There is much discussion in the media this morning on Amber Rudd. The rumour is she will replace Philip Hammond as Chancellor after the election. There are two obstacles. First the Tories have to win, although despite the comfort YouGov are offering I suspect that they will. Second there is the small issue of her economic competence.
In last night's election debate, where she played the role of Theresa May's sacrificial lamb, she staggered from economic blunder to economic blunder. First she made allusion to Monopoly, implying (without giving any hint that she had ever played the game) that there was a finite supply of money. I tweeted in response:
and
Surely any politician should acquaint themselves on the most basic facts on money now? And yet it seems that they do not.
Then she said Labour was profligate. My response was to refer to my research showing that it is always the Tories who borrow more than Labour:
The tweets were popular (as measured by retweets). The issue is bigger than such short term gratification though. The issue is that either Amber Rudd does not know some very basic economics or that she is willing to lie about the economy if she does. On this occasion I am not suggesting lies: I really think she does not know.
I think this an issue of real concern. It's worrying that so many people in this country are not aware of the most basic economic facts. It is more worrying that politicians do not either. Sean Danaher has suggested over on Progressive Pulse that now is the time for work on an Economics 101 programme and I agree with him. But I wonder if the implicit assumption, that this be pitched as a basic undergraduate course, isn't too advanced. This country is nowhere near GCSE understanding on economics right now.
I think a year 9 course would be much more appropriate than a text at an undergraduate level introduction as a consequence. But that is actually quite tough to think about. That requires very precise structuring, the introduction of big ideas in small chunks of text, and yet the integration of the themes into an overall narrative. The prize may be worth the effort. But I have noi idea if I have the time.
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This would be a brilliant Citizenship module. I used to search (in vain) for materials. Online and visual, similar to the graphics segments in the Newsnight/Newsbeat debate the other night would be excellent.
I covered a bit of economics at uni, but all the rhetoric from politicians really muddies the waters. I am thankful for your blog and others in helping me get my head around these economic terms. Especially when terms such as “national debt” are used as a beating stick and the bankrupt Britain myth is so pervasive.
It should definitely be taught at school!
They are happy for the state of ignorance to continue, without it one of the major sticks they use to beat the Labour Party with would break.
I think the education should begin with politicians at times they seem so inept I wouldn’t leave them in charge of my fish tank never mind the country. I did O’ level economics and from what I can remember if you want the economy to grow you should invest or as economists call it the investment multiplier. When demand for a product or service increases you can increase the price/supply of the product or service supply
In Conservative world, magic money trees only grow in the Bahamas.
https://www.theguardian.com/business/2016/sep/22/amber-rudd-facing-calls-to-clarify-involvement-in-tax-havens
🙂
Richard,
My dad is one of the smartest guys I know, he’s a chartered accountant, he’s always been a bit of a lefty, you might even know him – and yet he still doesn’t seem to understand the principals of money creation, it’s galling to me, I don’t want to argue with the old buffer he’s got cancer(which is being managed)! But I find it very frustrating that he still goes on about it all having to be paid back, and government borrowing is bad etc
How can this be? so many people that are good with money seem to have this view. I don’t understand accountants never have done how can I convince him to think differently, is this common with accountants?
Almost universal
If there was a profession that has never understood money, tax, business, profit or commerce accountancy is it
They just follow the rules, unquestioningly
It is like the understanding of devolved and reserved matters for Scotland, people don’t understand or sometimes even know about them.
I asked a Head of Modern Studies, why in all the years since 1997, this wasn’t being taught in schools and was told, “Pupils find the voting system boring”, which was an answer to a completely different question!
An informed citizenry is a dangerous one, education like tax is primarily to control the public not to educate
I doubt that a 9 year course would do justice to your thinking, Richard.
The problem with people not understanding what is economically best for them could be easily solved in the same way that a small child or pet dog does not have to understand why he or she is made to do what is best for them in long run and for the greater good of the state.
And there is encouragement for this in the BBC debate last night with the well deserved wild cheering for Jeremy Corbyn and the jeering down and booing for the Tories and everyone else. I could only listen on radio so am not sure of the numbers but certainly the active members of the audience suggested a powerful ‘political militia’ is there to help win the argument, if not the debate.
Well done Richard.
The audience was surprisingly antagonistic to the right
The vetting was either accurate and the country has gone hostile, or the right are in deep depths of gloom
Perhaps folks from Cambridge are a little more to the left than some other areas of the country?
I live in Cambridgeshire
Most of it is deep blue
They’re not hard to find
Ye but Cambridge is not Cambridgeshire, it’s full of young smart students who want to change the world – May and her ilk decided to make the election generational, she picked a fight with the under 25s they’ll not stop until the Tories are tramped into the ground. Meanwhile s her base is dying off a rate of 1000 a day. Even if we lose this election the next one will see great change.
The audience was selected, not random
What are you talking about, the jeering down and booing of everyone else?
Angus Robertson got just as much cheering and applause as Cornyn and the greens and lib dems got their fair share of applause too. As far as I could discern the jeering was reserved for Nuttall and Judd.
Or were we listening to different debates?
I agree: the left did well across the board
Enlightened people ,live in Cambridge, maybe
Having read so much about this area over the last 2 years, understanding is vital and will revelatory. With your stuff and book like Anne Pettifor’s The Production of Money and Steve Keen’s newly published book on ,’will there be another economic crisis. This would be great for 16 year olds in colleges. This could be part of a revived ‘citizenship course’ which could be a compulsory but untested part of tertiary education
If only…
GCSEs are far too demanding for that
Said as the father of one doing them and astonished at how much is expected
I’m going through that as well and you are right! The politicians understanding of economics wouldn’t get them on the lowest rung!
