It is relatively easy to calculate what the monetary burden of government debt is. Credit inheritance and debt inheritance are not distributed uniformly. The credit inheritance is assumed strictly by bondholders, and the debt inheritance is assumed strictly by taxpayers. Each individual has a different burden, equalling their tax outlays, minus their income from government spending (the net tax position).
For an entire nation, everyone’s individual position is summed together. In a closed economy where the only lenders are domestic, the intergenerational monetary burden is zero. But that is by no means the entire story.
First, debts to foreign lenders are a real monetary burden, because the interest payments constitute a real transfer of money out of the nation.
Second, while there may be little or no debt burden for the nation as a whole, interest constitutes a transfer of wealth between citizens of the nation, specifically as a transfer payment from future taxpayers to creditors. This adds up, at current levels, to nearly half a trillion of transfer payments per year from taxpayers to creditors. So while the intergenerational burden may technically add up to zero for the nation, it will not for individuals. The real burden is huge transfers from those who pay the tax to those who receive the spending, and those who receive the interest. So who loses out?Azizonomics
The Burden Of Government Debt
John Aziz
(h/t Zero Hedge)
49 comments:
So, where are these mythical payments from citizens to bondholders? Has anyone seen one in the wild?
I guess Aziz hasn't heard yet that taxes don't fund spending. But he is right about the interest funneling up proportionately, and public expenditure is supposed to be in the public interest.
Yes, but the only interest that matters is the interest on private debt. It doesn't appear to me he is talking about private debt.
Interest on public debt "matters" in that it constitutes a transfer payment to creditors.
"Interest on public debt "matters" in that it constitutes a transfer payment to creditors."
Yes, but the "money" is created from thin air by the government…at no cost. They can always make that payment.
That's not the issue Aziz is discussing. He is saying that the interest funnels up when deficits are "debt financed," i.e., offset by tys. Interest is a transfer to creditors, foreign and domestic, and those USD claims are on real resources in the dollar zone.
The real question is why provide those transfer payments went tsy issuance is not necessary operationally. It's a subsidy.
"Interest is a transfer to creditors, foreign and domestic,"
Tom, You're apparently reading something different than I am…here Aziz says:
"the debt inheritance is assumed strictly by taxpayers."
He is claiming the taxpayer is obligated to pay the interest to bondholders…we are not, nor will we ever be unless morons decide it is so. But then It isn't about the debt, it's about choices.
No net dollar of tax liability has ever been issued toward payment of bondholders. Nor has the Sun ever burnt out. It's a waste of time discussing these two events in terms of future burden.
The transfer of wealth between one group and another as a result of interest (and profits) is a characteristic of private debt orders of magnitude more likely than that caused by public debt and by the nature of the system it can't be any other way.
That's why we have progressive taxation (or should). There is no other cure.
I don't think Aziz is advocating that.
As far as government indebtedness and additional claims on our production by tax payments issued from a black hole, inflation pretty much neuters any additional future burden on our production.
Production by the way we would be overjoyed to have to provide.
In summary, from my perspective Aziz is totally full of s**t here and has missed whatever target he was aiming for completely.
There is no doubt that the assumption that taxes fund debt including interest is incorrect based on the MMT understanding. But the fact is that all taxpayers do bear the burden of taxation and anything that adds the money supply, which interest does, has the potential to increase inflation at full employment.
The more regressive the tax burden is, the more the interest favors creditors, who tend to be the wealthy. The question then becomes how much of the interest is actually taxed back, and I think that this is the key question, since I favor taxing away economic rent in order to discourage it.
If the interest were to be taxed away, then since tsy issuance is not operationally needed, we might reasonably get agreement on abolishing the deficit offset with tsys. But the more likely outcome is that the wealthy and powerful will argue for abolishing taxation on interest on tsys.
Tom, all of that I'm in agreement with, (except for the part below) but that isn't what Aziz was arguing.
You wrote:
"But the fact is that all taxpayers do bear the burden of taxation"
This as a mischaracterization of the function of taxation wrt the system. It is a gross oversimplification of the actual dynamic, for which taxation is the main flow generator, far more than deficit spending.
