I delve into Labour party issues again with some reluctance, but it's important to do so. This time the issue is right on my home territory. It's economics and modern monetary theory. James Meadway, who heads John McDonnell's economics team, wrote this on Carol Wilcox's facebook page in a debate starting at 3.06pm on Saturday:
MMT is just plain old bad economics, unfortunately, and a regression of left economic thinking. An economy “with its own currency” may never “run out of money”: but that money can become entirely worthless.
This was the reply from Howard Reed, who comments on this blog, quite often, and is a great economist:
MMT makes a lot more sense than Mrs Thatcher's handbag Economics (which is where the mainstream seems to be at, unfortunately). Very important for John McD to get out of that neoliberal mindset. He may well have escaped it already - you'll know better than me!
Meadway came back saying:
Well, I disagree - in terms of what a genuinely radical and transformative Labour government would need to do on the economy, its prescriptions are close to catastrophic (for all that it has grasped some correct formal insights ahead of neoclassicism). Any country that isn't the US trying to apply MMT's prescriptions would find itself in the same position.
Howard then asked:
Why is the US different?
Meadway never replied. Nor did he reply to this series of questions from me, which I posted (I have added paragraph breaks, not in the original):
Interesting James. How do you think money is created? Do you think the government is incapable of creating it? If not, how do you explain QE? And how do you explain the fact that the economy has survived it?
Whilst on the subject, do you think QE should only be for the benefit of bankers?
And what do you think the role of tax is in the economy? Might you explain how tax is paid if government does not create the cash to pay it in the first place?
And might you also explain why aiming for full employment by creating the demand to deliver it is such a bad thing to do?
And, come that that, why full employment on at least living wages would be such a bad thing for the economy that it would destroy confidence in the country and the currency?
Your comment requires responses on all these issues. Where would you like to start?
Maybe I'd have been tempted not to respond if I was James Meadway. He's dug himself a pretty immense hole here, but let me look at why. This is important: Meadway revealed just where Labour economic thinking is right now. Unpacking what he says reveals what he is saying.
First, it is that Labour thinks it has to live in fear of the money markets. And so bankers. And so their supposed ability to manipulate exchange rates.
Second, it shows that Labour is committed to leaving bankers (Carney & Co) in charge of these issues.
Third, it seems that Labour does remain committed to mainstream economic thinking, call it neoclassical or neoliberal if you wish.
Fourth, it thinks that to go back to a belief in full employment and the use of fiscal policy to achieve that and growth is a 'regression in left economic thinking'.
And, fifth, Meadway apparently thinks that achieving the goals of full employment and growth will leave the currency valueless.
I think these are all entirely fair extrapolations. On the basis of them is also possible to say that Meadway thinks Labour thinks, as Liam Byrne said, that the money can run out, and that it may have actually done so.
And that he thinks banks will be setting the agenda for Labour.
And that austerity will remain in place.
And that all the possibilities of fiscal policy; the power to create money to achieve social goals and (as importantly) to create the means to settle tax to keep inflation under control in that situation should all be ignored.
In other words, and let's not be too unsubtle about this, what Meadway is saying is expect Labour to deliver more Tory economic policy. Howard challenged him on this, and decoding his reply his response was 'markets won't let us do anything else'.
There is no surprise here: the reason why I refused the job of being McDonnell's chief economic adviser in 2015 (Meadway was to be my deputy) was because McDonnell was adamant that he had to sign up to Osborne's fiscal charter that required balanced budgets. That is still Labour policy, bar borrowing for investment, but with that borrowing to, however, be financed at market rates, and so be entirely within the goodwill of the banking system as Labour wants to see it. I maintain that in the circumstances I was right to quit: I could never have lived with such a timid approach towards the economic policy that this country needs for the radical transformation that is required to provide us with the basis for prosperity in the 21st-century. Meadway obviously can, and is delivering what John McDonnell wants in the form of deeply neoliberal, and profoundly conventional thinking. He can't even get his head around the fact that tax plays a fundamental role in MMT.
And if you want to know why I think Labour is not a radical party capable at present of delivering anything like the change this country requires because it is led by people far too right wing, and far too conventional in their thinking to do so, that is it.
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Excellent article Richard
What would lead to a change in thinking at the Labour Party, which would be more like yours?
I wish I knew
Would be interesting to hear from Prof Bill Mitchell on this idiocy from JM.
You were right to quit a job you refused to take in the first place? I think your blog piece might need some editing as it makes little sense in this respect
I considered taking the post for several days
And some thought I was appointed
Bearing in mind the next recession will be faced with much reduced scope for QE and interest rate reduction it seems that fiscal policy will need to perform a greater role. Surely a commitment to significant (QE financed?) infrastructure spend would not only give jobs to those who might otherwise be unemployed, provide a counter-cyclical stimulus, reduce transfer/benefits payments spending, boost the UK’s dire productivity and increase the tax take?
