Landsburg vs. Murphy on the Supercommittee
Oh boy, strap on your seatbelts kids because Landsburg and I are going at it. You will never see such rapid-fire deployment of assumptions, rhetorical tricks, absurd scenarios, and kidney punches as when the two raconteurs from Rochester duke it out in the comments of his blog. (I was born and raised in Rochester, and Steve teaches at the University of Rochester.)
Here’s the blog post in question, in which Steve linked to his WSJ op ed on advice for the Supercommittee. Here’s how Steve summarized his argument:
[T]he thrust…is that raising taxes can’t convert fiscally irresponsible spending to fiscally responsible spending.
If your household is over budget, you can address that problem either by spending less or by earning more income. It is tempting to fall into the trap of thinking that by analogy, the government can address its budget problems either by spending less or by raising taxes. But the analogy fails because raising taxes is not like earning more income; it’s more like visiting the ATM.
The government is an agent of the taxpayers. Raising taxes to pay for government spending depletes our assets just as visiting the ATM to pay for household spending depletes our assets. That’s not at all like earning income, which adds to our assets.
So insofar as the supercommittee relies on tax increases to address issues of “fiscal irresponsibility”, it will have failed.
I first read all the comments, and digested Steve’s responses. I even asked for a clarification. When I was pretty sure I had all the issues down, I let fly with this:
Steve, I think I get your general point, and obviously you are thinking about these issues much more clearly than (say) the NYT editorial board, but I don’t think you’ve really “got them” on this one. I think at best you would just force them to speak a little more clearly when stating their position.
For example, NOBODY would explicitly say, “I am OK with spending that we can neither afford nor need, since we can just jack up taxes on rich people.” Rather, they are saying, “By all means let’s slash spending wherever we can, without compromising important social goals. But to get back to a sustainable fiscal trajectory, we will need to bring in more revenue. So we need to raise taxes as part of the solution.”
In light of the above analogy of a loan shark, I think such a position is immune to your critique.
Let me put it this way: I think for your op ed to really work, you would have to argue that the present discounted value of government tax receipts is independent of the tax system. I don’t think that’s true, do you?
Last way to get my POV across: Suppose we have an Ayn Rand nightwatchman state that just spends $1 million maintaining an arsenal of nuclear weapons, which keeps foreign governments from invading. Right now the government levies an income tax just on red-headed, left-handed people named Jim who work in accounting; everyone else in the country is tax-exempt. With this tax scheme, the government extracts $200,000 per year in revenues. It borrows the remaining $800,000 in the first year. Then in successive years, more and more of the $200,000 (which itself slowly grows over time as the Jims get raises, etc.) is devoted to interest payments on the accumulating debt.
This is clearly an unsustainable situation. At some point, all of the revenue extracted from the Jims will be needed just to service the existing debt. So some people say, “Let’s be responsible people. Let’s raise taxes on the people in our society who are right-handed, or not named Jim, or don’t work in accounting. Then we can maintain this incredibly urgent and socially beneficial spending of $1 million per year to stave off foreign invasion.”
Does such a person not understand Econ 101?
It doesn’t get any better than this. What will Landsburg say? Who knows, but it will be fun.
And Bryan Caplan says economic consultants have a boring life.
It is clearly sustainable for a government issuing its own currency.
Sure, like having an incurable disease is “clearly” temporarily sustainable.
But Mr. Murphy, where do the people get the currency to pay the taxes and ‘lend’ to the government in your Ayn Rand utopian society? You can’t pay taxes, or ‘lend’ to the government, if they do not issue the currency first, right?
“Does such a person not understand Econ 101?”
The problem is too many folks like yourself do understand Econ 101. And Econ 101 is all wrong.
