From Phil McDuff in the Guardian this morning:
Perhaps the one upside of finally achieving the ludicrous goal [of the government balancing its current budget] is that we will now see there was no reason for it. Maybe at long last, when this meaningless balance-sheet position turns out not to be the gateway to the sunlit uplands of growth and prosperity, the media will stop simply accepting deficit hysteria as a given, and start asking the questions it should have been asking from the beginning: what is all this suffering and poverty for, exactly?
Quite so. And Phil, generously quotes me saying (from here):
A growing economy requires general price increases, or inflation. Except under unusual circumstances, a general increase in prices requires an increasing money supply. A fiscal deficit is the only way in which money can be injected into an economy continuously. It follows that governments must run a near perpetual deficit or face the risk of creating a liquidity crisis due to a shortage in the money supply, which would then create a risk of deflation.
What's good about this? Simply the fact that it is being said in the Guardian, which remains too wedded to the false log of tax and spend: that's what's good about it. On this occasion the right question is being asked.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Does a growing economy with spare capacity still require rising prices? It’s the word “require” that I don’t follow.
Yes
An economy with declining prices does not invest, but all societies, including sustainable ones, require investment because this is the basis on which change takes place, and change is the way in which we do things better. Doing things better is how I define growth.
In that case I suggest we do require rising prices.
What, anyway, is the harm?
That’s not true though is it.
Growing economies don’t actually need general price increases. An economy can grow with no price increases at all. It’s not a precursor. Money supply is not the only driver of inflation.
Nor do price increases require an increase in the money supply. You can have price increases as your money supply is getting smaller. As I say, money supply is not the only river of inflation.
Government created money supply is only a tiny part of the overall money supply, so it definitely not the only way money can be injected into an economy continuously. Which means that it doesn’t follow that governments have got to run perpetual deficits.
Just ask the Norwegians. They run massive budget surpluses (and have done so for the last decade and more) and it doesn’t seem to be a problem for them. They also have inflation – which is something you say is impossible whilst running surpluses, and their money supply is growing.
Where to start with something so wrong?
First, you may have noticed that the Norwegians have a vast amount of oil, and also an oil fund, which is why they run a surplus, which they invest entirely outside their economy to ensure that it is not distorted as a result.
Second, of course you can have price increases as money supply decreases, but that is largely dependent upon there being a greater velocity of circulation of money, and that is hard to engineer.
Third, if on the other hand you have price increases as money supply decreases what you’re actually describing is in most cases stagflation.
Fourth, all monies created by governments: they just outsource part of the process to private banks, but based solely on tight regulation by the central bank which has absolute sale this issue.
Fifth, of course governments do not need to run perpetual deficits but if they don’t they run surpluses, and that means that they enforce savings on their economy. now that happens to work in the case of Norway, but it does not almost anywhere else, because savings mean money is withdrawn from the economy, which slows growth, slows investment, slows the increase in productivity, slows wage growth, and so reduces well-being. Is that what you want?
And fifth, as I note, the Norwegian surpluses deliberately invested outside the country which negates your last point.
The Norway sovereign wealth fund is separate to the government’s long term surpluses. Indeed, the Norwegians are still running large surpluses and have started to draw from the oil fund.
Just to make this 100% clear – the oil fund and the government budget surplus are separate entities.
Norway isn’t the only country to run budget surpluses though. South Korea and Singapore also come to mind. The point being that it is simply not true that governments have to run deficits in perpetuity.
You can run budget surpluses whilst still having positive inflation, GDP growth and a growing money supply.
Velocity of money will decrease when your money supply decreases. By definition. Rising inflation with a falling money supply tends to be cost-push based. As you say, you can have stagflation – but this again suggests your claims about perpetual deficits is false.
All fiat money is created by governments, but fiat money in itself is meaningless. Unless it is a store of value in exchange it is worthless. Which means governments can’t print as much of it as hey feel like. Not only that, in the world’s open economy, you are not forced to hold onto one particular currency – you can freely convert into any currency at will, or better still into assets.
Running surpluses does not mean that a country is forced into saving, unless you are looking at it through the lens of GCSE level economics. That logic only works in closed economies. Not only that, but it is not exactly good economics. Countries can run budget surpluses whilst their aggregate savings rate falls, and their aggregate demand increases, along with GDP growth. It is far too simplistic to suggest that surpluses reduce growth.
