Setting progressive confusion straight. MMT intersects with policy.
Bill's fourth point supports taxing economic rent as a matter of functional finance.
Taxation is only functional if it deprives groups of purchasing power. It does not raise revenue in order to all the government to spend.Bill Mitchell – billy blog
When one false starting premise leads to progressive confusion
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
67 comments:
Under the system we have now, taxation does indeed raise revenue for the government to spend. The government spends from an account it holds at the central bank. The dollars in that account have to be deposited there first in order for spending to occur. There are only two feasible ways in which they can be deposited currently: they have to be collected via taxation or acquired from the sale of government securities to the private sector.
We can easily imagine other kinds of systems and construct them in our minds. But those systems don't exist yet. MMTers could easily set the record straight on this if they wanted, but they have preferred the weave and dodge strategy because they want to continue to dupe the rubes who have bought the fables purveyed by Warren Mosler in the Seven Deadly Innocent Frauds.
Why are MMTers so obsessed with this line of argument? Because the underlying motivation of MMT has been to defuse the progressive political threat of redistributive taxation by convincing the rubes to run deficits instead, and leave the moneyed classes alone. That this is the underlying impulse was proved in spades by the MMT freakout over the Piketty call for redistributive wealth and income tax. By continuing to spread the lie that "taxes don't fund spending", MMTers are aiding and abetting the cause of the plutocrats - whether because they are sly liars, as I think is the case with a few of them, or because they are dupes and useful idiots.
Dan, you one of the people that Bill is aiming at, I assume you know that :o
Dan
I hope you've also publicly criticized Krguman, DeLong, and many others when they've said quite independently of MMT that currency issuers create their own money. Or do you only not like it when MMTers do it?
I have criticized Krugman and DeLong for many things, Scott. I hector Krugman constantly - such as his believe in a labor market clearing full employment natural rate. Another thing: Krugman showed he has an extremely defective understanding of our existing monetary system when he endorsed the Tobin model of that system. On that picture, the central bank operates in some mysterious way as the "monetary authority", and somehow pumps money into the economy via channels whose operation is left completely undefined and unexplained. Commercial banks are merely intermediaries attracting deposits of that money and lending it out again. The central bank then exerts influence over bank credit intermediation by adjusting the reserve requirement. This is a woefully inaccurate picture. The central bank does not inject or extract money from the economy in any other way than by being a bank itself that holds the deposits of its member banks, and by expanding and contracting its own balance sheet.
"Currency issuers create their own money" is a trivially true but vague statement. In our system money is created and destroyed as the centralized banking system expands and contracts its balance sheets, and since the central bank is the issuer of the base currency for that banking system, it creates its own money. But the parts of our government that actually spend money don't create it. They have to acquire it. Like any other entities, they can acquire money by selling debt instruments. They can also use their governmental powers to simply tax it out of people's hands.
It is certainly true that our government never has to realistically worry about defaulting on its debt. But that is because we can safely assume that (i) the central bank will always choose to create a market for US government debt that allows the government to roll over existing debt at a reasonable rate, (ii) the government has the power to tax, and (iii) if the central bank ever chose not to allow the government to roll over the debt, Congress would probably (unless filled with tea party crackpots) take back monetary powers from central bank to create that market itself.
But for now, we live in a system in which taxation is not at all "obsolete" as a way of funding spending. It is the main way the government acquires the dollars it needs in its Fed account in order to spend.
I have no idea Tom. Since I don't maintain my blog any more, I assumed hardly anybody pays attention to my scattered comments.
The way I say it is that bonds fondle government spending.
I was not suggesting that Bill was thinking particularly of you, Dan. He was aiming at the progressives who think that government needs funding other than that which it itself creates and controls.
"Funding" is an accounting term that means that relates to sources of funds and uses of funds. Like everything in accounting it is ex post. A government's fiscal balance is always funded taxes and issuance. When governments fund expenditures with note issuance, no interest is involved. When governments fund themselves with securities, then interest is paid.
A big reason that there is obfuscation over this is that the people that get the interest are powerful enough to convince others that it is necessary. None of those reasons is compelling operationally.
Another big reason that there is confusion in this is that accounting doesn't distinguish between the currency issuer and currency users, it is easy to look at the similarity in accounting and conclude that government is a currency user operating like firms that need to obtain funding from a source they do not control. That is an illusion.
Dan -
Every bloody nation is using fiat, some CHOOSE (at times) to overlay it with one or the other constraint, such as pegging to another fiat currency or a currency board, etc. That doesn't alter the fact that when they actually do decide to credit someone's bank account, after all self-imposed restrictions, they simply change the numbers in the aforementioned account and are able to do so because they say so. The "rules" only verify that the nature of the currency is as MMT and many others have laid out.
Really. Get with your inner Edison and quit with slandering the National currency. For once in your life.
And Y-series Euros are STILL fiat, dammit.
Look Tom, we can semantically slice and dice it dozens of different ways. But at the end of the day it all comes down to this: modern governments need to tax in order to spend. They need to tax a lot. That's because in order to run a sensible monetary policy, especially in times of normal economic performance, the amount going out cannot greatly exceed the amount going in, if price stability is to be maintained. As a result, if people are interested in major new public spending initiatives that amount to long-term, structural changes to our economic system, they generally ought to propose new revenue initiatives along with them that will cover at least most of the new spending. If they don't, they are not being economically or politically responsible. Yes, deficits can be jiggered up and down for countercyclical reasons, but economic public policy and political economy go way beyond countercyclical stabilization. The important choices to be made are about the fundamental institutions, regulatory structures and programs we run; and there is a limit on the percentage size of sustainable structural deficits compatible with any given level of economic growth.