What we have is"progressive" taxation, shifting the tax burden to winners away from the vast majority of citizens whose resources are being depleted by the winners (mostly economic rent).
The wealth the winners are extracting is undermining the very system they are exploiting.
The fact we tax workers at all is irrational - it undermines the system itself and serves no useful purpose.
The system (economy) would be completely unworkable, unstable and effectively useless for the majority of citizens without progressive taxation redistributing gains fairly. The rising tide has to float all boats, not put most boats underwater.
NOT taxing progressively and aggressively represents the real burden.
Thus, I reject the argument that taxes are a burden… taxing the wrong targets is the only burden.
"for which taxation is the main flow generator, far more than deficit spending."
What do you mean here Paul, that the current overtaxation flow is the important flow ? ie this overtaxation flow is a negative development ie a damaging policy? rsp,
"The fact we tax workers at all is irrational - it undermines the system itself and serves no useful purpose."
Looks like the Romans used to just implement a poll tax every so often and otherwise let the system run....
the main thing with the poll tax looks like they just wanted to have citizens and subjects manifest their subjection to the authority of the Roman civil government once in a while...
and then of course were able to spend their state currency into circulation in order to provision the public sector... they held the lid on prices by being very careful about how much they spent on things... "a denarius per day", etc.. if an external entity ever tried to hold them up for higher prices, I'd assume that entity was dealt with quickly and severely...
The "right amount of taxes" may just be the amount necessary to demonstrate subjection to the civil government, not any amount above that...
rsp,
"What do you mean here Paul, that the current overtaxation flow is the important flow ? ie this overtaxation flow is a negative development ie a damaging policy? rsp,"
Matt, My argument in simple terms is this:
• Progressive taxation is the main flow generator in the economy and always has been. It accounts for 30% of GDP and much of the remaining GDP is meaningless.
• The only over-taxation going on is among the cohort making say $0.5 million/year or less…99% of the population. Taxing one end and spending on the other creates most of the flow in our economy.
Eliminate or at least lower our taxes and try to raise theirs.
• Deficit spending fills the gaps, it isn't the main engine and I doubt that it could substitute for progressive taxation, ie redistribution, ie government-induced flow.
I believe this is a math argument not a moral one.
I don't have anything against rich people nor do I think everyone should be rich.
Extreme wealth accumulation leads inevitably to government and regulatory capture, at which point we, the 99% have no say in or leverage on how we are governed. We are powerless except for the option of violence and civil war.
I prefer redistribution to guillotines.
Paul,
I'm not clear on where you say: " taxation is the main flow generator in the economy and always has been. It accounts for 30% of GDP and much of the remaining GDP is meaningless."
In the definitions of GDP, "taxation" is not part of it... ie (G-T)... G yes is part of it, and C that is enabled by govt transfer payments... or under the "sources" W (wages) paid by govt could be...
It seems (perhaps I misintrpret) that you are saying "taxation" is part of GDP... which imv does not fit the standard definition of GDP...
Or I see perhaps you are saying that "taxes that are quickly re-distributed" are the key flows...
rsp,
paul, the functional purpose of taxation is decreasing aggregate nongovt NFA to dampen effective demand. The tax burden falls on the public at large and apportioned by the authority charged to do so. In a liberal democracy this is elected representatives of the people. How they apportion this is a political choice. The goal is to do this "justly" which doesn't mean equally. Moreover, they must take into consideration the effect of tax distribution on different segments of the population wrt the economy as a whole. In practice, they actually figure the consequences relative to their own political party, especially donors, as much as if not more than their constituents or the good of the country. The rest is spin.
Taxation also serves as a disincentive for the behavior that is taxed. Therefore, taxation involves a certain degree of social engineering, too.
Finally, there is the economic consideration of balancing effective demand so that at full employment everyone is getting "a fair shake" and adjusting to keep the economy at FE.
So in addition to the flows there are politicaL considerations and arguments over who it is fair to tax and how much. Economic factors also enter into the argument, e.g., taxing the less productive (workers) more an the productive ("job creators"), or taxing away economic rent to discourage rent-seeking.
