Taxes pay for things, or do they?

Discussion in 'Serious' started by Corky42, 18 Jul 2017.

  1. Disequilibria

    Disequilibria Member

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    Using the flow of funds equation broad money increases other things equal if the ΔG is greater than ΔT and is funded by printing, other things equal, however the bank of england controls the price of the money for controlling the inflation and the money supply so the increase or decrease is counteracted by a change in inflationary pressures leading to a change in interest rates and that controls inflation.

    Also the BoE doesn't finance government deficits.
     
  2. Corky42

    Corky42 What did walle eat for breakfast?

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    This analogy is getting just as confusing and convoluted as the real world, can't we just drop it.

    Let see if i can cut through it a little, your initial thought experiment proposed that we each had half the 200-unit monetary supply, yes? The thing is i have no need for your monetary supply, I'm perfectly happy to keep using my barter system, i did some work for the baker and he pays me in loaves, the builder did some work for me and i paid him in loaves.

    So i have no need for this newfangled monetary thing, maybe you need to create a demand for these £ thingies, maybe if you threatened to lock me up if i didn't contribute to your newly formed government and that you'd only accept contributions using these new £ thingies then I'd be forced in to using it, otherwise there's just no demand for these £ things and they're all but worthless.

    That fall in the value of sterling is relatively small when compared to the Brexit effect and other dumb moves by politicians, as i said I'm not saying printing money doesn't come with consequences however it's not like we've never done it, is it something like £400bn that we've printed since 08/9.

    I have to admit I've not had the time to look at the ONS link you posted, sorry. :oops:

    However i get the feeling it will probably talk about generally accepted principals and not the theoretical principal that we've discussing.

    You did read about me saying we're talking about a level of knowledge just above nout right? In other words you can almost spot my head from up there. ;)
     
    Last edited: 18 Jul 2017
  3. Gareth Halfacree

    Gareth Halfacree WIIGII! Staff Administrator Super Moderator Moderator

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    Except that without the newfangled monetary thing (and taxes) the thing that needed building didn't get built. And it was a hospital. And you needed surgery as a result of complications brought about by a diet of nothing but loaves of bread. So now you're dead. Sorry.
    It doesn't talk about principles at all; the ONS doesn't deal in principles, it deals in statistics. Clue's in the name: it ain't the Office of National Principles.

    The ONS link, if you click on it, will tell you exactly how much the government earns, how much it borrows, and how much it spends. In other words: proof, if proof were needed, that taxes do pay for things.

    Mic drop. Walk to door. Kick door open. Walk through door. Crowd goes wild.

    A final question, if I may: if you're saying taxes don't pay for things, then what does? When I see a policeman, where has his salary come from? When I see motorway repair going on, who's paying? Who keeps the lights on in my local library? Who paid for the doctor who took my tonsils?
     
    Last edited: 18 Jul 2017
  4. Ending Credits

    Ending Credits Bunned

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    So inflation is just another from of tax? (Or, rather, a certain portion of inflation.)
     
  5. liratheal

    liratheal Sharing is Caring

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    Can someone tl;dr this 'fiat' money system?

    I keep reading it as 'fix it again tomorrow/today/tony', and while amusing to me, I suspect this isn't technically correct.
     
  6. Zak33

    Zak33 Staff Staff Administrator

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    True, but most customers call it Road Tax or Road Fund License
    you may have to take my word for that. might have some experience in it

    it googles well too

    and the Gov website calls it Tax so we mortals understand it
    https://www.gov.uk/check-vehicle-tax
    https://www.gov.uk/report-untaxed-vehicle
    etc

    Vehicle Excise Duty, while technically correct, bemuses most people as a word and it was blamed on people not taxing their car.
     
  7. Gareth Halfacree

    Gareth Halfacree WIIGII! Staff Administrator Super Moderator Moderator

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    And these people are wrong, and the reason why drivers shout "get out of my road, I pay Road Tax and you don't" at cyclists. It's not a road tax; it hasn't been a road tax since 1936; if you had an electric car you would pay just as much as the cyclist, which is zero.

    Repeat after me: There Is No Road Tax.
    Duty is a type of tax; the government doesn't call Vehicle Excise Duty a tax 'so we mortals understand it,' it calls it a tax because it is a tax.

    Traditional money: I have a block of gold, and I will shave off some of that gold with a knife and give it to you in exchange for goods or services.

    Gold-backed money: I have a block of gold but it's heavy and people keep trying to steal it, so I've locked it in a vault. Instead of shaving off bits, I've printed a hundred promissory notes each good for one percent of the gold block and carry those around instead; I'll give you one or more of the promissory notes in exchange for goods or services, and you can either trade said promissory note yourself or take it to my vault and exchange it for the physical gold it promises. I can't print more notes, because I don't have any more gold. The notes that are out there are all the notes there are, at least until I get more gold.

