The Resolution Foundation has been a think tank in search of a party to lobby for some time. Chaired by ex Tory minister David Willets and directed by Ed Miliband's former head of operations ,Torsten Bell, it seems like the sort of organisation to whom the Independece Group is an answer.
Maybe I am being a little unfair. I take its newsletter because some of its content is interesting; some of its data and data graphics are good and because, well, I want to know what is happening out there in the middle. I also do so to get frustrated.
This weeks email from Torsten Bell was an occasion when it definitely specialised in good graphics (on risk of redundancy, for the record) and frustration, which is my real theme. Having declared that the world of politics was not going well,this week it was then suggested they'd look at some big ideas to see if they're offered solutions. MMT and the Green New Deal were two of the big ideas. I am quoting at length. It helps my case. This is how MMT was introduced:
MMT to the rescue? We've held off covering Modern Monetary Theory (MMT) because it leads to A LOT of shouting.
The ad hominem we're got in early, I note. They continued:
But since it can apparently save our economies AND progressive politics the time has come...
The basic idea is that governments don't face debt constraints because they can simply create money — the state cannot go bust. Instead of worrying about the accounting, MMT advocates think fiscal policy's key job is to keep the economy at full employment by putting money into the economy as needed. What's to stop a government splurging whatever it likes? Inflation. You can put whatever money you like into an economy but if everyone's employed and there's not much left to buy you just push up prices. In MMT world if that happens we raise taxes/cut spending to take money out of the economy and bring inflation down, leaving the Bank of England to set interest rates to keep the costs of public debt sustainable with little wider impact.
It so happens that is not a bad summary. They miss the point that the intention of interest rate policy in MMT is that it should always be low - meaning investment is encouraged; risk of household insolvency is reduced and the curse of monetary policy is removed, but otherwise not bad.
But they continue saying:
So that's what MMT is, but there are substance problems — interest rates do matter for the private sector and governments struggle to raise taxes/cut spending.
I have already dealt with the interest rate issue. And no, governments do not struggle to raise taxes. That's a false claim. The evidence of the last twenty years or so is that governments have struggled to cut taxes when there had been no demand to do so, evidenced by the fact that time and again people have made it clear that they would prefer decent services. And that ‘struggle' has also been evidenced by cutting resources for the task and failing time and again to effectively tackle the tax gap. So those claims are simply not true.
However, they continued:
So why is it getting more traction today despite being far from new? On the economics side it's because you can disagree with the theory but agree with the policy conclusions in times like the last decade i.e. when interest rates are zero and government should put money into the economy (Paul Krugman and Simon Wren-Lewis).
And if you believe that the last decade's conditions will survive ad infinitum (as they will) what, then, is there to disagree with? The possibility does not seem to have occurred to the Resolution Foundation. They plow on:
On the politics side MMT is the response to US Democrats being fed up of big progressive policy shifts (e.g public healthcare) getting bogged down in rows about how they should be paid for, while Republicans happily splurge on tax cuts. Fair enough — but if you want America to become Sweden you can't opt out of arguing for Swedish tax levels.
No one says otherwise in MMT in the end. If the share that the state spends grows so too will the level of tax have to rise eventually. That is true. Otherwise inflation will follow. But the point that the Resolutuin Foundation fail to spot is that this will be more tax paid out of a bigger economy where more are employed and at higher wages, precisely because that is what the fiscal policy of full employment that MMT proposes will deliver. That's not Sweden with US taxes. That would be the UK at work. But this point is ignored. Instead it is said that:
MMT is not the answer to our economic or political woes, but it is interesting and a reminder that an idea's popularity is about its context as much as its merit.
But no reason is given. Instead it is assumed that the economics of Krugman et al - the economics that gave us the neoliberalism of Gordon Brown, if you want to summarise it succinctly - should prevail. As I said, this seems to a think tank that thinks the TIG might be an answer.
And they do much the same with the Green New Deal, saying:
GND to the rescue? Earlier this month Alexandria Ocasio-Cortez published the Green New Deal (GND) in the US Congress — a blueprint to reduce the US's net carbon emissions to zero within ten years. Backers of the bill released — and then withdrew — the suggestion that it would be paid for by MMT. The Bill has sparked a wider argument about the best radical route to dealing with climate change. The GND's focus is on decarbonising the economy. It then adds job guarantees, healthcare, housing and other progressive (and expensive) policy objectives to ensure popular support for such radical change. A thoughtful counter-argument is that more of the focus needs to be directly on research/innovation to cut emissions — and then spreading that new tech around the world. Turns out there's more than one GND.
The first, and obvious, question to ask is why the Resolution Foundation looks at the US version of the GND when there is a UK version available, from which the US version took its inspiration. It does not evidence much research on their part.