But Tom I would point out that Paul makes a good point that "INCOME" tax or a tax on wages is NOT a good idea..
the establishment of that type of tax had to have been dreamed up by extreme morons who thought that govt had to "get the money" from the non-govt.... rsp,
Or I see perhaps you are saying that "taxes that are quickly re-distributed" are the key flows...
But taxes never get redistributed functionally.
The function of taxation is to decrease effective demand that is leading to price instability at FE. The middle class comprise most consumption in a modern economy so functional finance would say to tax the middle class.
Taxing the upper echelon higher must therefore another have another rationale. The rationale is that wealth translates to power, and no class should be able to accumulate so much wealth as to be able to increase privilege. Moreover, people at the top are more likely to be collectors of economic rent, and taxing economic rent discourages rent-seeking.
"the functional purpose of taxation is decreasing aggregate nongovt NFA to dampen effective demand"
Tom, I don't disagree with that; I think you are misunderstanding me because I was not implying taxation by itself is a flow-generator. The tax-spend cycle is a flow-generator.
When I claim taxes generate flow, implicit is the assumption that at least an equivalent amount of funds are spent back into the economy at the bottom.
I am not saying taxation by itself creates flow, that would be absurd. Nor am I saying taxes "fund" spending.
"Or I see perhaps you are saying that "taxes that are quickly re-distributed" are the key flows..."
Bingo
" The tax-spend cycle"
ie (G-T) ?
"But taxes never get redistributed functionally."
Tom, sure they do. This is just semantics. The budget includes spending in conjunction with taxation. That creates flow. Flow is what powers the economy.
We only need the taxation part to keep the parasites from consuming the host, This is a very big deal.
Otherwise I could care less about taxes one way or the other, except it's idiocy to tax workers.
I'm not emptionally invested in punishing the rich, I'm merely cognizant of human behavior.
Let's say we didn't tax or spend at all. No government. Are you of the opinion that the economy would careen out of contriol with growth?.
Or would it collapse and die?
My view is that government-induced flow is the main contributor to economic activity. Deficit spending makes savings and growth possible (plus provides for profits and the accrued interest balances).
Profits are the carrot-at-the-end-of-the-stick. Incentive to take risk. Deficit spending creates that incentive.
We must have both for a stable steady-state economy.
"ie (G-T) ?"
Matt, yes, although even with (G-T)=0 there is a flow induced if you take excess savings from a position of low potential (high entropy) and spend it/transfer it to a position of high potential (low entropy).
High entropy = rich people w/excess savings and low propensity to spend.
Low entropy = Poor people, workers and the unemployed w/no savings and a high propensity to spend.
The budget includes spending in conjunction with taxation.
Believe it or not, but the US Congress appropriates expenditure as a separate process from levying taxes,, except when politics mandates a neutral exchange in paying for expenditure. But this is seldom figured on the same time scale, with the payment being so far in the future as to be meaningless. As we see at work now, which is the reason for the "fiscal cliff." It was the basis of the GOP push to cut taxes, which then would be used subsequently to argue for reduced spending due to lower revenues and their pledge not to raise taxes. It's a shell game rather than a rational process. Lots of false logic and bad arithmetic in there. Everyone on the Hill knows this. The charade is just to create a facade.
It's the same thing with spending out of the SS trust fund and filling the fund with IOU's. All BS.
When I claim taxes generate flow, implicit is the assumption that at least an equivalent amount of funds are spent back into the economy at the bottom.
Yes, but taxing the top has nothing to do with adding funds at the bottom. As Warren says, let the rich have their savings. Who cares? The savings are not affecting the economy as long as government adds enough to maintain effective demand at FE and the rich maintain their average propensity to consume. If they up that propensity, tax 'em more.
Interesting because let's face it WE DO have INCOME taxes... our ancestors DID NOT have INCOME taxes... this is a moron policy... but nevertheless we are under it... maybe the (G-T) flow is the "engine" that Paul speaks of here... ie under an "income" tax this becomes the key flow...
Tom points out that we tax things we want to discourage but perhaps this is only under an INCOME tax regime... ie our Roman ancestors had a poll tax ie "head tax" I dont think they were trying to discourage the existence of "heads"....
" Everyone on the Hill knows this."