I must admit as I support my son with his revision I was scared witless of the thought of putting myself through this! two pages of physics formulas/German word order/maths: Frustums, Cones, cosine Law, sine law, circle theorems! And now the Cold War and pre-war Germany, not to mention Macbeth, about 12 poems from various periods etc…etc..etc…!
And Amber Rudd doesn’t get how money works!
Simon, pity those whose parents have never heard the words ‘cosine’, ‘theorem’, let alone Frustums (give us a clue!).
I think it would definitely be worth the effort to make the country more economically literate so that people can understand properly when they are being conned/ripped off. I think there’s a *feeling* abroad that people think these things are happening; they just don’t know HOW.
While we’re at it, I’ve long thought some form of basic law course should be introduced into school curriculums as well, for similar reasons. So as folk know their rights fully and can understand when someone is trying to kid them on or con them about what the law can do to them (unscrupulous financial companies et al).
Spot on Richard. Labour should have had some reasonable retort to the ‘magic money tree’ rubbish that Amber Crudd spouted and it could have gone like this:
‘We’ve got a trade deficit, and private debt to the tune of 1.5 million, that means banks are creating money to allow people to spend-that’s good for you banking friends, isn’t it?
Government is the ONLY source of money in this situation and e didn’t hesitate to use that with the bank bailout -let’s use it for the economy and for real resources.’
ALTERNATIVELY
Government spending equals income
Whya can’t Labour do something as simple as this?
Yes. Couldn’t agree more.
Sectoral balance economics needs to be taught from year onward -it’s an accounting identity and therefore non-ideological.
That banks create money and this has consequences for an economy should also be taught.
That Government Spending creates net assets (implicit in the sectoral analysis) should be taught.
That one countries surplus is another’s deficit should be taught.
That unemployment is a choice Governments make, should be taught.
Agreed
Obviously Rudd has never read the rules of Monopoly, the bank has a fixed supply notes not “money”
“The Bank begins the game with 32 houses and 12 hotels. It never runs out of money; if it runs out of bills, players can use any convenient items as substitutes until the Bank gets enough money”
Now blogged, thanks
Haha brilliantly put Richard, yes we played monopoly so much over the summer once that my mum went out and bought extra notes to stop my brother cheating and printing his own in you know what I mean!
You can buy extra money for monopoly should you be a fanatical player. Terrible game though – brings out the worst in people.
I can’t see that in the rules
What are you saying? You can buy more tokens for money (notes)?
That’s not the same thing at all
I think Timjag was simply suggesting that one can purchase, in the real world outside the game, additional paper notes for use within the game. For example, from https://www.amazon.co.uk/Parker-Brothers-28852-Monopoly-Money/dp/B00000IWCW/ref=sr_1_1?s=kids&ie=UTF8&qid=1496329321&sr=1-1&keywords=monopoly+money . Not sure I like the exchange rate though!
And I was making the point that the notes are not money: the IOU written by the banker is money
Despite the well argued and factual basis of much of what you and Mark Blyth and Steve Keen etal publish the grotesque ignorance/lying by politicians shows no sign of diminishing.
It is sad that this applies to both the Conservative and Labour parties.
Labour may not be as bad as the the Tories but they still trot out the same macro economic family model.
I agree
It is why I did not work with them
Brandon Lewis on the Daily Politics today … we must live within our means and pay off the labour partys deficit
Why don’t the journos pick up on this rubbish
I wish I knew
It is wise to keep the Magic Money Tree under wraps until you get a chance to harvest it. It was unwise of Labour to have LVT in the manifesto – I would liked to have warned them if I’d had the chance. There was some jubilation from the LVT movement when we saw it in the manifesto but thanks to strong briefing from CCHQ all the tory press ran scare stories on Tuesday about Labour’s ‘Garden Tax’ to frighten homeowners. Our President wrote a discussion paper 4 years ago titled ‘How can the Labour Party get turkeys to vote for Xmas?’
I would agree on the need for a good depth on crucial economics to be part of basic education. But at this point in time, I think it is far more important that we provide a limited number of simple and clear messages to the general population about how money is created, why we need monetary reform, and how they will benefit from that.
Once more people realise that we unnecessarily have a privatised system of money creation that rents fiat currency out to us, allowing banks to steal real wealth using nothing but numbers invented in a computer, the reverberations across society will be incredibly significant.
Once that has sunk in, the need for inclusion of macro economic fundamentals in a citizens syllabus will be self evident, in order to prevent us ever entering into another period of extended larcency by the ruling classes.
However, I saw some survey results stating that the number of people who understand how money is created is only 20% of the European population. I think the poll was shared on the facebook page of positivemoney.org… they are doing some good work in this area.
I agree with most of your points only I would add that banks do offer a service and deserve an income for this.
Also they take a risk when they create money, the interest or rent is supposed to be set a level that cover costs which include the risk that not all loans will be repaid. Non repayment leaves a bank in a vulnerable position on its asset side which can destroy it completely.
The main privilege of private banking is the too big to fail guarantee which falls on the taxpayer. For this reason it is essential to break up big banks and keep investment banking separate. All these things are well understood but the banking lobby keeps on fighting them. Currently they have monopoly power that is so great that they even distort the political process.
