By Steve Roth, the Publisher of Evonomics. He is a Seattle-based serial entrepreneur, and a student of economics and evolution. He blogs at Asymptosis, Angry Bear, and Seeking Alpha. Twitter: @asymptosis. Originally published at Evonomics
There’s a curious fact among the current crop of discussions surrounding Modern Monetary Theory: Leading figures in the MMT world — strong progressive voices, they — are surprisingly dismissive of higher, progressive taxes as a desirable or necessary part of funding the Green New Deal and creating an inclusive, widely prosperous economy. There are lotsof examples out there over many years.
Some progressive MMT fans like me find this troubling. That dismissal is aid and ammunition for the destructive “starve the beast,” and “cut taxes (on the rich)” planks that have been so dominant in the U. S. for nigh-on half a century or longer (think: JFK’s tax cuts for the rich).
Before explaining what that stance gets wrong, here’s why the MMTers’ position is absolutely correct.
1. “Real resources.” This overwhelmingly means one thing: people’s hours, efforts, skills, and abilities. We’ve been in a global labor glut for decades, and ongoing automation promises to only increase that. Ditto terajoules of incoming sunlight, wind, etc., going unutilized every second of every day. There’s no shortage of these resources; they’re just not used. (Other resources—the earth’s contents bequeathed unto us—are definitely “scarce.”)
2. If recent decades’ inflation rates are any indication, the U.S. is nowhere close to the point where spending exceeds the capacity of our real resources (mostly people) to produce, “supply” more stuff — the point where inflation starts to bite. (Pace Milton Friedman, inflation is almost always and almost everywhere a supply-and-demand phenomenon.)
3. Over more than two centuries (three for the U.K.), the U. S. hasn’t “paid off” its national debt. The bugaboo that it suddenly will have to (absent global economic armageddon) is mostly just a deep misunderstanding: thinking that a government’s finances are like a household’s.
So yes: the government could do a lot more deficit spending to tap unused resources to save the planet, without banging against the inflation problem.
But neither the MMTers nor anyone else knows how much more. We don’t have many pertinent historical examples of “extreme” deficit spending in big, thriving, sovereign-currency economies: The U.S. in WWII, Japan today, prewar Nazi Germany (deficits very cleverly disguised), etc. For what they’re worth, they all suggest that significantly higher deficits wouldn’t be an uncontrollable inflation problem right now. They’d mostly cause higher production, not higher inflation. In simplistic Econ 101 terms, the global labor supply curve is quite flat.
The MMT takeaway, in my opinion: we should be testing that deficit limit, hard — assuming that there’s lots of pre-inflation fiscal space for pure deficit spending, and not worrying about if or when we’re gonna get there. Because really, we need to find out where “there” is.
Also: there are lots of tools for controlling inflation, in particular Fed rate hikes. MMTers are right that cutting rates seems a very weak tool to increase spending hence inflation, but the effect seems to be asymmetrical: the Fed can quash inflation much more effectively than it can spur it. (Again: to spur it we need fiscal pushing against the Fed.)
And, finally the point of this post, which is also core MMT thinking: you can also control inflation by raising taxes. But legislation is a very sluggish beast, and MMTers are the first to point out that that taxing the rich more is a heavy political lift.
So shouldn’t we get on that project right now, before we hit the inflation point — creating even more fiscal space for spending that activates resources and allocates them to saving the world and making it a better place?
Taxing the rich may more not be the best inflation-control method. Nor should it be the only one. But the top quintile does 40-50% of U. S. household spending, so there’s real traction there.
And there’s a huge added benefit, which the these MMTers seem largely blind to: more-progressive taxation changes the spending mix, which changes the production mix. (Producers produce things because people are buying them). Rich people spend more on high-C02 (and low-utility-per-dollar) consumption goods — air travel, yachts, big expensive cars, giant (empty) residences. This spending wastefully allocates resources (people’s efforts) to satisfying those…desires, while actively contributing to global warming.
If that money is instead taxed-and-spent on widespread green investment, we’re doubly closer to the goal of saving the world.
MMT’s rather singular focus on government’s net deficit (gross revenues minus gross expenditures), and its associated private-sector “surplus,” engenders a somewhat knee-jerky aversion to taxes, which (ceteris paribus) reduce that surplus.
But net isn’t the only thing that matters. Gross taxing and spending (vastly larger than net), and in particular here the composition/distribution of the taxes, matter a lot. They have big economic effects.
MMT thinking can bring us to a conclusion quite different from the rather…unsatisfying stance of these top MMT voices (basically, “yeah, we should tax the rich because they have too much money”). Update March 13: “…to reduce their power.”
