A little something I've been working on

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Re: A little something I've been working on

Postby Jove N. Ore » Sat Jun 16, 2012 5:08 am

I apologize for interjecting but RPC, are you using standard calculations for GDP (C+G+I+ [X-M])? Also, I was not aware that there was a population cap, may I ask what it is (I assume 100,000,000)? I was also wondering where did you find that chart for Sector Financial Balances as % of GDP? And how do you measure Cobura's potential or natural GDP in the first place? Do you just determine some figures indirectly or fabricate them, since I have never seen unemployment change (I may just not be looking often enough). I must also point out that there is no inflation because currency rates are predetermined so how do you make that?

I would also agree that the economy in Particracy is basically worthless upon principle, but not only because of any population cap. This is helped by the fact that every national economy is closed off from the outside world completely. Since inflation does not technically matter the government can print as much money as they want to pay of debt, get resources, etc. without any consequences. Unemployment is worthless to because it never changes and is not subject to any special factors. The Lorenz Curve of provinces never changes, and GDP is technically worth whatever the game says it is since there is no real currency conversion. If there were inflation and more economic relations between nations the game would be much better.
However I do not really agree with what you interpret taxes as, if you mean so in the real world. They do not have much of an effect at all on currency values in themselves. The population would still use the fiat currency for a few reasons: they are partial to the status quo heuristic and others, the government can use force to allow use of a currency, and when you say that the people will strive to meet there tax obligations that implies that that is the only incentive for making money (unless of course you just did not elucidate). There are other factors as well such as service costs, food costs, etc. I do agree however that it helps combat inflation partially, even though "currency hoarding" would not be the word I use. I do also not agree that in real life debt does not matter (obviously) but I do agree in the game it could be avoided easily because there is no technical inflation. Also consumption for GDP goes up very slowly compared to government, because it does not change regardless of policies. That clearly makes it better to have much higher levels of government, even if it is not technically as beneficial in the real world.
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Re: A little something I've been working on

Postby RPC » Sat Jun 16, 2012 9:57 am

Jove N. Ore wrote:I apologize for interjecting but RPC, are you using standard calculations for GDP (C+G+I+ [X-M])?

Yes.

Also, I was not aware that there was a population cap, may I ask what it is (I assume 100,000,000)?

Correct. This makes normal GDP growth pretty much impossible. There will be some growth as population reaches the cap and as soon as its reached it will start falling in line with population. It also means that taxes remain constant. That annoys me.

I was also wondering where did you find that chart for Sector Financial Balances as % of GDP?

It saw it in the Financial Times, but it was originally from the UMKC blog: http://neweconomicperspectives.org/

And how do you measure Cobura's potential or natural GDP in the first place? Do you just determine some figures indirectly or fabricate them, since I have never seen unemployment change (I may just not be looking often enough).

Potential GDP, as in real life, is measured by monitoring long-term growth trends.

I must also point out that there is no inflation because currency rates are predetermined so how do you make that?

Inflation will happen regardless of currency regime. The exchange rate may remain the same, but domestic prices can still change.

However I do not really agree with what you interpret taxes as, if you mean so in the real world. They do not have much of an effect at all on currency values in themselves. The population would still use the fiat currency for a few reasons: they are partial to the status quo heuristic and others, the government can use force to allow use of a currency, and when you say that the people will strive to meet there tax obligations that implies that that is the only incentive for making money (unless of course you just did not elucidate). There are other factors as well such as service costs, food costs, etc. I do agree however that it helps combat inflation partially, even though "currency hoarding" would not be the word I use. I do also not agree that in real life debt does not matter (obviously) but I do agree in the game it could be avoided easily because there is no technical inflation. Also consumption for GDP goes up very slowly compared to government, because it does not change regardless of policies. That clearly makes it better to have much higher levels of government, even if it is not technically as beneficial in the real world.

Taxes have a large effect on the value of a domestic currency. I think you're a little confused by my use of the word 'currency' - mistaking it as meaning the exchange rate value, which is not the case. Exchange rate values are determined by the currency exchange market for those who have a floating exchange rate. Where the currency is pegged or part of a currency board, its value is relatively fixed - though of course a government can devalue as happened in the 70s with the constant devaluations. Anyway, the point is that the domestic prices are determined endogenously in a fiat currency system, and these prices are in turn affected by spending and taxation. If taxes remain constant as spending rises, then prices will increase. If taxes remain constant as spending falls, prices will decrease. Since the 1970s governments have been using certain levels of unemployment as a means of achieving price stability - what's known as the 'non-accelerating inflation rate of unemployment'. In the past prices were fixed exogenously, with the gold standard and so on.

