As I have made clear, there are a great many reasons to be worried about the economy and related political issues in 2019. The sense that we are in limbo waiting for something to happen appears pervasive to me. The difficulty is that we do not even know for sure what the something is. Its characteristics can however be predicted with relative ease.
There will be economic stress bringing political change, or there will be political failure precipitating economic change that will then require the creation of new political order. Those, I think, are the available options.
The assumption I am making is clear: economic and political fates are intertwined, in my view. And such is the scale of the economic crisis to be faced that this time the political order of neoliberalism cannot survive the process of change intact. Its assumption that free trade is the answer to all questions for a population that only wishes to act in pursuit of self-interested material well being no longer holds true. The planet cannot sustain these politics any longer. Nor will people tolerate the resulting inequalities any more. And although the immediate alternatives appear to be largely right-wing and populist these do, we know, have poor records on delivery and will be self-destructive because they actually exacerbate rather than solve the problem that people think exist. There is then every reason to think an alternative is needed. The only problem is that the left has not been too good at finding such alternatives, let alone presenting them coherently.
I suggest that the Green New Deal is at the core of this alternative. A decade after the Green New Deal Group published its first version of this plan, and after numerous updates in time since, the vision remains clear and consistent. The aim is to refocus the economy on delivering the essential services that a sustainable economy has to deliver. One of these is full employment. In a green economy nothing less makes sense: people who want to work who can't are non-renewable resources going to waste.
Others are core needs: housing, sustainable energy and transport that does not burn the planet.
And then there is the infrastructure for essential public services.
The emphasis is very far from the economics and politics that the Green New Deal will replace, by necessity. This new politics is about communities getting the basics right so that all people - including those who work in the private sector - can flourish.
But the Green New Deal does not represent all that is required. To work it has to convince people that it can deliver. Modern monetary theory helps explain how this can be done. I have explained how here. This does not require that all the policy claims of MMT be accepted. Those claims are not integral to it, although many suggest they are. Rather it means that the ability of the government to act using its own ability to create credit without inflation resulting is critical to the delivery of the Green New Deal.
But so too is a properly functioning tax system. That's firstly because taxes are vital if inflation is to be controlled: they take government created money used to deliver essential services out of the economy and so prevent inflation happening. Second though, well designed and properly functioning tax systems tackle inequality, including that which exists between those who do and those who do not pay the taxes required of them, which is itself a major cause of economic injustice. Tax gap measures identify the scale of this problem. Tax spillover analyses identify how to tackle them. These are then also key components of the delivery of the Green New Deal. I have new reports coming on both very soon.
But so too is reform of private sector accounting, in my opinion. What we count indicates what we think matters. And the rest does not. Right now private sector accounting is focussed on just two things. One is private profit. The other is financial markets. Those are the only two things that matter in current private sector accounting. The best that we can say is that they are candid enough to admit it.
But this has to change if the private sector is to play the role that is required of it in the economic and political reforms that are essential. What counts — whether it be staff, the environment, civil society, tax payment, proper regulation and much else - also has to be reflected in the priorities of private sector accounting in the future. Only when it does will these issues — which are key to commercial success in the twenty-first century - get the priority that they need from the businesses that must focus upon them. This is why accounting is now a key focus for my work, and is likely to be so from now on.
There are then five elements that together can provide an effective platform for the real reforms needed as the basis of the economy of the future:
- The Green New Deal;
- Modern understandings of money and its role in financing government;
- The tax gap as a measure of fiscal efficiency, tax created inequality and only thirdly of tax authority effectiveness;
- Tax spillover analysis to plan for better control of the economy in pursuit of social goals;
- Reform of private sector accounting in the interests of all stakeholders of companies.
These all link together. They are my focus in 2019.
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I miss read pervasive as perverse and it still makes sense. I wish everyone a Happy New Year. I read an article which suggested that the neoliberal cause was justified because of the fight against communism
“The evidence that Slobodian develops leaves a considerable mark on the conservative economist’s legacy, and it shows the ethical tensions at play in the fight against communism.”
http://reason.com/archives/2018/12/30/what-does-neoliberalism-really
I never understood this fight and given it no longer exists perhaps we can get on and make a better world as suggested by the Green New Deal.
