Progressives should move on from a reliance on ‘Robin Hood’ taxes

There was an article in the International Politics and Society journal (August 27, 2017) – Robin Hood had the right idea – which continues to demonstrate, how in my view, the Left has gone down a deadend path with respect to financial market reform and re-establishing a credible progressive agenda. The sub-title of the article ‘Why the left needs to deliver on the financial transaction tax’ indicates that the author, Stephany Griffith-Jones, who has long advocated positions I am sympathetic to (particularly with respect to development economics), thinks a financial tax is a viable strategy for the Left to push. The problem is that none of these ‘Robin Hood solutions’ are viable and are based on faulty understandings of the way monetary systems operate.

My previous blogs on this topic include:

1. A global financial tax? (November 9, 2009).

2. Robin Hood was a thief not a saviour (April 1, 2010).

They were written as the GFC was morphing out of control in some nations and governments were beginning to impose austerity. The loudest voices on the progressive side of the debate thought they had the solution. I believed they were wrong.

But like a boomerang, it seems that the progressive side of thought has not moved on much since then, and Robin Hood still keeps coming back into the political debate. Exactly like the other progressive furphy – universal basic income.

Stephany Griffith-Jones writes:

A financial transaction tax (FTT) – a charge on the buying and selling of stocks, bonds and derivatives – is an idea with widespread support amongst leading academics, many politicians and, most importantly, citizens. It was initially proposed by Maynard Keynes, the greatest economist of the twentieth century, and developed by Nobel Prize winner James Tobin.

One could dispute the claim that John Maynard Keynes was “the greatest economist of the twentieth century”. He doesn’t get that rank in my table.

But that is an aside and more to do with ideological considerations and style than anything. We can agree he was very influential and even the mainstream neo-liberals still try to hang their hat on his name (the so-called New Keynesians, which is a misnomer if there ever was one).

In Section VI, Chapter 12 on the ‘State of Long Term Expectation’ in his 1936 Macmillan book – The General Theory of Employment, Interest and Money – Keynes was discussing “the influence of speculation” in what he called the “greatest investment markets in the world, namely, New York” (that is, Wall Street).

He wrote (pages 159-60 in the original edition):

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism – which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

… It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive. The jobber’s “turn”, the high brokerage charges and the heavy transfer tax payable to the Exchequer, which attend dealings on the London Stock Exchange, sufficiently diminish the liquidity of the market (although the practice of fortnightly accounts operates the other way) to rule out a large proportion of the transactions characteristic of Wall Street … The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

Clearly, the problems identified by financial market operatives who only desired to advance their own greed without regard to the well-being of general society was an issue in the 1930s, after the financial crash of 1929 was clearly the result of unregulated excess.

Not much has changed really except for a period governments assumed a much more regulative role to stifle the casino nature of the financial markets.

That regulative oversight started to diminish and even vanish in some quarters as the neo-liberal emergence strengthened into domination in the 1980s and politicians sold out to the financial market lobbyists.

Keynes was, of course, just rehearsing the idea he got from Alfred Marshall that adding a tax to a price would increase it and reduce demand.

It is the same principle that leads progressives to advocated carbon taxes. The idea is that the ‘price system’, the market will work to reallocate resources away from the taxed activity or product.

The problem with any market solution for the climate change/environmental devastation problem is that we have no idea of when a biological system will simply die.

Economists think that there are trade-offs between the use of a resource (growth) and pollution control, which is mediated by the price system. Of course, they have no idea of what they are talking about given the binary nature of ‘life’ (die or live).

Price systems are also corrupted by moneyed interests (as we have seen with the carbon tax aand carbon trading systems already implemented).

The only way to achieve some certainty with respect to say the coal industry is to fast-track renewable energy and just regulate the carbon industry out of existence via transition process.

The financial transactions tax is a similarly fraught market solution which requires regulation rather than price mediation.

What is agreed is that a motivation to curb this mindless and unproductive ‘casino’ behaviour is a sound basis for policy.

A 2009 study from WIFO (Austrian Institute for Economic Research) – A General Financial Transaction Tax: A Short Cut of the Pros, the Cons and a Proposal – documented the explosion of global financial flows and derivative markets over spot markets since the 1990s.

WIFO describe this dominance as follows:

Observation 1: The volume of financial transactions in the global economy is 73.5 times higher than nominal world GDP, in 1990 this ratio amounted to “only” 15.3. Spot transactions of stocks, bonds and foreign exchange have expanded roughly in tandem with nominal world GDP. Hence, the overall increase in financial trading is exclusively due to the spectacular boom of the derivatives markets …

Observation 2: Futures and options trading on exchanges has expanded much stronger since 2000 than OTC transactions (the latter are the exclusive domain of professionals). In 2007, transaction volume of exchange-traded derivatives was 42.1 times higher than world GDP, the respective ratio of OTC transactions was 23.5% …

In other words, most of the financial flows comprise wealth-shuffling speculation transactions, which have nothing to do with the facilitation of trade in real goods and services across national boundaries.

