Tim Worstall — Modern Monetary Theory Means We Shouldn't Have A Progressive Tax System

About what one would expect from a Libertarian-Austrian perspective, right down to "printing money" and "Zimbabwe." 

Zero cred.

Forbes
Modern Monetary Theory Means We Shouldn't Have A Progressive Tax System
Tim Worstall

(h/t Clonal via email)

Randy commented already. Here's my comment:

Tim, you haven't got that quite right about MMT. The MMT position is that 1) government deficit spending increases consolidated non-government net financial assets in aggregate, while 2) taxation decreases them. 3) Bond issuance is an asset swap that alters the composition and term of net financial assets held by non-government without changing the amount. Bond issuance serves as a reserve drain when the monetary authority choose to set the policy rate above zero without paying interest on reserves. These are fiscal and monetary operations by which government sets the own rate of its currency and adjusts the amount of net financial assets available to non-government depending on the shifting saving desires of the domestic private and the external sectors, so that demand leakage to saving doesn't lead to an output gap and unemployment, while also regulating price stability.

According to MMT these are the parameters of economic policy that follow from Wynne Godley's approach to sectoral balances and Abba Lerner's functional finance. The parameters do not economic policy, but rather reveal the economic policy space within within which policy can be fruitfully conducted to optimize the trifecta of growth, employment and price stability. Most macro approaches hold that only two of the three can be achieved, whereas MMT holds that all three can be achieved through its understanding of modern monetary economics as the basis of macroeconomics.

Monetary policy is ordinarily determined by the politically independent central bank, the Fed in the US. Fiscal policy is determined by the political process of appropriations and taxation, which in the US is the prerogative the legislative branch. MMT does not hold that fiscal policy should be determined solely by the parameters but rather that fiscal policy should be conducted within these parameters to optimize output, employment and also maintain price stability. MMT fully recognizes and recommends the use of targeted expenditure and taxation within the parameters to accomplish the objects of the policy chosen by democratically elected representatives. But whatever the policy the result will be most effective and efficient by employing the policy space defined by the parameters to best advantage instead of guiding policy on the basis of myths, ideology, or economic approaches not based on a sound understanding of modern monetary economics.

Furthermore, MMT economists recognize that just as the money supply is determined endogenously in a system in which the central bank is the lender of last resort and always clears the payments system by providing reserve balances as necessary at the discount rate, so too, the government budget balance is also determined endogenously by the variable level of taxation and automatic stabilization across the business cycle. Therefore, it is the private sector that leads and government follows by adjusting its balance automatically at the margin to meet the demand for net financial assets in aggregate within the parameters that optimize output and maintain full employment and price stability.

There is therefore no conflict between MMT and progressive taxation or taxation of economic rents. What counts economically is multipliers. For example, cutting taxes toward the bottom is recommended to increase consumption during an output gap. Warren Mosler was the first to recommend a reduction in FICA, for example, to address the contagion of the financial crisis, as well as increasing transfers where the funds would be spent, e.g., per capita block grants to the states.

In addition, MMT also recognizes that taxation has two major purposes. The first is to withdraw net financial assets in aggregate from non-government and the second is to discourage the behaviors that are taxed. Thus to argue that MMT contradicts progressive taxation would be the same as arguing that MMT contradicts "sin taxes" or taxing externalities. Neither is the case. MMT shows the public private and external sector balances sum to zero as an accounting identity and that the public sector's balance is the mirror image of the non-government balance. Thus government must deficit spend the amount that non-government is in surplus, or the economy will contract and unemployment will rise. How government accomplishes this specifically through fiscal means is a matter of looking at the multipliers economically and the societal effects politically.