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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (47678)	12/19/2005 1:46:47 PM
From: ahhaha	Read Replies (1) \| Respond to of 110194

Strict Ricardian Equivalence simply asserts the equivalence between government debt and taxes, with a key assumption being that agents do not suffer from the Keynesian concept of bond illusion. Let's be a little more clear here. The equivalence comes from the assertion that there's no net change to wealth over time from different combinations of government borrowing and taxes. Specifically, government borrowing doesn't change the level of demand. This pseudo classical tenet doesn't hold because it overtly assumes future output returns on varying tax rates will be the same. That's true only up to equal tax rates between past and future. If government simultaneously lowers tax rates with increased borrowing, the borrowing can be afforded and new wealth can be added. Tax cutting delivers an accelerated response of wealth creation where borrowing can only subtract wealth linearly. The intrinsic reason behind this is borrowing comes from individuals but tax cutting encourages individuals to enter into synergistic groups which multiply wealth growth. There is no empirical evidence to support that shifting the mix of taxes and debt has any aggregate economic impact. The writings of the hand of wealth are invisible. It can't be visible because then it would be easily emulated. Imitation degrades innovation. It appeared that you were making a case for the superiority of debt finance over tax finance and, if so, I would appreciate if you could elaborate on the underlying economic assumptions. Debt finance is a fixed (linear) commitment. Tax finance subtracts non-linearly from wealth creation. If government taxes to achieve its ends, its ends are less well served than if it uses debt which impacts the people's prosperity less. Who creates the wealth? Not government. So how could taxing those who create wealth provide more taxes to government? And that is borne out in direct evidence. See Message 21964033