I have already mentioned a piece I had written for the Real World Economic Review on modern monetary theory and taxation recently. Now Randy Wray, one of the leading MMT thinkers has reviewed the price on New Economic Perspectives. I quote at length, as I think that's fair in this case:
[T]his issue of rwer contains what I believe to be a first–an article that tries to fill a perceived gap. Some months ago Richard Murphy had written to me arguing that MMT has not gone sufficiently in depth on the issue of taxes. I thought that was a strange accusation–since most critics argue we talk too much about taxes (as in driving the currency and fighting inflation). Further, I had added a chapter to the second edition of my Modern Money Primer to discuss taxes in more detail–good taxes and bad taxes. But what Murphy meant was taxes at the micro level. I responded that I accept the Musgrave&Musgrave approach (which I had studied–and taught; it is THE source on public finance). He responded that that is not sufficient. I remained puzzled.
But his piece in rwer, “Tax and modern monetary theory”, clarifies his point. And, I must add, in a reasonably respectful manner. Again, this is something we rarely see from critics–who call us fascists and communists (without I suppose recognizing that there's an ocean of difference between the two–but, then again, the critics aren't scientists). Richard argues that “cash paid in tax is a residual figure arising from a plethora of decisions on tax bases, reliefs and allowances, as well as tax gaps that result from non-compliant taxpayer behavior”. Recognizing MMT's argument (based on Ruml) that taxes are not really for revenue purposes, he argues for seeing “use of tax [instead] as a critical instrument in economic and social policy management”. I agree.
My own contribution to the rwer issue actually addresses his first point, that taxes are a residual–what I call (following Keynesian theory) a leakage. They cannot “pay for” anything since the spending must come first. I argue that it is truly amazing that our Post Keynesian critics adopt the leakages and injections approach, recognizing that saving (a leakage) cannot finance investment (an injection) because injections logically come before leakages, but then drop it when they discuss government spending and taxes. The same logic MUST be true of government spending (injection) and taxes (leakage). But they all get “dazed and confused” when it comes to government. They simply abandon any understanding of basic macro theory and jump on the “taxes pay for government spending” bandwagon. Truly bizarre and rather embarrassing too.
In many places I have also discussed the use of taxes for behavioral management (sin taxes, and the like). But Murphy's article goes deeper than I have in the past. I recommend reading it, and I'm going to incorporate some of his arguments in my future work. I want to be clear–I'm not embracing everything in his article and I'm not convinced that his insights lead to an entirely different (and implicitly presumed to be better?) paradigm, modern taxation theory (MTT). But I'm glad he tried to make a positive contribution.
I most certainly tried.
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I’m very pleased to see this Richard.
“There is one good contribution made to MMT that doesn’t come from the inner circle of MMTers. This might be a first–at least, it is the first case I can recall.” – Wray
Obviously we on this blog know that actually you have been contributing positively to the MMT paradigm here in the UK for some time now.
I note too that Wray shows some humility when he acknowledges that he and the other core MMTers haven’t covered everything and need help from outside.
I hope more and more economists, particularly here in the UK, will follow your lead and start engaging with the ideas in MMT in the same constructive fashion.
I was quite pleased with that, if I am honest
I hope those who keep slagging me off in the UK MMT community might take note, because it’s boring to be told I’m not being positive when I am
Some of the ‘slagging-off’ is merely witless repetition of calumnies, as you well know. Not easy to rise above, but that’s the best response on the shelf. 🙂
First they ignore you….etc.
I think some of the UK MMTers’ antagonistic attitude to you comes from them misunderstanding your constructive but critical approach on:
1) details
2) messaging style
You’ve never tried to shoot down the MMT paradigm as a whole – only tried to strengthen it with greater detail on the areas in which you have expertise and suggested some of their messaging is needlessly aggressive.
Also I believe you’ve actually come to many of the same conclusions about our money system from a slightly different academic angle to the other MMTers. They maybe don’t appreciate how persuasive that is for lay people such as myself. A good part of the reason I’m confident of the veracity of MMT is seeing (admittedly a small number of) academics from outside MMT coming to the same conclusions.