Just to point out, I disagree with this assumption, very few (if any) do imo ... rsp.
Tom, If we look at current expenditures in the $4.5 Trillion (sans deficit) range it's clear that normal spending is far in excess of deficit spending.
Which one do you think creates more flow?
The timing is now. That's all that matters to the system.
All of the other background invisible stuff is OK for water-cooler discussions and navel-gazing but it doesn't mean a whit to the man-on-the-street. He needs a buck in his pocket. If we give tax breaks to rich people, he won't get that buck.
The points you are making only have meaning with respect to the narrative. I don't disagree with any of them but they are missing the target. The bottom line is the number of dollars that end up in people's pockets is what makes the economy go, not rhetoric, not process, not procedure.
A vehicle perfectly capable of providing transportation from point A to point B will fail to do so if we don't put gas in the tank, or if we don't press the gas pedal. It isn't the fault of the vehicle.
Sure Congress can undermine that goal with God-awful decision-making. That's where the guillotines come in…if they continue to do so.
"Yes, but taxing the top has nothing to do with adding funds at the bottom."
Tom, I've already said that at least a couple of times. If we don't tax them and take away their power, we won't be able to control anything, and policy will not be the working man's friend. I don't believe in pixie-dust solutions.
The funds have to be added at the bottom in any case, but that won't happen if we just deficit spend and allow the rich to capture every dollar added. That just makes them stronger. They will skew legislation and instead of productive net spending we will have cuts on safety net programs and tax breaks for (super) rich people.
"As Warren says, let the rich have their savings. Who cares?"
I care. We're letting them have much more than money…we're conceding power to them. If we could buy politicians we would be in much better position. Why do you think we've gotten to this point…where democracy has failed?
No wonder we're getting our asses kicked. Even the smart citizens are rolling over.
It matters…a lot…how the money is distributed.
"maybe the (G-T) flow is the "engine" that Paul speaks of here... ie under an "income" tax this becomes the key flow... "
Matt, I'm not saying we have to tax income per se. I'm saying we have to tax "excess savings", which puts me in Tom's camp wrt taxing "excess rents". I'm not sure what Tom's disagreeing with here. Our differences are minor. Semantic differences more or less.
Tax capital gains, inheritance (80% of the wealth in the US is inherited…so much for doing it the old-fashioned way), those kinds of things. Encourage production. Discourage excess savings.
The problem now is we are way past that. Our options are limited and there won't be any significant change over the next generation unless there is civil unrest and pitchforks.
We are arguing over "what-could-have-beens". The die is cast. My strategy is to drop out, which is what Tom did. Follow Roger Erickson's path to a new world that excludes the parasites. An open-source makers movement and f**k Apple, Microsoft and all the other leeches that think shiny and cool is the key to happiness. I don't mind if they make a profit, just don't help them become so big they eat us like some animals eat their young.
In my perfect world there are no giant companies and competition is healthy.
Grow our food locally, live simpler but happier lives and don't let the SOB's squeeze the life out of us.
I feel much better now.
Paul,
The G in (G-T) is waaaaaay too small... (I believe only 1% of GDP) this has to go to the 99% (at least initially) as the laborers are the ones that provision the govt as a point of logic...
govt can crank up G and mandate a minimum wage... this should at least go the the 99% in the current FY then yes go to the owners after the 99% spend for their subsistence...
Perhaps just as all "money" is not the same (convertible vs non-convertible), all "tax" is not the same (income tax vs property tax vs poll tax). Details of how each system is designed and operated matter to macro outcomes... rsp,
Matt, the G in (G-T) is $5.6 Trillion in (2011)…
…less $1.4 Trillion for the 2011 deficit leaves $4.2 Trillion from the tax/spend cycle…28% of GDP.
Total spending is 37% of GDP.
"Perhaps just as all "money" is not the same (convertible vs non-convertible), all "tax" is not the same (income tax vs property tax vs poll tax). Details of how each system is designed and operated matter to macro outcomes... rsp,"
That's the tack I'm taking. The bottom line is how much spending is in the pockets of the poor, unemployed and workers. Any other spending is of less importance. Tax cuts for the rich is way down the list. If someone already has way more money than they could spend in a lifetime, why do they need more?
