Red Mosquito

Can someone explain this? I don’t understand how this is suppose to work outside a classroom setting.

I will happily explain it in a WebEx for $1499.99.

McParadigm wrote:I will happily explain it in a WebEx for $1499.99.

We usually do this over PM bro

Bi_3 wrote:Can someone explain this? I don’t understand how this is suppose to work outside a classroom setting.

It's pretty much Quantitative Easing no?


Need Money? Just print some.

Electromatic wrote:

Bi_3 wrote:Can someone explain this? I don’t understand how this is suppose to work outside a classroom setting.

It's pretty much Quantitative Easing no?


Need Money? Just print some.

It’s the taxing it out to stop inflation I don’t get.

Bi_3 wrote:

McParadigm wrote:I will happily explain it in a WebEx for $1499.99.

We usually do this over PM bro

Which is why you aren’t able to command a $1,500 speaker fee

McParadigm wrote:

Bi_3 wrote:

McParadigm wrote:I will happily explain it in a WebEx for $1499.99.

We usually do this over PM bro

Which is why you aren’t able to command a $1,500 speaker fee

I meant the part where u pay me to make u look all smarts

Also, how does the money supply shrink in MMT? It’s not like you can just raid bank accounts for trillions.

They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

4/5 wrote:They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

How do they explain Venezuela and Zimbabwe?

Electromatic wrote:

4/5 wrote:They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

How do they explain Venezuela and Zimbabwe?

That’s a good question. I’m not sure but I know for the theory to work the government’s debt has to be denominated in its own currency and foreign debt can be problematic. So that could be part of their answer. More generally their answer to prevent inflation is to raise taxes when an economy reaches full employment (though full employment certainly wasn’t the cause of those hyperinflations). The end game is to remove taxation powers from Congress or elected officials for fear that they wouldn’t raise taxes when necessary.

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4/5 wrote:

Electromatic wrote:

4/5 wrote:They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

How do they explain Venezuela and Zimbabwe?

That’s a good question. I’m not sure but I know for the theory to work the government’s debt has to be denominated in its own currency and foreign debt can be problematic. So that could be part of their answer. More generally their answer to prevent inflation is to raise taxes when an economy reaches full employment (though full employment certainly wasn’t the cause of those hyperinflations). The end game is to remove taxation powers from Congress or elected officials for fear that they wouldn’t raise taxes when necessary.

How would it be possible to tax at the levels that would be needed to pay for universal care or the GND? You couldn’t tax income, there isn’t that much of it. You couldn’t tax wealth because asset prices would plummet and people would move wealth overseas.

Bi_3 wrote:

4/5 wrote:

Electromatic wrote:

4/5 wrote:They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

How do they explain Venezuela and Zimbabwe?

That’s a good question. I’m not sure but I know for the theory to work the government’s debt has to be denominated in its own currency and foreign debt can be problematic. So that could be part of their answer. More generally their answer to prevent inflation is to raise taxes when an economy reaches full employment (though full employment certainly wasn’t the cause of those hyperinflations). The end game is to remove taxation powers from Congress or elected officials for fear that they wouldn’t raise taxes when necessary.

How would it be possible to tax at the levels that would be needed to pay for universal care or the GND? You couldn’t tax income, there isn’t that much of it. You couldn’t tax wealth because asset prices would plummet and people would move wealth overseas.

MMT argues that the government doesn't need to tax or borrow to get money. It has a monopoly on sovereign currency and can therefore print and spend it at will. That's why it has some popularity in leftist circles because universal health care or a jobs guarantee, etc., can be paid for simply by creating the money and spending it. Since the government creates money it doesn't actually borrow money. All money is essentially an IOU to the government and the government can't owe somebody else an IOU to itself so government borrowing and debts and deficits are really just misnomers. Their claim is that the purpose of taxation is not to finance spending, because again the government is the source of money and can therefore create and spend it at will so they aren't reliant on the public for money either in the form of debt or taxes. And since the government is able to tax and can mandate that taxes be paid in the sovereign currency the currency will always have value.

They claim that the government can continue spending as much as it wants until the economy reaches full employment; only then will inflation become a concern. At that point they need to raise taxes, again not to increase revenue, but rather to remove money from the economy. In the real world we typically view this as the job of the Fed. When inflationary pressures are rising they decrease the money supply by selling treasury securities and essentially removing the dollars they receive in exchange for the securities from the money supply. MMT instead views this as the purpose of taxation.

Thanks, it’s the second part where I am getting lost. How does increased taxation halt inflation? lowering the money supply?

4/5 wrote:

Bi_3 wrote:

4/5 wrote:

Electromatic wrote:

4/5 wrote:They say that you raise taxes to decrease the money supply. Basically all money belongs to the government because they create it so they can create and spend as much as they want. Then if inflation picks up they just raise taxes. In this theory taxes aren’t used to pay for spending, they’re used to remove money from society essentially.

How do they explain Venezuela and Zimbabwe?

