US Debt

[ursaminortaur]

As a thought experiment, if national debt doesn't matter... why does every government still bother to raise tax revenue? Wouldn't it just be simpler and easier to print all the money they want to spend and pile it onto the national debt each year?

If you are going to slowly increase the national debt in real terms by 3-10% a year because you run constant budget deficits, why not just run a 100% budget deficit, go whole hog and increase it by 40% a year (govt spending as % of GDP)? It never has to be repaid, so why does it matter how quickly it increases?

Tax takes money out of circulation - if you did what you suggest without taxation then the money in circulation would continually increase and you would quickly develop an inflation problem (probably a hyper-inflation problem). The other knock on effect would be that you would have to offer ever increasing yields on government gilts in order to find buyers for your national debt and eventually you would likely have problems finding such buyers.

[vand]

As a thought experiment, if national debt doesn't matter... why does every government still bother to raise tax revenue? Wouldn't it just be simpler and easier to print all the money they want to spend and pile it onto the national debt each year?

If you are going to slowly increase the national debt in real terms by 3-10% a year because you run constant budget deficits, why not just run a 100% budget deficit, go whole hog and increase it by 40% a year (govt spending as % of GDP)? It never has to be repaid, so why does it matter how quickly it increases?

Tax takes money out of circulation - if you did what you suggest without taxation then the money in circulation would continually increase and you would quickly develop an inflation problem (probably a hyper-inflation problem). The other knock on effect would be that you would have to offer ever increasing yields on government gilts in order to find buyers for your national debt and eventually you would likely have problems finding such buyers.

so, in other words, supply of the currency (after all, bonds are just bundles of currency with the promise of future payments in more of units of that current) goes up while it's purchasing power declines.

You make a good point about the circulation of money, but when the government spends it all again (and more) is this not more than compensating?.. and by extension the, if governements routinely run continual budget deficits then this must be considered inflationary (a theory I strongly subscribe to).

[vand]

Yes there have been population declines since industrialization,but they have been caused by exogenous shocks rather than driven by demographic trends.

You can recover from wartime population losses pretty quickly with an immediate baby boom that tends to follow a large scale conflict, but demographic trends have much more powerful forces behind them that if not irreversible have still to be figured out.

You say that no one knows what will happen in a future with population decline but immediately contradict yourself that you are certain it will be for the better..

If you read what I wrote a bit more carefully you will notice I was postulating a better future following an overall decline in the human population. The economic consequences of a natural decline in any given countries population are more uncertain.

BoE

I don't agree.

Would you care to put a rough number of what is an "ideal" number of humans for us to be able to continue to thrive as a species?

People are not just problems and polluters; they are also problem solvers and creators.

With more problem solvers and creators in the world we create more wealth overall, and then value of our creation and knowledge increases when we trade with one other -- so between two societies with equal individual skills and productivity but one just has a much larger number of people, the larger society will be more prosperous overall.

That's why population and prosperity are so closely intertwined.

[ursaminortaur]

Tax takes money out of circulation - if you did what you suggest without taxation then the money in circulation would continually increase and you would quickly develop an inflation problem (probably a hyper-inflation problem). The other knock on effect would be that you would have to offer ever increasing yields on government gilts in order to find buyers for your national debt and eventually you would likely have problems finding such buyers.

so, in other words, supply of the currency (after all, bonds are just bundles of currency with the promise of future payments in more of units of that current) goes up while it's purchasing power declines.

You make a good point about the circulation of money, but when the government spends it all again (and more) is this not more than compensating?.. and by extension the, if governements routinely run continual budget deficits then this must be considered inflationary (a theory I strongly subscribe to).

Ignoring the complications caused by bank money (the money banks create through their lending), if the tax take is large enough then the amount of money in circulation only increases by a small amount and inflation remains relatively low.

An often used simplified analogy for this is a bath with two taps (one labelled government borrowing and the other government money creation/printing) and a drain (labelled taxation) the level of the water in the bath (the money in circulation) will rise and overflow the bath if the amount of water coming through the two taps exceeds the amount leaving through the drain but can be maintained if you keep things balanced.

[Urbandreamer]

so, in other words, supply of the currency (after all, bonds are just bundles of currency with the promise of future payments in more of units of that current) goes up while it's purchasing power declines.

You make a good point about the circulation of money, but when the government spends it all again (and more) is this not more than compensating?.. and by extension the, if governements routinely run continual budget deficits then this must be considered inflationary (a theory I strongly subscribe to).

Ignoring the complications caused by bank money (the money banks create through their lending), if the tax take is large enough then the amount of money in circulation only increases by a small amount and inflation remains relatively low.

An often used simplified analogy for this is a bath with two taps (one labelled government borrowing and the other government money creation/printing) and a drain (labelled taxation) the level of the water in the bath (the money in circulation) will rise and overflow the bath if the amount of water coming through the two taps exceeds the amount leaving through the drain but can be maintained if you keep things balanced.

Just in case people can't follow the flow, here is how others have done the economic water thing in the past.
https://www.youtube.com/watch?v=fKhFXqObWwY
Including the bit of the water tanks overflowing.

Oh, and sorry to disagree, but taxation does not destroy money or reduce the amount in circulation. As per the video, taxation is returned to circulation in the form of government projects (like paying for the NHS).

[ursaminortaur]

Ignoring the complications caused by bank money (the money banks create through their lending), if the tax take is large enough then the amount of money in circulation only increases by a small amount and inflation remains relatively low.

