Philip Pilkington: Taxation, Government Spending, the National Debt and MMT

[Dovahkiin]

A very interesting read. Should taxes really be focused on revenue generation?
Taxation, Government Spending, the National Debt and MMT

Basically Ruml is making the same case that the Modern Monetary Theorists (MMTers) make: a country that issues its own sovereign currency and is unconstrained by a gold standard does not require tax revenue in order to fund spending. This is because the central bank always stands by ready and able to buy any sovereign debt issued that might lead to the interest rate rising. Indeed, it does this automatically in the way that it conducts its interest rate policy. Ruml then outlines what taxation is really for in such a country.

So, what was it about this moment in history that allowed for such a clear-eyed view of government spending and taxation policies? The answer is simple: the war. World War II allowed economists, bankers and government officials to see clearly how the macroeconomy worked because the government was basically controlling the economy. World War II was perhaps the only time in history when capitalist economies were run on truly Keynesian principles. (You can make a case that the Nazi economy in the 1930s was also run on these principles, however, so perhaps it is better to say: a capitalist economy in a democratic state).

This meant that those working in government institutions and banks could see exactly what was happening and why it was happening. Because the central banks were exercising full control over the market for government debt and because the governments were running massive fiscal deficits it became crystal clear what the taxation system was really doing: first and foremost it was suppressing aggregate demand for goods and services in certain parts of the economy. In doing so it had two broad functions: an anti-inflation function and a redistribution function.

The experience of the war, I would argue, was the main reason why the neo-Keynesian economists in the US actually understood macroeconomic policy in a clear-sighted way. I do not believe that their theories would have allowed them to properly understand the economy. But their experiences in the war — from reading the daily newspapers to working in economic institutions — left a lasting impression that allowed them to properly understand the macroeconomic policy tools in the 1950s and 1960s. The textbooks that they were teaching said one thing but their experiences in the war told them another. (An exception to this might be James Tobin whose theoretical writings do reflect some of the war experiences).

When the younger generation came of age in the 1970s the mainstream economic theory ensured that they had absolutely no idea what they were talking about. They only had what they were being taught in the classroom and did not have the real-world experience that the older generation had. Everything went downhill from there and that, I think, is where the seeds were sown for the economic turmoil and confusion we live with today. It is also the key reason why the economists of the next generation must be taught in an entirely different way from the previous generation.

 

[EdwardBaiamonte]

A very interesting read. Should taxes really be focused on revenue generation?
Taxation, Government Spending, the National Debt and MMT

Basically Ruml is making the same case that the Modern Monetary Theorists (MMTers) make: a country that issues its own sovereign currency and is unconstrained by a gold standard does not require tax revenue in order to fund spending. This is because the central bank always stands by ready and able to buy any sovereign debt issued that might lead to the interest rate rising. Indeed, it does this automatically in the way that it conducts its interest rate policy. Ruml then outlines what taxation is really for in such a country.

So, what was it about this moment in history that allowed for such a clear-eyed view of government spending and taxation policies? The answer is simple: the war. World War II allowed economists, bankers and government officials to see clearly how the macroeconomy worked because the government was basically controlling the economy. World War II was perhaps the only time in history when capitalist economies were run on truly Keynesian principles. (You can make a case that the Nazi economy in the 1930s was also run on these principles, however, so perhaps it is better to say: a capitalist economy in a democratic state).

This meant that those working in government institutions and banks could see exactly what was happening and why it was happening. Because the central banks were exercising full control over the market for government debt and because the governments were running massive fiscal deficits it became crystal clear what the taxation system was really doing: first and foremost it was suppressing aggregate demand for goods and services in certain parts of the economy. In doing so it had two broad functions: an anti-inflation function and a redistribution function.

The experience of the war, I would argue, was the main reason why the neo-Keynesian economists in the US actually understood macroeconomic policy in a clear-sighted way. I do not believe that their theories would have allowed them to properly understand the economy. But their experiences in the war — from reading the daily newspapers to working in economic institutions — left a lasting impression that allowed them to properly understand the macroeconomic policy tools in the 1950s and 1960s. The textbooks that they were teaching said one thing but their experiences in the war told them another. (An exception to this might be James Tobin whose theoretical writings do reflect some of the war experiences).