We should tax the rich because:
Higher and more progressive taxes give us the fiscal space we need…
To do the spending we need…
Which employs unused “resources” to produce actually valuable and world-saving stuff…
Without generating deficits…
That in excess would lead to excessive inflation.
(But yeah we should be deficit-spending more too, cause we don’t know where the inflation limit is. It’s time to get over the wealthy bondholders’ 1970s childhood trauma, and find out.)
And this is all before we even consider the pernicious political and economic effects of concentrated wealth and power (think: government capture, secular stagnation) — concentration that progressive taxes address directly, especially (necessarily) over years or decades.
If you’re a progressive MMT fan, what’s not to like?
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MMT is the answer to the mistakes that have been made before.
When the economists understand the monetary system they will know why.
Something is wrong, but no one knows what.
Everyone assumes our current knowledge has built up over time as we learn from past mistakes.
With economics and the monetary the system there is too much to lose from allowing knowledge to develop in the normal way.
Our knowledge of privately created money has been going backwards since 1856.
Credit creation theory -> fractional reserve theory -> financial intermediation theory
“A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner
http://www.sciencedirect.com/science/article/pii/S1057521915001477
If you know how the system works and no one else does, think of all the money you could make.
Everything had been going well for 5,000 years and then the classical economists turned up. Those at the top had been living in luxury and leisure, while other people did all the work.
The European aristocracy were just the same, they lived in luxury and leisure while other people did all the work. The Classical Economists realised they were being maintained by the hard work of everyone else.
The Classical economist, Adam Smith:
“The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”
Economics was always far too dangerous to be allowed to reveal the truth about the economy.
How can we protect those powerful vested interests at the top of society?
The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.
They took the focus off the cost of living that had been so important to the Classical Economists to hide the effects of rentier activity in the economy.
The landowners, landlords and usurers were now just productive members of society again.
Our knowledge of economics and the monetary system are fundamentally flawed.
Capitalism has two sides, the productive side where people earn their income and the parasitic side where the rentiers live off unearned income.
In 1984, income from capital gains, rent, interest and dividends over-took earned income in the US.
The Americans are on the wrong side.
Our knowledge of privately created money has been going backwards since 1856.
Credit creation theory -> fractional reserve theory -> financial intermediation theory
The US and UK tried Milton Freidman’s monetarism.
He used “fractional reserve theory” and thought bank lending and the money supply were controlled by central bank reserves.
No one in the US or UK knew any better, so they tried it.
It didn’t work as bank lending and the money supply are not controlled by central bank reserves.
Things then got worse and the new accepted theory was “financial intermediation theory”, which is even further away from the truth.
Ben Bernanke used “financial intermediation theory” in his work on the Great Depression and this is why he couldn’t understand debt deflation.
No one else had got a clue either and so no one could see the problem with his work.
Ben Bernanke’s flawed work on the Great Depression made him the ideal FED Chair after 2008.
Obviously not, but no one knew any better.
Taxing economic rents would seem to be a good idea, for many of the reasons Michael Hudson sometimes suggest. Not soaking the rich so much as capturing income streams that are doing nothing to motivate productive effort.
A corporate income tax, if well-designed, is effectively a tax on the economic rents earned by business enterprises which have been lucky enough to have “captured” a niche. If actually collected, an income tax reinforces the public interest in effective accounting controls, and since a corporation can get a refund in the event of losses, can contribute to business stability.
A high marginal tax on individual wage income may help to blunt the pirate mentality that takes over when even a very short time in some highly paid positions can deliver a fortune. We really should worry when an enormous salary is drawn from a position of great administrative power held for a short time: there are only so many ways to extract the kind of money many chief executive officers at large companies “earn” and none of them are likely to be socially beneficial.
I want to tax the rich enough to preclude their purchasing our government.
No argument that taxing the rich more needs to happen — I think the point that many MMT proponents are making is that we shouldn’t be waiting until we can get those taxes imposed to make the investments in public purpose that progressives are seeking.
Because we have already waited long enough, and getting to taxing the rich as much as they deserve is going to take even longer — there’s no way that the important work of the Green New Deal can be postponed that long.
Exactly! Plus, by leaving the discussion about increasing taxes on the wealthy for another day, you deprive neoliberals of their favorite arguments for maintaining the status quo: 1) The “taker/maker” myth. 2) Taxes “punish success”. 3) Rich people are the “job creators”.
We’ve got to stop linking the discussion about spending choices, with the discussion about taxing the rich.
We can spend what is necessary to provide tangible material benefits to the working, and middle classes without funds derived from increased taxation of the obscenely wealthy.
That is the whole point of the MMT discourse.
