My podcast with Zack Polanski, leader of the Green Party in England and Wales, was published last night:
I make no apology for the fact that my enthusiasm comes over in this discussion.
I have used AI to create this summary of the discussion, using the YouTube transcript as the basis for this:
The conversation began with Zach Polanski questioning the familiar household-budget analogy so often used to describe the national economy. I argued that the comparison is completely wrong. A national economy is, in almost every respect, the opposite of a household. A household can cut spending or “push costs outside the fence” by skipping a holiday or asking adult children to move out. A government, if it is humane, cannot do that. In practice, most cuts to public spending merely remove someone else's income.
A household has to earn before it spends and can run out of money. A government that issues its own currency can never run out. It creates the money it spends and can always meet its obligations in that currency. Balancing the national budget is therefore not a virtue—it is actually harmful, because it would remove too much money from circulation.
That led us to talk about inflation. I questioned the obsession with a 2 per cent target. No one can explain why 2 per cent is the “right” number; it's an arbitrary figure that has become a rod for our own backs. A modest level of inflation is healthy. Without it, we risk deflation—a far worse condition that discourages spending and raises the real burden of debt. Moderate inflation helps erode debt over time and redistributes wealth, as my own generation discovered through housing. The real problems are unexpected inflation spikes and persistent cost-push inflation in food, energy, and rents—much of which is made worse by the Bank of England's unnecessarily high interest rates. Inflation, I argued, has distributional consequences, hurting those on low incomes while leaving the wealthy largely unaffected.
Zach then asked me to explain Modern Monetary Theory (MMT) and whether, in light of it, Liz Truss had been right. I said MMT is badly named: it is not modern, not particularly about money, and not really a theory. It is simply a description of how money works. When a commercial bank makes a loan, it doesn't lend out depositors' money—it creates new money by crediting two accounts. In the same way, when the government spends, the Bank of England credits the necessary accounts; it doesn't check for existing balances first. By law, the Bank must make those payments. Later, the government may issue Treasury bills or bonds, but that is a policy choice, not a funding necessity. Taxes do not fund spending—they withdraw money to control inflation and help give state money its value. The real constraint is not finance but real resources, particularly labour. The UK is far from full employment. Under-employment, ill health, and weak investment mean we have enormous unused capacity.
Government spending, I said, is never lost. It becomes someone else's income, generating tax flows and further spending. If it is directed wisely—on the NHS, for instance—it can return more to the Treasury than it cost. MMT shows that money should liberate an economy, not constrain it. It applies to any country that issues its own currency, has a central bank, and borrows in that currency, as the UK does.
On Liz Truss, I said her “mini-Budget” was incompetent and regressive, but she did not actually crash the markets. The turmoil was triggered the day before by the Bank of England's announcement of quantitative tightening—the decision to sell government bonds back to the market just as investors wanted safer assets, not fewer. Pension funds that had been geared to quantitative easing panicked, and that liquidity crisis pulled Truss down. The Bank caused the crisis, but she was still inept.
We then discussed another Bank of England policy: paying full base-rate interest on hundreds of billions of pounds of commercial bank reserves created during QE. I argued that this was an unjustified subsidy to banks—over £40 billion a year at current rates. The Bank could pay a lower rate on most of those balances and still manage interest rates effectively, saving perhaps £20 billion annually—money that could transform public services.
Zach asked me what a “new paradigm” for the economy might look like. I described what I call the “politics of care.” I first explored it in The Courageous State and later in The Joy of Tax. It means putting people at the centre of policy—building an economy that frees them from fear. Right now, people are frightened of ill health, insecure work, poor pensions, unaffordable housing, failing education, and the climate crisis. We need to rebuild a welfare state that restores that post-war ideal of freedom from fear, with full employment for those who want work, decent benefits, and strong public services.
Zach said that much of what I described sounded like the Green Party's vision of “people and planet,” and we agreed that the challenge was not just policy but communication. It is difficult to explain these counterintuitive ideas when decades of neoliberal framing have made the wrong story sound like common sense. I acknowledged that and said that was why I keep writing my blog and recording daily videos—to create a counter-narrative that makes economic reality comprehensible again.
