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Smurfonomics

….if only it could have thought like a government instead of like a shopkeeper, was a self-funding deal for a better NHS. Literally, a full-pay offer could have paid for itself.

Them magic multipliers agin.

There is always the bit that he forgets. Here there are two.

1) Whatever the multiplier of public sector employment we gain exactly the same from private sector. Moving resources into the public sector does not, therefore, gain any multiplier greater than we would have got from leaving things as they are.

2) If all wages are falling in general – which in real terms they are – then why shouldn’t public sector wages fall in real terms along with other wages? After all, any recruitment crisis – etc etc – will be based upon relative wages available within the economy. Relative wages, not absolute. Because, you know, that’s how wages work as P. Krugman has been pointing out for years.

8 thoughts on “Smurfonomics”

  1. Am I right in thinking (its a long time since I did A Level maths) that mathematically speaking the absolute best you can get back in tax revenue from X in government spending is X? That bolus of money, wherever it goes through the economy only ever gets smaller each time it passes through someone’s hands and they make a profit and the State extracts a bit more tax. It can never get bigger?

  2. Is Spud aware that if the private sector is inefficient (by his calculations) then how does he expect government largesse be funded? It cant fund itself.

  3. @Jim – “the absolute best you can get back in tax revenue from X in government spending is X?”

    No. In a purely theoretical sense, there is no limit. Suppose a government has a ton of potatoes (presumably raised via taxing farmers) and provides them to farmers who plant them and this yields ten tons of potatoes. While there is some overhead, so it’s not a yield of 10x, it’s considerably bigger than X.

    In practice, private enterprise is perfectly capable of identifying and exploiting such opportunities, so government spending tends to be on things which are either a bad idea rejected by private enterprise, or projects that cannot realistically be done privately, such as building roads, funding policing etc. Since some of the benefit if such projects is intended to be social rather than financial, it can be very hard to tell if governemnet money is well spent, but it very rarely makea a profit.

  4. “No. In a purely theoretical sense, there is no limit. Suppose a government has a ton of potatoes (presumably raised via taxing farmers) and provides them to farmers who plant them and this yields ten tons of potatoes. While there is some overhead, so it’s not a yield of 10x, it’s considerably bigger than X.”

    Well yes if the State is actually investing in something productive (though in your example where did the State get the spuds from? If it took them from other farmers then no more spuds will grown than if it did nothing). But we are being told to pay nurses extra wages to do exactly the same job, how exactly can that generate more in revenue than is spent? Even theoretically?

  5. ‘Tater saw an IMF analysis of UK roads being in bad repair and congested. It said spending on sorting that had a multiplier of 2+. ‘Tater ran with it and assumed it applied to all government spending.
    An IMF paper which found that government subsidising things and government paying for people to have pensions had negative effects on GDP was ignored.

  6. Theoretically, everything you spend money on must have a multiplier. Since you must value the thing more than the money, or you would have kept the money.
    I doubt this applies to taxes.

  7. I thought the idea of the multiplier from smurfs point of view, is that the original payment is taxed and any spending accrues tax on the seller and cascades through subsequent purchases. In spudworld the tax generated is equal or even greater than the original payment. In spudworld this means that govt spending is recouped via subsequent tax take. However in real life this doesn’t appear to take place as government debt continues to rise. Also I’m not sure how his sudden conversion to tax pays for government spending marries with the magical money tree (mmt) but then again consistency and logic play no part in spudworld apart from he’s consistently wrong.

  8. @Jim – “If it took them from other farmers then no more spuds will grown than if it did nothing”

    That depends on whether the state makes a better decision on when and where to plant than the farmers would have. Some people believe that the state will be better. Though such people ignore the evidence of history.

    @bloke in spain – “you must value the thing more than the money, or you would have kept the money.”

    Yes, but there are other kinds of values than money. If I spend money on a cinema ticket, after the film I have nothing to show for my expenditure except memories, and I can’t sell them, so monetary value has been lost.

    “I doubt this applies to taxes.”

    Indeed. The fact that they have to be mandatory suggests very strongly that they destroy value – just as theft does for the same reason. In rare cases, taxes may create value. This is when there is some value created if everyone contributes, but less value if there are free-riders. An example of this is a police service.

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