This comment/question was put up on the blog this morning by someone called Peter Rodd. I am presuming it is genuine:
Enjoy your posts and the comments thereon. What do you think of Prof Stephanie Kelton's interpretation of MMT, in particular her book The Deficit Myth? She visited here (Australia) recently and a lot of shouty ranting ensued. To a non-economist (but retired accountant) it was confusing and a bit dismaying. Thank you. Peter
The first thing that I should say is that I do find Stephanie Kelton‘s explanation of MMT much superior to any other that is available. It is certainly the point at which anyone should start. It is the least dogmatic explanation available. It is also the most readable and, in many ways, the one least tainted by the policy objectives of those offering comment. For all those reasons, The Deficit Myth is a book that I recommend.
Let me, however, step back from personalities on this and instead suggest what the real conflict between those proposing MMT and other schools of thought is all about.
The real issue is one of political economy, and not economics. The question that MMT seeks to answer is, does the government have the power to create new money to fund its spending, and does it, in that case, have the right to create money at will (subject to the physical constraints that exist within the economy as to what is possible) to achieve its economic, social and industrial objectives, such as the delivery of full employment on a sustainable basis, with everyone having a sufficient income to meet their needs?
As a matter of fact, economics now says that governments can create money. There is no major central bank that now pretends otherwise. The Bank of England has been particularly explicit, saying in 2014 that the economic textbooks suggesting otherwise were wrong. It also made clear at that time that suggestions that banks act as intermediaries between savers and investors borrowers are wrong, that models of fractional reserve banking are simply incorrect, and that in the commercial sector, it is bank lending that creates sums that are saved, and it is not sums that are saved that create loans.
Extrapolating this, as some central banks, such as that in Canada, have done, leads to the conclusion, which the Bank of England has been reluctant to state, which is that whenever a government in the position of those in the UK, the USA, Canada, Australia, Japan, and many other countries, wishes to spend, what it does is instruct its central bank to make a loan to it, creating in the process the money that it wishes to spend, with the promise to repay being backed up by the power that the government in question has to extract future taxation revenues from the population over which it has authority. In other words, government spending always comes before taxation because, unless that were true, the money to make settlement of tax would not exist.
If you wish for practical evidence that governments can create money at will to achieve their policy objectives, then the deficit spending (but not the QE process) that existed after 2008, and during the Covid crisis is all the proof you need. The QE process simply disguised the reality that governments were spending newly created money to meet their obligations behind a pretence of bond transactions, which were deliberately meant to confuse, and have, most successfully, duped many politicians into believing that central banks cannot do exactly what they did during those years, which is create money at will.
If, as I suggest, the economics of this are now both known and acknowledged, what the real debate about MMT is all about is not now the facts of the matter, which are clear. It is, instead, about who has power over the scale of government spending. Is that the government itself, as MMT would suggest, or is it still the case, as it was in the long-gone gold standard era, that the willingness of financial markets to lend to the government, and of taxpayers to make settlement of sums legally owing to an elected government, constrains what a government can do?
MMT makes clear that financial markets do not have the ability to constrain government activity. The government is not dependent upon borrowing. Instead, the government provides financial markets with saving opportunities, but if the financial markets do not wish to take advantage of them, that does not necessarily mean that the government cannot spend.
Again, if tax revenues fail for any reason (as they did in 2008/09 and in 2020/21) then this does not mean that the government cannot spend. When that happens, a government of the sort noted can simply create the money needed to ride out the crisis.
MMT would argue that not only can a government do this, but that it should do this, and all the evidence is that this is exactly what governments did in these situations. In other words, they have acted as if MMT is true and that what it suggests is the right course of action to follow
Let me make it clear that by saying the above I am not saying that either savings with the government or tax have no role in the overall management of a government's financial affairs. That would be utterly untrue. MMT makes it absolutely clear that the government cannot create money at will without taking into consideration the actual physical constraints within the economy to undertake real economic activity. It is quite clear that if excess money supply is created, then it follows that monetary demand in excess of the capacity of the economy to supply goods and services at prevailing prices will exist and that inflation will inevitably, at some point in time, follow. MMT is obsessed with this point and, as a consequence, says that taxation to withdraw money created by the government from circulation within the economy is absolutely fundamental to the creation of a proper fiscal balance in any country.
