By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. Originally posted at New Economic Perspectives
In previous instalments we have established that “taxes drive money”. What we mean by that is that sovereign government chooses a money of account (Dollar in the USA), imposes obligations in that unit (taxes, fees, fines, tithes, tolls, or tribute), and issues the currency that can be used to “redeem” oneself in payments to the government. Currency is like the “Get Out of Jail Free” card in the game of Monopoly.
Taxes create a demand for “that which is necessary to pay taxes” (and other obligations to the state), which allows the government to purchase resources to pursue the public purpose by spending the currency.
Warren Mosler puts it this way: the purpose of the tax is to create unemployment. That might sound a bit strange, but if we define unemployment as a situation in which job seekers want to work for money wages, then government can hire them by offering its currency. The tax frees resources from private use so that government can employ them in public use.
To greatly simplify, money is a measuring unit, originally created by rulers to value the fees, fines, and taxes owed.
By putting the subjects or citizens into debt, real resources could be moved to serve the public purpose. Taxes drive money.
So, money was created to give government command over socially created resources.
As Warren puts it, taxes function first to create sellers of real goods and services, and have further consequences as well, including what falls under ‘social engineering’, which are political decisions—something we’ll discuss a bit more below.
This is why money is linked to sovereign power—the power to command resources. That power is rarely absolute. It is contested, with other sovereigns but often more important is the contest with domestic creditors. Too much debt to private creditors reduces sovereign power—it destroys the balance of power needed to govern.
We also know that money’s earliest origins are closely linked to debts and recordkeeping, and that many of the words associated with money and debt have religious significance: debt, sin, repayment, redemption, “wiping the slate clean,” and Year of Jubilee. In the Aramaic language spoken by Christ, the word for “debt” is the same as the word for “sin.” The “Lord’s Prayer” that is normally interpreted to read “forgive us our trespasses” could be just as well translated as “our debts” or “our sins”—or as Margaret Atwood says, “our sinful debts.”
Records of credits and debits were more akin to modern electronic entries—etched in clay rather than on computer tapes—than to what is erroneously called “commodity money” such as stamped gold coins. And all known early money units had names derived from measures of the principal grain foodstuff—how many bushels of barley equivalent were owed, owned, and paid.
All of this is more consistent with the view of money as a unit of account, a representation of social value, and an IOU rather than as a commodity. Or, as we Chartalists say, money is a “token,” like the cloakroom “ticket” that can be redeemed for one’s coat at the end of the operatic performance.
Indeed, the “pawn” in pawnshop comes from the word for “pledge,” as in the collateral left, with a token IOU provided by the shop that is later “redeemed” for the item left. St. Nick is the patron saint of pawnshops (and, appropriately, for thieves who pawn their stolen goods), while “Old Nick” refers to the devil (hence, the red suit and chimney soot—and “to nick” means to steal) to whom we pawn our souls.
The Tenth Commandment’s prohibition on coveting thy neighbor’s wife (which goes on to include male or female slave, or ox, or donkey, or anything that belongs to your neighbor) originally had nothing to do with sex and adultery but rather with receiving them as pawns for debt.
Somehow, the admonition “Don’t covet thy neighbor’s donkey” just doesn’t have the right ring to it today.
We all know Shakespeare’s admonition “neither a borrower nor a lender be”—and religion typically views both the “devil” creditor and the debtor who “sells his soul” by pawning his wife and kids (and four footed friends) into debt bondage as sinful—if not equally then at least simultaneously tainted, united in the awful bondage of debt.
And, as we know, Lucifer records the debts—of the souls he will collect. He’ll sell you a good time now, but your soul lies in the balance. You buy now, you pay forever. Sort of like Student Loans in America.
For most of humanity today the original sin/debt is to the tax collector, because as they say, the only things in life you cannot escape are death and taxes. Old Nick has a lock on both of those—the tax collector who calls at death.
It is said that only death can “wipe the slate clean” as “death pays all debts;” however, once your soul is sold, there is no escape because hell is the roach motel—you’ve checked in and you will never get out. But Christ is the redeemer—he’s a sin eater, repaying your debts to let you sinners get to heaven.
You can redeem your tax debts by delivering the sovereign’s own IOUs in payment. Widespread debts to the sovereign ensure widespread acceptance of the sovereign’s own IOUs. This means that many will work for the sovereign, or work to produce what the sovereign wants to buy. Even those without tax debts will work for the sovereign’s IOUs knowing that others need them.
This is now the most common way that sovereign government moves resources to the public sector: In recent centuries through taxes, although as we go back in time, other liabilities such as fines, fees, tithes, and tribute were more important.
Of course, there are other ways to move resources to the public sector. On one end of the spectrum of alternatives we have the military draft or eminent domain. On the other we have volunteerism—Peace Corps or VISTA.
For many purposes, however, “monetization” has proven to be more effective for a variety of reasons that need not detain us now. Monetization proceeds in two steps: the first is to impose a monetary tax and the second is to put a monetary price on the resources government wants.
(That leads to issues related to pricing power and hence inflation—topics for another day. As monopoly issuer of the currency that is required to “get out of jail free”, sovereign government potentially has a great deal of power to set prices that it pays, far more than it normally exercises. Not saying that it necessarily should exercise those powers, however, this is part of MMT’s answer to hyperinflation hyperventilators.)
From this vantage point, taxes do not “pay for” government spending. Indeed, no taxes can be collected until government has spent. Taxes create a demand for the government’s spending and logically precede that spending.
As we’ve argued, it is neither correct nor politically sensible to link “give to the poor” policy to “tax the rich” policy. The purpose of the tax is to free up resources to pursue the public purpose—including anti-poverty programs.
