{"id":13346,"date":"2016-07-12T13:04:48","date_gmt":"2016-07-12T17:04:48","guid":{"rendered":"http:\/\/multiplier-effect.org\/?p=13346"},"modified":"2016-07-12T13:04:48","modified_gmt":"2016-07-12T17:04:48","slug":"wray-on-revenue-redemption-and-when-austerity-is-justified","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/wray-on-revenue-redemption-and-when-austerity-is-justified\/","title":{"rendered":"Wray on Revenue, Redemption, and When Austerity Is Justified"},"content":{"rendered":"

L. Randall Wray has an essay in the recent issue of the World Economic Review<\/em><\/a>. Wray’s target is the belief that “government needs tax revenue to pay for most (or even all) of its spending.” According to Wray, a version of this belief distorts\u00a0our understanding of\u00a0what are the limits of, say, the US federal government’s ability to spend.\u00a0(In terms of the sense of “limits” here, Wray wants to distinguish\u00a0between the constraints imposed by the particularities of US law and\u00a0broader\u00a0financial\/economic constraints.)<\/p>\n

With the aid of references to the history of American colonial paper currency, Wray presents\u00a0a competing conception of tax revenues as “redemption,” according to which taxes\u00a0support the value of the notes that have been issued, rather than being\u00a0the means by which the government raises\u00a0its “income” and a precondition of its ability to spend.<\/p>\n

What’s the upshot of this “taxes as redemption” story?<\/p>\n

While affordability is not in question, inflation is a danger. To be sure, inflation can occur even at low levels of aggregate demand (witness the stagflation of the 1970s in the USA), but if government spending should drive the economy beyond full employment, then inflation will result. Government spending can also be inflationary before full employment if it is directed to sectors with a low elasticity of output (where additional demand causes prices to rise without increasing output much). One could envision additional ways in which misdirected spending and poor policy could cause inflation. The point is, however, that the danger is not affordability but rather inflation.<\/p>\n

Currency depreciation is also a possibility for floating exchange rate systems […]<\/p>\n

Hence, \u201cmore austerity\u201d can be the right answer, but only in specific circumstances. If government is spending so much that prices are rising faster than desired, or if the currency is depreciating more than desired, then the answer could be to reduce spending or raise taxes. The difference here is not subtle. In these cases, it is not affordability but rather inflation or currency depreciation that is the problem. Policy makers ought to be able to see the difference: austerity is needed not because government is running out of its own currency but rather because prices are rising or currency is depreciating more rapidly than desired.<\/p><\/blockquote>\n

You can read\u00a0the essay here: (pdf) “Taxes are for Redemption, Not Spending<\/a>“<\/p>\n","protected":false},"excerpt":{"rendered":"

L. Randall Wray has an essay in the recent issue of the World Economic Review. Wray’s target is the belief that “government needs tax revenue to pay for most (or even all) of its spending.” According to Wray, a version of this belief distorts\u00a0our understanding of\u00a0what are the limits of, say, the US federal government’s […]<\/p>\n","protected":false},"author":202,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[112],"tags":[151,898,1111,142,1110],"class_list":["post-13346","post","type-post","status-publish","format-standard","hentry","category-modern-monetary-theory","tag-mmt","tag-redemption","tag-revenue","tag-taxes","tag-wray"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/13346","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/202"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=13346"}],"version-history":[{"count":9,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/13346\/revisions"}],"predecessor-version":[{"id":13355,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/13346\/revisions\/13355"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=13346"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=13346"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=13346"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}