The trend within this government for ministers to deny responsibility for their actions is growing:
https://twitter.com/Telegraph/status/1485353895182409735?s=20
Now Sunak is saying "It wasn't me who wanted a new tax, guv. Blame the boss."
This is ridiculous. He is Chancellor, but clearly not grown up enough to accept the responsibility for being so.
I remember when we had ministers who realised the importance of the jobs that they were doing and the obligations that went with them. But that was long ago, way back in the 2010s.
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Apart from the point you make about this story, two others strike me. First, if Sunak feels emboldened enough to make such a statement (and, additionally, it’s a story in the Telegraph of all papers) then that suggests he knows beyond doubt Johnson’s days are numbered, as he has no fear of Johnson being able to punish him for so doing. Second, and related, he wants to put distance between himself and this policy ready for his run at the leadership of the Tory party/PM. Seems like we may have a very interesting week in UK politics coming up.
I think the above is a very clear example of why MMT could never work in practice, let alone theory.
The political fallout for raising taxes by any amount is big and politicians aren’t likely to do it when it is necessary.
Which means in practical terms it can’t be used to fight inflation.
Making MMT perfectly useless.
Respectfully, that does not in any way invalidate MMT. What it does show is that we need politicians who understand what they are doing
…………..and commentators too!!
What do some of these people expect?
Just to go around in circles forever using the same groundhog day economic cycles as if they are the pre-ordained order of the world?
MMT will only rendered useless by not trying it. Let us be clear about that.
For a political economist, you don’t seem to understand much politics if that is what you think. Claiming we need better politicians as the answer to why MMT is unworkable isn’t exactly a great answer.
Back in the real world, rather than your fantasy one with perfect and knowledgeable politicians un-moved by any hint of personal interest…..
Politicians understand very well this basic calculus at least. Putting up taxes on the general population is likely to cost them votes.
For MMT to be real world practical, you would need to raise general taxation to reduce inflation. That is going to cost the government votes, so they are less likely to do it. Especially if an election is anywhere near.
Which means for all practical intents and purposes, MMT does not work. Specifically because of the politics, aside from all it’s other problems.
MMT also doesn’t bother to tell us which taxes need to be raised and by how much to reduce inflation by a given amount? MMT doesn’t ever seem to cover this quite important point. Doubt you can either.
Or the fact that for tax to reduce inflation in any meaningful way, it would have to act on the general population – not just on the rich. So you can’t claim that away either.
I have little time for trolls, which is very clearly what you are, but let me summarise why you are wrong.
First, MMT is not workable or non-workable because as a matter of fact it explains exactly how our current economy works with regard to money when no other macroeconomic analysis even contains money within its framework. So, for example, although it might not recognise it, the Bank of England effectively accepted the core arguments of MMT in 2014 and it can be argued that it is operated in the UK since 1866. There is no fantasy about MMT, it is a simple reality.
Second, in that case it is not a question of whether MMT does or does not work, it simply is. You completely failed to understand that fact. It is not a policy initiative. It is a mechanism for appraising policy, and in this case what you correctly identify is that politicians are not managing competently. It can be said that you provide the proof that it works if you think tax increases appropriate, although I do not.
And poor politicians and poor electoral systems backed by poor elector education is not evidence that a system does not work, it proves poor education as to economic reality
As for which taxes to change, I have answered the point: ideally we need a new one. Without it we have a whole range we can use: that is why we need broadly bnase3dband enforced taxation. It really is not hard. There has to be roonm for judgement.
And very clearly you do not understand why taxes on the rich work
I suggest you go and do some homework
Right now you’re on a fail and are making yourself look very stupid
I’m sorry Richard, but you are clearly wrong on so many points here.
“First, MMT is not workable or non-workable because as a matter of fact it explains exactly how our current economy works with regard to money”
No mainstream economists think MMT is correct. In fact, only MMT economists do, yet even they strangely fail to be able to explain various parts of the theory. Like how taxes are to be used to actively manage inflation. Or even produce an inflation model.
“when no other macroeconomic analysis even contains money within its framework.”
This is pure BS. All the major economic theories and schools of thought deal with money within their frameworks. Most are built around it.
“Second, in that case it is not a question of whether MMT does or does not work, it simply is.”
Well the counterfactual would say that MMT doesn’t work so it isn’t. For example, using tax to control inflation. Or the fact that MMT says inflation should be zero unless an economy is at full capacity – which clearly isn’t true if you just look at the real world. Inflation is everywhere, but it would be hard to say the world economy is running at full capacity.
“you correctly identify is that politicians are not managing competently.”
