Ok, I tried this once before and now it looks like another thread has taken off where my last one was left.
What I'm looking for is a formal, thorough, critique of MMT from an Austrian perspective.
Please do not post unless you understand MMT, meaning you have read something like the explanations by Cullen Roche and Warren Mosler.
A decent critique has been done at Seeking Alpha, but it fails by over criticizing in some areas and not going into much of the Austrian concepts I am interested in hearing about, like interest rates and the production structure.
If you know of an article, or are willing to provide your own insight I would very much appreciate it.
Esuric:The legal characteristics of various types of money are entirely unessential for economic theory.
^ This is an essential insight, and one Mises stressed heavily in Theory of Money and Credit. Monetary economists often forget to think as economists, and instead think as jurists or numismatists.
I wouldn't call it formal, but Taylor Conant was working on a series of posts that refute Mosler's 7DIF.
http://conant.economicpolicyjournal.com/search/label/Mosler%20Economics
TY Mr Mosler for gracing our forum with your presence. Had I known you would be reading here I would have been way for polite in dealing with your theory, even though I would still disagree. So please do not take anything personally.
Oddly enough, I wrote a post about the 7 Deadly Frauds a few months ago. It's here: http://mises.org/Community/forums/t/16503.aspx The main refutation is that you seem to be ignoring the fact that printing money raises prices, aka inflation and hyperinflation.
I don't think anyone here is taking a stance because they like or dislike your description of what happens to tax money. Rather it is a question of agreeing or disagreeing.
You wrote:
When in [sic] taxes you, it changes the number in your bank account down, but doesn't actually get anything. Just like in a card game, if you lose points the score keeper subtracts them from your score but doesn't then have more points himself, or more points to give to someone else.
What is your source for such a seemingly wild claim? have a look at this, from Wikipedia:
One need only visit cbo.gov, the website of the Congressional Budget Office, and see that virtually every page talks about how much money they collected in taxes, and of course that they need more in order to be able to spend. Here's a snippet from http://cboblog.cbo.gov/?p=1769
Revenues through December totaled about $531 billion, $43 billion more than in the same period last year. Most of that net increase stems from higher withholding of individual income tax and social insurance payroll taxes, which rose by $33 billion (or 8 percent) in the first quarter because of strengthening economic conditions. Revenues also increased because individual tax refunds were lower than the abnormally high amounts for the same period a year before.
Receipts from corporate income taxes, net of refunds, were also higher—by $2 billion (or 5 percent)—than in the same period a year before, almost entirely because of estimated payments made in December 2010. Many observers had expected a decline in December because legislation enacted in September extended businesses’ ability to immediately deduct 50 percent of their 2010 investments in business equipment.
Note what they call the tax money. REVENUES.
from wikipedia:
In business, revenue is income that a company receives from its normal business activities...In general usage, revenue is income received by an organization in the form of cash or cash equivalents.
from investopedia:
In the case of government, revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made.
So the govt, over at cbo.gov, is saying it gets revenue from taxes. Meaning money. But according to you, they just take taxes from us, but don't get any themselves. Where did you get such an idea? What is your evidence?
You also wrote:
And when govt spends, the fed changes the number up in your account, and doesn't 'use up' anything. Just like when you kick a field goal and get 3 points. No one wonders where the stadium got the 3 points they posted.
First of all, this has been refuted in the above. But more importantly, there is a deeper problem here.
This is a good example of what I claimed earlier, that MMT seems to confuse money and that which money can buy. When the govt spend, it ceratinly "uses up" resources. For example, when it spends money to buy fuel for Michelle's trips, that takes away fuel that we could have been using.
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It's one crazy economic fallacy because it fuses accounting (bookkeeping) with economic theory (if I understand it correctly). If you define savings as purchasing financial assets, rather than the differed consumption of final goods and services, then the economy cannot increase its net savings rate without government deficits (i.e., without the government issuing its own liabilities). Those who issue private financial securities are, in his mind, engaging in a form of consumption which diminishes from total private savings, but which is counterbalanced by those who purchase such financial securities (which simultaneously and correspondingly increases private savings--there is no net change).