Of course, one only needs to look at the real world for an answer. Many economies have been running large budget deficits, but have had very poor growth, low increases in productivity and no wage growth. Most of Europe has been like this. However, when you look at the countries which have had the best GDP growth, best increases in productivity and wages over the last couple of decades, quite a few of them have been running budget surpluses.
So your arguments don’t stack up either theoretically or in real world practice.
I get the feeling you just want to run ever expanding deficits forever, and don’t seem to understand the consequences of doing this.
Again there is so much nonsense in here
In the real world the Norwegian wealth fund is the depository for the surplus: get facts right
In the real world people never hold multiple currencies: with respect this argument is pure nonsense
And with respect the sectoral balances work: if the government runs a surplus someone else has to borrow. Who should it be? And why should we want to deflate GDP in the way (assuming you know national income accounting you will know this is the inevitable result of G reducing)
And in the real world the UK has run a deficit since 1694. What has been so wrong with that track record?
I am sorry – but all you are offering is dogma and not a shred of argument
Unless your act improves I will not be engaging again – and nor will you
My God.
‘Pramol’, you do a very determined but unconvincing impersonation of someone that knows what they are talking about.
There’s too many unattended things too mention there so I’ll just pickthe worst of them:
You say that “the oil fund and the government budget surplus are separate entities”
The oil fund is drawn from taxes and: ‘Under the fiscal spending rule, governments can spend in their budgets an average 4 per cent of the wealth fund per year – the estimated long-term return of the fund’.
https://www.reuters.com/article/norway-imf/norway-should-tighten-fiscal-spending-rule-on-its-wealth-fund-imf-idUSL8N1DI601
Not really separate. Now, this one is a doozy:
You say “Growing economies don’t actually need general price increases. An economy can grow with no price increases at all.”
Not only is it impossible to keep an entire national price index frozen at perfect level of zero inflation, no one has ever wanted to do so. At some level you can either have inflation or deflation.
As for deflation – continually falling prices bring lower incomes to producers, resulting in lower employment by producers, with lower incomes and lower employment, consumer demand then falls bringing even lower prices and lower income to producers etc. etc. This is commonly known as the Deflationary Spiral and the most devastating part is that the real value of debts increases with deflation as do the real interest rates that debtors pay. The distress of business debtors often results in ‘fire sales’ that push prices down further.
The deflationary spiral is a known and virtually guaranteed cause of recession. That is why central banks have an inflation target of 2% or more – to keep inflation low but maintain a buffer against deflation.
So how you could imagine that “an economy can grow with no price increases at all” is something of a mystery. The central banks don’t know and nor, I suspect, does anyone else.
According to this site https://tradingeconomics.com/norway/government-budget , Norway ran a surplus of 3.1% of GDP in 2016 but this is way lower than the previous 8 years, where the average was 11.6%.
According to the 2016 annual report of the wealth fund https://www.nbim.no/en/transparency/reports/2016/annual-report-2016/
it returned 447 bn NOK.
Government spending that year was 192 bn NOK and Government revenues were 281 bn NOK. So the Governmental revenues were enough for the country to run a budget surplus without drawing anything from the wealth fund and it still had inflation of about 2% and growth of 0.8%.
Pramol,
You’re getting it the wrong way around.
By continuously running budget surpluses Norway is not achieving something different or better than most other countries who continually run government deficits.
Norway HAS to run a government surplus to achieve THE SAME ENDS as most countries do by running government deficits: namely GDP growth and price stability.
(A true progressive would (correctly) argue that full employment, sufficient levels of social equality and true long-term ecological sustainability are equally important objectives but no countries currently asign them equal importance.)
There is not one ideal government deficit (or surplus) that can be applied by rote to all economies. The appropriate size of deficit (or surplus) depends on the specific nature of the economy of the country in question.
Bill Mitchell, 2009:
bilbo.economicoutlook.net/blog/?p=2418
“…what about Norway? It is currently running huge net export surpluses (as shown in the table above) and private domestic surpluses (S — I). The data from Statistics Norway shows that in 2003 the private saving ratio was 9.2 per cent of GDP and this peaked at 10.1 per cent in 2005 and has since declined to 2.0.
