Matthew Yglesias: Do Low Taxes Cause Inflation?
It’s nice to see Matthew Yglesias embracing Modern Monetary Theory, but I wonder if he totally gets it:
The point of collecting taxes isn’t that the government needs money (it can print money) it’s that if the quantity of taxes is too low relative to the stock of money, then the money loses its value and the price level rises.
He’s riffing on the the idea that tax obligations are the ultimate source of sovereign currencies’ value, the reason everyone has to accept that currency’s value, but I think he’s simplifying things to the point of error.
At least, he should be talking about deficits/surpluses and their Inflation/deflation effects, not just taxes. Now I suppose if you add ceteris paribus re government spending to his statement, it carries more water. But still, this doesn’t really follow: A) the ultimate value of dollars derives from their utility in retiring tax obligations, so B) more taxation makes dollars more valuable.
Cross-posted at Asymptosis.
Well yes, lowering taxes could result in inflation dependent on the other supply-demand variables within the asset-debt-money macroeconomic system ….see below….
A Third Modest Proposal: the Greek Geuro
In the last three and a half years US total total debt has reached an asymptote of 51.5 trillion US dollars.
While US citizens are reducing their debt load by defaulting on their their mortgages and losing over 3.5 million homes, while corporations are not increasing debt load in a oversupplied economy, and while the US Federal Reserve has kept the system on life support by expanding debt by about 4-5 trillion and force feeding a frozen polarized congress, it is the US financial industry’s business operations that merit attention.
Over these last 3 and 1/2 hard years for many citizens, the US financial industry has the shown the way, thriftily reducing its debt load by 3.3 trillion US dollars and yet having the wisdom and wherewithal to set aside several 100 billion dollars annually to maintain a reasonable and fair living wage for those employed.
The trick in getting and staying ahead, it turns out, is plan A, to essentially own and have first use of the monetary system and of course to hand feed sugar cubes to both political parties at the lobbying slop trough.
It is now time for the Greek citizens and Greek parliament to level the playing field and adopt Goldman Sachs’ plan A.
It is time for the Greeks to create by special legislation the Geuro – to both pay off their debt and jump start their economy.
A Geuro by sovereign and solemn Greek law is valued at an exact equivalency to the Euro, the only difference is that Geuro bills over 100 million in Euro equivalency denomination are placed in a Pita bread pocket that has been lightly swashed with virgin Greek olive oil.
With fewer than fifty freshly printed and lightly oiled ten billion Geuro notes (and by law … placed in Pita pockets), the Greeks in one single lightening strike could pay all troika debt – and maybe even throw in an extra couple of ten billion Guero bills to show good will, and still have plenty to spare for full employment, asset reflation, and entitlement programs.
This is a time of global macroeconomic saturation of asymptotic massive accumulative debt, forward consumption and overproduction of assets. Even after 3 years of real estate deflation – gross over valuation of assets still exists.
Assets within the system are counted against the total money supply – which counts debt obligations as system money partial equivalents. When the debt obligations undergo default and the total money supply contracts, the total number of assets will be denominated by a smaller total money equivalent.
This is the cause of asset valuation deflation.
The world is on the time edge – the very time edge of historical asset valuation nonlinearity, and in this context the Euro and Eurosystem are epiphenomena of the larger global saturated macroeconomy.