Some people seem to think that modern monetary theory implies that a government can spend money without limit, but that is completely untrue.
Unlike other economic decision-making systems, modern monetary theory recognises that there is a limit to the potential within any economy, and beyond that any attempt to create more economic activity will always result in inflation.
So, not only does modern monetary theory have a built-in inflation control mechanism, it also says that any government should stop spending if the resources that wants to buy are not available within the economy that it is managing. As a result, and by recognising this constraint, MMT encourages better economic decision-making, for the benefit of everyone in society. I explain this in this video.
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Richard,
What happens if a Government decides to ‘Import’ resources, be they human – Doctors and Nurses for example or physical – bicycles or buses? if we don’t have them in the UK in the quantities it wants.
They pay tax
They add value
They make limited claim on resources
They expand capacity before inflation is reached
They therefore add to economic stability and wellbeing
This sounds worrying like the immigration policies of Priti Patel where she has stated that earners above a certain income level add value and therefore they should be allowed into the UK irrespective of continent of origin and as long as they are not criminals of course.
So MMT includes an immigration policy rather like the one we’ve just started getting.
Or have I interpreted that incorrectly.
The comment I made is supported by evidence in the behaviour and contribution of immigrants across the board created by the likes of Jonathan Portes
You are wrong in that case
And MMT will never have anything to say on migration. It’s simply an economic description.
Meanwhile, you are on a second warning. I sense trolling. The next comment may not make it.
Meanwhile the facts of the British economy are that it has always depended on immigration; from the dawn of the ‘industrial revolution’. Without immigration from Ireland there would have been no transport revolution (built first on canals, then railways, and in coal): the original ‘navigators’. Britain has merely, over the ages, changed the source of that immigration it requires. It used the Empire-turned-commonwealth. It will do anything. Please note that this required immigration is not needed for quantum physicists, or neuroscientists, but to do the jobs that the British have (albeit not universally), broadly and obviously just refused to do. It is therefore the hard basic, labour intensive manual work where Britian relies on immigration, although it pretends it doesn’t. This labour shortage in neoliberal Britain applies, ‘a fortiori’ in London; who do you think does all the cleaning and cleaning up?. A genuine end of this level of immigration will not happen.
Priti Patel is selling an illusion. The white vans will continue circulating the country, Brexit or not ….. It was never going to be otherwise.
Thanks. Amazing (to me, at least) that anyone should think MMT says “spend without limit”…. but this is the strawman that MMT opponents have erected…. and many seem to believe it.
We need a snappy slogan that gets across the fact that we are “resource constrained, not money constrained”.
Hi Richard.
After trying to explain MMT to my very reluctant neighbour, I came up with an example of how it can benefit people on a practical level.
It would possibly work as a series of Twitter posts.
It goes as follows.
1. Kids are going hungry in the UK.
2. Kids are going hungry NOT because there isn’t enough food to feed everyone. Supermarkets throw away millions of tonnes of food every year.
(I’ve heard the argument that immigrants are taking our jobs, but never that they are taking our food!)
3. Kids are going hungry because their parents can’t get access to enough money to buy the food.
4. The government could just create the money required, for those families to purchase the food. After all, the UK government has the monopoly on money creation in the UK.
5. The government does not need to borrow or tax the money first, in order to spend. Feeding those hungry kids will NOT make other people POORER.
6. Non of this “new” money would cause inflation as the resources are already available to purchase. (If those families found £100 down the back of the sofa, there would be food in the shops to buy)
7. If people are worried that these families would frivolously spend the money on other things, then the government could issue food tokens/vouchers, exchangeable at supermarkets for specific food types. The government could then pay the supermarkets on receipt of the food tokens/vouchers.
8. Kids go hungry in the UK not due to food shortages, but to a lack of money. And money is a human creation and the government can never run out of it.
Something to that effect anyway!
My neighbour is convinced that by feeding those kids, he would become poorer.
When I explained the above, he then decided that they go hungry because there isn’t enough food to go round!
Some people just aren’t open to new ways of thinking or having their existing beliefs challenge. (I think he did get it but didn’t want to concede any ground.
Talking of kids going hungry is a good one, as it is very emotive. Who wants to admit they are happy to see kids going hungry!!!!
Copied so I can think about developing this
Please do 🙂
My snappy slogan; MMT – funding limited by usability, not availability.
MMT – the art of what is possible, and not what the accounts department dictates
MMT – Currency quantity matched to resource potential.
Somewhat clunky but opponents of MMT always assume the country’s output capacity is static. Obviously it’s not because increased demand results in the following likely outcomes for goods and services, drawing down inventory, more production output and increased output competition. Ironically it’s Libertarian Market Fundamentalists who think in static capacity terms to attack MMT. What should this be telling you?
“7. If people are worried that these families would frivolously spend the money on other things, then the government could issue food tokens/vouchers, exchangeable at supermarkets for specific food types. The government could then pay the supermarkets on receipt of the food tokens/vouchers.”
We can’t do this as it’s an invitation to the supermarkets to create a new nutrition-free range of so-called “food” which will be all the unfortunates on benefits can swap their tokens for. Plus, of course, a lot of people don’t live anywhere near a supermarket.
