Tax Justice and Modern Monetary Theory – A Guide — Yves Smith

Yves Smith:

I think Modern Monetary Theory proponents have made acceptance of their ideas a bit more difficult by not drawing a bright line between their theory, which is a description of how government spending works in a fiat currency system, versus what they believe are resulting sound policy approaches, such as setting the price of labor (a Job Guarantee) rather than the price of money.

Some folks seem slow on the uptake. How loud to MMT economists need to shout? (shakes head)

Why is the MMT position that MMT economists shares and have written about exhaustively so difficult to grok?

I suspect it is because MMT uses a different lens for looking at macroeconomics and political economy, while others continue to look through their own accustomed lenses.

Hello, MMT is not essentially about tax justice. That is a different subject that informs political economy and it is chiefly a political matter, as implied by the term, "justice." "Justice" is a legal term, not an economic one.

Political economy intersects with philosophy, sociology, evolutionary theory, anthropology, sociology, political theory, law and justice, etc. The MMT economists are doing macroeconomics, which is their field of expertise. Because MMT is a type of institutional economics that also builds on Post Keynesianism and other influences, it is difficult for other economists to categorize so they try to force it into a box that doesn't fit.

When MMT economists venture into policy, they do so personally. Macroeconomic is policy-neutral other than in its assumptions. But the commonly held assumption among macroeconomists is that the chief aim of macroeconomics is explaining the relationship of growth, employment and price. MMT offers a unique approach to this using a different lens to look at the data and issues and to construct models of different types of systems.

Naked Capitalism

Tax Justice and Modern Monetary Theory – A Guide

Yves Smith

Crosspost of a post by Richard Murphy

Trump Budget Seeks Deep Non-Defense Appropriations Cuts, in Break With Bipartisan Agreement — David Reich & Jennifer Beltrán

The Trump Administration’s 2021 budget calls for major new cuts in programs funded through non-defense appropriations. This budget category, often called non-defense discretionary (NDD), supports veterans’ medical care, aid to education, environmental protection, low-income housing, scientific research, infrastructure, public health, national parks, justice and law enforcement, job training, and many other important services and investments.[1]

"THE BUDGET ABANDONS THE BIPARTISAN AGREEMENT REACHED LAST YEAR THAT PROVIDED A MODEST $5 BILLION INCREASE FOR THIS CATEGORY IN 2021, AND INSTEAD CALLS FOR CUTTING NDD FUNDING $46 BILLION."The budget abandons the bipartisan agreement reached last year that provided a modest $5 billion (0.8 percent) increase for this category in 2021, and instead calls for cutting NDD funding $46 billion below its 2020 level[2] — a 7 percent overall reduction (9 percent after adjusting for inflation). This reduction is spread throughout most non-defense agencies, with proposed inflation-adjusted cuts of 28 percent for the Environmental Protection Agency, 17 percent for the Department of Housing and Urban Development, 15 percent for the Department of Transportation, 11 percent for the Department of Health and Human Services, and 10 percent for the Department of Education, to give just a few examples.

The budget also envisions ever-deeper NDD cuts in years after 2021, reaching 38 percent in inflation-adjusted terms by 2030. Cuts of this magnitude would necessarily mean a major scaling back in most activities funded through NDD appropriations....

President Trump breaks bipartisan agreement by transferring funding from general welfare expenditure to military expansion and to offset his previous tax cuts and planned tax cuts. The absolute amount of spending may remain about the same as projected, although the president is also trying to reduce the deficit. The difference is in the distributional effects, making defense contractors and the wealthy better off while increasing distributional asymmetry.

Center on Budget and Policy Priorities
Trump Budget Seeks Deep Non-Defense Appropriations Cuts, in Break With Bipartisan Agreement

David Reich & Jennifer Beltrán

Bill Mitchell — Our sequel to Reclaiming the State in now in progress

As part of my recent European speaking engagements, I went to Rome on February 5, 2020 to speak at the Italian Senate on Modern Monetary Theory (MMT) and the dysfunctional state of the European Union. The next day I had long discussions with one of my co-authors, Thomas Fazi, who I wrote – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, September 2017) with. We have been working on the sequel to that book for some time, and, in the process, have had to work through some difficult issues on which there has been some degree of difference in our viewpoints. While I was in Rome, Thomas and I also recorded a video of a conversation where we talk about our sequel. We provide that video here as well as a brief discussion outlining some of the major issues that the book will address....

