I have been asked in a comment on the blog:
How do you reconcile your advocacy of MMT, and opposition to economic austerity, with support of a very pro austerity organisation like the EU?
As far as I can make out all leading MMT economists are hostile to the neoliberalism/ordoliberalism which is hardwired into the EU Treaties and would advise Britain to put as much administrative distance between us and the EU as possible. The so-called Stability and Growth Pact and even worse Fiscal Compact have been responsible for creating the conditions that have led to the widespread disillusionment with the EU both in the UK and elsewhere.
To which my answer is, easily.
First, there aren't that many leading advocates of MMT who live in the EU, I would suggest. In the USA and Australia, maybe. But the EU, no. And I would add that the US and Australia are also dedicated to neoliberal structures and to federalism. The EU's more flexible approach is, if anything, substantially less dedicated to neoliberalism, and certainly to federalism, so let's compare like with like to start.
But then let's go the essence. At my core I do not claim to be an economist. A political economist, yes. An economist, no. I think the difference fundamental.
The economist seeks to answer how resources are allocated using the organisation of those resources as the mechanism to answer that question. This is a closed system analysis.
The political economist does something quite different. They ask how a society allocates resources considering the power relationships that exist within it. That is open system analysis.
Economics ultimately presumes that the prevailing narrative of organisation will always persist. So, most economics presumes that because neoliberalism is adhered to by well over 80% of economists it follows that neoliberal narratives will always prevail.
Political economy recognises that all power persists so long as its narrative can be supported by society. And political economy presumes that those with alternative narratives have power simply because of their ability to tell those other stories.
MMT is an alternative narrative. It is disruptive at a time of disruption. And the EU is a powerful potential source of essential international cooperation. It's just been subverted to serve a false narrative. But I do not for a moment doubt that European cooperation is of massive benefit. Nor do I doubt it is needed, urgently.
So, I look at what there is - the EU - imperfect as it is, and seek to change it using the power of alternative narrative.
I could, alternatively, presume change is not possible and accept we can deliver nothing through economic argument and walk away, whilst leaving neoliberalism intact in the EU.
Which of those is the more useful approach? Surely it has to be the one that seeks to eliminate neoliberalism? And I believe that is possible.
Please do political economy, not economics, in other words. The latter provides no hope. The former does.
And that's why I will stick with the EU, imperfect as it is. Imperfect as it may always be, in fact, just like every other human construct. But I prefer to take what there is and win it for our cause than leave it in permanent and powerful opposition to it.
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Yes, to some extent austerity (or prudence as some called it) is “hardwired” into the Maastricht Treaty. It reflects the times when this Treaty was drawn up (early 90s) and the demands of Germany who extracted a high price in order to create the EUR. But how “hard” is this wiring in practice? The ECB has engaged in massive QE, the Growth and Stability Pact has no teeth, and the EU has issued bonds jointly…….. none of which would have been imaginable in 1997 when it was signed.
I accept the pace of change is slow but it is happening and the EU is capable of adapting to circumstances.
Why the change? “Events, dear boy, events”.
All we know is that there will be more “events” and therefore more change and personally, I would rather that change took place in a co-operative manner than in a “free-for-all” that a world without the EU might look like.
It also has a better green new deal than we have
Not a good GND
But better than ours
The EU is a jmst5er of regeneration – better than the Doctor
” I would rather that change took place in a co-operative manner than in a “free-for-all” that a world without the EU might look like ”
Clive – you speak for many of us…thank you
No less than eight EU members do not use the Euro (Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden); and in spite of the treaty ‘hardwiring’ (a ritual-dance with neither end nor purpose), it is a matter of considerable doubt whether most of them ever will join. I hazard the speculation that most will not join: and there is the difference between the UK and EU encapsulated – slow to change the EU maybe, but in the end respectful accommodation is possible. The EU is not a federal state; it is a confederation that realpolitik requires the EU to accept
The UK Union is is an incorporating union; it does not recognise accommodation, and there is its design flaw, built in to the foundations; that consigns it to history: the Scots commissioner in 1707 recognised this design problem, but accepted it for three principal reasons – religion, dynastic succession, and access to Empire; ironically, all three have in turn been consigned to history: only the design flaw remains. It time to be despatched with the Union has come.
It is a constant feature of the UK that accommodation is not possible. The Scots electorate would probably have voted for Devo Max in 2013/14, given the opportunity; because the majority still wanted an accommodation with the UK, in spite of the fact that austerity had underscored the obvious conclusion, noted by most people in Scotland, that devoultion had been designed calculatedly to enshrine the power of a centralised state apparatus (protecting the original design flaw), and frustrate the reasonable aspirations of the Scottish people within a devolution settlement. It is always thus in the UK; it has always been thus. It never changes, and the UK never, ever learns. The UK only attends when it is too late. The rest simply follows.
Here is the critique of the narrative that underlies the ideology of Neoliberalism/Ordoliberalism. It’s basically this; markets and capitalism couldn’t exist without “government” created money!
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557233
The ECB has of course been begrudgingly forced to acknowledge this by allowing government money creation to tackle the economic effects of the GFC and now the Covid pandemic because they’ve both undermined markets and therefore capitalism.
It is correct, of course
Thanks for posting the article Helen.
It’s been a very thought provoking read.
