Rachel Reeves did an interview with Nick Robinson of the BBC this week as part of a new series that he is producing entitled Political Thinking. This is a podcast, and the audio is available here.
As Nick Robinson made clear, the fact that the interview took place this week was not by chance. Rachel Reeves' team suggested the date. He never successfully extracted a reason for that. My guess is that they thought they would have something good to say after Reeves' visit to China. What is very clear is that events got in the way.
What, however, was more clear was that Reeves remains as economically illiterate as ever. The biggest evidence of that was that in a programme called Political Thinking she literally had none to offer. That was both politically, where no hint of political philosophy was on offer from her, and economically, where her whole thinking could be summarised in one word, which was growth.
And with regard to growth, after she acknowledged that there has been no growth of any consequence in the last fourteen years, she claimed that growth was essential to deliver increased incomes for working people. What she did not mention was that despite that lack of growth the rich had got richer despite the lack of growth, and yet, somehow, she still thinks that growth will trickle down. That can only be described as delusional thinking.
Worse though, when discussing her belief that ‘the sums must add up' (which makes no accounting sense, because they always do), she went back to her favourite story about watching her mother balance the household budget at the kitchen table, making it clear that she thought that she had the same obligation to do this with the nation's finances. Robinson, who was supine throughout, did not challenge Reeves on this. He should have done. In 2022 the BBC offered this guidance on the use of the so-called ‘household analogy' which Reeves was using, and very obviously believes in:
Household analogies are dangerous territory, intensely contested, and can easily mislead.
Actually, they are just wrong. The explanation is quite simple. Reeves' mother did not have her own bank. Reeves herself does, in her role as Chancellor. It is called the Bank of England. It does not use other people's money, as her mother had to do, because she could not create her own. It, instead, creates all the money that we use, and it is its task to do so, otherwise, the economy could not function. Without the cash injections that deficits by the government create, our economy would not have the credit it needs to function or grow.
Either Reeves does not understand this, in which case she is not fit for office, or she does understand it and pretends not to do so, which makes her even more unfit for office.
A Chancellor who has no comprehension of such basic macroeconomics and who is without a political philosophy should never have been allowed near the Treasury. She has been. No wonder we are in trouble.
I would not recommend listening to the programme. It was tedious. But if you do, then I suggest having the snooker on at the same time, as I did. That meant I did not waste half an hour of my life.
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You listened so I don’t have to. Thank you… it might have spoilt my weekend.
The headline-grabbing phrase ‘doom loop’ doesn’t begin to describe this know-nothing chancellor and her government: its Reeves’ ‘stupidity loop’ that’s dooming the economy. Apart from not understanding the most basic macro, her pathetic ‘growth’ mantra is the most unbelievably dumb goal in the 21st century. That won’t happen anyway because of cuts, however the ripping up of environmental rule books that this implies, will only speed us toward massive GDP decline (not to mention the little matter of a dying planet). As someone once said: there’s no way to beat stupidity.
I still don’t believe it’s stupidity. To me it’s an abvious examlle of unwavering political dogma.
As Richard states, the fact that (I think) she’s aware of the fact she’s spouting economic bs makes it even more unpalatable.
“Robinson, who was supine throughout,”… that is his function (& he would not sit in his job if he was other than supine).
Reeves knows exactly what the score is (BoE, gov, role of tax wrt spending etc). This begs the question: why is she sticking with the household blather?
Assorted Tories in the past have acknowledged the household shtick is bullshit.
Other question: if the “gov finances = household” was abandoned – who would gain and who would lose? Perhaps in answering this question we would start to gain a better understanding of the pressures to stick with this brand of nonesense.
Is it not more likely that Robinson was supine because he also believes the household analogy? He is a staunch Conservative and it all too often shows in all his interviews as he fails to ask the question that would be obvious if you had a neon partisan understanding of the issue – or even God forbid in the BBC a left leaning understanding.