Taxes on extreme wealth are intended to limit their ability to do mischief, for instance, to purchase undue influence, which is the sort of behavior that landed us at this crossroads.
Taxing extreme wealth should never enter the funding equations, if we continue to require the political discussion to include the neoliberal mythology, we’ll never make any material progress.
The constraints on a nation that can create its own money at will, are nothing like the ones faced by a family household.
As a country, we’ve found the political will to spend $6Trillion since 2003, on the wars in the ME, but we can’t find a way to provide healthcare, education and a living wage.
The reason we can’t have a serious discussion about spending money on tangible material benefits for us all, is that we have allowed the rich and powerful to amass so much wealth that they can veto government spending that does not enrich them.
This situation has been understood for at least a couple hundred years, and is the reason for progressive taxation.
If you do not put a collar on the rich, they will inevitably put a collar on you.
“We’ve got to stop linking the discussion about spending choices, with the discussion about taxing the rich.”
THANK YOU.
The rich must be made less rich to stop them from destroying our democracy and our ability to live on the planet. We must tax the rich because they’re too damn rich. Period. (And, even more, we must also solve INCOME inequality.)
Taxing the rich is – must be – a completely separate discussion from how to fund federal programs (or deal with their potentially inflationary consequences).
From the post:
“And, finally the point of this post, which is also core MMT thinking: you can also control inflation by raising taxes. But legislation is a very sluggish beast, and MMTers are the first to point out that that taxing the rich more is a heavy political lift.”
Yes, legislation is a “sluggish beast,” which is why the Federal Job Guarantee (which is a critical part of the Green New Deal) creates an AUTOMATIC stabilize. So taxes go up and down as necessary without continuous input or sabotage by legally bribed politicians.
The Federal Job Guarantee, according to all the core MMT economists, is a fundamental part of MMT, not an optional add-on. Therefore this argument of “sluggish taxes via legislation” is irrelevant.
Good post
I hope it isn’t inappropriate to share this link from Bloomberg here: A Beginner’s Guide to MMT
https://www.bloomberg.com/news/features/2019-03-21/modern-monetary-theory-beginner-s-guide
Surprisingly even-handed, they mention the new textbook and appear to draw on it. No wild misrepresentations though some of the explanations are a bit thin.
Since 2008 every finance guy I’ve talked to has cottoned on to MMT quickly.
It appears to answer a bunch of questions their formal economics and business education skipped and as money men they know enough about how the system works to quickly understand the accuracy of MMT representations.
Understanding the mechanics of modern money is important to the gamblers in the casino our government has built with it.
I assume part of it is because people in finance understand how accounting works. Most economists, apparently, do not.
I’m trying to think of what the equivalent in an actual science would be of neoclassical economists not understanding money, and not being at all bothered by their not understanding money. Wouldn’t it like a doctor just ignoring blood?
No. The USA should have a flat tax! A Modified Flat Tax, that is:
All citizens and all types of income should be treated equally. But we should have a “Living Wage” initial exemption of $2,500 per month, and after that, a federal tax rate of 20% should be applied. All incomes of wages, dividends, capital gains (both short-term and long-term) and interest carried need to be treated equally. Our current IRS code gives preferential treatment to capital gains versus wages for those who earn above an arbitrarily drawn line and this is not fair or just.
Nor are Progressive Taxes fair or just. Some people barely get by, and under a Modified Flat Tax, these people would have no tax liability. Some people do quite well. That’s just how it is. But those that do quite well should not be financially punished for succeeding; which is what Progressive Taxes do.
The ethos of the United States is summed up perfectly in the Preamble of the Declaration of Independence: that all people are created equally, and that we have the unalienable Rights to Life, Liberty and the Pursuit of Happiness. That should apply to our federal tax code as well. “All people and all income are to be taxed equally.”
No, that’s not just the way it is.
The rich and powerful have used their wealth to purchase our government, they make the rules, including the tax laws which over the last six decades have allowed them to avoid paying their share, and transferred more and more of the tax load to the middle class.
It is through this process that the game is rigged against any the lower 90% of Americans, resulting in economic misery for the many and incredible wealth for the few.
So it’s not “just how it is“, things are the way they are because clever, wealthy people have rigged the game in their favor by buying off politicians.
In the period between WWII and 1970 or so, the tax rate on the very wealthy was very high, and the middle class had it very good, then we started cutting taxes on the rich and look where that has got us.
Hell yes, the game is rigged! Members of Congress are, generally speaking, bought and paid for.
The gutting of the middle class and rising income inequality has many contributing factors; among them: Outsourcing industrial production to lower wage-earning nations. The TARP and QE and ZIRP policies of the Fed and Uncle Sam post the 2008 financial meltdown. And the list goes on.