Slightly off topic, but I suggest you listen to this interview w/ Warren Mosler. If you can get by Peter Schiff’s incredible rudeness and arrogance, Warren has some good things to say. I can see why Schiff is focusing on radio these days and not managing money. I can’t imagine he has many clients left at this point.
http://fetch.noxsolutions.com/schiff/audio/WarrenMosler_111711.mp3
The MMTers do us a great service by emphasizing how the evil state can create money out of nothing. This allows us to explain how it illicitly steals purchasing power and acquires assets to which it is not entitled by the constitution or morality. The Keynesians have been purposefully obscure on this topic from the beginning in order for their ruse to work on the general public. How else do you trick people into accepting lower real wages if there isn’t a lie and a trick? So, the MMTers are helpful in getting people to face up to funny money as theft by government policy.
If we could only get 40% of the voters to understand that inflation is a purposeful government policy promoted by the elite and not an inexplicable force of nature, we’d be 70% towards victory. And no one will ever understand malinvestment or economic calculation if they do not understand that funny money causes inflation.
But will someone please explain to the MMTers that we already know all about the government’s magical powers to create funny money by spending. In fact, it is at this point in the analysis that Austrian concepts kick in. This is where economic analysis kicks in. The MMTers have no economic theory other than warmed over aggregate-demand Keynesian nonsense which was refuted decades before “The General Theory”. None have them have ever addressed, much less refuted, basic Austrian concepts because, like all non-Austrians, they simply do not understand Austrian concepts. That’s where the debate actually is and the MMTers do not even know the topic of discussion.
acquires assets to which it is not entitled by the constitution or morality
it is entitles by the constitution and morality.
How else do you trick people into accepting lower real wages
Lowering real wages is what Austrians and other austerians advocate.
If we could only get 40% of the voters to understand that inflation is a purposeful government policy promoted by the elite and not an inexplicable force of nature, we’d be 70% towards victory.
Forget it. You are 100% idiot. Remember that is why you became an attorney in the first place.
Now go squander some stolen gas on public roads.
it is entitles by the constitution and morality.
The constitution says only gold and silver can be legal tender. And there is no expressed power delegated to the feds to monopolize or create money.
And Roddis was talking about logical morality, not contradictory morality that you espouse.
Lowering real wages is what Austrians and other austerians advocate.
No, economists advocate for wage rates to be set according to supply and demand in an unhampered labor market. Along with laissez faire elsewhere, this will accompany a rise in real wage rates.
That nominal wage rates might be higher or lower than what exists in our hampered economy, is not what determines real wage rates. Productivity of labor determines real wage rates.
Forget it. You are 100% idiot. Remember that is why you became an attorney in the first place.
Bahh! That’s it! We’re done! I’ve had it!
Please tell me to stay!
The constitution says only gold and silver can be legal tender.
Wrong.
The federal government is entitled to acquire assets by constitution and morality. The fact that you don’t like doesn’t change anything really. Nobody cares.
No, economists advocate for wage rates to be set according to supply and demand in an unhampered labor market.
That’s meaningless like everything economists have to say.
Along with laissez faire elsewhere, this will accompany a rise in real wage rates.
Not necessarily.
Productivity of labor determines real wage rates.
Productivity of labor and employment determine real outpout.
The level of real wages depends on many other things, among which the bargaining power of workers.
@AP_Lerner:
But Mr. Murphy, where do the people get the currency to pay the taxes and ‘lend’ to the government in your Ayn Rand utopian society? You can’t pay taxes, or ‘lend’ to the government, if they do not issue the currency first, right? …
Two words: gold.
that’s one word
No, 3 words.
The other word is “ninja”.
Suppose the government wasn’t in control of issuing currency. The people were allowed to use whatever they want for money. What would prevent the government from issuing a head tax that said everyone owes say x amount of gold or an equivalent amount of another currency each year? I’m not sure why you believe I can’t pay taxes unless the government creates the currency first. Walmart doesn’t issue their own currency and yet I’m able to pay them just fine.
AP “Hut Tax” Lerner generally does not respond to inquiries.
However, his usual response for such a question would be:
“Since 1971, the monetary system changed and we need to get used to and live with the system we have. We’re no longer on the gold standard. All economic rules have changed since then making Austrian Economics irrelevant”.
Except in Europe for some strange reason.
