Originally posted on December 6, 2012 at the New Economic Perspectives blog.
Let us continue to develop an alternative frame for money. As you know, MMT says that “taxes drive money”. Let’s develop that further.
According to the orthodox meme, taxes are bad—the far right views them as outright theft—so the lower they are, the better. Most view taxes as necessary to “pay for” government spending, but again since in the conservative framing, government does next to nothing that is useful this represents a redistribution from productive, private, use to public waste. Hence, again, it is best to keep taxes as low as possible to “starve the beast” and to keep the private sector humming along.
Yet, from the state money view, the monetary system that we’ve actually inherited is a state money system. And from that framing, the most important purpose of taxes is to create a demand for the state’s money (specifically, for its currency). Further, as we’ll see, the state really does not need tax revenue to spend and in fact really cannot spend tax revenue. Our meme: taxes create a demand for the currency, ensuring willing sellers of goods and services for money.
Taxes serve two other important purposes, too. They can be used to regulate demand—by increasing costs and reducing net income. This is especially important as the economy reaches full employment; if the government continues to increase its resource intake it will drive up prices unless it reduces nongovernment use of resources. And sin taxes are used to reduce socially undesirable behavior (or tax credits are used to reward good behavior).
Another use of taxes is to prevent accumulation of wealth over generations—the so-called “death tax”—although it is doubtful that in practice inheritance taxes are very effective (at least in the US where tax rates have fallen and most wealth is excluded thanks to exemptions, evasion, and legally-sanctioned avoidance). However, Jamie Galbraith has argued that inheritance taxes do drive charitable contributions—including university endowments—which supports a large non-profit sector serving the public interest alongside government. So, to some degree, inheritance taxes can be used to drive resources to the charities.
So in addition to driving money, taxes can be used to further the public purpose.
We can examine in some detail three examples of use of taxes to further the public purpose: favorable tax treatment of mortgage interest, tax advantaged saving, and payroll taxes to “finance” social security.
All of these have unintended and perhaps undesired consequences, and may not actually be in the public interest. The mortgage interest deduction is widely believed to increase house prices. By lowering net after tax monthly payments, it allows owners to take on more debt and thereby pay higher prices. The deduction might also increase the demand for housing, which if supply constrained also pushes up prices. Home ownership is also believed to be socially beneficial (promoting stable communities and providing a secure asset against which families can borrow to finance education, or expensive healthcare). However, once home ownership is widely established as a nearly universal goal of households in a nation, it probably does not require a tax advantage—which may be more than offset by higher real estate prices, anyway. There is also the question about equity since homeownership and the benefits of the deduction are skewed to higher income families. For these reasons, it is not clear that the deduction is in the public interest.
Favorable tax treatment of saving—whether in individual retirement accounts or in pension funds—increases individual desire to save. However, as we know from Keynes that leads to the paradox of thrift: increased propensity to save reduces aggregate demand and thus income so that saving actually does not increase. While thrift is a private virtue, it is a public vice.
Nor is it even possible to provision for future retirement through financial means—as J. Fagg Foster (following Keynes) put it so clearly.[1] Financial saving cannot transfer aggregate purchasing power from the present to the future. The financial “sinking fund” can actually make it more difficult to provision in the future, by depressing demand and thus investment in capacity today. Only investment, today, in productive capacity can actually help to provision for the future.
And, as Keynes insisted, saving does not “finance” investment—indeed it is better to see investment as “financing” saving in the sense that the income to be saved is generated by the investment spending. Again, Foster’s take on this is informative: saving is the pecuniary accounting of the investment. It looks like this is another poorly designed feature of the tax system.
With that in mind, let us look at the third example: imposing payroll taxes to “pay for” social security retirement. While the US Social Security program began as “paygo” (revenues set to more or less match benefit payments through time), after 1983 it became “advanced funded” with taxes set high enough to accumulate a “trust fund” (sinking fund) to be drawn down in the future. We won’t go into all the problems here, but let us focus on three topics: the undesired consequences of taxing wages and salaries, the accumulation of trust funds, and the belief that taxes “pay for” benefits.
The US payroll tax as designed is flat up to a base income after which it drops to zero. Hence overall it is a regressive tax. It is applied only to income derived from work, and taxes both employees and employers. Hence, as supply siders would say, it drives a “wedge” between the cost of labor and take home pay. It reduces both the incentive to work and to hire labor. To the degree that this actually does reduce employment and output, the payroll tax makes it harder to provision for retirees in real terms—both today and into the future if investment is thereby reduced.
In spite of what my teenage son thinks, work is not a sin that we want to reduce, so why tax it? Obviously, reduced employment is counter-productive to the purposes of the social security program—supporting retirees with real goods and services. For the reasons discussed previously, a sinking fund makes this even worse. So accumulation of a trust fund not only cannot add to “national savings” that can be drawn down in the future to support aged persons, but it might even reduce national saving through the paradox of thrift’s effects on investment.
And finally we turn to the main conventional “tax meme”, the notion that taxes are needed to “pay for” government provision of services and “entitlements” like Social Security. This meme is adopted by both conservatives and liberals, but it suits only the purposes of the conservatives. It is a disaster for progressives. And it is wrong.
Conservatives have used this meme to great advantage since the early 1970s, as they successfully changed the framing of taxes from “the price we pay for civilization” to something closer to “fee for service” payments to government made by “stakeholders”. This was important in the US for the “devolution of government” in which primary responsibility for many government services was moved from the federal to state and local governments. (In the US, since 1960 the federal government has not grown relative to GDP, while state and local governments grew rapidly until around 1980, to become approximately two-thirds the size of federal government—reflecting the devolution trend.)[2]
In many cases, these extra responsibilities were imposed on state and local governments without federal funding—“unfunded mandates”. That necessitated local tax increases that were sold on the basis that they would pay for enhanced services—which were typically targeted to middle class homeowners.
And that promoted the view that taxes are paid in exchange for government-provided services, some of which are targeted to the “stakeholders” (suburban homeowners) who paid the taxes.
At the same time, social welfare “entitlement” spending grew (some due to “unfunded mandates”). Aided and abetted by Daniel Patrick Moynihan’s “culture of poverty” thesis, the taxpaying stakeholders grew increasingly angry that “their” taxes were being used to pay welfare to the “undeserving”. Problems were compounded by white flight from cities to suburbs and from public to private school. Parents of children in private schools objected to “their” taxes going to support public schools attended by the children of “others” (often of other racial or ethnic backgrounds).
Candidate Romney’s candid dismissal of the “47% who don’t pay taxes” reflects the orthodox tax meme: “those” people are not worthy of our attention because they are not stakeholders in our society.[3] President Reagan successfully framed the social safety net as supporting “welfare moms driving Cadillacs”, while President Clinton “ended welfare as we know it” by setting lifetime limits on support for poor families with children in order to wean them from the public teats.
The point is this: if taxes are seen to “pay for” government, then the stakeholders who pay more ought to get more from government. Progressives cannot win within this frame.
Everyone knows what “pay for” means—we all go to the shopping mall, and we pull out our wallets to “pay for” the Gucci handbag. You do not grab the bag and look around for someone else to pay. “Hey bro’, I’m a bit short today; can you spare a few hundred to buy this for me?”
No, if you cannot afford the Gucci you buy the Wal-Mart store brand made in China.
It does little good to argue that those who can “afford” to pay taxes ought to do so for the benefit of those who need welfare. That is what the charity meme is for. Of course we all ought to give to charity—from each according to ability to each according to need. If the tax system comes down to charitable contributions, then it should be based on voluntary contributions. Good luck with that! The mixing of these memes will at best lead to confusion, but more predictably it will lead to tax revolt and social spending cuts. (Ex post predictions are relatively easy to make—that is precisely what happened after 1980. Liberals are still struggling to come up with a response.)
We need new tax and spending frames.
Part 5 and the rest of the series follows along next week.
[1] J. Fagg Foster, “The Reality of the Present and the Challenge of the Future”, Journal of Economic Issues, 15(4), December p. 963, 1981
[2] See L. Randall Wray, “The Ownership Society: Social Security is only the Beginning”, Public Policy Brief 82, August 2005 (www.levy.org).
[3] In fact, Romney was actually overly generous—it is pretty easy to make the case that a much higher percent of Americans are “deadbeats” when it comes to paying federal income taxes—their incomes are too low–although payroll taxes hit virtually all who work. The bottom 90% of the population contributes an insignificant proportion of federal income tax revenue. http://neweconomicperspectives.org/2012/09/romney-the-little-people-dont-pay-taxes.html#more-3356
49 RESPONSES TO “A MEME FOR MONEY, PART 4: THE ALTERNATIVE TAX MEME”
- Godfree Roberts Ed.D. | December 6, 2012 at 6:20 am |Bravo. Hunt that meme! We need it.