‘Those that god wishes to destroy, he first makes mad’ Euripides i believe. I think this episode is the ‘perfect storm’ we have all been warned about. With our Planet now fighting for its life this rather reduces Politics and politicians to their rather insignificant reality.
Erm, which is it?
“the ability of the government to act using its own ability to create credit without inflation”
Or a couple of lines later
“That’s firstly because taxes are vital if inflation is to be controlled: they take government created money used to deliver essential services out of the economy and so prevent inflation happening”
It strikes me hat both can’t be true. Either the government printing money causes inflation (which history tells us is rather likely) or it doesn’t cause inflation, so why do we even need taxes in the first place.
Both are true
They refer to aspects of the same process
Is that really so hard to follow?
Hang on a minute here – what you are saying literally can’t be true, and they certainly can’t BOTH be true.
All credit creation is inflationary by definition, because the money supply increases. PV=MQ and all that.
Therefore government creating credit is inflationary. It would be quite fantastical thinking to claim that government creating more money wasn’t somehow inflationary.
But you say government created credit is somehow NOT inflationary.
Then you immediately go on to say that taxes are used to control inflation – I assume by destroying ( by removing from the financial system) that newly created government credit. Which does in itself make sense – but not in the context you have already laid out, that government created credit or money is not inflationary.
You have contradicted yourself directly.
Either government created credit is not inflationary, at which point we don’t need taxes to control that inflation, or it is and we do.
Which is it?
Moreover if government created money is not inflationary, why do we need taxes at all, and why doesn’t the government simply print more and more money and pay for everything without any constraint?
Government created credit is not inflationary if there are unused resources in the economy to meet the demand for resources the money creates
But of course leaving money i9n the economy continuously would create inflation – so a balance has to be struck with taxation
I have explained this endlessly
Your simplistic arguments are what make no sense
We live in a complex world -although in this case the complexity is really quite easy to undertsand
I suggest reading this https://www.taxresearch.org.uk/Blog/2018/11/09/modern-monetary-theorists-need-to-take-a-long-and-hard-look-at-how-they-are-campaigning-if-their-case-is-to-be-won/
The only thing we have to thank Gideon for in his awful term as Chancellor is proving Richard’s argument that it is the availability of resources that creates inflation when money is created. All that QE that the Gidiot created poured into finite (often speculative) assets such as property resulting in inflation in that sector, while the real economy barely benefited from the QE investment. We saw little inflation in the ‘real’ economy until the impact of cost push following the devaluation of the pound post the referendum.
The motto I suppose is that even the useless have their uses!
I’ve read your other blog (the one you link to) and I’m afraid it is your arguments which are simplistic – and more often than not plain incorrect. You make vast assumptions about the very complexity you talk about, to suit your case.
Let’s start with the points you make on this thread.
Firstly, all new credit is inflationary. The extent of which is that to be determined. The velocity of money is the key here.
You make the caveat that new government credit is not inflationary when there are underutilized resources in the economy. This on occasion may be true, but is very, very far from a rule.
Let’s leave aside (for the moment) how you would describe what “underutilized” means, especially in the UK where unemployment is already very low (compare to the US where such low unemployment is already driving prices higher). There are plenty of economies around the world which have very obvious “underutilizations” yet the act of creating more money has not led to higher growth, and in fact has lead simply to inflation. Stagflation is the very description of this phenomenon.
The basic mistake you make here is the incredibly poor assumption that more government money = more government spending = more growth. In reality, this is not always the case.
Let us now look at your claim about taxation. In the base case taxation could be used to control inflation. This is a very difficult thing to achieve in reality though. Taxes are backward looking, whereas controlling inflation is a forward looking process. Moreover, it is going to be politically very difficult to dramatically raise taxes should that be required to tame inflation. Do you really think any politician will raise taxes by more than a few percent, because doing so will lose them huge numbers of votes. This means by definition the ability of taxes to control inflation is severely limited. Political economy 101.
Lastly, I notice you don’t actually have a workable model (and nor do any of the MMT types) to describe inflation, the affect of government money printing on it and then the amount taxes would have to be raised to counter than inflation. Because you don’t have such a model you simply whitewash it out of existence and claim that more government spending won’t create inflation.
