No, it continues to get worse

To build appropriate foundations for a tax system the role of tax in the economy and wider society has to be properly understood. It is my suggestion that this is rarely the case. Just as the Bank of England had to say that the role of banking had been almost wholly misunderstood by economists and was incorrectly represented in almost all economics tax books in 2014[1], so too is tax widely misunderstood.

Everybody’s entirely wrong about banking and also tax. Except me of course. Me, you know, MEEEEE!

At which point he goes on to say that tax is only about reducing inflation. Hmm, so, as we’ve not got much inflation then we should be lowering tax, right? Or how is that the message of MOAR TAX doesn’t work that way?

If government did not spend first then none of the currency it insists be used to pay the taxes it demands be paid would actually exist.

Sigh. Just because government spending does put money into the economy does not mean that the only source of money is government spending.

The foundations for Scottish taxation that I propose are based on this economic logic. It is a logic that could liberate Scotland to become a fully economically literate and functioning state and truly equip it for independence.

Wouldn’t the designer of such a plan have to be economically literate?

17 comments on “No, it continues to get worse

  1. My favourite quote from the extract:

    ‘Raising representation in democracies. There is little doubt that tax motivates interest in the democratic process. When people recognise that they pay tax they are more interested in engaging with the electoral process.

    Tim – I know you LOVE that argument……

  2. ‘It is widely thought that tax is necessary to pay for government provided services. It has, however, recently been realised that this is not true. This is because all government services can in principle be paid for either by printing money or by QE operations (which amount to much the same thing).

    I love the way he presents this as a ‘new insight’ – it’s like he has lived in a cave for the last ten years. You only have to look at Venezuela or Zimbabwe to see this is right. Not sure queues of people are lining up to move to either – nor is Money printing exactly the same as QE…..

    The reality is, of course, that no government would want to pay for all government services this way. That is because the result would undoubtedly be rampant inflation. This though does not, however, change the principle: that principle is that all government services can be paid for without taxation.’

    On the level of principle he is strictly speaking correct. You don’t need to tax to provide governmental services. If you did not however, the result would be rampant inflation – which arguably is what QE has led to, given the price of most assets are currently trapped in bubbles of various sorts.

  3. ‘Wouldn’t the designer of such a plan have to be economically literate?’

    I am reminded of this quote:

    ‘The state planner seeks to arrogate himself an authority which would be safely entrusted to no man whatsoever, and in no hands would be more dangerous than in the hands of someone who thought himself fit to exercise it’

    Sums Murphy up to a tee…..

  4. I am not sure that Murphy is right even in principle (and ignoring hyper-inflation etc).

    The state does need to give people some reason to accept the money that it prints in the first place. Otherwise the people could just trade and keep their accounts in gold, cowrie shells or whatever.

    One way is for the state to say it will enforce only those private contracts written in terms of the money it prints (legal tender).

    However, it is surely much more effective to tell people that using the state’s money will keep the state off their back (to some extent) – in other words, to levy taxes, that can only be paid using the state’s own money.

  5. “that principle is that all government services can be paid for without taxation.”

    Well I can pay all my bills by robbing banks. It’s probably not a sustainable policy in the long run.

  6. BICR

    Candidly you are wrong

    Governments spend money they do not have all the time.

    Look at the New Deal under Roosevelt

    But you choose to ignore that

    I wonder why

    That’s your last contribution here

  7. I’ve become a little more sanguine about the prospect of independence now I’ve read some of Professor Murphy’s notes, which draw attention to the untruths of traditional economics thinking.

    It seems, in a nutshell, that if we become independent we may lose Barnett, but our new Government would be able to print our new currency freely to meet its commitments to unrestricted public services and all of us who live north of the Border would therefore be better off.

    Do I have that right?

  8. @Cadet

    At least in English Law, the concept of legal tender is not as you describe. Contracts denominated in $$ or offering to exchange a cow for three sheep are (in principle) legally enforceable. Legal tender simply means that, if you are subject to a court order to pay £10.50, you can’t offer them 21 50p pieces and demand they accept it as payment (but 19 50p pieces plus a £1 coin are OK, and you can pay a £10,000 fine with a wheelbarrow full of £1 coins, if you insist – though I wouldn’t recommend it :)).

  9. Raising representation in democracies. There is little doubt that tax motivates interest in the democratic process. When people recognise that they pay tax they are more interested in engaging with the electoral process.

    I assume he didn’t take this to its logical conclusion of scrapping PAYE and making people hand over hard cash every year? That would concentrate people’s minds, but not in the way he expects.

  10. People like Richard are continuously on the look out for free lunches. They think they have found one in the supposed space between printing more money to spend and printing even more money to spend and setting off inflation. Within this space is a whole utopia of spending which the magic multiplier turns into an even bigger bounty. He doesn’t understand enough about economics to understand that point Bastiat made about that which is unseen.

  11. Richard asks what came first and thinks it’s the money spent first and the taxation follows. If this was true governments would never have chosen gold as the primary material upon which to stamp their ruler’s head.

  12. I hear David Irving lives in Scotland these days – on the estate of a wealthy sympathiser. I bet Ritchie’s jealous.

  13. James G, it’s more insidious than that :

    1) spunk printed money on boondoggles, vote buying and failing skoolznhospitals (but I repeat myself)
    2) something something multiplier
    3) tax unnecessary economic activity, like pensions, to wipe themselves down.
    5) profit!

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