I'd recommend an article by Tom Clark in the Guardian, published sometime yesterday I think in which he concluded:
The question endlessly put to the Labour opposition is whether it can put together a “credible, costed package of alternative economic plans”, and doing that will, of course, have to be part of the answer — but only part. For no such programme, whether it stacks up or not, will compete with Osborne's until the public can be persuaded to talk about the economy differently.
John McDonnell, the shadow chancellor, has put great effort into assembling brainy economists to help refine his detailed commitments, but the results of their deliberations will likely attract even less attention than his one rhetorical flourish to date — “socialism with an iPad”. A creative writing competition might do more to help him prevail in the battles ahead.
A fascinating idea.
I don't like marketing.
But I see the relevance in this.
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I’m a theatre director Richard. Narrative, clarity and simple story-telling is absolutely vital.
The Tories still have the best stories (there’s no money left, Labour didn’t fix the roof, you can’t spend more than you take in tax) even though they’re all economically nonsense.
It’s fine for Labour to review policy (though the lack of MMT thinkers is a huge lost opportunity) but they need clear, simple messages that can play with voters and dispel Tory myths.
I agree
MMT is great as an accounting model.
But it falls short of being an economic model.
Just as FIAT currency inverts models of conventional productivity models, MMT merely extends it.
At a macro-level I do see why fiscal stimulus makes sense with a liquidity trap (or secular stagnation) I just do not see how MMT stacks up with micro-economics or in “normal times”.
There are many critiques of MMT which cannot be ignored, here is but one :
https://mises.org/library/upside-down-world-mmt
Keynes dealt with deficits by saying they matter, but not now.
As I see it, MMT attempts to make the case for perpetual deficits.
That all said, has MMT ever been tried – say in an economy with virtually no natural resources? eg. Haiti?
I think MMT has money creation and sectoral balances broadly right
I think some of the inferences drawn on tax, bonds and also job guarantees are much harder to justify
Sanders is heavily MMT influenced
David- you are quite wrong here have a look at this from a recent Bill Mitchell blog dealing with ‘real resource constraints.’:
” The discussion that follows is a continuation of my recent examination of external constraints on governments who seek to maintain full employment. It specifically focuses on less-developed countries and the options that a currency-issuing government might face in such a nation, where essentials like food and energy have to be imported. While there are some general statements that can be made with respect to MMT that apply to any nation where the government issues its own currency, floats its exchange rate, and does not incur foreign currency-denominated debt, we also have to acknowledge special cases that need special policy attention. In the latter case, the specific problems facing a nation cannot be easily overcome just by increasing fiscal deficits. That is not to say that these governments should fall prey to the IMF austerity line. In all likelihood they will still have to run fiscal deficits but that will not be enough to sustain the population. We are about to consider the bottom line here — the real resource constraint.”
MMT is a lot more endless deficits-there are also conditions (depending on the sectoral factors) where surpluses are appropriate.
Worth reading the rest of Bill’s blog which deals specifically with recourse restrained countries which are failed by the existing institutions and international monetary, austerity obsessed, frameworks: http://bilbo.economicoutlook.net/blog/?p=32938
“has MMT ever been tried” – well MMT economists might well claim that it IS happening as we speak, only ‘disguised’ by opaque accounting procedures to look like something else.
“Sanders is heavily MMT influenced”
It will be interesting to see how the overton window shifts.
Stephanie Kelton et al.
But the US has virtually unlimited natural resource.
As does Russia, and the EU.
Perhaps a genuine way of utilising genuine resource other than failed “individual optimisation” neoliberal doctrine would be better for the common good. MMT may be a means to an end, but tragedy of the commons seems sadly to prevail.
David,
The link you gave was to an ‘Austrian’ (aka libertarian) website. They are hardly going to be sympathetic to MMT.
That aside did you know about this ‘MMT vs. Austrian School Debate’ between Warren Mosler and Robert Murphy, a well-known adherent of the Austrian School of Economics?
https://www.youtube.com/watch?v=cUTLCDBONok
Alas, far too many members of the Labour Party, even quite senior ones, and certainly (especially?) very many Corbynistas, are behaving like naive LIP’s (litigants in person), who think that the justice of their case is SO obvious, all they have to do is to go into Court and “tell the truth”, and the judge will rule in their favour “just like that!”
Many LIP’s even spurn what they see as “lawyers’ dishonest trickery, card-sharping and playing fast and loose with the truth”, with Shakespeare’s “let’s kill all the lawyers” probably running around in their heads.
In consequence, they are absolutely dumbstruck and shattered when they lose, unable to take it in (the whole Labour Party behaved like a naive LIP, and reacted like one in the 2015 General Election campaign and its aftermath).
