The central claim is that government is not money constrained. Government makes money, after all, so it can make enough to purchase and do as it wishes. In this reading tax is the clawing back of that government made money in order to prevent the resultant inflation.
Well, OK, it’s a view. Like many economic views it contains elements of truth. So, let’s run with it and see where it leads.
A couple of suggestions:
1) Politicians like spending money. It makes them happy.
2) Politicians dislike taxing, it makes them sad. Largely because people don’t like being taxed and being punched on the nose is not a happy making experience for a politician.
Those two suggestions are pretty obviously true.
OK, so MMT says that politicians not only can but should spend as they wish. All they’ve got to do is increase taxation to balance it so that this doesn’t cause inflation.
The result of 1) plus 2) is that the spending will happen in excess, the taxation not so much. Inflation will become both embedded and endemic.
As a theory MMT need not cause inflation. Among human beings it will.
QED.
Unless you have a chancellor like Jeremy Hunt (politician or rhyming slang?). He seems to really like taxes.
Christ knows what Labour will do once they get in. I think Starmer’s recent about turn on his previously stated hard left policies is a sham. Once he’s in power he’ll open the tax and spend box of tricks. Then we’ll see if Spuds fantasies have any basis in truth (pro tip, they don’t).
The biggest weakness of Keynes’s attempt to analyse macroeconomics seems to me to be that he proposed that politicians should run a budget deficit in hard times and a budget surplus in good times. But we all know that the second hardly ever happens.
How such an intelligent bloke with so much experience in government could make such a howler is a mystery. Maybe he was misled by the success of 19th century British governments in paying off their debts from the Napoleonic Wars. I suspect, but do not know, that that might be the only time in recorded history that a major power has pulled off the trick.
How about early in Dutch independence? Were they faced with similar problems? How did they cope?
What were Keynes’s views when FDR reneged on US debt? Does anyone here know?
” Once he’s in power he’ll open the tax and spend box of tricks. Then we’ll see if Spuds fantasies have any basis in truth (pro tip, they don’t).”
Well no, if Labour tax and spend then they aren’t MMT-ing. Any money they spend they’ll have to tax first, which as we know is unpopular, particularly as taxes are already high. While thats not good news for individual taxpayers its not so bad for the country, its not going to screw the exchange rate or devalue the currency. Whereas Spud just wants to print money and spend it, which has the potential to land us in Zimbabwe territory. Labour should have learned a lesson from Liz Truss’s experience – the bond market is real, and it will bite you in the arse if you play fast and loose with how you finance new public spending, so they will need to tax people to spend more, which won’t be popular, once the reality hits voters that more spending = more taxes ‘on them’. Voters love taxes other people pay, but once its them, not so much.
MMT is dangerous, tax and spend not so much.
As a theory MMT need not cause inflation. Among human beings it will.
I can’t see the ‘need not’ part.
Money is just a token of value can confidentially be exchanged for goods & services in commerce. So the amount of money in an economy must reflect the goods & services available. Increase the money supply without increasing the goods & services equals inflation.
Perhaps all will be made clear by a debate (in public) on MMT which Murphy is trying to line up with Warren Mosler.
https://[email protected]/Blog/2023/04/24/mmt-the-debate-is-on/
Hmmm…. If MMT destroys the value of money, does that mean that the value of debt is destroyed as well? Will my £30,000 mortgage go from being two years’ minimum wage to a few months’ minimum wage?
“Will my £30,000 mortgage go from being two years’ minimum wage to a few months’ minimum wage?”
And the value of your bank deposits likewise?
Why inflation, any inflation, is a transfer of wealth from savers to borrowers.
@Bravefart
Spud wants to ‘refine his arguments’ first. For which read, ‘realises that his arguments are shyte and he needs to make up some new ones’.
If UK inflation is currently around 10% or whatever, what should the tax rate be?
Are we talking about VAT or Income Tax or what?
Why Modern Monetary Theory doesn’t work
Since when has anything in economics actually having to work served as a precondition for being enthusiastically embraced by economists?
