Taxation versus Borrowing

[ctwaterman]

Remember.... People Your GDP is going to start at I think the final figure will be something like $3333   the 2.5% or what ever you pick for you tax rate is what you get to run you military spending, maintain ship building infrastructure, and build and maintain your Navy.

The Tax rate is the % of the GDP spent on military stuff in effect.   Wars are supposed to be small and with limited objectives.

Say I want that Sliver of West Virgina Back that NER is illegally Occupying... :o  Or Tejas is being unreasonable about access to the Mississippi river....  I dont want to Occupy PA or all of Tejas I simply want to force them to see it my way.   The Goal of the War is small, the Scope narrow and NER would realize the worst thing likely to happen if they loose was well I get that sliver of West Virginia Back.... ;)  They are not facing national suicide.   And given that my Costal and Internal trade with NER makes up 5% or more of my GDP well this is going to be an Expensive war even before I fire one Bullet.   Perhaps maybe the first Bullet should be a parcel of Diplomats backed by Lawyers.... 8)

I believe we are trying to get a slightly more Vibrant Economy in the game.  And I think the easiest way to punish those who want to borrow from their economy is simply to compare how much extra they are borrowing [Yes selling Bonds is borrowing] to the Tax rate and reduce their GDP Growth accordingly.   Those who borrow will simply grow slower then those who dont and they would still have to pay back the borrowed money and the Interest rate :-[  This would be something to be avoided if possible.

Honestly I have to sit down think it over run some numbers and then make up my mind.  I am in favor of allowing banking the storing of Gold and Silver from surplus in a national bank for use on a rainy day.   Or when the NER decides to reverse that legal decision and take that Sliver of West Virginia back... :'(

[Delta Force]

Well, the good thing about specie backed currency is that it makes things quite easy to determine economically, if not to simulate. I do have a bit of an intrest in economics and specie backed currency so I can go through it a bit. With specie backed currency you can make the economics system as simple or as complex as you want, but even with a goos level of complexity it is no where near as hard to understand as today's economics. If you just want a simple overview of what can be done you can skip to the bottom.

There is supply and demand of money to take into account, and with specie backed currency you don't really have the option of inflating the money supply by printing more money, since money is a silver or gold note. It is all tied to how much specie you have, and how much specie each one of your notes or coins are worth. If you increase content exports suffer but imports rise, and you may have some deflation, but the wealthy will love it since investments are worth more money. Debtors won't be too happy since they owe more. If you decrease content you will probably cause a currency scare. Borrowing costs will rise, inflation will set in, and investments will become worth less. Debtors will love it since they will owe less specie (each unit of money being worth less specie).

If you run a large surplus and don't spend it, you will choke the economy by drawing specie out of circulation and will cause deflation, harming domestic economic growth by driving up prices (the currency also gets stronger, so imports get more attractive). If the money isn't from high taxes but from foreign flows in, it makes your currency strong but since it hasn't affected the money supply it doesn't have the deflationary effect (unless you choose to spend it internally, then you will have inflation until the money supply adjusts).

If you end up taking out loans it depends on who you borrow from. If    it is domestically held it will slow growth by drawing specie away from more productive pursuits like investments and spending. By contracting the money supply borrowing costs go up because there is less to go around. If a foreign country has excess specie, it can loan it to a nation that has a deficit and lower the money supply of its own nation, weakening its currency and reducing deflationary tendencies. If you don't pay off the debt in cash, or if the country you borrowed from wants to do some economic warfare if strengthen its own currency, repayment can be in the form of your own specie, weakening your money. The French did this to the United States in the 1970s, causing us to withdraw from the gold standard to save our supplies.

The trade of specie between countries and the rise and fall of currencies is called the specie flow mechanism. Essentially on a global scale, since there is only so much specie, all national deficits (the combination of public and private) have to balance out or have a small surplus. You can't finance a deficit with specie that doesn't exist, and you can't run too large of a surplus without harming your economy by inflation (see Spanish Empire) or deflation (see Panic of 1873). The price flow mechanism pretty much automatically kicks in by economic forces to prevent currency extremes.

So, as a short answer, every domestic loan will slow growth and raise your borrowing costs at the same time. If your surplus is too high, your currency will either go into inflation or deflation, but either way it is best to take abroad to nations with a negative accounts balance to invest in their economy or debt or buy goods.

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Simulation wise, you could have money and specie be two seperate units. You could have Goldland start with say 1000 units of money and 1000 units of specie, and then the currency would go from there. If Goldland were to find 200 units of specie, it would have the choice of spending that abroad, strengthening the currency, or printing more money. If Goldland just adds it to its vaults, each Goldland unit of currency becomes worth 1.2 specie (and people are a lot more apt to desire it as payment or an investment). If more money is printing matching the percent increase, Goldland has a larger money supply and some inflation. If the specie is taken abroad, Goldland can get some more money or goods. If Goldland borrows too much and its loans are to repay in money, it can print its way out of it at severe cost to the economy and at the cost of making crediters quite angry, but it is always a fallback option. In a way, you can have a currency (and loan) market develop if desired, with the specie price flow mechanism.

