Re: Chartalism as Alternative to Neo-liberalism

[William F Hummel <wfhummel@xxxxxxxxxxxx>]

>  They can
>> issue all the money that is needed, provided there
>> is no corruption, or waste.

Jim Baird wrote:
>
>But isn't that really the whole game?  (One is tempted
>to quote Keynes on "assuming away the very thing under
>discussion"...)

Yes indeed.  In essence Chartalist theory simply asserts the
monopoly position of the State in issuing the currency that it
demands in taxes.  Without a broad-based and equitable tax
system, plus proper fiscal and monetary management there is
nothing about Chartalism that guarantees a viable system.  The
Treasury should borrow only in its own currency and from the
public at a market rate, not from the central bank at a pegged
rate.

A key to proper management is maintaining the own rate of the
currency at a suitably low level, but not zero.  Bank capital
ratios should be closely monitored to enforce a healthy banking
system.  Ultimately the system depends on private sector credit.
Indeed the amount and quality of credit market debt is a measure
of the size and vitality of a nation's economy.

>There are complex historical and
>cultural reasons for the prevalance of corruption and
>tax avoidance in Latin American societies - these are
>not things that can just be swept away by a "clean
>government" campaign.

Agreed, and Argentina will have to find a way to solve these
cultural problems before it can expect to achieve a first-class
economy.  When corruption is widespread at the center of
political power, the problems may even be insurmountable.

>In my understanding of the
>Chartalist view (which is by far the best monetary
>model I have come across), a tax system with
>significant "leaks" in it will always have a tendancy
>toward hyperinflation.  Tax enforcement is a
>prerequisite for any kind of stablity  - but it's
>extremely hard to do...

Leaks in the tax system lead to inequities in the tax burden, but
don't have much to do with a tendency toward hyperinflation.  A
hyperinflation is basically due to monetary mismanagement,
including "printing" money for the Treasury to spend.  That's why
the Treasury should be required to borrow the funds in the open
market that it needs to meet any budget deficit.

William F Hummel