Annelise Dodds had two deeply conflicted comments to make in her Mais lecture last night.
She said:
A responsible approach to government debt is also critical here. George Osborne made debt reduction a major driver of his economic policy and the rationale for stark reductions in government spending, yet debt increased from £1 trillion to £1.8 trillion between May 2010 and February 2020. In the eleven months since then, it has risen to £2.1 trillion.
And she said:
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.
It is not possible that the government owns half of its own gilts in issue and that the national debt can be £2.1 trillion, including those gilts. The government cannot owe itself money. As a matter of fact, it does not.
So, to premise future fiscal economic policy on the condition that debt be managed is absurd: it has been managed and the mechanism to manage it in the future has been created, tried and tested.
I agree that there is a matter of £800 billion on central bank reserve accounts to manage, but since they are now essential for market liquidity no one should be dreaming of seeking to pay them down.
So, the premise that debt is important is wrong. And yet Dodds said:
Before the onset of the current crisis, the IFS provided a useful analysis of fiscal rules and how they might most appropriately be set. It suggested a rolling, forward-looking target of current budget balance which allows the government to borrow for additional investment spend when interest rates are low, and which provides flexibility during times of economic shock. The IFS suggested that in a crisis scenario, a so-called “fiscal anchor” could be set to “limit the amount of permanent tax cuts or further increases in day-to-day spending that is announced.
A balanced current budget is only offered by a government that believes that it should not intervene in the economy because markets know best, and which believes that it actually intervening makes things worse. There is literally no other reason for such a policy, most especially when its consequence is to deny the money supply any growing economy needs barring an increase in private debt, which is the real cancer in the economy that we have.
I sincerely hope Labour does not think these things. But if it does not then it has to act differently. But the signs are not good that it will. And that is troubling.
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I suppose it’s not surprising Labour is beholden to a concept of “balancing the books”. They are struggling to find any narrative to counter the prevailing one set by the Conservatives. They dare not step too far from what they see as the middle ground, including on economics. They have been equally diffident on Brexit, hoping that it will just go away. Their thinking on most things is, it would appear, driven by focus groups. The question of debt is being defined by what they think most people will understand. They are limited by the notion that the economy works like a household, because that is what most people believe. This means they are always following the trend. In fact, they will be forever following the trend unless they are brave enough to take a position of their own.
Agreed
Oh, for goodness sake! This really is shaping up to be a prime example of what I said in my post last night about despair, namely, preparing to fight the coming war with the failed methods of the last war.
Indeed, it’s worse: unlike President-elect Biden, Labour are apparently facing AWAY from the enemy, who are advancing, unseen, behind them!
Fighting debt instead of lack of spending power!! Good grief, on this showing Labour are not fit to govern, as their implicit proposals will not only make things worse, but will lead them to be overwhelmed by the need to spend, making them appear – maybe be – out of control of the economy.
Sunak understood the need, even if he spent into the economy wtongly. Labour apparently doesn’t understand! As I said, I despair.
And rightly so
‘Fighting debt instead of lack of spending power!! ‘
Perfectly put.
Many a banker has said that ‘debt imposes discipline on spending money ‘ as if it’s a good thing.
I can always remember a bank manager telling me that and the thought that crossed my mind was ‘pratt’
Seems to me Labour are just as hooked on the “reduce the debt” myth that the Tories are sacredly bound to. Just they claim to do it in a less harsh ,more considerate fashion. Last time I could be bothered to check on Labour policy on this I recall Labour offering to have a balanced budget(like the Tories) a few years later than Osborne’s pathological promise, it was the same plan…. just a bit slower.
Labour really need to do better.
@ Vinnie Richardson
I don’t have any expectations about the Labour Party anymore I find it best from a peace of mind point of view to picture it as an old crock lumbering towards the scrap yard!
You too!
Poor old Labour. They still have nightmares about those 3 letters:
IMF
Their take on the economy has obsolescence built in for them, and continuous misery for us.
“A balanced current budget is only offered by a government that believes that it should not intervene in the economy because markets know best, and which believes that it actually intervening makes things worse.”
This sentence makes me wonder what the Labour Party leadership thinks about Bitcoin, a currency or medium of exchange. Take a look at the Wikipedia entry on it:-
https://en.wikipedia.org/wiki/Bitcoin
Under the history section “2011 – 2012” it says the following:-
“After early “proof-of-concept” transactions, the first major users of bitcoin were black markets, such as Silk Road. During its 30 months of existence, beginning in February 2011, Silk Road exclusively accepted bitcoins as payment, transacting 9.9 million in bitcoins, worth about $214 million. In 2011, the price started at $0.30 per bitcoin, growing to $5.27 for the year.”