She is spoiling everyone’s life. Like Hunt, Hammond, Kwarteng …….. and the collection of forgettable characters who inevitably led the Treasury team for the Conservatives. Do they have their photograph portraits lining the stairs of No.11? Or are they all so embarrassing a collection of failures, it is all too depressing, even for Civil Servants to be reminded how bad Government is in Britain? Did they really think that replacing neoliberal cloned men, by a neoliberal cloned woman was actually something to celebrate?
Gender neutral term “neoliberal clonista”?
Perhaps a story line of ” for the common person modern economic fairy tales demystified” might catch the eye?
If you want another depressing Labour government minister saying stupid stuff (sorry to depress!) it is Jonathan Reynolds on Radio4 getting asked about Ed Davey stating that the UK should and needs to join the Customs Union (which is the best news I heard all week – as perhaps the ‘taboo’ on the EU is starting to be prized apart). Jonathan Reynolds said: “the Lib Dems are always talking about the EU…of course it’s a big market, but we want ties with the US, India and the Gulf…” (In other words Johnson style ‘cakeist’ rubbish.)
The Lib Dems have always been pro-EU, so for the Lib Dems to talk about it is ‘natural’, and Reynolds should be looking more to actual Labour supporters (and not elderly red wall voters), who are overwhelmingly for – at the very least – Customs Union and Single Market membership.
And apparently David Lammy (who I have time for) has said the Foreign Office central mission is “growing the economy and reducing migration” – the two usually don’t go well together! (BTW, when is the FCDO – the Development part – going to be decoupled, and DIFID – which was well respected across the world – be re-instated?)
Morgan McSweeney’s baleful shadow is over all of this.
As an aside, I had the misfortune of listening to Paul Mason (who I used to follow and value a lot) on the Bunker podcast during the week, and boy, he’s been on ‘a journey’. From being a Corbyn supporter, he is now slavishly a Starmer fanboy – quote: “I’m a fan of Morgan McSweeney”. There was no criticism at all of Starmer or Reeves, and he said that Labour are right to talk tough on immigration as that is what “everyone is talking about”, and then talked about (what is becoming his obsession) rearmament, and waxed lyrical about the new Trident subs being built in Barrow in Furness.
It took time for me to recover after listening!
Lie down for a while
I did after Reeves (it was bedtime, though)
As MMT explains, if you create money then you also have to destroy money through taxation, otherwise you get inflation.
So whether you believe that taxation funds spending or whether you believe that spending happens and money is created and then taken away through taxation. The end result is basically the same.
There is a constraint on how much spending we can do and it is linked to how much the country can earn.
Anyone pretending that the Bank of ‘England can create as much money as it wants for the government to spend into the economy is lying to you. The end result is inflation, a growing deficit, a tanking currency, and increased borrowing costs. It’s basic economics.
You are so wrong.
MMT demonstrates that we can afford anything we can do, as Keynes said.
So, if there are spare resources in the economy going unused the government can spend to bring them into use and not create inflation because they are not in short supply. As such it is entirely possible to run non-inflationary deficits until resources (usually labour) are fully gainfully employed.
Reeves thinks growth is possible now. There must then be under used resources. But even though the private sector will not use them- and it has the opportunity to do so – she is refusing to gave the state do so in order that it balances its books at what she acknowledges to be a level of suboptimal activity.
That is what MMT demonstrates. You should read some more about it. Then you would not suggest incorrect conclusions about it.
But let’s agree on one thing. Of course there is a constraint. MMT talks about that all the time. It’s only its opponents who do not. Why are you claiming what is not true?
Should para 4 line 6 read “allow the state to do so…”?
I am having problems finding the text you are referring to. Sorry.
One minor question : accepting that there is no danger of direct inflation from spending on underused resources e.g. labour power, what is the scale of indirect inflation due to newly employed people spending more money on existing levels of supply? Is it just marginal?
Best wishes
Very marginal.
Al lost all of our inflation is externally created, for a start.
