This is balanced discussion.
Thanks Paul. You have realised I always meant to mix fiscal and monetary policy. Why is it so hard for others to get that?
Sorry I made you hit your head against the wall.
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:
It’s not as difficult to get your head round as Paul Mason implies – and it’s not an emergency stop gap as the current financial/monetary system is no longer fit for purpose. All economists, accountants, politicians and bankers really do need to understand how the money supply and budget balances function in modern consumer led economies. Debt-based money creation and over zealous austerity are not compatible with consumer-led economies – nor with their disgruntled electorates! Unfortunately the dysfunctional unsustainable debt-based system we are lumbered with is entrenched in the mindset of supposed experts who kneel at the wholly grail of double entry accounting but fail to realise that it struggles to cope with scenarios involving acquired assets and/or gifts and in particular new sovereign money created as an asset by the sovereign state and not as a debt to themselves by its commercial bankers.
All successful economies require an appropriate money supply in order to function and if feasible expand. Printing money does not create inflation per se; it’s the amount that matters. And if the correct amount is printed but driven in the wrong direction, through those same commercial banks, away from the real economy then it’s not surprising that it can cause asset price inflation as it cascades into stocks, bonds and property creating escalating bubbles at the same time as the economy stagnates.
Fortunately thanks to the unsustainable nature of this dysfunctional system – the debt eventually extrapolates exponentially – it will end but probably in economic mayhem and hopefully not with WW3.
Why hasnt any other developed country done this. Is it just that the UK has the specific fact pattern for this to work?
Because the IMF would not let them, I suspect
Is the IMF going to let us then? Why do we get to be treated differently to everyone else?
We do not need to ask the IMF
And they take different attitudes towards developing countries
Sorry I’m lost. I’m assuming we are a developed country? Why haven’t other EU countries done this? Greece, Portugal or Spain for example. I’d it to do with external view of whether they are good for the bonds?
Have you noticed none of them have their own currencies
How did they do this?
Surely better to focus on why sectoral balances can never be achieved with systemically designed leakages to tax havens, rather than focus on MMT as some kind of panacea. MMT stimulus *may* work at the ZIRB, but it may well be that the Oligarchs would just end up trousering that as well.
Negative interest rates and Tobin are probably more effective methods of redistributing the (ill-gotten?) gains of Neoliberalism, if that is what society wants.
http://www.mercenarytrader.com/2010/12/weekender-the-trouble-with-modern-monetary-theory-mmt/
MMT is no panacea
It is an explanation
And tackling tax havens will not acheive sectoral balance: they encourage net inflows right now, not outflows, if anything
Of course, in life nothing is a total panacea (for that, as Huxley put it, we’d all have to be simultaneously genii and saints) but MMT COMBINED with real democracy could go a long way once the peddling of lies and myths has been kicked into touch. MMT explains but also shows what IS possible and could be on the programs of democratically elected governments.
Indeed, as Bill Mitchell puts it…
“MMT is a framework for understanding how the monetary system operates and the opportunities it presents. But it is not intended, nor should it, to be a ‘Manifesto’ for a progressive social and economic policy platform.
Manifestos are the domain of politics. Economic theory is to help us understand how things work so we can apply whatever ‘manifesto’ we support to the conduct of politics and policy.”
http://bilbo.economicoutlook.net/blog/?p=29232
Money is printed out of debt. I take a £20,000 loan for a car and the bank prints (well computer bits) out of thin air £20,000. This goes into the economy. The £20,000 is destroyed on payment of the loan. So without debt we have little money in the economy. QE, gvmt printed money, is another way of getting money into the economy.
When interest rates are zero people move their savings to other forms of making their money grow: property, stocks, etc. This creates some growth as this money will move into the economy. Obvious. Mason did not say where money being printed (QE) comes into it in his initial explanation. Private money being diverted to other forms of making money is not printing money. Either he missed something or I did.
I think he covered it
I would prefer to print money directly for “needed” infrastructure projects, that will create economic growth and create “needed” real jobs. The rail network (not HS2, but yes for HS3) needs updating and expanding urgently. It is bursting at the seams. For example the Liverpool metro had one third cancelled in the 1970/80s, with the trackbeds and tunnels still awaiting tracks and stations. The city needs the metro completed and expanded as it will create economic growth. Liverpool was laid out for 2.5 million, yet only 0.5 million live in the city. It can attract people and companies from the south to alleviate the burst at the seams around London.
