Not many weeks change the world. This one will. The end of the Trump era is a reason to celebrate. Evil, because that is what I think Trump represented, can be overcome. If that is not cause enough to raise a glass of whatever you wish, I am really not sure what might be.
That said, Biden has to deliver on his promise. And that is of hope. And if he thinks he can deliver that by being Obama again, he is wrong. Obama was better than what went before him. He was vastly better than what followed him. But he was far from what we wanted.
He bought the debt constraint.
He thought the US, of all nations, was like a household.
He believed inflation might run away.
He did not deliver full employment.
On wages his delivery was so weak he paved the way for Trump.
Infrastructure continued to fail.
Environmental issues were not tackled.
Wall Street won from bail outs. No one else did by nearly as much.
Wealth inequality was increased, even if not to the scale Trump might eventually be seen to have achieved.
Of course the Affordable Care Act was good. But it wasn't good enough.
Biden can deliver an alternative. We now know the deficit is not a constraint. We know the Republicans believe in massive unfunded spending. We know QE can control debt. We know interest rates can be controlled. We know that deficits do not deliver inflation. In other words, we know the rules of government funding have been rewritten.
QE has real flaws in it. Most especially it increases inequality, and that simply has to be tackled. It is vital that it is. But QE has paved the way for the new understanding we have in macroeconomics.
Remember that when it was introduced QE was called ‘unconventional monetary policy'? Even the Bank of England now think it is conventional. It is here to stay. No one seriously thinks otherwise now. But that means the confused thinking around its conception needs to be revisited.
It was conceived of as monetary policy. And maybe it was. The aim was to control inflation. By reducing official interest rates and creating QE the aim was to force private sector funds into higher risk investment. The goal was to increase real economic activity. The hope was for recovery. And that did not happen.
QE did not deliver as planned because it was not really monetary policy. Actually, it was a hidden mechanism for the delivery of fiscal policy, but that was not appreciated. Or maybe, more accurately, it simply smashed down the false divide between these issues and simply showed that one economy that is in trouble needs integrated thinking to address the issues it faces.
Appreciating that, however, is key to the hope Biden has to deliver. He need not worry about debt, deficits and inflation right now, because he has the tools to control them, and the risks from them are also minimal. But, and that is a massively big ‘but', he has to appreciate that his task is to create the delivery mechanism that conventional QE - that used to date - has lacked.
There is no invisible hand to deliver what society needs right now. There is, to be blunt, just the hand of Biden controlling the whole mechanism of US government to do that.
So he has to direct where the new investment is going to be. Whether it's environment, infrastructure, health care, or whatever, the risk that things will not happen with the money his government will create using QE (as surely, it will be created) must not be taken.
So, there needs to be an investment program in the US (deliberate speaking) and it has to be linked to QE funding by offering the incentive to reallocate money from speculation to the public purpose.
Of course, this activity could all be done by the state. But that would still leave the money circulating in the finance system that is currently used for speculation. It is this that is the risk that has to be addressed. This is what green QE does. It redirects that money to public purpose by taking money out of speculation and turning it into the funding for actual, real, tangible capital.
And that is what will provide the hope that change can really be delivered.
Biden is a cause for hope. But he has to deliver.
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Your first two sentences and headline remind me of the opening scenes of Triumph Of The Will.
Obama did not control both houses of Congress after 2010 and the Republicans refused to cooperate. Some measures need 60 Senators consent. The states represented by the Republicans have smaller total population than the ones represented by the Democrats. While I agree Obama was a centre or centre left politician, he faced a situation where his power was limited.
I am not hopeful that Biden will show that vision but I take comfort in knowing thar one man does not make all the policy and we can have more hope in his team
The Real Politik underlying MMT is who shall control the creation of money. A Green QE scheme depends on this determination.
Accepted
But the narratives they tell themselves really matters in getting this done
Hence my approach
My approach is that the history of the evolutionary design of money teaches the lesson there has to be a balance between government and non-government creation of money with an acceptance that government has the “interventionist” role not least because it has the better promise (ultimately from constitutional power) in helping any created money retain its value.
My approach further views that the key teachers of this “balance lesson” to citizens need to be politicians. Doing this means the acceptance by the public of schemes like Green QE more palatable even enthusiastically embraced because the right-wing counter-argument of being profligate with “taxpayers” money by way of government subsidy (despite the existence of gilts) has lost its power of reasoning.
It doesn’t seem Real Politik to me to say the teaching of this lesson by politicians like Starmer is purist. I see it as vital.