That’s a good question. I’m not sure but I know for the theory to work the government’s debt has to be denominated in its own currency and foreign debt can be problematic. So that could be part of their answer. More generally their answer to prevent inflation is to raise taxes when an economy reaches full employment (though full employment certainly wasn’t the cause of those hyperinflations). The end game is to remove taxation powers from Congress or elected officials for fear that they wouldn’t raise taxes when necessary.

How would it be possible to tax at the levels that would be needed to pay for universal care or the GND? You couldn’t tax income, there isn’t that much of it. You couldn’t tax wealth because asset prices would plummet and people would move wealth overseas.

MMT argues that the government doesn't need to tax or borrow to get money. It has a monopoly on sovereign currency and can therefore print and spend it at will. That's why it has some popularity in leftist circles because universal health care or a jobs guarantee, etc., can be paid for simply by creating the money and spending it. Since the government creates money it doesn't actually borrow money. All money is essentially an IOU to the government and the government can't owe somebody else an IOU to itself so government borrowing and debts and deficits are really just misnomers. Their claim is that the purpose of taxation is not to finance spending, because again the government is the source of money and can therefore create and spend it at will so they aren't reliant on the public for money either in the form of debt or taxes. And since the government is able to tax and can mandate that taxes be paid in the sovereign currency the currency will always have value.

They claim that the government can continue spending as much as it wants until the economy reaches full employment; only then will inflation become a concern. At that point they need to raise taxes, again not to increase revenue, but rather to remove money from the economy. In the real world we typically view this as the job of the Fed. When inflationary pressures are rising they decrease the money supply by selling treasury securities and essentially removing the dollars they receive in exchange for the securities from the money supply. MMT instead views this as the purpose of taxation.

Thanks for this, 4/5. Seems like they would need a completely closed system for this to work as intended.

Bi_3 wrote:Thanks, it’s the second part where I am getting lost. How does increased taxation halt inflation? lowering the money supply?

I think the easiest way to view it is that the taxes are removing money from circulation according to MMT. So if inflation is too many dollars chasing after too few goods, then by removing some of those excess dollars you can get inflation back under control. When you raise taxes you decrease a person’s disposable income and they have less money to spend, and in the MMT world that will decrease the money supply. Remember that in this view tax revenue isn’t used to finance government spending or borrowing, so the money that is taxed would for all intents and purposes exit the economy. And since this is only supposed to happen when the economy is fully employing its resources this would also be the time where government spending should be less than at other times since it wouldn’t be necessary to spend more to increase output/decrease unemployment.

BurtReynolds wrote:Isn't MMT just an explanation for how government works today?

Yeah, for all the controversy that's slung at MMT, I'm come to see it as just a really boring explanation as to how governments with fiat currency operate: add money via the printing press when its supply is too low in recessions, and then subtract it via taxes when its supply is too high via inflation. It's a very powerful arrangement, yet one that's also delicate, as going too far either way can ruin a country's economy (and there have been plenty of examples in history), but when run properly it just seems like boring modus operandi.

Now, if thodoks still visits this forum I'm sure he can cue up a detailed response saying how all of us are wrong.

4/5 wrote:

Bi_3 wrote:Thanks, it’s the second part where I am getting lost. How does increased taxation halt inflation? lowering the money supply?

I think the easiest way to view it is that the taxes are removing money from circulation according to MMT. So if inflation is too many dollars chasing after too few goods, then by removing some of those excess dollars you can get inflation back under control. When you raise taxes you decrease a person’s disposable income and they have less money to spend, and in the MMT world that will decrease the money supply. Remember that in this view tax revenue isn’t used to finance government spending or borrowing, so the money that is taxed would for all intents and purposes exit the economy. And since this is only supposed to happen when the economy is fully employing its resources this would also be the time where government spending should be less than at other times since it wouldn’t be necessary to spend more to increase output/decrease unemployment.

Ah. This is what I was missing. Thank you.

Still seems like the existence of global trade would wreck the concept, but I’m sure the krugmans of the world have explained that as well.

Green Habit wrote:

BurtReynolds wrote:Isn't MMT just an explanation for how government works today?

Yeah, for all the controversy that's slung at MMT, I'm come to see it as just a really boring explanation as to how governments with fiat currency operate: add money via the printing press when its supply is too low in recessions, and then subtract it via taxes when its supply is too high via inflation. It's a very powerful arrangement, yet one that's also delicate, as going too far either way can ruin a country's economy (and there have been plenty of examples in history), but when run properly it just seems like boring modus operandi.

I think that minimizes the differences and potential for catastrophic outcomes inherent in MMT. What you described is Keynesianism which has been politically dominant for a long time. I think MMT obviously has similarities in advocating for an active government role but I think it goes well beyond the above.

Keyensians suggest what you mentioned: stimulating or contracting the economy when it experiences a recessionary or inflationary gap. MMT argues that the reason that an economy experiences a recession in the first place is specifically because the government isn't spending enough as opposed to Keynesians who argue that when there is a recession the government should increase spending/cut taxes to increase output. I admit that those two perspectives are similar, but I think MMT makes a very important shift from government having a role to support or fix to having the main role in driving an economy. MMT is attempting to provide intellectual cover for a dramatically more expansive government role in the economy than Keynesianism.