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This is quite a useful piece by Jim Kavanagh on the Counterpunch website from a 
couple of years ago. It’s lengthy; I’ll post a few key passages but it’s worth 
reading in full:


The argument of the common-wisdom economic paradigm is that the government must 
collect taxes (or borrow money—we’ll get to that) to spend on whatever programs 
it wants to fund. In this paradigm, the government extracts money from an 
external, economically prior source, and uses it to pay for government 
programs. For both the left and the right in this paradigm, taxes are for 
funding government spending: money first flows into the government through 
taxes collected, and is then spent into economy in various programs and 
purchases. The arguments that ensue are over how much money to collect in 
taxes, from which sources, and which government programs to fund with the money 
collected.

Most leftists take their stance within this paradigm. Bernie Sanders, for 
instance, says his Medicare-for-all plan would “raise revenue” from various 
taxes such as income and capital gains, and from limiting “deductions for the 
rich.” Dean Baker suggests a 4% increase in payroll taxes to “fully fund” 
Social Security and Medicare.

These kinds of analyses, typical of the left, make points that are helpful in 
immediate political fights, and they’re also grounded in the conventional 
paradigm about, money, taxes, and government spending. That paradigm not only 
informs most thinking—whether conservative, liberal, or left-radical—about 
money in our society, it also informs the legal and institutional policy 
framework. It’s the paradigm of the household.

We’re comfortable with the household paradigm because it reflects everyday 
reality. The household has to get money from somewhere to spend it. It’s 
obvious. But, also obvious, the household (or business or state) does not 
create money. That teensy little huge fact makes the household-government 
finance analogy wrong and wildly misleading. Unless we take that fact as of no 
significance—And how could we?—we need another paradigm. Analyses and 
critiques—no matter how radical—of government financing as if it worked like 
household financing are based on false premises, and false premises lead down 
meandering dead-end paths to wrong conclusions.

We have to reject the household analogy whenever it comes up from any source, 
including our own minds, where it will sneak in. Most leftists, I’m afraid, do 
end up assuming it, and ignoring the huge little fact that it cannot be right. 
We need another paradigm, one that’s more truthful and therefore opens more 
effectively radical paths.

…

This brings up another core insight of MMT, a corollary of the fact that the 
government creates money to spend into the economy: The government’s loss is 
the economy’s gain. The government’s deficit is equal, to the penny, to our 
surplus—the amount of dollars the government has spent into and left in the 
economy. With due consideration for how the “government” and “we” are 
constituted—A political question that MMT makes increasingly visible as the 
important question underlying the economics!—the government’s deficit is “our” 
net savings after taxes, dollars that haven’t been zeroed out, points we can 
use to buy our seats. As Robert Bostick puts it, in a scathing critique of Paul 
Ryan’s deficit hawkery:

It’s essentially interest-free money for us to spend as we choose. That’s why 
the financial sector/commercial bankers hate deficit spending. Americans 
benefit from deficit spending and therefore, don’t need to go into debt to 
maintain living standards.

Our surplus from deficit spending is what keeps the economy growing… When Ryan 
and company tell us they’re going to cut the deficit, it automatically means 
they are going to reduce the amount of interest-free money available to us. 
That eventually will, in short order, force us to use our savings, retained 
earnings or borrow from banks at interest just to maintain current spending.

Note that it’s not the government deficit that’s pernicious here, but citizens’ 
indebtedness to the banks, which grows in inverse relation to the government 
deficit. Too little government deficit makes for too much citizens’ debt.

This is why “austerity” policies are ridiculous, self-defeating, and immensely 
harmful. This is why the last thing we want is for the government to have a 
“balanced budget” policy, let alone for the government to run a surplus, which 
would be our deficit. For a healthy, growing economy, the government should 
avoid retrieving as much in taxes as it has spent into the economy. And there 
is no economic need to do so, or to borrow money to make up the difference. The 
government spends more than it gets back? So what? Some dollars haven’t been 
zeroed out. To whom does it owe those zeros?

…

The first reason leftists should adopt MMT is the same reason some 
conservatives do—because it’s true, and has been known to be for a long time. 
And a strong left movement can only be built on a correct economic analysis. 
Money is a powerful tool/weapon in the hands of our class enemy. We better know 
how it works.

The left’s response to the state of incipient crisis we all know we are living 
in should be to embrace and explain the reality of monetary sovereignty, and to 
fight for realizing its radical potential. It should certainly not be to revert 
to reactionary and wrong Clintonite-Republican discourse of “fiscal 
responsibility” that always-already hobbles progressive social programs. As 
commentator Joe Firestone says: “MMT policies can help to bring an end to the 
…crisis [of a failing economy and growing economic inequality]; but not if 
progressives, and others continue to believe in false ideas about fiscal 
sustainability and responsibility, and the similarity of their Government to a 
household.”

I say again to progressives: Your enemy—the financial and academic elite of 
your enemy—knows these things. (Henry Ford knew it!) They are using that 
knowledge to run the mother of all scams. Our task is to seize that knowledge 
for ourselves and our movement, and to change the ideologies, laws, and 
institutions that enshroud and operate the scam. We cannot pretend it doesn’t 
exist, or doesn’t matter even if it’s true—just because we’re more comfortable, 
and know all the rhetorical moves we have to make, within what’s basically the 
household analogy, an ideological crutch that keeps us in the scam.

We don’t have to raise a dime of taxes to pay for universal single-payer 
healthcare, or public college tuition, or infrastructure improvement (or for 
military spending, for that matter), and we should refuse to submit to the “How 
are you going to pay for it?” interrogation.

Have you noticed that the proponents of military spending get away with not 
submitting to it? How we have no special taxes to “pay for” wars, as we do for 
programs like Social Security and Medicare? How the “fiscally responsible” 
proponents of making sure all government spending is “paid for” by taxes forget 
that the minute they have the fiscal power, and embark on aggressive military 
spending and tax cuts for the wealthy?

Do you think maybe that’s because at least some of them know the “How are you 
going to pay for it?” line is bullshit?

And the Democratic response of: “See, we’re the real fiscally-responsible ones, 
who will make sure everything is paid for!” helps progressive social causes 
how? By reinforcing the anachronistic taxes-for-revenue, balanced-budget 
just-like-a-household paradigm that serves no financial purpose, but does serve 
as a political and ideological rope that strangles social spending?

We do have to make choices, but political and economic choices are made in the 
spending decision, and they are not dependent on the choices made in the taxing 
decision. Spending and taxing are separate, parallel activities, and in both of 
them MMT concentrates the mind right where it ought to be—on questions of 
political will.

If everyone were to understand that, and participate in those decisions, what 
do you think we’d be spending more on—nuclear weapons or healthcare? If.

…

MMT will not get us where we want to go, but it will pull back the curtain on 
what’s conjuring up the show that’s been mesmerizing us. Understanding and 
explaining the MMT paradigm will not bring socialism, but it will get us off 
the yellow brick road of distraction, and point out a more direct path towards 
it.

Henry Ford’s feared, and our hoped-for, new revolutionary day requires 
understanding that the earth revolves around the sun, not vice-versa. The road 
to a socialist dawn will dead-end unless more people understand that everything 
we thought we knew about taxes, spending, and money “is not just wrong – it’s 
backwards,” and we damn well better get it turned around.


https://www.counterpunch.org/2018/01/22/behind-the-money-curtain-a-left-take-on-taxes-spending-and-modern-monetary-theory/
 



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