Now, I am, of course, biased, as a retired barrister, but I have heard of some research that shows that even a mediocre legal representative helps increase a litigant’s chance of success, mainly because a) the representative can offer an unbiased outside view and b) because a representative usually has some experience of both the particular judge AND of how best to phrase and represent the litigant’s argument.
This familiarity, and ability to “put the best words and arguments in the best order” is NOT dishonest (providing everything said IS the truth) – quite the contrary, it is actually essential if the litigant is to present his or her best case. For the litigant needs to understand thay he or she needs to persuade – either the jury, or the judge/panel of judges.
In exactly the same way, Labour needs to wake up to that fact that it is not only standing at the bar of history, but, more importantly, before a jury of its peers – the British electorate – and should use every means at its disposal to put its argument across, to “seize the narrative, and get it right” – not spurning to use PR methods, and deploying Press, Strategy, Campaign and Rebuttal Managers, because the Tories surely will – actually DO – deploy such forces and expertise with deadly and focused accuracy and effectiveness.
Seizing the narrative and getting the narrative right is what Labour most needs to do now, and a creative writing competition would be an excellent way to do that, as the Media WOULD pick up on it, having people to interview about their ideas and proposals. Go for it, I say.
I agree Andrew though I think the onus is on the academics to become better communicators. Many progressive economists who have spent their whole working lives in Academia somehow fail to remember that their constintuency, on the whole, hasn’t and can’t find a form of language that ‘bridges the gap.’ Too many in the MMT world, for example who have spent decades operating with their own taxonomy fail to find ways to bridge the language framing ‘gap’ and disappear into worlds of private linguistic usage, sometimes mocking those that ‘don’t get it.’
There is a lot of mythbusting to be done and it won’t happen quickly but there will have to be a patient but well planned education project that communicates with clarity how our money system operates in favour of vested interests and thwarts democracy and the possibility of public purpose.
Academia is designed to exclude
That is why we have so few public intellectuals – as Danny Blanchflower has pointed out
“That is why we have so few public intellectuals”
yes, I agree and this is a good point. Where are the Karl Polanyi(s) of today or the Galbraith(s) who could get people debating about real ideas.
neo-lib capture has appropriated this world-as I’ve said before (and I said to my own CLP recently) we need an educational revolution and might well have to a case of people getting together on a DIY basis if the academics won’t help.
There’ll be a lot less academics being communicators come this May, anyway, unless the Cabinet Office rule that will stop any academic who receives government funding from speaking out is implemented. As The Observer notes:
The proposal — announced by the Cabinet Office earlier this month — would block researchers who receive government grants from using their results to lobby for changes to laws or regulations.
‘For example, an academic whose government-funded research showed that new regulations were proving particularly harmful to the homeless would not be able to call for policy change.
Similarly, ecologists who found out that new planning laws were harming wildlife would not be able to raise the issue in public, while climate scientists whose findings undermined government energy policy could have work suppressed.’
See here for the full story. But I’d have to add that given the complete lack of interest our government has in compromising on any form of policy this will be “law” very shortly.
https://www.theguardian.com/science/2016/feb/20/scientists-attack-muzzling-government-state-funded-cabinet-office
Yes, we must get the talk right so let’s get with it. We don’t need a competition to thrash this out. These are some of the themes I’ve been trying out.
One message we already have is on public investment. ‘Living within our means’ can be countered by ‘Invest in the future’, which can be made credible both to economists and to the electorate who understand that sometimes you have to spend money to fix things. I would happily go into the next election under a banner of ‘Vote Labour — Invest in a Brighter Future’ which has the ring of optimism that we shall need.
Similarly, on housing where Labour has been putting a lot of emphasis. The details of housing policy can become quite intricate but we should keep saying ‘Build more homes’ and ‘Homes everyone can afford’ in every PMQ or media contribution.
On tax, ‘No more sweetheart tax deals’ will resonate more than ‘let’s reform HRMC’. I also suggest ‘The rich should pay their taxes too’ is punchier than ‘tax justice’.
Monetary policy is trickier. The argument for monetary-fiscal co-ordination is gaining ground among economists but it’s easy for the Tories to twist this into ‘Labour will cost you higher bills’, so this area needs more thought. Bank regulation is complex but messages along the lines of ‘Stop another bankers’ crash’ both offer an alternative to Osborne’s loosening of regulation and an alternative narrative for the crisis.
On other areas, such as innovation, small business, self-employment, business regulation, benefits, etc. we still need to work out what the policy should be before we can talk much about them.
We also need to keep ownership of our messages. The TUC has been pushing ‘Britain deserves a pay rise’ for years but Osborne is cynical enough to present his rise in the minimum wage as ‘Britain deserves a wage rise’!
