Progressives, Money and Taxes:
If I were a better writer, I'd write an ongoing series called something like: "What Progressives Need to Know About Money". Unfortunately, I'm not a very good writer and am sort of lazy to boot.
However, it pains me everyday to see progressives continuously falling into the neoliberal/austerian trap of either asking how stuff might get paid for or merely assuming that in order to have nice social stuff we have to tax someone, hopefully the wealthy.
First, quite simply, everything under the sun gets paid for in only 1 of 3 possible ways: Government spending (by creating money out of thin air), private bank lending (by creating deposits out of thin air) or by running large foreign trade surpluses - large enough to fund both the governments' expenses as well as the domestic private sectors' expenses.
Leaving aside large trade surpluses, which we are committed to never running....
Everything gets paid for either by government spending or private bank lending.
For a country that creates its' own currency, taxes do not fund the sovereign currency issuer. Rather, the currency issuer funds our ability to pay taxes by issuing the currency with which we pay taxes.
We do not issue our national currency when we pay taxes.
Further, the money with which we invest in treasury bonds also comes from government spending.
A sovereign currency issuer is the monopoly supplier of the currency.
Currency users use the currency to buy stuff, pay off private bank debt, pay taxes, and if we're lucky to have enough government issued dollars, we can invest in a treasury bond and earn interest (more government created dollars).
Our money supply is made up of 2 things: Government created currency and private bank created credit/debt.
Our money supply is not made up of taxes. Rather, we pay our taxes using our money supply, in particular, we use our government created money to pay our taxes as taxes are always paid for using government created money, never private bank created credit/debt.
We could have all kinds of nice social goods without taxing the rich one penny. Progressive taxation is good for lots of other things, but it never funds the government because government is self funding because it itself simply creates dollars by entering numbers on a computer key board to mark up private bank accounts.
Fearing that government might run out of the ability to make computer entries is like fearing you might run out of the ability to respond to this blog entry, or that the bowling alley might run out of the ability to issue more points to the bowlers.
Can't happen, won't happen.
I really don't think progressives will win the public debate unless all progressives gain a basic understanding of our monetary system and stop falling into the "How will government pay for X?" trap.
Government pays for everything it funds by simply creating dollars out of thin air. Always. Everywhere. For everything.
"But Zimbabwe!!!!"
That's what taxes are for. In a country that creates its' own currency, taxes regulate inflationary pressures by removing excess dollars from circulation.
If inflation is a concern, then we probably want to find those excess, inflation causing, dollars and remove them. Not everyone has excess, inflation, causing dollars. Only some people do, in varying degrees.
Thus, progressive taxation is only logical if you want to maintain price stability, and has nothing to do with the rich supporting the sloth, or government stealing from the rich to give to the poor, or with bleeding heart liberals, or communism, socialism, or the envious poor, etc....
Here's a few resources to learn more:
Videos:
ttps://www.youtube.com/watch?v=d57M6ATPZIE
https://www.youtube.com/watch?v=Ae7PO-j7TIc
Blogs:
originofspecious
3spoken
Centre of the Universe
Bill Mitchell
Steve Keen’s Debtwatch
alittleecon
neweconomicperspectives
Michael Hudson
Crooked Timber
Bond Economics
Mike Norman Economics
Comments
It certainly explains why the US doesn't have...
...hyperinflation every time we need to create trillions of dollars to bail out Wall Street's bad behavior or invade and bomb the living shit out of some far away country filled with brown people....
I want my two dollars!
Indeed.....
Government created money makes up only 3% for our money supply, 12% if you include treasury bonds as cash with a future face value that pays interest now.
In a fiat monetary system, governments spend bonds and cash, where bonds are like cash with a future face value that pay interest now : )
The rest of our money supply is made up of private bank credit/debt. No one seems very concerned about that.
As though cash registers know the difference between government created money and private bank created credit, and thus create inflation only when governments create money rather than private banks - or something.
