Matthew Yglesias: Do Low Taxes Cause Inflation?

It’s nice to see Matthew Yglesias embracing Modern Monetary Theory, but I wonder if he totally gets it:

The point of collecting taxes isn’t that the government needs money (it can print money) it’s that if the quantity of taxes is too low relative to the stock of money, then the money loses its value and the price level rises.

He’s riffing on the the idea that tax obligations are the ultimate source of sovereign currencies’ value, the reason everyone has to accept that currency’s value, but I think he’s simplifying things to the point of error.

At least, he should be talking about deficits/surpluses and their Inflation/deflation effects, not just taxes. Now I suppose if you add ceteris paribus re government spending to his statement, it carries more water. But still, this doesn’t really follow: A) the ultimate value of dollars derives from their utility in retiring tax obligations, so B) more taxation makes dollars more valuable.

Cross-posted at Angry Bear.


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