Likewise, if a government does not want excessive savings balances to be injected into speculative rather than beneficial savings activity within the economy, then it will wish to make sure that sufficient funds are saved with it to prevent asset price speculation. In that case, a government that understands MMT will have a very active approach towards attracting funds to be saved with it for precisely this reason. That said, it should be noted that it holds all the cards of power when doing so, not least because it can determine the interest rate it is willing to pay, and everyone else is subject to its whim as a consequence.
It is then this question of power that is critical when discussing MMT. The facts are actually pretty straightforward. MMT describes what happens in an economy. Central bankers now know and tacitly acknowledge that what it says is right. And in reality, governments behave as if MMT works. Therefore, the only question of consequence is why governments, economists who should know better, and economic commentators who are paid to present a view on this matter all pretend otherwise.
The answer is that there is a power struggle going on that is clear, blatant, and open for all to see. Those who are threatened by the reality of MMT, who can be summarised as the old financial community centred around the world's major banks and financial markets, wish to pretend they still have the authority to constrain government, even though that is obviously untrue. That said, they have the resources to fund media, academics and others to pretend that they are right. They can also make sure that politicians who are sympathetic to their view and that of the wealth holding that they represent are elected to office. Antipathy towards the state is implicit in their arguments that markets must have power, even though they very clearly do not.
What, in that case, we see played out in debates on MMT is an increasingly crude power struggle. Mark Blyth, as a political economist, who should understand these things, demonstrated this very clearly in the interview I noted here yesterday, using very crude and inappropriate examples whilst misrepresenting what MMT says. On the way, he claimed that Scotland as a nation-state would have no power and would, therefore, be subject to the whim of financial markets, who would not tolerate its existence as a nation-state or use its currency. This was absurd. Nation states of similar size with their own currencies clearly exist, and very successfully so. Data on Comments made on Scotland's trade below my post yesterday made clear that what he had to say on that issue was incorrect. In all, he created a fabricated situation to defend the power relationship that financial institutions seek to impose on the world. Why he chose to do this, given that he is an intelligent man, I do not know.
The question to be asked when considering MMT is, in this case, a very simple one. The debate is not about facts because there, I would suggest that the argument is over; every single central banker knows that MMT is right. Instead, the argument is about who you want to hold power. Are you interested in a small financial elite representing those with considerable wealth to hold the power over the capacity of the state to supply services to meet those needs, or would you rather that an elected government, chosen by the people of a country, doing its best to meet that needs have that power instead? In other words, are you a democrat, or not? That is the question that MMT poses, and which everyone needs to answer.
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Bang on the ‘money’ (pun intended) imho – well said.
Thanks
MMT is a threat to those who want a “small state”. Vested financial interests would lose much of their power if MMT became the established paradigm. They won’t admit this -hence the attack on the theory. It is a proxy war.
We saw something of this with the work of Keynes in the mid 20th century. In McCarthyite America some economics lecturers who supported Keynes were forced out of their posts; often accused of communism! Keynes won in the longer run as his ideas worked. The oil crisis created a situation which enabled some to discredit him and argue for neo-liberalism.
Cowardly politicians think they can use the existing structures to deliver something. If they oppose, they might not do even that.
Courageous politicians know they have to challenge the status quo.
Where are they to be found?
We have a few
But they are rare
Excellent. And I love that MMT is also the initials of Magic Money Tree, with which illusory concept Teresa May dismissed the nurses’ plea for higher pay.
Of course when the chips are down for the very wealthy and their wealth is threatened, think 2007/2008 GFC and 2020 Covid Pandemic or World Wars One and Two, suddenly lo and behold there is a Magic Money Tree. This is childish hypocrisy in the extreme but ignorant voters keep voting for their parties and FPTP repeatedly puts either the Conservative, Liberal Democrat or Labour grifters in office to maintain the hypocrisy!
MMT shows us that neoliberal neoclassic economics is mistaken (to be polite).
Many people stand to lose out if MMT shows how economics can be done.
As they say, follow the money.
Absolute bollocks. And that’s being polite.
Scotland can just crate its own currency and print money without consequence – you honestly believe this?
The Scottish pound would be worth next to zero and the population would be unable to import anything (or face massive inflation).
This is basic economics.
You really did not read a word I said did you?
