I posted this on Twitter this morning:
We have our fourth Chancellor since July. There is not a person on earth who can suggest that is a record to be proud of. What does that mean? A thread…..
The fact that there is also no one who can be confident that Jeremy Hunt will stay in office for long is an even greater indictment of the mess into which the Conservatives have led the country.
Just for the record, I suspect the Tories will move to oust Truss next week. Hunt might, in that case, beat Kwarteng as the Chancellor with the shortest time in office. That's how bad things are.
But, much more important are three things. Why did this happen? What are the consequences? And what happens next?
This happened for one essential reason. That is that an incredible (in its proper sense of being not credible) budget was presented by Truss without any explanation as to how it might work and no one believed that it could as a result.
The suggestion that growth could be generated by tax cuts or by relaxing regulation was not believed. There was good reason for that. There is no evidence that either achieve that outcome.
This was the core failing. A libertarian plan was dismissed as absurd, even by those financial markets at which it was most particularly aimed and where support for it was meant to be strongest.
If Truss had laid out some detail and some evidence to make her case it might have helped her, but she did not.
Instead, it was apparent that her plan for a routine deficit, plus tax cuts of £45 billion and £100 billion or so of energy support would cost more than £200 billion. The trouble was she gave no clue how she would finance this spending.
And to compound things, the Bank of England had, literally the day before Kwarteng delivered Truss's budget, said it wanted to sell £80 billion of its bond holdings that they have as a result of QE back to the financial markets.
Truss was looking like she needed QE to fund her plan. The Bank of England was looking as if it was reversing QE (a process called quantitative tightening, or QT). It was glaringly obvious that the two weren't talking to each other.
Worse, the combination required about £300 billion be raised in total from financial markets. Without Truss having provided any details to justify her wild growth assumptions that supposedly paid for this, the markets began to panic.
The absence of any support for Truss's plan, whether from the government's own Office for Budget Responsibility, or third parties like the OECD and IMF, who did not see that growth happening, did not help Truss.
That she and her Chancellor appeared to revel in the absence of that support only made things worse. They weren't seen as disrupters. They were seen as wreckers.
We know what happened. The pound fell. Interest rates rose. Some pension funds faced a meltdown. The mortgage market did likewise. If pensions have probably been saved, the grim reality for millions is that their mortgage costs will skyrocket. So will rents.
Indisputably, this crisis was created in Downing Street. Sacking Kwarteng will not change that. And sacking him whilst Truss remains makes no sense to anyone. That Jeremy Hunt is already parroting the Truss growth lines to the media this morning shows no lessons have been learned.
That is why I think that next week Tory MPs will dispatch Truss to the political oblivion from which she should never have risen. But that is only a minor consequence of all this.
The major consequences are threefold. Firstly, the libertarian right wing that has undermined the Tories for decades have been revealed as both incompetent and in possession of ideas that are totally out of step with the country.
That is the good news in all this. The power of the ultra-free marketeers who, amongst other things, gave us Brexit, looks likely to be shattered by this. No one believed their growth plan. That is the good news.
Second, the lesson will surely be learned that economic policy has to be justified. I don't think Truss was wrong to say that the Tory policies of the previous twelve years were wrong, because I clearly also disagreed with them.
What I do think Truss got hopelessly wrong was to try to break that Tory mould by very obviously biassing the rich, which the country (me included) found totally unacceptable, and at the same time to not make clear the framework for her thinking.
The Tufton Street think tank crowd had enjoyed decades of funding to have had an economic plan for this eventuality in place. But either because they did not appreciate the need or because they could not do it, none was available.
That was incompetent. Their incompetence transferred straight to Truss. And when that conflicted, head on, with the Bank of England plan for austerity, to which Andrew Bailey is clearly dedicated, the recipe for a disaster was created.
What that says is that anyone hoping to rock the boat again need better do their planning a long time in advance, and get the detail watertight before trying to deliver it.
Third, Truss demonstrated that if you have a plan you need to act on it. So, she should have told the Bank of England that they were to cancel their plans for bond sales, or QT. And she should have told them to do QE instead.
