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Ask HN: Why do we pay taxes if the Fed can just print money?

50 points by xoxoy 6y ago

The Fed seems to have no issue printing money to prop up financial markets. What is stopping them from printing what we need to fund the entire government? Is there a reason why we still pay taxes?

woofcat 6y ago
The main problem with that is it would result in massive inflation and market instability. People would sell their US dollars for Euros or CAD or whichever countries aren't doing this printing the moment they got paid. Places have printed money like crazy before, and it can get bizarre if you do it enough. https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe
- brockwhittaker 6y ago
  In theory in a model where the government just prints it’s own expenditures, your taxes are in the form of inflation. The biggest issue with this aside from creating an unpredictable currency is that everyone’s effective tax rate would be the same, so you would have to reinvent the welfare system to recreate progressive taxation levels.
  - woofcat 6y ago
    You're correct, however unless you restricted the exchange of currency you'd have people paying no taxes. Imagine two people each get paid $1000 USD and the available currency is doubling weekly. The first person simply holds on to their money in cash. At the end of the week their money is worth half as much. The second person buys Euro's the day their paid, and one week later they can exchange back to USD for $2000. That person effectively paid 'zero' taxes.
generalpass 6y ago
The propping up of financial markets distorts the economy in terrible ways, but it does not tend to have the same impact as pumping money directly into the economy as the latter directly generates consumer price inflation. What currently supports the entire apparatus is worldwide acceptance of the U.S. dollar as the reserve currency. If nations decide to end this policy (which they are free to do so at any time), then there is a good chance the money tied up in their reserves would end up back here in the U.S. and generate consumer price inflation, likely hyperinflation. The consumer price inflation is highly undesirable because politicians will generally not be re-elected.
nappa-leon 6y ago
This is the idea behind modern monetary theory (MMT) and in that context taxes are only used to prevent against inflation. Borrowing money doesn't increase inflation because it doesn't add new currency. One problem with MMT is that makes it very easy for governments to spend lots of money and very unpopular for politicians to support raising taxes because we have infinite money. It's why you don't let your kid eat dessert before their vegetables because they wouldn't eat their vegetables.
aazaa 6y ago
In the past, the reason seems to have been fear of high inflation. Conjure trillions of dollars into being every year, and you'll end up with roaring inflation and one heck of financial hangover. The country lived through such an episode in the 1970s-1980s and it was a miserable time. However, that reasoning is eroding bit by bit. It really got going in the 1960s - 1980s with the Johnson, Nixon, and Reagan administration, which acclimated the country to structural budget deficits in the name of national security and Great Society aspirations. With some (apparent) time off during the late 1990s, the budget deficit as a percent of GDP has risen and risen: https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S The Fed's mission currently is to slay the dollar bull, which is wreaking havoc with world financial markets.[1] Monetizing the entire Federal budget would go a long way to wrestling that animal to the ground. There are many half-steps that could be taken along the way: - payroll tax holiday, made permanent at some point - income tax holiday, just extend the 2020 tax filing deadline indefinitely - middle class tax cuts - still more corporate tax cuts All of these steps can be financed by the Fed, which simply buys the debt issued by the Treasury, keeps it on its balance sheet charging close to zero interest. Then dollar depreciation works its magic. Rolled over long enough with high enough inflation and the federal debt just goes away like a miracle. The problem is this. After you've freed policy makers of any restraint whatsoever when it comes to spending, what's the endgame? History has some lessons there, and they are all bad. The Weimar Republic, Zimbabwe, and Venezuela may be relevant. Then again, none of these countries held the world's reserve currency when dabbling with ultra-expansive monetary policy. America is the Saudi Arabia of dollars. We determine production. The world can't seem to get enough of the stuff, and it's required as an ultimate raw material for just about everything. What happens if the US absolutely floods the world with dollars? Will they run away in fear? Or will they embrace the debt relief and rejoice in the good times? [1] https://www.lynalden.com/global-dollar-short-squeeze/ https://www.lynalden.com/global-dollar-short-squeeze/
- naveen99 6y ago
  > What happens if the US absolutely floods the world with dollars? Will they run away in fear? Not if some of those dollars are a hand out to other central banks. Right now they are calling them swap lines.
jetpackjoe 6y ago
