I can well recall a guy I knew at university. Jock was a leading spokesperson for the gay movement in union debate at the time. What I recall was his reaction to being told that no one objected to his being gay. It was his practicing homosexuality that caused offence to some. His retort was that when he was with his boyfriend he was not practicing; he was doing it for real. Jock made a massively important point that the theorists will never get. It's what happens in practice that matters.
I mention this in the context of the debate with Jonathan Portes and Simon Wren-Lewis. Three things of real significance came out of this for me.
The first was Jonathan Portes' admission that he 'can't speak to the politics'. In other words, he and Simon Wren-Lewis are doing this in theory, and not in practice.
The second is the admission that the rule is almost identical to anything Osborne did, and is the same as the LibDem position. This then is a neoliberal rule in the real world of politics.
And third, the objective of the theory is to create a boom of such size that the Bank of England will have to resume the use of monetary policy, with all that we know went with it.
Unsurprisingly, as a result, Portes claimed his rule would create a bigger stimulus than MMT would do if the latter only targeted sustainable growth at full employment. Of course it would: in practice Portes is targeting boom and bust: the boom has to come first and be big enough to cause the bust.
I confess theory excites me only so far as it is useful. Anyone's theory ceases to be of interest to me when it becomes dogmatic, exclusive and a simple excuse for point scoring in isolation. To make it clear, I did not argue with Portes to defend MMT (and I noted no one from MMT joining in). Nor did I do so to argue theory with two macroeconomists who clearly have more experience in that field than I do. As a political economist I engaged to find out what this means. And that's because, unlike Jonathan, I am interested in the reality of economics as it will play out in the politics of power relationships.
I have three reasons for doing that. Firstly, economic theory only has use in this way in my opinion. Economic theory for its own sake is not just dull: it can lead people down pointless alleyways that fail to deliver anything of value for real people, and often do much harm.
Second, there's little evidence that anything but the broadest brush of economic theory has much practical use in the real world, which persists in moving on despite that theory. This is why I am only interested in the essence of MMT, for example and can readily dismiss the detail.
And third, the political economic reality is that most theory has predicted little of use, and much has instead created structures that are really harmful in the hands of those who have to use them.
In that case the broad brushes, the motives and the desired outcomes of those promoting a theory to politicians (with obvious potential political impact, whether they like it or not) is what matters. And this debate gave Portes' motives away. That is what matters in the real world. That's not because in that world the theory he proposes won't work because his assumptions will not hold true. What matters is whether his prescription based on those assumptions, which few will understand, let alone test, are appropriate or not.
My suggestion is that the Portes / Wren -Lewis rule fails this test.
Labour should not, I suggest, be promoting a rule that will deliver boom and bust for the specific reason that this is the only way to restore central bank control of monetary policy, which has had such a disastrous track record of harming the well being of the people of this country. And that, we now know, is what this rule is designed to do.
My suggestion is Labour should be building a model for stable full employment based on a transition to a sustainable economy that creates jobs in every constituency as outlined in the Green New Deal. This should be matched by targets for low-interest rates, large scale public house building (which is a much better way to tackle house price inflation than increasing interest rates, as Portes and Wren-Lewis recommend) and low inflation.
So let's now do politics for real. Which of these alternatives is likely to appeal most to Labour if the options were spelt out as I now have done, based on what Portes has said? I have no doubt at all that my version would win, by a massive margin.
So I go back to my reason for engaging with this issue from the outset which is to ask why Labour ever embraced the fiscal rule Portes and Wren-Lewis rule, which seems so far removed from promoting any goal I would have expected it to embrace?
I would love an answer to that question.
Because this is what doing economics in the real world demands.
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Just as matter of interest. How many unemployed people would constitute “stable full employment”? What’s the ideal proportion “employed” in the GB population ?
Danny Blanchfoower reckons 98% employment may now be full
I would add this has to be at a living wage
Many do not meet this criterion
So what size of green QE would us to 98% employment?
