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Posts Tagged ‘MMT’

The Real Tax Scandal | Mises Institute

Posted by M. C. on June 10, 2021

Yet the real scandal here is not the IRS leak, which was no doubt internal and designed to gin up public support for Biden’s proposed tax increases while advancing a progressive inequality narrative.

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life.

https://mises.org/power-market/real-tax-scandal

Jeff Deist

The self-styled investigative journalism outlet ProPublica recently published private IRS tax information—presumably embarrassing private tax information—for a host of ultrawealthy and famous Americans. I say “self-styled” because the organization claims a pretty lofty and self-important mission to use the “moral force” of journalism on behalf of the public interest against abuses of power. But does this apply to state power, such as when a federal agency employee illegally leaks sensitive material to media? And why is it presumed to be in the public’s interest to have rich billionaires pay more in taxes? Maybe we’d rather have them investing in their companies, or at least buying megayachts and Gulfstream jets, rather than sending more resources to the black hole of DC? Why is the public interest always defined as “things progressives like”?

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

And as an aside, it’s worthwhile to recall the tremendous whopper of a lie President Franklin Delano Roosevelt told back in 1935—namely that no one other than the program’s administrators would ever know your private Social Security number. Today, of course, Social Security numbers are the absolute linchpin of one’s entire financial identity, and known by everyone from the IRS to your local credit union.

Yet the real scandal here is not the IRS leak, which was no doubt internal and designed to gin up public support for Biden’s proposed tax increases while advancing a progressive inequality narrative. Political capture of federal agencies is nothing new or shocking; that’s what presidents do (or have done to them). Nor is it particularly scandalous that the wealthiest people sometime pay little in federal income tax, at least relative to their income. After all, elites by definition tend to wield power rather than fear it, especially when it comes to state power. And they have lobbyists and accountants to make sure taxes remain something the little people pay.

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life. In some cases it can land you in jail. Tax enforcement is the ultimate check on the public’s behavior; after all, who takes up the cause of a tax cheat? For middle-class Americans the IRS is an existential threat, but for Jeff Bezos it is another business expense to be minimized.

And as for revenue, consider that Uncle Sam borrowed nearly half of the dollars spent by Congress in fiscal 2020. With covid shutdowns, federal income taxes amounted to about $3.42 trillion, while spending was $6.55 trillion. If the federal government can finance 50 percent of its annual spending through deficits, why not 80 percent or 100 percent? Why do we need the IRS terror regime at all?

Again, this is about control. Progressives will never give up the income tax for this very reason. Proponents of modern monetary theory, for example, are almost uniformly left progressive in political outlook. These are the people cheering Biden’s >$1 trillion infrastructure spending bill because of their fervent belief that deficits don’t matter.

MMT rests on two central assertions.1 First, sovereign governments with their own currencies can print as much money as needed to fund operations without fear of insolvency or bankruptcy—unless a purely political decision is made to go broke. Government deficits per se do not matter, because the only real constraint in any economy is the amount of real resources available rather than the amount of money. In fact, MMT views government debt as private financial wealth—money inserted into the economy by the central state but not taxed back. 

Second, sovereign governments with their own currencies can require tax payments to be made in that currency. Therefore any overheating in the economy in the form of inflation resulting from too much money can be fixed by pulling some money back to the Treasury via tax increases. This is the ostensible reason MMTers are not quite ready to give up on taxes altogether.

Yet I’ve never heard an MMTer express support for even a one-year moratorium on taxes to stimulate a bad economy (after a shock such as a worldwide covid pandemic). Why is this? If inflation really is so low, with the economy struggling in postcovid recovery mode, why pull any money back into federal coffers? Just damn the torpedoes! The bigger the deficit, the more “private wealth” we all have! Perhaps there is a political element to all the MMT jargon after all, one which relies on taxes both for control over people and to advance an advantageous but hollow trope about taxing the rich.

Federal income taxes have always been a tool for compliance. The IRS has always been a tool for presidents to go after rivals—or for rivals to go after presidents. Why would we expect otherwise?