Stephany Griffith-Jones considers that:

… a transaction tax helps diminish risks of costly financial crises by discouraging speculative behaviour and the short-term churning of assets. It is easy to implement, and can yield valuable tax revenue which can be used for financing investment. This in turn leads to inclusive and sustainable growth.

Note the reference to yielding “valuable tax revenue which can be used for financing investment”.

As noted above, the idea of a financial transactions tax goes back. After Keynes, one of his acolytes James Tobin (1972, then 1978) proposed a tax on foreign exchange and share transactions.

He first proposed it during a lecture at Princeton University in 1972 which was subsequently published in J. Tobin (1972) The New Economics: One Decade Older, Princeton University Press, 88-93. It was later developed in his Presidential Address to the Eastern Economic Association in 1978 which was published as J. Tobin (1978) ‘A proposal for international monetary reform’, Eastern Economic Journal, 4.

Whenever, progressives start talking about the need for a financial transactions tax they always tie it into fiscal shortfalls and how such a tax would allow a host of progressive things to be achieved.

They don’t seem to ask the question: Why can’t these things be achieved now? Why? They have been lured into the neo-liberal myth that there is a financial constraint on government spending and do not seem to understand that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

There is an asymmetry here. They advocate a government standing up to the powerful investment banksters (levying the tax) but cannot get their heads around the spending capacity of the same government.

In this vein, Stephany Griffith-Jones writes that:

… a Wall Street Speculation Tax to pay the college fees of less well-off students.

She says this was the idea of Bernie Sanders in the US but had support from his rival Hillary Clinton.

The question that goes begging: If paying the college fees for less well-off students was desirable then why doesn’t the Democratic Party advocate that upfront – as a core spending responsibility of the US federal government?

The reason is that they have a flawed understanding of the capacities of currency-issuing governments and are thus prey to the neo-liberal call, whenever a progressive cause is advocated, of ‘how are we going to pay for it’ or ‘how can we afford that’ or whatever variation the myth that governments can run out of money is perpetuated.

What progressives need to ingrain in their knowledge set is that taxpayers did not bail out the banks during the crisis and that taxpayers do not fund anything.

Modern Monetary Theory (MMT) shows that the motivation to “raise revenue” is redundant as the national governments are not revenue-constrained.

Please read my blog – Taxpayers do not fund anything – for more discussion on this point.

Taxes play an important role in the Modern Monetary Theory (MMT) argument given they provide the ‘real resource’ space which permits governments to spend (in pursuit of their socio-economic mandate) and command real resources without introducing inflationary pressure.

Taxes can also play an allocative role – to discourage use (tobacco, carbon etc) but relying on the price system is fraught.

Abba Lerner introduced the concept of functional finance into macroeconomics in the 1940s and beyond.

Lerner’s objective was to advance economic policy debate beyond what he called “sound finance” (which is the precursor of modern mainstream (neo-liberal) thinking).

Please read my blog – Functional finance and modern monetary theory – for more discussion on this point.

Essentially, fiscal and monetary policy decisions should be functional – advance public purpose and eschew the moralising concepts that public deficits were profligate and dangerous.

Lerner outlined three fundamental rules of functional finance in his 1941 article (The Economic Steering Wheel) and later his 1951 book (The Economics of Employment).

1. The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.

2. By borrowing money when it wishes to raise the rate of interest, and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.

3. If either of the first two rules conflicts with the principles of ‘sound finance’, balancing the budget, or limiting the national debt, so much the worse for these principles. The government press shall print any money that may be needed to carry out rules 1 and 2.

These principles help us understand how to design a taxation system.

Taxation thus serves multiple purposes:

1. Creating real resource space in which government can spend without creating inflation. So the non-government sector has to be deprived of access to resources – that is, taxes reduce the non-government purchasing power.

If the primary role is to create the ‘real resource space’ that MMT highlights, is a financial transactions tax a sound addition to the suite of taxes that might achieve that role.

2. Equity effects – to help redistribute income according to ideas of justice and fairness.

Public purpose from a progressive perspective also involves equity and there are distributional consequences of different tax changes.

Is a financial transactions tax progressive, in that the burden falls more on the higher income earners? Stephany Griffith-Jones thinks so.

She writes:

FTT is very progressive, as it is paid mainly by those with the deepest pockets … This is because ownership of financial assets is concentrated among the richest people.

Concentrating only on the ‘progression’ of the tax system is another often-found limitation of the progressive narrative. When we talk about progression in the fiscal system, we should not just think of the tax side.

We should also include the impacts of government spending on distribution as well.

