Wednesday, December 12, 2012

MMTers, where do you stand? Tax cuts or more spending?

Tax cuts or greater spending? Where do MMTers stand on this? Mosler's proposals are for a suspension of the payroll tax and aid to states. That's it. He leaves it pretty much to the private sector and the states, which have their own budgetary and spending needs. There's nothing in there about national spending, for example on infrastructure, education, basic R&D, etc. And yesterday Stephanie Kelton did a wonderful job on Capital Account, but I felt that she was a bit defensive when Lauren Lyster pressed her on gov't spending. Stephanie seemed to want to veer away from that and channel most of the "stimulus" through the private sector, with some "targeted" investment. Why be shy about saying more government spending is good?

I'm all for tax cuts and I think that a suspension of FICA is a fabulous idea, but here's the problem...wouldn't we just get more of this?

Black Friday 2012

That's not a mob riot. It's a picture of people disposing of their incomes on a bunch of crap they probably don't need (nor can afford--FICA suspension or not) simply because of media hype and retailers who told them to go out and shop.

I love how shows like Capital Account that always complain about government waste. Government waste, government waste, government waste, they keep on repeating it.

What about the waste associated with people blowing their incomes on stuff that'll just end up in a landfill in a year? It's central planning, only central planning corporate sytle. Let's be real...the American consumer is totally manipulated by retailers, advertisers, big business and the media. Spend your money so that corporate profits can go up.

This is where I diverge with the Mosler plan. Personally, I would like to see much greater government spending in areas where this country really needs it: infrastructure, health care, education, basic R&D, alternative energy, public transportation, etc. I'm all for putting money in people's pockets, but do it in a way that adds to the stock of real capital that's going to be needed for the next generation or two.

Christ, we do it for military and war. What about for the public and a better society for a change?

Thoughts?

50 comments:

DaRkJaWs said...

I support mostly spending like you do, but I do like the idea of suspending FICA theoretically, practically speaking you're right, it could be political suicide in a sense.

Crake said...

I agree. Many people think the market will funnel money to the most efficient products and services but consumers are not rational and their choices are not their own as they are steered by advertiser and marketers who have consumer manipulation down to a literal science. As you stated that means resources are being used that will likely end in landfills soon. If the government just paid people to dig holes, it would amount to the same just not as bad an environmental impact (just holes, instead of free market holes with toxic junk in them.)

On the other hand, how could we go wrong building lasting things: high speed rail to every major and medium-sized city in the US? Alternative energy? Basic scientific research? Reach for the stars with expanded space exploration?

And I think it would likely be a more open market that would direct those decisions: I think enough people would be much more engaged, especially through foundations and general interest groups, in deciding what the government could build than the "mindless" consumers at typical malls. I think workshops and forums on government spending plans, if the acceptance of fiat currency was wide, would be very active.

Mike Norman said...

I'm not shy about saying more spending, a lot more. And I'm even for higher taxation on speculation and financial rents to minimize these activities. And I would turn right around and hand those proceeds to low income and the poor. Outright, unabashed, distribution.

paul said...

Mike, great post.

I'm pretty much in agreement… put me down for more spending, targeted at infrastructure growth and maintenance, education, energy, transportation and the unemployed.

Leave FICA for another day, it would require a rational discussion, something we aren't going to have for a long time if ever. FDR had some insight here.

Jure Jordan said...

Nope, we can always do more spending for destruction (wars) not improvement of human lives.

Neil Wilson said...

Mike,

I think the spending injection has to come from the automatic stabilisers - and that really needs to Job Guarantee.

Don't forget that Warren has what he calls the 'transition job' in there - which is a vital part of the mix.

It's very difficult to justify a work = income = resources mixed economy distribution model unless there is some automatic way of ensuring that there are always more jobs on offer than people who want them.

Tom Hickey said...

I support mostly spending like you do, but I do like the idea of suspending FICA theoretically, practically speaking you're right, it could be political suicide in a sense.

There are separate issues here than need to be kept separate. There is the optimal policy and then there are the practically achievable ones, given the circumstances. Here policy, strategy and tactics have to distinguished.


