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.