@ander_van @Pinboard the US government can’t run out of US dollars. it is the source of them. yet it is essential that the US government tax. why? 1/
@ander_van @Pinboard the shoddy way of understanding is by analogy to households or businesses. clearly, households and businesses need revenue to offset their purchases, or else they go bankrupt. 2/
@ander_van @Pinboard but that analogy is fundamentally wrong, because households and (nonbank) businesses can’t manufacture the money to pay for their expenses ex nihilo. the US government can. 3/
@ander_van @Pinboard the next stupid mistake is to go from this insight to “the government has infinite money, so it needn’t tax”. of course the government needs to tax. governments that print and spend without taxing end up printing currencies without value. 4/
@ander_van @Pinboard but now we need to develop theories to guide us. why does the government need to tax, if it has indefinite money? how do we decide how much it needs to tax? 5/
@ander_van @Pinboard the conventional approach is to treat government obligations (including most base money, since it now pays interest) as debt, and to worry when the debt level rises, especially as a fraction of gdp. /6
@ander_van @Pinboard but if the concern is that failing to tax enough (relative to transfers and expenditures) would render a currency worthless (or, more bloodlessly, provoke undesirable inflation), this kind of misleadingly quantitative criterion misses the fact that not all spending is equally /7
@ander_van @Pinboard inflationary, not all taxes are equally disinflationary, and the context in which the spending occurs may overwhelmed the apparently “hard-nosed” numbers. /8
@ander_van @Pinboard at present, the US is deficit spending at an extraordinary clip (thanks to GOP tax cuts), but general inflation (as economists measure it) is subdued, despite really low interest rates. why? the conventional view just shrugs and pretends this is some kind of aberration. 9/
@ander_van @Pinboard if your theory of the world leaves now a couple of decades of lived experience unexplained, perhaps you need a better theory of the world. 10/
@ander_van @Pinboard a simple explanation has to do with the increasing stratification of wealth and income. 11/
@ander_van @Pinboard poorer people spend all the dollars of income they receive, putting upward pressure on the price of goods and services. 12/
@ander_van @Pinboard wealthier people put their income onto financial assets, which “investment” does not in any reliable or direct way translate to bids on real goods and services (inflation), but does put upward pressure on financial asset prices. 13/
@ander_van @Pinboard with this simple, real tho certainly incomplete insight, we can explain a lot: precisely because the economy has become more unequal, because most new financial income goes to the rich, government deficits (a source of financial income) don’t have the inflationary effect 14/
@ander_van @Pinboard it would have had in a more egalitarian economy. inequality is disinflationary, and deficits that land in the pockets of the already rich (eg tax cuts) are particularly “affordable” in this sense. they make the rich richer, but don’t put much pressure on real goods & svcs. 15/
@ander_van @Pinboard now suppose you want to do medicare for all. suppose you first think about just having the government print the money to pay for it, no new taxes. would that be inflationary? 16/
@ander_van @Pinboard we don’t know for sure unless we try it, but i’d expect it would be, very much. why? because middle class families would stop paying insurance premia, while medical providers would still get paid (now by the govt rather than out of those premia). 17/
@ander_van @Pinboard that’s equivalent to putting thousands of dollars a month of new money in the pockets of middle class families (those premia they no longer pay). and middle class families mostly spend their new income on real goods and services. /18
@ander_van @Pinboard ”unfunded” M4A, then, would likely put price pressure on real goods and services, as families compete for an only slowly growing capacity to produce with a sudden influx of new money to bid. /19
@ander_van @Pinboard but suppose you “pay for” M4A with a wealth tax, or a marginal tax increase at very high incomes. would that blunt the inflationary effect of M4A? /20
@ander_van @Pinboard by the conventional theory, sure. the new taxes cover the new spending, so what’s the problem? /21
@ander_van @Pinboard but this is dumb. middle class families would still see the money they used to spend in insurance premia as new money, and spend it, bidding up the price of goods and services. /22
@ander_van @Pinboard the money you tax from the wealthy was going to be saved as financial assets anyway. the net effect is a transfer of income from rich to poor, which is inflationary. /23
@ander_van @Pinboard you miss the whole story if you just count the dollars. the details actually matter, including (as in this case) the distributional effects. /24
@ander_van @Pinboard now, that “financing” M4A from the rich wouldn’t “pay for” it in the sense of sterilizing inflation doesn’t mean that it’s a bad idea! /25
@ander_van @Pinboard broadly, civilized people understand that a more equal economy is first-order desirable, and the fact that such an economy would less resistant to inflation is a price easily worth paying. /26
@ander_van @Pinboard at the moment, the economy is extraordinarily disinflationary, so we can easily “afford” spending on middle class benefits at cost only of bringing interest rates back up to historically “normal” levels. /27
@ander_van @Pinboard but taxes you take from rich people have very different rationales, motivations, and effects than taxes you take from the middle class. /28
@ander_van @Pinboard any style of analysis that shows you an income statement matching tax revenue to expenditures without taking these differences into account is quite the opposite of rigorous. /fin