  • 1. See Dr. Robert P. Murphy’s definitive critique of MMT and Professor Stephanie Kelton’s book here.

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Doug Casey on the Fed to Address Inequality And Climate Change

Posted by M. C. on December 25, 2020

Doug Casey: The Fed is one of the main creators of inequality. The Establishment, the Deep State types, and the other cronies who hang around the government are closest to the fire hydrant of money spewing from the Fed. They get their fill of it before any trickles down to the “little people.”

The solution to the problem is to abolish the Fed. But it’s so entrenched and so central to the corrupt system, that’s impossible. At least short of a monetary collapse—although a monetary collapse is in the cards. But, at a minimum, the Fed shouldn’t try to act as a social engineer.

https://internationalman.com/articles/doug-casey-on-the-fed-to-address-inequality-and-climate-change/

International Man: Recently, the calls for the Fed to add a third mandate to address racial and economic inequality have grown louder.

Will we see a redistribution of wealth soon?

Doug Casey: It seems the movement towards black “reparations” is building momentum. These things always start small, testing the water, then grow when nobody either laughs at them for being stupid or decries them as evil. Most Americans are now too intimidated and confused to do that, however.

It’s similar to MMT. A year ago, the notion of Modern Monetary Theory was too outrageous a notion for a sensible person to bother considering; now, it’s practically public policy.

And, incidentally, when I say “black,” I don’t capitalize the word, as very recent politically correct fashion dictates. Capitalizing it just emphasizes and accentuates racial differences—as do most “woke” practices.

It’s another sign of the mass insanity that’s sweeping the world. Like almost everybody wearing masks when walking down the street, or even bicycling in the countryside. Not to mention locking down the whole country, practically the entire world, like a prison. It’s quite ironic to me. In the past, I’ve often joked that the Earth was a prison planet. Now it’s no joke.

Anyway, the idea of reparations is even more insane, but it’s taking off. It’s the destructive, racist idea of affirmative action on steroids.

It’s one genuinely crazy thing after another, like NASDAQ requiring listed companies to have at least two board members of so-called minority groups, including one non-white person and one with a sexual aberration.

Movies are expected to have the same kind of composition now. You see it to a large degree in commercials on TV. When I watch the boob-tube, I feel like I’m the only straight white male left in the US.

The discrimination against Asians is equally criminal, especially when it comes to getting into college. If you’re a smart and hard-working Asian, you now have to be even smarter and harder working to compete.

These PC fools are making accidents of birth into defining features of existence. The only good thing about the trend is that these people may be overreaching and will self-destruct. Hopefully, that will happen before they destroy society itself.

International Man: Federal Reserve Chairman Jerome Powell has spoken in length about the Fed’s interest to address economic inequality.

Ironically, the one institution that is single-handedly responsible for destructive monetary policies and money printing of epic proportions plans to do more of the same to “solve” the very problem they created.

What are your thoughts on this?

Doug Casey: The Fed is one of the main creators of inequality. The Establishment, the Deep State types, and the other cronies who hang around the government are closest to the fire hydrant of money spewing from the Fed. They get their fill of it before any trickles down to the “little people.”

The solution to the problem is to abolish the Fed. But it’s so entrenched and so central to the corrupt system, that’s impossible. At least short of a monetary collapse—although a monetary collapse is in the cards. But, at a minimum, the Fed shouldn’t try to act as a social engineer.

It certainly shouldn’t give money to blacks just because they’re black in the form of reparations or for any other reason. The notion is criminally stupid. All exchange must be mutual and free. If it’s not, it breeds resentment for both the giver and the receiver.

Free stuff, like welfare and free government housing, has already destroyed black families and black individuals. Places like Cabrini-Green and Pruitt-Igoe are monuments to government planning. If the Fed gets involved in passing out more free money, it’s only going to cement the average black more solidly to the bottom of society and create more race antagonism.

Well-positioned blacks like Jesse Jackson, Al Sharpton, Maxine Waters, and hundreds of others who are getting rich by virtue of being black are all for it, of course. There’s big money in disguising race-baiting as virtue signaling.