Is there no ‘accepted wisdom’ on this as an economic policy option and how many pence in the pound (of the infrastructure spend) might end up back in the Chancellor’s pocket via tax? Wouldn’t productivity gains also boost the coffers via increased tax?
You exactly understand what is required
I have argued as you do for a long time
Your arguments all make sense
I wish Labour understood them
‘Wouldn’t productivity gains also boost the coffers via increased tax?’
I think we need to be clear here that no ‘coffers need boosting’. The Government IS the coffer.
Taxes remove the money from circulation and Government spending is in no way reliant on it unless it pretends it is.
The Governments simply needs to spend the money-that bit’s simple-the complex bit is the allocation and policy to do this while trying to make projections of the effects on the whole economy. But the point is: the spending bit, in itself, is not a problem.
The ‘Tax take’ doesn’t need to be increased or decreased but be appropriate for providing full employment and avoiding inflation. These points were all covered by Abba Lerner in the 40′ and 50’s.
But to control inflation MMT does require tax and coffers being boosted
Tax justice is part of MMT
I agree, Richard, of course but I find the ‘boosting of the coffer’ an unhelpful image that strengthens mainstream ideas -I’d keep to the Abe Lincoln speech that you effectively quote in your book – taxes remove ‘excess’ money (which they used to burn!).
Forget about filling ‘coffers.’
Yes
But let’s nit ignirevrax
Meadway is to criticise MMT
“But let’s nit ignirevrax”
Indeed, let us nit ignirevax. If only I knew what it was! Richard, that is actually worse than one of my typos……
Richard,
Have you seen Danny Kaye’s “vessel with the pestle” sketch?
No
I was surprised that James read my Facebook feed. Always assumed that my ‘superiors’ do not.
Well. it was useful he did
Because it showed what a long way Labour has to go
I would, of course, be willing to publish his response
I wonder if Meadway’s claim about it only being OK for the US was based on the oft-repeated statements that the U.S. dollar is the world’s reserve currency, and that the US is the world’s central bank.
Frances Coppola’s brilliant article in http://theweek.com/articles/455261/americas-greatest-export-debt makes a very powerful case for MMT in the US, in large part based on both those points, and could be interpreted as backing up Meadway’s claim.
Was Coppola just exaggerating to make her points for a US audience or, more likely, am I missing something?
It would be useful to get your opinion rather than that of an amateur (me).
I have to say I just think that this claim by Frances was wrong
I am not saying the UK is in as good a position as the US
I am not saying markets do not have to be considered
But to claim that no one but the US can sue MMT is wrong
And let’s be clear, MMT describes the world as it is anyway
The issue remains of when and how and why with what impact deficits should be run
And the Uk can and should be running them
To be fair, I don’t think she was saying in the article that the US is the only country which could run deficits. But perhaps she does say that elsewhere?
Anyway – might an alternative theory be that Meadway has been paying too much attention to Simon Wren-Lewis, and hence is obsessed with monetary policy?
*After* I wrote that, I had a look at Stephanie Kelton’s timeline, and it’s all kicking off.
Jonathan Portes says he and SW-L are with James Meadway on this.
SW-L says … well, you can imagine.
I have to say I could not find that
Where?
Would be keen to see that comment
Not to be able to recognise that the effects of Neoliberal greed based Globalisation Without Compensation was countered by government’s ability to create money from nothing to deliver welfare benefits and tax breaks says it all about the uselessness of Labour’s current leadership and economic advisors:-
https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/381-2018_fetzer.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2870313
https://www.peri.umass.edu/component/k2/item/1096-globalization-checkmated-political-and-geopolitical-contradictions-coming-home-to-roost
It even seems to have escaped their recognition that both Russia and China after their socialist revolutions closed down private bank creation of money and relied on government creation of money from nothing albeit it delivered a cumbersome and insensitive state capitalist delivery of goods and services. This has since been rectified by the abandonment of the socialist system version in Russia and kept going by embracing free market capitalism in China. In the Chinese case this has been heavily supported by government creation and manipulation of money to achieve price point in global markets. This is now being rightly challenged by the United States as Globalisation Without Compensation has hit manufacturing jobs there and there’s now a backlash particularly against China.
It really is so pretentious of the current Labour Party leadership to think of themselves as progressive socialists when they insist on clinging to a disfunctional Neoliberal argument in regard to money creation. A correct understanding of money creation in a modern economy is the very bedrock of a successful economy!
