Post by @GeofCox@climatejustice.social

@GeofCox@climatejustice.social 6 hours ago

You could look at your tax bill like this...

The government creates all money (either directly by spending or indirectly through the banks it licences). All of this money is created out of nothing - it's just 'IOUs' written by the government - which is why UK bank notes always had printed on them "I promise to pay the bearer on demand".

The money created by banks when they make loans is cancelled - destroyed - when the loans are repaid.

The money created when the government spends is destroyed when the government collects it back in tax.

Tax does not pay for government spending - it's the other way round.

The government doesn't collect back in tax all the money it creates (and of course bank loans don't always get repaid) - this is the money in circulation, savings, etc - and it's 'the national debt' - the difference between the amount of money the government has created and the amount it has destroyed. Public debt IS private wealth.

If the government doesn't destroy enough money - ie. doesn't tax enough - there will be too much in circulation, and it's value will fall - that's inflation. So when you pay tax, you're not funding anything - you're protecting the value of the other money you have.

Does that help ?
By the way, all this is not just a way of looking at tax - it is in fact all true (if you live in a country with its own currency, or in the eurozone, which has shared euro ownership).

27 Replies

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Felichs

@felichsdakatze@mastodon.social 50 minutes ago

@GeofCox

I'm not getting it. If a bank lends me money, that is creation of money. It didn't exist before, but now I have it because they believed I could pay it back, with interest. Paying back the loan, with interest, doesn't destroy anything. It just moves money from my hands back to the bank.

GeofCox

@GeofCox@climatejustice.social 5 minutes ago

@felichsdakatze

Where the bank balances out your loan account to zero, rules a line under it, and Hey Presto ! - the money is gone.

Ken Milmore

@kbm0@mastodon.social 2 hours ago

@GeofCox This gets to the heart of the popularity of cryptocurrency. The neolibs want money to be outside government control, based on possession of an amount of some arbitrary, useless thing. But nobody can agree on what that thing is. If you have a lot of a certain type of thing that nobody else really needs, then you will have a hard time to convince everyone else to value it. But that seems to be the plan...

GeofCox

@GeofCox@climatejustice.social 2 hours ago

@kbm0

At bottom, this is about power, isn't it ? Actually money has always been about power - which is why coinage has always tended to feature the Roman (or wherever) Emperor's head - even if the coin was made from precious metal.

Their flirtation with crypto is evidence that oligarchs feel they can challenge the power of the nation-state (although I think they're very wrong about that).

Dziadek

@DziadekMick@mstdn.social 3 hours ago

@GeofCox

For a smart bloke, that's a big bunch of stuff I never knew. Thanks.

I knew the bank note promise. A guy used it at a charity bash. He asked us to think about money. Got us all to take a note out and read the "I promise..." He said he wasn't sure about this. So he undertook to take all our notes to the Bank of England the next day to check it out. Brilliant!

Neil Moffatt

@NicelyManifest@mastodon.social 4 hours ago

@GeofCox Excellent! Deeply frustrating and wrong that the media and politicians continuously talk incorrectly about tax.

And added to that is that the notion of 'taxing' is negative.

I prefer 'civilised Society contribution' to 'tax'.

dazinism

@dazinism@social.coop 5 hours ago

@GeofCox
My understanding is that the government doesnt create money through spending. Its spending is funded via collecting taxes or by borrowing (via sale of government bonds which after a fixed term are repaid with interests - also should probably include finance made available via private public partnerships, although they are not very transparent and intentionally designed to keep the financing off government balance sheets).

Banks are where money creation happens, which used to be constrained by fractional reserve requirements, which were effectively scrapped here in the UK and elsewhere.

dazinism

@dazinism@social.coop 4 hours ago

@GeofCox

Forgot to mention quantative easing, which is the other way governments create money.
https://en.wikipedia.org/wiki/Quantitative_easing

Quantitative easing - Wikipedia

GeofCox

@GeofCox@climatejustice.social 5 hours ago

@dazinism

That's the myth @dazinism - in fact all the money the government collects in tax is simply deleted - and banks only create money to the extent that the government lets them.

dazinism

@dazinism@social.coop 3 hours ago

@GeofCox

Im all for looking at things from diverse perspectives, less so for making statements that sound like declaration of absolute truth.

For certain monetary, tax and economic systems are complex. Clever people get paid lots of money to figure out clever/complex ways to work around 'issues' in the system - generally this is wealthy people/corporates attempting to avoid tax or regulation - which they often achieve. But you could include things like govs using Public Private Partnerships to take finance off balance sheet. This all adds more complexity.

