3 ms·

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

by js8 4y ago

drekipus 4y ago
That doesn't take money out from supply
- wizofaus 4y ago
  Presumably it effectively does if the extra cash raised isn't spent.
  - makomk 4y ago
    The general goal of all the windfall taxes I've seen proposed is precisely that the money used goes back to ordinary people so it can be spent instead of supposedly being wasted sitting around in the bank accounts of the super-rich. This does not, of course, actually help with the underlying problem that there is too much money chasing too few goods and services - it has the opposite effect by increasing the amount of money whilst disincentivizing companies from trying to expand production. In order to use tax to take out excessive money supply, that tax needs to come out of the pockets of ordinary workers and consumers who'd otherwise spend the money buying stuff, either through an increase in income tax or sales tax/VAT. Usually I think income tax would be used. This is incredibly politically unpopular and an election-loser since people see that the government is taking their money whilst they can't afford stuff and some corporations are making big profits.
    - js8 4y ago
      Why would giving ordinary people disincentivize companies from expanding production? Quite the opposite, people now have extra money to spent, so they should get the loans going for investment expansion! The last sentence is exactly why you need to tax the big owners and corporations and not the workers, because they control most of the additional money supply in the profit-driven inflation. (That being said, and as was noted, of course government can also run a surplus with the windfall tax, and that takes the money out of circulation entirely. However, as I explain above, inflation can be more complex, it might be money oversupply in only parts of the network, not the whole network.)
      - wizofaus 4y ago
        I assume GP meant the act of imposing windfall taxes - if you know for certain that x% of your profits will be eaten up in taxes, but you can only make some sort of rough guess at how much more demand there might be as a result of cash handouts etc., there's probably not a great motivation to expand production.
        js8 4y ago
        Isn't that just restating a (probably) truism that investment into financial bubbles tends to be easier than expanding real production? Where does the extra profit go (in the absence of windfall tax)? I doubt it goes to expanding production, because without windfall tax, you won't see demand change (and, btw, with windfall tax you don't have to estimate, you will directly see customers having more money to spend). So it will go into stock buybacks, real estate and other ways to inflate asset bubbles. These are seemingly easier ways to park money than to make actual real investment decision of expanding certain production.
- rybosworld 4y ago
  Yes, it does.
lifeisstillgood 4y ago
This (being a MMT model). It's interesting to compare the phrase above something like "good inflation control is to grow the economy to match [the amount of money in the economy]" whereas just removing the money would also work.
- js8 4y ago
  Wasn't really aware that this is MMT (I think it follows just from the nature of money as a loan), but.. I don't think matching growth to the amount of money in economy is always a good idea, especially when we are talking about a deliberate recession. To me, there are two economies - the "real" one, which is what goods and services people produce, and what material inputs they need, and a "virtual" one, which describes savings, loans, the flow of money, and all the property relationships people have. Normally both are mostly in sync (because trade is bidirectional, flow of goods and services one way, and flow of money and property the other way), but in the case of inflation, you have nominally less goods and services to flow than you have of money (might be caused for different reasons, money being injected, supply shock, etc.). Now, when economists talk about decreasing grow to match money supply in the economy (through e.g. higher interest rates), what they really mean is to restricting the real economic flow of goods and services in order to match the virtual flow of financing. The problem with the idea is, the virtual economy is the thing that should really be fixed, not the real one. Breaking the real economy implies that means of production will have to be rebuilt at some point in the future to match the demand again; for example, if you close a factory, and let everybody go, it will be additional effort in the future to start the factory again, rehire the qualified people, and re(dis)cover the institutional knowledge lost in the process. Whereas adjusting the virtual economy means just changing people's expectations, because that's what money (and other finance assets) are, a share of goods and services obtainable in the future. I had this much money, and I expected to buy 20 eggs for what I got, but it was suddenly discovered that real economy is not able to provide everybody with the money to spend on eggs with 20 eggs, but only say 10 eggs. So my expectations of the future have to change, in order for virtual economy to be adjusted. So I would argue, breaking the real economy to match the broken virtual economy is always worse for the society as a whole in the long-term, because that means that the real production will have to be rebuilt, instead of just adjusting everybody's expectations to a new reality. The reason why (neoliberal) economists are in love with the idea of recession rather than inflation is, of course, political. They don't want expectations to be adjusted, because that means all the rich people (and other people with financial assets and other savings) will become poorer and will have to reenter the investment competition again. While people who mostly live from labor (who are often borrowers in the modern economy as well) will be hit less by inflation than the recession (possibility of unemployment and total loss of income). So reducing inflation at the expense of employment and growth is essentially curtailing the production of the economy as a whole so that the incumbent property owners could keep their power structure. It's actually very anti-competitive and anti-free market. (But nobody really wants a free market anyway.)
Aunche 4y ago
In theory, this could be deflationary, but there are a few reasons this probably wouldn't be effective. - It usually takes at least a year before tax changes are proposed before they take effect - They are always accompanied by spending increases that neutralize any potential deflationary effects - You actually can't actually increase taxes that much. For example, the US Fed has quantitatively tightened roughly $600 billion in the past 6 months. The Biden corporate tax increases are estimated to bring in $50 billion, and windfall tax proposals also tend to hover around that order of magnitude.