We then discussed taxing wealth. I said that the wealthy are drastically under-taxed, but that a broad annual wealth tax is the hardest and least effective place to start. I have shown in my Taxing Wealth report that the overall rate of tax falls as people get richer. There are simpler, more powerful reforms: align capital gains with income tax, reintroduce an investment-income surcharge equivalent to national insurance, apply VAT to many financial services bought only by the wealthy, and raise corporation tax to a sensible level. Together, these could raise £90 billion a year with minimal new administration—more than any plausible wealth tax could achieve. The principle is simple: go for the easy wins first.
From there, we turned to power. Zach asked whether governments really had to “worry about the bond markets.” I said no. Gilts are simply safe deposit accounts for large institutions—mainly the Bank of England itself, pension funds, insurers, and foreign central banks. They need those deposits more than the government needs them. The UK, with its own currency, can always pay its debts. If yields rise, the government can issue different maturities—or, if necessary, borrow directly from the Bank of England. The story that “the markets” control democratic governments is a myth cultivated by those who profit from it.
Finally, Zach raised a universal basic income. Within MMT circles, many prefer a job-guarantee scheme as an automatic stabiliser, but I am sceptical of both. A job guarantee feels authoritarian; a UBI large enough to matter would require very high tax rates and could destabilise the system. I prefer to start with universal basic services—free access to essentials like health, education, transport, and care. Once people experience that security, we can discuss additional cash guarantees later. Economic change, I said, must be sequenced and narrated carefully: take people with you, don't overwhelm them.
The conversation ended with Zach inviting me back for a second discussion, and I directed listeners to my Funding the Future blog and video channel. Across all the topics—from inflation and deficits to bond markets, taxation, and welfare—the theme was consistent. Money is a tool, not a master. A government that issues its own currency has the power and the duty to mobilise real resources for public purposes. The goal should be to reduce fear, build resilience, and design an economy that works for everyone—not one trapped by myths that make us smaller than we could be.
Comments
When commenting, please take note of this blog's comment policy, which is available here. Contravening this policy will result in comments being deleted before or after initial publication at the editor's sole discretion and without explanation being required or offered.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
It popped up on my feed last night when I was relaxing after work watching gardening stuff. I switched to this other kind of green and very much enjoyed it, from my seat on the Clapham bus. Very clear; Q & A format can help with accessibility. I think I would have grasped many of the ideas had I been new to them & you covered a lot. I hope you record more conversations with Zack.
I have been intrigued by UBI but could not imagine how it could be funded. Universal basic services sounds better. I need to find a dentist!
Thank you.
Just a suggestion. I have a tooth ache I rub some Savlon on my jaw at the point of the tooth ache this reduces the swelling and it no longer a aches. I have been doing this for over 20 years and have not had to go to the dentist.
Well done and thank you Richard – a powerful and useful summary.
I’m monitoring Polanski carefully. However, I know my local Greens and frankly they are well behind on this sort of stuff.
Our ‘Your Party’ discussion group on Tuesday was mostly Greens, and we were critical of the level of understanding of the issues you and Polanski covered. Most seem to have no political nous, basically well-meaning ‘nice people’. I still worry there will be a split in the party between the progressives and the old guard (3 of the MPs maybe?).
Then help bring your local greens up to speed please PSR. At lease point them to here for a fabulous learning resource.
As a pensioner I do not agree with your assertion that modest inflation is healthy. I shall only get poorer if inflation is above the 2% maximum that my private pension will increase by.
Did you chose to take a 2% fixed increase annuity?
Really fascinated by this Richard, thank you. One question, what steps would you take to put the bond market “back in its box”
I have discussed these at length elsewhere. I suggest using ChatGPT to ask my opinion on this issue. I can’t do it again now. Sorry.
This was delightful!
I’m interested in your forecasts for likely down sides of UBI, and relative advantages of universal services. Do you have a handy primer about that? And/or might you and Zack revisit that in part 2?
No, right now, but will consider it.
