I debated with Rupert Read at Norwich Quaker Meeting House last night.
The event was largely motivated by Rupert's concern that if people believed modern monetary theory permitted government spending to the limits of capacity then a Green New Deal linked to it might actually become a new form of Keynesianism where a new form of growth was substituted for an old form of growth and the planet still burned.
I hope I persuaded him otherwise. That's not my belief. If MMT permits spending to limits then, as I suggested, there are at least two key limits. One is full employment. The other is the environment. Which is not just carbon but biodiversity too.
And I agree with Rupert that we do not have all the answers on how to achieve this as yet: it is clear that limits on damage will have to be imposed and I am inclined to agree with Rupert that some form of rationing may be a necessary part of this. Pure price mechanisms will not be enough, although I am currently working in ways where those mechanisms might help, at least in accounting terms.
We did, then, agree on much more than we disagreed on. And that actually made the whole discussion lively, enjoyable and without rancour, as you might expect at Quaker Meeting House.
I think we even agreed on what growth in this context means. We both accepted that GDP is not a useful measure of well-being. But I am not opposed to growth that fulfills the potential of the person. So if we can do that, and let people do what they're good at, then I think that has to be for the benefit of society, if, as I noted, we get more home-baked bread, poetry written and music made, that will be very good indeed. There is room for growth in our society, but nit in consumption of ever more meaningless goods that serve little real purpose bar boosting profit and the dissatisfaction that advertising sows.
Maybe the agreement we reached was also helped by the fact that I could advise Rupert that I would be voting for him in Thursday: he is number 2 for the Greens on the East of England list in the European Parliament elections.
These were my speaking notes:
Debate with Rupert Read
- The givens
- We face very real issues with climate change
- This is not now the issue of debate: it is a fact
- The need for change is very urgent: there is very limited time available to effect change
- The consequences of failing to act are almost unthinkable
- Let's not panic though: that won't help
- The options
- I think it's fair to say that there are four options
- Some would still do nothing
- Others think that if we invest in some tech changes then we can pretty much carry on as normal - a new research centre being created at Cambridge University seems to have this logic implicit in it, for example. Much of business seems to have this view
- There is the Green New Deal
- I think Rupert would argue the Extinction Rebellion view is the last option - and the most important. I should add I am a supporter of Extinction Rebellion - so I am not averse to what Rupert is saying.
- The Green New Deal
- Created in 2007/08 in the UK by the Green New Deal Group - of which I am a member. I am continuing as an active member and wrote much of its material from 2010 to 2018
- The aim:
- To invest in the creation of a Green transition within the economy to:
- Reduce carbon usage by absolute cuts and by creating alternative energy sources
- Increase sustainable behaviour e.g. on transport, food, housing and other issues
- Create social justice by job creation through the planned investment programme, also linked to tax reform
- The implications
- Making every building a power station
- Releasing a ‘carbon army' to achieve this
- Social housing building
- Major changes to transport investment i.e. local and public
- Creation of a Green Investment Bank to route funds for technology investment in particular but to build capacity for the transition in general
- As now transferred into the USA (straight from the UK) the theme has expanded to include
- Commitment to universal healthcare
- A job guarantee
- Modern monetary theory
- This one takes an explanation because it has become very closely associated with the Green New Deal, which is again at least in part my fault.
- Fundamentally it suggests that since we came off the gold standard all money is ‘fiat' currency
- It's a promise to pay and nothing more
- The promise backed by the power of the state to tax
- But the state does not need tax to spend. All spending is effectively settled with money created by banks on demand from a customer. It is not paid for out of a stock of savings. And in the case of a government it is not paid for out of tax received. Instead gov't spending is paid for by the government asking its bank - the Bank of England - to make payment for it
- This is exactly akin to the fact that banks do not lend out customer funds: rather they make the funds they lend by a process of double entry book-keeping and bank deposits are the result of that process, and not where it starts.
