The result is that the government creates the money we use by spending it into existence. It cancels the money it spends through tax. That’s literally how the money creation system works – it is that simple.
What this means is important. If the government wants there to be government-created money in the economy – and that is vital to its operation – then it has to run deficits or it must do quantitative easing. It has been claimed both of these mechanisms create debt. We do not agree: they create the money that keeps the economy going round. And given that is the case, all talk of ‘repaying’ this debt is misplaced, unless the government wants to risk the economy literally being short of money.
So cancelling the money through tax is just great. But taking money out of the economy is a bad idea because it might leave us with not enough money.
Needs some work there really.
All this talk of money creation and spending misses the point… The money is created by government and spent to acquire resources that are then not available to the general citizen.
Printing money is reducing personal choice
If the only reason for tax is to reduce the money supply, then we could all help out by, instead of paying any tax, just lighting our cigars with £50 notes.
N Nick
Yes, but I’d cheat by using recently printed fake notes.
But it’s the thought that counts, eh?
What does he think happens when we stop using the government-created money? What if you just started buying and selling in dollars or pesos, or Dogecoin?
How does pumping in money and then removing it by taxation work if people just stop using it? You can’t have unlimited ability to spend and tax if people have alternatives.
According to Krugman and the rest of the MMTers, debt is just “money we owe to ourselves”.
But so is tax, right?