So, for example, I have long supported broad-based Goods and Services Taxes with zero exemptions (which in itself is highly regressive) accompanied by very generous social wage spending measures (which would be very progressive) to achieve an overall progressive impact of the fiscal system.

Further, it is better to deprive the non-government sector of purchasing power using taxes that are simple to administer, difficult to evade.

3. Allocative effects – as above. It is possible that the introduction of a financial transactions tax would reduce but not eliminate some short-term capital flows, which raises the question, why allow them at all?

From an Modern Monetary Theory (MMT) perspective, the merits of the Tobin Tax should only be assessed in terms of its capacity to prevent destabilising and damaging financial market behaviour rather than ‘raise revenue’.

Tobin thought a small tax (below 1 per cent) on financial transactions would be biased against short-run speculative flows. For long-term investment, a small tax would be relatively minor compared to the total scale of the project.

But short-term speculators who are moving in and out of a currency sometimes within hours of taking their positions would be more exposed to the tax, given the number of transactions they make.

As noted above, if you really want to stop the damage from unproductive activity then the best way is to stop it (regulative decision) rather than discourage it (price system).

In the case of speculative or hot capital flows, short of declaring them illegal, a nation can impose capital control, which clearly discourage short-termism in foreign capital investments.

Iceland has demonstrated clearly that a small nation can take on the banksters using capital control. Please read my blog – Iceland proves the nation state is alive and well – for more discussion on this point.

A financial transactions tax would not have achieved the stability that the imposition of capital controls was able to accomplish for Iceland when its banking system collapsed in 2009.

The controls in Iceland (as in Malaysia in the late 1990s) certainly helped them stabilise the economy and put it back on a growth footing.

Which then raises the question is any speculative financial activity desirable.

In the blog – A global financial tax? – I outline how some speculative behaviour is desirable and can deliver productive outcomes.

The case I give is when a financial speculator is willing to hedge against the currency exposure of say a manufacturer who either has revenue or costs in a foreign currency.

So when a financial institution insures a manufacturer (or agent) against exchange rate movements, which are unrelated to the manufacturing firm’s business but impacts on it, then this insurance (speculation) can be beneficial.

I give an example in the blog cited above.

But the overwhelming volume of financial transactions are not in this category and fall into the undesirable and unproductive bin.

This raises the obvious question, that is begged by the discussions about the Tobin Tax is: why do we want to allow these destabilising financial flows anyway?

If they are not facilitating the production and movement of real goods and services what public purpose do they serve?

It is clear they have made a small number of people fabulously wealthy. It is also clear that they have damaged the prospects for disadvantaged workers in many less developed countries.

More obvious to all of us now, when the system comes unstuck through the complexity of these transactions and the impossibility of correctly pricing risk, the real economies across the globe suffer. The consequences have been devastating in terms of lost employment and income and lost wealth.

We have been lured into a system that privatises the gains and socialises the losses.

The introduction of a financial transactions tax will not eliminate that vulnerability.

From a Modern Monetary Theory (MMT) perspective there is no public purpose being served by allowing these trades to occur even if the imposition of the Tobin Tax (or something like it) might deter some of the volatility in exchange rates.

The solution is clear: All governments should sign an agreement which would make all financial transactions that cannot be shown to facilitate trade in real good and services illegal. Simple as that. Speculative attacks on a nation’s currency would be judged in the same way as an armed invasion of the country – illegal.

This would smooth out the volatility in currencies and allow fiscal policy to pursue full employment and price stability without the destabilising external sector transactions.

The proposal to declare wealth-shuffling of the sort targeted by a Tobin tax illegal sits well with the other financial and banking reforms I have discussed in these blogs – Operational design arising from modern monetary theory and Asset bubbles and the conduct of banks .


And to bring us back to the earlier point, Stephany Griffith-Jones compares financial taxes to carbon taxes:

Like taxes on carbon emissions, taxes on financial transactions such as the UK stamp duty aim to curb socially dangerous behaviour

This is the problem: progressives have been lured into the ‘market frame’. That we need to address these great problems using the price system, which is a neo-liberal frame.

We don’t!

We can simply use the legislative capacity of the national government to outlaw things we think are damaging to well-being and serve no other function.

