MMT points out that currency-Issuing Governments, like the US and UK, don’t need tax income to finance their spending. That’s not to say they are not needed; they are an essential policy tool.
Much agree with MMT and its policy implications but at the same time I am puzzled with Kelton’s S(TAB) government’s activities sequence. The Treasury keeps a transactions account with the Fed called the Treasury General Account (TGA) and it’s through this account that all revenues and spending take place. Within the current legal framework the TGA cannot go into overdraft, which means that before the Treasury is engaged in any kind of spending this account must have a positive balance. And the only way for this to happen is for the TGA to be credited with reserves through prior either tax receipts or bonds sales proceeds. MMT conflates the activities of both Fed and Treasury into one consolidated balance sheet and because of that they say that funds go from left pocket into right pocket. However, with disaggregated balance sheets this isn’t true for the reasons stated above. The TGA is an assets only account into which reserves are credited with tax receipts and proceeds from borrowing (bonds sales) and debited with government expenditures. The Fed’s liabilities consist mostly of currency and banks’ reserves, and its assets are mainly securities. Since the GFC the Fed exploded its balance sheet through QE from the norm of around $800 bn to almost $9 tn in 2022. This represents a huge increase in monetary base but a rather insignificant expansion of the money supply. Banks instead of lending for productive investment projects engaged in speculative financing with the result of inflating financial assets and real estate prices. As far as the Treasury is concerned, given that with the present institutional arrangement borrowing precedes spending and assuming that all bonds eventually are sold to private investors the money supply initially decreases (bonds are swapped for deposits) but after the Treasury spends the money supply is restored to its previous level (increase in public’s deposits). Therefore, no new fiat money is created as a result of deficit financing via prior increase in borrowing. However, when the government engages in deficit spending it stimulates economic activity, reduces unemployment, increases national debt, and increases private saving and financial wealth as well. In conclusion, no matter what the government spending-finance sequence is a well-thought-out and targeted deficit spending no doubt will have beneficial effects for the economy and society.
The Fatal Flaws of Modern Monetary Theory: The Illusion of Infinite Money
Modern Monetary Theory (MMT) has gained traction in recent years, championing the idea that governments issuing their own currency can never "run out of money." In theory, taxation is not required to fund spending—governments can simply print what they need, with inflation being the only real constraint. This argument, while technically valid, ignores critical economic realities that make MMT a dangerous oversimplification.
1. Money Is Not Just Paper—It’s a Claim on Real Value
The foundational flaw of MMT is its failure to distinguish between currency and real money. Historically, gold and other hard assets have served as true money because they settle debts definitively—they are not someone else’s liability. Fiat currency, by contrast, is merely a promise of future value, a piece of paper that only works so long as trust in the issuing authority remains intact.
When a government prints money, it is issuing debt, implicitly or explicitly. The paper itself is meaningless unless it represents a claim on real goods and services. If trust in that promise erodes—whether due to excessive money creation, declining productivity, or social instability—the currency’s purchasing power collapses, and hyperinflation becomes a real risk.
2. Who Absorbs the Debt? The Hollowing Out of the Middle Class
MMT assumes that government-issued money will be absorbed by the economy without consequence. Traditionally, a functioning economic system consists of:
- The poor, who consume.
- The middle class, who work, save, and invest (and historically buy government bonds).
- The rich, who deploy capital into productive enterprises.
However, successive bailouts and financial interventions have destroyed this structure. The middle class—the backbone of debt absorption—has been eroded. The super-rich don’t need government bonds, and the poor can’t afford them. That leaves central banks or foreign entities as the primary buyers, pushing the system toward artificial liquidity dependence.
3. The Economy Runs on Debt-Driven Speculation, Not Productivity
Because of endless government intervention, financial markets no longer price assets based on economic fundamentals. Instead, markets move in anticipation of further stimulus. This has created successive bubbles across stocks, housing, and even alternative assets like cryptocurrency. The economy is no longer driven by wage growth and productivity, but by speculative debt expansion.
This cycle is unsustainable. Real wages have stagnated, while inflationary pressures—previously hidden within asset bubbles—are now manifesting in consumer prices. Governments face an impossible choice: continue printing and risk hyperinflation, or cut liquidity and trigger financial collapse.
