this post was submitted on 24 Nov 2025
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I mean money isn't real but the workers and materials cost money and workers and material producers expect a payment. And if you want to pay people, you need to make the production somehow sustainable. And then you'll also compete with other manufacturers, some big multinationals from USA, China etc. who can afford to pay massive subsidies so their products can be artificially cheap compared to your domestic stuff. So you might be producing stock nobody wants to buy, so you don't get money for them, making the thing less sustainable.
India isn't exactly a "small country". It has the 5th largest nominal GDP, world's largest population...
It is spending that creates income whether public or private. When capitalists do it, it came from a bank loan, from Governments do its created at Treasury.
It is sustainable though.
The Government doesn't need it's own money. The point for Gov isn't to get money but to do what's best for everyone, for me it's workers.
The question is whether the increased Government spending from deficit of "loss" making SOEs cause total spending to exceed capacity which manifests as inflation or shortages. It depends on how much workers save, it depends on how much the workers are paid and where and what goods they spend money on.
Given that in European countries the workers were previously employed and were spending into local economy but are being displaced by international competition, the clear solution is to keep their output and employment via price matching.
Yet it's an extremely poor country Gdp per capita wise, even worse if you take inequality into account.
If you are a small island nation with 1000 people, then of course you won't be able to much fancy high value goods, that's not a financial constraint that's a real cosnstaint. They won't be able to do so no matter whether trade is open or restricted.
But if the country can produce fish products , the Government can make it so it'll always be able to do so even with external competition.
I don't see how it is sustainable if the government is paying people to manufacture products that nobody is buying and using loan money or devaluing their currency to pay for it. The country will either be hit by ever steeper interest rates or by runaway inflation, either of which can make the country spiral and make life worse for everyone. How do you pay for social services if you don't have money and what does it matter if you get paid if the money is worthless.
If that work is being done as basically to just keep people employed, at that point a much better use for that money is social services, education, that sort of things.
And India is poor per capita but has massive amounts of capital in absolute numbers to subsidise industries they deem important. Countries with much lower GDP can't keep up with that, they can't subsidise as much and as long, so they'll lose out in the end if the subsidy game continues.
You are confusing financial constraints for real. Interest rates are set by the Central Bank, not by the market.
Manufacturing has advantages. I'm not against having people work in social services. That's the opportunity cost. You can have 1000 people work in industry or healthcare depending on priorities. But everyone should be employed.
Inflation happens when aggregate demand exceeds the capacity of the economy to expand. Am I suggesting that? No. I'm saying employment and output losses from import competition must not result in deindustrialization. That deindustrialization is a political choice, not economic.
Weimar Germany? It's output was lost due to war, Zimbabwe too had a supply shock. 2022 inflation also partly due to supply. 1970s oil shocks also due to a real resource shock.
For third world countries there is another avenue for inflation, which is foreign currency debt where the country issues local currency to pay off foreign currency debt. Currency mismatch. I'm against sovereigns issuing foreign currency debt.
The alternative is unemployment and waste of skills which is a waste of real resources.
Gdp doesn't equal future capacity of the economy. Gdp grows as more resources as utilised.
The interest rates for loans are set by those giving out the loans. I don't understand where the money to run this industry that outputs stuff nobody is buying is coming from. The country has to pay for it somehow. Typically you'd try to make a profit but as said, that's not an option. So either issuing more currency (making the currency worth less) or taking on loans (interest rates start to raise if there's worry you won't be able to pay them back).
Where do these smaller countries get the money to run this manufacturing industry in the face of foreign multinational competition that gets big subsidies?
nope thats loanable funds, quantity theory of money bs from neoliberal books.
The Central Bank sets the rate paid on Treasuries very indirectly. Treasury creates securities (Treasuries), sells it to Primary Dealers (banks), where do banks get the money to buy it? The Central Bank gives it to them. It's why its said that mortgage rates are a markup over 10Y Treasury rate. CB will always be able to do Open Market Operation to keep short term yields stable, long term yields are bit more complicated but really, both are risk free. Corporations with AAA rating get to float bonds at a very small markup over Fed Funds rate.
Gov Bond issuance is obsolete really, with floating rate (no convertibility to gold), it becomes a free money asset for bondholders.
All countries with their own currencies create money the same way, by crediting bank accounts, taxes reverse the same. Spending creates income. Taxes reverse it.
See
You won't get loans or your bonds bought at the same rate if people don't believe you'll be capable of paying them off. That's the reason for the country credit ratings and why it's so important to have a good rating.
If you just keep printing your money then nobody will trust in the value of your money, at least if you have nothing to back it up. And you'll cause the consumer prices to soar. Not to mention you're printing money to pay people producing stuff nobody is buying. You'll economy will not just die but be murdered by you.
Just printing money and getting higher and higher interest loans to prop up an industry producing something nobody is buying is gonna ruin the small countries. A lot better uses for that money than that
Countries don't have credit ratings in their own currency, for any sovereign currency issuer the rating on all debt is 'sovereign', not AAA or BBB, just 'sovereign'. Foreign currency denominated debt can have credit ratings but that's not what I am talking about. You will never find interest rate on Treasuries going too much beyond Fed Funds rate.
