Dec 07

Modern Monetary Theory and Taxes

There are a couple of things I’ve alluded to in my discussion of the Cut Cut Cut Bill, the first and most important of which is that beyond a naked theft from 90% of the population to line the pockets of the Plutocratic .01% it also is an assault on the benefits of the 90% that will result in personal economic damage as yet uncalculated and, almost certainly, 10s of thousands of unnecessary deaths due to repeal of the individual mandate alone.

It’s a complicated piece to write, made more so by the fact the proper replacement for the individual mandate is single payer and I’m not a defender of Obamacare by any means. There are also many, many other pernicious proposals regarding “Pay Fors” that need to be addressed, not the least of which is immediate cuts to Medicare under existing legislation.

The second is a somewhat easier task- to explain why “Pay Fors” are not needed at all.

The United States has a “sovereign” currency. Debt really doesn’t exist because all our I.O.U.s (“Debt”) consist of promises to give people little green pieces of paper.

And we can print as many as we like.

Now what people do with those green pieces of paper is really up to them. They can use them to wipe their bottoms (though there are better types of paper for that). They can build and start a fire. They can stuff their walls full of them for insulation and use the leftovers for paper. Speaking of which you can write notes on them (something I frequently do if I can’t find something else).

Writing on them doesn’t destroy their symbolic value which is you can trade them for goods and services (medium of exchange).

Now it is theoretically possible that you could print so many that you could impair their utility as a medium of exchange. The problem for people who fret about those things (Deficit Hawks) is there is absolutely no indication we are anywhere near that! Inflation, any way you measure it, is at historically low levels (except in luxury goods). The Federal Reserve is voluntarily paying interest, investors would gladly pay for the privilege of holding our “Debt”.

And that’s all just “classical” Economics 101.

There are 2 particular beliefs that Modern Monetary Theorists hold that are not intuitive, the ideas that Taxes are what give value to money and that Government spending is what creates money.

The first is easiest to explain. If a Government will only accept payments in little green pieces of paper, those pieces of paper have inherent value in obtaining Government services. Some services we don’t think about like Police, Firefighers, Soldiers, others are more obvious like Licenses, Fines, and Fees. I could get more complicated and talk about the debate whether money itself arose as a medium of exchange or as a substitute for physical labor owed to the State but that would just confuse things in this instance.

The second is a little more tenuous and I understand it less well because it’s grounded in Accounting. It holds that Government must create debt in order for there to be money in the non-Government economy. As best I can grasp, if the Government takes back all the money it prints (no deficits, no debt) it gets sucked out of the economy and it’s ability to function as a medium of exchange is impaired just as badly as by inflation.

Now to me it seems obvious that since the only whiff of inflation we have is in luxury goods, if you are serious about fighting inflation you should impose confiscatory Taxes on the wealthy. Too much money chasing too few goods, again- classic Economics 101.

And perhaps I’m misunderstanding MMT. I’m a Historian, not an Economist though I was forced to study it (also English, Art, Art History…, Music and Music History I did to myself).

Monetary Mental Illness
by J.D. Alt, New Economic Perspectives
Posted on December 3, 2017

It is literally painful to watch our political leaders’ efforts to rethink and restructure how we are going levy taxes on ourselves as a collective society. It is like watching a family member struggling with mental illness: the demons being wrestled with are imaginary—yet they have the palpable force somehow of a granite wall. And as the struggle with this palpable monolith unfolds, even we—the clear observers of reality—forget that it is imaginary; when we do remember, the pain becomes excruciating for the simple reason that we know it is completely unnecessary.

Why does our political system choose to believe and struggle with the imaginary constraint that taxes must pay for sovereign spending? How can we explain to ourselves, in the face of this rock-solid demon, that the simple logic of fiat money demonstrates that sovereign spending must occur first, with taxes collected after? How can we reassure our terrified and confused representatives in congress that if our sovereign government collects back fewer dollars than it issues and spends, the difference is not our collective “debt”—it is, in fact, our collective savings? But the demon will not allow us these explanations.