Reclaiming the State Lecture Tour – September-October, 2017

Here is the schedule for my upcoming book promotion and lecture tour in Late September and early October through Europe. As I get more specific details I will fill in the blanks below

  • Thursday, September 21: Kansas CityInternational Conference of Modern Monetary Theory – see program for details.
  • Friday, September 22: Kansas City – MMT conference, as above.
  • Monday, September 25: Brighton (UK) – I will be speaking at a fringe event – Economics for a Progressive Agenda – associated with the British Labour Party Annual Conference.The venue is The Brighthelm Centre, North Road, Brighton, BN1 1YD and will be between 14:00 and 17:00. All are welcome.See – RSVP page.Also – The fringe event that promises to empower Labour’s Progressives against neoliberalism – for more details and background.
  • Tuesday, September 26: London – Formal Book Launch of – Reclaiming the State – Newington Green Unity Church, 39a Newington Green, Stoke Newington, London, N16 9PR.The event will run from 18:30 to 20:30. All are welcome.Please see – Ticket Page (entry free).
  • Wednesday, September 27: BerlinReclaiming the State launch combined with German language version of my 2015 book Eurozone Dystopia: Groupthink and Denial on a Grand Scale.Speakers:Prof. Dr. William Mitchell Author, University of Newcastle Prof. Dr. Heiner Flassbeck Former State Secretary for Economic AffairsDr. Dirk Ehnts University of Chemnitz Thomas Fazi Co-Author of “Reclaiming the State”, JournalistTime: 19:00Place: neues deutschland, Franz-Mehring-Platz 1, 10243 BerlinAll are welcome.
  • Thursday, September 28: Madrid – details coming.
  • Friday, September 29: Madrid – details coming.
  • Saturday, September 30 Rome – details coming.
  • Sunday, October 1: Ferrara – Presentation at International Writers Festival – details coming.
  • Monday, October 2: Milan – Presentation at Milan Culture Festival – details coming.
  • Tuesday, October 3: Helsinki – Meetings with activists etc.
  • Wednesday, October 4: Helsinki – Dual Book Launch – Reclaiming the State (William Mitchell and Thomas Fazi, Pluto) and Exits and Conflicts: Disintegrative Tendencies in Global Political Economy (Heikki Patomäki, Routledge).Location: PIII in Porthania, University of Helsinki, City Campus.Time: 11:15 – 12:45.
  • Thursday, October 5: Helsinki – Bill Mitchell Public Lecture at University of Helsinki, Main Building on Oct5 Oct at 16:00, in Lecture hall 5 of the main building of the university.
  • Friday, October 6: Paris – details coming.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved

This Post Has 33 Comments

  1. From what I can tell, ‘progressives’ are far more interested in clobbering the rich and transferring it to themselves – either via Basic Income or the increase in ‘charity work’ they want to get involved in.

    Very much a case of give a man a fish because it makes me look good to my peers, rather than teach people to fish because it solves the problem.

    I see this quite a lot in systems work, where people will treats symptoms constantly because it keeps them in a job and superficially relevant, rather than addressing the root cause of a problem and getting rid of the need for the job all together.

    Charities are often a sign that a problem is just not getting solved. They should be seen as canaries in the mine. We already know from the Victorian Philanthropists that they cannot solve problems on their own.

    It’s time for a ‘root cause’ movement amongst those who believe in social value. If you have a state that is incapable of addressing a problem politically, then you probably have a state that is too big and insufficiently cohesive. It may be time to break it up into smaller parts that can move independently.

  2. “It’s time for a ‘root cause’ movement amongst those who believe in social value.”

    Hi Neil,
    I like what you said here. this is exactly the perspective I have been coming from for years now, however I struggle time and time again to explain myself properly. I am always met with ignorance or lately ridicule – as if people are offended by it.

    I was curious if you would like to share what you have in mind as a root cause movement.

  3. Neil I feel similarly about volunteering. From one perspective it is a selfless act, to be admired but from a MMT perspective I would think it constitutes unmet public needs that ought not to rely on unpaid volunteers but be adequately resourced from public resources.

    Or have I got the wrong end of the stick?

  4. “Socialists should insist on using the nationalised industries not simply to out-capitalise the capitalists — an attempt in which they may or may not succeed — but to evolve a more democratic and dignified system of industrial administration, a more humane employment of machinery, and a more intelligent utilization of the fruits of human ingenuity and effort. If they can do this, they have the future in their hands. If they cannot, they have nothing to offer that is worthy of the sweat of free-born men.”

    Schumacher : Small is beautiful. 1973

  5. @Neil

    Charity merely sweetens the stench emanating from the sewers of capitalism.

    Are you going to be at Bill’s talk in Brighton on 26/9?

  6. Why are all economists obsessed with consumption taxes? I do think using the word redistribution plays into that most common of arguments; taxes fund spending…

  7. Neil, your comment applies to “Big Pharma” in spades. Not for it a cure, no. Just a management regime so we are on the medications forever. I doubt they criticise Big Tobacco – another source of medications. They don’t want you to die [that’s a waste] but to keep you sick. I agree charities are somewhat similar, though not all.
    The real problem with charities is they act on the big lie about economics, The household analogy. The government employs it to crimp spending on anything they don’t like, like welfare, and so they encourage charities to help fill this quite unnecessary space. Sick!