The tax laws, which I commented on, are prime examples of the rich and powerful making the rules. The highest capital gains tax rate is 20%., but the highest wage rate is 37%. Upper-middle class citizens pay a higher rate than an elite hedge fund manager. A modified flat tax would not allow this, but this is our current tax law.
Between WWII and the end of the Vietnam War, the middle class did have an ever-improving quality of life, and the highest bracket of our Progressive Tax system was very high. But these two facts do not equate to cause and effect between them!
My point is that after a living wage, which should have no tax burden, we should be treated and taxed equally. Many Americans do not share this belief. Many believe that those who succeed and earn a lot of money should pay a greater percentage of their earnings every year to the federal government.
“With Liberty and Justice for All.”
Can’t have a single ““Living Wage” initial exemption of $2,500 per month” for the entire country because those “people (who) do quite well” have turned housing in the Bay Area into a hellscape of $1,800/month studio apartments WITH NO KITCHEN. $2,500 a month may be a living wage in Padukah but not out here in the land of Neoliberalism-California style.
So what’s a living wage if the rich continue to suck more and more out via rent or the health care corporate entities they own?
We have to take back control of the entire system, soup to nuts. And yes, progressive taxes on ALL income is part of it. So is breaking the ability to control so much via “free market” monopolies.
If you like simplistic tax codes how about:
Earned income 0%
Sales 0%
Vices 100%
Unearned income 100%
Wealth above X million 5%
Estates above Y million 100%
Steve Forbes, of Forbes magazine fame, ran on a flat tax platform many years ago. He’s uber-wealthy. He runs in those circles. I doubt you do. Yet you’re fighting his battles for him and his ilk. I’m sure they’re grateful.
The masses need to understand, in no uncertain terms, that nobody gets to that level wealth without fleecing the rest of us. As the saying goes, no great fortune is come by honestly. The problem with most Americans is they see the very wealthy as being basically the same as the hardworking, honest local small business owner. The wealthy person just happened to have a great idea and maybe fell into some good luck along the way, but he deserves everything he has. There are exceptions, but they’re just that, exceptions. Most of the ultra-rich are good, hardworking folks. But this is simply not the case. In order to reach that level of wealth you have to become unsavory. Donald Trump may be more unsavory than Bill Gates or Warren Buffett, but they’re all unsavory. They don’t operate on the same level you or I do. In a certain sense, they’re pathological.
Political Ponerology has shown that people with personality disorders, particularly psychopathy, tend to occupy positions of power and influence. It would be remiss to confine this only to politicians, and it stands to reason that those who stand behind the throne, so to speak, may be even sicker than the politicians whose strings they pull.
Anyway, here’s the common sense point: if a flat tax in Steve Forbes’ interest, it’s not in the interest of the vast majority of the populace.
/\+1!!!!!
Alternative energy has a notoriously low EROI (energy returned on energy invested). Furthermore, you cannot make solar panels or wind turbines using energy from solar or wind. You have to use natural gas, coal and oil in their manufacture. You can print money, but you can’t print natural resources. The easy stuff has been mined and pumped already. In 1929 it took one barrel of oil to produce 100 barrels of crude. The fracking industry today, on average, uses one barrel to produce a mere five barrels of light crude.
We need to start conserving, preserving and restoring instead of trying to run this wasteful economy on alternatives. But making do or doing without isn’t popular among the electorate. We should tax the hell out of the rich to reverse the extreme social and ecological damage done from over two hundred years of unbridled capitalism.
By-the-way, according to Chris Hamilton at Econimica, the demographic time bomb set into motion by the world’s central bankers funneling trillions of dollars to the .01% will ultimately kill capitalism as we know it. Without population growth in the developed and fairly developed countries worldwide, there will not enough consumers to keep this sucker going. Seventy-five percent of consumption comes from the developed and nearly developed world. The third world can’t sell to consumers who aren’t there. Birth rates have plummeted in the U.S., Japan, Europe, etc. Millenials aren’t having kids, buying cars or forming households like previous generations. They have student loan debt, don’t make enough money, pay to much in rent, childcare etc.
“Furthermore, you cannot make solar panels or wind turbines using energy from solar or wind. ”
Doesn’t hold water. Obviously untrue.
Try harder.
I do agree that the oil is best left in the ground, not because it is too hard to get — it isn’t — but rather because we wouldn’t do anything beneficial with it, and would just be destructive.
