The Scrooge McDuck theory of the rich

I don’t see the point: if Scrooge doesn’t hoard all the money, but merely spends a lower proportion of it than his nephew Donald, the government just has to print a bit less money so that when you sum government deficits and Scrooge expenses you reach the desired level of demand.

If the government desired deficit is lower than the government desired expenses on programs that the government wants to run for other reasons, say defense or the post office, then yes at least part of these expenses have to be founded by taxes, but this hasn’t much to do with the level of desired savings.

IMHO the real problems are two: (a) we won’t reach the desired level of employment without substantial inflation (also because the desired level of employment is 100%) and (b) when you take in account private money creation aka banks making loans this money printing will still cause huge bubble (as Scrooge invests his money in assets that give him some interest, likely driving the asset prices higer) that in the end will crash causing havoc for everyone.

B is the reason we have to tax the rich (actually the wealthy), but A is the real problem IMHO: the MMTers and many other seem to think that inflation is caused by an increase in the quantity of money, but I believe it is caused by wage price spirals and the increase in the quantity of money happens as a consequence. If I am right we can’t have very high employment without some inflation.

Billionaires rarely hold money in bank accounts. Their wealth is stock market assets mostly. Sometimes bonds. Little guys, millionaires, hold cash money in banks and buy real estate.

There’s definitely a slightly strange popular idea that billionaires just have a lot of cash on hand. For example, lots of people are confused why Jeff Bezoz isn’t investing his money in ending homelessness rather than swimming in his pool of gold, well its because tye vast majority of his money is tied up in warehouses, data centres and delivery trucks (and various intangibles which is more complicated). He’s been very busy in the business of logistics and digital infrastructure which has tied up rather a lot of the billions in wealth, and he’s focused his mental efforts on improving productivity there rather than homelessness policy.

Scrooge McDuck’s money bin is full of actual currency, it’s not even in a bank account, so his cash isn’t going to have much practical effect on the nation’s money supply as long as it’s sitting there.

If so many people held their money like this that it became a problem, the government could try to tax the reservoir of currency directly but could also reduce its value, and the power that goes along with holding it, through inflation – by, for example, spending lots of money without raising taxes. So the motte may be quite enough.

In practice most of this money would probably be invested in something (as, if I recall correctly, much of Scrooge McDuck’s actual wealth was), even if only in an interest-bearing account, so it would be fully part of the money supply. The government wouldn’t be able to just let the money pile up without it having any effect on the economy.

I’m excited for MMTers to show up and say there is some unspecified problem with your post, which would be fixed if you read some of unspecified MMT literature.

@9

That’s an easy objection to meet. The law simply provides that the action of accumulating more than some set amount of wealth carries certain consequences.

But the objection would surely apply to the laws most countries have that require many officials (a category of people) to refrain from some actions and perform others (eg keep records, not accept gifts over a trivial value, declare their incomes and assets…)

RE 6 “Their wealth is stock market assets mostly”

Now we are talking. Wealth is not measured by money in hand, that is cash or on demand bank accounts. Rather it is measured in the mark to market price of assets. The stupendous rise in wealth that has accrued to the top 1% and 10% dwarfs even the rapid expansion of the money stock, M2 for instance. https://fred.stlouisfed.org/series/M2SL

Data from the Fed Q2 2021 Z.1 report. Household Assets jumped $6.196 TN, or 16.2% annualize, during Q2 to a record $159.342 TN. Yes, the wealth of American households rose 16%, last quarter! Wow, great. Oh by the way never say that assets inflate, they only increase in value. Well civilians can mention it but nobody who gets paid to write about ‘monetary policy’ is allowed to. There’s a law somewhere I’m sure.

By the way focusing totally on the government side of debt is a blindered way to look at the world.

Is there really “a motte and bailey argument” or are there two separate conversations?

That taxation is a weapon against the dangers plutocracy poses to democracy strikes me as a subject for inquiry in political science.