  8. Dear Matthew Arnold (at 2017/09/04 at 7:54 pm)

    Using the word ‘redistribution’ has no connotation to the “taxes fund spending”. In MMT it means we are redistributing the burden of the real resources the state will deprive the non-government sector of using away from lower income towards higher income.

    Simple as that. It is always in terms of real resource space. Nothing financial at all. It goes back to the heart of why taxes are required.

    best wishes

  9. Dear Bill

    We hear a lot about the unfairness of the tax system because corporations often pay so little tax. In my opinion, levying taxes on businesses is a bad idea. We shouldn’t tax business companies, but we should tax business owners, in the same way as everybody else. Whether a firm is a sole proprietorship, a partnership or a corporation should make no difference in the amount of taxes that the owners pay.

    Suppose that Peter, Paul and Patrick each have an unincorporated business. Each business has a profit of 50,000. The 3 men should then be taxed on 50,000. Now they form the partnership. The partnership has a profit of 150,000. Each man’s share of the partnership is 1/3, so, again, each one should be taxed on 50,000 of profits. Now the partnership is incorporated. Peter, Paul and Patrick each own 1/3 of the shares. The corporation has a profit of 150,000. Once again, each shareholder should be taxed on 50,000 of profit, regardless of how much of the profit is distributed in dividends.

    To avoid double taxation, the adjusted cost base of shares should be adjusted upward by retained earnings. If, for example, the corporation retains 60,000 of the 150,000 of profits, and if each man has 10 shares, then the adjusted cost base of their shares should be increased by 2,000 to avoid double taxation through capital gains.

    The corporation tax was a bad idea. Tax shareholders, not corporations. In Canada, many professionals have incorporated their practices, and they have done so for purely fiscal reasons. That is undesirable. No business should ever be incorporated just to reduce the tax burden. If corporations were treated like any other business, and if shareholders were taxed in the same way as other business owners, then businesses would only be incorporated for legitimate business reasons, not for fiscal reasons, and all tax-avoiding schemes in tax havens would disappear.

    Regards. JS

  10. Sometimes one wonder if many of those who claim them self to be progressives are uneducable? Have hard to see observable facts.
    Can’t thy see the contradiction in “feeding” the poor by taxing a financial casino game inflated with private banks money creation out of thin air. That 74% * world GDP in speculative transactions have nothing to do with available real resources on this planet.
    That “we” can’t relay for our survival on crocked banksters and ditto finance-oligarchy. On their willingness to create money out of thin air(with support of our Central banks) . On an advanced Ponzi schemes. It’s nonsense.

    Does it never occur to these “progressives” that if “they” can create money out of thin air, “we” can to.

    +30 years of neoliberal private money creation have created an historically unprecedented concentration of power over “our” productive resources. Why do “progressives” want this to continue? To rectify all the damages neoliberalism have caused will take decades. The longer it continues the harder it will be.

  11. Great article.

    Quite often I find myself just repeating what progressive people say on FTT and other stuff. Thanks for delving in to explain the logic and proper policy remedies according to MMT/reality economics.

  12. I understand what you are saying about not concentrating on the revenues collected from a financial exchange tax, because they are not really necessary- but you have often said that taxes can serve the public purpose by discouraging behavior deemed better to discourage. Why does all the behaviors I like to engage in like drinking beer and smoking have to be so discouraged to such an extent and that is okay, but taxing financial transactions that do nothing for the economy except provide an income for people who do nothing for the economy, well Bill says that’s not really a good thing? At least my bad behaviors provide an income for someone other than myself. And they might very well reduce whatever commitments the government has made to me when I retire. And they certainly have never screwed up the entire financial system like stock markets have.

  13. “We can simply use the legislative capacity of the national government to outlaw things we think are damaging to well-being and serve no other function.”

    My wife works in child care. Until recently I was a truck driver. Both of these industries (suggesting we are not alone) have recently been subject to regulatory overhauls which are aimed at nothing more than concentrating the industries into more powerful groups in order to squeeze out the small guy in order to reduce resources required to regulate.

    From a low level as I was (truck driver) we struggled more and more to make ends meet as time went on largely because of the constant updated regulations requiring us to spend more and more money. It’s hard enough we have slow economic growth and a highly competitive industry (half the truck drivers are now foreigners and so we have too many trucks sitting doing nothing), but to add the extra costs of regulation, it is obvious the bigger companies will survive and we will not.

    The same with child care. My wife works for a woman who owns just the one center (she tried a second one but couldn’t make it profitable). Regulations above all else has squeezed her to the point where she is now considering turning her child care centre into a non-profit based on incentives offered by the govt. On one hand she will be paid by the govt (which is positive for her), but on the other hand her center will be controlled by a board including some parents (a negative from her perspective).

    I guess we can see where this is going?