But our tax system is already doing a HECKUV A JOB creating unemployed resources. We can spend on the poor (and on a full range of other public policies) and thereby mobilize those unemployed resources. We do not need more taxes—now—to cause even more unemployment.
If Congress ever got hold of its senses (no, I’m not holding my breath), it would increase spending (or reduce taxes) to employ idle resources. At some point (probably later rather than sooner) we could come up against resource constraints. At that point we might need to curtail spending and/or raise taxes.
We can examine how to deal with the happy problem of chock-full employment later—we haven’t seen it in the US since WWII and it isn’t on any horizon at present.
Taxes can serve other purposes, too, as I’ve argued earlier in this series. We can use taxes to discourage “sins”—in which case the purpose of the tax is to eliminate “sin” so the optimal sizing of the tax would eliminate sin and hence raise no revenue at all.
Previously, I argued that we can view excessive riches as a sort of “sin” that we want to tax away. Some commentators have argued that high tax rates on high incomes in the early postwar period “worked” by discouraging corporations from paying high incomes to top executives. Exactly! That is how sin taxes are supposed to work. The goal is not to raise revenue but to reduce sin.
I have argued that “predistribution” rather than “redistribution” works better. Once you’ve let the rich become super rich, they have the incentive and the power to defeat the effort to tax them. In my view, those horses have already got out of the barn.
Warren Mosler puts it this way: it is better to tackle inequality at the source. You tackle inequality at the bottom by providing jobs. MMT supports the job guarantee.
You tackle it at the top by constraining the rewards. Warren agrees that high tax rates on the rich is a legitimate political decision, and falls under what he calls social engineering (not to raise revenue but to change behavior). However, he’s proposed what might be more effective measures, such as eliminating treasury securities (that provide interest income to rentiers), banning stock ownership by pension funds backed by the federal government (PBGC), and regulations to constrain and narrow permitted banking activities–all of which remove most of the highest incomes in question at the source.
I’d add limits on executive pay packages at corporations.
We’ve already hinted that a broad-based tax makes sense if the goal is to move resources to the public sector. However, we need to also look at issues of fairness and incentives.
This series will continue with a look at which taxes make the most sense from a public policy perspective.
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This all sounds rather sensible to me.
But I suppose that the usual culprits will find holes in it,imaginary or otherwise.
Of course they will. That’s the point of no magic pony. There is nothing that will hey, presto, call any of this into being. Let history be your guide.
” I have argued that “predistribution” rather than “redistribution” works better”
Argued persuasively? LOL. Read this link:
http://www.pruningshears.us/pruning-shears/2014/5/26/mmt-as-antagonist-of-democracy-and-tool-for-entrenching-ineq.html
I like Ramanan’s commnet:
“Nice post on Mosler and Mosler’s Toadies (MMT)
Reduction of tax rates and tariffs seems to be an agenda for them under the disguise of “monetary operations”
Friends of progressives? Yeah, right.
It’s a junk piece filled with Internetspeak, where hyperbolists claim the ability to read the minds and souls of other people. Just like Dubya dis with Putin, although it’s OK when Democrats do it. Does not address a single point in the MT toolkit and demands a perfect system free from human corruption, meaning no one can possibly take it seriously.
It’s also revealing that the best Ramanan, who used to make interesting critiques of chartalism, can do is to call names.
Demanding a perfect system is not too different from demanding a perfect critique of MMT.
One can, in fact, get away with a lot, under the ‘you are demanding a perfect system’ defense.
‘You want peace on Earth? Too much.’
‘Your ideal is equal protection under the law? Too perfect an idea.’
‘You dream of a corruption free world? Don’t take a single step in that direction under that dream.’
Well, maybe. But you should try as hard as you can, while aiming for perfection.
Yes, Beef.
Why bother to clean your house? It just gets dirty again.
At some point Ramanan became a very spiteful character, motivated by irrational hatreds, for some reason.
Why is it that such a large portion of MMTers are so hypersensitive to criticism (especially non academic posters here)? Invectives are always hurled by said MMTers at those who disagree with various aspects thereof. The reflexive nastiness seriously comes off as cultish behavior.
Dan ps’s piece was also cross-posted at Correntewire. He received some very trenchant criticism there, and dd not reply successfully, in my view. But look for yourself.
“At some point (probably later rather than sooner) we could come up against resource constraints. At that point we might need to curtail spending and/or raise taxes.”
We’re already past resource constraints, though admittedly a trained economist are one of those few people who wouldn’t be able to see that. Anyway, It’s a truism for those of us who study disaster survival that the first instinct of humans whenever some emergency pops up is waste every resource in sight just as fast as they can. Thus people who survive a plane crash for example can be expected to gather up whatever food and water they can and consume it within the first day or so because “help will arrive soon”.
Social theories like the one outlined above, those that give rational-sounding reasoning for why it’s ok to profligately waste the dwindling resources left to our society, reaffirm to me just how patently hopeless the situation is. Civilization as we know it today is already a lost cause. People interested in survival from now on will be paying close attention to self-sufficiency, self-defense and resilience at the local community level. About the only thing real people can do who are interested in survival is defend ourselves from those who, for whatever ideological reasons, want to sabotage those efforts.
Apparently there’s a secular cycle in popular agitation for easy money. In the 1890s, the free silver movement culminated in Wm. Jennings Bryan’s ‘cross of gold’ speech. In the 1930s, Frank Roosevelt devalued against gold, creating what Herbert Hoover called the ’59-cent dollar.’ In the 1960s, Keynes’ bancor came briefly to life with SDRs, but rising inflation and the collapse of the Bretton Woods dollar-reserve system quickly put the kibosh on that MacGyver.
