John Carney commented on a post by David Brooks and a follow-up by Randy Wray. Brooks says that a tax credit is essentially the same as Government spending and used an example from David Bradford, a Princeton economist, of the Pentagon wanting to acquire a new plane and paying for it with a tax credit.
Randy comments on the idea this way:
“What is a sovereign currency? It is (mostly) a keystroke that results in an electronic entry on a bank’s balance sheet. (Yes it can also be shiny coins, paper notes, and watermarked checks—but those are increasingly less important.) To be more accurate, it is two entries: an entry in the deposit account of the fighter plane’s producer and a reserve credit at the central bank for the producer’s bank.
“In the case of a modern “fiat” sovereign currency, what does the government promise? To “redeem” its currency in tax payment. When the fighter plane producer pays taxes, the keystrokes are reversed: the deposit is debited and the bank’s reserves at the Fed are debited. Presto-change-O the sovereign currency disappears in redemption.
“The fighter plane ends up at the government. That, of course, was the whole purpose of the keystrokes.
“Now let’s take Bradford’s example. Instead of keystroking a deposit, the government issues a “tax credit” to be used later in redemption of its tax liability. When tax time comes, the tax credit is sent on to the Treasury (presumably, it will be an electronic entry so little electrons pulse their way to Washington). Presto-change-O the tax credit is gone.
“Yep, Brooks has that part right. It is exactly the same thing. The fighter plane is moved to the government.
“After all, that’s what it is all about, right? From inception, the purpose of the monetary system is to move resources to the public sphere.
“And then the private sector gets all sorts of bright ideas about other uses for the monetary system, such as making subprime mortgage loans to those with no income, no jobs, no assets, packaging the trash into still trashier MBSs that get tranched and re-packaged into CDOs, which are further tranched to produce CDOs squared and cubed. And off we are to a GFC that the Fed then tries to resolve through keystroking $29 trillion of bail-out funds to save the banksters.
“But that’s a story for another time. Let’s congratulate David Brooks for (finally!) getting one thing right.”
Jon Carney comments:
”What Brooks gets and Wray misses, however, is that government spending priorities are economically damaging. When resources are moved “to the public sphere” they are utilized to realize political ends rather than “public” ends. That is, they are used to satisfy the demands of special interests who influence lawmakers and regulators.
“Like overgrown weeds, the tangle of tax breaks distorts behavior, clogs the economy and deprives the government of revenue,” Brooks explains.
“Forget about the revenue part. Otherwise, this is exactly right.
“It’s a shame that a guy as brilliant as Wray doesn’t quite understand that the “public sphere” is nearly always code for private interests expressed through political power.”
Now, that’s not economics at all. It’s a statement about politics and Government, and I have to wonder what John Carney’s special expertise is in these areas, or what reason we have to believe any bald assertions he makes about them that aren’t accompanied by good theory, good data, and tight arguments.
His statement above is also about as bald a statement of anti-government, and anti-progressive ideology as one can imagine, and also reflects a cynical political theory about politics and government which is a) demonstrably false as a generalization, and b) where positive instances consistent with the theory do occur, it is often in political systems where that false theory is itself broadly popular among citizens who are disillusioned with democracy, and who create their own self-fulfilling prophecy that it must and will be subverted by special interests.
Places like Germany, Italy, and Austria in the 1920s and France and Eastern Europe in the whole inter-war period. And places like the United States is becoming now, where no one believes in the legitimacy or possibilities of government anymore, nor in anything else except their own private advancement, and a neo-spencerian struggle for survival.
Do we really need to ask why we ought to believe that “. . . government spending priorities are economically damaging”? Can Carney show us empirical evidence that the actual, non-monetary, costs of government spending exceed the non-monetary benefits of that spending so that we can observe the economic damage he assumes? Or is he just blowing smoke?
Just as important, can he show us empirical evidence that the actual, non-monetary benefits of private sector spending exceed the non-monetary costs of that spending, so that we can observe the economic progress, healing, and prosperity that I suspect he wants us to believe would be the impact of a heavier emphasis on private rather than government spending?
Somehow I doubt that John can do either of those things. And I think that what he’s doing in this column is just giving us his variant of neo-Hayekian/Austrian/libertarian theology in place of a real economic argument that Government spending can’t or won’t work for achieving public purpose, assuming a political sphere that wants to make it work.
I also think that the issue he raises comes down to whether we can point to times and places where political interests expressed through politics and government were largely in accord with the public purpose, and whether that can happen again if people can once again make their government representative and responsive. We can point to such times and places. They don’t come often. The progressive period. The New Deal. The Second World War, and the post-War period up to about 1966.
After a long 15 year period of transition to neo-liberalism, the present period of corrupt Government subverted by special interests began in 1980 and is still continuing. What John Carney and David Brooks both miss, but what Randy Wray gets, is that the success of public purpose economics, including MMT, is going to depend on changes that free the political system from the burden of the financial and other special interests that now control it. But just, maybe the American people, and people in Europe too, are close to having had it with neoliberalism, and change may be coming.
It’s going to require ending accounting control frauds and kleptocracy by prosecuting and convicting the kleptocrats who have destroyed so much middle class wealth and looted and continue to loot the public treasury. If we can do that, then Government spending can again serve the public purpose. If not, if Brooks and Carney are right about Government spending, then we will either continue with lemon socialism or move even further along the true road to serfdom. We will, in other words, lose the very soul and character of America for good.
(Cross-posted from Correntewire.com