The biggest crisis facing the world right now is the lack of Covid vaccines. There are ample other issues coming on close behind, I concede, but this is the big issue of the day.
The G7 failed to tackle this issue this weekend. I deeply regret that. Gordon Brown was right to call it a moral failure on the leaders' parts.
Why they collectively failed to promise just 1 billion vaccine doses to developing countries when at least 7 billion were required was not something that they disclosed. They instead patted their own generosity (much of which was reannouncement of existing commitments) on the back.
What we can be fairly sure of is the fact that much of the meanness came down to money. It will have been said between them that they cannot afford to vaccinate the world.
They are wrong, of course. The truth is that they cannot afford to not vaccinate the world. Until it is vaccinated, and until Covid 19 is contained everywhere new Covid variants, including those immune to existing vaccines, will appear. Only when we catch up with this process, and in very quick order, might we now have some freedom from this disease. But either they are not bright enough to see this (and I doubt that in most cases, Johnson excepted) or they are too selfish to believe that this must be their priority (which is entirely possible) or they are too economically illiterate to believe that money is not a constraint (almost certain).
I would argue that modern monetary theory has shown us that if the capacity to do something exists in this world then money is not a reason for a government not to do it. I have done a great deal so promote that idea. I do not regret doing so, because it is right.
However, I am aware that modern monetary theory, which explains this, is not a creed. And it is not dogma. It is certainly not a belief system. It is simply an explanation of how the economy works. It does not dictate policy. It enables it. And, like it for not, those who think it useful have to concede that policy can be delivered by those who have not even heard of it.
What is more, because MMT is by no means universally applicable, because the conditions in which it might operate by no means universally exist in this world (including in the eurozone and most developing countries, at least in part), then to pretend that action should not take place that is inconsistent with what some think to be the premises of MMT is not just absurd, but is straightforwardly wrong.
This situation happened over the weekend. On Saturday I publicised a letter I had co-signed calling for a financial transactions tax to fund Covid vaccines. The aim was threefold.
The first was to remove the excuse that world leaders are making that there is no money to fund this process from conventional mechanisms. This is necessary because none of them show sign of supporting or understanding MMT. So the reality is that, whatever we would like to think, this emergency has to be played out on their current pitch.
Second, the aim was to tackle the inequality which MMT, by encouraging deficit spending, creates. MMT is in denial on this issue. It needs to get its collective head around it very quickly if it is to remain credible. I see little sign of that happening right now, and deeply regret it. It places MMT in a rather uncomfortable place. That some of its leadership (Warren Mosler and Randy Wray, in particular) have never seemed to understand the need for tax as a mechanism for redistribution only leads to my sense of disquiet on this silence. MMT has to be used for sound social purpose or as an explanation it has no worth.
Third, the demand was expedient. We have a calamity on our hands. Waiting for the world to understand MMT is not possible in the face of that: action is required now. Political necessity is much more important than dogma.
I was nonetheless criticised by MMT people for supporting this letter. I am not sure if they also lined up against Prof James Galbraith, another MMT exponent, who also signed it. But my message to those who criticised is simple.
I put people before economic theory.
I put the need to provide relief to those in need above pursuit of an idea.
I put equality above indifference to it.
And if those supporting MMT do not share those priorities there is something very seriously wrong with their understanding of MMT.
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[…] Cross-posted from Tax Research UK […]
@Richard,
I do not understand why you are quite so critical of your fellow MMT economists if you believe MMT to be essentially correct.
You claim that L Randall Wray does not “understand the need for tax as a mechanism for redistribution “. This, though, is his stated view:
“The second purpose is to use taxes to change the distribution of income and wealth. For example, a progressive tax system would reduce income and wealth at the top, while imposing minimal taxes on the poor.”
I would expect that he would also be of the view that the decision to impose such a progressive tax would be based on political rather than an economic considerations.
https://neweconomicperspectives.org/2014/05/taxes-mmt-approach.html
He also argues that we do not need a corporation tax
That is an intensely pro-inequality policy opposition to hold
I can therefore justify my position
He might also say we do not ‘need’ a VAT. The USA does not have one. The same argument would apply to relatively high road fuel taxes which we have in Europe but the Americans do not. It is trying to separate out the economics and the politics. This is always a difficulty in Economics but we should at least try to do that.
This is not to say we should copy the Americans but rather that we should choose our taxes to suit our political inclinations. I happen to agree with you on the question of Corporation Taxes albeit conceding on their political nature.
This won’t be published as you dislike errors being pointed out but you should note that Wray’s problem with corporate tax is that he correctly notes that they are typically passed backwards on to employees (lower wages) and/or forward to consumers (higher prices). Neither lower wages nor higher prices are likely to encourage greater equality.
There is no need to misrepresent him.
And he is wrong to say that
See the work of Kim Klauser. Wray’s line oddly aligns with the right wing
Klauser shows it is wrong
I am challenging him for that reason
You are not even willing to own up to who you are. Wow, MMT is in trouble….
Science is also a (constantly evolving) explanation of the world. It has been harnessed for evil e. g. nerve gas or nuclear weapons as well as for vaccines and surgery. Both reason and compassionate morality are needed for us to make progress.
Agreed
The world will get the necessary vaccines.
They won’t be made by Western Big Pharma.
The Chinese have geared up production facilities, and should be producing 10million doses per day if their announced plans from early in the year are on track.
The dullards behind the G7 know that and will leave that heavy lifting to these Chinese enterprises.
While they try and put a Lego brick western Belt and Road version together to hang onto their old empire, slaves and resources. (Actually the same old World Bank / IMF / OECD 3 card trick that has been indenturing the third world victims for ever keeping them firmly in 3rd world poverty).