Did anyone see a leader article in the Times yesterday? With polls showing younger people looking towards the Greens the mainstream media it seems has woken up to the “threat” posed by Polanski. The campaign to discredit him has begun.
Of course…
Having had this whole conversation with family member just a couple of weeks ago, i’m extremely happy this morning after this dropping unexpectedly into my feed.
Thanks
Brilliant Richard & Zack !
For once, I couldn’t resist watching the whole thing this morning.
The problem with taxing wealth is that the ultra-rich are extremely mobile. However, their wealth owns assets, and assets are not mobile. So I have this suggestion, for what it is worth. Perhaps you could pass it along to your policy wonks?
I am going to start saying “we” – by which I mean the government acting on behalf of the British people. We change the law so that income-tax payers are given a Tax Received Certificate. The TRC can then be used to avoid a certain amount of asset tax. For instance:
Suppose I am no-one in particular. I own $2million in assets. I paid $50k in income tax. So I have $50k in TRCs. Say assets are taxed at 2% per annum, payable by the owners. My asset tax is then $40k. I use $40k of my TRCs to avoid that and the remaining $10k can be bought or sold in a secondary market.
Now suppose I am the Duke of Somesuch. I have $200k of TRCs. I own $10billion in UK assets. My asset tax is $200million. I use all my TRC to reduce it and I pay $199,800,000. I may buy TRCs on a secondary market, thereby reducing my tax bill further and producing a direct wealth transfer from the asset-rich to the asset-poor.
The main advantage of the scheme is that everyone is treated exactly the same, so it will be hard for the right wing to argue its unfair on the “poor little billionaires”.
Of course the ultra-rich and their accountants and lawyers will do everything they can to avoid this. A few more suggestions with that in mind:
If a $10 billion asset is declared as being worth $5billion for asset tax, we buy it for $5billion and immediately sell it at a profit. The accountant that reported it gets 1% of the profit generated.
If the owners are genuinely cash-strapped, we accept an IOU payable on their death, up to a reasonable limit.
If the asset tax is not paid in a reasonable time, we buy it for the declared value, minus the owed asset tax and immediately sell it at a profit.
If no owner declares a value for an asset within a reasonable time, we seize it and have it valued and the value is paid in proportion to any owners that can be found.
There you go. Problem solved!
What do you think?
Sorry, but this is utterly implausible – because it is incomrephensible and taxes have to be.
First things first: reform corporation & trust law. Otherwise the Duke will just funnel his units into vehicles and shell companies and HMRC will be two steps behind and zero pounds in the purse. This won’t happen: the system has been designed to preserve old money. 🙁
I know you’re listening Zack. It’s so encouraging to see a politician actually caring about and understanding the political economy. His point about being able to impart and deliver an education, a sound bite that sticks, is so important, something Farage does well, his task is huge but he’s making an impact. Delivering the complexity of what you were discussing to an audience of people who don’t listen or care is the really big challenge and he has to do it in the face of ignorance, hostility and vested interest. Winning over members of the Greens who have neoliberal view points is a challenge in itself and will be interesting to watch. I sincerely hope they were listening with open minds because changing the internal bias, the story you tell yourself, has to be a priority if they are to speak with one voice. Looking forward to further discussion on this shared mission. It’s an encouraging start.
Agreed
Instead of UBI doesn’t a national dividend make more sense?, particularly with regards to rounds of QE, do we really need to be diverting all of it to the banks to stimulate us out of recessions when we could be putting at least some of it directly into peoples pockets (current accounts) instead, we managed to do something similar to that with furlogh during covid so it just seems to me the sort of direction we should consider going and it potentially opens up the topic of conversation further.
Sorry – that makes no sense at all. This is Friedman circa 1970 and profoundly unjust.
I wasn’t thinking of Friedman, I was thinking of combination QE where you can effectively combine the purchase of bonds with directed/targetted helicopter money as a stimulus mechanism instead of just only giving it to the markets, in a similar manner as we did with the ways and means account during covid to get people to stay at home only in that instance we were giving it direct to the business owners instead of to ordinary people.