When progressives fall into the "but inflation!" trap, all they're really doing is conceding to the right to have folks quake in their boots over the horrible specter of wage price inflation, while doing nothing from discouraging folks from looking forward to asset price inflation, especially in housing and stocks. We all hope our houses and stocks go up in value, if we're lucky enough to "own" a home or are invested in stocks.
By falling into the "government spending might lead to inflation" - while ignoring the fact that any spending, including spending private bank created credit can lead to inflation - progressives help to perpetuate the focus on government spending as something to watch out for while ignoring banks.
It's a mess.
I really wish Sanders had simply answered the question of where he'd find the money to pay for his programs by answering: The same place the government finds the money to fight wars: By creating the money. That's what national currencies are for - to fund those things we decide are in our national interest to fund.
Gotta say Jill has done a better job of this.
Politically, Sanders would have to be able to
give some way to "pay for" things. While printing money IS in essence how that is done, telling most people that in a political forum could be deadly - making him look merely naïve. While you know that isn't naïve and IS true, most people do not understand that. I am an accountant and I'm going to have to read your links and your diary again to fully grasp it myself.
Not trying to criticize your post or diary at all, just saying that in our TV addicted culture, telling the national electorate you're going to merely print the money to pay for things won't get many converts. Just look at how they claim we merely want "free stuff" without really taking into account that no one is talking about "free stuff" but actually paid for stuff. Good for Stein in trying to explain it, it needs to be.
Only a fool lets someone else tell him who his enemy is. Assata Shakur
When Sanders began his run, I thought
the same as you.
I changed my mind only after he ended his run - or rather, once it became apparent that he was at the end. Prior to that, I thought he couldn't afford to come across as a wacko : )
I've since changed my mind in a way.
I think most people now both know and don't know we simply "print" money. They know this, but then the world around us keep talking as though we issue our national currency when we pay taxes, or that we must borrow dollars from China - who of course, does not create dollars, but rather creates it's own currency, the Yen.
Your an accountant?
Then I'd highly encourage you to check out my links, as most of the economists use national accounting to ground their economic ideas.
Like:
Public Sector -1 = Private Sector +1
Public Sector +1 = Private Sector -1
Public Sector 0 = Private Sector 0
Public Sector -2 = (Domestic Private Sector +1) - (Foreign Sector +1)
A public sector surplus while running a foreign trade deficit:
Public Sector +1 = (Domestic Private Sector -2) - (Foreign Sector +1)
That was the Bill Clinton economy : (
Anyway, as an accountant you'll catch on to the economists I've provided link to far faster than I did.
Difficult and painful to see that as anti-inflationary.
But most of us on fixed elder incomes can attest that there have been inflationary pressures. Ouch.
Hey! my dear friends or soon-to-be's, JtC could use the donations to keep this site functioning for those of us who can still see the life preserver or flotsam in the water.
You need a raise.
While there has certainly been inflation, inflation needs to be met with increased incomes.
There's a big difference between normal inflation and hyperinflation.
I'll take normal inflation over depressions any day. Just have to make sure incomes keep up with normal levels of inflation.
I know, easier said than done politically. But that's in no small part due to the fact that voters seem to fear inflation more than they fear depressions, and so fight to prevent governments from spending enough to keep up with normal levels of inflation, mostly caused by private bank created credit rather than government spending, plus the dominance of corporations, etc....
good thread, katie ...
... and I hope you find time for more. I also need to go back and digest all of gjohnsit's work. I like playing armchair economist, it's fascinating stuff.
You two could be the anti-zerohedgies.
The anti-zerohedgies : )
I like it.
Thanks for the compliment.
All we need to know
about money we can learn from the bunny... The Bunny's Guide to Money
the little things you can do are more valuable than the giant things you can't! - @thanatokephaloides. On Twitter @wink1radio. (-2.1) All about building progressive media.
How money comes into being is good to know but Keen, et al
don't seem to address the political economy: The power big capital wields over the government; why multinational corporations rely on nations' military(first and foremost the USA's); and how labor, even though tiered, is exploited and the product of their work is transferred to the owners of capital.
