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July 16, 2019 01:56 pm PDT

In 1943, the chairman of the NY Fed backed Modern Monetary Theory: "Taxes for Revenue Are Obsolete"

Modern Monetary Theory is the latest incarnation of chartalism, the economic theory that holds that government spending -- and a federal jobs guarantee -- doesn't create inflation, so long as the spending is on things that the private sector isn't buying: if a factory can produce ten widgets but is only producing five because that's all the public sector wants to buy, the government can put in an order for five more widgets, putting more workers to work, without driving up the price of widgets.

That is, government spending (which it pays for by simply minting as much money as it needs) doesn't create inflation, provided there are idle resources (workers, physical plant) for the government to spend on.

If the number of dollars in circulation does rise to the exceed the supply of goods and labor, and inflation starts to rise, governments tame inflation by imposing taxes, which reduce the supply of money and stabilize prices.

This runs counter to the neoliberal monetary theory, which holds that people have money from their businesses and labor, and then government takes it away from them to provide services. In MMT (and in reality), money only comes into existence when governments "deficit spend" on some good or services. Only governments are allowed to issue money, after all, so it follows that all money enters the system when the government spends it into existence.

The government can issue as much money as it needs to in order procure the services it need (cops, bureaucrats, teachers, tax collectors, soldiers, as well as hospitals, schools, roads and tanks), provided it isn't bidding against the private sector for those goods and services (when governments have to bid against the private sector, such as during WWII, it needs to tax money out of existence and use other techniques like selling "War Bonds" to reduce the amount of money in circulation in order to tame inflation). Read the rest


Original Link: http://feeds.boingboing.net/~r/boingboing/iBag/~3/4sMhO_8vUis/spend-then-tax.html

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