- The result is that a government with its own central bank and currency can never run short of money - because it can instruct that it be made at will
- And it can never go bankrupt if it borrows solely in its own currency because it can always create the funds to make payment
- But of course it cannot print money at will - because inflation will result. So action has to be taken to keep inflation under control - and that is the real purpose of tax in MMT. Its secondary purposes are to
- Ratify the value of money
- Redistribute income and weatlh
- Reprice market failure
- Reorganise the economy
- Raise representation in a democracy
- So, the concern on this issue can be addressed
- And what we end up with is something quite different from where we are now
- This is a form of Keynesian fiscal policy
- It rejects monetary policy as a mechanism to redistribute wealth upwards
- It delivers low long term interest rates - and so reduces exploitation of ordinary people by those with wealth
- And it rejects money as the constraint on action
- The new framework says the constraint on action is what resources we have available to us
- We must use people to best effect if they want to work - because our labour is non-renewable
- And we must respect the physical constraints as we head for zero carbon
- I see this as compatible with Extinction Rebellion
- This one takes an explanation because it has become very closely associated with the Green New Deal, which is again at least in part my fault.
- The political imperative
- The need is to deliver this change
- But this requires that we carry people with us
- And people have to be persuaded that not all in their world will fall apart as we head for the transition we need
- This demands a massive amount of thinking on how we manage the process of change:
- Accounting (because right now it is very hostile to sustainability)
- Economics (as above)
- Governance mechanisms (how we manage this change - from the Treasury and Bank of England downwards)
- What has to happen on the ground.....
- And how we tell the story of what we need to do that takes everyone with us
- That is the political 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:
Buy me a coffee!
I think you need to explain better why full employment is a constraint on MMT. This just seems to be assumed but I’ve yet to see the logic behind it.
Let’s suppose you’re at full employment but you want to move those human resources around, fewer people working in meat factories, more people training as doctors, fewer people making barbeque equipment, more people making medical equipment. You could think of anything that you desire more of. Then money is the best tool to use to persuade people to leave one role and take on another, after suitable training.
The choice to source the money from printing, or taxes doesn’t change just because you’re at 100% employment.
You could move human resources around using voluntarism, and better working conditions in preferred industries, but most people still want paying. You can’t use slaves or point guns at people, thank goodness, to make a fully employed group of scientists and engineers move from one activity to another.
MMT remains just as valid at 100% as it does at 95% employment.
It’s correct at both employment rates
And you can induce change by payment
The condition is dealing with the resulting inflation
The point is MMT makes clear that should nit be an issue for this reason a5 less than full employment and then becomes one
As long as this is understood I agree with you
The logic is simply that full employment is the point at which putting more money into the economy is likely to provoke inflation. Full employment creates full production so at that point more money would be chasing the same amount of goods and therefore potentially create price inflation which could in turn inflate wage demands. So full employment is a real constraint. But as you have pointed out. It is not an absolute one. There are means to cope with it and inflation is not inevitable.
Full employment creates full production
That is pure assertion and fails the simplest thought experiment, where a perfect world is one where we have almost no employment, because leisure is so great, and full production, because all the things we desire to happen in an economy are being produced.
There are going to be problems with the distribution of all that output, and productivity is also key, but there are many empirical examples ( recall the Soviet system ) where full employment did not mean full production.
No one is suggesting a command economy
But people are definitely suggesting a commanding economy, in which government created money is used not to give people more freedom but for government to have a tool to incentivise move human resources to move around, and dedicate their training time, talents and expertise to new problems.
And some of the people who support this think that 100% employment operates as a constraint, a signal if you like to back off. It doesn’t. MMT says nothing of the sort, whether the populace as a whole is under or over employed, there is no magical constraint in MMT that is approached when the population is at a record high employment rate.
Some people seem to think inflation will be high in this scenario, and so you need to tax more or restrain spending and printing a little.
