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.
warrenmosler,
Another challenge to your step 1 above. Could you please comment on the moral implications? Perhaps a 'step 0' to justify the inherent force that must back a government-issued currency. Hopefully, you can understand that most on this site find this repugnant. I'm fairly certain that you would do my bidding if I had a gun pressed into your back...up to and including trading goods/services in paper chits that I made myself.
This ugly reality is acknowledged in 7DIF:
The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.
My comments in bold.
warrenmosler: 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. This whole argument is fatally flawed. We are talking about one of two possible cases. Either the situation is one where no new money, paper or digital, is being printed, or we are are talking about when it IS being printed. In either case your analysis is incorrect. Since I assume you are writing this in defense of money printing not hurting our children and being able to pay for social security etc., I will discuss that case. When the govt prints new money, tax or no tax, SOMEONE is going to spend it. Whether it be the govt or the pvt sector or a mixture of both, someone is going to spend it. And all the old money in existence is available for spending, too, by someone, be it the govt or the pvt sector, it matters not. So you have more paper money chasing the same amount of goods. This MUST lead to price rises, to a loss of purchasing power. tax or no tax. The tax or lack thereof just determines who is going to spend the money, but it will be spent. That's why it was printed. So our children will suffer from deficit spending, which just means printing money. And social security checks will be paid ny printed money, but that money wont buy a stick of gum. And so on. 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. You seem to think that what happens in cyber space may as well not exist. But that is a gross error, as my parable of the pink money shows. Call it what you will, be the paperwork what it may be, borrowing money from the Chinese means they will one day ask for it back. If not from us, from our children and grandchildren. And they will have to pay it back. And printing digital dollars to repay them will destroy our descendant's purchasin power. 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. As i said earlier, my concern is not overspending relative to the amount of taxation to the point it causes inflation. I agree with AE that any printing of money [paper or digital] whatsoever causes inflation, and taxes have notiing to do with it. Borrowing from China is what will force us to print that money. So it has all 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. Yes it is. Any deficit spending means more money printed, means inflation. 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. Then we agree. Why is it so important what the operation is? What counts is the consequence of said operation. 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. I agree that the govt can do whatever it wants and make or break any law it wants. And indeed because of its ability to print endless money it cannot be the next Greece. But it can be the next Zimbabwe and Argentina and Weimar Republic. 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. The key point is that you think taxes serve as a brake on inflation. But they don't, as explained above. They are not relevant to inflation. 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. Here's a little on the Panama Canal: http://www.lewrockwell.com/rothbard/rothbard250.html 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. That is true. And I'm glad you put in that "presumably". 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. Yes. 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. More spending is the answer to higher taxes? I imagine you mean we are suffering a deflation from high taxes, so we need to counteract that with more spending. Well I've threshed this out already. Not to mention that the govt figures are all baloney, and we have high inflation now. hence my proposal for a full FICA tax suspension. I'm all for tax suspension, provided it goes along with coreespondingly less govt spending.
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.
This whole argument is fatally flawed. We are talking about one of two possible cases. Either the situation is one where no new money, paper or digital, is being printed, or we are are talking about when it IS being printed. In either case your analysis is incorrect. Since I assume you are writing this in defense of money printing not hurting our children and being able to pay for social security etc., I will discuss that case.
When the govt prints new money, tax or no tax, SOMEONE is going to spend it. Whether it be the govt or the pvt sector or a mixture of both, someone is going to spend it. And all the old money in existence is available for spending, too, by someone, be it the govt or the pvt sector, it matters not. So you have more paper money chasing the same amount of goods. This MUST lead to price rises, to a loss of purchasing power. tax or no tax. The tax or lack thereof just determines who is going to spend the money, but it will be spent. That's why it was printed.
So our children will suffer from deficit spending, which just means printing money. And social security checks will be paid ny printed money, but that money wont buy a stick of gum. And so on.
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.
You seem to think that what happens in cyber space may as well not exist. But that is a gross error, as my parable of the pink money shows. Call it what you will, be the paperwork what it may be, borrowing money from the Chinese means they will one day ask for it back. If not from us, from our children and grandchildren. And they will have to pay it back. And printing digital dollars to repay them will destroy our descendant's purchasin power.
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.