Using the sectoral balance framework, we can say that a current account surplus (X — M > 0) allows the government to run a budget surplus (G — T 0. In fact, the budget surplus is ensuring that the total net spending injection to the economy matches the spending gap derived from the desire to save. If the government tried to run deficits in this case, then spending overall would be too large relative to the real capacity of the economy and inflation would result.”
The Norwegian wealth fund only invests the surpluses from the oil sector. The government has been running much larger budget surpluses than that generated solely by the oil sector – which only account for about 14% of total government revenues. They’ve been running budget surpluses on top of that created by oil revenues, in other words.
In the real world people regularly hold other currencies. Governments always do, companies tend to hold large asset balances in currencies other than their “home” currency, and individuals hold balances in assets, particularly in pension funds invested globally. It is quite insane to suggest that people only hold the one currency.
You are looking a sectoral balances as something more than an accounting identity, which is all they are. of course, MMTers like to look at it that way but then fail to allow for the fact that economies are open, and thus ignore the import/export balance, which then allows them to make otherwise false statements such as the ones you have. Governments do not need to run deficits for GDP growth to occur, and running surpluses does not “deflate GDP” as you say.
If you want to use the UK as an example, we have been running deficits for a long time. However, by your logic, higher GDP growth should correlate to higher deficits. Which of course it doesn’t. As the UK budget deficit has come down over the last 10 years, the growth rate has increased. Indeed, if you look over a large group of countries and you will see that high deficits more often than not go hand in hand with poor GDP growth, higher unemployment and poor productivity.
Likewise, you seem unable or unwilling to answer why countries like South Korea, Singapore and various others can run consistent budget surpluses and yet show high GDP growth, increased standards of living and generally good economic performance. By your logic these countries should have contracting GDP. They very fact that the don’t should warn you there is something horribly wrong with your basic analysis.
@ Marco Fante
Economies can grow both with increases and decreases in the price level. For sure, long term decreases in price level can have terrible affects on an economy, but so can price increases. I was merely making the point that Murphy seems to think it is impossible for a country to grow unless there is a government budget deficit and price level increases. Both of which are of course, not true, as evidenced by various countries in the real world.
For example, Germany had price level decreases for much of the time post 2008, yet has managed to maintain solid growth. Japan was growing before the crisis, yet also had deflation in that period.
As for Norway, they were running a primary budget surplus, before oil revenues are taken into account.
@ Adam Sawyer
I don’t think you are really helping Richard here. Apart from the fact that Norway seems quite capable of growing whilst running a budget surplus (which he claims is impossible) you are also pointing out one of the many possible negative consequences of spending too much into an economy – runaway inflation.
I am struggling to think why I am posting this because it is ours repetition
In the real world people do not hold duplicate curencies. With respect, if you know people who do then you are not living in th real world
And, for the record, the U.K. has run deficits almost all the time since 1694. You have a problem finding your alternative hypothesis for us. I think it fair to say it has worked,
But most of what you are saying is just straw man nonsense. So, for example, I did not say it was impossible to grow with a budget surplus. I said growth would be slower. It usually will be. But that may be the intention: there may be a need to control inflation. That’s quite OK with me. You wholly miss the point.
But you’re playing a silly game of black and white and right and wrong in a world which is vastly more nuanced than that and your time here is up as a result.
Pramol,
“Velocity of money will decrease when your money supply decreases. By definition.”
I don’t think there’s automatic correlation there. Currently we have vast amounts of money injected in to the economy over the past ten years and it’s velocity is snail pace. So I don’t see why the opposite necessarily applies.
I suspect you are making stuff up.
I’d have said it’s the exact reverse, in fact
Ed note: I note you are so persuaded by your conviction that you have provided a false email address
Your comment has been deleted
I’ll try to make this short and as coherent as possible but I’m reacting emotionally and on the hoof.