What you have said is total nonsense unrelated to anything MMT says
I can’t decide whether you have been brainwashed by decades of denigration of Scotland, are being deliberately offensive or just ignorant of Scotland’s plentiful resources.
I suspect Michelle was going for all three reasons!
Quite a robust (and incorrect) opinion there.
Take the time to read The Deficit Myth and listen to Richard Murphy.
Once you see it you can’t unsee it.
Many thanks for a most insightful and detailed comment which is much appreciated. Easily the most intelligent and persuasive assessment of MMT I have read. Peter R
Thanks
I have read Kelton’s book, and while I agree that it provides an excellent account of MMT it seems to me to have one major flaw. That is, it doesn’t differentiate between the descriptive theory of how money works in a currency-issuing state and Kelton’s personal political wishes for a government that understood MMT – like a job guarantee. It makes her ideas easily attacked, with the impression being that an argument against her politics (which is a matter of opinion) undermines the whole of MMT.
Plus, for British or Australian readers, the way the book is written for a US audience and with constant reference to politics there can make it a bit difficult to distinguish between the generalisable explanation and the specific contextual implications.
Accepted
Hence, why I am planning a book when I can
BUT, economics is always political
What is a matter of opinion? I know the Federal Reserve Central Bank in the United States, for example, has a remit to control inflation and maximise employment. How money is created and deployed is part and parcel of achieving this remit. Pretending that free market capitalism will do this on its own is pure fantasy because of the very simple fact this market always operates in the face of uncertainty. It can guess about the future on the basis of past trends but it’s still only guessing.
This existence of uncertainty in the free market is of course one of the central themes of John Maynard Keynes’s economic ideas and why he heavily plugged a role for the state to ameliorate the negative effects of uncertainty which clearly impinges on employment levels. The state of course cannot be that effective on this amelioration front unless it can freely create money because in a monetary based economy money commands real resources.
Another excellent summary.
If there is no hope within political economy then we are f**ked, and MMT offers us idealists and optimists a new way of thinking.
“Those who are threatened by the reality of MMT, who can be summarised as the old financial community centred around the world’s major banks and financial markets, wish to pretend they still have the authority to constrain government, even though that is obviously untrue.”
I have been wondering why all our mainstream UK parties, but especially Labour, and even the LDs, still insist on using the Thatcherite ‘maxing out the credit card’ household analogy, when MMT can liberate them in their prospectuses for government.
When we have the opportunity and facility to develop and implement desirable social and environmental goals, why do we persist in ‘can’t do’ disempowerment ? ..
I believe this is partly down to institutional inertia, with sectional interests seeking to maintain existing power structures; certainly partly the fear of current political leaderships in losing direct personal control; partly wilful ignorance; and also the underlying fear that the grip of the dominant conventional wisdom in economic dogma of market perfectibility, will be broken. These are all powerful restraints.
If MMT is to be a key tool in post capitalism then it may require another major cultural shift in mindsets and relationships – possibly even comparable to those social changes from reciprocity etc., to transactional interactions that Polanyi identified in the Great Transformation.
However, whether there is sufficient time to establish this shift in the light of the immediacy of climate change imperatives is questionable, unless climate change itself is the driver.
Conservatives are right to fear those social and cultural changes that may reduce their power. But many do not understand the existential threats.
We need to accept that the collective of adversarial institutions within our political economy usually lacks a problem solving approach, and probably also the ability to adopt sustainable resource management thinking and methods.
Such is the Westminster model of power and patronage critiqued by Marquand.
MMT opens up huge new opportunities for collective problem solving – in housing, poverty, environment, health, welfare, infrastructure, education, climate change.
Liberation from the paradigm of embedded banking conservatism will be hard won.
Of course there will always be competing demands for resources, given the capacity of the economy to undertake desirable projects, and a need to prioritise, but the biggest challenge is in mindset.
I’d argue that the messages necessary to effect these changes in thinking and approach away from adversarial politics to mutual problem solving, using the MMT toolbox, need repeated simple and effective communication and Richard’s own tagline is as good a form of words for that intention as any …..
“Meeting everyone’s needs within sustainable limits”.