Alternatively, all the behind the scenes involvement with specie and such can be avoided and we can simply simulate the effects of things like a surplus, deficit, overactive printing press, etc. directly to the economy.

[Darman]

I believe we are trying to get a slightly more Vibrant Economy in the game.  And I think the easiest way to punish those who want to borrow from their economy is simply to compare how much extra they are borrowing [Yes selling Bonds is borrowing] to the Tax rate and reduce their GDP Growth accordingly.   Those who borrow will simply grow slower then those who dont and they would still have to pay back the borrowed money and the Interest rate :-[  This would be something to be avoided if possible.

I agree with this, my question is who sets the interest rate?  That is why I am beginning to prefer having the ability to save up money for wars.  Build up a campaign/war chest.  The Germans did it before WW1, decent chunk of the money the French payed went into the Prussian war fund.  However it wasn't anywhere near what they needed for an all out war like WW1 ended up being. 

Honestly I have to sit down think it over run some numbers and then make up my mind.  I am in favor of allowing banking the storing of Gold and Silver from surplus in a national bank for use on a rainy day.   Or when the NER decides to reverse that legal decision and take that Sliver of West Virginia back... :'(

I view quick infusions of cash being absolutely necessary to fight a short war.  You wont have TIME to effectively mobilize your economy for war, your armies and navies yes, but not your economy.  So the ability to either borrow or spend your savings is vital (in my humble opinion). 

[Korpen]

EU was just a fundamentally flawed concept, the consumer nature and government positions are too varied for such a weak Union to hold them together for a "strong" economy.

It got flaws, but it should be noted that quite allot of the EU countries are doing very well indeed (hint:look around the Baltic sea).

Of course, in hindsight it seems insane, but it is quite logical. Even in today's problem, most people still do not want their over-bloated welfare programs taken away. Therefore it was simply bad politics to make such unpopular decisions (no one would support your position).

I would say that the problem is when politicians tell the electorate that they can both lower taxes and raise spending and the electorate rewards them for it (by voting for them).
It also makes it hard for pragmatic politicians who tells the truth about economy when all other promise that there either would be no decrees in service or no new taxes (in effect telling their voters that THEY will not be affected, only some other people).


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On the main issue:
Government borrow for the same reason corporations and private persons borrow: It allows you to make the investment _now_, rather then wait for years to build up the money to pay up front.
It  should be noted that during the middle of the 19th century about 70% of Government expenditure in Sweden was on railroad construction for several years, and all the money for that was borrowed (mainly from Germany, were the ww1 inflation wiped out the last of those debts). So going into debt was pretty much the normal way to pay for any national project, and it seems like government bonds were the preferred form of investment in this period, so there were rarely a shortage of credit.   

However I got the impression that the tax rate we set only is the strictly military budget? If so I see less need for a very intricate finance system as it would mainly be relatively small sums needed for the military. One use could also be to "round out" the military budget; say that my spending comes out at 47 million Kr, but my budget only allows for 45million Kr, then it will be cheaper to take a loan then raise taxes a level. I can also see it being used for larger on off-payments, such as starting construction of a major new base or buying a ship or two were the sum up front is larger then the ,5% max tax increase can allow for.
So my suggestion would be something simple, a 10% interest rate on loans, increasing by say 1% for every percent of debt-GPD (which is excessive, but we are only talking about military spending so should work well enough in that context).

I see little reason for any arbitrary punishment for borrowing (like some seems to prefer), it is just like other government policies, some do it well, and some do it badly.

[Logi]

It got flaws, but it should be noted that quite allot of the EU countries are doing very well indeed (hint:look around the Baltic sea).

Of course, they do well just as in any nation. Certain regions do well, certain regions do bad. However, the weakness, the sort I am talking about, stems from the different spending habits of the governments involved and the collective burden of supporting the Euro. Ie: When one of the nations in the Union (such as Greece) fails, so does it drag down the rest of the Union. The problems though - of Greece - stems mostly from it's reckless spending and entitlement culture, and would not occur if the government was as tight-pursed as some nations in the Union.

In a sense, it's the burden of working as a team and one member keeps losing or deleting everything. You can change your working habits, but not those of your teammate.

I would say that the problem is when politicians tell the electorate that they can both lower taxes and raise spending and the electorate rewards them for it (by voting for them).
It also makes it hard for pragmatic politicians who tells the truth about economy when all other promise that there either would be no decrees in service or no new taxes (in effect telling their voters that THEY will not be affected, only some other people).