It’s beyond time the Labour Party stepped up to the plate to launch a co-ordinated, unequivocal, frontal attack on neo-liberal economics. But it seems beyond its current capabilities, dissipating its energy with relentless internal bickering. For the sake of the country it has to put aside its factional differences. There is a war to be fought and the neo-liberals are currently winning the battles. With the possible exception of the Greens – who count for little in the UK but are a bit stonger in Europe – and the SNP, the progressive ‘left’ (admittedly now an outdated term) has been losing ground for too long with the mass of ‘ordinary’ people. Bill Mitchell, today comments on the Eurostat report on poverty. And the latest results from the Italian election are disturbing (but at least they have PR).
The main reason is the lack of a new ‘big idea’ to capture the public imagination. But, hey, there is a big ‘new’ idea and it’s based on the fundamental principles of MMT. (Don’t panic, I’m not going over all that again, but it needs a new acronym). Time is running out. Millions of people are suffering daily hardship because of a corrupt political ideology perpetrated by a small number of very powerful people & institutions. Yet there still seems to be no co-ordinated strategy to counter it. neither here in the UK, nor across the Channel. Not perhaps the best analogy, but it’s akin to the silence from the Christian Churches when confronted with dialectical materialism.
OK, let’s cut to the chase. Corbyn has to go. Sticking with the religious theme, maybe he is John the Baptist to an as yet unidentified JC. This is not an ad hominem attack. IMHO (haha) he just doesn’t have the requisite qualities and political charisma to lead the successful annihilation of neo-liberalism. This is not to dismiss the good work being done at grass-roots level with a certain sector of the population. But even if he manages to win a GE by default, I have serious doubts that he and his front-bench team have the courage to fight a head-to-toe battle with the Establishment.
The only solution is for all progressive parties to form a united pan-European front and set about systematically destroying this sociopathic neo-liberal hegemony. Unfortunately there’s the blxxdy Brexit débâcle to be sorted, adding to the crisis. But the time it’s preoccupying the MSM could be a useful distraction, giving the progressives another couple of years to rally the troops.
Apologies for the waffling, but everything always comes back to the same issue, doesn’t it? The mass propagation of this new(ish) economic paradigm which has now been adequately defined and explained, but still within a very limited section of the community.
It’s war. It’s ‘them’ or ‘us’ and they’re winning. How much more erosion to the quality of their lives will the mass of the population endure without even asking why? The country deserves and urgently needs efficient, effective and compassionate governance based on economic fact not ideological fiction. It’s a depressing thought but who else to turn to other than the Labour Party?
Barista, doppio espresso, urgente!
John D,
While I’d love an MMT toting, unified progressive party across the whole of Europe that’s not really a remote possibility right now.
Corbyn is rubbish at a great many things (as we all are individually) but the one thing I think you can’t accuse him of is lacking the stomach for a fight.
The Labour Party is in a state of flux at the moment. Progressive people can either join in and try to push it further towards being a truly democratic and progressive party and push it’s Leadership to adopt heterodox economics ideas or they can bitch and moan on the sidelines about how it sucks that Labour is the only hope we have (at least in England).
Maybe a unified progressive party in the UK would be a good start and we can just aspire to a European equivalent sometime before the apocalypse is upon us?
Adam – thanks for your comment, which I take on board. So much to do and so little time!
My ‘bitching & moaning’ was written in haste, hence it contained generalities. I didn’t literally mean a single European progressive party – but a formal coalition of parties promoting the same basic heterodox economic ‘mechanisms’ enabling real democratic reform, growth and development. Co-operation not affiliation. I thought Caroline Lucas and Jonathan Bartley wrote a decent piece in today’s Guardian (https://www.theguardian.com/commentisfree/2018/mar/05/green-not-uniting-labour-small-parties-identity-priorities).
Re. Corbyn – I don’t doubt his personal courage. After all, he’s spent the last 35 years fighting – even his own party – from the back-benches. But that’s not the courage I meant. I may be missing something, but I’ve never read about or heard him formally and unambiguously promoting a ‘spend & tax’ economy and rigourously promoting deficits + tax for all the well-argued reasons articulated by Richard et al. here. You seem to be ‘close’ to his thinking – so, does he believe in MMT basics, is he a new Keynesian or what? On progressive economic principles, thus far all senior Labour Party MPs have performed excrutiatingly badly on tv, radio etc. which I have attributed to either their lack of confidence (understanding) or actual belief.