In my memory, since Voodoo economics of the early 1980s, When Reagan was peddling neoliberalism in the US, with the frankly bullshit idea of “trickle down” (and what’s needed is a flood), literally nothing has changed, what politicians have been saying for over 40 years has been one long groundhog day. The lie has been maintained (taxpayers’ money, govt like a household, trickle down, unleashing wealth creators via lower taxes, etc.) for decades. I cannot understand why anyone, after so long, would cling to the idea that we can somehow make “representative democracy” work as it should. However, to return to Reeves, if her expertise is based on the fact that she watched her mum balancing the household budget (it’s surprising how many politicians have had that exact same experience, almost like they’re lying en masses). Well, I watched my dad now the lawn, so I guess I can head up a landscaping business, and he built a wall once, so I can run a national housebuilding company. I saw my mum do household chores, so I can run a hotel chain, and I’ve had bank accounts for years, so that’s me sorted for global finance CEO positions. The BBC routinely fails to meet its own guidelines (republicans and anarchists never get to describe “royal” events). At the very least, Nick Robinson could have asked how watching her mum count some money qualified Reeves to be chancellor. The evidence here is that the bar for becoming a politician is set very, very low, and that Nick Robinson’s role was to model acquiescence (nothing to see here, she’s doing as she’s told). Quite frankly, Reeve’s (in my view bullshit) story is embarrassing, how Robinson didn’t just laugh in her face is likely a testament to his being just another client journalist.
To me it’s Einstein’s definition (adapted slightly) definition of madness “doing and saying the same thing over and over again for decades, and despite all the evidence to the contrary expecting a different result”!
Interesting chart. The economy is in fiscal primary balance as the Treasury would say!
https://www.icaew.com/insights/viewpoints-on-the-news/2025/jan-2025/chart-of-the-week-public-finances-per-capita
Bill Mitchell and Warren Mosler put MMT quite succinctly on page 195 in their book “Modern Monetary Theory: Bill and Warren’s Excellent Adventure”:-
“… unless the fiscal deficit more than offsets the external deficit and the private sector saving, mass unemployment will result.”
The Labour Party as with other UK politicial parties are a bunch of charlatans for not having this basic understanding and expecially as nearly ninety years have past since Keynes helped to point it out!
Rachel Reeves parents were both primary school teachers who divorced when she was young. I wonder if her mother’s kitchen table budgeting would balance today?
So many now have so little financial capacity. Fourteen years of austerity has seen an increase in the number of households unable save. 1 in 6 adults in the UK(16%) or nearly 9 million people had no savings in 2024. Up from 7.9 million people without savings the previous year.
ONS research finds 46% of adults have under £1,000 in savings and average savings per person are modest varying by region from £7,265 in Northern Ireland to £14,307 in Yorkshire.
The 53% of Brits who don’t have an ISA might be surprised to learn that 1.6 million ISA holders have sufficient surplus wealth to utilise their full £20,000 annual ISA allowance.
Redistribution alone would help the economy grow.
Very true
Thank you
Well, there’s posh!
My childhood homes never had space in the kitchen for a table. (See also John McDonnell and, i believe, Jess Phillips.)
Seriously, though, there’s a great hole in this analogy. It is always posited on the idea that a family actually has any choice in how to spend their income.
For too many people the notion of “disposable income” has no meaning. Dividing piles of cash between obligatory payments (fuel, rent, fares to work, ‘phone contract, council tax…) isn’t **budgeting**. It really isn’t.
Very good point
Central to MMT is the argument that because of its ability to create money by key strokes on a computer (or if you like from thin air) it can always meet “obligations” provided the real resources are available. Politicians who use the “household budget” argument are clearly ignoramuses who’ve never bothered to ask themselves where the money comes from in the first place that’s free and clear to respond to “obligations”!