QE should never be used except as a back stop. There is nothing good about it. And it is utterly inconsistent with MMT. there is no panacea in helicopter money or anything else. Get social security right – not splash cash to all.
I guess what i’m getting at is a kind of fiscal mechanism that eliminates the need for unions to go on strike during inflation to try to secure pay rises to keep parity with price increases that always rise faster than wages, but you also have to factor in supply side effects.
What is wrong with strikes if employers are abusive and seek to keep inflation created profit?
I enjoyed watching your conversation. Absolutely fascinating.
I had a technical question I wondered if it was relevant to the conversation…
When the government issues debt (as you said an account at the Bank of England) does it literally use the money that is deposited into the account at the BoE presumably by an intermediary like a big bank?
Or is it a scenario whereby the BoE becomes “collateralised” (not the right word) and then the BoE gives the gov the money it raised.
The money is created from thin air, no one else is involved but the government and BoE. There are plenty of explanations here. Search Google if not asking fur Richard Murphy’s explanation of money creation.
Dear Richard, is it true to say the government is looking to raise taxes in the autumn budget to curb inflation? Is this the most likely or main reason to raise taxes?
No, in a word. They may be trying to cut the cost of living, but that is different albeit that outcome looks the same.
I’ve seen a number of rationales for the inflation target. I’d offer the links but you know, they’re from economists –
Anne-Marie Brook & Özer Karagedikli & Dean Scrimgeour (2002) ” At very low rates of inflation, including the 0 – 3 per cent range, the growth rate seems to be independent of the inflation rate. But at higher rates of inflation, there is evidence that inflation does significant damage to growth.”
Then there’s Svensson, Lars E.O. (1997) “Money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability.”
Some people have forgotten just how much the inflation rate bounced and flew around in the 60s and 70s, even the early 80s.
And growth was higher.
Just saying…..
also that says nothing of the stark contrast of power imbalance, if i’m retired I just go to the ballot box under the security of anonymity and put a tick in the box of the party that says they are going to continue with the triple lock once every five years, if i’m working I have to pick a fight with my employer at the risk of my job security or convince enough other people we have to down tools.
What a staggeringly selfish view. No wonder we’re in a mess.
As others have said, this was a fascinating listen. Thank you.
Can you tell us how bond vigilantes operate and how an incoming government might best go about making them less effective?
That is on my list
I watched this yesterday, Michael Hudson, Steve Keen and Ann Pettifor. You know all this stuff aready Richard, but readers of this blog may find it useful as yet another way of saying what you are saying, and interesting because of the bigger picture too – what is happening in Africa, and what China is up to.
Speed through the first few minutes, where Mr Hudson struggles with getting heard. Well worth it.
https://www.youtube.com/live/FLAT2Kpn9oM?si=_HsspmVn2WkDX0eS
Dear Richard,
Ive longed to hear this conversation for at least ten years. It’s good to see Zack being so open to MMT.
It will take a while for all 140,000 Green Party members to grasp this narrative.
Thank you.
Very excited.
Bernard Little
Bernard
We can hope!
A very compelling interview. Nice that he let you speak without interrupting and he seemed very engaged and listening. I appreciate your view on the universal basic services as I agree tackling inequality is the first priority and this would level the playing field so to speak. I would argue for also a specific UB not a wide spread UB income, the long term disabled should have one so there standard of living is at the same as those without a disability should be considered. Zac is capturing hearts and hopes, I pray and keep faith Zac does not do a Starmer and massacre it, as Starmer has so done with many hopes when he unfortunately came into power.
Polanski is scaring the establishment because the media are actually allowing him airtime.
He has been on a journey and has said some unfortunate things about the left, but almost overnight he’s transformed the Greens into a force that a lot of people are desperate for, and I hope whatever shape Your Party becomes there is a red-green alliance – there already is in Hackney and some other authorities.
But the Green Party is not a socialist party and is not aligned with the left on issues such as foreign policy.
Polanski also needs to learn from his chat with Richard, on things like wealth taxes, which he hasn’t thought through well so far.