W
WizardofSoda
Overlord
★★★★★
- Joined
- Aug 25, 2019
- Posts
- 7,602
In free markets all the organizations like corporations, charities, non-profits, family businesses, they are adjusting their expenses all the time to be in line with revenues. Say a company's revenues fall by 30% but it keeps spending the same as before on expenses, then sooner or later it runs out of money, goes bankrupt. And the creditors take possession of the assets.
What happens when governments have hired way too many people, and are paying them too much money, and have promised millions and millions of government workers and their families benefits like pensions that are too much. It should be the government then does what happens in the private sector and cuts back its expenses to match its revenues. But politically the government can't do that, especially in a country where the majority of people work for the government, aka their families forming a majority of the voters.
What can the government do. They have to keep printing even into high inflation. Then raise the government payroll more slowly than the real rate of inflation. Thus effectively reducing their pay and benefits in real terms. Eg.. if inflation was 20% and you got a 4% pay increase, in reality you took a 16% pay cut in real terms. The same with pensions, someone might get $3,000 a month pension, and you can keep paying them $3,000 a month, just you are devaluing the currency year by year.
Once the government payroll and benefits have been sufficiently reduced in real terms to be affordable by the economy, then the process can be stopped and inflation returned to the 2% a year.
What happens when governments have hired way too many people, and are paying them too much money, and have promised millions and millions of government workers and their families benefits like pensions that are too much. It should be the government then does what happens in the private sector and cuts back its expenses to match its revenues. But politically the government can't do that, especially in a country where the majority of people work for the government, aka their families forming a majority of the voters.
What can the government do. They have to keep printing even into high inflation. Then raise the government payroll more slowly than the real rate of inflation. Thus effectively reducing their pay and benefits in real terms. Eg.. if inflation was 20% and you got a 4% pay increase, in reality you took a 16% pay cut in real terms. The same with pensions, someone might get $3,000 a month pension, and you can keep paying them $3,000 a month, just you are devaluing the currency year by year.
Once the government payroll and benefits have been sufficiently reduced in real terms to be affordable by the economy, then the process can be stopped and inflation returned to the 2% a year.