Government spending doesn't create a future tax liability

Discussion in 'Markets & Economies' started by mmm....shiney!, Jun 4, 2020.

  1. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    This is my understanding of what MMT has to say about this topic.

    The old classical view of economics (and the most libertarian) maintains that government revenue constrains (or should do) the capacity of governments to spend. This view assumes that the State issues a commodity currency, whether it's sea shells, gold/silver or a gold/silver backed currency. The State's capacity to issue currency is limited by its revenue, that is, its ability to access and hoard whatever commodity it issues as legal tender.

    Governments have various means by which to access and hoard commodity currencies. They can tax, they can wage war, they can debase the currency or they can nationalise the means of production of these commodities. These are what can be referred to as government revenue streams.

    Since we threw off the last remnants of a gold backed currency AND floated the AUD, the Australian government, like every other sovereign nation in the world now finds itself in a position where its revenue does not constrain its capacity to spend. Sovereign nations now have a never ending supply of money at their disposal.

    The function of taxation therefore is not for revenue raising, it is simply a means by which the State can impose its currency on the people and control the amount of money in the system ie add or withdraw purchasing power from the private sector. When it spends it adds purchasing power, when it taxes it subtracts it. And the key metric for determining whether and how much money the State should inject or extract into the system is the employment rate.

    This is the background of how our modern monetary system now works.

    Government funding is limitless. It is an eternal well that can never dry and the taxpayer now or in the future is not required to pay for any of it because governments don't need taxpayers to fund their activities in the first place.
     
    wrcmad, crewy, LiverBird and 4 others like this.
  2. heartastack

    heartastack Well-Known Member Silver Stacker

    Joined:
    Sep 2, 2010
    Messages:
    1,346
    Likes Received:
    877
    Trophy Points:
    113
    Location:
    Idaho
    Does this mean that what may be more important is how the currency is valued against other currencies? The key issue being an accelerating lack of trust in the system? So it's less about a nominal debt value in most cases if the wheels of industry remain turning.
    In this sense I see PM's and digital currencies finding a final place as reference currencies with an objective attribute with regards to supply (gold already being trashed by paper assets and false reporting, for now) - rather than just being a means of backing existing currencies which has been the view pumped so hard by PM experts all these years - it should just become a natural phenomena to satisfy the demand for trust. The 'stable coins' that are the hottest project in crypto now might just eventually siphon all the world's currencies until digital currencies are the only game in town, pitched against gold for value reference.

    This is pretty much what is being done already but having no trusted 'reference' currency/money is what significantly contributes to the volatility and allows corruption to continue at the expense of the working class.

    Let me know if I'm talking crap here..
     
    Last edited: Jun 4, 2020
    Silver260 likes this.
  3. Silver260

    Silver260 Well-Known Member Silver Stacker

    Joined:
    Dec 11, 2014
    Messages:
    472
    Likes Received:
    671
    Trophy Points:
    93
    Location:
    Queensland
    In principle I completely agree.

    But while countries like the US, and Japan, have given up hope of ever having a balanced budget, Australia still has an obsession with the concept.

    What was the last slogan?, "Back in black". The next one will be equally cringe worthy, I'm guessing something like... Getting the budget "Back on track".

    I'm putting money on the concept of "trickle down" economics being put into overdrive, combined with consumer based taxation increases and expenditure cuts.

    But, and its a big but, maybe Mr Lowe will get them to see it from a different perspective. But I'm not holding my breath.
     
  4. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    Nice summary of MMT. Hope more people start to understand this.
     
    mmm....shiney! likes this.
  5. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    You touched on the most important part, industry keeps turning. If government spending goes to important projects that create real wealth then it’s a net positive. But if government uses it to support failing companies and social programs then it will be a net negative. Keynes talked about this back in the days.
     
  6. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    This is what I think he's been trying to do. But I think what will happen is what @leo25 referred to, much of the cash will go toward supporting their mates and propping up the various sectors in Australia that are politically important - housing, agriculture, construction and renewable energies (maybe even tourism related industries too). They're politicians after all. I'm not sure any fiscal policy will be driven by the key metric of employment, they'll view any improvements in the employment rate as a spin-off from the support they give to these sectors.