International Man: Recently, Joe Biden announced that he would nominate former Fed Chairman Janet Yellen for US Treasury Secretary. In her first remarks, Yellen spoke about her plans to address racial disparities and inequality.

Is there a trend developing here where racial and economic inequality has become the justification for dangerous monetary policies?

Doug Casey: Race has become a justification for practically everything today. Deep State types in general, and the Democrats in particular, emphasize race and gender differences, which does nothing but aggravate the situation.

This nomination is an excellent deal for Yellen, who’s moved from being a nothing nobody academic to Fed Chair, and now Treasury Secretary. By the time she finishes her term in office, she’ll be a centimillionaire—the usual drill, six-figure speeches, seven-figure book contracts, fat directors fees, consulting fees, and insider investment deals. She’ll do well for someone who has zero business experience and has detracted hugely from the world’s real wealth.

She’s a model for the kind of people who want to go into government to become rich and famous.

International Man: Fed chairman Powell has made countless remarks about the need for the US central bank to address climate change.

What is going on here?

Doug Casey: It’s a good question.

How can they address the so-called problem of climate change? Climate change has been going on since the Earth came together 4.5 billion years ago, and it will continue on its own path, primarily influenced by the sun and secondarily by things like volcanism, cosmic rays, and peculiarities of the planets orbit, long after mankind has gone.

But destroying the economy by printing up more money certainly isn’t an answer to climate change. However, I’m sure that what’s on Powell’s mind is making money easier to get for things like windmills and solar panels. This is more state direction of investment. It was a disaster for the USSR and every other socialist and state-directed economy and will be for us as well.

You’ll notice that the Chinese and other Asian economies don’t indulge in this kind of politically correct investing. It’s a major reason why they’re on the way up, and we’re on the way down.

Janet and Jerome’s excellent adventure in climate engineering won’t end well.

International Man: With climate change and racial inequality, the Fed is creating all sorts of new ridiculous pretexts to justify whatever it wants to do. It would be comical if the consequences weren’t so destructive. What do you think comes next?

Doug Casey: At this point, the Federal Reserve, which most Americans barely even know exists, has become extremely important to everybody.

It’s now the main source of government income—greater even than the income tax—and this is likely to continue. Agencies like the Fed grow when they have unlimited funding. But it’s more than just mission creep at this point.

We saw mission creep during the Vietnam war and all other wars. Now the Fed has been enlisted to fight the war on poverty, the war on racism, and global warming. The problem is that war is the health of the State—but a catastrophe for society.

The Fed started out as essentially a clearinghouse for banks; it was instructed to maintain the value of the currency. It has totally failed at that mission since its creation. The US dollar was stable from 1789 up until 1913 when the Fed was instituted. Since then, the dollar lost has about 97% of its value, and the degeneration is radically accelerating.

Now the Fed is supposed to ensure full employment, racial and gender equality, and sunny days in addition. The next abomination will be Fed Coin, a digital dollar, which will eliminate all privacy from financial transactions.

I don’t think anything can turn the situation around at this point. The only thing you can do is become as wealthy as possible to insulate yourself.

The next step will be something resembling World War III, probably with China. The US will turn into a police state, which in many ways, it was during World Wars I and  II.

It’s going to be much more serious this time around.

Editor’s Note: Economically, politically, and socially, the United States seems to be headed down a path that’s not only inconsistent with the founding principles of the country, but accelerating quickly toward boundless decay.

In the years ahead, there will likely be much less stability of any kind.

That’s exactly why New York Times bestselling author Doug Casey and his team just released an urgent new report titled Doug Casey’s Top 7 Predictions for the Raging 2020s.

Click here to download the free PDF now.

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MMT Explained with Dr. Robert Murphy | Mises Institute

Posted by M. C. on November 24, 2020

https://mises.org/library/mmt-explained-dr-robert-murphy

Robert P. Murphy

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Authors:

Contact Jeff Deist

Jeff Deist is president of the Mises Institute. He previously worked as chief of staff to Congressman Ron Paul, and as an attorney for private equity clients. Contact: email; Twitter.