I agree with that
Any solution m just be non-discriminatory and there is no reason why it should be
Bill Kruse.
The supermarkets wouldn’t decide on which food groups could be purchased with tokens/vouchers.
Public Health England, Scotland, Wales and NI would.
I put in 7. to pre-empt the right wing press retort that people on low incomes can’t manage their money, so can’t be trusted to spend the benefit to feed their kids.
It’s s bit of a distraction from the central theme of my post.
How the benefit is distributed wasn’t really the point. I probably should have left it out.
I think that people should just be given the money so that their kids don’t go to bed hungry.
Vinnie, can I point out that vouchers are a bad idea because they stigmatise people. People with limited resources should not be subjected to an embarrassing and undignified process which marks them out as poor and undeserving.
Geoff.
I agree.
I just but that in to pre-empt the right wing press response, that people on low incomes are irresponsible with their money and that they would blow it all on fags, cheap cider and down the bookie’s.
Of course, I think that people in need should just be given the money.
A further thought though….. Why not make 2,000 calories a day a right for every citizen. A universal benefit open to all. Like Child Benefit.
Would take away the stigma and if everyone benefits there would be a wider concensuss.
2000 calories a day of what though? Calories of carbs, especially sugary processed carbs, will have a completely different effect on metabolism from the equivalent in fat or protein. What sort of fats should we incorporate too, and in what ratio? Plant protein for the veggies, or whey or casein or beef protein for the rest of us? I’d think ratios of the main three and what’s used to make up the three would need to be calculated for each individual to be of benefit. You’re opening up a hornet’s nest there…
Bill Kruse.
I’d leave that to the nutritionists to decided.
I think your over thinking it.
During the war when food was in short supply, public health rationed food so that people got the basics they needed to be fit and healthy.
What makes for a healthy diet is is known.
When we came out of the war, the nation’s children’s health had greatly improved from pre-war levels.
But as I said, we are diverging from the real point I was making in the post.
Which is that we can feed those hungry kids and no-one else is going to be made poorer for doing so.
Health improved in WW2 – rationing improved standards for many
It’s a thorny issue Vinnie. We can easily predict a rightwing response to anything that seeks to help disadvantaged people. Should we though be double guessing this? I think it’s better to lead not follow. Surely we fight not necessarily change them but rather so they don’t corrupt or change our beliefs and also to get the message out to the nation.
There has to base line that affords dignity to everyone.
Stigmatisation is a dreadful and poisonous method of social and political control that is used to reduce public expenditure to the poor by right-wing ideologues. It has been used throughout history to dole out benefits, and has left a dreadful political legacy in many communities. It has the mentality of a Dickensian Workhouse stamped all over it. It poisoned the well long ago; by this time we should know better, but we never learn.
The excuse is always that the aim is to stop those who misuse help, but that cost of supervision is never as much as the tabloid press claims (which uses anecdotalism as a substitute for facts); and invariably proves a small fraction of the regulatory cost of the controls over expenditure by the DWP or whomsoever is given the task of supervision; which, of course never functions effciciently or provides value for money to do a half-baked, failed job of supervision.
Universal benefits are the proven reliable, efficient, fair, dignified and respectful way to provide most kinds of help. The tax system should provide the framework, one way or another, and can do so discretely whether as establishing where targeted is required, or reclaiming a universal benefit. Those who do not need the help are or should be separately taxed on income at a level that adequately compensates; and if the have a conscience even then, they can gift to charity.
The claim that this benefit typically rewards those who do not need it is spurious in the context of a legitimate, working and properly executed tax system; it is just fake political apologetics to justify rank injustice, where the poison of stimatisation can be used as a very effective political weapon to reduce take-up.
As far as public understanding is concerned, the best chance of nailing the ‘borrowing is off the scale’ narrative of Sunak, IFS etc. already being used to prepare the ground for austerity, may be just to focus laser-like on the one central point.
‘We’/ the government have not ‘borrowed’ from anyone. We have created the money using the Bank of England – so we dont have to ‘pay it back’, other than to ourselves. .
That simple core message still hasnt cut through to mainstream media , BBC , opposition politicians etc etc..
And it can be debated ( ‘if its a debt – who to?’) without risking diversion into a discussion of the pros and cons of MMT which the wider public might find off – putting.
@Andrew Broadbent
Much agree with that point.
Am currently trying to persuade my MP to ask the Treasury, who exactly we are borrowing all this money from? For it not to be the government itself there has to have been someone somewhere with the odd £400bn in their back pocket just waiting for this moment to flourish it in front of the government as a loan….
Good luck with that. It would be a good to invite all MP’s to a seminar to discuss that question – say with Richard, a Treasury person etc
If you want to be scared/frustrated/inspired (depending on you chosen response mechanism) have a look at the largely US-contributions on LinkedIn re MMT. The misrepresentation and misunderstanding is extraordinary.
The biggest task for MMT economists (if they want to be labelled as such) is to strip away the basic descritive elements (that are largely simply truisms that are not new but are still largely misunderstood) from the prescriptive elements that are surrounding by unecessary political baggage/wrappings and dilute from the core message.
