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The choice is not between MMT and not-MMT

We already have at least a form of MMT*: Covertly, and for private purposes, instead of openly and transparently, and for public purposes:**

MMT is not just theoretical. In effect its greatest practitioner, without admitting to it, has been the Republican Party in the U.S., but only when in power: it cuts taxes to the wealthy and increases spending on prisons, the military, and war, and lets the deficit increase. And it works. When the economy is depressed, economic growth, job creation and deficits increase, and inflation and interest rates remain low. Progressives would not want to use MMT that way. We would want more jobs, producing civilian goods and services, fairly distributed, while subject to the constraint of potential output. And we would have the federal government spend tens of billions more annually on the programs and infrastructure we so desperately lack.

Of course, it's to the Rs advantage to lie, and so they do. And by the Rs I mean the Ds, too.

NOTE * This reminds me of the famous question of a French philospher: "But will it work in theory?"

NOTE ** This implies that the debt/deficit discourse in our famously free press and among thought leaders is completely bogus, impacted bullshit. Well, yes.

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quixote's picture
Submitted by quixote on

If that's an example of MMT, it's worked well at winning elections, but hasn't been too good as a long term strategy for the economy. Long term, in this case, being a few years.

Could you clarify any differences? Or why it would work better as above boards public policy?

Submitted by hipparchia on

ian welsh once said that mmt is nothing more than the discovery that govts can print money. this is true, govts don't necessarily need to base their spending on how much gold or silver they can hoard, or on how much they can raise in taxes, or on how much they can borrow from other countries - govts can just print [ie, create out of thin air] the amount of money they want to spend.

from fdr forward, we've been [mostly] operating on this principle. before reagan, big govt spending went to stuff like interstate highways and medicare and welfare, and [unfortunately] wars. ever since reagan, big govt spending has been more and more favorable to oil barons and warmongers and banksters and other already-rich, and less and less on the rest of us.

the major proponents of the formal school of the thought that has come to be known as mmt basically favor a return to govt spending that benefits the fatcats less and the rest of us more.

not sure where the 'transparency' come in, other than the fact that both the democrats and the republicans are lying when they say there isn't enough money to spend on things like welfare, medicare, social security, schools, colleges, the environment, etc.

CMike's picture
Submitted by CMike on

If you've decided we can't tax fatcats more because of certain political realities, what makes you think there's a path for the government first to print money and then spend it in ways that benefit those fatcats "less and the rest of us more?" (Excuse me, I guess, according to the theory, that should read have the government first spend money for our benefit and then print it.)

I'm also not clear what you mean when you say "from FDR forward" we've been printing money to finance big government spending. Are you saying that when the Fed buys Treasuries it's financing government spending?

CMike's picture
Submitted by CMike on

>>>>>[p. 46] When FDR delivered his second inaugural address in 1937, the one that spoke of one-third of a nation still in poverty, there was little evidence that the rich had any less dominant an economic position than they had had before World War I. But a mere decade later the rich had clearly been demoted....

This sudden decline in the fortunes of the wealthy can be explained in large part with just one word: taxes.

[p. 47] ...[Y]ou might think that the sharp drop in the share of the wealthy in American national income must have reflected a big shift in the distribution of income away from capital and toward labor. But it turns out that this didn't happen. In 1955 labor received 69 percent of the pretax income earned in the corporate sector, versus 31 percent for capital; this was barely different form the 67-33 split in 1929.

But while the division of pretax income between capital and labor barely changed between the twenties and the fifties, the division of after-tax income between those who derived their income mainly from capital and those who mainly relied on wages changed radically.

In the twenties, taxes had been a minor factor for the rich. The top income tax rate was only 24 percent, and because the inheritance tax on even the largest estates was only 20 percent, wealthy dynasties had little difficulty maintaining themselves. But with the coming of the New Deal, the rich started to face taxes that were not only vastly higher than those of the twenties, but high by today's standards. The top income tax rate (currently only 35 percent) rose to 63 percent during the first Roosevelt administration, and 79 percent in the second. By the mid-fifties, as the United States faced the expenses of the Cold War, it had risen to 91 percent.

[p. 48] Moreover, these higher personal taxes came on capital income that had been significantly reduced not by a fall in the profits corporations earned but in the profits they were allowed to keep. The average federal tax on corporate profits rose from less than 14 percent in 1929 to more than 45 percent in 1955.

And one more thing. Not only did those who depended on income from capital find much of that income taxed away, they found it increasingly difficult to pass their wealth on to their children. The top estate tax rate rose from 20 percent to 45, then 60, then 70, and finally 77 percent. Partly as a result the ownership of wealth became significantly less concentrated: The richest 0.1 percent of Americans owned more than 20 percent of the national wealth in 1929, but only around 10 percent in the mid-1950s....<<<<<

beowulf's picture
Submitted by beowulf on

The Democrats put themselves in a box that they must raise taxes to pay for everything they want. So they don't get the spending because they don't get the taxes. And when Democrats focus on deficits, they don't get that Republicans really don't care. Alll that happens is Republicans will agree to cut spending but refuse to touch the tax code. The Republicans just spend what they want to spend and let the Democrats worry about the deficit.