As is the case with every mental illness, the cruelest aspect to observe is how vulnerable our delusion is to being manipulated and taken advantage of by those who are self-serving and greedy. We actually believe the rich fat-cat when he tells us that if we choose to make him richer we, the poor strugglers, will be better off! How, we are told, can the rich fat-cat give us a new job if he is not made richer and fatter? We cannot, after all, give ourselves jobs—can we? Our sovereign government —which we cannot seem to understand represents our collective selves— can (and must) issue and spend fiat-currency. True! But that currency (our demons are whispering) cannot be spent by our collective selves to pay our individual selves wages to accomplish useful things for our families and local communities. The currency, instead (whisper, whisper) must be spent to fatten the fat-cat so that he can pay us wages to accomplish useful things for him. The pain of this logic makes you numb.

Our case is made all the more desperate by the fact that our “therapists”—the economic pundits and budget analyzers—are actively in collusion with the rich fat-cat. We lie down on the couch and are told that we have a deficit. The deficit we have arises from the fact that our sovereign government—which (whisper, whisper) is not really us but, instead, is a conspiring other who wishes nothing more than to confiscate our tax dollars— insists on spending more of those dollars than it can confiscate. So we therefore have a deficit which, even though it is not our fault, we will be forced to somehow make up and repay. Our simple hope that perhaps our tax dollars might provide us with beneficial public goods and services are dashed and trampled by mathematical calculations demonstrating there can never be enough tax dollars to pay for all the public goods we clearly need. Our only hope (whisper, whisper) is to further fatten the fat-cat so he can accomplish everything for us. If we fatten the fat-cat, he will educate us; he will grow our food; he will build our houses; he will cure our aches and pains; he will put gasoline in our fuel tank. All we have to do is give him everything we have: our farmland, our national parks and forests, our wildlife preserves, our streams and estuaries, our mountain tops. All we have to do is give him our air and our water to do with as he needs. All we have to do is make sure he is rich, because only if he is rich can we hope that he’ll give us a job and pay us to do something. We cannot expect him to hire us if he is not rich, can we? No. And we cannot expect him to hire even more of us if we do not make him fatter and richer still. This is all very logical, we are told, as we lie on the couch.

Finally, our prognosis is greatly diminished by the fact that there are influential people—leaders—who know very well that we are delusional, that taxes do not pay for federal spending, that our fiat-money deficit is not a “debt” that we owe to anyone, that fattening the profits of global corporations neither creates meaningful jobs or causes anything useful to be accomplished for our local communities. They know all these things, yet they are required (by what?) to remain silent or, at the very least, dissembling in their objections. They cannot come straight out and say, “Look here, this tax and deficit calculation is sheer nonsense. It is delusional gobbledygook! The sovereign government has to issue and spend its fiat money before it can collect it back in taxes. And that issuing and spending of fiat money is precisely how the sovereign government can pay us to accomplish everything we agree needs to be collectively accomplished.” The fat-cat needs to be put in his place. He just gets one vote, like all the rest of us. He doesn’t get to run the whole show. Unless we let him. Which we surely will as long as we suffer our monetary mental illness.

If there is no money, how can it be collected?

We finish with our favorite Forensic Economist, Bill Black (from the University of Missouri Kansas City). His analysis is not particularly directed by Modern Monetary Theory, but it’s pretty on the money (heh).

GOP Tax Bill: The Great American Heist

(I)t has exploded, one hopes finally, a bunch of myths and made it clear that Trump exists basically to con and to loot his supposed base in response to his desire to make the incredibly wealthy much wealthier. This bill is a travesty on multiple dimensions. Let’s start with the first one: that is that people hide things for good reasons. They’ve hid this bill. They literally conducted no hearings on this bill. Literally brought in no independent experts, so the only people they listened to were lobbyists for overwhelmingly, the ultra wealthy.

Second, these bills are supposed to go through the joint committee on taxation. The Republicans were critical in creating that committee, have praised it for years, and of course they learned that the Joint Committee was going to say that it was all nonsense, that this bill was actually going to make money for the Federal Treasury and in fact was going to, pick your metaphor, but basically dramatically increase the deficit. The Republicans, and this is in the New York Times as we are taping, went on an attack dog plan to discredit precisely the committee that they had created with independence to prevent this kind of travesty. They not only create the travesty but they want to create future travesties by completely discrediting anyone who might say no to all these things.

