Open Letter to Warren Mosler and MMTers

     I have read the MMT ideas with some interest over the last week and a half. I do agree it at least provides us with a unique framework with which to analyze the monetary world. I still have many questions.

     One area that I read with interest is Mosler's tax proposal to for now wholly eliminate the payroll tax-a full holiday rather than the partial one the Republicans are currently holding up in Congress.

      I agree that this would be a major shot in the arm for Americans and would be a major stimulus. As the MMT framework believes that you wouldn't have to find an alternative way to "pay for" Social Security and Medicare-according to MMT theory the Treasury can always simply print more money, nor are taxes needed to pay for anything, taxes are needed to regulate effective demand so as not to debase the value of the currency-there'd not be any need to cut any spending or raise any other taxes.

    I certainly like the idea of the payroll tax holiday-am not yet sure whether I agree that as all you need to do is print bills at the treasury there is no need to ever raise taxes to pay for something. Not saying that's wrong just I'm not yet entirely sure that it's right.

   But the tax cut would be a great stimulant to the economy, and I have proposed my own tax cuts-eliminating at least temporarily the state consumption taxes. I envision say eliminating the sales tax while also putting in some kind of moratorium on all parking and traffic tickets-on scenario would be do have an amnesty to all tickets written before 2010 while cutting all future tickets by 50 percent at the state, city, and local level.

   http://diaryofarepublicanhater.blogspot.com/2011/12/lets-talk-more-about-taxes.html

    Of course as I understand it MMT tells us that states are very different than the federal government in that they don't print their own currency and are dependent on federal revenue. For this reason Mosler also called for the Federal government to send large amounts of revenue to the states-$150 to $200 billion.

   My thing about states is that while MMT would seem to suggest that while it's wrong to say as Obama and others have that the federal government is like a family that must balance its check book, this is in some way true of the states-they really do have to balance their check book MMT seems to imply if they don't receive adequate funding from the federal government.

   Yet I have this hunch that even on the state level assuming the federal government doesn't provide adequate funding, which in the recent past it certainly hasn't, even here there is some flexibility. My thinking is this: if states are constrained in the same way as individuals are-if I try to pay my cable bill for $100 and there are not adequate funds in my checking it bounces-why do most states have either balanced budget clause and/or statue that requires it to balance its budget?

   My point it this-no one needs to tell you that you are not allowed to deficit spend. There is no amendment to the constitution stating that if you don't have the full $100 in your bank account you can't pay for your cable bill any more than the constitution needs to tell you not to jump off a building. Laws of physics need not be legislated. Yet if the state constitution tells states they must balance their budget this implies otherwise they could continue to provides services out of balance. Some level of deficit spending of financing would implicitly be possible. If not why pass a law saying they can't deficit spend?

  I don't know if Mosler, or other MMTers, or just other people who are not MMTers at all have any thoughts about this but I'd like to hear it.

   I also notice that Mosler in his book the Seven Deadly Innocent Frauds of Economics mentions how at one point in his financial career he was making about $900 per week-back then of course that was a lot of money though many today would consider themselves lucky to make so much-yet after taxes and rent he has only about $350. He simply mentions this without comment but it does sound like he may not have considered this situation optimum to say the least.

   This was in the late 70s when tax rates were much higher for higher income earners. My question for Mosler-or anyone else who might be able to suggest what a plausible MMT view on this might be-is does he therefore think the Reagan tax cuts were for the good. As a liberal I and most liberals see the Reagan and Bush W. tax cuts very negatively because they were highly regressive. Of course MMT claims that taxes aren't to pay for goods and services but simply to regulate demand-to keep the currency reasonably strong-so that might change the perspective even if much of what Mosler suggests a liberal like myself would like aw we saw above.

    I do know from what I've read of him that he doesn't see supply side tax cuts as very stimulative. While they don't do much good in his view I wonder if he thinks they therefore do any harm? Maybe as then other ways will have to be found to head of inflation-ie, regulate demand.

     Overall would he-or other MMTers-think that we actually can "afford" considerable lower tax rates for the rich than most liberals think or might the need to guard against inflation argue against lowering their taxes too much?