The Mirror's morning email to readers yesterday, penned by assistant editor Jason Beattie with whom I have worked, included what appeared to be a claim that the UK could run out of money in the current crisis. I, of course, disagree. This is what I wrote to Jason Beattie in response:
Dear Jason
I hope you are well.
I noted that you wrote in your morning mail today:
"At some point the Government will have to endure the pain which comes with having to say no.
Unlike in 2010 there genuinely is no money left.
Yet Johnson and Rishi Sunak have yet to confront this cold reality, not least because they are now having to defend seats where the poverty the Tories ignored for so long is raw and real."
I hope you will forgive me for writing to say that I cannot agree with you. As you are aware, I have contributed to the Mirror before now, mainly on tax issues, but I am also a professor of political economy and in that capacity have to assure you that your claim that it is possible to run out of money, as Liam Byrne once famously said Labour had done, is technically impossible.
There is good reason for this. It is that money is not a physical thing. Nor is it in any way linked to something like gold, which last happened in 1971. Instead, it is nothing more than the promise to pay which is printed on the banknotes of this country.
So, if we borrow money from the bank, we promise to repay it, and they in turn promise to pay whoever we tell them to. And that process literally creates new money. In fact, most of our money is made in that way.
And when it comes to government-created money, the Bank of England can literally create however much the government instructs, simply by entering numbers into the computer that records the transactions between the Treasury and the Bank. This can be done as often as required so long as if the control of inflation requires it enough tax is charged to take that newly created money out of circulation, and so destroy it.
And that, I promise you, is quite literally all there is to money creation.
In that case, and because money is just a promise, saying that we can run out of it is like saying that we could run out of love. Or, if we want to think of money as a scoring system, then it is like saying that football can run out of goals, or cricket could run out of runs. None of those things do, of course, make any sense. Nor, then, does saying that we can run out of money make sense. We, quite literally, can't.
All that we can do is create too much money. That happens when money creation results in inflation. But, as is now very apparent from experience right around the world, it is very hard to create inflation when interest rates (which are now, because of quantitative easing, almost entirely under government control) at or very close to zero and if there is less than full employment at a real living wage.
I think that it is safe to say that we are not going to see interest rates rise for a very long time. And, my discussion with many economists suggests that there is widespread agreement amongst them that we are heading for many millions of unemployed people in this country.
In that case the chance of inflation is near enough zero, whilst the chance of deeply destructive deflation is quite high unless the government takes steps to create vast numbers of new jobs to keep this country at work and to build the new green and sustainable economy that we need. Only if we do that will we build the basis for the new prosperity that might one day, if it proves to be necessary, let us repay the money that must be created now.
I trust you will forgive me for writing now, but if The Mirror is to be on the side of working people, as it has always been, then it is vital that your paper, of all papers, understands that money is no obstacle to solving a massive unemployment crisis that is going to hit this country by the end of 2020.
Indeed, I would suggest that the greatest service that you at The Mirror can now deliver to this country is to explain that because money is no obstacle we can reject the option of unemployment, and we can reject the option of austerity, and we can reject the option of higher taxes which will be the eventual Conservative reaction to this crisis.
Instead, your paper could argue that a much better alternative is available if only your paper, the Labour Party and the people of this country realise that money is no more than a promise to pay each other to make this country a decent place to live again, and that what's more, this is precisely what we can achieve if we really understand that the promise in question is no more than that we will pay one day when there is more than sufficient income, and so tax, to do so, but until that day happens then everything to do with repayment can wait.
Best regards
Richard
Jason has responded to me, saying the comment was meant to be an attack on those who make the claim that there is no money left, suggesting that this will make the lives of Red Wall Tories impossible. I think any hint of the suggestion that we could run out of money best avoided. People are too willing to believe this falsehood.
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We’ve certainly created too much money in the real estate sector.
Great letter – and a decent response too, fingers crossed.
