{"id":179852,"date":"2017-10-05T20:30:00","date_gmt":"2017-10-06T01:30:00","guid":{"rendered":"https:\/\/www.panix.com\/~msaroff\/40years\/2017\/10\/05\/i-have-got-to-admire-the-ingenuity-here\/"},"modified":"2017-10-05T20:30:00","modified_gmt":"2017-10-06T01:30:00","slug":"i-have-got-to-admire-the-ingenuity-here","status":"publish","type":"post","link":"https:\/\/www.panix.com\/~msaroff\/40years\/2017\/10\/05\/i-have-got-to-admire-the-ingenuity-here\/","title":{"rendered":"I Have Got to Admire the Ingenuity Here"},"content":{"rendered":"

In response to the Teutonic sado-monetarism Italy has taken to using tax credits to allow the government to pay for some of the services that it needs<\/a>.<\/p>\n

The interesting point here is that they are a very short distance from actually creating money without coming hat in hand to the European Central Bank (ECB)<\/p>\n

If the Italians take their program one more step forward, and they are creating money:<\/p>\n

Italy is experimenting with giving tax-cuts to its citizens in exchange for public services\u2015such as pulling weeds and cutting grass. Wow. What an amazing idea! The government issues a tax credit, and uses it to pay a citizen in exchange for the citizen\u2019s services to the government. The government could even make this arrangement more formal by printing the tax credits on pieces of paper called \u201cLIRIES\u201d (or something like that) and paying for the weed-whacking services with this \u201ccash.\u201d That way the citizen who\u2019s earned the \u201cLIRIES\u201d has the option of using them as payment to another citizen (who\u2019d also like a tax-cut) for, say, a bag of potatoes. So, the first citizen pulls some weeds, gets paid in \u201ccash\u201d and then uses the \u201ccash\u201d to buy her dinner. If you thought about it, you could possibly run an entire economy in this fashion. The only thing you\u2019d have to worry about, of course, is that the government might run out of the tax-credits it needs to pay the citizens to do the work! If that happened, where could the government possibly get more tax-credits? Could it collect tax-credits as \u201ctaxes\u201d? Could it borrow them from all the street-sweepers and weed-whackers who\u2019ve earned them? (In which case it would have to pay \u201ctax-credit interest\u201d\u2015which just seems to exacerbate the problem!) Hmmm. I\u2019m going to have to think about that one. But in the meantime, doesn\u2019t this mean that any Eurozone country has the option to stay IN the Eurozone while at the same time operating its own local economy using its own local \u201csovereign\u201d currency?<\/span><\/p><\/blockquote>\n

In a followup, it is explained how this can be used to essentially create money<\/a>:<\/p>\n

As I said, Italy, is now experimenting with paying for public services with tax credits. Presumably, this is happening because Italy doesn\u2019t possess enough Euros to pay its citizens to provide all the goods and services needed to maintain and run the public sector of its social economy. And Italy can\u2019t \u201ccreate\u201d the additional Euros it needs because that prerogative is the exclusive right of the EU Central Bank which Italy, even as a sovereign member of the EU, has no control over. But, as the news article explains, Italy still needs to have the grass mowed and the weeds pulled in its public gardens. So it has decided (out of desperation, the article implies) to pay the gardeners with tax-credits. The gardeners are willing to do the work in exchange for the government\u2019s tax-credits, because it means the Euros they earn (in other ways) can then be used to purchase goods and services rather than for paying their taxes. So, in practical terms, it is \u201cjust like\u201d getting paid in Euros.<\/span>

<\/span> This, in fact, is way more interesting than it seems. In fact, it might even be mind-expanding! Here\u2019s why:<\/span>

<\/span> Presumably, the tax-credit payments described take the form of notations on the gardeners\u2019 tax account. An hour\u2019s worth of weeding is noted as 15 Euros worth of extinguished taxes. If the gardener has a tax liability of, say, \u20ac3750, her taxes would be completely paid after providing 250 hours of weeding and pruning. After that, obviously, she\u2019d have no more incentive to provide any services in exchange for the tax-credits. So the amount of services Italy can obtain in this fashion is directly limited by the amount of tax liabilities it can impose on its citizens.<\/span>

