Winston Gee, “Debt, Deficits, and Modern Monetary Theory, An Interview with Bill Mitchell,” October 16, 2011.Required reading!
Monday, October 17, 2011
Bill Mitchell on MMT
Professor Bill Mitchell has been interviewed by the Harvard International Review in an online interview here:
Posted by Lord Keynes at 8:29 AM
Labels: Bill Mitchell, MMT
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I'm still agnostic on MMT overall. Whilst the idea that governments can simply print instead of issuing bonds makes a lot of sense, some MMTers say weird things like taxes should just be 1p and the government can print the rest.ReplyDelete
Surely increasing taxes *is* an option for raising revenue once the government reaches its inflation constraint?
"Surely increasing taxes *is* an option for raising revenue once the government reaches its inflation constraint? "ReplyDelete
Not for raising revenue, but to control inflation by decreasing demand.
According to MMT, taxes function to
(1) regulate aggregate demand
(2) free up real resources for the government to purchase or for people whom government employs (or provides transfer payments to) to purchase/consume
(3) address moral issues like gross inequality of wealth.
Also, bond issues by the central bank would still be required to control interest rates (that is, in any environment where the base rate is not a ZIRP or very low):
The way the central bank can maintain control of its target interest rate is to manage that liquidity that’s embodied in these reserves. So if the central bank perceives that the banks consider their reserves to be excessive on any particular day, it drains those reserves out of the system by offering an interest-bearing asset in the form of a government bond. The role of government bonds, then, is to provide the central bank with the capacity to ensure that there is no competitive pressure on the target interest rate. So you can see that the function of government bonds is something quite other than to lend the government money."
LK, I wonder how can taxes decrease aggregate demand? Say you tax 10%, so people have 10% less money, so prices drop by 10%. Aggregate demand stays same. Even when government spends the tax money the demand (and prices) all the more stays same. Obviously tax hike can decrease price inflation (if such was created by printing money first), provided government spending does not increase accordingly, but I think you erroneously say that taxes can decrease demand.ReplyDelete
Also, what does that mean that taxes "free up" real resources for government consumption? Is that an euphemism for government appropriation? But government spending is all government needs to appropriate real resources, it doesn't need no taxes, it can just print.
"Say you tax 10%, so people have 10% less money, so prices drop by 10%. Aggregate demand stays sameSay you tax 10%, so people have 10% less money, so prices drop by 10%. Aggregate demand stays same"ReplyDelete
This is fairy tale, fantasy world of instantaneous or quickly adjusting wages and prices. We don't live in such a world.
"even when government spends the tax money the demand (and prices) all the more stays same."
First, see answer above on prices. Aggregate demand from the private sector will decrease if taxes are raised, government may well spend the money. But isn't that precisely what I said above?
"Also, what does that mean that taxes "free up" real resources for government consumption? Is that an euphemism for government appropriation?"
By what moral theory do you declare government spending mere "appropriation"?
I and the whole large community of taxpayers agree with the spending decisions of the government. There is no "appropriation" going on.
I and a majority of the community of taxpayers agree with most of the spending decisions of the government. Even where we object to some spending programs, this is because we think there are better uses for money, not because we think taxes are theft.
It is only a minority of people who regard taxes as theft. By any number of moral theories (Rawls' ethics, utilitarianism, etc), their loss of purchasing power through taxes to free up resources is justified given the good that is done by government spending programs (universal health care, pensions, education etc.). At this point, the whole "taxes is theft!" argument just reduces to an argument for philosophy of ethics, not economics.
LK, no of course I do not mean instantenous adjusting prices, but I see you mean instantaneous adjusting government spending. Also by aggregate demand decrease you seem to mean the temporary private demand decrease which happens before the prices drop. At that point you envisage the government to step in and consume more accordingly before the prices actually drop. So basically what you are saying is that taxes, combined with increased government spending, serve to decrease private demand, nothing ingenious really. But taxes are still just circumstantial, it's government spending that does the trick, with or w/o taxes. Taxes merely prevent price inflation if government just printed instead.ReplyDelete
Now if taxpayers agree with all spending decisions of the government, then they are not taxpayers but voluntary contributors. I'm not sure why you even consider a world where taxpayers agree with all the spending decisions of the government. It contradicts the very concept of a taxpayer, so no wonder I have never even met a single person like that, that's quite a fairy tale, fantasy world if there is one.
"Also by aggregate demand decrease you seem to mean the temporary private demand decrease which happens before the prices drop."
The assumption that prices would fall is itself highly questionable, if not outright nonsense, which was my original point above.
"Now if taxpayers agree with all spending decisions of the government, then they are not taxpayers but voluntary contributors."
Rubbish. They would still pay taxes. They would be "taxpayers by the simple and ordinary definition of that term in the English language.
