If taxes don’t fund government spending but borrowing does, can you explain what is the difference between money used to pay taxes and money borrowed? And where does the private sector find, say, £120bn as it did during one quarter of 2020? And can you show us the accounting model you use to substantiate this claim, and the MMT model which (I have to assume you have found) which rejects this?
It's not that taxes don't fund government spending, it's that government doesn't need to wait for tax revenue to come in before it spends. She explains how it's not the same as an individual or business, where they may need to wait for money owed to them to come in before they can spend, which is a microeconomic transaction, but the government can borrow through selling gilts, which pension funds buy because they're such a safe investment that will secure future pensions.
The issue she is raising is that the tories and others continue to make the same mistake of judging government fiscal policy from the micro end of the telescope seeing it like a household or business, rather than the macro, where it doesn't need to wait for money coming in from tax but can borrow to raise wages in line with inflation and the tax coming back from that will go towards paying off deficits and debts.
It's absolutely that taxes don't fund government spending. Nor does "borrowing". As a currenc issuer, the UK government is self-funding. All it has to do when it wants to spend money is debit it's account at the bank of England. So can it ever run out of money? No. Is there a limit to the amount of £ it can create and spend? No. The Exchequer and Audit aAct of 1866 contains two sections 13 and 15, which define this. The Bank of England are compelled by law to pay whatever parliamaent instructs them to pay. Taxes serve several purposess. The one purpose which Margaret Thatcher declared - to fund government - is not one of them.
Currency validation. Taxation allows a country to introduce, create a demand for, and give value to the currency it alone issues.
Public provision. People have to earn the state’s money to avoid tax penalties. The state can then provision itself using its currency
Maintain aggregate demand. Taxes help stabilise the purchasing power of the currency and regulate inflationary pressures
Express public policy. E.g. Wealth distribution – taxing the rich to reduce their undue wealth, power, and command of resources..
Behaviour modification. Express public policy by subsidising or penalising certain industries or behaviours.
"Hypothecation”. Isolate and assess certain contentious spending. E.g., TV licence fee and vehicle tax. Also as a method to establish entitlement to benefits – e.g. NI contributions, but they still don't fund these things.
And as for borrowing... if you follow teh government spending cycles, you'll find that there is not money floating around in eth banking system that teh banks are suddenly willing to lend to government. Those funds used to buy bonds (gilts) are reserve account money which is created by the Bank of England when it sepnds. Selling debt (bonds) is just a reserve drain activity carried out by the Debt Management Office after the government has created those reserves in the banking system by its prior spending. Bonds are simply interest bearing assets offered by the state to banks. Both taxation and "borrowing" are post hoc activities which can only be carried out after the spendining has happened.
Good Question! Because the ideology of the market is so powerful, and so fiercely defended by the City of London, rentiers and their friends in the media...the Labour Party is fearful. Despite having mass public support, it lacks the confidence to challenge the ideology. Instead it hopes to be perceived as friendly to the institutions that uphold free market/pro Wealth ideaology - thinking it can do so, while still being "kind to the poor". But there is no way to be "kind to the poor" or to the majority of the population, while trapped in the ideology that systematically funnels wealth upwards towards the 1% - broadly defined as 'wealth'.
If taxes don’t fund government spending but borrowing does, can you explain what is the difference between money used to pay taxes and money borrowed? And where does the private sector find, say, £120bn as it did during one quarter of 2020? And can you show us the accounting model you use to substantiate this claim, and the MMT model which (I have to assume you have found) which rejects this?
It's not that taxes don't fund government spending, it's that government doesn't need to wait for tax revenue to come in before it spends. She explains how it's not the same as an individual or business, where they may need to wait for money owed to them to come in before they can spend, which is a microeconomic transaction, but the government can borrow through selling gilts, which pension funds buy because they're such a safe investment that will secure future pensions.
The issue she is raising is that the tories and others continue to make the same mistake of judging government fiscal policy from the micro end of the telescope seeing it like a household or business, rather than the macro, where it doesn't need to wait for money coming in from tax but can borrow to raise wages in line with inflation and the tax coming back from that will go towards paying off deficits and debts.
It's absolutely that taxes don't fund government spending. Nor does "borrowing". As a currenc issuer, the UK government is self-funding. All it has to do when it wants to spend money is debit it's account at the bank of England. So can it ever run out of money? No. Is there a limit to the amount of £ it can create and spend? No. The Exchequer and Audit aAct of 1866 contains two sections 13 and 15, which define this. The Bank of England are compelled by law to pay whatever parliamaent instructs them to pay. Taxes serve several purposess. The one purpose which Margaret Thatcher declared - to fund government - is not one of them.
Currency validation. Taxation allows a country to introduce, create a demand for, and give value to the currency it alone issues.
Public provision. People have to earn the state’s money to avoid tax penalties. The state can then provision itself using its currency
Maintain aggregate demand. Taxes help stabilise the purchasing power of the currency and regulate inflationary pressures
Express public policy. E.g. Wealth distribution – taxing the rich to reduce their undue wealth, power, and command of resources..
Behaviour modification. Express public policy by subsidising or penalising certain industries or behaviours.
"Hypothecation”. Isolate and assess certain contentious spending. E.g., TV licence fee and vehicle tax. Also as a method to establish entitlement to benefits – e.g. NI contributions, but they still don't fund these things.
And as for borrowing... if you follow teh government spending cycles, you'll find that there is not money floating around in eth banking system that teh banks are suddenly willing to lend to government. Those funds used to buy bonds (gilts) are reserve account money which is created by the Bank of England when it sepnds. Selling debt (bonds) is just a reserve drain activity carried out by the Debt Management Office after the government has created those reserves in the banking system by its prior spending. Bonds are simply interest bearing assets offered by the state to banks. Both taxation and "borrowing" are post hoc activities which can only be carried out after the spendining has happened.
There's a great paper which I wish Ann would read that explains this nicely: https://www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_purpose/files/the_self-financing_state_an_institutional_analysis_of_government_expenditure_revenue_collection_and_debt_issuance_operations_in_the_united_kingdom.pdf
Thanks for clarifying. 👍
bravo
Why doesn’t the Labour Party argue its case from the macro economic perspective? If they don’t, who will? Ian
Good Question! Because the ideology of the market is so powerful, and so fiercely defended by the City of London, rentiers and their friends in the media...the Labour Party is fearful. Despite having mass public support, it lacks the confidence to challenge the ideology. Instead it hopes to be perceived as friendly to the institutions that uphold free market/pro Wealth ideaology - thinking it can do so, while still being "kind to the poor". But there is no way to be "kind to the poor" or to the majority of the population, while trapped in the ideology that systematically funnels wealth upwards towards the 1% - broadly defined as 'wealth'.