Ep104 [2/2]: Warren Mosler answers patron questions (also: government interface)

Welcome to episode 104 of Activist #MMT. Today's part two of my two-part conversation with Warren Mosler, where he answers several patron questions. You'll find all them, with written responses from Warren (including data from FRED) below. In part one Warren talked about how his ideas for MMT came partially from a love of tinkering and, more broadly, a desire to understand complex systems. Those systems can be physical, such as controlling electricity with wires, batteries, light bulbs, and soup cans as a child, or race cars and large passenger ferry boats as an adult. These systems can also be conceptual, such as by playing chess and bridge as a teenager. Before we begin part two, a few notes: First, a country trading raw resources such as coal, for highly processed products such as televisions, is, as Warren says, not inherently a bad thing. What's bad, as illuminated by the work of Fadhel Kaboub and others, is when a country is coerced into making a trade they don't want to make. Second, Warren gives many examples of how government's interface with its citizens is poor, from anxious cops during routine traffic stops, to regulators making blatant mistakes that can only be undone through inordinate – and very expensive – red tape. I believe strongly, and as best as I understand, that these incidents are symptoms of the larger problem that the rich bribe our so-called elected representatives, and lock the poor out of their government in myriad ways. The poor have no avenues to stand up to these small injustices, so the rich have no incentive to stop this terrible behavior. And finally, Warren describes one of these incidents, when his company was extorted by the IRS for a million dollars, to resolve a blatant error by the IRS. Like student loans, of which ninety percent are owned by the US Department of Education, this is another example of a currency issuer demanding money that it clearly does not need in any practical sense. And now, back to my conversation with Warren Mosler. Enjoy. Patron questions, with written answers by Warren Mosler Nathan Becker While it is true that the federal government is a net interest payer and higher interest rates would lead to the government paying more in interest income; isn't it also true that the majority of Americans do not hold government debt as an asset that would earn them higher income but hold mortgages and other debt instead which have a negative impact with higher interest rates? So wouldn't higher interest rates be less inflationary given these circumstances in the US? What would be your recommendation for controlling inflation while also stimulating economic growth in such a situation? Warren's response: Households are net savers (For much more on Nathan's question, including more detailed responses by Warren, please see the bottom of next week's interview, episode 105, which is a written interview with Nathan [the link will be made available here on Sunday, January ninth]). Susan Eldridge, question one of two If we have to tax to give value to the USD, what is the best way to to ensure everyone shares this tax obligation fairly? Warren: Free healthcare, Free education, Job Guarantee, 0 rate policy, property tax, high quality low cost public transportation, etc. Susan: What about taxing corporations? Warren: Regressive- it's paid by the consumer Susan: Can we reduce wealth inequality by a wealth tax? Warren: Maybe some, but easier/more effective to eliminate the source as per my proposals Susan: Since we already have progressive taxation isn't the problem due to tax loopholes? Would enforcing tax laws already on the books reduce wealth inequality? Warren: Probably not. And more important, the real compliance costs are something like 15% of gdp and those real resources could otherwise be for the benefit of all. Ganesh Balamitran When the Govt spends (say to create infrastructure), doesn't it create new assets in exchange for the spending? Warren: Spending adds $ to bank reserve accounts and those $ are new net financial assets. Ganesh: Could we say the budget is balanced with these new assets that are created against the liabilities of the Treasuries issued. Warren: You can say the accounts balance but 'the budget' has its own definition. Ganesh: Does it need to be balanced with revenues (taxes or pay-fors)? Warren: Not per se. Ganesh: Where (in its books) does the government value and list all the new assets created? (If we spend billions to educate our youth, those human resources are also new assets worth billions to the economy, if not more). Warren: That would be on the balance sheet which it generally doesn't prepare or present. Ganesh: Just trying to see if there is another way to work around the 'Balancing the Budget' argument. A friend of mine (who I introduced to MMT) asked me this question, so I thought I would pose it here. He felt like if we could keep some of the sound economics framework by speaking of all the new assets that come from the spending, it would be more palatable to people and politicians. Warren: Doesn't work that way, sorry. Advait What does Warren think of the idea to eliminate all sub-national taxes? Instead of states, cities, counties, localities, etc collecting local taxes, all of them just submit budgets to the national govt and the govt gives them whatever money they demonstrate that they need. Warren: I've proposed those taxes be eliminated and the states get per capita annual grants sufficient to cover desired state and local budgets. Advait: Get rid of all the many layers of sub-national tax collecting apparatus and staffing. The national govt would have sufficient budget analysts and auditors to make sure all the budgets are reasonable and sufficient for the well-being of local citizens. Warren: The per capita formula simplifies that as well. Advait: There could be a national "standards of public service" which dictates and mandates all the public services to be provided to all citizens for their well-being and flourishing. No more instances of localities going bankrupt or defaulting. No more blatantly unfair local tax codes. Eliminate all sales tax except as needed to encourage socially healthy behavior (like taxes on cigarettes, alcohol, yachts, luxury items, unhealthy foods, etc.) Also eliminate all local taxation to fund public schools; all schools get the same money per child from the national govt (perhaps adjusted for local cost-of-living variations). Imagine the elimination of all the time and effort that goes into calculating, paying and processing the myriad of local taxes. Warren; your thoughts? Warren: Yes, as above. Advait: And many thanks to you, Warren, for your tireless efforts to spread the word on MMT! Great work! Warren: Thanks!!! Greg Olsen Since the MMT lens reveals that foreign exports are a real cost for the exporting countries, why do sovereign governments place foreign trade so highly? Warren: Their exporters are in control of the narrative maybe? Greg: In Australia, where I live, the performance of our economy is always predicated on a favourable export market. This is never challenged by politicians nor economics media journalists. Why is this so? Warren: How powerful politically are your exporters? Greg: I would imagine that exports are OK when a sovereign country's needs have been fully met through their own production of goods and services. Does that align with the MMT view of the value of exports? Warren: Yes. Exports are the cost of imports. Kevin Shea Ask Warren to comment on the velocity of money vis-a-vis the money supply and inflation, and the effects fiscal spending has on the money supply, the velocity of money and inflation. Warren: No need to do that. Just count bodies in the JG pool and decide if it's too many or too few, then adjust fiscal accordingly. Kevin: Ask Warren to please provide data on his interpretation of the effects of rate increases through the interest income channel, i.e., specifics on the amounts of interest income pumped into the economy with a rate increase versus the slow down effects of the same rate increase on lending and the economy. Warren: Those are the propensity to spend from interest income. My Fed contact said they are pretty close to equal, but that he believed they may be a bit higher for borrowers. Susan Eldridge, question two of two A little euro centered but my other question has to do with the oft repeated refrain that other countries pay much more in taxes (eg Denmark, Sweden, Norway) but they get more social services. So we should do the same here. But while they issue their own currencies even though they belong to EU (I think) they are pegged to the euro so is that why they pay much higher taxes? Warren: No, it's because of the higher public spending on goods and services, including healthcare. Tax liabilities create sellers so gov can buy. More buying requires more tax liabilities, all else equal.