However, as you and I know, and as anybody knows who keeps up with the various MMT Facebook groups and groupies knows, MMTers don't even want to think about this stuff in a serious way. They have a sputtering temper tantrum whenever any progressive politician mentions the term "taxes". They think they have discovered some new miracle economics in which taxes are now "obsolete". They think the capacity of the government, potentially at least, to "issue" all the money it wants is in itself a solution to all of the challenging problems related to education, retirement, employment, energy and environment. As a result they never propose or debate any serious proposals in any of these areas. They are like a bunch of trained monkeys, jumping up and down on cue to Warren Mosler's tea party organ grinding about the evils of taxes. How convenient for rich guys like Warren Mosler! A large, internet-driven cargo cult of dupes now believes taxes are obsolete! And if the usual diversions don't work, they can always gin up the platinum coin sideshow again. Anything to keep people distracted by monetary superficialities instead of real economy processes, assets concentrations and power relations.
Every day, dollars go into the government's bank account due to taxes and bond sales; every day, the government spends by making disbursements from that account. MMT thinks it is really, really, really important that you don't believe that the dollars going in are funding the spending going out. Not using the term "funding" for the funds that come in and go out of the same freaking account has become a point of near religious fervor for the MMT cargo cult. But it is absurd. As of this point in history, government spending is funded by taxes and securities sales.
And even in some imagined future, where the system has been remade, and the dollars coming in are just keystroked out of existence while the dollars going out are just keystroked into existence, the people doing the latter are going to have to keep a close watch on the amounts coming in and being deleted by the former. If they don't do that, they are not conducting a responsible monetary policy at all and are just incompetent crackpots running playgroup kiddie government with a play-doh money machine. Call the adjustment of inflows to outflows "funding"; call it "offsetting"; call it "counterbalancing". It doesn't matter. The practical challenge is the same, and the semantic difference corresponds to no functional difference.
Whatever their original intentions, MMT has linked itself to the reactionary conservative tea party cause of talking people out of progressive taxation. Why they are so eager to do this? Ask them. But it looks to me like they are trying to protect the rich from the tax man and the redistributors. The math-free, seat of the pants double talk that they use to sell that scam to internet non-economists is a pseudo-science. Bill Mitchell, for one, should know better.
Move ThroughIt, whether or not the money is "fiat" money doesn't matter much. It is still only the monetary component of a complex economic system that needs to be managed carefully. Fiat money is not the same thing as fiat value.
"As a result, if people are interested in major new public spending initiatives that amount to long-term, structural changes to our economic system, they generally ought to propose new revenue initiatives along with them that will cover at least most of the new spending"
Nope.
I can get public infrastructure built by simply using the planning laws to delay any surrounding infrastructure projects until I've finished with the building resources.
No taxation required.
I can get infrastructure built by setting a price on a project and letting the time float. Because you only get inflation when somebody is chasing the wage and there is time criticality on projects. Inflation is the way that time criticality is resolved. If you make something time uncritical (nice-to-have projects) then there is never a problem.
No taxation required
I can spend on infrastructure projects and then restrict what banks are lending money for to free up space where required.
No taxation required
See what you can do once you get over your hangup about tax. You can make space, or you can use up space that happens to arise. All of which is created by the wider view of *activity* and the various control mechanisms on activity.
The problem with the 'funding' mentality is that is serialises the process, when in actual fact they are two asynchronous processes that operate without reference to each other. It's the same mistake as 'funding' a bank and leads to the same mistakes in thinking.
The latter mistake led to the financial crash.
Taxation should be set in the same way that interest rates is set - without reference to what is being spent but in a way that tries to free up space in a distributionally fair manner. The sole references should be the unemployment rate and the price levels.
Bank lending levels and planning policy should be set in a similar manner.
This move towards hypothecation needs to end. It is philosophically based upon the individual 'buying' things and that leads inevitably to the privatisation of public functions.
The philosophy should be around collective funding of needed services - health, education, defence. And that means taxation set to maintain employment and price levels without reference to injections.
"But it is absurd. As of this point in history, government spending is funded by taxes and securities sales."
Government spending is *accounted for* by taxes and securities sales.
The point of the term 'funded' is to imply the term *controlled*.
Government spending is never controlled by taxes and securities sales. There is nobody outside of parliament/congress who can say 'no' when a government decides to spend - as we see every time there is a war declared.
So whatever level of government spending you have, it will be accounted for by taxes and securities sales. Each time, every time. Because government spending *causes* taxation and securities sales.
And the central bank, in its current guise, will have to alter its policy to force the private sector to accommodate that.
So there is no need to change anything. It happens automatically.
"Whatever their original intentions, MMT has linked itself to the reactionary conservative tea party cause of talking people out of progressive taxation."
Dan, as I see it, it's more a case of not having to wait for rich people's taxes (some year), we can step in now and make the counter-cyclical fiscal adjustments needed to balance the economy. And when the rich, frightened girly-manz see that all isn't going to hell in a hand-basket, they'll start spending too.
That doesn't necessarily fix income/equity inequality, but it's a lot better than the pro-cyclical alternative. Maybe, just maybe, after rich people finally understand how soft currency works, then the whole system will self-regulate on a much higher level. After all, you have to proceed with some notion of how the money works, I can't believe you really are hankering to put on a tin can suit and go to work for "The Can Kicks Back" crowd.
And yeah, the fiat USD doesn't answer all political questions. Thank God.
MoveThroughIt, the debate has moved way beyond countercyclical adjustments. The problem now isn't that we're in the trough of some "cycle" that can be eradicated with "stimulus". The new normal that has emerged in the US and can be seen clearly in the aftermath of the crisis is a permanent, structural shit hole opening up in a failing and dysfunctional society, and going to require major structural changes to be addressed.