Thus, if an individual purchases a government bond, for example, rather than a corporate jumbo bond, than net private savings has increased, but if he buys the corporate bond instead, than private savings remains unaltered. The fact that society goes from consuming 70% of its total annual income to consuming 60% does not, according to him, constitute a higher savings rate (no net change). I think MMT fails to realize that saving is just another form of consumption, which manifests itself as a higher demand for future goods, i.e., investment. If I issue a bond and use the funds to finance R&D or purchase intermediary goods, then my consumption rate has not increased (and my savings rate, therefore, does not fall). The only thing that changes is investment. Additionally, a higher savings rate would lead to additional reserves in the banking system.
MMT is a smokescreen; it prevents clear thought.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
"The main refutation is that you seem to be ignoring the fact that printing money raises prices, aka inflation and hyperinflation."
I thought I made it pretty clear that spending supports prices? And how the danger of excess spending for a given level of taxes is inflation, but not solvency? Take another look, thanks. It's a central point.
I know they all talk about how much they 'collected' and 'received' in taxes, but close examination shows this talk is misleading, as a simple point of logic.
Think of the Fed as running the 'extended spreadsheet' called 'the banking system'
It's all just debits and credits- computer information- data entry- score keeping- etc.
That's just an operational fact, not theory or philosophy.
You don't agree? You think when you pay federal taxes they actually 'get' something that's actually 'used' for spending, rather than just accounting (record keeping)?
And should you pay your federal taxes with actual cash- like old $20's- they just shred them after giving you a receipt. Same if you loan dollars to the federal gov and give them old $20's- they give you your bonds, etc. but shred your payment. Again, they don't actually 'need'
yes, spending can use up real resources, like oil, labor, etc. that's all made clear in the book?
I'm always clear on the difference between real savings and nominal savings.
Nominal savings is the accumulation of financial assets. In that regard, yes, one sector, such as the govt. sector, must spend more than it's income for another sector to accumulate net financial assets. what's wrong with that statement of fact?
some of the discussion is a matter of talking past each other. statements are made that are correct in the context
of a gold standard or other fixed fx regime, and then refuted by someone responding in regards to a non convertible currency regime.
let me try to nip this one early:
Lemme see. Let's do the accounting.
"Step 1. Govt prints a trillion dollars, gives it to itself. Score: Govt +1 trillion, Everyone else, zero paper, a trillion dollars worth of dresses [say]. No deficit so far."
The book makes it clear that step 1 is;
1. The govt. implements a tax payable in its own currency of issue, the dollar, in the case of the
US. This creates at least one seller of real goods and services who wants dollars in return,
so he can get what he needs to pay the tax and avoid the consequences of not paying the tax.
2. The govt. is now able to spend it's otherwise worthless dollars to buy what is being offered
for sale in exchange for those dollars.
3. To the extent people want to net save dollars, as evidenced by their desire to sell real
goods and services beyond what's needed to pay the tax, the govt is able to spend
more than the amount of the tax. That's called deficit spending.
and services beyond what
warrenmosler: "The main refutation is that you seem to be ignoring the fact that printing money raises prices, aka inflation and hyperinflation." I thought I made it pretty clear that spending supports prices? And how the danger of excess spending for a given level of taxes is inflation, but not solvency? Take another look, thanks. It's a central point.
If you agree that spending money created ex nihilo creates inflation, then I don't see how you can make some of the claims in the seven frauds article. Such as number 2, that our children will not suffer from the money we borrow from China today. They will suffer because their currency will become worthless. Same with number 3, that deficit spending adds to our savings. It may add to the numbers showing up, but those numbers have lost purchasing power. And on and on. Did you bother to read the post that I linked to?
Before I get to the meat of the discussion, I wish to point out that in your article you quoted Bernanke as proof that the govt doesnt spend tax money. Here is the quote:
PELLEY: Is that tax money that the Fed is spending? BERNANKE: It's not tax money. the banks have-- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. So it's much more akin to printing money than it is to borrowing.