Now behold the MMT unicorn brigade, brightly feathered, saying ‘Forget the night. Live with us in forests of fiat. Out here in the perimeter there are no stars. Out here we is sovereign — immaculate.´
Over in the real world, that Bubble III threatens to trounce Bubble I for the title of ‘greatest global bubble ever’ fazes them not in the least, as the dollar devaluationists cry for more gasoline to be thrown on the blazing monetary fire. Pass the hookah, bro …
Sustainability has nothing to do with how much sovereign money is printed up. It has everything to do with how that money is used. If there is a national and/or global consensus that our top priority as the apex species on this planet is to save the planet then MMT is a good working model. Beats the hell out of free market capitalism nonsense.
Just silly rhetoric with little cognitive content, and insofar as it has any it is wrong, since as it happens, the country would have been better off if Bryan and the populists had won, was better off under FDR and in succeeding years, and probably would have been better off it Keynes’s advice had been followed.
“At some point (probably later rather than sooner) we could come up against resource constraints. At that point we might need to curtail spending and/or raise taxes.”
Money spend/printed under MMT (MMT Money) is imperial money, being the reserve currency of the world (or much of the world).
As such, a small, non-imperial country will run into hyperinflation sooner than the empire itself, which, has the whole (or most of the whole) world’s resources.
For the MMT imperialists, in the mean time, it means a Wall Street mega bank, who can tap ZIRP imperial MMT money, can buy up the rest of the world, theoretically, and in practice, quite a lot.
Backed by the persistent beating for to small, helpless nations to open their economies and float currencies, it’s easier to channel the flood of MMT imperial money away from the resource-constraints-weary imperial core, never mind what this will do to small, local economies.
So, instead of a small MMT resource-constrain itself, the MMT empire will be resource-constrain the whole world.
No, MMT applies to any sovereign currency issuer, not just the US, so the pound, the Swedish krona, Canadian and Australian dollar, Chinese renminbi, etc.
Hyperinflation takes very specific conditions to create, namely, destruction of large amounts of economic productive capacity. I seem to recall numerous predictions that QE would create hyperinflation and here we’ve continued to undershoot the Fed’s inflation targets instead.
From Ed Harrison, emphasis original:
…. the problem in each case was a loss of productive capacity, foreign currency liabilities, and a loss of the ability to tax. When the economy is overheating, traditionally we think of interest rates, the price of money, as the mechanism which government could use to slow things down and bring inflation to heel. However, fiscal policy is effective here. If government increases taxes, it cools the economy and reduces consumption, relieving the pressure on productive capacity. Thus, the loss of the ability to tax is central in hyperinflation.
http://www.creditwritedowns.com/2011/04/on-hyperinflation.html
Invoking hyperfinflation is generally a way to undermine your own credibility. I suggest you find better arguments.
I agree with you that hyperinflation is rare, especially when that one’s exceptional country’s money is good anywhere in the world.
If that excess money is confined to a small country, we will see overheating sooner.
As for taxing to cool the economy, reading the quote from Harrison, I believe, in practice, it’s how fast can taxes be increased. A slow-to-act Congress will not be useful.
I believe there is only one true sovereign currency issuer – the one with the reserve currency status – in the world. The rest, if not now, the possibility always exists later, will have the IMF looking to come in and impose their monetary cures.
By the way, Yves, I don’t see hyperinflation in the offing (here in this country even with QE) and I did not write we would see one soon (or some time later). There are many places in the world that money could go.
I just pointed out that with a smaller country, one would run into resource constraints sooner than the most powerful country in the world.
We did see various news analysis how it works with the bi-lateral case of US-China. Our trade deficit/their surplus causes an influx of dollars to Chinese companies. They then go to a Chinese bank and exchange them for yuan for payroll and bills. The PBoC has to print the Yuan – which did result in higher inflation than anyone would like (in food as well as real estate). The PBoC then has surplus dollars that it buys US treasuries with. It can be worse with smaller countries.
Then there are the financial “investment” flows both direction – and reversals. But that’s another story to deal with.
But if anyone does ever get hyper-inflation, that just means that something big broke a little while ago, and now it’s time to turn out the lights.
” You tackle inequality at the bottom by providing jobs”.
That depends on how much you’re going to pay for those jobs.
Concrete question: what is the suggested wage, in 2014 America, for JG jobs?
Mosler has argued these jobs should be $8/hour minimum wage “transition jobs.”
http://moslereconomics.com/2012/01/10/proposal-update-including-the-jg/
Thanx, Mosler. Try one out for a few months and tell me what you think.
Not bragging, but I could handle it when I was 18.
Now, I am too old for that or too burdened for that.
Didn’t we all. Of course, I still lived in my parents home, so a living wage wasn’t an issue. And, too, $8 an hr doesn’t go nearly as far now as it did in the 50s and 60s. Eight dollars an hour is shit money now. Is it better than nothing: try thinking about that stretching as far into the future as you can see. “Transition” low wage is permanent low wage and Mosler’s kind know that. Cheap labor, any way you slice it.
That would be about $300 a week. It would hardly make a dent in addressing inequality.
The assumption here, about addressing wealth inequality, is for all you non-billionaires to narrow the distance to something ‘humane’ with the billionaires….from the bottom up…’at the bottom.’
I imagine that means we should all work hard to be worth somewhere north of $100 million.
Thus, a monetary journey of $100 million starts with $300/wk job (not for a few lucky ones) for all those at the bottom.
I think it’s easier (or more just) to make hundred-milionaires out of billionaires via taxation.
With $8 per hour, after working for some 6 thousand years the JG beneficiary would finally hit that $100 million mark.
Since HF managers earn ten times that amount in barely one year, we should perhaps conclude that the JG scheme would definitely fail to address the “inequality problem” in the U.S.