You certainly can’t make enough them, nor fast enough. And even if you could, you didn’t address the most important point, the low EROI of alternative energy. Current “first world” and “developing world” energy requirements can never be met with alternative energy given current consumption patterns. Never. They also require mineral resources which are scarce as well, and whose extraction often uproots indigenous peoples the world over and destroys their way of life – the only truly sustainable way. If they’re not entirely wiped out, they’re forced into a market system, further compounding the problem.
Alternative energy as a solution is a pipe dream unless it’s accompanied by a massive reduction in energy requirements, which means a massive reduction in consumption, which means an entirely different manner of being in the world. Conserving, preserving, restoring, reusing, living simply, etc.
So, in sum, your “obviously untrue” is obviously untrue. Try harder.
I thought that one of Alexander Hamilton’s objectives and successes, from his point of view, was to make government debt permanent and a source of income for his new country’s small wealth elite, which funded it.
Yes, he insisted that the war Bond holders get paid before the soldiers whose pay had been withheld… or something like that…
Lin Manuel Miranda learned a lot from Hamilton. His ahistorical Broadway masterpiece, the hysteria it has created in the multitudes of fawning fake liberals who buy into the lies therein and the price of its tickets, has impoverished too many both cognitively and fiscally… as Miranda himself counts his millions. I hear he’s very generous… well, that’s nice…
These two articles call out the absurdity of Hamilton, the man, as the progressive paragon of virtue which “Hamilton” has so insidiously inculcated into the minds of the uninformed… and should remind us of the ability for powerful, well constructed art ( it’s a great “show”) to promote absolute BS.
https://thebaffler.com/salvos/hamilton-hustle-stoller
https://www.counterpunch.org/2019/03/21/broadways-hamilton-and-the-willing-suspension-of-reality-based-moral-consciousness/
Agreed. Hamilton was a courtier to wealth, not a progressive leader for his country’s average citizen. The Broadway, hip-hop version misses that by a mile, just as its casting anachronistically suggests a racial egalitarianism not much in evidence among the people Hamilton courted.
Hamilton’s whiskey tax, for example, was not a mere source of revenue for a fledgling government. It was meticulously designed to monetize the frontier’s smallholder subsistence economy and to extract rent to the eastern seaboard. It was also creatively designed to subsidize large-scale producers (and large holders of capital) and to penalize small producers. Hamilton felt the future of the nation’s economy depended on the former, not the latter. Unsurprisingly, his principal supporters were a handful of the nation’s wealthiest citizens.
Intentionally crafted policy, not natural law or inevitability, produced the resultant economy and social structure.
Yeah, I heard any number of people wax ecstatic about the play Hamilton. I would let them go-on for a while about how inspiring and uplifting it was. Then I would ask them how they liked the part about Hamilton becoming Robert Morris’ official shoe-shine boy.
After quite enough of the blank stare, I would explain how the rich aristocrat Morris had bought up much of the revolutionary war debt for pennies on the dollar and Hamilton’s first priority as Treasury Secretary was to pass the Whiskey Tax to pay the debt in full. After a bit more embellishment about how the boy made his plutocrat bones, I would say that the play was probably good entertainment, but it was all anti-historical crappola, and the fact that Burr offed him was probably not a bad thing.
Sorry to ruin your expensive good-time.
Thank you for the link to thebaffler.com’s ‘The Hamilton Hustle’ by Matt Stoller. It is a well written and concise eye-opening historical narrative.
Hamilton was a banker. In 1784, he and Isaac Roosevelt founded the Bank of New York. The Bank of New York was the first corporate stock traded on the New York Stock Exchange in 1792.
Hamilton’s objective was completed with the passage of the federal reserve act. in 1913
The fed is the private banking system
The wealthy are the major bond holders of treasuries and the banks themselves.
MMT is not progressive, but instead would have all of us be making payments to this money creation for debt scheme for the foreseeable future. MMT proponents are hoodwinking people with progressive tendencies , just like miranda is hoodwinking theater patrons.
Now, considering there is a workable plan for new legislation to replace the federal reserve act , as was already proposed in the house in 2011 and 2012,
112th congress HR2990 the “NEED” act…..
This would bring the federal reserve into the treasury,
It would end the debt creation as a part of money creation.
it would end the private banking creation of money when they make loans
it plans for the repayment of the current debt as it comes due, with no disruption to the current finance situation.
AFTER something like this were to pass, then The ideals of MMT being progressive could be “on the table”…..until then.. selling people to accept MMT as a guiding star for better days.. is just a con. Because MMT today says that debt ; that 22 trillion dollars we have racked up so far doesn’t matter… lets do more…. hoorah… after all the wealthy will get generations of income and the military gets funded…..just like the last 100 years.
I had always thought, too, that what encouraged investment by wealthy individuals and corporations was not tax givebacks – which was found money – but higher taxes, because it encouraged them to spend on tax-deductible and tax-deferred investments rather than give the money to government.
