Prof Mary Mellor (emeritus professor of economics, Northumbria University, and the author of several excellent books on the nature of money) had this letter in the Guardian today:
Labour is failing to promote core Labour values such as equality and welfare (The Guardian view on Sir Keir Starmer: his party remains a mystery to voters, 4 April) because it is still wedded to the “handbag economics” of neoliberals such as the late Nigel Lawson. The view of the state as like a household, constrained by a shortage of money, bears no relation to the public monetary largesse of 21st-century states. Since the 1990s deflation crisis in Japan, the financial crisis of 2007-08 and the pandemic, central banks in key economies have been in full flow. However, this has mainly supported the financial sector and the market generally, rather than public welfare.
To open up this new agenda, fundamental questions need to be asked about the creation and circulation of money in the 21stcentury. Why is publicly generated money (QE) used to bolster the (financial) market rather than public services? Why can banks borrow from the central bank, when governments have to borrow from private finance? Why is that government debt, when bought back by the central bank using publicly generated QE, not then cancelled?
If Labour is to win the next election (rather than the Tories losing it), it must open a debate about the issue of publicly generated money, and the role of the public economy in building the true wealth (wellth) of the people.
Prof Mary Mellor
Newcastle upon Tyne
Mary and I discuss such issues quite often these days. I warmly endorse her suggestion that Labour must open this discussion. After all, isn't the management of the currency one of the key roles of government?
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She is, of course, correct.
It has been great weather for getting out and gardening – spreading compost and planting seedlings was on the agenda. Unfortunately, nothing happened; I could not afford to pay my wife to plant the seedlings and she could not afford my hourly compost shovelling rate…. so we just sat about doing nothing bemoaning the fact that there would be no fresh veg in the summer.
Luckily, my son showed up and lent me the money to pay my wife and her the money to pay me. So we both cracked on, got the job done, paid/received wages and repaid the loans. I can almost taste the fresh veg now!
Obsession with “who pays?” prevents essential, valuable work being done
Good government (thank you, son) can get around this roadblock.
Anything we can physically do we can afford to do.
Very good
Well endorsed!
And what a brilliantly concise letter!!
Historians used to be reckon that functioning governments had two core obligations: defence and justice.
Nowadays to these two must be added money creation – management of the currency if you prefer.
It is core. For that is the way governments get stuff done – and that now includes defence and justice.
Agreed
Functioning governments have only one role. To ensure the safety and well being of all the citizens of their country. HOW they achieve that is for them to decide, but their role is unchanged.
I think that is a view now outdated
“Functioning governments have only one role. To ensure the safety and well being of all the citizens of their country”. But without dealing with the proper use of money the government is not doing that. Rather we have a gang of asset-strippers in charge at present. I don’t see Labour under Starmer as being any better.
Robert Dyson
But without dealing with the proper use of money the government is not doing that.
Obviously. So they are failing on the HOW part. A government can choose how to achieve my perception of their role, but if they choose a method that does not achieve it, they are failing.
Sharp, trenchant analysis that beautifully evisceratesneoliberal economics in short order, from Professor Mellor; wittily incisive and accessible from Clive. Send copies of both to Sunak and Hunt; hang it, send copies to everyone, everywhere!
RM : “Can this wait until I have written the planned posts?”
Of course. Thanks.
When money is created using QE, who gets first dibs at spending it?
The government
And QE dotes not create the money, the initial spending does
What were the two biggest budget items the QE money was spent on? Professor Mellor seems to think the financial sector and the market generally had first dibs on the spending. She is surely mistaken.
No. QE is an asset swap. It did almost solely benefit the financial sector. It is an activity separate from money creation.
Richard, I am sure that you have had several arguments here in the past ( I searched but was unable to locate them) where you have maintained that QE creates new money and certain MMT folk maintain that it doesn’t and is “just an asset swap”. But in this post you seem to agree with them – that the new money was the initial deficit spend, and that QE reverses the initial asset swap of reserves for bonds. I know you have gone over this many times, so apologies for raising it yet again. In what way do you disagree with other MMTers ( or do you?) about the issue of whether QE is just an asset swap or whether it creates new money?
Can this wait until I have written the planned posts?
I am also planning one on QE, addressing the issues you raise
@ Jeff Lucas,
Yes QE is an asset swap but it isn’t “just an asset swap”. QE is the process of the central bank buying up bonds in the secondary market which in turn feeds through to an increased price for bonds sold in the primary market. The increased price equates to a lower yield for the bonds or a lower effective interest rates.
The large scale of QE is, therefore, the main reason for the ultra low interest rates we saw just a year or two back. If rates are low there is more demand to borrow money. It is a key part of MMT that private banks create money as they lend so in this way we can say that QE increases the money supply too.