I agree Charles, businesses offering services should expect an income. The problem today is that the power to create money is with the same organisations (banks) that lend it out.
This actually encourages them to take risks, as we have seen so clearly with the GFC, and again with the ongoing bubbles being created right now in housing and stock markets in numerous countries across the world (Canada, Australia..).
Where is the risk when a) you’re lending out money that you created in a computer, b) in case of bad loans the taxpayer will bail you out because c) your industry holds the power to starve governments of funds?
In fact, one could even argue that since they take ownership of distressed assets when people default, there is actually a strong incentive for the banking sector as a whole to create recessions by restricting the money supply, in order to turn their fiat currency loans into repossessed hard assets.
We need monetary reform if we are to stop this plunder. A key component will be to take the power to create money away from private banks and place it entirely under democratic control of a publically owned central bank. Private banks will still be able to loan you money for a house, but it must come from existing deposits.
I agree with you that banks will fight such reforms. This is why we need to educate ourselves and as many other people as possible about what is happening, and about macro economic truths.
The banks will crash the economy again with their unregulated greed. Amongst the chaos, that will be the moment to achieve monetary reform.
I think positivemoney.org is doing some excellent work to create proposals and educate the public in this whole subject of money creation and monetary reform.
Ther slight problem with positive money is that they (and you) do not understand that it is only in the process of lending that money is created
There is no other money
Positive money are, unfortunately, doing considerable harman as a result
Ann Pettifor would agree
The problem (an overwhelming lack of knowledge of how economies function) is systemic:
https://www.socialeurope.eu/2017/05/rethinking-german-economic-policy/
(the first bit is jaw dropping)
It is worth recalling that after the Bank of England published in 2014 its report on fractional reserve banking – the HoC held a debate – pretty much on the report – the debate was poorly attended – but very interesting – & was the first such debate on the subject in roughly ……100 years. This is a pathetic and scandalous state of affairs.
Ignorance on how economies function & what economic levers are available to politicians is rife. Since economics lies at the core of how a country functions – any national politician unable to answer basic questions on how governments can fund themselves – is not fit for office & should be ejected. Put another way – our elected representatives should be forced – before putting themselves for election to sit an economics exam. This would strip from them the ability to spout phrases such as “magic money tree” – since if they did say it – many people would know they were dealing with both a moron & liar.
I broadly agree with most of the complaints regarding Positive Money.
But I do think they are radical. So I do suggest also we shouldn’t discount them.
Certainly my local group (Devon) are radical enough not to accept the party line. Indeed I’d say they are probably the most radical political group I’ve encountered for a long time. So I think that, whilst keeping a healthy scepticism, we should (in the spirit of the Progressive Alliance) support them as far as possible – even if only in the hope of the reform of the ‘head office ideas’ in due course. Because I doubt most of their supporters agree with their world view. I’d say it was a view in the making. (Indeed the local groups sem to be very responsive to ideas and discussion. I’ve certainly encountered some original thinking and open minds.)
Their election questions are not bad and are here:
http://positivemoney.org/we-have-an-unbalanced-economy-and-its-breaking-our-society/
Even the Telegraph agrees that there is a magic money tree. http://www.telegraph.co.uk/finance/economics/11898546/There-is-a-magic-money-tree-and-five-other-facts-about-money.html
And if you run out of bank money in Monopoly (or indeed many similar boardgames, where resources are not intended to be limited) you can just create some more money on small bits of blank paper. Just like a central bank.
I admit I was not aware of that
But it’s actually quite funny….
Just a shame they stick to the QoM theory MV=PT, which is fine in itself, but they stick to the incorrect assumptions that V and T are constant, meaning they reduce it to “M=P”, the old inflation boogeyman so believed in by the right!
Introducing “real” economics and Consumer Law into a revived citizenship curriculum?
Wonderful idea, but unlikely to appeal to the philistine “Gradgrinds” that rule the world of education and politics that was produced by the appalling Kenneth Baker’s “Geriact”, and dutifully followed by most of Blair’s Education Secretaries, with the notable exception of Estelle Morris
Estelle resigned rather than continue propagating the militant philistinism of New Labour, for whom, as for Thatcher, “education” was all about “utility”, “relevance” and “instrumentality”, and devil take the hindmost with concepts such as understanding, learning for learning’s sake and mental and spiritual growth.
Never forget Thatcher scrapped the Schools Council, and all its excellent work. In 1978-79 I taught School’s Council History, in addition to my usual Classical Studies, and had the privilege of experiencing that material at first hand. I had Year 10 kids exploring “Who killed the Princes in The Tower”, in which they had to look at primary and secondary evidence, and assess the weight that could be placed on that evidence, and then come to their own conclusions!
No wonder Thatcher scrapped the Schools Council, as it was in danger of producing genuinely informed citizens – always a handicap to rulers who seek to exercise untrammelled power.
I don’t suppose there’ll be much by way of that sort of encouragement given in academies either.
What a great idea! This be your next great opus! As a followup to the Joy of State and the Courageous Tax, write a basic, short economics book. Sure it would be at odds with all previous writings, the usual suspects would decry it as wrong or ill-informed but it could be the go to text book for the young and those who politics leaves out of simple economic ideas. You should do it and shape thinking for the next decade or more.
It’s tempting
I would think it a wonderful idea.it is desperately needed Richard. What would be the entry qualifications for understanding such a book? For example, would your audience be ordinary people without any background in economics or knowledge of the way money operates? If so, I’m your woman. You could run it by me page by page and I can tell you every difficulty I have with it. 🙂
You may have a job….