It gets increasingly difficult to get a reasonable understanding - and so its hard to counter stuff like repeated government giving a simplified explanation of countries finance being the same as an individuals/households finance to justify austerity. Which was amplified by mainstream media and widely accepted/became a common understanding.

/continued

dazinism

@dazinism@social.coop 3 hours ago

@GeofCox

I remember, shortly after the 2008 financial crisis, many progressive economists screaming about the ridiculousness of considering the finance of countries to be similar to households and implementing austerity. Yet here we are with massively degraded public services and many local authorities teetering on bankruptcy.

The path taken after the financial crisis was ideological and sadly, due to the continued capture of government by the wealthy, that path massively favoured the wealthy. Quantitative Easing and a very long period of incredibly low interest rates facilitated accelerated transfer of wealth upwards to the wealthy.

Amazingly all the time since 2008 governments kept spending tight when they could have borrowed at incredibly low rates & put it into building a strong economy. Various ideological positions are held as unbreakable (eg. The Fiscal Rules) that hold things back.

/cont

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Mark Burton

@markhburton@mstdn.social 4 hours ago

@GeofCox
From my reading (e.g. Anwar Sheikh) @dazinism has it more or less correct. MMT makes some helpful points (e.g. that taxation is not equal to gov expenditure) but does a sleight of hand, confounding the issue of currency with the creation of money (pointed out by Jo Michel), and then creates an edifice on that. In the popularised versions it often confounds value with money (but not in the core texts or your summary Geof).

Solar 🌄Garden

@wavesculptor@climatejustice.social 5 hours ago

@GeofCox That's one of the best concise interpretations I've read of MMT, particularly

"when you pay tax, you're not funding anything - you're protecting the value of the other money you have" -- "you" and others with a lot more, that is.

GeofCox

@GeofCox@climatejustice.social 5 hours ago

@wavesculptor

It is of course just the uncontroversial - factual - bit of MMT - it doesn't go into the more contentious policy implications (such as the government's ability/duty to create full employment).

Solar 🌄Garden

@wavesculptor@climatejustice.social 5 hours ago

@GeofCox "contentious policy implications such as the government's ability/duty to create full employment" -- or indeed the need to link income and employment at all!

Maybe the latter could then be viewed as ... wages/salary [or denial of income] being a system of protecting the value of endeavour....

Mark Mason

@markmason@mas.to 5 hours ago

@GeofCox I like the canal analogy. Money is the water in the canal. The government pumps it in at the top and it flows out as tax a the bottom. Controls are required to keep the canal from running dry or flooding. It becomes obvious that individuals taking water out of the canal and hoarding it is a bad thing. Giving more money to people who spend it is not.

GeofCox

@GeofCox@climatejustice.social 5 hours ago

@markmason

I hadn't heard that - it's good.

Chris Armstrong

@Rhodium103@mastodon.social 6 hours ago

@GeofCox
People still think savings and pensions are literal pots of money that, because you put into them, you can just take out the exact same amount. I'm not sure they're ready for the concept of tax taking excess out of circulation to control inflation.

GeofCox

@GeofCox@climatejustice.social 5 hours ago

@Rhodium103

It's a bit like the quantum world, isn't it ? There is no analogy in human experience to help us understand the sub-atomic world, and for many people analogy IS understanding.

This is the power of 'the household analogy'. We can't grasp a world in which money, so hard to come by for many of us, is created and destroyed by the stroke of a pen/keyboard. Yet this is the reality.

Still, if the media were to abandon it's way of talking about government spending, the national debt, etc - and hammer home the truth that the only real constraint on government spending is inflation, or that the 'national debt' is private wealth - and indeed could be described as more people saving more with the government - more people might get the idea.

JuneSim63 💚

@junesim63@mstdn.social 5 hours ago

@GeofCox @Rhodium103

The only constraint is resources. Insufficient resources to absorb spending results in inflation.

Chris Armstrong

@Rhodium103@mastodon.social 4 hours ago

@junesim63 @GeofCox

I like the "anything we can do, we can afford" way of putting it. Like, we can put up a 1000ft high cock and balls in the middle of the Cotswolds, and if you can get enough people to get the gold and build it, and enough other people to run farms so everyone involved is fed and watered then, yes, you can actually afford to do that.

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GeofCox

@GeofCox@climatejustice.social 5 hours ago

@junesim63

True - there is no direct, automatic link between the amount of money the government introduces into the economy and inflation - the link is indirect - the government can create as much money as it likes as long as the economy can absorb it (by employing resources, etc).

@Rhodium103

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