Now, what if the Treasury taxes Robert? What happens? Suppose the IRS person takes $100 in currency from Robert's bag, and spends it on good and services? Does that matter? Well, if the alternative was that the Treasury issues $100 in Treasury securities, and the Fed purchases the Treasury securities by issuing currency, then no, it can't matter at all, given any frictions we want to throw into this world - sticky prices, sticky wages, 10-foot gorillas, whatever.
What if the Treasury taxes Robert by deducting $100 from his Treasury account? But the Treasury has to finance the $100 in spending on goods and services somehow, so clearly this cannot matter at all. The balance that sits in Robert's Treasury account is irrelevant.
Finally, suppose now that the Treasury taxes Robert by taking $100 out of his Vanguard account, transfers it to the Treasury, and spends it on goods and services. Now, things get more complicated. There is an alternative, though, that makes this irrelevant too. Suppose that the alternative was that the Treasury issued $100 in Treasury securities, and the Fed bought them by issuing reserves. But, suppose that when the Fed taxed Robert and sold the Vanguard liability, the Fed bought it by issuing reserves. Now its equivalent.
Thus, we have a theorem. Taxing Robert, under certain conditions, is irrelevant. But DeLong says:
It is simply not true that "Robert Kendrick cannot be taxed." Not true at all. No, no, no, no, no.Krugman says:
Discussions like this really disturb me; they indicate that there are a lot of people with Ph.D.s in economics who can throw around a lot of jargon, but when push comes to shove, have no coherent picture whatsoever of how the pieces fit together.I'll let you be the judge of what is true and who has no coherent picture of how the macroeconomy fits together.