The lines all around the North West and West Yorks need electrifying. They need new rolling stock to cast off the hand me downs from the southern networks, which p****s off the people in the North. Building rail infrastructure is manpower intensive creating the jobs needed and money to circulate around the economy at where it is needed.
This is not a new idea, the Americans did it in the 1930s – Hoover Dam, etc, to great success.
Ideal project for PQE, I agree
OK I get this as far as Money supply goes. But what about supply side constraints?
In the UK we don’t have enough builders, engineers, and skilled workers of all sorts -and it takes time to build the trained resource. And we have finite resources e.g. land (unless you want to live in battery hen style- I don’t) .
And how are the Returns on infrastructure investment measured? It’s not all Gain.
Is it all good? Who decides,how do we get people of sufficient talent to manage the process.
Your lack of faith in your fellows must be deeply dispiriting for you
“In the UK we don’t have enough builders, engineers, and skilled workers of all sorts”…
In the long run – we can train more of them
In the short run – there’s a thing out there called the EU single market in labour… just hire more from other EU countries.
How subversive of you Howard
And how right too: it’s called knowledge transfer
Stephen Ferguson/Bill Mitchell says:
“Economic theory is to help us understand how things work so we can apply whatever ‘manifesto’ we support to the conduct of politics and policy.” And there lies my big gripe with these discussions. What I experience is that in your (especially Richard’s) paradigm this translates into “understand how BIG things like taxation, like public sector investment and stimulus, etc.work. There is very little consideration of microeconomics, i.e. business demand and the production system that delivers it, to paraphrase Spulber.
I really liked Corbyn’s economic policy statement; but look at the headings – macro. What is really, really, lacking at the moment in our economy is PRODUCTIVITY. Not mentioned.
All government alternatives offered to fix productivity lie in the macro realm. In reality there are millions of workers in the UK suffering from bad management systems imposed by worse leaders who are not providing the conditions within which they can work effectively, i.e. be productive. This means unhappy customers/users, and, very often under-funded, anxious suppliers. It also means waste on a very, very large scale – of time, energy and material. This runs into tens of billions. But you never mention it, and yet it is the quickest fix you can give the economy. Millions of employee voters will love the politician who addresses this
In the 1950s it took just 15 years for Japan to climb from zero to the world’s second largest economy. What was the real catalyst for this? A systemic quality revolution guided by Dr W. Edwards Deming and MITI. The microeconomic theory was: “Improve quality and costs go down while customer satisfaction goes up.” But it required a complete change in the way the leadership understood their organisations, a paradigm shift.
To illustrate: In critiquing leadership pay levels Richard proposes a cap on corporate tax relief on executive pay. That means that he accepts that directors are entitled to this level of earnings? The usual device for this high earning is PRP/bonuses based on shareholder value. Bonuses are a killer anywhere in the organisation. They make people greedy, encourage wasteful internal competition and are basically unfair. But, at board level they encourage short termism at its worst. The answer? Get rid! The only fair policy is that of profit-sharing al la John Lewis and Mondragon. (By the way, in the latter, the CEO’s salary is capped at about 8 times the lowest paid.)
I think you need to start a conversation on how the best organisations really work, public and private sector. I would be happy to come from Sheffield to Nottingham tomorrow to talk about this.
Hang on
Jeremy has, and I have, discussed the need for reform in company objective setting and structuring
But don’t expect everything over night
John,
The problem is that the mainstream ‘macroeconomic debate’ is completely dysfunctional. In fact the dysfunction is so extreme, that the ‘macro’ debate is actually dominated by microeconomic thinking.
I would go as far as to say this misconception, promulgated by so-called ‘expert’ journalists, politicians and (even) economists, is the very founding stone of neoliberalism.
That is why Corbyn is right to make macroeconomics the centre-piece of his economic policy. He has a long way to go yet (e.g. he appears to still think the deficit is a thing that needs fixed) but he is on the right path to changing the debate.
Micro is not unimportant, but its significance pales compared to what’s on the table at the moment: a complete re-framing of the macro debate that will inevitably bring an end the neoliberal era.
It is not about objective setting or structuring. It is about a system – designing the organisation for optimal performance with the culture that goes with that. Toyota has never restructured, neither has John Lewis or Mondragon. That is the problem I have with economists, they do not sufficiently set about understanding how organisations really work. That is like advising Bernie Ecclestone on building a race track without understanding how cars work.
I have the same problem with Will Hutton – who does not yet understand the Companies Act regarding the non-primacy of shareholders.