Bill Mitchell – billy blog
Our sequel to Reclaiming the State in now in progress
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Michael Hudson — In a struggle between oligarchy and democracy, something must give

Until Nevada, all the presidential candidates except for Bernie Sanders were playing for a brokered convention. The party’s candidates seemed likely to be chosen by the Donor Class, the One Percent and its proxies, not the voting class (the 99 Percent). If, as Mayor Bloomberg has assumed, the DNC will sell the presidency to the highest bidder, this poses the great question: Can the myth that the Democrats represent the working/middle class survive? Or, will the Donor Class trump the voting class?

This could be thought of as “election interference” – not from Russia but from the DNC on behalf of its Donor Class. That scenario would make the Democrats’ slogan for 2020 “No Hope or Change.” That is, no change from today’s economic trends that are sweeping wealth up to the One Percent.

All this sounds like Rome at the end of the Republic in the 1st century BC....

Markets in everything, including political office.

Note: I am refraining from posting links to overtly political posts or articles. While Michael Hudson's post is heavily political in one sense, being about the crisis in the Democratic Party, it is more than that in that it is really a post about political economy, a discipline that has been overshadowed by conventional economics and needs to be revived. While Michael Hudson has a degree in economics and has been involved in finance professionally, it is one of the few political economists operating in this environment, more remarkably as a closet Marxist.

Michael Hudson — On Finance, Real Estate And The Powers Of Neoliberalism
In a struggle between oligarchy and democracy, something must give
Michael Hudson | President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and Guest Professor at Peking University

Also

Important tidbit about US politics.

"Everyone knows" that US general elections are dominated by swing states that are in play. But not many also realize that it comes down in the end to a few swing counties that are in play.

Econospeak

Who Wins Prairie du Chien Wins the White House
J. Barkley Rosser | Professor of Economics and Business Administration James Madison University

Politicians Who Want Us to Live Beyond Our Means — Peter Cooper

Politicians often tell us that we should live within our means. Quite right. Unfortunately, many of them do not appear to understand what this actually entails when it comes to fiscal policy. So far as most economists are concerned, the events of the last decade have thoroughly discredited advocates of austerity. Yet, it remains quite common to hear politicians from across the political spectrum calling for reductions in fiscal deficits or even fiscal surpluses. There appears to be little awareness that, in most countries, a call for a fiscal surplus is, literally, a call for the society to live beyond its means.... 

Excellent  summary. Save it and pass it on.

heteconomist
Politicians Who Want Us to Live Beyond Our Means
Peter Cooper

Political Economy? — Peter Radford

One of the dominant themes of the last century was this general assumption that human activities can be studied through an ever increasingly rational lens. That may be, but economists then went too far: they projected rationality into the subject of study. Instead of using the tools of reason to tease out regularities of interest, they made the subject matter itself entirely rational. So the regularities they thought they saw were simply echoes, or mirrors, of their own thought processes. People in markets suddenly became economists, which made studying them more easy. The entire enterprise became a massive “if only” exercise. If only people behaved like economists it would so much easier for economists to study them! So that’s what happened. Entire Nobel winning careers were built around what was nothing more than a gigantic bout of self-absorption.

No wonder the discipline rapidly became so sterile.

And irrelevant.

Now, however, there are feint signs of hope....

Inequality is a policy variable that depends on how much rent the elite are permitted to extract. Growing inequality suggests elite capture of the government.

The Radford Free Press
Political Economy?
Peter Radford

Top 10 Most-read Economic Sociology and Political Economy Posts of 2019 — Oleg Komlik

As 2019 (already) comes to an end, I rounded up the top 10 most-read posts of the year on the Economic Sociology and Political Economy community blog. You are welcome to (re)read and share them. And, let’s try something new, this list are followed by the 10 least-read posts of the year which are surely worth reading.... 

Economic Sociology and Political Economy
Top 10 Most-read Economic Sociology and Political Economy Posts of 2019
Oleg Komlik | founder and editor-in-chief of the ES/PE, Chairman of the Junior Sociologists Network at the International Sociological Association, a PhD Candidate in Economic Sociology in the Department of Sociology and Anthropology at Ben-Gurion University, and a Lecturer in the School of Behavioral Sciences at the College of Management Academic Studies

Michael Roberts Blog — Economics as a social science

There is no substitute for the ‘big picture’. Economists should not be doctors but social scientists, or more accurately they should develop an economics that recognises the wider social forces that drive economic models, in particular, the social mode of production that is capitalism. That is political economy, mostly not taught in universities and certainly not practised in international agencies....

Michael Roberts Blog — blogging from a marxist economist
Economics as a social science
Michael Roberts

Bill Mitchell – billy blog Q&A Japan style – Part 1 through 4 of 4

Bill's 4 part series on Japan.

