A strange and extraordinary claim is currently doing the rounds in the halls of power and academia. The claim is part and parcel of the emerging school of Modern Monetary Theory (MMT) and is packed in the short meme “Taxes Don’t Fund Spending”. You read it well. It basically covers the idea that states with their own sovereign money system spend money created out of nothing (and can not go bankrupt) and when people pay their taxes, money gets destroyed.
Updated on October 20, 2020
The MMT claim that taxes don’t fund federal government spending can be broken into parts. Part of the claim is that unlike lower levels of government and everyone else, the federal does not have to get dollars before it can spend them. I think this can be proved. When the government runs budget deficits, it appears to borrow dollars by selling securities. If, however, it just recycled the same number of dollars back into the economy that it appeared to take out with the sales, it would not add more and the spending could not be inflationary. But deficit spending may be inflationary, so new… Read more »
Thanks, Govert and AFJM for positing for consideration and discussion one of MMT’s more outrageous monetary-economic postulations – being the one that “TAXES DO NOT FUND SPENDING”. To begin, important that this is NOT anything to do with Post-Keynesian Economics, the bonafide safe harbor for most MMTrs. This is pure Moslerian Economics, and if you think about the history of P-K Economic leadership, the exact opposite of their Philosophy…. to wit, Government MUST spend more in times of downturns, and do so by EITHER deficit spending, OR by “printing the money” . EVERY noteworthy P-K Economist occupied that monetary-economic Fiscal… Read more »