It most certainly is. Many if my clients do not have a clue at all! Although not essential for being a success, it most certainly helps!
Private Eye has dogedly reported on Rudd’s failed career in business so I’m not at all surprised she’s clueless, Richard. Sadly, from what I saw of the debate she got away with what she said (until your tweets), and additionally when she was ranting on about Labour’s spending plans nobody that I could hear pointed out that at least there was an attempt to cost their proposals whereas the Tories made no attempt. But on the gossip that she may replace Hammond, well, as being a departmental minister frequently requires a person with very limited knowledge of their brief (think Davis, Fox, Johnson, Gove, et al) it’s now accepted that in the modern world of politics ignorance is no barrier to advancement.
Unfortunately true
Corbyn did not get the chance to rebuke Rudd about Labour’s magic money tree because the ‘chair’ stopped debate on the question-from-the-audience immediately after Rudd said it. In any case Corbyn is not good at shouting for attention above others, which is why his performance was less than stellar last night.
By the way, I read yesterday that Amber Rudd’s father (who was jailed for fraud after which she was put in charge of the family business) died on Monday which goes to show what an extremely callous woman is May.
Economics really should be on the curriculum for everyone from as early as possible. I studied GCSE economics at school as the crisis was happening and I loved it. Unfortunately, we were one of very few state schools that taught it, I think largely because we were an ex-grammar school and still tried to maintain some of the traditional curriculum.
On the other hand, if you’re lucky enough to go to private school you will get the chance to study it from the age of 14/15.
I think you are the one who hasn’t played Monopoly. There is not a finite supply of money in that game:
“If the Bank runs out of money, the Banker may issue as much as needed by writing on any ordinary paper.”
It’s never happened in my experience
Except when you buy your edition from a second hand shop
but this is only your opinion like all economics
Sure
But it will be evidence based
And most isn’t
[…] on the blog this morning I realised it as time I reacquainted myself with the rules of Monopoly. This is because of the comments made in last night’s political debate. On doing so I discovered this (I added the […]
I’ve been studying economics since university in the mid 1990’s as a mature student. I consider myself to be in independent learner as I have actually studied housing management and an MBA.
I got interested because I was sick of being made redundant and decided to stop blaming myself and find out what was really going on.
I’ve read a lot and my view is that there are more than enough resources to get the message over in answer to the clap trap that is neo-liberal orthodox theory.
The real issue is how it is to be delivered. If at all. I mean universities are still peddling neo-lib crap.
I look at my own children’s studies (pre GCSE now at secondary school) and I am not sure that they are being taught to be deductive thinkers (with the exception of maths). It is something I am taking a key interest in. As you say Richard, the amount of ‘facts’ they are expected to know is incredible and one has to ask if this over-relies on inductive learning processes.
They were being more deductive when they were at primary school in my view.
This reliance on learning facts seems to be at the expenses of putting them together and working things out.
As for the public’s views on economics all you can do for now is talk to people about it. One of my colleagues at work has started to look up what neo-liberalism is upon my suggestion and is now telling everybody else about what she has found out.
I lend out the following DVDs when I can (I’ve also bought these as presents for friends and family):
Inside Job
The Flaw
Capitalism: A Love Affair
Inequality for All
The Big Short (drama)
Margin Call (drama)
But people still think that it is really complicated. But the answers are out there.
It is the delivery of this stuff to the public that is the problem.
And within the public, those who are still having it good do not want the music to stop – even though it has already for millions of others.
It’s getting it to the public that intrigues me
Richard, Thanks for this. It does raise a question for me though. zimbabwe must also have a money tree but things arn’t going quite so well for it. Is it down to a misdirection of the printed money?
A) it printed too much
B) it is riddled with corruption
C) it cannot borrow in its own currency
Why do you suspect the conservatives will win?
I wish I could answer why so many will vote for them when it is not in their interests to do s
I agree.
Anyone who votes Tory is either a multi-millionaire, or a fool.
(To discover which one you are… look in your wallet!)
Also I dont know how you are going to square this circle where you know MMT but still keep talking in terms of tax funding social programmes. Your public position is confusing and adds to the confusion.
When the audience does not get MMT sometimes I talk in languge they do get
And candidly, MMT does not get tax either, which is my grouse with it
I think I agree with you here. When I first discovered MMT I thought here was the answer but then I realised that it does not, on its own, solve anything apart from destroying the myth that money is a scarce resource.
As you say, tax is the essential part of the feedback loop that ensures that money flows to all parts of the economy in the optimal way – essentially tax addresses the distributional problem which is as important as the overall quantity of money. If you do not get the tax right and take out the leaks in the spend and tax circuit, then you are still back with Monopoly and it will end in tears.
That was my journey too Charles
MMT has money right
But Bill Mitchell’s attitude to tax would sit comfortably with that of Farage et al and that undermines the rest of his case
I rate Stephanie Kelton the best of MMT and we have been in touch, but even she was unsure when I raised the tax challenge
MMT without Modern Taxation Theory (about which i have written) does not stack
‘But Bill Mitchell’s attitude to tax would sit comfortably with that of Farage et al and that undermines the rest of his case’
That is a grotesque misrepresentation of Bill’s position, Richard, and to be polite rather unfair and one dimensional. The notion that Bill’s view of Tax is like Farage’s Laffer curve obsession is completely wrong and does Bill’s years of work on economics a great disservice. Nothing could be further from the truth and reveals your own lack of understanding of Bill’s work.
