The cryptic acronyms in the title refer to terms that we should further\nintroduce to the reader. The first one, MMT, is an abbreviation from the term\n\u201cmodern monetary theory\u201d. It is a topic that has caused the biggest storm in\nthe financial world and that does not leave any economic ornithologist\nindifferent, and the same applies to the author of this piece. The birth story\nof the theory takes us back to the beginning of the 20th century when it was\nestablished by the writings of Georg F. Knapp and Alfred Mitchell-Innes and\ntheir later synthesis. Recently, the best new montage idea of all left-wingers\nhas made it to the top of public finance thanks to American economist Stephanie\nKelton, who in 2016, was the Economic Advisor to Bernie Sanders\u2019 presidential\ncampaign for the left-wing US democrats. Lately, the idea has been politically\nleveraged by the 30-year-old charismatic Alexandria Ocasio-Cortez, who was\nelected to Congress from New York and who is one of the leading figures of the\nongoing cultural revolution. Naturally, the British Labourites, led by the\nneo-communist Jeremy Corbyn, find the idea more than likeable. On both sides of\nthe Atlantic Ocean, the left-wingers see it as their secret weapon to cover their\nutopian spending plans financially.<\/p>\n\n\n\n
In brief, the idea can be described as follows: as long as we do not\nhave a long-term inflation problem, the central government may freely withdraw\nmoney from the central bank to cover their current expenses, and this can be\ndone in any form. The national currency resembles a national monopoly that\nbelongs to the people, i.e. the government chosen by the people, claim the\nproponents of the idea. Thanks to the special status of the dollar, the US is\nin an especially favourable position that the Euro cannot enjoy due to its\nstructure of a monetary union. Unquestionably, people who received their\nfinancial education in the previous century are quickly angered by such an idea\n\u2013 how could anyone even consider adjoining the central bank and the central\ngovernment? <\/p>\n\n\n\n
However, people do think like this. For generation Y, born between\n1982-1994, the idea is much clearer than to a generation who is older than\nthem. Why? Because they have not experienced the inflation crisis that shook\nthe US in the 1970s and the actual cause of which was not an oil crisis,\ncurrency speculations or greedy businessmen, but the good old overspending of\nthe country. The crisis back then developed after president JFK\u2019s death, from\npresident Lyndon Johnson\u2019s Great Society programme, and the expenses of the\nVietnam War. If you read the financial programme of Elizabeth Warren, aspiring\nto become the presidential candidate of the Democrats in next year\u2019s\npresidential elections in the USA, you can find lots of similarities with\nJohnson\u2019s programme, the idealistic goal of which is reducing inequality\nthrough greater redistribution. <\/p>\n\n\n\n
Taxes cannot be counted on<\/strong><\/strong><\/p>\n\n\n\n Unfortunately, MMT promoters are right about one thing \u2013 public spending\ncannot be financed solely by tax income. Firstly, the demographic situation is\nbad and the number of active taxpayers is decreasing in developed economies,\nwhile the number of beneficiaries is increasing. It even applies to China, who\nthanks to its one child policy that was valid from 1979-2015, has a population that\non average grows old before becoming rich. Another main cause is the\nrecognition that taxes are paid by the poor because the rich optimise.\nPrimarily, this applies to large international corporations. For instance, tech\ngiant Amazon, which is admired by everyone, earned a profit of 11.2 billion\ndollars in 2018 but paid exactly zero dollars in US federal taxes. During the\nperiod of 2009-2018, Amazon earned a total profit of 26.5 billion dollars and\nthe efficient federal tax rate for them was on average 3% per year, while the\nofficial tax rate was 35%. However, the tax board cannot reach into the pockets\nof large corporations, which in today\u2019s extremely connected world could move\ntheir funds exactly where they need them, as quickly as required, and even\nquicker than that. The country-based tax codes are like huge boulders, around\nwhich water \u2013 in this case, the profits of large corporations \u2013 shall always\nfind a way, flowing in the direction determined by the owners of the capital.\nIn modern times, tax evasion is definitely a taboo, especially after the case\nof the Panama Papers, but it is still an extremely popular practice which is in\nno way illegal. The statute of any company that strives for profit does not\ninclude a clause that says that national taxes should be paid to the maximum.\nOptimising is not illegal but could be immoral. The compass of moral tax\nbehaviour is definitely largely so personal that it is difficult to find a\ntransnational consensus, illustrating the complexity of the entire private\nlimited company business of Estonia.