  14. “At least my bad behaviors provide an income for someone other than myself.”

    And when the bad behaviours stop, as is surely the point, what happens to the income?

    While you continue to link tax with “somebody else’s income” rather than the delete key (taxes just shrink the nation’s balance sheet) , you remain caught in a neoliberal mental frame.

    The ‘self as a business’ viewpoint is socially destructive. We need to learn to co-operate with each other for the common good, not compete to get to the top of the pile of bodies.

  15. “The ‘self as a business’ viewpoint is socially destructive. We need to learn to co-operate with each other for the common good, not compete to get to the top of the pile of bodies.”

    Retired High Court Justice Kirby made a speech recently regarding the inherent conflict between promoting a flourishing system for risk-takers (who are the creators of our technologies etc) and the inevitable insolvency that competition creates. Although he says we need to find a sweet spot, by his own admission 100% solvency is not possible (without removing personal autonomy).

    It is not that ‘no one’ should view themselves as a business, but rather, the space in which there are entities competing is itself over-crowded. Earning money is a craft, skill, talent and should be treated as such, and not treated as some imposition where you must sell your time or be damned. I do not understand how it is possible to promote a common good if ‘every one’ must treat themselves as a business (i.e. sell their time). But then again, economics is not concerned with anything other than that which can be bought and sold which is what I got told this morning by an economist.

  16. The discussion of taxing versus banning “non-productive” financial transactions brings to mind the hierarchy of controls for treating safety hazards. This classifies approaches to engineering a safe environment according to their qualitative effectiveness.

    Elimination – remove the hazard
    Substitution – replace the hazard with a lesser hazard
    Engineering controls – enclose or isolate the hazard using physical barriers
    Administrative controls – isolate the hazard using authority
    Personal protective equipment – make users robust against hazardous interactions

    Banning or taxing would both be considered administrative controls. Taxing is an odd beast in this viewpoint, somewhat akin to charging an admission fee for access to a nuclear reactor.

    Insurance is probably in the personal protective equipment category.

    An engineering control would make the undesirable transactions impossible, rather than merely illegal. This may be possible in a pure electronic money world.

    Substitution is something along the lines of replacing the gold standard with fiat currency or replacing money with an electronic barter system.

    Elimination would remove the scoreboard completely.

  17. Bill, agreed. I was simply referring to “redistribute income” as stated above and whether considering the function of spending/taxes as issuance/removal of balances, it was the correct use of language considering those most common of nostrums spoken by those not familiar with your and other MMT economists work. Meaning, the first response would be “my money” or “taxpayers money” etc. and how that then flows through to other misconceptions…

    You did say you were producing a paper (?) around these problems, did I miss it or has it not been published yet?


  18. Partially answering my silly first question is the fact that it is my state government (not the US federal government) that enacts the largest portion of the tax on tobacco and beer. And the state does need the tax revenue in order to spend. And I guess the taxes were decided by the state legislature, which is at least nominally representative of a democratic process. So maybe I can complain about it, but this is not the right forum for that. Sorry.

  19. As far as banning an activity versus taxing and regulating it- my country once tried that with alcohol- it was called ‘Prohibition’ and did not work out very well. So they went back to taxing and regulating it, and that seems to be more popular with the majority of the people. On the other hand murder is still basically banned completely, rather than taxed, (but it still happens). I agree with that ban. So maybe rampant financial speculation needs to be considered in that context. Financial shenanigans- better than murder, not as good as beer.

  20. Finance should work like a well written firewall script.
    Of all the super set of functionality, white list only what is allowed. Anything else will therefore belong to the subset in the blacklist.

    The second layer would be understanding complex system instability. Using the metaphor from cosmology: that a larger mass will change the volume of space time it occupies.

    This could be used to describe the volume of financial transactions in parts of the economy. If there is a dense concentration somewhere use a tax mechanism to delete finances and dissuade a large mass build up on one area that distorts the system. Kill off pro-cyclical feedback loops early.

    Of course this is where reality breaks the fairytale that markets are efficient.

  21. “We have been lured into a system that privatises the gains and socialises the losses.”

    This is one of the better quotes!

    When are you presenting in Newcastle next? I’m an Alumni of the Uni and was lucky enough to see Rodney and yourself present in around 2010, I’d love to see how the MMT world has developed.

  22. I must be missing something. Why support “…broad-based Goods and Services Taxes with zero exemptions ….better to deprive the non-government sector of purchasing power using taxes that are simple to administer, difficult to evade.
    A GST seems to me to add unnecessarily to the cost of living, wastes an enormous amount of resources in small businesses in particular and fosters a black economy. A tradie will all too often offer a cheaper cash price for work.
    The States ( if we must continue to have them) should receive appropriate funding from the Australian Government without the GST distortion
    It seems particularly silly to see existing GST exemptions on tertiary and vocational training fees removed?
    Why add it, as we do now to power bills?