MMT states that taxes are what creates demand for the currency. Assume that the Fed is just printing money... pretty soon, people will get wise that this money is worthless, and use something else. By taxing in the same currency, people need that money, and that creates demand (and hence value). Taxes are necessary to avoid the devaluation of the currency (this is what inflation is).
- deleted 6y ago
  [deleted]
- r32a_ 6y ago
  This is why in the long run Bitcoin wins.
  - thefounder 6y ago
    Lol...bitcoin is a distributed casino. Nothing more. I can't believe we still talk about it.
    - berbec 6y ago
      Casinos (supposedly) have it set so all player have equal chances of winning. I'd say "distributed ponzi scheme" is more accurate.
    - me_me_me 6y ago
      So is gold, diamonds or stamps, or anything at all in this world. As a matter of fact diamonds are know scam with overinflated price that are controlled by cartels that constrict supply to set and control the price. So is oil! I can't believe we still talk about it.
      - thefounder 6y ago
        At least you can make jewerly with gold and diamonds. Let's not mention what you can do with oil. I can fork bitcoin and have as many bitcoins I want...but we both know they are worthless.
soVeryTired 6y ago
What you're describing is called debt monetisation. People tend to be scared of it because if it isn't used responsibly it can cause all sorts of nasty market distortions. The principal ones being inflation and loss of trust in a currency (which are sort of two sides of the same coin). If it is used responsibly, it's just another tool of monetary policy, and an effective one at that. But using it is a bit like crossing the rubicon, because once the precedent is set, it's hard to go back. The other point is that taxes have several aims: to fund government spending, to influence behaviour, and to redistribute wealth. A tax via inflation would distribute wealth away from people on fixed incomes (e.g. people who can't negotiate a pay rise). That would tend to favour people who are already wealthy.
- gaukes 6y ago
  People who are already wealthy could also store their wealth in something like gold and convert to the dollar only when needed which means their effective tax rate is 0. The fed would also enter an inflationary cycle where they devalue their currency which means more money needs to be printed which further devalues the currency. It just wouldn’t work in the real world.
  - soVeryTired 6y ago
    Agreed that you can't run a country on tax-via-inflation. But it's worth noting that the bank of england monetized government debt last month and the markets didn't bat an eyelid.
    - m0llusk 6y ago
      That is kind of an oversimplification. The UK government arm twisted companies into not doing mass layoffs using tax policy and some legal wrangling. The amount of debt monetized was small relative to what the US is doing. While the US dollar has the advantage of being the global reserve currency the pound sterling gets substantial value from being relatively well managed. And markets did tremble significantly and there is much speculation that the rally in London and New York exchanges is actually rather shallow and flimsy.
Someone 6y ago
That would give the government no control over who pays how much in ‘taxes’. Printing money only makes money worth less, not other goods. Because of that, it would ‘tax’ those with more cash and fewer goods more than those with less cash and more goods. for example, that would mean it would ‘tax’ house owners less than renters. One could argue that is fine, but in practice, poorer people cannot choose between renting and buying a house, and some would find it unfair to have those poorer people bear the burden of paying for the operation of the government. It would also lead to inflation. That would make currencies of countries that print less or no money more attractive. So, the situation where all counties print money instead of raising taxes might be an equilibrium, but it won’t be a stable one. A country that switches to raising taxes would see its imports get cheaper and cheaper. That’s good for it’s citizens (to a limit, as it also would make exports more expensive)
- naveen99 6y ago
  > that would give the government no control over who pays how much in ‘taxes’. Government would still have control on who it spends money on. So it could spend more on the people it would normally tax less.
- al_chemist 6y ago
  > it would ‘tax’ house owners less than renters It would tax house owners less than people who had same amount of money but didn't buy house and kept money in bank. If both house owner and renter had $1000 in bank, they would lose the same.
- gremlinsinc 6y ago
  Wouldn't a UBI w/ land value tax + VAT and no income tax possibly be a better way to control inflation, maybe ease the burden of tax-filing, and also provide a cushion for lower incomes and middle class families?
lubujackson 6y ago
I went down the rabbit hole of this last month. Short answer is, it causes crazy inflation eventually. All other countries are doing this and the ones with weakest currencies are starting to have their money debased: Turkey, Brazil, South Africa. But they have few options. The U.S. is the global reserve currency so our currency is set to deflate in relation to all other currencies. Eventually, after we deflate there is an expectation of the inflationary bill coming due. Which historically always ends in a debt jubilee (all debts forgiven!) because there is no sane way to proceed otherwise. Of course there is a tidy Wikipedia entry about the inevitability of this for reserve currencies: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma
- buboard 6y ago
  > is the global reserve currency That s euphemism for "the US has the military power to get the world to buy its currency"
  - AnimalMuppet 6y ago
    Not at all. It's a euphemism for "The US dollar is the currency that the rest of the world trusts more than any other." Whether they are rational in trusting it is perhaps a different question...
    - lotsofpulp 6y ago
      Part of that trust is based on military power, but much of it is trust in the people and government and judiciary of the US to do the consistent (and perhaps “right”) thing most of the time (compared to other governments around the world).
      - nojito 6y ago
        It's based on economic might. To participate in the US growth story you have to contribute in USD.
    - 6y ago
Tomminn 6y ago
Printing money can only ever tax people in proportion to how much of cash they have. It doesn't tax people at all who convert all their income and wealth immediately into assets. Taxation can tax people in any way it likes.
dzonga 6y ago
I'm zimbabwean, yeah the currency wasn't the reserve currency. but inflation, if it's not real to you. will become real. prices change every 30mins. that major retailers used electronic price tags, makes changing of prices easier. not only is the monetary system disturbed. but everything as well. the other way, the Fed would be able to make money without printing money, or raising taxes - would be to go to war. wars are effective, they enable mass production of good, plundering etc. but also come at a great cost. See what Eisenhower has said war. Also why the US has managed to keep inflation at bay, endless wars since the crazy inflation in the 70s.
- m0llusk 6y ago
  I appreciate your direct testimony, but as someone who lived in the US in the 1970s it is very clear that the "guns and butter" economics of the time included very strong contributions to inflation through rampant war spending. Much of what ripped the US out of Vietnam was the population suffering as the economy started to melt down.
markus_zhang 6y ago
Money to the government is not really revenue, but something needs to flow out and back. It's more or less like water IMO. Taxation is one way for it to flow back.
Wolfenstein98k 6y ago
Printing money causes "inflation" [1]. This effect is lessened in chronically-low inflation environments (like our current one) [2]. In situations where demand is artificially low (like lockdown), and therefore will broadly bounce back when allowed to, you can print a lot without that inflation [3]. [1] = Printing money creates additional dollars in circulation without increasing the supply of goods those dollars are chasing. If you imagine adding a zero to every dollar simultaneously (aka 10x the money supply), without actually creating anything new, after a brief period of adjustment all goods would essentially just add a zero onto their cost to find equilibrium. This is "inflation" in effect. In practice though, people tend to just print 1.1x what they printed yesterday ad infinitum, and so this effect compounds (aka "runaway inflation") and you end up like Zimbabwe with wheelbarrows full of worthless cash. [2] = Currently, price rises (relative to a dollar) have been steady in aggregate, aka "chronic low inflation". This is a subject of economic debate as to why, but suffice it to say that is where we are and thus there appears to be "slack" in the currency to print a little more without runaway inflation. [3] = Usually demand suffers a sort of chronic shock as part of a recession or depression. In these cases you can expect it to be depressed next year too, which means investment is useless and thus the cycle of depression lasts and causes a feedback loop. In such a situation, printing additional cash is very inflationary because the supply of goods being sought by those additional dollars is depressed and the supply chains and required demand to justify creating them is not there. In today's world the US economy was broadly fantastic until five minutes ago, and provided this lockdown doesn't last too much longer (flushing out a lot of small business and causing cascading failure), the underlying conditions will remain ripe for growth soon, and thus the newly-printed dollars can reliably chase future goods that are forthcoming.
mempko 6y ago
Taxes are there to provide a base demand for the currency. Imagine the money supply as a bathtub. Government spending is a tap and taxes are a drain. You want the water line to be just right for a given economic growth. The government doesn't need to tax to spend, but why would you accept it's currency as payment for goods the government demands? Because you owe the government a tax in that currency! This system was figured out thousands of years ago. Turns out banks also create money, not just government. 97% of money in circulation is actually bank credit. (banks have a special legal right here) In other words, when you take out a loan, you increase thr money supply! But anyway, without taxes (the threat of physical hardship) you don't have the base demand for a currency. Governments hold the monopoly on money because they also hold the guns. I can't create my own money because that would be illegal (because for my money to gain traction I would need to tax too, just like the government) Cheers.
dragonwriter 6y ago