That quote only proves that the Federal Reserve Bank does not spend tax money; it prints its own. But there are plenty of other govt agencies that DO spend tax money. Using that quote to prove the govt as a whole does not spend tax money is an attempt at deception
Think of the Fed as running the 'extended spreadsheet' called 'the banking system' It's all just debits and credits- computer information- data entry- score keeping- etc. That's just an operational fact, not theory or philosophy. You don't agree? You think when you pay federal taxes they actually 'get' something that's actually 'used' for spending, rather than just accounting (record keeping)?
Mr Mosler, is this the heart of your argument? That since it's all just changes in the electrical state of some computer chips, then we have nothing to worry about?
Allow me to explain. Let us imagine a time in the near future, when the US govt, as a gesture to the feminist movement, decides to issue pink dollars instead of green dollars. All green dollars still remain legal tender, of course, but when the govt gets its hands on any green money [say as payments for taxes or bonds], it instantly shreds it and gives itself pink money in the same amount. All new money it issues is pink, as well. The printing presses only have pink ink in them. "Think pink" is the new motto.
Has anything changed whatsoever as far as basic understanding of what's going on? Have the laws of economics suddenly been cancelled because the new paper money is now pink instead of green? Does the economy operate any differently? I think we can agree that nothing has changed.
The advent of the computer made the govt decide, for convenience, to use "pink money" instead of green money. Of course I don't mean paper money colored pink. Instead they decided that a certain configuration of a computer chip is to be considered money, in addition to printed green paper money. So what? Nothing has changed. The situation is exactly the same as if they had decided to use pink paper money in addition to the green.
They shred the paper, BUT they put into their computer that they now have $20 more to spend which they got from you. Shredding the paper is not the end of the story. They make good and sure that the paper money is transformed into digital money. And they spend that digital money.
I think it is dingenuous to omit that fact, that the paper money one pays, though shredded, is recorded in their computers as extra money they now have to spend. And the reason they shred it is because they never pay in cash, only checks and electronic transfers, so they have no use for cash.
I'm glad we agree on that. BTW why did you write "can" and not "does"? At any rate, once you admit that govt spending depletes our supply of real resources, said supply being the only seeds from which future growth is possible, then you must admit that every penny spent by the govt is impoverishing us. And the fact that they give us paper or digital money in return does nothing to improve the situation.
That being the case, how you can you possibly support govt spending? And how can you argue that it makes an economy grow?
warrenmosler:1. The govt. implements a tax payable in its own currency of issue, the dollar, in the case of the US. This creates at least one seller of real goods and services who wants dollars in return, so he can get what he needs to pay the tax and avoid the consequences of not paying the tax.
This would only make sense of the tax implemented was a poll tax, i.e. a tax everyone owed simply by "virtue" of being a citizen. However, there is no such tax on either the state or the federal level in the US. The tax that comes closest to this idea is the property tax, but it obviously falls only on people who own real estate. Otherwise, if a person earns no income, he owes no tax. Similarly, if a person buys nothing, he owes no sales tax. I think it's safe to say, then, that your first point cannot stand.
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warrenmosler: some of the discussion is a matter of talking past each other. statements are made that are correct in the context of a gold standard or other fixed fx regime, and then refuted by someone responding in regards to a non convertible currency regime.
The laws of economics don't need revision every time there are institutional changes. They are laws; they are applicable in any location and at any time. It is precisely because we understand such laws that we can understand the ramifications of such institutional changes. For example, it's absurd to claim that neoclassical price theory is superfluous when analyzing markets with arbitrary price floors/ceilings, where prices are not allowed to adjust. Again, it is precisely because we understand price theory that we can diagnose the affects of such interventions.
warrenmosler: I'm always clear on the difference between real savings and nominal savings. Nominal savings is the accumulation of financial assets. In that regard, yes, one sector, such as the govt. sector, must spend more than it's income for another sector to accumulate net financial assets. what's wrong with that statement of fact?
