Max Lawson at Oxfam has drawn my attention to a recent article in The Economist on Corbynomics. It is interesting for a number of reasons.
First, it shows how far Corbyn has backed away from the positions he adopted to be elected leader of Labour in 2015.
Second, it entirely justifies my view that Labour is far too timid on many tax and economic issues.
Third, it uses Polanyi to justify this; I am not sure wholly fairly.
But most interesting is its discussion on modern monetary theory and People's QE, which will forever be my contribution to Corbynomics (and the two are related, of course). They say:
There is plenty of radical thinking about monetary policy going on in leftist circles. Followers of Bernie Sanders, a socialist senator who challenged Hillary Clinton for the Democratic presidential nomination in 2016, have leapt on “modern monetary theory”. MMTers believe that because currency is a creature of the state, governments enjoy more financial freedom than they recognise. They can spend without first collecting taxes and borrow without fear of default.
The eyes of Mr McDonnell's advisers would bulge at the suggestion that they adhere to MMT. Though Mr Corbyn entertained wacky policies in the early days of his leadership–including “people's quantitative easing”, which amounts to printing money to fund public investment–the message today is orthodox. Labour is toying with the idea of altering the Bank of England's mandate, to make it more like the Federal Reserve's, in which unemployment is targeted in addition to inflation. It is also thinking about moving parts of the bank to Birmingham, a cosmetic change. For those on Labour's left, the party's reticence is frustrating. “Labour have never ‘got' monetary policy,” moans one prominent left-wing thinker.
There are three things to note.
First, the fact that they realise that there is a modern monetary critique of Corbyn is relevant. It's out there now: the genie is out of the bottle.
Second, they cannot bring themselves to describe MMT correctly, although I suspect they know what it really is. It's not that MMTers say a government can spend first without collecting taxes: MMT says that collecting taxes is not possible until government spending to create the necessary currency out of which tax is paid has taken place. And MMT says that tax collection is not essential if there is less than full employment: fiscal stimulus is a wholly reasonable economic policy. Whilst MMTers also say a country that borrows in its own currency cannot default not because they are spreading some rumour or new idea: as a matter of fact that is true.
Third, PQE is described as wacky. I am amused by that. Remember the old adage that first they ignore you, then they ridicule you, and then they claim that the idea was right all along and it was actually their own? Just give this one time: we're at the ridicule stage right now and the rest will naturally follow.
And if you don't believe me, note what I have already had to say about automatic information exchange this morning.
To which I can add country-by-country reporting. And others. Change does happen.
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Odd choice of words from the Economist.
Was Roosevelt’s New Deal ‘whacky’?
Is China’s investment in infrastructure and 7.5% growth rate ‘whacky’.
Or South Korea’s >4% investment in R and D?
There is nothing whacky about investing in a nations infrastructure, knowledge base, health, skills, and education. It pays.
I used to subscribe to the Economist about 10 years ago but got tired of their ideology, apparently, it was all going to go wrong for China because they had the wrong kind of investments (aka. central planning never gets this right, only markets can). We may not prefer the means, but the fact is that GDP per capita of the Shanghai region (among many) is now higher than the NE of England.
Charles
As I said – I think this is the ridicule stage
Some – like McDonnell are at the violent rejection stage
We’ll get there
One day the Economist will be full of MMT
Richard
While I agree with you about the inevitabiity I think there will be a very large and vicious backlash first. Neoliberals are very powerful and will not give in meekly.
I have always worried about the potential for civil disruption from Brexit
I still rate it as very high
AMcG says:
“While I agree with you about the inevitability I think there will be a very large and vicious backlash first. Neoliberals are very powerful and will not give in meekly.”
I’m not sure about ‘backlash’. The crucial thing will be how the neolib orthodoxy responds to the current system going into massive meltdown. It seems increasingly inevitable, well …. inevitably closer
I also think that some of the big corporate and finance players are beginning to notice that when they have all the money they will be out of a job and their predatory business model will collapse.
