The argument put to me was simple and, at least loosely, based on modern monetary theory. If tax is used to take spending power out of the economy, and if governments are obsessed with short-term political survival, it was argued that they will target the taxes that influence the prices that matter tomorrow morning. That means that food, energy, rent, and transport might be targeted.
However, because the wealthy do not spend their extra income on those things, the claim was that taxing them would not reduce the sort of inflation that brings governments down.
Well, sorta.
The actual proper point is as follows.
MMT says too much money chasing too few goods is inflation. This is fun because it’s true. So, tax back the extra money and reduce the inflation. This is also both fun and true.
Spud wants it to be true that taxing the rich reduces inflation. Which, actually, it doesn’t, which is why he’s flailing around.
For, as Spud continually reminds us, the rich save some of their income, the poor do not. This means that the rich are not income constrained in their consumption. Tax them more and they don’t consume of spend less, they just save less.
You know, less of that dead money being saved to no good use that Spud keeps telling us about.
It is, of course, effective demand that causes inflation. Taxing the poor more reduces the amount of money chasing actual things, taxing the rich does not. Therefore taxing the poor – with their 100% spending of every penny – reduces inflation in a manner that taxing the rich does not.
But, Spud, flailing:
Inflation is not only about the price of essential household commodities. It is also, and increasingly, about the cost of living in a system where asset prices have been allowed to run out of control.
So, when house prices rise, rents rise. When rents rise, businesses face higher premises costs and pass them on.
It is not true that rents rise with house price rises. The two are determined independently. As they are now in fact – real house prices are falling, nominal are beginning to fall and house prices relative to median incomes are falling really quite notably. But private sector rents are rising equally notably because we’ve idiots trying to kill off the private landlord. And if rents and asset prices move independently then rents and asset prices move independently, right?
Also, which bean counter ever said that every business can always pass through an increase in costs?
When too much income flows to the wealthy, many in the rest of society are forced to borrow to cope with the basics. Debt does not create more goods or services; it creates purchasing power without the capacity to pay. That is inherently inflationary.
Taxing the wealthy reduces the distortions that force households into this cycle, reducing an important inflationary driver.
That’s just drivel of course.
When too much wealth accumulates in the possession of relatively few people, it is rarely invested in productive activity. It is diverted into speculation, buy-to-let properties, financial engineering and activity focused on short-term gains.
This has serious consequences. Under-investment in productive capacity is one of the deepest causes of inflation: if the economy cannot produce the goods and services people need, prices will rise no matter how little the middle classes spend.
Including those cash savings in bank accounts and ISAs and so on that are just dead money doing nothing – according to Spud. And dead money doing nothing does not add to inflation nor does taxing it reduce it. And despite Spud’s mageserial flailing here no, he cannot have it both ways. Either cash savings are dead money in which case he gets to spend it righteously for everyone else or cash savings are in use and contribute to inflation. But not both.
It is – joyously, perhaps – actually true that the varied insistences we get here mean that taxing the rich does not decrease inflation. Therefore MMT – Spud stylee at least – really does mean we cannot control inflation by taxing the rich.
I think that what you are doing is trying to construct a cogent argument out of random, nonsensical utterances. There is no consistent logic that joins up the sentences that Spud writes. Every sentence is just nonsense
Tax them more and they don’t consume of spend less, they just save less.
Not always true. If they’ve got any sense they’ll stop spending, stop saving & take their money to another country. Which significant numbers of people are doing.
And of course we know from our hosts previous fisking of a Murphy post that in his eyes, trying to seize assets is a ‘Nazi policy’ – oh, wait, that was a couple of hours ago – perhaps time moves at a quantum rate.
This day has been coming for a long time… and only Spud couldn’t see it coming.
But all is not lost for him. For surely his arguments haven’t just been dreamt up on the spot. No, surely there will be a wealth of supporting and peer-reviewed material he can cite.
Yeah. And pigs have formed an aerobatics team.
Not really true. True in theory, maybe. The reason it will never happen is the people who print the money and those who control taxation are different people. The theory to be workable would require a single entity to control both, so as to insure printing is matched with taxation before the printing starts. The money printers can’t go to the tax people later, and say, “Hey, we need you to tax more to cover this printing we did.” Tax people, having no stake at all with the money printers’ problem, and not wanting to get yelled at for raising taxes, will do nothing.
Indeed, a few weeks ago, Spud said taxes couldn’t be raised because it would have a negative effect on the economy. Coupling money printing and taxation is a bridge too far.
He wants the rich killed and their wealth taken. ‘Taxing the rich’ is a trivial, incremental step.
I found a potato with five eyes yesterday, but it didn’t have anything to add to the debate
Is it enough to see you through the week?
I’ll get my coat…
For, as Spud continually reminds us, the rich save some of their income, the poor do not. This means that the rich are not income constrained in their consumption. Tax them more and they don’t consume of spend less, they just save less.
And as usual I’ll be difficult & suggest a little caveat here. A lot of the rich I know save by buying assets, gearing up with loans. Or at least they have been during artificially low interest rates.Now they have repayments they have to meet & are finding themselves having to be frugal with consumption.
It’s like I advise my amigas. Just because that millionairio has an enormous villa with a pool & a shiny Mercedes sports doesn’t mean that he’s actually got any money he can spend on you. You may have more than he has.
“Also, which bean counter ever said that every business can always pass through an increase in costs?”
One that realises when all businesses face the same cost increase (a rise in employers NI contributions say, or a rise in energy costs, or a rise in interest rates, or in the current case, all three) they all put their prices up at the same time? And even if the rise in prices reduces consumption of that good/service, and some of the producers go out of business as a result, those that survive will retain the higher price level. Hence why it now costs more to eat out, while restaurants are closing left right and centre, for example. The general cost of doing business is going through the roof, and those costs are being passed on to the consumer.
Absolutely – and don’t forget as part of the ‘Sustainable development goals’ you aren’t meant to eat out or travel. That’s limited to the Global elite. That’s why they are pushing the Metaverse and other artificial realities – that’s what you will be able to afford. Every government on the planet (maybe barring a few exceptions in Sub Saharan Africa and North Korea) is signed up to this agenda.