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

by js8 4y ago

Not true, you can also (selectively) increase taxes to take out excessive money supply. In the case of profit-driven inflation, you could tax excess profits.

drekipus 4y ago

That doesn't take money out from supply

wizofaus 4y ago
Presumably it effectively does if the extra cash raised isn't spent.
- makomk 4y ago
  The general goal of all the windfall taxes I've seen proposed is precisely that the money used goes back to ordinary people so it can be spent instead of supposedly being wasted sitting around in the bank accounts of the super-rich. This does not, of course, actually help with the underlying problem that there is too much money chasing too few goods and services - it has the opposite effect by increasing the amount of money whilst disincentivizing companies from trying to expand production. In order to use tax to take out excessive money supply, that tax needs to come out of the pockets of ordinary workers and consumers who'd otherwise spend the money buying stuff, either through an increase in income tax or sales tax/VAT. Usually I think income tax would be used. This is incredibly politically unpopular and an election-loser since people see that the government is taking their money whilst they can't afford stuff and some corporations are making big profits.
  - js8 4y ago
    Why would giving ordinary people disincentivize companies from expanding production? Quite the opposite, people now have extra money to spent, so they should get the loans going for investment expansion! The last sentence is exactly why you need to tax the big owners and corporations and not the workers, because they control most of the additional money supply in the profit-driven inflation. (That being said, and as was noted, of course government can also run a surplus with the windfall tax, and that takes the money out of circulation entirely. However, as I explain above, inflation can be more complex, it might be money oversupply in only parts of the network, not the whole network.)
    - wizofaus 4y ago
      I assume GP meant the act of imposing windfall taxes - if you know for certain that x% of your profits will be eaten up in taxes, but you can only make some sort of rough guess at how much more demand there might be as a result of cash handouts etc., there's probably not a great motivation to expand production.
      - js8 4y ago
        Isn't that just restating a (probably) truism that investment into financial bubbles tends to be easier than expanding real production? Where does the extra profit go (in the absence of windfall tax)? I doubt it goes to expanding production, because without windfall tax, you won't see demand change (and, btw, with windfall tax you don't have to estimate, you will directly see customers having more money to spend). So it will go into stock buybacks, real estate and other ways to inflate asset bubbles. These are seemingly easier ways to park money than to make actual real investment decision of expanding certain production.
rybosworld 4y ago
Yes, it does.

lifeisstillgood 4y ago

This (being a MMT model). It's interesting to compare the phrase above something like "good inflation control is to grow the economy to match [the amount of money in the economy]" whereas just removing the money would also work.

js8 4y ago
Wasn't really aware that this is MMT (I think it follows just from the nature of money as a loan), but.. I don't think matching growth to the amount of money in economy is always a good idea, especially when we are talking about a deliberate recession. To me, there are two economies - the "real" one, which is what goods and services people produce, and what material inputs they need, and a "virtual" one, which describes savings, loans, the flow of money, and all the property relationships people have. Normally both are mostly in sync (because trade is bidirectional, flow of goods and services one way, and flow of money and property the other way), but in the case of inflation, you have nominally less goods and services to flow than you have of money (might be caused for different reasons, money being injected, supply shock, etc.). Now, when economists talk about decreasing grow to match money supply in the economy (through e.g. higher interest rates), what they really mean is to restricting the real economic flow of goods and services in order to match the virtual flow of financing. The problem with the idea is, the virtual economy is the thing that should really be fixed, not the real one. Breaking the real economy implies that means of production will have to be rebuilt at some point in the future to match the demand again; for example, if you close a factory, and let everybody go, it will be additional effort in the future to start the factory again, rehire the qualified people, and re(dis)cover the institutional knowledge lost in the process. Whereas adjusting the virtual economy means just changing people's expectations, because that's what money (and other finance assets) are, a share of goods and services obtainable in the future. I had this much money, and I expected to buy 20 eggs for what I got, but it was suddenly discovered that real economy is not able to provide everybody with the money to spend on eggs with 20 eggs, but only say 10 eggs. So my expectations of the future have to change, in order for virtual economy to be adjusted. So I would argue, breaking the real economy to match the broken virtual economy is always worse for the society as a whole in the long-term, because that means that the real production will have to be rebuilt, instead of just adjusting everybody's expectations to a new reality. The reason why (neoliberal) economists are in love with the idea of recession rather than inflation is, of course, political. They don't want expectations to be adjusted, because that means all the rich people (and other people with financial assets and other savings) will become poorer and will have to reenter the investment competition again. While people who mostly live from labor (who are often borrowers in the modern economy as well) will be hit less by inflation than the recession (possibility of unemployment and total loss of income). So reducing inflation at the expense of employment and growth is essentially curtailing the production of the economy as a whole so that the incumbent property owners could keep their power structure. It's actually very anti-competitive and anti-free market. (But nobody really wants a free market anyway.)

Aunche 4y ago

In theory, this could be deflationary, but there are a few reasons this probably wouldn't be effective. - It usually takes at least a year before tax changes are proposed before they take effect - They are always accompanied by spending increases that neutralize any potential deflationary effects - You actually can't actually increase taxes that much. For example, the US Fed has quantitatively tightened roughly $600 billion in the past 6 months. The Biden corporate tax increases are estimated to bring in $50 billion, and windfall tax proposals also tend to hover around that order of magnitude.