Billionaire: ‘Boy, it’s your job to make yourself decent. If you are not a hundred-millionaire by the age of 30, you’re just plain lazy.’
i think these posts re: MMT and taxes are very instructive about the real cleavage between the left and the expansive Dembot veal pen. The jobs guarantee vs. “increased” minimum wage as a means to reversing inequality is a no-brainer. The Dembots and their minions are pushing the latter, though increasing the nominal floor on wages does nada for those that have been disemployed. The jobs guarantee isn’t perfect but providing employment to those willing to work pushes up wages for everyone:
(1) if everyone willing and able to work can secure employment, they are likelier to have more than one job offer;
(2) ceterus paribus, people will select the offer that pays them most;
(3) when this individual decision is aggregated, it effects an upward pressure on everyone’s wages.
“increasing” the minimum wage, conversely,
(1) incentivizes employers to shift more people to part time status (with the additional “benefit” of funneling more people into the ObamaCare junk insurance cartel);
(2) puts a downward pressure on people’s wages who currently make slightly above the new miniumum;
(3) provides more opportunities for rentiers to extract any new wages that do materialize (previous “increase” quickly followed by the banksters getting a bunch of free money that more than negated any potential increase in living standards that might’ve been conferred by increased wages).
Also, I have to address the green perspective that us proles have to do without. First, the jobs guarantee can be designed to deal with the environmental crises that await: local food production, construction to save coastal population centers (extensive canal networks), and extensive renewable energy sources that are publicly-owned. Or we can use the libewal/pwogwessive argument that proles have to suffer for the sins of our bankster overlords…Seems like a classic brObot argument…
We’ll see how “increasing” the minimum wage and “increasing” taxes on the rich (b/c they don’t have tax attorneys and accountants to take aggresive tax positions…) works out. At least it’ll get more Dems elected, and isn’t that what really matters?
MMTers disagree on what the JG wage ought to be. Randy Wray has proposed $15.00 per hour. Other $14.00 or $12.00. My own proposal is for a regionally adjusted JG wage based on the cost-of-living. I’ve proposed it start at $10.00 per hour in the lowest cost areas of the United States; and vary up to $24.00 per hour in the highest cost of living area such as the middle of New York City. Nor, am I holding a brief for these specific figures. MMT proponents of the JG have always said that its hourly wage ought to be a living wage, so if a living wage in the middle of rural Kansas or rural Mississippi or the UP of Michigan is greater than $10.00 per hour than I’m for the JG paying that wage. So, I don’t think the issue is whether $10.00 or $12.00 or $24.00 is the right proposal. Instead, the right proposal for a specific cost of living region is the living wage rate for that region. Legislate that, have BLS estimate it for each region, and use it. And let’s stop pretending that a fair living wage is the same all over the United States.
Here.. here…
Individual observations and not silly one size fits all blankets used just for efficiency’s [ideological] sake.
I have argued that “predistribution” rather than “redistribution” works better. Once you’ve let the rich become super rich, they have the incentive and the power to defeat the effort to tax them. In my view, those horses have already got out of the barn.
Look, once again for the the friends of pre-distribution: one of the best ways to bring pre-tax compensation back in line is to return the high marginal income tax rates we used to have, along with the estate taxes and capital gains taxes that have been eliminated. When we had these taxes in place, the United States was a much more egalitarian society, and was even admired around the world for its broad, democratic prosperity.
As Piketty documents, executive super-salaries soared after the huge decreases in top marginal tax rates in English-speaking world post-1980. High marginal tax served as a “protective barrier” against super-salaries; and low marginal rates are an invitation to “mischief.” So the point of high marginal rates is not to redistribute Godzilla incomes after they have been awarded, but to prevent them from being awarded in the first place. And it worked in the past. That’s pre-distribution in action. Returning these high taxes will bring in an initial re-distributive phase, followed by an enduring pre-distributive economic regime.
Randy Wray’s political judgement that it is too late to attack high incomes and vast patrimonial wealth is not compelling. We had a gilded age before; and yet we succeeded politically in challenging concentrated wealth and slapping a confiscatory tax regime on attempts to build incomes and family wealth beyond a certain point. We can do it again. As a measure of the strength of the political commitment needed to do this, I note that there is a book out there calling for just such tax policies, and it is a runaway national best-seller. Tell me about the similarly popular book arguing for a job guarantee.
Promoting jobs, implementing a job guarantee and defending labor will do much to help the problems of the very bottom, but they will do little about the problem of the top. The idea that added wage pressure from the bottom will by itself be sufficient to topple the structure of plutocratic wealth and income is far-fetched. Claiming that the sad state of minimum wage labor and the unemployed are the “source” of inequality is empirically unjustified. The latter problem is certainly something we should do something about, but it’s not an either/or matter.
There is nothing whatsoever in the MMT framework which is inherently opposed to high taxes. You can run MMT-recommended deficits with low taxes and low spending, or with high taxes and high spending, so it would be really nice to see MMT work with others to build a unified progressive framework for a more just and democratic society based on the valuing of work and all forms of social contribution and the elimination of rents, on the equal dignity and economic status of all who contribute to society in whatever way the abilities supplied by nature equip them to do so, and on an unrelenting assault on plutocratic and oligarchic power structures. The recent determination by MMTers to run vigorous anti-tax interference for the holders of high fortunes is both perplexing and disturbing.
And please don’t try to argue that being tough on plutocracy just means putting a few Wall Street and banker baddies in jail. That’s an insult to our intelligence. The problem of plutocratic wealth does not arise predominantly from criminality, but from the entirely legal hunting after gigantic incomes in the form of rents and large salaries and the entirely natural tendencies toward wealth-concentration and inequality that exist in unrestrained capitalist systems. There are many things we can do to change this system, but putting a confiscatory tax regime in the way way of would-be plutocratic titans is certainly one of the most important.
