Thursday, February 14, 2019

Peter May — Paul Mason demonstrates all too clearly why much of Labour don’t ‘get’ money

I confess I expected better. Paul Mason misses the fact that it is not ‘hit and hope’ it is actually the way money IS created – the neoliberal deceit is the ‘fact’ that we tax and spend.
The Treasury has after all, admitted as much as, indeed, have the Bank of England in September 2017: “Regarding whether taxation is necessarily required to finance government spending the answer is no, it is not. Along with raising money by taxation, governments can borrow money and they can create money outright.”…
Actually, money is created outright as credit. Banks extend loans that create deposits by crediting deposit accounts. Governments that are currency issuers create tax credits denominated in the currency as the unit of account and use them to credit nongovernment accounts, nowadays usually through the central bank as the government's fiscal agent.

According to the "law of reflux" money returns to its source. Credits that banks create through lending are used to pay down loans, which destroys the funds created by the deposit. Payment of tax credits to the government in payment of tax obligations destroys the funds created by the initial issuance. Of course, this is in aggregate, taking flows over time into account.

Spending and taxing are separate different fiscal operations for a currency issuer. Spending must logically precede taxation. Taxation, as well as payment of fees, fines and tariffs, destroy funds created through issuance, which occurs through government spending including transfers.

Spending is therefore offset by taxation and, in terms of "funds" spending with respect to sources and uses, but taxation is not used operationally to "pay for" spending. Spending and taxation are a separate fiscal operations, and tax policy is separate from spending policy. Taxes don't "pay for" spending — ever — under any circumstances.

Hence, it makes no sense to say that taxes are needed to "afford" spending, or that spending without offsetting taxes is "living beyond our means," or that liabilities are "unfunded." In terms of accounting statements, funding is simply a matter of accounting entries ("keystrokes on spreadsheets") that balance the books.

For a full explanation of the MMT POV on money and banking and finance, see Eric Tymoigne's book draft, The Financial System and the Economy.

Progressive Pulse
Paul Mason demonstrates all too clearly why much of Labour don’t ‘get’ money
Peter May


Konrad said...

“Actually, money is created outright as credit.”

Only bank money is created as credit (i.e. as loans). Government money is not created as loans. For example, a Social Security benefit is not a loan. $500 billion paid for an aircraft carrier is not a loan.

Put another way, all money is both a debt and a credit, but not all debts and credits involve loans.

“Taxes don't ‘pay for’ spending — ever — under any circumstances.”

That’s correct at the federal level for governments that (like the USA) still have monetary sovereignty.

Kaivey said...

Paul Mason is a Corbyn guy, and yet be was pro the war in Syria. He said Assad was a brutal dictator, although he only had Western propaganda to back his claim. He was challenged by the Off-Guardian about it, but in he end he declined to answer. I was disappointed in him.