Neil, you are also talking about the mechanics of countercyclical adjustment, with that business of adjusting tax rates like interest rates to open up or close fiscal space as cyclical conditions warrant. But in the UK, you already have your national health system. In the US progressives are still trying to create one. Doing so is not a matter of a temporary surge in cyclical spending, but a permanent structural addition to government outlays, and so that requires a structural adjustment to the tax system. The semantics of "funding" vs. "accounted by" is neither here nor there. The point is they will have to go up.
Similarly, the US now has a godawfully unequal and morally repulsive society, in which something like a caste system is appearing. Changing that is going to require using the tax system in a huge way. Having fussy little MMTers running around saying "taxes are obsolete; taxes are obsolete" is hurting the cause.
Is Dan K the new Bob? Or should I say, Is Dan K the old Bob?
We always seem to have a Bob.
"Doing so is not a matter of a temporary surge in cyclical spending, but a permanent structural addition to government outlays, and so that requires a structural adjustment to the tax system"
Not really. You could make a structural adjustment to the banking system instead and collapse the finance sector to size.
Why are you struggling to see that it has nothing to do with the money and everything to do with alternative activity that may or may not be taking place in the economy.
*There are several mechanisms to adjust activity. Tax is just one of them*.
"Similarly, the US now has a godawfully unequal and morally repulsive society, in which something like a caste system is appearing. Changing that is going to require using the tax system in a huge way."
Is it, or is it going to require a massive increase in the living wage, a Job Guarantee and massive competition and 'anti-trust' investigations on a McCarthy style level to break up oligopolies and monopolies.
The so called 'progressive left' are rather to fond of trying to fix the problem after the fact rather than addressing the root cause in the distribution system.
Politically nobody likes taxation. It is a universal bad. If you try and build a platform on taxation you will never get into power
So the MMT approach of looking at real activity and the other mechanisms of controlling that is useful in constructing policy that will allow a regime to get into power to enact progressive changes.
With health, for example, there is a strong argument for just leaving the existing insurance premium system in place, leaving the insurance companies to collect it, but simply requiring them to turn it over to the state. Then they become 'compulsory heath insurance contributions'.
We've seen the same thing here in the UK with the new 'compulsory pension contributions' - which is simply a tax in disguise.
The UK NHS still bears the scars of the political compromises required to get it into place. All the doctor's surgeries for example are private businesses, but with the majority of their services contracted for by the NHS. They are still allowed to do private practice though - as are the NHS Hospital Consultants.
There isn't an MMTer in the world who struggles with the idea of taxation to make space, but they also know that there are other options out there to make space that are often more useful. And we also know that you need to fix the distribution system at source. If you have to tax to redistribute too much then something is broken that needs fixing - generally a monopoly or oligopoly somewhere.
The problem the left has is that they are obsessed with taxation, talk about it endlessly and really it is about venting their fury with the rich rather than sorting the economic system out.
That just leaves everybody else with the impression that you just want to steal from people because they are successful. The PR impact is terrible. Switching the conversation around to real goods and services (i.e. "what exactly were you planning to do with that nurse that is more important than looking after the health of the nations", "why do we need a hotel right now rather than a school") allows a more adult debate about the actual priorities.
And once you talk about real stuff and where it currently is you can see the holes that can never be fixed by simple taxation - the shortage of trained teachers, or the shortage of people overall who can ever be astronauts.
Tax is just a tool in a toolkit. It is not the be all and end all of policy and I do not apologise for the apparent lack of enthusiasm for taxation from people who understand MMT properly.
That is simply because we are not obsessed or impressed by it.
Some excellent comments in this thread Neil!
Look for "artificial" inflation and then you won't have to worry about taxation. There is plenty to start looking at: why financing of asset bubbles is allowed all the time, why infinite liquidity is provided for gambling at forex and stock market, etc.
I'm not against increasing progressive taxes as they are at "gilded age" level in practice and the problem is the political power inequality provokes, or fixing loopholes, capping bonus and compensations, etc. But is not really our biggest problem now, it won't fix our demand and supply side problems.
Fix the broken regulatory system, see deflation trigger and look at projects that need funding right now. Under deflation governments won't have any other option than spend or face societal collapse and then the genie will be out of the cage.
Neil: "Politically nobody likes taxation. It is a universal bad. If you try and build a platform on taxation you will never get into power."
I agree. In fact I agree with everything you've said - some of it about as interesting as anything I've ever read.
However, try building a *political* platform on MMT. I simply cannot see how it can be done. Perhaps you have better luck explaining this stuff, but I've had almost none. A lot of the people who advocate MMT forget how unbelievably mindbending it sounds, and that's because the truth is usually mindbending.
I saw Richard Murphy get savaged by the BBC's Andrew Neil on yesterday's Daily Politics. Yes, yes, Andrew Neil is a thuggish narcissistic oaf who's job is to make interesting people look foolish while salivating over liars, idiots and warmongers.
Imagine what would have happened if Murphy went full-MMT: money is endogenous, deficits are ex post, bonds are a monetary not fiscal operation and are corporate welfare, inflation isn't a monetary phenomenon, abolish central banks are unnecessary, and then hit them with the mindf**k of all mindfu**s that taxes don't fund anything. Say this stuff and people with think you're completely bonkers, let alone vote for you. As a friend of mine says, it's like talking about evolutionary biology to someone who's lived their whole lives under the Taliban.
Now, I have no idea how you go about educating people on this stuff. The great Bill Mitchell looked positively nonplussed when he was confronted with such a question in London (about 50 minutes in): https://www.youtube.com/watch?v=BX1XN9TYYUQ
Bill did respond, but his response was a longwinded verbal treatise on the nature of intellectual thought and the division of labour between academic intellectuals and public policy activists! Now, I don't disagree with him: he's not a one man policy institute and political party rolled into one; he's an iconoclastic and revolutionary economic thinker who should have been awarded the Nobel Prize at least a dozen times. But you nevertheless can't help but sympathise with the man in the audience who says how on earth are you going to explain this to the typical Sun reader. Or tabloid reader. Or indeed the FT reader.
