Thanks To “Tax Notes”

By Simon Johnson

In my post this morning on dynamic scoring and how to turn the United States into something closer to Greece, I requested that the publication Tax Notes bring an article by John Buckley out from behind their paywall (“Dynamic Scoring: Will S&P Have Company?,” published February 28, 2012.)

The publishers have now done so, for which I would like to thank them – this is a public service that is greatly appreciated.  I don’t know how long the article will remain in the open access part of their website, so I strongly advise anyone who cares about the fiscal future of this country to read it now (and tell your friends).

“Dynamic scoring” of U.S. budget proposals would be a disaster.

Here’s another version of the link, in case you prefer things that are not embedded: http://www.taxanalysts.com/www/features.nsf/Articles/43736B49FCB019E3852579B5006E1933?OpenDocument

12 responses to “Thanks To “Tax Notes”

  1. Simon Johnson thank you, thank you, thank you!!!
    I’m not an economist but I read—a lot. I’ve learned so much from you. I have watch you and James Kwak in Bill Moyers interviews and read your “13 Bankers.”

    Thank you for going out to the way to make “Dynamic Scoring: Will S&P Have Company? available to us.

    As an historian I all too aware of the vagaries and interconnectedness of our history and economy. I look forward to reading “White House Burning.”

    RRuiz

  2. I took a look at the Table of Contents to “Dynamic Scoring: Will S&P Have Company?

    VI. Conclusions
    A. Perception of ‘Cooking the Books’ Inevitable
    B. Models Do Not Reflect Today’s Economy

    It would be funny (Cooking the Books) but for the seriousness of the issue.

  3. Mr. Johnson,

    My name is Christopher Bergin; I am the President and Publisher of Tax Analysts, the organization that publishes Tax Notes and many other fine print and online products. Thank you for your kind words. I can assure your readers that the article will remain available on our website.

  4. Bravo Mr. Bergin !

    I must say as a Canadian the “tax-cutting” mentality has hit Canada and it is worrisome. If people do not pay taxes how can we pay for and maintain our infrastructure (roads, public transit, bridges) and social benefits (eg, healthcare, education, old age pension).

    I guess the idea is that tax cuts are good because it will stimulate the economy. But I am not sure it worked in your country. Though I am not a tax expert or economist.

  5. Simon,

    I’d like you, and all of your readers, to consider something carefully. How can a nation, sovereign in it’s own currency with nonconvertibility into anything else(with debts denominated in its own currency), become like Greece, who was a currency user and not a currency issuer? What happened when S&P lowered our debt rating? Nothing. Yields actually went down. Note, many deficit terrorists thought that was the moment of truth. Yet it passed and the only thing that happened is that S&P has gone beyond simply losing their credibility, they are simply idiots in the minds of those that know better.

    You and James Kwak wrote a good book, but when it comes to understanding our modern monetary system, you are woefully misguided and mistaken. Going into the nitty gritty details without understanding the basics, as you and James so often do, only misleads your viewers and makes something that is not as complicated into a completely complicated affair. Taxes do not fund our federal government. Until you understand this simple fact, you will realize that no matter how much you dislike tax cuts, stating that we’ll become like Greece is completely disingenuous and, if you continue to make that argument even after you have read this, you will be nothing more than a liar. If anything you should be against tax cuts if they give money to the 1%, not because it makes the deficit worse. Trust me, I used to think like you guys, but once I understood the principle of monetary sovereignty, I understood that making that sort of argument backfires because “the deficit” will always be brought up even when we want to institute fiscal policies that helps everyone.

  6. wow, and you and James are COMING OUT WITH A BOOK that simply indicates how confused you are on our national debt??? wow…

  7. Mr. Bergin, Mr. Johnson, and Mr. Buckley,

    Many thanks to all of you for making this piece available. It’s valuable, and the ideas in it need to be understood by many, many more Americans.

    Again, thank you!

  8. To DeuDJ: You miss the point of Johnson’s original title. Becoming “more like Greece” means adopting ever phonier accounting to hide the extent of the debt.

    U.S. government spending is funded by taxes and by borrowing. The fact that we could also fund it by monetizing the debt is no comfort, and does not give us any slack at all on the issue of long run fiscal responsibility. Dynamic scoring gives projections of proposed fiscal policies that are potentially wildly wrong and dangerous.

    You should reread the Buckley piece in this light.

  9. “To DeuDJ: You miss the point of Johnson’s original title. Becoming “more like Greece” means adopting ever phonier accounting to hide the extent of the debt.”

    It doesn’t matter how or if we “hide” our debt, it is of absolutely no consequence whatsoever when we issue debts denominated in our own currency…so I’m afraid you’re the one missing the point. Simon Johnson apparently is listening, and getting funded by, Pete Peterson, so its no surprise he’s entirely mistaken. He has fooled himself into thinking that he’s helping the 99% by arguing against tax cuts, but really by not helping us get out of this drag on our economy he prevents the 99% from getting any sort of fiscal policy measures enacted. Paul Krugman isn’t much different, because even he concedes that eventually we need to pay attention to our long term debt, but he is absolutely wrong for the same reason stated.

    “U.S. government spending is funded by taxes and by borrowing. The fact that we could also fund it by monetizing the debt is no comfort, and does not give us any slack at all on the issue of long run fiscal responsibility.”

    The whole “monetizing our debt” is a fundamentally mistaken notion. No, there is no such thing as “funding” ourselves with a currency we freely create. Taxes serve to regulate aggregate demand and hence prevent inflation(as well as other reasons), but they do not “fund” us at any capacity on the federal level. When you fork over cash to the IRS, they literally shred it. Whenever they take money out of your bank account, that money enters a black hole, it doesn’t get sent over to the treasury department for them to be able to “use”. Government spends with computer clicks. Whenever congress approves of spending for something, the treasury is “given” the money through a computer click, and spends first. AFTER we spend, we issue treasury bonds to “cover” our debt, but understand that bonds don’t really function for that purpose, they are an old rule still on the books even after we went off of the gold standard. Bonds functionally only serve, today, to help the federal reserve set their interest rate target.

    type in 7dif on google, read the book starting from page 13-68 within the document, and you will understand all of the stuff I’ve laid out for you here.

  10. @DeusDJ

    I’m not an economist. But from what I understand MMT would have the government create money. In the current economic system it is created by fractional reserve banking.

    The argument against the government creating money is the potential for corruption. As SJ once pointed out politicians may be more inclined to give government dollars to their friends and allies.

    So how would MMT deal with potential government corruption ?

  11. The article from the Tax Analysts was a great read! Thanks for making it available.

  12. Thanks for getting this article out for the public. I read it with interest, and I hope it finds a wide readership. I wish I thought most of our voters and legislators understood the concepts.