Thanks
I like your summary
Exactly right. ‘Sustainable limits’ is the key message. Nobody likes the idea of politicians completely unconstrained (not least, politicians themselves); the myth that MMT implies no limits on spending is ridiculous and needs to be thoroughly debunked. MMT needs to be seen instead as the best way so far to maximise the use of human resources. Clearly we have such resources, the real debate is in what direction we want to maximise them… for the benefit of a few ultra-rich, or for the happiness and benefit of all of us, now and for future generations?
“Conservatives are right to fear those social and cultural changes that may reduce their power. But many do not understand the existential threats.”
What they do not seem to understand is that wealth will not shield them from these threats. In the past it has always been the case that, when the going gets tough, if you were rich enough, you could escape. But if the temperatures spiral out of control, we will all burn. At that point the only difference between me and member of the super rich is that a computer somewhere will record a big number against their name.
I increasingly find myself thinking that the cause of the dishonest propaganda about money creation is driven by the greed of the wealthy few who simply don’t want to pay their fair share of the money needed to be refluxed (taxes) which helps to keep the value of money stable. That they can get away with this is because democracy in economic matters is under-developed or put another way the human drive to implement Reverse Dominance is still being greatly thwarted and accordingly we are as a species at a relatively primitive stage of development.
https://www.unl.edu/rhames/courses/current/readings/boehm.pdf
I see the whole issue as an attempted return to feudal power. The destruction of democracy because it is a constraint on feudalism.
Yanis Varoufakis has pointed out that the form of Tec power we see plainly is a form of feudalism extracting profit from the endeavours and sales of others (Amazon, Facebook marketplace) or simply rentier economics where the rich own everything and will charge us all to exist. When we can’t pay many will become slaves.
Might there are two type of economists and politicians?
1) Analyticals
2) Promoters
The type may be spotted be noticing whether their pronouncements offer greater understanding of economics/practical politics or benefit a particular group.
Economists disagree with each other about the meaning of “economy”. Hayek, Marshall and Sowell all had their own interpretation. Hayek believed that he was part of a long and unbroken tradition of thought stretching back to the ancient Greeks.
Indeed Aristotle wrote about the division of scarce resources. For Aristotle this was not a question of efficiency and rich men getting their just rewards. It was a question of politics and morality. This should be obvious since this topic was written in a book called POLITICS. Because of Aristotle, our sense of politics in the western world is intertwined with his vision of morality. It so common that it is often forgotten or taken for granted or assumed to just exist without a further thought.
Too much is bad, too little is also bad. There is no free lunch.
If you exclude politics, then you aren’t an economist.
I pretty much agree with that
Economics as practiced today, mainstream, orthodox, seems to proudly exclude morality, seeing itself as amoral or even above morality. Amongst others, Danny Darling has got at this
seeing a lack of compassion or empathy:
https://www.dannydorling.org/wp-content/files/dannydorling_publication_id8314.pdf
Gary Stevenson’s recent book about the world of financial trading is revealing and he is savage about his fellow students at LSE. Its a cracking read too
I should add it to the pile….
It becomes increasingly clear that politicians love to have ‘external constraints’ behind which to hide their political decisions. They apparently believe that MMT claims that absolutely no such constraints exist — no wonder they are scared of it. In reality, doesn’t MMT replace the artificial constraint of ‘government borrowing’ with the more real physical constraints of the country’s economic capacity? (An echo of the old assertion that money is simply a representation of human effort?) Perhaps if more politicians took that view on board, they would feel less uncomfortable.
(I have an uneasy feeling that Richard will tell me I’ve got this wrong, in which case I will be happy to be better educated as a result. 🙂
You are right
The problem is not what MMT says but the total crap said about what MMT says
Having said which, some MMT proponents really do not help it either
Incoming question from a layperson; and a test of whether I’ve really been paying attention these past couple of years:
So when we hear pronouncements like targets of n x 10⁵ new affordable housing units per annum, or 40 new [sic] hospitals; the finance is not the issue, that can just be created, but the limits of human and material resources are the real issues? So putting too much pressure, too fast, on the available labour pool allied to limited production (and import) capacity would be what risks inflation, not the money creation itself?
It would be handy to have a concise rebuttal to hand, for when I encounter the likes of Michelle’s “[we can’t] print money without consequences” type statements, which I do see and hear a lot; because by focusing on the money, and only the money, they completely miss the point. Assuming, of course, that I’m understanding this correctly and that I haven’t missed the point!
