Lessons from the Crisis: Money, Taxes and Saving in a Changing World

The Euro-zone crisis rumbles on, but the austerity measures favoured thus far have been unable to stabilise and revitalise economies while the looming threats of resource peak and climate change are ignored. A new approach is clearly needed at national and European levels.

Lessons from the Crisis showcased an alternative set of economic policies that aim to recover economic control, staunch the loss of jobs and emigration and create a secure future for young and old in Ireland.

On May 9th, Smart Taxes and TASC collaborated to bring together international and national speakers from the cutting edge of progressive and sustainable economic fields. In particular, three leading US based exponents of the New Money Theory school that is the subject of much debate amongst leading economists shared perspective.  In addition, two Irish speakers explored the possibility of a new fiscal framework for Ireland.

You can download the programme here, and speaker biographies are available here.    

See below for an outline of some of the issues addressed at this symposium, and see the sub-page for presentations.

Modern Money Theory

The dawning realization that conventional economic thinking that did not foresee the crisis cannot help solve the problems we now face, means that we must be open to exploring new economic ideas. It is time to move beyond criticizing the clear shortcomings of our country’s economists and politicians and consider - with open minds - economic ideas that are being developed outside of the mainstream. Such a new macroeconomic model has been developed by a pioneering community of heterodox economists based in the University of Missouri, Kansas. Their Modern Money Theory (MMT) approach predicted the current crisis and so unsurprisingly, their analysis and economic solutions have attracted intense interest amongst economic commentators. Although Modern Money Theory describes the money creation and management system of a fully sovereign (i.e. currency issuing) state, MMT is still relevant to Ireland in formulating strategy and its negotiating stance with the European Central Bank and European Parliament to address the debt crisis. Many MMT economists also endorse the concept of a Job Guarantee, i.e. that the government should act as an ‘Employer of Last Resort’. A job guarantee is a permanent job offer from the government to all citizens of a certain age who are ready, willing, and able to work, for a basic wage.

New Fiscal Framework

A fiscal framework sets out the parameter for taxation and public spending choices. The design of a fiscal framework is ultimately a political choice - how much revenue do we take from which sources to spend on what programmes. A fiscal framework is governed by a number of basic economic rules such as creating disincentives, misallocation of resources, impacts on supply and demand. Ultimately, however, these rules are less rigid and open to more interpretation than some would lead us to believe. Within and around these rules there are many choices that can be made. Ireland’s low-tax model is deeply ingrained in our economic culture. There has been an overwhelming consensus that low taxation is the key to economic prosperity. However, the New Fiscal Framework is supported by evidence that shows how higher-tax economies out-perform low-tax economies (such as Ireland) in terms of economic and business competitiveness, while ensuring that fewer of their citizens are at risk of poverty. Higher-tax economies are better placed to invest in infrastructure, labour market programmes and enterprise supports – thus enhancing ‘competitiveness’. In addition, such economies not only experience higher incomes but also more investment in poverty-reduction programmes; thus, they experience lower levels of poverty. While there is no automatic cause-effect relationship between these factors, the New Fiscal Framework demonstrates that higher tax regimes are compatible with economic efficiency and social equality.