Richard, this is very depressing. I had rather been hoping that McD does understand how their progressive policies can be paid for but can’t say so because it is a step too far. From what you say he doesn’t have a clue, and I’m inclined to believe you. So there is no party that can possibly fund a progressive agenda, except just maybe the Greens who have no chance of coming to power.
There is time to change this round and there are several of us involved in trying to do this. Even if we don’t succeed before Labour get into government, when they realise the constraints of the policies they have adopted they might realise that we’re right.
I can hope
Carol if Labour’s economic policy needs rescuing it will be through the Party’s democratic structure. In the Labour Party members are listened to, their voice counts. We have over 500,000 members (the biggest political party in Europe). Membership is still growing. Members help make policy. Yes, I know to some, aspects of that policy look a mess, but this is just the birth pangs of a movement exploring how to replace Capitalism. Within our membership, we have all the talents, skills and genius to reach that better future. We won’t let any illiterate economist peddle their Junk Economics to derail Labour’s progress. We have the Dagenham Ladies, the Greenham Common Women, the Miner’s Wives (the great heroes of the Miners Strike) and the Glasgow Schoolgirls; you don’t think for one minute they will let a bunch of economic fairies stop progress.
Labour under Jeremy Corbyn and John McDonnell are pledged to introduce and expand economic democracy. Democracy in the workplace is where it is most needed and most missing. Once Worker Self Directed Enterprises gain enough traction, Capitalism as a system, like slavery and feudalism before it will go into permanent decline.
And Labour will not let its membership discuss Brexit
John Adams says:
” Democracy in the workplace is where it is most needed and most missing. Once Worker Self Directed Enterprises gain enough traction, Capitalism as a system, like slavery and feudalism before it will go into permanent decline.”
Yes, sure ……..these things just wither and die like leaves in autumn.
It’s nice that you are thinking beautiful thoughts, but I think a bit of grounding would make me more confident of seeing some of it before I die.
Agreed
“An economy “with its own currency” may never “run out of money”: but that money can become entirely worthless.”
Well this is technically correct, but misses the point (your point) about tax. You have to understand money as a circular flow. The only point of debate is to optimise the efficacy of that flow.
Meadway does not get this
And that is very worrying
It seems pretty pointless trying to influence the Labour Party economic thinking in such a remote and roundabout way. Given that RM was very close to Corbyn and McDonnell and presumably went into detail about MMT so they got a clear insight into the theory. The fact that they were then publicly advocating PQE suggests they bought into the story big time. From that point something materially changed to influence their thinking and to subsequently reject MMT and PQE. Some event or new sphere of influence within the party. There is no one better placed to know why than RM.
JC got it
As did his advisers at the time
JMcD never did
When you say he “didn’t get it”..do you mean he didn’t agree or didn’t understand? My perception of McDonnell is that he is very bright and can absorb but he is really gunning to get in power and perhaps he can see that the printing money story is too easy to shoot down in public debate and will heighten the belief that Labour cant be trusted with the purse strings and will make them unelectable. My perception could be completely wrong. Regardless it does feel that the MMT/PQE time for the Labour Party has passed given your involvement is now removed.
Didn’t understand
That’s interesting. I didn’t know you spoke to Jeremy. His right hand man is a member of the Labour Land Campaign, former director of LEAP. I have his contact details, but it’s very difficult to speak to such people nowadays – with good reason, I realise. Sometimes trained economists are not the best economists;o)
Andrew Fisher did get it
jamesc says:
” My perception of McDonnell is that he is very bright and can absorb but he is really gunning to get in power …”
Geerrreeeaaat!
That’s all we need….another power hungry pragmatist.
Heaven preserve us from ambitious men.
Richard, I don’t know whether you would agree but it seems to follow from your account and other things you have said that McDonnell should go. However, Corbyn seems to be committed to keeping him in his post.
Many thought he was a mistake in the first place as Shadow Chancellor
Some now in the Shadow Cabint, for certain
Richard, when Meadway says this:
‘Any country that isn’t the US trying to apply MMT’s prescriptions would find itself in the same position.’ He is rehashing a common criticism of MMT that it is reliant on being the reserve currency country as the US is.
This is a bogus argument that might be true of undeveloped nations (where there is limited desire for foreigners to obtain their currency) but not applicable in the case of the UK where financial assets denominated in pounds are desire able. And even in the case of less developed nations, as long as the country has sovereignty of currency it can still spend in relation to its resources and productive capacity.
The idea that the UK cannot spend because it is not the reserve currency is not true. In any case, the reserve currency will probably shift to China sometime soon!
For those interested, Randall Wray deals with this issue on pp. 131-133 of his book Modern Money Theory ( from which the above precis-hopefully correct!- is taken).