That taxation doesn’t fund sovereign spending strikes me as a subject for inquiry into fiat monetary operations (closer to macroeconomics than political science)

That some of the same people may have interests in both inquiries doesn’t seem to me proof that there is some underhanded substitution going on.

Your analogies were good — until recently, but this is the human lifespan of devolution (check back tomorrow). Today (again, check back tomorrow) material rewards no longer have any salience, only emotional rewards; and the emotional reward of accumulating wealth is primarily the distress of those from whom it was stolen. Found or earned wealth would not convey this reward. There is a secondary reward, which is the distress of those against whom it is weaponized.

Gorgonzola Petrovna @ 9: Which action? The buying, or the being bought? Every effort against corruption founders on this question.

@Frank Wilhoit,
I’ll try to translate another paragraph: “We [Canadians] don’t have such a law [i.e.: discriminating against the super-rich]. We have laws regulating lobbying, financing election campaigns, ownership of strategic industries, and such. Together, they counteract.”

@Sashas,
I don’t think there are any laws preventing landlords from doing things non-landlords are allowed to do. Convicted felons would be a better example.

Ironically, the super-rich is exactly ‘the minority’ that James ‘Father of the Constitution’ Madison felt needs protection; constitutional protection against those who “labour under all the hardships of life”: “An increase of population will of necessity increase the proportion of those who will labour under all the hardships of life, & secretly sigh for a more equal distribution of its blessings. These may in time outnumber those who are placed above the feelings of indigence. According to the equal laws of suffrage, the power will slide into the hands of the former. No agrarian attempts have yet been made in in this Country, but symptoms, of a leveling spirit, as we have understood, have sufficiently appeared in a certain quarters to give notice of the future danger. How is this danger to be guarded agst. on republican principles? How is the danger in all cases of interested coalitions to oppress the minority to be guarded agst.?“

“Laws, she believes, should address specific actions, not categories of people.”

I’d like to see a law that prevents a person from leaving more than $10 million (in any form, including property) to any individual human being. I know a million isn’t what it used to be, but I’m pretty sure the heir could get a pretty good start in life with that.

And if someone said, “But then nobody would be incentivized to build international corporations,” I’d say, “Good.”

The dirty little secret of MMT is that in the event of an expectation of undesirably high inflation, the consumption of the masses will need to be held back, quite possibly with a VAT. As JQ indicates, the show of desiring to tax the rich is entirely superfluous to their macro framework. And since it is superfluous, it is easily discarded.

They canvass options like forced saving and rationing, but treat taxing high incomes as politically impossible.

So MMT exists for people who have decided that the political power of rich people is so great that it’s impossible to get them to pay taxes as a way of making them feel better about this decision?

Keynesian capitalism is the best version of capitalism, but it requires a government inclined to and capable of regulating and taxing private economic actors.

But unfortunately, ‘free market competition’ consists of big fish constantly eating little fish, resulting in a relative handful of whales and sharks whose economic power allows them to capture and control the political and regulatory process.

Or as Gorgonzola Petrovna put it @9: ‘Scrooge’s unfortunate habit of buying political influence for malign ends.’

@Sashas “If your point is that someone does indeed object to restrictions on billionaires, I’ll happily agree that plenty of people do.”

Some (and who can blame them) would even advocate lining them up against the wall and summarily shooting them. But not those who subscribe to the liberal doctrine with ‘freedoms’, ‘human rights’, ‘equality before the law’ and so on. Which is what I heard from the Canadian Ambassadress in Ukraine.

Although, frankly I was surprised to hear this criticism from her. Apparently she is, as we say “не в теме”, out of the loop. The obvious realpolitik purpose of it is taking assets from domestic oligarchs (who at least have some, if minimal, interest in domestic prosperity) and handing them over to western-based multinationals.

Oh, and someone who is a landlord certainly can kick out her couch-surfer.