You don’t believe elite criminality is pervasive?
It’s pervasive, but that’s not why there is a dramatically unequal wealth hierarchy in the United States. The criminally-gotten gains are just a little icing on the plutocratic cake.
The control frauds of the elites and their successful buying of politicians were both a major cause of the Great Recession and the increased flow of income in the many Trillions to the elites. Do you really think this is just a little icing on the cake?
Are elites on average more criminal than the middle class or poor folks? No.
The system is corrupt, especially in that it allows gross wealth concentration into the hands of the few, thereby jeopardizing our democracy. Putting all the elites in jail is silly. Predistribution is silly too. Confiscatory taxation worked for decades to narrow the income gap, and defeatism aside, will effectively kneecap oligarchy and give us back our democracy. It alone might not be sufficient, but is sure as hell is necessary.
And, btw, Warren Mosler is no champion of the downtrodden. If Wray hitches himself to Moslernomics then neither is he.
+1
Mostly name-calling, without substance. But on the point of whether the elites are more criminal than the middle class or poor folks on the average, who cares?
The question is whether the elites have been engaged in control frauds that have resulted in the redistribution of trillions from most people to the elites? I think the answer to that is yes, as documented at this blog for some years now in posts by Yves, Bill Black, and others. If the law were applied to the elites as well as to others, we might well have in excess of 100,000 in prison right now, and that would have been well-deserved.
The argument that the super rich are too powerful already to allow us (if we were the government) to change and enforce the tax code, or other rules governing financial predator behavior, is certainly something to worry about. But that would also mean the government can’t do anything that doesn’t please the overlords, and as it turns out, they expect the government to serve them as well, like furnish a military to [strikeout]defend our borders [/strikeout] defend US imperialism, allow the Royal Bloodlines to flourish, etc….
So that argument, tho valid, makes everything a none starter – except maybe being tossed a few bones without much meat on it.
Actually I feel quite strange – I think I’m turning out to be a better commie pinko than Wray!
You crazy commie pinko.
And you want to hand over unlimited spending power to the government controlled by the elites whom we are too powerless to change/to tax…BECAUSE ‘the super rich are too powerful already to allow us (if we were the government) to change and enforce the tax code’ ??!?!?!?!?!
Yes, hard to tell where that could lead. Maybe we’ll get re-purposed Predator drones on “estate patrol” over the Hamptons and other elite enclaves keeping their borders safe?
Demand for Midget Tossing resulting in a Job Guarantee career path?
Does make me nervous.
That reasoning sounds worse than the French…at least they put up some fight before surrendering.
All they had to fight was sword technology.
But maybe things won’t get that bad. For instance – if you are a “bleeding heart liberal”, perhaps Midget Catching will be on the menu of Job Guarantee career paths.
“Release the drones!”
Once you’ve let the rich become super rich, they have the incentive and the power to defeat the effort to tax them
—–
LOL! He is denying the birth of the US.
The first one to get the freshly printed money is always the winner… so even if you get rid of the current crooks, you will create new crooks.
We need to be talking about how to set up groups of referees, not about whether the government spends before or after taxing.
Trillions were transfered due to elite criminality over the last thirty years. But you go right on absolving financial frauds of guilt and focus on your tax. How many tens of billions as a fraction of the monies gained by fraud has JPMorgan paid out in the last four years? Do you know? And that was only one bank. We now know the price of virtually everything on the planet is rigged due to planetary interest rate fraud, but you go right on arguing the elites couldn’t help it; they got got all that money because they’re victims of their own capital which, gosh darn it, just won’t stop filling their pockets.
C’mon, nobody’s absolving anybody. By all means clean up capitalism and punish the lawbreakers. But when that’s done it will still be capitalism, driven by the same inequality-producing forces capitalism has always been driven by; the same urges to dominate, accumulate and concentrate power; the same hierarchy of owners over workers.
Giant banks don’t need the cheat and steal to consolidate vast fortunes for the wealthy and maintain the underlying social engineering of plutonomy, or whatever they are now calling it. The Walton family doesn’t need to cheat to award themselves vast capital incomes out of their company’s revenues and pay their employees chicken feed. It’s perfectly legal. That’s how capitalism works. Plutocrats don’t need to break the law to subvert democracy, advance their personal interests and veto the popular will with the sheer power of wealth. Money talks in a thousand perfectly legal ways. And most of the criminality consists in rich people defrauding other slightly less rich people. If we clean it all up, many of the well-off will be happier. But what about the bottom 2/3rds of society, most of whom do not have a “portfolio” to speak of.
Mosler suggests getting rid of treasury securities and directly regulating CEO salaries. Good. Higher taxes will accomplish many of the same things, and they will also address capital gains and inheritance incomes, which salary regulation won’t touch.
The greatest surge in inequality in the last thirty years occurred due to the Global Financial Crash when tens of trillion in wealth owned by the middle class and the poor was destroyed; it wasn’t a return on capital which caused that, it was criminality.
So, even under MMT principles the government would still need to tax in order to have money to spend? If taxation is needed merely to encourage the people to accept the currency and to combat inflation, what will be the benefits of MMT overall? Are they limited to provide social programs with increased funding compared to today? I don’t understand the use of the terms “deficit spending” and “deficit” on MMT blogs. Will we still have a debt ceiling?
Sometimes I understand some MMT bloggers to say that governments which adopt their theories will be able to do all kinds of wonderful things that will help the people. But then I read this and Wray’s other posts in this same series, and it seems that he is talking about keeping the current system but using MMT theories to provide some kind of large stimulus to the economy. Will this stimulus be continuous? Will it be distributed to ordinary people, or to the banks, or large employers?
