I was asked this question in an email this morning:<\/p>\n
I came across your MMT videos and really enjoyed them and have become really intrigued by MMT.<\/p>\n
I had a couple of questions if you were able to help as I must admit some of the complexities have let me a little confused!<\/p>\n
As I\u2019m sure you are aware we are in a cost of living crisis with high inflation (over 3%, well above the central bank target) which hurts the poor proportionally far more than the rich.<\/p>\n
Is it correct that in order to get this inflation back down MMT would prescribe raising taxes currently? If so wouldn\u2019t that just add to the cost of living crisis?<\/p>\n
Also if you massively increase spending as per MMT theory given we already have high inflation,\u00a0 wouldn\u2019t that just make it go up further (I,e we clearly do not have real resource space for say big increases in benefits)?<\/p><\/blockquote>\n
I thought it was worth sharing this answer, which was:<\/p>\n
\n\nThese are fair questions to ask, and the confusion is understandable because MMT is often misrepresented.<\/p>\n
First, MMT does\u00a0not<\/span>\u00a0say \u201craise taxes whenever inflation is above target\u201d. Inflation is not a single phenomenon with a single cure. The key MMT question is\u00a0what is causing the inflation<\/span>.<\/p>\n
If inflation is being driven by excess demand across the economy \u2013 too much spending chasing too few resources \u2013 then yes, higher taxes\u00a0can\u00a0be part of the response, because they withdraw spending power. But that does not mean raising taxes on people already struggling. Taxes would need to be\u00a0targeted<\/span>\u00a0at those with surplus income or wealth, not those facing a cost-of-living crisis.<\/p>\n
Much recent inflation, including in the UK, has not been demand-led. It has been driven by energy prices, supply shocks, profiteering, rent extraction and broken supply chains. In those cases, broad tax rises or interest-rate hikes mainly hurt the poor while doing little to address the cause. Regulation, price controls, excess-profit taxes, and direct public provision are often more effective.<\/p>\n
Second, MMT does\u00a0not<\/span>\u00a0advocate \u201cmassively increasing spending regardless of conditions\u201d. Spending must always be judged against\u00a0real resource capacity<\/span>. If there is no spare capacity, untargeted spending can be inflationary. But targeted spending that\u00a0relieves bottlenecks\u00a0\u2013 housing, energy efficiency, childcare, transport \u2013 can actually\u00a0reduce inflation<\/span>\u00a0over time by expanding supply and lowering household costs.<\/p>\n
So the MMT position is not \u201cspend more, tax later\u201d. It is:<\/p>\n
\u2022 diagnose the source of inflation<\/p>\n
\u2022 protect the poorest from price shocks<\/p>\n
\u2022 tax excess income, wealth and profits where needed<\/p>\n
\u2022 spend to expand capacity and reduce future inflation<\/p>\n
MMT is about\u00a0using the right tools for the right problem, not ignoring inflation or hardship.<\/p>\n
I hope that helps.<\/p>\n<\/blockquote>\n
Clearing MMT confusion seems to be part of my job these days.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"