Spend & Tax Economics

[Martin Hash]

I know Republicans use the term "Tax & Spend" to deride modern economic theory. These cretins confuse economics with how they balance their home budgets - get money, spend it - and they try to apply this misconception to our national economy. To help them out of the cave they live in, I have re-termed modern economics as "Spend & Tax," acknowledging the words Republicans understand but putting them in the correct order. Governments SPEND money then TAX it back at the end of the year. It seems obvious that the two numbers should match but Republicans seem not to be able to do simple math either so we end up with huge deficits and Reaganomics lead National Debt.

The concept of Spend & Tax economics is actually easy to explain:
1) Every dime spent by Government is a loan to America and it (mostly) doesn't make any difference what the money is spent on.
2) The only two inviolable rules are: production must exceed consumption, and the cycle cannot be broken; (i.e. no Trade Deficit).
3) Every dime eventually ends up in somebody's bank account, so it's easy to identify who has to pay back the loan.

Government currently spends about 25% ($3.8 trillion) of GNP ($16 trillion), a multiplier of 4. (For comparison, the total net worth of America is $60 trillion.) The goal of macroeconomics, and by extension the private sector, is to increase the multiplier, which is a rough measure of productivity verses consumption. How Government spends money can also increase the multiplier by spending on items that improve productivity in the long run; i.e. basic science, and infrastructure. Conversely, it is consumptive of Government to supplant functions that could be performed by the private sector. Therefore, Government should only perform functions that are natural monopolies or State objectives, like defense, the courts, and issues of national conscience. Once Government spending is decided on by legislative approval, it is irresponsible and counter-intuitive to not raise taxes so that the totals balance, because deficits eventually lead to inflation.

Spend & Tax economics is a matter of accounting. Sometimes classically trained economists tout complex theories that sound enticingly attractive, and spout them with such conviction we all nod our heads in numbed agreement. But no matter how these fantastic constructions justify the wealthy accumulating all the money, or the lazy consuming it at other’s expense, I always remember the fundamental truism - you can fool me but you can't fool math.

[Craig Sayre]

Martin,

Are you saying that even if government spending doesn't directly benefit me, it is in fact a loan to me that I must repay through increased taxes (in the event that current taxes don't equal spending)?

You mention that the role of government spending is for those things that private enterprise is not well suited (defense for example). I agree with that, but what happens when the majority decides that government should spend in areas not well suited to government thereby supplanting private enterprise? It seems to me that government has increased solely to benefit government.

What in your opinion is a financially healthy multiplier? Is the current 4 sufficient or can it be lower? I'd like to see it higher of course, but maybe there's a point where too high a multiplier would be as bad as too low?

[Martin Hash]

Are you saying that even if government spending doesn't directly benefit me, it is in fact a loan to me that I must repay through increased taxes (in the event that current taxes don't equal spending)?

Craig, dude, America is a pretty great place to live - of course you directly benefit from it! And being an accountant (WSBOA #28570), I can guess that you probably don't pay taxes anywhere close to what you get for them.

You mention that the role of government spending is for those things that private enterprise is not well suited (defense for example). I agree with that, but what happens when the majority decides that government should spend in areas not well suited to government thereby supplanting private enterprise?

We're a democracy - that's what keeps us from killing each other. If the majority wants something, and it doesn't violate the Constitution, then that's the deal you signed up for. In fact, the majority can CHANGE the Constitution if they want something bad enough. Your best bet is to back a logical plan of government and try to get people elected who can deliver.

What in your opinion is a financially healthy multiplier? Is the current 4 sufficient or can it be lower? I'd like to see it higher of course, but maybe there's a point where too high a multiplier would be as bad as too low?

The multiplier can be 1 (Communism) but they can't violate the rules (no Trade Deficit & productivity > consumption). However, Capitalists can generate multipliers of 10-15, which also provides a good balance between public and private economic power. Astronomic multipliers would mean that people had become like the alien "Q" on STNG.