<\/p>\n\n\n\n Within Europe, we have our own \u201cgood\u201d examples. A quick quiz question\nwould go like this: which European Union member state has received as much\nforeign investments as the USA? The correct answer is Luxembourg \u2013 a small\nprincipality which has given Europe Jean-Claude Juncker and like they say,\nwhose 460-head army cannot organise any cannon exercises without declaring a\nwar on their neighbours. Luxembourg has the same number of people living there\nas Harju County \u2013 about 600,000 \u2013 and it has received direct foreign\ninvestments in the total amount of 4 trillion dollars, which means 6.6 million\nper citizen. Allegedly, half of the world\u2019s direct phantom investments are in\nLuxembourg and the Netherlands and the direct goal of this is avoiding taxes in\nthe home country. All the other usual suspects, such as Hong Kong, the British\nVirgin Islands, Bermuda, Singapore, Panama, and Switzerland are far behind\nthese two leaders. Certainly, this irritates the home countries of\ninternational corporations or those countries where they earn the majority of\ntheir income. In this fight, the public sector shall always stay behind the\nprivate sector \u2013 the army of tax advisors shall find a new legal remedy or a\nloophole for the new tax distribution law. Not all loopholes can be patched up\nby the government \u2013 it never could in the past, nor can it do so in the future.<\/p>\n\n\n\n Financial utopias have become\ntrue<\/strong><\/strong><\/p>\n\n\n\n Generation Y cannot be blamed for adopting MMT. Liberal market\nfundamentalists must first take moral responsibility for the great financial\ncrisis that crushed the illusion of the end of the historical organisation of\nsociety. If the central banks are not allowed to lend money to governments,\nthen why have they been doing so for the entire previous decade with nothing\nhappening \u2013 inflation cannot be detected anywhere in the developed world. I\nwrote about inflation, or the causes of the lack of it, in the previous issue\nof Edasi<\/em> under the title \u201cThe\nJapanisation of Europe\u201d. The author of this article finds it very difficult to\naccept the essence of MMT but has to remind himself that if he could have made\na bet ten years ago on whether all that has actually happened in central\nbanking within the last decade would have taken place, he would have considered\nit impossible and lost, and lost big. School education is not sufficient here \u2013\nwe are living in such an extraordinary financial period. <\/p>\n\n\n\n Maybe today we should be more humble about the ideas that seem utopian,\nas life taught us in the previous financial crisis that the unthinkable could\nbecome unavoidable over one weekend. Non-traditional opinion leaders have also\nsupported the idea. Ray Dalio, the founder of Bridgewater, which is the world\u2019s\nlargest hedge fund manager, whose personal wealth is estimated to be 18.7\nbillion dollars, has publicly written that MMT is inevitable. Ray Dalio is\ncertainly not a left-winger, and definitely not a stupid person, who sees MMT\nas inevitable. The question is: in which form? In their own way, all those\npeople who say that the rich shall only start thinking about society tenderly\nafter earning their billions, are right. Quickly, you start thinking about Bill\nGates as well as Warren Buffet, but in this context Ray Dalio is important. By\nthe end of his written discussion, he reaches the conclusion of the\ninevitability of MMT and thinks that the allocation of money should be decided\nby \u201ca council of wise people\u201d. If you look at who is striving for positions of\npublic power in the developed world, an experienced fund manager could be\naccused of idealism and wishful thinking. However, the world is made for the\noptimists. <\/p>\n\n\n\n What happens in the bar?<\/strong><\/strong><\/p>\n\n\n\n A patient reader might already ask: fine, we understand what MMT is, but\nwhat is the GND? The Green New Deal, or put simply, all conscious actions with\nthe purpose of reducing carbon dioxide emissions in the world. First, this\nprogramme was presented in 2007 by US journalist Thomas Friedman, but it did\nnot gain significant public momentum. In modern times, the idea has many\nsupporters, among whom we could also put the cautious new president of the\nEuropean Central bank, Christine Lagarde. The people fighting against climate\nchange and the proponents of MMT quickly find common ground, because they have\na mutual enemy \u2013 the ruling neoliberal world order that started its victory\nmarch in the 1980s and the concurrent biggest change of which is China\u2019s return\nand its likely future economic superiority over democratic public order. These\nsteps do not need a longer description because everyone who follows the media\ntoday is more or less aware of the topic. We should definitely all worry about\nwhat kind of world we are leaving to Bernie Sanders and Keith Richards, for\ninstance. The developed world is a trendsetter but it cannot escape the\ncriticism of the developing world \u2013 you polluted yourself to become rich and\nnow you are forbidding us, developing markets, from doing the same. Primarily,\nwe are referring to the world\u2019s largest environmental polluters in emerging\nmarkets, China and India. <\/p>\n\n\n\n In the end, the Green New Deal could become the excuse to widely adopt\nMMT. At least in the US, which is always the number one influencer of the\nfinancial world, but that would require the Democrats returning to the White\nHouse. If MMT and the GND do go to a bar together \u2013 the night could hide\neverything \u2013, a hasty bar fight could bring about a physical reaction, in which\nMMT and the GND collide at high speed and create lots of cash on the bar floor.\nThere will be enough for reasonable renewable energy as well as for the\neco-charlatan at the other end. <\/p>\n","protected":false},"excerpt":{"rendered":" The cryptic acronyms in the title refer to terms that we should further introduce to the reader. The first one, MMT, is an abbreviation from the term \u201cmodern monetary theory\u201d. It is a topic that has caused the biggest storm in the financial world and that does not leave any economic ornithologist indifferent, and the […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[],"class_list":["post-4576","post","type-post","status-publish","format-standard","hentry","category-blog"],"yoast_head":"\n