" they have to be collected via taxation or acquired from the sale of government securities to the private sector."
Dan NO ... look at Scott's latest he has the DEALERS in there now...
Treasury issues to DEALERS FIRST... the dealers get the RBS to settle from the Fed (govt sector) via repo then they hold the securities in inventory until AFTER the Treasury spends the balances into the non-govt THEN the non-govt has the RBS to buy the securities...
Its like a buffer...
Water supply system:
You have a watershed (source/govt) that feeds into a reservoir (buffer/dealers), the reservoir holds a quantity of water (dealer inventory) that is then drawn from (non-govt/sink)....
What you are saying is that non-govt is somehow drawing directly from the watershed... ignoring the function of the reservoir... drive around up there and look at all the big blue water towers if you can see them then think of those as the "dealers" in the system... when you turn on the municipal tap up there, you are not drawing directly from the treatment plant you are drawing from the blue tower....
rsp,
Dan the other thing is your view of wealth..
Trump says "I'm worth $10B ha!"
You think: "MOTHER FUUUUCCCCKKKKEEEEEEEERRRR!!!!!!!"
But Dan you have to look at how he gets there...
He still owns most of his show (FD: I have never watched one second of it) "The Apprentice"... he probably has that valued at $500M... so there is 1/20th of his alleged $10B.... is it worth $500M?... try taking it to the bank and see... and so on...
So its not like he has $10B in the bank... a lot of this "wealth" you hear about out there is fleeting at best (Digital Equipment Corporation? Wang? Chrysler? Pan Am? TWA? Eastern Airlines?) and maybe not even realistic... or a product of generous appraisals, etc...
Perhaps best to focus on the 99% and what public policy is providing for them...
rsp,
*There are several mechanisms to adjust activity. Tax is just one of them*.
Taxation is by the far the simplest and most straightforward way of managing these things Neil. And it's also the one that is most easily combined with a program for redistributing and reallocating wealth on a permanent basis, and preventing wealth from accumulating.
Yes, I suppose we could devise some system such as the one you propose, Neil, in which spending increases are offset by targeted restrictions on bank lending and deposit creation. If this is to be a progressive and not regressive response, somehow the lending restrictions on the rich have to be more stringent than those on everybody else, and if they are the response to structural spending changes, then they need to be permanent. It seems to me that would be extremely difficult to carry out politically, and that new taxes are a much easier and more comprehensible solution.
In the meantime, progressives need to act and propose policy packages and can't wait around for MMT vagaries. MMTers "don't do models", and so when it comes to delivering actual numbers for a politicians to take to the voters, they are nowhere to me found. The politicians can't afford to
The most expedient course, and the one that helps advance several progressive goals at the same time, is for progressives to pull together detailed and concrete policy agendas with explicit, priced out proposals for programmatic, regulatory and institutional changes for our societies. They should probably aim at a structural deficit of 2% to 3% of GDP (assuming they can find a way to make a 0% interest and rentier euthanasia a permanent feature of the economy rather than just the temporary choice of an "independent" central bank.) That means that if they are proposing large structural increases to the public spending side of the economy, the most practical correlative of that proposal is to propose a similarly large structural change in revenues. You don't like the terms "funding" and "revenue"? Fine. Call them "schmunding" and "shrevenue". In any case they are necessary.
"Politically nobody likes taxation. It is a universal bad. If you try and build a platform on taxation you will never get into power."
Nope. That is MMT's Tea Party id talking. The line "the rich should pay their fair share" always polls well - except with the rich - and is an easy political sell.
Treasury issues to DEALERS FIRST
No Matt, they sell debt to dealers first. Then the central bank buys from the dealers. The treasury doesn't "issue" anything. to the dealers.
Adding the dealers in does nothing to change the basic fact: the treasury doesn't issue dollars. It has to get them by selling bonds or taxing.
John
I watched that video with Bill in London recently as well.
But the bottom line is this - we can't keep rolling over and telling untruths because some folk make no effort to educate themselves. (I do realise that lots of the general public are under great time pressure to consider anything more deeply than in in Kahneman 'fast' mode 1 'thinking' (< ie, not much real 'thinking', just running the cognitive bias sub-routines), but that guy was very rude to people he should have realised were on his side.)
I write a lot of comments about MMT, and progressive politics from that perspective in Ireland. And I do it mostly on journal.ie which is read by a lot of people barely engaged in either economics or politics, and with only limited time to think about it.
But, surprisingly, for often necessarily long-ish comments, I get a lot of 'green thumbs'. As a direct result, one guy close to a socialist political group has now picked up the mantle, 'got' it, and now writes himself about it. I've also managed to get some economics students interested. Perseverence is paying off imo. Despite the fact that Ireland is in the Euro and complicates matters greatly. People need to keep hearing the truth - it lets people know, and reminds them that an alternative is possible.
As Neil says, the Functional Finance focus on 'real' activity, and how that should lead the money economics, not follow, is a vital part of the paradigm change we need citizens to grasp. Stressing over tax as funding is taking that effort in the wrong direction.
Dan,
Better call Treasury and tell them they are doing it wrong then:
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2015/A_20150903_5.pdf
"Issue Date September 15, 2015"
To Dealers FIRST.... (well 99%)
Here is the list:
http://www.newyorkfed.org/markets/pridealers_current.html
(btw many foreigners...)
Dealers then SELL them to clients who have balances to settle...
