Will Hutton is not most left-wingers' idea of a left-wing economist these days. But in The Observer today he suggests that the programme required to support the economy post coronavirus is vastly bigger than most people are presently thinking. And on how to pay for it he says this:
How is all this to be financed? Here again, the old rules need torching. Issue perpetual bonds that don't have to be repaid, and, if necessary, supplement the bond proceeds by printing money; with output taking such an enormous hit, the inflationary risk is non-existent. Britain is facing a looming first-order economic disaster. The risk is not thinking big enough in response.
Precisely.
If Will Hutton can get it why can't some others?
Like me, Will is a member of the Progressive Economy Forum.
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I think the response to the crisis will bring more tensions within the Government. I suspect Johnson will push for headline grabbing ‘big things’ – expect lots of bridges, research centres and green infrastructure spread around the country. Sunak will be more cautious and will want to focus on business support and the financial sector in particular (Sunak is already positioning himself to be next Tory Leader). Both will want to spend money that wouldn’t have been seen as possible just a few months ago. But both approaches will not change the fundamentals of current monetary and fiscal policies – maybe pushing them towards the limits of the status quo. As such they will not be of the scale necessary and will not change the dynamics of the current system towards even greater inequalities. There is a clear opportunity to make a case for a change, by embracing MMT, to show how the economy can work for wellbeing and the planet with bold policies. If the left do not step and offer more than trying to be ‘kinder’ to people and the planet within the same rules they will betray a generation. Betray may be a bit strong, it won’t be intentional, but with the impact of Covid 19, Brexit and the climate crisis we need to be bold, and use all the policy levers we have. As a sovereign currency we have more levers than many and we need to use them. We won’t get another chance.
It’s risky to ventriloquise the views of others but I’ll have a go.
I think the right doesn’t like the idea that government borrowing is sensible because at the heart of their philosophy is personal responsibility and they like to use the tropes of personal responsibility to cover the state too. My Conservative-voting gran used to say “Never a borrower nor a lender be.” She was poor all her life. Everyone I know in her child’s generation who made any money borrowed to buy a house and made out like bandits.
However just because it’s demonstrably wrong does not mean that these tropes aren’t powerful.
Paying for covid by long-term government borrowing means accepting that future people will pay for “our debts”, means all the rhetoric supporting austerity these last ten years has been nonsense and also undermines most of the arguments of those who want the state shrunk.
Now I do think that Toryism will evolve into a big-state deficit finance entity if Johnson survives or get replaced by Labour if they replace him with an austerian. But most of them aren’t there yet and Tories throughout the British Establishment will object both instinctively and philosophically to getting ourselves out of this hole by long term borrowing. (And even some Lib Dems are in this camp).
Education, patient persuasion and the contesting of ideas are what is needed.
I’m not sure I follow your fourth para
I was attempting to explain why some on the right might prefer austerity rather than government borrowing as a route out of the economic slump. (I don’t actually believe any of that stuff myself).
1066 and all that separates history into “good” things and “bad” things. Not difficult to identify “bad” things for the Tory party: local government, EU, foreigners, state schooling, state housing, and at present state HANDOUTS to all those lazing at home. When you are trying, quite rightly, to fight against this tide, you face an uphill struggle.
Will Hutton is one of those writers who opened up my mind in the late 90’s with his book ‘The State We’re In’ to what was actually going on in our economy.
I feel that he had gone off the boil recently so his article in the Observer is very heartening stuff indeed. Let’s hope he keeps it up and keeps the faith.
The Left is crying out to be sort of ‘re-born’ or ‘re-set’ – why it can’t do so around MMT is beyond me frankly. I wonder what Eric Hobsbawm would make of it – he lamented the inability of the Left to deal with Thatcherism right up to his death?
The key point for me with MMT is its potential to democratise money in politics and re -orientating politics to provision enough money for society as a whole – not just to enable the over-provision for the few at the top.
I know Will and never expect to get on with him, but do
We’re not in the same political space but are both rooted in what can be done – and that created common ground
Better that than adherence to a crap theory any day
We all the better for working with people whose views we tend to disagree with. I think we used to call it team or something…
Too often the ‘Left’ fails to recognise the constructive roles of business, whilst the ‘Right’ fails to see the constructive roles of the state – or in the case of the current mob, cannot see any role at all that it does not want to undermine.
Will is one of the few people who recognises the constructive roles of both and can at the same time acknowledge their weaknesses. He has been writing about it for decades and his early analyses are still mostly valid. The real questions are why nothing has happened to change things which comes back to the deeply ingrained thinking, of which MMT is an example.