No, I am identifying that politicians will never manage it properly because it would more often than not be against their own or their parties self interest to do so. Raising taxes costs votes typically.
“And poor politicians and poor electoral systems backed by poor elector education is not evidence that a system does not work, it proves poor education as to economic reality”
Electoral system is fine. Works better than most. Though it seems that MMT has not had any country with any electoral system take it up, so that might be a clue. Poor elector education sounds positively Orwellian. If indoctrination is the only way you are going to get people to use MMT, then maybe it isn’t a good theory.
“As for which taxes to change, I have answered the point: ideally we need a new one. ”
OK, so what would that new tax be. How big would it have to be to cause a given reduction in inflation. Who would it affect (hint: for it to reduce inflation, it would have to hit everyone) the most. But mostly your answer is the same as every other MMT followers. Totally avoiding the detail and giving a vague non-answer.
“And very clearly you do not understand why taxes on the rich work”
For MMT they don’t really. Taxation used to control inflation would have to reduce the money supply, reduce the velocity of money and reduce demand. Taxing a small number of people with the greatest disposable income and propensity to save wouldn’t achieve any of those three targets.
So, with respect, basically you are talking nonsense. MMT would have to tax the general populace a lot more to reduce inflation. Something MMTers are keen to avoid being honest about. Partly because the whole promise of MMT is more spending without having to pay for it and partly because MMT can’t even tell you what taxes and how much to raise them anyway. Then it meets the reality of politicians not wanting to raise taxes anyway.
It’s a fantasy. The whole thing.
“Right now you’re on a fail and are making yourself look very stupid”
Not half as stupid as a so-called Professor of economics spouting the nonsense he is.
I post this because some asked to see the reply
I am not replying
He is now blocked because as I predicted, he is a troll
James, it would be good were you to know what you are talking about. In the first place, MMT is not only about tax. And in the second place, this tax is not one an MMTer would advocate for the reasons Sunak has given and in the present circumstaces. Sunak is a neoliberal hedge funder with the micro instincts of such. This must never be forgotten. He seems to be unable to rid himself of this mentality. That he spent during the pandemic is not really relevant as his inclination was to cut, as he indicated so himself at the time.
James – the use of taxation would be one of judgement.
For example, it could be aimed at areas of the economy that are known to cause knock on inflation in other sectors. It could be aimed at sectors that are currently undertaxed.
And the use of taxation might not be only to increase it; some taxes could rise, others could be reduced – like VAT which is a bit of a blunt instrument.
Another thing that could be done under MMT is to look at lending interest rates and come up with more variation in rates related to its use or social value. The management of interests rates in this country to me is criminal and insensitive.
MMT is about making money; taxation is about destroying it.
We have to destroy money so that it flows (made and destroyed) through an economy rather than building up in it – that causes inflation or huge accumulations by the wealthy too which worsens inequality and spills over into politics.
Anyone wanting to create money would also need to think about what the money was for; what other areas of the economy would affected and also watch inflation and weigh up real cash against credit (we know that private lending also causes inflation). Such people here are capable of that sort of thinking.
Your thinking is typically reductionist – overly simple and crude. There is so much more that could be done.
And yes – maybe richer people might be upset (even though they’re complaining these days of not being taxed enough).
But there are more lower paid people than millionaires.
But I still can’t believe that people will say something will not work without even trying it.
I look forward to James putting forward his own much more “practical” explanation of the way the political macroeconomy of a country (such as the UK) works, with a fiat currency, including the mechanism by which the government spends from the public purse, the role of the central bank, and the role of taxation and of public debt (or, as you might call it, government-backed savings).
I’d be particularly impressed if his explanation can do what he demands of MMT – that is, providing political cover for politicians to raise taxes, by telling them which taxes to raise and by how much.
Go on James: how is UK government spending funded? Who is the UK public debt owed to? What happens when gilts are issued and then purchased under QE? What happens when the government pays interest on gilts held by Bank of England Asset Purchase Facility Fund Limited? What happens when the Treasury makes a request for credit under section 15 of the Exchequer and Audit Departments Act 1866?
In the famous words, it is not modern, nor monetary. It is a “theory”, not in the sense of an unsubstantiated hypothesis, but in the sense of the theory of gravity – that is, the best available explanation of the observed facts.
Quite so…
(The onus is continually put on those pointing out how the system actually works to knock it further into required shape – by those that think it is works differently, but oh so perfectly now!)
Beautifully put, @ Andrew.
🙂
Thank you.
Great final paragraph, Andrew. Couldn’t have put it better. It is exactly right.
In previous posts I said the Tories would use the departed Boris as a fall guy and then pretend to start all anew. Now it seems they can’t even wait for him to go.