Tom, If we look at current expenditures in the $4.5 Trillion (sans deficit) range it's clear that normal spending is far in excess of deficit spending.
Yes, and the left is trying to move military spending to social spending and the right is trying to move social spending to military spending, adn both agree to fund crony capitalism ("pork").
The bottom line is the number of dollars that end up in people's pockets is what makes the economy go, not rhetoric, not process, not procedure.
Yes, and the political tussle is over whose backers' pockets.
A vehicle perfectly capable of providing transportation from point A to point B will fail to do so if we don't put gas in the tank, or if we don't press the gas pedal. It isn't the fault of the vehicle.
Taxes don't gas anything. That's an illusion. In reality, politicians are not deterred from spending on their pet projects due to lack of taxes to pay for it. All talk about the need to tax is for political effect, and that goes for the so-called fiscal conservatives, too. "Fiscal conservative" Reagan blew out the deficit to increase military spending and had to pay off the Dem Congress to get it done.
Tom, I've already said that at least a couple of times. If we don't tax them and take away their power, we won't be able to control anything, and policy will not be the working man's friend. I don't believe in pixie-dust solutions.
The funds have to be added at the bottom in any case, but that won't happen if we just deficit spend and allow the rich to capture every dollar added. That just makes them stronger. They will skew legislation and instead of productive net spending we will have cuts on safety net programs and tax breaks for (super) rich people.
I'm not arguing with that. Of course taxation is needed to keep inflation in check. And it matters who is taxed and in what proportion, but this has nothing to do with affording spending.
We're letting them have much more than money…we're conceding power to them. If we could buy politicians we would be in much better position. Why do you think we've gotten to this point…where democracy has failed?
I agree that this is a reason to tax away wealth to reduce inequality and remove privilege. But that is a highly political reason.
Matt, I'm not saying we have to tax income per se. I'm saying we have to tax "excess savings", which puts me in Tom's camp wrt taxing "excess rents". I'm not sure what Tom's disagreeing with here. Our differences are minor. Semantic differences more or less.
Yes. It's how to say it.
We are arguing over "what-could-have-beens". The die is cast. My strategy is to drop out, which is what Tom did. Follow Roger Erickson's path to a new world that excludes the parasites. An open-source makers movement and f**k Apple, Microsoft and all the other leeches that think shiny and cool is the key to happiness. I don't mind if they make a profit, just don't help them become so big they eat us like some animals eat their young.
In my perfect world there are no giant companies and competition is healthy.
Grow our food locally, live simpler but happier lives and don't let the SOB's squeeze the life out of us.
Good for you. Keep on truckin' and never look back.
Paul,
from wiki:
"G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits."
http://en.wikipedia.org/wiki/Gross_domestic_product
so then if you look at the z.1 on the sources of GDP, page 13 here:
http://federalreserve.gov/releases/z1/Current/z1.pdf
The government investment (federal) part of the GDP is 155B or about 1% of GDP.. this is PISS POOR... this is no doubt tremendous UNDER investment by our morons and perhaps probably THE biggest part of our problems... rsp
"Yes, and the political tussle is over whose backers' pockets."
Tom, my argument is quite narrow. This comment both agrees with me and changes the subject at the same time.
"Of course taxation is needed to keep inflation in check. And it matters who is taxed and in what proportion, but this has nothing to do with affording spending."
Tom, I haven't said one word about "inflation" or "affording spending". You're putting words in my mouth I didn't say, and addressing arguments I haven't raised. We can always afford to spend, and I've never said otherwise.
Progressive taxation takes excess savings from the richest cohort. It helps limit their power. Goal 1 accomplished.
Spend that much and more back into the economy, targeted towards public purpose and people that will spend most of it, and who also happen to need it. Goal 2 accomplished.
If we don't accomplish goal 1, goal 2 won't happen. Both will take political action. I only care about the nuts and bolts, politicians can do the other.
This is basically the only argument I've made this entire thread, yet the discussion has gone everywhere but.
"I agree that this is a reason to tax away wealth to reduce inequality and remove privilege. But that is a highly political reason."
Tom, you say it's political, I say it's practical. Even MMT won't work if the rich have control of all the choke points.
