Martin Wolf has said in the Financial Times this morning that:
The austerity obsession, even when borrowing costs are so low, is lunatic
I think he uses the word lunatic as a technical expression.
He is right, of course. Governments can borrow long term money at negative rates right now. There is significant spare capacity in the world, and UK, economy. There is a pressing need for more economic activity. We have a dire backlog of investment needing to be addressed. And investors are looking for a home for their money with government's willing to use it. Now is the time to invest. As Martin Wolf says, it would be lunatic not to do so.
Is helicopter money the corollary? Martin Wolf thinks so. I cannot agree. Whilst I still see a big potential role for People's QE I cannot see the reason to print money to simply give to people. There are three reasons.
First, which people? We may not know all rightful recipients.
Second, is that all people? Is such largesse required? And if some, who?
Third, is this a flat sum?
I think we have a tax system to achieve such goals, and we need to use it. Cash as confetti may not work.
And then there is the economic consequence. This policy makes as much sense as Alistair Darling's 'cash for clunkers' trading in old cars scheme which was great for VW but which did not do a lot for the UK. I can see no reason for going on a programme of import promotion.
Those promoting this idea really do have a duty to think through the detail. I have done that on People's QE. And this would create investment, jobs in every constituency, training, apprenticeships, skills and long term returns. Surely that has to be the route to go down?
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Austerity is a means to an end, it’s the excuse the Neoliberals present for dismantling social security. If you want to inflict the Shock Doctrine http://www.naomiklein.org/shock-doctrine on a country which is affluent, you first have to create the Shock. That’s what austerity, with its constant irrelevant harping on about the deficit, is. Indeed, it’s suggested in some circles that that’s what the purpose of the credit crunch was, a semi-global Shock a la Shock Doctrine. Lunatic? Not at all, then, rather, both deliberate and purposeful. Malevolent, even.
It is better to give it to individuals:
1) They can set it off against debt, in fact this can even be enforced when it is received by the bank.
2) Individuals collectively do a better job of spending the money. If there is one truth of the free market it is that.
3) Politicians will spend it on vanity projects.
4) Intelligent people (politicians, you?) always shudder at the thought of little people being able to choose how to spend their own money. I shudder at the thought of giving politicians this much money to blow and the opportunities for corruption in massive projects.
If you’re going to call it People’s QE then you should make it so, otherwise Infrastructure QE would be more appropriate!
6) You give it to all resident citizens. The electoral register is the place to start. It’s an administrative headache, but certainly possible.
7) Helicopter money works immediately. You can start with much smaller amounts to see the monetary effect. Infrastructure QE takes years, may be decades.
The sole advantage of existing QE policies is that it is reversible by selling gilts back into the market. Neither helicopter money or “Peoples QE” are reversible so it is more important to start with small steps.
As far as I can tell existing QE programs haven’t worked. The people who received the money first benefited most (financial companies) but the money didn’t really filter into the real economy. Infrastructure QE will benefit another group first (construction companies). Helicopter money gets through to everyone (and drives demand in every business).
For heaven’s sake – you udnermine every shred of credibility you have by saying individuals spend better than governments
Try running your own fire brigade
Or personal university
If youy want to be taken seriosuly talking crap is not wise
Not sure that’s entirely fair! Whilst individuals don’t generally do too well – unless they are arsonists – at running their own fire brigade, governments don’t generally do too well at running corner shops. It’s horses for courses surely.
And helicopter money has already been dropped in Australia in ?2009 which was the only advanced economy not to go into recession after the financial crisis, so there must be a tenplate for its execution. Agree though that helicopter money is an imperfect solution that risks helping Chinese exports as much as the UK, but its one advantage is that it is quick acting so I would suggest it’s left in the locker for a worst scenario full on recession if and when it comes…
I agree
I amm objecting to the stupid generality
We need a mixed economy whereb each sector does what it is best at
Perhaps Martin Wolf was looking out of his window and gazing at the full moon last night! Of course helicopter money would not work because the fit and able would grab it all and the old, weak and disabled would be pushed aside in the rush. It is unlikely that an orderly queue would form at cash machines if free cash were dispensed this way either. A tax rebate or pension lump sum would be the obvious answer, Richard, used in conjunction with your PQE.
