Banque de France should write off its holdings of State debt

This Post Has 20 Comments

1. Re taxing the rich, how about this option? I recall wealthy people write that they want their tax dollars to not be just sunk into general fund, but would like it to go somewhere they want. So give them this option. Raise their tax to the pre Reagan levels and tell them to choose where their tax dollars are spent. Print a list of acceptable options. Collect their taxes and spend them according to their choices.
   It’s of course not strictly a tax any more but a spend. We would just continue to call it a tax. It could even be just sent to the various states which do need tax revenue.
   The super wealthy would have one less reason to not pay tax and they might even embrace the idea. We would in part be giving them what they want.

2. Hi John Doyle

   But tax dollars are not spent by a dollar issuing government, they are extinguished. Bill says ‘Tax the rich by all means (to reduce their social and political power)’. One way they exercise their power now is by using their wealth to influence government spending. It undermines democracy. Granting them a role in spending decision-making ahead of the common man and his/her representatives, makes this political power through wealth even starker.

   Why wouldn’t governments want to reduce their public debt ratios at a stroke? I guess they are like public school boys who liked a good flogging but now have a chance to pass the pain on to other people.

3. ‘In general, central banks cannot go broke and within the Eurozone’

   I fully understand why this is true of currency issuers but it doesn’t seem so clear in relation to the Eurozone as in this case the ECB is the currency issuer. I would have thought that the individual central banks in the Eurozone would have to buy the bonds with existing financial assets rather than ‘fresh keystrokes’. I suspect I’m missing something important here.

4. Maybe Ms. Warren is not the best option, but she is definitely better than the other two frontrunners: the architect of student debt himself Biden or the format-sans-content McKinsey-technocrat Buttigieg.

   [Bill edited out link – no interest in promoting Elizabeth Warren]

   Most of her proposals are steps in the right direction (though maybe reformist at best), even if Ms. Warren thinks she has to tax enough in order to finance them. Also, one has to at least commend Ms. Warren’s willingness to go into such detail in regards of policy proposals at such an early stage of the campaign. The other two frontrunners basically have reduced their cases to “It’s me, uncle Joe!” and “I’m Pete and I’m smart”.

   I would much prefer a Bernie Sanders presidency (is S. Kelton still a campaign’s economic advisor?), but the world could do a lot worse than Warren. However, I do concede that this might be an historical oportunity to drive a stake in the heart of the neoliberal vampire once and for all and that Ms. Warren doesn’t strike me as the Dr. van Helsing type.

   Most of the candidates will flame out of the race sooner rather than later, so one shouldn’t invest too much time with them anyway. Right now it feels like the Democratic Congressional Campaign Committee is still sorting out which establishment candidate they’ll support against Sanders in the primaries and I’d feel less dread if it ends up being Warren (though I’d still hope she’d lose).

   Cheers!

5. To be fair to John Doyle he does say it isn’t really a tax anymore. It could be a compulsory contribution that has to be made by people with more than a certain net worth to a number of funds held by the Treasury in commercial banks. That money would then be used to carry out charitable works such as feeding the homeless, disaster relief, etc. It isn’t a bad idea in the present context, but much better that the government understands its own currency issuing capabilities and just does those things as a matter of policy.

6. Let’s hope Tulsi Gabbard gets her head around MMT and the Federal Job Guarantee, so the world can see an economically intelligent US administration on an anti-war platform.

7. This MMT understanding is correct, of course. Unfortunately, the voting population is not yet there. In the US polls show clearly that voters want to tax the rich in order to reduce income inequality and the political power of the wealthy elite class. A legitimate purpose of taxation. But to require that everyone first understand the distinction that raising taxes does not pay for government spending is an intellectual ‘bridge too far’ right now. You have effectively ruled out every presidential candidate in the US, including Bernie Sanders. I hope at least one candidate would adhere to the complete MMT narrative, but I don’t believe that is going to happen in this political cycle. MMT will first win the power corridor, and then win the academic corridor too, in my opinion.

8. Just to put in a bit more explanation of my thoughts, still at an early stage. The fact is that a pre Reagan Tax level will destroy a lot of ‘earned’ wealth. So in lieu of more deficit spending to match the tax the money can be put to use as Nigel says for good works. There would be no harm in naming the persons responsible for the money injection. Since the fed has to give grants to the states which do use tax it gets away from the deficit spend the Fed carries out. I see it as a genuine trickle down effect. It would make the rich become involved more in the society and less like parasites. It would give MMT a big leg up if it caught on, I think. If the tax was high enough one could put to bed the inheritance tax option, also being discussed.