Your second paragraph is completely right
You know this stuff
Thanks
Apropos the “proponents” of MMT, I a read a comment somewhere – in these columns perhaps – that if “a proponent of MMT cannot explain it to the person on the proverbial Clapham omnibus, then he or she doesn’t understand it themselves.”
Your point is?
Reader michael murray wrote: [I]f “a proponent of MMT cannot explain it to the person on the proverbial Clapham omnibus, then he or she doesn’t understand it themselves.”
In that case, the next time I’m in the U.K. I’ll take this bus route and explain MMT to whomever wants to come along for the ride. Which bus route is it, exactly?
It’s always reckoned to be the 88 now
But there wasn’t an 88 when the term was invented
But if you’re that keen – let’s talk before then
“It becomes increasingly clear that politicians love to have ‘external constraints’ behind which to hide their political decisions. They apparently believe that MMT claims that absolutely no such constraints exist — no wonder they are scared of it.”
The vast majority of politicians who are not grifters for the wealthy are like children. They live in a predominantly money based economy but never bother to ask themselves how the money used to effect transactions comes into being in the first place by who and how and who has prime responsibility for regulating money creation. The information is out there in the public area:-
Alan Greenspan patiently explaining government money creation in relation to real resources to a politician:-
https://www.youtube.com/watch?v=DNCZHAQnfGU
Ben Bernanke patiently explaining why government needs money creation powers to deal with crises:-
https://www.youtube.com/watch?v=odPfHY4ekHA&t=478s
(Go to just before the 8:00 minute mark.)
Mario Draghi explaining how the EU through the ECB also has money creation powers to deal with crises:-
https://www.youtube.com/watch?v=_fF3pNTtmfc&t=40s
(You may have to press replay or drag the red button back to start to hear this video.)
Richard Werner, an academic specializing in banking finance, explaining how licenced banks simply create money by marking it up on their computers:-
https://www.sciencedirect.com/science/article/pii/S1057521915001477?ref=pdf_download&fr=RR-2&rr=7f18f7e14d8cdd17
“(You may have to press replay or drag the red button back to start to hear this video.)”
That’s because the URL you posted sets the start time to 40 seconds in. This should work better:
https://www.youtube.com/watch?v=_fF3pNTtmfc
Absolutely.
Not just economic capacity, but the political will.
“external constraints” and ‘exogenous shocks / events” .
“can’t do” and “a big boy did it and ran away”
We do seem to be more governed by hidden agendas and avoidance of responsibility, which might explain that …
” Just nine per cent of the British public say they trust politicians to tell the truth, down from twelve per cent in 2022. This makes them the least trusted profession in Britain.”
IPSOS
Although neither economics nor politics are in any sense scientific there is a similarity with the Kuhn (and Polanyi) concept of paradigm and how all truth is embedded in the current paradigm….until it isn’t and a paradigm shift takes place. That shift hasn’t occurred yet so we are still in the Neoliberal paradigm which is the “truth” for many politicians and economists and journalists and anyone who thinks differently is mad, a ….(Galileo?)
The point is of course that MMT means if not an end to, a significant reduction in ‘making money out of money’
After all why issue Government Stock for Pension Funds to buy, just cut out the middle man and offer state backed ‘additional’ pensions direct to the public?
You miss point that government saving facilities are an essential part of the fiscal management process of an economy. People will still want to save. But, in a sense, you are right that we could cut gilts out of the system. There is no reason why the government should not offer direct saving facilities to the public on a much wider basis than they do at present. They could also offer overnight deposit facilities to companies to eliminate the whole, wasteful, repo market.
FWIW my take on Mark Blyth is not to be too influenced by the jokey direct delivery (and I emphasise that I’ve seen only clips of what he said) but it seems to me his point is that a currency is completely sovereign only when it is the USA’s which is the world’s reserve currency.
Other countries do not have that privilege and consequently their currencies are less sovereign.
Just look at the UK which imports half its food – it’s government can issue a sovereign currency but if foreign food producers choose not to accept it, the UK starves.
So for the UK, national security dictates that the issuance of sovereign currency must also be made worthy of foreign acceptance.
Something this government with Brexit and ignoring international law has done everything to make less likely, though so far importing inflation through currency devaluation is the worst that they’ve managed.
