I was amused by the honesty of an an article by Julian Jessop, the head of economics at the Institute of Economic Affairs, that came out on CapX yesterday, having previously been in The Telegraph. He berated modern monetary theory (MMT) despite saying:
To be fair, MMT has a respectable academic pedigree, helpfully summarised here, which some trace all the way back to Keynes himself. It has several prominent advocates, notably Professor Stephanie Kelton, author of The Deficit Myth and an advisor to the Democrats in the US.
In particular, MMT appears to offer a credible alternative to conventional thinking on the importance of balancing the government's books. The global economic slump and the explosion of debt and money printing during the pandemic have added to its popular appeal. But I remain a sceptic.
So why his disquiet, given that he could find nothing technically (it seemed) to argue with in MMT? Try this:
MMT also comes with a lot of unhelpful baggage. If MMTers had their way, central banks would lose what independence they have, risking higher inflation and a complete loss of fiscal discipline. It is also unclear what people working on government-guaranteed jobs would actually be doing, or what would happen when they move on.
So we cant have MMT because we have to Either preserve the pretence of central bank independence - when central banks have only been involved in money creation for more than a decade now and have no inflation left to tackle - or because right wing think tanks cannot think of a single job worth doing in the economy.
Or alternatively, and better still, try this:
Above all, MMT is being used to support a “big state” agenda. It would mean that the government plays a much larger role in the economy, for good or ill, and in good times as well as bad.
So actually, the only objection is political. So much for positive economics.
And finally note this:
Higher public spending would also still mean higher taxes, even if the rationale is to prevent overheating rather than balance the books.
Only at full employment Julian, and then only if there is overshoot. It's a remote risk right now. But the right wing would rather have unemployment instead.
And those reasons are, apparently, why they don't want to face the policy implications of MMT. It's pretty pathetic really, to be candid. Except for the fact that the result is that we will have more unemployment than is needed as a result. And a pale imitation of a Green New Deal. And all because the right cannot get over its fixation about the size of the state.
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’m re-posting my comment again from an earlier article since it also seems relevant to this:-
MMTer’s need to zoom back a bit and look at what they’re trying to achieve which I would argue is exactly the right amount of Exchange Circulation Momentum (ECM) according to an economy’s circumstances namely whether it’s over-inflating or deflating (The “Exchange” part of the term being the medium of exchange or currency). Given the fact that Libertarians and NeoLiberals will always use the role of government as a punch bag or lever to get themselves elected to power on a campaign ticket of “minimise the role of government in your lives” it makes sense to hid the processes of ECM under the hood!
What do I mean by this?
Given that most voters interact with ECM processes through their private sector bank accounts and in reality both government and these private sector banks work together to create the medium of exchange it gives the Libertarians and Neoliberals less political leverage if ECM adjustments take place through there banks if this is possible. This is why I was talking earlier about the need for governments treasury bonds to be issued as private sector bonds with government guarantees. Indeed it’s possible to conceive that government and private sector banks can partner over contentious issues such as taxation, universal basic incomes and even job guarantees!
MMTer’s need to recognise there is a political element to their advocacy and start thinking out of the box to counter it.
Agreed
I think anyone who’s done a bit of research on MMT recognises and accepts that full employment is one of the main boundaries of state spending if inflation is to be controlled. That’s not a question of ideology, it’s just arithmetic.
I also believe that this is what fuels a lot of neoliberal opposition to MMT. Full employment erodes employers ability to manipulate wages. In short, the closer we get to full employment, the more they may have to pay for labour… and they don’t like that.
Just my view, of course, and substantiated by nothing more than a mistrust of malicious and grasping capitalists. Not all employers and capitalists fall into this category, thankfully. But let’s be honest, a significant number probably do.
In my opinion, this is Alt-Right bollocks – that’s all it is.
The pretense is that States are evil (the von Hayek trope, after watching the Nazis rise, so all States must be evil – no exceptions – how scientific? Pah!).
The worst aspect of this is how it effectively destroys the State’s role in solving the problem and therefore commits society to going along with its dance of death with the stupid orthodoxy that still prevails.
Its economics as self-flagellation – that’s all it is. So who is supposed to solve or deal with say consequences of the Covid outbreak ? God?
Jessop’s irrational fears simply prevent a rational response in the form MMT, GND etc.
Yep – its Alt-Right through and through. Emotion over sense.
God help us.
Giving a Government the mandate to spend at will, to satisfy every demand for money that comes their way.. what could possibly go wrong?.. this is not a concern of the “right wing” unless you want to label everyone right way who doesn’t buy in to your way of thinking (akin to citing everyone who voted brexit a rascist)
Oh and “inflation only occurs at full employment”.. where I the evidence?
That’s not to say Govts need to run balanced budgets – they don’t. But this is a long way off accepting MMT hook line and sinker.
You ask all the writing questions
You should start with the question ‘why wouldn’t it be better than where we are?’
You do realise we are in a mess, I presume, created by current thinking?