    Fiat money: I don't have any more gold, but I print a bunch of promissory notes anyway and declare that they have a value. The notes have no intrinsic value in themselves, but a value that various based upon a billion and one different things and serves as an effective indication of the size and health of my economy. Some people make a great deal of money betting on the value of these notes going up or down. I can trade these notes for goods or services. At any point I can print a bunch more notes, which will devalue the notes that are already in circulation. This may make people angry. Other people might come up with their own currencies, based on the same there-is-no-gold concept; if I devalue my currency enough, people will start using someone else's and I need to print ever-increasing and increasingly-valueless notes. Eventually, Zimbabwe.

    Basically. It makes sense if you know that the word 'fiat' means 'an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it,' or to put it another way 'because I say so.' Fiat money has value because I say so, not because it's a promissory note for lumps of a real-world commodity.
     
    Last edited: 18 Jul 2017
  8. Squallers

    Squallers Meat Puppet

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    The currency issued by the government isn't backed by a physical commodity e.g. gold and is essentially only valuable as a means of exchange because everyone agrees it is (mainly because it's what we pay taxes in, and what the government hands out to people who work for them)
     
  9. Corky42

    Corky42 What did walle eat for breakfast?

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    It did get built as instead of creating a demand and supply situation for this newfangled monetary thing we used indentured labor and told people if they didn't contribute materiel's we'd lock them up.

    The government doesn't really earn money, they make a law that says you must contribute to society by trading your goods or services in return for the official currency because that's the only payment they'll accept.

    The theory (MMT) proposes, because fiat money doesn't have any intrinsic value, that the currency issuer creates the supply and the demand, whereas because commodity currencies is directly linked to a commodity in short supply like gold that's what gives it an intrinsic value.

    The currency that the government issues pays for them, and the hypothesis goes that the only reason people accept that this currency has value is because the same government who issued the currency creates a demand for that currency via taxes.
     
    Last edited: 18 Jul 2017
  10. Gareth Halfacree

    Gareth Halfacree WIIGII! Staff Administrator Super Moderator Moderator

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    And I'm done.
     
    Mankz likes this.
  11. Corky42

    Corky42 What did walle eat for breakfast?

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    If taxes pay for government spending then what would happen if the government stopped spending, eventually the money would run out because the taxes we pay would use it all up.
     
    Last edited: 18 Jul 2017
  12. Archtronics

    Archtronics Well-Known Member

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    As I mentioned in the other thread, Fiat money has never worked in the past and so far it doesn't look like it will work out in the present either simply because it always reverts back to its intrinsic value which is zero.
     
  13. Zak33

    Zak33 Staff Staff Administrator

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    /zombie arms up...

    /fully hypnotised

    There......Is.......No......Road.......Tax

    /wonders why the capitals were important, but did as he was told
     
  14. Mankz

    Mankz 5318008

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    Corky, for someone who asked a question, you really don't want to listen to the answers..
     
  15. wolfticket

    wolfticket Downwind from the bloodhounds

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    I guess Fiat in this context has little or nothing to do with the car company.

    Hypothetically is there anything to stop people collectively deciding gold has no value above it's practical usefulness?
    I always thought it was odd that there are vaults of gold somewhere that are somehow meant to be of colossal currency backing value even though hardly anyone ever sees them and they effectively just gather dust without any use.
     
  16. Nexxo

    Nexxo Bargaining chip

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    Wait wait wait, there isn't a magic money tree?
     
  17. wolfticket

    wolfticket Downwind from the bloodhounds

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    It's a barter economy: I'll give you some fruit from my magic money tree in exchange for another batch of magic beans.
     
  18. adidan

    adidan Avatar is back out of season.

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    Income Tax was introduced to help fund the Napoleonic War, if taxes didn't pay for anything I doubt Pitt would have bothered.
     
  19. Archtronics

    Archtronics Well-Known Member

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    In theory people could decide gold has no value but good luck trying to get the entire global populace to agree to do that.
    In reality anything in limited supply can be used as money e.g, cigarettes used as currency in prisons.


    The likely distant future in my view will be some kind of crypto currency, because it doesn't require lots of space and is not controlled by govt or central banks.
    We would need a major economic crash before banks and the govt let that happen tho.
     
  20. Corky42

    Corky42 What did walle eat for breakfast?

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    I fully accept that but it's the system we currently find ourselves in so it seems strange that most people, including our politicians, still think we operate within a commodity currency system where the currency represented the exchange of gold.

    Maybe that's because from my perspective the only answers I've had for daring to question the mainstream orthodox view have been rather condescending in nature, despite Modern Monetary Theory having been around for over a 100 years, and the proposition that in a fiat monetary system taxes are not use to pay for things but as a means to control the supply and demand of the currency being an accepted part of MMT.

    Maybe because i thought having a discussion was about the exchange of ideas, theories, and opinions, not about resorting to what seems to be the Internets default setting of proving whose right and whose wrong.

    Because back then currency had an intrinsic value, you could exchange your currency for a share of a commodity that had value because of its limited supply and relative demand.
     
    Last edited: 19 Jul 2017
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