Thread: Economic Policy.

I have a qualification in economics.
I didn't know much about the subject then and know even less now!
I notice the term "austerity" comes up often when government economic policy is discussed.
I'm impressed by the economic performance of Germany, over the years, and I notice Angela Merkel dismisses the term.
At what level, and for what length of time, does running a budget deficit do more harm than good? I, genuinely, do not have an answer, but I tended to believe this would be a technical question. It appears, at present, to be a political one.
The Labour Party is generally very critical of "austerity". I do not believe the policies advocated by Corbyn, and his shadow Chancellor, have worked anywhere.
They seem to want a big increase in spending and suggest this can be achieved by taxing the "rich".
I'm in favour of taxing the rich as long as they are richer than me!
According to The Institute of Fiscal Studies the richest 1% of the population paid 11% of income tax, in 1979-80, and now contribute 30%.
There is also the argument there are not enough of those individuals, Labour define as rich, to cover their spending plans. Also, the rich, particularly, have various methods, legal and illegal, of avoiding tax. This happens more often if they feel the tax burden is too high.
Finally, I must add I do not believe the rich are the only group, in our society, who have some success in avoiding paying tax.

What is your central point?

Originally Posted by geordief

What is your central point?

I did ramble on a bit!
Altho' I do have an opinion on this matter, I was looking for other views on the soundness of an economic policy where tax receipts do not cover, what some/many see as necessary, government spending.
In other words " does running a budget deficit" create more problems than it solves taking into account, the size of the deficit, and the length of time it runs?
On balance, I still feel a technical, or even "scientific", answer, to this question, exists.
At present, it appears that the amount of government spending, in relation to tax gathered, is largely determined by political judgements.

Originally Posted by Halliday

Originally Posted by geordief

What is your central point?

I did ramble on a bit!
Altho' I do have an opinion on this matter, I was looking for other views on the soundness of an economic policy where tax receipts do not cover, what some/many see as necessary, government spending.
In other words " does running a budget deficit" create more problems than it solves taking into account, the size of the deficit, and the length of time it runs?
On balance, I still feel a technical, or even "scientific", answer, to this question, exists.
At present, it appears that the amount of government spending, in relation to tax gathered, is largely determined by political judgements.

One of my brothers once commented, rather acutely I thought, that, pace Clausewitz, "Economics is the continuation of politics by other means."

My understanding from history is that the debts from running a deficit for a long time are traditionally paid by allowing inflation to rise and erode the real value of the debt. Because inflation also erodes the value of savings, what this amounts to is getting savers to pay off the debt.

Modern economics does not seem to think that wrecking people's incentive to save is a good strategy. If they stick to that, then it becomes important not to run up a huge debt.

It would be nice to have a global balance sheet of all the creditors vs all the debtors. (whether governmental ,corporate or private)

I did pose once this kind of question on another forum dedicated to economics and got an answer that the great majority of debtors were in the private sector.

Since ,I assume that nobody with the exception of the likes of Sharia Law economists advocates doing away with the lending/borrowing system entirely then it becomes a question of degree and prudence.

With so many players in the market (and competing interests) this cannot be guaranteed.

Also the terrain changes from one decade to the next and so ground rules (don't ask me what they might be) seem to become less applicable with time.

Will Bitcoin(or its competitors) upset the apple cart next time ,who knows?

It works out, with your figures (original post), that an individual or household who was middle-class or poorer in '79 and '80 would have paid $8.99; a rich unit would have paid $11.00, per $1,000 of public income, towards government services for 100 people, which seems more than fair to the rich, whereas it seems quite contrary to fairness to those facing financial hardship, when figuring income-tax rates. I can't begin to say that this is fair to the poor, or even necessarily to those above poverty level. Fast forward 35 years or so, the middle-class and poor pay slightly less per unit: $7.07; the rich pay a handsome figure, $30 per unit, per $1,000 of public income. However, the only objective basis of fairness must necessarily be the disparity between hardship vs. luxury among the population. (Which is more productive, hardship or luxury?)