4. Inflation Is Not Just a Tax—It’s Wealth Transfer to the Elite
MMT proponents argue that inflation can be controlled through taxation. This ignores the reality of who benefits from inflation. When money is printed, it enters the financial system first, benefiting those with access to capital (banks, hedge funds, corporations). The wealthy can front-run inflation by investing in assets that appreciate, while the working class sees wages lag behind rising prices.
Inflation is not just an economic phenomenon—it is a mechanism of wealth transfer from the poor and middle class to the elite. The system is rigged to ensure that those who own assets win, while those who earn wages lose.
The Real Endgame: Currency Devaluation or Collapse
With the traditional class structure broken and economic fundamentals ignored, we are heading toward a singular question: Who absorbs the next wave of government debt?
- If no one wants it, central banks will continue monetizing it.
- If central banks keep printing, inflation will rise beyond control.
- If inflation destroys trust in fiat money, we face either extreme devaluation or hyperinflation.
MMT operates in theory, but real-world constraints—trust, economic class dynamics, and debt absorption—make it a self-defeating illusion. Money is not just paper, and economic reality always catches up. The only question is when.
Fair point. In reality, markets have "always" been influenced by external interventions, whether through monetary policy, government spending, or outright manipulation. However, the degree to which markets have become detached from fundamentals has significantly increased in the last few decades.
Historically, markets at least attempted to reflect economic fundamentals—corporate earnings, productivity, innovation, and overall economic growth. But as financialization accelerated (especially post-1971 when the gold standard was abandoned), markets increasingly became vehicles for monetary expansion rather than economic performance.
- In the 1980s and 1990s, interest rate policies and deregulation allowed for massive credit expansion, but corporate earnings still played a major role in valuations.
- After 2008, central banks engaged in near-permanent liquidity injections (QE, low interest rates, repo market interventions), making financial markets dependent on government action rather than intrinsic economic strength.
- By 2020-2021 markets had fully decoupled, with stock prices soaring even as real wages stagnated and economic output faltered.
So, I should have said "markets have become increasingly detached from fundamentals due to relentless government intervention."
They were never fully "pure," but the degree of distortion today is unprecedented.
It has a limited supply, can't be printed, and represents a store of value because it takes work to acquire it. It doesn't tarnish and as a noble metal is intrinsically valuable, particularly in modern society and with modern technology. It's been "bling" throughout history because people like shiny things, they think it's valuable. Legally, it's the only thing that is actually money because it actually settles a debt rather than passing the debt on Via an IOU. This has never changed since Roman times... The only definition of money is gold, otherwise it's credit.
None of those things have anything to do with "inherent." Lot of shiny things in this world, people in antiquity decided arbitrarily that gold was more valuable than other shiny rocks. Your fight isn't with MMT, it's with modernity,
Paul, you claim that none of the things I mentioned have anything to do with being "inherent," but they absolutely do. The properties that make gold valuable—its limited supply, resistance to corrosion, divisibility, and high utility—are not arbitrarily assigned by humans; they are intrinsic to the element itself.
Gold doesn’t tarnish because of its electron configuration. It doesn’t degrade over time, making it uniquely suited for long-term value storage. It has a limited supply because it is rare in Earth’s crust and requires significant effort to extract. These are all inherent, physical characteristics that give gold an edge over other materials.
People throughout history didn’t just pick a random "shiny rock"—they gravitated toward gold precisely because of these inherent properties. If value were assigned arbitrarily, why hasn’t another metal, like iron or lead, taken gold’s place as a store of value? The reason is that gold’s properties—its scarcity, durability, malleability, and resistance to corrosion—make it uniquely suited to be money. That’s not an arbitrary human decision; it’s a recognition of inherent advantages.
You're serious, aren't you? That's worse than being wrong.
Lot of minerals have utility. Gold is scare relative to what? Where?
Really funny is that you keep describing a whole lot of arbitrary things that were determined by ancient cultures that believed that prosperity was determined by a tribal deity as "inherent." Your view relies on accepting things just because.
