The IMF issued a pretty exceptional blog post yesterday. It was about addressing the coronavirus crisis and its economic impacts. In it they said:
With many workers still unemployed, small businesses struggling, and 80‑90 million people likely to fall into extreme poverty in 2020 as a result of the pandemic–even after additional social assistance–it is too early for governments to remove the exceptional support. Yet many countries will need to do more with less, given increasingly tight budget constraints.
I could have written that. That cannot always be said of IMF blogs.
They then added:
Although the global fiscal response to the crisis has been unprecedented, responses by individual countries have been shaped by their access to borrowing as well as their public and private debt levels heading into the crisis.
And they then noted:
In advanced economies and some emerging market economies, central bank purchases of government debt have helped keep interest rates at historic lows and supported government borrowing. In these economies, the fiscal response to the crisis has been massive.
In many highly indebted emerging market and low-income economies, however, governments have had limited space to increase borrowing, which has hampered their ability to scale up support to those most affected by the crisis. These governments face tough choices.
But it was what came next that was exceptional. They said, and I think this worth sharing in detail. They started with this:
As economies tentatively reopen, but uncertainty about the course of the pandemic remains, governments should ensure that fiscal support is not withdrawn too rapidly.
This could be targetted at Rishi Sunak. This is, of course, exactly what he is planning to do.
But they went further, saying:
However, it should become more selective and avoid standing in the way of necessary sectoral reallocations as activity resumes. Support should shift gradually from protecting old jobs to getting people back to work–for example, by reducing job retention programs (wage subsidies), reintroducing job search requirements, and training new skills–and helping viable but still-vulnerable firms safely reopen. With low interest rates and high unemployment, boosting public investment–starting with maintenance and ramping up projects–can create jobs and spur economic growth.
Why not just call it the Green New Deal with a dollop of care and education thrown in? Because that is what is required.
But correctly they note:
Emerging market and low-income economies facing tight financing constraints will need to deliver more with less, by reprioritizing spending and enhancing its efficiency. Some may need further official financial support and debt relief.
That is true, and also welcome, as is this:
Governments should also adopt measures to improve tax compliance and consider higher taxes for the more affluent groups and highly profitable firms. The ensuing revenues would help pay for critical services, such as health and social safety nets, during a crisis that has disproportionately hurt the poorer segments of society.
I was literally saying this last night.
And they concluded that section of their commentary saying:
Once the pandemic is under control, governments will need to foster the recovery while addressing the legacies of the crisis–including the large fiscal deficits and high public debt levels.
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Countries with fiscal space and major scarring from the crisis, such as large long-term unemployment, should provide temporary fiscal stimulus while planning for an adjustment over the medium term.
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Countries with high debt levels and less access to financing will also need to adjust over the medium term, striving to protect public investment and transfers to lower-income households.
We are in the first category. We have the room to create money and borrow money: there is, in the IMF view, no reason not to support the economy through this, and every reason to do so.
So what was their overall conclusion? It was this:
Looking ahead, countries will need to make it a priority to invest in health care systems and education. They should also strengthen social safety nets to ensure that all people have access to food and other basic goods and services.
As economies begin to recover, governments should seize this moment to move away from the pre-crisis growth model and accelerate the transition to a low-carbon and digital economy. Carbon pricing should be a key feature of this transition, because it encourages people to reduce energy use and shift to cleaner alternatives–and, moreover, it generates revenue that can be used in part to support the most vulnerable.
As governments ramp up their public investment and other fiscal measures to foster the recovery, their policy choices will have long-lasting effects. They should make a decisive push to make economies more inclusive and resilient, and to curb global warming through green measures that also boost growth and employment.
I agree.
There was no MMT in this, but there was money creation. And there was an appreciation that it is not money that is the constraint now. And yet in the UK it is money that is already being said to be the reason why we cannot address the crisis that we are in.
The IMF has this right.
Rishi Sunak and the Tories have this very badly wrong.
No wonder this country is heading for turmoil and breakdown. For the sake of money creation the Tories are going to tear this country apart. And even the IMF says that they have got that wrong.
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I totally agree on all fronts.
But the disaster capitalists still rule the roost at the moment.
How on Earth can the economists at the IMF use the term “borrowing” for a government using its monopoly reserves creation power via its central bank to “activate” a future reserves savings product (treasury bonds)? This is all an artificial “in-house” means of creating money for government to spend to deal with demand issues in a country’s economy when a country’s central bank can simply top up a government’s spending account at will. It’s then the job of the government to target its spending wisely to avoid abnormal inflation in particular sectors of the economy. The teaching of economics needs a radical over-haul which it isn’t going to get until the excessive power of elite vested interests is removed.
I agree….
But the Keynesian drift is still a move in the right direction
I take my comfort where I can find it
(But not as Paul Simon suggested he did)
I wrote to our MP in early September regarding possible tax rises and the damage this would cause to a struggling economy. Also offered to buy her a copy of Deficit Myth plus provided a link to LSE review of the book.
Finally got a reply from her assistant to say the MP is ‘aware of the articles and writings of Ms Kelton’, but doesnt have the time to read stuff on her brief to be able to read things outside of that.
I guess that is shorthand for ‘I know about Ms Kelton and my Tory chums have warned me about that’.
I might try to get a virtual appointment with our MP.
Have fun…
who? Therese Coffey by any chance?