Truss had the power to do both these things. She didn't. She let the Bank oppose her instead. The coup against her was coordinated from Threadneedle Street as a result. She has very clearly not read Machiavelli. She did not take on the Bank, as she should have done.
The failure to announce QE to find the emergency £100 billion support for households and businesses that markets would, I think, have accepted as a necessary cost of avoiding recession, was another failure to use the power available to her.
Instead she, totally naively, threw herself upon the mercy of the markets and they told her precisely where she could get off as a result.
So, what will happen now? Leave aside that the Tories are in disarray, and that their Brexit wing has been shattered, and that their reputation for competence has gone for a generation, and look at the bigger picture instead.
The Bank of England and the financial markets won this encounter. Their confidence has been appropriately trimmed by QE for more than a decade . But now they will think that they control the show again because Truss did nothing to challenge that idea in all this.
The result is a disaster. The deficit hawks will run wild. They will claim we must have austerity. Their demand will be that government cut the size of its debt. They will push for higher interest rates because they will say that controls inflation. And recession will follow.
I presume we will have a Labour government soon. And I see no sign that they will fight this agenda. Rachel Reeves is Bank of England to her core. Labour will claim that their fiscal credibility requires that they do this. They will hope it will be forgotten in five years.
I see no good outcome from the win for Treasury orthodoxy as a result. I loathed what Truss planned. But the idea that people must be crushed to serve the whims of financial markets is what has won in this battle.
It need not have done so. Government does have the power to create money. At the right time it should do so. This has already been forgotten. I doubt Labour will revive it. In that case the hope of a better society, sustainability, and improved public services have gone for now.
£100 billion of QE now could have transformed the chance of us getting through the crisis we face. But Truss did not do it. She can't now. Instead she reinforced the financial view of the world that destroyed hope in the 1930s and might well do so now.
And that, to be blunt, opens the way for an openly fascist party to replace the Tories, which really does worry me.
Modern monetary theory explains how the left could avoid this. Nothing else does. But Labour explicitly rejects it, preferring the interests of the City over those of people. They think they can do this when riding high in the polls. Pride might deliver their fall.
Truss was right on one thing. The economic policy of the last forty years has failed. She got the alternative all wrong. What she did as a result is guarantee more crushing austerity instead. It's another good reason to condemn her.
There will, however, be a real price to pay for all this and it will be high in terms of the misery it will inflict. That worries me more than anything.
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At least the Bank of England admits that there is no reason for mortgage rates to increase. As an ex Bank of England economist perhaps Rachel Reeves could agree?
http://www.progressivepulse.org/economics/why-are-we-allowing-mortgage-lenders-to-put-borrowers-through-this-misery
Thanks Peter
Might the apparent unwillingness of oppositions to fight against the « austerity agenda » be a result of an unwillingness of politicians to offend the wealthy with their political contributions?
Clearly, a monstrous cock up by government, the BoE and others. However, there is no ‘monetary’ solution without first understanding the ‘real’ problem.
War, Covid and climate change mean a reallocation of our resources is inevitable. War means higher food and energy prices so we need to pay more for what portion we import; it may also mean higher defence spending. Disruption from Covid is still with us (long Covid, re-engineered supply chains etc.). Climate change means rebuilding our infrastructure to cope with climate change that is already “baked in” as well as reduce further change.
This reallocation of resources will make us all seem poorer as we expend more to deliver the essentials of life leaving less for its pleasure. We need more soldiers and fewer poets…. and we will ALL feel poorer for it.
We need a political leader to deliver a modern “blood, sweat, tears and toil” speech… followed by a plan to (a) re-orientate our economy/society (b) share the pain justly.
Sitting back and letting the markets do their stuff is NOT a plan… it needs Executive Action to make things happen. The execution of this plan will involve taxation, borrowing and money creation in varying amounts… but with out a vision of where we are going it’s a waste of time.
Oddly enough, I think someone coined a phrase that covered this – “The Courageous State”…. now, who was that??
Thanks…
And actually, my wife named that book, over a long supper one night when I was about to start writing and explained what I was trying to achieve
Far from being a new strategy, Truss and Kwarteng were pushing the neo-liberal -‘free market’ -agenda quite blatantly with all the fervour of Revivalist convert. For all their talk of fiscal discipline, the neo-liberals are quite happy with huge deficits. Reagan almost trebled the American national Debt during his eight years in power.