Taxation is a very bad idea. It is unpopular, and requires a large bureaucracy. The rules, as we know, are complicated, and there are all kinds of cheats. And who gets to decide when, who, and how much will be taxed? All in all, taxation is a very bad idea. A very bad idea.
Sometimes, when I ask questions like this on other blogs I am told two things: one is that I don’t understand MMT and I am given a list of books to read (which I read before I started asking questions). The second thing I am told is that MMT is not interested in making changes; I am told that MMT’s duty is merely to inform the unwashed what is wrong with our current system and how MMT would solve the problems. Is this correct? Why?
So, even under MMT principles the government would still need to tax in order to have money to spend?
Possibly.
Will we still have a debt ceiling?
No.
If taxation is needed merely to encourage the people to accept the currency and to combat inflation, what will be the benefits of MMT overall?
Trickle-up economics
I don’t understand the use of the terms “deficit spending” and “deficit” on MMT blogs.
A budget deficit occurs when government spends more into the private sector than it destroys in taxation.
Thanks for the response.
So, even under MMT we will have to have taxation, and we still will have deficits? I just can’t square this idea with the idea that under MMT we will have an unlimited supply of money. We may not have an unlimited supply of resources but we will have an unlimited supply of money?
Will the issue of deficits still be a political issue and we can be blocked from using our unlimited supply of money by deficit hawks?
Is the only reason we will have taxation under an MMT system to control inflation? How likely is inflation to happen under the MMT system? Is it more likely than today?
Will our budget process be determined by availability of resources, or will it still be determined by availability of money?
Under an MMT system will we still need the Federal Reserve?
MMT tells us we have an unlimited supply of dollars, right now, and the only constraint on spending is how much stuff is available to buy. If government decided to buy ten million cars but only six million were available then throwing more money at the problem won’t make four million more cars appear, it will just drive up prices. Therefore we should focus on being productive enough to build the cars rather than concerned with whether or not we have a budget deficit.
We don’t technically require a central bank. I would keep the Fed to ensure that people always have access to the deposits in their accounts but would take away its interest rate management responsibilities and power to make monetary policy.
And yes, in an economy as heavily dependent on money as the U.S., budget deficits are just going to be a fact of life most of the time; if we in the private sector try to save more dollars this will prevent government from running a balanced budget.
Thanks again. You have helped me a lot.
I agree that high marginal income tax rates, and inheritance tax rates did result in different choices among the wealthy than they pursue to today and that those choices resulted in pre-distribution rather than re-distribution. In fact, the tax systems of the 40s, 50s, 60s, and 70s, were notorious for not being very effective at re-distribution due to all the loopholes the rich were able to get legislated. This was notorious at the time, and it was an important factor in getting “tax reform” passed that began to lower marginal tax rates.
The idea began to spread that there ought to be a trade-off of marginal tax rates for some loophole closing. The idea became popular through a best seller called The Great Treasury Raid by Philip Stern, who was close to Senator Paul Douglas, a famous liberal at that time, and the co-author of the Cobb-Douglas production function in 1928.. The immediate result was cutting of the highest marginal tax rate from 90% to 77% in 1964. This was the beginning of multiple cuts in the marginal income tax rates which culminated in the lowering of the highest marginal income tax to 28% in 1988.
Turning to the question of the effect of putting people in jail to turn the system around. I don’t think it’s right to minimize the importance of that. As many as 100,000 might have been jailed if the application of law enforcement after the crash of 2008 had been as vigorous as the enforcement in the savings and loan crisis of an earlier time.
That kind of enforcement would have had a devastating effect on Wall Street, would have removed moral hazard as an issue for at least some time, would have broken a good part of Wall Street’s political power, and also removed trillions in wealth from those who profited from the crash. The fact that things did not happen in this way led to the five years of recovery which have seen an ever increasing dominance of the political system by the plutocrats. I think these years of further evolution and establishment of the plutocracy would never have occurred if vigorous law enforcement, accompanied by taking the big banks into resolution, and an MMT recovery program of a full payroll tax holiday, State Revenue sharing of 1,000 per person, and a JG had been implemented by the Administration, whether or not more progressive tax legislation had been passed.
In fact, I think that the Democrats would have been in a far better position to legislate new progressive income and inheritance taxes than they are now. Had they passed the above legislation first. Because if they had their would have been no Republican reaction in 2010, and by this year or earlier, the Democrats would have been in fine shape to pass a more progressive tax regime with the full support of most of the public.
Great article!
Modern day debt money is very difficult to explain. You did an awesome of peeling back a layer of the onion.
There are many more layers just with the interplay of “debt money” and taxes.
Everyone wants it but few know the legal consequences of one form of money versus another.
Drug prohibitions are actually a Rube-Goldberg device of tax laws.
People say “How the hell can the gov’t tell me what to put in my body?”
Well it can’t. They make certain taxes laws that ban it. The link to taxes can only be found by digging back through the legislative history of those laws.
Drugs certainly involve commerce since I don’t see people giving them away for free.
The elephants in the room though is usury and the concept of profit.
“When Congress comes to its senses…” also add to that lament when the American people end their complacency, or sense of hopelessness, whichever is their dominant mood, and organize as Ralph Nader encourages to this day, and Saul Alinski–(Google him) put into practice, there will be a chance to see reform as described in this essay.
The thing about redistribution is that what it really does is pump money back into the system. Money needs to circulate in order to be effective. When it pools up and leaves the economy, it becomes useless to everyone. I agree with conservatives that just handing people money creates dependence and destroys motivation over time. Work is integral to a sense of self-respect and contribution.