Contact Robert P. Murphy

Robert P. Murphy is a Senior Fellow with the Mises Institute. He is the author of many books. His latest is Contra Krugman: Smashing the Errors of America’s Most Famous KeynesianHis other works include Chaos Theory, Lessons for the Young Economist, and Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015) which is a modern distillation of the essentials of Mises’s thought for the layperson. Murphy is cohost, with Tom Woods, of the popular podcast Contra Krugman, which is a weekly refutation of Paul Krugman’s New York Times column. He is also host of The Bob Murphy Show.

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MMT’s Very Odd Definition of “Savings” | Mises Wire

Posted by M. C. on August 1, 2020

You can define the word “savings” to mean anything you want. MMT savings defined as net government debt holdings enables the MMT tautology that the private sector cannot MMT save without the government running a deficit. However, this does not tell us anything useful. If anything, MMT saving should be discouraged, because the government drains resources from the domain of economic calculation and private property to socialism and government control. The focus should be on economic policies that enable private individuals and business firms to accumulate gross savings in order to improve our well-being.

https://mises.org/wire/mmts-very-odd-definition-savings?utm_source=Mises+Institute+Subscriptions&utm_campaign=a7b746240b-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-a7b746240b-228343965

Modern monetary theory, which is now experiencing its fifteen minutes of fame, contains a number of strange and counterintuitive propositions.1 Proponents claim that these propositions are not an economic theory, only an accounting identity. One of these is that the private sector can save only if the government runs a deficit. Within the self-consistent, tail-chasing world of MMT, these statements are true by definition. However, when MMT aphorisms are interpreted using their normal meaning in the English language, their conclusions are not only false, but foolish.

MMT defines savings as the accumulation of non–private sector assets. It must be the case that all liabilities between private sector actors net out to zero. And from that, the only way that the private sector can have a positive net credit is if something outside of it has a negative net. That something is the government (perhaps, but probably not so, as I will argue later).

The Definition of Saving

A good definition enables people to have a conversation about a topic by establishing a shared meaning. While anyone is free to define “up” to mean down and vice versa, Humpty Dumpty notwithstanding, a good definition, to avoid confusion, should be consistent with normal usage. In normal English, savings consist of what is produced and not consumed. I will show that using this definition it is possible for the private sector to save without a government deficit.

The first and simplest form of savings is saved consumption goods. Long duration goods such as homes, cars, appliances, clothing, and furniture are produced and then release their services over time. The US private sector has about $33 trillion of residential real estate, which consists of saved real estate services in the form of homes that will be used up over decades. Shorter duration consumption goods can also be saved, such as frozen food or tinned sardines, extra tubes of toothpaste, and in the days of the virus we must not underestimate the importance of saved toilet paper. Businesses also have saved inventories of consumption goods which they plan to sell in the near future.

The Role of Saved Capital Goods

The second and more important form of savings is saved capital goods. These are productive assets which, in the exact same way as saved consumer goods, have been produced but not consumed. According to the Fed, the United States has $56 trillion of saved capital goods. Some of that might be owned by governments, but even a fraction of the value held in private hands is an enormous amount. The importance of capital goods is that they are needed in order to produce consumption goods. Labor productivity depends on the amount of capital that workers have, which drives real wages. The gradual increase in our standard of living over the centuries is attributable to the quantity and quality of saved capital goods.

Even the Robinson Crusoe stranded on an island may save consumption goods such as caught and dried fish, harvested and stored coconuts and tubers. Crusoe may also save capital goods—such as a fishing rod, a net, or a ladder to harvest coconuts from trees—by creating them faster than they wear out.

Savings and Cash Balances

Another common usage of the term “savings” is cash balances. While MMT correctly points out that one person’s spending is another’s income, and therefore nets out to zero, the private sector cannot accumulate a net cash balance unless there are money flows in and out of it. In a gold monetary system, the private sector could accumulate cash through mining. But assuming for the moment that there are no cash flows between the private and government sector, and no money creation, the private sector cannot net accumulated cash. However, the private sector can increase its real cash balance through lower prices. This happens when the public preference for cash relative to goods changes in the cash direction.

