Should governments fund themselves through a lending arm?
Patrick Henry:
You asked why the government doesn't save and invest capital. I am not totally against this idea - I myself have considered it - but I think it would be complicated and difficult to do well.
You probably know that Singapore does precisely that: http://www.temasekholdings.com.sg/
I think not doing that is a good way of aligning the government's interests with the people's: the government only has a lot of spending money if the people does well.
Also, look at the government of Nauru's brilliant use of the guano money....
Doctor Thomas:
A government shouldn't invest too heavily in the stockmarket, otherwise it will be biased in favour of policies that encourage profit growth. A government shouldn't invest too little in the stockmarket, otherwise it will be biased in favour of policies that ignore profit growth. In order to be neutral, a government should own as many financial and real capital assets as a proportion of its budget as financial and real capital assets are important as a proportion of our social, economic and ecological systems that the goverment is responsible for managing.
Note that if the government owned enough private market type investments, it wouldn't have to tax people from their income tax - all it would need to do is spend the interest, rent and profits to provide all the social services that we need. If the investments were proper financial investments getting a proper return, then this would not distort the economy by providing unfair competition of loss-making enterprises. (A believer in small government would suggest that government ownership of assets is wrong - the asset should be owned by the people, and the government should ask for permission all the time to raise taxes in order to warrant taking any action. A fair enough notion from one perspective, but the unfortunate side effect of this is that invariably when they ask for taxes it is not a fixed absolute sum, but a proportion of everybodies income. At 50%, this arguable stifles incentive to earn. If the government simply owned 30% of the economy's financial assets, then the effective marginal tax rate could be taken down to 0-10%.
You asked why the government doesn't save and invest capital. I am not totally against this idea - I myself have considered it - but I think it would be complicated and difficult to do well.
You probably know that Singapore does precisely that: http://www.temasekholdings.com.sg/
I think not doing that is a good way of aligning the government's interests with the people's: the government only has a lot of spending money if the people does well.
Also, look at the government of Nauru's brilliant use of the guano money....
Doctor Thomas:
A government shouldn't invest too heavily in the stockmarket, otherwise it will be biased in favour of policies that encourage profit growth. A government shouldn't invest too little in the stockmarket, otherwise it will be biased in favour of policies that ignore profit growth. In order to be neutral, a government should own as many financial and real capital assets as a proportion of its budget as financial and real capital assets are important as a proportion of our social, economic and ecological systems that the goverment is responsible for managing.
Note that if the government owned enough private market type investments, it wouldn't have to tax people from their income tax - all it would need to do is spend the interest, rent and profits to provide all the social services that we need. If the investments were proper financial investments getting a proper return, then this would not distort the economy by providing unfair competition of loss-making enterprises. (A believer in small government would suggest that government ownership of assets is wrong - the asset should be owned by the people, and the government should ask for permission all the time to raise taxes in order to warrant taking any action. A fair enough notion from one perspective, but the unfortunate side effect of this is that invariably when they ask for taxes it is not a fixed absolute sum, but a proportion of everybodies income. At 50%, this arguable stifles incentive to earn. If the government simply owned 30% of the economy's financial assets, then the effective marginal tax rate could be taken down to 0-10%.
posted by Patrick Henry at 10:13 PM
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