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Comment by losoq | Hacker News Reader

Unfortunately "starving the beast" doesn't seem to actually work. Low tax revenues don't lead to lower spending, just fiscal indiscipline.

I personally would prefer a leaner federal state but it's not clear how to get there.

http://econlog.econlib.org/archives/2013/04/starve_the_beas_...

https://en.wikipedia.org/wiki/Starve_the_beast#Economic_anal...

https://niskanencenter.org/blog/cant-make-government-smaller...

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Starve the beast has never been about making federal agencies work better. Its been about creating a path to privatization

They can work better, or they can work for what we can afford (our collective value of them). Washington is in a constant struggle to make sure we get neither.

I think that's backwards. Fiscal indiscipline leads to not lowering spending when there are lower revenues.

You get there by enacting rules that make it really hard (politically damaging) for the government to spend what it does not have.

When I read this "starve the beast" thing, I can't avoid to ask myself where this people think the money is coming from in the first place?

In order to tax, the government have to spend before.

There's this thing called the economy, full of private entities, all transacting throughout the year, creating wealth, expanding the money supply, generating a bit of inflation, and so on.

Yes, the fiscal multiplier is important, but simple problems like corruption (regulatory capture and federal/state/county/municipality contracts to clients) and (very) unequal accumulation of wealth leading to serious power inequality seem more relevant today.

Expanding the money supply and controlling inflation are precisely the things the Fed does (with monetary policy, the fiscal multiplier is only part of it).

Re: corruption and concentration of wealth, I see no reason why government should have a monopoly on that. The 2007 crisis, and Enron before it, and countless other scandals, are evidence of the former being rampant in capitalism. The observation that without exogenous (non-capitalistic) forces, return on capital will always outpace economic growth (popularized by Piketty) is evidence of the latter.

The fiscal multiplier is the US budget (public spending, funded by taxes) set by Congress, doesn't have much to do with the monetary thing.

Private corruption is many orders of magnitude a smaller problem, because there the agent-principal problem is less relevant. Enron had shareholders, they were lazy, but it was their money. The voters in public elections are playing with others' money too.

My point is that fiscal policy is only part of the influence the government has on the economy, and likely the less important part. Monetary policy has far greater consequences for inflation and money supply.

How do you come the conclusion that gov't corruption is "orders of magnitude" worse? I see nothing quantitative in your reasoning. Voters in public elections are playing with others' money, as are lobbyists for corporate interests. Private corporations play with others' land sea and air regularly. It's a flawed system as a whole, agreed, but getting rid of government influence is not the answer, as that leaves the economically powerless truly and utterly powerless.

And it seems you don't have an answer to the accumulation of capital. Left to its own devices, any capitalistic system will concentrate and grow wealth at a faster rate than economic growth. This is why a countervailing force is necessary, whether in revolution or governance.

edit re the agent principal problem: you forget the vast majority of people who are too poor to be shareholders or board members anywhere. The only shares anyone is guaranteed in society (in theory) is the equal and inalienable share in governance amounting to 1 vote. I shudder at the thought of a future America where your votes are directly proportional to your wealth, and seats on the Board of Directors of the USA are bought.

" I shudder at the thought of a future America where your votes are directly proportional to your wealth, and seats on the Board of Directors of the USA are bought."

That would be just business as usual. In most countries and until very recently, only the owners of property were allowed to vote. We forget that 'natural state' of things to our own danger.

The Fed however responds to the markets in the form of bank loan origination, defaults, returns and general market productivity. So it's a delicate balance that the Fed is trying to play with money supply and interest rates to accelerate or brake the economy.

"There's this thing called the economy, full of private entities,[..]"

Sure, but in order to interact, private entities, use money, that it's backed and come from the government. If you "starve the beast" you could discover that it's all of us who are feeding from its blood.

That's not so strange, because, after all, the beast is all of us.

Oh dear oh dear. Private banks create money. If only it were state lead.

Sure, but there is money and there is money.

Banks create an asset in their balance, but they create a liability at the same time. Only governments spending create net financial assets in the economy (that is not the same that real assets, of course).

https://fernandonogueiracosta.files.wordpress.com/2011/08/cu...

(If it's too long, see 'vertical transactions')

Don't cryptocurrencies break that model? They are financial assets in the economy that are not created or presently controlled by governments.

It depends on your definition of money.

From my point of view, cryptocurrencies are financial assets but not money. They are not an IOU (https://en.wikipedia.org/wiki/IOU).

Government money is a IOU because you are promised that it (and only it) will be accepted as a payment by the state.

Anyway, state money can never be totally replaced at least that the government accept payment taxes in the new currency. And why people would start using other currency if they have to get the official currency for taxes payment?

Agreed. Acceptance for tax payment is what imbues money with value.

I read your comments and I think you are missing only a few pieces of the puzzle.

I recommend you to investigate Modern Monetary Theory. It's what made me fill the holes in my understanding (the bigger holes, at least).

I'm familiar with MMT and my understanding is that sites like positive money push this perspective, that banks create money:

http://positivemoney.org/how-money-works/how-banks-create-mo...

Will read this but not sure I'll agree. Banks create money and it is fungible with state tax payment money

http://www.bankofengland.co.uk/research/Pages/workingpapers/...

It's a different kind of money, because in a case debt is created and in the other no (even if we use the fiction that it is):

https://pediaview.com/openpedia/Modern_Monetary_Theory#Verti...

http://www.nakedcapitalism.com/2015/01/bill-mitchell-demysti...

(thanks for the link)

I'm going to read these too. I think nakedcapitalism is such a great blog.

I agree one is created as debt which will be destroyed ultimately on repayment. However this is the nub - they create 100 and demand back 110 at a later date, therefore more must be lent in the interim to avoid a deflationary collapse.

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