You’ve also suggested alternative approaches that could obtain largely the same ends as most MMTers desire but in a potentially more politically achievable fashion than a purist MMTer might instinctively go for. Perhaps they mistake these ideas for the UK Labour Party’s pathetic pandering to the neoliberal status quo. Your pieces on the fiscal rule and framing of macroeconomics should have put that mistaken idea to rest but only dedicated followers of your blog will have read all of your output on the subject.
Of course the other issue bugging UK MMTers is brexit: where Bill Mitchell and Warren Mosler (and other core MMTers) are extremely Eurosceptic it’s unsurprising that many UK MMTers are too. Maybe that colours their perception of what you say on the subject of MMT. In my experience many lefty MMT activists don’t listen to the content of a message if they think the messenger isn’t on their side. To be fair that’s common across the political spectrum in these divisive times.
I’ve said before both here and on Bill’s blog that these divergent positions on Europe essentially boil down to predictions about where the EU ends up in the future – which is inherently unknowable. I don’t think it should come between progressives looking to achieve the same goals nor between those interested in how the money system works regardless their position on the political spectrum.
Interestingly Bill Mitchell recently noted that Mario Draghi has practically admitted that neoliberal monetary policy has failed and fiscal policy is required to bring macroeconomic fundamentals into line with what Europe needs to thrive. This kind of goes against his assumption that the EU is irredeemably neoliberal.
Still, I’d like to see you and Bill Mitchell on speaking terms because you both are putting time and effort into the subject of improving economic understanding in the UK.
Could there be scope for you to expand on this paper and maybe collaborate with the MMTers at the Gower Initiative?
Adam
Thanks for the contribution
Much of what you say is fair
I have said to Randy Wray that it would be good if Bill and I could find ways to work together
And that would help links with the Gower crew – who are good
Let’s see
Richard
You are right, by the way, that I came to a position very close to what is called MMT by independent thinking
Now I could not go back and separate the understanding though
Adam sawyer says:
“A good part of the reason I’m confident of the veracity of MMT is seeing (admittedly a small number of) academics from outside MMT coming to the same conclusions.”
I’m nearly as much persuaded by the lack of coherent critical thinking and response that comes from the MMT detractors.
We’ve had enough straw men to populate an international scarecrow festival.
Richard Murphy says:
“… right, by the way, that I came to a position very close to what is called MMT by independent thinking. Now I could not go back and separate the understanding though.
That goes some way towards explaining what is wrong with our modern attitude towards education. Too many students, at the very least most of the way to a first degree, often beyond and it apparently includes many who have teacher and lecturer status, consider themselves educated because they can trot out the orthodoxy they have learned by rote. Brain disengaged; cram it in and be able to quote chapter and verse where ‘it is written that…..’
That’s how religion works. It’s related to education, but only distantly. Even academic Philosophy (FFS !) is not immune to this trend.
Richard, I recently heard you on one of the MMT podcasts, and it was very very good stuff. Didn’t seem to be any issues between your discussion/views and “core” MMT. Was exactly the kind of informed, clear discussion of the issues we need.
Also, until recently the UK seemed to be lagging in picking up on MMT, so your work there is extremely useful, as UK policies still are massively outsized in their influence on the rest of the world.
Cheers,
Clint
Not just tried, but succeeded, I suggest.
It’s new thinking in the mix. It will modify the finished ‘product’.
New understanding rarely arrives fully formed.
I’m very pleased that you’ve received recognition that taxes can be used as a policy instrument to support MMT. I’ve always thought so too even if not always being convinced by the particularly detailed instruments or approach you argue for. Of course over time the merit of particular instruments will be confirmed pragmatically by experience. But well done with your contribution!
Thank you
I’m sure I left an effusive but sweary congratulations at some early hour this morning but I’m afraid that if ever I meet you face to face you will be the recipient of big manly hug whether you want one or not.
Brilliant – you have (maybe) helped MMT cross the air/water divide on the question of tax. You wonderful man you!
I always find you positive. Like you I believe in in speaking truth to power. However, these days doing so does not go down well. That is a fault of our times which have turned out not to be so good to be living in I’m afraid.
The other thing your prose does is reify the fact that the virtual ‘tax funds every thing’ cage that we have embalmed ourselves in is nothing but a construction based on enabling vested interests to have their cake and eat it. There is still work to do but I can see ‘Game Over’ emerging on the horizon.
Only time will tell. But this is a major step forward for MMT and deservedly – for yourself.
Thanks
Man hugs accepted