Oz Blog News Commentary

The Scrooge McDuck theory of the rich

September 25, 2021 - 11:45 -- Admin

Readers of a certain age will remember Scrooge McDuck, the mega-rich uncle of Donald, who enjoys diving into his gigantic money bin filled with gold coins. Replace gold with paper currency[1] and you have the archetypal version of a theory of the rich[2] popular in some versions of Modern Monetary Theory.

Scrooge McMMT has a fancy house and a large bin to hold his money, but otherwise doesn’t spend that much on personal consumption or on physical investment. If the government increases his taxes, the level of money in the bin is lowered, but Scrooge’s expenditure on goods and services doesn’t change at all. Instead, he dips into the money bin a little further to buy politicians who will do his bidding, including (but not limited to) reversing the tax cuts.

Conversely, if the government prints money to buy goods and services from the (unspecified) businesses that provide Scrooge’s wealth, the money raises the level of the bin, and nothing else changes.

If this story is right, then there’s no need to tax Scrooge in order to divert resources from private to public use. The government can just create the money and let it pile up in Scrooge’s bin.

Entirely separately from economic effects, there’s Scrooge’s unfortunate habit of buying political influence for malign ends. If his wealth were all taxed away, that would stop.

This leads to a kind of motte and bailey argument. The full political program implied (the bailey) here is a combination of increased public spending and high taxes on the rich to reduce their influence. But since the two are logically separate, if the political resistance to taxation is too strong, we can retreat to the motte, and just spend the money, without running into any resource constraints.

When I get a round tuit, I’ll give some arguments as to why this model isn’t a good one. But (apart from the snarky cartoon reference), I think it’s a pretty fair characterization of the version of MMT presented in (for example), Stephanie Kelton’s The Deficit Myth

fn1. Paper would be more consistent with physical reality, since swimming in gold is a very bad idea.

fn2. An ambiguous term. The image conveyed, and the common use of examples like Bezos and Gates, suggests we are only talking about billionaires, but much of the actual debate concerns higher taxes on annual incomes starting at $250k or $400k.