Re: mosler seminar

[Warren Mosler <mosler@xxxxxxxx>]

Gregoire de Nowell (ci-devant) wrote:
>
> I'm still floundering around in some basic issues, although, thanks
> to Warren's exemplary patience in off-pkt discussions, I am much clearer
> on some important points.
>
> It may be that I'm just never going to like the taxes-as-a-source-of-value
> for money thing.  I'm surprised no one else has expressed any opinion on it.
>
> But I would like to try to take the position as a given.

Taxes need only be A source of value.  For example, if the govt
decided to take your signed business cards payment of taxes, suddenly
your financial position is very different.

>
> 1.  As taxes approach 100% of aggregate income, the value of money gets
> extremely high.
>
> 2.  As taxes approach 0% of aggregate income, the value of money gets extremely
> low.  (I dispute both assumptions; but let's us pass on.)
>
> Scenario No. 1 would be deflation.
> Scenario No. 2 would be inflation.
>
> Yes? No?

Not exactly.  Taxes determine the nominal demand for $ needed to pay them.
If the income tax is from govt employees, for example, they can best
be thought of as receiving the net as payment, with no taxation.  But if
the private sector transacts with each other, and thereby incurrs tax liabilities
to the govt, there is a now a nominal demand for at least those many $.

Once the nominal demand for $ is established, then the govt decides the
exchange rate via its spending policies.  Since $ are needed to pay taxes,
and the govt is the monopolist with the needed dollars, it somehow
ultimately is responsible for determining policy that results in pricing.

So 0 taxation, income or otherwise, would probably result in no value to today's $.
100% income tax would probably mean no one would work for $ and therefore no
tax liability would result.  Etc.
>
> Now, let us assume a constant level of expenditure by the govt, of say, $1
> trillion.
>
> Are we really willing to say that if we deficit spend $999 billion dollars
> and tax only one, that it would not be inflationary?

Look at it this way.  If the govt taxed 1$, and offered 12,500 per year
to anyone who wanted a job, and spent nothing else, then whatever level the
deficit went to would reflect the private sector's (including foreign...)
desired H(nfa) equaling actual H(nfa).  In reality, I would expect that
the govt would get only 1 worker at that wage with that tax, and that
the $ wouldn't buy much else.  But the value of the $ would theoretically
be relatively constant.


>
> Are we really willing to say that if we tax $999 billion and deficit spend
> only one, it would not be deflationary?

There may be times when this is true.  But again, you are trying to target
spending, and 'guess' what desired H(nfa) is/will be.  This is the current
govt policy, of course.


>
> And, taking the two extreme positions, why is it not the case that the
> intermediate points might not also be inflationary or deflationary,
> depnding on which pole of the extreme we approach?

Absolutely correct.

>
> I understand that *part* of this picture is the total level of govt expenditure
> relative to aggregate income.  BUT, what I am trying to argue about here is
> the whole value-of-money thing.  If it is posited to rest in taxation, then it
> seems to me, that as the level of effective taxation declines due to deficit
> expenditure, than there might be a problem with the relative value of the
> nominal currency unit relative to other things.

Again, taxation is 'half' the picture.

>
> I am hoping to hear from more than one person on this.  I would like
> to emphasize that in off-pkt discussions Warren has been perhaps more of a
> gentleman than I merited; and that he has been diligent to a fault (if
> that is possible) in responding to my queries.

Thanks,

Warren
>
> Greg  Nowell
>
> p.s.  I suppose I should emphasize that I am not here trying to make the
> argument that all deficit spending is inflationary.  I am trying to "get",
> under the stated terms that taxation rests the marginal determinant of
> money value, why the above correlations would or would not follow.  I
> personally think that part of the answer as to why all deficits might *not*
> be ihnflationary is that, in fact, transaction demand is a more important
> determinant of currency value.  But that would appear to be a minority
> view, and if it is an ignorant one, then I could use some instruction.
>
> g.n.

--
Warren B. Mosler
Director of Economic Analysis
III Finance

See:

"Soft Currency Economics"
=========================
And related documents:

http://www.gate.net/~mosler/softecon.htm