Thanks
@ Simon Cohen
Randall Wray also says the following on page 134 of his “Modern Money Theory” book:-
“There is little doubt that US Dollar-denominated assets are highly desirable around the globe ; to a lesser degree, the financial assets denominated in UK Pounds, Japanese Yen, European Euros, and Canadian and Australian Dollars are also highly desired. Often assets denominated in these currencies are held in diversified portfolios of insurance and pension funds.”
(David): “What would lead to a change in thinking at the Labour Party, which would be more like yours?”
(Richard): “I wish I knew”.
Theresa May’s government is only in power because the Labour Party, and the leadership of the Labour Party (notably Jeremy Corbyn), have abjectly failed the challenge to be an effective opposition, or even to appear that it is actually trying to succeed to government.
Who is willing to represent the ‘48%’ who voted against Brexit, and may already represent over 50%? Neither of the two principal UK parties.
There is really nothing more to be said on the matter.
“Who is willing to represent the ‘48%’ who voted against Brexit”
Minorities who lose a vote don’t get represented. You know full well that would be the case if Remain had won – the issue would be settled for another generation or two no matter how close it was.
Surely the only thing that is keeping the present government in power is the Fixed Term Parliaments Act
I think it a little more complex than that
They have not lost a critical vote, for example
Truly depressing stuff – it really is. It makes me wonder, as someone who is desperate to see real change for the benefit of all; people, planet and all of its inhabitants, where on earth am I supposed to place that little x when election time comes? If Labour still cannot grasp alternative economic thinking to the mainstream (and its harmful track record), how can I seriously have any confidence in them effecting any real change for the better? The time for tinkering around the edges has long gone. Bold thinking is required.
Is it a case of going back to the Green Party? (Who I find much agreement with but recognise that under FPTP have relatively little influence)?
I am already agonising ove that little x
At least I would know in Scotland, much of Wales and maybe even Northern Ireland
@ Dark_Matter
“Is it a case of going back to the Green Party?”
A new progressive party is needed because the Green Party is a perceptual paradox in relation to MMT which argues the UK economy can be better optimised through more government creation of money whereas the Green Party is perceived by the public as arguing we’re killing the planet by consuming too much.
I’d argue against that.
MMT’s greatest insight is that currency-sovereign governments are constrained by real resources and only real resources. That in itself is a profoundly ‘green’ insight.
Conversely the ‘we can’t afford to act on climate change coz we’re broke’ argument is exposed as totally bogus. Again, a very ‘green’ (with a small ‘g’) friendly insight.
The Greens might never have the votes that Labour can command, but it is critically important for the sake of our only home planet Earth that they that they in particular seize on MMT.
Why? because, as a political party, they can play a vital role that no amount of bloggers and economists can deliver:They can change the debate.
PS MMT economist Steven Hail – who recently shared a platform with Molly Scott Cato MEP (Economics spokesperson GPEW) – explains here why MMT and Greens are natural bedfellows… https://vimeo.com/278241007
I think Molly ges it…..
I really beg to differ about Molly –
I have been trying to get the message over to her….
https://twitter.com/MollyMEP/status/1012989058358874112
For context – it was how she talks about investors loosing confidence in sterling if the government creates it rather than issuing interest bearing gilts.
When she links to articles about interest paying on the national debt….I have given up.
Thanks for the correction…
@ Dark_Matter
I can’t argue with you that the Green Party have an influential role to play and do wish they had more influence but they do have a perceptual problem in the sense of voters not understanding how much they need to reduce their consumption to live a lifestyle in better sync with the planet’s “carrying” capacity. I do agree with you strongly about the Labour Party needing to take aboard an MMT perspective from the point of view of needing to invest large sums to help save the planet. I find it utterly contemptible in such circumstances, however, that the Labour leadership should go along with a Gang of Three authoritarian economic advisors refusing to answer MMT based criticisms of the fiscal and monetary advice they’re giving to John McDonnell:-
https://criticalfinance.org/2018/08/07/labours-economic-policy-is-not-neoliberal/
It is not McDonnell or Corbyn we need to convince, it is the new MPs coming up, who will, given the inevitable effects of age, be taking over the party at some point. I wouldn’t expect McDonnell or Corbyn to embrace MMT principles – they’ve campaigned for too long on ‘taxes pay’ arguments. I remember saying ‘taxes don’t pay for govt spending’ to an old school socialist in my ward and he practically blew a gasket, he was so appalled by the idea. Also, we need to persuade members and voters. Politicians are often last to the party.