Matt, that document is called the "Treasury Offering Statement". Surely by this point you know that when the Treasury issues securities, it doesn't just give them away, butsells them, right? Youy do understand there is a treasury market right? That people make bids, right?
I'm sorry, but I can't believe we even have to deal with this level of nonsense at this point.
Mike, perhaps I am being unduly pessimistic.
However, I think a political strategy built around much more progressive taxation is more sound. In an case, it's not as if MMTers don't advocate progressive taxation - they simply don't accept that taxation funds government spending.
Do Wray, Mitchell and co militate against progressive taxation? No. Do they think progressive taxation is a bad thing. No. Do they want a more equal and fairer social democratic society? Yes. Do they think there is a role for progressive taxation in achieving this end? Probably. So stick with that instead of messing with people's heads and getting labeled as insane by an already deeply hostile and reactionary media.
As for deficits. Just come out and admit that for the foreseeable future the bigger, the better! That the so-called "national debt" has never been an economic problem and people were unaware of it until it was rammed down their throats very recently. That way there's only one target for the opposition to attack instead of fifty. Deficits and the debt can be defended easily enough.
Going full-MMT on people may not be as efficacious as you believe. Learning to be nuanced is a necessary part of politics. Since taxes are necessary for other reasons, what use is mindf**king economically inexperienced or unaware people with statements that will raise thousands of questions like taxes don't fund anything? It'd be different proposition altogether if there were week long MMT tutorials were being held in every town hall and community centre in the land, educating people for free and in an easy to understand manner. But there isn't, and there isn't going to be. Let's be politically nuanced and win people over first before hitting them with the hard stuff. It works for the Scientologists. We could do worse than studying their tactics!
"The line "the rich should pay their fair share" always polls well - except with the rich - and is an easy political sell."
Until the rich say -then we'll take our money and leave, together with launching another poll asking people if earlier "easy political sell" leads to less revenue if the threat from the rich is carried out, will you support taxing the rich? Then the earlier easy political sell isn't that easy any more.
That threat is very effective, since people in general believe that the rich is must to pay for gov spending, and it's used every time taxing the rich is the subject. At least here in Sweden. I doubt it's that much different in the US or elsewhere.
That is in a secondary market Dan... ie "offered/bid".... in this process there are only bids...
Here are some results:
https://www.treasurydirect.gov/instit/annceresult/press/preanre/2015/R_20150908_3.pdf
"issues" and "bids" no offers.... talk to a securities lawyer and tell them the terms dont matter in this process.... c'mon there are attorneys who specialize in these matters as a whole career....
Youre doing it again... you are discounting the technocratic details of this process... the details are revealing and belie the typical dumbed-down view the unqualified media people report...
We dont drink the rain do we?!?!? What do we walk around with our heads lilted back and mouths open when it rains to get water to drink?...... c'mon!
Mike & John,
When the only issue was the post-2008 debate between "austerity" and "stimulus", then fixating on misconceptions about the nature and operational mechanics of the federal deficit made sense. But now that the debate is moving on to bigger, more pervasive and more systemic problems that have nothing to do with cyclical downturns, a narrow focus on money mechanics is a diversion.
MMT often piously mentions from time to time that what is ultimately important are "real resources". But MMT has really offered almost nothing constructive in this area. The things we need to be debating are how to re-allocate, re-organize and re-deploy our real human and material resources, how to introduce an element of strategic economic planning that has been lacking, and how to rebuild fundamental economic arrangements in our backwards society (and globally). When Warren Mosler was asked about these things in the past, he would mumble something vague about "political decisions" and then turn the discussion back toward cutting taxes.
Mike, I have seen plenty of those MMT "conversions" as well. A lot of these converts are economically naive, but politically-oriented people whose grasp of underlying economic processes is slight, and who have swallowed Warren Mosler's tall tales about "marking up accounts", and his empirically unsupported, calculation-free, hand waving vagaries about the causes of unemployment and the roots of price stability. They are daunted by the challenge of changing society, and beguiled by the idea that there is some political easy street to change that requires only the printing of fiat money. Basically, they are suckers who have bought a bottle of Dr. Fixit's Miracle Money Elixer. After they learn more, and think more, they usually gravitate back to something more sensible.
What happens when a conservative, ideologically hamstrung, plutocratic political culture crashes into multifold social and economic dysfunctions revealed by the 2008 crisis? Well the first thing they do is start scrambling and looking desperately for escapist monetary schemes, so they don't have to deal with the political burden of changing anything important. That's why we have had several years of things like:
Market Monetarism
MMT
Bitcoin
Positive Money
Endless calls for more QE
Endless calls for interest rate adjustments
Endless calls for inflation target adjustments
etc.
All of these movements and trends are just different versions of the same escapist error: the desire to "fix" things through monetary mechanics alone, without having to change anything important about the way real income and real wealth are controlled and organized. The sporadic popular success of these movements reflects a sad confluence of interests between rich and affluent people in the elite opinion classes who don't want to change anything important, and others who are too afraid to try.
MMT macro is just as dumbed-down and crudely oversimplified as monetarist macro. It's really just monetarism applied through the fiscal side of government. The idea is that there is a "money shortage" or a shortage of "net financial assets", and that if the private sector just has more money, there will be more "demand" and that's all we need to make things right. The small element of truth involved in this picture is extremely limited in its effective applicability.
That is in a secondary market Dan
??? Yes, Matt. It is called the "secondary" market because that is the market in which the dealers re-sell the securities after they have purchased them.
I don't believe that capitalism can be reformed. Does that make me an escapist?
According to Bill Mitchell, MMT is key to reaching the goal of full employment. That's the only reason I'm interested in it. If that policy cannot be achieved, then it is time to look for other approaches.
Does that make me an escapist?