- Jon Denn | December 6, 2012 at 6:29 am |Years ago I had some trouble with adult onset food allergies. At some point I shifted focus from total avoidance to managing any resultant inflammation, and became much healthier. In the same vein, the economy’s “inflammation” is a lack of sustainable non-exportable good paying jobs. This week I was my own customer service agent three times with the cable company, twice with motor vehicles, and with a few online retailers. I’m not their employee, I’m the customer. We as a nation need to bring “Service” back. A tax policy that incentives hiring service employees might be a start. Someone posted an idea on my site called “Tax the Takers more than the Makers”, that seems like solid start, too. http://www.agreater.us/billpage.php?id=409
- Paulo Garrido | December 6, 2012 at 6:37 am |A function of taxes recognized by MMT is to “open space” for public provision of goods and services; to move privately produced goods to public use that in turn enable and support private production.This is consistent with the framing of taxes as “the price we pay for civilization”.It could be taken as the primary function of taxes, together with inducing a monetized economy.The tax paid by and individual would mean her / his individual contribution to the realization of public goods necessary to everybody.To be meaningful, the amount paid (or not received) should be normalized by income (and wealth?).Therefore, the fraction of income (and wealth?) paid by an individual would mean the fraction of income or wealth the person would be contributing to public purpose or the necessary common good to private prosperity.In this way paying tax (one only, the social contribution) would become a virtue. Not paying the fair share an anti-social behavior.
- joebhed | December 6, 2012 at 8:01 am |Wrong way turn No. 2.
The question becomes – why does MMT go from Knapp’s “State Theory of Money” which explains clearly that all money is (must be) a creature of the state, and not the residual from any form of barter-based commodity counting, to one where taxes do not (can not) pay for government services. Why is this necessary?
Even in fully accepting Knapp’s socondary hook that the state’s ability to tax in its currency, with an obvious concurrent obligation to ‘accept’ that currency into state coffers – ostensibly to pay for government services, the result does not necessarily resemble the ‘taxes-drive-money’ semi-meme of MMT.
Rather, all that is necessary to maintain a properly functioning state monetary system is adoption of correct legal tender laws that state-issued currency “settles” all obligations in the national economy; public and private – thus establishing acceptance.
One reason that MMT gets on to this tangent of why people pay taxes is its lack of a foundation that should have emerged from Knapp; not as a need for a government-based currency accounting identity, but from a solid understanding of a national monetary system.
People do not work to get “state money” to pay their taxes.
People work to get money to buy the things that they need.
And one of the things that most people need to do is to pay taxes.This is the reason its tough to find the sale-able meme for MMT – partly based on what Dr, Wray writes here, people KNOW they pay taxes to pay for government services. And the task becomes one of finding a teaching method for un-learning the obvious, IF its not true outside nuanced reserve accounting.
Such an understanding is not necessary for transforming the national money system to an obvious tool for serving the public purpose.Finally, while it is true that taxes are the government’s main vehicle for limiting private sector “purchasing” in a modern fiat-money based economy, that initiative only comes into play at a point where full employment and price stability are achieved.At that point, it becomes explainable.
Thanks. - Golfer1john | December 6, 2012 at 8:03 am |Stepping on the brakes reduces your speed, and results in you getting to your destination later than you otherwise would have. While true, this does not mean that brakes are bad and you’d be better off not to use them. Likewise, although saving today has the effect of reducing today’s GDP, it is not the only thing going on that affects GDP. (Part of the) Government deficits exactly offset private savings, and the net effect on GDP is zero, if the size of the deficit is endogenous. If we saved less, the deficit would decrease by an equal amount, and GDP would not increase. Maybe it is time to retire the paradox of thrift meme, and focus more on sectoral balances and the role of the deficit.
- Dale Pierce | December 6, 2012 at 8:18 am |Regarding:“…the state really does not need tax revenue to spend and in fact really cannot spend tax revenue. ”The first of these two points is much more thoroughly explained than the second. I would put it this way: tax revenue is not really revenue. Nothing accumulates on account of it. It is not stored up anywhere – the state, as the currency-issuer, has no use for a “store” of dollars. Hence, as you say, it is not “even possible to provision for future retirement through financial means.” This is just basic MMT, of course – but the meme-transmitters of the near future probably won’t know that.Thanks again, Professor, for all you do. Helsinki – just watched the video. Yet another awesome win. People are really starting to sense that the truth is out here.Cheers
- Joe Firestone (LetsGetitDone) | December 6, 2012 at 8:47 am |For me, this was the best piece yet in the series. I found it a very deep analysis of the functions and applications of taxes! Wisdom on taxes!
- Paul Krueger | December 6, 2012 at 10:53 am |Randy, the first post of this series really resonated with me. I’ve been trying to write about macroeconomics (with a distinct MMT flavor) for a group of 30 friends and relatives for about a year now. I’ve been introspecting on the causes of resistance to those ideas. I suspect a similar reflection led to this series from you. After reading the series so far, it now seems to me that what you’re doing is picking out a few of the most primary MMT concepts and trying to package them as simply as possible. That’s a laudable objective, but I’m not sure that it really addresses the basic problem. If you’re going to fight memes with memes, I think it pays to start by understanding what you’re up against and that’s what I’ll take a shot at providing here.There is one fundamental economic meme that is almost universally accepted in the U.S. and I’ll label that the “capitalism is good” meme. It goes something like the following:
1. Capitalism provides fair rewards that are commensurate with ability, effort, creativity, and risk taking of participants.
2. This reward system induces the most effort from all participants.
3. The result of all this effort is the maximum possible increase in aggregate wealth.I believe that almost every argument made by conservatives flows fairly directly from the acceptance of this meme. It’s simple and its truth is self-evident in the economic juggernaut that is the U.S. economy over the last century or more. Above all, that system is viewed as the most fair system possible. That’s where moral arguments come into play.Today we have two fundamental political factions. One argues that if the system is fair (as capitalism is assumed to be by the meme) then anything that results from that system must also be fair. Ergo, it MUST be the fault of participants if they are unemployed or disadvantaged. The other faction emphasizes outcomes (e.g. the inequitable distribution of the wealth created by society and the rate of unemployment) which have obviously become less and less fair over time. They argue that if the outcomes are unfair, then the system itself must be unfair. Even most of us who accept that the system isn’t fair basically accept the capitalism meme as fundamentally correct. But if we start talking in ways that make it seem like we want to throw it out, then we meet pretty stiff resistance.Let me take a few examples. I’ll start with unemployment. The capitalism meme would assert that people get the jobs that they earn by the sacrifices they make to get the necessary education and training and by the effort they put in on the job they currently have. People move up the ladder by virtue of talent, initiative, and how hard they work. So when you start to talk about the government giving people jobs without their having to earn them in any way, you rub up against the capitalism meme and get resistance. People will also note that the JG apparently provides little incentive for people to work hard on those jobs. They can’t get promoted or earn more money, so they’ll do the minimum amount necessary to keep that income. Note that I am not personally arguing against JG here, just explaining why I think there is so much resistance.Next let’s talk about government fiscal policy. When the government imposes taxes, people will, as you observed above, see it as a punishment. More to the point, it is interference with the natural reward system of capitalism. That’s why you will hear conservatives talk about punishing the job creators with higher taxes. The capitalism meme says that people have EARNED those rewards, so the money is theirs and they have a right to demand something back if the government is going to take it away from them.Similarly, when we consider government spending the capitalism meme comes especially into play when we look at transfer payments for social welfare. The meme prompts the question “What did those people do to EARN those payments”. Because they connect their taxes to those payments they draw the conclusion that they are doing the work that supports people who do not. That argument quickly morphs into the conclusion that people CHOOSE to not work and live off the efforts of others. Now we all know that the truth is more nuanced than that, but unfortunately there are just enough examples of real welfare fraud to perpetuate a really harmful stereotype. The point is that all of this is consistent with the capitalism is good meme.So you have a couple of choices for changing the dialog. You can fight the capitalism meme directly and argue for an alternative economic system. I personally believe that is a lost cause and couldn’t come down on that side myself. Some people believe that at least one or two of the MMT principal authors are somewhat close to that point of view. Alternatively, you can actively adopt the capitalism is good meme and work with it.Note that the government isn’t a fundamental part of the capitalism meme as I stated it. I think that’s primarily why conservatives are generally anti-government, even when they need it themselves. I personally think we should figure out how to best insert the government into the existing capitalism meme. For example, you can show how distortions in the financial world have resulted in an unfair reward system at both the low and high ends of the wealth spectrum and how government policy can work to restore fairness. You can talk about how adoption of MMT principles and recommendations for government policy would result in even greater wealth creation, all completely within the scope of capitalism. You don’t need to argue for JG because it is good for the unemployed (although it obviously is), you can argue for it on the basis of maintaining demand for goods and services and skill levels for the reserve job force. You can also argue for it as a way of getting some productivity out of people who would otherwise be on the dole. I know that some of those arguments are already made, but it is a matter of emphasis. I’ve tried out some of these arguments on a few of those in the 1% (which for the record I’m not) and found them to be generally receptive.One final thought. It’s easy to demonize conservatives for being uncaring. Having known many in my lifetime, my view is more sympathetic. They honestly believe in what they perceive to be a fundamentally fair system. I don’t think our economy is the result of any great conspiracy among the rich. I believe it is an emergent phenomenon that derives from lots of talented people working very hard according to well-accepted micro-economic principles. They have their heads down and do the best they can to increase productivity and reduce costs, just as they were taught to do. That this results in an unprecedented aggregation of wealth and the consequent problems of the poor is something that they don’t think of as a natural result of the system. They are much more inclined to believe that government actions are responsible for that situation. I’m personally convinced that working in antithesis to the capitalism is good meme won’t be successful and that we need to emphasize that MMT principles make capitalism work better.- Jon Denn | December 6, 2012 at 11:48 am |I agree, Capitalism is Good, is the context to work within. One time tested leadership method is to see which way the crowd is going, and to run out ahead and yell “follow me.” So, whenever I mention “Workfare” instead of “Welfare” to anyone I almost always get agreement. I’d like to post something on my site like “Workfare not Welfare.” Maybe it goes like this, already established short-term unemployment programs stay in place. But after say 26 weeks, then JG administered by nonprofits through the Federal government, or by the States for State government jobs kick in, at the minimum wage. Also, as a side observation, young folk moving back in with parents, or apartments or houses filled with many roommates may be a persistent lifestyle change in America. Really not good for housing starts or construction workers especially if we are in for a couple decades of weak to little growth like Japan.