I am serious because I literally explained to you why gold is inherently valuable and why it wasn't arbitrarily determined by ancient cultures. What's really funny is that you don't see this. Thanks for the chat.
I think I understand what you’re saying. The problem I’ve always had with this MMT argument about taxation not funding government expenditure is that it seems to be obsessed with the mechanics of the transfer rather than the end result.
Suppose the government decides to spend an additional £1 billion on the salaries of nurses in the National Health Service. The government realises that this additional expenditure might create inflation so it decides to prevent this by increasing income tax by £1 billion.
The net result of this is obviously that nurses in the NHS are £1 billion better off and taxpayers are collectively £1 billion worse off. Another way of putting this would be to say that taxpayers are “paying for” an increase in nurses’ salaries. To deny that this is what is happening because the money from taxpayers’ bank accounts does not go directly into the nurses’ bank accounts does seem like sophistry.
Having said that, I can think of one policy area in which the MMT analysis is useful. Supporters of immigration often claim that we need immigrants to pay the taxes to fund our public services. Obviously all we need to have a successful NHS is qualified medical staff, buildings and medical equipment. It is absurd to say that we need to import delivery drivers into the country so that they can “generate the wealth” needed to pay for the NHS. (I suspect, though, that most supporters of MMT are pro-immigration for reasons which have nothing to do with economics!)
Thanks for your thoughts Opus - they are very welcome. Here are my thoughts - as I think about what you are saying. Understanding the mechanics allows the government to concentrate on the 'end result'. Instead of arguing about, "how are we going to pay for this" the government can concentrate on getting on with the job - as promised to the voters who put them there. In Stephanie Keaton's, The Deficit Myth you will see that a large chunk of the book is about what can be done, when you dispense with the distraction of the deficit myth. You will find the same thing in Dirk Ehnts Modern Monetary Theory, i.e., lots about the policy implications of having a more accurate understanding of how Fiat currencies work for currency issuing countries. We want our mechanics to know how our car works so they can fix it: it's not a weakness, it's a necessity. A few things about your example: 1. Health workers are tax payers and they also get paid - which they spend into the economy. 2. Health provision is fundamental need for every country: it's not a minus to support an NHS - in fact - its the most efficient approach (as studies show - private health is the most expensive approach) and it's a plus: a service for all workers/tax payers. 3. New workers in the heath service - come from somewhere: they may well be a transfer from the private sector or from a pool of unemployed or underemployed or workers new to the job market. 4. When inflation is a worry, there may well be money removed from the economy via taxes - but funding into the health service also increases productive capacity (and production) - and when those workers spend their wages that increase demand. Increased capacity and increased production is also a way to tackle inflation. And of course - a better health service keeps the workforce healthy. I mention these things - to demonstrate that we are dealing with a complex interaction of many variables: not just two – as implied in your comment. 5. An MMT understanding does not cause the inflation, nor does it cause the trade-off between using resources for one thing or the other - it uncovers tools for managing it. In other words, all government who wants a well-funded health service are dealing with these trade-offs: MMT shows us: it is resources that are scarce not finance.
A masterpiece on the importance of taxes. This is a must read here. I am also aware of the fact that it will take a ton of work to convince the public that their tax dollars aren't needed to fund anything on a federal level and especially when you have the richest man who owns X constantly lying about the nation's finances which has become far too commonplace in America or even in the UK for that matter. We must begin to realize the difference between those who use the currency (state and local governments, regular people, and the rich) vs currency issuer (the federal government).
Not everyone is going to be convinced on how money works especially mainstream economists but hopefully there will be enough overtime that finally they're able to wake up to the neoliberal nonsense they've been fed for far too long. Again, it will take a lot of work but the work is obviously necessary. It's dire.
I loved your lesson on why taxes do not fund govt spending. First to dispense with Elon. Elon is unelected, unappointed and unconfirmed head of a psuedo-department created by tRump to ostensibly find "waste fraud and abuse" in govt agencies and improve efficiencies. Ironically, they fired the Inspector Generals who did that job, replacing them with Elon and his League of govt destroyers!