This kind of ’emotionally inflamed language’ about ‘taxing the rich’ should join other tropes like the ‘poor are lazy’ or the ‘rich are crooks’ as the nadir of educated discussion and merely serves to derail discussion and is evidence how economics has been completely hijacked by wealthy interests.
Is the problem here merely ‘tax the rich’ or is it decades of neoliberal propaganda that has led to wage stagnation, rising inequality, lobbying, corruption, deregulation, financialization, exploding education and housing costs, environmental degradation all leading to a feudalish society?
Is the problem tax rates or economists, think tanks and media seeding decontextualized words like ‘wealth creators’ and ‘job creators’ and crowding out conversations on building equitable humane societies that work for all instead of the top 1%, where mobility is a lottery and the few lucky ones are celebrated as an example to distract from conditions of the 99%.
What is the total number of think tanks, lobbying groups, industry groups currently in operation in the US with numbers employed and notice the irony of every single economic group organizing to promote their interests while demonizing unions.
Self interest is not the road to a civilized society and we already get a glimpse of the regression and barbarism and this is the anti-social idea at the heart of modern economics. This is the ideology that lets Bezos or Wallmart accumulate wealth by exploiting workers and offloading living costs to the state and have the citizenry worship them for it. The issue is not taxing the rich.
The rich are crooks. All that lobbying and propaganda didn’t just happen; it’s the result of deliberate attempts by the wealthy to influence politicians and discourse. Tax the rich into the ground so that they can’t piss away vast amounts of money on lies.
Taxing the wealthy is important to give them skin in the game – lest they think they can purchase government, or the portion of it relevant to them (e.g., a regulator), for a fraction of the cost of paying taxes.
It is an important step in holding the wealth elite accountable and to remind them that they owe a tithe to their society and government in exchange for having received so many benefits from them.
“Getting away” with serially cheating government breeds contempt for it and for the rule of law on which it is based. Donald Trump’s family is a classic example of the problem. It breeds a kind of reverse Robin Hood mentality that government is there for the picking. It breeds an undesirable sense of entitlement, a something for nothing and rules don’t apply to me attitude, which makes corruption inevitable. Ironically, those attributes the wealthy ordinarily claim are the exclusive province of the poor.
Income, wealth and estate taxes are essential tools in the pursuit of economic and social justice and the rule of law, which are the foundations of democratic government. A simple step in that direction might be to reintroduce into American English and tax parlance the concept of “unearned income”.
Good comment.
I wonder if there’s another good reason to tax the rich: to save their precious little lives. A “democracy” so grotesquely unfair and corrupt as “ours” is just not going to remain safe for certain people indefinitely.
FDR knew this.
MMTers (like myself) should ask themselves why it is that all that deficit spending has not caused consumer price inflation? A little Keynesian economics explains this quite well. In the absence of enough consumer demand caused by the growing wealth and income inequality, there is absolutely no reason for the rich to invest in more production capacity. What they do “invest” in is financial derivatives, stock buy backs, and general vulture capitalism. Stock and some asset prices do get inflated. The Fed has injected way too much liquidity in the private economy exactly because injecting this liquidity is a weak monetary tool when strong fiscal tools are called for. If, by some strange chance, there is call to invest that liquidity hangover in the real economy, there could be high inflation. I hope the Fed and the government have a plan to suck that excess out of the economy fast enough. I don’t see what they could do that would be politically feasible.
It is self sucking. The wealthy are notable in that if you give them more money, they tend not to spend it. They just sock it away into financial instruments which themselves are largely rent seeking. In this role, the wealthy serve to soak up excess capital thereby preventing excess consumption. There is a similar problem with labor vs. capital. If a company spends a windfall on labor, some of them take the money and retire, causing problems for the company. If they use the money to buy back stock, the investors come back for more.
The many obvious negatives aside, restricting the income of the 99+% is probably a very green thing to do. They spend proportionally less. I’m pretty sure that is not why the playing field is so tilted, but it does seem to have that effect. That said, we will need the 99% to invest in things like solar panels and EVs in the near future. For that, some cash will be required or someone else needs to pay.
I am just trying to figure out why so many mediums are now discussing MMT. I mean, why is MMT being allowed to sit at the adult’s table now? Maybe they figured out how to coopt it, turn it on us, the proletariat.
Maybe I’m just paranoid.
“No matter how cynical you get, it’s never enough to keep up.” — Lily Tomlin
AOC dropped it into the conversation and they thought it would be a good stick to beat her with. I hope and expect it will backfire on them spectacularly.