Here's what Republicans fear above all else, raising taxes on the rich. Here's what they're willing to compromise on to avoid this, EVERYTHING.
Governor Mark Dayton settled the budget standoff with Minnesota Republicans by agreeing not to raise taxes in exchange for Dayton having his way with everything else.
1) The removal of social policy issues from further consideration this year (like requiring voters to bring identification to the polls or ending taxpayer funding for abortions).
2) Dropping a provision which would have required a 15 percent across the board reduction in the number of state employees.
3) Support for a $500 million bonding bill to “put people back to work throughout Minnesota.”

Pure genius, Dayton stumbled over the formula, lead with a proposal for stiff tax increases, along with unrelated "secondary goals" (that are the actual intended outcome). The obvious compromise is to concede defeat on taxes (not too fast, you want the Republicans to work for it so their donors think they're getting their money's worth) and the GOP throws you a bone by letting you have the other stuff that you actually really wanted. Rinse and repeat year after year. And if anyone starts complaining about the deficit, the only answer is "sure, let's tax the rich".... hey, you're halfway to your next "compromise"! Once all of FDR's Economic Bill of Rights are passed into law, you can go back and actually raises taxes, but why bother? Just come up with more consolation prizes the Republican will let you have in exchange for backing down on taxes.

beowulf's picture
Submitted by beowulf on

He'll want me to post it! :o)

But thanks Randall. I don't know if how long you could keep going back to the well with it. But its like in football, if a play works you keep running it until the defense adjusts.
Of course just doing nothing would be better than Obama's deficit reduction obsession which does nothing except hammer the people who voted for him (don't look at me, I voted for the crazy POW).

beowulf's picture
Submitted by beowulf on

I've been thinking about it, and I have the perfect item to open negotiations with--- call it the Daisycutter Tax-- no really call it that (Daisycutters were a kind of bomb), the more freaked out people are about it the better,. Its actually a sensible enough measure that if, by some rip in the space time continuummm it passes, its not a bad way to tax (though it won't raise very much).

Anyway, What I'm thinking of is Jim Bowery's suggestion of a federal net worth tax.
Peter Gemsbok has a offered a similar proposal. There is a constitutional direct taxation issue involved by this, but Alan Dixler makes a strong argument (scroll to the end if the caselaw makes your eyes glaze over) that a federal net worth tax would be constitutional certainly for both real estate and non-real estate assets. Doesn't matter though, if the idea is to negotiate away the Daisycutter every year for something else, it will never pass and it will never go to court.

Basically it would be tax levied on household net worth (assets - liabllities) over a set threshold, say, $1 million in assets. To give the order of magnitude we're talking-- Uncle Sam collects $2.1 trillion and spends $3.5 trillion. A 5% tax on net worth would raise, about $1.75 trillion a year in revenue (assuming a $35T base). To make it even more sinister, make it a "market based" tax rate. Tie it to the market price of, say 3 month T-bills. Currently, they are next to nothing, literally, today's auction was a 0.01% yield (and that's annualized), so a Daisycutter tax of 0.01% would raise all over $3.5 billion, what's the tax rate going to be next month? I dunno,let the market decide. I will say that the CBO's budget projects assume that the T-bill rate will pop up to around 5% by the end of this decade. That's not going to happen, I doubt we'll see T-bills above 1% this decade,T-bill rates are set by the Fed not the market, and of course we don't actually have to raise taxes on anybody to enact the Economic Bill of Rights, but that will be our little secret.

But here's the rattlesnake juice, if the super-rich THINK T-bill rates are going to 5%, then paying a $1.75 trillion tax (especially one that came in on cat's feat at $3.5 billion) WILL DRIVE THEM NUTS. And every year progressives bring it up, they can let conservatives talk them out of it in exchange for some "secondary items" on the agenda. My plan is simple, let's use deficit hysteria as a fuel source to drive the engine of ant-tax rage to power an Economic Bill of Rights for everyone
Roosevelt's remedy was to declare an "economic bill of rights" which would guarantee:
Employment, with a living wage,
Freedom from unfair competition and monopolies,
Medical care,
Education, and,
Social security

letsgetitdone's picture
Submitted by letsgetitdone on

If Obama had followed this blueprint last year before they agreed to extending the tax cuts for the wealthy, they could have gotten a full payroll tax holiday, state revenue sharing and an FJG In return for extending that tax cuts. The Rs would have done any thing to get the extension.