I'm seeing prices falling all over the place, even w/o higher taxes. For example, have you heard about the bursting housing bubble since 2007?ReplyDelete
Well if taxpayers are so happy with government spending, would you agree to limit it to items that say, 99% people agree to? If what you say is true, there should be virtually no change.
Now if taxpayers agree with all spending decisions of the government, then they are not taxpayers but voluntary contributors."ReplyDelete
Taxes might not be voluntary in some sense and voluntary in another. What I mean by that is this. It is true that almost any tax-payer given an opportunity not to pay taxes would take it. In that sense libertarians have a point that taxes are "involuntary" and are "stealing". But then most taxpayers when faced with a choice of living in a modern society where taxes are mandatory and a society like say Somalia where I am pretty sure the tax system is broken, would take the first choice. Since we don't have as of yet a utopian anarcho-capitalistic society from which to choose, I'd say the taxes are paid by most people voluntarily - almost like the lesser of two evils.
"I'm seeing prices falling all over the place, even w/o higher taxes. For example, have you heard about the bursting housing bubble since 2007?"ReplyDelete
Nobody said higher taxes were a necessary condition for the prices to fall. It is not even a sufficient condition.
Peter, basically everyone except anarchists believes taxes are useful, but then there is little agreement what government expenditures should be (as opposed to LK's fairy tale world where virtually everyone agrees perfectly). Hence taxes are involuntary, otherwise everyone would stop paying pissed off with this or that government expenditure. If we truly want taxes to be voluntary, then the little almost everyone actually agrees to (like say, army, police, courts and roads) should precisely constitute all of the government expenditures.ReplyDelete
As for the falling prices, you're reading too much into my post. LK stated a preposterous idea that prices would not fall after demand decrease (ceteris paribus), which is the most basic economics, so I simply gave one single example of falling prices after demand decrease, that's all.
Your 'voluntary' versus 'non voluntary' tax framing presupposes income as if it exists apart from the state and people simply 'pool' their money to buy public services.
But society and taxation occur simultaneously, and your post tax income is still far higher than if society didn't exist. So the 'voluntary' framing is illogical.
Anonymous @October 19, 2011 8:56 AMReplyDelete
Sure there is "little agreement what government expenditures should be" - which is why there is always a political tug-of-war in our system. But this is part of the package. We decide to live in this country despite all the involuntary things we have to do in order to live in this country. And because of the lack of better alternatives.
But this is just like buying a cable channels package with lots of channels that you never intend on watching - in some respect you'd rather not pay for those, so, you're buying them "involuntarily", but in the bigger picture this is still the best you think you can get for your money, so, the transaction is totally voluntary.
"If we truly want taxes to be voluntary, then the little almost everyone actually agrees to (like say, army, police, courts and roads) should precisely constitute all of the government expenditures."
But this is just your opinion. I want more stuff provided by the govt while for anarcho-capitalists your list and mine are both anathema.
LK stated a preposterous idea that prices would not fall after demand decrease (ceteris paribus), which is the most basic economics, so I simply gave one single example of falling prices after demand decrease, that's all.ReplyDelete
He stated that usually prices don't immediately adjust to falling demand. They also don't immediately adjust to rising demand (if there is spare capacity). They are sticky for various reasons. And adjustment itself may not be sufficient.
You cannot refute this point by an example where it did happen, because the original point was not "prices NEVER fall when demand decreases".
as opposed to LK's fairy tale world where virtually everyone agrees perfectlyReplyDelete
Straw man. Not only did LK never say that, he has on multiple occasions discussed the complexity of political and economic consensus from different philosophical and moral perspectives. So, you couldn't be more wrong.
But, feel free to go to your room and play utopia while we adults argue about the legitimate extent of political authority. Hint: If you think it's one extreme or the other, you still have some growing up to do.
If we truly want taxes to be voluntary
If your concept of voluntary only requires a choice between available options, then Peter already answered this. In some sense there's a marketplace of societies, feel free to pick one you like.
If you think you should be offered any choice you want, that's not very capitalist of you is it? Get your bootstraps and start your own libertarian society, and let the market sort it out. I'm actually in favor of this option, because I'd love nothing more than to give the libertarians a genuine chance at making it work. Maybe we can all pitch in and get you some land in Siberia.
Hm, for some reason my two comments in response to Anonymous do not appear. LK?ReplyDelete
Here's a story relevant to monetary theory:ReplyDelete
Interesting interview, even though I don't agree with it. Out of curiosity LK, when will be the next time you review Michael Emmett Brady? Have you corresponded with him yet?ReplyDelete
Hopefully I'll get around to reviewing another paper of his soon. Unfortunately, I've got alot going on at the moment.ReplyDelete
So you have yet to correspond with him?ReplyDelete
Not only did LK never say thatReplyDelete
"I and the whole large community of taxpayers agree with the spending decisions of the government."