Bill Mitchell – billy blog
Q&A Japan style – Part 1

Q&A Japan style – Part 2

Q&A Japan style – Part 3

Some reflections on my time in Japan while I am too busy to write

Q&A Japan style – Part 4

Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Shoring up capitalism — Chris Dillow

This is a good analysis of the political economy of capitalism in general and as it applies specifically to the UK now. The links are important in developing the nuance.

Stumbling and Mumbling
Shoring up capitalism
Chris Dillow | Investors Chronicle

Bill Mitchell — Is the British Labour Party aboard the fiscal dominance train – Part 1?

As I type this (Sunday), I am heading to Brighton, England from Edinburgh. We had two sessions in Edinburgh yesterday (Saturday) and it was great to share ideas with some really committed people. We had to dodge a Hollywood closure of the streets (‘Fast and Furious 9 had commandeered the inner city to film a car or two swerving out of control or whatever, and I hope the city received heaps for the inconvenience to its citizens. But, with the direction now south, and tomorrow’s two events (more later), I am thinking the place of the British Labour Party in the progressive struggle. It doesn’t look good to me. The news overnight has been that the Party’s “head of policy and the author of the party’s last election manifesto” (quoting the Times today) has quit the Party claiming “I no longer have faith we will succeed”. The blame game starts and, as usual, Jeremy Corbyn’s leadership is in focus. The Times cartoon had the caption “They’ve got what it takes to form a government” with two ducks (in Brighton) looking at a sign against a wall saying “Labour Civil War Chaos”. What should we make of all this? My take is this: there is a clear paradigm shift going on in macroeconomic policy thinking. Every day (it seems) a new article pops up with someone claiming monetary policy has run its course and a new era of fiscal policy dominance is the only viable way ahead. That means that the central bank imprimatur on policy – determining whether such policy can continue to be effective and relying on interest rate adjustments etc as the primary counter-stabilisation policy – is over. That means that New Keynesian economics is over. That means that fiscal credibility rules that are neoliberal central are over. And that is why I think British Labour are looking poorly in the polls. They have taken advice from a number of characters who have pushed them into a ‘New Keynesian’ mindset and they are now ‘yesterday’s news’. They have missed the boat on these major shifts that have been going on. That is why they need a major shift in macroeconomic thinking. Only Modern Monetary Theory (MMT) offers a consistent and credible path for them to make that shift....

Bill Mitchell – billy blog

Is the British Labour Party aboard the fiscal dominance train – Part 1?
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Thomas Piketty’s New Book — Ramanan

Piketty coins a new term, the "Brahmin left."

The Case for Concerted Action
Thomas Piketty’s New Book
V. Ramanan

Jason Smith — A Workers' History of the United States 1948-2020

After seven years of economic research and developing forecasting models that have outperformed the experts, author, blogger, and physicist Dr. Jason Smith offers his controversial insights about the major driving factors behind the economy derived from the data and it's not economics — it's social changes. These social changes are behind the questions of who gets to work, how those workers organize, and how workers identify politically — and it is through labor markets that these social changes manifest in economic effects. What would otherwise be a disjoint and nonsensical postwar economic history of the United States is made into a cohesive workers' history driven by women entering the workforce and the backlash to the Civil Rights movement — plainly: sexism and racism. This new understanding of historical economic data offers lessons for understanding the political economy of today and insights for policies that might actually work.…

Information Transfer Economics
A Workers' History of the United States 1948-2020
Jason Smith

Robert Heilbroner — The Embarrassment of Economics: Weekend Reading

Robert Heilbroner hits it out of the park in this short article, originally a speech. It's a fun read, too.

Grasping Reality
Robert Heilbroner (1996): The Embarrassment of Economics: Weekend Reading
Brad DeLong | Professor of Economics, UCAL Berkeley

Darren Williams — «How Populism Affects Our Business»

Most important, after a 40-year period in which capital has won out decisively over labor, there is much likelihood that global economic policy is to shift back in a much less business-friendly direction. Not only will that weigh on economic growth, but it’s also likely to push inflation higher. And that’s something markets are not currently prepared for.

Finenews
Darren Williams: «How Populism Affects Our Business»

Darren Williams | Global Economic Research Group for Fixed Income

Richard Murphy — Why the left and Labour really do need to adopt the core ideas of modern monetary theory

Important for those interested in MMT. It is a must-read if British or interested in the UK affairs.

Richard Murphy takes Jonathan Portes (and Simon Wren-Lewis) to task for betraying Labor and the left, while misrepresenting MMT.