That depends on other sources of funding, where we were in the economic cycle and much more
Your question, then, makes no sense
The definition of full employment that I recall is when Job Vacancies = Unemployed Benefit Claimants (i.e., Unemployed and Seeking Work.) I recall it from the ’60s, the last time I did any meaningful Economics study and would now need some fine-tuning, e.g., to factor in how benefits are now complied and assessed (let alone paid) and the nature of post-2008 working practices and the so-called gig economy. There was also a definition of over-full employment when Vacancies > Job Seekers, hence today’s situation of 3 million-plus EU citizens and other workers ensuring manufacturing and agriculture continue.
” Jonathan Portes’ admission that he ‘can’t speak to the politics’.”
This is a telling confession, and it is not the ‘politics’ that catches my attention. It Seems Portes wishes to conduct the debate in a language, and using the vocabulary with which he is comfortable. He appears confident that this language represents the nature of reality very well, but of course it doesn’t. It is the closed vocabulary of a priesthood, there to serve a narrow purpose; the economic equivalent of the medieval metaphysicians conjuring fabulous representations of worlds beyond our own.
Mr Reed, on another thread made the point that cut through the smoke that Portes/Wren-Lewis were generating: “why do we need a fiscal rule (or rules) at all?” Of course, we don’t – but welcome to my parlour, said the spider to the fly.
I met Lord Beveridge once in the Shaw Library at LSE. The rugby club poker school had migrated there from the Student Common Room and I was doing the dealing. He asked why we were doing this so I told him it was a certain way of redistributing income. Luckily he had a sense of humour. The real more complicated reason was that the Common Room poker schools had been taken over by mathematical economists testing out their theories of prediction of growth. At the time our academic economists were working themselves into a lather about what was going on up at Cambridge and that Keynes bloke. The rugby club, a mob of ex-servicemen and Welsh mining types thought they were all bonkers.
Surely you know where we are currently?
No one is doing the GND right now
Maybe you haven’t noticed?
I suggest that the next time you waste my time you will be deleted
There is one area that has not emerged into the sunlight in this whole Portes / Wren-Lewis fiscal rule debate that we’ve been having here . This is the mindset of the Treasury which has hardly changed throughout the post- war period. In his book ‘ The Story of Crossrail ‘ Christian Wolmar gives us an insight which I think is worth examining , He says ( with reference to Alistair Darling and his wariness about big government projects ) ‘ Politicians with Darling’s mindset have a powerful weapon up their sleeve to help them wage war against the adoption of high-budget projects. One such weapon is the very method by which the cost of these projects is assessed, which reduces their chances of obtaining government support. The gross figures of the cost announced at the outset fail to take into account the fact that a large proportion of the expenditure goes straight back into the government coffers in the form of various taxes and reduced payments. In my book about the Treasury’s public-private partnership for London Underground, I quoted a memorandum sent to me by London Underground : ‘ Because the project started in a recession, it is credited with creating 50,000 jobs and the Treasury was able to claw back 47 per cent of the final cost in corporation tax, national insurance and. income tax, and unemployment benefits that did not need to be paid out,’ Taking such payments into account – i.e. calculating expenditure on the basis of net rather than gross – would be a much more accurate way of assessing the cost of these schemes to the Exchequer, and would have the effect of making many seemingly unaffordable projects viable. ‘
Now you might think this was obvious, but not at the Treasury it isn’t it would seem. And that ignorance of the circulatory nature of money puts pay to so much of what clearly needs to be done
in our society.
You are entirely right
So THIS is where the battleground is : the Treasury . What we need is a politician who is prepared to take them on board – call them out. Sadly at present I see no such politician. Why do we not have such a politician ? Because there is no politician in this country ( please tell me I’m wrong and name them ) who is prepared to take on the Establishment . This whole ‘ fiscal rule ‘ nonsense and it is , nonsense won’t gain any traction with the electorate . It just a piece of bullshit , big tent ( read Establishment crap ) keep the nobodies in their holes bollocks. Corbyn, McDonnell forget it.
Nor is there a party that would select them
Well, one might but it has no interest in London
Thanks for this Richard. I hadn’t noticed that this rule encourages boom and bust.
So really Portes’ and Wren-Lewis’ advice to Labour sees the supposedly progressive party of the people play into the hands of the banksters in two ways:
1) reinforcing the neoliberal frame of reference that government must balance it’s budgets
2) promote boom and bust so the financial sector can seize control of ever more real assets with each inevitable wave of bankruptcies.
