MMT + APT tax could be a winning combination
I admit, I’m late to the game on Modern Monetary Theory (MMT). I was early to the Automated Payment Transaction (APT) tax. However, this might be exactly the right time in American history for these two ideas to become bedfellows. We might actually give birth to a New American Century just as the world turns to face a hitherto for unknown problem: massive abundance.
I started to really think about the economics of abundance back in 2004 or 2005. As human beings we’re not really wired well for this kind of thinking. For almost our entire existence life has been about finding a way to overcome the scarcity of resources needed for survival. Our minds seem to treat abundance as a giant divide by zero error.
When we fight about issues, as we are prone to do in America, we have a general tendency to frame everything in terms of good and evil. It is deeply self satisfying to feel like we are on the side of good. Likewise, it is deeply self satisfying to feel like we are fighting evil. The mundane truth is, more often than not, we are simply arguing nuances based on beliefs that are more similar than our closely held biases would allow us to admit.
For years now, the special interests groups on the right and left have gone at each other. Their arguments all smack of scarcity. All of them boil down to roughly this: (1) the world is unfair; (2) other people -not you- have unfairly obtained something scarce (usually wealth, power, or privilege); (3) we should use government to make sure that they didn’t steal it from you; (4) if they did, our unique brand of government offering (Democrat, Republican, Tea-Party, Libertarian, etc …) will get it back for you.
Just look at the last election.
Bernie wanted you to believe that those people who have the most wealth got it by taking advantage of other people and that he would work tirelessly to make sure that those bastards pay for the education of future generations so they can have a real shot at wealth too.
Donald wanted you to believe that America is under attack on our southern boarder and those damnable illegal immigrants are taking jobs from decent hardworking Americans (right after raping your neighbor’s daughter mind you) and he was going to put a stop to that by building a wall and making Mexico pay for it so you can have your jobs back.
Hillary wanted you to believe that she was a champion for those against whom the economic deck remains “stacked” in favor of “those already at the top” and upon getting elected she was going to make sure those bastards payed to make it right.
In other words, its all about the scarcity of something, money, jobs, safety, etc. It’s very clever. If you look at all of human history, we’ve spent almost 100% of it dealing with the issues of scarcity. In fact, the origins of economics is based on finding an efficient mechanism for the allocation of resources in the presence of scarcity. With free markets, using the pricing mechanism, being the most efficient and “fair” so far.
Now we are creating more wealth than ever before in history. Abundance just hasn’t been an issue that we’ve had to deal with very much. As a result, we try to apply the mental rules of scarcity to abundance and they basically kick out an error message. You get infinity as a result, and you think it’s wrong. In reality, you’re just not thinking correctly.
So the response is almost always the predictable. Rather than actually trying to deal with what abundance enables, people try to force abundance back into a framework of scarcity — the one we’re understandably comfortable with. That is, we try to apply artificial rules and restrictions to make the abundance feel like it’s scarce, so that we can understand the world again.
Imagine we decided to stop trying to shift our tax burdens onto someone else. Imagine that this was because we realized that income tax is actually one of the key wedges that divides most Americans. Imagine further that we were looking at the issue of Government spending in the wrong way all these years.
Which brings us to MMT …
The first crucial thing to understand about MMT is that it recognizes the reality of how we have been paying for things for quite some time now. The government creates dollars. It doesn’t even have to print them anymore. The vast majority of spending is simply done by adding electronic dollars to bank accounts.
Therefore, by definition, the U.S. government can’t go bankrupt. It pays all its bills in U.S. dollars, of which it is the sole issuer. This may sound really obvious to you; but, it is amazing how many people — even super smart people — forget this simple fact. It gives rise to hysteria about things like the fiscal deficit or the national debt. While it does not alleviate the fact that you can create real problems through too much government spending, it does not change the fact that the only way the U.S. government can default is if it chooses to do so.
MMT can seem to many like a journey through the looking glass. At its core is the belief that most of us see the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government — which is ultimately the source of all dollars, taxed or untaxed — pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. And, as we just discussed, it does it by adding numbers to bank accounts using a keyboard attached to a computer.
This gives us a new way to look at taxes. Taxes exist in order to control inflation by reducing the money supply. And, by ensuring that dollars are the only currency accepted for tax payments, taxes ensure dollars remain in demand. Boom. Let that sink in.
I think many people out there will instantly recall what they might have learned in basic economics class. If government helicopters came and dropped bags of money in the middle of the night into everyone’s yard, then the additional available funds for the fixed quantity of existing goods would cause inflation. Which is only partially true. It would not cause inflation for the goods where the demand did not exceed the available capacity no matter how much additional money was introduced into the system.
Even better, when people started to try to disprove MMT, they wound up confirming it’s assertions. Oops.
Also note, that in order to engage in this magic you need to be like the United States or the UK. You need a fiat currency. You need to collect your tax dollars in that currency. And, lastly, you need to have sovereign power to increase or decrease the amount of that currency in circulation. Many EU countries would not be able to engage in MMT unless they wished everything to be paid for by Brussels.
So, assuming these things are true, then it seems a waste not to introduce government spending into the economy where we could benefit the public good. If the government wants to find a way to care for homeless people better and spend money on that it is unlikely to be inflationary. Thus, any fiscal stimuli, including infrastructure spending or tax cuts, would be federally funded but locally administered. We could design it with job guarantees.
Anyone who wanted work, either full- or part-time, would be paid some minimum wage (say $15 an hour) on projects deemed valuable by their local community. This might mean building roads, but it might also including caring for the elderly or working at daycares. Needed services would be provided and unemployed and underemployed people could find work. It would help to match people were there was not enough capacity.
In this context, a likely key to successful MMT spending is two-fold:
(1) Governments should not worry about spending money where there remains capacity in the system.
(2) Governments must be able to control inflation through taxation that is largely invisible to the average citizen (which does not require them to plan for it).
So, the first part of that is going to be largely predictable with some hits and misses along with intended and unintended consequences. This makes the second aspect (taxation) a key to ensuring that our efforts to ensure better outcomes for society don’t wind us up on a road to hyperinflation.
Enter the APT.
The basic idea here is to abandon a 19th century tax code in favor of a 21st century taxation plan. Imagine (and it doesn’t take much imagination in the era of super-interconnected-banking) that all transactions — including trades in stocks, bonds, options and currency — would be taxed at a very low rate AND treated exactly the same. There would be no property, state, or local taxes.
Normally we would make the case that with every sector of the economy contributing, and everyone pulling together, everyone’s taxes would be dramatically lower. With low taxes, we would stop trying to shift our burdens onto someone else. However, that is before we walked through the looking glass and came to see taxation as a mechanism for tamping down inflation.
With the current total of all US transactions estimated at $1000 Trillion annually, and using a transaction tax of .007 shared between buyer (.0035) and seller (.0035), we could expect to reduce the available money by almost 7 Trillion (almost double the 4 Trillion US 2018 budget that we fight about today). In fact, given the very hard time the Fed has had hitting it’s target inflation numbers, it is highly likely that we might not even need to have transaction taxes that high.
Bringing it all together
At the end of the day, these two ideas taken together might very well propel us into a New American Century. As we move towards a robot economy and away from scarcity, perhaps it is high time we dropped the pretense we actually understand the implications. Our brains are not well wired for this stuff, but it is clear that some very thoughtful people have begun to peel back the layers.
Among the remaining problems? If MMT became mainstream and increased public spending became the norm, power and wealth would shift away from the current ruling class. How can we architect a transition that people feel good about? Especially people who have made their fortunes on the supply and demand curves of the world economy.