But in doing so they’ve made the £ less sovereign, whereas, since currency sovereignty is, I suggest, a spectrum, the government’s duty should be to maximise it.
I disagree Peter
MMT actually describes what happens in a country like the UK – with ample enough sovereignty over its tax system, economy and trade to set policy to influence them all (which was what Brexit was about). To pretend otherwise is crass international political economy by pretending the only state with a power relationship with money is the US. That’s ridiculous and a failure to understand his own discipline.
No one has perfect sovereignty – the US is gamed by China. So even that exampke if his does not work.
I fear that a major factor limiting the acceptance of MMT amongst politicians is their knowledge that neo-liberal ideas– masquerading as “common sense” ( maxing out the credit card etc) is completely accepted by the bulk of the voters. The Labour Party,in particular, has a long- established practice of NOT challenging predominant ideologies for fear of being portrayed as out of touch with reality. Instead of winning the ideological debate with more sensible policies they shrink from major debates and content themselves with denouncing Tory failures without spelling out any really DIFFERENT approaches. So they are doomed to repeat the same errors.
So neo-liberalism staggers on, surviving because a wealthy few benefit from it ,another few people lack the imagination to move beyond it, a few politicians lack the honesty to propose alternatives and the population have few sources of any other ideas.
I still retain the optimism that people will move forward but it will take effort.
I’m going to be teaching an online course on Modern Monetary Theory starting next week (https://www.hgsss.org/which-deficits-really-matter/). That course will use Stephanie Kelton’s “The Deficit Myth” as its text. I’m going to quote almost all of this post in my opening remarks next Monday. Thanks.
Thank you
So many good points. Kelton’s book is great for addressing the true deficits. It reflects FDR’s vision which she has supported in the book https://en.wikipedia.org/wiki/Second_Bill_of_Rights. However while I agree central banks could issue currency to permit governments to spend what they need to, almost all CB money is digital which only banks can use. I think we need reforms for several reasons:
1. Kelton herself talked about significant reforms at Christine Desan’s conference – Money as a Democratic Medium. She said ““a public role in you know financing the community the capital development of the economy.
I think we are off to something of a good start there but we need to do more.
I think on regulation and supervision of the financial system there is scope for much more to be done.
I’ll finish where I started, which is the direct provision of financial services.
I think direct lending to support public purpose.
I think doing more with guarantees for public private partnerships.
I think postal banking community development, central bank, digital currencies, all of this should be, I think part of any effort that, you know, substantially reforming, the financial system to make it, you know, or stable more equitable and you know serving the needs of the people broad way that we’ve been talking about here today. “
You can listen to some short audio clips at this link – they have been posted at google drive.
https://www.facebook.com/groups/376564969623793/search/?q=kelton
2. In this bank of England video on its money creation paper, it shows that the central bank did indeed create money, but could only do so with banks as an intermediary because the public can’t use CB money except cash. The central bank is boxed in. In now has to pay interest on reserves. The debt servicing is visible to the politicians and stops them from spending what it should.
https://youtu.be/CvRAqR2pAgw?t=174
3. Central banks have said they are against monetizing debt. Though they are ok to let banks create money for shareholder profits and give banks a free lunch – bailout from toxic assets. This is a statement in a Bank of Canada makes that clear – It’s important for central banks to be independent from the government. Simply put, the power to create money should be kept separate from the power to spend money.
https://www.bankofcanada.ca/2022/06/understanding-quantitative-easing/
A highly placed member said this – To put it simply: we are not providing a free lunch for the government. The government will have to repay the bonds that we purchase through our QE program when they reach maturity.
https://www.bankofcanada.ca/2020/12/our-quantitative-easing-operations-looking-under-the-hood/
I agree re 1 and 2
3 is, I think, posturing
Richard
Posturing is a fair conclusion. But the BoC can and does buy bonds directly from the government to increase currency …and chose QE instead which was a free lunch to bank profits fees and capital gains .
Though in the end the banks would accumulate the settlement balances and get interest.
Re 2: “In(sic) now has to pay interest on reserves.” As far as I am aware there is no legal requirement for interest to be paid on these reserves. If I am correct then the BofE only “has to” pay this interest in the sense that it judges that doing so is the best way to control inflation.
