# Tag Info

## Hot answers tagged government

37

It would not work. Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation is that without taxes nobody has any reason to want the government's currency. You can try to force people to use it, but that just encourages black marketeering....

20

Most of the same considerations apply to countries as apply to businesses and people, plus a couple of extra cons Pros of Being Debt Free No interest payments Not beholden to someone else (financial freedom) Cons of Being Debt Free Buying things on (interest free) credit can save a little money Paying for things in installments can match costs to income ...

18

tl;dr this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be funded that way. There are several reason for including: there is a limit to the amount of real government spending that can be financed by monetary expansion. For ...

10

There is an interesting report that circulated during the Clinton administration, when we predicted we'd pay off all the debt, that I think answers your question. (here's a public radio article about it) The main takeaway is that government bonds are the safest and most liquid asset. Its existence is necessary for a large number of financial institutions (...

8

Before the edit, you wrote "qualitative easing", but I think you refer to quantitative easing. I'll discuss both. Quantitative Easing Quantitative easing corresponds to the central bank (CB) expanding its balance sheets by "buying" assets. This is typically done in secondary markets. It mainly injects liquidity into the system. To the ...

7

"Why I don't hear nobody speaking about such idea?" Because historical experience says it won't work. By printing money instead of collecting taxes, what increases is the nominal disposable income. The "value of work" is certainly not increased. And the important question is, does this increased nominal income lead to higher consumption? Consider a ...

6

Suppose your country holds debt equal to thirty percent of GDP and that the government is obliged to pay interest of five percent per year on that debt. This implies that each year the cost of servicing the debt is 1.5% of GDP. Thus, if the country's GDP grows at a rate of 1.5% then it can afford to service the debt indefinitely without the debt/GDP ratio ...

6

Because of the large number of roughly comparably sized private and public firms, the petroleum industry provides a laboratory for exploring differences between private and state owned enterprises in related businesses. Without passing judgement on if it has to be that way, it appears as though the private firms are vastly more efficient: Efficiency ...

6

SOE's don't have to perform worse that private enterprises, but they often do. The reasons are manifold: Some SOE's are not set up for profit motive, but rather to seed strategic industries for a nation (e.g. Port of Singapore, or Huawei Telecom). Frequently, state influence at market-oriented is counterproductive because politicians placed in leadership ...

6

This is an interesting question. The banks themselves will not naturally divide themselves. There are great returns to scale in banking, and risk can be greatly diversified by being massive and having more clients in different positions. This means they would have to be broken up legally. So, one would need legal cause to break them up, of which at the ...

5

The current answers correctly point out that financing the government via the printing press would generate inflation. Since inflation is bad, this would be a bad policy. However, these answers miss out on several advantages of an inflation tax. Firstly, there would be substantial productivity gains since the entire government revenue system, tax advisors, ...

5

An interest rate is the return that a lender earns on money lent to someone else. If the interest rate is higher then it makes lending money more attractive because the return is higher. In particular, if the interest rate in, say, Russia increases relative to that in the USA then American lenders will switch from lending their money in America to lending ...

5

Transfer payments aren't included in GDP to prevent double-counting. The reason the author's question is troubling you is because the answer externalizes everything that happens after the payment has been made (which is when the money from that payment DOES get factored into GDP, see below). I assume it does this to reinforce that transfer payments aren't ...

5

An obligatory draft is a tax collected in kind - productive time. Instead of producing in the private sector, citizens of the economy offer their services to the army. Now, we should acknowledge that the existence of an army offers some desired public good (or at least that the society implementing the draft thinks so). Is this a utility-enhancing, or a ...

5

The Modern Monetary Theory (MMT) literature discusses the historical experience of issuing “new” currencies. (Typically, the introduction of money in colonies that did not have a simple monetary system that was compatible with Western notions of “money”.) One text with some historical analysis is Understanding Modern Money by L. Randall Wray. The MMT story ...