  23. Kevin, it seems to me that if you believe in the MMT idea of taxes driving the demand for, and therefore, the value of a currency, that the best taxes to do that are the taxes that impact the most people. These would be taxes on things like land, apartments, food, water, air to breath, etc.. These are going to be regressive taxes because they do not depend on income levels in order for the tax to be ‘owed’. People will owe the tax regardless of their income or what they get out of society and therefore will have to provide something, usually labor, in order to get ahold of the currency to pay the tax. I have a hard time reconciling that with my sense of fairness, but it seems to me to be an obvious continuation of the taxation giving value to the currency theory.

    Government is not always Mr. Nice Guy in MMT. Warren Mosler explains it very well when he describes how he can turn his business cards into a very valuable currency for an audience with the help of armed guards stationed at the exits to the auditorium. I will try to find a link to that presentation of his and post it.

  24. Jerry- Thank you. However, if we must have a wide tax net, why use one so obviously able to be avoided as a GST? (Which also wastes time and effort)
    Hut Tax? Poll Tax?

  25. “These are going to be regressive taxes because they do not depend on income levels in order for the tax to be ‘owed’. People will owe the tax regardless of their income or what they get out of society and therefore will have to provide something, usually labor, in order to get ahold of the currency to pay the tax. I have a hard time reconciling that with my sense of fairness, but it seems to me to be an obvious continuation of the taxation giving value to the currency theory.”

    All events which are taxed are only those events where a profit is being sought and hence the resource being taxed is owned privately as opposed to publicly owned. All non-profits and charities are exempt from income tax and often land taxes and rents etc because they hold their resources in trust for the wider community. The govt (acting on behalf of the wider community) cannot tax that which they already own. However, all legal exchanges must be taxed irrespective of whether its a charity or a private enterprise doing the exchange because all exchanges of a legal nature (meaning it will form part of a tax return) have a profit element attached.

    I agree that a regressive tax does not fit with fairness. As Proudhon once said “no man can ever purchase that which he produces with the wage he received to make it because there is always a profit element attached”. The only thing that should ever be taxed is profit.

    Of all the things that MMT teaches, the ‘taxes drive currency demand’ is the only one I can’t reconcile. It does not fit with my legal studies of taxation and its history.

  26. ‘GST’= general sales tax?. I don’t know Kevin. Any tax that everyone had to pay to avoid going to jail or worse would tend to make people try to get the currency. All I was saying is that is an implication of the ‘taxes drive the value theory of currency’. Truthfully, Bill Mitchell always says that taxation can also be used to address inequalities and injustices and he has never suggested that people who are unable to work ought to go to jail or anything of the sort, rather that any Just society should care for those who cannot.

  27. Dingo, I don’t like some of the implications of the ‘taxes drive money’ theory any more than you do under some circumstances- because it conflicts with my sense of what is ‘fair’. But almost ALL of what is ‘mainstream economics’ conflicts with that as well. And makes less sense at the same time! And just because I don’t like something for moral reasons doesn’t mean it isn’t true either.

    The other thing is that tax laws are made by government- those in power- whether they represent what most people desire, or what people think is fair, or what is most ‘efficient’ for whatever reason, or even what is logical, has nothing to do with the laws that might be enacted. They are not ‘natural laws’ like you find in physics- they are whatever is made into law. The definition of what is taxable changes from jurisdiction to jurisdiction depending on what the law is in each.

    In my country, we have property taxes on real estate. It is hard to imagine that most people who own land with just a single residence on it (or even just part of a structure that is their home, like a condo) are trying to make a profit by owning it. But it is definitely taxed, and I don’t think unfairly taxed, in most cases. (Except for all my taxes, which like the beer tax are way too high!)

  28. ” (Except for all my taxes, which like the beer tax are way too high!)”

    Haha. Yes, I hear you there!

    Yeah, I guess what I’m trying to point out is that from a legal perspective, the definition of taxes is treated very strictly. There is no wiggle room in the way the law treats it. If a government treats a tax differently, it can get away with it for quite some time until someone gets wind of it and brings it to a constitutional court where it will get challenged and if found unlawful, it will be changed. But until it is challenged it can go no indefinitely.

    Government legislation etc is often challenged in this country, and I only read a recent case from our High Court where the justice admitted that the Commonwealth is increasingly trying to push its boundaries, especially in the case of creating and acting under government corporations, and more and more cases are being brought to the high court to address these things, and often the Commonwealth loses. I find it extremely comforting when I read things like this because it tells me the separation of powers is still working and govts can’t get away with things – it just means more people need to understand the law better.

    But anyway, as for the legal definition of taxes, this might shed some light:

    tax. n. a governmental assessment (charge) upon property value, transactions (transfers and sales), licenses granting a right, and/or income.