Over to everyone else …
Thanks Lyn
Another Tory meme to challenge is the myth of ‘intergenerational debt’ and the supposed burden on our grandchildren.
Labour should be pointing out the REAL burden passed on to our grandchildren:
1. greater inequality through wealth transference via property bubbles.
2. Intergenerational effects of worsening health provision
3. Intergenerational effects of debt/stress on mental health.
4. The intergenerational effect of depriving the young of afforadbale education and skills training
5. The intergenerational debt of not creating thousands of jobs to improve sustainablility.
Might also be worth flashing Greenspan about a bit telling the world a sovereign currency issuer cannot default: http://www.youtube.com/watch?v=jB0lcX-GtOU
I recently found myself trying to counter two “truth” narratives on the ‘Understanding Public Financial Management’ course on FutureLearn (pointed out to me by someone on this blog), namely that deficit spending “watered down our currency” and was “mortgaging our children’s future”. I’ll post here what I wrote, to see what others think.
[quote]
I am neither an economist nor an accountant: I’m a scientist, and though interested in both politics and economics, have considered both through the lens of my scientific background. That’s one reason why I question things the way I do.
Couple of points/questions for you.
You’ve described debt as “mortgaging our children’s future”. This is a curious comment to make, but I’ll come back to it in a minute.
Not sure what to make of the comment about watering down our currency. We do this all the time through inflation (goods cost more today than they did several years ago), yet 2% inflation is considered a “good target”. I believe inflation will reduce the value of the money in your pocket far quicker than monetary or fiscal operations will, so why is the minor effect considered worse than inflation?
You state that economists do not understand money. I agree, most don’t. Hell, most people don’t understand money, it’s given a sacred privilege amongst all the artefacts we create, yet costs less to make than anything else. After all, the banks (including the BoE) can create “credit” (which is effectively money) at a keystroke, which costs nothing!
Problem is, money has different meanings to different groups. Would like to know what “accountants” consider money to be (aside from a flow of funds or a stock of reserves, that is). Personally, money to me is a measure of value, not of itself, but of things we are prepared to give or buy with it. It helps us decide if something we desire is worth x hours of our time, for example. I could elaborate further, but for the character count!
I see your Milton Freidman with Wynne Godley. He used actual evidence (not inferences) to show that the economy consists of sectors that balance (the sectorial balance rule), to show that Government debt was a mirror of the Private Sector surplus and Current Account deficit/surplus, depending on which the country is running. Since the UK and US have a hefty CA deficit, if the Government runs a balanced budget or surplus, this means the Private sector MUST run a deficit. I’m not sure how good an idea that is, nor if it’s sustainable. I have enough debt with my mortgage, I don’t want to take on more to keep the Government in surplus, thanks!
The Bank of England have already destroyed the FR myth of bank lending – http://tinyurl.com/ld69c7u
Back to the “mortgaging our children’s future” comment. This is commonly bandied about, I wonder how many people know how insidious it is?
A mortgage is an investment debt. You take on a mortgage to buy a house, either to live in yourself or to rent out, if that’s the investment portfolio you want to have. So mortgages are hardly a bad thing, if you can afford to keep up the repayments. The government, which is considered in economic terms to be immortal, always can.
What we are doing at the moment is selling the house to pay off the mortgage. We are slashing funding for infrastructure, education, healthcare, Research and Development, green investment and social security, all in the name of austerity.
This means we will be handing our children a lower “debt” burden, but also a broken world, where they are denied opportunity, better living standards, working infrastructure, cheaper renewable energy and jobs. I don’t know about you, but if I was a child of the future, given the choice between this or a “scary big” debt figure that never actually has to be repaid (how many times in the past 300 years has the country run deficits compared to surpluses?) I know what I would opt for!
[end quote]
Good one
Andrew you are quite right.
For over a year or so I’ve been attempting to talk to people about the issues in this blog (to try to cope with my own frustration really) to see what they are thinking but also (hopefully) plant some seeds in people’s minds other than TINA.
There are some who are doing quite well thank you and think everything is hunky dory. You won’t change them. Until they are personally affected by austerity .
Others are just plain misled – a highly valued colleague of mine pointed out to me that is was green taxation that was putting up utility prices (I pointed out that passing on these taxes to users was a choice made to protect investors not consumers).
But increasingly both old and young are very interested in Corbyn – about what he has to say and the way he conducts himself as a politician in the public eye.
I detect some confusion about what Labour is saying – and this is usually caused by the usual loud mouthed Blairite wing and other PLP who see Corbyn’s leadership as invalid. But the people I talk to remain interested nonetheless.
This interest meets your concern above that Labour needs to start producing a narrative. That is why I think your right – people ARE listening; they are receptive to new ideas and Labour DOES need to start generating a narrative of their own NOW. The time is ripe.
