Saturday, October 12, 2019

MMT Misconceptions part 3b

Continuing with Doug Henwood's essay, Modern Monetary Theory Isn’t Helping, and his treatment of taxes and government revenue.

Misconception: Taxation transfers resources

[O]ur public sector is starved for resources. Taxing takes those resources out of private hands and puts them into public ones.

Well, no. It's not anything like that; it can't possibly be anything like that. Henwood is not getting MMT wrong here; he's getting basic logic wrong. Henwood is at best speaking imprecisely; we could just attribute this imprecision to a desire for concision, but speaking carefully would completely undermine his point.

Generally, the word resource refers to something real: labor, raw materials, capital equipment, intermediate goods, etc. But of course it's nonsensical to suppose — and I don't think Henwood believes any such thing — that rich people have vast warehouses full of machines, equipment, parts, and raw materials, and dormitories full of people they are withholding from the labor force.

Taxes take money away from people who have it. Money is not a resource; it is the social permission to access society's resources. This isn't the 11th century; the government does not impose a tax by taking the food I grow. When I pay my taxes, I am not giving any resources to the government; the government is taking away some of my social permission to access society's resources.

Absent theft and robbery, ordinary people, households and firms, must get money by persuading someone else who already has money to give it to them, eventually in return for real resources. That's just how money works, n'est ce pas? But governments are just not at all like that.

Money is a social system, and someone, some collection of institutions (spoiler alert: the government), has to create and manage money. The government has to create the money, ensure that people want to use it as a medium of exchange and store of value. The government must ensure there's enough money overall to grant the social permission to access all of society's resources, but not so much that people think they have the social permission to access resources that we cannot produce.

No other institution except the government* can manage the money system. We can't just leave money to "the market". Even if you grant that markets have some value, they suck at delivering the kind of rigidly broad uniformity we want from money; governments are terrific at being rigidly uniform. Government does not have to get social permission to access society's resources. Government has this social permission just by virtue of being the government.

*I suppose e could go back to the gold standard, but almost a century ago, Keynes realized the gold standard was a Bad Terrible Idea, and we abandoned its last vestige in 1971.

This is what I meant previously by looking at the control system; it's important to understand how the control system works so we can effectively use it.

This is how money actually works: The government creates money and puts in the hands of the private sector by buying things like airports and bridges, loaning it to banks to manage the payment system, or buying real or financial assets with it. So that people will actually accept and use the government's money, the government imposes taxes that must be paid in the money it just issued, that could not have been be paid unless the government had first issued the money. Because the government wants some of this money to stay in circulation for private transactions, they collect in taxes less money than they issued.

The government takes these taxes and "burns" them. The government does not need your tax dollars; the government imposes taxes in part so that we need them.

Once the money economy gets rolling, the government continually creates money and puts it into the private economy; it collects taxes to destroy excess money.

The government does not borrow money; they offer people interest to take money out of circulation and "store" it in a government "bond". The government does not offer people real resources in return for the "bond", and the government has no need to give anyone real resources to get the money they promise to repay. They not just can but they have not choice but to print the money when the "bond" matures.

I don't care at all how you or anyone else, left, right or center; capitalist, socialist, or anarchist, feels about the above. That's how money actually works. Again, this is not MMT; this is fundamental monetary economics.

Capitalists fucking hate that money works this way. They would much prefer the gold standard, which gives the rich total control of the money system. The only reason they tolerate the fiat money system — and they have no choice but to tolerate it — is that the last time the bourgeoisie tried the gold standard, the peasants started gathering torches and pitchforks.

The bourgeoisie and their loyal ally? unwitting stooge? useful idiot? Doug Henwood absolutely do not want the unwashed masses to understand how the money system actually works. They want you to believe that the rich have the resources we need to run our society, and that the citizenry must either humbly beg them for these necessary resources or fight a long and vicious battle to take those resources away from them.

Neither is true. The rich have nothing but money, social permission, created by the government. We absolutely should take away most (all?) of that social permission, not because we need it, but because fuck you, that's why; we do not want them to have it. If they want to hide their money, let them. Hidden money is out of circulation and useless. If they want to defend their money — and the government really should be careful and legal about how they take anyone's money — that's fine; the government can just freeze the money while the litigation drags on; again, frozen money is no money at all.

The rich may have something we do not want them to have, but they have nothing we need.

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