Having said that, I do prefer to avoid the term ‘money supply’ if possible. It’s perhaps better to think in terms that borrowers are naturally spenders. So more lending, more borrowing means more spending.
I broadly agree with that, but will take the issue a little further in due course. Right now I am still writing about MMT.
I have had the honour of meeting Mary Mellor on a couple of occasions and lucky enough to have helped organise a local public debate in which she shredded the ideas of a prior talk by Ed Balls on government finance and the financial crash of 2008.
She is a very gregarious and infectious character who knows her subject extremely well. I am delighted to hear that the both of you are in regular communication. Education and wider public debates on money is exactly what we need.
As accurate as Professor Mellor is in her description of how government finances actually work, I’m not convinced it would turn voters on to vote Labour unless the conversation is framed in a way that sells what is to gain e.g. no more four-hour waits in A&E or two-year waits for a referral to see a specialist, and what is to be lost by sticking with the current mode of thinking e.g. more of the same long waits, another financial crisis in the making, and more bonuses for the banking sector when they ask to be bailed out again.
It must also be communicated in a way that doesn’t use lots of financial jargon and cause cognitive dissonance and reactance.
To suddenly learn that the government can in fact never go broke and can create whatever money it needs — whenever it needs — is, I suspect, so alien to most people and at odds with their ingrained, but false, understanding that it would be rejected or cause confusion. Reading George Lakoff’s book, Don’t Think of an Elephant makes that painfully clear.
That’s why, as Vincent above says, a slow and steady campaign of education is essential.
That’s what I’ve started to do with my blog: http://www.moneyfaqs.substack.com/
[ED NOTE: I could not make this link work so I copied moneyfaqs.substack.com into my browser and it did]
I started writing that because my daughter came home from school with a sheet from her teacher all about money and it stated that if the government doesn’t collect enough tax, it has to borrow money to pay for public services.
If schools are still teaching this kind of stuff, we have to address that as well as voters.
Kind regards,
Lee
Good luck
Agreed. I’ve just discovered Mehdi Hasan, a very good British-American interviewer, who explains that in general, the Right are much better at making their case than the Left.
See: Mehdi Hasan: Why the right are better at arguing than the left
https://youtu.be/JskvexDdruU
The Left needs to learn.
I like Mehdi who I talked to quite a bit before he left for the States
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But https://moneyfaqs.substack.com/ works.
I have the same trouble teaching a consortium of sixth formers. I do (simplistic) ‘explainers’ including the nature of money and its circulation. Despite this, some resolutely insist that we live in a household economy, and one girl said “my dad says you’re lying”. My fellow teachers, except for the one who taught economics, adhere to the ‘taxpayer’ myth. The economics teacher at my previous school (a prestigious grammar) used to lament that his A*/A/B students seemed wedded to both neoclassical ideas and Tory philosophy.
That’s the problem of mythology
It is hard to dislodge
John Griffin,
I had a similar experience when invited to do a talk on money creation/govt finance at the Newcastle University Economics dept. The students wanted some outsiders(i.e the likes of me) to come in and organaise a debate on money creation but their lecturer was not able to do it for “curriculum” reasons, so the students were told it could only happen if they requested it!
One of the ecomics lecturers actually told me he would have been at risk of losing his job of he had officially got involved with organising the debate and he was more than happy to have such a debate for his students(off piste). To even question the “orthodoxy” taught in economic courses is to risk losing your job.
However we have since then, had had Rishi Sunak’s Covid QE that drove a railroad through any delusion that the govt cannot create money when it needs to, so things may have changed….though I very much doubt it. How this situation has occured is beyond belief. We live in a very stupid world.
As a teacher too, I’d imagine you’ll have a tough time teaching anything outside the curriculum. Typically we teach mainstream facts. It’s only higher education where you start a little critical thinking.
The father was correct in so much as every economics text book teaches that taxes pay for spending, reinforced by the government, the media and the Institute of Fiscal Studies (who the BBC quoted me, and the IFS won’t reply to me). It’s even entrenched in university teaching (funded by big business).
Hope includes:
+ Rethinking Economics: student-led non-profit organisation that works to support the global network to change economics education. https://www.rethinkeconomics.org/
+ The Microeconomics Anti-Textbook: A Critical Thinker’s Guide (and the Macroeconomics companion) https://www.amazon.co.uk/Microeconomics-Anti-Textbook-Critical-Thinkers-Guide/dp/1783607297/ref=asc_df_1783607297/
+ Richard Murphy and the dozens of well-qualified academics who promote an alternative to neoliberal neoclassical economics. This link is from my own web site: https://www.mmt.works/the-no-one-believes-in-mmt-myth/
Half way through Mary Mellor’s ‘Money’. Excellent and relatively easy read. Shows how we have been told bunkum and there is an alternative solution