[Economart]

If a joke, then explain the joke. Show us why we should all be laughing.

I have a joke. Govt contributes nothing to its expenditures, and the deficit is counted as only the borrowed portion. Hilarious?

[Economart]

There are simple answers to all these problems if one zhould look in the right place.

The proof below confirms that there is no difference to the aggregate of assets, property, and incomes that comprise That Which Funds Gov’t, TWFG, whether government taxes or borrows. I substitute Disposable Income for TWFG, but it makes no difference. 

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Let us say that government shall fund public expenditures in 2 scenarios: Taxation and Borrowing with effects wrought upon the aggregate Disposable Income (Y) of a community. Two time periods, T1 and T2, are required to illustrate, firstly, initial taxing and borrowing and, secondly, subsequent repayment of borrowed funds. Govt. expenditure has a value of G in T1 and nil in T2. Only resident citizens may lend to the government.

Scenario 1 – Taxation

T1: Disposable income is Y1 – G.

T2: Disposable income = Y2.

Scenario 2 – Borrowing

T1: Disposable income is Y1 – G = Y1 – loaned Savings (S) = Y1 – S

T2: Disposable income is Y2 – public debt + loaned savings, both with interest (R) added = Y2 – S(1 + R) + S(1 + R) = Y2 – 0 = Y2

The Govt under Borrowing is handed a capital charge. It must ensure that benefits to TWFG exceed costs, i.e. that the created and accruing assets of TWFG are enlarged by an amount greater than incurred and accruing liabilities. 

By abolishing all Taxation, such an outcome is easily achieved. There are 2 great costs in Taxation, govt. squander and deterrence, which disappear with full public and perperual Borrowing. 

Let us say there is an economy of 100 units – 40 units seized by government through Taxation and 60 units left to the population. With Taxation abolished and government forced to borrow directly from the public, the costs of Taxation, squander and deterrence, disappear.

With deterrence erased, let us say the economy grows to 130 units. With squander erased the government share declines to 20 units.

So which economy should one prefer?

One of 100 units in size that leaves 60 units to its people? Or an economy of 130 units that leaves 130 –  20 or 110 units to the same?

Not a difficult choice is it?

The public or TWFG is enriched by full Public Borrowing as is the public credit.

It’s no longer a question of debt or no debt, but rather a question of assets and liabilities, just as it is for any firm, bank or person. As long as the former exceed the latter, none is worried about the security of their funds, and there is no need for Taxation. 

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