Good point. I’ve been trying to get to see one of the best youngish ones for a long time. I usually speak to him at the conference. I will do my best to corner him this time. It’s very difficult to get MPs to talk outside their very restricted briefs. I find the only ones who are open to new ideas are the ones not grounded in neoliberal economics and not in the top echelons of shadow teams. However, most are just not impressive at all.
Carol – I’m aware that M.P Chris Williamson appreciates MMT. He resigned from his shadow ministerial post in connection with making an off the cuff comment about doubling Council Tax an expensive properties. But he would be someone to talk to on these issues when you are at Conference.
Simon, we met ChrisW recently on LVT. I had hoped to speak to him about MMT too but he didn’t allow us much time and was only interested in speaking rather than listening. His SpAd, whom we were handed over to, didn’t even know why we were there – thought it was about fracking. Very much doubt he ‘gets’ MMT.
I heard Chris Williamson speak last week. We were encouraged when unprompted, he talked about MMT in his presentation – though not in detail as he said it wasn’t his area of expertise but clearly recognised its significance. We asked afterwards whether the leadership accepted MMT and if so whether they were not openly acknowledging it for tactical reasons. He said he thought the only way to get it on the agenda was through grassroots campaigning and pressure from CLPs…
There is a massive hill to climb here. They are afraid to tackle the problem.
Hi Richard,
I agree this is depressing.
Harking back to your posts last week on the inflation report – I was astonished to see that the BOE regard the possibility of wages increasing at a faster rate to be an evil that needs to be nipped in the bud. This seems to mean that impoverishing the working classes (and by that I mean anyone that sells their own labour) is official economic policy!
Surely after 10 years of flat or declining real wages a bit of wage inflation would be a good thing. Even on their own terms it would seem that some modest above inflation wage increases would not result in the demand surge that they seem to fear, but would be absorbed into the space in household budgets that is currently occupied by excessive debt.
If this is the agenda that Labour is signing up to then I do despair.
Some people may claim that this is what Labour has to be to be “electable” but there is a warning from the past on this approach. New Labour became a prisoner of the promises that they had made in opposition, and indeed these promises shaped the party and administration that they became.
Howard Reed is spot on. Meadway’s response is utterly appalling and deeply depressing. Doesn’t he see that the way the system works IS MMT? It isn’t about ‘prescription.’ MMT allows us to see the true fiscal capacity of a Government that has a sovereign Currency. It is clear that Meadway doesn’t understand what he is dismissing. He also seems to disagree that ‘McDonell should get out of the neo-liberal mindset.’ SO Meadway is therefore happy with the neo-liberal mindset?
Unbelievable.
Meadway a Progressive Socialist? Pull the other one as they say! He’s effectively an under-cover agent for a greed based Neoliberal ideology where the pursuit of the double Whammy of Globalisation Without Compensation and Austerianism looks increasingly likely to result in a very bloody kick back. As Marx said its a fight between capital and labour over the distribution of income!
Don’t forget the fight against landowners. Marx didn’t.
Correct me if I’m wrong, but isn’t this how they financed nationalisation under Attlee?
Bonds financed nationalisation
They weren’t QE’d
Inflation did the job instead
A sovereign government can create money from nothing. How much of that flow it has to reclaim depends upon the degree to which its money is accepted abroad and used as a reserve currency. See Konrad’s comments Parts 1 and 2 below:-
https://www.blogger.com/comment.g?blogID=2761684730989137546&postID=8511248561024819163
The debatable question is whether a No Deal Brexit will undermine the status of the UK currency. If the country’s main activity to support the pound is going to be increased money laundering and offering its services as a tax haven then a No Deal may have little effect since greed based Neoliberal ideology currently has a strong grip on mankind.
Schofield,
Nitpicking here, I know you know this – the government doesn’t create some-“thing” out of no-“thing”. Money isn’t a thing, it is a social and legal construct. Most people are deeply confused about money precisely because they think it’s a physical thing.
Those who are confused about money in that way aren’t confused about laws or cultural and ideas. They don’t ask “How can we create laws out of nothing?” or say “we must slow down the rate of technological and scientific progress otherwise we will run out of ideas”. It is clear to most people ideas and laws are not physically real things and so those statements are obviously absurd. Their mistake when thinking about money amounts to a simple but deeply engrained category error.
I think we need to help everyone correctly categorise money as a social/legal construct/idea NOT a physical thing. To that end we must avoid all statements that reinforce the idea money is a physical thing. Even though we MMT nerds know what we mean neophytes do not and could be confused further.
Not nitpicking at all, and well said, Adam Sawyer. It is in fact crucial. Money is a system of accountancy.
@ Adam Sawyer
“Schofield,
Nitpicking here, I know you know this — the government doesn’t create some-“thing” out of no-“thing”. Money isn’t a thing, it is a social and legal construct. Most people are deeply confused about money precisely because they think it’s a physical thing.”
