Government spending doesn't create a future tax liability

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.

 

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..

 

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.

 

Nice summary of MMT. Hope more people start to understand this.

 

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.

 

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.

 

This was both Japan's ascent and its downfall don't you think?

 

How is MMT compatible with libertarianism?

They don't seem compatible at all.

 

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.

 

From my perspective it's not. Unless some minarchist can come forward with a compelling argument that suits their form of libertarianism.

 

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.

 

The 80s asset bubble was more to do with banks reckless lending and people having FOMO. Like with any bubble.

 

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!

 

Everyone in Aus can afford $600-$800 two way plane tickets between Perth and Melbourne instead...

 

A lot of useless government workers and lollipop girls.

 

Some in Aus can afford $600-$800 two way plane tickets between Perth and Melbourne instead.

 

Up here it was JetSkis, Hiluxes and 7m glass boats.

 

It's often cheaper to fly than to ride the bullet trains in Japan.

 

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.

 

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.