One idea is that it’s Alexandria Ocasio-Cortez’ campaign, and her interest in the MMT approach to funding government programs. The political opponents who want her out have to take down MMT as a means of attacking her.
“the MMT approach to funding government programs”
AKA the way it’s already done.
MMT to a very large extent merely describes how government account flows already work. This is something the critics absolutely will not engage with. I can go to New Economic Perspectives and find articles that present giant, eye glaze inducing walls of text showing, in detail, how the system currently works. So when Krugman etc come out and say ‘nuh-uh’, the onus is on them to wade in and explain to us exactly where the MMT crowd has gotten it wrong.
They don’t, because they can’t
you are not paranoid
MMT is the bankers system. This is just another layer of the onion, if you don’t like the orthodox economists and the fed world of the pre-and post 2008 financial crash… and you want something different….. well here are some heterodox economists and a new way of seeing what is already there…. walah…. MMT… look you don’t have to change the system. you don’t have to change the law or the federal reserve act…. and that debt that just hit 22 trillion dollars who cares…… it doesn’t matter…..
It is the new boss…… same as the old boss….. and we are ready to get fooled again.
Why do you think there is money and support from the media…. just enough antagonism to make it seem “controversial”…. so that the” alternative ” MMT pretends to be.. can be sold as another answer to the people…. and the banking system says ….. cool. If the people want something different… lets sell them the same ol sh#t…. that says “new and improved” on the label….
I know Yves finally mentioned at the end the need to tax concentrations of wealth, but I think that really needs to be mentioned first and foremost, as I believe preventing large accumulations of wealth is fundamental to the preservation and maintenance of a self-governing constitutional republic. I wish the Pledge of Allegiance included a line about how important economic justice is, and how dangerous are large inequalities of wealth and income, to the republic we are pledging allegiance to.
I collect Social Security. Is that a rent. Is interest on my savings or dividends a rent. I have lots of property and money in the stock market. Does that make me an oppressor of Joe six pack?
I would re-frame the problem as being monopoly ownership of resources, both material and financial, without stewardship. Or another restatement is; wealth is not money. Wealth can be considered a standard of living and can become self reinforcing. That is, if I have the time and money to do what I please, that is wealth, and if what I please to do increases the resources and well being of my community then my wealth is also community wealth. Government spending by taxation or deficit is redistribution of money. The redistribution can increase the wealth of communities with widely varying degrees of efficiency. Much of it is lost into the pockets of individuals who monopolize it. A steep progressive tax will help in that regard but our system does not effectively differentiate between income that is earned through productivity, luck or silver spoons.
The most patriotic thing a person can do is raise their children well. True wealth is happiness or at least satisfaction with life. Recent studies support the idea that positive active involvement in community is the strongest generator of security and satisfaction. Act locally think globally. We don’t need no pledge of allegiance.
Social security is not a rent, by any possible definition. It’s a universal government program for working people (provided you live long enough).
Interest and dividends are returns to capital. If most of one’s money is from working for most of their adult lives, then their class interest is with the working class, never mind if they do have a 401k or something.
I agree with this post completely. I came to it slowly in my own thinking, because taxes have always been such a pain in the neck, even if you’re getting a refund. I hate taxes. But among other good points, Steve Roth points out one bedrock point: “So we should tax the rich now… because the top 1/5 does 50% of the household spending.” He points out that the difference between gross and net is very important for taxing. Giving us the edge from taxes to “change the spending mix which changes the production mix” and this money can be dedicated to all things Green. And in our new epoch of depopulation this rationale will hold true for centuries, until human labor becomes slowly inflationary – and by then everyone should be aligned economically anyway.
I think the author needs to distinguish between including taxes in bills such as the GND or single payer (to “pay for” them) and bills regarding tax policy.
Part of this discussion should also go into whom it should be that does the taxing. If taxes are levied by the currency issuer, than this money is removed from the economy. But is the subordinate entities level the taxes, the money can be used again form more government services. And the member states (because they are not currency issuers) must run balanced budgets. But how might this influence the inflation argument?
Up until the 1980s, everyone expected a future where robots did most of the work giving people much more leisure time.
Neoliberalism changed that and turned technology into a problem for the future.
Neoliberals don’t know where the real wealth in the economy lies, which is why we spend so much time inflating asset prices.
The real wealth in the economy lies in the goods and services available within the economy.
Alan Greenspan tells Paul Ryan the Government can create all the money it wants and there is no need to save for pensions.
https://www.youtube.com/watch?v=DNCZHAQnfGU
What matters is whether the goods and services are there for them to buy with that money.
Money comes out of nothing and is just numbers typed in at a keyboard.
