Why Don't Govs Save Taxes?

[Naked Gents Rut]

I'd suggest nothing, but that doesn't mean there aren't options. Fiscal policy will be tried, although it probably won't make much of a difference at this point.

[notyoueither]

Well now Stelmach looks like an idiot for his policies. I really don't understand why they didn't start building up a surplus, that's money they have to burn through before they have nothing.

What about Klein?

[Ben Kenobi]

What about Klein?

At least Klein built up that surplus.

They both are positive geniuses compared with Campbell. Carbon tax is an albatross.

[notyoueither]

At least Klein built up that surplus.

Horse Hockey.

Klein spent every penny that came in, and then some. He spent much of the returns from the Heritage Fund.

[Arrian]

Which is why Keynesian theory no longer works. They are pushing against a rope.

-Arrian

edit: to be clear about the source of my mirth: agreed that the zero interest rate means they really can't do anything more via monetary policy. It's just funny that you think this means Keynesian theory no longer works. Keynesians have been proposing a fiscal stimulus for some time now, because they recognized the limitations of monetary policy.

[Victor Galis]

-Arrian

edit: to be clear about the source of my mirth: agreed that the zero interest rate means they really can't do anything more via monetary policy. It's just funny that you think this means Keynesian theory no longer works. Keynesians have been proposing a fiscal stimulus for some time now, because they recognized the limitations of monetary policy.

Technically not true. The Central Bank could try to create inflation and keep interest rates low, pushing real rates low. I'm not sure anyone thinks that would be a good idea, but it has been mentioned by some economists.

[Arrian]

Are those proposing this Keynesians? Just curious, 'cause Krugman has been blogging about the dangers of a liquidity trap and the need for a gigantic fiscal stimulus for months now.

-Arrian

[Dauphin]

Isn't the point that when governments sell bonds, bills etc to run up these deficits they are collaterised against future tax incomes in a de facto sense?

[Victor Galis]

Are those proposing this Keynesians? Just curious, 'cause Krugman has been blogging about the dangers of a liquidity trap and the need for a gigantic fiscal stimulus for months now.

-Arrian

Yes, Krugman is one of those that suggested that particular alternative might be theoretically feasible, although needing much further study before anyone could seriously propose it.

For the record, I did not believe monetary stimulus would be useful in the current crisis. If firms do not expect to be able to make profitable investments in the short or medium-term giving them free money wouldn't stimulate the economy. (Hence the need for fiscal stimulus.)

[Victor Galis]

Isn't the point that when governments sell bonds, bills etc to run up these deficits they are collaterised against future tax incomes in a de facto sense?

Theoretically yes, but governments could end up with debt burdens that dwarf future tax receipts. (See: Iceland.)

[Ben Kenobi]

to be clear about the source of my mirth: agreed that the zero interest rate means they really can't do anything more via monetary policy.

Which is all I was saying. Keynesians themselves admit that their monetary policy doesn't work outside of a target interest rate range. Hence the 'pushing on a rope' quote.

It's just funny that you think this means Keynesian theory no longer works. Keynesians have been proposing a fiscal stimulus for some time now, because they recognized the limitations of monetary policy.

It won't work though. The only thing that will work is allowing interest rates to rise, followed by tax and spending cuts.

Why would you want to lend at 0 percent? If a loan is more risky, then the rates have to increase.

[Dauphin]

Theoretically yes, but governments could end up with debt burdens that dwarf future tax receipts. (See: Iceland.)

If you issue more bonds in one time period compared to another you are effectively altering the time of receipt of tax revenues. Moreover, if you issue more bonds in times of low tax revenues you are smoothing in the fashion advocated in the opening post (although the time order is arse backward). The fact that you can go too far and 'oversmooth' doesn't change that fact.

[Dauphin]

Hopefully I've got some economists saying "What on Earth is he on about" and will come in to explain it properly.

[Victor Galis]

It won't work though. The only thing that will work is allowing interest rates to rise, followed by tax and spending cuts.

Why would you want to lend at 0 percent? If a loan is more risky, then the rates have to increase.

Yes, that would work, but we're trying to prevent a second Great Depression, not cause one.

If you issue more bonds in one time period compared to another you are effectively altering the time of receipt of tax revenues. Moreover, if you issue more bonds in times of low tax revenues you are smoothing in the fashion advocated in the opening post (although the time order is arse backward). The fact that you can go too far and 'oversmooth' doesn't change that fact.

Hopefully I've got some economists saying "What on Earth is he on about" and will come in to explain it properly.

You have the "What on Earth is he on about" part.

[Seeker]

Dauphin:

Are you talking about arbitrarily long periods of time? Like, geological, age-of-the-universe type stuff?

Bonds are not future taxes if there is no way future tax revenue will ever be enough, unless you are talking about 'the next million years' or something.

'Future taxes' are not some unlimited resource that can be borrowed against forever. At some point you create a debt that no future population can ever hope to pay off under reasonable, non-theoretical conditions, or even do anything besides pay interest. This kind of thing leads to default.