In some sense there's a marketplace of societies, feel free to pick one you like.
Libertarians are considerably more intelligent than average (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1665934), so they benefit from society most and can be successful and happy with any government (even communist). Indeed, libertarians are often rich enough to pick and choose their tax residency. My concern however is with the poorest, too ignorant to be libertarians, who are not as successful and don't have that choice. Why should we force them to pay for government expenditures that benefit libertarians most?
Cahal, nowhere have I said society shouldn't exist, and nowhere have I said taxes shouldn't exist, we are on totally different pages.ReplyDelete
Peter, libertarians do "decide to live in this country" as they are often intelligent and successful enough to choose tax residency. But libertarians are just 2%, my concern is with the poor and ignorant massess, we should not force them to pay for things they don't want to pay, just like we don't force them to buy this or that or any cable channels package.
My point is the whole 'forcing' people to pay presupposes ownership of pretax income. But this makes little sense as property rights and taxation are defined by the state, simultaneously.
Libertarians are considerably more intelligent than average, so they benefit from society most and can be successful and happy with any government (even communist). Indeed, libertarians are often rich enough to pick and choose their tax residency.ReplyDelete
Good grief. You're either trolling, or insane. By your own argument, though, you can't be a libertarian, because you failed to distinguish between a statement of hypothetical possibility in an argument and a statement of belief.
Taxes simply remove excess money from the system.ReplyDelete
So you either have taxes to eliminate funds in excess of productive capacity, or you pay people more money not to spend their existing money, or you have demand pull inflation.
Or you don't spend the money in the first place and have entrenched unemployment.
Pick your balancing method.
'Libertarians are considerably more intelligent than average'ReplyDelete
If there is better evidence for the Dunning Kruger effect than libertarian/Austrian overconfidence, I haven't seen it.
Libertarians are considerably more intelligent than averageReplyDelete
You know how I know you didn't read that paper? Their conclusion had nothing to do with libertarians being more intelligent. On the contrary, it demonstrates that libertarians are emotionally and socially retarded compared to the general population, and that they feel less concern and empathy for others.
That's probably related to the other finding, which is that libertarians are less socially interdependent. Go figure.
So, again, either you're not really a libertarian, or you are a typical libertarian who pretends to be intelligent and uses charity as a red herring. Either way, evidence shows that libertarians are sociopaths who don't care about anyone but themselves.
My point you have all missed was, do not worry about libertarians, maybe indeed they are rich and retarded at the same time if you like to believe so, whatever, they are just 2%. Let me repeat my question. Why should we force the common non-libertarian Joe to pay for things via taxes he doesn't want? Say 30% non-libertarian Joes do not want to finance public education, why should we tax them for that purpose anyway?ReplyDelete
Anon you are still missing the point with your 'force them to pay'. It presupposes ownership of pretax income. Even with Swedish tax levels, post tax income is HIGHER than if society didn't exist, of course, in addition to the public services. You are priveleged to be taxed.ReplyDelete
Say 30% non-libertarian Joes do not want to finance public education, why should we tax them for that purpose anyway?ReplyDelete
Cahal is right, of course, that property ownership is defined by the state. I know libertarians don't believe in that, though, or in the legal concept of property interests. There is only absolute ownership or nothing.
Another correct argument is that we tax the 30% because they benefit from a society in which everyone is minimally educated, and history has shown that without public education, this wouldn't happen. But here, the libertarian complains about thieving states taking their cookies, and distorts facts and even the definition of words to reinvent history to suit the libertarian fantasy.
Yet another correct argument is that the 30% must pay for the public resources they have used and continue to use and benefit from, for which everyone else has also paid. But now the libertarian cries: my success in life is mine alone, I had no help from anyone, the existence of civilization is more of a hindrance than a benefit. Because infrastructure like sidewalks and sewers are naturally occurring, I don't owe anything to society.
Or alternately, because I was never given a chance to freely purchase this infrastructure through a free market, it's okay for me to steal it.
There are dozens of other arguments that are also legitimate to answer your question. So again, you can't be more intelligent than average, because you would have known all of this already. But you may be libertarian, because wasting everyone's time is what they do best.
Cahal, even if philosophically as you claim people never own what they earn (they may disagree, but whatever), in the real world (not the collectivist fantasy fairy tale) you still have to actually force people to pay taxes, otherwise they wouldn't pay, would they. On the other hand, you don't force people to pay for cable channels. Why so, does money people spend (or not spend) on cable channel money is what they do own after all?ReplyDelete
Anonymous, that's what I'm trying to figure out, why property ownership is defined by the state in that particular way, unless you believe whatever state does is devinely justified. Everyone benefits also if everyone has seen same particular TV show (then they can benefitially talk about it later), but again you don't force people to pay and watch particular TV shows. And your argument that the 30% must pay for the public resources they have used is circular reasoning. I'm saying the common Joe wants to not pay and not use, just like with cable channels, I thought that was clear enough. I apologize for wasting your time though, no need to answer me.