Second, whilst the GND is about decarbonising the economy it is simply wrong to say that is its sole focus, to which some other objectives have been added. That has never been true, including in the UK version. What the GND recognises is three things. The first is that it is our present economics that has created the climate crisis, and so it has to be left behind. Second, this also means we leave the other consequences of that economics, like austerity, behind. And third? This means we have to do the other radical changes too. And if housing people well and providing well paid jobs in every constituency is too radical for the Resoluriin Foundation, as they imply, what are they for?
Well the answer would appear to be a bit more limp regulation, maybe some carbon trading, and ample opportunity for delay whilst keeping the bankers in place with a semblance of control and constraint even when monetary policy has been dead in the water for a decade and neo-Keynesian neoliberalism has failed.
I think that puts the Resolution Foundation in the camp called ‘climate delayers'. They might as well, given the urgency of the issue, now be called climate deniers.
I had hoped for better. The Resolution Foundation clearly has a lot of rethinking to do. That, or be flooded in the forthcoming political deluge as change becomes an imperative.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I am not sure what influence you can carry voicing your thoughts to a handful of loyal readers. They are supportive because they follow your blog. But they do not reflect society. To carry influence you need carry your message on a bigger platform. You are critical of virtually everyone with political authority or pressure groups such as this think tank…if you have what it takes then you need to step up to the plate. Otherwise you are no more than an outsider throwing stones with little more than nuisance value.
Hang on….
Have you not noticed that o9thers do notice?
Obviously not….
The problem is all yours, it would seem
@Peter
“I am not sure what influence you can carry voicing your thoughts to a handful of loyal readers. ”
I’m not sure why you feel the need to make patronising remarks.
To the bulk of your point I think the answer is screamingly obvious.
“They are supportive because they follow your blog. But they do not reflect society.” If one wished to reflect ‘society’ one would write the court pages…… or for ‘Hello !’ magazine or some such. Or write columns of anti-foreigner bilge in the red top gutter-press.
“To carry influence you need carry your message on a bigger platform. ” Apparently not so. It’s not how many you address it’s how influential they are that matters, and whether they understand what is being said. (Hitler went for rather a different approach, but that as they say, is history)
“You are critical of virtually everyone with political authority or pressure groups such as this think tank…if you have what it takes then you need to step up to the plate.” I’d say this blog steps well up to the plate, even though that is not its sole purpose. It serves a very useful function as a forum for many people, aswell as the author, to air, interrogate and hone their, usually quite serious considerations about important issues in the political and economic sphere. You may be unaware that this is not the only thing that Prof. Murphy does with his time. Some of which includes ‘stepping-up to’ quite large plates. (Or taking his stance at the crease as I prefer to think of it. Never did understand baseball. Sort of butch rounders isn’t it? A girls game adapted for psychopaths.)
“Otherwise you are no more than an outsider throwing stones with little more than nuisance value.” Touche.
You don’t have to engage, so why bother throwing pebbles? Because the blog has influence on you QED.
Oh dear oh dear……………
They should perhaps be called the ‘Revolution Foundation’ (from mechanics) – as in going around in circles – because that is what their ideas seem to promote – to me at least.
I do not think the Resolution Foundation though this through. It seems to me one of the most important aspects of MMT is that, as theory it expresses powerfully a critical and essential feature that makes a State (Crown, Parliament or whatever) a state: the State’s authority. MMT functionally expresses the monetary mechanisms required to establish and maintain the authority, power and prestige of the State’s essential sovereignty. It guarantees the State’s authority through the mechanism of currency and taxation. The sovereign currency has power because the sovereign’s population is required to use it. People use the currency, if for no other reason, because they require to pay their taxes in the sovereign’s sovereign currency; and there are sanctions imposed for failure to pay. The sovereign thus issues the currency, guarantees its use through taxation, and claws back what it has issued through taxation. It is the symbiotic relationship between currency issue and taxation withdrawal that ‘manages’ the economy.
Good summary, thanks. Torsten is an economist, a Treasury high flyer whilst Brown was there, before going to work for Ed, so not suprising he’s not an economic revolutionary.
Excellent account. The problem I have is that I keep asking myself why are we waiting. We have the ball on the penalty spot and the goalkeeper is over by the corner flag having a quiet cigarette. In the meantime the planet is slowly going up in flames while a bunch of loons argue over the wording of the Irish Backstop. Is there no one out there who can bang some heads together? All I can think is that those in charge really are a bunch of idiots and those opposing them are not much better. Back in the 70s I occasionally thought about building a fallout shelter. No options like that available now.
One less talked about aspect of MMT is that the government sets the price level…. and the raise in the price level, is inflation.