Too much money and you get inflation (consumer price and/or asset price inflation), too little and you get deflation. If you have a huge excess of money, you get hyper-inflation and wheel barrows of the stuff won’t buy you anything. It has no intrinsic value, its value comes from what it can buy.
So if robots do the work producing the goods and services, we just need to get money to the people to consume those goods and services.
Most people do like to work, although there are people who don’t like working, like our UK aristocracy.
We can always create jobs in leisure, infra-structure, education, health, social care, green energy, new research ….. etc …. to allow people to work while the robots produce the essential goods and services we need.
MMT give us the future we should have rather than the bleak one neoliberals offer.
The post misses a couple of fundamental MMT points, one about taxes and the second about inflation.
First, taxes are essential to the current system. Without at least the threat of taxes, the liabilities of the United States (some of which we call “money”) would not have “currency” absent convertibility into something else. The United States is both the largest single debtor (Federal Reserve Notes, bank reserves, Treasury bonds) and the single largest creditor (taxes) in the economy. Its position as the single largest creditor, plus the power to demand that settlement of debts due to it be made by tendering its liabilities back to it (via taxes and fees, etc) creates demand for those liabilities.
Secondly, MMT’s approach to controlling inflation is to use employed labor as a buffer stock. We currently use unemployed labor as a buffer stock to control inflation, which is more costly in both economic and human terms, to say nothing about its being a cruel joke on the working class. (Rule 1: You must work to survive. Rule 2: We have designed the system so that millions of you will not be able to find a job at any given point in time, no matter what you do. Rule 3: If you don’t have a job, you are lazy and morally suspect.)
So, there are policy reasons other than controlling inflation to impose taxes, but impose them the government must in order for the system to function.
Also, the taxing and borrowing function can still be used to “fund” the government. It’s just that those are now optional methods, whereas under the pre-1933 gold standard they were the only two options available, by design.
Agreed. I wrote something very similar above: https://www.nakedcapitalism.com/2019/03/the-mmt-case-for-progressive-taxes.html#comment-3124420
this post was a giant non-sequitur.
Why would MMT care about taxing…. it doesn’t constrain gov’t spending anyway?
Now really, why not do something like AOC’s proposal with taxing at a rate of 70% after the first 10 million. Not because it would cramp their style. not because it would create revenue…. really only because of fairness.
The money collected wouldn’t really do anything in the context of the budget anyway. And people will still hide their money in offshore accounts…. so lets just do it because it begins to level the playing field… and nothing really beyond that.
But the biggest thing this article is ;is a sham.
MMT is not progressive in the least. How is it progressive to “run up the debt, till the wheels fall off”.. lets just do it and see what happens…. how irresponsible can you be… ?
Telling everyone that in order to get anything good done… you can just take the credit card and spend on anything you want…. and not tell them.. yeah.. but at the end of the month.. you are going to get this bill.. and um….. how you gonna pay for it…
the federal reserve, which is a private banking consortium, that gets to create our money, while the treasury creates debt for that banking consortium to add assets to their books, while “our” books(the national debt),”pay” for the profits and lifestyles of the bankers, and fund the damage they do to our democratic republic. The payments on that debt every year.
as well as the fact that the commercial banks get to create money every time they make a loan,
all mean that the current system is just making the bankers richer and richer… which means wall street has a never ending stream of money to subvert the will of the people. In the days of citizens united… it means they have a hell of a lot more “speech” than the rest of us combined…
MMT is a hoax.
If we were to do something actually progressive like pass a new law to replace the federal reserve act, like what dennis kucinich proposed in 2012
HR 2990 112th congress the “NEED” act… that would
bring the federal reserve into the treasury
end debt creation for money creation
prevent banks from creating money by making loans,with 100% reserve requirements
pay off the debt as it comes due, while creating no more new debt to do it, and not disrupting current financial arrangements
Then with a new law, and a new plan….
all the progressive ideals of MMT, could actually be implemented without shackling us to the same old whipping post.Then , if we want to use the wisdom about how the monetary system actually works, we could use our money creation power to fund the projects that really would help. people and the planet and the life around us…
and then money creation would be more transparent and the backstop of voter retaliation could be realistic as to what is done in our name…. and a giant funnel of money would stop being poured into the very actors hands who are aligned against the people.
Taxation is a major instrument for organizing a society. Failure to tax unearned income, or to tax it nominally, is to foster inequality. Those who live from earned income can never earn enough to change the basic structure of inequality. Ask Warren Buffet’s secretary.
I forget where I saw it, but I recently read a comment to this effect: “if you go along with ‘inflation is bad,’ then the fact that the price of art and elections has recently risen enormously tells us that we should enormously increase taxes on the rich.”