As i said earlier, my concern is not overspending relative to the amount of taxation to the point it causes inflation. I agree with AE that any printing of money [paper or digital] whatsoever causes inflation, and taxes have notiing to do with it. Borrowing from China is what will force us to print that money. So it has all 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.
Yes it is. Any deficit spending means more money printed, means inflation.
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.
Then we agree. Why is it so important what the operation is? What counts is the consequence of said operation.
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.
I agree that the govt can do whatever it wants and make or break any law it wants. And indeed because of its ability to print endless money it cannot be the next Greece. But it can be the next Zimbabwe and Argentina and Weimar Republic.
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.
The key point is that you think taxes serve as a brake on inflation. But they don't, as explained above. They are not relevant to inflation.
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.
Here's a little on the Panama Canal: http://www.lewrockwell.com/rothbard/rothbard250.html
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.
That is true. And I'm glad you put in that "presumably".
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.
Yes.
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.
More spending is the answer to higher taxes? I imagine you mean we are suffering a deflation from high taxes, so we need to counteract that with more spending. Well I've threshed this out already. Not to mention that the govt figures are all baloney, and we have high inflation now.
hence my proposal for a full FICA tax suspension.
I'm all for tax suspension, provided it goes along with coreespondingly less govt spending.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
please explain the operational difference between federal spending that is 'money printing' and federal spending that is not 'money printing'
my knowledge and experience is that apart from actual cash transactions, for all practical purposes all spending is done simply by crediting member bank accounts at the fed. there is no other way to spend. so if you want to call all spending money printing, fine, but recognize it's not a distinction from some other way of spending.
Also, for all practical purposes, the spending itself is the 'money printing.'
And with all spending 'printing money' obviously the dollar still has value. in fact, the value purchased by dollars is the GDP, and real gdp continuously sets new records. This means the currency called the dollar buys more and more real goods and services every year.
And what is 'all the old money' you are referencing? Checking account balances, savings account balances, funds in fed securities accounts, money market fund balances, etc. etc. etc?
Note that the Fed and many others have tried for years to find some monetary aggregate that would be useful for forecasting, etc. and they have yet to come up with one, best I can tell. The one that does have value is 'net financial assets' which is the total financial assets created by govt deficit spending. these consist of cash, reserves, and tsy secs.
Again, printing money, if you mean something different from spending money, doesn't cause inflation. it's spending that can cause prices to go up. if the tsy printed a bunch of dollars in a dark room how would anyone even know they were there? nor would they alter the amount of tsy spending which is determined by congress, and not some notion of 'available funds'.
And what does China have to do with how much the tsy spends? china gets paid for the stuff they sell us and those dollars exist as a credit in their reserve account or securities account at the fed. what's the big deal?
taxes remove people's spending power. if the govt taxed all your dollars away, what would happen to your spending? if they stopped taxing so many of your dollars away, as I've been proposing, what would happen to your spending?
for a given size govt, including the size govt that you prefer, there is a corresponding level of taxes that corresponds to full employment, and that is the level of taxes that allows us to pay our taxes and net save what we want. And that level of taxes can be a lot less than the level of govt spending, depending on savings desires, credit conditions, etc. etc. Statistically, the odds of a 'balanced budget' being the right number are slim and none.
First, I consider myself an extreme libertarian.
And I also recognize that 'complete freedom' is no freedom at all. (It makes no sense to be free to kill each other without penalty, for just one example.)
I do see value to some government and public infrastructure- defence, police, legal system, contract law, etc.
That means moving some real goods and services from private to public domain.
And while I'd like to see a voluntary system that worked, I haven't seen it yet.
Communism simply doesn't work for human society. It always seems to degenerate into people doing as little as possible.
Provisioning of the public sector always seems to come down to coersion.
In this case the coersion comes at the point of tax enforcement.
If you have other alternatives for provisioning the public sector I'm all ears.
But until then I support the coersion of taxation for that purpose.
And govt for desired public infrastructure for public purpose, including the institutional structure that has incentives built in to allow market forces to work constructively for public purpose. And not most of the built in incentives of today that work against the common good and encouage corruption, inefficiency, and destruction of liberty beyond that liberty needed to be sacrificed on behalf of desired pubic infrastructure.
