Tuesday, September 27, 2022

Should We Be Raising Taxes to Fight Inflation? — Stephanie Kelton

Some specifics about the MMT position on addressing inflationary pressure based on analysis of relevant causal factors — albeit without details owing to the scope of a post. For example, there are demand side reasons for rising inflationary pressure and also supply side. Stephanie Kelton claims that the predominant causal factors now are supply side and so addressing the issue from side of demand is the wrong approach, whereas expanding supply where there are shortfalls and bottlenecks is the way to go.

Raising taxes to fight inflation is a single-variable approach based on addressing the demand side and as such it is simplistic. "Raising taxes" is not the preferred MMT solution to inflation although in some cases it is indicated. When it is, then the specifics of tax policy to reduce demand become crucial.

While she doesn't address it specifically, a systems approach is called for. "The economy" is embedded in a socio-economic system and this means that the issues involved in economics are not purely economic but include the social and political, which brings in values and involves ideology in addition to purely economic considerations. Therefore, "show me the bill" to be submitted to the legislature for a vote becomes more important than "show me the (economic) model."

The Lens
Should We Be Raising Taxes to Fight Inflation?
Stephanie Kelton | Professor of Public Policy and Economics at Stony Brook University, formerly Democrats' chief economist on the staff of the U.S. Senate Budget Committee, and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders

9 comments:

mike norman said...

Maybe she's not aware, but taxes are already over $600 bln higher this fiscal year compared to 2021. Taxes are killing any chance of an economic rebound. Inflation is high because of pricing power by firms, supply chain issues and Biden's sanctions on the whole world.

Matt Franko said...

Hard to think of a more political unpopular policy than the one Democrats are currently foisting on the nation but this would be it..,

Matt Franko said...

Mike it’s energy policy (which includes Russian sanctions) again same as the ‘70s…

NeilW said...

This is where the limit to policy is. If the population won't accept tax rises, and they won't accept the mortgage rate rises, and there is still inflation, then we are *undertaxed* for the size of government we have.

Which means government has to shrink. And that's the thistle that Stephanie's readers don't want to grasp - because it means their big spending plans are likely going up in smoke.

Matt Franko said...

Neil what the hell is going on over there?

Sounds like all hell is breaking loose…

Pension funds getting margin calls?

NeilW said...

Brian covered it pretty well. Pension Funds have been caught with their pants down as the tide went out - using Interest Rate Swaps rather then covered bonds in the search for yield.

There is a set of people who have been trying to keep everything in cash cow mode. The new government has decided that enough is enough. Those who want to earn a profit are going to have to invest in British business rather than stand outside Threadneedle Street waiting for a handout.

Now we'll see if they have enough political capital to see it through.

Andy Blatchford said...

That's interesting Neil could you give me a cite where a bunch of Liberarian loons gave a fuck about working people (me included) forced into private sector pensions now holier than holier supporting working people by screwing their pensions?

It's nonsense that they are somehow disciplining those companies because why would you destroy peoples pensions? Not exactly a vote winner, I await govt policy of taking pensions in house.

Andy Blatchford said...

And I am on about 'the new government has decided enough is enough" when the BoE has intevended so apparently the chancellor has had enough by not jumping on the BoE? Run that by me again.

NeilW said...

Andy

I suspect you have the wrong end of the stick. Have a look at the Wray paper linked by Stephanie about the effect on pension of interest rate rises. It's a transfer from the young with mortgages to the old with bonds. The point is to get them out of companies so they can be moved to growth mode.

It's just the Tory version of the 'safe assets' idea put forward by British Post-Keynesians. Same effect.