Most leftists take their stance within this paradigm. Bernie Sanders, for instance, says his Medicare-for-all plan would "raise revenue" from various taxes such as income and capital gains, and from limiting "deductions for the rich." Dean Baker suggests a 4% increase in payroll taxes to "fully fund" Social Security and Medicare.
These kinds of analyses, typical of the left, make points that are helpful in immediate political fights, and they're also grounded in the conventional paradigm about, money, taxes, and government spending. That paradigm not only informs most thinking--whether conservative, liberal, or left-radical--about money in our society, it also informs the legal and institutional policy framework. It's the paradigm of the household.
We're comfortable with the household paradigm because it reflects everyday reality. The household has to get money from somewhere to spend it. It's obvious. But, also obvious, the household (or business or state) does not create money. That teensy little huge fact makes the household-government finance analogy wrong and wildly misleading. Unless we take that fact as of no significance--And how could we?--we need another paradigm. Analyses and critiques--no matter how radical--of government financing as if it worked like household financing are based on false premises, and false premises lead down meandering dead-end paths to wrong conclusions.
We have to reject the household analogy whenever it comes up from any source, including our own minds, where it will sneak in. Most leftists, I'm afraid, do end up assuming it, and ignoring the huge little fact that it cannot be right. We need another paradigm, one that's more truthful and therefore opens more effectively radical paths.
Where to start? Well, think of how different things would be--the different questions and problems and possibilities you would face--if your household could create money.
What difference does it make politically? One can say that Social Security can be fixed by raising payroll taxes just a bit more, or one can say that Social Security can be fixed by typing a few keystrokes. Which discourse is more cogent? Both fixes might "work" in some sense, but which analysis perpetuates mistaken, obfuscating, and conservative premises and structures, and which one reveals the true conditions and radical possibilities of, the way government financing really works? To even see the second alternative, we have to abandon the household paradigm.
Nobody wants to find that the framework of critique they're so comfortable with, and good at, is based on false premises, but leftists should at least take a look. I may make some mistakes here, but I'll give it a try.
Premises, Premises
For me. MMT has demonstrated persuasively that the entire conventional taxes-for-revenue problematic, as an economic paradigm, is a crock, a fiction, a set of mystifications, which needs to be swept away--and replaced with a paradigm that opens more radical possibilities, and has the advantage of being true. Yeah, it's like that. As the quote attributed to Henry Ford goes: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." Leftists would be foolish to think either that Henry did not know of which he spoke, or that they should not try to figure out what he meant.
A whole set of hand-wringing questions about taxes, spending, debt, and deficits disappears, simply vanishes, in the light of the singular, indisputable fact--MMT's first premise--that the federal government, and only the federal government, creates money.
Since Nixon ended the gold standard in 1971, the dollar has been a fiat currency and the United States has been a Monetary Sovereign. 2 This means that dollars are now created by the federal government, with no concern for representing any physical commodity. 3 And the federal government can create as many dollars as it wants, as numbers in electronic account ledgers, without "collecting" any dollars in advance. Whatever economic reason there is to limit the amount of dollars the government creates (we'll discuss that below), it is not because the government hasn't previously "collected" enough of them in taxes (or fees, loans, etc.).
Political and legal conditions may be imposed--and they should be the focus of interrogation and critique--but that is not a matter of economic necessity.
As a matter of economic logic, taxes do not precede and provide the money for government spending; government spending precedes and provides the money that is later collected in taxes. It's not "tax and spend"; it's "spend and (then) tax." That's the sequence. Every dollar paid in taxes is a dollar that was created by government authority. 4 There is no place else it could have come from.
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