Warren Mosler’s 7 Seven Deadly Frauds of Economic Policy #7

“It’s a bad thing that higher deficits today mean higher taxes tomorrow.”

This is perhaps the only common neoliberal argument where there is at least some measure of agreement between their view and the MMT view. Except, whereas the neoliberals would say its a bad thing that the higher deficits need to be ‘repaid’, the MMT argument would be that it would be  a good thing if the higher deficits means that the economy starts to work at slightly too close to full capacity and has to be later slowed down by the imposition of higher taxation to prevent inflation.

It was Prof Wynne Godley who first made the observation that taxation in an a economy using a non-convertible currency with a freely floating exchange rate is not at all necessary to raise funds for government to spend. It, together with the amount of government spending, need be considered only as a way of regulating the economy.

So, if the deficits now do cause taxes to rise later, then that’s a good thing providing the deficits now aren’t overdone and inflation really does have to be reined back sharply. There’s not much danger of that at the moment in the major economies. The big danger is the other way ie recession and a lack of purchasing power, or insufficient aggregate demand.

My takes on the first six “deadly frauds” are on links in the right hand column together with a link to Warren Mosler’s book which is freely available in pdf format.

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