Elon, like tRump, is a malignant sociopathic narcissist with delusions of grandeur. He is no genius, but people think he is because of his enormous wealth. According to his biographers , he stole other peoples ideas and his rich corrupt father helped him buy those businesses. The rest is history.
Now he bought his way into the White House by buying tRump's election and saving him from going to jail. ( I hope they both end up in jail)
Back to your tax lesson. I am a huge believer in MMT's compelling explanations on exactly how our monetary system works. Dr. Kelton's "Deficit Myth" book opened my eyes and started me researching all I could find on this school of economics. ( I subscribe to her substack).
I wanted to know more about the exact mechanics of how the receipt of tax money is destroyed and read Dr. Kelton's 1998 Cambridge U paper #244 on "Can Taxes and Bonds Finance Govt Spending". Steve Keen's explanation of the mechanics of this is extremely detailed with accounting proofs. I welcomed your MMT 101 lesson on how taxes are not used to finance spending because it gave me a clearer understanding on some of the "murky" concepts I had trouble grasping.
By the way, I have tried to explain to several of my IRS friends how taxes do not fund govt spending and they would have nothing of it. They insisted my taxes paid for roads, bridges, salaries of govt workers, etc. Did I think that the govt simply burned our tax revenues?!
Phew. MMT has a lot of work to do in the US because we are constantly and unremittingly gaslighted about our tax dollars going to this that and the other, freaking everyone out.....like Elon's insistence that the Federal Govt will be going BANKRUPT if it continues to fund all the "unnecessary" agencies and programs using all the taxpayer money to do it. Real Genius! But it does not say much about all those who believe it.
Thanks for today's lesson. It is in my "Saved" folder. Good work.
Good comment Sandra. Your anecdote about your IRS friends is a rich one, how ironic. Their wages are a benefit to the non-government sector, and they do not realize.
Might they probably want to reduce their own wages? (to "save" the tax payer some money.) That'd be irony upon irony. Some in the US IRS effectively did this by voting for the Clown King and then getting fired by the Mars King. (A clip from The Majority Report if I recall of one dupe, who was at the IRS to "improve government efficiency" and one of those who had excellent performance appraisals..)
I am not in favour of the divine right of Kings, but can tolerate a benign symbolic monarchy, who live humbly and go around as the community cheerleader, but having two of them who are not worker cheerleaders is beyond the pale.
As for "MMT's compelling explanation" — part of the problem convincing a friend is that MMT'ers still have a theory mindset. It is beyond compelling, it is The Law. There is no reason for the theory-mindset unless debating unproven policies. For state monetary operations the MMT sequence is enshrined in the Law of the Land, it is not up for debate, it can only be not accepted out of wilful ignorance.
At least in NZ and most OECD countries, all our Laws and Statutes are freely available online and have search. No one can convince me IRS staff cannot read legalese.
Such "friends" to me would quickly become mere acquaintances. I do not like consorting with imbeciles (but maybe that's just me). I am happy to plant a seed, but if the soil does not take it I have to move on to more fertile effective ground.
Thanks for your comment Sandra. You are right that it is difficult to convince people about the very basic ideas put forward by MMT. In conversation I try to steer clear of saying the basic ideas directly, i.e. "your taxes don't fund government services" because people have too much prior baggage to swallow that straight away. I find it easier to talk about related topics - where these basic ideas are mentioned in passing. For example I recently did a short talk about monetary sovereignty and I mentioned that some countries issue their own currencies and other don't - and no one batted an eye - they just 'took it as read'. Within the topic I as talking about it seemed very logical. That's probably the way to do it?
Yes. Point well taken. I do try to explain the govt issues/creates money and logically ask why, then, would it need our tax money to spend. But as you say the taxpayer money idea is so imbedded in their psyche that whatever is said to the contrary is dismissed out of hand. They turn on the news and there is some influential congress person or news pundit cautioning them about how their taxpayer money is being spent.
The best I can do is make remarks on the comment section of some newsletters or podcasts to explain the MMT economic perspective and hope maybe it will inspire some thought on its veracity.
