Point of Interest

It is a big deal among MMT people, that the purpose of taxes is not to fund government spending, but rather to induce growth or to inhibit inflation.

MMT to Obama- Taxes Function to Regulate Aggregate Demand, Not to Raise Revenue per se (The Center of the Universe, 4-15-2011):

Federal spending is NOT inherently dependent on revenues from taxing or borrowing... Nor is there any inherent financial risk posed by foreigners or anyone else buying or not buying US Treasury securities... Additionally, the risk of federal overspending relative to taxation, as available labor and materials become fully employed, is higher prices, and not insolvency or any kind of funding crisis.

Taxes In The MMT Perspective (Yglesias, 4-21-2011):

The government funds purchases by creating financial assets and it manipulates aggregate demand by threatening to throw people in jail unless they turn financial assets over to the government.

What are taxes for? (Rogue Economist Rants, 4-22-2011):

The fox hunt is important because this is how the nation procures the population's meat supply... Tax is important because this is how a sovereign, fiat-issuing nation pays for its spending.

Krugman says MMT again (Winterspeak.com, 4-22-2011):

Taxes, first and foremost, are a manifestation of sovereign power and thus lay the groundwork for fiat money. By draining the private sector of the funds it needs to purchase it's own output, they create room for the Government to take that output without generating inflation.

UPDATE 6:48 AM 4/28/2011:

Who Really Pays Taxes (Another Amateur Economist, 23 April 2011):

A point of MMT, however, if I have it correct, is that the purpose of taxes is not to raise revenue. The government can spend its currency as it wishes. (Nominal) taxes are to maintain a demand for that currency, and to destroy excess demand in that currency, that is, to maintain the value of that currency, ie fight inflation. According to MMT, then, the real cause of inflation is a lack of political will.

Once again, I don't claim to have the greatest understanding of MMT. I'm neither an economist nor an accountant. I just try to fit things people say in with things I already know, like putting a puzzle together.

But it seems to me that MMT sees "government" as separate from the economy, ready and willing to do what needs to be done to improve the economic environment. (That's how I see it, anyway.)

And it seems that MMT understands government demand as a tool, or the main tool, to be used to make those improvements. For example, when things are slow the government should spend more and tax less; when there is inflation the government should spend less and tax more. That seems rather Keynesian to me, so maybe I don't have it right.

But anyway, one of the things they say is they would raise taxes to fight inflation.

There are lots of potential arguments here that lots of people might want to start, about why MMT is wrong or something. I don't care to get involved in any of those arguments.

I just want to point out that in my earlier post today, I said:

We have to keep interest rates low, as Keynes said. And we have to fight inflation by having everybody pay off debt faster. Mostly the private sector.

If you take the MMT view and express it in mainstream words, it comes out like this: MMT would fight inflation by raising taxes and reducing the public debt. (MMT people don't care much about the public debt and they don't think of taxes as money the government actually receives, so they wouldn't say it this way. But that's how you have to say it in not-MMT.)

So then again: MMT would fight inflation by raising taxes and reducing the public debt. Now it is in a form that I can compare to my idea, to show how I differ.

My idea to fight inflation is to use tax policy to help and to encourage people to reduce their own debt. In other words, I want to reduce private-sector debt.

To fight inflation MMT would reduce government debt; I would reduce private debt.