Now, as I said taxes do have an impact on domestic prices and there are a few cogent examples of this. The American Confederacy, during the civil war, was only able to achieve tax revenues at 5% of expenditures and suffered from horrendous hyperinflation. Their opponents were able to claim tax revenues at around 30% of spending and suffered an inflation rate of around 20%. More recently, we can look at the example of Japan. Japan had spent a lot of Yen trying to extricate itself from the deflation and recession problems of the mid-90s, leading to a large accumulation of debt. The economy began to recover around the late 90s and then the deficit hawks, by harping on about debt and the size of the deficit, managed to force the government into raising sales tax. Guess what happened? Recession and persistent deflation - a deflationary spiral which has only now been somewhat rectified. Government taxing and spending does evidently therefore, have an effect on domestic prices. This isn't even disputed within the economics profession, so I'm not sure what your beef is.

Oh and as for government debt: for a monetary sovereign, which is the monopoly issuer of its own, non-convertible, fiat currency - which floats on the currency exchange markets - deficits and debt do not matter one jot. Where the exchange rate is fixed though, the government needs to hold a certain amount of foreign currency reserves. The point is however that is ridiculous to suggest that a monetary sovereign could possibly go bankrupt. You can't run out of what you yourself create.

Sorry if some of this seems disjointed and repetitive - its too early in the morning for me and I have a hangover.
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Re: A little something I've been working on

Postby Amazeroth » Sat Jun 16, 2012 1:10 pm

Don't take this as a personal attack or anything, but there are a few points in your argumentation that strike me at somewhat odd:


RPC wrote:
Taxes have a large effect on the value of a domestic currency. I think you're a little confused by my use of the word 'currency' - mistaking it as meaning the exchange rate value, which is not the case. Exchange rate values are determined by the currency exchange market for those who have a floating exchange rate. Where the currency is pegged or part of a currency board, its value is relatively fixed - though of course a government can devalue as happened in the 70s with the constant devaluations. Anyway, the point is that the domestic prices are determined endogenously in a fiat currency system, and these prices are in turn affected by spending and taxation. If taxes remain constant as spending rises, then prices will increase. If taxes remain constant as spending falls, prices will decrease. Since the 1970s governments have been using certain levels of unemployment as a means of achieving price stability - what's known as the 'non-accelerating inflation rate of unemployment'. In the past prices were fixed exogenously, with the gold standard and so on.


Domestic prices are never determined endogenously, as long as there is commerce between nations, and not all products are produced in every nation. As soon as the market is larger than a nation - and in particracy, where all nations are modern ones, this has to be assumed - the prices will be determined exogenously too. Could be that I misunderstand what you mean by endogenously, though.
Also, when you say "spending rises", do you mean that the government increases the amount of money it had by printing more (or adding a few numbers to the nations bank account, which is basically the same thing)?

When you say that governments have been using unemployment to de-accelerate inflation rates - do you mean that governments actively sought to keep a part of the population out of employment?



Now, as I said taxes do have an impact on domestic prices and there are a few cogent examples of this. The American Confederacy, during the civil war, was only able to achieve tax revenues at 5% of expenditures and suffered from horrendous hyperinflation. Their opponents were able to claim tax revenues at around 30% of spending and suffered an inflation rate of around 20%. More recently, we can look at the example of Japan. Japan had spent a lot of Yen trying to extricate itself from the deflation and recession problems of the mid-90s, leading to a large accumulation of debt. The economy began to recover around the late 90s and then the deficit hawks, by harping on about debt and the size of the deficit, managed to force the government into raising sales tax. Guess what happened? Recession and persistent deflation - a deflationary spiral which has only now been somewhat rectified. Government taxing and spending does evidently therefore, have an effect on domestic prices. This isn't even disputed within the economics profession, so I'm not sure what your beef is.



I don't think that it can be denied that taxes have an impact on the inflation rate, but the examples you offer here are somewhat vague, and there is not really a reason why the inflations/deflations in them couldn't be the reason of something other than taxation policy.

Oh and as for government debt: for a monetary sovereign, which is the monopoly issuer of its own, non-convertible, fiat currency - which floats on the currency exchange markets - deficits and debt do not matter one jot. Where the exchange rate is fixed though, the government needs to hold a certain amount of foreign currency reserves. The point is however that is ridiculous to suggest that a monetary sovereign could possibly go bankrupt. You can't run out of what you yourself create.