Now let’s have a quick look at the other post you link to. I’ll do it point by point.
1. Government with fiat currencies can indeed print money without limit. They are not printing value or wealth though. Base government money supply (M0) is not backed by assets but all higher forms of money supply are. M0 is also tiny in comparison to the size of the economy (off the top of my head M0 is about £100bn and GDP is about £2000bn). Of the broad M3/M4 money supply (or liabilities if you like), almost all of it is asset backed.
2. Central banks typically don’t extend credit to governments. They only act as the intermediaries.
3. OK – but see my point above on the real world limits of taxation to control inflation.
4. This is simply not true. Borrowing from the central bank is still borrowing, and the central bank would still need to recapitalize to fund this. What you are implicitly suggesting is that the government can recapitalize the CB by printing money.
5. OK – this is a social point about redistribution, not about about economics or finance.
6. OK – spend and tax or tax and spend, doesn’t really matter. It’s not a static system and governments are always taxing and spending. It is essentially immaterial what comes first – but the balances do matter and how they are funded matters. You are trying to use the spend first argument to make the claim that governments can just spend as they see fit, without worrying about how it is funded. Which is simply not true. How that spending is funded (taxation, debt issuance or your money printing) all have major effects on the economy.
7. Governments don’t always borrow in their own currency. The HUGE eurobond/sovereign market rather shows this to be false. Governments can’t explicitly default on debt in their own currency, but that does not exclude the possibility of an implicit default – or in common terms inflating away your fixed debt through high inflation and a weakening currency. An investor still loses the same amount (normally more) on an implicit default as an explicit one.
Can I be clear that you know that all money is credit?
And therefore your argument is that all money is inflationary?
If so, that’s a pretty strange argument
And you clearly do not understand my points 1 to 7 or wish to base your arguments on facts or the real world evidence
In which case I have got better things to do
But I know I am right….
As do the vast majority of economists know 1 to 7 are right
Oh Jeremy,
Youth, bravado and misplaced confidence do not conceal the fact that you are clearly out of your league. I was going to try and present a concise, simplistic, spelt-out version of R. Murphy’s explanation of money creation and tax (the flow and balance thereof). Then I saw this quote of yours below and decided not to bother
“All credit creation is inflationary by definition, because the money supply increases. PV=MQ and all that. Therefore government creating credit is inflationary.”
So you have seriously tried to assert the Quantity Theory of Money – not in the form it took when Milton Friedman revived it in the 1960’s and ’70’s – but in the form it took when Fisher presented it at the turn of the century (the turn of the 19th & 20th centuries, that is). That’s embarrassing.
At any rate “all credit creation” may be expansionary but not necessarily inflationary, more significantly all versions of the Quantity Theory are now obsolete. The Bank of England effectively and officially acknowledged this in 2014:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
You’re right
Don’t bother
If he really thinks what he claims he really is a lost cause
It must be quite dull for you Richard covering the same ground time and time again but the issues Jeremy raises are entirely legitimate particularly on the efficiency of Govwrnment spending, the level of “spare” resources and political expediency when wanting to use tax to control inflation I.e if inflation is reducing purchasing power then there is a practical limit to using taxation to reduce it further – the electorate will probably vote for for a reduction in Govt spending instead via a change in Govt. You may state this is democracy and is therefore a major obstacle to PQE.
Dull?
Wow, you have no idea how much fun this is!
Well this is going to be fun!
@ Richard Murphy
Yes, all money is “credit”, but most “credit” is asset backed. This is a very important distinction for a fiat currency where newly printed government money is ONLY backed by a government promise to pay, whereas broad money supply credit creation has something on the other side of the balance sheet. It is this that MMTers more often than not confuse, because they see the two as the same thing when they really are not.
All NEW credit is inflationary (I will come back to this when I answer Marco). It is the increase in the money supply that can drive (but is not the only driver of) inflation.
I have directly based my points 1-7 on the real world. I think you have based them on how MMTers would like things to happen, but don’t in the said same real world. None of the points I have raised are in any way controversial. Indeed the vast majority of economists know that governments can print fiat currency without limit, but it’s a TERRIBLE idea, central banks don’t normally lend directly to governments (and it would still count as government borrowing), taxation has limits to controlling inflation, in an economic system it doesn’t really matter if tax or spend comes first (because they effectively happen at the same time) and governments can effectively default in their own currency through inflating the debt away (this is VERY well understood).