The problem is that labor has become an burdensome expense to businesses. We need jobs yet the destruction of jobs due to software and robotics is continuing at an ever-increasing pace. The owners of large amounts of capital are not interested in creating jobs, yet they deride those with no work as “takers”. Thus, we are at a political impasse. We cannot create jobs because the owners of capital demand that services be privatized and efficient for profit generation. The job creation engine of the US is irretrievably broken because creation of jobs interferes with corporate profits, and we all know who calls the economic shots.
Right now we are paying a lot of people not to work and will continue to do so for one simple reason: history. A starving population without jobs and hope is a population ripe for revolution. So, we have vast expansion of food stamps, housing support, unemployment, and health insurance in order to keep the populace from burning the place down. We will continue to pay people not to work because the dominant business interests of the country wish it to be so. They do not want to add jobs but they need the populace buying food and paying rents.
This is where we are at today. We pay our fellow countrymen not to work so that large corporations can boost their profit margins by eliminating labor.
“This is where we are at today.”
Your comment is an excellent summary of where we are today. The first step to problem solving is problem identification and description. You’ve done both. What’s next? Is anyone trying to solve the problems you are describing?
I really couldn’t follow this argument at all.
I find it most helpful to analyse strictly in terms of velocity of money. On that basis, the Government quite simply moves money. It takes money and immediately spends it. This seems to me self-evident. The money that the Government spends goes straight back to the private sector. One can argue about how the money should be raised or spent, but it is illogical to argue that it is lost to the private sector. Since one of the features of the last crash was a freeze in the movement of money, the best remedy should have been to spend money where it was most likely to move on. Paying the unemployed gives them money to spend, which should create jobs at one remove. The argument against QE should have been that it moved too much money to where it would stick, asset bubbles etc.
As a biologist, my dream would be to label tax dollars with Green Fluoresecent Protein and follow where they moved, where they stuck, and where they were lost to the system. I think it would show that most of that which is stated as economic fact is simply not true.
By the way
“Though shalt not covet, but tradition
Approves all forms of competition”
Arthur Hugh Clough
You are using a different mental econ model.
I know yours – there is a great big real economy and financial economy machine. It has big gears which mesh and rotate. The movement is lubricated by a thin film of money. They can and do seize up if they run completely dry of lubrication – then the Fed fills the oil pump with a little money and the oil pump distributes the money where it sees fit.
The MMT model is different. The gears are MADE of money and they swell or shrink, depending on how much money the government pours into the top of the machine. If they shrink, the gears no longer mesh, and we have a recession and/or financial crisis. The government has sensors to determine when this occurs. They then have a few quarts of money they pour into the money filler hole on the top of the machine. This money runs downhill, and all is well again
Conversely, sometimes the gears may swell – the government sensors then reading a economy too hot – and the government then knows it’s time to drain the money – presumably from a drain plug at the bottom of the machine. This will reduce swelling and all is well again.
The government throws the used money away – knowing it is not reusable – and has a fresh supply ready at the top of the machine.
In Biology, I know of no species, in all 3 kingdoms, where some members are 1,000,000 or 500,000, or 100,000 times bigger than the average member of that species, in terms of strength, endurance or agility needed to survive.
For humans, to survive means having money.
And for the most ‘intelligent’ of all species, some elite, rich members possess 100,000 times, or more, the wealth of the average human being.
I find this most grotesquely mutated.
Deep Thawts #666
If you’re arguing for nearly unrestrained money printing, isn’t it a little weird to compare Santa Claus with Satan?
They both wear red!?
They both crack whips too and they have little assistants running around doing whatever they say.
Whoa.
The more I think about this, the freakier it gets.
How would you know if you’d get an MMT Santa or Satan? Santa/Satan. It’s hard to tell them apart.
Holy Smokes. Ooops. No pun intended! Really! I swear!
A MMT Satan thinks he’s firing his little assistance when he tosses him out a window. A MMT Santa thinks it’s a job guarantee program?
Dan Kervick – “The recent determination by MMTers to run vigorous anti-tax interference for the holders of high fortunes is both perplexing and disturbing.”
Yep, we’ve seen this a few times from Randall Wray. I won’t read him again.
Yes, one should never read anyone with whom one has disagreed in the past.
Ben – yes, just like one shouldn’t keep ramming one’s head into a wall. Common sense.
Then perhaps you should stop?
Keep reading him. and keep arguing with him if he says things you disagree with.
Dan, I think it takes a lot more backbone for you to argue and disagree with prominent MMTers than the rest of us. Heck, you’re a listed contributor at NEP, thus when you disagree with other folks there I’m certain it’s not a task you relish. Can’t say how much I respect you for your candor.
What Malmo said.
I am also a fan, Dan.
Absolutely correct and well said on all points.
Sorry. Was meant to be a reply to Malmo.
Dan Kervick:When we had these taxes in place, the United States was a much more egalitarian society, and was even admired around the world for its broad, democratic prosperity.
The taxes weren’t what created the prosperity. They weren’t what made the society egalitarian. They weren’t what worked back then.
Returning these high taxes will bring in an initial re-distributive phase, followed by an enduring pre-distributive economic regime.
Very, very wrong. Government pre-distribution spending, unemployment eradication, good jobs at good wages – don’t just happen by magic, by tinkering with the tax system, any more than the Great Moderation / Great Stagnation 1980-2008 fantasy that the omnipotent Central Bank that could do it with monetary tinkering. There is one and only one way to create jobs: By creating them.
We had a gilded age before; and yet we succeeded politically in challenging concentrated wealth and slapping a confiscatory tax regime on attempts to build incomes and family wealth beyond a certain point.