If all it took were to correctly understand where money comes from since its divorce from gold, then we'd be closer to a just international society where rights are both universal and respected. I'd like to see an explanation of why monopoly capital benefits from the coup in Honduras and listing Venezuela as an existential threat to the USA, as Obama repeatedly claims.
I realize Keen has a better grasp on the monetary situation than Hayak/Friedman, but I have not seen him address the imperialism that global capital demands to stay afloat.
That out of the way, thanks for the diary because it's both inherently interesting and there are some unfamiliar sources for me.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Strongly disagree:
Keen, among others, have addressed power relations at length. Maybe not as much as those focused on politics as opposed to economics, but then again Keen and others also say things like:
"All economics is politics. Economics is not a science like physics. All economy is political economy. And thus institutions and the distribution of power is always both present and important, and can never be overlooked by economists".
It's at the core of their critique of mainstream economics.
Again, they may not elaborate to your satisfaction, being economists rather than political scientists, but the proposition that all economics is political economy, ie, is politics, is at the core of their thinking.
I also think this group of economists aren't writing enough about how to address climate change and rapid ecological collapse. But they have all written about it to some small degree. So, my critique is: "These economists need to write more about how to address climate".
My critique is not, nor should be: "These economists ignore climate change".
They haven't ignored. Just haven't written enough.
Likewise, Keen and others do indeed address imperialism, etc.... Maybe they should do so more often.... ; )
Thanks for taking the time and effort to educate me on Keen's
output. Your synopsis makes me want to look closely at his work and his critique of the neoclassicists. If he says "all economy is political economy" then that puts him ahead of the academic Keynesianists in my view.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
The New and Neo Keynesians are not
the Post Keynsians
Most Post Keyensians are also institutionalists to some degree or another: They all realize that economics and power are intimately connected, and that the study of human economic behavior can never be a simple physics.
Academic followers of Keynes find it difficult to admit that
the stage of capitalism we are living in, and have lived in for 50 years, has as its main feature secular stagnation - slow growth to them(but not secular). Seldom do I see mention of the havoc wreaked upon the planet by industrial agriculture and the hardships premature deaths visited upon traditional farmers of small acreages that practice sustainable farming.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Mainstream economics is a mess in so many
ways.
Here's Modern Monetary economist Bill Mitchell talking about all sorts of political/economic issues - it's a long series of posts -, including things like the enclosure of land in Africa, meant only to support foreign corporations to land grab by insuring "property rights", and the ill effects this has had on the health of the average African:
http://bilbo.economicoutlook.net/blog/?p=34107
I am beginning to see where our views mesh. The USA has
a military presence in most of the countries of sub-Saharan Africa and they are not there building hospitals and schools.
Global corporations want to exploit the land and the labor and turn these countries into food insecure nations whereas now, they are mostly food secure. Huge plantation style monoculture farms growing for-export crops is what monopoly capital wants and as people are thrown off their ancestral lands, they have no choice but to become seasonal farm labor.
Crops are not the only thing exported: The value added by the land and the people is also exported to the global north as many local people become impoverished. Also exported is the fertile soil which produces the crop(s) which has been built up by sustainable agriculture, but will be degraded under this imposed system.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Indeed.
The main reason I like a bunch of the Post Keynesians - especially some of the Modern Monetary Theory folk - is their interest in politics, including things like imperialism, food security/insecurity, etc....
While I'd love to see some of them focus even more on these issues - they all recognize that these issues are important, and important for economists to consider.
You'd like Bill Mitchells' series he's begun. He's one smart, good, egg, and is not into pulling his punches.
Then, of course, there's Michael Hudson, of "Super Imperialism" fame. Obviously, he has not ignored imperialism : )
Some of the Modern Monetary folk have concentrated on things like monetary operations, and haven't talked much about politics. But hey, not everyone can talk about everything. And getting the monetary operations right is a worthy goal.