Now Google “the current price of Bitcoin”. I came up with $38,000 (thirty eight thousand American dollars). Now do some simple arithmetic by dividing $38,000 with $0.30 (thirty cents) to work at the currency’s average annual inflation over the last ten years (OK I acknowledge it’s a few more weeks till February but you can round up).
Now contrast that with the right-wing mantra the market knows best and governments must automatically balance balance their books their books otherwise there’ll be awful hyper-inflation!
Note some politicians have noticed the Bitcoin hyper-inflation presumably along with the memory of what caused the 2007/2008 Great Financial Crash:-
https://www.coindesk.com/ecbs-christine-lagarde-says-speculative-bitcoin-needs-regulation
One of the jokes in the United States is that Mitch McConnell, the Republican Party Senate leader, who continues to vacillate about supporting Trump’s impeachment has started writing his memoirs, the provisional working title “Leaning Towards Courage”! This would seem a highly apropos description of the right-wing monetary policy Keir Starmer and Anneliese Dodds have tactically and possibly blindly adopted although I doubt the latter given it’s so difficult to avoid MMT these days and wondering what it’s about!
Sir Keir Starmer called on the government to apologise to Scottish fishing communities angry at the government over delayed shipments. The Labour leader said they had been “left high and dry”.
But Jacob Rees-Mogg has said fish were “happier” now that they’re fully “British”.
https://www.independent.co.uk/news/uk/politics/brexit-news-live-boris-johnson-deal-update-b1787110.html
Nothing tells you more about the state of Britain than this exchange!
Happy fish! Idiot. There is no vacancy for a Lord Snooty to become a jester. One clown as PM is enough.
It would at once quite amusing but also deeply tragic if Scottish fishermen were forced into direct action and dumped tonnes of rotting fish at the gates of Parliament or Downing Street (or indeed the private homes of relevant ministers). If they are at risk of losing their livelihoods in the next couple of weeks – and if you believe the numbers which shows exports are down to a small fraction of pre-Brexit levels, that could easily be the case – they have little to lose.
Just the sort of thing French fishermen would do. They would have no qualms in blockaded the ports too. The farmers would help, and the gendarmes would just watch.
I am fairly sure such things will happen
Rees-Mogg has now gone beyond parody for me.
I think he knew exactly what he was saying – it was an awful mix of indifference and arrogance born of the knowledge that he had won and that his position is unassailable. That smile he gave as he delivered that riposte had a mixture of petulance and childishness I’ve only ever seen before in dramas about the spoilt rich of 18th century.
Rees-Mogg is a horror of a human being. It has to be said. He treats parliament like play ground.
With that exchange in Westminster, Labour has sealed its fate in Scotland. It was already widely seen here as weak and rudderless, but Starmer’s demand of a mere apology, when an entire, healthy industry is threatened with financial ruin, will be interpreted here as being as clueless, ineffectual and irrelevant to Scotland’s future as the Tories are. For Rees-Mogg to then respond in the patronising way he did will surprise nobody, but will simply push the needle further towards support for independence.
Later in the day, Richard Leonard, the leader of Labour in Scotland (it’s not a Scottish party but an accounting unit of Labour in the UK) announced his resignation. Had he not made a public announcement, his departure might not have been noticed at all, so ineffectual has his tenure been.
As Helen says “Nothing tells you more about the state of Britain…!” Incompetence in both government and opposition.
Hard to believe that the misery of a lockdown can be heightened but reading our potential future Chancellor’s speech did just that.
So where now?
Assuming Ms Dodds does not have a ‘Paul on the road to Damascus’ moment then should current Labour Party members just give up?
But is there not always a first step?
Does your criticism of John McDonnell mean that there is nothing in the 2019 manifesto that relates to this and at least would be worth those of us who are members pursuing?
John McD never got over his false start – although James Meadway who got the job Corbyn wanted me to have says otherwise
I am afraid I do not agree with James
Bill Mitchell slams Starmer’s Labour. The frequency with which he does this appears to be increasing. A bit like trying to rid yourself of nits!
http://bilbo.economicoutlook.net/blog/?p=46701
Shouldn’t that be “Anneliese The Odds” she’s not a Tory in disguise! Feels like it!
Well, I thought of Annelise ‘Dumb’ to be honest.
I’m very disappointed. It’s nothing personal or sexist. Again, I bet its her advisors – I wonder who they are?
Do our politicians actually think for themselves anymore? Are they capable of original thought? Because its only originality that’s going get us out of this never ending cycle of misery.
imagine being a labour strategist, and reviewing the last 20 years.