Another option is to set a basic unearned income for everyone which would eliminate benefit claims, benefit fraud and could include the basic state pension.
The point Bill makes above is very relevant. For more background information it is worth reading up on the work of the Tavistock Institute over the last 100 years.
In my view I would much rather the Government print money for QE and then rake in the taxes from an invigorated economy. I am still worried about such stimuli coming from debt because Government debt is still seen as sin and the fact that it exists will be used by detractors to bash well-meaning Governments over the head with it.
And this brings me to my major point: PQE will not really be effective until other reforms are made:
Tax reform – we have to stop believing that we can have high quality services without funding them properly. Tax is a good thing. Let us find our quality of life with it.
Stripping corporations of their status as a ‘person’.
Revoking laws that put investors before service users/communities/ the planet.
Finding a better way to fund pensions that stops pension funds putting younger people out of work in order to maintain pension values.
Stop competing and lets work together internationally.
I could go on but there is no doubt that a lot of things need to change – not just the amount of money in the economy.
Agreed PSR
There is a dangerous fallacy known and named by serious wargamers: ‘Chess’, the error of thinking your opponent must respond logically – or even rationally! – and that they have the goals (objectives, rules, victory conditions) you think they *ought* to have.
I think that Osborne is rational, albeit in pursuit of goals that would only be considered desirable by sociopaths; and calling his policies ‘Lunatic’ is a kindergarten version of describing them as ‘failing’ when, by Osborne’s calculation, they and he are astonishing successes.
This is a subject where I find the MMTers clarify the situation so perfectly. Bill Mitchell in particular. His regular quiz on sectorial balances get ingrained in the mind and it becomes so clear that government cut backs lead to increased private borrowing or gross poverty and dependence on foodbanks. Some economists are predicting that the increased private borrowing for the help to buy, coupled with government cut backs will lead to another financial crisis.
When government spends into the economy, it creates money, it is stimulus, and is an asset to the non government sector. It can become an indirect citizens income when spent on services. When spent on jobs and housebuilding it can increase domestic production that decreases the need for imports, perhaps even increase exports and cure the trade deficit somewhat.
I think that maybe why you do not like helicopter money, because it does not stimulate the internal economy, but sucks in imports.
Last year Yvette Cooper told Jeremy Corbyn that PQE would lead to inflation, but she ignores the build up of private debt, (not to mention the gross poverty of people having their own recession in the foodbank queue).
If the MMT economists are right, and taxes are mainly needed to control inflation when the government needs a major stimulus, then the created money should be aimed at the young, the poor, those on zero hours contracts, the NHS, and local councils. Taxes should be aimed only at those who gained billions from the crash, energy companies and the global corporations. Perhaps we should get rid of VAT, as well…..
I agree with much of that
But not the way Bill tells the tax component
“But not the way Bill tells the tax component”
Could you please clarify what you mean by this statement, and explain what it is you disagree with, and why?
I find Bill Mitchell highly compelling, so would be interested to know the reasoning behind your objections.
Many thanks.
Bill thinks all tax is extortion
He appears to see little social reason for it
I have to say his view of MMT, when I heard him present it last summer, left me stone cold. Too mechanical and without a social construct
I know he will disagree, but MMT cannot rely on a JG as the answer to all questions – no one can guarantee jobs.
And tax has a massive social function that Neil Wilson also denies
It’s not the MMT as such I argue with: it’s what they do with it and the attitudes that are apparent
I was at that talk and very much enjoyed both your contributions.
Bill Mitchell was clearly at pains to define his role as a theoretician, to whom those seeking to implement social policy could refer when they require a solid academic basis for their policies, and that MMT is no more than a (correct) method to analyse the macroeconomy within a non-convertible sovereign currency area.
What politicians actually do with that information is then decided by their own ideology – taxes and spending can be low, if that’s what they prefer – or, far better for the public obviously, spending can be higher and this is covered almost entirely by the eventual taxation on transactions, which is generated by the very spending that occurs.
I didn’t take away any implication that he believed taxation to be ‘extortion’ and would like to see a link to that declaration if you ever have time to provide one.
I had thought that he saw taxation as an entirely necessary drain, in order to prevent inflation arising from otherwise constant government money creation, but that, should it be insufficient, because some chose to save rather than spend, deficits were nothing to be afraid of.