I think Jason has fallen into the trap set out by some of your posters a few blogs ago which is to accept the boundaries set out by the neoliberals and to conduct the debate in their terms and using their language. As pointed out we have to move to new terminology and new metaphors if we are to get the message across and debunk the absurdity of their ideas, such as “running out of money” as you have done nicely in your letter.
I bet Liam Byrne regrets leaving that note……. rarely has a joke misfired quite so spectacularly.
Good letter, we can hope that some of its content might spill into the wider discussion. Not much point in having a progressive opposition if it is not progressive in its outlook and bound hand and foot by the neoliberal consensus.
Given that so many MPs come up through the ranks of local government it is hardly surprising that they are steeped in ‘household budget’ thinking. It is just ‘common sense’ to believe that budgets are exhaustible.
Dangerous stuff common sense.
I have discussed that letter with Liam Byrne
He does regret it, deeply
Please Jason
Publish Richard’s letter!!!
Thanks for this clarity and hope. Suggestion… Open letter to all papers and/or party leaders?
Many thanks,
An everyday citizen
Organised by who?
“Open letter to all papers and/or party leaders?”
It is one thing to write an open letter, but quite another to have it published……and in the case of elected members to have it get past the office secretary/aide and be read at all.
Until Maggies abracadabra spell is broken – we will be mere ‘sleeping beauties’.
That lie enforced with inflation (the lie of the factory gate prices) which fed-back into wage rises disengaged the control of the economy (inflation/cartels) via fiscal means and handed a golden goose machine to the bankers and money creators under the guise of monetarism. Got rid of high rate taxes that led to widening of inequality, and opened and deregulated the capital flows – which allowed the massive escape of the ‘created’ money to tax shelters (making a farce of IHT)
To be politically neutral – I believe that Labour had a hand in lighting that blue touch paper. Callaghan and Healey have a lot to answer for, being the proto SDP/neolib infiltrators.
I’m afraid that the Mirror was long ago captured and moved away from its central tenets – Maxwell was not a social democrat who put his adopting British poor classes ahead of his mentors; Alistair Campbell came out of that subversion; as did Piers Morgan sent into destroy what was left if its reputation …
The Mirror, like the Express and The Guardian are now mere shadows / dripping blood sheepskins drapping the neoliberal/con hagemony.
They will NEVER let people inow the truth of Money – their whole ancestry and future depends on it.
I suggest that if the economics students at GCSE level to the Accountancy student as part of their basic first of many exams are not required to understand the basic truth of Money beyond the witches spell of a household purse spell, you and other professionals and academics will end up metaphorically ‘pissing in the wind’ of received/brainwashed/paid wisdom.
Pessimist!
@DunGroanin :
Richard calls you pessimist an I suppose I have to agree despite agreeing with much of you analysis of where we are and how we got here.
I call you pessimist because my feeling is that what we have created over the past four decades is inherently unstable and it will break down. It must. Though I don’t expect it to happen soon, quickly or smoothly. Every greedy generation discovers eventually that their greed will take them only so far before the have-nots have not anything to lose and cut-up rough.
Academics pissing into the wind often get the last laugh when the wind changes. 🙂
I hope you’re right
You seem really clever. I have thought for a long time that a maximum wage would be better than pissing in the wind trickle down capitalism. However I’m not clever enough to work out what the maximum should be without crashing the world economy. I thought £250,000 a year would be enough but do you have any idea?
I have been asked to look at this question, many times. But, the fact is that a maximum wage is almost impossible to enforce because anyone with some control over the way in which they are paid, e.g. the self-employed and private company owners, can always get around such limits, making them virtually meaningless. As a result I have always steered clear of them.
But what I regret even more is the failure of the Labour Party, at that time and subsequently, to counteract this mistake and make the case that you have made above. I’m sure that the country would be in a much safer place to counter the effects of the Covid-19 had they taken their role more seriously.