It is the seizure of large swathes of real assets and the monopoly and rentier power that gives them that is the end game of finance capitalism – and Labour under Corbyn risk helping them.
Of related interest is this video I saw today (though it’s actually quite old now) that is a nice plain English explanation of what is effectively a coup by finance capital against the rest of us.
https://m.youtube.com/watch?v=JZQqrxHGcoQ&feature=youtu.be
Another kick in the nads!
https://criticalfinance.org/2019/02/06/misunderstanding-mmt/amp/?__twitter_impression=true
Wow
Jo Michell has no clue about MMT or money……
That’s all I can say
If nI was Jonathan Portes I’d say ‘sigh’
Are we getting to the heart of the matter? Their claim not to do “politics” is risible. Are they being, at best, disingenuous or is there something more? Every (governmental) economic decision, every proposal by economists to government or a political party has to a greater or lesser degree a political element to it. Economics is not “value free”, it is not objective, it is about how we organise society, whether we create winners and losers, or whether we aim for fairness and equity, and having done so how we learn from the (political/economic) choices we make.
Dorling and Tomlinson in “Rule Britannia” discuss the horrendous effects of the economic choices politicians have made over recent years as they followed neoliberal prescriptions and created a society of very few winners and many losers, including, they argue, tens of thousands of premature deaths directly linked to Conservative policies.
Perhaps Portes and Wren-Lewis should do a little more of the politics. And maybe the Labour Party should ask themselves whose side they are on?
Graham. Indeed. On this blog we are getting to the heart of the matter . Which is that our politicians bend the knee to the Treasury mandarins . For those of us old enough to remember it ‘ Yes Minister ‘ has just changed it’s wardrobe . The Jonathan Portes types turn up without a tie . NOTHING has changed . Take a scythe to Oxford , the LSE , the whole lot of them .
Yes more and more roads point back to the Treasurys mind set, attitude and integrity as issues.
After The Treasury was freed from advising a Chancellor on changing interest rates they have meddled into departments budgets, large projects increasingly and recently were directly outed in trying to influence High Court Judges to conceal the Treasurys civil servants direct involvement in UK bankruptcys and assets seizures via the banks.
What a tangled web we weave . . . . springs to mind.
The track record is awful – light touch regulation, banking crunch, first run on a bank in 300years Northern Rock, seemingly carte blanche protection of Bank CEOs, the promotion of RB S executives to spread bad unethical, short term practices to Santander etc to cover tracks . . . Absolute power corrupts absolutely is the saying and QEs effects are a heady cocktail.
A simple article from America explained peoples money flow as – The money goes up to the top owners who are taxed in order that the money is recycled back via benefits etc to mainly the poor with some net amounts paid to the middle classes. Who then ‘lose’ the money via activity to the rich. Hence the tax breaks to the rich and the ‘trickle down effect’ is ‘voodoo economics’.
There is a good reason why the PM lives at No 10 with First Lord of the Treasury on the letter box. IMO control and education needs reasserting on HMT as they seem to me to be a small wayward department covering up failures.
Who and how?
As to the politics there is the spin and the actuality however I would be greatly happier if I knew they understood the reality.
It seems that as the renergised Labour membership has monumentally jerked the Overton Window back towards the post war consensus; the rinse and repeat Money empire behind all governments is aiming to retain their eternal hold.
I’m not sure how much control the labour leadership has with where they are. If there was greater bottom-up, voter, pressure on the leadership, it could happen?
The solution that always works and is therefore despised by these kings is a popular rising.
A bottom up realisation, education, realignment of ‘common-sense’ of the masses.
It should start at the ‘ladybird’ book levels – never mind trying to change the academic elites schools to recognise they have been wrong and carry on teaching the same to their students.
The hard conversations that Prof Murphy has been persuing (thanks, must be taxing! 😉 are clarifying my amateur understanding.
Now if there was just a script I can use to explain to my friends and family of all ages to understand the whole Money story … i start with asking them ‘what is this money I am holding…where did it come from?’ Mixed results.