tag:blogger.com,1999:blog-2098432983500045934.post8851838068151670464..comments2024-03-12T22:19:32.339-04:00Comments on The New Arthurian Economics: Chain of CausalityThe Arthurianhttp://www.blogger.com/profile/16501331051089400601noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2098432983500045934.post-29111312961824057782016-03-31T18:19:38.595-04:002016-03-31T18:19:38.595-04:00Oh, my!
At various times, most people fret that e...Oh, my!<br /><br />At various times, most people fret that either labor or capital is gaining on the other -- and that either profits or wages are losing out. Other people bemoan the growth of government for essentially the same reason: labor and capital are losing out to government. These are "cost category" issues, an outgrowth of Adam Smith's <a href="http://www.econlib.org/library/Smith/smWN2.html#B.I,%20Ch.6,%20Of%20the%20Component%20Parts%20of%20the%20Price%20of%20Commodities" rel="nofollow">Of the Component Parts of the Price of Commodities</a>. <br /><br />My complaint is similar. I fret about excessive finance. Just as a rising government-to-GDP ratio may compete with the private sector for income, so also may the financial sector compete with the nonfinancial sector for income. Trouble is, the nonfinancial sector is the productive sector.<br /><br />I say the problem is excessive debt, or excessive reliance on credit, or excessive finance. However, this problem is a consequence. <br /><br />Excessive private debt is a consequence of policy. Half or more of the Fed's job is to keep inflation low. And most of the job of Congress for as long as I can remember has been to find ways to promote growth. Much of what Congress does is legislate new encouragements to use credit. <br /><br />The policies of Congress and of the Fed, in my view, are contradictory. The Fed restricts money; Congress encourages the use of credit. In the best of times, these policies are contradictory. Over the long haul, they create the problem of excessive private sector debt.<br /><br />If we have policies that encourage the use of credit, then surely we need policies that accelerate the repayment of debt. Otherwise, <i>policy</i> is responsible for the growing accumulation of private debt.<br /><br />If we need policies that limit inflation, we should not use policies that undermine growth by raising interest rates. We should instead use policies that accelerate the repayment of debt, which will reduce the growth of money and reduce the growth of debt at the same time. <br /><br />I propose tax policy that encourages taxpayers to borrow when their debts are low, and encourages accelerated repayment when the debts are high. Sort of like raising or lowering interest rates, but on a taxpayer-by-taxpayer basis. The <i>tax rate</i> will vary with the level of indebtedness.<br /><br />For example, we could replace the tax deduction for mortgage interest with a tax credit for making, say, up to two extra mortgage payments over the course of a year.<br /><br />//<br /><br />I'm not sure how all this connects to productivity. I think reducing financial cost is good for economic growth. The "Goldilocks" years of the 1990s are an example. This <a href="http://newarthurianeconomics.blogspot.com/2013/07/evidence-that-reducing-debt-is-solution.html" rel="nofollow">sequence of four graphs</a> tells the story.<br /><br />Thank you, sir.<br />The Arthurianhttps://www.blogger.com/profile/16501331051089400601noreply@blogger.comtag:blogger.com,1999:blog-2098432983500045934.post-26846884508761917142016-03-31T11:27:04.002-04:002016-03-31T11:27:04.002-04:00Ok. So what is the problem?Ok. So what is the problem?Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.com