    I have also read in a case where a judge said that taxes is the right to destroy.

    This last one fits in line with MMT because as MMT points out, private wealth is a government liability. If the govt accepts the liability in order to allow me and you to enjoy wealth (i.e. profit) then it must also hold the right to destroy it.

    This also fits in line with why charities and non-profits are tax exempt. When these institutions hold property it becomes community property and thus not profit based property, and is thus no longer a govt liability. By holding something under a charity or a non-profit, you are in effect taxing the private sector by removing it from the profit space. As it has been said in court cases regarding the meaning of charity, it is expressed that a charity is anything that lessens the burdens of government.

    I think I did read Bill say that its not really currency but real resources the govt is always seeking. The government is always trying to find a sweet spot between giving us as much freedom as we can and at the same time keeping its burdens to a minimum. The more wealth we have, the larger the burden on government.

  29. Dingo, I am going to guess from your ‘name’ that you are Australian and that you are speaking about the Australian Government and legal system. Which, in my understanding, is one of the more enlightened government systems in the world to live within, and even though Bill often points out many flaws, he seems to approve of it a lot more than many others, including my country. And I think he is mostly right about that. But American people are not as bad as he sometimes implies. At least not the ones I know.

    MMT ideas would work under any kind of government, whether autocratic or democratic, or benevolent or malevolent. As long as the government is the strongest power within a nation. The law, which is backed by the implied force of the government, decides what is taxed or not. It decides what is a charity. A particular government could tax ‘charities’ if it wanted to- they just change the law to do so.

    MMT allows an understanding of what is possible in the framework of a government currency where the government is strong enough and willing enough to enforce its laws- for bettering the well-being of the citizens or not. Terrible, terrible authoritarian governments like Nazi Germany seemed to have an implicit understanding of MMT. Good governments should also understand it.

  30. “A particular government could tax ‘charities’ if it wanted to- they just change the law to do so.”

    A lot of cases which make it to court are often between charities and the tax office over disputes as to whether the organization should be paying tax or not. Often the tax office loses. This demonstrates that even those in govt don’t always know the law or at least will always test it. I was going to post some links but I thought better not to. If you google

    ‘IRS lessening the burdens of government’ you’ll find a fair amount of information and past case history over it.

    What constitutes a charity is what the government perceives are lessening its burdens, whatever they may be at the time.

    Yes, I’m from Australia

  31. I still don’t think the MMT treatment of taxes, outlined here by Bill Mitchell, quite hits the spot.

    I have no problem at all with the re-distributional functions of taxation, and the statement that certain allocative taxes (for example the carbon tax, or financial activity taxes) rely too heavily on price competition rather than regulation to achieve their purposes.

    But I do have a serious doubts about the explanation that “the non-government sector has to be deprived of access to resources – that is, taxes reduce the non-government purchasing power”.

    For one thing, taxes are not the only thing that reduce “liquidity” to reduce non-government sector purchasing power. What about issuing bonds? They also (albeit temporarily) also reduce liquidity in this way, giving corporations a safe place to park money they would otherwise speculate, or invest and use up resources.

    The problem with taxes is that they are sticky, and it is politically difficult to raise and lower them, whereas issuing bonds (going into “debt”) is simple, can be targeted, and is not subject to the same scrutiny. They can also be easily be withdrawn (QE and bond buy-backs), paid out on maturity, or rolled over to adjust to changing conditions.

    So if you really wanted to reduce liquidity, taxes would be the worst route to follow, and bonds would make much more sense, except … why on earth would you want to do this anyway? I can’t really see an argument for issuing bonds on the domestic market at all (issuing bonds overseas is a different thing altogether), and the same goes for taxes to achieve the same misguided purpose.

    Then I come to another objection, this time when it is said that one of the main purposes of taxation is “creating real resource space in which government can spend without creating inflation”.

    Perhaps you might need to create space for government spending if the economy is running at full capacity and no unemployment, but this is generally not the case.

    The real objection I have to the statement is the assumption that government spending, (increasing the size of the money stock) could lead to inflation without being controlled by taxation. This is pure old-style monetarism, which sees a direct and inevitable connection between monetary inflation (increased supply of money) and price inflation (increased prices), supposedly because, according to the monetarists, the velocity of money remains constant (which of course it doesn’t).

    It has also been demonstrated empirically by Richard Vague, in a 2017 study of 47 OECD economies from 1960 onwards, that “rapid money supply growth does not cause inflation [and] neither do rapid growth in government debt, declining interest rates, or rapid Increases in a central bank’s balance sheet”.

    I do not really like the idea of showing such disrespect and clashing swords with Professor Mitchell, on the subject of MMT of all things, but I do think my objections need to be heard and answered.

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