“Disposable income” is a crucial measure that is not sufficiently used in distribution analysis. If it was properly used it would expose why means testing is such a bad way of supporting people. It is ‘Dickensian’; it penalises most the living standards of those with least disposable income, and does so excessively (the harm is effectively exponential). Universal benefits are critical, because they benefit all the marginal cases and beyond; but you can tax back the overpayment to those who do not need it, cheaply and effectively through the tax system, for example PAYE (which means testing never does, because it requires a huge, expensive and inefficient bureaucracy to an scrutinise absolutely everybody – which is impossible – and does distribution extremely badly, costing more than it should, or even more than it saves, and saves only by creating untold, and unmeasured harms).
The point is, you can see from modest improvements in disposable income (a few hundred pounds may make a real difference); how people’s lives are enhanced; but its removal places them in real difficulty; where the loss of a few hundred pounds through taxation clawing back of a universal benefit to people with significant disposable income would make no material difference to their standard of living, measured as disposable income.
Just as importantly, Universal Benefits are an assertion of an egalitarian approach. Everyone pays in, everyone gets the same benefit: what they need, when they need it. The 1945 Labour government were upholders of equality as well as freedom and fraternity: it’s only after decades of neoliberalism that we have been left with the crumb of “equality of opportunity”.
Poor old Dickens! He really didn’t deserve to lend his name to the system of enforced misery and deprivation which in reality he spent most of his life complaining about, couldn’t we call it something else?
The prevailing politics is not egalitarian. The prevailing politics that you have to defeat is not moved by egalitarianism, but the profit motive; so even if high-minded it cuts no ice. you need to defeat the prevailing politics on its chosen ground; and that can be done, because the prevailing politics of neoliberalism is a soft cheese, full of holes. Means testing is a disaster, because universal benefits are effective, and far cheaper to operate than means testing; which is ruinously costly and is always a disaster. And so it proves. Neoliberals complain, but fixing the mess they create chasing means testing always end the same way; expensive, ruinous, failure.
As for Dickens, he would, i suspect love his name being used. his books are extended descriptions of the misery; and, like Jarndyce v. Jarndyce, it rarely ends well (if you look closely enough). He deserves the immortality.
Absolutely spot on Anne. When I was a kid the only families that had a kitchen table were families that had ‘supper’
Sadly, you made no mention of Starmer, who appointed her. I am as sure as I can be that he was, at least somewhat, aware of her views in this regard. I assume you had your reasons for leaving him out of the post.
I thought I’d said enough
Hmmm…………the thing is, this IS political thinking, and what it shows you is how low political thinking has sunk.
Reeves is creating a narrative – a story – behind what she is doing which is what politicians have done since Adam was a lad. Stories/narratives used to be used to tell us what was possible; but these days the narratives tell us everything is impossible as Tim Snyder has pointed out., and perhaps started with ‘You cannot spend yourself out of a recession’.
Now of course, many of us here and elsewhere know Reeve’s fireside story is complete bullshit. This is Jackanory in the fantasy isle of the bookshop. But fantasy is a popular pastime when life is so hard.
We know that there are statutes and regulations that say otherwise, that confirm the sovereignty of the the government in the money production machine. In other words, the government is an operator of money; the market and the banks (and us) are merely a user of that operation.
Reeves’ narrative paints the government as a user with limited choices. We know why she does this. Because she simply does not believe in government, her job, and believes in the market because she has been raised as a reductionist Neo-lib and where money comes from is no concern of Neo-libs (thank you Steve Keen). That is why she is where she is. Reeves is the classic inside-outsider – the City’s ‘our man/girl ‘ on the inside, in the heart of government.
What I’m saying is, is to call her ‘incompetent’ is to politely miss the point. This is all deliberate and calculated. It is human chess in a game hidden from view, placing pieces carrying certain agendas into the game. And they are very good at it. So, paradoxically perhaps, a lot of competence has been used to engineer this scenario we find to be so incompetent. If you or I were a rentier in this economy, you would think everything is fine and dandy. Would you be thinking of incompetence? I think not. I also think that you’d want more. And chucking some money at the politicians who were helping you to maintain the value of your horde or increasing it, would not be too far from your imagination either, would it?
