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Comment by wz1000 | Hacker News Reader

> Helicopter money is irreversible since it increases the monetary base of the end-users.

This is inaccurate. If the government pumps $x into the economy today, tomorrow it can take $x out by levying a tax.

> He also suggested that blockchain technology and digital currency opportunities allow central banks to transfer money directly to citizens’ accounts. In this case, the regulator will be technically able to limit the time during which the money can be spent.

Can anyone explain what "blockchain" brings to the table here compared to traditional banking? If you want to distribute money to everyone, you want to verify real-world identities, which seems like the exact opposite of the typical use case blockchain is paraded around for.

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> Can anyone explain what "blockchain" brings to the table here compared to traditional banking? If you want to distribute money to everyone, you want to verify real-world identities, which seems like the exact opposite of the typical use case blockchain is paraded around for.

Private, permissioned "blockchain"-like technologies (the kind being discussed in the enterprise market) would give you exactly the type of identity solution you need.

A shared inter-bank ledger that individuals could register accounts with, which also incotporates the appropriate level of privacy and authorization, would enable seamless verification and transfer activities at scale.

Why the complexity of a "private, permissioned blockchain" compared to the traditional databases subject to periodic audits that the world already runs on, are proven to work and are conceptually much simpler? It seems like a solution in search of a problem.

It's a fair question. The answer is that systems like this - that are real in their offering and not a pipe dream - are not promoting to replace traditional databases. Blockchain is a terrible term with tons of baggage so let me describe what I mean in more detail.

These solutions in my mind are better described as distributed systems that allow independent verification and audit of data and transactions from within the system itself.

This is useful when the data being shared involved spans multiple entities in terms of responsibility, ownership, value, and other impacts. Rather than having to rely on other mechanisms of verification the system itself is able to provide that verifiability at scale.

Essentially you're using a technology layer, which is a collection of existing concepts put together in a somewhat novel use, to disintermediate more expensive verification solutions.

I think it makes a lot of sense if you examine the value chain of securities lending (from creation of the instrument, custody, to lending, custody transfer, and finally audit and compliance).

> tomorrow it can take $x out by levying a tax.

Taxes don’t take dollars out of circulation. The government spends those tax dollars immediately after collecting them.

The only way the monetary base can be decreased is by the central bank unwinding its balance sheet.

Money enters the economy via government spending. Money leaves the economy through taxation.

Governments don't need to tax in order to spend, they are the issuers of the currency.

What do you think governments do with the dollars they acquire through taxation?

The government doesn't need to tax you to get dollars to spend. They are the source of your dollars, they can will as many dollars into existence as they wish, subject to self-imposed limitations. Where do you think dollars come from? Why would an entity with an infinite supply of dollars need your dollars?

The purpose of taxation isn't to fund government operations, its to maintain demand for dollars.

https://en.wikipedia.org/wiki/Sectoral_balances

> The purpose of taxation isn't to fund government operations, its to maintain demand for dollars.

Yes, taxation is one of the ways to create demand for an otherwise worthless fiat currency. So are legal tender laws. This still does not explain your assertion that the government destroys dollars through taxation.

You didn’t answer the clear and direct question I asked.

> Money enters the economy via government spending. Money leaves the economy through taxation.

Dollars enter the economy when the Federal Reserve creates reserves out of thin air and trades those new reserves for treasuries or other assets.

Dollars are destroyed when the Federal Reserve sells off assets on its balance sheet.

Taxation plays absolutely no role in this process. The Federal Reserve controls the monetary base. This would be true even if the federal government levied zero taxes.

> Governments don't need to tax in order to spend, they are the issuers of the currency.

Governments can earn revenue entirely from selling bonds or printing money - you're absolutely right that they don't need to tax in order to spend. However, this statement doesn't back up your assertion that governments destroy money through taxation.

The effect of taxation is precisely the same as that of destroying money - it means that the money is no longer available for non-government entities to use. On the other side of the transaction, for the government, as you recognize, taxation presents no increase in buying power.

To directly compare the two scenarios - taxation and burning money - private entities can no longer use the money and government can still spend as much as it wants subject to self imposed limitations. There is no functional difference.

> The effect of taxation is precisely the same as that of destroying money

No it's not. The effect of taxation is the same as theft. The thief gains and the victim loses, but the overall purchasing power of the dollar is unchanged. Destroying money would increase the purchasing power of the dollar.

