MMT without naming it.
Xu Gao, the Chief Economist and Assistant President of Bank of China International Co. Ltd., and an adjunct professor of the National School of Development (NSD) at Peking University, has been featured on The East is Read several times.
The East is ReadOn August 19, 2024, Xu published a new essay on his personal WeChat blog 徐高经济观察 Xu Gao Economic Observation. This long essay, essentially making a case for Beijing to adopt stimulus measures, will be rolled out in three parts.
Amid cautious signals from the Chinese government and the widespread belief in saving policy "ammunition," Xu Gao calls for a shift to macroeconomic thinking. He contends the government shouldn't be tethered to the belief that money spent is money lost, as a company might. The government revenue isn't fixed or exhaustible but "endogenous," says he, driven by government spending, which boosts private income, consumption, and investment. Unlike individuals and businesses who see income as beyond their control, the government, following Keynesian principles, can step in when demand falters. By increasing fiscal spending and liquidity, it can generate demand where the private sector won't, matching purchasing power with the willingness to spend.
Xu argues that the real limit on stimulus isn't money supply—it's supply capacity. Rising inflation and trade deficits mean domestic supply can't keep up with demand, making further stimulus risky. But when inflation is low and there's a trade surplus, it signals excess supply, making stimulus "not only feasible but also essential."
Yuxuan JIA and BU, Xiaoqing
15 comments:
Does this mean he has permission to advance this critique?
That's a reason to invade China. The truth must never be spoken.
Sticking with your conspiracy theories,,,,
"driven by government spending, which boosts private income, consumption, and investment."
Right out of William Vickrey's "Fifteen Fatal Fallacies of Financial Fundamentalism."
Sound finance socialists dont like it. in this era, at least, at any given time/for any given center/left coalition, there is more support for progressive spending than can be 1:1 offset by the progressives taxes supported by the same coalition.
The reason why we dont always see this manifest in the kind of progressive deficit politics it implies would be optimal is because that some of that same coalition prioritises concerns about limiting deficits & reducing the national debt over progressive spending commitments.
For people wanting to improve political prospects for more progressive spending, that leaves two options:
a) build consensus support for higher taxes,
b) weaken opposition to deficits/national debt.
Obviously, support for higher taxes & rejection of deficit/debt phobia is not mutually inconsistent, and can even be mutually reinforcing in terms of building political power and a coherent equitable policy programme.
But implementing those tactics obscures the fundamental incompatability between the two ways of responding to the initial problem. Therefore, there is a trilemma implied by the broad center/left coalition's current political commitments.
1. Sound Finance Beliefs
2. A Certain Rate of Taxes
3. More Spending Than That Certain Rate of Taxes Can Offset on a 1:1 Basis
Assuming for a second that everyone agrees that we want 3, the question then becomes, do we achieve that by fighting 1, 2, or both? And if both, in what combination?
One way to do this is to accept 1.the sound finance framework, and argue that 3 requires changing 2, ie more taxes.
In the long run, however, this means that your ability to change 3 will always be limited by the politics of 2. A certain rate of taxes.You may achieve some success, but not necessarily enough.
Another way is to exclusively challenge the sound finance framework (ie 1), is conceding 1 as a fixed constraint. However, This, too, in the long run, means your ability to change 3 will always be limited by the politics of 1.the sound finance framework.
The obvious approach is to challenge both 1 and 2, ie try to get highest taxes you can, while arguing for deficits being okay for the remainder.
But this approach doesn't simply lie at the middle ground of the other two approaches. Making the case for higher taxes and less deficit/debt phobia requires making the case for both only in ways that support the other, and not in ways that undermine it.
In other words, a politician that believes the best way to increase space for public spending is to increase taxes should avoid any narratives or strategies that reinforce the idea that debt/deficits are bad or that spending must be paid for 1:1 to be justified.
Conversely, a politician that believes the best way to increase space for public spending is to reject deficit/debt-hostile approaches should not adopt any strategies that reinforce the idea higher taxes are bad or that we should oppose increasing taxes that lead to more needed public spending.
The interesting question, then, becomes whether even the act of pointing out that taxes don't fund spending, or that large budget deficits/high debt can be sustainable is inherently undermining the case for higher taxes.
In other words, is the MMT-specific strategy for fighting 1 the sound finance framework inherently at odds with the interests of those that want to prioritise fighting 2 a certain rate of taxes ?
Obviously not due to the politics of the Laffer Curve.
Nowadays, the Laffer Curve is treated as a theoretical joke, an example of unserious, populist econopolitics. But anyone who hasn't been asleep for the past 40yrs has to appreciate just politically successful the idea has been. "Why can't we just tax billionaires at 100% of their wealth?" "Well then there wouldn't be any billionaires, which means a billionaire tax wouldn't raise revenue" etc, etc, etc, blah, blah, blah.
So rhetorically, if not theoretically, the idea that there is a "sweet spot" in setting taxes has become conventional wisdom, the kind of common sense thing a politician from both sides will regularly say when explaining their views on optimal tax rates.
The problem, of course, is that this becomes not only a policy constraint, but a political constraint on the organising efforts around higher taxes. Instead of articulating a demand for 100% tax on billionaires, and waiting to negotiate that down when compromising, that demand.
Itself becomes for a much milder tax rate, because the goal is to advocate for not just high taxes, but high taxes that will bring in the most revenue (thus making the most space for more spending under a deficit-constrained politics).