You can't run out of it, but it can be worth nothing. As long as the country has borrowed something from other countries - and as long as not all products it needs or wants are produced in sufficient quantities by itself, it will have to - it can still go bankrupt. It might not be bankrupt in the sense that it no longer has any money, but it will be in the sense that it won't get anything for its money, because it is no longer worth anything.
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Re: A little something I've been working on

Postby RPC » Sat Jun 16, 2012 2:45 pm

Amazeroth wrote:Domestic prices are never determined endogenously, as long as there is commerce between nations, and not all products are produced in every nation. As soon as the market is larger than a nation - and in particracy, where all nations are modern ones, this has to be assumed - the prices will be determined exogenously too. Could be that I misunderstand what you mean by endogenously, though.

As I said, my mind isn't exactly clear right now. What I meant was that prices are set endogenously - they are allowed to 'float', with prices set by suppliers and so on. Quantity - ie the amount of resources the government wishes to purchase - is set exogenously.

I think I'll let Professor Wray explain things:

Currently, the US government (like all other 'free market' governments around the world) decides how many resources (including labour) it wishes to purchase and then pays market prices for virtually everything it buys. In other words, it generally fixes quantity exogenously (determines outside markets the quantity of aircraft carriers, miles of interstate highway, hours of janitorial services), but lets prices 'float' endogenously (pays prices dictated by suppliers - either by going directly to markets or through a 'competitive' bidding process).


Also, when you say "spending rises", do you mean that the government increases the amount of money it had by printing more (or adding a few numbers to the nations bank account, which is basically the same thing)?

Yes. Increased government spending.

When you say that governments have been using unemployment to de-accelerate inflation rates - do you mean that governments actively sought to keep a part of the population out of employment?

Not exactly. When inflation occurs the government forces slack on the private sector to reduce market pressure on prices. The outcome of this is higher unemployment, idle plant and equipment, and rising inventories of raw materials and consumer goods. There is a general connection between unemployment and inflation. Higher unemployment is generally associated with a lower rate of inflation, and lower unemployment is generally associated with a higher rate of inflation. The NAIRU is accepted by most Western governments to represent a means of maintaining price stability. This doesn't mean that they deliberately and actively create unemployment, it just means they accept that a certain level is desired to maintain price stability.


I don't think that it can be denied that taxes have an impact on the inflation rate, but the examples you offer here are somewhat vague, and there is not really a reason why the inflations/deflations in them couldn't be the reason of something other than taxation policy.

I never claimed they were the only reason. The causes of inflation are very complicated indeed, but we can say for sure that government spending and taxation can exert a substantial impact on prices. It only stands to reason that the more money there is in an economy, the less valuable that money is. That's economics 101.

You can't run out of it, but it can be worth nothing. As long as the country has borrowed something from other countries - and as long as not all products it needs or wants are produced in sufficient quantities by itself, it will have to - it can still go bankrupt. It might not be bankrupt in the sense that it no longer has any money, but it will be in the sense that it won't get anything for its money, because it is no longer worth anything.

Trade is a two-way street. Bear in mind, that any government wishing to export to our hypothetical government can only sell their produce to us in our own currency - and we can never run out of this. The key is balance. One of the first things you learn in macroeconomics is that its more beneficial to be a net importer than a net exporter, as it means you get more for less.

Of course, government spending should not be excessive to the point of debasing the currency in such a manner. I'm not arguing for unrestricted government spending, I'm arguing that for a monetary sovereign deficits don't matter. All this deficit hysteria gets on my tits.

EDITED - as I managed to confuse myself.
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Re: A little something I've been working on

Postby Jove N. Ore » Sat Jun 16, 2012 3:55 pm

Taxes have a large effect on the value of a domestic currency. I think you're a little confused by my use of the word 'currency' - mistaking it as meaning the exchange rate value, which is not the case. Exchange rate values are determined by the currency exchange market for those who have a floating exchange rate. Where the currency is pegged or part of a currency board, its value is relatively fixed - though of course a government can devalue as happened in the 70s with the constant devaluations. Anyway, the point is that the domestic prices are determined endogenously in a fiat currency system, and these prices are in turn affected by spending and taxation. If taxes remain constant as spending rises, then prices will increase. If taxes remain constant as spending falls, prices will decrease. Since the 1970s governments have been using certain levels of unemployment as a means of achieving price stability - what's known as the 'non-accelerating inflation rate of unemployment'. In the past prices were fixed exogenously, with the gold standard and so on.