“If UK inflation is currently around 10% or whatever, what should the tax rate be?
Are we talking about VAT or Income Tax or what?”
You can never get the MMT-ers to talk about this bit. They just wave their hands and say ‘taxes need to rise’. But they never say what taxes, on who and by how much.
Logically one needs to tax those who spend not those who save in order to reduce the amount of money circulating in the economy. Which means taxes on the broad mass of the public, including the poorest if the rises are going to have any effect. Changing income tax rates on the fly isn’t really possible they need to be kept the same for whole tax years. So AFAICS MMT requires that consumption taxes bear the weight of the tax rises to curb inflation. VAT/duties can be changed at any time without too much administrative cost, so I would think VAT rates would change rather like interest rates do today.
All of which is going to go down like a bucket of cold sick with voters in a scenario such as we are in now – inflation is too high, their real incomes are falling, and then they need to pay even more for stuff on top of that to drive inflation down.
I’m with BiS. Are we even sure that the standard ‘tax away inflation’ would work, ignoring the reluctance of politicians to tax? Are they really reluctant anyway? The defenestration of Liz Truss and JC’s subsequent actions suggests otherwise.
Tim left out the JG part. This is from MMTer Neil Wilson:
How the Job Guarantee (JG) Controls Inflation
Which Means…
JG is a credible threat to both workers and firms. The only degree of freedom left is to do more with less.
Both the financial half and the expectations half work together to anchor wages and prices.
Either you have an unemployment buffer doing the stabilisation (as we have now) or you have an employed buffer. The MMT analysis is that the employed buffer is superior, to the extent that it can replace the interest rate targeting mechanism we have now and base rates can be left at 0% permanently.
Which ensures mortgages remain low.
source: https://new-wayland.com/blog/how-the-jg-controls-inflation/
A couple of links on how the JG anchors inflation with selected quotes following the Wikipedia link:
http://heteconomist.com/job-guarantee-as-nominal-price-anchor/
https://en.wikipedia.org/wiki/Job_guarantee
Overview
A job guarantee is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers.[2] This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today’s unemployed buffer stocks.
A job guarantee thus fulfills an absorption function to minimize the real costs associated with the flux of the private sector. When private sector employment declines, public sector employment will automatically react and increase its payrolls. So in a recession, the increase in public employment will increase net government spending, and stimulate aggregate demand and the economy. Conversely, in a boom, the decline of public sector employment and spending caused by workers leaving their job guarantee jobs for higher paid private sector employment will lessen stimulation, so the job guarantee functions as an automatic stabilizer controlling inflation. The nation always remains fully employed, with a changing mix between private and public sector employment. Since the job guarantee wage is open to everyone, it will functionally become the national minimum wage.
Job guarantee theory is often associated with certain post-Keynesian economists,[5] particularly at the Centre of Full Employment and Equity (University of Newcastle, Australia), at the Levy Economics Institute (Bard College), and at University of Missouri – Kansas City including the affiliated Center for Full Employment and Price Stability.[6]
One theory was put forward by Hyman Minsky in 1965. Notable job guarantee theories were conceived independently by Bill Mitchell (1998), and Warren Mosler (1997–98).[10] This work was then developed further by L. Randall Wray (1998). A comprehensive treatment of it appears in Mitchell and Muysken (2008).
A fixed job guarantee wage provides an in-built inflation control mechanism. Mitchell (1998) called the ratio of job guarantee employment to total employment the buffer employment ratio (BER).[13] The BER conditions the overall rate of wage demands. When the BER is high, real wage demands will be correspondingly lower. If inflation exceeds the government’s announced target, tighter fiscal and monetary policy would be triggered to increase the BER, which entails workers transferring from the inflating sector to the fixed price job guarantee sector.[13] Ultimately this attenuates the inflation spiral. So instead of a buffer stock of unemployed being used to discipline the distributional struggle, a job guarantee policy achieves this via compositional shifts in employment.
Replacing the currently widely-used measure the non-accelerating inflation rate of unemployment (NAIRU), the BER that results in stable inflation is called the non-accelerating inflation buffer employment ratio (NAIBER).
