All a bit fascist really, isn’t it?

Offering free health care and college to everybody will cost money that needs to be raised in other parts of the economy. Some might embrace those trade-­offs, others might reject them, but economists agree that there are trade-­offs, that the realistic possibilities of our economy have constraints.

I spoke with Warren Gunnels, Sanders’s policy director, and he told me that the senator doesn’t believe there is a trade-­off to be made. Sanders believes that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will fundamentally shift the structure of our economy toward the poor and middle class. It will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it.

All a bit Triumph of Will isn’t it?

43 thoughts on “All a bit fascist really, isn’t it?”

  1. Add it to the million and one promised miracles of socialism.

    Come the day of course.

    Another million and one murders is more likely the result.

  2. I’m so old I can remember when:

    State education will pay for itself by producing a higher educated and higher earning workforce.

    State health care will pay for itself by getting sick workers back to work faster reducing days lost to illness.

    How’d that work out?

  3. Most socialists wouldn’t mind Hitlernomics. Jobs for all, lots of infrastructures (panzers count as infrastructure, right?), telling businesses what they should be doing.

    I think the only reason people think that the Reich wasn’t socialist is that they were snappy dressers.

  4. Government spending always ‘pays for itself’ by generating tax revenue and private savings to the penny for any positive tax rate. Not sure why you think that is fascist. It is just how it works.

    Everything is always ‘fully funded’ because the money can’t go anywhere else. It’s like sitting on a water bed. And that’s the key point.

    See:

    “Can Taxes and Bonds Finance Government Spending?”

    http://estes.levy.org/pubs/wp244.pdf

    IMV a society that ignores the 11% uninsured isn’t really a society. Particularly when there is no reason(!) to ignore them other than sheer bloody minded ideology. Eliminating the financial insurance system and sales and marketing operations of the hospitals and healthcare providers likely frees up enough real resources. The main issue is covering everybody and not favoring people with resources just because they happen to be wealthy – aka queue jumping.

    The charge to corporates would be significantly less than the insurance payments they pay now, and employees would then be less scared to move jobs since their health no longer depends upon it. Removing lock-ins improves the market in labour – allowing people to search for better salaries.

    Plus the state can fund research into drugs instead of drug companies. That way there is no risk premium that needs to be paid on capital to cover the failures. The state can absorb all the failures in basic research – and should do.
    There is a reason it is easier to put a man on the moon or build a nuclear power station with state funding. Because it gets rid of the financial risk assessment costs.

  5. The Sanders people are using shit arguments IMV.

    “Some might embrace those trade-­offs, others might reject them, but economists agree that there are trade-­offs, that the realistic possibilities of our economy have constraints.”

    Correct. The constraints are the real resources of the economy.

    “and the country will easily generate the tax income to pay for it.”

    Firstly taxes fund nothing at the federal level. Secondly every $100 a government spending it will causes $100 in taxation for any positive tax rate – eventually. The only thing that stops that happening in any accounting period is people saving rather than spending.

    Do the mathematics. My income is your spending, your income is my spending. Bounce a $100 between us a few times at a constant tax rate and plot what happens to the principal.

  6. If govt spending “always” pays for itself how come the polit pork across the West owe more money than they can ever pay?

    Your theories aren’t cutting it Bob.

  7. “If govt spending “always” pays for itself how come the polit pork across the West owe more money than they can ever pay?”

    I’m not sure what the “polit pork” is sorry. Can you be more specific?

  8. Bob, what you wrote is completely at odds with reality.

    1. How does government spending pay for itself? Government spends $100 on education – how do they get 100 back? What natural law are you citing that has evidence showing a strict feedback loop between tax spending and tax income?

    2. ‘IMV a society that ignores the 11% uninsured isn’t really a society.’ What does insurance have to do with anything? Insurance IS NOT HEALTH CARE. Cuba has 100% health insurance. They’ve got shit for health care. In any case, you want ot provide everyone health insurance (not health care) – nobody’s stopping you. But what moral principle are you using to lay claim to *my* labor to do this – even to the point that you’re willing to kill me if I don’t comply?

