Re: Paying for VOW. Disciplining Investment

["Schulte-baeuminghaus" <schulte.baeuminghaus@xxxxxxxxx>]

We must bear in mind that tax revenues and public expenditures are FLOWS.
They are NOT fixed and static sums.
Public expenditure - public investment - has a multiplier effect.
When increased, it creates jobs. It creates opportunities for private
companies to invest and produce - and they also create jobs.
The multiplier effect may be around seven times. It varies in the specific
circumstances. Maybe it's six or five. Sometimes it may be ten.
So public expenditure, especially in recession to deep depression, provides
for its own repayment.
Outgoings are increased by the public expenditure but tax revenues are
increased as a result too - and outgoings in welfare expenditures are cut.
If the flows are positive, the budget moves into or toward surplus -
admittedly with some lags but with assurance if the stimulus persists.
If the flows are negative, that is, if public investment and public
expenditure are reduced, then the budget - whether originally in surplus,
balanced or in deficit - moves down towards or further into negative
territory.
You don't solve a deficit problem - for example, in recession - by cutting
public investment and public expenditure. On the contrary, you make it
worse.
The experience of the last century is relevant.
Even the experience of the last decade.
The US budget didn't go into surplus because of the genius of President
Clinton and his financial advisers. It went into surplus because the economy
strengthened, employment increased, private enterprises became more
confident, made new investment, increased production, created jobs.
The flow was positive. Shortly, the Clinton Administration had money coming
out of its ears - and it didn't have to pay nearly as much in unemployment
benefit and so on.
Consider Australia as one of  so many in the 1960s. Expenditure - public
investment - on education was doubled and then doubled again in just three
or four years. So it was on other heads of public expenditure - or nearly
so. We got new primary schools, new high schools and especially new
universities that seemed to sprout everywhere just when we needed them.
We weren't worried by budget deficits - or inflation. The economy was
growing so fast that the revenues exceeded even the rising expenditures.
We didn't worry until we did worry. That is, until we thought we needed to
cut back.
We stopped spending. We raised taxes. We raised interest rates too, so that
private economic activity was hit with a double or triple whammy.
That was when we were going out of the 'sixties and into the 'seventies.
It's been happening most of the time ever since.
When did we last get a brand new university?
When did the Chancellors of existing universities get anything like the
funds they thought they needed?
When did schools get the equipment they needed - for example, in the
computer age - to teach their children to maxium effect?
For the most part, not since the 1960s or the mid-1970s anyway.
When will they get again the resources they need?
When governments and their economic/financial advisers see - again - that
public expenditure does not "cost" - unless it's foolishly managed; and even
then it can often be a boon. On the contrary, it benefits everyone: the kids
and their future, the workers and the employers, the public and private
companies, the lovers of budget surpluses.
Oh, there is one group who mightn't like public expenditure: those who
favour persistent budget deficits, chronic unemployment, shrinking
productivity, poorly equipped schools and hospitals and so on and on.
Hands up who belongs to this group?
Are we going to get sensible again?
I hope so.
Public expenditure - public investment - doesn't cost money.
It makes money.


James Cumes


----- Original Message -----
From: John Gelles <johng@xxxxxxxxxx>
To: Victory Over Want <VOW@xxxxxxxxxx>
Sent: Wednesday, January 23, 2002 12:49 AM
Subject: Paying for VOW. Disciplining Investment


> PAYING FOR VOW, DISCIPLINING INVESTMENT,
> OUR VIEW OF REALITY VERSUS THE WORLD
>         ECONOMIC ECONOMIC FORUM, 2002
>
>     Currently expressed VOW sentiment on how to
>     raise investment money for needed public assets,
>     (especially infrastructure like water, sewers, roads
>     and schools,) but also for needed wages. (for those
>     whose labor the private sector has too little hope
>     of using at a profit to their employer,) is as follows:
>
>       "The financing of public investment is not a
>         burden that the economy must bear; it's a
>         pillar on which the economy, especially one
>         in recession, can rest while it launches itself
>         back on to a new path to prosperity."
>
>     This sentiment implies that governments can
>     invest money it borrows from firms and people
>     with enough to lend and willing to do it.
>
>     The newly borrowed government debt, (also
>     called an annual deficit,) will be expected to be
>     repaid (with interest) by future borrowing, as
>     well as, with tax revenues based on turnover
>     or income in future years.
>
>     The investments so financed are expected to
>     keep cash flowing and people at work. Yet the
>     amount of future cash flows necessary is no
>     where managed by this system better than it
>     was during the period that led to the recession.
>
>     Yes, the VOW investments will tend to keep
>     cash flows up -- but there is no estimated flow
>     accompanying each investment that reaches
>     future estimates of aggregate wages (and cash
>     from other sources) that will circulate to ensure
>     that most of what we produce can be sold at
>     a profit to maintain full employment.
>
>     Moreover, the immediate need to give
>     credence to the profitability of defict financed
>     investment traditionally demands higher
>     tax rates and taxes on current business.
>
>     At the World Economic Forum, Martin Wolf
>     of the Financial Times of London, looking at
>     this uncertainty of deficit financed investment
>     allows that whole nations may fail because
>     managing for national and world success is
>     impractical.
>
>     He would hold down these investments by
>     government lawmakers and bureaucrats
>     to amounts that private lenders decided to
>     finance. This is exactly what we do now.
>     And this does not attack poverty or achieve
>     the greater equity his Forum claims to
>     seek.
>
>     Dari Roderik, of the Kennedy School at
>     Harvard, also advising the W E Forum, is
>     far more on our side. He, like our own
>     opinion quoted above, looks to democratic
>     legislators, not lenders in the bond market,
>     for investment decision.
>
>     What this means is that government law-
>     makers and expert advisors must finance
>     investments beyond the willingness of
>     private lenders to finance--at fair interest
>     rates.
>
>     To this time, only this member of VOW
>     has asked that the money to pay for VOW
>     come first from traditional sources and,
>     as needed, come next from unsold bonds
>     bearing fair interest and held for sale
>     as long as necessary.
>
>     This is a form of "printing" money, and
>     may not be used except on a very well
>     managed basis that includes raising the
>     potential and actual supply of products
>     whose too high price might hurt the
>     general value of our money.
>
>     Roderik gives the lie to the thought that
>     the market is an efficient source of dis-
>     cipline to ward off recession, depression,
>     poverty and unemployment. He could
>     have pointed to Enron and Dot.coms,
>     or to all the signs of economic want that
>     motivate our movement.
>
>     Roderik wants to rely on democracy to
>     be the task master that ferrets out failure
>     and rewards success.
>
>     I am sure Roderik means to see a
>     balanced team of market and govern-
>     mental institutions attack the task.
>     I believe Roderik is on the VOW team.
>
>     Let me end this long opinion with my
>     usual appeal to cut taxes.  If we are
>     right, that deficit financing can work,
>     we owe it to ourselves to get the
>     voters behind us. Our opposition has
>     coopted the middle class by taxing
>     its purchases and income.
>
>     We must get the middle class back.
>     We do not need their money if deficit
>     financing and/or fiat money, coupled
>     with automation to increase supply,
>     and with inflation protected saving,
>     can work.
>
>     Perot spooked the voters, and
>     Clinton and Rubin did too, with the
>     idea that government surpluses were
>     meaningful to end poverty. They are
>     not. The VOW investment plan must
>     go forward in times of government
>     surplus and in times of government
>     deficit.
>
>         John Gelles
>
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