Anyway, in the 7DIF i tell it how it is. the idea is to recognize available options given the operational realities, and not have our options constrained by the 7 frauds.
Seems pretty moderate to me.. Why do you consider yourself as extreme?
Well that wouldn't be complete freedom now then would it? That is unless you deem freedom and chaos to be synonomous. If you do, why call yourself a libertarian?
I do see value to some government and public infrastructure- defence, police, legal system, contract law, etc. That means moving some real goods and services from private to public domain.
Where you see value, I see decay. Why must this infastructure be controlled by a coercive body? Do you not see value in entrepreneurship?
You can't hurry up good times by waiting for them.
warrenmosler: please explain the operational difference between federal spending that is 'money printing' and federal spending that is not 'money printing my knowledge and experience is that apart from actual cash transactions, for all practical purposes all spending is done simply by crediting member bank accounts at the fed. there is no other way to spend. so if you want to call all spending money printing, fine, but recognize it's not a distinction from some other way of spending. Also, for all practical purposes, the spending itself is the 'money printing.'' I'm glad you asked. At this very moment, there is a finite amount of dollars in the world. We can add up all possible forms this money takes, coins, paper, digital, in all the wallets and bank accounts the world over, and that is the current money supply at this moment. Any time that money changes hands, even if it from the fed to a grocery store or a bank, it is not printing money, it is merely shuffling around existing money. But the fed can decide that all the money it has is not enough for its needs. It might want a trillion or so to bail out some bank, to buy treasurys with, whatever. And it just doesnt have or does not want to spend the money that already exists [in digital form or otherwise]. So it just ups and enters into its computers that it now has a trillion more than before. Where did that trillion come from, from whose account was it transferred? From nowhere and from nobodys. That is how money is printed nowadays. Here is the full quote of that little chat Pelley and Bernanke had: 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. PELLEY: You’ve been printing money? BERNANKE: Well, effectively. Note that only the Federal Reserve can do this. Any other govt agency can only spend pre existing money. It cannot just add a trillion to its bank account. It also cannot add money to someone elses account without subtracting a corresponding amount from its own account. That is spending that is not money printing. And with all spending 'printing money' obviously the dollar still has value. in fact, the value purchased by dollars is the GDP, and real gdp continuously sets new records. This means the currency called the dollar buys more and more real goods and services every year. No. Kel Kelly opened my eyes about this. I'll quote him from here: http://mises.org/daily/4654 : A progressing economy is one in which more goods are being produced over time. It is real "stuff," not money per se, which represents real wealth. The more cars, refrigerators, food, clothes, medicines, and hammocks we have, the better off our lives. We saw above that, if goods are produced at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same while prices fell, because the supply of goods would increase while the supply of workers would not. But even when prices rise due to money being created faster than goods, prices still fall in real terms, because wages rise faster than prices. In either scenario, if productivity and output are increasing, goods get cheaper in real terms. Obviously, then, a growing economy consists of prices falling, not rising. No matter how many goods are produced, if the quantity of money remains constant, the only money that can be spent in an economy is the particular amount of money existing in it (and velocity, or the number of times each dollar is spent, could not change very much if the money supply remained unchanged). This alone reveals that GDP does not necessarily tell us much about the number of actual goods and services being produced; it only tells us that if (even real) GDP is rising, the money supply must be increasing, since a rise in GDP is mathematically possible only if the money price of individual goods produced is increasing to some degree.[5] Otherwise, with a constant supply of money and spending, the total amount of money companies earn — the total selling prices of all goods produced — and thus GDP itself would all necessarily remain constant year after year. And what is 'all the old money' you are referencing? Checking account balances, savings account balances, funds in fed securities accounts, money market fund balances, etc. etc. etc? All of the above, as explained above. Note that the Fed and many others have tried for years to find some monetary aggregate that would be useful for forecasting, etc. and they have yet to come up with one, best I can tell. The one that does have value is 'net financial assets' which is the total financial assets created by govt deficit spending. these consist of cash, reserves, and tsy secs. Did they forecast the current recession? Or the one before? Or the one before that? or any of them? Again, printing money, if you mean something different from spending money, doesn't cause inflation. it's spending that can cause prices to go up. if the tsy printed a bunch of dollars in a dark room how would