And then there are specific ad hoc responses to policy questions of the day. This is purely tactical within in a given framework that is already established, like the framing of the fiscal cliff. Such suggestions can usually only be the better of the worse, and should not be confused with MMT per se.It seems to me that some confusion over MMT results from confusion over these distinctions.

Tom Hickey said...

Did you see the recent Senate vote on the $680 B military budget? Unanimous approval, no debate.

Mike Norman said...

Where'd they get the money from to do that?

Matt Franko said...

Lower Retirement Age

Increase Public Pensions & Healthcare

Increase Spending

Lower Taxes

(Not in any specific order of preference!)


Mike Norman said...

Tom,

I know these are not MMT discussions, per se. MMT is only a description, but the politics inevitably gets lumped in. Stephanie did such a wonderful job, it just bothered me that she seemed to get a little defensive when Lyster pressed her on spending. And Warren always seems to want to frame his proposals around tax cuts and the private sector to appease(?) Republicans and free marketeers? What's that all about??

paul said...

"Where'd they get the money from to do that?"

Borrowed it from China of course. :-)

Adam2 said...

What? you are telling me there is no Milatary Spending Trust Fund that is in the black that in 2040 might go in the red?

jamienewman said...

I think one way for the Obama administration to get through the current impasse -- as ridiculously artificial as it is -- would be to (a)to agree to an extension of the Bush era tax cuts for all taxpayers in exchange for (b) significantly more stimulus money to be given to states and municipalities for the purpose of creating jobs for low wage, low skill workers (c) to be "financed" by reductions in defense spending, and, in particular, by a plan to begin withdrawing NATO forces from bases in Europe and Asia unless our NATO "allies" agree to pick up the tab for those troops and bases.

In the interests of retiring, once and for all, the idea that payroll taxes "pay for" Social Security and Meidcare, I'd ultimately like to see those taxes eliminated, and then fold the discussion of how we "pay for" those programs into the more general discussion of how we "pay for" all the other stuff we'd like government to provide.

And then maybe we can get down to business of talking about what it is, exactly, we actually want government to provide, and what kind of world we wish to live in. (For me, that would include a world of less labor, more leisure, fewer useless and destructive consumer goods and services, more parks and recreational facilities, free higher education, energy efficient housing and transport, clean air and water, and only as much defense spending as is necessary to protect us against foreign invasion (which would be pretty close to zero).

Mike Norman said...

"What? you are telling me there is no Milatary Spending Trust Fund that is in the black that in 2040 might go in the red?"

LOL!!!!!!!!!!!!!

y said...

Mosler's argument is:

1. Decide "what size government you want", i.e. what you want the government to spend money on.

2. Having decided this, increase the deficit if need be by lowering taxes.


The current 'Mosler Plan' is:

1. A full FICA suspension
2. $150 billion one time distribution by the federal govt to the states on a per capita basis.
3. An $8/hr federally funded transition job for anyone willing and able to work to assist in the transition from unemployment to private sector employment.
4. An energy policy to help keep energy consumption down as we expand GDP, particularly with regard to crude oil products.

Other proposals include:

1. Implement needed infrastructure upgrades and repairs.

2. Large-scale banking/ financial reform.

3. Universal Health Care Coverage.

4. Support domestic industries with strategic purpose - such as the steel industry (he mentions this in the 7DIF).

5. Get rid of tax and financial stuff that makes children into an "expense" rather than an "investment" (mentioned in 7DIF).

6. Reduce spending on defence somehow (7DIF).

y said...

He also recently suggested raising the minimum Social Security payment to $2,000 per month.

Tom Hickey said...

I know these are not MMT discussions, per se. MMT is only a description, but the politics inevitably gets lumped in. Stephanie did such a wonderful job, it just bothered me that she seemed to get a little defensive when Lyster pressed her on spending. And Warren always seems to want to frame his proposals around tax cuts and the private sector to appease(?) Republicans and free marketeers? What's that all about??

Quickest and most equitable way to increase effective demand in the middle is to get rid of highly regressive FICA. This offends progressives since they believe FICA is the underpinning of social insurance, which is at the root of the problem.

