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He really doesn’t grasp economics, does he?

And that extra spending will require more tax to counter the inflationary impact it will create, which tax must be paid for by those with wealth, and no one else. Hence, the Taxing Wealth Report 2024.

So, OK, let us, just here and now, accept the MMT framing here. Govt prints money, spends it, the inflation is controlled by destroying that money again via taxation.

OK.

But there’s an intermediary step there. It’s the spending of that extra money that creates the inflation. If people put it under the mattress then it creates no inflation at all. For there isn’t more money chasing those goods and services.

So it matters who and what you tax to destroy that money and curb the inflation. Note that this point is nothing to do with who we’d like to tax, nor what. It’s not about equity, fairness or the just society. This is simply a fact embedded within the MMT framework.

Poorer people tend to spend their marginal income. Richer people tend not to spend all their marginal income. This is the marginal propensity to spend or, the inverse, the marginal propensity to save. Richer folk get a higher income they save some to near all of it. Poorer people get a rise in income their spend near or all of it.

We know this is true because whenever anyone – like Spud – argues for greater spending in a recession they argue that it should be pro-poor, because they’re more likely to spend the resultant extra income and thus we gain that multiplier effect on the stimulus.

Not only do we know this is true it is true.

But things that are true are true in both directions. If we tax richer people more they do not reduce their spending. At least they don’t one for one. Because they will reduce the portion of income they save, possibly even dissave, in order to maintain consumption levels. Poorer folk can’t do that. So, they don’t – taxing poorer folk reduces their consumption.

But to beat inflation it’s consumption that needs to be curbed. Taxing rich folk doesn’t do that MMT job of reducing inflation. Only taxation which reduces consumption does.

Inflation beating taxation under MMT cannot be only taxation of the rich. It simply doesn’t work that way, even within the MMT styructure.

23 thoughts on “He really doesn’t grasp economics, does he?”

  1. But to beat inflation it’s consumption that needs to be curbed.
    Are you sure about that? If consumption’s reduced, production must fall. Since in any economy production must equal consumption. Don’t you mean demand? The inflation’s caused by a demand not being met by production, not a rise in consumption.

  2. What does he propose will happen to all the money that the government gets from increased taxation? Will it just be buried somewhere?

    Of course not, it will be spent, throwing more fuel on to the inflationary fire.

  3. You’re making the same mistake that you make with the Greens – namely that they argue honestly, and that if you refute their argument they will accept your point as valid. When in reality the aim in both cases is the same – power and the exercising thereof. Their argument can be anything and everything, and will change as required. Spud isn’t interested in MMT, he just wants your money (which is really your labour) and the power to direct that (ie to enslave you). Thats the end game here, so forget about the finer points of MMT theory. Its utterly irrelevant to whats occurring.

  4. I should hope I am, Tim. Or one falls into the same trap as Spud in thinking those bits of paper government prints have value. The only value they have is that we assign them as convenient tokens of value in commerce. If government print too many of them, we assign a lower value . Thus equalling inflation

  5. I was reading this article, one of those brief how I make a living by a minor celebrity types.

    https://www.telegraph.co.uk/money/consumer-affairs/merlin-griffiths-first-dates-barman/

    Reading along, seems like a nice guy, ah that’s interesting.

    Until he dropped this bombshell…

    I’m a huge fan of economist Richard Murphy, who is a proponent of the Robin Hood financial transaction tax, scrapping the others and putting a statutory 0.2pc on every time money changes hands.

    What a cunt

  6. 100% agree, Jim. Government prints money to give purchasing power to its favoured recipients. To the cost of the rest of us.

  7. @ Boddicker
    I found that amusing because the subject claims he was “a global brand ambassador for Bombay Sapphire”.
    It’s one of those gins I have definitively proved is bollocks on stilts by refilling Bombay Sapphire bottles with Llidl cheapo without anyone on noticing. Even complimenting me on my choice of bar stock.