“A job guarantee is based on a buffer stock principle whereby the public sector offers a fixed wage job to anyone willing and able to work thereby establishing and maintaining a buffer stock of employed workers.[2] This buffer stock expands when private sector activity declines, and declines when private sector activity expands, much like today’s unemployed buffer stocks.”
What a load of BS.
Firstly you are labouring under the illusion that there are millions of unemployed all desperate for work in some 1930s style, and who can be shifted between the public and private sectors at the stroke a bureaucrats pen. When in reality anyone who wants a job can get one tomorrow right now. But millions don’t want to work, and prefer to live on the benefits the State will provide anyway. Which is highly rational – why work if a similar standard of living can be achieved by not working? So if the JG replaces other benefits then you face trying to force millions of people who don’t want to work to do something productive (God knows what) when most of them are incapable of doing that anyway, because if they were they’d be already doing it. Do your JG jobs sack people if they don’t turn up, or turn up drunk or on drugs? Or punch the supervisor, or abuse other workers? If they don’t then its not a job is it? Its a sort of Basic Income benefits scheme. And if they do, what happens to the people who lose the JG job? Do you let them starve on the streets?
Then of course you think you can somehow sack people from these JG jobs and they will be able to walk into private sector employment, which usually requires skills of some sort, so its highly unlikely that they would be qualified for. And indeed if they had skills the private sector needed, and indeed the inclination to work then they wouldn’t have needed the JG in the first place.
So you’d end up with millions of disinterested people with no skills being paid to turn up (if they did) to do some menial task (if they did anything at all) and no way of ever getting them into the productive economy, because they don’t want to be in it in the first place.
All of which would do SFA to control inflation one jot.
“And the value of your bank deposits likewise?”
So, my savings should be in tangible assets? Land, property, manufacturing?
Firstly you are labouring under the illusion that there are millions of unemployed all desperate for work
Yeah, what millions of unemployed? I’ve been trying to get a carpenter to repair my shop window for months (too busy, don’t do repairs just installations, maybe next year, what just one window? no response) and a fencer to move part of my fence (yeah, we can install a 60-foot fence. What, just move a single 8-foot panel? brrrrrrrr)
Jim
April 25, 2023 at 9:52 pm
Thank you Jim.
Jim wins the thread
Interestingly although overrun with ‘Net Zero propagandists’ there was an article regarding Bolivia which was interesting as over two decades Bolivia has been a test bed for many of Spud’s beliefs. As expected it has been a total disaster – I’ll try and see if I can find a link from A non- paywalled link that makes similar points
@Jim
“people with no skills being paid to turn up (if they did) to do some menial task”
Reminds me of the time I was sat in a pub and noticed two council workers working outside.
One was digging holes in the pavement and the other was filling them in.
Intrigued, I went outside and asked what was going on.
One of the council workers explained that the man who planted the trees was off sick.
Denis- Since when has anything in economics actually having to work served as a precondition for being enthusiastically embraced by economists?
One could write an entire book around that. Should be engraved in stone somewhere.
“So, my savings should be in tangible assets? Land, property, manufacturing?”
Land and property are rather static and therefore particularly exposed to confiscation by the State.
Manufacturing: where? Japan? Taiwan? South Korea? I see a vulnerability there.
Oh all right, Germany. But only manufacturing that doesn’t need reliable supplies of energy that you can afford.
Logically one needs to tax those who spend not those who save in order to reduce the amount of money circulating in the economy.
Can someone explain to me how raising taxes will lower inflation?
Raising tax will make things more expensive, raising price inflation.
Or if we’re talking about money supply inflation (true inflation) how does the government taking a bigger chunk of things reduce the money supply? Are they assuming that the government will take the extra money and remove if from the money supply instead of spaffing it up the wall on its next vanity project?
Saving the money still means it’s in circulation ( I guess you consider it out of circulation if it’s under a mattress?) because the banks will lend it out…
Is that how we save the economy? By sleeping on a large pile of money?