    3. “The charge to corporates would be significantly less than the insurance payments they pay now, and employees would then be less scared to move jobs since their health no longer depends upon it. Removing lock-ins improves the market in labour – allowing people to search for better salaries.”

    Oh, that’s fucking hilarious. Because the reason that we have the ‘problem’ we have now is because of communist jerks like yourself that forced the linkage between health insurance and employment as part of the New Deal. *YOU* assholes did this and now your solution is not “hey let’s just tax medical/insurance expenses at the current rate so they can be delinked from employment”, its ‘hey let’s stand up a huge new bureaucracy to manage a problem that was caused by our own meddling’.

  9. “Plus the state can fund research into drugs instead of drug companies. That way there is no risk premium that needs to be paid on capital to cover the failures. The state can absorb all the failures in basic research – and should do.
    There is a reason it is easier to put a man on the moon or build a nuclear power station with state funding. Because it gets rid of the financial risk assessment costs.”

    Wow, this is just pure fucking ignorance. I hope you’re not an American because this is just embarrassing.

  10. “I hope you’re not an American because this is just embarrassing.”

    I’m not. I am British.

    “How does government spending pay for itself? Government spends $100 on education – how do they get 100 back? What natural law are you citing that has evidence showing a strict feedback loop between tax spending and tax income”

    Think about it. Money does not stop at its first use.

    They don’t always. If they don’t in a particular time period it is due to people, businesses and local governments saving.

    They only do if there is no saving in the spending chain. Think of it leading to ‘cashback.’ It is that saving that *causes* the deficit.

    As the money moves through the economy it is subject to various taxes. Firstly the teacher pays income tax. Then when the teachers buys things from the shop the shop sales tax is paid to the local government. The local government spends money on some infrastructure and pays income tax on the builders. And so on and on until either the money stops (is saved) or all has been leaked to tax.

    Here in the UK VAT (effectively a national sales tax) speeds up the process so the government collects its own money back much more quickly. Effectively the government gets 20% ‘cashback’ when anyone buys anything.

  11. Bob raises an interesting idea – suppose for fantasy purposes that you could mark that extra $100 of spending with a radioactive isotope or similar device. And suppose you could create a fiscal rule that government can only spend that money again when the original has come back to the Exchequer in its entirety after being recycled through the economy and taxed.
    I’d settle for that.

  12. “There is a reason it is easier to put a man on the moon or build a nuclear power station with state funding. Because it gets rid of the financial risk assessment costs”. No, the reason is because it disguises the risks. But disguises does not equal eliminates. in fact, given the bloody awfulness of most state unenterprises, it probably amplifies the risk.

    I suppose you could argue that the moon shot was all based on Von Braun’s technology, so that it was based on the enterprise of a socialist government – but that’s the one socialist government that no modern socialist wants to admit was socialist.

  13. Yeah, sounds great.

    I have noticed that when criticicised, both free market capitalists and socialists claim that the failings were due to insufficient purity of practice.

    So given that neither free market capitalism nor socialism has seemingly ever been successfully implemented to the satisfaction of the people who espouse it, should we perhaps focus instead on which system fails safest?

    “Mr. Sanders? I understand that you believe that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will fundamentally shift the structure of our economy toward the poor and middle class? And that it will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it?

    WHAT IF IT DOESN’T?”

  14. “But what moral principle are you using to lay claim to *my* labor to do this – even to the point that you’re willing to kill me if I don’t comply?”

    It’s not your income. That’s the bit right wingers always forget – because they actually believe they are worth their gross salary.

    They always forget that other people’s spending is what generates their gross salary in the first place, and some of those will be nurses and teachers. Get rid of the nurses and teachers, they spend less and there is less income to pay your gross salary.