James Carville got it right when he coined ‘it’s the economy stupid’; just a tragedy for the US and the world at large that his boss didn’t understand (I don’t supose Carville did either!).
And for the record, I vote for the Green Party – and have done even before it changed its name!
John D,
No worries, I wasn’t singling you out for bitching and moaning about labour’s inadequacies: I probably do it more than most and I’m a paid up member of the party! It’s as much a missive to myself to not give up and keep trying to help as general plea to others to join in!
Re Corbyn’s take on economics: I wish I knew for sure. The problem is Corbyn and McDonnell wouldn’t necessarily say they believe MMT and agree with Richard even if they do if they think expressing such opinions would reduce the chance of them getting into power.
I personally spoke to John McDonnell at conference and he did a good impression of a man who knew exactly who Professor Bill Mitchell was and expressed a seemingly genuine desire to find time to speak to him. Does that mean John McDonnell has an in depth knowledge of and sympathy for MMT? Or does it mean he’s a diplomatic guy who’s good at telling eager members what they want to hear when they corner him at conferences? I don’t know the answer to that question.
I also spoke to David Graeber at a fringe event at conference and he told me two things:
Firstly he (Graeber) is a fellow traveller with the MMT crowd and secondly that he believes no political party close to power will openly push these heterodox economics ideas until there is a groundswell of understanding and support for such views among the electorate. I think he’s probably correct.
However, this obviously presents a bit of a Catch-22 problem.
All we can do for now is slowly spread MMT and tax justice ideas at grassroots but really we need a bigger push from somewhere and soon.
I joined the Labour Party to try to spread the word to fellow members while also trying to get them elected to power. However, I’m politically far more radical than the average labour member and would probably personally fit much better in the Green Party.
Above all else I believe the establishment adheres to divide and rule as it’s principle means of retaining power. We have to stop so willingly helping them by dividing ourselves. Until the progressive left assembles itself as one united block we cannot win either the argument or power. I don’t know how a grand coalition of the left can be assembled or how it can come to accept MMT and tax justice principles but I’m pretty certain that’s what needs to happen and I choose to believe that that’s what will soon happen here in the UK.
Tax justice has worked as a message
We have to make MMT work as well
Nit all in tax justice get it by a long way…..
Adam says:
“I don’t know how a grand coalition of the left can be assembled or how it can come to accept MMT”
I can’t answer your grand coalition question but the 2nd part is easy. You just start implementing or promoting some of those ideas, separately, in context, as if they seemed fairly normal and you do so without flagging them as part of some radical new school of thought.
Roosevelt didn’t get around in 1933 talking about Keynesian principles and Attlee didn’t bang on about ideology. They didn’t worry about identifying. They just promoted and applied some of the best new ideas as a new addition to regular discourse. Later someone comes along and says – ‘oh that’s Keynesian’ or ‘that’s MMT’ or whatever (really? well, there you go) and outside of the politico circles no one cares as long as they like the policy in its own right or think that it works.
I remember R. Murphy’s PQE being accepted into the Corbynomics discussion as an entity in its own right and in doing so came close to being normalised (sort of). That has been put aside for now but will reappear later in one form or another (yes, it will).
That’s how you sell your package – in plain wrapping – one piece at a time.
I think that’s right
Say what it does
Don’t explain the maths!
John D,
I just got around to reading that Lucas/Bartley piece that you linked us to.
I don’t blame them for not wanting to formally affiliate with Labour but for future purposes I certainly hope that they can be practical in their attitude to alliance and coalition deals. The Greens are big proponents of proportional representation so I would hope that they can see how important the art of coalition building is in countries that have PR.
“For the sake of the country it has to put aside its factional differences.”
Yes, John D, but which faction would you have swallow their pride and back down ?
That is always the question.
Mrs May wants us similarly to bury our differences and get with the Brexit project.
You can’t expect to wave a flag and get everyone to rally round it unless it’s a flag with the right symbols and colours on it. They aren”t randomly interchangeable. And they should really be representative of something other than political expediency.
John D,
If you are even remotely interested in a ‘pan-European’ neoliberalism alternative you should be with DiEM25.
That way you wouldn’t be starting on your own with nothing, reinventing a wheel. albeit one which may not roll very far or very well. Another shoulder to it would be welcomed I’m sure.