9. “2. He doesn’t examine the impact on the balance sheet of the Banque de France, but the reality is that while the assets would decline, that decline in functional terms is meaningless. The central bank is not like any other corporation where insolvency is a threat.”

   I’d be interested in seeing what that would be. I’m sure somebody could cook up something, but might the social effects depend on what the write-down was balanced against?
   I’d been under the impression that the Banque de France is a client bank of the ECB, not a full Central Bank.

10. The change of mindset is getting materialized!

11. Says Bundesbank head, Jens Weidmann: “(T)o foster the necessary transition to a low-carbon economy some observers are actually calling for monetary policy to take climate risks into account. However, neutrality is an important principle of the Eurosystem’s operational framework.” Is the utter insanity of such thinking not patently obvious? Is “neutrality” to be considered a higher value than survival? Using the MMT lens, we must demand an eco-economic policy across the board, as called for in “Reclaiming the State.” Economists and environmentalists must come together in a universal vision of the ends to be pursued (the sustainable health of people and planet) and the means to achieve those ends (fiat money spent according to MMT principles). The proponents of MMT should relentlessly stress that it–and only it–reveals the ample (though not unlimited) scope of human agency that allows us to preserve our threatened ecosystem and thus ourselves.

12. Thanks for bringing out these subtleties of understanding.

13. Only Bernie and Tulsi for me. Others will get bullied out of the building. Thats not to say Bernie and Tulsi get macroeconomics though. Bernie has a movement behind him and that movement would support Tulsi. Only movement can change things.

    As for the bank of France, it really is a right pocket left pocket situation. I thought about the interest payment that will be lost if debt is canceled. However, the interest payment is also right pocket left pocket: Its still the government paying and receiving.

14. Hi John D
    Yes your thoughts are still at an early stage in the MMT enlightenment journey. Keep reading Bill’s blog and it will start to make sense.
    Re-read Patrick’s reply. Tax is the un-creation of Fiat currency. Gov. spending is the creation of new currency at the head of the stream. Political policy determines where this is distributed not kudos to the rich elite. You are still thinking in mainstream economic ideological terms. If your ‘trickle down’ belief (a purely monetarist myth) was worth a light, then where would my tax be allocated & would I get a mention as a benefactor?

15. Bill wrote, “Tax the rich by all means (to reduce their social and political power) but never tie it to the capacity of the government to supply services to the poor, the environment or anything else.”

    While I agree with that position, it’s far from being generally accepted.

    (1) Only two members of the Democrats’ Progressive Caucus in the House of Representatives endorsed any MMT-like perspective when they were discussing their program earlier this year.

    (2) At the Minsky Conference last week, L. Randall Wray had one slide in his deck which was taken from Bernie Sanders’ website in which he advocated a tax on high incomes “so that” programs like the Green New Deal could be financed. His position on this issue may, of course, evolve, particularly if Stephanie Kelton’s message gets heard.

    We in the United States have a tremendous amount of educational work to do, both among the political classes and among the electorate at large, before we can make acceptance of MMT a litmus test for choices in the voting booth.

16. John Doyle

    I would caution against calling your idea a tax. It isn’t within the MMT framework. Money collected by local authorities is called a tax – Council Tax in the UK, State Tax (I think) in Australia. I preferred it when it was called a Community Charge. It is money deducted from people with more than a certain net worth, deposited in a community bank account and used to provide local services. A proper tax removes money from circulation forever.

17. Hey everyone calm down. I know Tax is “uncreation of currency” But it is not so for all but monetary sovereign governments. Taxes are revenue for users of currency. The idea is a hybrid, a mixing of taxes. The idea is to make the wealthy think they are paying tax to approved[by them] causes. A carrot approach, instead of a stick. Put their names to it. I think Nigel your definition is too narrow. There are lots of taxes as well as fees and charges and levies and duties and tolls. Right now the Federal government makes grants to states to help them with expenses. This super wealth tax can be done the same way, as grants from deficit spend. That way the tax can be destroyed but the grant can be named to reflect the contribution made by the parasites. It will look like a trickle down, at least to them. Just fancy book keeping entries.

18. I would think, and certainly hope, that Bernie “gets it”. With Stephanie Kelton having advised him, how could he not “get it”?
     
    The problem is whether he will openly espouse it, and of that, I’m afraid I have my doubts. I think I read a quote by him saying something like “I’ve always been a sound finance man” (or “balanced budget man” or something like that). I imagine he feels this gives him respect among traditional voters, and perhaps he feels he’s too old to change his image.

19. Nice reminder for Peter Green,closer to home Jackie orszaczky and esp his posthumous album with Hamish Stuart and Dave Symes, ready to listen, is worth a listen

20. Thanks for the Peter Green link.