Businesses need customers with money to spend. They are getting thinner on the ground by the day.
Charles Adams says:
“Odd choice of words from the Economist.” Not so, Charles, that’s why you stopped reading it.
” (aka. central planning never gets this right, only markets can).”
I’ll believe the lying hounds when they finance their own bloody wars.
Can PQE be used to deliver money to councils to spend on fixing local roads? Just asking for someone who travels in the Notts, Bucks area a lot who has to deal with the hazard of potholes all too frequently.
It could be
But straightforward borrowing can do that too right now – at exceptionally low real interest rates
Donny, I assume you’re asking for Ivan Horrocks http://www.progressivepulse.org/uncategorized/potholes-neglect-and-the-wanton-vandalism-of-public-policy
This is a very odd article, even for the Economist. The writer appears to have only recently encountered MMT and when he says ‘ MMTers believe …They can spend first ….’ well , never mind MMTers those of us non-economists who have looked at this know that what MMT describes is reality . Confucius said that the beginning of wisdom was to call things by their proper names and to say ‘ spend and tax ‘ rather than ‘ tax and spend ‘ meets that test. But I agree with you the very fact that MMT has even been acknowledged is an intimation of the possible, in terms of the direction of travel.
When I read this article I was struck by the change of tone from the contempt and disparagement in Economist articles two or three years ago. It appears almost to be describing a realistic in their view alternative policy (although they couldn’t resist yet again raising good old “capital flight” as a risk!).
There could be much to read into that.
There doesn’t seem to be much in the media about John McDonnell’s and James Meadway’s deliberations on economic policies (maybe you see it in the FT?). I always assumed that the “Fiscal Rule” was rhetoric to get the right wing media off their backs. Does McDonnell really “violently reject” MMT and PQE? I guess he’d be unwise to major on them in his charm offensive to “Business Leaders” etc.
I still hope that a Corbyn/McDonnell government will open the way for MMT and PQE, if gently-gently, rather than having to rely on a second GFC, which could have much nastier consequences.
And just a response to Charles, if you can see through their free market ideology (yes, it irritates me), the Economist has lots of well written, interesting information about the world!
I think the Labour team may be open to listening
I can but hope
A. Pessimist says:
” Does McDonnell really “violently reject” MMT and PQE? I guess he’d be unwise to major on them in his charm offensive to “Business Leaders” etc……”
I don’t quite see the logic of that.
Where do these ‘business leaders’ think they are going to make sales when the UK population has no disposable income and its credit is maxed out. ?
John McDonnell and Jeremy Corbyn need to look at one thing to get fully on board with MMT. This is on page 16 of the Bank of England’s 2014 First Quarter Bulletin article “Money creation in the modern economy” (which explains how private sector clearing banks create money) where it says:-
“And reserves are in normal times, supplied ‘on demand’ by the Bank of England to commercial banks in exchange for other assets on their balance sheets.”
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
This should tell McDonnell and Corbyn two things.
Firstly, those “other assets” are usually gilts (treasury securities) which then begs the question where was the money created for these commercial banks to buy gilts in the first place. If the answer is the commercial banks create the money then effectively the commercial banks create their own reserves and not only has the BoE lost control of interest rate targetting but commercial bank control fraud becomes more enticing for unscrupulous bankers.
Secondly, if commonsense argues the money to buy gilts in order for commercial banks to buy reserves must come from central bank money creation from nothing then it is also perfectly feasible for government through its nationalised central bank (the Bank of England) to create money from nothing for its own spending (or injection into the UK economy say as tax credits to boost demand) and the major constraint on this creation is the aggregate amount created by both government and private sector banks relative to the economy’s resources based capacity.
Quite so
In 1939 the McDonnell’s were not far away from Bessie Braddock and I had an aunt round the corner. Bessie is the forgotten lady of the past who had an interesting influence on Labour politics that is either forgotten or ignored. Perhaps it is time for a school of Bessienomics thinking to direct our policy making.
