Other People’s Money
January 25, 2012Posted by on
While we may display genuine and heartfelt compassion for those in need of it, ultimately we all have a compassion fatigue point at which our self interest – be it physical or spiritual – ultimately triumphs. While that may sound like the writing of a consummate cynic, any such ethos is open to interpretation. I find myself becoming increasingly cynical about the role that economic theory plays in the ‘creation of money’ and the role played by politicians, either ‘in’ or ‘out of’ government,’ in the manipulation of ‘economic theory’. When economist, politicians and ultimately governments introduce fiscal measures it always involves other people’s money.
The only way to acquire money is from other people and so all money is ‘other people’s money. Monies issued by a government in the form of legal tender is still other people’s money, inasmuch as its primary purpose is to enable other people to carry out financial transactions and pay their taxes to a government. Thus a government receives a revenue income stream in the form of taxes, taxes being other people’s money. Ideally this revenue income stream would fund all government expenditure, except that politicians buy votes with promises that required an expenditure greater than the taxes received from this income stream.
In other words, even before a government is elected into office and during its tenure in office, it increases its commitment to the expenditure of other people’s money through the creation of debt. In office Governments implement this debt burden by either the issue promissory notes in the form of bonds (gilts), or the simple printing of more money (there is also a third approach in the form of Private Finance Initiatives, which can be considered as having the same fiscal effect as the issue of a bond).
Whenever a government seeks to finance its activities by any means other than the legitimate revenue stream of tax inputs it is actually borrowing other people’s money, which the taxpayer must eventually repay in a future tax revenue income stream. Whatever means a government uses to ‘create new money’ and especially quantitative easing, it is only creating debt and inflation. A government can only acquire debt free money from the efforts of other people increasing the tax revenue income stream.
An electorate entrusts a government to introduce appropriate fiscal measures to maintain a stable economy but then appears to ignore, or be resigned to, the fact that any economic instability is created by government debt. Individuals that pay off the debts incurred on one credit card by using another credit card, use other people’s money and are scoffed at for doing so. Yet that is exactly what a government does every time it issues government bonds (gilts). In addition: a governments has an unfettered monopoly on the printing of legal tender money, for which there is no fiscal limit in a fiat currency.
Those individuals having to live with the fiat money issued by a government and especially those that have no discretionary income, or very little, are always penalised the most. Government fiscal measures introduced to correct its own fiscal imprudence, whether it is a government issuing bonds, actually printing more money or taking quantitative easing action, always creates debt and inflation. Inflation benefits the debtor, in that inflation allows the debtor to repay previously borrowed ‘good money’ with (inflated) ‘bad money’.
It always penalises the holders of fiat money in that it always erodes its purchasing power. If any fiat income does not keep pace with ‘real inflation’, it has the same effect as reducing that income, be it a tax revenue income stream, a salary, a pension, a welfare income, or fiat currency savings. Government debt has brought about, certainly in the ‘Western Industrialised Nations’, a wake up-call in the form of a financial crisis. A crisis in which compassion fatigue is spreading like a contagion amongst these nations. In desperate attempts to apportion blame for this contagion, national self-interest is being unashamedly flaunted and personal self-interest unashamedly promoted.
It is perhaps not only belated but somewhat Quixotic to rail against economists, politicians and governments, who brought about this contagion and are now shamelessly promoting their national snake oils. There is no doubt that the western industrialised nations will survive. The only questions is, “In what form“? A compassion fatigue point seems to have been reached in this crises. The fiscal ineptitude and political self interest that drives successive public administrations, has turned compassionate perceptions of benefaction into frugal perceptions of munificence amongst those forced to contribute to the tax revenue input stream.