So, high inflation is caused when the government goes to the market, and pays market prices. And as the market prices increase, the government increases its spending to keep up…. and this is when we get inflation going up higher and higher…even if we’re not at full employment.
Instead, the government should simply pay what it determines the right price for things. It already does this for public sector labour, where it has lists of wages for different public sector workers – JG will also anchor the value of the currency to that of work. These public sector wage rates are (contrary to common sense) not actually saying how much a doctor is worth, but instead its saying how valuable a £ is, in terms of hours a doctor works for. Like much of MMT, its the other way around for the government.
SO, if the government is unable to acquire the stuff it wants, at the price it demands, then its because its people/ non-government sector are using it all. So, directed tax is needed to free up those resources, and then the government can buy them at the price it considers correct.
This above is what I have learned from MMT blogs. However, I cant see why this cant also relate even to hyperinflations….. Hyperinflation was caused by supply side shock, and the governments of those countries just competed with the market to buy the limited supply… and by doing so, revalued its own currency downwards.
Instead, a far better way would be to introduce rationing to free up the scarce goods/services, and NOT be tempted to spend per unit item over time more than its target inflation rate.
The Resolution Foundation like all think tanks lives in its own little bubble. Given its self declared mission of ‘ improving the living standards for those on low to middle incomes ‘ what precisely has it achieved in terms of changing government policy to that end in the fourteen years since it was founded ? It’s present director is another ex Treasury guy and given his sarcastic ( ‘ In MMT world…’ ) approach to the subject of government spending it seems clear to me he has written about MMT at this time because suddenly it’s out there and all those economists and financial journalists who’ve been trying like mad to avoid mentioning it, or just simply rubbishing it don’t want to be left out of the conversation so one response is to grudgingly acknowledge it exists whist at the same time obliquely saying don’t think that this means you can have more than you have already blah , blah . In the US the biggest single issue and the one that a Bernie Sanders , but not an Establishment Democrat can potentially win the presidency on is Medicare for all and the ‘ where is the money going to come from mantra ‘ that the Establishment Democrats keep trotting out has worn thin ; many Americans know now it’s lie and that that is never the response when it comes to going to war. I have the sense from many conversation I have had here that people in this country have yet to make that connection. No new, young radical politicians have emerged in this country to go against the Establishment and attempt to take forward any fresh thinking. Maybe post Brexit some fresh thinking will emerge. I’m not holding my breath.
If these people are so damn clever – “two brains” Willets, I believe he was called – and Mr Bell was (is?) a “high-flier”, why do they make such elementary mistakes in logic, such as failing to notice that, as you say, higher taxes from a bigger economy with higher wages (and perhaps like Sweden with higher social benefits) ain’t such a big deal? Or that it’s not really an intellectual tour-de-force simply to dismiss something out of hand without offering any reasons?
Graham Hewitt says:
‘If these people are so damn clever —[…..] why do they make such elementary mistakes in logic,….”
Because it’s polemic not rational discussion.
If you doubt that for an instant re-read the extracts and spot the weasel words intended to debunk and diminish; see where spending is ‘splurging’ for example.
I think you’ll find a liberal (dare I say ‘neoliberal) sprinkling of them. More akin to journalese than political or economic discourse. The gratuitous loaded adjective is part of the spin doctors’ stock in trade. Most people don’t notice them most of the time.
So in short these people ARE ‘so damn clever’, just not straight. The withering sensation you get when you read this stuff, is like the effect of finger nails on the blackboard it puts your teeth on edge as they say; it’s the subliminal sound of an axe being ground on a dry stone. I suspect that’s what rouses the sense of frustration RM refers to. The frustration quotient of this piece hovers around 6 or 7 out of 10 I’d say Dust mask required ! There is severe risk of silicosis. It is particularly insidious (maybe 8 out of ten) because it comes from what purports to be an authoritative source. Sounds like a frightfully august body….that will carry great weight with fools, and those educated into respectful simple-mindedness, but gets marked back down because most people don’t read stuff like this.
This sort of (ab)use of language fools some of the people all of the time and all of the people some of the time.
They do seem to make a good point though. It is very hard for a government to raise taxes dramatically because voters don’t like it – and then won’t vote for that party. It’s also clear that governments find it very difficult, if not impossible, to cut spending.
So if inflation starts rising, how is a government using MMT as monetary and fiscal policy going to manage to control it?
I’ve seen somewhere that the Green New Deal advocates spending £50bn of newly printed MMT money into the economy every year. If inflation goes up 1%, how much do taxes need to rise or spending be cut to combat it?
And then if that doesn’t work (most likely because it would be too politically difficult to do so), and inflation keeps going higher, how much more would need to be taxed or cut?
If voters see what they’re getting they’ll like the taxes
I mention the evidence. It has been Scandinavia. It is France and Germany. This claim is just not true.
