One of the questions most often asked about modern monetary theory is what difference it might make to the management of the economy if it were understood correctly. My suggestion is that the transformation would be radical.
Where we are: a nation of gamblers
At present, the UK economy is being run like a casino. We should not base the national economy on gambling, but we do. That gambling is on:
- Whether stock markets will rise
- What interest rates will be
- What the exchange rate will be
- Whether the government will balance its budget
- What commodity prices will be
- Whether inflation will hit 2% or not
- What the balance of trade might be
This is what those described as having the best brains in the economy do for a living. They gamble.
As a result, it is reporting on this gambling that dominates much of our economic news.
And the government is as heavily involved as the private sector. Almost all of its forecasting and decision-making is based on guessing what these outcomes might be. We are, in effect, used as the stakes. The services we are supplied with are the outcomes, after the House has, of course, taken its share.
Vast numbers of supposedly intelligent people are, then, engaged in betting on whether the government's gambles turn out to be good or not, creaming yet more income off society in the process, adding nothing of value to anyone whilst doing so. Worse, they reduce value by denying their intelligence to the meeting of need, whether in:
- Education
- Care
- Design
- Making things we need
- Managing real risk
- Growing food
- Delivering essential services
This neglect has been devastating.
The alternative
Suppose we did something really different. Suppose we began economic planning. We do not do that now, at least, not in any serious way. In essence, all the government does now is guess the outcomes of others' actions that it thinks are beyond its influence or control. But suppose instead that it decided what it wanted, and presumed that it could, at the very least, change the economic environment so that these things might happen. They would start by asking:
- What have we got?
- What do we need?
- How do we use the power of the state to bridge the gap?
Then, depending on the answers, you would decide what might be required to achieve that outcome. That would mean plans would be required for:
- Innovation
- Invetsment
- Skill creation
- Attracting those who have those abilities if we are short of them
- Enabling those who want to work
- Redirecting effort to where it is needed
- Planning sustainable use of finite resources
- Reducing risk instead of creating it
- Delivering full employment to increase income and reduce dependency
We could do that. Instead of gambling on the outcomes of actions over which it is assumed to have no control, the government could decide the outcomes it wants and plan to have them, rather than leaving them to fate.
The thinking that MMT empowers
This is the economic thinking MMT empowers. At present, our thinking is constrained. Our plans are not just limited; in truth, we don't have them. That is because we think:
- The state is dependent on the private sector and its money.
- It has no money of its own.
- It is, then, constrained by whatever resources the private sector will let it have, and can do nothing about this.
- What the government can do then is limited, and there is no hope of that changing: there is never going to be enough made available to it for anything to change.
- There is, then, no reason to believe in government, not least because all the “clever people” capable of delivering anything are working in the private sector, to whom it must contract all its activities as a result, even if that is costly.
- There is, then, no desire for the government to do well, or any expectation of it. There is no hope. There is just fatalism.
We have to appreciate the following:
- The state can create money.
- Tax does not fund spending.
- The City does not fund government, but does instead use the banking facilities it supplies.
- The state can, using its power to regulate and tax, direct the uses of resources within the economy.
- It is within the power of the state to choose the outcomes it wants for the economy, rather than leaving the market to decide.
Then we could plan the best outcomes.
The possibilities
We could go for full employment.
We could plan to meet need.
We could care.
We could educate.
We could manage the climate transition.
We could create industries that we need for our future.
We could have a fully functioning state, instead of one in terminal decline, as we have now.
The empowerment MMT makes possible
When people ask me what MMT make possible, the answer is this is what makes it possible.
It changes the relationships of power within the economy, largely by making clear that they can be inverted.
It ends the culture of the state being the victim, subject to the vagaries of the market.
It makes clear that the state is the country's powerhouse and that it must be if it is to succeed.
It ends the messaging that the state can only use what the market doesn't want, and instead makes it clear that the state can act on behalf of those who, most especially, get an inadequate share of the votes in the market as they do not have the pounds to stuff in its ballot boxes.
It ends the idea that we should accept our fate.
But most of all, it breaks the whole gambling culture of our economy. This has been the prevailing narrative since Margaret Thatcher delivered the Big Bang in 1986. She made the gambling den of the City of London the epicentre of the economy, and translated its culture into government, leaving everything as if it were a game of chance in which everyone's fate becomes uncertain, except, of course, for those who ran the gambling den itself, who could always be sure to get their rake off.
Reject that idea, and return power to the government, and no longer would parasitic activity and thinking dominate, whether that be the City of London itself, or in the Treasury, or in our politics. Instead, we would be freed to imagine what might be possible, rather than presume it most unlikely to happen because the odds of the market supplying it appear too low to anticipate.
This is what MMT can deliver:
- The understanding of what government is.
- What it can do.
- How it can do it.
- Who can do it on behalf of, and
- The possibility of delivery is real because the resources to determine outcomes belong to the state, and no one else, meaning economic transformation is a possibility.