Much agree with MMT and its policy implications but at the same time I am puzzled with Kelton’s S(TAB) government’s activities sequence. The Treasury keeps a transactions account with the Fed called the Treasury General Account (TGA) and it’s through this account that all revenues and spending take place. Within the current legal framework the TGA cannot go into overdraft, which means that before the Treasury is engaged in any kind of spending this account must have a positive balance. And the only way for this to happen is for the TGA to be credited with reserves through prior either tax receipts or bonds sales proceeds. MMT conflates the activities of both Fed and Treasury into one consolidated balance sheet and because of that they say that funds go from left pocket into right pocket. However, with disaggregated balance sheets this isn’t true for the reasons stated above. The TGA is an assets only account into which reserves are credited with tax receipts and proceeds from borrowing (bonds sales) and debited with government expenditures. The Fed’s liabilities consist mostly of currency and banks’ reserves, and its assets are mainly securities. Since the GFC the Fed exploded its balance sheet through QE from the norm of around $800 bn to almost $9 tn in 2022. This represents a huge increase in monetary base but a rather insignificant expansion of the money supply. Banks instead of lending for productive investment projects engaged in speculative financing with the result of inflating financial assets and real estate prices. As far as the Treasury is concerned, given that with the present institutional arrangement borrowing precedes spending and assuming that all bonds eventually are sold to private investors the money supply initially decreases (bonds are swapped for deposits) but after the Treasury spends the money supply is restored to its previous level (increase in public’s deposits). Therefore, no new fiat money is created as a result of deficit financing via prior increase in borrowing. However, when the government engages in deficit spending it stimulates economic activity, reduces unemployment, increases national debt, and increases private saving and financial wealth as well. In conclusion, no matter what the government spending-finance sequence is a well-thought-out and targeted deficit spending no doubt will have beneficial effects for the economy and society.
The Fatal Flaws of Modern Monetary Theory: The Illusion of Infinite Money
Modern Monetary Theory (MMT) has gained traction in recent years, championing the idea that governments issuing their own currency can never "run out of money." In theory, taxation is not required to fund spending—governments can simply print what they need, with inflation being the only real constraint. This argument, while technically valid, ignores critical economic realities that make MMT a dangerous oversimplification.
1. Money Is Not Just Paper—It’s a Claim on Real Value
The foundational flaw of MMT is its failure to distinguish between currency and real money. Historically, gold and other hard assets have served as true money because they settle debts definitively—they are not someone else’s liability. Fiat currency, by contrast, is merely a promise of future value, a piece of paper that only works so long as trust in the issuing authority remains intact.
When a government prints money, it is issuing debt, implicitly or explicitly. The paper itself is meaningless unless it represents a claim on real goods and services. If trust in that promise erodes—whether due to excessive money creation, declining productivity, or social instability—the currency’s purchasing power collapses, and hyperinflation becomes a real risk.
2. Who Absorbs the Debt? The Hollowing Out of the Middle Class
MMT assumes that government-issued money will be absorbed by the economy without consequence. Traditionally, a functioning economic system consists of:
- The poor, who consume.
- The middle class, who work, save, and invest (and historically buy government bonds).
- The rich, who deploy capital into productive enterprises.
However, successive bailouts and financial interventions have destroyed this structure. The middle class—the backbone of debt absorption—has been eroded. The super-rich don’t need government bonds, and the poor can’t afford them. That leaves central banks or foreign entities as the primary buyers, pushing the system toward artificial liquidity dependence.
3. The Economy Runs on Debt-Driven Speculation, Not Productivity
Because of endless government intervention, financial markets no longer price assets based on economic fundamentals. Instead, markets move in anticipation of further stimulus. This has created successive bubbles across stocks, housing, and even alternative assets like cryptocurrency. The economy is no longer driven by wage growth and productivity, but by speculative debt expansion.
This cycle is unsustainable. Real wages have stagnated, while inflationary pressures—previously hidden within asset bubbles—are now manifesting in consumer prices. Governments face an impossible choice: continue printing and risk hyperinflation, or cut liquidity and trigger financial collapse.
4. Inflation Is Not Just a Tax—It’s Wealth Transfer to the Elite
MMT proponents argue that inflation can be controlled through taxation. This ignores the reality of who benefits from inflation. When money is printed, it enters the financial system first, benefiting those with access to capital (banks, hedge funds, corporations). The wealthy can front-run inflation by investing in assets that appreciate, while the working class sees wages lag behind rising prices.
