As a Council Member of the Progressive Economy Forum I was involved In drafting this letter to the FT, published this morning, the content of which will be familiar to those who have read this blog over time:
Having reviewed the fiscal sustainability report published by the Office for Budget Responsibility (Report, July 14), we believe that its approach to economics is wrong. The view it presents does not help economic recovery.
The OBR's focus is on how the government might pay for the consequences of the coronavirus crisis. We do not think that this is appropriate. That is because this approach is essentially microeconomic, and assumes the government is an entity independent of the economy as a whole. The implication is that the government is an agent too small to influence the direction and level of activity in the economy.
We do not agree with this view. In the macroeconomy the government shapes the direction and size of the economy through its regulations and decisions on spending, taxing and borrowing. As a consequence, the focus of the OBR report should not have been on the sustainability of the current debt-GDP ratio but on the impact of government spending on the economy. This would require that the OBR assesses the affordability of government finance in a macroeconomic context.
Given the prospective rise in unemployment, the OBR report should have considered whether the policy proposals announced by the chancellor in July will be sufficient to maintain the economy as it exits from the lockdown. That would have required an assessment of the revenue generating potential of each proposal.
In an economic downturn, increased revenue needs to be considered as a consequence of policy and not as a primary aim. As Keynes suggested, if the problem of unemployment is solved, so too is that of the budget.
Might the OBR discuss economics, the economy and necessary economic policy and stop obsessing about the accounting problem of balancing books that have very rarely ever been balanced in the past 326 years?
We might all be better off if it did. We would certainly have better economic policy and better public finances.
Patrick Allen (Chair),
Ha-Joon Chang,
Stephany Griffith-Jones,
Will Hutton,
Robert Skidelsky,
John Weeks*
Carolina Alves,
Danny Dorling,
Daniela Gabor,
Will Hutton,
Sue Konzelmann,
Johnna Montgomerie,
Richard Murphy,
Natalya Naqvi,
Ann Pettifor,
Guy Standing,
Geoff TilyProgressive Economy Forum,
London WC1, UK
The asterisk against John Weeks name was there for good reason. As is apparent from the date in the letter and the time of publication, this letter took a fortnight or so to be published. John was actively involved in drafting it, but sadly died on Monday this week. It was, of course, right that his name remained on the letter.
Some here will have read John's last book, on debt. There was much there to agree with, but he remained vehemently opposed to MMT, on which we robustly disagreed whilst remaining mutually committed to progressive economics.
John was an academic macroeconomist, mainly at SOAS, for more than five decades. He was generous with his time, comment and support. I will miss him. He was adamant on the issues to which this letter refers. I think he would have been pleased to get a last word in on something that mattered a great deal to him.
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Will Hutton. Will Hutton. So good they named him twice.
He’s a big fella
Your keyboard has excelled itself Richard – “PripigressivecEcininy Forum”.
Only one word to say on the letter – excellent. Why did it take a fortnight for the Times to publish?
One of my better ones
And I was pleased with the letter, of which I wrote a draft
Why? Only they can say…
I read John Weeks book “Economics of the 1%” when it was published. It was a brilliant indictment of current “thinking”. The first few pages of Chapter 9 were a no-hold-barred demolition of austerity and the dire social consequences it precipitated. He will be greatly missed.
A very simple question:
Where is the money?
Where is the money that isn’t paying wages?
Where is the money that isn’t the income of closed-down businesses?
I think it no longer exists, it has turned back into thin air.
In which case the new money the government has printed can’t be repaid. It is needed for the economy to function.
If the money that was previously paying wages is hiding somewhere, then yes, the new money will have to be taken back out of the system.
But if the previous money is hiding somewhere, where is it?
I think you need to read about mt here
Or read Stephanie Kelton’s The Deficit Myth
Your questions are answered there
Have OBR economists not been paying attention on their economic courses? Why have they not picked up that Keynes made the very valid argument that uncertainty is very much a part of a monetary economy because crises will come along whether man-made or not? Understanding this commonsense argument of Keynes means there has to be provision for countering the anxiety attacks that occur in monetary economies in response to crises so that a rush to hoarding which undermines demand can be countered. Logically this can only mean there has to be a state able to create money from thin air and without liability to others and inject this money to reinvigorate demand. OBR economists need to be asked what other non-state solution they have for reinvigorating demand and to spell it out in detail so that it’s plain there will be minimal negative effects that will further depress demand.
On my last sentence we can guess that the economists at OBR will not respond with a non-state solution to reinvigorate demand and we can categorically state OBR is a non-accountable organisation not worthy of government funding except for right-wingers who like to deliver snake-oil at public expense because they know there are so many ill-informed and gullible voters out there.
They do not understand the difference between risk and uncertainty
[…] with other members of the Progressive Economy Forum I had a letter in the FT yesterday in which we criticised the microeconomic way in which the Office for Budget […]
I’m sad to hear of John Weeks demise.
I liked his book because he makes many good points but had no idea he was so anti-MMT.
I’m pleased to hear you say its not that bad a book either. I see ‘The Debt Illusion’ as a book that chooses to operate within the severely limiting false narrative of tax and spend and still makes a convincing argument for change and new emphases – even thought it is arguably superseded by Kelton’s work.
Rest in peace John.
Once we recognise that MMT is not shorthand for “Magic Money Tree” and risible, doesn’t it become clear that MMT points very clearly towards that other acronym, UBI ? Some Lib Dems are sympathetic to the notion of UBI, but unable to separate the idea from ‘neoliberalism’, and consequently unable to get past the problem of financing a UBI. Now, however, is it not easier to see that the answer to their perplexity and the solution to their problem (which is not theirs alone, by any means) is to be found embedded in MMT?
If we had a democratic form of government, in which the spectrum of MP opinions matched that of the Kingdom’s electorate at large, would it not be possible and right, for the Chancellor’s annual budget statement to begin with the announcement of what the UBI for the coming year would be? It would then go on to outline the Tax structure that would secure it.
Who would oppose such a notion, so long as the redistribution of revenue to secure a narrower band-width of Disposable Income — between the poor and the rolling — managed also to ensure that all the Joneses retained their relative ranks in their respective boroughs or roosts?
I think you’ll find MMT points more towards a job guarantee and a strong social safety net