I think i’d like to see their proposals first before worrying about how they’re going to be spun/marketed/creatively interpreted etc.
I agree communication is important, but that article is getting ahead of itself.
Firstly are the new policies credible and economically will they make a difference ? If the answer is yes then will Corbyn & McD grasp the fine detail of what is being proposed, or will it all unravel after the first Paxman/Neil/Snow propaganda smackdown ? If they can survive that then can they communicate it effectively to a lay audience ?
With regards MMT being an entire economic model, i’ve not read it that way personally and i don’t think its proponents ascribe to it as the ‘final word’ of economic policy. Rather its an overarching framework on to which you can attach a specific tax policy, industrial policy, banking policy etc a la carte that helps to meet your overall policy goals whatever they may be (investment for green infrastructure, full employment and so on).
Somebody posted a video up on here a few weeks ago iirc of Warren Mosler saying much the same thing, that MMT can be tailored to suit whichever band of the political spectrum you come from – the core truth is (if i’ve understood correctly) that deficit/surplus is merely keeping score, and the cricket scoreboard never runs out of runs !
MMT may just be scoring and to that extent it has use
BUT too many grant it mystic power it has not got
I agree it’s not a panacea, you’d still need to do all the other things to shape the economy towards a progressive direction that would require different kinds of intervention, be it on industrial policy, banking or tax.
Thinking about MMT though, the major attraction for me personally is twofold, it finally gives progressives a credible answer to the ‘how do you pay for it?’ question which has seen the Labour party in particular contort itself over the last 30 years into the terrible mess it currently finds itself in.
Secondly, it destroys the foundations of neoliberalism, MMT is potentially lethal to their nonsense and they know it.
MMT is useful for one fundamental reason
It shows we spend and tax mot tax and spend
The problem with it is most exponents seem to have little understanding of the roles of tax and debt
Understanding money is not nearly enough
Richard-MMT is also helpful in demonstrating that Unemployment is not voluntary but rather a policy CHOICE masquerading as a ‘natural limit’.
MMT is just Keynesian in that sense
Jeff @February 20 2016 at 9:40 pm
Couldn’t agree with you more about the incredible neoliberalism-killing gift that MMT is to progressives.
Disappointed that Richard somewhat misses the point.
I miss nothing
I agree with MMT on money creation
It is wrong on tax and debt
Richard, by debt, I assume you mean Government debt, so when Bill Mitchell writes:
‘debt is issued as an interest-maintenance strategy by the central bank. It has no correspondence with any need to fund government spending. Debt might also be
issued if the government wants the private sector to have less purchasing power.’
you would not accept this view .
He also states that:
‘the central bank may agree to pay the short-term interest rate to banks who hold excess overnight reserves. This would eliminate the need by the commercial banks to access the interbank market to get rid of any excess reserves and would allow the central bank to maintain its target interest rate without issuing debt.’
As someone who is still trying to come to grips with this I’d be interested to hear your issues with this taxonomy. Maybe a blog on it sometime (pressures of time/priorities allowing).
Thanks,
Simon
By debt I mean debt
All money is debt
It is merely indication of something owed
Bill is partly right on reasons for issuing gilts, but ignores tax. Bill is usually hopelessly wrong on tax.
And Bill is also wrong to think there is debt free money. There isn’t
“Bill is also wrong to think there is debt free money.”
I would expect belief in such a nonsensical concept from PM types, however I would be absolutely stunned if Bill Mitchell thought that Richard. Fellow MMTer Randy Wray. who is a close friend of Bill’s, has posted recently at length on the topic. Please see DEBT-FREE MONEY AND BANANA REPUBLICS, DEBT-FREE MONEY AND BANANA REPUBLICS, PART TWO & THE VALUE OF REDEMPTION: DEBT-FREE MONEY PART 3
I have to say I find Randy Wray very diffiocult to read precisely because conclusions seem so hard to find
Ditto Bill: reading one of his blogs is like being in Groundhog Day there are so many loops to past blogs
Richard -I think you may be confusing Positive Money with MMT here. MMT certainly doesn’t see money as debt free I think that is the PM line which people like Randal-Wray have challenged clearly see: http://neweconomicperspectives.org/2014/07/debt-free-money-non-sequitur-search-policy.html
I am well aware of both
MMT has some merit
PM has almost none
But MMT fails once it stops talking about how money is created. It refuses to recognise a role for debt, and there is one, and many MMT exponents seem to entirely miss what tax is and why it is a powerful social instrument
That is why I cannot subscribe to MMT
Randy is consistently lucid and cohesive, so I’m genuinely perplexed you find him hard to read. The post’s I linked for example are crystal clear.