I think Charles has misunderstood MMT as well if he thinks its’ just about saying money is not a scarce resource. MMT provides significant insights into ditching money as the focus and understanding how money rallies real resources and the options a currency issuing Government genuinely has in marshalling those resources. It takes the focus OFF money!
MMT writing on Tax issues is very nuanced. i can understand you might not agree with it but it is another thing to insult MMT economists, many of whom who put social purpose as the main aim of their work, by comparing them with right-wing charlatans.
Charles makes the mistake of thinking that MMT is a policy provision -it isn’t. It is a body of theory that allows us to know what the options are as solutions. It allows to see that unemployment is a Government choice and that if a Government is allowing high levels of unemployment then MMT shows that it is an ideological choice and not a metaphysical reality. MMT also throws light on international economics and how it might foster better international relations by looking at how resource rich countries can help resource poor ones using international banking Governance and international sectoral balances.
On the Tax front, MMT makes many points that, Richard, I am sure would be happy to support and they are hardly redolent of anything Farage would be happy with. Can you imagine Farage being happy with this list?:
1. Taxes drive money and reinforce the acceptance of the currency.
2. Taxes can reduce aggregate demand when necessary.
3. Taxation can have a useful counter cyclical purpose.
4. Taxation can be used to re balance income differentials.
5. As Randall-Wray puts it: you can tax ‘bad’ and not ‘goods.’
6. Taxes can be used to emphasise the cost of something on health and the environment even though it is not revenue.
7. Tax rates should be set so that the Government Budgetary outcome is consistent with full employment.
This is standard MMT framing of the purposes of Tax-hardly something that Farage would sign up to, so why make a farcical comparison like that?
I think Richard and Charles are confusing theoretical models with policy proposals. MMT sets the framework and not necessarily the policies which will depend on specific contexts and economic conditions.
I’d advise both Charles and Richard to read the following blog by Bill Mitchell to clarify this, he says at the outset:
‘ One of the things I have noted with regularity is that readers and other second-generation Modern Monetary Theory (MMT) bloggers often fall into the error which we might characterise as the “When we have MMT things will be different” syndrome. Or the “we need to change to MMT principles to make things better” syndrome. Thinking that MMT constitutes a regime change is incorrect and steers one away from the core issues’
MMT just tells us what the consequences of imposing our values on society via policy choices will be. Those values can take any political or ideological colour.
See:http://bilbo.economicoutlook.net/blog/?p=35836
I’m no mechanical follow of MMT but I felt I had to protest at Richards rather crude and insulting representation of one of its finest representatives. That’s not on.
Simon
I have met Bill
I have heard his comments on tax, which he thinks legalised extortion
I heard nit a hint of a suggestion that it had social function
The obsession us instead with the Jobs Guarantee
When I raised my concerns with other MMT exponents I got no reassurance
I do understand MMT
I am quite explicitly saying it is not value free
I am saying it underplays the social and essential nature of tax
It over emphasises a particular aspect of the employment function
Charles is right
I would maintain I accurately represent Bill’s views, for which I have no enthusiasm and which cause me some disquiet
Richard
That’s because MMT is simply an accurate way of analysing the functioning of money in a fiat economy; it’s descriptive as opposed to prescriptive.
You can do whatever you want with the information it reveals: use it as a tool to create a well-functioning society, or simply leave it all up to the market, as at present.
It’s a map to show the escape route, if you want to take it, nothing more.
It reminds me of this great scene in the Matrix:
“I imagine that right now, you’re feeling a bit like Alice. Hmm? Tumbling down the rabbit hole? … … Let me tell you why you’re here. You’re here because you know something. What you know you can’t explain, but you feel it. You’ve felt it your entire life, that there’s something wrong with the world. You don’t know what it is, but it’s there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I’m talking about? … Do you want to know what it is?… The Matrix is everywhere. It is all around us. Even now, in this very room. You can see it when you look out your window or when you turn on your television. You can feel it when you go to work… when you go to church… when you pay your taxes. It is the world that has been pulled over your eyes to blind you from the truth. … That you are a slave, Neo. Like everyone else you were born into bondage. Into a prison that you cannot taste or see or touch. A prison for your mind. … Unfortunately, no one can be told what the Matrix is. You have to see it for yourself. … This is your last chance. After this there is no turning back. You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland and I show you how deep the rabbit hole goes. Remember, all I’m offering is the truth, nothing more. … Follow me.”
Mainstream economics is the Matrix; MMT is the Red Pill!
I agree MMT is descriptive
But some of its major exponents do not see it that way
What does MMT not get about tax?
That it has a powerful social function
And that it us not a coercive act
But us instead an instrument for social change
“I have met Bill
I have heard his comments on tax, which he thinks legalised extortion”
This surprises me, as I am a fan if Bill Mitchell’s and enjoyed seeing you both speak in London in autumn 2015; do you have a source or reference for this?
MMT recognises that Tax is vital to the economy in order to drain excess money to prevent the inflation which would otherwise result from untaxed Gov spending.
I have heard comments, from I think Neil Wilson, to the effect that e.g. offshoring isn’t as damaging as some fear, because that money is effectively withdrawn from circulation (“voluntarily taxed”, if you will), and that it will simply be paid by the next person/entity in the spending cycle. This may be strictly true in a theoretical sense, but is clearly unfair.