I’m not sure how the statement “taxation doesn’t fund spending” (a statement about fiat monetary operations) somehow leads to “taxation isn’t necessary” since “the money story” of MMT begins with a sovereign which provisions itself by levying a tax obligation denominated in tokens of its own issue?

Regarding James Madison, I’m not sure what you expect me to say.

I wrote a comment here once in which I referred to him as ‘that clown James Madison’; how’s that?

eg you seem to be in the wrong thread, but the MMT “money story” starts with the claim that the sovereign has to spend the money first, so spending precedes taxation. https://www.abc.net.au/news/2020-07-17/what-is-modern-monetary-theory/12455806 I agree that this is the wrong way around. No would would provide goods and services in return for fiat money unless they already knew that the sovereign would be demanding it back to pay taxes.

It seems to me that the empirical question of ‘which comes first?’ is a complicated historical enquiry. Purely theoretically, it’s possible to imagine that if the government announces that it will accept (its own) notes in payment of taxation, then it can (and, indeed, would have to) spend notes which it has printed before collecting (some of) them in taxation, and this may be what actually happened in some cases.

If there’s a chronological sequence like this:
1. announcement of government plans to collect taxation (in banknotes)
2. government spending (in newly issued banknotes)
3. taxes collected (in some of the same banknotes)
–then does that count as taxation coming before spending, or spending coming before taxation?

However, isn’t it relevant to discussions of chronological sequence that there was money before there were banknotes? Wasn’t there a time when banknotes were issued with a promise that they could be redeemed for specie, a promise which was at least partly honoured at least part of the time? Isn’t one of the origins of fiat money a government decision to convert existing banknotes exchangeable on demand for specie into banknotes with no such guarantee of exchange? When money was issued as specie, which came first, government spending or taxation? And apart from the interest of historical enquiry, why would anybody suppose that any of this makes a practical difference now?

The Swiss just declined another opportunity to vote for higher taxes on the super Rich, and graciously declined. The proposal called the „99% Initiative“ would have required the government to tax capital income (above a certain threshold) 50% higher than labor income. It garnered all of 35% approval. A grim reminder how politically impossible taxing the rich indeed has become. Roughly two thirds of the 99% seem to really, really hate the idea of annoying the 1% (respectively the.1%).

It has to be said that the left didn’t even put up a fight, expecting to lose anyway. No idea what they were thinking.

Nit-picking buttons getting pushed here, sorry.

1) eg@34 writes as if the money story of MMT begins with the origin of money itself, to my eyes at least. It seems likely the “Modern” part of MMT has some reference (or equivocation in hostile readings?) to modern banking and fiat currency. It’s not at all clear to me that MMT has any influence at all with governments. It seems very much a thing promoted by a handful of dissidents who’ve lost out in the struggle for policy formation. Nor it it at all clear to me that MMT is likely to have any real influence in economics departments either, no more than Austrian economics anyhow. Even though all critiques of MMT seem to be more of an idle pastime though, quoting somebody might be helpful.

2) William Berry@35 invents a “feminine diminutive.” A feminine suffix is no more diminishing than being a woman is. As a reproach to Gorgonzola Petrovna, this is lauding with a faint damn, a perverse play on “damning with faint praise.” Of all the things one could say about this commenter, this is the offense that can’t be overlooked?

3)John Quiggin@37 wrote ” No would would provide goods and services in return for fiat money unless they already knew that the sovereign would be demanding it back to pay taxes.” This is incorrect. Armies have sometimes compensated the owners of goods and properties levied with their government’s currency. It may not be worth a Continental damn, of course. If I remember correctly, the Kenya colonial government deliberately shifted to a policy of demanding taxes in British currency, to drive Kenyans into the market economy. This seems to me a nice illustration of a general principle. (Michael Perelman had some interesting observations on this subject in his The Invention of Capitalism.)