Inflation is not just an economic phenomenon—it is a mechanism of wealth transfer from the poor and middle class to the elite. The system is rigged to ensure that those who own assets win, while those who earn wages lose.
The Real Endgame: Currency Devaluation or Collapse
With the traditional class structure broken and economic fundamentals ignored, we are heading toward a singular question: Who absorbs the next wave of government debt?
- If no one wants it, central banks will continue monetizing it.
- If central banks keep printing, inflation will rise beyond control.
- If inflation destroys trust in fiat money, we face either extreme devaluation or hyperinflation.
MMT operates in theory, but real-world constraints—trust, economic class dynamics, and debt absorption—make it a self-defeating illusion. Money is not just paper, and economic reality always catches up. The only question is when.
Liam, what's the "inherent" value of gold?
Financial markets "no longer" price assets, etc. You mean they did at one time? There were no bubbles before deficits? Are you joking?
Fair point. In reality, markets have "always" been influenced by external interventions, whether through monetary policy, government spending, or outright manipulation. However, the degree to which markets have become detached from fundamentals has significantly increased in the last few decades.
Historically, markets at least attempted to reflect economic fundamentals—corporate earnings, productivity, innovation, and overall economic growth. But as financialization accelerated (especially post-1971 when the gold standard was abandoned), markets increasingly became vehicles for monetary expansion rather than economic performance.
- In the 1980s and 1990s, interest rate policies and deregulation allowed for massive credit expansion, but corporate earnings still played a major role in valuations.
- After 2008, central banks engaged in near-permanent liquidity injections (QE, low interest rates, repo market interventions), making financial markets dependent on government action rather than intrinsic economic strength.
- By 2020-2021 markets had fully decoupled, with stock prices soaring even as real wages stagnated and economic output faltered.
So, I should have said "markets have become increasingly detached from fundamentals due to relentless government intervention."
They were never fully "pure," but the degree of distortion today is unprecedented.
It has a limited supply, can't be printed, and represents a store of value because it takes work to acquire it. It doesn't tarnish and as a noble metal is intrinsically valuable, particularly in modern society and with modern technology. It's been "bling" throughout history because people like shiny things, they think it's valuable. Legally, it's the only thing that is actually money because it actually settles a debt rather than passing the debt on Via an IOU. This has never changed since Roman times... The only definition of money is gold, otherwise it's credit.
None of those things have anything to do with "inherent." Lot of shiny things in this world, people in antiquity decided arbitrarily that gold was more valuable than other shiny rocks. Your fight isn't with MMT, it's with modernity,
Paul, you claim that none of the things I mentioned have anything to do with being "inherent," but they absolutely do. The properties that make gold valuable—its limited supply, resistance to corrosion, divisibility, and high utility—are not arbitrarily assigned by humans; they are intrinsic to the element itself.
Gold doesn’t tarnish because of its electron configuration. It doesn’t degrade over time, making it uniquely suited for long-term value storage. It has a limited supply because it is rare in Earth’s crust and requires significant effort to extract. These are all inherent, physical characteristics that give gold an edge over other materials.
People throughout history didn’t just pick a random "shiny rock"—they gravitated toward gold precisely because of these inherent properties. If value were assigned arbitrarily, why hasn’t another metal, like iron or lead, taken gold’s place as a store of value? The reason is that gold’s properties—its scarcity, durability, malleability, and resistance to corrosion—make it uniquely suited to be money. That’s not an arbitrary human decision; it’s a recognition of inherent advantages.
You're serious, aren't you? That's worse than being wrong.
Lot of minerals have utility. Gold is scare relative to what? Where?
Really funny is that you keep describing a whole lot of arbitrary things that were determined by ancient cultures that believed that prosperity was determined by a tribal deity as "inherent." Your view relies on accepting things just because.
I am serious because I literally explained to you why gold is inherently valuable and why it wasn't arbitrarily determined by ancient cultures. What's really funny is that you don't see this. Thanks for the chat.
So hyperinflation isn't really a thing? The government would just print more money to fix it?