You have totally ignored my other points though. So I will ask you instead to answer what should be a very simple couple of questions for someone who thinks MMT and a green new deal are the way forward. You should already have some answers and models for this – given you are an economist and are heavily pushing this idea.
1. What is the current “underutilization” of economic capacity in the UK and how would you measure it?
2. Given your answer to 1. above, how much money should the government be “printing” as your Green new deal suggests, to spend into the economy?
3. What would the effect of the answer to 2. have on inflation?
4. How much would taxes have to rise to control it, given your answer to 3. above?
If you are pushing this policy, you should have someone idea what it’s effects would be – I would assume so at least. It would be quite disingenuous of you to suggest such a policy basically by making up a wish list but then not having actually done any work into what that would actually mean for the economy.
So please give us answers to the four questions above, and point us to the models or information you have used to generate your answers. At the moment, I get the feeling you are simply pontificating with absolutely no data or work done to back up your assumptions.
@Marco Fante
QTM is still rather important. You do know that right? It’s the main reason central banks watch money supply data ALL the time, and one of the main reasons they engaged in QE (as money supply aggregates were falling).
You can argue over which form it takes (Fisher, Friedman, Keynes, von Mises) but it is generally accepted by mainstream economists that in the LONG run QTM holds true, but it is not as applicable in the short term.
I can also assure you the Bank of England also agree with the above statement. The hard part is unpicking all the data and the various interactions with the economy, but the general rule is that increasing money supply = inflation, so stable growth in money supply aggregates tends to stable inflation.
But had you read the piece you link to you would probably know this – given the BoE devotes most of it to spelling out the link between quantity of money/money creation, price levels and inflation targets. I would pay special attention to pages 20 and onward where they really try to spell this out for the reader.
They also hate that piece you link to as has been seen as a license by every crank to claim that the Bank can just print money, or that QE makes debt disappear etc.
I post this as your last comment
I will not reply
Your comments come from a laughably naive view of money and a wholly false understanding of money creation
I cannot waste time addressing what I have addressed many times before
Casper says:
“but the issues Jeremy raises are entirely legitimate” as if merely asserting that somehow makes it true. Thankfully, people tend to stop doing that after they turn 21.
Perhaps you weren’t paying attention Casper but Jeremy’s concerns have already been addressed.
I’m not sure BTW but I think that I can smell Worstall lurking around in the background somewhere.
🙂
Why judge people? Tim Worstall is a bigot and someone I have no time for and I have no idea what he advocating as I don’t read anything he produces. I would reiterate many of the points Jeremy raised and no they haven’t been answered unless you view simply closing someone out who challenges what you say as an appropriate course of action.
I have answered all Jeremey’s points many times over on this blog
I do not have to spend my day doing so again every time a person with not the slightest idea of the arguments turns up here
Richard,
I understand that this is normal for you. When you are unable to properly answer a question or have been shown to be wrong, rather than arguing or trying to provide evidence for your case, you simply assert that you are correct and block the person asking the questions.
It suggests a low level of competence and a high level of arrogance and cowardice.
I ask again, for all concerned, what should be very easy questions for an economist of your claimed caliber:
1. What is the current “underutilization” of economic capacity in the UK and how would you measure it?
2. Given your answer to 1. above, how much money should the government be “printing” as your Green new deal suggests, to spend into the economy?
3. What would the effect of the answer to 2. have on inflation?
4. How much would taxes have to rise to control it, given your answer to 3. above?
It is normal for fools to arrive here and ask the sorts of questions you do
So let me ask you one
Who will win the football league in 2022?
If you can answer with absolute certainty I will; tell you with absolute certainty what the cash requirements of the Green New Deal are
Everything else I have answered many times
And I don’t like time wasters
I’ve gone with the wind and lost the will to give a damn. Public debate is at such dire levels as to be worthless or even the communication of competing viruses. We need big changes and to understand why socialist paradise isn’t one of them and that capitalism ain’t how things work either. History tells us this. What might read as incrementalism in Richard’s listings needs a radical disjuncture at institutional levels. Our leadership and its captured press know this would be the end of their gravy train.