anyone even know they were there? nor would they alter the amount of tsy spending which is determined by congress, and not some notion of 'available funds'. Yes I agree that the money has to be spent. But spending pre existing money does not cause inflation. Spending newly created money does. Of course, this takes time. We might be first feeling today the inflation caused by money printed a year ago. I have no idea how long it takes. Are the high commodity prices we are experiencing now the result of QE1 or QE2 or both? I don't know. Maybe someone more knowledgable than me does know. And what does China have to do with how much the tsy spends? china gets paid for the stuff they sell us and those dollars exist as a credit in their reserve account or securities account at the fed. what's the big deal? Someone has to buy the treasury bonds. China has been doing most of that. A bond is an IOU, with interest. It will have to be repaid. Where will the money come from to repay them? taxes remove people's spending power. if the govt taxed all your dollars away, what would happen to your spending? if they stopped taxing so many of your dollars away, as I've been proposing, what would happen to your spending? It removes the private sectors spending power, but it increases the govts spending power by the exact same amount. All tax money is spent. So taxes are not deflationary. When resources are consumed, they don't care if the govt or the private sector consumed them. They are now in shorter supply. for a given size govt, including the size govt that you prefer, there is a corresponding level of taxes that corresponds to full employment, and that is the level of taxes that allows us to pay our taxes and net save what we want. Taxes certainly influence unemployment, but I don't see how there can be an exact amount of taxation that will acheive full employment when many other factors are out there that cause unemployment. Minimum wage, unions, regulations, all contribute [together with taxes, certainly] to unemployment. And that level of taxes can be a lot less than the level of govt spending, depending on savings desires, credit conditions, etc. etc. Statistically, the odds of a 'balanced budget' being the right number are slim and none. Like I said in other posts, I think deficits, surpluses, and balanced govt budgets are all the same, more or less. What really counts is HOW MUCH is being spent by the govt. The less the better, for all of us. So when you hear talk about the evils of deficit spending, the key word is "spending". Of course the way govt spending hurts us differs depending on their budget. A balanced budget or a surplus hurts us by direct confiscation of our money. Deficits hurt us by causing inflation. Some say the world will end in fire, some say ice.
please explain the operational difference between federal spending that is 'money printing' and federal spending that is not 'money printing
Also, for all practical purposes, the spending itself is the 'money printing.''
I'm glad you asked. At this very moment, there is a finite amount of dollars in the world. We can add up all possible forms this money takes, coins, paper, digital, in all the wallets and bank accounts the world over, and that is the current money supply at this moment. Any time that money changes hands, even if it from the fed to a grocery store or a bank, it is not printing money, it is merely shuffling around existing money.
But the fed can decide that all the money it has is not enough for its needs. It might want a trillion or so to bail out some bank, to buy treasurys with, whatever. And it just doesnt have or does not want to spend the money that already exists [in digital form or otherwise]. So it just ups and enters into its computers that it now has a trillion more than before. Where did that trillion come from, from whose account was it transferred? From nowhere and from nobodys. That is how money is printed nowadays.
Here is the full quote of that little chat Pelley and Bernanke had:
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.
PELLEY: You’ve been printing money?
BERNANKE: Well, effectively.
Note that only the Federal Reserve can do this. Any other govt agency can only spend pre existing money. It cannot just add a trillion to its bank account. It also cannot add money to someone elses account without subtracting a corresponding amount from its own account. That is spending that is not money printing.
No. Kel Kelly opened my eyes about this. I'll quote him from here: http://mises.org/daily/4654 :
A progressing economy is one in which more goods are being produced over time. It is real "stuff," not money per se, which represents real wealth. The more cars, refrigerators, food, clothes, medicines, and hammocks we have, the better off our lives. We saw above that, if goods are produced at a faster rate than money, prices will fall. With a constant supply of money, wages would remain the same while prices fell, because the supply of goods would increase while the supply of workers would not. But even when prices rise due to money being created faster than goods, prices still fall in real terms, because wages rise faster than prices. In either scenario, if productivity and output are increasing, goods get cheaper in real terms.
Obviously, then, a growing economy consists of prices falling, not rising. No matter how many goods are produced, if the quantity of money remains constant, the only money that can be spent in an economy is the particular amount of money existing in it (and velocity, or the number of times each dollar is spent, could not change very much if the money supply remained unchanged).