IMHO it has exposed the whole approach. Truss’s measures were rejected by those who have supported earlier versions. The commentators don’t seem to have picked up on this. We are still hearing about ‘unfunded tax cuts’ although we habitually ran a balanced budget.
Hunt today was talking about ‘efficiency savings’. They are cuts and make things more inefficient.
As the government spending is the income of others, it will be deflationary. Even if jobs are preserved, real incomes will fall and so will their spending.
We are hearing about ‘the markets’ as if they are a neutral mechanism for determining prices. They do do that but at higher levels they are really small group of people whose interests may not be the same as those of the rest of us.
I am reminded of the euro crisis of ten years or so ago whenever a measure was announced the media asked ‘how will the markets react’?
We live, we are told, in a democracy, not an oligarchy so the direction of travel should be determined by the elected government, not the people who are ‘the markets’.
I think that the system we have used since Thatcher was elected has been exposed and we need to consider alternative systems of public finance using MMT.
Agreed
There is another way to look at this. That is that the BoE acts only reactively. They do not have a rational base. They are not preoccupied with things they want to achieve but only with things they want to avoid. Any appeal they make to theory is simply noise.
pre-Truss, their aim was to follow the lead of the US and that of other central banks. To not draw attention. To not be separated from the herd. Truss then blew that out of the water. Following the mini-budget, with the spotlight firmly on the UK, BoE actions were short-notice, unpredictable or after London trading desks had closed. This was intentional and designed to disrupt momentum growing behind ‘obvious’ highly-leveraged short positions.
But *now* the spotlight is *still* on the UK. The damage has been done. Anonymity cannot be regained. A return to orthodoxy has no chance of working. A new government *could* adopt rational progressive economics because any possible advantage of convention has already been lost. But perhaps it does the BoE too much credit to believe that they might see that?
Interesting hypothesis
Your point about the Tufton Street Lobbyists (they are not thinkers, but clearly their ideas do tank), is well made but the point I wish to note here is the impact on the outcome of the Truss-Kwarteng blunder of the tension between the BofE (and its ‘independent’ oversight of financial markets), and Downing Street economic policy. They were moving in contradictory directions; Downing Street with a crude growth strategy driven by a hands-off, primitive, tax-cut, laissez-faire, hope-for-the-best Budget; the BofE taking a hardline view on QT and inflation (however generated, whether the BofE had any purchase on it or not), pushing up interest rates – in an anti-growth direction. Truss seemed to think there was no contradiction, acknowledging that the BofE was independent on interest rates.
The implication; surely we require to reflect on whether this evidence does not confirm that the independence of the BofE is not sustainable (or the independence of Government from management by the BofE is not sustainable!). I am not sure how the economic ‘conventional wisdom’ can plausibly spin this conundrum. I await with interest.
I have always opposed central bank independence
Japan seams to be riding the waves with out any problems, so it can be done.
http://bilbo.economicoutlook.net/blog/?p=50605
That’s an interesting article that shows how a central bank can control trading in bonds if it has the will and determination to do so. Compare and contrast with the UK where neoliberal ideology insists on the primacy of the markets and this dogma shapes BoE thinking. Richard, might I suggest that a comparison of Japan’s macroeconomic practices with those of the UK could be an instructive and revealing future blog topic?
It would be
I am not sure I have the expertise on Japan though – a country where saving is endemic, unlike here
Lord Offord (another Scottish Conservative who uses a loud, aggressive tone under questioning, presumably in the belief it represents unchallengeable authority; rather than the unconvincing, unseemly bluster impartial listeners cannot help but actually register); has this morning on BBC Radio Scotland News made reference to Japan, as if it was proof of the plausibility of the British Government’s predicament.