They lose the 2010 election due to the Torys convincing the nation that labour bankrupted the economy and that it was due to careless overspending, plunging us into a low growth economy with absolutely no progress in any part of it.
Then labour fight the 2015 election on being just slightly kinder Tories, pitching Austerity-lite. Tories win, increasing their majority.
Ok, looks like that strategy failed, better not try it again huh – because, trying to beat the Tories in their own backyard of ‘fiscal responsibility’ is never going to work. Lesson learnt right?
Roll onto 2017, after 7 years of disaster Tories, ever increasing living cost, 0 progress in areas of education, infrastructure, lack of investment anywhere, and up against the most uninspiring Tory PM possible, who didn’t even turn up for a TV debate.
And again, losing the argument whenever a Tory posed the simple question “but how will you pay for it” – because the moment you accept that framework, you’re then having to fall back on “fully costed manifesto!” and “tax the rich”…………a strategy which has not worked since Thatcher.
Once again…..labour lose.
Then roll on 2019, a Tory party in total shambles. Now including things in the labour manifesto like broadband, and other spending programmes, whilst still operating under a framework of tax-to-pay-for-deficit.
Another loss – unable to convince the electorate.
Any sensible strategist would look at all of that and go “………yeh our whole approach to the economy is not working here……”.
But no.
I see james meadway on twitter once again applauding Dodd’s take. Rinse. Repeat. Make the same mistake again. Lose another election.
Listening to and reading about this current Labour leadership’s understanding of the country’s monetary system is like watching an accelerated film of arteries furring up!
Mz Schofield,
If this is indeed “like watching an accelerated film of arteries furring up”, and I confess I have never thought about selecting such a subject; were it not for the lockdown I would earnestly implore that you get out more …. ….
@ John S Warren
It was a “metaphor” that occurred to me whilst walking the dog actually!
Just to add some further flesh to the analogy the dog was struggling to poop, it has that problem occasionally and needs to have its anal glands expressed periodically (I know too much detail!), for some reason I thought about China which had a pooping or furring up of arteries problem with Mao and his excessively dogmatic state capitalist approach. Along came Deng Xiaoping who famously said as a pragmatist “Does it matter what colour the cat is as long as it catches mice?” You can link that to the excessive dogmatists of this world like James Meadway of this world who it’s believed along with Portes advises the current Labour Party leadership automatic balancing of the government’s books are de rigeur unless you can come up with pandemic or something really intimidating for the general economic well-being of the country!
Now to add further flesh to this analogy you need to know that Deng Xiaoping encouraged the country’s economists to examine economic and monetary system ideas around the world and one of their favourites was the economist Janos Kornai who’d lived under an obsessive state capitalist regime in Eastern Europe. Kornai told the Chinese one of things you need to understand about private market capitalism is that it’s a “surplus system” more goods and services are produced than strictly necessary but this allows competition and those that best meet need survive. The Chinese realised that to switch from excessive state capitalism to private market capitalism “surplus” they needed to substantially prop up the new private sector businesses that were being created. They did this through state owned banks rolling-over or even writing off loans. Note none of this “the government must balance its books at some stage!” Now look at China in terms of economic growth!
@Helen,
Re Chinese growth.
I have watched the Chinese story of late and the new leadership has actually used banking(money creation) as a way to modernise the economy. They realised that the job of reforming such a vast but centralised country was politically nigh on impossible. So they decided to use the state owned banks to do this. The central banker they appointed was quite astute and educated in western banking methods and they allowed loans to go to the massive regional govts who set up new companies issuing bonds for investors to fund spending, new firms were set up that replaced many of the old industries all funded by debt. Of course this led to state owned assets becoming “private” as well as creating more western commercial style banks that made a profit. Bank reserve ratios were dropped and more or less used as lever on opening up the economy. There is however huge corruption(graft) and those benefitting have largely been senior communist party members. They have also opened the door to a huge shadow banking sector that they will have to now watch like a hawk, private debt/investment has taken off big style and the Chinese love nothing better than a flutter, especially when they cannot make much money anywhere else,(eg private no property ownership is allowed).Many have lost life savings.
