Friday, April 22, 2011

Krugman says MMT again

He really needs to stop doing this. What's next -- Yglesias is going to bring it up? Back to Krugman:
Does the same thing hold true for the federal government? Well, the feds have the Fed, which can print money. But there are constraints on that, too — they’re not as sharp as the constraints on governments that can’t print money, but too much reliance on the printing press leads to unacceptable inflation. (Cue the MMT people — but after repeated discussions, I still don’t get how they sidestep the issue of limits on seignorage.)

So taxes are, first and foremost, about paying for what the government buys (duh). It’s true that they can also affect aggregate demand, and that may be something you want to do. But that really is a secondary issue.

And may I say that now is an especially peculiar time to think that taxes matter only if they reduce consumption. We have lots of excess capacity in the economy; the government can easily buy more goods and services without requiring that the private sector buy less. The only reason to raise taxes now, or promise future rises, is to address solvency concerns.
The Government can acquire real goods and services without spending money at all. Conscription. Kelo. Extension of the copyright act. The list goes on. Taxes, first and foremost, are a manifestation of sovereign power and thus lay the groundwork for fiat money. By draining the private sector of the funds it needs to purchase it's own output, they create room for the Government to take that output without generating inflation. Contra Krugman, now is an excellent time to understand how taxes reduce consumption because we are in a recession due to lack of aggregate demand due to lousy household balance sheets, and high taxes are preventing those balance sheets from being repaired. Last point to Krugman:
Discussions like this really disturb me; they indicate that there are a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together.
So true. Also, people with Nobel Prizes in economics demonstrate the same failings.


Blogger Detroit Dan said...

Exactly what I was thinking. Thanks for the good work...

9:22 PM  
Blogger BadTux said...

This comment has been removed by the author.

8:40 PM  
Blogger BadTux said...

we are in a recession due to lack of aggregate demand due to lousy household balance sheets,

Granted, there is a lack of aggregate demand and that's the primary reason we're in recession. But...

and high taxes are preventing those balance sheets from being repaired

That is an astounding assertion, given that the United States has the lowest taxes of any OECD nation other than those economic powerhouses Mexico and Turkey, and lower taxes today than during that horror of peace and prosperity that was the Clinton Administration. The main issue with balance sheets appears to be a decline in real income amongst the consumer class (the bottom 90% of the population) caused by stagnant incomes, unemployment, a collapse in the asset price of the only real asset they own (their home), and soaring prices for necessities such as gasoline and food. I see evidence of all of these in the statistical numbers. But I look and look, but I fail to see any evidence that taxes are having any real impact upon individuals' balance sheets, since of the many taxes levied upon the consumer class, only the property tax is a balance sheet tax, and the property tax has actually *declined* due to collapsing housing values. Do you have any such evidence with which to enlighten a poor wayfaring penguin?

- Badtux the Curiously Snarky Penguin

8:51 PM  
Blogger Jazzbumpa said...

What Tux said.

Plus, we aren't being taxed enough to keep public education sound; and the nation's neglected infrastructure is crumbling around us.

Further, at least as far as Federal Income tax goes, 40 to 50% of the population doesn't pay any.

The typical household is in a balance sheet problem because real wages at the median have stagnated for over three decades, and every penny of economic growth and productivity improvement has been captured by those above the median, and the higher up, the more they got.

Meanwhile, we all want a smart phone and a big screen TV.


9:28 AM  
Blogger Sarah said...

What the Penguin said... (and just when I was beginning to think- through reading Interfluidity- that MMT might not be completely crazy after all.)

Excuse me? I can't afford stuff because MY TAXES are too high? Right. Not having a job couldn't POSSIBLY have anything to do with it.

8:27 AM  

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