Is this the sort of thing you object to?
I can quite understand if so, I’m sure it would appeal to Nigel F too!
Neil is also of this laid back tax view, failing to consider the consequences of how tax is paid if it is
The concern I have is MMT is not enough
It is a useful insight
It is not more than that
And the baggage that comes with it is not always useful
“The concern I have is MMT is not enough
It is a useful insight
It is not more than that”
But it’s indispensable if you want to implement functional finance.
Knowing that the Earth rotates around the sun is also just a useful insight – but indispensable if you want to navigate to India, or Mars.
However, I’d agree that that knowledge on its own doesn’t get you to either place, you still have to build a ship and get yourself there.
I see Bill, Neil, et al, as making their own essential contributions; Bill in the Academy, and Neil by popularising and proselytising MMT to a wider audience, although he clearly doesn’t suffer fools, and sometimes can’t resist opaque riddling, to the detriment of message.
I’m a big fan of them both however – it was Neil Wilson’s indefatigable posting over many years on CiF that first made me aware of MMT – but I recognise that your own, also essential, contribution comes from a distinctly more moral basis, in addition to the necessary dry accountancy which they propound.
There needs to be room for everyone on the team; IMO, it’s too vital a message for there to be schism.
I dont think that anywhere do proponents of MMT say that tax is coercive. They may though imply that in the light of MMT’s findings,many taxes,cuts and the rhetoric behind them dont make sense. For eg – taxes for funding schools implies in the current rhetoric that we need to collect the money before spending it whereas clearly that’s not the case. According to MMT, there was no need to cut funding to the NHS during austerity because the govt could itself provide the money. But the current rhetoric keeps driving home the point that the tax is essential for funding first. As a result you keep getting journalists asking for costing! Or tories ‘live within your means’ nonsense and the obvious damage to society. We need new rhetoric that drives home the point of social function first! Maybe that’s where MMT supporters need to develop their arguments. How can one convince people to pay taxes if they aren’t needed for funding in the first place?
I can assure ou Bill does
So does Neil
It’s really rather ugly
If they dropped the rhetoric that is close to the Taxpayers’ Allianve than most opinion the UK dialogue would be a lot easier
Any writeups in particular?
Right now, no
Sure, they may or may not. Instead my concern is that for anyone who reads MMT its a natural question that follows.
Why does the public rhetoric keep pushing the point that taxes are absolutely necessary for the funding of central government public services such as the NHS? This is what justifies austerity,focus on public rather than private debt and focus on immigration as one of the causes, dependence of society on corporations and the uber rich and hence tax goodies for them. The rhetoric keeps reinforcing the idea that we NEED the corporations and the uber rich for their taxes when clearly they have chosen not to be a part of that system. When MMT clearly shows that is not the case, public rhetoric needs to change from a dependence on large tax evaders to an independence from them for the better good of society.
If there is something technical that I am missing, please feel free to point it out. Also, do you have a writeup or know someone else’s who points out to the limits of MMT’s views on taxation?
Read and hear Bill Mitchell and Neil Wilson
There cannot be any more important project than this. As has been stated many times previously, the country – and indeed the planet – is being held hostage to a dangerous economic ideology. Whether or not its apologists (politicians and economists alike) actually believe it, the main political parties have boxed themselves into a corner with no easy exit. Hence they are not prepared to challenge its authenticity because the lie is firmly embedded in the public and MSM mind-set. Votes are more important than the truth.
There is a practical solution with plenty of succesful examples. It necessitates the application of what is generally termed ‘Social Marketing’ (not to be confused with ‘societal marketing’), principally developed in the 1970s by Profs. Philip Kotler and Gerald Zaltman at Northwestern University, Evanston, Ill. Some famous examples are listed under ‘Applications’ https://en.wikipedia.org/wiki/Social_marketing#History.
(Back in 1995 I helped organise the world’s first Social Marketing Conference in Brussels).
For anyone interested – http://ctb.ku.edu/en/sustain/social-marketing/overview/main; and a basic primer: http://www.socialmarketingservice.com/site/assets/files/1010/socmkt_primer.pdf.
All it requires is a sponsor/s with deep pockets, so don’t expect any change soon.
Deep pockets aren’t likely….
Erratum: 1975 not 1995! And I was being facetious about ‘deep pockets’. I appreciate the obvious limitations. I was underscoring that it takes large organisations such as governments themselves to bring about systemic behavioural & cognitive change on this scale (think the anti-smoking campaign). Hence I don’t see any immediate alteration to the ‘Household Budget’ mindset. But, constant dripping eventually wears away a stone, so one just keeps at it step by step. A journey of a 1000 miles ….
Hi Richard,
Not sure if you have seen this but I thought it was quite a nice little explanation
https://medium.com/@alexanderdouglas/getting-money-out-of-politics-458ce4d5491e
Very good
@ Richard
There was an interesting discussion between Dr Jamie White from the Institute of Economic Affairs and Ann Pettifour
Again it seems it is difficult to clearly convey the actual economic message against the ideological dogma that comes from an economist of IEA
Also the BBC presenters don’t have a clue either
http://www.bbc.co.uk/programmes/b08rsl4c – 1hr 50min
A couple of months ago I spotted an ad for our UG Economics courses in a magazine left by the photocopier. I took a closer look and the magazine was Economic Affairs, published by the IEA. I queried this with the programme director, who said that it was a sensible choice because the magazine was distributed free to 6th form Economics students. In one sense that argument is incontrovertible, but the obvious question is who is funding this? I think we know the answer. So the right-wing is indoctrinating schoolkids who are learning Economics.