- Golfer1john | December 6, 2012 at 1:07 pm |I suggested calling JG “Workfare 2.0” in order to attract support of non-Progressives. You may use that name if you wish. Maybe a program such as you describe is a way to transition to a full JG.
- Golfer1john | December 6, 2012 at 1:07 pm |I suggested calling JG “Workfare 2.0” in order to attract support of non-Progressives. You may use that name if you wish. Maybe a program such as you describe is a way to transition to a full JG.
- Golfer1john | December 6, 2012 at 1:25 pm |I agree with a lot of your observations, but maybe some of the characterizations go a bit too far.A “meme” of sorts that resonates well in America is that we have the worst system in the world, except for all the rest. “Capitalism is good” is not something you can overcome, but it is not the same as “Capitalism is perfect”. It doesn’t mean that people think that because the system is basically fair, that everything that happens must be fair. And that is your entree.Gotta go. More later.
- Golfer1john | December 6, 2012 at 1:47 pm |Personal savings means that we don’t want to consume everything we could produce. And that means that some of us will be unemployed. Even if ALL job-seekers were perfectly virtuous, skilled, hard-working, and smart, some of them MUST be unemployed. It’s a fact of the capitalist system. Maybe not fair, but something that won’t go away.Since government sponsors this imperfect system, government is morally responsible to alleviate its ill effects. The first part of that is proper fiscal policy, to minimize unemployment. Sectoral balances. The final part is JG, giving everyone a chance to earn a living, even in the capitalist system. (“Earn” is an important word to use, for some listeners. “Give” is a bad one, unless coupled with “chance” or “opportunity”. The conservative meme is that nobody has a right to an outcome, but everybody has a right to an equal chance. That is not one of the memes that you need to replace in order for MMT to be accepted.)
- Paul Krueger | December 6, 2012 at 5:24 pm |Just for the record, I wasn’t suggesting that we need to overcome ANY existing memes. Instead I was suggesting the MMT needs to work within the framework of the existing “capitalism is good” (not perfect!) meme and extend it to show how the government, informed by MMT theory and policy recommendations, plays an important role in making capitalism even better than it already is.
- Paul Krueger | December 6, 2012 at 5:24 pm |Just for the record, I wasn’t suggesting that we need to overcome ANY existing memes. Instead I was suggesting the MMT needs to work within the framework of the existing “capitalism is good” (not perfect!) meme and extend it to show how the government, informed by MMT theory and policy recommendations, plays an important role in making capitalism even better than it already is.
- Golfer1john | December 6, 2012 at 1:47 pm |Personal savings means that we don’t want to consume everything we could produce. And that means that some of us will be unemployed. Even if ALL job-seekers were perfectly virtuous, skilled, hard-working, and smart, some of them MUST be unemployed. It’s a fact of the capitalist system. Maybe not fair, but something that won’t go away.Since government sponsors this imperfect system, government is morally responsible to alleviate its ill effects. The first part of that is proper fiscal policy, to minimize unemployment. Sectoral balances. The final part is JG, giving everyone a chance to earn a living, even in the capitalist system. (“Earn” is an important word to use, for some listeners. “Give” is a bad one, unless coupled with “chance” or “opportunity”. The conservative meme is that nobody has a right to an outcome, but everybody has a right to an equal chance. That is not one of the memes that you need to replace in order for MMT to be accepted.)
- Coises | December 6, 2012 at 3:25 pm |There is one fundamental economic meme that is almost universally accepted in the U.S. and I’ll label that the “capitalism is good” meme. It goes something like the following:
1. Capitalism provides fair rewards that are commensurate with ability, effort, creativity, and risk taking of participants.
2. This reward system induces the most effort from all participants.
3. The result of all this effort is the maximum possible increase in aggregate wealth.I believe that almost every argument made by conservatives flows fairly directly from the acceptance of this meme.It’s point number four that does all the damage:4. What we have in the United States—except for government meddling—is capitalism.I have a metaphor for this (though it has the disadvantage of likening economics to a game):Why do we forbid performance-enhancing drugs in athletic competitions?A great part of the perceived value of athletic competition lies in its promotion and celebration of things we consider to be virtues: self-discipline, dedication, etc. Performance-enhancing drugs change all that: the most dedicated cannot win without drugs in the face of others who use them, and the competition devolves into a contest to see which individuals are willing to endanger their safety and future health the most in order to win now.The parallel to the modern financial sector should be obvious.Any competition suffers from this problem when the rewards for success become great enough to motivate some participants to look for ways to game the system. The original virtues that made the exercise worthwhile are abandoned unless some management outside the competition sets boundaries to keep it on track; and those boundaries cannot fixed matters of principle: they have to evolve as new methods of gaming the system are developed.It’s not free-market capitalism, but the myth of self-managing, unfettered free-market capitalism, that is such a problem.- Paul Krueger | December 6, 2012 at 4:55 pm |“It’s not free-market capitalism, but the myth of self-managing, unfettered free-market capitalism, that is such a problem.”I think that’s essentially correct, but you need to be careful not to indict all of capitalism and capitalists in general when you make that case. Yes, there is the sort of fraud that Bill Black talks about and as you suggest, people who “game” the system. But many of the more problematic effects of capitalism are, in my opinion, more or less standard outcomes of the normal workings of the system. Steve Keen does simulations that result in business cycles and elsewhere talks about the aggregation of wealth by lenders that occurs as a predictable consequence of loan defaults during down parts of cycles. I think there are other factors that also promote an aggregation of wealth. You don’t need to find villains to blame; this is all an artifact of the system.I think that if we followed the prescriptions that come fairly automatically from MMT theory then the total wealth produced by the economies of the world would be substantially greater. That’s a story that needs to be more prominent if you expect to win over the hearts of conservatives. It’s a story that frames the role of the government as one which greases the wheels of capitalism, not one that applies the brakes. If we started saying that current government policy is holding us back both by extracting too many financial assets from the private sector via taxes and not injecting enough new financial assets into the private sector via spending to let it do its job, I expect that just that framing might get a more favorable response from some people on the right. (OK you also have to fight the inflation paranoia first). Then add a statement that we need to replace as many free handouts as possible with payments that people have to earn (i.e. jg) and you’ve got a winning combination. I posed something very much like this to one 1%er who said that he’d sign up for that plan in a second.My main point is that there ARE ways to frame MMT as a useful ally of capitalism, because it actually is. I’m not saying that social objectives aren’t important; I’m actually a diehard progressive at heart. But if you want to build a consensus with the right, then you need to be able to explain how what is being proposed is a win for them too. And the good part is that you don’t need to exaggerate the truth even a little, because the fact is that MMT-based policy IS good for capitalists.