This was very visible in the 2020 primary with Senator Warren's proposed wealth tax of, as she loved to say, "just two cents" on every dollar above $50million. Just two cents! With that kind of "pain," who needs pleasure...
Bernie did it all of the time. The left collation the world over do it all of the time.
Now contrast this with the progressive MMT-informed strategy, which says that you don't need higher taxes to 'fund' spending, but that it is still desirable to have higher progressive taxes for all sorts of equitable/distributionary and demand-related reasons.
Under this strategy - and this is the crucial point - it is *entirely consistent and coherent to advocate for 100% taxes on the rich, and for very high tax levels regardless of their revenue-maximising impact*, and leave any negotiating downwards to the political compromise process.
In other words, the MMT approach to arguing for higher taxes provides *more* of a justification/defense for higher taxes ( 2), even when doing so appears to be inconsistent with goal (3 ) (more spending under deficit-constraints).
Than a strategy of pushing for higher taxes exclusively oriented towards achieving goal (3).
When you are trying to maximise progressive spending by maximising progressive tax revenue, thereby reducing the need to be covered by deficit-spending, & you do so by arguing for progressive taxes as revenue-raisers, you end up making a *weaker* argument for higher taxes than if you had framed your argument for higher taxes in non-revenue-raising language in the first place.
Why does this matter?
It matters because even if you're in a left wing coalition, ie You've Learned To Stop Worrying and Love Taxation, there's still a really big difference in the strategy and tactics of trying to achieve that goal through leaning into sound finance logic, or in rejecting it.
The MMT approach, is the far stronger one, even if your goal is narrowly just to maximise overall tax rates.
We can self-negotiate and play silly napkin games debating the optimal tax rate to maximise revenue, and end up stuck forever in the world of "2 cents on every dollar above $50 million", or "should the corporate tax rate be 22 or 25%", and in doing so consign the entire macro progressive paradigm to the constraints of Laffer Curve politics.
Or we can ignore those games, push for three good things simultaneously (more spending, more taxes, and less deficit/debt hysteria), and make the best case for each one on their own merits.
Sound finance socialists simply can't see it and wander relentlessly down the wrong path.
Danny Blanchflower and Richard Murphy and Gaurdian commitariat have just spent 3 weeks playing silly napkin laffer curve games. The leaders of the Scottish independence movement have played the same game for over 70 years.
Some ppl like to criticize MMT for suggesting we can do big spending programs without 1:1 commensurate tax increases. For some, it takes the wind out of the debates for taxing the rich (it doesnt). Others think it's fantasy to think you can spend big w/o higher middle class taxes.
Mainly because of the trilema the left find themselves in and the strategy the sound finance socialists have taken.
But, once you get past all of rhetoric and incoherent conflation of nominal and real variables, what this critical view really boils down to is the argument that it's better for progressives to adopt a Manchin-style strategy in budget negotiations.
The MMT position has always been that it's both unnecessary and self-defeating to pick two fights at the same time - one over the spending program, another over the taxes that people want to tie to it. The Chinese would never play that game.As this two-front strategy usually means loss on both.
Do these morons actually believe we're going to see those long-dreamed of progressive tax hikes, vs just less public investment?
That the progressive tax hikes are going to win and that they will get more not less public investment.
They very clearly don't know how to deal with the trilemma they face and always choose the wrong strategy.
It has been quite comfortable without little stress.
Short GBP/USD @ 1.3216. 1.3121. 105 pips profit
Short EUR/ USD @ 1.1125. 1.1085. 40 pips profit
Short AUS/USD @ 0.6785. 0.6702. 83 pips profit
Short NZD/USD @ 0.6244. 0.6168. 76 pips profit
And
Long USD/CAD @ 1.3463. 1.3585. 78 pips profit
Long USD/JPY @ 1.4429. 1.4086. -343 lips loss
Long USD/CHF @ 0.8433. 0.8466. 33 pips profit
415 - 343 = 72 pips profit
I'm not worried about USD/JPY at all just need the oil price to keep rising to $ 80 from these current lows.
Zombie noise like inflation results, trade results, manufacturing etc has stretched the elastic band on the others. They'll all forget about that zombie noise if oil keeps rising from here.
And yes my prediction that the 10 year yield will rise if oil keeps rising from the current lows will hopefully also come true.
Will be very interesting to see what happens.
A week afo, Gave Robert Balan and Alan Longbon all the information I gave you guys regarding the $ being On an oil standard. Posted the information on their recent seeking alpha articles.
NOTHING !
Normally they are below the line within hours to refute any false claims. They are simply looking for any chart that can find to refute my claims and can't find anything in their back office of many charts.
I'm really looking forward to their response. When it arrives.
Taxing the rich to give to the poor is actually a transfer. Money is transferred from those who failed to spend, to those who will.
You can't tax the rich, because the rich have power. They just pass the cost on to others via price rises and wage suppression, which the state then kindly validates with its spending. In effect if you 'tax the rich' then you are delegating who and what to tax *to* the rich. This is the entire problem with the framing using the work 'tax'. Really there is a National Contribution which has to be broad based and which results in there being fewer private sector jobs on offer, thereby freeing up the people for the public sector to hire.
Tax Incidence matters.
I doubt the rich can pass the loss from significant taxation on to anyone. 30%, 50%, 100%, once it's gone, it's gone. The power of taxation enrages them. Unlike the destruction of money, transferring funds from hoarders to spenders is good for an economy.
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