“How are We Going to Pay for It?” is the second part of WWR’s Modern Monetary Theory discussion. In this portion, Heather sits down with Geoff Ginter, an advocate for Modern Monetary Theory.
Personal Finances Vs Federal
He describes it as an antidote to poison, but with a caveat: “People will say: ‘Wow, this is great! MMT will save us!’ And I say, ‘No, MMT will not save us, you are going to save us. “When people ask about paying for it, Ginter responds with understanding. “It is a fair question,” he says, but he adds people need to understand the difference between personal financial economics and federal economics.
Modern Monetary Theory Is Just A Definition
“There are two aspects of Modern Monetary Theory,” says Ginter. “There is what it is, and then there are those who understand Modern Monetary Theory, there are policy prescriptions that they have in mind, and people conflate one and the other.” He says MMT is an explanation for how currency works. “It tells you how currency is created, how is circulates through the economy, and where it goes to die. The reason Donald Trump was able to pass his tax cuts and no one died is because Modern Monetary Theory is real. And we are not saved, are we? The prescriptive side, the activist side will save us if people get involved.”
Ginter explains the currency laws in the Constitution, “One, Congress shall create the currency. Number two, they shall tell you what a dollar is worth. Number three, it shall levy taxes and fines and all matter of coercive manner to make you need that dollar.” He notes, “They (the government) create the currency, they impose a tax guaranteeing that you will need that currency, and then they will pay you in that currency, and now that money will circulate through the economy because everyone owes the tax.”
Why Do We Pay taxes?
To stimulate the economy, people buy stuff, and places accept the dollar because the government taxes in dollars. Now the government’s currency has value and demand, which allows the government to spend. When the government taxes, it takes its money back, and that money is gone.
The second function for taxes is to combat inflation, and the third function of taxes is to “be able to curb or influence behavior.” Ginter uses smoking as an example, and says it can also be used to encourage behaviors, such as solar energy.
Real resources utilization keeps production in line with spending, which would eliminate the need for an inflationary tax increase. But Ginter adds a tax increase may be necessary if spending takes a turn. Since the federal government creates the currency, it can produce the necessary funds and then figure out how it impacts the real economy. Government can use taxes as a tactic to lower demand, but the amount to spend to accomplish the goal and the amount to tax back needs to be fully understood.
Will You Fight For Crumbs?
MPC, or the marginal propensity to consume, asks what the likelihood is you will spend your money. If you’re rich, Ginter says, you’re not spending much. “If you were to get more income in the form of a tax break, you’re really not going to spend that money.” He notes the oligarchs and the plutocrats know the system, but have taken advantage of it. Geoff continues, “If you are actually liberated to realize that federal economics bears no resemblance to your own, then you actually have hope. Are you going to fight for your neighbor? Are you going to fight for your community? Or are you going to be so afraid that you would actually be willing to fight for the crumbs?”
Special thanks to our new intern Ryan Hosey for writing the article that accompanies this interview.