> The Fed seems to have no issue printing money to prop up financial markets. That's literally their job. > What is stopping them from printing what we need to fund the entire government? Inflation. Specifically, the fact that if they did so with no countervailing force the amount of money required to do so would increase rapidly in a positive feedback loop, collapsing the currency in the process. Well, I mean, that's what stops the government generally from doing it. What stops the Fed specifically from doing it is that they have a policy mandate and that isn't it.
- apta 6y ago
  It's quite absurd that the Fed is a separate entity from the government. Just shows how corrupt they are.
  - nimblebill 6y ago
    What? The FED’s independence from the government (politicians) is exactly what keeps it from being corrupted, from being used as a partisan political weapon.
    - apta 6y ago
      And the Fed is making money by lending money with interest to the government. Easy, immoral money.
    - dragonwriter 6y ago
      > The FED’s independence from the government (politicians) ...does not exist. The Fed is a government entity whose policy-setting body (the Board of Governors) consists entirely of Presidential appointees confirmed by the Senate, and who can be removed by the President (at least “for cause” based on a collateral reference, and possibly without cause though that's murkier, though no explicit boundaries exist on the qualifying causes.). It is “independent” within the government (has it's own policy-setting body which exercises directly-delegated powers, and whose members have terms not tied to Presidential terms and at least arguably cannot be removed by the President without cause), not independent from the government.
nojito 6y ago
>The Fed seems to have no issue printing money to prop up financial markets You're misunderstanding what the Fed does when it trades USD for Products in short term/long term arrangements. There's no net creation of money from the Fed.
m_nyongesa 6y ago
For a moment, pretend the Fed and the Treasury are one institution instead of two. Call it "the government" for simplicity. When the government spends money into the economy, it creates money (also, increases demand). When the government taxes money out of the economy, it deletes money (also, reduces demand). The main issue is how much is created over how much is deleted, in a given time frame. Assume more is created than deleted in a given time frame, so there is a net demand increase over that time frame. Now compare the net demand increase to that required to bring the economy up to the full employment level. If the net demand increase is less than or equal to that required amount, there is no inflation. If it is more, then there is inflation. If you didn't have any taxes at all, the net demand increase would be massive and inflation would happen much more easily.
- wolco 6y ago
  The first year and then it would be factored in.
  - m_nyongesa 6y ago
    What would be "factored in," to what?
jstewartmobile 6y ago
1. Elite suppression of the upper-middle class (upper-middle class pays most of the taxes). Imagine the kind of market competition / wage pressures they'd face if doctors/lawyers/engineers only had to pay the same rates Warren Buffet does. 2. Assault eugenics on the poor (even if they get big refunds in April, they are still subject to withholding on their meager paychecks). More time wrestling with payday lenders and scrambling to get their 39 hours in == less time making more babies.
mijkal 6y ago
I've become more persuaded by Modern Monetary Theory (which is more descriptive than prescriptive). In short, a sovereign currency issuer is not like a household, business, or gov't entity lacking this ability; it need not offset expenditures with income (taxes) to spend. In fact, that's a backward way of thinking of it — gov't spends first, then taxes to remove money supply from the economy. Taxes are tools to contain inflation, reduce concentration of wealth (and the power/influence of select few), and incentivize/decentivize targeted economic activities (eg spur solar power adoption, discourage smoking, etc.). This site is a great primer on MMT: https://modernmoneybasics.com https://modernmoneybasics.com
Gibbon1 6y ago
The best primary reason I've seen put forth is that the government taxes in order to 'make room' in the economy for the production of public goods. Taxing both suppresses consumption and allows you to fine tune whose consumption gets suppressed. In thoery it's a better system. However tax policy in the US is broken because it favors economic parasites and looters.
advaypal 6y ago
https://www.collaborativefund.com/blog/who-pays-for-this/ https://www.collaborativefund.com/blog/who-pays-for-this/
joaogfarias 6y ago
Printing money is a mechanism aimed at increasing the wealth of the friends of the King, aka the people who receive the new money earlier; bankers, big companies, high-level politicians, etc. This is called Cantillon Effect. In practical terms, printing money is a tax: Inflationary tax. It transfers wealth from the people who receive the new money last to the people who receive the money first. Therefore, the question itself doesn't make much sense, because money printing is a (more subtle) form of tax.
- me_me_me 6y ago
  Never thought about it in this way, but it sounds right. Thanks, I will how some reading to do over weekend :)
CawCawCaw 6y ago
Why stop there? Why not ask, why do we work if the government can just print money and give it to everyone?