Some of the same people think inflation will be low at 100% employment so let’s print even more and finance even more programmes that the government thinks can be better done directed from the centre compared to the alternatives.
In the end productivity is everything, whether income, environmental, quality of life or anything else, and that should include consideration for what is best done by government in terms of productivity and what is best not.
Describing ‘full employment’ as not only a limit but a key limit to how to build a better society using MMT is absurd.
I do describe it as such when at a living wage which implies productive employment
Then, I think, it is
Okay I should have written:
Ceteris paribus full employment creates full production. MMT makes no reference to productivity
That is a valid criticism
Boris Holm says:
“That is pure assertion and fails the simplest thought experiment, where a perfect world is one where we have almost no employment,……”
Simplest thought experiment….. Well yes, apparently.
If one regards employment as being simply about manufacturing widgets, but as you say even the widgets need distribution. And I would venture to suggest that if all the population is going to be enjoying untrammeled leisure there will not be much to do with that leisure time if there are no leisure facilities. Let’s make the thought experiment a little more realistic and a little less simplistic. (?)
This strikes me as a classic problem of externality, where prices reflect only private costs rather than social external costs. The logic of externality correction is not new, with Piguvian Taxation first argued for almost a century ago now, but this argument needs to be come more nuanced in the 21st century.
Classic arguments for corrective taxation focus on the immediate costs of an action, with the textbook case of a railway that releases sparks onto a nearby field, but in reality these external costs run deeper. As well as the immediate costs imposed by air pollution in the form of worsening health, the more pressing issues from pollution and other environmentally careless Keynesianism is depletion of resources. These costs are harder to measure and quantify, but their importance can not be overstates. These are the resources that are limited, they are are national and international balance sheet, and what we have left is what we can pass on to the next generation.
Corrective taxation needs to consider this, such that we force people to take into account (quite literally) not just the immediate and obvious costs of their actions, but the more subtle but still detrimental costs to our resource system.
In terms of telling the right stories I feel that this argument has a strong chance. Even the most libertarian understand the need for a functioning justice system such that crime is prevented wherever possible, and one can very easily explain the benefits of justice in terms of realigning private and social costs to prevent harmful activity. From there one can see that there is a spectrum running from obvious criminal and destructive behaviour, to environmental crime and damage to ecosystems and to more subtle activities that run down our natural resources.
Just as everyone would accept that the damage from a crime is not just the immediate cost but also the trauma that comes later, the damage from economic expansion is not just the spending today but the resources foregone tomorrow. It is to the benefit of everyone that we sort this, and realign activity to the benefit of our international balance sheet (this is the fundamental flaw with GDP, that it only measures the output and not the changes to the resource base of physical, human and environmental capital that tell you how sustainable the output is).
This is about more than just taxing for revenue, but about fundamentally re-pricing behaviour (as so often stressed by you Richard). The tax serves to re-price activity to include the negative effects, but it must be something that is understood and argued for as a clear benefit. This is part of re-programming the minds of businesses and consumers to understand the broader consequences of actions. If done effectively people will understand not just the presence of the tax but the benefit of it, and that is what is needed to tell that stories that will win the argument.
Public sector, and private sector projects, should from the outset be considering social rather than private costs, including everything that this entails. Accounts should be readable to understand the ways the businesses take advantage of externality, and they should be obliged to produce balance sheets that reflect their social effects. Businesses are after all so keen to play up intangibles such as reputation as assets and they should be forced to equally clarify their social and external liability position. Government departments, in proposing projects for Green New Deal spending, should equally consider social accounting not as an afterthought but as the primary objective.
This is not easy. It would require careful analysis and investigation. But the the alternative is extreme caution in fighting for growth. If this is done right one can push ahead with economic prosperity whilst confident that the engine of this growth is contributing to our international balance sheet, rather than draining it.
Tax is one option
Rationing is another
In some cases this may well be necessary
And rations woul;d not be transferable
“And rations would not be transferable”
I’ll have to think about that one….