Stephanies did a pretty good job in the time she had but didn't get to to into te details. It's not like getting rid of FICA is a new proposal. It was the lead proposal from the get-go of the crisis.

Stephanie also did not have time to adequately address the inflation and creative destruction questions that Lauren posed, too.

The inflation question is tricky because the Austrian view of inflation (ncrease in monetary base) is different from the mainstream economic definition (continuous rise in price level including wage level). Both of these are different from the ordinary understanding, i.e. price volatility. So talking about "inflation" without explaining these differences can be confusing. Stephanie did mention the standard definition, but I am not sure that the rest of the people got this.

I also think that creative destruction needs to met head on and explained. The view that capital destruction through debt-deflation is automatically "creative destruction" needs to be debunked.

Of course, this is difficult to do on the time allotted. The antidote is to do as you do, Mike, and elaborate in a post afterward. I hope Stephanie will follow up at NEP. I'm sure that Lauren would read it and be better informed next time.

Tom Hickey said...

Lower Retirement Age

Increase Public Pensions & Healthcare

Increase Spending

Lower Taxes

(Not in any specific order of preference!)


Right, I think that this needs to be looked at comprehensively. It's all integrated into a dynamic management policy and strategy.

Tom Hickey said...

@ jamienewman

Right, and this would involve revising US capitalism institutionally. Huge project and not only doable — it is necessary.

Mike Norman said...

He also recently suggested raising the minimum Social Security payment to $2,000 per month.

Good idea as well, but also doesn't ensure we get the capital stock we need.

Granted, we need demand, but demand for what?

Mike Norman said...

That moron Denninger is going after Stephanie now. http://market-ticker.org/akcs-www?blog=Market-Ticker

(h/t Malmo's Ghost)

Tom Hickey said...

Good idea as well, but also doesn't ensure we get the capital stock we need.

Here's where Michael Hudson's proposal to tax economic rent rather than productive contribution in order to discourage rent-seeking and encourage capital investment, spur innovation, and increase productivity.

paul said...

"That moron Denninger is going after Stephanie now."

What happens to the dog when it catches the car?

Tom Hickey said...

That moron Denninger is going after Stephanie now.

Why do they bother putting morons on Capital Account? I guess their audience must be mostly morons.

y said...

They've built this parallel fantasy world in which permanent continuous unrelenting deflation is the best thing possible for an economy, and everything other than that is evil "theft". All apparently based on some pseudohistory scribbled by Rothbard.

y said...

Denninger and Co. I mean.

PeterP said...

Mosler's plan is absolutely logical. The size the gove we want should not depend on the point in the business cycle. So spending = constant spending on govt + filling the variable savings desires of the private sector by targeted direct checks and tax decreases.

You cannot achieve everything with constant spending and tax decreases if you want to target the weak links of the economy e.g. underwater homeowners.

Red Rock said...

Eliminate FICA.
Maintain current tax rates.
Spend $ on Infrastructure.
Build Thorium Reactors.

y said...

Here's the Keynesian Friedrich von Hayek's advice:

“it is merely common sense that government, as the biggest spender and investor whose activities cannot be guided wholly by profitability, and which for finance is in a great measure independent of the state of the capital market, should so far as practicable distribute its expenditure over time in such a manner that it will step in when private investment flags, and thereby employ resources for public investment at the least cost and with the greatest benefit to society…

"To bring about the required changes in the rate of governmental investment promptly enough as a stabilizer, and not, as is usually the case, with such delays that they do more harm than good, would require that the whole investment programme of government be so designed that the speed of its execution could be accelerated or delayed at short notice.”

(Law, Legislation and Liberty, Volume 3.)

Mike Norman said...

Why do they bother putting morons on Capital Account? I guess their audience must be mostly morons.

Yes, by design. It's how they talk about and present things. Their producer thinks this is a winning strategy.

I expect Demitri to be chiming in here any minute now. What are your ratings, Demitri? How many households do you reach?

Mike Norman said...

Same strategy on Fox Business and that's why their ratings suck. Their ratings are even too low to publish.

Matias Vernengo said...