- John McDonough | December 7, 2012 at 11:00 pm |Yes, you would think that conservatives would be jumping on board MMT when they’re told that it could eliminate all Federal taxes including FICA taxes for employers and employees alike, but they aren’t; so what’s the problem? Mostly, from my experience, it is that they just don’t understand MMT and think it’s some daft liberal scheme. Not having lots of economists promoting it doesn’t help any either. Sorry UMKC : – (Years ago some coworkers and I thought that a political party that had a shadow government that proposed policies and pointed out the shortcomings of the other party’s programs would do better than the current arguing over sound bites.Is MMT up to the task of proposing policies that would get us to an MMT operating Fed/Treasury and then operating the Federal Government with MMT theory, not just once in while in blogs, but as an ongoing exercise every week? With published papers for all to see and compare downstream? Look at the positive press MMT got over the discovery by the media and some economists that MMT called the Euro Zone problems before the Euro was even printed. If we had more of that and the outcomes were consistently positive you might stand a better chance of convincing more to get on board and also train a new crop of MMT economists how to run an economy.
- Golfer1john | December 8, 2012 at 11:52 am |“diehard progressive at heart”“win over the hearts of conservatives”There’s a saying that if you’re not a liberal at 18 you have no heart, and if you’re not a conservative at 40 you have no brain.What needs to be won over in the conservative is his mind, not his heart.There are those who believe conservatives, or “the 1%”, control everything, have no heart, and are deliberately imposing suffering on the world because they will suffer less than the others, and so fulfill their selfish goal of being better off in comparison. Increasing the “gap” between themselves and others. Or maybe they don’t really believe that, but they think they need to have a “villain”. If it’s true that they are villains, then it’s hopeless unless you want to resort to violent revolution.I think what you have said is right. Once a conservative understands MMT, you will find that her heart is in the same place as yours. MMT is largely the result of soft hearts doing hard thinking. Conservatives will respect that. You will find that they agree with your economic goals, once they understand that you have addressed their concerns about the possibility of achieving them. And that’s from personal experience, based on one conservative that I have converted to MMT, as well as for myself.BTW, capitalism is not the only system that can be “gamed”. There was plenty of corruption in the Soviet Union, and is plenty in socialist Europe today (see LIBOR). Economists are fond of assumptions, and one of the assumptions of the perfectly free market is perfect information. Of course, it doesn’t exist, but the “self-policing” assertion about free markets depends on it. Cheaters could not continue to exist in free markets with perfect information, because nobody would continue to do business with them. They exist in the real world, and can continue for a long time because of imperfect information, whether in a capitalist system or any other. Real world people of all stripes acknowledge the need for external policing, to keep them in check.
- Paul Krueger | December 9, 2012 at 10:36 am |“There’s a saying that if you’re not a liberal at 18 you have no heart, and if you’re not a conservative at 40 you have no brain. ”40 is nothing but a fond memory for me and I’m almost as liberal now as I was at 18 (although at age 14 I was out campaigning for Goldwater!). So by your saying I suppose I fall into the “no brain” category.I think we’re in general agreement. I’ve also convinced a couple of conservatives and there a couple more who are at least regularly reading what I’m writing about economics. “Fairness” in combination with “effectiveness” seems to be the key combination of ideas that convinces them that MMT policy is the right way to go.
- Paul Krueger | December 9, 2012 at 10:36 am |“There’s a saying that if you’re not a liberal at 18 you have no heart, and if you’re not a conservative at 40 you have no brain. ”40 is nothing but a fond memory for me and I’m almost as liberal now as I was at 18 (although at age 14 I was out campaigning for Goldwater!). So by your saying I suppose I fall into the “no brain” category.I think we’re in general agreement. I’ve also convinced a couple of conservatives and there a couple more who are at least regularly reading what I’m writing about economics. “Fairness” in combination with “effectiveness” seems to be the key combination of ideas that convinces them that MMT policy is the right way to go.
- John McDonough | December 7, 2012 at 11:00 pm |Yes, you would think that conservatives would be jumping on board MMT when they’re told that it could eliminate all Federal taxes including FICA taxes for employers and employees alike, but they aren’t; so what’s the problem? Mostly, from my experience, it is that they just don’t understand MMT and think it’s some daft liberal scheme. Not having lots of economists promoting it doesn’t help any either. Sorry UMKC : – (Years ago some coworkers and I thought that a political party that had a shadow government that proposed policies and pointed out the shortcomings of the other party’s programs would do better than the current arguing over sound bites.Is MMT up to the task of proposing policies that would get us to an MMT operating Fed/Treasury and then operating the Federal Government with MMT theory, not just once in while in blogs, but as an ongoing exercise every week? With published papers for all to see and compare downstream? Look at the positive press MMT got over the discovery by the media and some economists that MMT called the Euro Zone problems before the Euro was even printed. If we had more of that and the outcomes were consistently positive you might stand a better chance of convincing more to get on board and also train a new crop of MMT economists how to run an economy.
- Paul Krueger | December 6, 2012 at 4:55 pm |“It’s not free-market capitalism, but the myth of self-managing, unfettered free-market capitalism, that is such a problem.”I think that’s essentially correct, but you need to be careful not to indict all of capitalism and capitalists in general when you make that case. Yes, there is the sort of fraud that Bill Black talks about and as you suggest, people who “game” the system. But many of the more problematic effects of capitalism are, in my opinion, more or less standard outcomes of the normal workings of the system. Steve Keen does simulations that result in business cycles and elsewhere talks about the aggregation of wealth by lenders that occurs as a predictable consequence of loan defaults during down parts of cycles. I think there are other factors that also promote an aggregation of wealth. You don’t need to find villains to blame; this is all an artifact of the system.I think that if we followed the prescriptions that come fairly automatically from MMT theory then the total wealth produced by the economies of the world would be substantially greater. That’s a story that needs to be more prominent if you expect to win over the hearts of conservatives. It’s a story that frames the role of the government as one which greases the wheels of capitalism, not one that applies the brakes. If we started saying that current government policy is holding us back both by extracting too many financial assets from the private sector via taxes and not injecting enough new financial assets into the private sector via spending to let it do its job, I expect that just that framing might get a more favorable response from some people on the right. (OK you also have to fight the inflation paranoia first). Then add a statement that we need to replace as many free handouts as possible with payments that people have to earn (i.e. jg) and you’ve got a winning combination. I posed something very much like this to one 1%er who said that he’d sign up for that plan in a second.My main point is that there ARE ways to frame MMT as a useful ally of capitalism, because it actually is. I’m not saying that social objectives aren’t important; I’m actually a diehard progressive at heart. But if you want to build a consensus with the right, then you need to be able to explain how what is being proposed is a win for them too. And the good part is that you don’t need to exaggerate the truth even a little, because the fact is that MMT-based policy IS good for capitalists.
- Jordan | December 7, 2012 at 1:01 am |That is such an excellent idea if your goal is to win phylosophically, and that way we can open the gates for abuses of MMT knowledge for future class of leaders. Let’s twist the truth so we can win.
MMT really destructs the capitalisam and teaches that it is financial system as the real cause of the capital formation, hence the cause of succes and prosperity, not a specific economic system. That buisness cycle is the way to form a capital accumulation by those that can buy in fire sale and hold till a new boom. Knowledge that capitalism isn’t special will destroy it, just give it enough time.
MMT is a complete phylosophy that is so open for abuse if you do not know the reasons and ways for controlling it. Why would money printing stop if population demands more of it untill is too late. Democracy is not such a pure system, we know how long it took for slavery, woman and gay discrimination to end. Democracy is rule of a majority. Majority might want to discriminate, so majority might want to keep printing money and elect leaders that will keep doing it, even tough inflation will make it negative on economy. If you twist the MMT in order to win, you open the floodgates for other to do it for other purpose.- Paul Krueger | December 7, 2012 at 9:15 am |Gosh, it sure isn’t my intent to twist MMT at all. If that’s what you took from what I said then I probably said it badly. My point is that MMT is not fundamentally an antithesis to capitalism anymore than capitalism is an antithesis to social well-being and that we need to make that more clear than we have. Although any theory can be corrupted in harmful ways, it’s my belief that the principles of MMT can lead us to a better version of capitalism that benefits everyone.MMT is clear that unlimited deficit spending in excess of what can be produced by the economy can cause inflation. In theory that would only happen as we get near full employment. Worrying about inflation right now is unwarranted and holds back economic progress. When you have people who want to work and work that needs to be done, then any economic system which prevents bringing those two things together is in need of repair. I expect that any good capitalist would be sympathetic to that argument.
- Paul Krueger | December 7, 2012 at 9:15 am |Gosh, it sure isn’t my intent to twist MMT at all. If that’s what you took from what I said then I probably said it badly. My point is that MMT is not fundamentally an antithesis to capitalism anymore than capitalism is an antithesis to social well-being and that we need to make that more clear than we have. Although any theory can be corrupted in harmful ways, it’s my belief that the principles of MMT can lead us to a better version of capitalism that benefits everyone.MMT is clear that unlimited deficit spending in excess of what can be produced by the economy can cause inflation. In theory that would only happen as we get near full employment. Worrying about inflation right now is unwarranted and holds back economic progress. When you have people who want to work and work that needs to be done, then any economic system which prevents bringing those two things together is in need of repair. I expect that any good capitalist would be sympathetic to that argument.