50 points by xoxoy 6y ago

The Fed seems to have no issue printing money to prop up financial markets. What is stopping them from printing what we need to fund the entire government? Is there a reason why we still pay taxes?

woofcat 6y ago

The main problem with that is it would result in massive inflation and market instability. People would sell their US dollars for Euros or CAD or whichever countries aren't doing this printing the moment they got paid. Places have printed money like crazy before, and it can get bizarre if you do it enough. https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe https://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

brockwhittaker 6y ago
In theory in a model where the government just prints it’s own expenditures, your taxes are in the form of inflation. The biggest issue with this aside from creating an unpredictable currency is that everyone’s effective tax rate would be the same, so you would have to reinvent the welfare system to recreate progressive taxation levels.
- woofcat 6y ago
  You're correct, however unless you restricted the exchange of currency you'd have people paying no taxes. Imagine two people each get paid $1000 USD and the available currency is doubling weekly. The first person simply holds on to their money in cash. At the end of the week their money is worth half as much. The second person buys Euro's the day their paid, and one week later they can exchange back to USD for $2000. That person effectively paid 'zero' taxes.

generalpass 6y ago

The propping up of financial markets distorts the economy in terrible ways, but it does not tend to have the same impact as pumping money directly into the economy as the latter directly generates consumer price inflation. What currently supports the entire apparatus is worldwide acceptance of the U.S. dollar as the reserve currency. If nations decide to end this policy (which they are free to do so at any time), then there is a good chance the money tied up in their reserves would end up back here in the U.S. and generate consumer price inflation, likely hyperinflation. The consumer price inflation is highly undesirable because politicians will generally not be re-elected.

nappa-leon 6y ago

This is the idea behind modern monetary theory (MMT) and in that context taxes are only used to prevent against inflation. Borrowing money doesn't increase inflation because it doesn't add new currency. One problem with MMT is that makes it very easy for governments to spend lots of money and very unpopular for politicians to support raising taxes because we have infinite money. It's why you don't let your kid eat dessert before their vegetables because they wouldn't eat their vegetables.

aazaa 6y ago

In the past, the reason seems to have been fear of high inflation. Conjure trillions of dollars into being every year, and you'll end up with roaring inflation and one heck of financial hangover. The country lived through such an episode in the 1970s-1980s and it was a miserable time. However, that reasoning is eroding bit by bit. It really got going in the 1960s - 1980s with the Johnson, Nixon, and Reagan administration, which acclimated the country to structural budget deficits in the name of national security and Great Society aspirations. With some (apparent) time off during the late 1990s, the budget deficit as a percent of GDP has risen and risen: https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S The Fed's mission currently is to slay the dollar bull, which is wreaking havoc with world financial markets.[1] Monetizing the entire Federal budget would go a long way to wrestling that animal to the ground. There are many half-steps that could be taken along the way: - payroll tax holiday, made permanent at some point - income tax holiday, just extend the 2020 tax filing deadline indefinitely - middle class tax cuts - still more corporate tax cuts All of these steps can be financed by the Fed, which simply buys the debt issued by the Treasury, keeps it on its balance sheet charging close to zero interest. Then dollar depreciation works its magic. Rolled over long enough with high enough inflation and the federal debt just goes away like a miracle. The problem is this. After you've freed policy makers of any restraint whatsoever when it comes to spending, what's the endgame? History has some lessons there, and they are all bad. The Weimar Republic, Zimbabwe, and Venezuela may be relevant. Then again, none of these countries held the world's reserve currency when dabbling with ultra-expansive monetary policy. America is the Saudi Arabia of dollars. We determine production. The world can't seem to get enough of the stuff, and it's required as an ultimate raw material for just about everything. What happens if the US absolutely floods the world with dollars? Will they run away in fear? Or will they embrace the debt relief and rejoice in the good times? [1] https://www.lynalden.com/global-dollar-short-squeeze/ https://www.lynalden.com/global-dollar-short-squeeze/

naveen99 6y ago
> What happens if the US absolutely floods the world with dollars? Will they run away in fear? Not if some of those dollars are a hand out to other central banks. Right now they are calling them swap lines.

jetpackjoe 6y ago

MMT states that taxes are what creates demand for the currency. Assume that the Fed is just printing money... pretty soon, people will get wise that this money is worthless, and use something else. By taxing in the same currency, people need that money, and that creates demand (and hence value). Taxes are necessary to avoid the devaluation of the currency (this is what inflation is).

