Warren Mosler: MMT Explains Taxes Are Needed to Prevent Private Sector Spending


The Gower Initiative for Modern Money Studies has Warren Mosler’s talk The Good Dream is Factual MMT.

I don’t like to say that taxes don’t fund spending. The word fund is ambiguous. It’s better to say the government doesn’t need your money to be able to spend. But they need you not to have it so that they can spend.

So many people who think they understand MMT don’t get this point. They do like to say “taxes don’t fund spending” even though one of the founders explicitly warns against saying that. As he says here, it is not your money the government needs. What they need is for you not to spend it in competition for resources with what the government needs to spend the money on.

Taxes are more powerful than spending.

This is not always true. Taxes are more powerful than spending for reining in excess spending in the private sector. However, when there is insufficient spending in the private sector, government spending is more powerful than tax cuts.

You can give people all the money you want to get them to spend, but if there is a rational reason for them to want to save rather than spend, you cannot force them to spend. In that situation, the government has to do the spending.

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