Foundational Problems of the Left Part II: Progressives and Errant Views of Inflation

As an addendum to yesterday’s post, before I begin, I’d like to clarify the point that taxes reduce spending power and thus, can reduce the spending power of the rich whilst raising the spending power of the poor. When progressives say, “tax the rich!”, what they’re saying, though they do not know it, is, “destroy currency that is in possession of the rich!”. Under our current fiat monetary system, that is precisely what taxation does. It doesn’t get collected by government then respent on social programmes, or the military, nor does it end up in the hands of the poor. The national government does not need revenue today enabling it to spend. In fact, the national government’s job as a sovereign currency-issuer is to conjure currency out of thin air and then spend it into the economy. Progressives fail to realise this and so, their mantra of tax the rich will do nothing to help the poor in any way, nor will it secure and fully fund necessary public programmes. The illusion that taxing the rich funds national spending comes when progressives then spend an amount equal to what was destroyed in taxes. 

The Foundational Problem of the Left - The Taxation of the Rich Prior to Spending

In furtherance of my series on what’s wrong with the left, today I wish to discuss national taxation and how it relates to the left’s strategy. The fundamental problem is the errant notion that capital is somehow greater than its sovereign, the currency-issuing national government. The left sees the world through the eyes of Eugene Debs and so, sees a world not of free-floating, inconvertible fiat monetary regimes, but of fixed exchange systems, such as the gold standard. Grounding its strategy commensurate with this viewpoint both demonstrates the folly of progressives and dictates their failure. For Debs, the strategy made sense. The left had to fight on two fronts. Firstly, against capital itself going head to head with it for better pay and working conditions and secondly, politically for power in government to codify labour’s demands as law and to shift fiscal policy towards full employment and the public purpose. The left’s strategy was fine tuned to the reality that government’s fiscal space was constrained under a gold standard.

The Difference Between You and The Federal Government is Authority and Access

I’ve discussed many times now that the US dollar is just a number with a “$” symbol in front of the number. It is not a commodity. It is not finite; it is infinite, because numbers are infinite. Anyone who tells you that the US dollar is finite, or that the US government does not emit US dollars, doesn’t know what they’re talking about. At all times, when the US government spends, it is spending US dollars into existence via keystrokes, by entering an account and typing a number. That number becomes US dollars. At no point in time does the US government need your numbers before it can type them into someone else’s account. The notion is patently absurd. To illustrate the absurdity, let’s use you as an example.

Today's Reply to George Kendall on Monetary Mechanics in the UK

I've tried repetitively to post my reply to Mr. Kendall, but Facebook seems to be having issues with posting in the group. Therefore, for that reason and to further a learning opportunity for the general public, here is my reply to George Kendall.

What of Deficits and Inflation?

A brief note here to answer a question about inflation. All spending carries the risk of inflation. The question is whether or not deficits automatically translate into inflation. The answer is no.

The government could at this moment issue $40 trillion. If that $40 trillion merely sat in an account somewhere unspent, it is not a problem. The problem occurs when the $40 trillion is then spent on goods and services. In doing so, aggregate demand increases. If the economy is unable to meet that demand, then the price level will rise. 

We must begin thinking correctly in terms of real resources and not "money". Real resources are finite. Currency in the US, UK, Canada, Japan, Australia et al., is not finite; it is infinite. However, once you begin spending that which is infinite to buy that which is finite, inflation will be a possibility, whether that spending is public or private. 

If you want to create demand-pull accelerating inflation with budget deficits, then you must spend persistently more than the economy is capable of producing. If there remains the ability to increase output, then that budget deficit is not a problem. How do we know whether or not we can increase output?

Unemployment. If it remains, then the deficit is too low.

One of My Replies to George Kendall on UK Budget Deficits

George Kendall, Andy Blatchford, Peter Martin and I have been having a pleasant, albeit a bit frustrating discussion. Frustrating because the now defunct Bretton-Woods system always manages to obstruct progress towards an understanding of macroeconomic reality. This morning, George replied to Peter and myself, demonstrating that the Bretton-Woods obstruction is still very much alive and well. We can thank orthodoxy for that. Since I’m always on the lookout for opportunities to impart knowledge to the layperson, I thought it a good idea to post George’s comments and mine here as a learning opportunity.

Some Persistent Questions Answered Regarding the Job Guarantee

I’ve still not finished moving house. What might have been a straight-forward task has turned into chaos preparing the sub-floor. Piles of household items, furniture and wall decor are now everywhere cluttering the house. So, I am sitting in my garage using an untrustworthy Windows 10 box that I had lying about, rather than my beloved Mac (which I refuse to have running in a garage), sweltering in the heat and humidity. This then is the reason why I’ve not posted this week, nor been able to give a proper reply to anyone (including George Kendall, whom I must get back to soon – Apologies George.). I’ve promised a few answers to nagging questions regarding the function of the JG, so this morning during a break in activity, I’ll get to some, but not all.

The Australian Government is Sailing the Neoliberal Waters of Recession

For laypersons unfamiliar with monetary policy, or for those who believe in its “healing powers”, allow me to set the record straight. Today, the RBA is busy trying to stimulate growth in the Australian economy by shifting around dollars that already exist. Monetary policy is a blunt instrument that does not add needed dollars to the economy, but merely shifts around what was previously added by fiscal policy. Monetary policy will change a portfolio composition from all liquid dollars to some liquid and some bonds and vice versa, but will not “add” dollars to the system. Why is this?