Tuesday, July 05, 2011

Debt Ceiling

Of course there will be a compromise. Unfortunately, a deeper understanding of the purposes of taxation and monetary operations will not be a by-product of the discussion.

What are "Taxes"? They are a demand management tool. They do not "raise revenue" for the government to cover operational costs. The level of taxation is off-set by a given size in government. The change in taxes at the margin reflect immediately actionable demand management tools.

What is the "National Debt"? Its an interest rate management tool. It regulates the price of money. The level of debt is somewhat inconsequential as the total level of "debt" outstanding is exactly (as an accounting identity) equal to private saving of dollar denominated financial assets.

Both of these definitions changed categorically with Nixon's repudiation of the Gold Window.

What is "Government"? Its a desire transmission mechanism. It aggregates desires and transmits the output as economic activity and (often) aggression. This has never changed.

Knowing these simple defintions allows one to take a sober and cynical look at all this sturm und drang that we hear on a daily basis from various competing interests.

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