It’s stump thinking time!

Borrowing to fund government expenditure funds itself. Because the tax collected as that spending ripples out through the economy pays off the debt. So the Sage of Ely has repeatedly told us.

Then this:

One of the perennial questions surrounding what is supposedly called government debt is the ‘how are you going to repay the borrowing?’ question. The media is obsessed with it at the moment.

They appear wholly unaware that we have never made any serious attempt to repay this supposed debt

Oh. Perhaps the previous statement is inoperative now?

10 thoughts on “It’s stump thinking time!”

  1. What about the interest payments? They won’t always be this low, and this is what is buggering Italy (amongst other things…)

  2. We HAVE made several attempts to pay off, or pay down, government debt. Pitt the Younger was well on the way to doing so through his Sinking Fund when the Napoleonic War broke out; Margaret Thatcher’s government would have repaid it within thirty years; there were several lesser reductions in the intervening years. Murphy’s ignorance knows no limits.

  3. “…tax collected as that spending ripples out through the economy pays off the debt” but, surely, only if the tax on spending is more than 100%?

  4. Dennis, Odin's Tax Collector

    “…tax collected as that spending ripples out through the economy pays off the debt” but, surely, only if the tax on spending is more than 100%?

    Actually, that’s exactly the sort of thing Spud would advocate for… taxing spending more than 100%.

    And even more actually, I’m surprised he hasn’t endorsed such an idea already.

  5. I sneeze in threes

    He cares not that those benefitting from the public largess will not be affected in the same proportion as those either paying the tax, or those who are crowded out from making purchases of those goods (housing particularly) now inflated in price due the additional government spending. The fact that at a macro level the gdp accounting identity is not affected is a bait and switch. It’s the micro that matters. It’s a transfer (by force) of wealth.

  6. asiaseen said:
    “‘…tax collected as that spending ripples out through the economy pays off the debt’ but, surely, only if the tax on spending is more than 100%?”

    No, because there’s a multiplier; as the money circulates it generates more than you spent initially, so theoretically it could be possible to recoup the money with a tax rate below 100%.

    The problem – that Murphy never acknowledges – is that there is also a multiplier on the tax – so £100 of tax collected reduces the economy by more than 100%. That counteracts the multiplier effect on the spending, which is why it never works.

  7. To the extent that anything can be discerned about his thought processes, Murphy does seem (at least on even-numbered days) to draw on simple Keynesian ideas about multipliers.

    However even the simplest such models take account of leakages (e.g. savings and imports) other than tax out of each round of expenditure – so even within this framework, extra government spending isn’t self-financing.

  8. @ Cadet
    If only!
    Murphy and Guardianistas ignore leakages when it suits them to do so: it is possible (for the intellectually-challenged or dishonest), to create and use models that ignore leakage.

  9. @RichardT
    “there’s a multiplier”

    Of course, that works both ways. If someone avoids or evades tax then they can spend that money in the economy, usually more wisely than any government.

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