Why government debt is better than taxes during a recession

When the economy slows, government receipts tend to drop, since taxes generally derive from economic activity (such as sales, salaries, etc). So what really happens when the government starts running a deficit? The government is taking unproductive assets (money parked in low yielding bonds) and putting it to productive use (health care, education, etc). The alternative is to try to take money from taxes, which act as a brake for the exact activity that the government is trying to encourage.

Maybe people just intuitively think about government debt the wrong way. Maybe if it was called “citizen assets”, people wouldn’t automatically think it’s a such a bad thing. If the economy has a lot of slack (people unemployed, assets put to unproductive use), funding the government via these kind of unproductive assets seems like the perfect solution.

This is all related to an economic theory called “Modern Monetary Theory”, which is definitely worth reading about. It will turn your world around once you get it.

Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.

Of course, now that Spain is using a currency that it cannot issue at will, we’re pretty much screwed, unless the Eurozone finally gets its head out of the sand, which is unlikely to happen.

El mundo al revés

My son was just singing this song as I was reading about the recent police-state crackdown against highschool students protesting the lack of heating at their school due to the cuts.

The interior minister admitted there had been “some excesses and disproportionate action”, but the education minister said was complaining about “violent protestors and those that infringe the law”. Great to see the education minister sticking up for students.

The President of Spain complained that “Spaniards cannot transmit an image of the country that is not how it is”. Which is to say exactly what?

Stupidity at the toll booth

Sant Cugat is conveniently connected to Barcelona via a set of toll tunnels. In a gesture to environmentalism, the tolls were reduced by 20% for 3+ occupancy vehicles a year or two ago. Is this enough to change anyone’s behavior? Probably not.

In any case, there is now a new policy that in order to get the discount, you need to have a “TeleTac”, which is a transponder that automatically debits your bank account. Exactly how this makes your car more environmentally friendly? No idea.

But now they seem to have a problem, which is that you can still push the discount button for a discount, even if you pay by credit card. The first solution was to tape a piece of cardboard over the button, but then people with the TeleTac couldn’t get the discount. So their next solution was to have two people standing next to the machine telling people (helpfully in Catalan) that they shouldn’t push the button if paying by credit card (but if you act stupid or start talking in pig-latin, you can confuse them long enough to push it quickly).

My suggestion was to make a small change to their billing software:

if (using teletec)
{
   apply discount
}
else
{
   don’t apply discount
}

Now that wasn’t too hard was it?

No-recourse mortgages coming to Spain?

The headline in El Pais might make you think that, but given the fact that the government is on the side of the banks, basically they are saying that families might be able to give their house back to the bank in exchange for a discharge of the debt only:

First time home owners with all family members are unemployed and no or insufficient income to meet the debt.

So the road to debt freedom is to blow all your savings, have everyone in your family quit their job…

What Spain is really missing is a sensible bankruptcy law. The way things work now, if the bank takes your home, you (and all your cosigners) remain responsible for any unpaid balance ( remaining debt – fire-sale price of home + lots of fees ) for the rest of your life. If you cannot make the monthly payments, the bank can take everything you earn minus some small minimum amount.