I think I understand what you’re saying. The problem I’ve always had with this MMT argument about taxation not funding government expenditure is that it seems to be obsessed with the mechanics of the transfer rather than the end result.
Suppose the government decides to spend an additional £1 billion on the salaries of nurses in the National Health Service. The government realises that this additional expenditure might create inflation so it decides to prevent this by increasing income tax by £1 billion.
The net result of this is obviously that nurses in the NHS are £1 billion better off and taxpayers are collectively £1 billion worse off. Another way of putting this would be to say that taxpayers are “paying for” an increase in nurses’ salaries. To deny that this is what is happening because the money from taxpayers’ bank accounts does not go directly into the nurses’ bank accounts does seem like sophistry.
Having said that, I can think of one policy area in which the MMT analysis is useful. Supporters of immigration often claim that we need immigrants to pay the taxes to fund our public services. Obviously all we need to have a successful NHS is qualified medical staff, buildings and medical equipment. It is absurd to say that we need to import delivery drivers into the country so that they can “generate the wealth” needed to pay for the NHS. (I suspect, though, that most supporters of MMT are pro-immigration for reasons which have nothing to do with economics!)
Thanks for your thoughts Opus - they are very welcome. Here are my thoughts - as I think about what you are saying. Understanding the mechanics allows the government to concentrate on the 'end result'. Instead of arguing about, "how are we going to pay for this" the government can concentrate on getting on with the job - as promised to the voters who put them there. In Stephanie Keaton's, The Deficit Myth you will see that a large chunk of the book is about what can be done, when you dispense with the distraction of the deficit myth. You will find the same thing in Dirk Ehnts Modern Monetary Theory, i.e., lots about the policy implications of having a more accurate understanding of how Fiat currencies work for currency issuing countries. We want our mechanics to know how our car works so they can fix it: it's not a weakness, it's a necessity. A few things about your example: 1. Health workers are tax payers and they also get paid - which they spend into the economy. 2. Health provision is fundamental need for every country: it's not a minus to support an NHS - in fact - its the most efficient approach (as studies show - private health is the most expensive approach) and it's a plus: a service for all workers/tax payers. 3. New workers in the heath service - come from somewhere: they may well be a transfer from the private sector or from a pool of unemployed or underemployed or workers new to the job market. 4. When inflation is a worry, there may well be money removed from the economy via taxes - but funding into the health service also increases productive capacity (and production) - and when those workers spend their wages that increase demand. Increased capacity and increased production is also a way to tackle inflation. And of course - a better health service keeps the workforce healthy. I mention these things - to demonstrate that we are dealing with a complex interaction of many variables: not just two – as implied in your comment. 5. An MMT understanding does not cause the inflation, nor does it cause the trade-off between using resources for one thing or the other - it uncovers tools for managing it. In other words, all government who wants a well-funded health service are dealing with these trade-offs: MMT shows us: it is resources that are scarce not finance.
As if by Magic - Elon has caught on:
https://youtu.be/J5Wf3qOrGnA?si=UUBrDZuagsSqBdir
You neve know the minute. As they say.
Comprehensive! ✅
A masterpiece on the importance of taxes. This is a must read here. I am also aware of the fact that it will take a ton of work to convince the public that their tax dollars aren't needed to fund anything on a federal level and especially when you have the richest man who owns X constantly lying about the nation's finances which has become far too commonplace in America or even in the UK for that matter. We must begin to realize the difference between those who use the currency (state and local governments, regular people, and the rich) vs currency issuer (the federal government).
Not everyone is going to be convinced on how money works especially mainstream economists but hopefully there will be enough overtime that finally they're able to wake up to the neoliberal nonsense they've been fed for far too long. Again, it will take a lot of work but the work is obviously necessary. It's dire.
The "ton of work" makes one's life meaningful. ;-)
Not that it isn't good to make oneself redundant on this one!
I loved your lesson on why taxes do not fund govt spending. First to dispense with Elon. Elon is unelected, unappointed and unconfirmed head of a psuedo-department created by tRump to ostensibly find "waste fraud and abuse" in govt agencies and improve efficiencies. Ironically, they fired the Inspector Generals who did that job, replacing them with Elon and his League of govt destroyers!