Tell more
There’s two other analogous articles in the papers today leading on from the Scottish GC paper. One is an interview in The National with Andrew Wilson (of the SGC) and the other an article in the FT by John Kay (who is a member of one of the FM’s councils).
Boiling them down they say: “let’s not frighten the horses” and therefore let’s keep Sterling – but we don’t need a currency union to do so – and although we’ve looked at some of the “wacky” ideas we realise that the only true economics is the status quo – just look at the tsunami of ridicule in the (right wing) papers when there were hints that we’d come out in favour of a new currency. So clearly that was a non-starter.
Leaving aside the insults, such as Kay’s “subsidy from England” or Wilson’s implication that the Common Weal position doesn’t include “an orderly transition…and…planning” for an independent currency, the most worrying thing is that neither author seems to understand that the current economic paradigm is responsible for the mess we are in and that the “ridicule” stage is more intellectually credible than actually trying to understand MMT. As Wilson says: “The idea you can print money or that someone will give you it for nothing is for the birds. It’s not credible.” (sometimes it is better to keep your mouth shut and be thought a fool than open it and remove all doubt) Or as Kay says: “Any nationalists who believe that independence would mean freedom from budgetary constraints are indulging a fantasy.” Do I see a straw man?
I find their attitudes and ignorance deeply worrying.
http://www.thenational.scot/news/16265241.Exclusive_interview_____The_vast_majority_of_Scotland_will_regard_our_independence_case_as_far_more_credible___/
https://www.ft.com/content/f38ec3e4-64ef-11e8-bdd1-cc0534df682c
My thanks: the Ky one is now a blog
G Hewitt says:
Thanks for the links, G.
Have you seen Craig Dalzell’s critique of the economic (garbage) recommendation for sterilisation ? A trap and a snare. Phobohippophobiacs will just have to be dealt with.
http://allofusfirst.org/tasks/render/file/?fileID=1DE7B453-D6DD-3D21-F2D1ED25EB03474F
Andy Crow says: Have I read the critique of the “recommendation for sterilisation”? Sterilisation, emasculation…same result. Unable to perform as required. Thanks, Andy. An excellent piece. Some really good arguments coming from Common Weal. Graham.
Ah….!!
‘Sterilisation’
I see it this morning. Freudian slip perhaps ? 🙂
I do a lot of them
And typos too
What is not understood is that MMT is not some new economic idea to be applied. It explains how a sovereign fiat economy actually functions – and has done since the 1970s. Bill Mitchell is always going on about ‘framing’ so I think it would help if its description (hence acronym) was changed. Suggestions on the back of a postcard – lol.
It should be MMS – the modern monetary system
CMO.
Current monetary orthodoxy. ?
MMS v CMO
[…] exists as a phenomenon separate from the economy as a whole. I've already noted similar traits from The Economist and John Kay in the last few days. And it is as if he, like they, thinks, quite erroneously, that […]
[…] Andy Crow suggested why neoliberal austerity might end in a comment posted on the blog overnight. He said: […]
“note what I have already had to say about automatic information exchange this morning.
To which I can add country-by-country reporting. And others. Change does happen.”
Slow but steady progress: these 2 headlines and a subsequent conference title from Australia provide some insight:
“Australia to implement country-by-country reporting against multinational tax avoidance by 2016”
https://www.smh.com.au/national/australia-to-implement-countrybycountry-reporting-against-multinational-tax-avoidance-by-2016-20150512-1mzjk2.html
“Australia now officially has a ‘Google tax’: Diverted Profits Tax law passed Parliament”
https://www.smh.com.au/business/the-economy/australia-now-officially-has-a-google-tax-diverted-profits-tax-laws-pass-parliament-20170328-gv83va.html
“Country by Country Reporting: the first year — ATO (Australian Tax Office) update
CCH Networks”
Wednesday, 14 March 2018
https://www.eventbrite.com.au/e/country-by-country-reporting-the-first-year-ato-update-tickets-42694356971#
We’re winning, slowly