At the macro level:
Govt spending equal to taxing is positive for nominal gdp, top line growth, etc.
Taxing removes spending power, but usually not as much as the total tax, as not all of that would have been spent. Govt spending is all spent by definition. So there is usually a ‘positive multiplier’.
Obamacare not only taxes and spends, but it deficit spends (at least according to the pundits), adding a bit more to nominal GDP.
I suggest you trade accordingly!
😉
Do you think the Affordable Care Act health insurance rebate checks will amount to an increase in net demand? They are going out right now. I got mine recently and it was ~70% of one’s month premimum – it varies by state.
should be worth a bit of aggregate demand and a few votes
@Crake, Heard of one person who’d been paying about eleven thousand for an individual policy (she’s a recent immigrant) before qualifying for Medicare. She got a check for 39 cents from Blue Anthem. Plus a long letter that this was a result of the ACA.
Looks like a bit of guerrilla theater to me.
i just got an $18,000 check for one of my little businesses
You imply that all government spending is (nominal) GDP positive, which is of course wrong.
In other words you imply that the “positive multiplier” coming from the tax is more positive then “negative multiplier” from the respective spending. That is far from obvious and it depends on the extent of deficit spending according to *reality*. However assuming a balanced result I would rather side with the overall negative effect from both multipliers. Just a feeling.
if govt buys goods and services it counts as nominal gdp
Did someone hack into Warren’s account? I’m pretty sure he knows that federal tax revenue and federal spending are not positively correlated. After all, the bureaucrats in charge of spending don’t even have the phone number of the bureaucrats in charge of collecting tax revenue.
Also, how much is added to GDP when we pay Russia $51MM to send one of our astronauts into space?
@ESM,
I think I see a cheeky little wink at the bottom of his comment.
depends on whether sales of US goods and services go up.
the presumption is o’care adds to the deficit which is a presumption that spending is more than taxing
@WARREN MOSLER,
The DT outlook is that the good lord giveth & taketh away in PRECISELY equal amounts?
The only issue is how long prodigies get to use their lord’s money before giving it all back?
And any interim “profit” they make with the borrowed currency should be taken away in taxes next year? Sounds like hamster capitalism.
Who writes the DT tax code? Lewis Carroll? Joseph Heller?
Wait, sorry, confused here:
“Govt taxing is a positive for nominal gdp, top line growth, etc.”
Taxing in and of itself is a positive for NGDP?
typo, thanks, should be Govt. spending that’s equal to taxing.
over to michael
sorry!!!!!
I guess it depends on who the government taxes and who gets the proceeds of government spending. A tax is going to reduce private sector saving by the same amount, which will have a negative impact on Consumption as well because the private sector did not meet its savings desires. An equivalent amount of spending on a richer class of the private sector will balance the change in (G-T) part of the equation, but it will increase consumption less than required to keep the equation balanced because of this class’s higher propensity to save.
The statement can only be true if the spending is going to people with a higher propensity to consume than the ones being taxed. Or, of course, if the program is running in deficit, where increase in G is greater than increase in T.
the gov spending on goods and services itself counts as nominal gdp
@Zaid,
Some pundits are saying the obamacare taxes hit the <100K folks disproportionally.
I'm happy about the mid to long term deficit spending in the bill, but it's a terrible law. Will surely exacerbate the affordability issue, much like student loans programs have done for higher education.
@Zaid, Money is for spending; souls are for saving. Some people seem to think money saved is symbolic of salvation.
While I don’t agree that the “love of money is the root of all evil,” I do think the lucrephile is the bane of our existence.
@Monica Smith, The Greek scripture there from Paul to Timothy is “fondness for silver” in Greek ‘philargurion’ “is A root of all the evils” (singular implying there are of course other ‘roots’).
So the scripture does not mention “money” at all, but rather specifically silver.
Paul makes no mention about what Warren calls “free floating, non convertible currency” or what the Greco-Romans termed ‘nomisma’, derivative of the Greek word for ‘law’ ie ‘nomos’.
Weight measures of silver and nomisma look like two different forms of what we may term today types of “money” that were being used in the world at the time Paul wrote that scripture.
Paul cautions Timothy about ‘fondness’ (or perhaps ‘love’) of the one (silver) and makes no mention of the other (FFNC/nomisma).