As for Nick Robinson, he has been seriously ill and one has to watch one’s language. I find him appalling and his MacDonalds adverts do not help. But considering his back ground and his prime position in a national organ of communication, he has no right to be where he is at all. So how was THAT allowed to happen then? Again, I suggest he is there because of calculated games of human chess, that like Trojan horses, carry within them the seeds of destruction of the host.
Incompetence?
I wish.
Point accepted
This is politics, but it’s the politics of power alone. The one thing she wanted to come across was that she is tough. It was painful to listen to.
I am grateful for you airing my rather bleak opinion on what can only be described as The Age of the Coup.
Agree with Clive, Richard: thanks for listening and summarising so that the rest of us don’t have too.
That aside, don’t you find it absolutely startling that Reeves should use the story of her mother balancing the household budget when this is so very close to what Thatcher said. In Thatcher’s case she didn’t claim to be an economist, so at least there might be something of an explanation for her ignorance (wilful or not). But Reeves does claim to be an economist – though I know there are plenty of people who claim she’s misrepresented her credentials (I suspect that’s common amongst MPs, to be honest) – so no excuse there.
But two obvious conclusions follow from this don’t they.
First, surely by definition this makes Reeves a Thatcherite – in the economic sense anyway (and for those of us who believe in political economy that would strongly suggest her politics are similarly afflicted). While it’s obvious to anyone paying attention that politics in the UK have taken a turn to the right since 1997, it’s still something of a shock to realise that we actually have a Labour government with a Thatcherite Chancellor!!!
Second, let’s take it that she must know the truth, not least because we know that plenty of people at the Treasury know how money’s created, even if they don’t much like doing anything with that knowledge. Therefore, it must be safe to assume that having staked her entire approach as Chancellor on the ‘state as a household’ analogy she cannot now, under any circumstances – and particularly not if it might become public – admit anything to the contrary.
And so, we now have the entire UK shackled by the personal beliefs, ambitions and shortcomings of one person, while her boss, who presumably thought Reeves had more about her than we now know, is stuck between and rock and a hard place about when, exactly, the damage being done is sufficiently bad for him to step in and call time.
Unfortunately for the majority of UK citizens that won’t be yet, of course, now that the IMF has thrown Reeves a lifeline with their upbeat assessment of UK growth for 2025. And so, the great British household will continue to flounder – but at least Reeves can continue to enjoy that warm and comforting feeling knowing that her mum would be proud of her.
Reeves said in the programme that she came into politics because she loathed Thatcher inspired cuts. She did not see the irony in her boasting of her prowess in imposing deeply unpopular and necessary cuts, like to winter fuel allowance. Her level of awareness is stunningly low.
Did she really say that she loathed Thatcher inspired cuts? In which case you have a person in charge of the country’s finances Rachel Reeves who can’t even do elementary joined-up thinking! The Labour Party is now just a joke! Full of mindless spivs!
It is why she said she went into politics.
I have emailed Nick Robinson with the subject line ‘Flawed economic thinking’ with my views on the programme and a link to this post.
This has gone to nickrobinson@googlemail.com rather than a BBC address on the thinking that his BBC mails are screened by a subordinate.
Perhaps our community here can help him reappraise his responsibilities as a BBC journalist?
“I suggest having the snooker” = ????
Snooker is a British dominated form of billiards. That’s the best description I can give. Watching it is both slow television and sometimes really quite entertaining.
“Watching it is both slow television and sometimes really quite entertaining.”
Just like watching a golf tournament on television!
I know snooker is a form of billiards but did not know one could watch it on television.
Snooker and billiards are not on TV much in the USA as far as I am aware.
The BBC can’t afford much sport
It still has snooker
Snooker makes for very colourful television. Many years ago a commentator said something along the lines of “For those of you watching in black and white, the green is just behind the blue”
Those were the days… (I jest)
Pot black on a black and white set. That’s when I began watching snooker.