Bill’s blog posts indeed are hard work, I’ll give you that. But that doesn’t prove Bill is in any way confused – either about tax and debt or that he’s seen the Positive Money light, dumped a lifetime’s work and now thinks ‘debt free’ money is a good idea.
Getting back to your assertion: What evidence do you have that Bill said any such thing?
I said I find it hard to say Bill has said anything
He’s no better when lecturing
“MMT…refuses to recognise a role for debt, and there is one, and many MMT exponents seem to entirely miss what tax is and why it is a powerful social instrument”
MMTers say the principle reason to tax is to ‘drive’ money. But they then go on to exhaustively list all the secondary, but still highly important, reasons for tax e.g. ‘sin’ taxes. Isn’t that a “powerful social instrument”?
By the way I recall you posted your ‘reasons why we tax’ list a while back. There were about 6 or 7 and not one of them was MMT-inconsistent.
But most MMTers seem to have no such awareness
Richard, how do you rate Michael Hudson as an economist?
He introduced me to Babylonian taxation
I can’t recall much else he has done that I would rate of significance – but I am equally sure I am unfamiliar with all he has done
I have seen some of his Max Keiser performances
Hudson is an amazing scholar and has got neo-liberalism well sussed. His recent book called ‘Killing the Host How Fiancial Parasites and Debt Destroy the Global Economy’-see: http://michael-hudson.com/2015/09/killing-the-host-the-book/
His website and interviews on ‘The Real News’ are always worth listening to.
I like Hudson – he appears on the documentaries ‘The Four Horseman’ and ‘Lifting the Veil’ about Obama’s administration which you can see on line.
I like him because he was honest about the 2008 crash and how the USA bailout helped the rich. He was quite a surprise because we so many neo-lib proponents from America in the media and he is someone who is patently not in that mould.
Like many alternative voices – including Richard’s – he gets pushed out onto the periphery because he speaks truth to power and is certainly not a member of the TINA brigade.
Thank you for the link.
“MMT is useful for one fundamental reason.
It shows we spend and tax not tax and spend”
MMT is very useful for showing the circular flow of stimulus/depressive effect of government spending vs taxation in an accounting model.
What it really shows is the amount of control a government has with the currency of it’s own issuance.
Consider an individual with control over genuine production in multiple countries (or climates).
Let’s say a mega-rock star, for the sake of argument.
He has accrued money in numerous accounts in various countries, in various currencies, and his means of accrual is easy to see – fans come to see them at a local arena, and 99% of them spend almost all their spare money for that week/month/year on a ticket. I hope it was worth it!
This individual, let’s call him David B, uses this money to buy land in many countries, and employ staff to ensure that land maximises it’s potential. Wheat in the colder climates, rice in warmer, etc.
He tires of just accruing money in various accounts in different countries (climates), and is altruistic, and able to ensure the workers on his land have enough to live on and indeed, are able to trade with other workers in other climates, as some tire of rice, and others tire of wheat. Furthermore, the workers can attend concerts with just a fraction of a bushel. Forget the logistics for now about how the wheat gets physically moved to to rice growers/demanders.
Money is irrelevant.
It is the beneficient owner of resources which allows the exchange of wheat/rice at whatever exchange they decide.
What is the role of “government” and does it make the system work better?
Where does MMT fit?? I could, of course use coconuts.
I am sorry: this makes no sense at all
It’s disappointing that this blog on ‘getting the talk right’ has got distracted into debating the merits of MMT, positive money, bradbury pounds, etc. Not that I have any objection to debating these and I’ll offer my views on another occasion. Not in this stream.
For me ‘getting the talk right’ means working out concise repeatable messages, supporting those with “the best words and arguments in the best order” (thanks Andrew) and having the facts and figures to back them up. Over the next couple of months I’ll be canvassing for Labour in the estates of my consitutency. I need arguments against austerity but I will not be debating points of monetary theory.
We can win the case against austerity but not by touting a ‘free lunch’. There is deep public suspicion of being promised ‘something for nothing’ by politicians. Day-to-day is hard for most people and they know life’s just not like that. Someone has to pay.
That’s true even for a government that can print its own money. If we use that money to ‘buy stuff’ that’s not as beneficial for owners of capital as using it to ‘buy assets’. If we build houses, landlords will no longer be able to charge exhorbitant rents. If we create good jobs, businesses will have to pay higher wages. And so on. Expanding the economy means more to go round but will not remove conflicts. Politics is about priorities.
‘Getting the talk right’ has to acknowledge that. I’m still looking for a message on money that I can use on the doorstep and the comments on this blog have not helped with that.