When the younger generation came of age in the 1970s the mainstream economic theory ensured that they had absolutely no idea what they were talking about. They only had what they were being taught in the classroom and did not have the real-world experience that the older generation had. Everything went downhill from there and that, I think, is where the seeds were sown for the economic turmoil and confusion we live with today. It is also the key reason why the economists of the next generation must be taught in an entirely different way from the previous generation.

do you have any idea what your point is??

 

[Dovahkiin]

A very interesting read. Should taxes really be focused on revenue generation?
Taxation, Government Spending, the National Debt and MMT

Basically Ruml is making the same case that the Modern Monetary Theorists (MMTers) make: a country that issues its own sovereign currency and is unconstrained by a gold standard does not require tax revenue in order to fund spending. This is because the central bank always stands by ready and able to buy any sovereign debt issued that might lead to the interest rate rising. Indeed, it does this automatically in the way that it conducts its interest rate policy. Ruml then outlines what taxation is really for in such a country.

So, what was it about this moment in history that allowed for such a clear-eyed view of government spending and taxation policies? The answer is simple: the war. World War II allowed economists, bankers and government officials to see clearly how the macroeconomy worked because the government was basically controlling the economy. World War II was perhaps the only time in history when capitalist economies were run on truly Keynesian principles. (You can make a case that the Nazi economy in the 1930s was also run on these principles, however, so perhaps it is better to say: a capitalist economy in a democratic state).

This meant that those working in government institutions and banks could see exactly what was happening and why it was happening. Because the central banks were exercising full control over the market for government debt and because the governments were running massive fiscal deficits it became crystal clear what the taxation system was really doing: first and foremost it was suppressing aggregate demand for goods and services in certain parts of the economy. In doing so it had two broad functions: an anti-inflation function and a redistribution function.

The experience of the war, I would argue, was the main reason why the neo-Keynesian economists in the US actually understood macroeconomic policy in a clear-sighted way. I do not believe that their theories would have allowed them to properly understand the economy. But their experiences in the war — from reading the daily newspapers to working in economic institutions — left a lasting impression that allowed them to properly understand the macroeconomic policy tools in the 1950s and 1960s. The textbooks that they were teaching said one thing but their experiences in the war told them another. (An exception to this might be James Tobin whose theoretical writings do reflect some of the war experiences).

When the younger generation came of age in the 1970s the mainstream economic theory ensured that they had absolutely no idea what they were talking about. They only had what they were being taught in the classroom and did not have the real-world experience that the older generation had. Everything went downhill from there and that, I think, is where the seeds were sown for the economic turmoil and confusion we live with today. It is also the key reason why the economists of the next generation must be taught in an entirely different way from the previous generation.

do you have any idea what your point is??

My point is this: Taxes should not be focused on revenue generation.

 

[EdwardBaiamonte]

My point is this: Taxes should not be focused on revenue generation.

why not?

 

[Zander]

MMT is the crackpot monetary theory du juor.

 

[EdwardBaiamonte]

MMT is the crackpot monetary theory du juor.

also, perhaps the greatest lie in liberal economics is that spending on WW2 ended the Depression. If so we could build WW2 era bombers today by the 1000's and dump them into the sea. Its a joke that only liberals could be dumb enough to buy into.

 

[Zander]

MMT is the crackpot monetary theory du juor.

also, perhaps the greatest lie in liberal economics is that spending on WW2 ended the Depression. If so we could build WW2 era bombers today by the 1000's and dump them into the sea. Its a joke that only liberals could be dumb enough to buy into.

Don't give the neo-keynesians any ideas!!

 

[Dovahkiin]

MMT is the crackpot monetary theory du juor.

You fail to show why.

 

[Zander]

MMT is the crackpot monetary theory du juor.

You fail to show why.