My two cents. More spending is needed, and in my reading of the evidence it would be more efficient. Also, that does not preclude maintaining the lower payroll taxes for the middle class, while letting the income tax for the wealthy go up.

Chewitup said...

Mike,
In a balance sheet recession and deleveraging environment, putting money in people's pockets will also be used to pay down debt. Getting consumer and business credit flowing again will require credit worthy customers. Tax cut stimulus is the RX for that.
I am not against spending, but the politics of "bridges to nowhere" and pork barrel spending is a tougher sell.

Tom Hickey said...

More spending is needed, and in my reading of the evidence it would be more efficient.

I think we have to see this in the context of what happened at the time of Reaganomics. Public investment was cut back and the consequence has been declining infrastructure in the US. From the economic point of view, catching up on this is most efficient and effective longer term.

But it seems to me that short term the quickest way to get $ into the hands of people that would spend it, as well to delever, was a full FICA holiday if not repeal.

That should have been done immediately, along with federal aid to states to head of the massive cutbacks that followed. The block grant Warren proposed addressed this.

Infrastructure improvement should have been addressed at the outset, too, and to an extent it was. But that takes a while to implement, especially if the implementation is to be efficient and effective.

If the president had listened to Warren instead of Larry, and could convince Congress (then Dem controlled), things would be different now. That was not to be, but it is not too late to implement those things now.

The point about infrastructure is that this is decades overdue and it really has little to do with the crisis. The crisis is a good "excuse" to do it promptly tho.

The ideal time to implement large public works programs is when non-govt is saving and needs the offset to pick up the slack without concern about inflationary pressure. Even with modest economic improvement, employment is stuck in the doldrums, and a lot of that is in construction, which infrastructure would address at least in part.

y said...

Mosler's universal health care coverage plan includes:

"government should fund at least 90% of health care costs paid for by businesses".

This would be the equivalent of a large tax cut for businesses.


http://moslereconomics.com/2009/03/02/mosler-health-care-proposal/

Dan Kervick said...

I'm with you Mike. I guess I'm in the Big Government camp of MMT. Here's how I put it over at Matt Yglesias's blog, following yet another hyperbolic Yglesias post on yet another Fed policy shift. My comment was written in direct response to a comment by a 35 year old guy who says he has little hope for a more prosperous future:

I wouldn't exactly argue that you should have "hope", because who can predict how long our country will continue to be run by the zombie dead. But I would argue that you should firmly believe that a much more prosperous future is possible, and that you are thus being robbed of it by political decision-makers. Growing and progressing and increasing the general prosperity isn't some unpredictable fluke of nature or act of the invisible gods of the invisible hands. It is a choice countries can make, and when they make that choice they move ahead, even if the precise path can't be predicted. This country, and the continent of Europe, have chosen stagnation instead. We are all run by a generation of mercenary, timid and lobotomized leaders who think it is much more important to protect the property claims and rent checks of the existing owners of an economically decadent society, then to act to mobilize the nation's physical and human resources to develop the country.

A US that was in a much worse condition than the current one in the 30's mobilized its latent capacity to fight and win a global war, doubling the size of the economy in just under six years, and laying the foundation for two subsequent decades of strong growth and minuscule unemployment, powered by ongoing public investment in the economy with the public expansion of highways, educational opportunities, housing and high technology.

And none of this happened because the Fed set a new blah-blah target.

Dan Kervick said...

Neil, I think the Job Guarantee is an excellent approach to economic stabilization, and can help with a variety of other social ills related to unemployment. But the JG is something over and above other government spending on public investment and employment unrelated to minimum wage public jobs aimed mainly at macroeconomic stabilization. The larger problem, I think, is that even with that kind of demand support and price stabilization scheme, the private sector just cannot do on its own what needs to be done. I'm telling all the young people I speak to that they have a planet to save and a new world to build, and they need to get busy doing it. It's not just going to happen as a result of local lifestyle choices, and the current generation of leaders doesn't seem intellectually or emotionally equipped to handle the job. Frankly, the kids need to grow bigger ba**s than their parents have.

Tom Hickey said...

