this post was submitted on 07 Jun 2024
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I'm as much of a leftist as you are, and I'm sorry if I sound a bit pretentious here but the analysis you're doing of debt is wrong.
States generally create their own currency, and generally get indebted (i.e. issue state bonds) in their own currency. You can see how a state that creates its own money doesn't really need debt to be able to pay for stuff, debt is just a political decision, sometimes misguided by people who don't really understand it properly, sometimes properly guided by experts.
A state doesn't need taxes to fund itself either. If it needs to build roads, it can literally create the currency to hire the workers to extract the resources, plan the roads, and build them. Taxes have many purposes such as removing money from the private sector to prevent or reduce inflation, disincentivizing certain behaviours (for example tobacco taxes), lowering inequality (for example progressive income taxes), or even making people use your currency instead of another (people in the private sector will end up using your currency if they are forced to pay taxes in that currency).
Taxing companies and rich people is useful because you place the burden of reducing money for inflation purposes on them instead of on the lower income people, and therefore you reduce inequality, so I obviously support at the very least heavy taxation of income and wealth of private individuals and companies, but the state really doesn't need taxes to fund itself since it creates its own currency and pays in that currency.
So I preface by saying finance isn’t my forte, but I would like to raise a few thoughts I had whilst reading this.
The first is that the state can just create more currency to pay for things, which to my understanding is not always the case, if you saturate the market with your currency it becomes less valuable and we end up with runaway inflation.
The other point is on the no need for taxes and that we tax the richest and the corporations to remove some of the money supply, clearly this isn’t something that happens as taxes for both of these is rarely raised at the same rate it is for regular people.
Finally, we have most people, in the western world at least, living literal pay check to pay check whilst the likes of Microsoft have gone from less than $2B to over $3B in a few years. The same can be said for Nvidia and many many more.
Edit: I guess my point is, just because this is how things work doesn’t mean things shouldn’t change. Clearly something is broken.
Notice how I didn't say that the state should create infinite currency, I'm just saying that the limit isn't based on taxation. And funnily enough, if you look at basically all inflationary episodes in developed countries over the past century, they've happened as a consequence of problems with the supply of goods, not as a consequence of excess currency creation. 2022 inflation? Energy prices and supply chain bottlenecks as a consequence of Ukraine invasion and post-covid effects on production. 1970s inflation? Fuel prices... Really, I encourage you to look up a graph of inflation for, say, the USA, over the past century, to look at the inflation peaks, and to make a Google search "crisis of 19XX". You'll find that the inflation was in basically all instances prefaced by a big external event, and not by money creation. Moreover, many of these inflation events happen simultaneously in countries such as the US, UK, Japan and Germany, all of which have different central banks, different currencies, and different rates of currency creation.
Also, there's countless examples of vast increases in money supply without inflation. In the decade of 2010-2020, the EU has created VAST amounts of euros with basically no meaningful inflation. You can look up the Euro monetary mass M2 or M3 over the past decade, you'll find a huge boom, without any effect on inflation. Again, all of this isn't to say there isn't a practical limit to how much you should create before destabilizing the economy, just that the limit is absolutely not imposed by how much you're collecting in taxes, and it depends a lot, for example, on which part of the capitalist boom-bust cycle you are. Another argument for this, is that money creation doesn't have to be just that, it can imply an increase in the amount of available goods and services. As a stupid example, the US government could open a state-funded iron mine and a refinery, hiring all the employees with newly minted currency, and that would effectively increase the total amount of goods and services in circulation, which can balance out the supposed inflationary effect of the currency creation.
About taxes not being currently used practically to reduce inequality, I agree, but that's not a point against the nature of taxation, that's a point against the current decision of who we're taxing, what for, and how much. I absolutely agree with ramping up the taxes of huge multinational companies and their directives. It's just, if we see taxes not as a necessity to fund the state's activity, but as a necessary tool to reallocate money in the economy from rich people to poor people and to create a welfare state and a great infrastructure, it's much easier to explain why Amazon should pay 90% taxes and your average low-paid worker only 10%.
As for your last point with inequality between companies' income and that of people, I couldn't agree more, I'm a hardcore leftist and I want to reduce wealth inequality extremely, again, I'm not arguing for lowering taxes "since they're not necessary", I'm arguing for reallocating the taxes in a much more progressive way to disincentivize certain behaviors such as speculation, and to reduce inequality between the richest and the poorest.
Thanks for the civilized discussion, it's good to be able to actually discuss this stuff.
No. Thank you for giving me some food for thought and areas to research to further my understanding, rather than talking down to me due to my lack of knowledge on the macro economics of the world.
I really do appreciate you taking the time.
To be fair, it's not you lacking knowledge, it's a fundamental problem in the field of economics, which because of political reasons, has been dominated for the past decades by neoliberalism. The problem is that neoliberalism reaches conclusions that have been falsified by experimental data in several occasions, but since it serves the ideology of the elites, it's peddled constantly in media by prominent "economist" propagandists. If you're interested into the topic and this modern, more empirical vision of the economy, the field is called "Modern Monetary Theory" or MMT. There's a documentary released recently about the basics of it, applied to the US, called "Finding The Money", and I can also recommend the YouTube channel called "Unlearning Economics", which isn't MMT per se but it's very keen on treating economics through empyrism.
You missed the biggest flaw in the "money creation = inflation" argument. That would be Japan. They've been printing money full tilt for the last couple decades, and are just barely staving off deflation
Interesting, I'll look up the monetary mass of Japan over time, thanks!
That sort of thing can happen in extreme situations. Zimbabwe and Weimar Germany are the most prominent examples. Both examples involved not having enough stuff. When there aren't enough necessary goods to buy and people have plenty of money you're going to get inflation. Using the right combo of subsidies, government run production, purchase quantity limits, reserves, vouchers, and price fixing you can ensure the supply is stable and eliminate inflation even if there's lots of money.
That's true. That happens because people are stuck in the narrative of the government needing a balanced budget, just like a household. It also happens because the owners and the corpos use all their money and power to ensure workers pay taxes and thus decrease worker money and power.
Yeah, if the population was educated on MMT the ability to bring corpos to heel would be significantly increased. People arguing for it are fundamentally arguing for a change in how we think about money.