I wrote yesterday about Labour's dedication to fiscal rules, and how ill-advised this was. I have now read Anneliese Dodd's Mais lecture, given last night. I am as concerned as I was yesterday.
First, my suggestion that Labour is still committed to such ill-advised rules was conformed. Dodds said:
The Bank's monetary policy role also continues to be essential — and I want here to be crystal clear that this role must continue to be exercised independently.
So, despite the fundamental change in the macroeconomy since 1997, and the evidence that central bank independence is both a charade and a neoliberal one, Labour remains committed to it. That is deeply disappointing. It's as if Labour believes, as the FT obviously does, that the game of lies around the role of the central bank must be maintained so that we can pretend that everything can be reset to 2007 still. To be absolutely clear, that is not possible. Nor is it desirable. And the stories told are just that: fabrications not related to the truth.
Second, Labour still believes the myth that the markets are in charge. As Dodds said of the Bank's massive injection of QE in March:
The division of responsibilities has been important, because without the credibility of the Bank's interventions, the cost of public sector borrowing at such a precarious moment would have become highly contingent on the appetites of private investors, hampering the government's ability to put economic measures in place to support workers and businesses through the crisis.
This is simply not true: a Treasury could have acted in exactly the same way. In fact, no doubt it did, because the chance that the Bank created that QE without explicit Treasury consent is non-existent.
What is more, Labour has not noticed that QE does change everything. As Dodds noted:
The Bank's quantitative easing measures — on a scale that has seen asset holdings double in the last year, and its balance sheet set to represent half the stock of the UK's total outstanding debt — are, clearly, within its mandate, and consistent with the Bank's symmetrical inflation target.
If this does not change power relationships within the economy, and between Treasury and Bank, I am not sure what does. And yet, apparently, everything remains the same. And worse, no lessons are learned. Dodds said:
Andrew Bailey, the Governor has made clear that “[a]t no point [did the Bank believe its] job was just to finance whatever debts the government issues”. That clear division in responsibilities must continue. As Chancellor, I would ensure it would.
So the power of the government to create money to assist the UK economy is to be denied, and not used, even though in practice it is happening day in and day out.
As is the denial to be perpetuated that what has happened gives control to the government of interest rates - precisely because of the power of QE and the existence of central bank reserve account balances of about £800 billion. On this Dodds said:
For now, financial markets have priced in low rates for the long term. For as long as that is the case, government must make use of benign circumstances to avoid choking off recovery via premature and politically-motivated fiscal tightening — an issue I shall return to in a moment. But it would be an irresponsible economic policymaker who planned on the assumption that low interest rates will continue indefinitely.
Actually, it would be an irresponsible policymaker who did not note that interest rates are now under government control.
At a policy level, this was a disappointing speech. Labour is a very, very long way from where it needs to be on economic policy on the basis of these comments.
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It smacks of Labour in the 1929-31 period… a slavish adherence to orthodoxy (gold standard in that case) to bolster “credibility”. Of course, the gold standard went and the world continued to turn and later Sydney Webb remarked “Nobody told us we could do that”.
Well, Annelise, Keir et al., we ARE telling you that you can do it! You just have to have ears to hear.
Just remind me which know-nothing toryscum put the Uk back on the gold standard in 1925? This is what the lying toryscum said (justifying it):
“A return to an effective gold standard has long been the settled and declared policy of this country. Every Expert Conference since the War–Brussels, Genoa–every expert Committee in this country, airs urged the principle of a return to the gold standard. No responsible authority has advocated any other policy.”
All a total pack of lies, but like the mendacious fatberg now, Churchill was a world-class fraud and liar. Now Dodds in the Labourscum party are coming out with variations on the same theme: “we know what we are talking about and the rest of you are wrong”. I wouldn’t use Dodds as a bloody door stop, she has forgotten nothing & learnt nothing. There is little point in trying to reason with these people, they are beyond it.
Clive,
Thank you for the reference to Labour in 1929-31. It seems to me that Labour under Starmer and Dodds has joined the “panicky establishment” as referenced in this excellent Anne Pettifor article:
http://www.primeeconomics.org/articles/labours-panicky-establishment-referencing-the-wrong-period-in-history.
