J. D. Alt — The Great Italian Experiment (part 2)

As I said, Italy, is now experimenting with paying for public services with tax credits. Presumably, this is happening because Italy doesn’t possess enough Euros to pay its citizens to provide all the goods and services needed to maintain and run the public sector of its social economy. And Italy can’t “create” the additional Euros it needs because that prerogative is the exclusive right of the EU Central Bank which Italy, even as a sovereign member of the EU, has no control over. But, as the news article explains, Italy still needs to have the grass mowed and the weeds pulled in its public gardens. So it has decided (out of desperation, the article implies) to pay the gardeners with tax-credits. The gardeners are willing to do the work in exchange for the government’s tax-credits, because it means the Euros they earn (in other ways) can then be used to purchase goods and services rather than for paying their taxes. So, in practical terms, it is “just like” getting paid in Euros.

This, in fact, is way more interesting than it seems. In fact, it might even be mind-expanding! Here’s why:

Nice post that lays out a lot clearly in a few simple words. Well done.

Part 1.

New Economic Perspectives
The Great Italian Experiment (part 2)
J. D. Alt

J. D. Alt — Italy’s Great Experiment

Italy is experimenting with giving tax-cuts to its citizens in exchange for public services―such as pulling weeds and cutting grass. Wow. What an amazing idea! The government issues a tax credit, and uses it to pay a citizen in exchange for the citizen’s services to the government. The government could even make this arrangement more formal by printing the tax credits on pieces of paper called “LIRIES” (or something like that) and paying for the weed-whacking services with this “cash.” That way the citizen who’s earned the “LIRIES” has the option of using them as payment to another citizen (who’d also like a tax-cut) for, say, a bag of potatoes.

New Economic Perspectives
Italy’s Great Experiment

J. D. Alt

Biagio Bossone & Marco Cattaneo — Greek Parallel Currency: How to Do it Properly

According to several recent media reports, both the Greek government and the ECB are taking into consideration the possibility (for Greece) to issue a parallel domestic currency to pay for government expenditures, including civil servant salaries, pensions, etc. This could happen in the coming weeks as Greece faces a severe shortage of euros. 

It is important to stress that the introduction of a Greek parallel currency could take place in at least two ways, with deeply different implications. The first avenue would be for Greece to issue IOUs, i.e., promises to pay to the bearer euros upon a future time expiration. Basically, these IOUs would be euro denominated debt obligations issued and used to replace euros to pay salaries, pensions, etc.

The second avenue would be to issue Tax Credit Certificates (TCC) and assign them to workers and enterprises at no charge.[1] TCC would entitle the bearer to a tax reduction of an equivalent amount maturing in, say, two years after issuance. Such entitlements could be liquidated in exchange for euros and used for spending purposes. Liquidation of TCC would take place against purchases of TCC by those who would provide euros in exchange for the right to the future tax cuts.….

The first involves borrowing in a currency that Greece does not control. Increases indebtedness in euro and kicks the can down the road. Bad idea.

The second is free money. Good idea.

The TCC avenue would clearly be a superior solution, and would allow Greece to stay in the Eurozone, while stimulating demand by increasing citizens’ purchasing power, reducing domestic labor costs, and significantly increasing GDP. This would also generate, in due course, higher gross tax receipts (which would offset the shortfall in euro fiscal revenue due to TCC issuance).

Economonitor
Greek Parallel Currency: How to Do it Properly
Biagio Bossone & Marco Cattaneo

Warren Mosler on the role of government and the relationship of currency creation, employment and taxation.

Lifted from the comments at Bill Mitchell's billy blog

warren mosler says:

Monday, November 25, 2013 at 23:07

Good post, as always!

Let me add that I like to say it this way.

The purpose of taxation is to create unemployment as defined: people looking for paid work.
Govt does this to provision itself.
It taxes in something no one has- the $A- which creates sellers of real goods and services (unemployment) presumably so the govt. can then hire them to provision itself.

So what’s the point of creating more unemployed than the govt wants to hire? Or, said another way, what’s the point of creating the unemployed govt wants to hire and then not hiring them?

There is no point, of course, and wouldn’t be under by anyone who understood how it works.

Furthermore, the $A is a simple ‘tax credit’ as its only ultimate use is to pay taxes.

That is, when the govt spend a $A, that dollar is either
1. used to pay taxes and is lost to the economy, or
2. is not immediately used to pay taxes and remains outstanding until it is used.

The govt. allows those unused tax credits to be held in three forms- as actual cash, as cash balances at the reserve bank, or as balances in securities accounts at the reserve bank called Treasury securities.
The total of the three is the national debt.
The national debt is simply the total tax credits spent but not yet used to pay taxes.
And so the question of ‘how is it going to be paid back’ is entirely inapplicable!

So why does the economy need a deficit (tax credits spent and not yet used to pay taxes)?
Exactly as Bill says- to accommodate the desire to net save.

bottom line- unemployment is always and necessarily the evidence that the govt hasn’t spent enough to cover the need to pay taxes and the desire to save.

same thing, other way around- If the tax unemploys more people than the govt hired, it should cut the tax or hire (directly or indirectly) the rest of the unemployed.

Best!
Warren
http://www.moslereconomics.com
twitter @wbmosler

Mepoc — The Mosler proposal for funding reconstruction in the city of L’Aquila

On the 6th of April, 2009 the Italian city of L’Aquila, located in the region of Abruzzo in central Italy, was hit by a high magnitude earthquake that killed more than 300 people. The quake destroyed many historical buildings in L’Aquila including medieval churches, basilicas and cathedrals. Important structures which collapsed included the National Museum of Abruzzo located in a 16th-century castle, the oldest gate to the city, and the Church of St. Augustine which held the state archives.

The goal of the Italian government is still for total reconstruction, but EU constraints on public spending limit the funding.

Given the apparent lack of funding to rebuild the city, Warren Mosler proposes the following plan for finding six billion euros for L’Aquila....

Mepoc
The Mosler proposal for funding reconstruction in the city of L’Aquila
Andrea Terzi