It's pointless to point out the fact that in order to purchase a financial asset it must first be supplied. This is tautological and reveals absolutely nothing. The point is that savings is not defined as purchasing financial assets, and selling financial assets does not diminish the total savings rate (if you agree with this, let me know).
Let me put it to you this way:
Assume that tomorrow, for whatever reason, the government pushed down market interest rates to zero or near zero. Under such a condition, most would find it preferable to hoard their savings rather than put it in jeopardy in the financial market at a 0%, or near 0%, rate of return. But it is still reasonable to assume that some savings would exist; there would still be a demand to retire, to pay for their children's college tuition in the future, etc. Now let's assume that the savings rate rises (reduction in consumption), but that the market rate of interest is still zero, so that the QD for financial assets is still zero, or close to zero (simply put, society saves, but rather than buying financial assets, they decide to hoard their savings).
Would this constitute an increase in net savings? The answer would have to be yes, unless you make some sort of argument about the inherent futility of savings, i.e., the paradox of thrift, or if you choose to define savings as purchasing financial assets, and consumption as selling financial assets.
Additionally:
Taxation is a deflationary force- it forces at least some people to sell goods and services to get the funds to pay the tax.
govt spending then buys those things the govt wants as it provides the funds to pay the taxes.
if govt 'over spends' for a given tax the evidence would be price increases.
if govt did this continuously there would be continuous price increases which is what we call inflation.
to recap-
for a given tax structure:
spend too much continuously- inflation
don't spend enough- deflation
but how govt spends also matters. it can spend on a 'price constrained' basis- offer to pay a certain price and take what it can get at that price,
or it can spend 'at the market' and pay whatever prices the sellers demand. the first is a matter of 'getting your bid hit' and the second a matter of 'lifting offers' as we say in the financial markets.
lifting offers causes prices to rise, getting your bid hit only keeps them from falling.
as for borrowing from china, that's merely the process of debiting china's reserve account at the fed and crediting their securities account. and paying it back, as happens every week for a portion of it, is nothing more than debiting their fed securities account and crediting their fed reserve account. no children or grandchildren are involved.
what you are concerned about is overspending relative to the amount of taxation to the point it causes inflation. operationally, that has nothing to do with borrowing from china.
deficit spending that offsets desires to net save dollar financial assets is not the excess spending that drives up prices.
no, i haven't read the link
all spending is done via giving instructions to the Federal reserve to debit your member bank's Fed account and credit another's Fed account. You can call that printing and unprinting money if you want. Operationally, that's all there is to it.
for the govt, 'having money to spend' is a different matter than 'allowing itself to spend' . yes, by it's own rules, the govt says the treasury isn't allowed to spend unless there are funds in it's account at the fed. that's what I call a 'self imposed constraint' which is very different than an operational constraint.
if the treasury gives the fed instructions to debit its account and credit another, the fed can, operationally, always do just that, even if it means it will record a negative balance in the tsy's fed account. however, congress has told the fed not to do that, so it's constrained in that sense.
I have Govt. as what's under the control of congress. that includes the Tsy, Fed, and all other agencies under the control of Congress.
In that sense, govt. is never, operationally, revenue constrained. it can't run out of money, isn't dependent on china for funding, and can't be the next greece.
it can overspend and/or under tax, and/or do a lot of other things that can cause higher prices, lower prices, inflation, unemployment, etc.
again, this to me and most readers is very clear in the book.
http://www.moslereconomics.com/?p=8662/
just for one example, govt spending to build the panama canal was an investment of real resources that saved a lot more in real costs than were consumed in building it. however govt spending to blow it up would do the reverse. so the actual spending matters a lot.
also, for me, govt is there for public infrastructure for further public purpose, and that's all. and it does this by moving real goods and service from private to public domain, again, presumably, to further public purpose. so the real cost of govt is the resources removed from the private sector, and the real benefit the gains from that transfer.
to get the real goods and service it needs in that regard it levies a tax and then is able to spend, where the real tax is paid as we part with the real goods and services the govt buys from us.
the problem we have is for the given amount of spending right now, the tax is way too high. for a tax this high we would need a lot more spending to allow the private sector to cover it's tax bills and net save financial assets as much as it wants to. hence my proposal for a full FICA tax suspension.