Submitted by JuliaWilliams on

But that would involve actually wanting to improve the lives of the average citizen, so.....

beowulf's picture
Submitted by beowulf on

Bowery actually called hs idea a "net asset tax" and here's a working link for the Daisycutter bomb ("It is one of the largest conventional weapons ever to be used").

As I mentioned to Joe in an email, if it were enacted, it would pretty much keep risk-free interest rate near zero forever (since net asset tax rate is pegged to 3 month T-bill rate), you'd have a lot of very rich people with the means, motive and opportunity to bid down their tax bill at every T-bill auction.
The CBO/JCT revenue scoring could reflect reality and wipe out the $11 trillion in projected net interest costs over the next 15 years, or it could keep using its defective economic model and assume that tax revenue really would go up $1 to $2 trillion a year. Either way, if enacted, it could "pay for" a lot of new spending and/or middle class tax cuts. So make it easy to the Republicans, "instead of raising taxes on top and increasing spending for everyone else, let's compromise and just increase spending without raising taxes". Win-Win! :o)

wuming's picture
Submitted by wuming on

That's pretty much what some online game companies do to control inflation-- some give a hard limit to maximum wealth.

Submitted by hipparchia on

we have not been on the gold standard. ever since fdr, we have been using the dreaded "fiat" money [although if you want to get truly technical, fdr only sort of took us off the gold standard and nixon finished that job ~40 years later].

yes, there are still laws in place about the govt having to either collect taxes or borrow to pay for whatever it spends, but these are only necessary if your money supply is backed by the amount of gold you can hoard. and yes, one of the ways the govt can get around that limitation is to "borrow" from itself, because it never has to pay that money back.

If you've decided we can't tax fatcats more ...

not me. tax the living daylights out of 'em, i say. something along the lines of a top tax bracket of 70-90% on anybody who makes more than, say, the average congresscritter's salary. i'm an unapologetic redistributionist.

technically, the govt that uses fiat money never has to collect a penny in taxes, nor borrow even so much as a dime to finance its operations. there are, however, many excellent social, political, and economic reasons to both collect taxes and sell bonds ["borrow"].

as for fatcats v the rest of us over the years, from fdr to reagan, taxes on the rich were higher than they are now, and spending on things that helped all the rest of us was considered a more important function of govt than it is now. there have always been fatcats, and they have [almost always] believed that govt should work for them first [or always]. ever since reagan though, the push to make govt work only for the rich and to break those parts of it that work for the rest of us has been ever-increasing.

as for "printing" money, that should probably read "creating money out of thin air" [baby you've got blips]. the really hard part is getting people to believe that that's what governments do, and have been doing for many years.

CMike's picture
Submitted by CMike on


Some of the dialog at that The Traders Crucible link goes as follows:

me: That’s not what I mean. I mean where did the money come from originally?
Ed: I guess from the bank.

me: No, that would mean you borrowed it. You said you earned it.
Ed: OK. I guess it came from the government?

me: Right. Where did the government get it?
Ed. They issued it based on the amount of gold we have in Fort Knox.

me: No. We haven’t been on the Gold Standard since 1971. There is no gold backing the US dollar.
Ed: You mean the dollar isn’t backed by anything?

me: Not exactly. But let me ask you again. Where does the government get it’s money?
Ed: They print it?

me: Right. So if they print the money, how does it get to your wallet?

I'm a little unclear about this. Does this refer to when the Treasury first set up the United States Mint or when the Federal Reserve started issuing currency or when the U.S. went off the gold standard? You know, of course, for many decades private banks in the United States issued paper currency that circulated in the economy.

me: Maybe. But if the government didn’t spend more money into the economy than it taxed out there would be no money in the economy. How would you get the money that’s in your wallet? And how would there be inflation in that circumstance?

You would agree that the money supply can expand and contract entirely independent of any deficits being run, right? Fed purchases and sales of Treasuries, the Fed's reserve requirement for banks, the rambunctiousness of the investor class's "animal spirits," whether there is any de-leveraging going on in the financial markets, and consumer willingness to spend all affect the size of the money supply.

Ed: OK. But what about the National Debt?

me: What about it?
Ed: Don’t we have to pay it back?

me: If we paid it back, there would be no money left in the economy. How would you get money in your wallet then?

True, the last time the national debt was eliminated the Panic of 1837 followed but factors other than the zeroing out of that debt are cited as contributing causes for the severe economic downturn that followed -- and there was still money left in the economy after the debt was paid off.

Submitted by lambert on

These are political decisions. They aren't "technical" decisions to be made by experts in the central banks. Now, I grant, I wouldn't call our electoral politics transparent, but there's some hope of improving it in that direction, if only because most people know that decisions made in secret and democracy can't live together (cue the sheeple riff....).

wuming's picture
Submitted by wuming on

It was a sad day for me indeed when I realized that Cheney understood the economy better than Obama does.

Submitted by hipparchia on

me too