Category Archives: L. Randall Wray

To Consolidate or Not To Consolidate, that is the Question (or maybe it isn’t)

By L. Randall Wray

This is another short post on MMT, a sort of follow-up to my post from a couple of days ago. There was an interesting response to various comments on my piece, which was posted up on Mike Norman’s website.

We got the typical: “oh you MMTers always want to consolidate the Fed and Treasury, but really the Fed is a private institution that is not a part of government”, and “in reality the Treasury cannot spend unless the Fed will allow it to spend, otherwise it must get tax revenue before it can spend”, and hence “really government spending is constrained by its revenue, just like a household or firm”.

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MODERN MONEY THEORY: THE BASICS

By L. Randall Wray

*I’ll return to my series on the role of taxes in MMT later this week. Meanwhile, here’s a short post on MMT.

Modern Money Theory (MMT) seems to confuse two groups of otherwise sympathetic economists. First there are those like Paul Krugman who are generally of the Keynesian persuasion and who like MMT’s “deficit owl” approach. I think Krugman would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?

He really doesn’t understand that “money” is key stroke records of debits and credits. He still thinks banks take in deposits and then lend them out. He starts to tear his hair out whenever someone tries to correct him on this. He’s wedded to the deposit multiplier idea he got from his Econ 101 textbook.
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Tax Bads, Not Goods

By L. Randall Wray

This is another instalment in the series on the MMT view of taxes. I’m back from China, participating in the annual Hyman P. Minsky Summer Seminar at the Levy Economics Institute. Yesterday my colleague, Mat Forstater, gave a talk on the job guarantee and “green jobs”. Along the way he made two particularly insightful comments on MMT and taxes that I’ll use to introduce this instalment.

First, he discussed the MMT view of “modern money”—that is to say, the money that has existed “for the past 4000 years, at least, as Keynes put it in his Treatise on Money. The money of account is chosen by the sovereign and used to denominate debts, prices, and other nominal values. It is the Dollar in the US.

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CREATIONISM VERSUS REDEMPTIONISM: HOW A MONEY-ISSUER REALLY LENDS AND SPENDS

By L. Randall Wray

MMT has emphasized that there is a close relation between sovereign power to issue a currency and its power to impose tax liabilities. For shorthand, we say “Taxes Drive Money”. I’ve dealt with that topic in the previous instalments of this series on MMT’s view of taxes.

We’ve also demonstrated (as if it needed demonstration!) that sovereign governments do not “need” tax revenue in order to spend. As Beardsley Ruml put it, once we abandoned gold, federal taxes became “obsolete” for revenue purposes.  I’ll have more to say about good old Beardsley in the next instalment.

In today’s instalment I want to step back a bit to ask a more fundamental question: does the issuer of a money-denominated liability need to obtain some of those liabilities before spending or lending them?

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Taxes and the Public Purpose

By L. Randall Wray

In previous instalments we have established that “taxes drive money”. What we mean by that is that sovereign government chooses a money of account (Dollar in the USA), imposes obligations in that unit (taxes, fees, fines, tithes, tolls, or tribute), and issues the currency that can be used to “redeem” oneself in payments to the government. Currency is like the “Get Out of Jail Free” card in the game of Monopoly.

Taxes create a demand for “that which is necessary to pay taxes” (and other obligations to the state), which allows the government to purchase resources to pursue the public purpose by spending the currency.

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Pre-distribution or redistribution? The Piketty moment, the Democrats, and the oncoming elections (Guest Post)

By L. Randall Wray

I’ve been blogging a series on the role of taxes. In the first piece, I argued that “taxes drive money”, in response to a silly claim that MMT argues we do not need taxes. In the second instalment I examined other uses for taxes—including to reduce excessive aggregate demand and to discourage “sin”. Most importantly, I argued that we do not need taxes to “pay for” sovereign government spending. In the third piece, I argued against the “Robin Hood” view that we need taxes to “take from the rich to give to the poor”. That should be obvious—we can spend on the poor without any tax increase, and indeed could spend on the poor while reducing everyone’s taxes.

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NEP’s Randy Wray on Thom Hartmann’s Show

Randy Wray is appearing live on Thom Hartmann’s show on Tuesday May 27th, 2014 from 3:00-4:00 ET.

Info on how to listen:

live on radio stations coast to coast…live on XM/Sirius satellite radio…simulcast LIVE on Free Speech TV on Dish Network, Direct TV, Comcast Cable, RCN, Cox Cable, Time Warner, Verizon Fios and over 200 independent community cable providers nationwide including Manhattan Neighborhood Network.

The audio and video are streamed LIVE on Thom’s website www.thomhartmann.com.  Free Speech TV also streams the program LIVE on their website: https://www.freespeech.org/

FYI…the program is also streamed LIVE (audio and video) on The Thom Hartmann Program app available for iPhone and iPad (free of charge on iTunes)

Forget Taxes for Redistribution: What to do about Inequality

By L. Randall Wray

America has discovered inequality. But, as Jared Bernstein says, dealing with that will be expensive. He comes up with a nice wish list of policies to help the poor:

What will work here is a large, publicly funded infrastructure program to begin to repair our deteriorating public goods, with the jobs targeted at the working poor. All of the above — the expanded earned-income tax credit, universal preschool, job-creating infrastructure — will take more tax revenue, and much of that new revenue will need to come from those at the top of the wealth scale. 

He wags his finger at those who think there’s some free lunch that would let us help the poor without soaking the rich. Nope, he claims. Uncle Sam needs those taxes. The rich will have to pay-up.

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WHAT ARE TAXES FOR? THE MMT APPROACH

By L. Randall Wray

This is part of a series, following on from the last instalment that asked “Do We Need Taxes?”.

Previously we have argued that “taxes drive money” in the sense that imposition of a tax that is payable in the national government’s own currency will create demand for that currency. Sovereign government does not really need revenue in its own currency in order to spend.

This sounds shocking because we are so accustomed to thinking that “taxes pay for government spending”. This is true for local governments, provinces, and states that do not issue the currency. It is also not too far from the truth for nations that adopt a foreign currency or peg their own to gold or foreign currencies. When a nation pegs, it really does need the gold or foreign currency to which it promises to convert its currency on demand. Taxing removes its currency from circulation making it harder for anyone to present it for redemption in gold or foreign currency. Hence, a prudent practice would be to constrain spending to tax revenue.

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DO WE NEED TAXES? THE MMT PERSPECTIVE

By L. Randall Wray

What do you get when you drop taxes? Well, Bitcoins.

Sometimes the only appropriate response to critics is embarrassment. For them.

Witness the following exchange on twitter:

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