This alone reveals that GDP does not necessarily tell us much about the number of actual goods and services being produced; it only tells us that if (even real) GDP is rising, the money supply must be increasing, since a rise in GDP is mathematically possible only if the money price of individual goods produced is increasing to some degree.[5] Otherwise, with a constant supply of money and spending, the total amount of money companies earn — the total selling prices of all goods produced — and thus GDP itself would all necessarily remain constant year after year.
All of the above, as explained above.
Did they forecast the current recession? Or the one before? Or the one before that? or any of them?
Yes I agree that the money has to be spent. But spending pre existing money does not cause inflation. Spending newly created money does. Of course, this takes time. We might be first feeling today the inflation caused by money printed a year ago. I have no idea how long it takes. Are the high commodity prices we are experiencing now the result of QE1 or QE2 or both? I don't know. Maybe someone more knowledgable than me does know.
Someone has to buy the treasury bonds. China has been doing most of that. A bond is an IOU, with interest. It will have to be repaid. Where will the money come from to repay them?
It removes the private sectors spending power, but it increases the govts spending power by the exact same amount. All tax money is spent. So taxes are not deflationary. When resources are consumed, they don't care if the govt or the private sector consumed them. They are now in shorter supply.
for a given size govt, including the size govt that you prefer, there is a corresponding level of taxes that corresponds to full employment, and that is the level of taxes that allows us to pay our taxes and net save what we want.
Taxes certainly influence unemployment, but I don't see how there can be an exact amount of taxation that will acheive full employment when many other factors are out there that cause unemployment. Minimum wage, unions, regulations, all contribute [together with taxes, certainly] to unemployment.
And that level of taxes can be a lot less than the level of govt spending, depending on savings desires, credit conditions, etc. etc. Statistically, the odds of a 'balanced budget' being the right number are slim and none.
Like I said in other posts, I think deficits, surpluses, and balanced govt budgets are all the same, more or less. What really counts is HOW MUCH is being spent by the govt. The less the better, for all of us. So when you hear talk about the evils of deficit spending, the key word is "spending".
Of course the way govt spending hurts us differs depending on their budget. A balanced budget or a surplus hurts us by direct confiscation of our money. Deficits hurt us by causing inflation. Some say the world will end in fire, some say ice.
I imagine that the only reason fiat money still works is because we still treat it as though it wasn't (to varying degrees).
Hi,
My '7 Deadly Innocent Frauds of Economic Policy' is a short read that should be helpful to the readers on this website, particularly the author of the comments on the previous post, as you all try to grasp the operational realities of our current monetary arrangements.
For example, operationally, taxes don't actually 'give' the federal govt. anything to spend. All the federal govt. does when it 'collects taxes' is change the number down in someone's bank account. And when it spends all it does is change numbers up in our bank accounts. That's just how it works. Not theory or philosophy.
Sincerely,
Warren Mosler
Good to see you back, Warren.
As for taxes just shuffling numbers on computers, I guess we should agree that credit card debt is not really an issue, nor heavy losses in an online gambling game, for the same reason.
hi, thanks!
taxes function to reduce aggregate demand (not raise revenues, etc)
they remove 'spending power' and thereby serve to control prices.
no taxes means hyper inflation- the dollar would have no value without them.
credit cards can serve to allow people to spend more than their income, at least for a while. and during that time
aggregate demand is higher than otherwise. This is an inflationary bias while credit card debt builds, and then
a deflationary bias if it reverses and contracts. But not from the 'money supply' type of effect itself. Just from the spending
effect.
warrenmosler:All the federal govt. does when it 'collects taxes' is change the number down in someone's bank account.
Then you would be indifferent to anyone hacking into your online bank account and "changing the number down"? It's just numbers on a screen, after all.
Z.
I didn't say i didn't lose anything of value to me when i get taxed.
in fact, i said the opposite- the govt takes away my spending power.
let me know if that needs more clarification, thanks.
"The legal characteristics of various types of money are entirely unessential for economic theory."
No they are not. I can issue money and if It's not enforced by some kind of law you are not going to accept It as a payment. Do you want to try? I will buy your house with my promissory note and that's a final payment!!!
"No. Also, there's no relationship between average and/or marginal tax rates and the general price level. The two are entirely unrelated."
