> [!summary] Progressive Summary # Structured Notes ## Definitions ## Chapter Summaries ### Don't Think of a Household #### Monetary Sovereignty We mistakenly think that governments should budget their finances the same way a household does. But this is a mistaken analogy. Unlike a household, most governments issue the currency they spend. In the case of the US, the Constitution grants the federal government the exclusive right to issue the currency. It's a super copyright (one that never expires). Everyone else, including households, state and local governments, and businesses, are users of currency. Monopoly refers to a market in which there is only one supplier of some product. In this sense, the federal government has a monopoly on the manufacturing of the US dollar. > The distinction between currency users and the currency issuer lies at the heart of MMT. > To take full advantage of the special powers that accrue to the currency issuer, countries need to do more than just grant themselves the exclusive right to issue the currency. It’s also important that they don’t promise to convert their currency into something they could run out of (e.g., gold or some other country’s currency). And they need to refrain from borrowing (i.e., taking on debt) in a currency that isn’t their own. Monetary sovereignty - when a country issues its own nonconvertible (fiat) currency and only borrows its own currency. Countries with monetary sovereignty don't have to manage their budgets the way a household does. #### (TAB)S This is the household model: **(TAB)S: taxing and borrowing precede spending.** > In a now-famous speech from 1983, British prime minister Margaret Thatcher declared that “the state has no source of money, other than the money people earn themselves. If the state wishes to spend more it can only do so by borrowing your savings or by taxing you more.” > - Speech to Conservative Party Conference, Blackpool > “We know that there is no such thing as public money,” she added. “There is only taxpayer money.” If the British people wanted more from their government, they would have to foot the bill. > To most of us, the idea that the government must tax more to spend more probably sounds reasonable. And our politicians know it. They also know that most of us don’t want to see our taxes go up, so they twist themselves into knots, trying to figure out how to win votes by vowing to do big things without asking the majority of us to pay more. For example, Donald Trump promised the American people that Mexico would pay for his border wall, while Democrats have insisted that billionaires and Wall Street banks can foot the bill for many of their ambitious programs. The money has to come from somewhere, right? Actually, we’ve got it backward. > According to conventional thinking, the government relies on two sources of funding: it can raise your taxes, or it can borrow your savings. Taxes allow the government to collect money from people who have it, which means taxes are looked upon as a way to transfer money to the federal government. If the government wants to spend more than it collects by taxing, it can raise additional funds by borrowing from savers. In either case, the idea is that the government must come up with the money before it can spend. That’s how most of us have been taught to understand the government’s fiscal operations. Taxing and borrowing come first. Spending comes last. A handy mnemonic for the conventional way of thinking is (TAB)S: taxing and borrowing precede spending. > Because we’ve been trained to believe that, like each of us, the government must “find the money” before it can spend, everyone becomes obsessed with the question: How are you going to pay for it? We’ve been conditioned to expect our elected officials to offer a blueprint that maps out the source of every new dollar they wish to spend. Even the most progressive candidates fear that they’ll be eaten alive if their proposals add to the deficit, so borrowing is almost never an option. > For example, Senator Bernie Sanders insists that a financial transactions tax will cover the cost of making public colleges and universities tuition-free, and Senator Elizabeth Warren claims that a 2 percent tax on fortunes above $50 million would raise enough revenue to wipe out student debt for 95 percent of students and also pay for universal childcare and free college. In both cases, the goal is to demonstrate that everything can be paid for by taxing the richest people in America. As we’ll see in the pages ahead, there’s often room to fund new programs without the need for higher taxes. Adding to the deficit shouldn’t be looked upon as a taboo. Taxes are critically important, but there’s no reason to assume the government must raise taxes whenever it wants to invest in our economy. > To demonstrate their commitment to good, old-fashioned household budgeting, the Democrats, led by Speaker Nancy Pelosi (D-CA) reinstated a budget rule known as pay as you go (PAYGO) in 2018. With PAYGO in place, borrowing to finance new expenditures is technically off limits. That reduces (TAB)S to just tax and spend (T)S, so lawmakers face intense pressure to cover any proposed new spending with revenue from new taxes. #### S(TAB) This is the currency-issuer model. > The government doesn’t need our money. We need their money. We’ve got the whole thing backward! > “The government doesn’t want dollars,” Mosler explained. “It wants something else.” “What does it want?” I asked. “It wants to provision itself,” he replied. “The tax isn’t there to raise money. It’s there to get people working and producing things for the government.” “What kinds of things?” I asked. “A military, a court system, public parks, hospitals, roads, bridges. That kind of stuff.” To get the population to do all that work, the government imposes taxes, fees, fines, or other obligations. The tax is there to create a demand for the government’s currency. Before anyone can pay the tax, someone has to do the work to earn the currency. > Taxes are there to create a demand for government currency. The government can define the currency in terms of its own unique unit of account—a dollar, a yen, a pound, a peso—and then give value to its own otherwise worthless paper by requiring it in payment of taxes or other obligations. As Mosler jokes, “Taxes turn litter into currency.” At the end of the day, a currency-issuing government wants something real, not something monetary. It’s not our tax money the government wants. It’s our time. To get us to produce things for the state, the government invents taxes or other kinds of payment obligations. **chartalism** is the idea that "taxes were the vehicle that allowed ancient rulers and early nation-states to introduce their own currencies, which only later circulated as a medium of exchange among private individuals." > From inception, the tax liability creates people looking for paid work (aka unemployment) in the government’s currency. The government (or other authority) then spends its currency into existence, giving people access to the tokens they need to settle their obligations to the state. Obviously, no one can pay the tax until the government first supplies its tokens. As a simple point of logic, Mosler explained that most of us had the sequencing wrong. Taxpayers weren’t funding the government; the government was funding the taxpayers. Even the official rules of the game Monopoly recognizes that "The Bank never goes broke." The US Mint makes the coins. The Federal Reserve issues currency as notes or by a press of a digital button. MMT recognizes 4 reasons for taxes: - it allows the government to provision itself without the use of force - taxes are a way to balance government spending so as to avoid inflation (ie the government spends more in one area, but takes away spending power through taxes in another area) - taxes are a way for governments to alter the distribution of wealth and income - taxes can be used to encourage or discourage certain behaviours # Quotes