I posted this thread on Twitter this morning. The argument is pretty important in the context of current economic debate:
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Yep!
‘We’ don’t want to pay twice.
But Sunak will – because it helps to sustain the faulty narrative we’ve all been living with all these years. To not tax – to not do what is expected (even though it is wrong) draws attention to something many in the Establishment would rather have hidden.
I think the question are we ever going to reverse QE is an interesting one. I guess if you are BoE governor you would want to leave this on the table as an option. If inflation ever starts to run away then the BoE has two options, raising interest rates or reversing QE.
But I cannot see inflation coming back because wealth inequality means that there are too many indebted people to create sufficient demand. As Piketty says we are back in the 19th century where capital rules and if you not lucky enough to inherit wealth your best bet is to marry well.
To create demand and optimise economic activity we need to redistribute this wealth. The tax system should be designed to optimise economic activity which we should measure in terms of well being.
Inflation will also not return because the healthy have no appetite for risk any more
Agree with all you’re saying bar that clarification
I have always been told not to answer questions people are not asking. Your tweets are entirely sensible given what you know about MMT and economics generally. But they don’t perhaps answer what is in the public view. People do want to know about tax and feel that these things have to be paid for – regardless of what actually happens.
I would suggest that you answer the question about what taxes, with the ‘when’ – when the economy is vibrant once more, when full employment is approaching, when all of the businesses and individuals up and down the land are in a position to pay those taxes without everything falling off a cliff again. I think this can be more reassuring to the ordinary person and it also opens up the discussion of using the levers of tax to control inflation.
I’m not convinced
Saying ‘when’ implies it should be done
But it’s already been paid
OK I see your point that Covid costs have already been covered/paid and tax does not have to be raised to ‘pay’ for it.
But I think these tweets close the conversation and by association your ability to continue the dialogue and make the argument. I think you could write in a way that leaves room for further inclusion in the debate.
I admit I am not sure how….
It sure as heck does not feel that way to me
What you’re failing to conceptualise is that at the same time government is creating money to influx into the economy it’s also simultaneously refluxing it through taxation and other government charges. It may know at the time of its influx that inflation is running at 2% in the economy (its target level) but it can’t clearly know whether its influx will definitely push inflation above the 2% target there are too many influencing factors taking place in an economy at any moment.
“What’s wrong with the government creating money?” Well the usual response is government’s will create hyper-inflation! There’s no awareness that bankers have been allowed to hyper-inflate house prices for nearly five decades with the help of politicians from both Conservative and Labour parties so in reality any type of money creation has the potential to create inflation.
Under-lying this shallow analysis of course is a lack of awareness that there’s a need to track the flows of created money both influx and reflux. But below this there’s an even greater lack of awareness that money has to be able to perform two uses to purchase and to hoard. The latter, of course, is the ability to save when uncertain economic times occur and what the effects of increased mass saving will have the economy. Which then makes at least one case for government being able to create money to counteract increased mass saving.
All of this makes the case for this being taught in schools which then begs the question how can it be when politicians don’t understand it! A classic chicken and egg situation.
I would argue (and do!) that we have to take people from where they are and that takes time and credibility. Once you have grasped concepts it can become difficult to understand what it is like to be in the mainstream.
Personally I hope that people like Richard who know their stuff will find a way of engaging the public with pithy comments on radio and tv. If I were on I would be tempted to say something like ‘we have our understanding about money arse about face’ and be deliberately controversial. Provided I could back up what I have said, then I wouldn’t worry too much as there might be more chances to explain and develop the argument.
I wouldn’t want to pile this on teachers just yet…. they have enough to deal with.
Your comment is rich. The country’s education service has been under-funded for ten years by the Tories and you come up with:-
“I wouldn’t want to pile this on teachers just yet…. they have enough to deal with.”
Here’s Brian Romanchuk trying to untangle the web of accounting for influx and reflux flows to help define what net financial assets are and come from. Note Neil Wilson’s comments to help untangle this web.
http://www.bondeconomics.com/2015/10/net-financial-assets-and-equity.html
Clearly its complex to visualise the balance sheets involved and therefore one of MMT’s problems in getting its economic messages over to the general public. Simplification is an important issue for MMT.
I’d love to read this tonight
But I am whacked….
Here’s a simplification of influx and reflux flows I’ve always liked:-
http://neweconomicperspectives.org/2013/02/real-dollars-and-funny-money.html
Another way of explaining it.
When the government spends money (increases it’s debt in the Bank of England) this expenditure will be taxed as VAT, income tax etc. How quickly it returns to the government, as tax, depends upon how it is spent. The tax pays off it’s debt with the Bank of England.
The selling of bonds and QE is irrelevant.
No, tax does not pay off debt
Tax pays for nothing
Here are two questions for the school Civics exam.
As part of the Civics course you have been taught to understand how balance sheets work. The following are two questions applying this balance sheet knowledge to the national economy:-
Why would citizens want to pay private sector bankers money in the form of interest on loans to pay for public goods and services?
Assuming they wouldn’t how therefore is money created for net savings and to pay taxes since private sector bank loans net to zero?
Most third year undergrads would struggle….