Jo Churchill
A friend found her very supportive and helpful in education related matters.
Other suggest that she doesn’t make much noise on anything and certainly would never vote against the government.
I see she is now in full support of Brexit: https://www.jochurchill.org.uk/news/jo-visits-muntons-trade-secretary-liz-truss (not cheese!!) with all of the opportunities it brings….
Good luck….
Better news indeed. Things are changing if the IMF is now saying such things;
Also saw this in the FT.
https://www.ft.com/content/722ef9c0-36f6-4119-a00b-06d33fced78f
“The IMF’s words will be seized upon in the US and across Europe as giving the green light to countries to invest out of the recession, rather than tightening their belts as happened in the previous decade.
The fund’s advice is a reversal of the message given in the same publication a decade ago at the equivalent stage in the financial crisis. Then, it warned that “many countries face large retrenchment needs going forward”.
The fund’s internal auditor subsequently assessed that it had been too quick to advocate austerity in 2010-11, and the IMF has now substantially revised its guidance.”
https://www.ft.com/content/722ef9c0-36f6-4119-a00b-06d33fced78f
Spot on
Did you read the interview with the new head of the IMF in the FT on Saturday? An interesting background and against austerity. https://www.ft.com/content/86d03296-7a61-44b1-a92e-ba55c7ba44cf
Thanks
The argument made by the IMF and others, that carbon taxes as repricing, might be the best tool to bring about a change in carbon usage is not true. Regulation is better. And unless alternatives to the products subject to carbon taxes are available at the time that those taxes are introduced it is very likely that the result of introducing the tax will be profoundly negative outcomes that might harm the objectives of the tax
This means that before any carbon tax is considered a full appraisal of consequences is essential and investment in alternatives is essential
I agree with you: I do not think this is a case where tax can work
I have a lot of faith in tax, but this is not one of them. There is no market solution, even by repricing, here
And I see that carbon taxes are one of the negotiating points in Brexit.
A bit like fishing, instead of starting with a sensible goal of improving fish stocks, it is who gets what and no matter the consequences.
Regulation has to be a better way forward – both areas we could have worked to by staying with our neighbours.
It’s weird that so many people have no idea that money creation has to have the two flow aspects of influx and reflux, injection and redemption in order to get close to retaining par value and therefore widespread acceptance. It’s weird too, given these opposing flows, few understand how the ability to save is achieved and this might suggest total redemption isn’t possible.
Richard,
I see how MMT works in a nation like the UK
How can it work in – say Sub Saharan Africa or doesnt it?
As Stephanie Kelton makes clear MMT only works with monetary sovereignty and some states – such as many in Africa – do not have that
It makes clear though what is required to solve the problems these states have
It is an important policy agenda, but not for the moment: more an aspiration indicating the required structures
Fadhel Kaboub who is I think, of Tunisian origin, has a go at MMT for the developing world here:
https://www.youtube.com/watch?v=hVeRlqzl-wc&feature=youtu.be
A commentator on the radio was observing that Sunak is the wealthiest minister there has ever been. Given that and his background, family connections, career (Goldmans and hedge fund), there is zero chance of him thinking outside of the neo-liberal, small state, low tax, de-regulation, austerity box. Despite his work experience at Wagamama’s, I suspect he has no idea whatsoever of the lives of most people, or indeed of most industry and business.
I strongly suspect that you are right
Our leading Left-leaning media enterprise, Novara media, delivered some rather juicy nuggets in an interview with Grace Bleakley earlier this week.
Richard, i think you’ll absolutely lap up this particular clip. Enjoy!
https://twitter.com/i/status/1316348449252691969
Deeply confused, I am afraid, is the best I can say
It’s always good to get another slant on things I say.
Couple of observations here;
Regarding the gov creating its own money, Blakley says that if it causes some inflation “maybe it’s not a bad thing” and that there could be some GDP growth with that…well the BoE has been trying to exactly that for the last 11 years. So she doesn’t object to it in theory as long a sit is controlled. So she is not ruling the idea out.
But then says we have the bond markets “for a reason”. But the only reason she gives is that there are a few bond market powers that dominate and won’t surrender that power. I don’t see that as a good enough reason to have a Gov bond market in the first place and who actually cares about them in the second, things change and this is not a sacred right.
We have a bond markets because that is what has evolved over centuries for the benefit of a a few, it is an arcane relic of a bygone era. I believe we are seeing now where the real power actually lies, away from the bond market, who are in effect living off a free lunch re buying gov bonds. As Blakely says QE hasn’t “been tested to extinction yet” so she isn’t sure where it is headed, but we are seeing the beginning of that process.
However the problem I would say is that rich investors will just have to look elsewhere for a return and there lies a danger. Historically, that usually means piles of hot money pouring into property and stock markets or third world debt. None of those is helpful and usually creates more problems of asset bubbles and increasing trouble for indebted developing countries who suffer deeper indebtedness that runs at the first sign of trouble. Martin Wolf in his book on the last financial crisis advocated capital controls to stop big money doing as it pleases. It is, he says all about what type of society we want to live in. Blakely also says here we would need some other form of major market interventions/reforms to stop the money just getting sucked up to the top as it is now.
But we are at least debating these things now, thanks in some part to this Covid led crisis and looking at alternatives rather than leaving the way big money and markets operate as they always have.
Thanks
I found her analysis rather oddly non Marxist
In fact, rather uncertain