MMT might just describe how money works. But, rather like the understanding that the Earth revolved around the Sun, rather than the other way round, transformed the way we understood the working of this planet, so does a proper understanding of money do the same. In both cases, we're doing a little more than discussing the true nature of a flow, but such things matter, and getting them right is essential.
Until we do, we have to live in a world where markets rule, and gamblers, quite bizarrely, make the biggest returns because they use us as the stakes in their games of high-stakes poker with our national fortunes.
When we realise that the state can take control, we can instead seek the best possible outcome for everyone. If that is not transformational with regard to economic thinking, I am not sure what ever will be.
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A wonderfully heretical post, made more poignant by the approach of Christmas.
Thanks
Can we have full employment? My back-of-the envelope calculation suggests that the economy must be one sixth larger than it is today. To get there, we need a growth rate of 1.5 per cent a year over 10 years or 3 per cent a year over 5 years.
Can we do it without overloading and collapsing the grid? Can we do it without putting the lights out in the winter? Or for that matter in the summer?
If we put many of those extra people to work on the grid, what do you think might happen? Assuming full employment delivers a static economy without any benefits does seem rather odd. But several of your comments have had that characteristic. Are you here in good faith?
As we wander around the shops at Christmas, drowned in a cacophony of ubiquitous cheesy “Christmas” hits from the likes of Wham or Cliff Richard, never once have I heard a store play the highly appropriate “The Rebel Jesus” by Jackson Browne. I suppose if they did, and the shoppers stopped to listen, it might derail the financial fantasy of modern Christmas gravy train I suppose.
“The state is dependent on the private sector and its money. It has no money of its own.”
This belief chimes in with Stephanie Kelton’s quip that most people believe “money grows on the rich” that money of course being the unit of account and medium of exchange.
This quip made me think what underlies this belief. Would it not be reasonable to argue that human beings have a dual outlook on life that is Communitarian and Libertarian? Is it not the case that the UK is in a mess because the Libertarian outlook has been allowed to dominate. In other words there has been an unhealthy balance between the two outlooks. Was Margaret Thatcher’s 1983 Conservative Conference speech an historic marker that we were now out of balance?
“One of the great debates of our time is about how much of your money should be spent by the State and how much you should keep to spend on your family. Let us never forget this fundamental truth: the State has no source of money other than money which people earn themselves. If the State wishes to spend more it can do so only by borrowing your savings or by taxing you more. It is no good thinking that someone else will pay—that “someone else” is you. There is no such thing as public money; there is only taxpayers’ money.”
https://www.margaretthatcher.org/document%2F105454
It is interesting that the last sentence of the quote from Margaret is substantially true if I’ve understood MMT. “ There is no such thing as public money; there is only taxpayers’ money.” She just left off the bit that the govt creates it and implied that to spend more it needs your money back! How they lie! I remember yuppies talking about “rivers of cash” when the Big Bang opened up the city. Bankers (including the BoE) have a license to print money (the Magic Money Tree). But they only gamble with it and exploit us and each other (via interest bearing loans – only fair though innit!). Whereas, as Richard points out, the govt could spend it to meet our needs rather than feeding it to addicted bankers.
I was struck by your saying we are a nation of gamblers. It occurred to me when reading your earlier post about the BoE Stability report that it is more like we are the poor family of an addicted gambler who has bet his wages and the grocery money and lost and now bets the rent and anything else he owns, leaving the family destitute. I believe this has affected some rich people as well. What worries me is that the govt encourages this and says just gamble safely, without any concern for the bereft families. The coming derivatives crash is truly frightening and now the BoE is acting like the concerned Mum when Dad has bet the house.
A fair alternative description.
I think you will need to explain in more detail what you mean by economic planning.
What does the historical evidence tell us about the outcomes in states with centrally planned economies?
Oh come on, you can do better than that, Andrew. You know full well having a plan for a mixed economy in which the government is a proactive participant is very different from a centrally planned supposedly Marxist state.
Indeed this is what Deng Xiaoping said later after he agreed to martial law being imposed in 1989 which resulted in an unknown number of deaths of Chinese protesters who were objecting to the way he was introducing market capitalism into China:-
“Socialism also involves a market economy, just as capitalism does not do away with government planning. Adopting some market principles is not equivalent to embracing capitalism.”
In other words he couldn’t figure out what the connection of democracy was in the operation of market capitalism in a country!
I think there is benefit in saying that explicitly.
I think most governments do have economic plans of one sort of another. Hardly anyone believes in leaving everything to the market, or non having everything planned centrally. So it is always a question of what targets you hope to achieve and you what steps you take to achieve them. That might be as simple as wanting higher GDP, or higher productivity, or lower inequality, or higher employment, or lower inflation. All rather high level and abstract numbers with relatively little connection to the practical policies that governments can implement. Working out what you can do – whether that is building homes or hospitals, or roads or rail lines, or wind farms, or training doctors and teachers – and that impact that might have is where the attention is needed.