Time to strip away the politics and focus in the core message…(IMHO)
What is the biggest issue to strip away?
I think the key issue is that government money comes before taxes. A logical argument about this is as follows:-
Assume there is no money, then there are no banks or money lenders to supply money because it does not exist. Because only the government is allowed to produce money (print cash) it has to spend it in to the economy before it can demand taxes, Logically the government must spend before it can collect taxes.
The argument about how much and on what the government spends its money on and how taxes cancels money follows on from this.
MMT should be put in the wider context indicating where it is most useful i.e. as the financial aspect of Resource Based Economics – (RBE is a handy acronym here where the resource term covers human, material, environmental and social capital).
No children need to go hungry for lack of food supplies, as Vinnie pointed out, as some surplus food is thown away at the moment. This is because there are “only” about 1.5 million extra children in low income families at the moment who are getting the vouchers because a Man U footballer put enough pressure on the government to increase the allocation of free school meals. However if there were 10 million hungry children as in parts of Asia, Africa and Latin America then food supply is a problem or if there were a dramatic increase in population the UK for that matter or global drought etc effecting the food supply.
Bill Hughes.
In the UK, it’s not a lack of food that causes hunger.
As covid bites, more people are finding it harder to feed their kids, as work dries up.
It’s the lack of access to the money (that they previously had access to before the jobs disappeared) not a sudden drop in the food supply, that causes the cupboards to go bare.
Can the world produce enough food to feed itself?
I’m guessing yes, but I don’t have any evidence to back this up.
Where there is a will, there’s a way.
Global population predicted (on present trends) to peak by 2060 and then begin to decline.
Global warming will seriously effect food supply, but we aren’t there yet.
In the hear and now, those kids don’t need to go hungry.
“Can the world produce enough food to feed itself? I’m guessing yes, but I don’t have any evidence to back this up. Where there is a will, there’s a way.”
It is encouraging to remember that Malthus (1766-1834), ‘An Essay on the Principle of Population’ (1798), a much admired if sombre thinker, and somewhat over-influential: was in fact quite wrong in his pessimistic forecasts on just this subject that made his name, because his way of forecasting was to predict, by looking backwards and extrapolating the (limited) data in a static world in which the ony variable was population growth. It is still standard procedure in modern, oversold and unreliable disciplines – like economics.
MMT – money backed by the uses it’s put to.
Richard.
Just another possible Twitter thread.
When Maggie Thatcher said “There is no government money, just tax payers money” she had it completely the wrong way round.
In reality “There is no taxpayer’s money, there is only government money that the government hasn’t ask for back yet”.
Maybe
I may be taking this Saturday off
Vinnie, you are right in your appraisal of the school meals situation and hungry children at the moment being a political/austerity/financial problem and not food shortages.. However I don’t think we can be complacent about food security in the UK in future. We are very vulnerable as we have to import so much food and transition to more sustainable/productive farming will take time. We are already seeing shortages of fresh fruit and vegetables due to the Brexit shambles at the ports especially Dover/Calais.
Bill Hughes.
I did read somewhere a while back, that a country the size of the UK could produce enough food to feed a population of around 20 million.
I have no idea if this is true or if anyone out there has any concrete data on this. Would be interesting stat to know.
Be good to know what size the population would be if we were living sustainably.
We supply a bit over half our food, but that depends on the time of the year and how you define food as I understand it, including what happens when it is processed
Pig’s head is good for me 🙂
Did a bit of my own research and came across this.
https://www.thelandmagazine.org.uk/articles/can-britain-feed-itself
So what are the implications of MMT for poor/developing countries? Currently there is mass displacement/immigration from places like Syria, Africa, Libya and more with people dying trying to get to a place where they can be safe and earn a living. Their countries are “too poor” to provide these things even though they are in desperate need of universal education, health care etc etc… But under MMT if they have their own currency or could change so they could begin to use their own currency (and then create enough to pay off their debts to other countries rather than relying on the IMF etc)how could MMT improve their situations? If a country does not currently operate in its own currency.. can it change?
Also what is the implication of MMT on the current widespread kowtowing to big business in order to obtain investment income (FDI) If governments can create their own funds do we still need corporate investment.. at all/ to the same extent? Is this why MMT is maybe seen as a threat to the established order?
Stephanie Kelton addresses this issue in The Deficit Myth
There are degrees of monetary sovereignty and in these countries it is low. In that case MMT describes what happens and suggests increasing monetary sovereignty will help. The pressure is in the World Bank and IMF to help them. If their debts were in their own currency the pressure to sell out resources to big business would be massively reduced. Your suggestion of conspiracy may well gave truth in it, albeit created over time.
Richard.
Would another way of framing/explaining the “deficit” be that in an even expanding economy, the money supply must also expand.
If the government taxed out every penny it has previous spent into the economy, the money supply would not grow. This would stifle economic growth. (Growth being the keystone to the whole economy).
So, the government has to not tax “out” as much as it has spent “in”. The difference between the two is what is called the “deficit”.
Sorry, that should read “ever expanding” not even expanding”.
How one word can change a whole meaning!:)
Indeed