Conservatism talks louder, because conservatism talks with more money.
Deeply worrying
The IEA is toxic
And deeply opaque
Education as a whole needs an overhaul in The UK, not just people’s understanding of economics.
I agree
I would start speaking to the unconverted with a question
In the crash of 2008, where did all the money that we lost go to?
The only answer I can see is that it disappeared into thin air.
The money that banks create out of thin air (as Richard explains) can just as easily disappear back into thin air.
When a bank gives a loan to buy an asset it has two effects:
1) it creates money to flow through the system (generally a good thing) and
2) By increasing competition for the asset, it raises the price. Since the loan is secured against the asset, the loan seems to have become safer. This encourages other banks to make loans against the class of asset, and as the price rises, these loans appear safer still. In reality, the loans become riskier as a bubble forms. If the value of our house doubles but we don’t move, it is not real money. But banks make loans on the basis of this magic money. Then if the price of our house halves, we still have the same house, but the magic money has disappeared.
As I see it, money is only real when it is circulating round the economy.
Again, with the unconverted, I would claim that the Government does not spend, it invests. The right question is not what will it cost? but Is it a good investment? If it is a good investment, the Government can afford it because it will get its money back with interest.
Government spending/investment has two effects:
1) it very efficiently helps money circulate round the economy. Every penny that tax takes out of the economy goes straight back in again.
2) It buys things we value, a decent education for our children, a functional NHS etc.
Conservative economic policy is completely wrong on two fronts:
1) Restricting Government spending reduces the flow of money round the economy
2) Showpiece help to buy and similar schemes tend to create the very bubbles that end badly
Amateur comments from a biologist, not an economist.
You get substance over form
And that is vital
There are some excellent talks on YouTube by peoples such as Ann Pettifor and Steve Keen, but it’s disappointing to see how few views they have. I guess people only search for them if they’re interested in busting myths and not too many people are. They need to reach a wider audience and I would suggest they should be aimed at adults as well as children.
I wonder if you’ve thought about producing a course for FutureLearn, which I know are hugely popular with people looking for free and accessible courses.
Sue
I am expiring ideas
A university verity one would be fun
Mind you, they’re already inundating me with work
Richard
After having to endure my shouting at Amber Rudd on the TV the other night, my partner asked me how and where can lay people go to learn that there *is* in fact a Magic Money Tree.
The best I could recommend for a quick and accessible read was to recommend The Joy of Tax, although I think I’ll need to buy her a clean copy, as mine is completely covered with pencilled notes, and is now illegible!
I am amused
So is my publisher…
I tried to explain to my wife and two of our friends last evening over dinner and was called an idiot by all three of them . As Galbraith the Elder said apropos the creation of money it is ‘….so simple the mind is repelled ‘ . So I support you Richard in your endeavours to put together a course to teach youngsters . I did that very thing last year called ‘ Money in the 21st Century ‘ and offered it to the head of the sixth form at the school my granddaughter attends and although she told me in the first place it was a good idea somehow the opportunity to actually deliver the four talks never occurred . There is a major issue of cognitive dissonance about the creation of money so now I am exploring that with a clinical psychologist and others to try and get to the root of the problem . I think it is a worthwhile endeavour if we are ever to get beyond the present state of affairs, but I have no doubt it is a far from easy task .
Do you want to share your talks?
It’s called the backfire effect http://bigthink.com/think-tank/the-backfire-effect-why-facts-dont-win-arguments There’s a cartoon on it which I can’t remember the name of, I may be back with that later.
And it didn’t take long at all 🙂 http://theoatmeal.com/comics/believe
Richard, Given your comment on accountants, isn’t it weird that they want to teach kids “finance” at junior school, which will guarantee they won’t be able to understand economics if taught at year 9.
That’s a real problem, John Carlisle. I’m a former teacher (not of economics) and whenever the discussion in the staffroom has turned to teaching economics, it’s inevitably about the danger of credit cards and personal finance, etc – nothing about macro-economics.
Sorry, Richard, I didn’t want to suggest you do more work. I guess my point was that it’s the adults, who have long since left school, who need teaching and I’m wondering how to get to them.
Both my children did Economics A level and one went on to study the subject as part of her degree. As a result, I set about finding more for myself (which is how I found this blog). There are loads of good talks and discussions available online, but I doubt if many people look for them. Ha-Joon Chang has an article in the Guardian today https://www.theguardian.com/commentisfree/2017/jun/01/myths-money-british-voters-economy-britain-welfare?CMP=Share_iOSApp_Other but the people who need convincing will probably dismiss it because it’s the Guardian. I try to do my bit, by retweeting, but I suspect my followers don’t need convincing.
Your second para is right
And Ha-Joon Chang’s article is great
Do we hit the right targets? I hope so: the ripples do spread and that’s how change happens
To get an idea of the scale of the mountain to climb just check out readers’ comments to his article. Ha-Joohn Chang is hardly ‘revolutionary’. Goes to show how far Overton’s Window has shifted to the right and the level to which ignorance frames the debate. Depressing? Yes. But also challenging. Keep up the good work.
Sue, If I may, don’t start with macro economics. Remember Adam Smith used the pin factory to underpin (pun) his treatise. Start with demand, i.e. what do customers need? Then explore how it (the right product) is best delivered to them, i.e. supply chains and sales, and then how is it delivered economically, i.e. no waste, which has an inverse relationship to profit.