<\/span> It would be possible, however, to structure the tax-credit payments in another way which would have a very different outcome. Instead of making the payment as a credit notation on a citizen\u2019s tax account, the Italian government could issue paper tax-credits and pay them to the citizens for their gardening services. To be specific, this would be a piece of \u201cofficial\u201d paper, signed with an important signature, on which was printed something like the following:<\/span>

<\/span> The Sovereign Italian Government promises the bearer of this paper ONE EURO of credit on taxes owed to the Sovereign Italian Government<\/span><\/b>. <\/span>

<\/span> \u2026\u2026\u2026<\/span>

<\/span> Now we have to ask an important question: Is the amount of services Italy can obtain by issuing and \u201cspending\u201d its paper tax-credits still directly limited by the amount of tax liabilities it can impose on its citizens? In other words, if every Italian citizen theoretically has received enough PTCs to pay their taxes with\u2014either having received them directly from the government for providing public services, or having received them from other citizens in exchange for lasagna dinners\u2014will the citizens\u2019 willingness to exchange real goods and services in exchange for the PTCs come to a halt?<\/span>

<\/span> Crucially, the answer is No. This is because the act of \u201cembodying\u201d the tax-credits in exchangeable pieces of paper has given the PTCs a usefulness in addition<\/i> to their usefulness as tax payments: This additional<\/i> usefulness, of course, is the ability to use them to buy goods and services from other Italian citizens and businesses. Thus, the number of paper tax-credits in \u201ccirculation\u201d could vastly exceed, at any given time, the total actual tax liabilities of the Italian citizenry. The PTCs would continue to be accepted for lasagna dinners, because the Trattoria owners know they can use the PTCs they receive to subsequently buy Italian shoes and motorcycles\u2014 in addition to using them to pay their taxes.<\/span>

<\/span> It will no doubt have dawned on most every reader that what we\u2019ve just created is \u201cmoney.\u201d Specifically, we\u2019ve created what is called \u201cfiat money\u201d\u2014which happens to be the kind of money the world has been using now for the past half century (ever since the U.S. formally abandoned the gold-standard in 1971). Having thus conjured a rudimentary image of fiat-money to life we should quickly make some important (and perhaps startling) observations about it.<\/span>

<\/span> \u2026\u2026\u2026<\/span>

<\/span> Having made these observations, it appears the Italian government has stumbled on an actual solution to the \u201causterity\u201d it has been forced to impose on itself by the European Union. Except we must now confront the fact that the rules of the EU do not ALLOW Italy to issue and spend its own sovereign fiat currency! The only \u201cmoney\u201d Italy is allowed to use is the Euro\u2014and the only way the Italian government can obtain Euros is either by collecting them as taxes from its citizens, or by borrowing them from the European Central Bank, which has the exclusive prerogative of issuing them. And these methods of obtaining Euros to spend are falling short of what Italy needs to pay its citizens to do. So\u2026. Italy has decided to pay its citizens with tax-credits, and then (why not?) with paper tax-credits. And then, presumably, the EU says, \u201cWhoa, hold on here! It looks like you are printing your own money, which is not allowed by our rules!\u201d<\/span><\/p><\/blockquote>\n

While I don’t think that the Italians would have the guts to take this to the next level right now, but this would a good way to deal with the current problems with the Euro.  (Not as good as getting the Germans out of the Euro, but a pretty close 2nd<\/sup>)<\/p>\n

If you are paying attention, going the full Magilla on this is actually an application of MMT, and the British city of Bristol has been trying something rather similar with the Bristol Pound<\/a>, which in accordance with Modern Monetary Theory, can be used to pay local taxes.<\/p>\n

It really is fascinating. <\/p>\n

H\/t Naked Capitalism<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

In response to the Teutonic sado-monetarism Italy has taken to using tax credits to allow the government to pay for some of the services that it needs. The interesting point here is that they are a very short distance from actually creating money without coming hat in hand to the European Central Bank (ECB) If …<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[426,392,630,456,464,480],"class_list":["post-179852","post","type-post","status-publish","format-standard","hentry","tag-currency","tag-economy","tag-european-union","tag-finance","tag-good-writing","tag-taxes"],"_links":{"self":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/179852"}],"collection":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/comments?post=179852"}],"version-history":[{"count":0,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/posts\/179852\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/media?parent=179852"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/categories?post=179852"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.panix.com\/~msaroff\/40years\/wp-json\/wp\/v2\/tags?post=179852"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}