Your last comment may well be true
But it’s going to happen anyway…somehow
Sorry to appear to be taking a free ride on an excellent post but it sounds to me that you are really talking about ‘investing out’ environmental degradation alongside ‘investing out’ fascism, racism and unfairness. and other threats to democracy.
That’s how I would sum up your idea.
It’s not a bad summary…
I think we might find, when we look back historically, that a major contributor to the economic and social breakdown that is occurring in the western world owes much to globalization and its spreading impact as emerging economies (China et al) identify the potential gains of state-backed competition policy.
Western democracies are finding it almost impossible to deal with global trade expansion without recourse to protectionism, which ultimately mires trade in restrictions. This creates social, and especially labour effects – leading to protests and unrest that cannot be confined within political policy.
The alternative is to curtail globalisation, but that means turning away from many of its benefits – Do we face slamming on the brakes just as the NHS, for example, is applauding the introduction of digital technology and artificial intelligence to thrust the world’s 5th largest employer and revered institution into a futuristic economic and social dimension; and all its economic benefits.
Or will Corbyn ignore the siren voices and generate funds irrespective of its effects on the balance of the economy.
I confess I cannot find an argument in what you are saying
‘archytas’ is spot on – and therein lies the root of the problem to which there appears to be no realistic solution. As has been repeated and repeated legion times to little avail – the perpetrators of Neo-liberalism have their feet firmly on the oxygen supply for the rest of the population, not dissimilar to the life & death power of the Church during preceding centuries.
Dr Cornel West – one of Americas most seasoned and controversial critics of capitalism – explains the weakness of the progressive ‘case’and why it is currently losing the political battle – https://www.youtube.com/watch?v=r1gtm8E7NUM.
As you say, Richard, it will eventually change. Everything does. Often for reasons and events that are not immediately obvious. Regrettably history shows that the reactive change isn’t always for the better. It could be we are on the slippery slope to something much worse, inlcuding WW3. The power of the US military should seriously scare the rest of the planet who have not yet been on the receiving end of it.
There are various wars symbiotically active on several fronts. Class, Ecological destruction. Inequality. Racism. Xenophobia … et al. Neo-liberalism both feeds off and empowers all of them negatively.
The western political agenda is now unequivocally driven by prevailing regressive economic ideology. Nothing will change until that does. Back yet again to the simple fact that no senior politician has yet had the courage to state loudly, confidently and publicly that the emperor has no clothes by denouncing the household budget analogy for a sovereign government.
All your recent (and not-so-recent) critical analyses of the ‘state of the nation’ should be an urgent wake-up call for the Labour Party and the other minor parties. Alone they simply don’t have the fire-power to overcome the enemy. An alliance is urgently needed both domestically and internationally to fight Neo-liberalism tooth & claw, while offering a coherent, progressive vision for the future. The GND might just be the policy around which such a union could coalesce. I truly hope it will be so. Otherwise future generations will be subjected to unremitting servitude, absolute and relative.
It’s only the 2nd day of the year and already it seems like the storm clouds are gathering. I’m now in desperate need for a decent coffee. Barista!
Add one for me
John D,
How are things in 2006? Hope the weather is nice. Do send us a postcard.
?
“?”
“the perpetrators of Neo-liberalism have their feet firmly on the oxygen supply for the rest of the population, not dissimilar to the life & death power of the Church during preceding centuries.”
Really?
Lets look at how they are doing:
The Washington Consensus, a central pillar of neo-liberalism, no longer exists and hasn’t done for some time.
Monetarism and monetary policy, another central pillar (the supposed alternative to Keynesian fiscal policy) has, in most places, been hovering around the zero lower bound for about 10 years and its QE innovation has done nothing to resolve that bind. Monetarism is virtually dead.
The “free trade” (ie. corporate globalisation) consensus has been broken and openly trashed by the U.S. president. Its deep unpopularity with the public now fully exposed.
The doctrine of balanced budgets is also a dead letter. Austerity thankfully abandoned in the UK and increasing deficits have suddenly ceased to be a concern in US politics. The EU’s archaic constraints are openly challenged by the Italians. Macron’s regressive tax regime (his version of austerity) instantly up in flames.