That is what I meant. Politicians do the popular thing (no matter how illogical) to get elected and continue doing illogical things to get re-elected. They appeal to the selfish desire and as a result, spend more than they earn. As I said, everyone clamors for something like the US debt to disappear but no one wants to make the sacrifice. Everybody only wants more benefits and fewer taxes.

[Darman]

That is what I meant. Politicians do the popular thing (no matter how illogical) to get elected and continue doing illogical things to get re-elected. They appeal to the selfish desire and as a result, spend more than they earn. As I said, everyone clamors for something like the US debt to disappear but no one wants to make the sacrifice. Everybody only wants more benefits and fewer taxes.

I applauded David Cameron and Nicholas Clegg when they unveiled their austerity measures.  They seemed to be cutting almost everywhere (including the military).  Of course now people are blaming the recent riots on the cuts to the police budgets. 
Anyways, I don't see why the US military budget couldn't be trimmed back a bit.  even 5% or so from the previous year's budget not from this year's "estimated" budget would save money.  But a corresponding cut in benefits for Congress and other elected officials might be a good idea too, as a sign of solidarity. 

[Logi]

True, but 5% of the military budget in 2010 is just ~35 billion, that's 35 out of a ~1.3 tril budget deficit. That would be roughly a 2.7% decrease in the annual debt increase. In other words, it just isn't enough, in fact, not even close to the budget cuts we need (if we don't raise taxes).

The cost of the Iraq/Afghan war was ~130 bil in 2010. Even the wars is only ~10% of the deficit. We could cut the defense budget even more, but this is as good a time as any to cut the welfare brothers. Considering that the only difference between SS and a ponzi scheme is that SS is mandatory, I would cut SS first.

[Darman]

Then cut 8% of the military budget, the Brits did it, so can't we.  Then cut welfare by 8% as well.  Maybe the army can do without a couple ultra high-tech gadgets and hire a couple more soldiers instead so that some of those people on welfare can enlist. 
The US govt ought to have implemented some sort of new tax to pay for at least half of the expenses of the Iraq/Afghanistan wars, then keep the tax in place until the money we borrowed is paid off. 

[snip]

and I think that this thread has gone way to far into IRL politics...

[Tanthalas]

Then cut 8% of the military budget, the Brits did it, so can't we.  Then cut welfare by 8% as well.  Maybe the army can do without a couple ultra high-tech gadgets and hire a couple more soldiers instead so that some of those people on welfare can enlist.   

Anyone over the age of 18 (17 with parental aproval) and a High School Diploma can join a branch of the US Military.  However it is a Choice to join, we dont just take anyone (atleast the Corps dosn't I cant comment on Squids, Dogs, and Zoomies), and we don't force anyone to join.  Honestly most people I have served with came from fly over country (call it red states) and had a family history of serving.  As to the high tech gadgets, the Corps had the Osprey forced on them literaly by Congress (anyone that has ever ridden in one knows why we didnt want it to).

[Darman]

As to the high tech gadgets, the Corps had the Osprey forced on them literaly by Congress (anyone that has ever ridden in one knows why we didnt want it to).

I always wondered about them... they're really that bad?  I figured they were good in theory... get you where you're headed faster and all that. 

and I think that this thread has gone way to far into IRL politics...

Sorry

[Korpen]

That is what I meant. Politicians do the popular thing (no matter how illogical) to get elected and continue doing illogical things to get re-elected. They appeal to the selfish desire and as a result, spend more than they earn.

This is two separate issues, not one single issue.
Politicians want to be re-elected, that is part of the game.
But the "spend more then the state got" is not a necessary effect of the first one.
In plenty of countries (such as Sweden, debt 39% of GDP) the vote-winner is fiscal caution and responsibility for the state finances and promises of  lower taxes or better services are only possible if it can be show that the state can afford them. So it is all about what the voters expect and reward, so over time a country gets the politicians it deserves.

[Carthaginian]

So it is all about what the voters expect and reward, so over time a country gets the politicians it deserves.

A more logical statement is that politicians- caring only about getting reelected and not about the mechanism which generates the votes- eventually get the country they deserve.

[Nobody]

Wasn't this supposed to be about whether it should be allowed to loan from oneself or not?

I found data for the total US debt from 1792 to 2011, and the GDP from 1929 to 2011 (can anyone point me to earlier GNP/GDP data?) and compiled some of it in nice little graphs. Note that from the 1950s till the 1980s the debt relative to the GDP decreased although the total debt kept increasing.
Not to mention the slight increase during and after WW2.

[Logi]

Since government spending is included in GDP, I don't like using it as a measure. So I compiled data of US tax revenue to US deficit/surplus from 1992-2010. I could go earlier than 1992, but since each is a year, it's troublesome.



The chart info is here

Measuring Worth seems to have earlier GNP/GDP data, but I'm not sure how accurate they are.