4

The answer to your first question is no. For example in Saudi Arabia only foreign residents are taxed. The state can afford to do this because it owns the oil fields and receives a lot revenue from them. In Russia the oil and gas companies gave 52% of the federal budget. Part of this is in the form of taxes, but it is mostly the profit of Gazprom, the ...

4

When recession strikes, it's prone to the currency equivalent of "bank runs" where everyone attempts to trade in their paper money for gold at once, causing a drastic reduction in the money supply, rising of interest rates, and the dreaded deflationary spiral. In the face of a recession, you want the opposite to happen. During the Great Depression, every ...

4

The question: How much would GDP change if during a recession the government raises unemployment benefits by $100 million? can be understood in more than one way. There is the pure accounting question which could be formulated more precisely (albeit in terms of a rather unrealistic scenario) as follows: Suppose, in a certain period, the economic ... 4 Getting the facts straight First before addressing the question, lets get the facts straight as arguing based on incorrect premises is not good and in this case this is also relevant to the answer. In government, the revenue is fixed (most of the time) This is completely incorrect. In fact government revenue varies quite significantly most of the time. ... 4 Wanted to note, with a digital currency this is exactly equivalent to replacing all forms of taxes except a single (high) Wealth Tax [1] that only applies to currency, rather than net worth. Under your model, each year 10% of all currency would suddenly be redistributed, roughly equivalent to$5k/person if this was applied in the United States. If it is ...

4

In principle in both positive and negative externality scenario government could just set price to the socially efficient price. However, outside of static textbook example this is non-starter. The socially efficient price even in presence of externalities (positive or negative) is not constant and it will fluctuate across time. Hence government would have ...

4

For a government to address a positive externality by setting the price of a good to its socially efficient price would raise several difficulties. The diagram below relates to the case of a good subject to a positive production externality so that marginal social cost MSC is less than marginal private cost MPC (but no consumption externality, so marginal ...

3

No, it cannot cause inflation. Inflation is a general rise in the price level, a decrease in the purchasing power of money. While military spending, for example, could cause inflation if paid for through seigniorage (essentially, devaluing a currency by printing more of it), there's neither any reason in theory nor any empirical evidence to support the idea ...

3

It depends. If customers are currently making informed decisions when they book a surge-priced car, then banning surge pricing punishes customers, drivers, intermediaries, and the wider economy. It deliberately introduces an economic inefficiency. If, however, a lot of customers are making uninformed decisions and are effectively being conned by surge ...

3

Note: This answer was posted 4 months before the OP clarified what it really wanted to ask (see comments below the answer). I will accept @Ubiquitous view of the question, which in summary is: Why not having a publicly owned monopoly in the banking sector? Instead of a, however regulated, private banking sector? It would be naive to counter "then why ...

3

I am quite surprised that none of the answers above have mentioned the classic Barro article "Are Government Bonds Net Wealth" The way I understand it is that given that the utility function is increasing and concave in consumption, increasing consumption increases utility but at a decreasing rate. Using the same logic, decreasing consumption decreases ...

3

The government is a producer of goods/services that are then usually not subject to market transactions. Some goods/services that the government produce can be said to increase directly the utility of the households/individuals in the economy. Others can be said to function as intermediate goods, entering, usually as a positive externality, the production ...

3

First of all, please check the properties of money and keep them in mind. Indeed money is a convention, but nobody forces you to use it. For example, prisoners use ciggarettes as a medium of exchange. But let's assume you are the absolute ruler of a country and you want your people to use your currency. You can either do it by force or you have to give ...

3

Unison (2014) - Net cost The Public sector trade union did an analysis of lifting the cap in 2014. The report is here. Unlike the IFS analysis presented above, Unison estimates the net cost of an increase in public pay by 3%, using a microsimulation model. They estimates are summarised in the table below: The key here is that a gross increase in the cost ...

3

Your claim that most go into academia is wrong. From the top universities, about half to two-thirds go into academia, but from most universities, most go to non-academic careers. It's simple accounting: a top-30 university graduates about 20 PhDs in economics per year, hires 1 or 2. Google "[university name] economics job market outcomes", or "[university ...

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