Yep. You make a valid point! I’ll think hard about my terminology. I’d really like to to talk about money as a “flow” but if I baldly state that “the UK government can create money as a flow from nowhere” I think it would just sail straight over most people’s heads not to mention the urinary analogies in relationship to a wall! It sounds like physics or hydraulic mechanics I guess. Same if you get into cybernetics. I’d like to link up the concept of money to biology and ecology with hologenome thinking and autocatalytic processes but again way too esoteric for most people. Trying to be a Universal Man or Woman whilst important doesn’t always keep you grounded and relevant to most people!
In defence I would say I do from time to time make a point that money’s not a thing. Anyway enough of the excuses you make a very good terminological point that needs to be pondered and not just by me! As someone pointed out on one these posts “the use of the right words are everything” or something to that effect!
Money isca promise
That’s it
And you can’t see promises
Perhaps Friedrich List has sort of the right terminology to describe money when he says:-
“the object of credit is to be an instrument for settlement payments”
https://www.splicetoday.com/politics-and-media/economic-lessons-from-dead-people
The operative words are obviously “instrument for settlement” and we need to find more common-or-garden words to say just this such as “a means for settling up (with each other)” in which we use balance sheets to monitor the flow of these means with each other.
This, of course, begs the question why should a government have the primary role in regulating these “means” through the production of “high-powered” money as Randall Wray calls it or “reserves” as we commonly know it which Brian Romanchuk in his book “Understanding Government Finance” calls “special bonds” or “government securities.”
So my question – do we think a ‘Centrist’ party, if one could be created, would be any more likely to get MMT? Or is it up to us to endeavour to persuade Labour from the inside out?
It does not need to be centrist
I’m not that
It needs to be on the left
But if the curtent leadership cannot do that in Labour they will fail it
When you read this 2015 article by James Medway on QE it’s so full of paradoxical thinking you can only conclude the guy is deeply confused about the role of monetary systems and shouldn’t be allowed anywhere near Labour Party policy making circles:-
https://neweconomics.org/2015/01/the-ecbs-quantitative-easing-programme
“And Labour will not let its membership discuss Brexit”
and yet I watched the conference last year and at least half a day on the main stage was spent discussing just that, including keynote talks from Starmer etc and there was a motion later
https://www.theguardian.com/politics/2017/sep/25/john-mcdonnell-labour-members-didnt-want-to-split-party-on-brexit
https://www.youtube.com/watch?v=dLGPfpkX2nI
There was, the last time I heard, no planned discussion on it this year
Last year it had to be forced onto the agenda
I understand that it will be on the agenda this year. But, however much democracy is allowed in policymaking the shadow cabinet cannot be constrained by the membership. The results of the Democracy Review will be determined by the NEC, which sits at the top of the Party, above the leader. This is what many fail to understand: Jeremy does not have a free hand in any sense. When he becomes PM that will change. Blair did what he wanted. The National Policy Forum (NPF), which was created by Blair to give a say to members on policymaking, will be abolished and power handed to the NEC. The NPF was never properly resourced, which is why it failed, but it was better than the shambles which preceded it where resolutions to conference created a shambles. It’s possible that we could end up with something better than both, but I’m not holding my breath.
I can hope
Huffington Post reporting Momentum membership will attempt to make a People’s Vote or Final Say Vote on Brexit Labour Party policy:-
https://www.huffingtonpost.co.uk/entry/momentum-cannot-ignore-pro-peoples-vote-grassroots-senior-source-tells-huffpost_uk_5b681b56e4b0de86f4a319c2?dht&utm_hp_ref=uk-homepage
That I welcome
The purpose of Momentum was to support Corbyn from grassroots level. I’m sure it was never intended to be involved in policymaking. Criticism came from those who saw it as a party within a party, which is what it’s coming to look like. I know that this is not a popular position in the Labour Party, but I don’t care. It’s becoming very messy. I wish they would stick to their original remit.
Well said
Especially the bit about saying you do nit care about being criticised
That takes courage
It is all part of the same syndrome, from NPM to PFI and now in the NHS, ICS (Integrated Care Systems, the bastard child of ACOs, ACPs, etc. fathered by Simon Stevens Richelieu) i.e. a mad desperation for control, even when its an utter illusion. Therefore you cannot trust the dynamics within MMT, because then you will have no levers to pull.
PS Does anyone know what happened to Jon Cruddas?
Re the last … no
Good question
In short what James Meadway is saying is that
a) Exporters won’t want to sell us their goods and services anymore.
