The New Statesman published this article last night:
In the article it is said that:
Stephanie Kelton, a former economic adviser to the Democratic US presidential candidate Bernie Sanders, and the maverick UK tax expert Richard Murphy argue that once we reshape our perception of money, many of the supposed constraints on government spending disappear.
There's a problem with that claim. As O'Brien also notes:
Murphy explains: “A common misconception is that it's about flooding the economy with money — and that's just not true.” Those who are committed to MMT are also committed to using taxation to curb inflation.
And I patiently explained that this would only happen if the government overspent and tried to buy resources that were not available within the economy - when making it very clear as a result that there were, of course, limits to state spending but that they were to be found in the real economy, and not the made up one where there is apparently a 'maxed out credit card' as politicians of left and right are both inclined to claim. Full employment, I suggested, was such a limit.
So why did O'Brien suggest something that was contrary to what she had been told? Presumably to appease Labour's economics team, of which she said:
Labour's economic team has, unsurprisingly, distanced itself from the concept.
Before noting:
Though Jeremy Corbyn initially promoted a programme of “people's quantitative easing” evocative of MMT, the shadow chancellor, John McDonnell, has since shifted focus to policies aimed at “democratising” the economy through public ownership and regulation, and reducing the UK's huge wealth inequality.
Or, in other words, Corbyn abandoned the MMT principles on which he was originally elected party leader.
But what the heck, I'm apparently the maverick even though I have stuck to the pragmatic principles in MMT, come what may, and will continue to do so.
I just wish journalists and others would stop presenting what is a completely reasonable explanation of what actually happens in the economy as if it were a myth. On the other hand, I should also recall that such ridicule is what always happens in the moments before a revolution in thinking takes place. And that is going to happen on this issue. The core of MMT is here to stay.
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:
They are scared because the cat’s head is gradually appearing out of the bag so they resort to misinformation, if not all out attack, led by some of the usual suspects. We need to disabuse them at every turn.
How right you are Graham . The oft repeated quote attributed to Ghandi ‘ First they ignore you, then they laugh at you, then they fight you, then you win ‘ comes to mind. We appear to be somewhere between the second and third phases at present.
Heading for the third, I think……
Hi Richard,
Can you give any examples of the sorts of things governments might try to but when they are not available within the country? I guess we’re talking about labour as opposed to goods?
Thanks
Adrian
It’s trying to stimulate more than full employment
Its not just full employment.
The other main constraint that is often mentioned is that what the government wishes to buy has to be available to buy in the government’s sovereign currency. So if resources are available elsewhere in the world which other countries are willing to send us and accept pounds sterling in payment then there is no real constraint there either. If they carry on trusting us they will carry on exporting to us. Of courses that situation depends on the willingness of other countries to do so – it is a matter of confidence – but our balance of trade so far suggests they are happy to do that.
Of course that ‘deficit spending’ is also not without consequence. Just as with the employment constraint there will be a limit somewhere and inflation may ensue. But I see no signs we are any where near that limit yet.
And I suppose you can apply the same idea to full employment too as immigration over the past 10 years (or more) has shown. Create the demand and the workers will come (given the right immigration policies) so that constraint too may be largely nominal and not real. The thing about MMT is that it is about thinking what is really possible within real constraints.
The elephant in the room – which isn’t mentioned at all in the article – is that MMT explodes false constraints on govt spending based on the “handbag economics” which post-2010 UK governments have claimed to be operating under (i.e. “the govt MUST live within its means”, “the deficit on current account MUST be balanced within 5 years”, etc.) Of course, while Osborne, Hammond etc have been saying “we need to balance the budget” they’ve simultaneously been giving huge amounts of money away to middle-to-high income taxpayers and corporations through income tax and corp tax cuts, so it was always garbage even on its own terms. But it provides a convenient cover for cutting public spending. MMT has the great merit that it exposes all this “balanced budget” stuff for the eyewash that it is, and I wish the article had been upfront about that. There is (somewhere) a full employment resource constraint and that’s where inflation, etc. comes in, but that’s quite different from the fake constraints that the UK Government’s been peddling for the last decade
Now posted as a blog post
Suppose we get to a situation where we have full employment, or close to full employment, and also inflation is low, perhaps too low at 0-1%.
Yet, there are things that the government thinks we need doing and can only be done by government.
What does MMT say about where we go next?
You can’t increase the employment rate, and you can’t take more tax out of the economy to reduce inflation.
You invest to improve productivity
You improve pay in other words at full employment by making the product that is needed
Then you are back to Economics being the ‘dismal Science’. If you have reached the resource limits of the economy (that is not just labour – for example there is a limit on electrical production, rail capacity, flights at Heathrow, etc etc. They can all be changed by investment, but not instantly.) then Government would have to choose. So maybe they would have to re-prioritise and thus divert resources to the more important activity and away from the less important. Just because the State can spend does not mean politicians can just have everything and don’t need to make choices. For example, in the short term (e.g. next year) it is unlikely that we could construct more than 300,000 new houses no matter how much money you threw at it. So any attempt to spend more than that limit would just lead to the price of building those new houses going up.