And as for inflation – give us you evidence, please
“ And as for inflation — give us you evidence, please”
Errr.. you continuously make the statement inflation only a problem at full employment – I think you need to provide evidence for that statement as it is pretty obvious we rarely if ever have full employment and at what points have we not had inflation? Notwithstanding inflation can come from all sides but even accounting for oil shocks etc we have always had inflation even after stripping out house price inflation. And again I doubt we have ever had full employment (though what that means is again open to debate).
So again I don’t buy in to MMT inflation only at full employment and only a “blind disciple” would.
I suggest you go and read Stephanie Kelton’s ‘The Deficit Myth’
I have countered all the points you make many times
Stephanie does too
But I very strongly suspect I’d be wasting my time doing so again
So, I leave the solution in your own hands
Argentina has an inflation rate of 41.3%. It does not have full employment.
Turkey 11.76%
Uruguay – 10.13%
India 6.09%
Haiti – 20.4%
None of them have full employment either.
Argentina, Turkey and India are members of the G20.
Any sensible person would accept this as evidence.
Any sensible person would accept there are multiple reasons for inflation, nit all within a government’s control
But you have not considered those other issues
So your evidence makes no sense
MMT does recognise those possibilities
I see. So you say “inflation only occurs at full employment” but accept that it can occur in other situations as well.
I interpret that as saying that “inflation only occurs at full employment” is not correct.
How do you interpret it?
I have explained many times that there are several causes of inflation
The only one a government can control is that created by full employment and that’s the context with which I am concerned
You pick up a non point already addressed then
Bez.
Who is suggesting
“Giving a Government the mandate to spend at will, to satisfy every demand for money that comes their way”?
That’s the same old BS about the government buying everyone a yacht.
In a properly functioning, well educated society, it’s the citizens who decide what the spending priorities of government should be.
An educated society would understand that there was a limit to that spending.
“Any sensible person would accept there are multiple reasons for inflation”
Wrong. Ultimately, all inflation is caused by too much money chasing too few goods.
This is even implicitly accepted by MMT, where the solution to rising inflation is to increase taxation in order to withdraw excess money from circulation.
Wrong
External price shocks, fir example, do not have that cause and cannot be solved that way
Nor do politically motivated exchange rate shocks resulting in inflation arise for that reason
MMT does not suggest tax as a solution to either
So you are writing nonsense
If you read Democracy in Chains by Nancy McLean you will know the precise strategy being implemented by the right wing. Its all about shrinking the state, putting control of trade and political risk outside national jurisdiction, promoting tax avoidance , privatisation of pensions and pubic services etc.
Its not a trivial fixation about the size of the state but of the very legitimacy of a state to manage its own affairs.
https://www.theguardian.com/commentisfree/2017/jul/19/despot-disguise-democracy-james-mcgill-buchanan-totalitarian-capitalism
There is a book ‘Modern Monetary Theory and its Critics’, edited by Edward Fulbrook and Jamie Morgan. It has a range of views from advocacy to rejection, including a chapter by a certain Richard Murphy. I have only read a few chapters but at this stage I would say that MMT has, at least, challenged the idea that ‘there is no alternative’ to what is known as ‘neo-liberalism’.
New paradigms, or even less wide reaching new ideas usually face a process of derision, then bitter opposition , then -often- ‘we knew that anyway’- or ‘It’s true up to a point but doesn’t really change anything’ -to general acceptance. MMT may well adapt in some ways.
Unfortunately, we don’t have the time to just wait for the years to carry off the old guard. We need a new approach. The old ones just don’t work any more.
The book is based on a 2019 Real World Economic Review
“If MMTers had their way, central banks would lose what independence” – who picks the head of the BoE? Who can sack him?
Keep your trap shut & it leaves people guessing as to how stupid you are – Jessop opened his & now we know.
“Higher public spending would also still mean higher taxes” – cretinous
(e.g. gov invests in renewables or hydrogen or…. there is a return & thus there is zero need for higher taxes).
Spending on health? – economic multiplier – variously esitmated at 2.5 to 6 – it would thus be +/-neutral cos the multiplier would deliver more taxes – without any need to raise them.
I’m not even an economist – just an electrical engineer & I can work it out. But there again, I don’t have the mental disadvantage of being…..a tory.
This is going nowhere complaining about right-wing idiots. A very large percentage of the electorate are economically and monetary system illiterates like the economists and politicians who come out with their shallow nostrums but this electorate believes them because they need to blame something for their problems. For example, getting rid of Big EU government proved to be a vote winner didn’t it?
MMTer’s need to recognise they need to hid away their sane solutions which involve government activity somewhere and where better than in the private sector? This involves partnering with the private sector whilst making absolutely sure government retains control over the partnering arrangements. No more Clinton’s of this world doing away with Glass-Steagall. MMTer’s need to box clever and play with the cards society has currently dealt!
I confess I rarely find you cryptic, but this comment is
I am not following your logic
I agree what I wrote is cryptic on re-reading it. What I’m trying to get across is the idea that MMT struggles valiantly to explain the role that government plays in money issues. However, it daily confronts a right-wing media owned by the rich who know that it pays dividends to paint government as the devil incarnate it gets their pet politicians into power.