I am keeping fingers crossed that the fleet footed Chinese industrialists are able to make newer versions , cheaply, to save the billions of the world who are despised by the old Anglo European exploiters and xenophobes – epitomised by the architects of the G7.
I think India will do more of the heavily lifting in the end
I really hope so.
Though they didn’t do over the last 12 months, failing to produce enough to vaccinate its own populace in the subcontinent it claims to be the superpower proxy in. The Quad is not a healthy place for India to be in as a still mostly third world country.
Between these two nations industrial powers prowess I have a hope that future world emergencies can be adequately resourced.
Could you explain what you mean when you say “Second, the aim was to tackle the inequality which MMT, by encouraging deficit spending, creates.”?
It doesn’t sound like you are only relating this to what you say about Mosler and Wray and tax, so I’m keen to understand how “encouraging deficit spending” creates inequality.
As I have explained a number of times before both MMT and QE (there is no difference in this case) create central bank reserve account balances for clearing banks
It does not matter how the money is used, a government deficit will always = greater private wealth. QE has done this at varying rates, but the benefit has always flowed to those already wealthy
This is what the sectoral balances and multipliers mean
So, QE and MMY always increase inequality
Gilts would withdraw that from circulation. In MMT and QE they are not in use
So, something else has to happen and that must be other forms of tax e.g. taxes on wealth in various forms unless inequality is to be tolerated, which it should not b because of the social harms it causes
@ George,
Deficit spending does increase inequalities in the sense that Richard has described. If, for example, the Government hands out a £1000 economic stimulus cheque to someone who is wealthy they are quite likely to not increase their spending. They will probably just put it in their bank, and their bank will buy Govt bonds. The net result is that the deficit, and government debt, will increase by £1000 and the already wealthy individual will be even wealthier by £1000. The effect on the economy is otherwise zero.
But suppose the £1000 goes to someone who needs the money. They will almost certainly go off and spend it. Possibly not in ways that many would approve of! The end result will be that taxes of all kinds will be collected as it circulates through the economy and which will only cease when it ends up with someone who is rich enough to save it.
The spending itself does not necessarily lead to increased inequality, but it is the spending that is saved by the wealthy, the deficit part of it, which does.
@Jill
Why focus solely on economic stimulus cheques? During the pandemic, it would have been sensible to do what you say – perhaps even, for simplicity of operation, with no discrimination as to wealth.
If you hand the cheques out indiscriminately as a permanent policy, which sounds like a pure UBI, that has the consequences you describe and shows that such a policy is a terrible idea.
MMT does not of course propose a UBI.
Nor would MMT folk propose to fund improving a health service by paying money to individuals, who could then choose to spend it on healthcare when they needed it.
Instead, MMT folk would argue (and have of course argued) for increasing government funding of the NHS. The same applies to many other underfunded public services, and is very likely to increase the fiscal deficit.
Does such “deficit spending” lead to inequality?
Would the counterargument be that the wealthy may start using the NHS instead of paying for private healthcare, and hence they can save more of their wealth? I very much doubt this would be a big effect. If it was to happen, they should be taxed even more – not to pay for the NHS, but to reduce their wealth.
The last point is key
@ George,
The stimulus cheque was an example of what a currency issuing Government could do rather than a suggestion of what should be done at the moment. Although Joe Biden obviously disagrees.
As Richard says, the deficit part of any Government spending ends up as the surplus of the private domestic and overseas sectors. This surplus is almost certain to be hoarded by the rich and countries which run excessive export surpluses. It could be argued that the poor end up being better off too. They will spend whatever extra comes to them by buying food, clothing, going out to the pub etc. Their lives will be better but they are not accumulating a surplus in an economic sense.
Therefore we should not argue against government spending to avoid the rich becoming richer or accumulating their surpluses. However, we do need to face up to the increased inequalities that deficit spending will create. Either we accept them or we use the taxation process to tackle the problem.
Have you see n this:
https://www.theguardian.com/commentisfree/2021/jun/14/understood-taxes-better-vote-fairer-taxlab
Personally I’m speechless.
As to your blog, I think there is a deadly sickness afflicting the rich countries of the West.
I think it is related to the fact of increasing automation and the removal of people as a factor of production. The rich just feel that don’t need us anymore. And, as a result of that (not needing our labour) there is no need to keep us alive. And politicians probably feel the same – they don’t need us either (look at how Johnson runs his Government).
Honestly I don’t think they know what to do with us. We are being driven to world of worker obsolescence by those who wish to pocket the rewards and no one seems to have a clue how to manage this transition ethically, humanely or fairly.
It’s chilling.
Polly has the mood right on this one
The mood?
But has she (more importantly, the IFS) got the method? The technicalities?
BTW – the only mood I sense in my community is the disappointment in delaying the removal of Covid lockdown rules.
If they wanted to get rid of a lot of us, well, some sort of virus might do the trick – oh dear!
All money is put into the economy by the world’s sovereign governments, or their agents. The G7 are agreed that China is a threat to the West.
Western governments are not prepared to fully fund, through deficit financing, the production of the required 10 billion vaccine doses. China and India will. The G7 would rather see millions perish than admit that the world isn’t financed by taxpayers’ money.
Our media must be gearing up for a massive China baaad propaganda splurge whilst they are saving the world and our leaders point fingers blaming everyone but themselves. This collective failure of responsibility will surely cost the west politically in the less developed world. Our leaders obviously don’t care.
Richard Murphy wrote: “I was nonetheless criticised by MMT people for supporting this letter.”
Can you provide links for this statement?
Look on this blog for a start