  8. I don’t think he’d find it hard to argue that if taxing rich people has less impact on inflation, then you just need to tax them more to get the effect you want. That then means that the tax is reducing inequality as well as inflation, so it’s a win-win.

    Well, he’d probably find it hard to argue that, though he’d find it easy to assert it now that someone has come up with the idea for him. Sorry, I mean ‘restated an idea that he came up with himself many years ago’.

  9. BiS

    Well, the experiment works because the “gin” is drowned by the tonic, invariably.

    Try making my 6 o’clock Martini with your Lidl and I’ll have something to say about it. Having said which, I’d have something to say about it if you used Bombay Sapphire. Filthy stuff.

  10. The experiment works, Recusant, because 98% of booze consumers know SFA about the booze they consume. They drink the labels on the bottles. And you’re right, if you dump tonic into gin, it tastes like gin & tonic. Although being an avid consumer of dry martinis, myself, i”d reckon it’s the vermouth that’s more important than the gin. I favour Noilly Prat Extra. But maybe that’s the influence of an ex-wife from le sud. None of that Italian shit for us.

  11. Bloke in North Dorset

    100% agree, Jim. Government prints money to give purchasing power to its favoured recipients. To the cost of the rest of us.

    And the recipients of that government money convert in to some inflation proof wealth before the inevitable inflation kicks in.

  12. But Tim, your ideologue ways ignore that:

    The harm is obvious. But the other truth is that we do not need tax cuts. The UK government needs to spend more on:

    The NHS
    Education
    Social care
    The justice system
    The environment
    And on investing in:
    Schools and hospitals that are falling down
    Transport that is failing
    Flood defences
    Climate change measures

    I’m always a fan of investing in things that are failing myself.

    He’s also taking on the entirety of global Finance in his latest post – the resemblance to ‘Citizen Smith’ continues apace…

  13. BiS

    As you have said many times – It’s Murphy’s world (even though he isn’t necessarily in the position of official power he wants to be) – we just live in it

  14. When I drank a lot of gin, with tonic, I could tell most brands.

    I did notice what the bars were doing, but what could I do about it? They would deny adulterating, so I couldn’t win any argument.

    I would just stop drinking it when the price did not match the actual gin.

    To be fair, the quality of the tonic was more important, and I could recognize most brands of that too.

    (I was drinking a LOT of gin mind, and different brands each time.)

    I also notice that many “sales” aren’t actually sales without causing a ruckus.

  15. Surely the reason tax (if done effectively so not a FTT for example) reduces inflation is because when revenues match expenditures then you don’t have to print the difference. Or borrow the difference and print it later. Whichever, it amounts to the same thing.

  16. Indeed V_P. Spud’s list will no doubt coincide with the anticipated Tory election manifesto. Not to mention Labour’s & the Limp Dims’. Spud could comfortably sit as a cabinet minister in any currently conceivable government. It’s not as if you have choices, is it?

  17. Off topic but another football giant has died with the passing of Franz Beckenbauer.

    They called him Der Kaiser. Kaiser meaning emperor. Which sounds a bit remote and autocratic.
    I always thought he was more of a ‘leader’, or ‘guide’. If only the Germans had a word for that.

  18. RIP Frank.
    From the starting elevens in that famous 1966 final only 8 remain, 7 Germans and Geoff Hurst.
    But if you concluded that the German health system was better you would be a Nazi.
    NHS uber alles and all that.

  19. If government spending was any use it would add more wealth than it costs. The extra value created above cost would cause deflation. (same amount of money / more things => price of things goes down) So you would not need to tax off and destroy as much money as actually spent to curb any inflationary effect of spending.

    That govt spending always creates less wealth than it costs – destroys value – is why it is inflationary.
    The value destroyed by HS2 is worth around 2% inflation in total, probably as 0.2% a year for the 8 or 9 years it has been destroying value.

    The best way for a govt to reduce inflation is to stop wasting money. The best way for a govt to stop wasting money is to do less.

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