Elon, like tRump, is a malignant sociopathic narcissist with delusions of grandeur. He is no genius, but people think he is because of his enormous wealth. According to his biographers , he stole other peoples ideas and his rich corrupt father helped him buy those businesses. The rest is history.
Now he bought his way into the White House by buying tRump's election and saving him from going to jail. ( I hope they both end up in jail)
Back to your tax lesson. I am a huge believer in MMT's compelling explanations on exactly how our monetary system works. Dr. Kelton's "Deficit Myth" book opened my eyes and started me researching all I could find on this school of economics. ( I subscribe to her substack).
I wanted to know more about the exact mechanics of how the receipt of tax money is destroyed and read Dr. Kelton's 1998 Cambridge U paper #244 on "Can Taxes and Bonds Finance Govt Spending". Steve Keen's explanation of the mechanics of this is extremely detailed with accounting proofs. I welcomed your MMT 101 lesson on how taxes are not used to finance spending because it gave me a clearer understanding on some of the "murky" concepts I had trouble grasping.
By the way, I have tried to explain to several of my IRS friends how taxes do not fund govt spending and they would have nothing of it. They insisted my taxes paid for roads, bridges, salaries of govt workers, etc. Did I think that the govt simply burned our tax revenues?!
Phew. MMT has a lot of work to do in the US because we are constantly and unremittingly gaslighted about our tax dollars going to this that and the other, freaking everyone out.....like Elon's insistence that the Federal Govt will be going BANKRUPT if it continues to fund all the "unnecessary" agencies and programs using all the taxpayer money to do it. Real Genius! But it does not say much about all those who believe it.
Thanks for today's lesson. It is in my "Saved" folder. Good work.
Good comment Sandra. Your anecdote about your IRS friends is a rich one, how ironic. Their wages are a benefit to the non-government sector, and they do not realize.
Might they probably want to reduce their own wages? (to "save" the tax payer some money.) That'd be irony upon irony. Some in the US IRS effectively did this by voting for the Clown King and then getting fired by the Mars King. (A clip from The Majority Report if I recall of one dupe, who was at the IRS to "improve government efficiency" and one of those who had excellent performance appraisals..)
I am not in favour of the divine right of Kings, but can tolerate a benign symbolic monarchy, who live humbly and go around as the community cheerleader, but having two of them who are not worker cheerleaders is beyond the pale.
As for "MMT's compelling explanation" — part of the problem convincing a friend is that MMT'ers still have a theory mindset. It is beyond compelling, it is The Law. There is no reason for the theory-mindset unless debating unproven policies. For state monetary operations the MMT sequence is enshrined in the Law of the Land, it is not up for debate, it can only be not accepted out of wilful ignorance.
At least in NZ and most OECD countries, all our Laws and Statutes are freely available online and have search. No one can convince me IRS staff cannot read legalese.
Such "friends" to me would quickly become mere acquaintances. I do not like consorting with imbeciles (but maybe that's just me). I am happy to plant a seed, but if the soil does not take it I have to move on to more fertile effective ground.
Thanks for your comment Sandra. You are right that it is difficult to convince people about the very basic ideas put forward by MMT. In conversation I try to steer clear of saying the basic ideas directly, i.e. "your taxes don't fund government services" because people have too much prior baggage to swallow that straight away. I find it easier to talk about related topics - where these basic ideas are mentioned in passing. For example I recently did a short talk about monetary sovereignty and I mentioned that some countries issue their own currencies and other don't - and no one batted an eye - they just 'took it as read'. Within the topic I as talking about it seemed very logical. That's probably the way to do it?
Yes. Point well taken. I do try to explain the govt issues/creates money and logically ask why, then, would it need our tax money to spend. But as you say the taxpayer money idea is so imbedded in their psyche that whatever is said to the contrary is dismissed out of hand. They turn on the news and there is some influential congress person or news pundit cautioning them about how their taxpayer money is being spent.
The best I can do is make remarks on the comment section of some newsletters or podcasts to explain the MMT economic perspective and hope maybe it will inspire some thought on its veracity.