Clearly the JG runs into difficulties where there is a high degree of unskilled immigration, and as such would involve some ‘controversial’ policy making decisions. That’s where trying to successfully implement it could involve having to join forces with some quite unsavoury bedfellows, and that is quite a significant flaw, given the nature of the current UK immigration debate.
Although I’m a big fan of his, I’m a little at odds with Neil Wilson’s assertion that only those in work can be seen by society at large to deserve favour, hence the importance of the JG, but that somewhat ignores the likelihood that we will see more and more unskilled work carried out by machines (and robots?) in the future, so we won’t as a society be able to condemn the unemployed for ever, and that there are, probably for most of us, far more fulfilling ways of spending our (now likely) four score and ten years than ‘working’, in the traditional sense of having a ‘job’.
Reading and posting on blogs, for example đ
I do agree with you on the potential for social engineering via taxation, which some MMTers would appear to relegate, but the fact is that any ‘flavour’ of actual taxation is, again, political – something MMT does not purport to be.
But the attempt to define tax as an essential that does us all good (beyond the basic narrative that paying for our schools and the NHS makes us feel nice) means that you and MMT are speaking from the same hymn sheet, regarding the absolute necessity of tax not being seen somehow as ‘theft’.
Given that the entire macroeconomic narrative needs urgent and powerful re-framing, it’s a always a shame to see division amongst those whose efforts are sorely needed to achieve it.
Anyway, many thanks for your earlier reply.
I regret that too
The MMTers need to relax
Their arguments are fine: be less dogmatic is my message
The way I see it, it is all a matter of subtle nuance.
Taxes, which ever way the mechanics is understood, is still absolutely essential for redistribution and government control of the money supply.
Bill states that government has to tax so that it can create a space for itself to buy without creating demand pull inflation. If government taxes those who are pooling profits and rents, it can then spend freely on the poor, creating services, health and education etc. Morally it is all the same as saying that government taxes and spends. But that description leads to the myth that Stephanie Kelton alluded to, that government needs to tax, ie money grows on rich people. The MMTers, I think, are trying to make sure that we get the fact that government creates the money first by spending, and then taxes, to kill off the neoliberal idea that governments are wasting the money of the rich.
During recessions Keynes recommended tax cuts probably to increase the money supply but they must be aimed at those who would spend and not hoard.
Stephanie is the most balanced on this, by far
Mr Shigemitsu – thanks for your long post on MMT. Really clearly argued and useful.
I would assume Yvette Copper, being married to Ed Balls, must be well aware PQE would do no such thing and is pandering to the ignorance of voters who’d agree with her. She’s playing to the gallery.
I suspect austerity types (like Yvette Cooper) are confused by the statement often made by MMT types that taxes and borrowing donât fund (national UK) government spending. This becomes: âtaxes and borrowing donât entirely fund government spending, since the UK government can also just print moneyâ. But that *isnât* the claim MMTers are making.
They have identified the wrong contrast to the explanatory statement made by MMTers. The statement that government spending isnât financed by taxes and borrowing is not contrasted with the statement that government spending is financed some other way (viz., by printing money). It is contrasted with the statement that the converse is the case: government spending funds tax payments and purchases of government bonds. This is most easily expressed by first rearranging an equation:
(1a) G = T + ø + Ă².
Austeritans read this equation âright-handedâ (as Joan Robinson would say), interpreting it to mean that the governmentâs spending (G) is financed by net tax revenue (T) plus the printing of currency (ø) plus the selling of government bonds (Ă²).
MMTers read it *left-handed*: the equation tells us that the governmentâs spending finances the non-government sectorâs payment of tax (T), accumulation of currency (ø), and purchasing of bonds (Ă²).
This is a conceptual shift of extreme importance. But it is *not shown* in the equation itself. It is a matter of how the equation is read: left-handed or right-handed. Thus by proffering the equation as evidence that the central MMT claim is âwidely understood and acknowledgedâ (“MMT says governments can print money”) shows only their own failure to understand or acknowledge that claim. The point, for MMT, is not the inclusion of the term ø. It is the way in which the *whole equation is interpreted*.