An often used simplified analogy for this is a bath with two taps (one labelled government borrowing and the other government money creation/printing) and a drain (labelled taxation) the level of the water in the bath (the money in circulation) will rise and overflow the bath if the amount of water coming through the two taps exceeds the amount leaving through the drain but can be maintained if you keep things balanced.

Just in case people can't follow the flow, here is how others have done the economic water thing in the past.
https://www.youtube.com/watch?v=fKhFXqObWwY
Including the bit of the water tanks overflowing.

Oh, and sorry to disagree, but taxation does not destroy money or reduce the amount in circulation. As per the video, taxation is returned to circulation in the form of government projects (like paying for the NHS).

There are different ways of viewing it.

Either

1) The money collected in taxation is effectively destroyed and future government spending doesn't include it.
Or
2). The money collected in taxation can be used either fully or in part (with the rest being destroyed if it's only partially used) in future government spending. In that case then the amount of new money that the government creates is reduced by the amount of money collected in taxation and used.

I was trying to present the simplest analogy - you can complicate it more by having the bath's pipework redirect the water going down the drain back into the taps. And eventually you end up with a hydraulic model of the economy such as Philip's MONIAC as shown in your video link

https://en.wikipedia.org/wiki/Hydraulic_macroeconomics

https://en.wikipedia.org/wiki/MONIAC

[Bubblesofearth]

I don't agree.

Would you care to put a rough number of what is an "ideal" number of humans for us to be able to continue to thrive as a species?

People are not just problems and polluters; they are also problem solvers and creators.

With more problem solvers and creators in the world we create more wealth overall, and then value of our creation and knowledge increases when we trade with one other -- so between two societies with equal individual skills and productivity but one just has a much larger number of people, the larger society will be more prosperous overall.

That's why population and prosperity are so closely intertwined.

Addressing the last point first, if you look at Western European countries there is no correlation between population size and prosperity. Indeed I believe Luxembourg has the highest gap/capita. Switzerland, Norway and Denmark are also high on the list. Assuming you are happy with gap/capita as a proxy for prosperity?

As for the previous point it's not so much finding an ideal number of humans as identifying an upper limit. From an ecological standpoint this has to be where we are living sustainably - i.e. not consuming resources faster than they are being produced and not polluting faster than the pollution can be removed from the ecosystem. Otherwise it's just a matter of time before collapse occurs.

This is just basic ecology and applies for any species, not just humans. Sadly ecology seems to be one of those subjects that doesn't seem to be particularly well understood by many people.

BoE

[vand]

I don't agree.

Would you care to put a rough number of what is an "ideal" number of humans for us to be able to continue to thrive as a species?

People are not just problems and polluters; they are also problem solvers and creators.

With more problem solvers and creators in the world we create more wealth overall, and then value of our creation and knowledge increases when we trade with one other -- so between two societies with equal individual skills and productivity but one just has a much larger number of people, the larger society will be more prosperous overall.

That's why population and prosperity are so closely intertwined.

Addressing the last point first, if you look at Western European countries there is no correlation between population size and prosperity. Indeed I believe Luxembourg has the highest gap/capita. Switzerland, Norway and Denmark are also high on the list. Assuming you are happy with gap/capita as a proxy for prosperity?

As for the previous point it's not so much finding an ideal number of humans as identifying an upper limit. From an ecological standpoint this has to be where we are living sustainably - i.e. not consuming resources faster than they are being produced and not polluting faster than the pollution can be removed from the ecosystem. Otherwise it's just a matter of time before collapse occurs.

This is just basic ecology and applies for any species, not just humans. Sadly ecology seems to be one of those subjects that doesn't seem to be particularly well understood by many people.

BoE

There is no correlation*between* countries of population size Vs economic prosperity because they all have different political and economic systems and start from wildly different points. But there is overwhelming evidence of such correlation *within* a country which adjusts for most of those other factors - political shifts and social changes nowithsranding.


It's not controversial to recite some of the basic tenets of economics here - countries have learned to overcome the limitations of their own limited factors of production by **trading with one another**.

Ergo, the more partners you have to trade with the more options you have for exchange of your own produce and the more value is bequeathed to your own efforts, ie the wealthier you become.

If there are more people - more people - in their world all out there producing away, there come more options for trading. It is the total number of other countries/people who you can trade with that is the ultimate factor in how wealthy you can become, not your own population. That's why total global population aging and eventual decline will work as a headwind.

[Bubblesofearth]

There is no correlation*between* countries of population size Vs economic prosperity because they all have different political and economic systems and start from wildly different points. But there is overwhelming evidence of such correlation *within* a country which adjusts for most of those other factors - political shifts and social changes nowithsranding.


It's not controversial to recite some of the basic tenets of economics here - countries have learned to overcome the limitations of their own limited factors of production by **trading with one another**.

Ergo, the more partners you have to trade with the more options you have for exchange of your own produce and the more value is bequeathed to your own efforts, ie the wealthier you become.

If there are more people - more people - in their world all out there producing away, there come more options for trading. It is the total number of other countries/people who you can trade with that is the ultimate factor in how wealthy you can become, not your own population. That's why total global population aging and eventual decline will work as a headwind.

Maybe an example or two of this overwhelming evidence for the correlation within countries? Seems to me there are some pretty big towns and cities in the UK that are less prosperous (again looking at wealth/person) than some much smaller towns and villages. But I await your evidence.

AFAIA Adam Smith economics didn't really account for limits to growth, environmental constraints, ecology etc. These factors will be game changers in the coming decades and a lot of current tenets of economics, as they apply to the Global population, are going to require serious revision. IMO of course.

BoE