Today it seems many do not recognize the difference between these two systems and/or want to conflate the definitions of these two very different systems.
rsp,
@Monica Smith,
Try to convince 300 million people that saving is not the solution to their problems in this environment. The fact remains that the non-government sector desires to save, so the government sector has to deficit spend to meet those savings desires. I would rather see a large increase in Government Spend and a reduction in Taxes (so G – T accumulates in non-government saving) rather than see bloated government get even more bloated so that spending is forced and nothing is done to meet the aggregate saving desires of the non-goverment sector. Sure an increase in G will increase GDP, as Warren wrote, but my point is that it also contributes to redistributing wealth from the middle class to the richer class of society (healthcare sector laborforce isn’t doing too badly compared to the rest of the economy). And there’s a nonlinear relationship with non-govermnent sector consumption that I was pointing out.
@Zaid,
To clarify further, I’m assuming the proposition is to increase G and T by the same amount. The effect on GDP would be positive. Non-goverment saving would remain the same. The effect on future consumption is questionable because the government spending is going to those with a higher propensity to save.
and i didn’t say i liked it, i said trade accordingly…
the more others save, the lower my taxes can be
Obamacare deficit spends according to the “pundits”, but it actually reduces the deficit in the short to medium run according to the CBO. Therefore it will be a net drag on growth. Remember the real spending doesn’t kick in until 2014, whilst the tax increases kick in next year.
If the Act is left as is, it will surely deficit spend in the long run as health care costs continue to rise faster than projected, but taxing in order to further subsidize an already bloated healthcare sector is nothing to celebrate.
ok. my companies just got some pretty good size insurance rebates. those factored in?
I take you at your word that you have, but that’s an anecdote, the CBO projections look at the entire bill. Now, I’m sure their projections will be off, but the net effect of the bill won’t be too far from revenue neutral. Since it raises taxes and subsidizes HC, it’s a transfer of demand from productive sectors to one of the most unproductive.
@WARREN MOSLER,
Nationwide, the “minimum loss ratio” (MLR) rebates amount to about $1.1B and are mostly taxable. Also, they’re coming from insurance companies, not the government, so it’s not actually a private sector NFA add. After tax, it may even be an NFA drain. Depends on the average marginal tax rate paid by insurance companies (some of which are non-profits, in either the legal or the financial sense).
As far as policy is concerned, the whole MLR provision is idiotic, and the timing for the payment of the rebates is purely political.
@Erik V,
One thing, isn’t medical insurance a poor term? Most people treat it as a type of subscription. And seems like there’s a kind of multiplier effect as the cost of a policy increases. People who might otherwise not visit a doctor, make it a point to do so lest they not get their money’s worth, further driving up the cost. Is there an term for that effect? I don’t think they wrote that into the Act.
Yes, it’s called a demand inflation spiral. More insurance leads to more demand, which leads to higher prices which leads to more expensive insurance. At some point the politicians need to address the disease (overall HC system) and not the symptom (insurance).
@Erik V,
and the cure is? cough*universal healthcare*cough
@Erik V,
@Socialista:
How does completely separating the consumer from the cost of his consumption decisions help to control prices?
The solution of course is to introduce market based mechanisms into the health care market (not the insurance market, which obscures rather than clarifies, but the actual market for health care related services). Where consumers see and incur the costs of their decisions, prices have remained very stable (e.g. plastic surgery, eye correction, dental care, veterinary care).
By the way, it seems like universal healthcare has not succeeded in curing your bad cough.
@ESM,
“separating the consumer from the cost of his consumption decisions”
You’ve arrived at a key point. Only loose rules work, rules that allow plenty of flexibility.
There are a huge # of decisions to be made. They are never ALL optimally made by entirely personal vs entirely group mandates. All complex systems, including healthcare, are very densely engineered. Solutions we can expand upon ALWAYS involve some unique pattern of personal vs group decision making – WITH adequate variance allowed.
There’s no biological, social, cultural, market or engineering system known that doesn’t have allowable variance within tolerance limits. Nothing we know of is black & white. Rigid systems are easily shattered.
In a formal sense, we always err in presuming that there are absolute relationships, not analog probability functions. That’s especially true in policy & politics.