MMT says precisely that we cannot have everything
And if says we have to make choices
On the other hand it says we do not need to limit our choices until we have sued all currently available resources – and even then we can work out how to increase them, unlike conventio0anl economics
What the heck is so hard to understand about that?
I despair…..
It’s perhaps worth bearing in mind that what is being pumped into the economy will lead to that economy, hopefully in reasonably short order, being greatly improved. In that different environment, new resources may well develop and become exposed, and collectively merit investment in turn. We can’t know what’s around the corner till we agree to pay to play and find out.
Timothy Rideout says:
” For example, in the short term (e.g. next year) it is unlikely that we could construct more than 300,000 new houses no matter how much money you threw at it. So ……” ???
Well ‘So nothing’……. really. Another specious ‘argument’.
It would appear that The Staggers is still wedded to the cult of neo-liberalism and the Washington consensus. As is Jeremy Corbyn and John McDonnell. Which doesn’t make sense for a supposedly socialist party.
For instance their manifesto states, “Our manifesto is fully costed, with all current spending paid for out of taxation or redirected revenue streams.” Not much MMT going on there.
But it gets worse, “Labour will, therefore, set the target of eliminating the government’s deficit on day-to-day spending within five years.” This is pure neoliberalism and it would lead to 5 more years of austerity with the poorest in our society paying the bulk of the cost.
Why would anyone vote for a party which is really just promising a tory light manifesto?
Little wonder then that they are called the red tories.
I agree with your opening para and so what follows
Who’ll vote for this? Lots of people. Ill-informed, ill-educated many might but they remain strongly opinionated. Labour have provided the above with what they’ll perceive as sound economics, the sort they can vote for. We here might grasp otherwise, but in my experience, we here aren’t typical.
It reminds me of what I heard on TV last night about the vaunted merger between ASDA and Sainsburys.
Some chap interviewed in a car park cheerfully suggested that it would be good because the savings created would be passed onto customers who would get cheaper food.
I sat there and thought ‘Does he realise that those savings that are passed onto to him could be the result of people’s job’s being lost you numpty!!?’. Oh – and YOU’RE next mate! All he could think of was the benefit of cheap food to him with very little conception of what that actually means for others (producers, suppliers and jobs). Hyper-individualisation indeed.
It is a sad fact that these myths – such as the one about prices that can always be reduced and jobs and good wages can be sustained too, stand alongside the tripe around Government money that O’Brien talks about above. These tropes are almost ingrained at many levels of society and will be very hard to dislodge.
O’Brien should be censured for the dismissive language she uses. Her job is about objectively presenting arguments for people to make up their own minds and at least go and find out for themselves. What’s worse is that such disparagement is ultimately self-defeating to the very people who want change.
As for ASDA and Sainsburys I am of the opinion that the etiolated Sainsbury’s executive singing ‘We’re in the money’ to himself in an unguarded (but honest) moment just realises that running a decent supermarket chain is now over in this day and age and he just wants out but with a nice big pay off course from the Wal Mart empire.
https://www.theguardian.com/business/video/2018/apr/30/were-in-the-money-sainsburys-ceo-caught-singing-before-asda-merger-interview-video
In short, the ASDA – Sainburys merger is just about personal executive greed and nothing more to me. Sainsburys want out. As a long term customer I’m very sad about that. I lived in Forest Hill in SE London in the mid to late 90’s where one of the very first Sainsburys was (and there is still a store there today. You could still see the original tiled entrance floor of the original store a few doors down). My local store where I live now has been denuded of management to cut costs and junior staff basically run the store on the same lower pay.
Competition seems a very destructive thing to me, especially when it is accompanied by austerity. People go to Aldi etc., because of income deficiency and fear – not out of choice. Aldi etc., in my view are popular because of austerity and nothing else. It is also worrying because we have not learnt to love manufacturing either.
Also consider that BREXIT will destroy businesses thus enabling Aldi type vulture-ism to pop and mop up everywhere in the economy with the same negative impact on jobs. All in the name of ‘efficiency’ driven by the need to deliver more to the investor.
Destroy and make a killing. That’s the ever present market logic behind BREXIT and the destruction of public services and established players like Sainsburys.
I have to say things look very dire going forward. What goes around comes around.
Good wages enabled jobs that enable good wages. What is wrong with that? Nothing. Post war Germany out performed us on that basis.
As Krugman has said, everyone’s wages is someone elses’ wages- especially in the real economy outside of The City.
If things continue like this, the only result can be that The City is THE economy in the future. Maybe the rest of us will go back to living in mud huts and caves, eating raw turnips?
