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Sunak's spending review


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I thought capitalism was so successful that there would be significant surpluses in the good times to pay for the bad times. Obviously I'm stupid. Capitalism works for some

I've heard of this happening once. The boom years before 2008 in Australia. 

https://www.abc.net.au/radionational/programs/rearvision/a-history-of-australian-budget-surpluses-and-deficits/5446434

‘It was an odd period where the government would prepare its Budget and assume that it would have a surplus of, let's say, $5 billion. Six months went by and they realised they had a surplus of $15 billion to $20 billion. The money just kept coming in, not through any deliberate policy action on their front, but just that the economy and the inflation pressures that obviously drive government revenue were just so strong that every time they checked their numbers they had more money than they knew what to do with. And we ended up in this period where I think in all but one of the Howard/Costello budgets after '97/'98 they were in surplus.’

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I thought capitalism was so successful that there would be significant surpluses in the good times to pay for the bad times. Obviously I'm stupid. Capitalism works for some

That's not really how capitalism works. Capitalism is successful. Very. The issue isn't capitalism, it's the government. Capitalism creates a surplus to fund the deadweight tax loss imposed by a government. The government could quite easily run a surplus if it didn't have the answer to the tax payer wanting the opposite. 

Would you be happy continuing to pay the same rates of tax on everything for a reduced spend on public services?  

By running a deficit and borrowing the government is able to spend more than it earns each year consistently. 

But capitalism also undergoes creative destruction through downward turns in the economic cycle companies failed their resources (labour, capital goods etc) are made available to a new wave of entrepreneurs. 

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That's not really how capitalism works. Capitalism is successful. Very. The issue isn't capitalism, it's the government. Capitalism creates a surplus to fund the deadweight tax loss imposed by a government. The government could quite easily run a surplus if it didn't have the answer to the tax payer wanting the opposite. 

Would you be happy continuing to pay the same rates of tax on everything for a reduced spend on public services?  

By running a deficit and borrowing the government is able to spend more than it earns each year consistently. 

But capitalism also undergoes creative destruction through downward turns in the economic cycle companies failed their resources (labour, capital goods etc) are made available to a new wave of entrepreneurs. 

That's not really how capitalism works!

Credit money is created and destroyed continuously in an uncontrolled and decentralised fashion by a multitude of agents with dissimilar investment horizons. Capitalists endeavour to use that credit productively. When they succeed the result is a demand for more credit (surplus); when they fail the result is demand destruction (deficit). Sentiment acts both positively and negatively, amplifying booms as well as busts; this creates business cycles (not the Business Cycle, each is different from the last). Economies operate far from equilibrium out of necessity, financial markets are full of noise and there are no invisible springs pulling prices back to fair value. Govt spending is a flywheel not a dead-weight, conditioning the highly variable output of the private sector. Taxation is a feedback mechanism for controlling inflation.

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Will there now be a house price decline as a result? Note decline, not crash?

 

Depends how much people feel the desire to buy one......those that have money will not buy to lose, only buy to gain, they need others that can support that gain......many of those that have to borrow will be in it for the long-term, as long as a job, or life can support it......a home is for life not just for Christmas.;)

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That's not really how capitalism works. Capitalism is successful. Very. The issue isn't capitalism, it's the government. Capitalism creates a surplus to fund the deadweight tax loss imposed by a government. The government could quite easily run a surplus if it didn't have the answer to the tax payer wanting the opposite. 

Would you be happy continuing to pay the same rates of tax on everything for a reduced spend on public services?  

By running a deficit and borrowing the government is able to spend more than it earns each year consistently. 

But capitalism also undergoes creative destruction through downward turns in the economic cycle companies failed their resources (labour, capital goods etc) are made available to a new wave of entrepreneurs. 

Creative destruction my **** - more like bailing out the banks who seem to run the show, ultimately. It's called corruption. And no, it isn't successful - certainly not the Chicago School type unleashed upon us by Maggie and Ronnie. 

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That's not really how capitalism works!

Credit money is created and destroyed continuously in an uncontrolled and decentralised fashion by a multitude of agents with dissimilar investment horizons. Capitalists endeavour to use that credit productively. When they succeed the result is a demand for more credit (surplus); when they fail the result is demand destruction (deficit). Sentiment acts both positively and negatively, amplifying booms as well as busts; this creates business cycles (not the Business Cycle, each is different from the last). Economies operate far from equilibrium out of necessity, financial markets are full of noise and there are no invisible springs pulling prices back to fair value. Govt spending is a flywheel not a dead-weight, conditioning the highly variable output of the private sector. Taxation is a feedback mechanism for controlling inflation.

Interesting - I'm not sure I gave a synopsis of how it did work, I merely pointed out that the other poster was comparing capitalism with government spending. I agree with some of what you say. I am sure things have moved on since my uni days but I'm fairly sure the basics of economics still hold true. 

Disagree with your view of tax though and I'm actually using an economic term which is known as a deadweight loss due to a tax. 

For example, you're saying there is no such thing as The Business Cycle, but rather each company is an island and operates its own cycle?

 

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Creative destruction my **** - more like bailing out the banks who seem to run the show, ultimately. It's called corruption. And no, it isn't successful - certainly not the Chicago School type unleashed upon us by Maggie and Ronnie. 

What you're describing is not capitalism. The banks failing is capitalism and that's creative destruction right there. Please, do not confuse privatising gains and nationalising losses as capitalism because it is definitely not!

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For example, you're saying there is no such thing as The Business Cycle, but rather each company is an island and operates its own cycle?

Economies go through periods of growth and contraction but those dynamics are not deterministic.

Proponents of fixed investment cycles, Kondratieff waves, the 18yr real estate cycle etc. are simply over-fitting the data.

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