I had a Twitter direct mail message from a quite well-known person a few days ago, asking two questions about the Taxing Wealth Report 2024. The first was:
If you were PM would you do all those things or just some ?
The second was:
Second question - didn't you say that govts don't really need tax money in order to spend ? Inflation allowing, they can just print? Maybe inflation doesn't allow any more?
I am obviously not going to disclose my correspondence name, but since what they have asked has been quite commonly raised since I published the Taxing Wealth Report, I thought it worth sharing my replies now, noting that more will follow.
With regard to the first question, I said:
No - because there is no need for them all at once. There may be over time, but the change would need to be gradual. Right now, this is a menu of options, not a list of necessities.
There are good reasons for this:
- The changes would be too much if all were done at once.
- Spending would be too great if increased to match this revenue, and there would be negative feedback from the economy that might be harmful.
- Redistribution cannot be done overnight.
In other words, being radical still requires that the rate of change that is possible within society and the economy be respected.
On the second, I said:
Your question on the role of tax in the macroeconomy is a good one, and one which several people have asked me. I will produce both a blog and video on it, soon. However, in preparation, let me explain it to you.
It is always true that taxation follows spending i.e. the government has to create the money with which tax can be paid before it is possible to collect it. It is, therefore, always, technically possible to finance some elements of spending without taxation as deficits can be run. But as the more sober proponents of modern monetary theory (like Stephanie Kelton and myself) suggest, this is only possible subject to the constraint of inflation, which we now are reminded is very real.
If an economy is at full employment, or if it is not but only has resources that will take time to put into use, then any attempt to increase its spending when there aren't resources to acquire will create the risk that additional government spending might result in inflation unless it is matched by additional taxation soon thereafter.
This is clearly the situation that the UK is in at present. It is said that there are more than two million people who might be able to work, but they certainly won't until the government spends more on mental healthcare, in particular. So, with that expenditure necessarily being frontloaded and those people not being able to work until sometime after those services begin, additional taxes might well be required in the meantime to control inflation. We can grow if that spending happens and those people really are able to work as a result (which is another question, altogether). But that growth must be put to beneficial use and not be wasted by the risk that inflation creates, which would immediately curtail it. Additional taxes, in the meantime, avoid that risk of inflation happening.
I have not changed my tune. Taxation does not fund spending. But additional spending can, in situations like the one that that the UK is in at present, require extra taxation. That might look like the same thing, but it isn't, because if you understand that the spending comes first, then you also realise that the additional taxes should not be designed for the purpose of revenue raising alone, but should also reflect the social priorities of society, such as redistribution of income and wealth, and the need to address market failures like climate change. These are the ideas implicit in the Taxing Wealth Report 2024.
Does that make sense?
Comments are welcome.
As noted, more may follow on this. And please do not assume that I think 2 million people are available for work - I used an example.
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I don’t think you can leave out Sectoral Balances Accounting out of the Taxing Wealth argument since the crude and simplistic assumption is at a microeconomic level if you work hard then you should be allowed to keep the income you get and not have it confiscated by the government to fritter away. Section d) in this article by Randall Wray, however, clarifies what in fact actually goes on at a broader or macroeconomic level with the above attitude. He clarifies it by saying:-
“… there is a desire to accumulate financial wealth—which by definition is somebody’s liability.”
https://realprogressives.org/mmp-blog-4-mmt-sectoral-balances-and-behavior/
Not recognising the need to see that financial wealth has to be is linked to other people’s liabilities and how results in the “Attention Deficit Disorder Problem” dogging the UK economy.
I will get to it
This statement by Randall Wray from his New Economic Perspectives Primer is also useful:-
“There is also a logical angle: a society can decide to spend more but it cannot decide to have more income (unless it spends more). Spending is thus logically prior.”
https://realprogressives.org/mmp-blog-4-responses/
Taxation as we know is something that has to follow on from spending and we now also know that both governments and licenced banks can simply mark up “spending” on their computers in the first instance. So in terms of getting the UK public to get over their “Attention Deficit Disorder Problem” spending and taxation logically need to be explained together.
Makes sense to me, Richard. And some further blogs and a video with the explanations and workings would be useful.
