Federal government must manage total spending

Federal government must manage total spending
Posted on March 13, 2016 | Larry Kazdan | Written on March 5, 2016
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Ottawa Sun

Author's Note:

Author's Note:

Re: Scott Brison and his magical deficit money tree, Mark Bonokoski, March 05, 2016 

The job of the federal government is to manage total spending in the economy. Too much consumption will result in inflation so government must raise taxes to reduce purchasing power.

On the other hand, insufficient demand causes slumps so government must compensate when private sector spending is too low. Note that taxes collected do not need to equal federal amounts dispersed - that's why our government owns the Bank of Canada which can supply any difference.

The wealthy abhor inflation but are willing to tolerate some slack in the economy. They do not want Inflation to erode their assets, but don't mind a struggling labour force unable to demand a higher share of profits. Arbitrary rules that prevent the government from perking up the economy, and that keep labour slightly weak, are integral to conservative economic ideology.

Footnotes:

1. Abba Lerner: Functional Finance http://bilbo.economicoutlook.net/blog/?p=5762

"The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance … Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money,” etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability …"

2.You know who likes lackluster economic growth? The rich. Jeff Spross http://www.theweek.com/articles/580975/know-who-likes-lackluster-economi...

"When labor markets are as tight as they can get — a.k.a. full employment — workers can quit jobs they don't like and find ones they do like with ease, while owners of business and capital become ever more desperate for adequate labor. This gives workers much more leverage to demand wage increases, so they claim a bigger share of all the income generated in the economy. Which means, by definition, the elite's share must shrink. ***

Elites obviously don't want to completely tank the economy. But it certainly works for them if it stays modestly stagnant, maximizing the growth of the pie while minimizing worker bargaining power. -- Larry Kazdan CPA, CGA; Modern Monetary Theory in Canada http://mmtincanada.jimdo.com/

About The Author

Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More

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