In a similar vein to MMT here is a discussion of unicorns on the moon.
Well no, actually it is a discussion of the role of bank reserves and how reserve requirements limit credit expansion. The funny thing is that banks do not lend from deposits. Reserve requirements have nothing to do with the propensity to lend. Deposits do not fund to loan. Loans create deposits. No matter, these serious men discuss nonsense in serious tones and serious people believe them. It just as well be a discussion of unicorns on the moon.

Is this an empirical claim? I’m not sure who the “no [one} would provide goods and services” is, who is motivated not by fiat money but by fiat money backed by some idea of equilibrium. I don’t believe this motive really operates in the real world. Vide, for instance, cryptocurrency. Whether you think the latter is a fraud in the long run, certainly people provide goods and services in return for it with no thought that the sovereign – in this case the provider of the cryptocurrency – would demand it back to pay taxes.
THe more I look at that claim, the more I don’t understand what it is a claim about.

@Rapier 44

Banks would not need reserve deposits to lend, but are mandated by law to not lend above a certain proportion of their reserves, that is if the required reserves are 20%, and the bank has 100$ in deposits, it can’t lend (and thus create) more than 500$.

So while logically the bank doesn’t need deposits to lend, legally it does need at least some (although I think the fraction is much lower than 20%).

Next we need to do Sand Hill Road Monetary Theory, where eagle-eyed billionaires survey the entire solar system and with ice-cold impeccable logic make purely rational and optimal growth-, wealth-, and human future- maximizing decisions about where to invest their legitimately acquired reserves of investable liquid assets.

So MMT exists for people who have decided that the political power of rich people is so great that it’s impossible to get them to pay taxes as a way of making them feel better about this decision?

I notice nobody saying ‘No’ …

One problem with the idea that it doesn’t matter whether the rich are taxed is that, on the whole, the rich behave very much as if it matters to them whether they are taxed.

I suppose it might be consoling to some if they can convince themselves that in this respect the rich are just participating in the same delusion as other people, but I can’t find the explanation plausible.

@49 I’m speculating that working poor in the US vote for what they imagine the .01% would like, lest they bring further disaster on their households. This may have a connection to denominations who were bent by proximity to power in the antebellum south who discovered speaking truth to power could bring a visit from power’s enforcers.

John Quiggin@53 “This is exactly right and an example of the sequence I described.”
Odd as it may seem, I must disagree that I was exactly right. I thought the Kenya colonial government wasn’t issuing fiat currency, for a start. Nor did I think the colonial government was buying goods and service directly from Kenyans. I misunderstood that the goal was to force subsistence farmers in a heretofore moneyless system (as the colonial government perceived it, at any rate) to engage in market society, that is, to work for English colonists and firms in Kenya, to avoid penalties for not having cash to pay taxes.

This story seemed to me to have much more to do with the state as the creator and guarantor of essential infrastructure for a national market, a national currency. Losing a war puts paid to that project with true (in my judgment) hyperinflation. But I don’t understand how either story (the correct one or mine) bears on MMT.

I’m speculating that working poor in the US vote for what they imagine the .01% would like …

I’m not clear on what you’re referring to here. It is of course the case that many poor people vote Republican, but statistically likelihood of voting Republican correlates with income: the higher the income the more likely to vote Republican, the lower the income the more likely to vote Democrat. Poor people and rich people don’t vote the same way: the opposite is the case.

@60 Would that my experience matched yours….

Damn tags!

Would that my experience matched yours….

That you should suppose I made the kind of comment I did on the basis of my own personal experience is a disparagement, although I’m sure not an intentional one. My own personal experience, as it happens, contains no Republicans whatever. Do I, on the basis of this personal experience, question the very existence of so many alleged Republicans? No, I don’t say anything that damn stupid.

I don’t know whether you happen to know personally a tiny number of Republican-voting poor people and to attach more evidential weight to that experience than to the extensive survey evidence, but if you do you are wrong.