The Problem with the MMT Definition of Savings

At this point we can see the main problem with MMT’s definition of savings as net government debt. Assets can be divided into two broad categories: debt and equity (equity being what you own and debt being what is owed). Every debt has two sides: the creditor, for whom it is an asset, and the debtor, for whom it is a liability. Net debt must balance to zero if you include both sides in your aggregate. Equity, being unencumbered, and having only one side, is a positive value, and can grow. An increase in one person’s equity in the form of saved capital or consumer goods does not require an offsetting debit anywhere else. To see this, consider Robinson on his ancap island, busily drying fish and storing coconuts. His gross equity increases on a daily basis without any offsetting liability anywhere in the South Pacific. MMT’s definition is incomplete, because it looks only at the debt component of assets while ignoring the equity.

Private sector net debt is always zero by definition. This truism tells us nothing interesting about the world and is only another way of stating the definition of debt. Private sector gross assets in the form of saved capital and consumer goods are the foundation of our economic well-being and are therefore quite important. Contrary to MMT, the proper object of study should be gross savings rather than net savings. Net assets in the form of external debts to foreign countries are not uninteresting for some purposes, but must be paid for out of either current or future production, which depends on the gross savings.

Now I will return to the issue of whether the private sector’s net position in the government debt market is truly an asset. Government debt could in theory be paid by selling government assets (and in some cases they have done so) but in most cases, government debt represents a claim on the taxing power of the government in question. And the tax liability is to a large extent owed by the same private sector that owns the bonds. Every increase in government debt imposes a future tax liability of the same amount on the same private sector. If we disaggregate down to the individual or household, some individuals owe more in tax than they own in government bonds, and others the opposite. While I am not a believer in Ricardian equivalence, the net positive asset position of the private sector in government bonds is offset by an equal tax liability on the aggregate level.

Many parts of MMT depend on the issuer of debt also being the monetary sovereign—the body that can create money out of nothing. It should be noted that this particular issue does not apply only to the issuer of government money. As long as the definition of the private sector excludes all governments of any level who borrow in the bond market, the same accounting identity applies. State and municipal governments could create MMT savings by borrowing. MMT might dispute my point about sovereign debt imposing a tax liability on the private sector on the grounds that the monetary sovereign can print and spend money into existence “for free” (i.e., without imposing any cost on the rest of society). I will not address that point here, but Robert Murphy has elsewhere.

Capital goods and consumer goods can be accumulated without any requirement in an accounting sense for obligations between the government and the private sector. If the government had no debt, it would enable the private sector to accumulate even more savings, because it would be freed of the tax liability.

You can define the word “savings” to mean anything you want. MMT savings defined as net government debt holdings enables the MMT tautology that the private sector cannot MMT save without the government running a deficit. However, this does not tell us anything useful. If anything, MMT saving should be discouraged, because the government drains resources from the domain of economic calculation and private property to socialism and government control. The focus should be on economic policies that enable private individuals and business firms to accumulate gross savings in order to improve our well-being.

  • 1. See Dan Sanchez, “War Is the Health of the…Economy?,” Dan Sanchez (website), July 3, 2014, http://www.dansanchez.me/feed/war-is-the-health-of-the-economy. “A more likely explanation is indicated by Cowen’s participation in the fad of ‘pop economics,’ inaugurated by the 2005 bestseller Freakonomics: A Rogue Economist Explores the Hidden Side of Everything by Steven Levitt and Stephen Dubner. A characteristic feature of this fad is the concoction of novel, attention-getting, semi-scandalous, quirky arguments, that are purportedly ironclad in spite of how counter-intuitive they are. Such intellectual curios help burnish the image of pop economists as ‘rogue’ iconoclasts and provide hipness to a profession otherwise generally considered staid and ‘dismal.'”
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Robert Blumen is a software engineer and podcast editor. Send him email.

 

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