I can see that a rationing system breaks down if some players can simply buy their way out of the system, but I remember my mother’s way of winning in the wartime rationing system because she was able to exchange her cigarette ration which she did not have a use for, for soap and chocolate which she did.
Overall consumption is not altered by this sort of ration trading and I see no good reason why it should be proscribed.
Our measures of growth are very much based on ‘stuff’ and ‘money’. So having two houses rather than one, or four cars per family, etc. Clearly growing that sort of thing even in the medium term is not possible on our current basis of one planet and a still quite rapidly growing population. There is, though, still massive scope for efficiency improvements (i.e. cutting out waste). I haven’t checked the exact details but I think a petrol engine still wastes 90% of the energy while electric motors are better, but still waste around 50% (you could heat the room with the hot air my Dyson hoover produces). Electric generation plants typically convert 40-50% of the energy consumed. Making ‘stuff’ repairable and longer lasting is an obvious thing to do. I had an 18 year old Hoover washing machine that stopped spinning. Hoover said to buy a new one, while the local electrician said it needed two new brushes for the motor that cost £2 and £45 for his time to fit them. How much carbon would have gone into a new machine and disposing of the old one?
Looking beyond the immediate need to replace carbon based energy sources, then my love of SF does mean I think there are only two routes for Mankind to follow: work out how to get off the planet and start exploring Space, or stay a one-planet species and ultimately die out by one means or another. I am not sure that there is any perfect stasis that we could arrive at where everything just sits in perfect equilibrium on Earth forever.
So in the longer term there are things that will happen: The demographics are already in place that mean by 2100 all continents except Africa will probably have declining populations. Half the countries in Europe already do. Japan has been falling for a while and in China the one child policy (now ended) should see population falling from 1.2 billion to 800 million by 2100. Fewer people of course means more resources per capita, while more people is less per capita (and I mean basic resources such as land, water, minerals). Ultimately it really comes down to energy, though. Current renewables are fine in so far as they go, but will probably only allow for similar levels of consumption per capita. If and when nuclear fusion can be perfected (or something else with similar output) then you could have a step change in energy availability per capita. Things like climate control might seem like pie in the sky now, and indeed they are for my lifetime, but they are ultimately possible IF you have the energy and technology. Quantum physics offers all sorts of currently speculative possibilities. It was, for example, recently established that linked quantum particles exhibit simultaneous changes in state regardless of how far apart they are. Thus do something to a sub-atomic particle here and the linked pair particle on the other side of the galaxy does the same with no delay due to distance. Maybe you can turn that into something useful like the ‘subspace radio’ in Star Trek which would mean astronauts on Mars could call Earth without the current 10 minute time delay.
Anyway, I remain optimistic and with a suitable push now to phase out coal, oil and gas (in that order – are you listening Germany?) then I think the species can still move forward and develop without all having to adopt a hair-shirt and sandals existence.
The night is always darkest and coldest just before the dawn.
cannot see governments sticking to agenda to increase taxes…while green taxes such as carbon tax has been wound back in Australia or is blamed for handicapping industry in the UK…
You seem to think the past is indication of future behaviour
I suggest it is not
We are facing a paradigm shift
Teflon Don says:
“…while green taxes such as carbon tax has been wound back in Australia ” Since when did we take Australia as an exemplar…..? I don’t think we should start now.
“……or is blamed for handicapping industry in the UK…” This is just to do with ignorance and stupidity and a failure to look forward to doing things differently rather than harking-back to a fantasy golden age.
It really IS time we grew up and started to take some responsibility.
[…] Cross-posted from Tax Research UK […]
This is really helpful Richard. Thanks. It would be good to watch/listen to a recording of your discussion with Rupert
MMT and the Green New Deal: Where is the snag? (II)
Comment on Richard Murphy on ‘Growth, MMT and the Green New Deal’
Strictly speaking, environmental protection is an issue for physicists, chemists, and other scientists. Economists are not scientists because they do not know to this day how the monetary economy works. This does not stop these abysmally incompetent folks to utter their irrelevant opinion on every issue between heaven and earth.