I admit, at first glance MMT sound appealing. They are right when they say the government is self-funding. They are also right when they say the government can never “run out of money.”

But contrary to what MMT argues, deficits still matter, even though US government cannot technically default.

Just because they cannot technically default does not mean they won't DE FACTO default,. It also does not preclude degradation by incremental degrees, as investors change their asset allocations over time. If the US dollar becomes undesirable, if deficits become too large, investors will abandon it for gold, silver, other currencies, etc...

 

[Dovahkiin]

MMT is the crackpot monetary theory du juor.

You fail to show why.

I admit, at first glance MMT sound appealing. They are right when they say the government is self-funding. They are also right when they say the government can never “run out of money.”

But contrary to what MMT argues, deficits still matter, even though US government cannot technically default.

Just because they cannot technically default does not mean they won't DE FACTO default,. It also does not preclude degradation by incremental degrees, as investors change their asset allocations over time. If the US dollar becomes undesirable, if deficits become too large, investors will abandon it for gold, silver, other currencies, etc...

Dude, no one who advocates MMT that I'm aware of says deficits do not matter. What MMT advocates do say is that deficits are necessary right now. You do know tax cuts add to the deficit? Tax cuts benefit the private sector, and deficits help make sure the private sector doesn't take on debt they can't handle. (Think the Clinton surplus.) Investors are never going to abandon the dollar, and your fear mongering over large deficits has never occurred. We have seen recessions happen when we attempt to cut the debt or drastically reduce deficits though. Let me take one thing clear: investors can't just "leave the dollar." Not in this country. Not when the dollar is dominant. You lack an understanding of MMT, which doesn't surprise me. No one who pushed MMT says we need to run deficits that get larger every year.

 

[EdwardBaiamonte]

MMT is the crackpot monetary theory du juor.

You fail to show why.

MMT is stupid liberal economics. It assumes the govt can play with money and help the economy. In fact, we got from the stone age to here because people invented new stuff, not because govt played with money. Do you understand?

 

[EdwardBaiamonte]

What MMT advocates do say is that deficits are necessary right now.

why would deficits ever be necessary????

 

[Dovahkiin]

MMT is the crackpot monetary theory du juor.

You fail to show why.

MMT is stupid liberal economics. It assumes the govt can play with money and help the economy. In fact, we got from the stone age to here because people invented new stuff, not because govt played with money. Do you understand?

The govt has been "playing with money" and directly helps the economy every single day. The private sector as we know it would fail to exist without the government. Look, we live in a fiat regime and the govt puts dollars into the private sector, creating demand for dollars with taxes. The govt has, and does, encourage new things. Think NASA.

 

[EdwardBaiamonte]

The govt has been "playing with money" and directly helps the economy every single day. .

how is that possible??

 

[Dovahkiin]

What MMT advocates do say is that deficits are necessary right now.

why would deficits ever be necessary????

This is pretty basic stuff. A deficit is simply how dollars get added to the economy. A deficit helps the private sector, and us, because it shows that the govt is spending more then it's taxing, and this spending goes to the private sector. A surplus causes the private sector to go into debt and start playing with credit, this led to a recession.

 

[Dovahkiin]

The govt has been "playing with money" and directly helps the economy every single day. .

how is that possible??

Err, deficit spending is one example. Taxes can help to reduce aggregate demand. The govt adds dollars when they're needed..

 

[EdwardBaiamonte]

. A deficit is simply how dollars get added to the economy. .

of course thats wrong, money is added from the fed only!!

 

[EdwardBaiamonte]

Err, deficit spending is one example..

how does deficit spending help rather than hurt economy???

 

[EdwardBaiamonte]

Taxes can help to reduce aggregate demand. ..

thats moronic it is not the govts business to manipulate how much we demand to buy stuff. This is a free country

 

[Dovahkiin]

. A deficit is simply how dollars get added to the economy. .

of course thats wrong, money is added from the fed only!!

You really have no idea what you're talking about. Spending is how dollars get added to the economy. You refer to the reserves at the fed as creating "money." Sure, and how does that go against what I've said?