On my list for this evening
More than that, perhaps Desan’s beautifully simple expression “Money …. makes the market”, effectively skewers neoliberalism, equilibrium theory, the transparency of money, the economic reality of goods and services alone; the whole wretched neoliberal ideology, roasted on the spit of legal determinations, over the fire of ‘safe assets’.
Defining money as a ‘safe asset’, Desan here provides the new framework of understanding: “The definition identifies a pair of characteristics. One, money is made of debt, paradigmatically sovereign debt. And two, it carries value as cash, the ability to travel between strangers for value. That definition takes us straight to law, indeed to law at the highest level.” (p.3)
Brilliant – a genuinely innovative paper
May I add my thanks too for the Desan paper Helen – it shows to me how the concept of money creation has been misappropriated in our culture, as well as giving an additional solid foundation for the new vernacular we need to get money working for everyone and the planet.
I agree with Clive – the EU has budged and flexed with the conditions – contrast that with the last economic statement from our ‘own indigenous Government’ where the Tories have merely reverted to type again and are basically as far as I can tell trying to run a half hearted Covid relief strategy alongside an existing austerity package.
@ Helen, The ECB, though, isn’t a government. Yes, the ECB can create money, as can any bank, but at the end of the process the bank owns the asset and the EU euro using govt holds the liability.
It’s not an issue for the UK govt which owns the BoE. Therefore the comparison isn’t really valid.
The ECB is accountable
Not perfectly, but name me a central bank that is
John Jones
You are incorrect “any bank” can Not issue currency.
The ECB screwed Greece simply because the Greeks gave up the Drachma to use the Euro and so could not use a defecit to help solve some of their problems
Greek banks could cerate euros – any bank in a euro zone country can
The central bank could not
The critical thing for the UK is that it has it’s own currency so that the constraints that the euro has the other countries has little effect on the UK.
Certainly the EU can not threaten to turn off the monry supply to the UK like it did with Greece.
@Ben
Certainly, the Blair/Brown govt made the right decision to not adopt the euro. However, it didn’t entirely isolate us from the problems of the eurozone. Even leaving the EU won’t do that.
We will probably be large scale trading partners whatever the outcome of the current talks. Let’s hope the PTB in the EU adopt an MMT approach in the near future.
But I’m not holding my breath!
@ John Robson,
I didn’t say that any bank can issue currency but they can create money. The problem is getting it accepted! The ECB plays a key role is ensuring that whatever is created in the different eurozone countries has a 1:1 equivalence. Their activity does achieve that.
There is naturally a requirement that the rules have to be kept. If they aren’t, the ECB will threaten to remove support as happened in the Greek 2015 crisis. The Greeks could have run any deficit that the ECB was willing to sanction and we’ve recently seen quite a bit of rule bending, to say the least, on the part of the ECB. But the ECB do keep a tally and there’s no way that the issuance of money by the National Central Banks of the eurozone can be considered ‘debt free’.
It’s not, technically, debt free for the UK with the pound. However, because the Govt owns the bank and the pound is allowed to freely float there’s never going to be any external requirement to repay anything.
Mr Jones,
There is a strange roundabout rigmarole going on in your comments. You begin by arguing: “The ECB, though, isn’t a government.”
You end by writing: “…. because the Govt owns the bank …. there’s never going to be any external requirement to repay anything”. Your final remark is of course about the BofE, but look at the underlying generalisable effects you are describing.
Neoliberalism likes independent central banks, because it creates the illusion of an entirely depoliticised currency and debt. Neoliberalism wishes to eliminate politics altgother, for the magical power of the pure market mechanism. There is no politics, just market functioning, and central banks oiling a wholly neutral mechanism.
The ownership of the bank remark unfortunately gives the game away. Politics is everything; worse, in neoliberalism there is both politics and ideology – a lethal mixture. The whole neoliberal ‘pure mechanism’ thesis is guff. For example, is it just an accidental by-product of a neutral mechanism, that ECB Euro policy seems always, somehow miraculously, to serve not only the economic interests of the German economy best of all, but even the deepest financial instincts of the German electorate as well; or could there just be a connection? How could that be?
Politics is everything.
In mid-2018 I produced a paper on the funding needed to transform the EU’s energy economy. Early version of the GND to some extent since I proposed that the ECB-EIB was well placed to do the funding (EIB bonds in exchange for ECB cash). I ran the document past Delor’s former adviser on EMU (who is a friend) – toys were ejected from his pram at speed – Chris went into full neo-liberal melt down (as expected). I was hard not to laugh at some of the nonesense he came out with.
Since then there have been shifts by the ECB. That said, its spiritual owner/home – the Bundesbank and its president has recently been in full-on blathering bullshit mode about how inflation was so important, yes he had children, yes climate change was terrible and his kids could face a terrible future (I could almost hear the hand wringing )… but inflation was still very important. It would be funny if it was not so pathetic.
They still don’t get it and probably never will.
[…] By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK […]
The Desan paper is a rather difficult read for the non specialist. I get that its main point is that money and government come before markets, but does it add anything to previous work, much of it quite old, on this?
I have asked Helen if she might write a summary of it and am hoping…..
Jeff.
I agree, it’s a tough read but well worth the effort.
All new ideas to me and it states what is blindingly obvious on reflection. It’s the government and its debt that creates the whole “show”. It is central to “the market” and everything else besides. It isn’t just a bit player on the side.
Covid has shown this. When the shit hits the fan, government is the only game in town.