When rich people feel overtaxed, they often find ways to avoid paying tax. As a result, governments get less, despite having demanded more. So governments try to avoid making rich people feel overtaxed. The most amount of plucking, with the least amount of hissing.
If governments want to keep spending past the Laffer Peak, they need to borrow. And they have – most Western governments now owe at least their yearly GDP. Like you having an amount equal to your yearly spending on a credit card.
However, most Western governments can normally borrow at very low rates – less than 4% or so.
But now the American government owes so much money that it can no longer afford to pay anywhere near 4%, and in any case the people that would normally lend lots of money to them (pension funds and foreign governments mostly) are now starting to get worried that America is a basket case.
And why is that?
Well, because the dollars that America are using to service their debts, are starting to look a bit funny.
Counterfeit, like they were printed up yesterday in someone’s basement. The ink is still wet.
And that’s a problem.
Because the more dollars they create, the less they become worth – they are debauching their currency.
And people who lend you $1 when it buys a cinema ticket, don’t like to get their dollar back when it won’t even pay for the popcorn.
So they are stopping lending.
And that is a bigger problem.
Governments can’t just stop spending “on a dime” – they made promises that got them elected, and a failure to deliver will see them get UNelected. Of course they DO fail to deliver – they make as many promises as they think they need to in order to get elected, and then lie as much as they can to conceal their failure to deliver on them. But overspend they must.
If no-one will lend them the money they need, who will?
They can afford to lend money at the rates the government can afford to pay – 1% or less.
The central banks don’t need to make a profit – they have a printing press, remember. They are forgoing no consumption by lending money to the government, there is no sacrifice to tie up their money for ten years. It’s new money – they just printed it.
And that’s a massive problem.
Because now our governments can borrow cheaply, every socialist with a wet dream is coming out of the woodwork to explain why infinite printing and spending is just fine.
One wonders why we didn’t do it before?
And why it didn’t work in Weimar Germany, or Zimbabwe, or Venezuela.
If we can print as much as we need, why limit the minimum wage to $10 an hour, or $15?
One hundred dollars an hour. Wheeeeeeeeeeeeeeeee!
There are people proposing we do something like this.
And that’s an existential problem.
Because for every clueless politician, there is a clueless or venal economist willing to provide intellectual cover for this madness – economists, scientists and statisticians are as easily-bought as any politician.
I would like to be able to say that we are heading off a cliff here, but the news is not as good as that.
Indeed we headed off the cliff back in 2008, have plummeted to earth for the last decade, and are now passing the first floor with a cheeky grin and a thumbs-up to the gawking spectators.
Uttering the immortal line – “So far, so good!”