Why is the shift so important? If the equation is true, what difference does reading it left-handed make? Doing so gives us a new view on the central aim of macroeconomic policy. Standard macroeconomics sees two roles for government spending. First, obviously, it pays for the goods and services supplied to the public sector. Secondly, it supports aggregate demand â if and when monetary policy is insufficient for this purpose. The MMT insight â that equation (1a) should be read left-handed â gives us a different perspective on the second purpose. The point is not simply to support aggregate demand. It is, far more specifically, to finance the non-government sectorâs tax payments, its purchases of government bonds, and its accumulation of currency balances.
“Bill thinks all tax is extortion”
Richard-I’ve never come across Bill making that assertion or even implying it-although I might be missing some nuances that lead you to that conclusion.
Given that a vital prime of MMT is that ‘taxes drive money’ I can’t see how Bill could support ‘tax as extortion.’
There’s an article by Wray which talks of the MMT view about tax where he states that it is largely based on Beardsley Ruml with a few caveats regarding the external balance.
See: http://neweconomicperspectives.org/2014/05/taxes-mmt-approach.html
For the life of me I can’t see that your position is radically different.
Bill said it my presence
That’s interesting-presumably that wasn’t part of his public presentation? I’d like to here that in context as it’s radically different to MMT which Bill clearly represents in its mainstream form. The bald statement that ‘tax is extortion’ chimes in with right-wing libertarianism and Bill is as ‘Left’ as you get these days so there must have been some contextual meaning or gloss that pointed to a different angle on the word extortion. Bill is often very blunt and sometimes, in my view, obtusely provocative-often unnecessarily so!
The statement was bold and unambiguous and he is not the only MMT era to say it
Neil Wilson does as do some in the States
This is massively alienating
Bob- I’ve always found flowcharts (Bill Mitchell uses them a lot) more useful than these equations where one ends up having chicken and egg debates. Bill points out that it is accounting procedures that are used to ‘disguise’ the underlying reality. This sort of thing leads to absurd assertions by people like Duncan Smith that benefits to the disabled are ‘transfers’ of tax -of course it’s great as neo-lib propaganda and causes immense social damage and division (which is what they want, of course).
Richard-when you say Bill’s statement that Taxation ‘is extortion’ and that it was ‘bold and unambiguous’ I think you may be misrepresenting Bill’s and MMT’s position here by making it sound like he’s in line with right-wing libertarianism.
I had a re-listen to the relevant part of Bill’s statement in that Q&A session from the NHS Action event and he actually said this:
‘[by paying tax] you are giving up purchasing power and giving up resource space that the Government can then spend into…without inflation occurring’
he then goes on to say:
‘ Taxation is a coercive activity that is imposed by the monopoly issuer of the currency to force the private sector into surrendering real resources so that they can be used by the Government to present its socio economic mandate.’
That’s quite different from a bald statement that ‘Tax is extortion’. I can understand that the taxonomy here is different from yours but the difference is less fundamental than you think in my view.
Coercive is, of course very different from ‘extortion’. A can understand you not liking that word as it seems to clash with the notion that Taxation is based on democratic ‘consensus.’ But real ‘consensus’ is rarely the case in reality (Perhaps Quakers manage it in Business Meetings!).
Richard-I have to say I think you’ve misrepresented (as well as misquoting) Bill here to be honest.
I disagree
I raised the question afterwards and I have raised it with others in MMT
I ma happy that I unmderstood correctly
I will say in response some said they do not agree with Bill
‘I disagree’
But with what?
1) That Bill did indeed say ‘extortion’ and not ‘coercion’?
2) That ‘coercion’ is an inaccurate way of describing it Governments need to reinforce currency by taxation)?
3) That when I say you misquoted Bill I was wrong?
Let’s get this clear (because it needs clarifying) : what you are saying is that although Bill uses the word ‘coercion’ in the answer he THEN used the word ‘extortion’ in private communication?
I can understand you not agreeing with Bill, Richard, but not even accepting there’s a misquote here seems odd to me because NOWHERE is extortion implied or suggested.