But whodunnit? Who was the “we” who slapped on the confiscatory tax regime? Not really FDR. The guy who did it was Hoover. Top rates were raised from 63% to 75% in 1935. A 12% hike. But the Revenue Act of 1932 under Hoover raised top rates from 25% to 63%. A much bigger, 38% hike that contra Piketty didn’t help at all. What really helped was FDR’s understanding of & resolve against national and international banksterism & his willingness to deficit spend for employment. I’m all for progressive taxation, soak the rich – but it is important to understand what it does. It magnifies other policies – but the other policies are the essential ones. It’s not how much or even who you tax in today’s chronically demand-constrained economies – it is how and who you spend on. High taxation can augment government spending policies aimed at full employment, but it can also make depressions worse or financially unstable economies more unstable. Yes, we might have an “initial [pretend] redistributive phase” a Piketty/ Hoover era – which might be followed by “an enduring pre-distributive economic regime” – when everybody sees the “redistributive phase” just didn’t work.
We can do it again. As a measure of the strength of the political commitment needed to do this, I note that there is a book out there calling for just such tax policies, and it is a runaway national best-seller. Tell me about the similarly popular book arguing for a job guarantee.
Popularity does not prove truth. MMT has sounder, better grounded, more logical arguments and more empirical support than Piketty’s well-meaning but tried-and-false nostrums. A more important popularity poll is the Yougov poll based on Jesse Myerson’s Rolling Stone proposals showing majority (of those expressing an opinion) support for a JG, even more support than a BIG. And the poorer people are, the more they support a JG, the richer, the less.
The idea that added wage pressure from the bottom will by itself be sufficient to topple the structure of plutocratic wealth and income is far-fetched. Claiming that the sad state of minimum wage labor and the unemployed are the “source” of inequality is empirically unjustified.
No, these are not at all far-fetched and are very well supported empirically. Take care of employment and everything else takes care of itself. Better supported than Piketty’s work, who basically ignores the New Deal, the postwar era & genuine Keynesianism because it doesn’t fit well with the case he is attempting to prove.
Mitchell & Muyksen wrote a book about it, the worldwide abandonment of enormously successful full employment policies in the 70s: Full Employment Abandoned, not Progressive Taxation Abandoned. Full employment abandoned: shifting sands and policy failures is much shorter version. Full employment was intentionally abandoned, inflation merely being the excused used. That’s the major change. That’s what the oligarchy wanted and dreamed of. Not the tax cuts, which were just a nice bonus for themselves, once the boot was firmly on the neck again. Kennedy/Johnson started the tax cutting – but things didn’t start getting worse until more than a decade later. Tax cuts were not universal worldwide, not as simultaneous as the full employment abandonment – the key action.
Many belittle & ignore how bad things are at the bottom. The JG directly addresses this, and by setting the base wage, puts a floor on the living standard of everyone. Equally, many argue as if the money spent on the JG will mysteriously disappear once workers get it, rather than producing a high multiplier effect for the rest of the “private” economy. More than merely “by itself be sufficient to topple the structure of plutocratic wealth and income” – a real JG will nearly constitute this toppling – see Victor Quirk et al below. The real destruction of the plutocrats is not their consuming more – they cannot consume in accordance with their wealth – but their ever-increasing mismanagement and economic sabotage of the whole society, above all with their beloved unemployment which benefits them and only them, and only in terms of relative, social power, not wealth.
the entirely natural tendencies toward wealth-concentration and inequality that exist in unrestrained capitalist systems.
There is no “unrestrained capitalist system”. That phrase succinctly expresses misunderstanding of monetary economics and concedes defeat before one has started. It presumes that there is some kind of a “capitalist economy” and “restraining” “government intervention” overlaid on top of it, which prevents capitalism from following its “natural tendencies”. As MMT emphasizes, it is the other way around – states, societies come first, and “capitalism”, “free markets” are laid on top of them. Even in the postwar world, only just semi-Keynesian, there was no tendency toward wealth-concentration and inequality, if anything the reverse.
There are many things we can do to change this system, but putting a confiscatory tax regime in the way way of would-be plutocratic titans is certainly one of the most important.
Like a BIG, a “confiscatory tax regime” (one like the old UK or USA’s – anything less confiscatory than honest-to-god communist revolutionary confiscation, Russia 1911 or China 1949 won’t work) is nothing next to the JG. The oligarchs have always understood this. BIGs & high-tax regimens are just tranquilizer-laced meat-bones to throw at aroused populations. And so far, this oligarch con game has usually worked, as has creating tribes of “Keynesians” & “Marxists” who understood not a word they wrote.
Oligarchs have always known what their true enemy is – full employment. Others have seen this at times too:
I cannot put it better than Victor Quirk, in The Job Guarantee of 1848
Quirk’s quotations from Nassau Senior & de Tocqueville show the other side understood perfectly well that a JG would destroy the established order this way. Modern oligarchs are usually a bit more circumspect.
There may be technology constraints concerning what our job economy is and will become. There’s a crude example here: – http://jetpress.org/v24/walker.htm – which favours a BIG. We have tried many work schemes in the UK under the guise of thinking in the paper Cal cites (and similar) – none were brave or widespread enough. Many were poor quality training schemes ‘skilling’ young people to levels way below those of substantial numbers of local unemployed adults. I haven’t kept up with the training skills and labour market analysis I used to do. This said, I can say we got most of this wrong from the 1980s and what I do hear carries the same problems and re-creates the failed solutions (education, education, education etc.) – BIG and JG at least address the scope of the problem. Various EU funds (ESF, ERDF) could be broadened with the positive money element. We should start tomorrow, prepared to cope with structural and redistribution problems as we go along.