    Those stable coins are just so damn convenient aren't they? I can go from AUD - USD - BTC - and back to USD with a few clicks and pay 0.00% in fees when I trade the crypto portion of those transactions. Wish we had an AUD stable coin to make it even easier. And yes, gold and cryptos will be safe havens, whether that happens or not is another thing. ;)
     
    Bullion Stax and Silver260 like this.
  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    This was both Japan's ascent and its downfall don't you think?
     
  8. willrocks

    willrocks Well-Known Member Silver Stacker

    Joined:
    May 10, 2012
    Messages:
    7,217
    Likes Received:
    3,647
    Trophy Points:
    113
    How is MMT compatible with libertarianism?

    They don't seem compatible at all.
     
    mmm....shiney! likes this.
  9. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    I've only been to Japan once for a 2 week holiday, so my view is limited. But from what i did see, it seems like they did a good job with MMT. They have a strong production base and good infrastructure.
     
    mmm....shiney! likes this.
  10. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    From my perspective it's not. Unless some minarchist can come forward with a compelling argument that suits their form of libertarianism.
     
    willrocks likes this.
  11. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    Yep, it was their property boom and subsequent bust I was thinking of regarding their downfall. I don't know how that happened but I'd say that the pollies just couldn't resist feeding the property frenzy.
     
  12. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    The 80s asset bubble was more to do with banks reckless lending and people having FOMO. Like with any bubble.
     
    mmm....shiney! likes this.
  13. Ag bullet

    Ag bullet Well-Known Member

    Joined:
    Dec 27, 2013
    Messages:
    1,318
    Likes Received:
    1,076
    Trophy Points:
    113
    Location:
    SE QLD
    and what have we spent our mining boom (30 years of growth) money on?

    imagine having a Japanese style bullet train from Brisbane-Sydney-Melb!
     
    leo25 likes this.
  14. heartastack

    heartastack Well-Known Member Silver Stacker

    Joined:
    Sep 2, 2010
    Messages:
    1,346
    Likes Received:
    877
    Trophy Points:
    113
    Location:
    Idaho
    Everyone in Aus can afford $600-$800 two way plane tickets between Perth and Melbourne instead...
     
    Ag bullet likes this.
  15. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    A lot of useless government workers and lollipop girls.
     
  16. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    Some in Aus can afford $600-$800 two way plane tickets between Perth and Melbourne instead. :)
     
    Ag bullet and heartastack like this.
  17. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

    Joined:
    Nov 15, 2010
    Messages:
    20,659
    Likes Received:
    3,641
    Trophy Points:
    113
    Location:
    昆士蘭
    Up here it was JetSkis, Hiluxes and 7m glass boats.
     
    Ag bullet and heartastack like this.
  18. willrocks

    willrocks Well-Known Member Silver Stacker

    Joined:
    May 10, 2012
    Messages:
    7,217
    Likes Received:
    3,647
    Trophy Points:
    113
    It's often cheaper to fly than to ride the bullet trains in Japan.
     
    Ag bullet likes this.
  19. leo25

    leo25 Well-Known Member Silver Stacker

    Joined:
    Jun 8, 2010
    Messages:
    3,619
    Likes Received:
    1,898
    Trophy Points:
    113
    Location:
    Sydney
    True, but it’s so much more convenient to use the train. If you even slightly value convenience then the Shinkansen is a no brainer.
     
  20. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

    Joined:
    May 25, 2018
    Messages:
    2,807
    Likes Received:
    1,546
    Trophy Points:
    113
    Location:
    Singapore
    The domestic airport and planes in Japan when I was there more than 10 years ago were incredibly efficient, they were like commuter trains. No difference at all. I skipped the shinkasen as they cost like double the price, but as it was a business trip, travel time was also a factor.
     
    willrocks likes this.

Share This Page