Now, as I said taxes do have an impact on domestic prices and there are a few cogent examples of this. The American Confederacy, during the civil war, was only able to achieve tax revenues at 5% of expenditures and suffered from horrendous hyperinflation. Their opponents were able to claim tax revenues at around 30% of spending and suffered an inflation rate of around 20%. More recently, we can look at the example of Japan. Japan had spent a lot of Yen trying to extricate itself from the deflation and recession problems of the mid-90s, leading to a large accumulation of debt. The economy began to recover around the late 90s and then the deficit hawks, by harping on about debt and the size of the deficit, managed to force the government into raising sales tax. Guess what happened? Recession and persistent deflation - a deflationary spiral which has only now been somewhat rectified. Government taxing and spending does evidently therefore, have an effect on domestic prices. This isn't even disputed within the economics profession, so I'm not sure what your beef is.


Non,no, you misunderstand me, I did not"have a beef", I simply wanted your explanation of your statement. You are right I see, I am mixing floating and fixed currencies, and everything your saying I know is correct. In fact it is not necessarily incompatible with my original statement. I was simply saying that people would still use the government currency with minimal taxes, or they would leave the country because of differences between spending and taxation. It just seemed to me you were saying that the whole reason we have taxes is to make people use the currency, which is now clearly not true. Thank you for answering my questions and elaborating on your statement. And I do like your efforts to record your nations economic history, even though the economic system in Particracy is basically broken.
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Re: A little something I've been working on

Postby RPC » Sat Jun 16, 2012 9:27 pm

Jove N. Ore wrote:Non,no, you misunderstand me, I did not"have a beef", I simply wanted your explanation of your statement.

I was using the word 'beef' in a jovial manner. I didn't mean to imply that you were being aggressive or any such thing. Sorry about that.

I was simply saying that people would still use the government currency with minimal taxes, or they would leave the country because of differences between spending and taxation.

Sure, they would use the currency with minimal taxes, but what about no taxes? ;)

I also have never seen any evidence to suggest that people ever leave a country because of the gap between spending and tax revenues. The standard orthodox retort is usually that higher taxes would lead to the rich leaving, not that low taxes and high spending would. Could you explain what you mean?

It just seemed to me you were saying that the whole reason we have taxes is to make people use the currency, which is now clearly not true.

Of course its not the only reason and I would never imply that it was. I've already mentioned several times in this thread that taxes are also used to control the rate of inflation. The point I was making with regards to currency usage by the population, was that by imposing a tax liability on its citizens the government compels them to obtain the necessary amount of currency to meet that liability. Obviously some may choose to evade that liability, and would face imprisonment if caught. The government also determines the amount of effort required to obtain the requisite amount of currency to pay taxes, through the prices its willing to pay (total government spending).

And I do like your efforts to record your nations economic history, even though the economic system in Particracy is basically broken.

Well, it makes budgets and taxes actually mean something when they have (albeit artificial) effects on macroeconomic factors such as inflation and unemployment.
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Re: A little something I've been working on

Postby Jove N. Ore » Sun Jun 17, 2012 1:57 am

I also have never seen any evidence to suggest that people ever leave a country because of the gap between spending and tax revenues. The standard orthodox retort is usually that higher taxes would lead to the rich leaving, not that low taxes and high spending would. Could you explain what you mean?


I did not mean directly. It is clear that bad things happen when there is a surplus of money in a government, which may lead to a recession, which may cause people to go to a country with a more vibrant economy. I should have explained more.
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Re: A little something I've been working on

Postby RPC » Sun Jun 17, 2012 11:01 am

Jove N. Ore wrote:I did not mean directly. It is clear that bad things happen when there is a surplus of money in a government, which may lead to a recession, which may cause people to go to a country with a more vibrant economy. I should have explained more.

By that do you mean when the government is running a surplus? That would almost likely lead to a recession, unless the government was a net exporter and those countries it exports too are still growing.
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Re: A little something I've been working on

Postby RPC » Sun Jun 17, 2012 11:10 am

You can't run out of it, but it can be worth nothing. As long as the country has borrowed something from other countries - and as long as not all products it needs or wants are produced in sufficient quantities by itself, it will have to - it can still go bankrupt. It might not be bankrupt in the sense that it no longer has any money, but it will be in the sense that it won't get anything for its money, because it is no longer worth anything.

Trade is a two-way street. Bear in mind, that any government wishing to export to our hypothetical government can only sell their produce to us in our own currency - and we can never run out of this. The key is balance. One of the first things you learn in macroeconomics is that its more beneficial to be a net importer than a net exporter, as it means you get more for less.