Re 3: “the power to create money should be kept separate from the power to spend money.” This sounds reasonable until you realize that the creators of money exert a great deal of control over the spenders of money. If the creator is an independent central bank and the spender is a government this hands political power to an unelected group and is fundamentally undemocratic.
“The government will have to repay the bonds that we purchase through our QE program when they reach maturity.” Really? Who, precisely will the payment be made to?
Correct in both cases
Apart from the conceptual arguments, it is the inhuman cruelty of Andrew Bailey, the BBC’s correspondents and their invited commentators from the City , the cruelty of omission – not even hinting at who will suffer – the millions already not able to afford both food and rent the 100000’s children in temp accommodation or the wealthy who will benefit .
Hunt and Reeves ‘s with their own construct – ‘the economy’ may give a cursory nod to the effects on people – but so sorry to be hemmed in by their own fiscal rules.
Richard tends to always mention the real impact on people . Even the sainted ‘free market’ Adam Smith saw himself as a moral philosopher not just ‘an economist’ .
And now we have a mea culpa – from Angus Deaton – castigating himself and fellow economists for not acknowledgin the economy is about power relations
https://www.crikey.com.au/2024/03/12/nobel-laureate-economist-angus-deaton-capitalism-power/
The Deaton article is part of the last edition of IMF’s journal, which has a series of similar articles including from Kate Raworth and Diane Coyle.
https://www.imf.org/en/-/media/Files/Publications/Fandd/Article/2024/03/FD0324.ashx
The IMF seems to have moved on quite a long way from the structural readjustment programmes of the past. A pity so few of our politicians have managed to do so.
Internationally, it is now China that seems to have taken on the IMF’s old role, loading up countries with debt, mostly used to pay Chinese companies. Chinese managers and workers are brought in to do much of the work with minimal skills transfer. Ive seen it first hand in Malawi and Kenya. We are seeing the consequences as countries like Sri Lanka struggle with the repayments, mostly at higher interest rates than from the Western multilaterals.
When the IMF has published me more than once it has moved……
Bernard Hurley
Good points.
About your second point, I think the quote has a false assumption that the government can’t be trusted to overspend and create inflation. Politicians have learned that inflation is harmful politically. I think the comment is a rationalization.
About your first. The central banks have settled on using reserve rates as a primary tool for controlling rates. This clip from a very good BoC video talks about that and the Floor and Corridor systems https://www.youtube.com/watch?v=Zs0b0KaThAs&t=517s
Richard isn’t it time to end
Isn’t time to end
i) the false assumption that if the government issued the money, we would have inflation. Politicians know inflation hurts reelection chances – eg. Biden
ii) interest on reserves
And isn’t it time to explain how governments could raise and lower rates without interest on reserves?
Yes…
Here’s the classic example of why British voters desperately need to understand how their country’s monetary system really works:-
https://www.theguardian.com/society/2024/mar/27/public-satisfaction-with-the-nhs-at-its-lowest-ever-level-poll-shows
https://policymogul.com/key-updates/5834/a-decade-of-cuts-has-left-a-37-billion-hole-in-our-health-and-education-services-says-labour-
Thanks for the post. I am relatively new to MMT and whilst it answers so many of the questions traditional economics fails to address, my question is how a government would put it into practice? I don’t hold much hope that Labour will follow this path, but let’s suppose they (or someone else) did. Would you be able to explain how they could navigate any market turmoil that would follow? I may be wrong, but my guess is gilt and currency markets would react adversely and if the government didn’t have a clear strategy to both explain its position and weather the initial storm the process could end before it started? The press would scream that our currency and our pensions were being destroyed by excessive unfunded government spending and the politicians would retreat to the economic policy orthodoxy. How would you suggest someone seriously engaged in navigating this should plot the course? Is it a case of gradually building the narrative and evidence to support it or would a big bang approach be better? Thanks for any insight.
Jamie
It is my hope to answer this question in more depth over the next day or two. Might you wait for me to catch up with you?
Richard
Richard,
Yes of course. Thank you again for all of the thought provoking content.
Jamie
Jamie I too would love to see politicians understand the household fallacy, and the paradox of thrift! But we should remember that MMT is basically Keynes:
“Anything we can actually do, we can afford” as per his 2014 radio broadcast
https://www.bradford-delong.com/2020/05/john-maynard-keynes-how-much-does-finance-matter.html