Mr. Schiff seems to have not luxuriated in the MMT minutiae and/or analysis of Bob Murphy and Taylor Conant. For sake of argument, let’s just concede that spending is or can be independent of taxation, which, as Schiff points out, is horrifying. But Schiff understands that this is the point where economic analysis kicks in and MMTers have no economic theory or analysis. Further, the MMTers and Mosler always evade and minimize the issue of where the real stuff is going come from to satisfy the government debt. In addition, there is no reason for the government to create savings bonds to allow “the private sector to save”. There is no reason to think that the free market is inherently unstable or tends toward unemployment (or less than “full employment”) that must be “fixed” with funny money, spending and debt. The MMTers do not understand whatsoever the essential nature of human exchange, injection effects or economic calculation.
Just like the other Keynesians, MMTers are solving problems that don’t exist and causing the problems that do exist.
But Mr. Murphy, where do the people get the currency to pay the taxes and ‘lend’ to the government in your Ayn Rand utopian society? You can’t pay taxes, or ‘lend’ to the government, if they do not issue the currency first, right?
In a free society, money production is not monopolized by force. Anyone can produce anything and try to make it money. In competition, the best money wins. Historically, the best money has been precious metals.
You don’t understand basic economics.
Apparently Landsburg’s response to your comment has been to flee the country.
I think the MMTers are right on this one. The state can print money, borrow money , run a deficit or a surplus and whether this is “responsible” or not can be judged entirely in relation to the goals it is trying to achieve (equality, fast growth, low inflation or whatever).
Libertarians tend to see government spending as always inefficient and unjust whether it is funded by taxes, borrowing or printing – but that is based on their politics as much as their economics.
Their economics is politics in disguise.
I submit that it is MMT which mixes up politics, morality and “economics” into one big amorphous ball of obfuscation and deceit starting with their incredibly presumptive and hopeless naïve notions about the benevolence and alleged knowledge of the fascist state. The lines between Austrian concepts and libertarianism are clearly drawn.
And Keynesian economics is not central planning in disguise?
No.
Does Keynesian economics imply that large scale government intervention in the economy is desirable?
You’re comparing MMT, an economics school, with libertarianism, a political philosophy, and you find the differences in solutions significant enough to mention that the libertarian solution is political?
Good grief.
Try comparing apples with apples, like MMT with the Austrian school, instead of apples with automobiles.
I don’t think “responsibility” is the only thing which can be judged this way. Sustainability also can be judged with relation to goals. For example, MMTers like to duck the question “what makes a monetary system fall over?” They have no way to reason about such an event. In the real world, monetary systems _do_ fail. And occasionally, from large debts and high inflation. In those moments, whether the state can print (the old) money becomes irrelevant and economics (Econ 101 or otherwise) becomes very relevant.
I wasn’t really comparing , just adding some context. I agree with the libertarians.
II think Mises, a utilitarian, would have agreed with my first sentence. His view was that economic policies can only be judged by their ability to meet the ends that their implementers intend.
In your dreams buddy.
If this were true then paying more tax would get you a bigger say, and each taxpayer could decide to choose a different agent as suited them.
The theory of evolution clearly predicts that any government (no matter how well intentioned initially) will rapidly move to a position where the principle purpose of government is to maintain its own existence.
Bob, it seems to me that you are thinking of the government’s finances as being separate and distinct from the finances of The People. By contrast, Steve is saying that the government and The People share one inseparable, consolidated financial statement, and that this financial statement clearly indicates a state of insolvency.
I think Steve is making the point that the combined assets and future income of The People will be insufficient to pay all the obligations that The People (including its government) have incurred. It is impossible to rectify this by draining the account of individual persons among The People faster than the government is already doing.
In your night watchman analogy, The People clearly have the means to pay their government’s financial obligations. It’s just a question of which specific individuals among The People will suffer the burden of making the payments.
But Steve is saying that The People lack the resources and earnings potential necessary to pay for their own upkeep, plus pay off the debts that individual persons have incurred for themselves, and also pay the debts and future obligations that the government has incurred, and intends to incur, in the name of The People.
The problem is not that the government is broke. The problem is that The People are broke.