One of the persistent criticisms of modern monetary theory is that it is not concerned about inflation. I find that very strange. MMT is profoundly concerned with inflation, as I explain here.
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This really good FT article “An MMT response on what causes inflation”, from leading MMTers Scott Fullwiler, Rohan Grey and Nathan Tankus, says tax is only one item in the ‘MMT inflation-busting’ toolbox…
“we do not believe that any and all inflation that does result from excessive demand can and should be addressed by higher taxes. This is a distortion of our view, as years of publications can attest. When MMT says that a major role of taxes is to help offset demand rather than generate revenue, we are recognising that taxes are a critical part of a whole suite of potential demand offsets, which also includes things like tightening financial and credit regulations to reduce bank lending, market finance, speculation and fraud.”
https://ftalphaville.ft.com/2019/03/01/1551434402000/An-MMT-response-on-what-causes-inflation/
I agree
But tax is fundamental
You say that when a government creates money it then incurs an apparent debt. Is it a debt or not? If so, who does it owe the newly created money to?
It’s a debt in that it’s a promise to pay
The promise to pay is fulfilled by accepting the currency in payment of tax
The debt is cancelled by tax payment
In that sense the debt is to the taxpayer
It says so on your notes
Thanks for your gracious reply.
This is a really important point. The debt most definitely IS a real one. Its just that its nature is nothing remotely like people’s expectations – which, based on their own completely inappropriate personal experience, involves government having to later pay back to some mysterious ‘phantom lender’. This is where the term ‘government borrowing’ causes yet more confusion. As that just embeds this false idea even further into the national psyche. Cue massive panic about the massive ‘debt burden’ we’re passing onto our grandchildren.
Another point worth hammering home is that the obligation on government only kicks in IF government CHOOSES to tax. If it it never taxes the money back, then its not obliged to do anything. Not that accepting the debt back as payment of taxes (or accepting it in exchange for another kind of debt – aka government bonds) is anything worth sweating about at all.
Of it’s worth sweating about
I promise you, significant inflation is not good
Hi Richard
You talk about increasing VAT as an illustration of how tax can be a more immediate way of tackling inflation. Would that not increase inflation at least in the short term?
Yes
But it works through
I am working in better taxes to address this as a result
But you may have to wait a while to hear about that
Could you imagine the effect of VAT rises when inflation is taking off. The “working through” bit wouldn’t happen. Combined with rises in income tax this would lead to a change of Government. MMT as you like to call it is boom bust Keynesian economics with the add on of a job guarantee and tax only at full employment. Of course half the MMT community disagree on the job guarantee and inflation definitely occurs before full employment. Look at the inflation stats over time and plot that against “full employment” (which we probably have never had anyway).. so yeah we are left with boom bust revisited.
No one says inflation only happens at full employment
There are multiple causes of inflation, many quite beyond government control
The sort that can be controlled only happens at full employment
But it’s now clear you are only here to troll.
Please don’t call again
Inflation is easily managed in an economy with a Job Gty. For example, the Job Gty/Green New Deal law should include AUTOMATIC across-the-board tax increases that kick in when certain monthly wage inflation target are hit-say for 6 months in a row. These can include:
a) Income Taxes,
b) Sales/VAT Taxes
c) Asset Value (or Wealth) Taxes
That’ll cool things off pronto.
Interesting to hear your ideas about how tax would work to remove excess money from the economy. I have been wondering about that as politicians always seem very reluctant to raise taxes while a raise in interest rates is seen as a kind of neutral measure by the central bank and while people may grumble it doesn’t seem to cause the kind of outrage tax rises cause. Would politicians have the guts to raise taxes when necessary.. and isn’t this the supposed point of having an independent central bank? Find you videos very succinct and informative. Am trying to convince people!! Thanks!
Independent central banks are no such thing
They do as told, and interest rates have ceased to function
But inflation is also under control
Will taxes be changed? I think so, but I think it’s time to design new taxes too
Watch this space….