This combined with Western capitalism will create many dangers for them. Personally I’d say they will be changing one set of problems for another. Turning off those credit taps is going to become increasingly harder. They will inevitably end up with boom bust cycles much as we suffer. Though they do have a more centralised authority to put things right and right off debts without the controversy that went on here after 2008 for example, they will still suffer these problems all the same. Which is quite remarkable when you see how they deal with corrupt bankers,….. a bit harsher than in the UK.
https://edition.cnn.com/2021/01/06/business/china-huarong-lai-xiaomin-death-sentence-intl-hnk/index.html
@ Vinnie Richardson
I agree the corruption is bad within the party and periodically they have purges since they don’t operate on a full Western style Rule of Law. So far though after 40 years they have managed to keep the show on the road with exceptional growth rates and there’s a prediction that by 2028 they’ll pass the United States in real terms (US dollar) GDP size of their economy. I doubt this will wake up voters in either the US or UK that there’s a problem with the way they use their monetary systems which is resulting in sclerotic economies by way of comparison with China. Frankly, with this lack of awareness many people from the US and UK may as well be living in the Stone Age relying on gift exchange and the occasional barter! Harsh I know but how many people believe government relies on predominantly on taxes for their spending not even getting as far as thinking their society has to be reliant on paying compound interest to bankers in order to pay taxes. Indeed even more primitive and lunatic no idea that private bankers create that loan money from thin air for society to pay compound interest on in order to pay taxes! That is Stone Age thinking there’s no getting away from it!
I knew I shouldn’t …. I am sure I have missed one of your sage interventions, but I confess I have departed; at the point of your explanation where you brought up your dog’s “anal glands” ….
Okay, I did sneak a look at your comment.
Deng Xiaoping was without doubt the greatest leader of the PRC. I had the good fortune to visit China in 1979, not long after his rise to power first allowed Westerner’s to visit China. I walked across the New Territories railway bridge, carrying my suitcase from Hong Kong, in order to board the steam train in the PRC. I have not been back since that short visit, but from film and photographs the transformation of China in forty years (physical infrastructure and living standards), compared with the physical and intellectual sclerosis of Britain (and I acknowledge the totalitarian nature of the PRC, but the wisdom of Deng Xiaoping is rare in all countries, and China – the oldest continuing civilisation in the world – has a long memory of its own history, and most of all a calculated, but pragmatic view of its past treatment in the hands of foreign powers; East or West).
It is overlooked that it was Deng Xiaoping who finally proved that the idea capitalism cannot thrive in a communist state, was simply false. Capitalism is not the oldest, but it is certainly the most prostituted of all professions; it doesn’t care. Capitalism is an invaluable tool, the real error is to treat it as a matter of faith: it is amoral.
@ Helen,
The Chinese story is an interesting one for a point of view of comparison. But after years off scoffing at the West’s failed monetary system after 2008 they are in essence now copying that exact same system.
It does however highlight a very important point for all of us who wish to push the MMT agendas. That is we can have the state issue most of our money or we can have the private banks issue the money ,or we can have a bit of both. Getting the balance right is the hard bit. Keeping a lid on the excesses of private banks credit creation is very very difficult, the bank lobby is too strong and politicians are generally far too much in awe of bankers. We need banks ,just we don’t need the banks we have right now ,we must bring them to heel and make them more accountable to the public, seeing as it is OUR money they are allowed to create, not theirs.
I suppose there’s no way to explain MMT by dividing it into bitesized chunks even average (or below) voters like me can understand?
Completely impossible?
All credible proponents getting together, taking out simultaneous full page crowdfunded ads in all the world’s major newspapers, explaining what governments need to do to set the global economy to rights, explaining why governments are not doing it – and challenging MMT’s opponents to debate the issue in public – pointless? A complete waste of time?
You CAN prove them wrong, can’t you?
It could be done
But the funding and organisation required? I could not do that
I’ve been explaining snippets of MMT to friends and family whenever the opportunity arises. Sometimes even with some success. Okay, the scale couldn’t be much smaller but information can spread like a disease, people and interaction being the vectors. I am most certainly not an economist – I only studied the subject to A level and that was in the late 80s, so I’ve forgotten quite a bit in the intervening decades, yet even my small pool of knowledge has caused some people in my close circles to pay attention and question the false equivalence drawn between the household and national economy. Placing MMT links on social media appears to get some people to happily award likes but not so much engagement as far as I can tell. I guess the point to my ramble is to continue challenging this fallacy whenever the opportunity presents itself.
It would be very interesting should someone like Richard ever get an invite on to a prime time politics show to argue the corner. Something like QT – big home audience and sure to reach many that have never questioned the accepted consensus. Then again, I can easily imagine the media circus following his appearance.
Thanks
I would happily do it
“It is not possible that the government owns half of its own gilts in issue and that the national debt can be £2.1 trillion, including those gilts. The government cannot owe itself money…..”
You’ve previously said, and I do agree, that:
“Debt free money is meaningless”
The difficulty for many is reconciling these two statements. Either there is a debt which does mean £2.1 trillion is a reasonable figure for National Debt , or there isn’t, in which case QE element of it can be ignored and the figure will come down to something like £1.5 trillion.
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