“If voters see what they are getting they’ll like the taxes”
Possibly but I wouldn’t bank on it. The public’s trust of politicians is at an all time low. And state intervention is likely to “corrupted” in some way, history tells us a concentration of power breeds it. And likely to be riddled with bureaucracy and inefficiency so many will believe they won’t get value of money.
The evidence on this is clear…
Of course if they’re sold shot services they’ll mistrust the shit politicians that sell them
And vice versa
Peter says:
“Possibly [people will learn to like taxes] but I wouldn’t bank on it. The public’s trust of politicians is at an all time low. And state intervention is likely to “corrupted” in some way, history tells us a concentration of power breeds it. And likely to be riddled with bureaucracy and inefficiency so many will believe they won’t get value of money.”
And these people believe they are getting value for money from private sector provision…???
Capita have wasted neck-on half a £billion (half a £billion OVER budget) providing an ineffective, let alone inefficient probation service. Carillion cost us a fortune, and went bust anyway despite having government funds shovelled at it. How stupid are ‘people’ supposed to be ? Indeed how stupid ARE they in fact, that they keep swallowing BS because somebody in a sharp suit (a sharp suit we are paying for !) says it’s the only efficient way to provide services we need to keep society fit to live in.
Government has no monopoly on inefficiency and ineffective bureaucracy. Time to re-assess what we expect of senior managements, both private and public sector, and introduce some meaningful standards; train for them and (bloody) regulate them.
At the top we get the same people ….their wrong-headed incompetence, and what is, franlky, deceptive fraud in some cases, is all there is to recruit from for private sector or public, because they’ve created a closed shop of executive ‘jobs for the boys’. Self referential, self congratulatory and self-centred. We’re overdue a cull.
Who can deal with this other than an enlightened government with some sense of integrity. ??
As I understand it, you don’t use MMT. It is a description of how money supply, government spending and tax work. So, in a way, whatever you do, you use MMT, because that is how these things work. The question is, is it a valid description, not should you use it.
If it is a valid a description, then why no increase government spending, wages and employment?
You are right
It is a description of a form of fiscal policy
As I said in a tweet on this:
If wanting a planet we can live on, sensible economics that reflect reality, decent housing for all and jobs for everyone at a living wage is ‘radical’ then what the hell is it that ‘normal’ people want?
One of the jobs of a politician is to persuade. They’ve persuaded (many of) us that immigration is a pressing issue, that we must live within our means, that the rich need more money because they are the wealth creators, that the poor are scroungers, that private investment is better than public and so on. If there was a politician of the stature of a Roosevelt we could be persuaded by honest argument of the truth of the joy of tax (to coin a phrase). It doesn’t have to be the way it is. It’s a political choice.
Are there any ‘normal’ people at the moment in terms of what people want?
People to my mind are in a very destructive mood at present. Too many want out of Europe because they have been told that sovereignty is more important than efficient and fair trade and peace.
Too many are sick to the back teeth of politicians who all seem the same.
Too many are willing to blame others (their neighbours) in their midst for their woes.
I feel that there is an awful lot more shit to wade through before we can even address that question.
Perhaps only when some of these destructive attitudes have been satiated can we refocus society?
The most significant thing about this article is not what it says but that it is there at all. It really doesn’t matter that they misrepresent MMT or that they think they can dismiss it with the poor arguments they have put forward. The fact that we are getting more and more of these articles in more and more main stream journals is great. I love it.
And the fact that the articles are poorly informed poorly argued and full of ignorance about what MMT really is just provides very fertile ground for people who really do understand it to fight them on.
Bring it on! I am really looking forward to the battles.
@AMcG
That it needs to be ‘disssed’ and shamefully misrepresented by those who would mislead or are simply ignorant is a sure sign that the MMT reality is being noticed.
Since what MMT says is essentially true it will be very difficult to get away with discrediting the reality indefinitely. And as you say every time it comes up in discussion there is an opportunity to correct the falsehoods which are being bandied about.
It’s not as if the status quo looks even remotely sustainable. There are major structural cracks in the fabric of current political economic management which orthodox economic theory as currently practised proffers no solution. When a critical mass of the populace cotton-on that a repeat performance of 2008 is the best we can hope for and established thinking has no solutions to offer other than what failed to repair the damage ….maybe we’ll get some movement. (As long as some dangerous clown hasn’t started whanging nukes about the place in fit of pique before we get there)
Paris street scenes look as if they come from what we would have, in old fashioned patrician-speak, have snootily referred to as a South American ‘banana republic’. Is this the acceptable current level of ‘Western’ political governance. I don’t think so. It won’t do; not if we are to retain ANY self-respect at all.