Privatisation is hugely unpopular and in retreat as major parties, like UK Labour, attract support with popular pro-nationalisation policies.
Virtually nowhere are neo-liberalism’s tenets being championed (or successfully championed) by anyone. Neo-liberalism, no longer ascendant, is disintegrating and the popular battle is for that which will replace it. This doesn’t happen overnight, the neo-liberal ascendancy took a long time to establish itself and it will it take a long time to unwind but that unwinding is well and truly underway.
Danger is present in the vacuum that it leaves but so is opportunity and there is much to be done. Either way the worthwhile gains will be made by those that understand the present situation.
Thanks for the clarification
Marco – a belated response to your comments with which I’m not in disagreement.
The point I was trying to make is that, at this moment in time, ‘Neoliberal free-market capitalism’ – which has indeed moved on from the original Washington Consensus** – is dictating the political policies of the major western economies. At the same time there is little evidence to show that a coherent progressive alternative is (yet) gaining sufficient traction with voters to dilute the realpolitik influence of the Neoliberals.
(** Not looking good in Brazil where the zombie ‘Chicago Boys’ are being resurrected – https://brazilian.report/money/2018/11/29/chicago-boys-chile-brazil-paulo-guedes)
While predicting the future is unreliable at best, it’s nonetheless necessary for planning. All one can reasonably do is evaluate the status quo, analyse as accurately as possible the significant events / trends that have contributed to it and, based on that analysis, reach a conclusion as to the most probable direction of travel.
However, the lens through which each of us views the assembled ‘facts’ can be rosy or dark-tinted according to our individual mind-set. In this regard I’m less optimistic than you and veer towards the realism / pessimism expressed by Chris Hedges in this interview – https://www.youtube.com/watch?v=R8JSIp14p9A.
For the sake of ‘the many’ and the planet I hope and pray you’re right and I’m wrong.
No postcard but Happy New Year!
I think we are approaching a turning point that will affect economic and political choices.
The direction of those choices are possibly profound, as they will be affected by domestic doubt and international tensions – the economic ones may have wide-ranging repercussions on western economies that are used to generations of free trade.
I wonder whether that same freedom will prevail.
I again have no idea what you are saying
That does not contribute to debate
I take your point, so let me mention the dilemma facing politicians; their desire for a more equal society being paramount.
Globalization imposes pressures that make the virtues of a democratic government almost impossible to achieve without disrupting the trading foundations upon which much of a nations living standards are based; established under long-standing consumer orientated markets and powerful financial institutions.
I think you will find this conundrum underlies some of the criticism of the apparent failure of a Corbynite Labour party to properly shed neoliberal tendencies towards monetary economics.
It has been argued that Brexit will free the UK to re-balance the economy to head in a direction free of EU austerity; 2019 might give an opportunity for this change of economic and political direction but the subsequent re-balancing required is just as liable to set the nation on an initial backward path if no effective leadership emerges.
And when leadership hopefully does arrive it might be necessary to rise again to our full international height in the global economic battle – and that may demand a reassertion of our prowess in Capitalistic competition.
It could even be a year of WTO tumult before the greener pastures are forecast to appear.
I still have little idea what you are trying to say
@ Denis Swaine
“I never understood this fight and given it no longer exists perhaps we can get on and make a better world as suggested by the Green New Deal.”
A core plank of Neoliberal ideology is the Hayekian notion of fighting for free market capitalism because it allows price signals to float freely. This is debatable but this is the base argument under-pinning Neoliberalism. Price signals are knowledge or rather information and consequently “freedom of information” is vitally important to the well-being of societies, indeed there is a cosmic argument underlying this that organisms can’t become more complex unless they can understand how the cosmos works at least in part and that part growing!
https://www.kysq.org/docs/Hayek_45.pdf
What Neoliberalism fails to adequately recognise is that the control of large scale capital in businesses by a few is the control of information since it can dictate where that capital is invested and therefore affect demand in economies if businesses migrate from one economy to another. Neoliberals can’t therefore argue their ideology is complete because it has a major hole in it when it comes to freedom of “capital information” and its subsequent control.
Very well put
Thanks
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