- Jon Denn | December 6, 2012 at 11:48 am |I agree, Capitalism is Good, is the context to work within. One time tested leadership method is to see which way the crowd is going, and to run out ahead and yell “follow me.” So, whenever I mention “Workfare” instead of “Welfare” to anyone I almost always get agreement. I’d like to post something on my site like “Workfare not Welfare.” Maybe it goes like this, already established short-term unemployment programs stay in place. But after say 26 weeks, then JG administered by nonprofits through the Federal government, or by the States for State government jobs kick in, at the minimum wage. Also, as a side observation, young folk moving back in with parents, or apartments or houses filled with many roommates may be a persistent lifestyle change in America. Really not good for housing starts or construction workers especially if we are in for a couple decades of weak to little growth like Japan.
- Scott Hedlin | December 6, 2012 at 1:22 pm |The patient is healthy except for the disease. Understanding causes, help prevention, refine diagnosis and suggest treatment options.But, it all boils down to sigma zero, because the interpreter has judged health to be linear in it’s evaluation and set the relative. Which health care provider would you choose? “Honestly Doctor (Mr. Taxman) , can’t you make me live forever. ” “Well, that’s not my profession’s specialty. My abilities are limited to quality of life and reasonable mortality outcomes, but here’s what we can do. Now two alternative responses, “OK, la la la la la”. and “Oh crap,now I’m really pissed”. “Honestly Doctor (Mr. Taxman) , can’t you make me live forever. ” Hmmm, I’m going to write you this prescription for an experimental cannabaniod therapy that has been showing promising results, then we’ll monitor your condition, anything else?”. Now two alternative responses, “OK, la la la la la”. and “Oh crap,now I’m really pissed”. It’s not only an issue of individual bedside manner, but one of treating reasonable and unreasonable expectations. Tags General Smuts , Joseph Schillinger, Comedy Central …… No. 4 made me think about the meme question on an entirely new level, hopefully my response is taken as it was meant, supplying a little constructive comedy relief.
- Kevin_global | December 6, 2012 at 1:48 pm |Very interesting article.Elaborating on something called “Sin Taxes” to reduce socially undesirable behavior.When you park your car at wrong place, you get a ticket. That ticket is not to “fund” Police department and services. That ticket is a penalty to build a deterrent against traffic regulations and other legal codes. The concept of Sin taxes can be well understood by looking at way how our justice system works. For non serious offenses, we have have provisions of paying monetary penalties and compensations. These penalties aren’t made to “fund” our justice system. They are actually made as a deterrent to socially undesirable behavior.Looking from similar perspective in our financial system. The kind of taxes we strongly lack are actually “sin taxes”. The activities that goes on at Wall Stt. negatively impacts and interfere with our Social, economic and Political system. The colossal failure of our financial system that that happened in 2008 that sent severe shock waves of pain to the “main street” is one example of how bad our financial system operates.Wall Stt. since long has been lobbying to shred regulations and supervision on itself. It looks as its a race to pursue ideological abstraction of Austrian School where Govt is completely taken out of its role in economy of nation. Repealing and amendments of various acts like Glass Steagell is one of the examples. Now we are witnessing haggling over amendments of Dodd Frank to give a free run to Wall Stt. once again.One major Wall Stt. “Sin” that adversely affect our economy is financial speculation. Wall Stt. annual turnover is in Quadrillions. Most of the activity that goes in it serve no economic and social purpose. It is like a gambling casino where bets are made without any regard to economic and social impacts. Majority of trading today is done by HFT Algorithmic trading by Computer systems. Speculation causes many adverse effects which are well known. The natural demand and supply models no longer works in economy. The financialization of economy and speculation build up on that is like a parasite on real productive economy. Many institutions that are a “wheel” in the financialized economy thrive as economic rentiers. Hedge funds are most notorious of them. The role of these financial institutions is simply leech to out money by trying to portrait as if they are “helping” in production of real goods and services in economy. Jacking up the prices of goods and services mostly coming from commodity markets which is well acknowledged by United Nations. There have been Congressional hearing on Oil price spikes. Prof. Michael Greenberger in Congressional testimony states that a big fraction of Oil prices is pure speculation. Similar fact is reiterated by Exxon Mobil to Congress. United Nations strongly advocates major regulations to curb commodity speculation that has caused sudden severe spikes in Global food prices. United Nations recommends a Transaction tax to bring down speculation.Apart from reasons for taxation mentioned in the article. One other important reason that isn’t emphasized by author is the Social need of Taxation. Dan kervick in one of his article mentioned about the Social need of taxation. The Social need of Taxation to reduce economic disparity which is important for fair and efficient functioning of our Social and Political system.http://neweconomicperspectives.org/2012/11/will-we-be-the-lamest-generation.htmlThe wealth accumulated through parasitical activities by Corporations at Wall Stt. is used to buy our Politicians and rig our economic and financial policies so as to further benefit the special plutocratic interests. Its not a surprise that too few of now own majority of assets in US economy. The economic disparity in America is probably the greatest in the world.One progressive tax, i feel, is a Financial Transaction tax. A transaction tax levied on Quadrillions of turnover of Wall Street with an aim to bring down parasitical activity of wall Street. The idea of Transaction tax comes from Prof. Tobin who formulated it as way to curb speculation in Forex markets that caused significant currency fluctuations. The unregulated derivative markets and shadow banking system which was a major factor behind 2008 crisis needed to be shrink. But it became only bigger. The notional value of Derivatives market coming from notorious “off balance sheet” books of financial institutions is now in Quadrillions. A transaction tax is a very effective way to tackle this Dinosaur and shred it to size of small lizard. Million transactions per second will become useless when a transaction tax say 0.1% will be imposed. Commodity and Currency markets will become much stable and predictable. Instead of running into thousands of pages of regulations and codes to regulate Wall Stt and haggling that comes along with that. A financial Transaction Tax is a more effective method.Apart from above mentioned purposes. A financial transaction tax will send a strong message to Plutocrats of Wall Stt. who thinks “Govt is to the Wall Stt, by the wall Stt, and for the Wall Stt”.MMT sheds light into “the concept of money”. It explains the role of taxes and exposes regressive taxes that exist in our economy. MMT agrees with “concept of taxes” but with a totally different perspective. I believe MMT needs to go one step further. Tell us what are “progressive taxes”? What kind of taxes economy needs in the correct perspective of MMT? What kind of taxes economy needs – to control aggregate demand more efficiently, to deter “Sins” and socially undesirable activity, to achieve social need of taxation (as explained by Dan Kervick), to prevent “accumulation” of wealth.Lets hear what kind of taxes does MMT propose in its own perspective for Public purpose and prosperity.
- kjr63 | December 6, 2012 at 1:55 pm |“1. Capitalism provides fair rewards that are commensurate with ability, effort, creativity, and risk taking of participants.
2. This reward system induces the most effort from all participants.
3. The result of all this effort is the maximum possible increase in aggregate wealth.”As far as i know, this is the neoclassical ‘theory of value.’ Classical economists, Adam Smith included, had usually some form of ‘labour theory of value.”Value’ had at least ‘labour time’ component in it. So i.e. land rents were just an increment in price without ‘value.’ (money earned without labour time).- Paul Krueger | December 6, 2012 at 5:04 pm |“As far as i know, this is the neoclassical ‘theory of value.’ ”I’m far from an expert in this area, but weren’t they talking about how to put a value on products? And didn’t they assume more or less interchangeable labor units of equal value? My points were about how capitalism places a unique value on each laborer, which I believe is somewhat different than classical theories of value.
- kjr63 | December 7, 2012 at 5:38 am |Im’ far from expert also (not an economist), but that was the theory i believe. All ‘value’ in the end is measured in labor time. Markets however don’t distribute incomes to labor, but to three parts: labor, capital and land. I just want to say that the “capitalism meme” is a neoclassical meme, different from the classical “capitalism meme.”I guess there is common popular opinion that “M-C-M – capitalism” could work well within a framework of mixed economy. The problem is that that is not what we have now. We have just the neoclassical “meme” that represents it that way. “Capital employs labour (C)” bla, bla, even if it works M-M, lives from debt growth and capital gains, and employs nobody. IMO personal opinion the biggest hoax is the so called “housing market.” These are mostly land values and have nothing to do with the “C” and are not “expenditure” (don’t include labour time).