    After a point people start to lose their jobs.

    Part of your gross salary originally came from public spending. Taxation recovers a part of that back and leaves you with some of it to spend on. Eventually through the process of responding all public spending is recovered by taxation for any positive tax rate.

    n fact if I was in power I would cut payroll taxes so workers could keep more of their labour. US healthcare is notoriously inefficient – spending is high as a % of GDP. Reduce that % and all the BS jobs with it and less resources are wasted which means you can introduce tax cuts or increase spending to “fill the gap.”

    I don’t understand your attitude or why people would oppose it. It wouldn’t cost you anything.

    “In any case, you want ot provide everyone health insurance (not health care) – nobody’s stopping you.”

    Can’t you see any pitfalls in that?

    It is very difficult for a single individual to do that, least of all to the end of time. That is generally why a large organisation such as a government does it.

  15. The fact is

    ““For every £100 a government spends it will always get £100 back in tax for any positive tax rate – each time, every time”.

    Is a simple statement of a basic mathematical progression (geometric decay I believe). The government spends £100. Spending = income. Income is taxed. The next person spends the remaining £70. Spending = income. Income is taxed. The next person spends the remaining £49. Spending = income. Income is taxed … and so it goes on until the spending sequence exhausts itself. At that point the original £100 will have turned into £100 of tax.

    So money hops around an economy like a stone skipping across a pond. The lower the tax rate, the more hops.

    That is the starting point – *undeniable mathematics*. From then you can get onto the delay caused by saving, and how the money circuit affects the real production circuit in a manner similar to electrical induction.

  16. “and so it goes on until the spending sequence exhausts itself”

    Notice I didn’t put a *time period* on this. What stops the government getting it all back in *any particular time period* – saving.

    Is the point clear?

  17. So – you’re for capital controls, immigration controls, and negative interest rates because we’re all serfs who labor at the whim of government?

    Yeah, that’s pretty clear.

  18. “There is a reason it is easier to put a man on the moon or build a nuclear power station with state funding”

    Companies can’t threaten people with violence to get them to pay for moon landings.

    And considering the sum total of what NASA did since, making a space shuttle that was as safe as thalidomide and the ISS which is as useless as homeopathy, I’ll stick with the rapacious capitalists of Big Pharma.

  19. “So – you’re for capital controls, immigration controls, and negative interest rates because we’re all serfs who labor at the whim of government?”

    There isn’t any need for capital controls. That’s fixed rate thinking. Because forex is a one in one out operation. If you want to change £s for $s, someone in the other direction has to change $s for £s.

    Negative interest rates are silly. They don’t do what people think they do because the bank just puts it on the cost of a loan.

    As to immigration, I think the UK should open borders with countries with similar wealth i.e I can’t see why the UK and Canada have immigration controls whereas the UK and Romania don’t. It makes no sense.

  20. Bob’s reasoning also works for a Mafia syndicate which forges $100 in a printing press in the back room, spends it on weapons, and then extorts a 1% protection payment a year from every business on the island.
    They’ll eventually recoup their forged $100.

    The question is if the Mafia have added value to peoples’ lives in greater or lesser degree than if the businesses on the island had not had their money extorted from them.

  21. “the bank just puts it on the cost of a loan”

    Because banks *only* transfer commercial bank reserves *to other people with central bank reserve accounts*. They can’t do anything else with them.

    So charging them to hold something they can’t get rid of *is a really stupid idea*.

    Even if you want to tax banks, there are better ways of doing it.

  22. “Bob’s reasoning also works for a Mafia syndicate which forges $100 in a printing press in the back room, spends it on weapons, and then extorts a 1% protection payment a year from every business on the island.
    They’ll eventually recoup their forged $100.”