deleted 6y ago
[deleted]
r32a_ 6y ago
This is why in the long run Bitcoin wins.
- thefounder 6y ago
  Lol...bitcoin is a distributed casino. Nothing more. I can't believe we still talk about it.
  - berbec 6y ago
    Casinos (supposedly) have it set so all player have equal chances of winning. I'd say "distributed ponzi scheme" is more accurate.
  - me_me_me 6y ago
    So is gold, diamonds or stamps, or anything at all in this world. As a matter of fact diamonds are know scam with overinflated price that are controlled by cartels that constrict supply to set and control the price. So is oil! I can't believe we still talk about it.
    - thefounder 6y ago
      At least you can make jewerly with gold and diamonds. Let's not mention what you can do with oil. I can fork bitcoin and have as many bitcoins I want...but we both know they are worthless.

soVeryTired 6y ago

What you're describing is called debt monetisation. People tend to be scared of it because if it isn't used responsibly it can cause all sorts of nasty market distortions. The principal ones being inflation and loss of trust in a currency (which are sort of two sides of the same coin). If it is used responsibly, it's just another tool of monetary policy, and an effective one at that. But using it is a bit like crossing the rubicon, because once the precedent is set, it's hard to go back. The other point is that taxes have several aims: to fund government spending, to influence behaviour, and to redistribute wealth. A tax via inflation would distribute wealth away from people on fixed incomes (e.g. people who can't negotiate a pay rise). That would tend to favour people who are already wealthy.

gaukes 6y ago
People who are already wealthy could also store their wealth in something like gold and convert to the dollar only when needed which means their effective tax rate is 0. The fed would also enter an inflationary cycle where they devalue their currency which means more money needs to be printed which further devalues the currency. It just wouldn’t work in the real world.
- soVeryTired 6y ago
  Agreed that you can't run a country on tax-via-inflation. But it's worth noting that the bank of england monetized government debt last month and the markets didn't bat an eyelid.
  - m0llusk 6y ago
    That is kind of an oversimplification. The UK government arm twisted companies into not doing mass layoffs using tax policy and some legal wrangling. The amount of debt monetized was small relative to what the US is doing. While the US dollar has the advantage of being the global reserve currency the pound sterling gets substantial value from being relatively well managed. And markets did tremble significantly and there is much speculation that the rally in London and New York exchanges is actually rather shallow and flimsy.

Someone 6y ago

That would give the government no control over who pays how much in ‘taxes’. Printing money only makes money worth less, not other goods. Because of that, it would ‘tax’ those with more cash and fewer goods more than those with less cash and more goods. for example, that would mean it would ‘tax’ house owners less than renters. One could argue that is fine, but in practice, poorer people cannot choose between renting and buying a house, and some would find it unfair to have those poorer people bear the burden of paying for the operation of the government. It would also lead to inflation. That would make currencies of countries that print less or no money more attractive. So, the situation where all counties print money instead of raising taxes might be an equilibrium, but it won’t be a stable one. A country that switches to raising taxes would see its imports get cheaper and cheaper. That’s good for it’s citizens (to a limit, as it also would make exports more expensive)

naveen99 6y ago
> that would give the government no control over who pays how much in ‘taxes’. Government would still have control on who it spends money on. So it could spend more on the people it would normally tax less.
al_chemist 6y ago
> it would ‘tax’ house owners less than renters It would tax house owners less than people who had same amount of money but didn't buy house and kept money in bank. If both house owner and renter had $1000 in bank, they would lose the same.
gremlinsinc 6y ago
Wouldn't a UBI w/ land value tax + VAT and no income tax possibly be a better way to control inflation, maybe ease the burden of tax-filing, and also provide a cushion for lower incomes and middle class families?