- kjr63 | December 7, 2012 at 5:38 am |Im’ far from expert also (not an economist), but that was the theory i believe. All ‘value’ in the end is measured in labor time. Markets however don’t distribute incomes to labor, but to three parts: labor, capital and land. I just want to say that the “capitalism meme” is a neoclassical meme, different from the classical “capitalism meme.”I guess there is common popular opinion that “M-C-M – capitalism” could work well within a framework of mixed economy. The problem is that that is not what we have now. We have just the neoclassical “meme” that represents it that way. “Capital employs labour (C)” bla, bla, even if it works M-M, lives from debt growth and capital gains, and employs nobody. IMO personal opinion the biggest hoax is the so called “housing market.” These are mostly land values and have nothing to do with the “C” and are not “expenditure” (don’t include labour time).
- Paul Krueger | December 6, 2012 at 5:04 pm |“As far as i know, this is the neoclassical ‘theory of value.’ ”I’m far from an expert in this area, but weren’t they talking about how to put a value on products? And didn’t they assume more or less interchangeable labor units of equal value? My points were about how capitalism places a unique value on each laborer, which I believe is somewhat different than classical theories of value.
- Jon Denn | December 6, 2012 at 2:20 pm |On JG, some practical comments. I spent most of my career running inns and hotels, for the last while for a nonprofit. If I was told I could hire as many folk at $8 hour that I could, and the government would reimburse me, I probably would only have hired a couple, even though let’s say I could have taken twenty. Why? Administrative time, first of all. Training is difficult. Most folk don’t like washing dishes and cleaning toilets, ironing and setting tables, listening to guest complaints and being run. Also, for every job filled I probably had to hire two, because they didn’t like the work. The $8 would probably need to have some margin built into it for the administration. Even a bit more, for that matter, to pay for the on the job training. Unfortunately, many nonprofits now, are just fundraising machines. I can see every nonprofit putting free labor on the phones to drum up donations. I’m not sure if that is a good thing or not. I sometimes get three calls during dinner already.I do see great potential in nonprofit day care which might drop the price to the user, at least during downturns, which is like tax relief in and of itself to working families.
- Golfer1john | December 7, 2012 at 12:15 pm |Details. If you read a lot about JG, you will see that most of the proposals include health care and child care as well as the nominal wage, and sometimes additional money for the employer to cover admin costs. Anything else that turns out to present a difficulty can also be dealt with.I don’t see manning the phones for fundraising drives to be one of the most desirable tasks for JG workers, but I’d have to think hard about banning such things. The Public TV phone people are volunteers, so probably it’s OK for a temporary JG assignment. My rule of thumb is that anything done now by volunteers is a prime target for JG.
- Golfer1john | December 7, 2012 at 12:15 pm |Details. If you read a lot about JG, you will see that most of the proposals include health care and child care as well as the nominal wage, and sometimes additional money for the employer to cover admin costs. Anything else that turns out to present a difficulty can also be dealt with.I don’t see manning the phones for fundraising drives to be one of the most desirable tasks for JG workers, but I’d have to think hard about banning such things. The Public TV phone people are volunteers, so probably it’s OK for a temporary JG assignment. My rule of thumb is that anything done now by volunteers is a prime target for JG.
- justaluckyfool | December 6, 2012 at 4:25 pm |****We need new tax and spending frames.****
Please bear with me, as an amateur as well as a fool, I merely ask questions solely for the purpose of perhaps, just perhaps of getting profound answers.
Please, Under the American economic system, capitalism how does this society do its governing so as to ” form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”
Since this society doesn’t appropriate (by force) the goods and services of its citizens, it does have a ways and means to create its own independent wealth without the use of force, “taxation”.
The solution lies in : How does the governing body collect “a fair and equitable tax”.
In the American capitalist society all goods and services are represented by the total amount of the sovereign governments fiat currency issued. By law this amount is guaranteed redeemable by American goods and services. They are 100% owned by the community, therefore 100% of the currency has already one owner at 100% . Therein lies a problem with American capitalism.
How can it “create ” even ONE unit more without appropriation of that ONE unit already owned, for surely it is impossible to have TWO owners of the same ONE unit of goods and services.
Even if it is future ownership, it will create a second owner for the same G&S.
The solution may be that the Monetary Sovereignty legally borrows the usage of the currency (the G&S it has available for redemption) with an attachment that will both enable the MS to not only return
that wealth to its real and only owner, but also enable that MS a method of “taxation” so that it has a method of fair and equal method of collection-COMPOUND INTEREST.
Where the “Invisible Hand ” has given mankind the ability to unlimited wealth and the persuit of happiness , mankind has developed a way to control how that wealth can be distributed.
What if the Monetary Sovereignty were to audit its governed society and found that todays value to be $700 trillion ?
What if the MS were to mandate that all transactions be based upon 100% goods and services,
just as the MS agrees that it will redeem its currency ?
And to make it possible (needing to correct the present system) it will make loans available
to make any “credit ” already in the market convertible to real backed currency.
Can you not see the beauty of a MS lending its issuance ?
A MS having an attachment to its currency that guarantees its wealth is not only returned to its true owner, but also allows for that MS the profits ” to form a more perfect union…”
What if $200 trillion is needed to make the present “private for profit banks” whole.
$200 trillion at 2% for 36 years, allowing for a redistribution of $11 trillion per year.
NO MORE INCOME TAX, JUST INTEREST !
No new legislation required.
Feds need only to mandate 100% reserve.
Feds need only to QE- Loans at 2% for 36 years.Please, is there anywhere, I may ask my questions and receive a profound answer?
Please, GOOGLE : “Justaluckyfool”
***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of BuddhismThe answer lies in not how the most powerful force in the universe is used ,rather how you redistribute what it creates !- Jordan | December 7, 2012 at 1:29 am |You are talking about inflation.
No, the printing money does not create new claim on allready existing G&S, only new potential claim. There is no set ownership of G&S with a writen deed on it. Free market it is.
MMT recomends printing money only for purpose of creating new G&S in available and unused resource situation, such as existence of unused labor and production capacity, not when there is no such resource. If there is no such available resource, then it destroys savers and makes confusion in economy with new paradigms.“The solution may be that the Monetary Sovereignty legally borrows the usage of the currency (the G&S it has available for redemption) with an attachment that will both enable the MS to not only return
that wealth to its real and only owner, but also enable that MS a method of “taxation” so that it has a method of fair and equal method of collection-COMPOUND INTEREST.”
You describe the solution as it is at the present state. Is it such a wonderfull state that you would want to keep?Your assumption is that each dollar coresponds with specific G&S, but you have to consider that even financial (paper) assets such as CDSs and other derivatives are GOODS then it would be correct that total dollar ammount covers total G&S. But do you know that 97% of money in circulation is debt money and it has time defined cancelation? Yes, all that money will be canceled if there is no new debt that will replace it.- justaluckyfool | December 7, 2012 at 2:56 pm |Jordan,”You describe the solution as it is at the present state. Is it such a wonderfull state that you would want to keep?”
If the MS is the only entity that may issue currency and that issuance has a quality and quantity control attached, namely compound interest which is a “tax” on money is the sort of way it is presently done.
That’s what makes the solution so easy and simple-there is one change.
Instead of the “private for profit banks” making a profit at 2% for 36 years ($100 trillion profit on every $100 trillion issued by them on loans), money that they earn for their own selfish purposes,
that same profit would instead go back to the PEOPLE via the US Treasury. Instead of that $11 trillion a year being given to the 1%, it goes back to all the people and it MUST go back, it must be spent for not to do so would cause serious deflation and also the loans could not be fully paid since $100 trillion was issued and $200 trillion is needed to pay back in full.
Why would there be an income tax ? We currently use $3-$4 trillion/ yr to run this nation.
No more income taxes, no more deficit, HOW COULD THIS BE ?
As Einstein said,”Keep it simple”.
Take away from the “private for profit banks” their “taxing” of our own money.
Take that tax and use it for the common bettering.
Please ask Michael Hudson, What if Demon Compound Interest were to use that most powerful force in the universe for the common bettering of mankind?
Read the parable, http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/
Excerpts:
“Flürscheim elaborated that “All exertions, all improvements in the methods and tools of labor, the strictest economy, the severest self-denial, are powerless to compete with the rapidity of self-increase possessed by capital placed at compound interest, and they cannot keep up with its demands.” To illustrate the dynamic at work, he composed an allegory (pp. 327ff.). ..”“It seemed that at last the golden era had come of which men had dreamed for ages past,” but “that envious spirit, that fallen angel, Satan,” was jealous that his own empire would soon be over for ever. Among the follies of man, one little imp, called Interest, managed to attract his attention… The Interest imp, however, volunteered to demonstrate his prowess in a dual, helped by his son, Compound Interest. ”
READ : how the rich are screwing all the capitalistic societys:
http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/
- justaluckyfool | December 7, 2012 at 2:56 pm |Jordan,”You describe the solution as it is at the present state. Is it such a wonderfull state that you would want to keep?”
- Jordan | December 7, 2012 at 1:29 am |You are talking about inflation.