Now that Modern Monetary Theorys' description of the operations are being accepted by more and more economists - something that has happened only over the last several years - I'm seeing more and more of MMTers turn their attention to broader issues.
Still, the average person committed to "progressive" or "leftist" politics absolutely needs a basic understanding of our monetary system. Without it, they keep saying: "Foot, meet my bullet".
You can't get a progressive/leftist agenda while adopting neoclassical/neoliberal economic assumptions - especially the assumption that a monetarily sovereign government can run out of money.
Just won't work.
Also can't think inflation is everywhere simply a matter of too much government spending.
Gotta realize that:
1) A monetarily sovereign government can always afford anything for sale denominated in it's own unit of account because it creates it's own unit of account out of thin air.
And 2) Inflation has many causes, but as long as governments don't spend past the point of full employment, then government spending in itself will not lead to inflation.
Yes, very good; very good for sure. I am looking forward to
reading Mitchell & Hudson because from what you say, they can draw on the full range of economic theory and how intertwined Big Capital is with Big Government, especially its military/intelligence wing.
"The justness of individual land right is not justifiable to those to whom the land by right of first claim collectively belonged"
Not a Chicago school economist?
That line of schooling is mean.
Hey! my dear friends or soon-to-be's, JtC could use the donations to keep this site functioning for those of us who can still see the life preserver or flotsam in the water.
Haven't read the Bunny Guide, can't get
through all the pretend bunny stuff. But the bunny does have a decent understanding of our monetary system. The bunny, however, has sort of gone off the deep end in attacking Sanders, not critiquing, but attacking. It's been surprising to me.
While I think everyone should be open to critique, emotional attacks just leave me depressed. It seems the age of reason is dead and now we only have room for the age of emotion.
At any rate, most of the blogs I pointed to are run by folks who seem relatively committed to the age of reason, an attribute I consider just as important as correct national accounting.
The exception being Mike Norman Economics - Mike often gets emotional, sometimes in a sexist sort of way, sometimes simply in his reply to his colleagues.
I have come to especially like origins of specious blog and 3spoken (though the blogs' owner is often to the right of my own thinking).
As far as short books, I like Diagrams and Dollars (though I think he fudges in a place or two).
s://www.amazon.com/DIAGRAMS-DOLLARS-Modern-Money-Illustrated-ebook/dp/B00HUF...
If only I could create a paycheck out of thin air
If only I could create a paycheck out of thin air, or borrow money at a negative interest rate, or print money in my basement...
"We've done the impossible, and that makes us mighty."
Well, you can print money in your....
basement. The trick is getting others to accept it : )
The critique of governments' ability to create money makes no sense to me. It's the main reason we create governments. This and to write laws.
Monetarily sovereign governments are just banks that write laws.
As far as private banks are concerned, the beauty of understanding how governments and banks create money is that most would conclude that private banks are really agents of governments, and thus should be regulated as such. Including, perhaps, governments telling banks what they can do - rather than our current system of telling banks what they can not do.
Private banks, being agents of governments, should serve public purpose, not simply private ones.
At any rate, you indeed can create money in your basement. I, however, do not need to accept it in exchange for my corn. I accept government denominated money because there's a good chance others will too, especially since government has the ability to impose a tax obligation payable in its' own denomination, which means folks will work for government created money.
Your money?
What's the incentive for me to accept it?
None.
Don't like the idea of a national currency?
What's your solution?
......
Great Essay!
I've been very interested in this public vs private money for a long time -- since I came across your posts on dKos about a year ago, I've been really trying to tie it together with some solid framing. It's not gone so well.
"You can have debt for houses, credit cards, or bank loans or you can have debt for bridges, roads, and renewable energy."
That's about all I got, and it's largely because I don't understand the mechanics enough to get specific. This piece helps, but I'm still struggling trying to tie things together.
We should have a framing discussion here. I believe that this subject could be a big winner.
“Tactics without strategy is the noise before defeat.” ~ Sun Tzu
I'll try to write more soon. Maybe even today : )