The issues that MMT addresses in terms of political economy are social, political and economic, as well as cultural and institutional. A lot of different expertise needs to be brought to bear in addition to theoretical economists. Academic economists don't own this debate. Neither do financial professionals. While both these areas of expertise are required, they are not the only necessary ones. Given the broad context, many inputs are relevant in addition.

One of these areas is the so-called Green New Deal. The issues involved are fundamentally economic but they are also fundamentally social as an existential threat and fundamentally political in that a political solution is required. Moreover, it's a huge engineering problem, since the energy system is involved. It's also a global challenge that in which all will have to cooperate.

Any viable solution will require changing institutional arrangements, e.g., legal requirements, and it will also require a cultural shift that involves mass education, since the low-hanging fruit is conservation in an environment where consumption is promoted. It is a huge undertaking, which is a big reason that it is a hot potato that few are brave enough to pick up — not to mention, smart enough.

What MMT has to offer in particular is the knowledge that the only constraint on currency sovereigns addressing issue of public purpose is availability of real resources. The financial constraint is inflation and inflation is a consequence of resource scarcity relative to demand. Governments can address this by controlling demand through taxation or increasing availability of real resources through public investment. 

This being a finite world there are physical limits. Knowledge is potentially unlimited, however, limited only the ability to tap potential. Ignorance limits potential, and willful ignorance and dissimulation are culpable.

Richard Murphy broaches these issues skillfully. Good job — although I don't agree with everything he says, notably, about the job guarantee.

Tax Research (UK)
Why the left and Labour really do need to adopt the core ideas of modern monetary theory

Richard Murphy

Also

Tax justice and MMT

See also

Labour’s chief economic adviser [James Meadway] confirms it is committed to the thinking that will deliver yet more austerity (6 Aug 2018)

* Demand is the term that economists use to describe the ability and willingness of buyers to purchase a product or service. … 

This general idea of demand is often called notional demand, which is composed of both latent demand and effective demand.

Even if a buyer needs or would be willing to purchase a particular product or service, he cannot do so if he lacks the necessary funds or if he does not know about that product or service. This portion of market demand is called latent demand.

Effective demand is a representation of the actual amount of goods or services that buyers are purchasing in a given market. Effective demand is the difference between notional demand and latent demand. Effective demand is a reflection of the extent to which buyers' income, perceptions and needs combine to result in an actual purchase rather than a mere desire to purchase.

— Ronald Kimmons, What Is the Difference Between Demand and Effective Demand?

Bill Mitchell — The conflicting concepts of cosmopolitan within Europe – Part 2

In the blog post earlier this week – The conflicting concepts of cosmopolitan within Europe – Part 1 (January 29, 2019) – I juxtaposed two concepts of ‘cosmopolitanism’ which appeared to be part of the early moves to achieve European integration. On the one hand, there was a Kantian-style desire to create, through cooperation between previously warring states, a peaceful and prosperous future for a ‘one’ Europe. This construct would be welcoming to outsiders, progressive, and celebrate ethnic and cultural diversity. It was a rights-based conception of citizenship and democracy, which closely aligned with the growing popularity of the social democratic polity.

On the other hand, the early moves to overcome the resistance to creating a supranational entity that would increasingly compromise national sovereignty – the so-called “functionalist” approach of Jean Monnet and Robert Schuman, created a pragmatic, free market-based cosmopolitanism, which set the Member States against each other as competitors. As I demonstrated, over time, the economic cosmopolitanism channeled the burgeoning neoliberalism of the 1980s and compromised the rights-based, political cosmopolitanism, to the end that we now talk about democratic deficits as the European Commission and its unelected allies such as the IMF trample over the rights of citizens across the geographic spread of Europe.

Europhile progressives hanker for the first conception of European cosmopolitanism and proffer various reform proposals, which they claim will tame the economic dimensions and restore the ‘European Project’ as a progressive force in the world. In this second part of the series I will argue that from the outset the cosmopolitanism embedded in the ‘Project’ was deeply flawed and it is no surprise that democracy is now compromised in the European Union. I argue that reform is not possible such is the extent of the failures.

I have written previously of the paradoxes of liberalism, and Bill's observation is an example of it. Liberalism as a political theory generated by a thought-collective (German Denkkollektiv*) is idealistic in the sense of constructing a possible world based on principles as stipulated assumptions and wishing for its existence. It is a philosophical (principles-based) and ideological (normative) framework for a project that began in the West in earnest in the 18th century, although it is built on the Western intellectual tradition that begins with ancient Greek thought.

Being chiefly normative, universal and static rather than empirically derived and context-dependent, liberalism as a theory doesn't fit real conditions that are historical and dynamic very well, especially in cases of any considerable scale like states and, a fortiori, international affairs.