I would like to make it absolutely clear I see the Real Politik issue is very much a perception management battle about who can create money and who can’t because at stake amongst other things is challenging an elite control of private enterprise capitalism. Not the demise of private enterprise capitalism which I support but its control.
I agree with you
I have just recorded about this for the Alex Salmond Show
Of course the elite control of capitalism is very much in the news with “wanna-be fascist billionaires” funding Trump and the Republican Party not to mention the rabble they want to whip up through control of much of the media (an issue which the UK media is not discussing much at all after the US Capitol riot of course!):-
https://www.theguardian.com/commentisfree/2021/jan/18/the-capitol-riot-wasnt-a-fringe-uprising-it-was-enabled-by-very-deep-pockets#comment-146781962
‘There is no invisible hand to deliver what society needs right now. There is, to be blunt, just the hand of Biden controlling the whole mechanism of US government to do that’.
This a great post that I agree with. But this statement above is purely the truth of the matter and at the centre of it – eloquently put – and the same situation in my opinion applies to Sunak & Johnson.
It re-democratises money – it’s as simple as that for me.
The U.S. led the way for bollocks like ‘tax payers money’, ‘public choice theory’ and Neo-liberalism and the UK followed.
Now it has the opportunity to ‘fess up about the reality of sovereign currency production and make that the reality going forward in order to deal with the climate, Covid and the post 2008 crash we are still suffering from.
It’s now down to Biden – but also those unforeseen worshippers of debt who still have too much clout in these matters and campaign contributions to boot.
My hopes are with yours.
“…. Republicans believe in massive unfounded spending. ” Should be “unfunded” I think. Good piece. Will be sending to my USA contacts.
Corrected
Thanks Jeff
Biden won’t be picking up where Obama left off …at least not during the first two years of his presidency (till the midterms.) Instead, Biden will be attempting to undo the damage Trump has done, not only to the economy, but to the morale and self-esteem of non-Trumpian Americans, at home and on the world stage. And he has a major pandemic to contend with as well, which demands his immediate attention.
He’s going to have to do all this with Democratic control of the Senate hanging by ONE vote …Kamala Harris’s casting vote. The Democrats lost some seats in the House as well. So Biden is not really in a position to go charging ahead with sweeping reforms. He can’t afford to lose a single Democrat Senate vote.
I wouldn’t want to be in his shoes, quite frankly.
I would hope that he does his job well enough to increase the Democrats’ hold on the Senate, come mid-terms–and then maybe we’ll see some more impressive changes being implemented to the topics you mentioned. With Bernie working in the background, I’m sure that’s the plan. But right now, Biden’s job is sweeping up the mess and dealing with the insanity left behind by his predecessor. And it’s a considerable mess.
Much to agree with here.
Sweeping up the mess though will involve looking at the underlying causes of discontent that enabled a fascist like Trump to get some form of credence with the voter in the first place.
It’s good old North American style capitalism that started all of this off as written by Friedman, von Hayek , Buchanan and Rand. And the revolution in revulsion so to speak was capitalised on by the extreme Right – not the Left who remains cowed and timid world wide from what I can see.
I hope Bernie is a major influence – I really do.
Maybe, just maybe, Trump has shown what can be done with e.g. executive orders. With Bernie Sanders and Stephanie Kelton involved there is also some hope.
Biden can look to the dust bowl era and see what FDR did: https://fdr.blogs.archives.gov/2018/06/20/fdr-and-the-dust-bowl/ – one of the features of the 1930s dust bowl, was that America had forgotten the dust storms of the 1800s. Seems we are in a similar position again, and many in USA are increasingly aware of the problems of e.g. industrial agriculture, soil degradation, unemployment. People can look again at the New Deal and hopefully see the value in paying people more to work than simply keep them on welfare.
If you get enough Americans in work in useful jobs, their allegiance to big corporations, Trumpism, will wain and their loathing of ‘socialism’ might be undone.
Good post, which also addresses the huge swathes of money sitting in round banks deposits. The devil makes work for idle hands…and that applies to money. What we don’t want is an even more of a property boom or stock market boom. Because that will come crashing down at some point. These funds will naturally get sucked up to the rentier classes ,usually due to interest payments on debt and rentals. This will require a complete change in thinking from politicians? A lot has changed in the world, not insignificantly also in the way we now see money creation being used by govts. Are they up to it?
The future of the planet relies on it, in a way not even thinkable a year ago.