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Today’s P³

Today’s intellectual contortion is that nurses aren’t getting a 12.5% pay rise because we’re not taxing the rich enough. Which would seem to indicate that – contrary to repeated assertion – tax pays for spending.

He then wibbles off into misunderstanding his own MMT. Finally, he admits that financing government through money printing is inflationary. Therefore we have to tax money back. OK, not the way I’d do it but that is at least reasonable economics. Monetisation of fiscal policy is prone to inflation.

Then he says that therefore we need to tax the rich.

But that’s in conflict with what is true on odd days of the week which is that rich folks don’t spend all their money. They just save it. Not invest it, they just Scrooge McDuck it. At which point of course taxing them doesn;t reduce inflation, does it?

Inflation being the result of more money chasing goods and services and Scrooge McDucked savings don’t do that. So, either his precepts about taxation are wrong or his precepts about savings are.

By his own logic if we are to tax to prevent MMT induced inflation then we need to tax the money people might use for consumption. That means poorer people who do spend all their cash. As he’s also pointed out, taxing richer people doesn’t – or might not – change consumption because they’ll just run down the, Scrooge McDucked, savings in order to maintain consumption.

We end up with MMT having to insist that inflation is prevented by taxing the poor. Which is most, most, progressive I think you’ll agree.

11 thoughts on “Today’s P³”

  1. Some gypsies travelled on a ferry from Finland to Sweden to participate in harness racing and had their horse with them. It was very cold for the nag so they sneakily took it to their cabin before they hit the bars and restaurants. Well, they found a prostitute and took her to their cabin for the rest of the night…
    In the morning the girl started doing the tally for the payment, figuring out out what’s the damage…
    “well, let’s make it fifty each except I’ll settle for the phone number from the suede-jacketed gentleman…”

  2. You hear a lot from the MMT crowd about the spending that it would allow, you tend to hear absolutely nothing about how exactly the ‘tax the economy to reduce inflation’ would work in actual practice. Ie what would be taxed, who would pay the taxes, how quickly they could be adjusted in order to respond to rising inflation etc etc.

    It seems pretty obvious to me that an MMT tax must be able to be changed at pretty regular intervals (ideally monthly like interest rates), and must affect everyone fairly equally in order to affect spending patterns as quickly as possible. The only tax that looks to fit the bill for MMT purposes is a universal sales tax or VAT. That can be altered at a moments notice and affects prices throughout the economy. If VAT doubles overnight, everyone immediately has less £££ to spend. Many favourite taxes of the Left (eg CGT/IHT/Wealth taxes) would be useless as they work on far too long timespans, and don’t affect that many people. It would be immensely stupid to keep changing business taxes as it would make business planning very difficult and impact economic growth. And they wouldn’t impact the broad mass of the public in any meaningful way very quickly either. Income/NI tax rates could be changed on the fly, but this would make admin of wages a nightmare. Local property taxes would also be very hard to alter other than annually. And income taxes would fall foul of the problem mentioned above – they would fall predominantly on the better off, as they do now anyway, and leave the masses, especially the low paid not much worse off, so consumer spending patterns would not budge much.

    One assumes this is why the MMT crowd studiously avoid the tax part of the ‘Print/Spend/Tax’ MMT recipe, admitting that the only tax MMT could operate in conjunction with would be a massive sales/consumption tax might frighten the horses………….

  3. Jim. Good point. And wouldn’t that make the economy a real rollercoaster. People would hold off spending if VAT or sales tax went up then spend like mad when it went back down. That wouldn’t be good for business planning either.
    Not to mention that no politician would have the balls to raise taxes, but would be great at spending the funny money.

  4. “We end up with MMT having to insist that inflation is prevented by taxing the poor. Which is most, most, progressive I think you’ll agree.”

    I think Tim means “regressive” here, or he said “progressive” to be funny. I can’t tell.

    In a world of rich and poor, that would be true. But in a world of rich, middle class, and poor, then you’d be taxing the middle class. Because MMT says you tax the resources you want to free up.

    As an aside, P³ doesn’t represent MMT, as I’ve found out by other people’s comments about his writing. So Tim can argue against P³ but can’t say he’s arguing against MMT. Straw man argument and all that.

    Also, what does P³ stand for? Professor cubed? PPP?

  5. Our Friend In The East (Anglia) claims to be a professor at three different institutions. I don’t know the veracity of the claims, but posts here have supported it being something more in Mr Richard’s mind than in reality.

    I know one of them is claimed to be Sheffield University, and one the notorious Islington School of Woodworking, but I can’t recall the other one.

  6. ‘visiting’ professor.

    Not a real professor. Professor is an academic post. ‘Professor of practice’ is one down. Probably a couple down. Given to people who lack academic qualifications. ‘Visiting professor’ is lower than that. Kind of like a football club making a fat elderly supporter who’d never kicked a football an ‘honorary player’.

    Angelina Jolie is a ‘visiting professor’. Except she’s not so vain that she actually ever uses the title.

  7. @Jim, good point. And VAT is included in the prices which are used to calculate inflation, so an increase in VAT/sales taxes to reduce inflation would in fact increase it….

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