I am not an expert on Japanese monetary policy, but I have always understood that Japan is an outlier in the conventional neoliberal, free market, monetary lexicon. Prima facie, it simply does not seem to fit the circumstances. Conservatives, in the deep hole they are in, clearly will try anything at all, spin any idea. Furthermore, in a British context, the Conservative Scots are by some margin the worst of the Conservatives. They propose nothing, they do nothing, they achieve nothing; they do not believe in Truss, Johnson, May or Cameron; they do not believe in libertarian economics. They are not part of the anti-growth coalition. At the same time, literally: they do not disbelieve in Truss, Johnson, May or Cameron. they believe in libertarian economics. They dismiss the anti-growth coalition as heretics. They believe whatever keeps the Conservatives in power. No. Matter. What.
The Scottish conservatives are by far the most feeble, insipid, spineless Party and vested interest currently in Scotland, and now notably few – beyond the blustering Offord – dare to be interviewed at all. Oh!, just a moment, whatever happened to Alister Jack? Was he an invention of Lewis Carroll?. Did I imagine him in some peculiarly outlandish, comic nightmare? Does he exist?
The Scottish Conservatives have done precisely nothing to protect Scotland and the Scottish people from this catastrophe, and have actually supported every single blunder, error, mistake and downright catastrophe the British Government have delivered. Frankly they have simply deserted ‘en masse’ to whatever fate the Conservative Government choose to deliver. They have failed, wholesale, beyond redemption, to protect Scotland.
Japan’s huge borrowing is largely from its own people. This is “real” money, not “printed” QE, so inflation isn’t produced. Our Chancellor could tap this huge source of funds by offering a much better rate for NS&I a/cs, etc. I don’t agree that Brits can’t match Japs’ desire to save, Richard!
Would this make market rates increase even further and divert our money from spending and so damage the Economy in the short term? Surely it’s better than relying on the international market to buy his Bonds.
I am exploring this….
Mr Tristam makes an interesting and thoughful comment. The involvement of international borrowing is a function of international trade, and the importance of its its place in the domestic economy (gold and silver were used as money not because if their inherent nature, or as solely a domestic national requirement, at least typically; but is a function of the rise of international trade, even in ‘pre-commercial’ society, or through the poor level of public confidence in the security, or even honesty of sovereign Government.
It is notable that the independence of a state’s monetary requirement from the pressures that notably appear to fall on Britain (with its disctinctive over-dependence on the City, on which Britain becomes more and more dangerously dependent – but without the economic ballast of the Empire or industrial hegemony that originally ‘justified’ it, and made it effectively the first World Reserve Currency); is surely a function of its relative economic independence from the pressures of international trade (or the effects of dependency on energy or other criticical commodities that require potentially problematic dependecy on foreign currency or investment); such as the US. Notably, even China pegs to the US dollar.
At the very least, in a precarious world, subject to unforeseen or unforeseeable events (known unknowns, or unknown unknowns to use a famous, telling quote), it would appear to be advisable to minimise the exposure of your monetary system to such destabilising excesses.
I agree that we are in the current situation because the financial sector has effectively hijacked control of the Country from the Government. For the vast majority of the UK population, the understanding of how Government finances work is based on the continued repetition of Margaret Thatcher’s inclusion of the following in her speech to the Conservative Party Conference on 14th October 1983:
“Let us never forget this fundamental truth: the State has no source of money other than money which people earn themselves. If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay – that ‘someone else’ is you. There is no such thing as public money; there is only taxpayers’ money.”
It is what I call the ‘Thatcher mantra’ and has been used many times since then in order to keep the public programmed to accept that there is no other way. It needs to be replaced by another statement, such as this one, helpfully supplied by Alan Greenspan during a lecture in 1997:
“…. a government cannot become insolvent with respect to obligations in its own currency …”
Perhaps that should be changed to:
‘The UK Government can never run out of its own currency’,
or something similar, which should be stated at every opportunity by those fortunate enough to be invited for TV or radio interviews. It would provide a good opening for expanding into basic MMT.
Richard, I have read recently that you are vehemently opposed to appearing on GB News but it is the one mainstream channel where certain presenters would be willing to give the subject a sympathetic hearing.