Even in Classical / Neoclassical Economics terms a Sainsbury / ASDA merger should not be allowed. The Right conveniently forget that an Adam Smith ‘Free Market’ is one in which no single participant has the ability to influence or control the market clearing price. All the theory about the Market giving you the best result, the so called Pareto Optimum fails the minute a participant is large enough to be able to exert control over price. We have very few ‘Free Markets’, indeed if any. As I remember the Pareto Optimum idea was a bit strange in that you either satisfied all the requirements or there was no point trying to meet any of them. It was not the case meeting 3 out of 4 gave you a better result than meeting 2 out of 4 which was in turn better than meeting 1 out of 4. In practice in most cases it was impossible to meet all the requirements simultaneously, meaning you could never achieve the Optimum and indeed it was really all a bit of an unachievable fantasy. So given that is the rational for the State having to be involved because the Free Market left on its own would never under any conceivable circumstances result in Optimum well-being. The UK supermarket industry is a total Oligopoly already without allowing more mergers, and as such it is inherently anti-competitive and will not work in the interests of the consumers, suppliers or the country. As a general rule no business should have control over more than 10% of the market and any merger that would result in that should be automatically prohibited.
I broadly agree on this, and entirely with the conclusion
EAS suggests:
“People go to Aldi etc., because of income deficiency and fear — not out of choice.”
I don’t. In my case it’s Lidl rather than Aldi but that’s only a matter of proximity. I actually like to go into a store that doesn’t have everything always the same every time I go in.
And it’s a small enough store to get round in reasonable amount of time and even so stocks way more products than I am ever likely to want or need.
I emphatically do not wish to spend my provisions-shopping time walking past dozens of laundry products with barely discernible difference except their packaging design. Ditto cereals flavoured with chocolate or dredged in sugar and priced to appal.
The bigger the supermarket the greater the sense of dissatisfaction. Look at the faces of your fellow shoppers and tell me that wandering a round a gigantic Aladdin’s cave of consumer produce is an experience that elevates the human spirit.
An Asda-Sainsbury merger will produce another grosser grocer. I can do without that and I will.
My favourite stores are smallish Co-ops for the reasons you note
Being a great meat eater I’m a farm to fork person myself. Lots can be bought online and farmers appear happy to cut out the supermarket’s middlemen.
Andy
I’m not going to argue with you about your reasons for shopping here or there. So what? People I know shop at Lidl/Aldi because its cheaper than Sainsburys and that is all that matters to them.
The issue for me is jobs and how austerity has helped to undermine decent business practice in a sector that was once at least making up for the lack of manufacturing jobs in terms of employment.
Now – with retail in trouble – what impact will that have on jobs? I despair for those employees in the sector in which competition has gone too far.
If we had a growing green sector fuelled by MMT then that would be great. Or if there was a real ‘march of the makers’. But we don’t.
Rather than piping up with extraneous info about your shopping habits, think about the impact of this on human beings. It’s not good.
Email Address Supplied says:
I can well appreciate that my shopping habits are not very interesting….
….but what we’re seeing is big players making mergers and acquisitions which are creating gaps in the market. Aldi and Lidl have walked into some of these niches. The big players are withdrawing from the areas that don’t suit their favoured customer profiles …in the same way that banks have closed branches (and are still doing so) they create a vacuum and some enterprising smaller players will inevitably step in where there are opportunities.
Sure it’s messy. But it’s also just a big cycle of commercial deck-shuffling. Customers who don’t like what the big supermarkets are doing should vote with their feet and more importantly with their spending. Most don’t. But they do have choices.
We don’t have to wait five years for an election to pass judgement, we vote every day. If we care to. And I do.
[…] issues. He has written this as a comment on the blog this morning, referring to the very poor New Statesman article on modern monetary […]
The only consolation from all this BS that the MSM is churning out about the fantasy aspects of MMT….I mean look at the headline on this FFS !…..is remembering Oscar Wilde’s quip that the only thing worse than being talked about is not being talked about.
The conflagrations of straw men are becoming an air pollution hazard.
I think of MMT like the Theory of Evolution, it is so simple that ordinary people can understand it and the high priests of Economics have been exposed.
When Darwin 1st published people ridiculed and attacked Evolution saying things like, “How can an eye evolve ? it is too complicated and therefore had to be created by God.” but they could never defeat the very basic principle that small incremental changes over time will lead to more complicated creatures.
With MMT they attack it by coming up with more and more convoluted scenarios but they never attack the basic concept that the government creates the money, spends it and then destroys it through tax.
Of course we now teach the Theory of Evolution in schools, so hopefully we will soon begin teaching MMT at high school as well.
I can hope….
The legendary William K Black is confident MMT will triumph http://neweconomicperspectives.org/2019/02/modern-monetary-theory-is-on-the-march.html
I find that heartening, he being a guy who’s seen a bit.
“there were, of course, limits to state spending”
all v good in theory. in reality people in charge of these policies would not fully enforce such limits. You implicitly assume governments are competent to manage such things. They are not.
So what would you prefer?
Failed market outcomes?
Because that is what you would get
teflon don says:
“…… in reality people in charge of these policies would not fully enforce such limits. You implicitly assume governments are competent to manage such things. They are not…..”
Then we need to elect people of a higher level of competence. We should stop electing self-serving imbeciles and insist on having the powers to throw them out of office when they they stupid things….like giving ferry contracts to companies with no ferries…..and still have a job ??