Daily Archives: January 25, 2012

Response to Comments on Blog #33: MMT and Inequality

OK there really were only two themes inthe comments: first a question about sovereign vs nonsovereignissuers of IOUs and second questions about the MMT position oninequality.
The first has been dealt with all alongin the MM Primer. The sovereign chooses the unit of account, taxes inthat unit and issues IOUs in that unit that can be used to payobligations to the sovereign. Q. E. D.
On the second: MMTers reject the notionthat sovereign government uses taxes to “redistribute” income.No, taxes destroy income. If we want poor people to have income, wegive them jobs and keystroke their bank accounts. If we think richpeople are too rich we can reverse keystroke their bank accounts.
Here’s the problem. I suppose all ofyou looked at Mitt Romney’s (who on earth would name their kidafter a leather implement used in a baseball game?) tax return.Q.E.D. Forget taxes. Ain’t going to reduce wealth of the rich. Intruth, Romney pays way too much in taxes for someone in his incomeclass—remember, he knew he would run for president and so avoidedall questionable evasions. In spite of what the news is nowreporting, most really rich people do not pay taxes. Don’t take myword for it. Bartlett and Steele (two reporters in Philly) got famousfor going through the thousands of pages of the tax code andidentifying thousands of exemptions for well-connected rich folksthat exempted them from paying taxes. They actually figured outexactly who these people were. There were thousands more they couldnot identify—but the exemptions were so specific that it wasobvious they were meant for some favored individual.
Anyway, suppose someone’s income is$20 million a year like Mitt’s (a piker by Bill Gates standards),what tax rate would we need to levy to significantly reduceinequality? Not 30%. Not 70%. 90%? Ain’t never going to happen. Youwill not pass a tax law imposing a rate of 90% much less actuallymake it stick.
So here is what I wrote:
MMTers have written lots on poverty,inequality and the recent massive concentration of wealth income atthe top, so I have no idea where you get the idea that we avoid thesetopics. Indeed, Kelton and I did a detailed study contrasting the Waron Poverty (which did not reduce poverty at all) with the JG/ELRproposal which would have wiped out two-thirds of all poverty even ifthe wage was set at the minimum wage. I have no idea why you belive JG/ELR would lead to massive underemployment–it leads to fullemployment. So far as I can tell, the complaint is that we have notput them in the Primer? That does not mean we have ignored theissued. For those who want to read our study, go here:
“Public Policy Brief No. 78 | June2004
The War on Poverty after 40 Years: AMinskyan Assessment
Twenty to 25 years ago, a debate wasunder way in academe and in the popular press over the War onPoverty. One group of scholars argued that the war, initiated byPresidents Kennedy and Johnson, had been lost, owing to the inherentineffectiveness of government welfare programs. Charles Murray andother scholars argued that welfare programs only encouragedshiftlessness and burdened federal and state budgets.In recent years,despite the fact that the extent of poverty has not significantlydiminished since the early 1970s, the debate over poverty hasseemingly ended. In a country in which middle-class citizens struggleto afford health insurance and other necessities, the problems of theworst-off Americans seem to many remote and less than pressing.Moreover, the welfare reform bill of 1996 has deflected much of thecriticism of the welfare state by ending the individual-levelentitlement to Aid to Families with Dependent Children benefits (nowknown as Temporary Assistance to Needy Families) and putting timelimits on welfare recipiency, among other measures.” Download:Public Policy Brief No. 78, 2004 at www.levy.org.And while you are there browsing the Levy pices you will see I wrotemany other pieces on related topics.
So: to reduce inequality, first youstart at the bottom: give jobs. That eliminates 2/3 of all poverty.Then you gradually raise wages over time, by increasing the JG/ELRbasic wage.
And yes, you tackle income at the top.And as some comments indicated, most of the increase of inequality inrecent years is due to the outrageous rewards in the FIRE sector(finance, insurance, real estate). So you must reduce the rewards inthat sector. There is nothing “natural” about such high rewards.They are due largely to government policy. That is not the topichere, but it begins with the fraudsters and then changescompensations, incentives, and rewards. This is not difficultstuff—American management’s rewards are totally out of linecompared with compensation around the globe. And financialinstitutions—where the biggest rewards are—are inherentlypublic-private partnerships.
On progressive taxes, yes I propose acubic-foot-of-dwelling space tax. It is also environmentally sound.
However, we need to understandpolitical economy as well as MMT. First we do not need to”redistribute” from rich to poor. We can give the poor anyincome we want (hint: “keystrokes”) and any income we takefrom the rich goes no where (hint: reverse those keystrokes). So thatis a bogeyman. We can take BMWs away from the rich and give them tothe poor, if you like. But don’t confuse that with taxes—which areimposed in monetary form. Taking BMWs away is confiscation.
Finally, Americans oppose high taxeson the rich. We may not agree with them but it is the truth. In theUS taxes have never “redistributed” income–the rich justavoid and evade taxes and if that doesn’t work they hire Congress togive them loopholes. Forget it, it will not work in America.
Best to confrontthe problem head-on: jobs for the poor, better wages at the bottom,support for unions, and constraints at the top.