- Coises | December 6, 2012 at 4:28 pm |In How the rich are screwing you, and how you can fight back, Rodger Mitchell presents another take on this problem. The key text that stuck me was this:It is 100% impossible that the Obamas, Geithners and Bernankes of the world do not understand Monetary Sovereignty. They understand, but they are paid by the .1% to fool the public.I mention this, because it should be an important part of our message to the public. People ask me, “Why do you know this and our leaders don’t.” The implication is that I must be wrong. My response: “They know it, but don’t want you to know it.”The people need an enemy, and that enemy is the .1%. Without an enemy, you can talk yourself blue, and no one will listen. That’s why religion has a devil, and that’s why the preacher always talks about the devil.It’s touchy ground upon which to tread, but he has a point. When you are outside the mainstream (as defined by the mainstream), you have to give a compelling explanation of why your insight has not been acknowledged; otherwise, folks will supply the explanation for you (“You’re a bunch of crackpots.”).
- Paul Krueger | December 6, 2012 at 5:34 pm |When you’re trying to raise an army to fight a war, then villains are obviously useful things to have around. When you’re trying to find a way towards consensus to end a war, you want all the villains to quietly disappear. I suppose which way MMT goes will say a lot about whether it’s trying to start a war or end one.
- Paulo Garrido | December 7, 2012 at 8:08 am |MMT has not the option of starting a war. The war is happening now. Along developed countries, incomes for the majority of people are falling or projected to fall, with no evident reason other than protect interests of minority groups; interests that, ironically, could be better protected without any war at all. An war may be waged by an unconscious and stupid conspiracy, but being unconscious and stupid does not make it unreal.The options are to do nothing or to try to end the war. Some people may be born (it all depends on the genetic roulette, as so many other traits) with a strong propensity to free ride, become a rentier or wage war. Most people – if not all – can be induced to indulge on such behaviors. These are all attitudes rooted on being alive. Question is then to devise strategies that can contain such behaviors to minimal harmful levels.In my sight, a necessary condition to devise successful strategies is to recognize that the conditions for such behaviors to manifest and grow will always exist as long as people will be… living beings. This does not make finding such strategies impossible. Actually it appears that finding them will become the next great evolutionary step.
- Paul Krueger | December 7, 2012 at 9:38 am |Point taken. The emergent phenomena from our current economic system, although not intended to cause harm to anyone, may certainly be perceived as a “war” by those who are harmed. I am entirely in favor of making people more aware of the unintended consequences of our capitalistic machine. If we don’t correct those problems, then history teaches that progressive increases in inequality inevitably lead to some sort of revolution. That’s one of the main reasons that I want to appeal to diehard capitalists in their own terms. It would be a real catastrophe if the system responsible for the greatest increase in wealth in history fell victim to its own short-sightedness. I don’t think you make that appeal by accusing people of waging war. They know that’s not their intent; quite the opposite. I understand the frustration of those who say “How could they not know what they’re doing?”, but I maintain my belief that they actually do not know.I may be wrong and some more severe form of confrontation may be inevitable before the problems are fixed. I don’t blame anyone who thinks that a more urgent redress of grievances is necessary. I’m just personally not willing to go down that path if there is any reasonable alternative available because I think the long term best interests of the planet are best served by some form of capitalism. I think MMT principles, presented appropriately, is a step in that direction.
- Paulo Garrido | December 8, 2012 at 7:46 pm |The terms of armistice can be framed and have been indicated elsewhere asFor developed countries, universal employment programs (UEPs) and net public spending, targeting growth and debt deflation, around or above 7% GDP individually adjusted (7NGS), including at least the following monetary zones: US, UK, EMU.Questions can arise on what will be the reaction of citizenry in general to the announcement of UEPs and 7NGS after austerity having been thoroughly advertised as an unavoidable solution to the evil public deficits and debts ?For a great number of people, probably no connection will be made between the new goal and the abandoned goal as people will not identify net public spending with government budget deficit. Best policy is ceasing to talk about government deficit and public debt. As living conditions will improve, people’s reactions a posteriori will be positive.
For those that make the identification and will go on with the deficit should not be increased meme, the argument is that growth is needed for urgent repair and upgrade of technical infrastructure. There is little interest in speaking about reducing deficits in a situation of an electrical power outage that can affect hundreds of millions during months. This is a real risk and actual electrical power systems must be upgraded to increase resilience to geomagnetic storms. So, let us make sure that what we have to talk about does not disappear and then talk about it.
Notwithstanding the fact that infrastructure upgrade is urgent, the question can be solved very quickly with the help of academic economists of most reputed universities. They can discover in a matter of weeks, all over the world, that public debt is symmetrical to private savings.
Anyway, the upcoming automation wave will make massively clear that people must be paid massively for the potential massive production resulting from automation being sold, thereby paying the investment and earning profit. Given that most of the people will contribute zero input for what they use, it is clear that universal employment programs will allow for every person, able and willing, to be productively occupied. It will also increase chances of going into higher paying occupations. This can in turn augment his or her spending power, an effect that firms want. So, if this is recognized UEPs and 7NGS follows. Why to wait?The implementation of these terms can be made in few months to get generalized relief as fast as possible. It will provide a space for people to rethink and re-balance into a more resilient peace. This has several aspects, but one is clear: the productive system must be made more immune to financial sector behavior.One measure for immunization is a banking reform to separate the deposits and payment system, the credit system, and the private savings investment system. The first system, deposits and payments banking will have the character of a public utility and can be funded by a fee on deposits or transactions. As it stands, it is mainly a secure data processing service. The second, credit banking, can be of public or public-private partnership character, and will have the usual function of issuing money as credit. The third will be investment banking.Redress of grievances is best conceived in the complex path that goes from the armistice into a more resilient peace. I believe that peace and an actively controlled capitalism can exist at the same social time an space.
- Paulo Garrido | December 8, 2012 at 7:46 pm |The terms of armistice can be framed and have been indicated elsewhere asFor developed countries, universal employment programs (UEPs) and net public spending, targeting growth and debt deflation, around or above 7% GDP individually adjusted (7NGS), including at least the following monetary zones: US, UK, EMU.Questions can arise on what will be the reaction of citizenry in general to the announcement of UEPs and 7NGS after austerity having been thoroughly advertised as an unavoidable solution to the evil public deficits and debts ?For a great number of people, probably no connection will be made between the new goal and the abandoned goal as people will not identify net public spending with government budget deficit. Best policy is ceasing to talk about government deficit and public debt. As living conditions will improve, people’s reactions a posteriori will be positive.
- Paul Krueger | December 7, 2012 at 9:38 am |Point taken. The emergent phenomena from our current economic system, although not intended to cause harm to anyone, may certainly be perceived as a “war” by those who are harmed. I am entirely in favor of making people more aware of the unintended consequences of our capitalistic machine. If we don’t correct those problems, then history teaches that progressive increases in inequality inevitably lead to some sort of revolution. That’s one of the main reasons that I want to appeal to diehard capitalists in their own terms. It would be a real catastrophe if the system responsible for the greatest increase in wealth in history fell victim to its own short-sightedness. I don’t think you make that appeal by accusing people of waging war. They know that’s not their intent; quite the opposite. I understand the frustration of those who say “How could they not know what they’re doing?”, but I maintain my belief that they actually do not know.I may be wrong and some more severe form of confrontation may be inevitable before the problems are fixed. I don’t blame anyone who thinks that a more urgent redress of grievances is necessary. I’m just personally not willing to go down that path if there is any reasonable alternative available because I think the long term best interests of the planet are best served by some form of capitalism. I think MMT principles, presented appropriately, is a step in that direction.
- Paulo Garrido | December 7, 2012 at 8:08 am |MMT has not the option of starting a war. The war is happening now. Along developed countries, incomes for the majority of people are falling or projected to fall, with no evident reason other than protect interests of minority groups; interests that, ironically, could be better protected without any war at all. An war may be waged by an unconscious and stupid conspiracy, but being unconscious and stupid does not make it unreal.The options are to do nothing or to try to end the war. Some people may be born (it all depends on the genetic roulette, as so many other traits) with a strong propensity to free ride, become a rentier or wage war. Most people – if not all – can be induced to indulge on such behaviors. These are all attitudes rooted on being alive. Question is then to devise strategies that can contain such behaviors to minimal harmful levels.In my sight, a necessary condition to devise successful strategies is to recognize that the conditions for such behaviors to manifest and grow will always exist as long as people will be… living beings. This does not make finding such strategies impossible. Actually it appears that finding them will become the next great evolutionary step.
- justaluckyfool | December 7, 2012 at 3:04 pm |Coises, “you have to give a compelling explanation of…(how and ) why…”
PLEASE, show me it isn’t so.
***As Einstein said,”Keep it simple”.
Take away from the “private for profit banks” their “taxing” of our own money.