    Not quite. That is more like the Greek government in the mid 2000s where people were certain they would be bailed out if there was any problems (using *someone else’s* currency.) They don’t make their *own* currency. For a better analogy… a mafia syndicate that makes its own currency (called Mafodollars) and taxes people and uses force to uphold property rights.

    Which funnily enough is called a “State” 😉

    Regardless, that is how it works. And I think implementing free healthcare at the point of use would be a good thing to use. No doubt you disagree. None of us are saints here…

  23. “and then extorts a 1% protection payment a year from every business on the island”

    BTW, this is a very good point here. Why do governments want to tax *everything*? Because it reduces the amount of untaxed transactions. That’s why they don’t just tax businesses but everything.

  24. “And I think implementing free healthcare at the point of use would be a good thing to use. ”
    And that’s the bit that needs developing. Not the spend $100, get back $100, thing we’ve been wittering on about. It’s quite possible to spend 100, get back a 100, but still make a nation poorer if you spend it on unproductive things, and especially on things that are overwhelmingly not public goods or do not address externalities.
    Universal healthcare for infectious diseases – yes, please ( by the way it is never really ‘free’ )
    State provision of food, fiction, coffee shops or cancer treatment – no.

  25. “It’s quite possible to spend 100, get back a 100, but still make a nation poorer if you spend it on unproductive things”

    Correct. But if you are well below capacity the government can spend money on something completely worthless e.g. horse manure or digging people to make holes and result in increased incomes across the board.

    The government invests in their programme. That money is spent by the recipients on goods and services, which are then made by the businesses for which they hire staff and pay wages.

    All that activity causes an amount of taxation and an amount of saving to happen, which when you sum it up exactly equals the government investment. Each time, every time.

    Therefore government spending is limited only by the dynamic capacity of the economy, both domestic and international, to produce stuff that people need – largely for me at the low income end of society. Importantly this is stuff that wouldn’t otherwise get made or done.

    So its all ‘paid for’ by making stuff we wouldn’t otherwise make, using machines and people that would otherwise be under-utilised, and creating profits, savings and increased economies of scale we wouldn’t otherwise get.

    It’s a win-win all round.

    Much better to do tax cuts though, or productive spending.

    Here is a quick introduction:

    https://alittleecon.wordpress.com/2014/06/03/the-basics-of-modern-monetary-theory/

  26. Horse manure is the right phrase. An economy can be operating a long way below capacity, and government can still spend 100, fuck it up by driving up the price of spades to dig holes and food to feed the pointless hole-diggers and fillers, leave the collective nation poorer than before, and still get its 100 back.

  27. Bob
    Are you aware of the difference between gross salary and “value-added”? I *am* worth my gross fees to the guy who pays me – or he wouldn’t pay me to do the job. Simples!

  28. “As to immigration, I think the UK should open borders with countries with similar wealth i.e I can’t see why the UK and Canada have immigration controls whereas the UK and Romania don’t. It makes no sense.”

    Even a stopped clock….

  29. Bob said:

    Here in the UK VAT (effectively a national sales tax) speeds up the process so the government collects its own money back much more quickly. Effectively the government gets 20% ‘cashback’ when anyone buys anything.

    VAT revenues are the *net* amount after businesses have deducted their Input VAT (on purchases) from their Output VAT (on sales). It is quite possible for this to be much less than 20% and even negative, resulting in a repayment.

  30. Bob,

    “Think about it. Money does not stop at its first use…As the money moves through the economy it is subject to various taxes. Firstly the teacher pays income tax. Then when the teachers buys things from the shop the shop sales tax is paid to the local government. The local government spends money on some infrastructure and pays income tax on the builders. And so on and on until either the money stops (is saved) or all has been leaked to tax.”

    Bob, your fatal mistake here is to not grasp that money is just a medium of exchange.

    Sure the money goes around and around, but at each stop *actual resources are consumed*.

    At the end of it, of course there’s no more and no less money than before. But the point you’re missing is that there isn’t the same amount of goods and services as before, because they just got consumed.