A current account deficit can only occur if the foreign sector desires to accumulate financial (or other) assets denominated in the currency of issue of the country with the current account deficit.
So it worth describing this from the other side of the coin and describe how an export-led growth country running an export surplus in a floating system would not be able to run an export surplus unless it did save foreign currency. So if Japan, China and the Eurozone want to continue to run and export surplus with the UK they ” HAVE” to keep saving in £’s.
And furthermore show that the saving of the foreign currency is how the export-led nation injects sufficient money into its own economy (via the discounting process in the banking system). And how this leads to the explicit or implicit ‘sovereign wealth funds’.
Ultimately an export led economy cannot afford to allow its customer to disappear because there is nowhere else to shift the exports to in aggregate. Overall world demand grows only with world income and exporting is a way of importing demand. So they either have to maintain the import of demand, or internal generate more domestic demand and do the substitution — which doesn’t happen overnight.
Moving capital around doesn’t seem to affect this underlying dynamic. Capital movements may be vast, but they are ultimately zero sum — unless the central bank is stupid enough to act as patsy in the market.
James Meadway is just another gold standard, fixed exchange rate idiot that does not even realise countries exportt o us to get their hands on our currency and assets.
Time he was sacked then!
Seconded!
I always thought Gordon Brown giving interest rate setting to the BoE was a canny move to show that interest rates would no longer be subject to ‘political’ influence. Smoke and mirrors possibly, but if the Labour executive now are not ‘getting it’, or at least not making policy based on sound economic theory such as this, is it that they are too concerned with voters’ perceptions and the difficulties of selling anything except established economic policy to the electorate? At the expense of coming up with something genuinely radical and progressive. They are politicians first and desperately want votes.
Perhaps all UK MMTers need to let McDonnell know that we know they are lying about taxes funding spending.
Or could it be that when Bankers get threatened they sometimes resort to violence against the threat.
The current account deficit signifies the willingness of the citizens to “finance” the local currency saving desires of the foreign sector. MMT thus turns the mainstream logic (foreigners finance our CAD) on its head in recognition of the true nature of exports and imports.
Something James Meadway can’t seem to grasp
Modern monetary theory in an open economy
http://bilbo.economicoutlook.net/blog/?p=5402
Thanks
Spot on reference! Everyone should read! Personally I think it’s more complicated than Bill Mitchell makes out. For example, the argument that the Brexit Leave vote was the result of Tory and Labour governments undermining the Globalisation With Compensation contract by imposing Austerity Cuts. A sort of hoist with your own petard scenario!
https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/381-2018_fetzer.pdf
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2870313
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2904105
https://www.peri.umass.edu/component/k2/item/1096-globalization-checkmated-political-and-geopolitical-contradictions-coming-home-to-roost
I suspect a more nefarious project afoot. Perhaps Meadway’s ultimate goal as a Post-Keynesian Neoliberal is to drive MMTers out of the party and thereby strangle real economics in the bath-tub.
I think you are getting over excited
Meadway is more of Marxist than a Post-keynesian.
Here’s what Corbyn’s now Head of Economic Policy had to say about the economy, deficits and McDonnell’s approach to them in late 2015. https://youtu.be/bR121xFv-ek
Does that seem more promising to your ear?
I’ll let you know when I get time to watch it
Even then, in 2015, it sounds like she was fighting a rearguard action to keep Corbynomics alive.
I agree-there is plenty of criticism of Labour up till then with questions overhanging McDonell and Fiscal rules.
She makes a lot of sense especially the questioning of the arbitrary distinction between capital and current expenditure ( probably based on historic gold standard business models for Government?).
She also acknowledges that McDonell maybe ‘juggling political strategy with economic argument’-let’s hope so!
Thanks, I’ve been trying to get info on Mary Robertson without success. Only listened for a few minutes so far but she sounds good. Such a low profile – I wonder why.
Never mind Meadway – how about a ‘Mediocre’? Until now I’ve never heard of the man. He talks the talk but there seems nothing of substance about him.
Even now under Corbyn, Labour still think that gaining power is about pleasing those who already have it and not about leading and inspiring those who do not.
[…] mentioned yesterday that James Meadway, who is John McDonnell's chief economic adviser, had dismissed modern monetary […]
Well if what you say regarding the Labour party no being a radical enough group is correct, then we really are in deep trouble, for there are no radical political parties within spitting distance of parliamentary power.
You say that McDonnell’s economic team are locked into a neo-liberal mindset when it comes to economics – but do you believe that any other faction or politician in Labour has been persuaded by a better alternative?
A new Labour leadership from the centre of the party would almost certainly never adopt anything that even vaguely resembles MMT. Nor would the Liberal Democrats.