Cahal, BTW, it is true that income of everyone is higher if society didn't exist, this follows from so called division of labor. However you seem to miss that it's symmetrical because every voluntary market transaction is mutually benefitial. In other words, you do benefit from the existence of society, but also society benefits from your existence (don't you agree?). And roughly in same measure, unless you intentionally ask for less money for fruits of your labor than market rate, or society (your employer, consumers of your product/service etc) pays you more than market rate, which are both pretty rare and cancel out on average.ReplyDelete
Hence, there is equal justification for you to tax society than vice versa and the justifications also cancel out.
Anonymous, that's what I'm trying to figure out, why property ownership is defined by the state in that particular way, unless you believe whatever state does is devinely[sp] justified.ReplyDelete
I realize that libertarians are all secretly religious fundamentalists, which is why the idea of divine inspiration always seems to come up, but there's really no place for it here. The definition of property ownership is the result of thousands of years of legal, political, and philosophical argument. It has changed considerably over the centuries, and will continue to change. That seems like the opposite of divinely inspired, doesn't it? Then on the other hand, we have the stainless perfection of the libertarian ideal, its proponents arguing that it is the one true way for all time. Which one sounds more like religious nuttery to you?
What seems to have worked so far is that we all collectively benefit from public infrastructure, sometimes known as The Commons, so we all pay for it. Some people can't afford to pay for it, but that just isn't worth worrying about.
Your TV idea might seem like a counterexample to you, but it's hilariously on target. There are public television stations in almost every area available for free, to guarantee that everyone has access to news, and I agree that we all benefit from that. It's federally funded, so we force people to pay for it.
Just like other forms of property, some is public, some is private, and some is personal, and only libertarians seem to confuse them. Nobody here is advocating for all property to be public, so cable television can safely remain private.
Cahal, BTW, it is true that income of everyone is higher if society didn't exist, this follows from so called division of labor.
Are you really going to stick your fingers in your ears and pretend that market failures can't ever happen, despite hundreds of years of evidence? I guess since libertarian economic theory is true by definition no matter what really happens, the answer is probably "yes".
Seriously, please take basic economics, so you can at least speak intelligently in this particular discourse community. For whatever reason, libertarians think they can make up new meanings for long-established words, not make an effort to learn the basic concepts everyone else has worked hard to learn, and then get angry when they aren't instantly embraced as geniuses. I guess that goes back to the relative lack of social intelligence.
It reminds me of U.S. tourists that expect everyone to speak English, and when they don't think they're being understood or people just aren't paying attention to them, they assume being louder will help. Libertarians are the loudest of all, also apparently believing that more words will be more convincing, and that any request to follow the rules of a particular social group is irrelevant ad hominem.
Hence, there is equal justification for you to tax society than vice versa and the justifications also cancel out.
The idea that you as an individual are equal in standing to the whole of society really clarifies the delusion. Thanks for that.
'Cahal, BTW, it is true that income of everyone is higher if society didn't exist, this follows from so called division of labor. However you seem to miss that it's symmetrical because every voluntary market transaction is mutually benefitial. In other words, you do benefit from the existence of society, but also society benefits from your existence (don't you agree?).'ReplyDelete
You say a lot here but none of it seems to contradict my argument. I have not seen ahistorical example of DoL taking place on any massive scale without complex social and political institutions in place to support it.
'And roughly in same measure, unless you intentionally ask for less money for fruits of your labor than market rate, or society (your employer, consumers of your product/service etc) pays you more than market rate, which are both pretty rare and cancel out on average.'
Here is an embedded assumption that the 'market rate' is some sort of natural and just benchmark, along with a quasi-notion of pareto efficiency, something that honestly doesn't need to be argued against formally.
The idea that you as an individual are equal in standing to the whole of society really clarifies the delusion.
Not in standing but in benefits. Society as a whole benefits in same measure from your existence as you benfit from society, except society is so much larger so if you disappeared, society would not even notice. On the other hand if society disappeared, it would probably mean quick death to you. Still, the benefit is equal, merely the receipients are of vastly different sizes. It is trivial to notice that society brings enormous added value for every individual, but society's value is not devine (same as government's decisions are not devinely justified), but originates from all the aggregated small values of individuals.
Don't worry it is typical for all collectivists, be it religious, national or marxist, once they go macro, somehow their mind seems to be turning devine.
Cahal, market rate is just precisely because no one agrees it is. Everyone believes their stuff is worth more than they get paid and that they must pay for stuff more than they are worth. Hence, objective and just.ReplyDelete