With Labour not even currently active in the economy debate – not sure the Tories have enough pressure on them.
Labour themselves even with Corbyn always talked loosely about balancing the books.
I think Johnson will go for big spend and beat Labour at their own game. This could certainly cause fall out in the Tory party but what choice is there?
I suspect the usual right-wing sources will attack any attempt to keep the country propped up with Government money.
Not sure how this battle will pan out but I definitely can’t see Starmer having a strong position.
From the Government’s own lips- a very timely piece of information that should be shouted from the rooftops.
The UK Government Treasury answered a Freedom of Information request in early 2018 regarding the loan, confirming that compensation payable under the Slavery Abolition Act 1833 was indeed paid off by taxpayers in 2015, and providing the following explanation:
The majority of Government borrowing is financed through the issuance of UK Government bonds known as gilts by the Debt Management Office (DMO) and as such, the majority of the Government’s debt is held in gilts. A gilt is a financial instrument that pays coupons (interest payments) twice per year to the holder of the gilt, up to and including the date on which the amount borrowed is finally repaid. Gilts are typically sold to large investment banks which, in turn, sell the gilts on to end-investors. These banks are known as the Gilt-Edged Market Makers and consist of 19 firms.
The Slavery Abolition Act (1835) Loan was rolled over into the Government’s gilt programme, ultimately into an undated gilt, the 4% Consolidated Loan (1957 or after). The term ‘undated’ refers to the fact that this gilt was issued with an earliest potential redemption date of 1957, but it was not compulsory for the gilt to be redeemed at this date. The 4% Consolidated Loan was redeemed on 1 February 2015, as part of the Government’s decision to modernise the gilt portfolio by redeeming all remaining undated gilts. More information about undated gilts can be found on the DMO’s website here.
Money borrowed to fund the Slavery Abolition Act (1835) was therefore fully repaid in 2015. The long gap between this money being borrowed and its repayment was due to the type of financial instrument that was used, rather than the amount of money borrowed.”
https://www.taxjustice.net/2020/06/09/slavery-compensation-uk-questions/
Except it was not paid off of course
It was just refinanced, again
“The Government used £20 million to fund the Slavery Abolition Act 1833. In 1833, this was equivalent to approximately 40% of the Government’s total annual expenditure.” (HM Treasury announcement, 31st January, 2018). Eventually it was rolled into a 4% undated Consolidated Loan gilt (redeemable 1957 or after). “Redeemed” 2015.
Redemption, however doesn’t show the UK DMO issues in the same year.
The UK DMO Gilt Market Issuance Calendar for 2015-16 lists around 50 issues for circa £130m (+/-5%?) in the year to late March, 2016 by way of auction, tender or syndication. My figures are not precise because the list is not summed or totalled, and I am using the broadest brush approach (borrowed Conservative-style from Government PR precedents), adjusted for some concern for accuracy.
My simplistic view
Money is created out of thin air by the Government (and banks).
It is fed into the economy as Government spending (or bank loans).
It circulates round the economy for a while
(including passing through the tax system one or more times)
It is eventually taken by the banks and used to cover the cost of bad debts
This is the main process that turns money back into thin air.
(tax can turn money back into thin air, but is normally balanced out by printing of new money)
So that the main factor determining the amount of money in the economy is the balance between printing money and bad debt.
I may be wrong, but if you don’t believe this aged cell biologist, label some newly printed money with green fluorescent protein and see what happens to it.
I’m sorry, but you are quite wrong
You are presuming that the physical manifestation of money as notes and coin is what money actually is
It isn’t
Money is a promise to pay
Notes and coin are a small part of the way we record those promises.
But themselves they are not money because the promise they represent continually changes
Sorry for not being clear Richard.
Of course almost all “money” is an entry on a computer. The Government does not print money, it writes cheques. “Printing money” is a derogatory term used by flat earth economists.
But our disagreement is over how money disappears from the system.
My contention is that under most circumstances, tax only alters the amount of money in the system marginally, because new money is being created as the same rate as old money is being cancelled.
Instead, I suggest that the main way that money disappears is via bad debt. I would have thought that 2008 and 2020 support this hypothesis quite well. Though in normal times there would always be a slow leakage.
A more difficult question is how does overseas trade affect the amount of money in the system? This will become rather relevant after December 31st. How can the Government write its cheques in a way that will enable us to buy goods and services in other currencies?
Let’s disagree
You are missing the whole point