Not how money works. It's not trust it's coercion. Multiple layers of it. You need it to pay for utilities, you need it to pay your taxes, you need it to get healthcare, education everything. Layers of debts.
Who said nobody is buying? The point of setting the price low is so its bought in a competitive market. There is no higher and higher interest loans for the sovereign, they pay the rate set by the Central Bank.
There is nothing of the sort going on, I am only saying the countries facing deindustrialization must prevent output and employment losses using fiscal policy. And that countries with own currencies can do so if they weren't indoctrinated by neoliberal propaganda.
You think a country who is taking more and more loans with ever unlikelier chances of ultimately paying them off gets loans at the same terms as those that are trusted to pay them off?
It doesn't matter if you feel the effect comes from trust or coercion, but if you keep priting money to pay for the wages like you're suggesting then your money soon becomes worthless. And then your citizens are in trouble.
And like explained, small countries just can't match the subsidies, not in the amount or the longevity. So even if they're really aggressive about it, bigger economies USA, China, India that we mentioned, they can out-subsidise the small countries. So why exactly is anyone buying this domestic product if foreign products are just much cheaper?
It just seems like your plan for small countries being competetive relies on them being able to outspend the big economies with printing money and taking loans. And that... doesn't sound great
There are no loans. All money you have came from the Government. what I'm suggesting ie the Government replacing lost spending with its own does NOT raise aggregate demand in any significant way, it's a stabilizing policy.
Government deficit in this case keeps income of workers and employment unchanged relative to before.
It may be inflationary if the Govt decides to build new industries as that Increases aggregate demand. But keeping existing production doesn't do that.
I think it was Abba Lerner who said that imports cause unemployment and output losses only if there is no full employment policy in place by the Government.
You can read the book I linked if you want to.
Where does the government get the money to pay the workers and the subsidies?
Where do you think the Government gets any money in general? You may say taxes. But where do people get the money to pay taxes? The Government itself.
That's what I'm saying, spending creates income. Spending logically comes before taxation because if Gov doesn't spend people won't have money to pay taxes. The two sources of widely used money are
Government spending
Bank lending
Banks make their own money ie your deposits at bank convertible to Government money, to prevent bank runs, the Central Bank provides reserves on demand. By managing reserves, the interest rate is maintained at target set by the CB.
Many governments take out loans. But you are hoping for a circular economy to work where government pays for subsidies and wages, then they tax people and companies and make some of that back. But that money will run out. Not to mention people are going to be using that money for foreign products where parts of it flow outward and not back to government coffers.
No I am saying all money that exists comes from Government or Government authorised commercial banks.
Also economy is circular. Money goes round. Money is only deleted when you pay your debts whether tax debts or commercial bank debt.
Nope. Money never goes out of the country. All money exists as electronic entries at banks or Central bank. When you exchange say Euro for Dollars, you are giving Euros to a bank who then gets the Euros and gives you Dollars from the market. The amount of Euros doesn't change.
But yes imports are a drain on demand, which is exactly why any leakage from imports must be countered to prevent drop in output and employment.
This is why US Govt must run fiscal deficits to counter Trade Deficits given rest of the world's desire to accumulate US dollar assets. Otherwise the local private sector will be indebted.
Your proposed economy is pretty bonkers. Government pays for subsidies and wages, then hopes to make back it all with taxes on those same wages. And all this to prop up a manufacturing industry fighting a subsidy war agains the likes of China and USA. The small country in question is going to go bankrupt
Not to mention, in this scenario the country isn't taking loans since those don't exist but is just printing money? I didn't really understand that part. How is it all funded initially, until this circular perpetual motion machine takes over?
I'm not proposing anything this is how all economies work. This is just the accounting reality.
Gov can't take a loan when people don't have money. Spending will always come before income. That part is just standard Keynesian economics. Keynes limited it to private sector but it's exact same for Government.
Please tell me, a new country is formed on another planet. The newly formed state wants to spend, it imposes tax obligations. How will people pay taxes when money hasn't been spent yet?
What you've described definitely doesn't sound regular. Interest rates don't exist, printing more and mormoney to pay for stuff doesn't cause inflation etcc.
Spending before income, sure. But this plant isn't actually making an income since it has to fight against Chinese, American manufacturing and they can out-subsidise their manufacturing so much so that your domestic manufacturing isn't competitive anymore. That's the whole issue.
Now as it stands, the government takes a loan they have to pay interest on to subsidise manufacturing and they're hoping to get the money back (unless they want to keep taking loans) through taxes. You'll just lose out money without any tangible benefit. You could use that money to pay for roads at least!
Interest rates exist. It's set by the central bank.
Please read the book to understand more. This has been a long thread.
You are suggesting the country can set the interest rate and will get loans against that rate. Even when the loans pile up and the outlook on paying that loan off in agreed on time gets worse.
This will go on forever, I'm just describing reality. Please read the book.
Regards.
The idea that a country can set their own interest rate one-sidedly with global creditors and receive endless credit against that rate is just a fantasy.