What's your point?
"No. Government expenditure neither creates money nor does it credit bank accounts. Government expenditure is not, in itself, inflationary; it becomes inflationary only when the Federal Reserve monetizes government debt (open market purchases), i.e., when it creates reserves (money base) in the system ex nihilo."
How is the money created then in your opinion? You're here mistaking flows and stocks. Money Itself doesn't create inflation. The government can print money and you could put It under your matress, there is not going to be inflation. It's the flows that matter, the spending part of It. In order to create demand-pull inflation the demand has to ecxeed economy's capacity to produce. Monetizing has nothing to do with It.
"And? No one believes that the money creation process (the money multiplier) actually creates real savings. Inflation does not magically make additional resources fall from the sky."
Textbook money multiplier is a myth. Like I said before you're wrong about the inflation part (CPI and not monetary expansion inflation what Austrians believe in-monetary expansion doesn't consern normal people as long as there is price stability). The resources are available already we are not just utilizing them(10% unemployment for example). The government can utilize those resources for the public purpose.
What is the public purpose? That's up to the democracy. Sometimes It's a war, sometimes It's feeding the hungry.
I can prettymuch guarantee that there is no "formal, thorough, critique of MMT" from an Austrian economist or anyone else. "MMT" is a confused and insignificant bunch of fringe theories and marginal language puzzles. There are maybe 10 working economists in the world who take it seriously and the vast majority of economists are not even aware of its existence. Austrians strategically need not bother refuting the various versions of "MMT" unless they're just doing it for fun or intellectual excercise. Waste of time.
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DEPENDS ON THE TYPE OF THEORY. FOR THEORY RELATIVE TO TODAY'S ECONOMIES, ITS HELPFUL TO KNOW IF THE CURRENCY IS CONVERTIBLE OR NON CONVERTIBLE, FIXED OR FLOATING, ETC.
AS MINSKY SAID, ANYONE CAN ISSUE IOU'S, THE TRICK IS TO GET SOMEONE TO ACCEPT THEM IN EXCHANGE FOR REAL GOODS AND SERVICES.
THE US GOVT CAN SPEND ITS OTHERWISE WORTHLESS DOLLARS BECAUSE IT ACCEPTS THEM FOR PAYMENT OF US TAXES, WITH STIFF PENALTIES FOR NON PAYMENT CRITICAL TO THE PROCESS.
UNDER CURRENT LAW GOVT. EXPENDITURE BY THE TSY DOESN'T CREATE 'MONEY' AS DEFINED AS NET BALANCES IN FED RESERVE ACCOUNTS OR MEMBER BANK ACCOUNTS.
NOTE THAT TSY SECS DON'T COUNT AS 'MONEY' IN THIS DEFINITION.
AGREED. EXCESS DEMAND IS ANOTHER WAY OF SAYING EXCESS SPENDING DESIRE.
CORRECT, DEBITS AND CREDITS PER SE DON'T CREATE REAL GOODS AND SERVICES. THAT REQUIRES WHAT WE MIGHT CALL REAL WORK.
Textbook money multiplier is a myth.
IT'S CORRECT FOR CONVERTIBLE CURRENCY/FIXED EXCHANGE RATE REGIMES, LIKE THE GOLD STANDARD.
ITS BACKWARDS FOR NON CONVERTIBLE CURRENCY/FLOATING FX REGIMES
Like I said before you're wrong about the inflation part (CPI and not monetary expansion inflation what Austrians believe in-monetary expansion doesn't consern normal people as long as there is price stability). The resources are available already we are not just utilizing them(10% unemployment for example). The government can utilize those resources for the public purpose.
GOVT. CERTAINLY HAS THE OPTION TO TRY TO DO THAT.
JAPAN MIGHT HAVE BEEN WELL SERVED BY EMPLOYING ITS UNEMPLOYED TO PRODUCE AND STOCK PILE MORE EMERGENCY HIGH LIFT HELICOPTERS, FOR EXAMPLE, RATHER THAN LET THEIR POTENTIAL LABOR GO TO WASTE.
AND SOMETIMES IT'S BUYING VOTES. REPRESENTATIVE GOVT. IS A WORK IN PROGRESS.
www.moslereconomics.com