> On the other side of the transaction, for the government, as you recognize, taxation presents no increase in buying power.

Taxation is one of three ways the government can earn revenue (taxation, selling bonds, or printing money), so yes it does increase buying power.

> To directly compare the two scenarios - taxation and burning money - private entities can no longer use the money and government can still spend as much as it wants subject to self imposed limitations. There is no functional difference.

Those two aren't comparable. Burning money would mean that nobody can spend that money. Money gained through taxation can still be spent (and is spent).

If the government collected taxes but never spent that money, I would concede that the net effect is the same as destroying money. But that clearly doesn't happen. The government DOES spend the money it garners through taxation. So the claim that taxation destroys money doesn't make any sense.

The government can spend as much as it wants without needing your tax money. It doesn't matter how much money the government collects in taxes, it can spend as much as it wants regardless, because it can print as much money as it wants.

> The government DOES spend the money it garners through taxation

The government can spend the money regardless of how much it raises in taxes. Your taxes do not fund government spending.

Money is fungible. If government taxes $x and then spends $y, it is the same result as if it burns $x and then spends $y of newly printed money. In both cases the money supply changes by $y-$x

I don't disagree with you that the government is unconstrained in regards to how much it can spend. The government doesn't need to tax or sell bonds at all. It can just print money and force everyone at gun point to use it.

But you still haven't provided an argument as to why you believe taxation destroys money. Taxation merely transfers dollars from one entity to another. It doesn't change the amount of base money in existence.

See https://poseidon01.ssrn.com/delivery.php?ID=8011181001001220...

Thanks, I'll take a look at this paper.

> This is inaccurate. If the government pumps $x into the economy today, tomorrow it can take $x out by levying a tax.

It is true that the statement is inaccurate, but the way to reverse is by destroying money (e.g., burning it).

That is precisely what taxation is. Taxation takes money out of the economy, government spending puts money into the economy. For all intents and purposes, government spending creates money, and taxation destroys it.

The government doesn't need your tax dollars in order to spend. As the issuer of currency, it can will as much money into existence as it wants. So collecting taxes is simply a way to regulate the money supply, control inflation and provide a base level of demand for the currency.

> That is precisely what taxation is. Taxation takes money out of the economy, government spending puts money into the economy. For all intents and purposes, government spending creates money, and taxation destroys it.

> The government doesn't need your tax dollars in order to spend. As the issuer of currency, it can will as much money into existence as it wants. So collecting taxes is simply a way to regulate the money supply, control inflation and provide a base level of demand for the currency.

A tax does not remove money from the money supply, it simply transfers money to the government. Taxes could be increased and government spending increased yet further, and the net result is an increase in money supply, disproving your claim because the only causal factor is what government is doing with the money supply. Similarly, in a non-fiat system, such as a gold standard or even just specie, taxation does not reduce the money supply any more than storing the money under a mattress. This is a distortion or at least a misconception of what money is. The better analysis of these considerations would be as Cantillon effects.

The government already has an infinite supply of money for itself, by virtue of being the issuer of the currency. Money supply means the money in circulation in the non-government sector. Then by definition, taxation takes money out the economy and government spending adds money to the economy.

See https://en.wikipedia.org/wiki/Sectoral_balances

Discounting foreign trade, private sector surplus is exactly equal to government deficit.

> Sectoral balances analysis states that as a matter of accounting, it follows that government budget deficits add net financial assets to the private sector. This is because a budget deficit means that a government has deposited more money into private bank accounts than it has removed in taxes. A budget surplus means the opposite: in total, the government has removed more money from private bank accounts via taxes than it has put back in via spending.

> Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is represented by the identity: (G – T) = (S – I) – NX

> which is

> (Government sector balance) = (Private sector balance) – External sector balance

> where G is government spending, T is taxes, S is savings, I is investment and NX is net exports.

> The conclusion drawn from this is that private net saving is only possible when running a trade deficit if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus and the trade deficit exists

In the above equation, increasing T has exactly the same effect as decreasing G by the same amount.

> The government already has an infinite supply of money for itself, by virtue of being the issuer of the currency. Money supply means the money in circulation in the non-government sector. Then by definition, taxation takes money out the economy and government spending adds money to the economy.