No Bob. But if you were one of those people on the left who does think US capitalism and US society needs a serious overhaul, but who thinks there is some MMT-based path to doing it that does not require new taxes, then I would say you are an escapist.
My arguments are addressed to left-wingers who are diverted by the dead-end seductions of MMT's small-ball, Money magic, demand management economics.
"Taxation is by the far the simplest and most straightforward way of managing these things Neil. "
No it isn't.
The Holy power of taxation doesn't cause doctors to rise fully formed from the swamp.
It is a naive idea that is only put forward by those who are obsessed with it. The majority of people are turned off.
"The line "the rich should pay their fair share" always polls well - except with the rich - and is an easy political sell."
It does. Unfortunately it is never the rich that gets hit, but the ordinary people under that level. And people know that.
Which is why when they actually vote they for the right wing or the right wing facsimile
Nobody has run on a ticket of putting tax up significantly and got elected. It doesn't work. And it is completely stupid because it is unnecessary.
"If this is to be a progressive and not regressive response, somehow the lending restrictions on the rich have to be more stringent than those on everybody else"
What? you just restrict bank lending to the capital development of the economy and fix the 'progressiveness' on the spending side.
Once again an indication that you are obsessed with taxation and taking things away from people.
The big win is getting across to people that this is about resources out there in the real world and freeing them up for the public purpose. People can relate to that.
The point is, that it has nothing to do with mere money. There is always money if required - as we find out when we fight wars or bail out banks.
The key progressive win is to get the battleground off money onto a different framing of real resources. Otherwise you're just going to lose every time.
Obviously we're going to have to go through 20 years of idiot left wing people getting nods from people in focus groups, while they vote their pocket book in the voting booth before it gets into the thick heads of the left that they are onto a loser and need to be more sophisticated than just "tax the rich".
The key progressive win is to get the battleground off money onto a different framing of real resources. Otherwise you're just going to lose every time.
MMTers have had nothing to contribute on the score of real resources, Neil. It's all vague talk, and no serious plans.
Here's one approach to a real resource issue: We have too many national resources being poured into yachts, gigantic homes and the conspicuous consumption needs of rich people. We have too many real resources being converted into financial leverage for the rich to purchase personal income streams from stakes in enterprises abroad. We have too many human resources devoted to providing the labor services needed to fulfill these wasteful expenditures - as well as fulfilling the needs of the well off to have their shoes shined, their hair coiffed and their genitals stimulated. We need to re-allocate those resources. How? By directly removing some wealth and purchasing power from these people and depositing that wealth and purchasing power in the public treasury to be employed for the needs of the many.
Re-allocating the employment of real material and labor resources from current purposes to new purposes requires re-allocating the distribution of wealth and income. The easiest way to do this is in the obvious, straightforward way.
Dan how does 'taxing the rich' stop of resources being mis-allocated for 'rich welfare'?
If you want to crack down on mis-allocation stop the bubblenomics which make the rich richer in the first place, stop corporate welfare via government "debt", stop providing liquidity for ponzi schemes or shuffling paper.
As soon as the loopholes created by unleashed barbarian capitalism are closed inequality would stabilize much more, and then we would enter an environment of real deflation and stagnation which would force challenging the status quo to deal with REAL demand and supply side problems.
Rising taxes only helps to extend and pretend the current status quo, which for what you say, is not what you are looking for (neither am I). Most tax rises will be passed onto the majority of the population one way or an other, and we live in a dysfunctional system that is incapable of closing the loopholes abused by the wealthy. Or are we pushing for a global 'Greek' environment?
P.S: And I don't buy the argument than printing money one way or an other solves all our problems either, but it's indeed part of the solution, although it needs to be implemented with other policies alongside.
"How? By directly removing some wealth and purchasing power from these people and depositing that wealth and purchasing power in the public treasury to be employed for the needs of the many."
The Treasury always has infinite money in its account.
"MMTers have had nothing to contribute on the score of real resources, Neil. It's all vague talk, and no serious plans."
Now that seems a bit harsh.
Look up the Levy Institute and see their papers on it.
Dan how does 'taxing the rich' stop of resources being mis-allocated for 'rich welfare'?
Ignacio, I'm not talking about misallocations through "rich welfare". I'm talking about misallocations though the ordinary expenditures by the wealthy. If the US could have used one less Silicon Valley manorial mansion last year, and could have used one more high school, then it would be good if the resources that were allocated and employed building that mansion had been allocated and employed building the high school instead. Here's one way you do that: you take money away from the Silicon Valley guy so he doesn't have it to spend on the mansion, and you give it to a town so it can spend it on the high school. Same level of demand, same level of employment; but higher overall value delivered.
The problem isn't just loopholes. The problem is that wealth - i.e. real capital resources and the control over them - is too unequally distributed, leading to wasteful and stupid misallocations of our nation's labor power, natural resources and capital resources based on the narrow preferences of the wealthy. It also leads to hoarding. That's why the US is now faced with persistent stagnation, and an inability to address pent-up, long term public needs. The best way to deal with this problem is by using the public's power to tax - to tax incomes, inheritances, and stores of wealth - to move economic power around.
The Treasury always has infinite money in its account.
It could, but it doesn't.
It effectively does. It literally does in the UK. And it can via platinum coins.
You can view things this way if you want. But you can see another perspective.
"Here's one way you do that: you take money away from the Silicon Valley guy so he doesn't have it to spend on the mansion, and you give it to a town so it can spend it on the high school. Same level of demand, same level of employment; but higher overall value delivered."
The difference is you cannot use money as the barometer to judge things. There is likely to be higher demand if the poor are given money.
With respect Dan, I think you are mixing up three issues here.
The first is the way govt finances work.. MMT says that govt spending is limited by real resources and not financial constraints.
You obviously disagree with this given your point above.