Thanks Andy. Have signed up. All grist to the mill. We’ll get ‘there’ in the end. The Neo-liberals will adopt a crash and burn strategy (are already) but that’s to be expected. Empires never relinquish power peacefully. It will get worse before it gets better. As Chomsky always says, ‘they may have the power but we have the numbers’ (or something like that!). Aux armes, citoyens! Formez vos bataillons. Marchons, marchons! 😉 😉
PS: Italy update: Potentially good news that the somewhat ambiguous ‘5 Star Movement’ did well. But disturbing that ‘La Lega’ also performed better than expected. Maybe Beppe Grillo has some tips for Corbyn?
Nice to see this in the Guardian, but see page 13 of this week’s The Economist – “Taxes pay for public services” – (in an article about India).
Long way to go.
Indeed
Thank you – I m better for reading some of your articles here.
Someone on the Guardian CiF , in response to Phil McDuff’s article, asked an interesting question.
“Greece borrowed and spent well beyond their means for a good number of years and look what happened.”
So what happened there please?
MMT only works if you borrow and spend in a currency you control
Greece did it in a currency it did not control
As a result it was running a household style budget and when households overspend it ends in tears
This is why the euro is a disaster
Thank goodness the UK has never been near it
Yup to the Euro and thanks for the reply.
I look forward to coming here regularly.
Richard,
I understand exactly what you mean here but I think it might confuse some newbies and invoke the ire of some MMT pedants:
“MMT only works if you borrow and spend in a currency you control.”
Firstly MMT doesn’t work or not work, it’s not a policy prescription, it’s merely an accurate description of how free-floating sovereign currency money systems operate in reality right now.
Secondly sovereign governments issuing free-floating fiat currencies don’t need to issue debt in order to fund their spending nor to reduce inflation risk.
So I’d say…
“The fiscal policy prescriptions that arise from an understanding of MMT only work if you spend in a currency you control
Greece did it in a currency it did not control
As a result it was running a household style budget and when households overspend it ends in tears
This is why the euro is a disaster
Thank goodness the UK has never been near it”
I know this makes me sound like a pedant myself but the reason I point this out is linked to my post on your other excellent blog today: mainstream economists who largely support the establishment position have a well ordered and fairly precise vocabulary from which to produce their persuasive rhetoric. The heterodox opposition to the New Keynsian status-quo needs to get it’s collective act together and do likewise if it is to make progress in face of such a strong and organised adversary.
Don’t get me wrong – personally I like mavericks with strong opinions and I’m happy to make the effort to find out what they individually mean when they speak in their individual styles. It’s just the pressure is undoubtedly on so there’s a need to spread the heterodox message as far and wide as possible as quickly as possible. That, in my humble opinion, unfortunately requires something akin to our opponents’ tedious and possibly brain deadening message discipline! 🙂
I strongly suspect you’re right
I’ll resubmit my work for marking soon…:)
Adam — Maybe a start would be if we stopped just using the term “creating money out of thin air”, which simply sound implausible.
This is of course only half the story, when the government creates money out of thin air, it also creates an equal amount of debt out of thin air as well. It spends the money into the economy and when it receives it back in taxes it uses the tax revenue to pay back the the debt hence returning an equal amount of money and debt into “thin air” – i.e. destroying money (and debt).
We need to replace “creating money out of thin air” with “creating xxxx out of thin air” – where xxxx encapsulate this duality of money/debt into a simple sound byte.
Any takers ?
Why not call it ‘double entry money’ because that is what it is?
Or ‘promise to pay’ money?
Maybe new times need a new word – moneydebt
“creating moneydebt out of thin air”
Whats moneydebt ? …. queue explanation.
Martin,
You said…
“Maybe a start would be if we stopped just using the term “creating money out of thin air”, which simply sound implausible.”
I admit I found it implausible initially but now I know money is just a legal and social construct I find it impossible to consider money coming from anywhere other than thin-air!
As a layperson the realisation that money is whatever we want it to be is quite a powerful aid to cutting throw BS and feeling at least a little more comfortable when confronted by the avalanches of technobabble coming from anyone with any level of economics training.