Excellent letter. Any statement (however intended) that intimates the government is retrained by a physical, limited supply of money will only serve to endorse the dreaded household analogy. This is not the time for subtlety, least of all in a red top. While published clarification by him is unlikely, hopefully he will be more cautious in future. The Mirror, with a monthly multi-platform reach of almost 30 million, could be a valuable vehicle for communicating the basics of modern economics to a wider demographic.
We have at last engaged
cool, calm letter, Didn’t quite understand the last sentence repayment/tax. I guess I’ll wait till next week when Stephanie Kelton’s book finally arrives
The tax issue is that if we get full employment we can always balance the state’s books
It shows how rarely we’ve had full employment that we almost never have
Great letter but a key challenge will be how do you get an electorate to buy into MMT and reject the pervailing narrative on money creation. Which leads be to think that a comms strategy is needed both nationally and locally which will engage the electorate on MMT thinking and in so doing is able to counters conservative supporting press views.
How is that done?
Most politicians and people in power are too conservative to promote what could be perceived as radical concepts. So you have to find a way to talk directly to the electorate as well as continuing to attempt to sway the hearts and minds of the establishment. Working in IT, a digital social comms strategy would be key for me given that a large proportion of the electorate heavily engage with content via digital social comms. Content needs to be designed to attract, engage and hold the attention of a wide audience. All of this requires resources and expertise and benefactors to fund such a strategy. An outline strategy and identifying benefactors would be the place to start.
I can tell you – no one is interested
Joe Clark says:
“Working in IT, a digital social comms strategy would be key for me given that a large proportion of the electorate heavily engage with content via digital social comms.”
Yep, and being in the business you must also be aware that the digital social comms user fillets his or her content as effectively as a dog will eat round a broccoli stalk amongst its dinner meal.
If you can make the broccoli stalk of political economy attractive you might be onto something, but coating in chocolate won’t do. The dog has to want to eat the broccoli.
operationally, how about this as a starting point?
1-there is a ( magic ) money tree
2the govt .creates money -it’s not magic
3it does so to pay for what it believes in -( manifesto )
4the money it creates comes about because it issues its own currency- if we tried we’d end up in jail
5we’re all conned into believing that only the private sector creates the wealth of a nation
6the govt is perfectly capable of acting in all of our interests. The private sector by definition acts in its own
7we pay our taxes. Why, exactly ?
8as a brake on inflation- nothing else
9NOT to pay for govt spending — separate time -scale, separate issue
10the govt can & has often spent unwisely.
11it’s our job as voters to insist through the ballot box that the govt spends sensibly for the good of us all
12post-COVID-19 isn’t time we had our say ?
Certainly needs to be something like that, a narrative that can be easily understood by most. To Richard’s point, generating interest would be a major challenge – most of the electorate tend to show more interest in micro level issues. How you turn heads so to speak would require a number of tactics; ranging from simple narratives where content is flexed depending on the audience, forming alliances that could help with reaching certain audiences and organisations. Could citizen assemblies be used to generate engagement and debate on MMT. Local networks setup from targeted activity. When you look at recent events, financial crash and austerity, Brexit, covid 19 response, the mismanagement of money creation and flow by gov’n is a key route cause here. The pain and suffering these events have created could mean we have a willing audience for change, as mentioned above how they are reached and engaged is the challenge.
In the Guardian Simon Jenkins appears to be thinking along the right lines:
https://www.theguardian.com/commentisfree/2020/jun/15/british-economy-cash-rishi-sunak
“Who pays for this money? No one, unless government defines it as “borrowed” from itself. Of course cash handouts can, under reckless regimes, veer into rampant inflation and disaster. Britain is not reckless, and inflation is close to zero. But with a soaring unemployment rate and capacity lying idle, the one thing the economy needs is the cash of which its government, if with the best of intentions, starved it three months ago.
“Sunak should slash VAT and extend his direct payments to all who need it for the remainder of the year. The government owes all Britons a universal basic income until this crisis passes. As for the cost, it should be written off. Let the bankers howl.”