Comment by pfannkuchen

Comment by pfannkuchen 10 months ago

I’m stuck engaging with your reply because as far as I can tell the statement quoted below is objectively and trivially incorrect. Can you help me understand your way of thinking about this?

“It’s also worth remembering that tax is simply a way of destroying the tokens of resource allocation (money)”

The government does not destroy money collected from taxes. It uses the money to pay for stuff, at which point the money is back in the regular economy and much of it ends up in back in assets, just owned by a different person than the one who was taxed.

How does taxation destroy money?

lifeisstillgood 10 months ago

Oh man - Modern Monetary Theory is about to blow your mind.

Do do some looking around on YouTube - there is plenty. Try Richard Murphy above but plenty of others

Ok so my laypersons take:

A government can print as much money as it likes - infinite money. (That infinite part is obv a bad idea but roll with it)

This government can then print that money and buy things it wants - like doctors and nurses and teachers and road sweepers and building contractors.

Now for thought purposes - imagine each month the government prints a new colour of dollar bills, or serial or whatever.

But then those nurses pay their landlords and their grocers and the money goes up the wealth tree till it reaches billionaires on yachts. And billionaires on yachts don’t buy nurses or teachers - they buy yacht captains and pay off sexual assault charges.

The government has to keep buying nurses so they print even more money because they want nurses and road construction workers and the money they printed last month is now being used to pay a yacht Captain.

So the government prints more money.

If this goes on then obviously all the money leaves doctors and construction workers and goes to billionaires- but worse the money becomes worthless because so much has been printed

So destroy the money you printed in the first month - you can just take the colour printed in the first month and burn the dollar notes of that color. That is taxation.

It’s not the government that takes “blue” notes from citizens and then spends it on nurses. They print the blue notes first (because where else did the blue notes come from? You and I don’t print notes) spend them and then take it back in tax later.

Honestly it makes sense once you try it out in your head a few times.

Build a simple model of an economy with like one factory and no cash - see what happens.

Have fun.

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lifeisstillgood 10 months ago

Just in case it’s not clear - printing too much money means creating inflation - which wrecks economies. But the solution is fairly simple - destroy the money once it has served the purpose of the government by directing actual real resources (people) towards the jobs the government wants done
Of course this all supposed governments are sensibly allocating resources towards positive goals (but as these are usually education, pensions, health, defence etc then yeah mostly most democracies do this cos that’s what makes voters happier)
https://www.cambridge.org/core/journals/social-policy-and-so...

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- pfannkuchen 10 months ago
  
  I’ve so far regarded MMT as Keynesian but “now with even more very-convenient-for-the-government conclusions!”, but honestly I haven’t read up on it in detail. I will check it out, thanks.
  EDIT Wait, haven’t we just reversed the order? If you tax a person the same amount as the government printed, and someone ended up with the printed money, then for the purpose of this topic it’s equivalent to taxing first and just spending the money. So it has the same problem.
  The only difference is that the taxation is decoupled from the printing, so the government doesn’t need any special permission from congress to spend. But from an asset ownership perspective the effect is the same, no?
  
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  lifeisstillgood 10 months ago
  
  Oh MMT is a new wrapper around the very basic old ideas. There is research on some pre-revolutionary US states that print their own money and raise the tax to be paid in the printed money at the same time. Inunderstand Dr Johnson commented on it.
  Anyway. Yes I guess the order is reversed - print the money first, give it to people to get them to do whatever the government wants (build walls, roads etc), then find whomever the money has gone to and tax them.
  I found this an interesting way of looking at money, when I Was thinking about the Oppenheimer movie
  Take a hundred dollar bill, and think of that not as money, but as an instruction to the person you give it to, say a builder To do a job for you, maybe build a hut for a nuclear scientist to live in.
  Now write on a plain piece of paper “We are your government, we are at war and we need a hut built. You are going to build it”
  What’s the difference between the two pieces of paper?
  Asset ownership is a legal system. My ownership of my house is a legal situation. My mortgage is a (tradeable) obligation between me and my bank manager
  Other points: you cannot tax first - imagine a starting situation. No dollar bills have been printed so how do you get tax paid in dollars?
  And the government prints more than it taxes so there is “liquidity” - there has to be be extra dollar bills floating around so we can pay hairdressers etc (I mean you could in theory tax the lot but that would mean perfect understanding of the velocity of money through the economy - maybe with fiat crypto?)
  But in the main asset ownership is decoupled from money - you own your house and car and stocks but you don’t own money - you owe the bank or the bank owes you but money is zero sum, even if wealth is not
  
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