You see, as a biologist my initial impression on confronting economics was I knew absolutely nothing and was entirely out of my depth. I assumed what I needed to do was consult the latest textbooks and journals on the subject to educate myself as to the current state of knowledge and the general consensus at the cutting edges of economics research, much as I would do in one of the physical sciences.
Well, you can imagine what happened when I did that! I learned very quickly I wasn’t in Science anymore. Everything I learned about economics since has been more akin to learning the rules of a game rather than learning the rules of the Universe. Nothing wrong with that, games are fun, I enjoy them and spend a lot of my time playing them – just it’s nice to know from the start that a game is what it is.
To my mind at least the realisation that money is an invention of our collective imagination was key to moving beyond being totally confused and unable to parse anything I read about economics to a point where I’m only very confused and unable to parse most things I read about economics 😉
I used to think economics was a faith system
Actually, MMT makes it clear it is more logical than that. Double entry has a lot to do with it. Damn accountants…..he says as an FCA
Adam — Money may well be a “just a legal and social construct”, but as Richard has pointed out it’s a “double entry legal and social construct”, and that matters when trying to explain this stuff to “normal” people.
Just like the household analogy was powerful because people could relate to it at a personal level, creating things out of thin air is counter intuitive and is likely to be resisted.
But creating equal and opposite things which sum to nothing is more in the realm of peoples experience (+/- electricity, left/right, Newton’s third law, etc), and is more likely to be accepted.
But we don’t ‘produce money from thin air’.
We harvest it as leaves from the Magic Money Tree.
Tax returns it to the soil where it ensures future fertility.
I don’t understand why people think economics is complicated. 🙂
There have been many incompetent Chancellors of the Exchequer , but few so wilfully incompetent as Osborne . His response to a question about his family’s fortune that his father’s wallpaper business was just a small family firm gave the game away early on about his supercilious attitude throughout the time he held office . Let them eat cake was his attitude . Everything from his squawky voice to his ridiculous attempt to look cool by changing his haircut made him look more foolish. I notice Hangdog Hammond hasn’t made any comment yet . I wonder why .
Slightly off-topic here but did anyone else see this in The Guardian today:
“Target wealthy baby boomers, says Tory peer”
https://www.theguardian.com/politics/2018/mar/05/target-wealthy-baby-boomers-says-tory-peer
The centre-ground seems to have shifted so much that I have had to rearrange my furniture.
I did not have time to blog it
The whole premise is tax and spend, of course
True,
And I am not going to bang on about that boring old “Overton window” but the scope of acceptable discussion seems to have expanded in Toryland as the forward thinkers among them have been quietly staring into their own demographic abyss.
Corbyn’s army of young voters would appear to have made some impression.
Correct me if I’m wrong – I did think I was seeing things when I first read it – but is John Redwood’s very surprising comments on the deficit and national debt in a blogpost today a tacit concession by him that he understands MMT and regards its analysis of the state’s money-creating powers as fundamentally correct?
http://johnredwoodsdiary.com/2018/03/05/the-twin-deficits/
Now going on the blog
Why does no one mention the debt?
Que?
With regard to the question of whether or not the average voter understands what MMT inspired Labour Party could do for the country, please accept that perhaps for too many people don’t expect anything from their Government any more and tend to blame someone else for their woes: immigrants and the EU for a start.
After May’s ‘unifying speech’ (!!!) all we got even from Heseltine and other Grandees was the old Tory line about Labour messing up the country again. At my local Wetherspoon pub (which is very good to be honest) the owner leaves his in-house magazine around for people to read and it is full of pro-BREXIT stories. I can assure you that these magazines are well read in this this popular pub. People are being told lots of guff out there and trying to get on with life.
All I am saying is that Labour timidity about its potential has some good grounding. The biggest success of neo-liberalism and public choice theory is in making people lose faith in the State and public institutions. Lose faith and then you lose support. Look at the so-called millennials – they’re so angry that they don’t even know who to be angry at (yet).
My view is that Labour should do a Nike with MMT: ‘Just Do It’. But first they need to get into power and BREXIT (a game with too many snakes and too few ladders) makes it very difficult. And remember we are living in extraordinary times.
Pilgrom,
My view is that Labour should do a Nike with MMT: ‘Just Do It’.