  31. “It will inspire such enthusiasm and determination that more people will work harder and invest more, and the country will easily generate the tax income to pay for it.”

    He’s fucking seventy years old and hasn’t learned a thing, not one thing.

  32. Agammamon:

    Alternatively, we could make paying for one’s own health insurance/health care tax-deductible. Do the same for education, too.

    And fire up the woodchippers too while we’re at it.

  33. I sneeze in three

    Bob,

    You are ignoring the time value of money and that as the government is in debt and runs a defecit the compounding of the government activity will grow until it crushes the private sector

  34. “Bob, your fatal mistake here is to not grasp that money is just a medium of exchange.

    Sure the money goes around and around, but at each stop *actual resources are consumed*.”

    Excellent. That was the point I was trying to get across. I’ll shut up now 🙂

    “that as the government is in debt and runs a defecit the compounding of the government activity will grow until it crushes the private sector”

    Not necessarily. Interest spent is just like any other spending. Plus the government does not control the deficit. Private decisions to spend and save do.

  35. So Much For Subtlety

    Bob – “Government spending always ‘pays for itself’ by generating tax revenue and private savings to the penny for any positive tax rate. Not sure why you think that is fascist. It is just how it works.”

    Hi Bob. That is interesting. Could you please explain to me how Greece and Argentina are in trouble then? For that matter can you explain to me why there was hyperinflation in Germany and Hungary – and why there is hyperinflation now in Zimbabwe?

  36. It is important to note while *financially* there are no problems with government that does not imply there are no constraints on government at all or that the economy can be run by incompetent dimwits who think real stuff grows on trees.

    “For that matter can you explain to me why there was hyperinflation in Germany and Hungary – and why there is hyperinflation now in Zimbabwe?”

    Sure. There is a good piece on Zimbabwe here:

    http://bilbo.economicoutlook.net/blog/?p=3773

    There were a variety of factors but the main one was that Mugabe gave away the farmland to people who had no clue whatsoever.

    A variety of currencies is in use in Zimbabwe *now*

    “Could you please explain to me how Greece and Argentina are in trouble then?”

    The Greek government is notoriously corrupt and unable to enforce taxation properly. This means it would be difficult to create demand for their own currency.

    Argentina had major problems in the 1990s due to the right wing ideologies in power who pegged the currency to the dollar and crashed the economy:

    https://modernmoney.wordpress.com/2011/01/31/argentina-inflation-due-to-pegged%C2%A0currency/

    Post-WWI Weimar was to pay for the war reparations, which, IIRC, were to be paid in gold.

  37. “At the end of it, of course there’s no more and no less money than before. But the point you’re missing is that there isn’t the same amount of goods and services as before, because they just got consumed.”

    But we don’t just buy stuff to destroy it. When I buy a hamburger I am paying for the energy to survive a few more hours. Even weeks after I ate that burger it still has residual value as I did not starve to death*. While the total supply of money has not changed any trade will create a change in residual wealth.

    *Some readers may think that in this case the residual value is negative. As long as you admit that the transaction is not a zero sum game my work is done.

  38. Bob,

    “Excellent. That was the point I was trying to get across. I’ll shut up now”

    In fact it’s the complete opposite of what you’ve been saying.

    You’re just looking at the money being transferred around and noticing that, amazingly, the amount of money doesn’t actually diminish.

    This has thoroughly confused you.

  39. And so the MMT believers roll on, content with their equations that no matter how insane the extra spending is ( paying the unemployed to survey the coast tasting the seawater perhaps, and treating the ill from that ), as long as you’ve printed more money then real national income will increase.
    A theory that can easily be checked against evidence.
    Stuff the Washington consensus then, stuff the people who integrated consumption functions in the 40s and established there is a ‘best’ level of overspending when there is spare capacity, these MMTers couldn’t integrate their way out of the circle on their behinds..

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