From: Lee Corbin (lcorbin@tsoft.com)
Date: Mon Jul 07 2003 - 17:26:02 MDT
Dossy writes
> > 1. when should government print money
>
> When it needs more new money, of course.
How perfectly awful of you to say that!
> I don't know much about this printing of money business. I hear it
> devalues the currency ... which might be good if your currency is strong
> and obviously bad if your currency is weak.
Printing more money definitely devalues the currency,
and, by itself, is quite destructive. It's an implicit
cheat against anyone holding the money, and punishes
especially the prudent.
But when an economy really is expanding---due to the
very miracle I like to discuss---then the printers
whip up some more money and lend it to the banks, who
lend it to their customers. (And in times of contraction,
this same money vanishes in the exact reverse process.)
In the scenario I'm thinking of (very simplified), the
government (or whoever else is printing money) observes
that
(i) factories are closed and people are out of work
(ii) people who have money and would like to buy things
are afraid to do so because of (i)
So the government prints $2,000,000,000 and hands it out, the
factories open because they know for sure because now at least
half the populace will rush back into the stores, and then
finally the people who have money and were merely afraid
to spend it will see that everything is getting better.
At the very end of the process, the government takes the
$2,000,000,000 out of the subsequent tax revenue, and burns it.
> > 2. when should it reduce taxes *in order to* stimulate growth".
>
> Define where you're measuring "growth" -- that's important. Raising
> taxes stimulates growth in the government agencies while reducing taxes
> stimulates growth in the private sector. I presume you're only
> interested in the private sector, so ... I think any time you reduce
> taxes, you are stimulating growth in the private sector.
Good question; by "growth" I mean that which takes us towards
the singularity. Whatever advances the economy in the long run.
Growth is, of course, difficult to measure, but the economists
use GDP and other measures, even though they realize that they
contain flaws.
> > > and distributing it out to government organizations, a tax cut
> > > effectively cuts out the government as the middle-man and sends
> > > that money directly back out into the economy.
> >
> > A nice generalization, but not always true. What about the
> > times that government projects, usually infrastructure, end
> > up creating wealth in the long run?
>
> Like which?
It may be that the American space program is an example,
and it's likely that the "American Road" they built
across the Appalachians in the early 1800's is another.
I don't know if the English government were involved
(one must say "they", one knows), but it might have
turned out to be very sensible to have got behind
all the canal building over there in the late 1700s.
Lee
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