lubujackson 6y ago

I went down the rabbit hole of this last month. Short answer is, it causes crazy inflation eventually. All other countries are doing this and the ones with weakest currencies are starting to have their money debased: Turkey, Brazil, South Africa. But they have few options. The U.S. is the global reserve currency so our currency is set to deflate in relation to all other currencies. Eventually, after we deflate there is an expectation of the inflationary bill coming due. Which historically always ends in a debt jubilee (all debts forgiven!) because there is no sane way to proceed otherwise. Of course there is a tidy Wikipedia entry about the inevitability of this for reserve currencies: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma

buboard 6y ago
> is the global reserve currency That s euphemism for "the US has the military power to get the world to buy its currency"
- AnimalMuppet 6y ago
  Not at all. It's a euphemism for "The US dollar is the currency that the rest of the world trusts more than any other." Whether they are rational in trusting it is perhaps a different question...
  - lotsofpulp 6y ago
    Part of that trust is based on military power, but much of it is trust in the people and government and judiciary of the US to do the consistent (and perhaps “right”) thing most of the time (compared to other governments around the world).
    - nojito 6y ago
      It's based on economic might. To participate in the US growth story you have to contribute in USD.
  - 6y ago

Tomminn 6y ago

Printing money can only ever tax people in proportion to how much of cash they have. It doesn't tax people at all who convert all their income and wealth immediately into assets. Taxation can tax people in any way it likes.

dzonga 6y ago

I'm zimbabwean, yeah the currency wasn't the reserve currency. but inflation, if it's not real to you. will become real. prices change every 30mins. that major retailers used electronic price tags, makes changing of prices easier. not only is the monetary system disturbed. but everything as well. the other way, the Fed would be able to make money without printing money, or raising taxes - would be to go to war. wars are effective, they enable mass production of good, plundering etc. but also come at a great cost. See what Eisenhower has said war. Also why the US has managed to keep inflation at bay, endless wars since the crazy inflation in the 70s.

m0llusk 6y ago
I appreciate your direct testimony, but as someone who lived in the US in the 1970s it is very clear that the "guns and butter" economics of the time included very strong contributions to inflation through rampant war spending. Much of what ripped the US out of Vietnam was the population suffering as the economy started to melt down.

markus_zhang 6y ago

Money to the government is not really revenue, but something needs to flow out and back. It's more or less like water IMO. Taxation is one way for it to flow back.

Wolfenstein98k 6y ago

Printing money causes "inflation" [1]. This effect is lessened in chronically-low inflation environments (like our current one) [2]. In situations where demand is artificially low (like lockdown), and therefore will broadly bounce back when allowed to, you can print a lot without that inflation [3]. [1] = Printing money creates additional dollars in circulation without increasing the supply of goods those dollars are chasing. If you imagine adding a zero to every dollar simultaneously (aka 10x the money supply), without actually creating anything new, after a brief period of adjustment all goods would essentially just add a zero onto their cost to find equilibrium. This is "inflation" in effect. In practice though, people tend to just print 1.1x what they printed yesterday ad infinitum, and so this effect compounds (aka "runaway inflation") and you end up like Zimbabwe with wheelbarrows full of worthless cash. [2] = Currently, price rises (relative to a dollar) have been steady in aggregate, aka "chronic low inflation". This is a subject of economic debate as to why, but suffice it to say that is where we are and thus there appears to be "slack" in the currency to print a little more without runaway inflation. [3] = Usually demand suffers a sort of chronic shock as part of a recession or depression. In these cases you can expect it to be depressed next year too, which means investment is useless and thus the cycle of depression lasts and causes a feedback loop. In such a situation, printing additional cash is very inflationary because the supply of goods being sought by those additional dollars is depressed and the supply chains and required demand to justify creating them is not there. In today's world the US economy was broadly fantastic until five minutes ago, and provided this lockdown doesn't last too much longer (flushing out a lot of small business and causing cascading failure), the underlying conditions will remain ripe for growth soon, and thus the newly-printed dollars can reliably chase future goods that are forthcoming.

mempko 6y ago

Taxes are there to provide a base demand for the currency. Imagine the money supply as a bathtub. Government spending is a tap and taxes are a drain. You want the water line to be just right for a given economic growth. The government doesn't need to tax to spend, but why would you accept it's currency as payment for goods the government demands? Because you owe the government a tax in that currency! This system was figured out thousands of years ago. Turns out banks also create money, not just government. 97% of money in circulation is actually bank credit. (banks have a special legal right here) In other words, when you take out a loan, you increase thr money supply! But anyway, without taxes (the threat of physical hardship) you don't have the base demand for a currency. Governments hold the monopoly on money because they also hold the guns. I can't create my own money because that would be illegal (because for my money to gain traction I would need to tax too, just like the government) Cheers.