In his GB News monologue on 1st October, Neil Oliver gave an account of how the Treasury, in 1914, created some £300,000,000 of notes (out of nothing) for the banks to issue to the public, in order to prevent a catastrophic collapse of the banking system. That he did so may have been due to information on the Bradbury pound that I had sent to him, together with a brief introduction to MMT. I suggested that you and Stephanie Kelton would make ideal interviewees for explaining the potential of MMT over the current system. If you are invited onto Neil’s Saturday programme, I hope you will accept.
I would never appear with Neil Oliver by choice
Sorry, but there are limits in life
We need “trickle up economics”. A Government jobs guarantee and public spending puts money into the economy, balanced by taxes that control inflation, and takes money out. Communities and businesses benefit from millions of new consumers with disposable income rippling throughout the economy. Everyone benefits.
I would guess that most of us who read this blog have taken great delight in watching the free marketeers crushed by the very thing they espouse. But this pleasure must be be overridden by the fact that a group of bankers, fund managers and speculators have the power to bring down an elected ( OK, debatable right now) government. As MMTers know, this power arises from the fallacy that the government has to borrow private money in order to function. Some ( all?) leading MMT academics ( Mosler, Wray, Mitchell….) propose that governments with a fiat currency should issue no debt at all, and that there are alternative means to transmit a desired interest rate to the markets, as is currently the case in the UK, since the government pays interest on excess reserves. I am also aware that there are arguments that bonds fulfill an essential financial need for a risk free asset, especially for pension funds. Possible alternatives to government bonds are dealt with extensively in Bill Mitchell’s two blogs “Why do currency-issuing governments issue debt? ( in 2 parts).
I believe that Richard advocates QE as a politically achievable compromise, but it has its drawbacks, no?
And then there is the question of the exchange rate.
I dont know enough to judge the arguments, so I’d be interested to hear the views of this blog community on the issue of how a democratically elected government can neutralise the power of private finance to undermine a democratically elected government.
I am working on it
I would agree that in principle a government does not need to issue debt. However people do wish to save for a rainy day and I would suggest that every citizen should have the means and the right to do this. Government do provide a facility for saving by issuing bonds, but in practice, for the ordinary citizen, this is mediated through commercial banks. The mere fact the the recent triggered the possible collapse of the banking system indicates that this is probably not the best way of doing it.
From the point of view of the ordinary citizen, wouldn’t it be better for saving facilities to be provided directly through a government bank in which they could have an account?
I said so in a thread in a thread in the last day or so
A state bank makes complete sense
Credit Unions?
Is there not already a state bank that provides savings products?
National Savings and Investments?
Provides a Direct Saver easy access account, An ISA account, and an Income Bonds Account. Admittedly the interest rates are not great but as I understand it your savings are 100% guaranteed by HMT not just the first £85000
You are right
There is a blog post to come, I think
What a thorough analysis of the situation from a human point of view, as usual.
It seems utterly depressing, as if no-one in a position to help change things either wants to, cares about doing so or even understands that their paucity of thought, care and ambition are the major constraints to that beneficial change. If only they could be encouraged to read a tenth of what you write in this blog [and the writings of other such thinkers] and make that courageous and principled leap.
Have all your wonderful contributors been shocked into silence while digesting this? I miss their take on your position, net receiver of such information as I am.
I wonder if a talk by Clara E Mattei I recently heard
https://youtu.be/ofFR1mD2UOM
“How economists invented austerity and paved the way for fascism”
regarding the origins of the theory and consequent practice of austerity in the early 19th century, in the U.K. and Italy might help augment what you are saying here?
Her new book, THE CAPITAL ORDER and how economists…fascism” has just been published.
Thanks again, for all you do.
Pre-ordered
Pre-ordered by me also.
I saw that video earlier this week and immediately put my order in.
From my perspective, things need to change. The consequences of forty five or so years of the idiocies of neoliberalism is finally coming home to roost, and in the most spectacular way.
We have an establishment that is now out on serious manoeuvres, trying to put out the flames of financial conflagration caused by the Kwarteng “mini-budget”, which so seriously spooked the markets.
If Jeremy Hunt is the solution they come up with, then they are out of their tree, never mind depth. Meanwhile, their solution to the other crises of social decay, climate, and the environment, which is creeping fascism, continues unabated, thanks to useless political opposition.
