Quite super but not actually the point

When will politicians learn what Stephanie Kelton points out?

Modern monetary theory is simply economics for the twenty first century where all money is just a government promise backed by tax. It really is time politicians realised.

Money’s also just the manner of keeping score. What matters is resources – what they do, who gets to tell them what to do.

Issuing more bits of paper doesn’t change the fact that government doing something means someone, somewhere, has to be alleviated of their resources so that government has some resources.

15 comments on “Quite super but not actually the point

  1. Modern monetary theory is simply economics for the twenty first century where all money is just a government promise backed by tax.

    Dear Ritchie –

    Explain Venezuela.

    Thanks,

    Dennis

  2. “where all money is just a government promise backed by tax”

    No it isn’t. Fiat money is, but a mortgage or loan agreement constitutes ‘money’ that is backed by the borrower’s promise to repay. In those circumstances, the fact that it is measured in fiat money units is just a particular way of specifying what repayment amount has been promised.

  3. Problem with MMT is economic terms is that it really doesn’t have a cogent model of inflation.

    Nor does the theory that taxes can control inflation hold a great deal of water either – they are even more of a blunt instrument than interest rates and there is too much leakage – not least because taxes are collected in arrears and during the time between levying those taxes and collecting them the value of taxes has been eroded by inflation. A serious problem when running in the typically high inflation MMT environment. Not only that but you have a hard limit on how much tax you can charge – you can’t tax more than 100% and in real terms the limit is much, much lower. It’s pretty hard to control inflation if people stop paying their taxes.

  4. All those US dollars being accepted for goods and services all around the world… and all because those merchants owe taxes to the US government? What complete bollocks.

  5. all money is just a government promise backed by tax

    Tell that to the average person in the street.

    Nor does the theory that taxes can control inflation hold a great deal of water either – they are even more of a blunt instrument than interest rates and there is too much leakage – not least because taxes are collected in arrears and during the time between levying those taxes and collecting them the value of taxes has been eroded by inflation

    Also are they taxing the people who benefitted form the inflation? Would a UK government tax property holders to counteract the inflation from a State-engineered housing boom?

    You know the answer.

  6. Dear Ritchie –

    Explain Venezuela.

    Thanks,

    Dennis

    ============================================

    Dear Dennis,

    I’m not in charge.

    Ritchard

  7. Without going in to huge detail, MMT falls over in real world application as the newly created M0 feeds into broad money supply much quicker than the tax (in arrears) can wipe out that broad money supply, and it is also incredibly difficult to control it.

    This lack control ends up with a positive feedback loop where the printed money creates inflation and taxes aren’t high enough to tame it, creating a shortage in government revenue which needs more printed money to close, which is typically what we see in the real world attempts at MMT type strategies. Leading to hyperinflation.

    Conversely if the tax rates are set too high you kill the economy stone dead and again your tax receipts plummet forcing you into more money printing.

    Essentially it’s an unstable equilibrium at best.

  8. Tim, did you actually write about telling resources what to do? Please post a video of you explaining to a cow what she has to do

  9. The dangers of using taxes as the exhaust of an engine that takes in irregular quantities of fuel in order to function is a disaster waiting to happen.

    I’ve had my share of debating MMT’ers, The scheme works in their mind because their internal model of humanity is that we are cardboard cut out people who act in divine lockstep, and wont do anything like decamp to foreign lands as a tax avoidance measure.

  10. Tyler

    Thanks – really useful.

    And there is of course the political argument.

    Politicians get elected by promising more smarties.

    You don’t get yourself re-elected if instead you start taking smarties away (tax).

    Politicians tend to do whatever they can to get themselves re-elected.

    The theory – even if tax was a good stabiliser, which (as you say) it isn’t – fails any real world application.

  11. I’ve had my share of debating MMT’ers, The scheme works in their mind because their internal model of humanity is that we are cardboard cut out people who act in divine lockstep, and wont do anything like decamp to foreign lands as a tax avoidance measure

    Yet the Great Tuber is also scathing on economics’ belief in rational actors. Seems like they are rational or irrational depending on whether it suits him.

    Anyway, MMT – Magic Money Theory.

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