Richard Murphy claims to have synthesized MMT and GND: “This one takes an explanation because it has become very closely associated with the Green New Deal, which is again at least in part my fault.”
Unfortunately, he gets the economics part in the synthesis badly wrong. In more detail:
1. “Fundamentally it [MMT] suggests that since we came off the gold standard all money is ‘fiat’ currency It’s a promise to pay and nothing more. The promise backed by the power of the state to tax.” FALSE: The creation and value of money does NOT depend on the taxing power of the State.#1, #2 ,#3, #4
2. “But the state does not need tax to spend. All spending is effectively settled with money created by banks on demand from a customer. It is not paid for out of a stock of savings. And in the case of a government it is not paid for out of tax received.” FALSE: Spending on current output with newly created money is analogous to the spending of the counterfeiter.#5
3. “Instead gov’t spending is paid for by the government asking its bank ― the Bank of England ― to make payment for it. This is exactly akin to the fact that banks do not lend out customer funds: rather they make the funds they lend by a process of double entry book-keeping and bank deposits are the result of that process, and not where it starts.” FALSE: Money is a generalized IOU. Government deposits and overdrafts are produced simultaneously. The government spending is ‘financed’ by overdrafts at the central bank which have to be eventually repaid.#6
4. “The result is that a government with its own central bank and currency can never run short of money ― because it can instruct that it be made at will. And it can never go bankrupt if it borrows solely in its own currency because it can always create the funds to make payment. But of course it cannot print money at will ― because inflation will result.” FALSE: This is the good old Quantity Theory Fallacy. Continuous deficit spending and growing public debt does NOT cause inflation.#7
5. “So action has to be taken to keep inflation under control ― and that is the real purpose of tax in MMT.” FALSE because of 4.
6. “Its secondary purposes are to Ratify the value of money; Redistribute income and weatlh; Reprice market failure; Reorganise the economy; Raise representation in a democracy.” FALSE: Because of the macroeconomic Profit Law it holds Public Deficit = Private Profit and this means that the lethal effect of MMT policy is on distribution and that it secures ― intentionally or unintentionally does not matter ― the self-alimentation of the Oligarchy. Nothing could be more anti-democratic than MMT policy.
The claim of MMTers that a Green New Deal can be realized at any time by deficit spending is misleading at best. Technically, of course, there is no problem. However, as a matter of principle, any New Green Deal can be realized with a balanced budget. But in the MMT scheme of things, a balanced budget is something for the Swabian Hausfrau and permanent deficit spending is the prerogative and duty of a Sovereign State.
The point is that MMTers are not so much interested in how the government’s budget is allocated but that the government runs a deficit because it is the deficit as such that produces the macroeconomic profit for the Oligarchy.#8
MMT is NOT science but political agenda pushing in a social/environmental bluff package. MMT and GND together are the dream team for deceiving WeThePeople for the benefit of the Oligarchy.#9
Egmont Kakarot-Handtke
References
https://axecorg.blogspot.com/2019/05/mmt-and-green-new-deal-where-is-snag-ii.html
I note what you say and think it nonsense
Having addressed these issues many times before I will not be doing so again
Egmont Kakarot-Handtke says:
“Strictly speaking, environmental protection is an issue for physicists, chemists, and other scientists.”
Not so, I suggest. Though their input and expertise is more than useful; essential even. Environmental protection is a political matter scientists have no brief, or authority to produce policy in society.
“Economists are not scientists because they do not know to this day how the monetary economy works. This does not stop these abysmally incompetent folks to utter their irrelevant opinion on every issue between heaven and earth.”
Ah, Egmont, you must fancy yourself to be an economist (?) QED
🙂