling Down Posts: 1,381 Rally Car: 88 Audi 80 |
I think I get it now. And I agree with you, the implementation and use of said debt (or govt funds or whatever) is what really bothers me. Overspending I 100% disagree with. Spend the money wisely would allow the private sector to be hired in other areas (or perhaps to used to correct flaws in currently run programs) Medicare/medicaid do work and for the most part are successful. However it's not mandatory that I have to use medicare/medicaid when the time comes. If I want to use something else I'm more than welcome to do that on my own. We don't mandate that all kids have to go to public school etc. Back to the financial questions. Thanks for your help in understanding the system, I agree that the uses of the funds could be better |
Vorpal_Rally Stinkfinger Lipschitz Mod Moderator Location: Uranus Join Date: 02/17/2008 Age: Possibly Wise Posts: 325 |
And so what? How come folks wish to privatize the benefit of healthcare and publicize the cost? And you & I don't get a say in how someone lives there life. Believe you me, we DON'T want to go there. Also, the original blog Tony points out discusses Modern Money Theory. Not a fact, but theory. Taking it as gospel tells me some folks better go look up the definition of theory. It is useless for the sheep to pass resolutions in favour of vegetarianism, while the wolf remains of a different opinion. William Ralph Inge TANSTAAFL |
NoCoast Grant Hughes Infallible Moderator Location: Whitefish, MT Join Date: 01/11/2006 Age: Midlife Crisis Posts: 6,818 Rally Car: BMW |
It's more like 60% actually. I was in the 40% that declared and not due to medical. Guess what, my free cash flow is way higher now and I'm still debt free. I OWN everything I have. My wife and I keep considering buying a new car but we OWN this one and I can fix everything on it. We keep considering buying land, the 2 lots next door to us or something in the mountains, but we like being debt free. We just paid off the hospital bill. I have no clue how people have babies without insurance. With insurance we have paid more than 10% of the median annual gross salary for the Denver area. Without we would have been fucked. Grant Hughes |
aj_johnson A.J. Johnson Infallible Moderator Location: Pendleton OR Join Date: 01/07/2011 Age: Settling Down Posts: 1,381 Rally Car: 88 Audi 80 |
My kids are self insured... we recieve a 60% discount for medical services by paying cash.... What does that say for how inflated our medical system is? |
Pete Pete Remner Senior Moderator Location: Cleveland, Ohio Join Date: 01/11/2006 Age: Midlife Crisis Posts: 2,022 |
A discount? I had to be sent to the hospital for a while after getting heatstroke. They sent me a bill. I mailed them the relevant insurance information. They sent me an invoice detailing what the insurance company paid, vs. what I owed. The insurance company paid them 10% of the original bill, and I owed zero (no deductible). This confused me a little, so I talked with some people I knew who worked in hospitals. They said that this is normal, the insurance companies strong-arm the hospitals into lower fees, so the hospitals compensate by charging cash patients a lot more. The fun part is when the hospital refuses to submit anything to your insurance company, because they know they can make more money by getting 20-30% of the inflated fee than they can by getting the money from an insurance company. Ran into this one, too. Didn't start getting bills for a year, call them up with my insurance info and am told that it's too late to send paperwork, or they don't keep records that long, or other obvious lies. Yes, personal experience with the ass end of corrupt hospitals is why I want the whole system thrown out and replaced. Fuck them with a nail bat. Pete Remner Cleveland, Ohio 1984 RX-7 (rallycross thing) 1978 Silence is golden, but duct tape is silver. |
aj_johnson A.J. Johnson Infallible Moderator Location: Pendleton OR Join Date: 01/07/2011 Age: Settling Down Posts: 1,381 Rally Car: 88 Audi 80 |
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