Thus, the paradoxes of liberalism arise as "internal contradictions." Capitalism is an economic expression of liberalism as democracy is a political expression of it. Significantly, neither has existed in "pure form" at a large scale historically. The devil is in the details — impurities or adulterations. The liberal project often involves attempts to purify the system of "imperfections," which then proves impractical in context owing to paradoxes that arise involving tradeoffs that undercut the enterprise.

The Left's version of liberalism based on rights is noble but out of touch, while the neoliberal view is the attempt to impose economic liberalism on liberalism as a whole. Neither are practical, owing to the dissonance of the model with reality. For a variety of reasons, liberty, egality and fraternity (community, solidarity) don't mesh automatically owing to natural order arising spontaneously given the "right" conditions.

In addition, liberalism is at odds with traditionalism, and traditionalism remains a powerful force to be reckoned with. Moreover, traditionalism as it manifests in a context is often based on local tribalisms.

While this certainly affects the European dynamic, it is not peculiar to Europe. In fact, the 21st century can be viewed as a dialectic between liberalism and traditionalism. Liberalism itself has elements of tribalism built into it since it is chiefly a Western construction.

Bill Mitchell – billy blog
The conflicting concepts of cosmopolitan within Europe – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

* See Ludwig Fleck.

Bill Mitchell — The conflicting concepts of cosmopolitan within Europe – Part 1

In the past week, the UK Guardian readers were confronted with the on-going scandal of wealthy British politicians and ‘peers’ receiving massive European Union subsidies under the Common Agricultural Policy (CAP). The article (January 27, 2019) – Peers and MPs receiving millions in EU farm subsidies – recounted the familiar tale –“Dozens of MPs and peers, including some with vast inherited wealth, own or manage farms that collectively have received millions of pounds in European Union subsidies”.

The story is not new and this scandal is just a reflection of the way in which the development of the European Union has contradicted the idealism that the Europhile Left associate with ‘Europe’.

As an aside, it would be telling, one imagines to map the EU payments (and well-paid job holdings) with Brexit support – one would conjecture a strong negative correlation.

This is a two-or-three part mini-series on the evolution of concepts of ‘cosmopolitanism’ in the European context. It is part of work I am doing for the next book Thomas Fazi and I hope to publish by the end of the year.

In this blog post, I introduce the conflict that is inherent in the European Union, and the way the Europhile Left has been seduced by a concept of cosmopolitanism that bears not relevance in the reality of modern Europe....

Bill branches out widely from MMT to encompass political economy, economic sociology, , economic geography, political theory, the EU and EU politics, the Left (such as it is) and more, exhibiting an awesome command of the material.

I have added some paragraphing.

Bill Mitchell – billy blog
The conflicting concepts of cosmopolitan within Europe – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Adrian Kuzminski — Understanding Populism

American populists are largely reactive and somewhat confused. They don’t know what hit them. And they don’t know their own, often forgotten, history. Nineteenth-century American populists were not socialists, but small-scale capitalists. They were farmers, artisans, and professionals. Private enterprise was central to their values, and they wanted to preserve it for ordinary citizens like themselves. The ideal was to own your own business, not to work for a corporation. Populists fought to keep private enterprise widely distributed among many small, independent producers, as it still was in their day, and to resist the emergence of dominating monopolies which threatened their economic security....

To remedy this sad state of affairs, the populists demanded the conversion of key infrastructural sectors into public utilities repurposed to facilitate rather than exploit small producers. Railroads, they argued, should be run on a regulated, non-profit basis to ensure low-cost access to markets by their customers. Similarly, banks should be run on a non-profit basis as to ensure low-cost credit to borrowers. Populists also called for the federal government to directly issue currency to pay for its expenses (instead of borrowing to do so).

The basic idea was to turn enterprises with too much monopoly power into accountable public utilities, but otherwise to allow the free market to run its course. The aim was to save free enterprise. If many independent producers have to use the same infrastructure (like railroads or the internet), or rely on a common provider of essential products or services (like energy companies or banks), those businesses, populists said, ought to be transformed into public utilities under public control....

Counterpunch
Understanding Populism

Adrian Kuzminski

Peter Cooper — Fairness and a ‘Job or Income Guarantee’

Of the various criticisms leveled at a combined ‘job or income guarantee‘, ones appealing to fairness usually go along the lines that it would be unfair for healthy individuals outside the workforce to receive an income while others are occupied in jobs. In considering this objection, a number of points come to mind:

heteconomist
Fairness and a ‘Job or Income Guarantee’
Peter Cooper