This would be the equivalent of a large tax cut for businesses.

Yes, it makes no sense to tax businesses in productive gains or require them to provide employee benefits as part of the compensation package.

Of course, economic rent should be taxed and uniform standards set for safety and working conditions. I also see no reason not to put tariffs on imported products that are produce below the importer's standards.

Matt Franko said...

Perhaps Denninger disagrees with Kelton in that SK never mentioned the part about the "money disappearing into the ether..."

Dan Kervick said...

The fact that there is going to be some kind of deficit-contracting budget deal in the US is now set in stone. I just hope it doesn't do too much damage. The best that can be hope for is that the nail-biters who think we are nearly "out of money" will chill out after the deal is inked, and get back to business.

After that's done, I hope Obama reflects on the fact that has basically just presided over a wrongheaded replay of the 1929-1931 Hoover stage of government response to a sever collapse. But unlike Hoover, he lucked into re-election. Now it's time to gun up the Roosevelt stage.

Tom Hickey said...

If Obama has any usefulness to the Dems at all, it is in finishing off the New Democrats and the Third Way.

HRC in 2018 is laughable. She would get zero progressive votes.

y said...

Demetri opines on MMT, and Lauren Lyster gets her revenge on Mike!:

"Is Modern Monetary Theory a recipe for Statist Capitalism and Central Economic Planning?"

http://www.youtube.com/watch?v=Lq0RcnXdqhM

xan said...

I suppose it all depends on what gov't spending is being spent on. Since it's all about the resources.

Currently I am not using many scientists myself, and don't see myself using too many in the future, certainly not directly. So I guess the gov't could hire some of them and find useful things to do with them. Thorium is a good place to start, as someone else has already mentioned. Also, I am not personally in need of rockets, rocket fuel, or lunar modules, so sending people to the moon wouldn't harm my personal economy. Maybe they could use some of the engineers and fuel currently being used overseas to kill people.

Also bridges in my neighbourhood fall down at an above-national-average rate. Maybe new bridges would be a good thing. There's got to be some extra concrete around, and I know there is steel because they just shut down an iron mine up north because no one is buying it.

I have also noticed a lot of things don't get done because, it is claimed, wages are too high. Now I know my pay cheque is not so big, so something else must be making wages too high. Maybe we should not tax labour. Maybe we should try to just tax bad things. Like machines that trade stocks every 6.2 seconds.

Those are some of my ideas.

Tom Hickey said...

@ xan

Nice.

John Zelnicker said...

xan -- Are you sure that's not 6.2 times every second? ;-)

modernmoney said...

Tax Cut or Spending - it doesn't matter, depending where they're directed they're equivalent.

Spending on the unemployed is good, why because a tax cut is not going to help them if they're not earning enough to pay tax.

Tax cut on the employed is good as it gives all more income.

In both cases consumers have more income and we know income creates sales and sales create jobs.

It's not that hard to work out the function and your politics determines which one you do where.

Tom Hickey said...

Right, it's a question of actual needs and multipliers. But when timing is crucial a tax cut is quick, and so is a transfer, such as the checks that the Bush admin sent out.
Can you imagine what the GOP would say if a Dem admin proposed that?

Letsgetitdone said...

I'm for the full payroll tax cut; but otherwise I'm for new spending: State Revenue Sharing at $1,000 per person; a job guarantee; a major infrastructure program including repairing and upgrading educational facilities; new energy foundations programs; imediate new programs to counter climate change. As full employment approached, and demand-pull inflation became a factor; if we still needed more public sector spending to be done then I'd radically increase taxes on the well-off to create more policy space, and even impose pice and wage controls where needed. I don't want to fool around anymore in meeting our energy, environment, and climate problems. We must have full employment with ecological sustainability; nothing else will do.

Tom Hickey said...

I don't want to fool around anymore in meeting our energy, environment, and climate problems. We must have full employment with ecological sustainability; nothing else will do.

Agree, Joe. This is the sort of framing we should adopt and give it urgency, like neoliberals have given "expansionary fiscal austerity" urgency in order to further their socially and environmentally destructive goals that only benefit a few at the expense of many.