It accordingly makes sense for MMTer’s to start thinking about how they can partner with the private sector so that at the very least the two main things voters associate with government taxation and government borrowing (actually providing safe saving) appear to be processes that are taken care of by the private financial sector especially their bank with the government playing a back ground role.
In a nutshell how can government’s profile be shrunk so that the right-wingers find it hard to attack government. It will take some imagination to think up ways of doing this but this was done to allow the private sector clearing banks to piggy-back off the state as dominant currency creator. I’m simply suggesting some reverse piggy-backing which allows the state to maintain dominance and ultimate control but reduces its profile for easy attack by the Right.
Thanks
Making the state a preferred place for saving would be a start…..
See this morning’s video
“Making the state a preferred place for saving would be a start…..”
No I’m not saying that. I’m trying to get over the fact that for many ill-educated voter’s they’ve been brain-washed to regard the state as the enemy (Brexit is an obvious example except the state was the EU) and it’s better that the state engages in an economic management partnership with private sector banks and the financial sector (pension funds, etc.) so that the MMT state management aspect is hidden away as far as possible behind the activities of these financial sector entities. Why? Because most voters regular encounters are with their bank and a single point of contact with the monetary economy they live in appears to be the most a lot of voters can comprehend.
David Colander, an economist who worked with Abba Lerner, expresses the mental shift of perspective I’m trying to convey when he points out that money is not just a “creature of the state” as MMTer’s argue it’s a “creature of society.” See his article “Are modern monetary theory’s lies ‘plausible lies’?” on page 60 Real-World Economic Review No. 89:-
http://www.paecon.net/PAEReview/issue89/whole89.pdf
Colander wrote a much earlier article about Keynes’s attitude to Lerner’s Functional Finance interpretation of Keynesianism which I read years ago but failed to fully comprehend until now in regard to Keynes’s saying you need “plausible lies” for Keynesianism. “Plausible lies” wasn’t the best way of putting it. . I think Keynes had come to recognise the sophistication and complexity of his arguments after a great deal of explication effort on his part to put them over was too much for many lay men and women. Here’s Colander’s article:-
https://www.researchgate.net/publication/4724546_Was_Keynes_a_Keynesian_or_a_Lernerian/link/577babdd08ae213761caac4d/download
I now think Keynes was saying that for many people their encounter with the monetary economy they live in needs to be simplified and the necessary activity of the state which is needed to regulate the monetary economy hidden away because it’s so easily attacked by those individuals who want to use this type of economy for their personal advantage regardless of others.
Helen
I keep delaying in this because I enjoyed those papers – but think the first deeply flawed – but have just not had time to counter argue
I have kept it open just in case
Richard
Well at least it is acknowledged that MMT describes money and economy accurately.
Its a start.
As I noted in a previous blog.
“No wonder right wing think tanks are anti government spending. It allows the private sector banking industry to cash in by filling the “space” (created by taxes and bonds) with its loan created money”
If most new money in the economy is created by banks when they create loans, then for the economy to expand, private debt has to keep piling up.
Eventually that private debt will become too great. The repayment burden on individuals will cut their ability to consume more goods and services.
Why is MMT not talked about in the MSM?
As you point out Richard, it is political.
The implications of MMT turns present economic theory (and the vested interested profiting from it), on its head.
I’m wondering whether there is potential for inflation arising from unbalanced development in the economy. Suppose for example all available employment was engaged in massive infrastructure such as the green transition requires so there is a decline in resource allocation to consumer goods….does a shortage of those goods not mean increased prices? This was a major issue in the industrialisation of the Bolshevik economy and, as I understand it, in the Nazi war economy. The application of MMT also needs a complimentary industrial strategy and a well thought out plan of economic development….perhaps an underlying factor in the Venezuela debacle.
In theory
But I see no chance of that
MMT is nit suggesting such degrees of state control, or imbalance
In that case your logic does not apply
In reality all the arguments of the neoliberal elite boil down to “but we have always done it this way”. (And they are arrogant enough to assume they are always right). It’s a bit torturous to see someone actually using their brain here but still attempting to contort it into ‘but we’ve always done it this way’ school of thought.
Well said
We should all be worried about big state or even a small one in the hands of a party that is becoming more and more anti-democratic. They have a low opinion of parliament and seem subject to unhealthy influences, Russian and American. They seem readily to accept large-scale economic damage is underway and talk already about social consequences of mass unemployment of the 80s returning. Presumably they think that along with Covid pandemic this will give them more control over the people while they complete the sale of global Britain to the U.S. Worrying Times indeed.
the biggest threat at the moment is of a trade deal being signed with the US which cements in an anti-democratic settlement entitling us companies to compensation if their interests are threatened in future
Well said. I blame neoliberalism
Direct Jessop to his head of education at the IEA, Prof Steve Davies. He’s a nice chap, very clever. He delivered a lecture at a s weekend Event in Aberdeen in November 2019. His subject was free banking, but his opening remark was interesting. “ You’ve probably heard of MMT. As a description of our monetary
system, MMT is bang on target”.