@Erik V, The problem with medical care isn’t the bloat, but the fact that the service level and outcomes are poor. Cost accounting is helpful in providing that kind of information.
Insurance companies are bummed. They’re middlemen and accustomed to getting something for nothing. The directive that they send on 80% of what they take in to care providers looks generous on its face, but not when one considers traditional contractors with the federal government coming away with cost + 15% as pure profit. This generous profit was supposed to make up for the quality standards imposed by government regulations. But those standards were covered by the costs, which went up with every change order, inevitably justified by bureaucrats not being able to make up their minds.
I don’t know that to be the case in military contracting, but it certainly was in the urban redevelopment arena.
A guaranteed profit of 15% is, of course, not a subsidy; nor is the private sector suckled by the public teat.
Percentages are the invisible hand which shifts public assets into the private purse.
@Monica Smith,
It depends who and how you measure, and what you consider a good outcome. I think outcomes in the cardiology arena are very good, because hearts are living a lot longer. But the neurologists and orthopedists are having a hard time keeping up–the condition of brains and joints is surely lagging.
I bring this up because I agree with Eric, that money could be better used outside of healthcare.
Right now, by some measures, the outcomes are actually too good. We’re spending a lot of money keeping more and more people alive beyond the point they can take care of themselves. I guess that’s good for the assisted care sector, but not sure how good for individuals, or those inevitably subsidizing their care. If people had a stake in the cost, fewer would sign up…
@vincent,
Right. It’s another divergence. The poor invest in kids & grandkids. Wealth is the best birth control known. The wealthy overall have fewer of both kids/grandkids, and hoard fiat savings instead of offspring.
There are many damaging outcomes. The wealthy typically lobby to reduce tax-indexed education funding. They also typically want to ramp up healthcare for the aged instead of development of the young.
@vincent,
We can’t leave out those very major unquantifiables, which can vary enormously from individual to individual. That being the value of a day spent healthy vs one in misery. Or even surviving another day to consider the dilemma.
Like my 105 y/o patient who was amazed every morning she woke up!
critique? (somewhat off-topic) (attempt at concision & simplicity, to a conservative blog) (thx for MMT discussion of O’care)
Consider the possibility that our govt-spending hysteria is the desired result of an expensive long-term Public Relations campaign that’s similar to the hysteria about “dictators” and other campaign rhetoric and war propaganda.
1. Taxes are causing economic problems, by removing money from our economy and destroying that money. Not federal spending, which adds money to the economy.
1a. Future taxes are only necessary when the economy gets “too hot” (whatever that means). (attempted definitions on other websites)
2. Fed Gov does not need taxes, nor a surplus, because it creates money. IRS destroys money.
3. It’s impossible for our system to come up with cash (taxes) to “pay off the public debt” because the “total public debt” = “total private savings”, to the penny, as a matter of accounting.
4. Paying off the debt — if that were possible — would completely eliminate the NET existence of Dollar assets. The only other possible source of Dollars — not NET (free) Dollars — is from our grand private/public partnership of commercial banking, which creates bank credit PLUS obligations to pay back (bank assets).
4a. The 100% elimination of public debt would also eliminate 100% of banks’ capital base, by definition. Partial shrinkage of public debt = partial shrinkage of private wealth.
5. This is how our US and global monetary system is designed. WE created this monetary innovation. WE are the global leaders. Should we destroy our own system?
I think that’s about as simple as I can make it.
Addendum
6. Let’s think. What corp lobby would be interested in gradually shifting the balance of power and plutonomy to us being MORE dependent on bank credit & debt obligations, and LESS reliant on routine public issuance of Dollars? Hmmm?
7. Have any of you guys (to a conservative blog) ever stumbled across any “tech-hippie” sites or videos that call for high-tech communism? Have you heard of “Zeitgeist”? Some call for the complete elimination of MONEY … and full social sharing of everything.
What’s the difference between that “dreamy” Zeitgeist “no money” ideology vs the right wing ideology to eliminate money (by trying to eliminate public debt, in a system where private assets = public debt?)
Path #2 would not be central-planned “wonderful” Left wing “Zeitgeist” communism, so it would be a path towards central-planned money-less Right Wing communism. Sounds very similar to me.
Fer cryin out loud, even the Bolsheviks didn’t eliminate money.