Lyn
I agree: MMT would be economic suicide on the doorsteps, not least because it is followed by a tiny proportion of economists, even amongst the more enlightened
And your point on repeatable messages is spot on
What we can say is government debt threatens no one – it creates the moeny we need to keep the economy going when pivate banks are not doing that job
And, literally, that is true, which helps
Lyn the messages should be simple:
1) The housing bubble has been created by an out of control (credit control) banking system (370% increase in mortgage lending during ten years prior to the GFC.)
2) The real intergenerational debt is cutting health care/education/social services/training/environmental sustainability
3) Banks were bailed out by 375 billion of money created from nowhere-why can’t that be done for our communities? £375 billion created no inflation
4) Housing costs put money into the hands of those that created the bubble which means the young who don’t have asset rich parents will be on a treadmill, paying 40-60% of income to the very people who need it least.
5) zero hours contract/precarious jobs create stress and poor mental health
6) The Government trying to run a surplus puts private households and small firms into debt. (show sectoral graph to prove it) see: http://www.theguardian.com/commentisfree/2015/oct/28/2008-crash-government-economic-growth-budgetary-surplus
7) The scapegoating of the poor and ill has been way of deflecting attention from the roots of the problem: if the Government Spends it means the Banks can’t keep us in their debt trap by ‘renting’ out the money supply to us. The bedroom tax/benefit sanctions/the harrying of the disabled are a gross insult to decency.
8) America never paid of its National Debt since 1791 and the Bank of England since 1694 and we managed the welfare state expansion when national debts were massively higher than now (show graph)-so what’s stopping us now?
9) Britain can NEVER default on its debts-blast out Alan Greenspan: http://www.youtube.com/watch?v=jB0lcX-GtOU
10) We can only have too much money in the wrong places NOT a shortage of it.
If Labour had had the cojones to talk about these things BEFORE the last election, who knows what might have been possible.
The above are 10 messages off the top of my head that could be talked about in a very direct way. I once took part in a Positive Money event which involved handing out leaflets about the roots of the housing crisis (as in 1 above) it was a simple message and people could understand it -there is no reason why Labour can’t do this and there would be no need to mention MMT or theoretical abstractions, just facts.
I might have a fact wrong: I think America did pay off it’s National Debt in 1831 under Andrew Jackson but that was for one year as far as I know and probably connected to his (Jackson’s) hatred of the power of banks.
Simon, thanks. This is the kind of discussion I wanted to see under this blog. Some observations on your points:
1) Yes, but let’s not forget the supply side on housing. Most experts think we need 100k extra units built each year to keep up with rising demand and we have a large backlog as well. This is where a National Investment Bank or National Housing Corporation comes in and with low interest rates could be self-financing for new homes.
2) I’m fairly confident that Labour can develop effective messages for young people for the reasons you give. I’m more worried about our messages for older people who vote in larger numbers and were strongly Tory/UKIP at the last election. We need to address this or the electoral arithmetic could cost us the 2020 result. Ironically, it’s partly a result of the last Labour government having done a lot to tackle the problem of poverty in old age, plus the Tory electoral ploy of the ‘triple lock’, which is now hard to challenge even if it looks unfair from an inter-generational view. Defending the NHS will help but we also need policies on social care and community support.
3) We can certainly make the case that when the supply of BoE money needs to be increased then it would be more useful and effective to spend it on real commodities and services than on inflating financial assets. But be careful with the argument that ‘350 billion created no inflation’. As they say, ‘past results are no guarantee of future performance’. If you look at the monetary stats, it’s notable that during the period of QE narrow money (M1) increased rapidly but broad money (M3/M4) did not because bank lending was falling as capital requirements rose and opportunities shrunk. So we can’t assume that future QE would not prove inflationary, even if that is a distant risk today. To manage that future risk, we need policy on bank regulation and reserve requirements, even if that is messaging for economists rather than the wider public.
4) Yes. Housing is one of the areas where Labour is getting its act together although we still need some costed proposals to take to the electorate.
5) Yes, plus a policy for the 12% of the working population who are classified as ‘self-employed’ and often have worse conditions and income than those in work.
6) Yes, but we need a way of presenting this without carrying charts around and trying to explain these to people unfamiliar with seeing the world in that way. We can do some of this within the party and informed public but beyond that we will do better to focus on opposing the effects of austerity (tax credits, bedroom tax, disability benefits, NHS, etc.) and explaining how government should be an important customer for SMEs, rather than discussing sectoral balances. It depends on the audience.
7) Agreed, although I’m not going to debate if the money supply is ‘rented’ or not. One of Labour’s few successful campaigns during the last Parliament was against payday loans and it would be useful to discuss how to take this further, e.g. small zero-interest loans available through post offices secured against recovery through the tax or benefits system.
