On June 21, I will be making a presentation on Modern Monetary Theory (MMT), an unconventional approach to economics which has startling implications about the nature of taxation and government debt, and consequently the policies needed to produce full employment.
The following historical situation is relevant. In colonial Africa, British administrators had difficulty in getting the natives to work on improving infrastructure and working the land, even when money was offered. The solutions was to impose a head tax, thus forcing the natives to earn the funds necessary to pay the tax. Note that European money had to be issued before the tax could be paid and the purpose of the tax was not to raise revenue but to provide goods and services to the government.
Here is a second significant piece of information. Ben Bernanke, Chairman of the US Federal Reserve was interviewed by Scott Pelley on the program 60 Minutes and asked where the trillions of dollars came from that was used to support the banking system during the 2007 financial crisis:
PELLEY Is that tax money that the Fed is spending?
BERNANKE It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.
Modern Monetary Theory studies the monetary operations of countries such as the United States and Canada that have currencies which are non-convertible and free floating. As issuers of this kind of currency, these governments are not revenue-constrained.
In other words:
– These governments spend money first before they tax it back. Taxes are not required to fund spending.
– The purpose of taxation is to move resources from the private to the public sector, and to control aggregate demand so as not to push the economy beyond its productive capacity, which would be inflationary.
According to MMT proponents, government deficits should be a policy tool rather than a policy target. Government should spend and tax to ensure all human resources of the economy are productively employed and the size of the deficit at whatever level would be residual, without great significance. This approach is, of course, contrary to the conventional view which treats government debt with alarm, but accepts high levels of unemployment as a natural result.
A good introduction to MMT concepts can be found in the following link:
Seven Deadly Frauds of Economic Policy by Warren Mosler
The public meeting on Thursday, June 21, 7:30 pm at the Unitarian Church, 49th and Oak (and every third Thursday of the month at this location) is hosted by the World Federalist Movement Canada – Vancouver Branch. There is free parking and no charge. World Federalists support the development of a global community based on the rule of law and democratically accountable international institutions.
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