dragonwriter 6y ago

> The Fed seems to have no issue printing money to prop up financial markets. That's literally their job. > What is stopping them from printing what we need to fund the entire government? Inflation. Specifically, the fact that if they did so with no countervailing force the amount of money required to do so would increase rapidly in a positive feedback loop, collapsing the currency in the process. Well, I mean, that's what stops the government generally from doing it. What stops the Fed specifically from doing it is that they have a policy mandate and that isn't it.

apta 6y ago
It's quite absurd that the Fed is a separate entity from the government. Just shows how corrupt they are.
- nimblebill 6y ago
  What? The FED’s independence from the government (politicians) is exactly what keeps it from being corrupted, from being used as a partisan political weapon.
  - apta 6y ago
    And the Fed is making money by lending money with interest to the government. Easy, immoral money.
  - dragonwriter 6y ago
    > The FED’s independence from the government (politicians) ...does not exist. The Fed is a government entity whose policy-setting body (the Board of Governors) consists entirely of Presidential appointees confirmed by the Senate, and who can be removed by the President (at least “for cause” based on a collateral reference, and possibly without cause though that's murkier, though no explicit boundaries exist on the qualifying causes.). It is “independent” within the government (has it's own policy-setting body which exercises directly-delegated powers, and whose members have terms not tied to Presidential terms and at least arguably cannot be removed by the President without cause), not independent from the government.

nojito 6y ago

>The Fed seems to have no issue printing money to prop up financial markets You're misunderstanding what the Fed does when it trades USD for Products in short term/long term arrangements. There's no net creation of money from the Fed.

m_nyongesa 6y ago

For a moment, pretend the Fed and the Treasury are one institution instead of two. Call it "the government" for simplicity. When the government spends money into the economy, it creates money (also, increases demand). When the government taxes money out of the economy, it deletes money (also, reduces demand). The main issue is how much is created over how much is deleted, in a given time frame. Assume more is created than deleted in a given time frame, so there is a net demand increase over that time frame. Now compare the net demand increase to that required to bring the economy up to the full employment level. If the net demand increase is less than or equal to that required amount, there is no inflation. If it is more, then there is inflation. If you didn't have any taxes at all, the net demand increase would be massive and inflation would happen much more easily.

wolco 6y ago
The first year and then it would be factored in.
- m_nyongesa 6y ago
  What would be "factored in," to what?

jstewartmobile 6y ago

1. Elite suppression of the upper-middle class (upper-middle class pays most of the taxes). Imagine the kind of market competition / wage pressures they'd face if doctors/lawyers/engineers only had to pay the same rates Warren Buffet does. 2. Assault eugenics on the poor (even if they get big refunds in April, they are still subject to withholding on their meager paychecks). More time wrestling with payday lenders and scrambling to get their 39 hours in == less time making more babies.

mijkal 6y ago

I've become more persuaded by Modern Monetary Theory (which is more descriptive than prescriptive). In short, a sovereign currency issuer is not like a household, business, or gov't entity lacking this ability; it need not offset expenditures with income (taxes) to spend. In fact, that's a backward way of thinking of it — gov't spends first, then taxes to remove money supply from the economy. Taxes are tools to contain inflation, reduce concentration of wealth (and the power/influence of select few), and incentivize/decentivize targeted economic activities (eg spur solar power adoption, discourage smoking, etc.). This site is a great primer on MMT: https://modernmoneybasics.com https://modernmoneybasics.com

Gibbon1 6y ago

The best primary reason I've seen put forth is that the government taxes in order to 'make room' in the economy for the production of public goods. Taxing both suppresses consumption and allows you to fine tune whose consumption gets suppressed. In thoery it's a better system. However tax policy in the US is broken because it favors economic parasites and looters.

advaypal 6y ago

https://www.collaborativefund.com/blog/who-pays-for-this/ https://www.collaborativefund.com/blog/who-pays-for-this/

joaogfarias 6y ago

Printing money is a mechanism aimed at increasing the wealth of the friends of the King, aka the people who receive the new money earlier; bankers, big companies, high-level politicians, etc. This is called Cantillon Effect. In practical terms, printing money is a tax: Inflationary tax. It transfers wealth from the people who receive the new money last to the people who receive the money first. Therefore, the question itself doesn't make much sense, because money printing is a (more subtle) form of tax.

me_me_me 6y ago
Never thought about it in this way, but it sounds right. Thanks, I will how some reading to do over weekend :)

CawCawCaw 6y ago

Why stop there? Why not ask, why do we work if the government can just print money and give it to everyone?