I forgot to mention that a lower value of currency makes it easier to export, which in turn allows you to accumulate foreign currency reserves, which in turn allows you to purchase what you need with those reserves. Furthermore, I should have made it clear that the exchange rate is determined by the foreign exchange market, not by your domestic rate of inflation.
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Re: A little something I've been working on

Postby Amazeroth » Sun Jun 17, 2012 11:20 am

RPC wrote:
Amazeroth wrote:Domestic prices are never determined endogenously, as long as there is commerce between nations, and not all products are produced in every nation. As soon as the market is larger than a nation - and in particracy, where all nations are modern ones, this has to be assumed - the prices will be determined exogenously too. Could be that I misunderstand what you mean by endogenously, though.

As I said, my mind isn't exactly clear right now. What I meant was that prices are set endogenously - they are allowed to 'float', with prices set by suppliers and so on. Quantity - ie the amount of resources the government wishes to purchase - is set exogenously.


Ah, I did misunderstand you then - I took endogenously to mean "only from within the country" rather than "not by the government but by the market". I completely agree with you on this point then, less currency will mean decreased prices.

When you say that governments have been using unemployment to de-accelerate inflation rates - do you mean that governments actively sought to keep a part of the population out of employment?

Not exactly. When inflation occurs the government forces slack on the private sector to reduce market pressure on prices. The outcome of this is higher unemployment, idle plant and equipment, and rising inventories of raw materials and consumer goods. There is a general connection between unemployment and inflation. Higher unemployment is generally associated with a lower rate of inflation, and lower unemployment is generally associated with a higher rate of inflation. The NAIRU is accepted by most Western governments to represent a means of maintaining price stability. This doesn't mean that they deliberately and actively create unemployment, it just means they accept that a certain level is desired to maintain price stability.


I see what you mean - but I don't think that it can be said that government has been "using" unemployment then - it rather used its might to make their private sector less effective, and remained oblivious to the fact that this causes unemployment rates to increase. I think that most governments don't really get what kind of repercussions their actions considering their economy might cause. Some politicians might know this and accept this somehow, but I think most don't understand it or follow rather unsound economic theories.


I don't think that it can be denied that taxes have an impact on the inflation rate, but the examples you offer here are somewhat vague, and there is not really a reason why the inflations/deflations in them couldn't be the reason of something other than taxation policy.

I never claimed they were the only reason. The causes of inflation are very complicated indeed, but we can say for sure that government spending and taxation can exert a substantial impact on prices. It only stands to reason that the more money there is in an economy, the less valuable that money is. That's economics 101.


Yes it is, and I wouldn't argue against that. I just thought that inflation rate, and taxation as well as the overall amount of money in your examples would surely be signs of a badly running economy, but might not necessarily be each others cause.

You can't run out of it, but it can be worth nothing. As long as the country has borrowed something from other countries - and as long as not all products it needs or wants are produced in sufficient quantities by itself, it will have to - it can still go bankrupt. It might not be bankrupt in the sense that it no longer has any money, but it will be in the sense that it won't get anything for its money, because it is no longer worth anything.

Trade is a two-way street. Bear in mind, that any government wishing to export to our hypothetical government can only sell their produce to us in our own currency - and we can never run out of this. The key is balance. One of the first things you learn in macroeconomics is that its more beneficial to be a net importer than a net exporter, as it means you get more for less.


Any government wishing to export to our hypothetical government would get our currency - my point is rather that in this case, no sensible government would wish to export to our government anymore, if that currency was worth nothing. Most likely, the only thing the official currency of our government would be used to by its citizens to pay taxes, and by the government to pay its citizens, but anything else would happen on the black market and in another currency - like Dollars in Cuba now or Soviet Russia back then.
So yes, it is true, we can never run out of our currecy if all we have to do to get more is to add some numbers in some account (to the point where we're still able to hire somebody who knows how to do that, or are still able to maintain the necessary equipment). But we will be incredibly poor, nobody would want to trade with us if all he gets is our worthless currency, our citizens would try to move out, and, since our military isn't getting paid either (with money they can use to buy food with), we'll soon be out of power and possibly dead.
Also, some nations willing to lend our nation money will want to take the inflation rate into consideration when it is time to pay that money back.

Apart from this point, that a nation can not really go bankrupt, I agree with you though - deficit alone means almost nothing. It will be inconvenient though if the economy of the country having a deficit begins to fail.
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