A video has been recorded – just now
I suspect it will be out pretty soon
The popular misconception is that the 2 million non-working have confused the normal stresses of life with depression, and can be made to shape up by depriving them of welfare. This is delusional. A workforce that doesn’t want to work, or feel able to work; will prove a bad, expensive and unprofitable workforce, producing shoddy work. The question to ask is why so many feel this way; but that is far too challenging for the delusional running the country, or voting for them. For 300 years the British relied on slavery, empire and immigration to fix the problem, but without the first two, Briain is no longer prepared to use immigration, but at the same time the fertility rate is far, far below replacement. Our policy is idiotic, and designed to fail. We are governed by fools.
Much to agree with
Yes but you have to ask how do the fools get elected to run the country. Largely it would seem by a poorly educated majority of the electorate.
Which prompts the comment that unlike a number of European countries, we do nothing to teach children about how the country and its political systems work. Leaving them open to be misled by the media, both social and traditional.
The Slavery Abolition Act was enacted in 1833
The Jamestown Colony was founded in 1607 with the first slaves noted as arriving in 1619.
And that in no way establishes 300 years of slavery, let alone reliance on it for the same duration but ‘much to agree with’? Seriously
In case anyone accuses me of being a neoliberal, I disapprove of slavery.
I took the phrase to mean that for 300 years Britain relied on a combination of slavery, empire and immigration, not all at the same time. Slavery was widespread long before, and after, it was practiced in the American colonies and forced Labour was used in the British Empire particularly in South Africa into the 20th century.
Wendy Blight, I wrote the reference to 300 years in the context offered by Mr Penny, but that aside your dates over simplify the history. The Scottish Parliament passed a Collier and Salters slavery Act, 1604-5. That was only terminated by the British Parliament in 1799. The 1833 Act actually only freed the slaves by around 1838-9, when the slave owners were compensated, the Apprenticeship took effect (and a form. Of quasi-slavery continued – the plantation business model did not cope well with freedom). Slavery was more open-ended than the glib 1833 suggests.
There is a book waiting to be written about the crisis in fertility rates, our social behaviour towards those on welfare and to those who are sick. This crisis goes higher up into our institutions and they have failed to lead. They have failed to recognise sickness and instead claim that “the sick” are in fact just lazy and it is all in their head.
Once this is recognised it is easy to understand why the DWP is like the way it is. It isn’t mismanaged. It is following the advice of psychiatric experts. And the DWP has its own list of approved experts. It is working exactly as intended.
Large parts of the electorate are deluded. That isn’t going to change any time soon. It it the reason why the Conservative Party, the Press and FPTP have survived so long peddling tripe.
Not mentioned were government deficits – not a criticism just a comment. These can be financed by……..well in the case of Belgium (Eurozone) debt. What follows is illustrative of how things can go badly wrong in the Eurozone. As you can see, the imbeciles have been at it again – with fixed numbers (3%) for debt:
https://www.vrt.be/vrtnws/en/2024/04/23/new-european-budget-rules-what-do-they-mean-for-belgium/
Why is 3% desirable and 4.4% gets you in the naughty corner? It is hardly even worth asking the question – you will get no coherent answer from Imbeciles in any of the three pillars of the EU (Commission, council and parliament) – they are all tools of the ECB (prop: Bundesbank). At least the UK has the prospect of taking back control (ah-ha that phrase again) of the BoE. There is zero prospect of such politicial control over the ECB in the EU/Eurozone. That said, hope is on the horizon – the AfD will do very well in the European Parliamentary election & one of their policies is abolition of the ECB. This may focus what passes for minds @ the ECB in Frankfurt (stranger things have happened – but overall unlikely given we are in theological territory).
Stephanie Kelton in a recent interview said that if Truss’s budget had been backed up by the Bank of England it could have withstood the market turbulence (as the Bank of Japan apparently sees off such turbulence). In the optimistic event that the Labour Party try some radical investment, what would they need the Bank of England to do to support them?
Many thanks for your blog, which has introduced me to the world of MMT as well as providing ammunition around taxing the wealth.
I have long said much the same
It was QT announced by the BoE that undid Truss
It may have even been deliberate. She could have been right
Labour can only win by really understanding central banking. Truss did not
Richard
I agree with all you say in this post but for me the key point that MMT makes that often gets forgotten is that the real constraint on what can be achieved is the level and quality of resources available. So doing everything from education to providing good healthcare is a necessary part of improving the level and quality of the resources available.
Agreed, but a process of adjustment is required for that too
Is the Labour Party’s insistence on having fiscal rules a ruse to avoid having an equitable taxation system? At first glance this would appear to be implausible but in reality isn’t this what it does?
Bizarrely, yes.