3.5. Additional resources – policy options and consequences

In reality these three options are used together and the government is using at least two of them (taxes and state loans) regularly and if situation is not good, monetary stimulus comes to play as well.

Choices of supplementing the missing demand can be easily described as 4 doors, behind which there lie different policy options, all with their benefits and consequences.

Taxes  – obviously very unpopular choice. No politician wants to go that route and even if he does, the results achievable through this option are not optimal. After all, there are so many loopholes and half-legal ways to avoid higher taxation that total amount generated from planned higher taxes is rarely the same as actually collected. That quite misses the point and also brings with it the stigma of tax riser who at the end of day did not deliver on his promises, because the target goal is not fulfilled.  The ultimate economic problem is that until taxes would not be 100% (and this is not politically feasible at all) , that option alone would not deliver the missing buying power in full and so the economy would not be growing just by that.

Monetary easing – is often seen as measure of last defense. After all, if we have to print the money that is the admittance that we are not able to effectively tax the saved profits and that means that we are having two bags of identical money:  one sitting idle at bank accounts (or hidden in mattresses, old socks...), not revolving in real economy and as a consequence we have to print replacements, the duplicates which we try to incorporate into the real economy cycle of consumption, production.  It brings the inevitable fears of inflation, as if we go about this route too often and for too long, there might be reasonable founded question what would one be able to buy for all this money if it all started to circulate in real economy at once.

Private debt – is a form of state policy as well. It simply means to do nothing and wait as private individuals will indebt themselves as they will have no other choice to survive. From our theory it is known that salaries are not enough to buy all what is produced  and as profits are most easily achieved by pricing goods and services at AA level ( level which requires households to take out loans to satisfy their basic needs, see later in chapter 5.1 Forced debt during consumption) it will happen sooner than later.  But this avenue is dark and short as capacity of individual debt is rather limited and repayments represent built in recession factor of lost opportunity sales, magnified by interest being repaid.  Once the individuals reach their debt limit, that road to profits is closed for good.

State debt – and this leaves us to the final source of profits in the economy, one used by everyone. It is easy, simple, hardly anybody complains.  Companies are not hurt, indeed financing of state debt provides opportunity for investing free funds. General public have no understanding of the concept at all. It is not their debt (at least this is how the majority of people perceive it) and so they don´t have to worry about missing their installments.  It does not incorporate such obvious heavy monetary tricks as money printing, so there is this feeling that money mass is maintained intact without inflation fears.  Politicians are not reluctant to use it as all parties participate at the same game and all use the same tool.  Infrequent voices to reduce the debt or lower the rate of annual deficits are not admitted and in reality there is no way it could have been done without starting serious recession, which would demolish the whole system.  Nobody tried it so far and as we see from most recent developments, those who are embarking on this suicidal road are already reaping the expected „benefits“ of recession, deflation and wide spread economy collapse.

The state debt, its existence and ever growing size is necessary and unavoidable partner of capitalistic economy based on achieving profits, where these profits are not spent in full.

All profits ever achieved are financed by this debt through providing additional buying power which enables to create them.

The state debt is impossible to repay without further monetary action.  Every attempt to do so would mean throwing economy into recession and continuous reduction of this debt would only deepen it. Repayment of state debt means not only stopping the flow of additional buying power which creates new profits, it erases the previous profits achieved. It is happening through reduction of money in circulation and this is reducing the overall business activity. More and more businesses are not achieving their planned profits ( as there is no source of demand to fuel it) and  failing companies and personal bankruptcies are causing the banks to record and write off more and more bad loans which will never be repaid.  When bank goes bust, money lost during its bankruptcy is money accumulated from previous profits.