When a future historian comes to write this up (assuming there IS a future human historian), I would not be surprised if some of the protagonists are identified as establishment and security services plants (Starmer, Mason, Ruth Smeeth – some have even suggested Blair), actual agents, and others as incompetent (Reeves, Nandy). Wilson’s paranoia was partly vindicated and we know that there was already a mission in place against Miliband before Corbyn won the leadership. The lack of ideas and expertise in Labour is a direct result of often perplexing decisions based on power centralisation and vendettas, all relating to exclusion of socialism, solidarity, political nous and ensuring servility in representatives. It’s largely deliberate.
Labour Party leadership security plants? That would make most Labour Party members dupes. That seems to reflect reality!
Richard, If the Bank of England creates all the money in our economy how is it that when private banks make a loan they also create money ? I realise the answer is probably quite simple but just like a back rank mate in chess I don’t , at least on this occasion, see it.
Private banks can only do this a) because they are licensed to do so and b) must themselves bank via the Bank of England. In effect, they act as its agents. That is why they can and do actually do this, taking the credit risk off the BoE as a result and to some degree privatising it. Is troll some degree because we all know they will be bailed out if all goes wrong.
I read the BBC Guidance article referenced…. all 47 pages of it! Its a fascinating study of how the BBC/ the news generally, without really intending to, presents a biased opinion.. and how this matters especially regarding economics as many people (including myself) do not fully understand how money/economics works. I would recommend a read!!
It is worthwhile
I have read it
The trouble with the suggestion that Nick R “should have challenged her” is that he thinks as she does – re macroeconomics. I highlighted on here a R4 conversation he had with some senior diplomat from the Caribbean a few months ago. Live on air, Nick R instantly agreed with the guy who said something along the lines of: “All money is taxpayers’ money, as you well know”.
I had genuinely been wondering up to that point if these people went along with this stuff because it suits them to pretend to think that there are no other options in these circumstances except to either impose austerity or, God forbid, commit the ultimate crime (in their eyes) of “printing money”. All their colleagues in the mainstream media seem to me to be singing from the same hymn sheet. I guess it must be difficult for them “socially” to go against the grain.
If you will forgive me, I will repeat what I said a few months ago. It really is a major problem for the country if they all do think this way, fully believing what they say.
The alternative – that they don’t have the intellectual bandwidth to grapple with the implications of MMT – is perhaps even more alarming still.
Despite all that I learned as a kid from my Mum and Dad and Uni, I didn’t really start to understand how things worked until I went to work (like nearly all of us).
How can you possibly have a job ” as an economist” at the BofE and not gain an understanding of how money flows?
Because they are paid not to know
Robinson’s insightful questioning did at least reveal that when at last Reeves is given the heave ho she is eminently qualified to take up the position of CEO of whatever company currently owns the ‘Tupperware’ brand.
We know that KS & co lied their way to power, to fulfilling their status aspirations at any rate.
Election candidates were ordered not to talk about anything other than local issues. KS didn’t visit his constituency, he and RR were busy with corporate donor breakfasts. They never did appear in public places.
Theirs are lives scripted by the very rich. Hence KS’ wooden ness’, his call for the return of the sousages, his jeering at a LP member’s concern for the Palestinian children. Unless Trump gets in the way KS will be calling on us to sacrifice everything for the war effort.
KS & RR are not skilled politicians, they act on the scripts fed them by their donors. KS was very frank about this – he finds government dull.
Perhaps we (supporters of MMT perspective) could do with some short, clear political/economic demands.
Addressing Reeves; How about:
Stop Selling Bonds!
Leave the Spend at The BOE,
or perhaps…
…..What do we Want? Tiered Interest Rates!
……..When do we Want them? Now!
Tongue in Cheek? Yes of course………But we need to find a means of breaking through more than Richard, Stephanie K and others are already doing.
I find the “Stop Selling Bonds” one a good way to start a conversation with friends who are interested in public money but are diverted by the usual Household Analogy and related mularkey. They usually reply with a ….”But you can’t do that ….Can you?….. The conversation is away and running….
Just a Thought.
We do not need to stop selling bonds
We need bonds
I have made videos explaining why
We do not need them to fund the government though. That’s the key point.