Sunday, August 5, 2018

Lars P. Syll — Rethinking public budget

The balanced budget paradox is probably one of the most devastating phenomena haunting our economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as “the sole solution.”
There are three budget views.

1. Balanced budget in every fiscal year. (Sound finance, debt phobes and deficit hawks)

2. Budget balanced over the cycle. (John Maynard Keynes, many Keynesians, deficit doves)

3. Budget determined dynamically by economic need and opportunity rather than financial rules. (Abba Lerner, functional finance, MMT, deficit owls)

Lars P. Syll’s Blog
Rethinking public budget
Lars P. Syll | Professor, Malmo University


Konrad said...

For neoliberals, a “balanced budget” is code for cutting social programs.

A “balanced budget” never means a reduction in spending for war, weapons, and Wall Street bailouts.

A “balanced budget” means more for the rich, balanced by less for everyone else.

When the federal deficit increases because of spending on war, weapons, and Wall Street bailouts, and because of tax cuts for the rich, we must balance it by cutting special programs. This is called “fiscal responsibility.”

At the lower levels of society, a “balanced budget” means more for whites, and less for non-whites.

Konrad said...

The “balanced budget paradox” is not a paradox. It is a robbery.

To call this scam a “paradox” is like robbing a bank while screaming, “Gimme all the money! This is a paradox!”

“The harder politicians…try to achieve balanced budgets for the public sector…the more the citizens have to pay for the concomitant austerity policies.” ~ Lars P. Syll

Only average citizens must pay via austerity. The rich never suffer from austerity, nor do the bankers, or the Pentagon.

When Democrats last controlled Congress (Jan 2007 to Jan 2011) they sought to reduce the federal deficit via cuts in Food Stamps, Medicaid, and so on. To make these cuts palatable for the masses, the Democrats included cuts in war, weapons, and Wall Street bailouts – but then the cry went up, “This will hurt our national security!” And so the cuts for war, weapons, and Wall Street bailouts were removed.

“Through history public debts have gone up and down, often expanding in periods of war or large changes in basic infrastructure and technologies, and then going down in periods when things have settled down.”~ Lars P. Syll

“Public debt” simply means the amount of money deposited in Fed savings accounts. During World War II, the U.S. public debt increased because the U.S. government sold “war bonds.” This was not to “fund the war,” but to control wartime inflation by getting money out of the economy. Every dollar that people spent buying “war bonds” was a dollar deposited in Fed savings accounts, rather than circulating in the economy. If you bought a “war bond,” you automatically had a Fed savings account.

Today you can still buy a U.S. Savings Bond, but it is called a Treasury Bond. It is one form of Treasury securities. Other forms include Treasury bills, Treasury notes, and Treasury Inflation Protected Securities.

Inflation was a potential problem during WW II, because everyone had a job, and was flush with cash, but consumer goods were scarce, since materials were rationed for the war effort. This threatened to cause runaway price inflation. Solution: get money back out of the economy by instituting the payroll withholding tax, and by encouraging everyone to buy “”war bonds.” (The same thing happened during World War One, but the bonds were called “liberty bonds.”)

“The Ricardo-Barro hypothesis, with its view of public debt incurring a burden for future generations, is the dominant view among mainstream economists and politicians today.”

Mainstream economists and politicians lie because rich people pay them to lie.

“Today there seems to be a rather widespread consensus of public debt being acceptable as long as it doesn’t increase too much and too fast. If the public debt-GDP ratio becomes higher than X % the likelihood of debt crisis and/or lower growth increases.”

For the USA the public debt-to-GDP ratio is MEANINGLESS, since the public debt is denominated in money that the U.S. government creates out of thin air. However, for euro-zone nations the public debt-to-GDP ratio is not meaningless. Moreover the private debt-to-GDP ratio is crucial for all nations (but economists ignore this).

For the USA the public debt is trivial, but the private debt is killing us.

AXEC / E.K-H said...

How Keynesians, Lernerians, MMTers, and Lars Syll make the oligarchy great
Comment on Lars Syll on ‘Rethinking public budget’

Lars Syll summarizes: “Few issues in politics and economics are nowadays more discussed ― and less understood ― than public debt. … The pros and cons of public debt have been put forward for as long as the phenomenon itself has existed, but it has, notwithstanding that, not been possible to reach anything close to consensus on the issue ― at least not in a long time-horizon perspective.”

True, after 200+ years, economics is still at the proto-scientific level. Both orthodox and heterodox economists have failed. Economists do not know to this day how the price- and profit mechanism works. The reason is simple, economists are incompetent scientists. To this day, they do not know what profit is and therefore they collectively talk mind-blowing nonsense about deficit-spending/money-creation/and public debt.

To make matters short, the axiomatically correct macroeconomic Profit Law for an evolving economy is given here without further explanation. It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

This reduces to Public Deficit = Private Profit, i.e. Qm=G−T. And this, in turn, gives the following simplified credit cycle: (i) Public deficit spending → profit of the business sector up, (ii) profit distribution to the one-percenters up, (iii) one-percenters buy bonds, (iv) ninety-nine-percenters get taxed, taxes are transferred in the form of interest to the one-percenters for the duration of the bonds, (v) old bonds are replaced by new bonds on maturity, (vi) steps (iv) and (v) are repeated for an indefinite time, (vii) Eventual redemption of bonds requires taxation of the ninety-nine-percenters and transfer to the one-percenters. The business sector makes a loss in the redemption period.

From this stylized credit cycle follows immediately that Lerner’s dictum “Very few economists need to be reminded that if our children or grandchildren repay some of the national debt these payments will be made to our children or grandchildren and to nobody else. Taking them altogether they will no more be impoverished by making the repayments than they will be enriched by receiving them.” is one of the worst deceptions economists have put on the ninety-nine percenters.

MMTers are presently the most enthusiastic champions of deficit spending/money creation. It holds:#1

(i) The macroeconomic foundations of MMT are provably false. More specifically, the MMT balances equation is proto-scientific garbage. This holds also for Post-Keynesianism.

(ii) Because of (i) the whole analytical superstructure of MMT is false.

(iii) Because MMT policy guidance boils down to deficit-spending/money- creation, MMT policy directly and immediately increases macroeconomic profit. Effects on employment/prices are uncertain and secondary.

(iv) Because of (iii) MMTers are the natural useful idiots of the one-percenters.

(v) The MMT sales crowd promotes an economic theory that is definitively falsified in the social media and in the econoblogosphere by pretending that MMT policy is for the benefit of the ninety-nine percenters.

(vi) MMT academics do NOT promote science but provide a cover for the agenda of the one-percenters.

(vii) The observable unequal distribution of income and financial wealth is the empirical proof (a) of the axiomatically correct Profit Law, and (b), that the deficit-agenda-pushing from Keynes to Lerner to MMT and to Lars Syll has been very successful.

(viii) MMT is the easily recognizable tip of the iceberg of political corruption of economics.

Egmont Kakarot-Handtke

#1 For details of the big picture see cross-references MMT

Konrad said...

The axiomatically dubious microeconomic Prophet Law for a revolving economy is given here without further influence from Saturn’s rings. It holds, with Qm monetary profit/loss, Sm monetary saving/disuading, inter-dimensional expenditures, G government time-bending, T torrential downpours, X extraterrestrials, M mongoose, Y distributed yak dung Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed brainwaves.

Therefore e=mc2+(X−M)+(G−T) divided by Yd+(X−M)= 0 cubed.

Eggplant Carrot-rot Handcrank