The second is redistribution of wealth.
The third is the real resources constraints, where you complain not enough has been put into this.
The point is we can create lots of new output and give it to the poor without raising taxes. This would be more politically viable and we should do this first before then considering raising taxes.
Raising taxes on the poor generates much more "fiscal space" than on the rich.
"Here's one way you do that: you take money away from the Silicon Valley guy so he doesn't have it to spend on the mansion, and you give it to a town so it can spend it on the high school."
What I am trying to say is this - the rich man just pays taxes with his savings and spends on the mansion anyhow.
So you ban mansions or you introduce planning permission rules that say you can't build the mansion until the govt constructs x schools.
But you don't steal the rich people's savings. That does nothing at all to help. If you want to do that it is separate to the other issues.
Anyway, I don't think there is much of a construction boom in the US, in the UK there is construction boom and the opposition is proposing PQE and they plan to serialise the projects so as not to cause problems.
Dan I agree with what you said, but what I'm saying is: if you want to cut down that, take on the sources to that wealth. Taxing does not take on the sources of that wealth, instead what happens in a dysfunctional system is that taxes get evaded, money still buys the power, and the sources and mechanisms facilitating the dysfunction are still in place; and the persistence leads to the way of Greece. And on top of that, any additional costs, are passed onto the majority of the population.
Taxing is an ex-post action, tackling the sources is an ex-ante action. Reactionary actions are always worse than preventive actions. I'm not against higher taxes per se, but first tackle the problem at source, and you won't see much need to try to fix the distribution problems ex-post.
I don't see any realistic plan if what is tried to fix the problems after they have been caused, instead of before they are caused. The majority of the income will still be flying one way, and that capital will still being mis-allocated, because proportionally they still will have the biggest share of income. Additionally all the solutions are based on the idea that suddenly the different national governments are going to cooperate on this issues, which never happens.
In a world of TISA, TPP, tax heavens, etc. the wealthy and corporations will still pay no taxes, the politicians will still be bought out by a small share of the electorate and be mere puppets, and the 'tax the rich!' won't still sell politically because the perennial excuses built on the assumption that we NEED the rich to build up wealth (we are just reinforcing that message anyway if we obsess over rising taxes).
Any mono-dimensional solution is going to fail, and rising taxes is not even the first solution to the problems. I don't see how rising taxes on the rich, for example, is going to avoid 50% of the produced food in th world being wasted, this is an example of a problem that has to be tackled at source, ex-ante, not ex-post.
"The point is we can create lots of new output and give it to the poor without raising taxes. This would be more politically viable and we should do this first before then considering raising taxes."
We can do that so long as the economy is running below capacity, Random. But once the economy is fully employing its resources, it cannot increase its output in one area without reducing it somewhere else.
So as I have said, if people are talking about permanent increases in government spending, changes that will be in effect during good times and bad, whether or not there is a cyclical output gap, and changes that don't contribute to an acceleration in inflation, then they should talk about how they are going to provide for that new government spending by reducing some other kind of national spending elsewhere - whether the latter spending is private or public. The most straightforward mechanism for doing that is via the tax system.
As I said, MMT has something to contribute to the mechanics of countercyclical policy, but has little to offer on structural policy.
"What I am trying to say is this - the rich man just pays taxes with his savings and spends on the mansion anyhow. So you ban mansions or you introduce planning permission rules that say you can't build the mansion until the govt constructs x schools."
That's very implausible Random. You are arguing that the spending of the rich is completely inelastic relative to the size of their tax bill. That's clearly not true. In most cases, if you tax people more they are going to spend less.
"We need to re-allocate those resources. How?"
By implementing a job guarantee and a decent living wage, and reconfiguring the distribution system through simple competition so that it services the poor before the wealthy.
If you give the poor money and restrict bank lending to capital development then unsurprisingly businesses start to chase where the dollars are and avoid where they are not.
To earn the dollars you have to provide services to those who have the dollars.
Good wages, increased competition and lower barriers to entry - plus distributional changes to attack rentier interests. Lower rents. Non-recourse leases.
All very straightforward - and that actually addresses the root cause of the problem - insufficient demand from the poor.
"You are arguing that the spending of the rich is completely inelastic relative to the size of their tax bill. That's clearly not true."
If it isn't then you are not targeting the 'rich'. You are targeting the middle classes. And they then won't vote for you.
"But once the economy is fully employing its resources, it cannot increase its output in one area without reducing it somewhere else."
Oh god another person arguing at the mythical 'full employment' level.
The system has never got anywhere near that and never will.
Let's start from where we actually are and show the journey - rather than leaping to conclusions.
Ignacio, it all depends on the way the taxation is implemented. If you impose a 95% marginal rate on incomes over $300,000 for example, that is going to severely curtail the ability of the most affluent to build their wealth rapidly through reinvestment of savings.
If you also tax away inheritances above given limit amounts, that will force people to bequeath their estates in a more broadly and evenly distributed manner, rather than give it all to one or two heirs who then lose it to the tax man, and it will transfer a certain amount of private wealth each year to the public. Piketty shows that inheritance is a key driver of growing inequality in recent years.
Taxation is a tried and true mechanism for the public restraint and distribution of privately generated wealth. It's something we used to rely on a lot more in the US, and we should do so again. MMTers should stop dumping on it.
If it isn't then you are not targeting the 'rich'. You are targeting the middle classes. And they then won't vote for you.
Incorrect, since tax rates can be adjusted to income and wealth levels. If you want to limit the expenditures of the wealthy to expand overall national expenditure in other areas, but don't want to curtail the expenditures of everyone else, you can tax the wealthy much more heavily than others.
"The Treasury always has infinite money in its account.
It could, but it doesn't."