Take that tax and use it for the common bettering.
Please ask Michael Hudson,
What if Demon Compound Interest were to use that most powerful force in the universe for the common bettering of mankind?
Read the parable, http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/
Excerpts:
“Flürscheim elaborated that “All exertions, all improvements in the methods and tools of labor, the strictest economy, the severest self-denial, are powerless to compete with the rapidity of self-increase possessed by capital placed at compound interest, and they cannot keep up with its demands.” To illustrate the dynamic at work, he composed an allegory (pp. 327ff.). ..”“It seemed that at last the golden era had come of which men had dreamed for ages past,” but “that envious spirit, that fallen angel, Satan,” was jealous that his own empire would soon be over for ever. Among the follies of man, one little imp, called Interest, managed to attract his attention… The Interest imp, however, volunteered to demonstrate his prowess in a dual, helped by his son, Compound Interest. ”
READ : how the rich are screwing all the capitalistic society’s:
http://michael-hudson.com/2001/04/the-mathematical-economics-of-compound-rates-of-interest-a-four-thousand-year-overview-part-ii/
And perhaps, just for fun read(GOOGLE): “justaluckyfool”, “QE 4 the people”, QE 4 WAR”
- Paul Krueger | December 6, 2012 at 5:34 pm |When you’re trying to raise an army to fight a war, then villains are obviously useful things to have around. When you’re trying to find a way towards consensus to end a war, you want all the villains to quietly disappear. I suppose which way MMT goes will say a lot about whether it’s trying to start a war or end one.
- Aquifer | December 7, 2012 at 1:05 am |MMT has all sorts of uses for taxes – except the one which provides folks a sense of personal, individual investment in the government by which they feel entitled to the benefits they get from it. I did my “thing” in the part one thread – re the payroll tax, there is no point in repeating it here where it obviously has no traction … I do find it a bit amusing that though, by definition, all taxes take money out of folks pockets, only sometimes is this considered a “drag on demand” ….There is an easy “fix” for the problems of the payroll tax – but eliminating it is, IMO, like tossing the baby out with the bath water. However you folks’ minds are quite clearly, adamantly, made up – so good luck with all that … All i know “in my bones”, so to speak, is that separating a “real” connection between what folks put in and what they get out – i.e what they will fight to protect, will, methinks, end about as well as the results of the separation of production from consumption that our charming trade policies have produced – when the link becomes too tenuous, the whole damn system breaks down … and only that now fabled “1%” benefits …Adieu ….
- Jonf | December 7, 2012 at 11:20 am |Emotionally I agree. But even though people have a solid connection to the payroll tax, our leaders are making noises about changing SS? So the PTB do whatever they want anyway.
- justaluckyfool | December 7, 2012 at 3:12 pm |“There is an easy “fix” for the problems of the payroll tax …”
****Yes, Aquifer, yes , and by doing what Obama said,”To lower taxes (read federal income taxes to zero)
you must raise revenue somewhere else.”
Make that somewhere else “taking away from the “private for profit banks” the trillions and trillions of dollars they are making as profit for themselves and using that “tax” (profit) _for the people.
Read “justaluckyfool” s comments above.
- Jonf | December 7, 2012 at 11:20 am |Emotionally I agree. But even though people have a solid connection to the payroll tax, our leaders are making noises about changing SS? So the PTB do whatever they want anyway.
- Senexx | December 7, 2012 at 2:19 am |I think these posts should conclude with a brief recitation of the meme contained within.For example one in this post is “taxes regulate demand”So MMT proponents can recycle them, or improve on them by having them repeated at the end of the post.So we have:Taxes drive the currency
Taxes regulate demand
Taxes prevent wealth for nothingor something like that at the end of each meme post.- Godfree Roberts Ed.D. | December 7, 2012 at 9:18 am |Excellent suggestion. Simplicity, repetition, vivid figures of speech, metaphor and , above all, an opening story.
These are hoary rhetorical devices that work as well today as ever.Perhaps once this groundwork is done a professional, like a presidential speechwriter could be brought on board.- Golfer1john | December 7, 2012 at 5:00 pm |In marketing school, we learned that the outline for your presentation was always the same: Tell ’em, tell ’em, tell ’em.Tell them what you’re going to tell them.
Tell them.
Tell them what you told them.You lead with the headline, like a news article.“Taxes don’t pay for government.”Explain why.“So, you see, your taxes don’t pay for government.”
- Golfer1john | December 7, 2012 at 5:00 pm |In marketing school, we learned that the outline for your presentation was always the same: Tell ’em, tell ’em, tell ’em.Tell them what you’re going to tell them.
- justaluckyfool | December 7, 2012 at 3:23 pm |GREAT IDEA !!!
But right church, wrong pew.
Because the people are brainwashed, the statements are misdirected and they read and hear “income taxes”.
Taxation drives the currency. Base it on interest, not income.
Taxation regulates demand. Base it on interest, not income.
Believe it or not:
This statement is not true:
Taxes prevent wealth for nothing. You can tax the income of the 1% all you want but you can never
stop the inequality since they have a method of taxation on our own money.
The statement should read:
Taxation can reduce the gaps of inequality. Taxation must be fair and equal. Tax interest not income. the currency(tax) Make it interest
- Godfree Roberts Ed.D. | December 7, 2012 at 9:18 am |Excellent suggestion. Simplicity, repetition, vivid figures of speech, metaphor and , above all, an opening story.
- Jonf | December 7, 2012 at 11:35 am |I am having at least a few quibbles with this post. First, it will be hard to take away interest reductions on mortgages. It will result in higher costs to the middle class. Maybe good economics but really poor PR when you are trying to sell MMT.Second, I take a different viewpoint on taxing the rich. And damn the economics. The differential between rich and poor is just too great and increasing. So I want to take some of that income away. I also want to prevent wealth being passed down making us all nobles and serfs.Third, I just don’t understand why I cannot effectively save for retirement. For SS I agree. But for me or company pensions, saving provides income in the future.If private pensions are working to reduce demand then increase the deficit to account for it.
- MRW | December 7, 2012 at 2:56 pm |Hunh? “The US payroll tax as designed is flat up to a base income after which it drops to zero.” Could you recast this so it makes sense.
- Golfer1john | December 7, 2012 at 4:52 pm |It means you only pay on the first $X of income. Any income after that is untaxed. It’s about $107,000 now but goes up each year with inflation. If you make $1M you pay the same as someone who made $110,000.
- Golfer1john | December 7, 2012 at 4:53 pm |And the rate is the same (flat rate) from the first dollar to the last dollar taxed. 15.something%
- Golfer1john | December 7, 2012 at 4:52 pm |It means you only pay on the first $X of income. Any income after that is untaxed. It’s about $107,000 now but goes up each year with inflation. If you make $1M you pay the same as someone who made $110,000.
- Ray Phenicie | December 9, 2012 at 9:39 am |I am not sure I understand the connection, or lack of connection, that MMT, as highlighted here, has with personal savings. Prof. Wray seems to be driving past and discounting the value of personal savings. I understand that taking large pools of wealth and locking them up under the questionable analogy of ‘rainy day’ provisioning is not a good idea. And I totally get the idea of a fully productive society being a more equitable and protective environment for seniors to retire into-me being 63 years young -that is where my focus is on personal savings. In just this moment though I discovered where the institution of savings is at in a system that really looked at the overall stock flows more accurately– a fully instituted Theory Of Modern Money would track and we would all be looking at instead of focusing on just government deficits.As a citizen living in a more efficiently managed system , if I could sell off the car and know that the mass transit system would take be where I have to go I could ‘bank’ on over $4000/yr! Add in another $4300/yr in ‘ savings’ if Medicare and Medicare supplemental costs were lifted off my back! There isn’t time for the concept of ‘affordable’ housing to be instituted but if that were available, I could ‘bank’ on another several thousand. But what if I wanted more and am willing now to curtail spending so I might have a more colorful financial future? Are you saying Professor Wray, that I should not be rewarded for my thrift? I’m still working on this and am headed over to read Public Policy Brief # 82 at the Levy institute web site.
- roger erickson | December 26, 2012 at 4:47 pm |Then there’s the basic biology.Our Output Gap = Our Grandhildren’s Options Gap
http://econintersect.com/b2evolution/blog2.php/2012/12/16/redefining-fiscal-policy-outcomes-so-that-our-definition-of-successful-investing-isn-t-depriving-our-grandchildren-of-optionsYou can say that in diverse, simplistic ways for diverse sub-audiences, but it’s at heart a simple matter of system dynamics. Equal or more organization is possible in increasingly complex culturs ONLY if distributed liquidity increases as a function of net options available. Any AI student understands this, most 1st year college math students can grasp it if stated, and every software programmer or network modeler should find it passe.What’s that say about the level of discourse in our electorate, or in our policy channels?