Monthly Archives: December 2017
Don’t even try to “Normalise” interest rates
If you think that the rest of the economy is normalised, so it is time to normalise interest rates too, you are wrong. If the rest of the economy is normalised, then interest rates must already be normalised. Wicksell said there was some underlying "natural" rate of interest. If the central bank sets a rate […]
The Long Restructuring of Ontario’s Health Spending
Ontario’s hospital sector has made a submission to the provincial finance committee making the case that overcrowding has become so serious that there is a need for more funding. They are seeking a 4.55 percent increase in operating funds for the 2018-19 fiscal year in their pre budget submission. According to numbers calculated from data […]
The Sustainable Bond-Finance Laffer Curve
Imagine an economy growing at rate g, with an interest rate on government bonds r, and a constant debt/GDP ratio D/Y. The government gains revenue from issuing new bonds gD each year, and loses revenue from paying interest rD each year. If r<g then the government earns positive net revenue from having and maintaining a […]
Seeing through Sovereign Wealth Funds?
In the first country, the government imposes a 50% flat tax on each individual's income, and uses the proceeds from that tax to finance an annual $10,000 transfer payment to each individual. The government has zero debt. In an otherwise identical second country, the government has a sovereign wealth fund that owns a 50% non-voting […]
Negative Average Cost but Positive Marginal Cost of Debt-Finance
If the rate of interest on government bonds is less than the growth rate of the economy (r<g), then the average cost of bond-finance is negative. A government that has issued bonds, and issues more bonds each year to keep the debt/GDP ratio (B/Y) constant (which is sustainable), can have permanently higher spending, or permanently […]
Worthwhile Canadian Initiative 
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