The Greens are far more flexible, and seem more progressively minded, but I doubt they have the energy nor the leadership to recreate themselves as the heart of a new progressive political alliance (with a new economic agenda).
Events, dear boy, events.
We will have to await them
[…] Labour’s chief economic adviser confirms it is committed to the thinking that will deliver yet mor… Richard Murphy. Who will have the heart to tell Artist Taxi Driver? […]
[…] Le conseiller économique en chef du Parti travailliste confirme son engagement envers la pensée q… Richard Murphy. Qui aura le cÅ“ur de le dire à l'artiste Taxi Driver? […]
I don’t have the benefit of knowing him personally as you do, Richard – but do you not thing there’s a high likelihood of, strangely, taking a leaf out of George Osborne’s book here? That is to say – go to the country on a modest, moderate prospectus; and then aim to implement a more radical suite of policies if/when in government?
I’d also tend to look to Andrew Fisher rather than James Meadway to escry the likely direction of future Labour policy, including on the economy.
Fisher is in Corbyn’s team
JMcD’s is more powerful on economics
It was clear, as long ago as September 2015 they weren’t going to have any truck with MMT. I distinctly remember McDonnell that month talking about balancing the budget and being fiscally responsible. As others have noted, it’s better to target the newer members of parliament on the back benches – they’ve less to lose. Start from the ground up as others note – politicians are usually the last to get it, weathervanes that they are.
Additionally McDonnell and Corbyn would have the task of explaining MMT to a sceptical public and hostile media, and i seriously doubt they have the intellectual capacity and chutzpah required to pull it off. So they go for what they know – tax the rich so that we can invest in the NHS and balance the budget at the same time etc. It’s not a bad electoral strategy by the way (even though i disagree with that approach), but you certainly can’t govern that way, as reality will come crashing in when they find out the private sector wants to save some money instead.
In actual fact what we need are economists in the HoC, specifically those who understand MMT. Preferably someone with balls (metaphorically speaking). Those with the guts to say, this is reality, so deal with it.
@ Jeff
Well that sounds like a cunning strategy doesn’t it telling everybody how much you hate austerity cuts but because it’s God’s (or the ghost of Tories’ past) will the government has to balance its budget you’re going to have to increase taxes. Of course, Labour will say only on the rich, and then the Tories will pounce with a barrage of propaganda from their MSM chums to convince the electorate the sums don’t add up and taxes will go up for everyone!
Indeed….
[…] wasn’t my intention to create quite the fuss I have when commenting on James Meadway’s own comment on modern monetary theory on Carol Wilcox’s Facebook page. As […]
[…] mentioned yesterdaythat James Meadway, who is John McDonnell’s chief economic adviser, had dismissed modern […]
Hi Richard
An interesting article. I like to think that John McDonnell is fully aware that ‘ handbag economics’ is nonsense and is working on a political strategy to challenge it sometime soon.
Regarding your statement
“Labour thinks it has to live in fear of the money markets. And so bankers. And so their supposed ability to manipulate exchange rates”
Don’t they kate good reason to be fearful
Previous comment typo.
Last line should have read
Don’t they have good reason to be fearful ?
@ Peter Allen
“Don’t they have good reason to be fearful ?”
No not if they they thoroughly understand how modern fiat money works in the domestic economy. The exception is the effects of floating the currency and here matters get complicated. Because the UK pound is accepted in many countries as a medium of exchange to settle debts it can be regarded as a reserve currency that has a “demand cushion” in terms of how much of it can be created just like the top reserve currency the US dollar. There is the need to recognise that if countries wish to export to the UK that shows a willingness to accept the UK currency and even hold it in the form of UK Treasury securities savings. There is also the pressure of not creating sufficient goods and services that other countries want to buy to help pay for the UK’s imports. Finally, in order to balance its current account deficit (CAD) a nation can reduce import consumption by a general or selective raising of tariffs ( to avoid retaliation it obviously helps to belong to a large trading club but even here vested interest politics may play a role and tariffs not raised high enough). Alternatively a country like the UK can use its sales tax system (VAT) to selectively increase the cost of imports which it wishes to encourage creation at home.
The problem in regard to both aspects of the UK economy domestic and foreign is the Labour Party’s economic advisers are not taking the trouble to properly understand how a modern fiat monetary system really works. They are lazily and slavishly relying on capital’s disfunctional and inaccurate version of how it works. This is the crux of the argument.
Here are key texts that help further explain my points:-
http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf
http://bilbo.economicoutlook.net/blog/?p=5402
What it all boils down to is – Can you provide an explanation of your economic theory which can be given to someone on the doorstep – someone who has seen the tabloid headlines and heard the BBC propaganda)