Two questions:
I wonder a) Who they have lined up to replace Truss? And b) Would a General Election bring the deep, changes and complete reversals and resets the country desperately needs?
A) I don’t care
B) Labour show no sign of it
I look forward to reading Clara Mattei’s book. I am especially interested to read any critical assessment she makes of Hayek’s ‘Road to Serfdom’ in the development of her theisis, and perhaps on the evolution of Neoliberalism.
Hayek, as a young man from a wealthy family in Vienna (who, I think from memory served in the Austrian army in WWI), was obliged to flee Austria following the triumph of Fascism; an experience and memory which I have always thought left a deep imprint on his economic and political thought – yet elusively, and to me surprsingly, fails to be the real focus of his argument (and his almost palpable rage) in the ‘Road to Serfdom’.
A very useful piece. One question.
“she should have told the Bank of England that they were to cancel their plans for bond sales, or QT. And she should have told them to do QE instead. Truss had the power to do both these things.”
When you refer to ‘power’, are you talking about legal power or political power?
Both
Legal power is s19 BoE Act 1998
“The Tufton Street think tank crowd had enjoyed decades of funding to have had an economic plan for this eventuality in place. But either because they did not appreciate the need or because they could not do it, none was available.
That was incompetent. ”
I disagree. They believed their own propaganda, low taxes would lead to growth, small gov, get on yer bike etc etc. Religious stuff based on hot air & unicorns. They are an echo chamber, incapable of original thought and available to any person willing to pay them. Not unlike the world’s oldest profession. Members of the world’s oldest profession usually don’t plan why would one expect their emulators?
We see the same in Brussels – over flowing with “think tanks” & assorted lobby groups, none of which have an original thought in their heads and like courtesans have power without responsibility (the perogative of the harlot through the ages). Ditto Bufton-tufton street. Honestly! You expected them to have plans, imbeciles don’t & can’t.
My mistake
I have seen how the tax justice movement has been totally degraded in that way
And I have forgotten all my engagements with Mark Littlewood, none of which has ever revealed real thinking
We (my compatriots and I, inside and outside the European Commission) have made the same mistake: we think we are dealing with rationale human beings: we are not, whether it is tax justice or power systems & their markets – people make the mistake of internalising stuff to the point that it becomes a belief system, it becomes part of what they are, it defines them.
& thus I pity them. They can’t think, they have no original thought, they mouth “the usual stuff” – to do otherwise would destroy them. Very very sad (although in the case of the tories – entertaining – were it not the country they pull down at the same time).
Agreed
The Tufton Street mafia and network have had their way for decades with the malignant effects we all recognise. This reached a climax with the Truss/Kwarteng budget which was everything that they dream of. The results, trashing the UK’s economy and reputation should be obvious.
They need to be excluded from politics and the media and treated like flat earthers and witch burners. At the very least they should be called out for the charlatans and snake oil merchants that they are.
One can but dream…
Same old boom and bust scenario.! Why weren’t interest rates raised earlier to quell the housing market?
Personally, I cannot blame people for buying second homes, as a retirement plan. However, that was out of control with regard to governance. Time to invest in infrastructure and education to get ahead.
Policy was to promote cheap loans – including for buy to let
Funding was specifically provided
That was an error
Cheap loans provided to 2nd home purchasers / holiday home purchasers
Many many do not declare their income from rent
HMRC do not investigate , it would be simple to do so
Those who benefit vote Tory why would you not ? of course you will vote for a party that facilitates income that is not taxed
Data in this sector is easy to secure
I suspect HMRC collect more rents, especially holiday homes, now than you would expect
Great post with which I agree.
However, I’m still intrigued by the market reaction – Jonatham Freedland’s article in the Guardian today was really good and pointed to shift in the perceptions of and maybe real boundaries to government sovereignty.
So, I come back to this question: How might the markets react to a genuinely courageous state?
It’s worth reflecting on that in my view, given that the markets are really saying that a government can go bankrupt by taxing and spending (in this case not taxing – which is actually total bollocks – leading to austerity).
We won’t know until we try
Labour is showing no signs of being courageous
The Government does have NS&I bonds. If they would just set a half decent interest rate instead of the derisory 1.2% currently then I’m sure ordinary savers would be happy to invest in it.