Simon
I am happy the word extortion was used in conversation with me
I do not think extortion or eve coercion are appropriate words to use
In a democracy we choose to pay tax
Let’s stop the nonsense: I assure you this did give rise to debate on the use of the word extortion
Richard
Richard- I take exception to you using the word ‘nonsense’, that’s unfair and it was quite appropriate for me to clarify, as what you said earlier was not clear whether you were referring to what Bill had said IN the Q&A or in private communication-you’ve now clarified that and you have maintained clearly that Bill’s view on Tax is that it is State extortion. I personally find this incredible as it indicates that Bill is now a convert to the Von Mises school of thought and the worst excrescences of right wing libertarianism.
The reason I wanted to clarify (which you seem to think is me indulging in ‘nonsense’) is that the view that tax is extortion is SO diametrically opposed to MMT that Bill would have had to go through a sea change both politically and theoretically to utter it. That’s why I wanted clarity as, on the face of it it sounds incredible. But if that’s the word you heard him utter and maintain that his intent in seeing tax as extortion was’unambiguous’ then I accept that.
A quick search of his blog throws up the use of ‘extortion’ twice in contexs where the word was justified (pay day lending and Lord Beescroft!).
Another reason that I’m not, in my view, throwing up ‘nonsense’,is that it was important for me to ascertain the context of the use of that word as MMT is very particular about word use and meaning and I still struggle to get my head around it. The fact that Bill used the word ‘extortion’ in the way you say, alters that picture.
Bill doesn’t always have time to respond to e mails but I’ll try and clarify this with him.
You should know (from my posts) that I don’t usually indulge in ‘nit-picking’ for the sake of it-this was a genuine inquiry into clarifying the issue!
Simon
I am sorry if you take exception but let me be clear what this is really about
First it is about the rhetoric of Some who support MMT
Second, it is about the cult of MMT which says thou shalt not abuse the great high gods, even when some (like Bill) can be pretty abrasive
Third, it is about open minds. I am vocal, I know. Unambiguous, I know. But equally actually very willing to speak to those who do not agree with me if they are willing to make their case
Regrettably too many in MMT just take umbrage when asked to think
It will not work while that continues
Best
Richard
Calm down girls and boys. Those of us who regularly read Bill Mitchell’s blog know where he stands on the purpose of taxation. He clearly does not believe it’s extortion as in ‘theft’ as per right-wing nutjobs. That’s not to say he’s never uttered the word ‘extortion’ in the midst of a conversation.
He believes taxes have a positive purpose (inflation-curbing, re-distributional, creating space for government spending etc.) but they have [perhaps necessarily] a coercive element. Which is true isn’t it? I believe everyone should pay their due taxes in a democracy but not everyone wants to play nice. Otherwise tax evasion wouldn’t exist.
Of course his key point is that the primary purpose of tax in a monetarily sovereign state is NOT to raise money for the exchequer. Most people believe the opposite (erroneously in my, his, and I think Richard’s view).
(I just hate it when a fight breaks out amongst people who, at least in broad terms, are looking to move the debate in the right direction!)
Then Bill, Neil Wilson and others need to change their rhetoric
Richard- I certainly agree that MMT needs to get its communication skills up to scratch and get out of that abrasive, put-down mode when people don’t use the same taxonomy -they need to connect better with others and offer explanations about differences that don’t alienate. Randy Wray can be a bit dismissive at times and often fails to see that people who have a lot in common are just using different languages about the same thing – bridges need to be built on the progressive side.
They (MMT) need to explain calmly and clearly the different usages and how people end up doing a Tower of Babel with each other!
Glad we have some common ground
“(I just hate it when a fight breaks out amongst people who, at least in broad terms, are looking to move the debate in the right direction!)”
John-This is absolutely the reason why I wanted to clarify the point -Richard and Bill are ‘on the same side’ essentially. But Richard is right to point out that MMT people don’t help looking down with disdain on those that diverge from the ‘purity’ of the taxonomy.
Some academics have been talking to their peers for so long they lose the ability to relate to those who aren’t framing the concept in the ‘approved’ way -it hardly helps the cause of change. I remember Scot Fullwiler (an MMT academic) commenting on Bill’s blog that Bill was correct not to respond to posts that didn’t use the MMT Taxonomy -how the hell are people to learn who come new to this if they have to battle through ‘put downs’ and made to feel as if they are not one of the ‘elect’?
Agreed