Do you believe that if we don't manage to claw back excess wealth and defang the oligarchs that our system has any chance of success?
"The government investment (federal) part of the GDP is 155B or about 1% of GDP.. this is PISS POOR... this is no doubt tremendous UNDER investment by our morons and perhaps probably THE biggest part of our problems... rsp"
Matt, I'm talking about total government spending, not investment. I agree completely we should be investing more in infrastructure. Way more. Way, way more. This money for the most part won't make it to wage-earners pockets (profits, low wages). But it will improve their quality of life, provided they don't starve first.
Progressive taxation takes excess savings from the richest cohort. It helps limit their power. Goal 1 accomplished.
Spend that much and more back into the economy, targeted towards public purpose and people that will spend most of it, and who also happen to need it. Goal 2 accomplished.
If we don't accomplish goal 1, goal 2 won't happen. Both will take political action. I only care about the nuts and bolts, politicians can do the other.
This is basically the only argument I've made this entire thread, yet the discussion has gone everywhere but.
AsI said, this is a political stance and a highly controversial one. The argument that would have to be made for it is difficult to win without a lot of resources, since the onslaught against it would be vicious.
I see it as being in a similar category as passing a constitutional amendment to reverse Citizens United, or to get rid of the electoral college, or go to direct democracy, or even something as obvious as campaign finance reform with only public financing of campaigns and so outside money for advocacy of any sort.
I've said that nothing substantial will change without getting the money out of politics, but taxing the wealthy and powerful down to size is a whole different ball of wax. Not saying it doesn't also need to be done in a genuine liberal democracy. Just saying that it is a probably not going to happen without at least a velvet revolution.
Matt,
After sleeping on it, I think I see what you're saying about Direct government investment spending.
If I am understanding you correctly, government spending on direct purchases of goods and services is a relatively small contribution to GDP.
I agree with this, we should be investing way more in public purpose.
My argument is merely that the "other" spending ie transfer payments, etc., while not contributing directly to GDP at the first transaction level, contribute directly to GDP by the second transaction.
The recipients of the funds spend them on goods and services, for the most part to the penny.
"As I said, this is a political stance and a highly controversial one. "
Is it really controversial? It's a widely held view among a subset of the lefties at least. Irregardless, it is a view borne of necessity.
This is one of the few cases where I think human behavior rules the system, we know what power and mal-distribution does to the system. I don't see an alternative to it. Maybe we could iterate towards the goal in little steps.
MMT can't fix this. Not with massive deficit spending, not with any of its other elements. There is no solution short of returning power (a fair share) to the people.
Are you saying we have lost and the situation is hopeless? Then once again we are in agreement.
We would need a velvet revolution? I've already said that in this thread and again we are in agreement.
Taxing the wealthy and powerful down to size is a whole different ball of wax? Agreed, but we can't make progress unless we do it, so stalemate.
My argument is simply a statement of the mathematical reality of our system and the one thing that must change if we are to salvage it. I didn't say it was possible but then that doesn't leave us with a very appealing future.
One way or the other, either through more progressive taxation or increasing the share of profits accruing to workers, through regulation or other means, the distribution of wealth is the 800 lb. gorilla in the room and must be addressed, or else.
The ball is back in your court, even though we don't seem to be in disagreement about anything other than what the meaning of "burden" is. I guess this is an example of what's wrong with us lefties…even when we agree we disagree.
Make your proposal in simple terms how to make our system stable and fair for the majority of participants, which is what it would take to further an iterative discussion towards some conclusion.
Right,
We are under-investing in public infrastructure and such because the govt morons we have in there think "we are out of money" and "borrowing from the future", etc...
I think that all the 99% are looking for mostly is continuous robust flows... both while they are working and when they retire...
the 1% seems to be trying to build up stocks... (let them choke on them then)
rsp,
Any amount of fiat payment to fiat-currency bondholders would work ... IF we'd just let fiat incomes to all others rise as needed. It's called currency inflation, and can be useful if used sanely.
Additional problems arise when people hoarding fiat want to restrict the unfettered application of public fiat (i.e., initiative) by arbitrarily restricting the growth rate of currency supply.