Next of course, was the fact that it became let’s make a deal. What they learned from the defeat of all their earlier legislation is “Oh my god, we can’t go back to our wealthy donors unless we actually get something,” so they just bought folks off. They bought them off at the last moment. People have probably seen it. If not, you can go on the net and see all this handwritten language on the printed bill that was to buy senators votes. It turns out that you can buy a US Senator’s votes for somewhere around $30 to $80 million for their donors in return. That’s all areas of insanity.

Then there are things in the tax bill that are outrageous that have nothing to do with taxes. For example, like defining a fetus as an unborn child with the hope that it will lead to overturning Roe vs. Wade. For example, getting rid of the individual mandate under Obamacare. Now, remember it was Republican right wing think tank that came up with the ideas that became Obamacare. I mean, that’s not a conspiracy theory, that’s just outright history. The individual mandate was viewed and conservatives explained, as absolutely essential to make this thing work. They’ve gutted it because they couldn’t get the votes to destroy Obamacare directly. This is going to result after not a terribly long delay in millions of people losing health insurance because they can’t afford them or getting health insurance plans that don’t really ensure you against much of anything because of the exclusions and the deductibles and such.

Outside of tax, it’s insane. Then, within tax we’ve already talked about one of the central insanities, that it’s being sold as if it’s actually going to create net revenue for the Federal government, when it’s going to reduce net revenue. Net of any increase from very modest growth by over $1 trillion according to most anyone. By the way, economists overwhelmingly agree that it will massively increase the deficit, agree that we’ll have only minor effects in terms of growth. You can already see the Republican strategy, and that is going to tell the Democrats to make a series of “Sophie’s Choices.” Which of your social programs do you want to gut because there’s no longer any money for them? They’re going to go after Medicare and Medicaid. All of the safety net programs, plus all the social programs. That’s going on.

Then, who’s going to end up with the vast amount of bucks? Well, there’s no dispute about that. Seriously, among economists, it’s going to go overwhelmingly to the wealthy. That was even before they made the last minute deals. Oh, and have I mentioned, the bill isn’t final yet. It’s going to go to what’s called a conference committee. A conference committee is the most opaque of this completely opaque process, in which the public learns almost nothing but the lobbyists literally sit just outside the door. They go back and forth and so the bill will almost certainly, absent an immense public uproar, get much worse than it already is.

Children’s Health Insurance Program Expire Under GOP Tax Bill

(T)he first comment by Senator Hatch was in the context of the Children’s Health Insurance Program called CHIP, which provided insurance for nine million kids in very poor families. After admitting that it did very good work, of course the obvious question was, “Why had the Republicans allowed the CHIP program to expire?” His answer was, “We have no money.” Now, this is in the direct context of cutting federal revenues by 1.5 trillion dollars.

So, you can see the priorities and you can see then his answer, remember, we’re talking about kids and health insurance, who are really poor, in saying that he’s sick and tired of supporting these folks who won’t work for themselves, all these six year olds and such. A truly revealing comment about where they were coming from and the tactics they’re going to use, the tax bill not only to reward the rich but as their excuse to slam the poorest Americans.

Then, you have Grassley saying contrary to their explanations for the bill that yes, yes, yes, it was designed to aid rich people because rich people are much better than the rest of us. Because rich people, he says, invest their money. Whereas the rest of us, we spend every darn penny on booze, women and movies, which must be news to Hollywood type of thing and probably to the liquor industry.

But I like the concept of women. I don’t know whether these are supposed to be wives and daughters or he recognizes perhaps that women actually work. It’s a completely bizarre statement and it’s terrible economics, but again, it reveals that they wanted to take money from the middle class and the working class and poor people because they view them not putting enough money into the stock market. They want to give it to people who are going to put their money in the stock market.

What happens if you put an extra billion and a half of money in, I’m sorry, trillion, trillion and a half of money into the stock market? Well, of course, you’re going to tend to cause the stock market to surge and who is that going to benefit? Well, of course, the wealthiest tiny portion of Americans, just like it’s done before. That’s the mindset behind all of this and the only surprise is how open they were in revealing that mindset.

I kind of like the last one because it reinforces my position on inflation in luxury goods and the need for confiscatory Taxes on the wealthy.

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