A Beginner’s Guide to MMT

spending = taxes + printed money new money supply = old money supply + printed money

But, I believe that MMT is saying that taxes and spending could be logically separated by assuming that all taxes go to the shredder and all spending comes from newly printed money:

spending = printed money new money supply = old money supply + (spending - taxes)

So it wouldn't be 'increasing spending by taxes', it would be 'reduce inflation by taxes'. The size of 'big-gov' should be measured as spending/GDP regardless of the actual tax rate. The tax rate would float depending on the current inflation target instead of on the current federal spending.

No, it's not. And that's backwards: MMT says that because you can always print more money, the only constraint on spending is inflation, not revenue, and that taxation serves the purposes of creating incentives by specific targeting and limiting inflation by it's overall level, but doesn't actually “pay for” spending in the balanced sense this applies to participants in an economy who are not the sovereign money issuer of the primary currency.

The key upshot of this is that:

(1) the idea that an excess of spending over revenue must be financed by debt owed to some particular party is an artifact of structures which obscure the fundamental nature of fiat currency and try to mimic commodity-based currency; and

(2) the idea of long-term budget balance as a goal is bunk Ina fist money system; in fact, as base money supply is tokens created by government issuing and spending them and destroyed by government recovering them, having a money supply in such a system is synonymous with long-term surplus of spending over revenue.

> Printing more money does not change the real wealth in the economy

Correct.

> You can’t create additional purchasing power with an increase in the money supply

You can't create additional aggregate purchasing power that way, but you can create new purchasing power for the entity holding the newly-printed money (at the expense of purchasing power of those holding existing money of th same currency, and with three side effect of also tranferring purchasing power from all holders of assets denominated in the currency to all holders of liability denominated in th currency.

The MMT argument is stronger: taxes only exist in a fiat money system to reduce the money supply (and, to create behavioral incentives with specific targeting.) Viewing them as “paying for” government spending in a balanced sense where you need $1 in revenue (or debt financing which you pay back with interest to a lender) to pay for $1 in spending is, through an MMT lens, wrong, and the result of applying commodity money thinking in a fiat-money world.

> MMT also (AFAICT) seems to make the central bank subservient to the finance/treasury people, instead of independent (which is the modern way of doing things). This control of interest rates is important for technical reasons:

It need not: a system which deeply incorporates MMT might retain a central monetary authority separate from the authority that makes spending and tax-targeting decisions (calling this a “fiscal” authority is perhaps no longer apt), exercising interest rate levers to manage inflation and employment levels as the Fed does today; it might even give it more tools by assigning it then ability to set the rates of broad, non-behaviorally-targeted taxes (like to control a parameter that is a factor in the rates of all income tax brackets), as MMT recognizes that general tax level is an important money supply lever and nothing else. The importance of public confidence in the money supply remains in MMT, and having technocrats insulated somewhat from the pressures of legislative politics primarily responsible for administering such policy under broad policy goals remains, as well.

It probably wouldn't be constituted the way the Fed is, which is driven by the desire of the government to give bankers confidence in the currency because the government will be going to the bankers to borrow debt in the currency to fund deficits.

Because what it would do is eliminate the practice of acquiring debt to finance “deficit” spending in the first place, which changes the constituency at which monetary policy is aimed.

It seems to me that’s kind of half-a-loaf MMT. Or, to borrow from The Matrix trilogy, it's the spoon-bending level.

Where the full loaf (“there is no spoon”) is: Government is not constrained to take on debt at all to finance an excess of spending the over revenue. The idea that, if the State chooses to create net new tokens in the economy (remember, the key points of MMT is that fiat money is created by the issuing government spending and destroyed by the issuing government recovering it), it must seek the permission of someone with a surplus of existing tokens willing to sacrifice them for a greater number of future tokens, after which the government's pet (but “independent”) token-issuing body will see to the issuance of additional tokens is kind of bonkers, but that seems to be how MMT would view the current relation between fiscal and monetary policy.