Yes it does. Via the dynamic process of the circulation it has infinite money in its account, because whatever it spends from the Treasury buffer ends up back there.
Breathe in, leads to breathing out.
There isn't anybody outside of congress with the capability to say no. Without that there are no operational restrictions.
As Dijkstra pointed out: "our intellectual powers are rather gathered to master static relations and that our powers to visualize processes evolving in time are relatively poorly developed. "
Your comment suggests you have some work to do to visualise this process in time. Or you don't want to because it completely undermines your argument.
"Incorrect, since tax rates can be adjusted to income and wealth levels."
Very much correct. The very definition of 'wealthy' is that they don't notice their incomes.
And taxation is ineffective unless it is reducing spending power. Which means that to have tax free up space you have to tax the middle classes.
Surely by this point you know that when the Treasury issues securities, it doesn't just give them away, butsells them, right? Youy do understand there is a treasury market right? That people make bids, right?
I'm sorry, but I can't believe we even have to deal with this level of nonsense at this point.
And Treasury auctions are settled in the payments system run by the Fed in Fed liabilities, which currency users must ultimately obtain from the only place they originate, the government through the agency to which it has delegated currency operations. The Fed is a government agency wrt issuance of US currency as a government liability. The Treasury is a government agency that issues interest-bearing securities as a government liability.
One job of the Fed is ensure that the payments system always clears. It does this by supplying needed liquidity as the lender of last resort. The Fed creates liquidity as an issuer. It doesn't have to obtain it as a user.
All government liabilities are well, government liabilities that are created on the government books by keystroking accounts. There is nowhere else to get them,and they are needed to settle accounts with the federal government. The government is in no way limited operationally in their creation and destruction.
These are political decisions that don't alter the operational reality of the existing monetary system, only how it is handled in different currency zones. Governments can tie themselves up in knots with voluntary restraints, for example, mimicking a gold standard, but that is not the same a changing the monetary system to a fixed rate system.
It's pretending. The public needs to be educated in this and to ask what that is so. The reason, as we know, are about imposing a market state in place of a welfare state. That is the bottom line. The argument is that a welfare state "costs more" than a market state and is less efficient. The issues are then, what is the relevance of "costs more" and "affordability," and is a market state actually more "efficient"? MMT has answers to both.
Now MMT proponents need to make the case in a convincing way politically, because this is chiefly a policy issue rather than one of theoretical economic, although economics and finance are need to make the case.
The bottom line is that a country can always afford to use all available resources including human resources to achieve its policy objectives. "Efficiency is doing things right, and effectiveness is doing the right things." Economics is about efficiency and policy, including political economy, is about objectives.
What is so hard to understand about this?
I don't believe that capitalism can be reformed. Does that make me an escapist?
Depends on the meaning of capitalism.
If the definition is favoring capital over the other factors, labor (people) and land (the environment), then no, it cannot be formed. A system based on capital is unsustainable on a number of fronts, not the least of which is ecological in modern industrial economies based on carbon, owing to negative externality. It is unsustainable socially as well, and therefore politically in liberal democracies. In other systems the threat is revolution, which elicits political repression and eventually social breakdown or revolt.
MMTers have had nothing to contribute on the score of real resources, Neil. It's all vague talk, and no serious plans.
According to MMT, the primary available resource that is under-utilized is labor. Running constantly elevated levels of unemployment and calling it "full employment" based on a bonkers theory is not only wasteful and damaging, it is also stupid if it not designed intentionally to allow capital to dominate labor by maintaining permanent slack in the labor market.
What MMT means by "available resources" is chiefly people. An economy employing all its available labor is at maximum domestic potential, and additional potential much come from importing embedded labor or immigration.
The Treasury always has infinite money in its account.
The Treasury has no money in its account. The credits in the TGA are not counted toward any measure of money stock. Same with the Fed. Government neither has nor doesn't have money. It issues money that counts in the various measure of money stock, along with bank deposits created by bank loans.
Dan
Honestly, you are misjudging things - at least over here (I know Ireland and UK very well, lived in both for many years.)
People here are as angry as ever about 2008, and know that political leaders are as out of touch as at any point since. People want change.
I'm in agreement with Neil on all he's written here.
Have you seen Evans-Pritchard's new piece in the Telegraph? Not so much an endorsement of Corbyn, but a clear endorsement of the economics thinking underlying his NIB proposals, throwing in a few names in support, including Adair Turner.
On the health care systems, the US government spends as much proportionately on health as the UK NHS. No increase in spending is needed, it's about how effectively and well distributed its spent. The current US system is a great example if maldistribution.
On the health care systems, the US government spends as much proportionately on health as the UK NHS. No increase in spending is needed, it's about how effectively and well distributed its spent. The current US system is a great example if maldistribution.
Bad week to have to work so much and miss out on this excellent thread here.
One thing I want to add to Neils point about using things other than taxation to achieve your goals; Those "other things" have been anticipated by the anti govt crowd to a large degree. Those other things get covered under the term "regulations". Tax relief and removing regulations is the mantra. We all know there is no society/market/nation without rules but rules which TPTB do not like are called onerous regulations while the others are necessary parts of safe and civil society.
I agree with Neil that progressives who try to always use the tax system to meet their goals are not going to be as effective as they could be. I think his point about adjusting the activity of the non govt sector being the point of ALL govt policy is an important one. And taxes are just one way to do it. I also like the idea that focusing on taxes is focusing on the financial rather than the real and that finding creative ways to affect the real side would be an easier sell perhaps.
Nobody likes taxes, but everyone wants regulations...... its who they want regulated that is the issue (hint... its ALWAYS the other guy)
Kervick: Under the system we have now, taxation does indeed raise revenue for the government to spend.
Wow. A whole $2.5 trillion raised in fiscal year 2014.
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