8) More or less true although as well as your US correction, the BoE engaged in some creative accounting between the wars. For most audiences, it’s probably more effective to talk about how cheaply government can borrow today rather than presenting economic history.
9) Agreed, the UK cannot default on its loans, as long as the markets still extend us the privilege of borrowing in sterling. But we also need a convincing story on the risks of inflation or spiralling interest costs.
10) Agreed that a country that can issue its own currency cannot have a shortage of it but we need a story to ensure that we do not end up with ‘too much money in the wrong places’.
It’s undeniably true that Labour’s messages prior to the last election were unconvincing. One of the positive results of Corbyn’s election is that it has opened up discussion on what to say and how to say it.
Thanks Lyn – I agree with what you suggest and agree it has to be presented as simply as possible.
One point: I think the idea that the population is ‘renting’ the money supply is a good one as I’ve found it opens peoples eyes to the massive growth in consumer credit since the 80’s which is accepted as a norm.
There’s a great graph that Richard Wolff uses to show how the banks ‘rent’ out the gap between wage stagnation and productivity. Simple graphs can be effective. Have a look at: http://www.marketoracle.co.uk/Article42019.html
Worth thinking about that one.
Lyn, the easy win and easy point would surely be that by not renewing QE for the banks in September you can take the same money – which (although originally created out of thin air) already exists – and transfer it for the use of the government/the people (PQE). Admittedly it is a free lunch but if some of the electorate are unwilling to accept that, surely they would accept that this free lunch could be directed towards feeding everyone and no longer just for nourishing the well-fed banks.
You are just proposing that existing money be spent differently.
If the electorate think “someone has to pay” – well let it be the banks. Their private debt was taken onto the public books in extreme circumstances. Circumstances are different now and that debt will be increasingly shifted back to them. Just as any bank might require a reduction in an overdraft!
Regrettably, this won’t work. The problem is that the maturing of a gilt does not free up money for other uses, unless the government has succeeded in increasing taxes or cutting spending so that the borrowed money is no longer needed. Otherwise as soon as one gilt matures it will immediately need to issue another to cover the gap. The money does not become available for other uses.
If we want the government to spend more on useful stuff then it needs either to tax or to borrow more, e.g. issuing bonds for a National Investment Bank. The BoE could indeed buy such NIB bonds when existing gilts mature but if it does so then the newly issued gilts to cover the Treasury’s funding gap will remain on the market. From the perspective of the overall financing of government it makes little difference which of its debt instruments the BoE decides to buy. It would matter if the BoE replaced some of the corporate bonds it holds with NIB bonds as this would hold down rates on NIB bonds although the effect might be small.
The decisive step here is the willingness of government to spend more. One lesson of the QE experience is that monetary policy alone is ‘pushing on a string’. If the BoE were to expand its QE operation to buy new NIB bonds, not just alter its mix of assets, then that would indeed magnify the macroeconomic effect but the bonds have to be issued first.
On a more positive note, ‘you don’t get owt for nowt’ but sometimes the return can pay back many times what we put in. Extra government spending is not costless but if it succeeds in mobilising resources that would otherwise lie idle then the gain can be substantial. Not quite a free lunch but a cheap one.
Simon
“Another Tory meme to challenge is the myth of ‘intergenerational debt’ and the supposed burden on our grandchildren. “
As has been pointed out by Steve Keen NOT leaving any debt to our grandchildren will mean that we leave our children with a financial crisis instead. This argument of course excludes the problem of growth in a finite world, (which the Tories never bother themselves with anyway) and if I’ve understood correctly, goes like this:
In order to run a government surplus the government must be taking more from the private sector than it is putting back.
That’s a flow of money from the private sector to the government.
At the same time the government wants a growing economy.
So the private sector has to produce more money both for growth and to give to the government.
Who in the private sector can reliably produce this money? It has to be the private banks. They, alone, are authorised to magic it up out of nothing.
So if you want the entire economy growing and the private sector to be transferring money to the government at the same time, you need net lending. The amount produced/lent has to be big enough so the private sector can pay the government and grow the economy as well — every year.
So net lending has to be bigger than the amount of the economy the government wants as a surplus (everyday lending plus the government surplus lending) and therefore the debt that the private sector has to the banks is going to grow faster than the economy. If you have a sustained budget surplus and you want the economy growing at the same time that necessarily means that the level of private sector debt is growing faster than GDP. How long can you do that for? (Steve Keen says a decade at most.)
You get to the point where the private sector cannot borrow any more – the banks will be unwilling to lend, businesses fold under the weight of debt (and variable and compound interest rates). The inflow from the banks to the private sector becomes an outflow as either the private sector gets nervous and decides voluntarily to repay debt or the banks demand repayment and foreclose.