> See https://en.wikipedia.org/wiki/Sectoral_balances

> Discounting foreign trade, private sector surplus is exactly equal to government deficit.

> > Sectoral balances analysis states that as a matter of accounting, it follows that government budget deficits add net financial assets to the private sector. This is because a budget deficit means that a government has deposited more money into private bank accounts than it has removed in taxes. A budget surplus means the opposite: in total, the government has removed more money from private bank accounts via taxes than it has put back in via spending.

> > Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is represented by the identity: (G – T) = (S – I) – NX

> > which is

> > (Government sector balance) = (Private sector balance) – External sector balance

> > where G is government spending, T is taxes, S is savings, I is investment and NX is net exports.

> > The conclusion drawn from this is that private net saving is only possible when running a trade deficit if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus and the trade deficit exists

> In the above equation, increasing T has exactly the same effect as decreasing G by the same amount.

Stating that the government has "an infinite supply" of money is not relevant because the money has to be created because the potential to create money is not the same as money that has been created. (I may also note that article must be implying a fiat currency, even though it is not stated.)

You statements and quote from Wikipedia do nothing to address Cantillon effects and I'm tempted to say, based on the quote provided, the editors of that article have never heard of such a thing. This is why Wikipedia is not a source.

I can make the same arguments about mattresses:

Money going underneath a mattress is removed from the equation of money in "circulation" until it has been placed into a pocketbook. If an entire population decides to remove 80% of the money in "circulation" by placing it under their mattresses, the prices for everything will fall though the floor as the population is only willing to spend the money remaining in "circulation".

Then, the population decides, all at once, to move the money from underneath their mattresses into their pocketbooks, and prices shoot through the roof because of the huge expansion of money in "circulation".

This is, conceptually, no different than the activities described in the quote and is best attributed to Cantillon effects (i.e., money flows through an economy).

The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different.

And yes we are talking about fiat currencies because most currencies in use today are fiat currencies.

Government debt is not like household debt, and government saving is not like household saving.

> The difference between you stuffing money under a mattress and the government doing so is that the government controls the money printers and you do not. There is no point to the government stuffing money under a mattress because it can conjure up as much money as it desires when it so desires. On the other hand, you have no much magical ability, so the situation is quite different.

> And yes we are talking about fiat currencies because most currencies in use today are fiat currencies.

> Government debt is not like household debt, and government saving is not like household saving.

Yes, the money printers are the exclusive exception and the only factor in inflation or deflation. Taxes are not a factor any more than mattresses. I don't know if you recognize it, but you are supporting my position.

Taxes take money out of the economy. Government expenditure puts money into the economy. Its a basic accounting truism. The rate of inflation/deflation is proportional to the difference between the two.

Think of it this way. If one day the government decides to tax 99% of the money in the economy, you have barely any money left circulating for anyone else and you get deflation(less money chasing the same goods). On the other hand, if the government decides to add a billion dollars to everyones bank account, you have too much money in the economy and inflation(more money chasing the same goods. The government can decide to put either of the policies(or anything in between) into effect at any time, it isn't constrained by its own "savings under the mattress" at any point. If there are restrictions on government action in this direction, they are legislative, not fiscal(because, again, the government is the source of all money, it can never be fiscally constrained, no more than the referee in a tennis match can run out of points to award).

RE mattresses: If you owned a money printing machine, you would not be stuffing money under your mattress, because it would just take up space. You would just destroy money you do not need at the moment, and print more as and when you need it.

RE cities going bankrupt: Of course, the city of Stockton doesn't control the money supply, we are only talking of entities who can issue their own currency, i.e. the federal government. This is also why Greece went bankrupt, because it doesn't control the supply of money its debt was denominated in.

> Taxes take money out of the economy. Government expenditure puts money into the economy. Its a basic accounting truism. The rate of inflation/deflation is proportional to the difference between the two.

The same effect is seen with the mattresses. Your argument has no way to address this.

Also consider: why did the city of Stockton, California have to declare bankruptcy? It collects taxes, yet it couldn't pay its bills. Again demonstrating the only causal factor is the ability to control the money supply and taxes are not a control on the money supply.

And a junkie can stop using drugs anytime and clean up their act. See what we both did there?

The point is that the statement in the article is just plain wrong. You are advancing quite a different argument. Some junkies do in fact clean up their act, so saying that becoming a junkie is an irreversible process is also wrong.

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