Musing on The Deficit Myth

  • Having taxes give value to money. Government has the power to command by law that taxes be paid in the currency that it operates. Hence if everyone has to pay tax, then everyone needs to earn money. If people didn’t have to pay tax, the main driver for using the currency would be gone.
  • Another reason for taxes is to reduce aggregate demand. If people have less money in their pocket, they spend less and inflation can better be kept under control.
  • Taxes are also used to incentivise and dis-incentivise. Higher taxes are put on things the government doesn’t want us to buy or do, such as smoking, eating sugar and drinking alcohol etc. Conversely, government schemes and tax breaks are set up to encourage us to do ‘good’ things, like scrap diesel cars and buy solar roof panels.
  • It gives people a safe place to save their money. With bonds and gilts they get a return on their money without risk.
  • It gives those with pensions a locked in and guaranteed income stream.
  • They are used by banks as security against overnight deposits
  • Austerity measures, at least for a currency issuing government, are a political decision, not an economic necessity
  • There is a magic money tree!
  • Government spending does not need to be costed against savings and taxation revenue
  • Government debt is not the same as household debt. The government chooses to issue debt and it could banish it with a keystroke.
  • Margaret Thatcher and later, David Cameron were mistaken or lying when they pushed the idea that the government has no money except that provided by taxpayers
  • It is not true that the government has limited funds and must repay its debts or it will fail future generations. The government, as an issuer of money and like the banker in ‘monopoly’, can never run out of money!



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Head in the clouds, but really quite practical. Fine art trained, but frequently seduced by the promise of science.