No economy in history has grown without a growing amount of money in the system. And there are only two sources of that money: the banks and the government. The government and banks should both be spending their money in order to promote growth.
I addressed this issue in The Courageous State
Solving it is about much more than banking
The whole paradigm needs realignment and thinking tackling banks alone will change anything is wrong
There is one more source- money from external sources via exports but that hardly applies to Britain at present.
Simon, thank you. Quite right. Any trading surplus has been so rare it was entirely overlooked!
This has to be one of the best discussions on Richard’s blog.
Richard has well and truly nailed his views on MMT to the mast.
I have to say that I find his views surprising, as I thought previously he was a strong proponent of MMT.
I now understand where he differs substantially from the majority of MMT economists.
I bought the money bit
Then I dug into their views on tax and in some cases thought they were ugly
And on debt many are just misguided
How about a blog post detailing the good, the bad and the ugly of MMT?
One proviso. In doing so please keep in mind Hyman Minsky’s wise words (here quoted by his colleague Randy Wray)…
As my prof, Hyman Minsky, always said, discipline the analysis with balance sheets. Show me the balance sheets …. If you provide those, then we have a place to start the discussion. Otherwise, I cannot make sense of what you are arguing and wouldn’t know what to discuss.
I think time is going to make that very unlikely right now
Fine, your call Richard. But lets hear it before too long?
And please no hand waving – that just won’t cut it. Only a disciplined analysis with balance sheets will do (should be a doddle to an accountant). Logic and reason, with a huge dose of humility, is the way forward surely? Just ask any scientist.
In the meantime I hope you’re gracious enough to withdraw the ludicrous allegation that Bill Mitchell is a debt free money advocate. I can only imagine you’ve got the wrong end of the stick somewhere.
Very politely, in a few lines you summarise all the arrogance of the MMT cult and precisely why it is not worth engaging with
I’d like to thank Richard for once again hosting a great blog which offers us all a chance to explore our ideas and understanding-this makes Richards site one of the best around for open discussion of these complex matters. Thanks (again!).
That’s OK
It gives me grief sometimes but overall I enjoy doing this
A very useful thread indeed. I, like Simon and Lyn, am preparing to share some of these ideas with a group that want to prepare messages for the doorstep. They already have a reasonable understanding of some of the issues. I am not directly referring to MMT (as I don’t know very much about it) but my attempts to articulate the myths and the counter narrative are informed by Richard and MMT’s critiques of the current economic paradigm and policy frameworks misunderstanding of the role of money and its regulation. I totally get Richard’s point ‘What we can say is government debt threatens no one — it creates the moeny we need to keep the economy going when pivate banks are not doing that job’
But I’m concerned I haven’t picked up the nuance of what Richard is saying about MMT not seeing a role for debt and am worried about inadvertently saying something I shouldn’t. Richard could you just say in a couple of sentences what role you see that MMT ignores or denies. Sorry if its stupid question and you’ve implicitly covered it above, but it is quite difficult to clarify understandings on blogs and I really want to understand these finer points.
(I love Stephen’s reference to Minsky’s point about balance sheets as a starting point for situating a discussion. Couldn’t agree more. I’m getting myself in a right lather about ‘national assets’ and where they sit in new and old paradigms. Are council owned assets that councils have been told to sell to plug gaps part of the private sector’s savings?)
MMT has a useful way of explaining money creation – but they are hardly alone in doing so
They use sectoral balances and I agree they are important, but that is Why Godley’s work
And then they lose the plot suggesting that no government need issue debt and with ludicrous positions on tax that seem to ignore the true nature of what it is and its social functions
I also happen to think the Job Guarantee a fantasy: I want full employment but let’s tackle it in a sensible framework
Minsky was important: so is post Keynesianism. I struggle to find what MMT is really saying in it that is useful beyond what I note
But what really worries me about is the cult: you’re for it or you’re an enemy
I buy some of it and not all. So? That does not make me an enemy, unless it’s a cult, and I worry that it is like that to some and I don’t do cults, especially economic ones
I agree that the factionalism and quasi -religiosity that surrounds different ‘schools’ rather discouraging and inhibiting of real communication. Wray can sometimes be rather rude to others that don’t fully ‘get’ the MMT taxonomy. It’s not helpful I agree.
While I’m at it, would the relationship between tax and representation still hold if tax was reframed as government rather tha taxpayers; money?
That’s an issue I address in The Joy of Tax
pp. 39 et seq – I read it out during my talk to my CLP last Friday! (One member said they would buy the book – we can discuss my commission later! Smiley emoticon).
Thanks Richard, very helpful as it addresses some concerns I’ve had after reading some of the post Keynisan MMT critiques. I really appreciate the time you’ve spent on this.
Cathy
I will do some more if I can find time today