Nike Schmike. Old hat. Get with the force, (man).
JEDI stands for just ‘effin’ do it. Coincidence. I think not.
I like it
“Why not call it ‘double entry money’ because that is what it is?
Or ‘promise to pay’ money?”
To my mind it is actually converting latent demand into actual demand via the money system. The reason economies need/cannot avoid some inflation is that the tax system does not eliminate all the “money” created immediately so the balance is wiped out by a general increase in prices.
Governments don’t “print money” or “Create money out of thin air”. Both of these phrases are tainted by negative public opinion as to be (at best) unhelpful. There’s a much simpler way of putting it, which is what The Man On The Clapham Omnibus would need.
Governments extend credit.
There.
Stop calling it money and start calling it interest free credit. That eliminates the problem of “where it comes from”… nobody thinks for a second that American Express have a Magic Money Tree or lend out of deposits, yet nobody questions the credit they extend… they just understand the price of that credit is interest. The word also carries with it the connotation that you’re being given something which is kind of on loan an will be expected back by the issuer at some point. Credit Card Companies allow you to keep the credit for as long as you like on the understanding that the interest will accrue. Same with Governments. It’s their credit that’s being extended and you can keep it as long as you like. There just isn’t any interest. You’ll repay the credit in tax, as will the next person you pass the credit on to (multiplier effect).
So – stop calling it “money” and start calling it “credit” because that’s precisely what it is. Goverment doesn’t print money, it extends credit which it expects to be repaid. And whoever heard of anybody running out of Credit? Preposterous.
Thoughts?
Worth discussing
I wish I had the time now
I don’t, sorry
But I note it…and heed it
Oh, Geearkay,
“… whoever heard of anybody running out of Credit? Preposterous.”
Essentially I like the thinking, but to this specific supposedly rhetorical question….. I would have to point out that I, for one, have run out of credit.
Does the expression ‘maxed-out’ mean anything to you ?
It resonates with rather a lot of folk I suspect. That moment when the ‘flexible friend’ becomes sclerotic.
Back to the Magic Money Tree. Easier by far for most Clapham omnibus passengers to understand than the fanciful notion of ‘interest free credit’.
Even in Clapham there are trees – or at least there were last time I was through there. Interest free credit is a currency for buying unicorns.
Andy –
“Essentially I like the thinking, but to this specific supposedly rhetorical question….. I would have to point out that I, for one, have run out of credit.”
Sorry, I think you’re looking at it the wrong way around – I meant the credit card companies never run out of credit to extend, not that there is no limit to individual’s borrowing power. That’s always limited by their ability to repay (or should be).
You’ll never hear Visa or AmEx saying “Sorry, we’ve got no credit left”.
Does that make more sense?
Geearkay says
“You’ll never hear Visa or AmEx saying “Sorry, we’ve got no credit left”.
Does that make more sense?”
It does if you ignore the GFC when it all goes to bagwash. And when enough of us can no longer afford better than token repayments their business model may run into difficulties.
Wealthy people don’t need credit cards they use them as a convenience. As I once did. And the bottom end of the market is severely stressed.
But I accept your general point. Until the credit card companies themselves become maxed out.
Germany must be in a really bad way then with all that naughty surplus.
JasG says:
“Germany must be in a really bad way then with all that naughty surplus.”
What a very silly remark which totally ignores the fact that Germany is a part of a currency union and has been for neck-on 20 years.
Do try to keep up.
JasG
1. First you need to realise that Germany has a tiny 1.8% level of growth (that’s aggregate – not per capita). If you consider that most of that is due to their current 1.2% population growth the net result leaves them with almost nothing – so yes! They are in a really bad way.
2. While your thinking about that you might also consider sectoral balances and the way that Germany’s Eurozone generated trade mega-surplus makes them very exceptional.
3. If that’s a bit much then you should simply read this from the Financial Times:
“Germany’s economists add to calls to spend budget surplus”
https://www.ft.com/content/8373997c-a41f-11e7-9e4f-7f5e6a7c98a2
Oh and by the way..
You should also look at the chart in that FT article. It reveals that Germany didn’t start running continuous budget surpluses until 2015. From 1998 to 2014 they were almost always in continual deficit.