How the Government Makes Money

Day 782, 02:28 • Published in USA USA • by sydiot
Here's a hint:





It isn't by magic.


It probably isn't how you assume it does, either. I'm going to lay out a few assumptions that people generally make about how the government makes its Gold, how it budgets and spends that Gold, and why there's a lot more to funding a nation's military and public services than taxes, taxes, taxes.

INCORRECT ASSUMPTION #1:

"The government taxes profit from businesses and uses that money to buy things."

It always surprises me when people complain about taxes hurting businesses, especially here in the United States. True, if a business owner uses the 'Collect' button on their company finance page, the government receives a percent of that collection based on the industry the company operates in. But 90% of GMs never use that feature. Its extremely easy to make a simple, lopsided MM transfer to move Gold or currency out of a company and into an org or citizen account.

The government understands that this will always be the case, and we acknowledge that income taxes are really about taxing wages, not businesses. The price a GM pays for his raw materials, the price they sell their products for and the profit they derive from it goes virtually untouched by the American tax system. So if you can't make a profit on your company, don't blame the government, blame your competition.

INCORRECT ASSUMPTION #2:

"The government taxes workers' wages and then uses that money to buy things."

This assumption is half correct. Like I said in the previous section, our tax system is based on Income Taxes which almost exclusively target workers' wages. This has proven to be the most effective and non-intrusive method of taxation, it allows for constant growth and foreign importation while leaving manufactured goods at the lowest possible price for consumers. When you work on a given day, 20% of your would-be salary goes straight into the US Treasury. Nearly every day, Congress passes a resolution to transfer that money from the country accounts to the Congressional Budget Office, a super-secure organization that holds the bulk of the government's funds.

But the government does not turn around and spend that currency on goods. Could we? Yes! We could take every dime of taxes and buy out the market in guns, food, gifts, etc. We could even print more USD and spend that too! But you know what happens when a government spends too much of its own currency without measuring the market demand for that currency?

Inflation.

In order to prevent an oversupply of USD in our economy, the government must limit its spending to a level set by the marketplace. If we didn't do this, not only would the value of the dollar fall, but the government would lose the ability to earn Gold with tax revenue. Gold is essential for many functions of government, including MPPs, battle costs, printing USD, declaring wars, and buying wellness packs for tanks in major battles.

INCORRECT ASSUMPTION #3:

"The government takes tax revenue and buys Gold on the MM and uses it to buy things."


It's true that we need Gold to do a lot of things that governments must do. So why don't we just take every dollar we have and go straight to the MM and buy up Gold? The answer, again, is inflation. If we were to simply buy as much Gold as we could, we would flood the market with USD. The added supply and the gradually cheaper price each next buyer would pay for the government's currency would decrease the value of our currency and limit our ability to buy Gold on a more steady basis. People would have too much USD and it would be harder to buy things with it. The only way to prevent inflation is to allow the market to decide how much USD it needs from the government and limit its spending to that demand.

CBO = WIN

So how DOES the government make money? I'm happy to say that much smarter men than me, including One Eye, Publius, ssomo, Ananias, NoneSuch, Cromstar, Woxan, Pearlswine, and many others (sorry if I left your name out) developed the system for government revenue and monetary policy that we continue to use today. I have spent the better part of my eRep life studying it and working to maximize its results, and its my solemn purpose that every American understand how it works and how all of us benefit from sound monetary policy:

The Congressional Budget Office maintains an offer on the monetary market with a large volume of USD (mostly collected from taxes and money printing). This offer is commonly referred to as 'The Peg'. We do that for two reasons:

1) To maintain a ceiling on the value of USD (not a floor, the peg does NOT prevent inflation, only DE-flation, and only to an extent.)

2) To sell USD for Gold to be used in normal government operations.

The first purpose is important because in eRepublik there is a strong natural deflationary pressure on all currencies. Because players, new and old alike, leave the game with money in their pockets, currency is constantly leaving the economy never to return. By putting a ceiling on the USD, the CBO can limit this effect and discourage negative speculation on our currency that would damage wage stability.

The second purpose is possibly even more important, and is the crux of this article: By selling USD on the MM, the government has a passive monetary instrument to simultaneously draw revenue in the form of Gold while supplying the market with a natural level of currency. In other words, people buy USD when they need it, often from the CBO (because it has so much), giving Gold to the government and currency to the economy, all in the perfect amount.

Congress then sets the nation's budget based on how much Gold the CBO makes. Not based on tax revenue, not based on how much we can print. It is this number that measures the relative strength of our currency, of our economy, and sets the limit for how much the government can spend without killing the value of the dollar. This is why the budget is written in Gold, not dollars, and this is why it's important for our citizens, our allies, and our enemies to understand that our economic power is not based on how much we can tax our citizens, but by how large, vibrant, and resilient our economy is.

We are an industrious people and our borders are open to trade. This gives us an advantage over close minded protectionist nations and countries who would spend everything they earn regardless of the consequences. Our Congress is very smart to stick to this method of budgeting and monetary policy. It works, and its given us the spending power to liberate Asia from Phoenix while growing our own businesses and citizen accounts.

And now you know how it's done.








love, sydiot