Fiat currency supply is supposed to float. Fiat currency value is supposed to float.
Any attempt to keep either fiat valuation of old products/services from floating backfires.
Likewise, any attempt to preserve the buying power of hoarded fiat also backfires. You can't hoard public initiative past minimal points. It's a use it or lose it proposition.
Are you saying we have lost and the situation is hopeless? Then once again we are in agreement.
We would need a velvet revolution? I've already said that in this thread and again we are in agreement.
Taxing the wealthy and powerful down to size is a whole different ball of wax? Agreed, but we can't make progress unless we do it, so stalemate.
We are in agreement here. My contention is that it is not only an economic issue but also, and more importantly, a social and political one. That is to say, the bottom line is liberal democracy, and it cannot function in a system of privilege and a double standard.
The reason for this happening is institutional and some of those institutions are economics and some not.
One can see it as the outcome of the
"Southern strategy." Nixon flipped the South for the GOP, and Sam Walton flipped the country for the economics of the South. Sam Walton: "I pay low wages. I can take advantage of that. We're going to be successful, but the basis is a very low-wage, low-benefit model of employment." — Attributed in Adam L. Penenberg, "Why Google Is Like Wal-Mart", Wired, 21 April 2005
The result has been the institution of a socio-politico-economics "plantation" mentality with a two-tier society of owners and debt-slaves, where the only opportunity for many at the bottom is to join a military whose objective it is to impose this model globally.
What to do? There are several options. One is to opt out of the "system" and join with others building open source, networked resilient communities worldwide (anarcho-communitarianism), while also working to change the system both through political action and by providing alternatives.
The second option is to become a political activist and make one's chief focus changing the system.
The other options are joining the system and rolling over to survive, or joining the system and doing one's best to claw one's way toward the top.
Those who opt for 1 or 2 about need to unplug from the system and convert as much consumption as possible to the underground or periphery. Need for some things like autos and durable goods make it difficult to avoid the system altogether. Always purchase this stuff on the used market. Put all time, energy and resources, financial and non-financial, into alternatives and networking.
This has already been working for a lot of people since it began in the 60's and 70's, and now it ha gone global. This has already been pioneered for decades. At this point, it is just a matter of plugging in where a fit can be found or a niche carved out.
What about money? It's still necessary to interact with the system to get money where peer to peer credit is not sufficient. Individuals and groups need to work up a gig for this purpose. Creative people find ways to do this that allows them to use their own creativity in ways they enjoy. As rule of thumb, think in terms of four hours a day max, or a month or two of intensive application if doing something seasonal.
"My contention is that it is not only an economic issue but also, and more importantly, a social and political one. That is to say, the bottom line is liberal democracy, and it cannot function in a system of privilege and a double standard."
This you can take to the bank.
As is often said on this blog there are two drivers to our future material well being – production of goods/service flows and the distribution of these flows. Deficit spending, if done appropriately, can help maximize current and future real flows. However, deficit spending is bad in the sense that it yields stocks of money that provide potential claims to future output. MMT addresses this distributional issue by assuming that tax policy can always adjust the distribution of real output. I have a problem with this in two ways – one is related to the foreign sector that may decide to use money stocks to consume foreign real flows or acquire foreign assets (creating foreign exchange issues – like Ramanan argues) and the second being that the government would have to use consumption taxes (or inflation) to adjust real flow claims that stem from stocks of money (like government debt in all it’s forms – cash, reserves and T bonds/bills). As a result I think that deficit spending should be our last resort in ensuring full utilization of resources.
Warren: fiscal drag/unemployment is when the govt doesn’t spend enough to cover the need to pay its tax and accommodate an residual ‘savings desires’ (desire to accumulate net financial assets of that currency).
It’s best thought about removing drag, not adding stimulus.
Taxation causes drag equal to the tax + savings desires, which don’t otherwise exist.
Govt spending ‘offsets’ that drag
It may be true that some deficit spending is unavoidable given desires to save relative to desires to borrow, but using Warren’s (or MMTs?) arguments we would never even ask the question. I think that income distribution is a key factor in money hoarding and that automatic accommodation of excess savings desires (hoarding) is a mistake.
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