For the record, great play was made of Labour’s defeat in the 2019 GE as being ” the worst result for the Party since 1935″ – a quite mistaken parallel, in my opinion. For in that Election, Labour gained a 102 seats, to bring it up to 154 from the 52 it won in the massacre against the National Government in 1931, on which, two further observations.
First, Attlee only took over the Leadership from George Lansbury in that year, a mere month before the November GE.
Secondly, and more importantly, Attlee was leading a Party that had a reasoned Manifesto, based on rejection of the National Government’s counter-productive austerity, and on Keynsian spending into the economy to relieve social hardship and revive the economy.
Very similar, it would seem to me, to Corbyn’s Labour and the 2017 Manifesto (and maybe even the chunkier 2019 Manifesto, though that’s more in doubt).
Clearly, had Attlee been PM in 1931, he would probably not have panicked (as he didn’t in 1945, when the debt to GDP relationship was at 250% of GDP), and spent into the economy, probably avoiding the slump. He and Labour were certainly on course to win a 1940 GE, that was postponed because of WW2.
So what Starmer has effectively done is to rerun the Ramsay McDonald solution, without even being in power! And we all know that Stanley Baldwin ran rings around Ramsay McDonald, who was PM in name only pretty quickly.
I fear Starmer, with his “Softly, softly” approach, clearly doesn’t understand the need for decisive, bold action, by comparison with President-elect Biden (who is speaking of injecting $11 trillion dollars into the US economy).
Biden has understood, as Starmer and Dodds clearly haven’t, that if you’re in a building that is fiercely ablaze (analogous to our current economic and health situation) and are faced with certain death by burning if you stay, and possible death and injury, but also safety and rescue, if you jump, then you do the bold thing, and jump.
Starmer is playing the McDonald role, rather than the Attlee one, alas!
Clive,
That’s a great quote and will probably suffice as suitable epitaph to all the recessions we have have suffered since.
It about trying to be seen as a safe pair of hands. Labour seem more concerned about appearing to be a “safe pair of hands” and not dropping the ball before the next election. They will continue to hide under the bed and simply hope that they benefit from the Tories losing the next election rather than doing the right thing here.
In a way can we blame them? The population is largely in the dark about such matters and even as you point out, the so called expert media is all at sea, so what hope the rest of us?
Still we must press on and the likes of this blog continue educating the public and decision makers.
I do blame them yes
Because this policy gives no reason for people to vote for them
And that keeps the Tories in office
It seems wanting power is in of itself the reason here. So we get watered down conservatism.
For me, this is cataclysmic ignorance.
WE deserve better than this.
Inexcusable.
We need people with vision and we get muppets instead.
Maybe you should contact the Oxford University Labour Club and/or Economics Society and offer to give a talk, Richard. Lots of Oxford students must be Dodds’ constituents in Oxford East. If they understand MMT and lobby Dodds, she will pay some attention to constituents’ emails.
Easier ways to get there
Dodds is coming across as though she has been fully conditioned by that mainstream economics education and is trotting along with a narrative that is little different to the Tories. Yes she wants to tax a bit more but not too much and borrow a bit more, but not too much. It still feels like tax-and-spend, borrow a bit and rely on growth to deflate the borrowing. Given what it is needed that will not even remotely fund what is needed
No out of the box thinking here. And its a very small box she is in
Since we are into history, in his 1934 book “The Financiers and The Nation” Labour politician Thomas Johnston wrote in Chapter 21:
“In the summer of 1931 a Labour Government suddenly sagged at its knees and fell dead. High Finance had killed it as High Finance will kill the next Labour Government and the next again unless betimes the creation and withdrawal of monetary credit comes to be generally regarded as a State Service, even as the Navy is regarded as a State Service and one which the Nation would no more dream of farming out as a job line to a company promoter than it would dream of farming out the Navy.”
A key phrase is “ generally regarded” which means education & dissemination of the truth.
I will send Anneliese Dodds a link to The Bank of England Q1 2014 Bulletin article on “Money Creation in the Modern Economy” which explains Modern Money Mechanics.