This brings them to this mysterious being “the organisation”, one of the most interesting entities in the world today, and how we design and manage it. This is how all my business lectures began to the new MBA and Doctoral students – my form of micro economics.
If we don’t do this it becomes too abstract and that is where all the trouble starts.
That would be my direction of travel
@John,
Doesn’t microeconomics involve the *users* of currency, whereas macro involves the creators of it – a world of difference?
Doesn’t the whole idea of living within one’s means, Micawberish debt-aversion, and household economics, originate from micro-economics?
Do the reserve transactions between the Treasury, BoE and commercial banks have any real equivalence in the non-government sector of households and businesses?
Could the reason that so many economists cannot imagine a world beyond their DSGE models be because they have been trained in micro-economics, and don’t see the bigger picture?
Perhaps I’ve misunderstood the field entirely, but I just struggle to see the potential for the study of micro-economics to change the world – considering it to restrict itself to the realm of business, rather than furthering the greater interest of society.
Micro currently teaches greed
It definitely needs reappraisal
Richard you at an inspiration in a biased world.
A nice discussion but misses the point.
Does Government or Corporations rule our country.(the world)
If our country is to survive as a democracy tax must be used to control abuse by corporations. Labour is heading in this direction but like Donald trump
( democraticaly elected ) will they survive.
Britain should lead the world and have proper informed discussion and expose the bigotry of our and other media in a calm and rational way.
So called peasants are as intelligent and more sociable than brain washed and pampered rich.
I mean Ha-Joon. Must improve accuracy.
Anyone who wants to understand economics is welcome to a free download of my “anti-textbook” based on teaching I did at Dublin City University in 2013. Money and finance is covered in Part 6 pp335 – 366
http://www.credoeconomics.com/wp-content/uploads/2017/02/credo.pdf
I can see where you’re coming from with Adam Smith, etc, but I thought the idea was to debunk myths about their being no magic money tree and analogies with a household economy for Year 9 pupils.
I doubt very much whether there is time in the school curriculum to provide a full course or whether there are knowledgeable staff to deliver it. Year 9s are very different from undergraduates.
I recently came across a site which seems to be aimed at teenagers or complete novices http://www.ecnmy.org/engage/new-poll-shows-over-half-of-uk-voters-dont-understand-how-this-election-affects-them/
My aim would be to peoduce a book
The level has to be accessible (year 9 is already demanding and year 11 tough)
I am not presuming it would be taught
I am not even aure it will happen!
Economics as a subject – there’s the rub. Any such course would have to be comprehensive. It would need to teach neoclassical (or micro)economics as well as Keynesian (or macro) and Marxian. Each is a distinct way of understanding how economies work. To teach one at the exclusion of the others would be a great disservice to your students. If you taught Christianity which branch would you teach?
I see no point in teaching isms in such an approach
I am only interested in teaching what works
Isms are for classrooms, not the real world
In the real world no Ism is a sufficient explanation of the reality we now live in
Richard.
Economics as a discipline has contending theories — this is the real world and as such it should be acknowledged. I view contending theories much the same as a farmer views his machinery. What is the best one for the task at hand. If it works use it. I appreciate that you are a Keynesian your writings reflect that perspective. I have no problem with that because many particularly among the SME community also share that viewpoint. However, that same community are left defenceless against the political and financial scams that are sowing much economic distress. Distress, from which a knowledge of Marxian analytics would offer protection. Hence my earlier reference to the teaching of Christianity, to teach only one variation to the exclusion of others would give a very stunted view.
Teaching is not indoctrination If you only teach one to the exclusion of others you are teaching an ism.
I think you’re heading up a blind alley
Someone once warned about being the slave of dead economists
Mr Shigemitsu. Richard and Sue
Richard: “Micro teaches greed” No it does not. Unfortunately BS teachers teach that neo-liberal doctrine which really began at Harvard with Prof Jensen who wrote a 1976 paper that would change everything. “In ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ he laid the groundwork for the most radical change in the hierarchy of power in corporate America since the robber barons gave way to professional managers.
Milton Friedman attended a 1986 Beverly Hills charity dinner in his honor. Friedman was the godfather of a new kind of business leadership, one that deemed moral virtue immoral when it doesn’t serve the bottom line.
Arguing that managers had become too entrenched and lacked discipline and accountability, Jensen and Meckling posited that investors were more trustworthy than managers as custodians of the American corporation. Managers weren’t going to voluntarily reform, they said, so the system had to be adjusted so that they would be forced to do so. No longer would they be their own judge, or be judged by a jury they had picked, that is, their board. The market was henceforth to be judge, jury and executioner.
Until Jensen came along, executive pay was largely tied to company size–the highest-paid CEOs ran the largest companies.”
Economics begins, not with currency, but at the moment someone creates something that someone who wants it will pay for.
The management system that governs this is what can be good for all or highly damaging. Friedan, from Jensen, produced the rationale that allowed the greed Richard conflates with micro economics.
If you want a bit more on this here is a link to an article from my business column in the Sheffield Telegraph that informs a bit more my thesis in today’s UK climate.
http://www.sheffieldtelegraph.co.uk/news/opinion/visionary-captains-of-industry-show-solidarity-to-be-our-real-local-heroes-1-8439220
I disagree
Long before 1976 micro was built on the idea that we have unlimited wants and limited means
That is based on greed
And I do not think it is true