It defeats me why the government will not do thus
If the markets said they didn’t like Trussonomics, who’s to say that they would be happy with anything resembling MMT?
You mean they would not like full employment with low inflation?
Tell me why not?
Not if there isn’t any money to be made from it. A billion from the Bank of England directly into the money markets must surely appear better than having to work for a billion in the hands of millions of people?
why would a policy of zero o retest rates and printing money to satisfy any spending needs produce low inflation. More likely to perpetuate the boom in asset and property prices, crash the currency and fuel further inflation particularly for our energy priced in dollars.
Why not read MMT instead of making stuff up?
The line of Neoliberal fightback against MMT is emerging out of the debacle. A former Conservative MP, Rob Wilson, who was Hunt’s PPS in Government, has now claimed (BBC Radio 5, this morning), that “all money comes from business”.
Well, I just checked by digging out a £10 note (remember them?); and nope, its an IOU, “I promise to pay the bearer”, but the promise doesn’t come from business (thank goodness). Last time I looked the promise was being made by the BofE, representing the Government; and they issue the money and demand the the taxes I have to pay, only with their IOUs; not unsecured IOUs issued randomly by business.
Would I take that level of exposure; to an unvarnished, unsecured promise from a private buiness? Nope. From a commercial bank? Well, the last time I checked any money I deposit with a UK commercial bank is guaranteed by the Government with their IOU promise, up to £85,000. So basically would I swap that for an unsecured promise from a business? Nope. What is Wilson talking about? Oh, yes he is using a crisis to make an ideological point for cheap political ends, which have no intellectual or epistemological standing.
Can Government screw up? Yes, it can let the neoliberal Conservatives run amok in government for decades, wreck the country and undermine the money. Nothing will save you from the consequences of a bad electoral decision, on that scale of misjudgement of a Party; and certainly not avoid it by believing rubbish.
No suprise there, then.
Perhaps an Economics 101 that bullet points the main features would be useful:
*All money comes from the Government
*All Government debt is an investment in the country
*You must have Government spending before taxation, etc
Yes…working in it
I share your interpretation of events.
The trick is to identify what should be done next.
Personally, I’m in favour of taking their theories at face value, while keeping the powder dry on MMT.
So, in the face of a deficit and the requirement to fund additional investment, I would introduce windfall taxes on the energy companies, wealth taxes, property and land taxes.
Not because I expect the Chancellor (who happens to hold the three-card trick: to come from a landed family, to be wealthy and own a lot of property) to take it seriously but to be able to exploit his discomfort in explaining why it is not a good idea to invest to get the economy moving, to protect the most vulnerable, and to increase the humiliation on Truss over energy policy.
The priority should be to topple the Tories first and then to educate Labour on the extra flexibility MMT would grant them once in power. Gaining power may be helped by taking on the wealthy and championing the interests of renters and new entrants to the property market.
MMT still seems too good to be true to people who haven’t studied the issue.
That’s about my thought. Current economic narratives are just too deeply embedded in the public’s mind. Household and credit card analogies. If Labour move too fast it might well frighten a lot of voters, amplified by the right wing media.
There is a lot that can be done with the tax system, albeit with some squealing. Add to that green bonds to fund investment as Richard has described before.
A Parliamentary e-Petition has exceeded the 100,000 needed for debate in the Commons:
“Call an immediate general election to end the chaos of the current government” https://petition.parliament.uk/petitions/619781
With 600,000+ votes Parliament will debate this petition tomorrow Mon 17 Oct 2022, scheduled for 4:40pm, on the UK Parliament YouTube channel: https://www.youtube.com/UKParliament
Lest we forget: here’s chapter and verse of Jeremy Hunt’s long and destructive period in charge of the NHS:
https://www.opendemocracy.net/en/jeremy-hunt-tory-leadership-boris-johnson-nhs-junior-doctors
A “safe pair of hands” as Chancellor? Hunt’s record doesn’t provide many grounds for optimism.
Add to that Danny Dorling’s recent study on the 335,000 excess deaths linked to austerity. With Hunt as health secretary much of the time.
https://www.dannydorling.org/?page_id=9470