My comments on your post are in bold:
warrenmosler: let me try to nip this one early: Lemme see. Let's do the accounting. "Step 1. Govt prints a trillion dollars, gives it to itself. Score: Govt +1 trillion, Everyone else, zero paper, a trillion dollars worth of dresses [say]. No deficit so far." The book makes it clear that step 1 is; 1. The govt. implements a tax payable in its own currency of issue, the dollar, in the case of the US. This creates at least one seller of real goods and services who wants dollars in return, so he can get what he needs to pay the tax and avoid the consequences of not paying the tax. OK, I'll go along with that. Still no deficit, of course. And let us agree that if the govt declares, "You all owe me money now, I'm taxing you," that the govt is not in a deficit just by that simple declaration. 2. The govt. is now able to spend it's otherwise worthless dollars to buy what is being offered for sale in exchange for those dollars. There is a huge flaw here. The dollars are not at all "otherwise worthless". The govt can walk into any store, fill up its shopping bags, and force the vendor to accept those dollars. That is the law of the land. Even if there were no taxes at all, they could do that. So by saying it has otherwise worthless dollars, you are implicily assuming it HAS dollars. Meaning it is in a surplus, created by printing that money. 3. To the extent people want to net save dollars, as evidenced by their desire to sell real goods and services beyond what's needed to pay the tax, the govt is able to spend more than the amount of the tax. That's called deficit spending. This has been refuted by the above. Let us not forget that even without printing any money, the govt can collect taxes. In the old days this was done all the time. They walked in and took your sheep. They also made you work for them for free. The Bible mentions it, even thought they had money in those days. SO bottom line, the govt can print money and spend it with out taxing, as I mentioned earlier in the post, and can also tax without printing money. The two are totally independent of each other.
OK, I'll go along with that. Still no deficit, of course. And let us agree that if the govt declares, "You all owe me money now, I'm taxing you," that the govt is not in a deficit just by that simple declaration.
There is a huge flaw here. The dollars are not at all "otherwise worthless". The govt can walk into any store, fill up its shopping bags, and force the vendor to accept those dollars. That is the law of the land. Even if there were no taxes at all, they could do that. So by saying it has otherwise worthless dollars, you are implicily assuming it HAS dollars. Meaning it is in a surplus, created by printing that money.
This has been refuted by the above.
Let us not forget that even without printing any money, the govt can collect taxes. In the old days this was done all the time. They walked in and took your sheep. They also made you work for them for free. The Bible mentions it, even thought they had money in those days.
SO bottom line, the govt can print money and spend it with out taxing, as I mentioned earlier in the post, and can also tax without printing money. The two are totally independent of each other.
true, an income tax does not 'drive the model' unless imputed income is taxed, which is highly problematic. I cover that in my writings as well.
and state and local taxes do work to drive the model. particularly property taxes.
but once the economy has been monetized by any tax, income taxes and other transactions taxes do drive the model.
not to say that i favor those transactions taxes. in fact I don't at all favor income taxes and sales taxes, also as per my writings at www.moslereconomics.com
Agreed about the laws of economics, price theory, etc. though there is a lot more to it than most realize.
I'm talking about the role of the institutional structure, which is an entirely different matter.
don't agree that nominal savings discussion is pointless. with the currency itself a public monopoly, as it is with our current institutional structure, it matters a lot.
agree that real savings = real investment
in your 'assume' example, you intertwine real and nominal savings so there is no 'answer' to your question.
there is a correlation between deficit spending and the price level, though it's not 'tight' due to measurement issues and other variables.
govt deficit spending adds that many net financial assets, a govt surplus takes that many financial assets away (to the penny).
'crowding out effect' and 'monetize debt (inflation)' are largely empty rhetoric that doesn't actually apply to what you think they apply to with a fiat currency.