Scrapping the two child benefit cap is a start on addressing the problem of children living in poverty, in one of the richest countries in the world. Investing in early years (like Sure Start did) has significant long term benefits and it a no brainier. Reform of the ludicrous energy market is well overdue. Ditto reform of land taxation and in particular council tax and business rates. There are lots of things a government with a real progressive vision of the future could be doing. And sadly there is little evidence that this Labour government has any intention to do much.
But you could not explain the Starmer / Reeves plan, because there isn’t one.
We agree on the need.
Agreed that the Government can plan its own activity, and it can do so rationally by setting objectives to be achieved and by making choices of means, exactly as an individual might do. In this respect a government is not different from a private individual in terms of human action as von Mises described it.
What it cannot do is central planning on the Soviet model, as this is an attempt to replicate the allocational efficiency predicted by the neo-classical model, which is humanly impossible.
What governments have to understand is that, in planning their own activity, they are participants in a complex system in which processes are non-linear and involve feedbacks.
The neoclassical model is allocationally efficient? Pardon? Are you really saying that?
UK Treasury Economic Planning Meeting Agenda – 2025 (venue Tufton Street)
Top Secret – for eyes of Downing Street, Tufton Street, and Wall Street only.
Decision 1
Should government support people’s health, education, social care, transport, energy and water needs, or subsidise the City of London Derivative Gambling Den?
Decision 2
Should our sovereign government use its sovereign currency to make the rich richer, or deal with the urgent life or death issues affecting the majority of our citizens?
Decision 3
Can we skip Decision 2, citing Stalin, Moscow Mao Tse Tung, Tianmen Square, North Korea etc and hope no one will ask any awkward questions about 1945 and Clement Atlee?
“Economic planning” is NOT a synonym for “Soviet totalitarian state control”. That excuse is well past its “sell-by” date.
Try reading:
Ha-Joon Chang,
23 Things They Don’t Tell You About Capitalism.
Particularly chapter 12: Government can pick the winners.
It’s a good book.
He’s a good guy.
I’ve always believed the stock exchanges and money markets of the world were like casinos, despite the text books trying to persuade us that they fulfilled an essential role in the economy. Introduce the reality of MMT and my long held beliefs are vindicated.
In casinos, it is usually pure gambling since the odds and probabilities are designed to favour the house; the gambler has a negative expectation of success. Studying form is futile because there is no edge to gained by doing so. In the financial markets, things are different because information can give participants a distinct advantage. Nevertheless, profits are never guaranteed, so it is still a form of gambling, often with other people’s money. I mention this because the financiers will always use the defence that they are investors, not gamblers, claiming that any business venture involves an element of risk.
This could be allowed, to some extent, in share markets, but is harder to justify in other markets involving bonds or hedge funds. Share markets are more open to small players and do involve shares in real businesses, representing the capital and assets of those entities. Bonds are mainly gov- backed securities, and are traded almost exclusively by dealers with a view to profit admitting the possibility of loss. Hedge funds are bundles of shares and bonds, traded in much the same way, but on a grander scale. If govs didn’t issue bonds, would dealers and hedge funds exsist in their current form? Arguably not.
MMT shows that govs do not need to issue bonds to raise money, yet do it to help control the supply of money in the economy and provide a safe repository for wealth. Trading these bonds is useful, but not essential to society. Resources used in these activities could find a better use.
If you think about it theoretically the issue of government bonds is potentially a mixed blessing. Buying the bond decreases demand spending the interest on them increases demand!
This is just a test.
Whenever I post, the paragraphs disappear.
Everything appears in one block.
This looks like poor presentation by me.
It isn’t.
But, I do know how to construct a properly punctuated peice.
I promise you, the breaks come out.
On longer pieces I write and edit on something like Apple Notes to know what it looks like. This is a WordPress flaw. Sorry.
It looks as though Zack Polanski is on board with MMT. He makes the following remark in an interview with Laura Kuenssberg on her BBC programme after she challenges him about the amount of money his proposed wealth tax would raise:-
“Challenged that other countries which have implemented similar proposals have found they raised much smaller sums, he said: ‘Whatever you’re going to create from a wealth tax, it’s ultimately about reducing inequality. This isn’t about creating public investment, we can do that anyway, we don’t need to tax the wealthy to do that. This is ultimately about tackling the deep inequality in our society.’ ”
https://www.bbc.co.uk/news/articles/cly2nyz3ed2o
You can catch up with this 19th October interview live through the Laura Kuenssberg Programme archive on BBC iPlayer.
It looks as though this might be Britain’s first political party leader who understands MMT!
It is now being widely reported that he has got MMT, and even that this may be my fault. He retweeted my work for a long time before becoming leader of the Greens, and well before we met.
If it’s your fault, my sincere thanks
I recently read a description of the economy as plumbing:- the central water supply being the source with pipes leading off in various economic directions. The wealthy live nearest to the supply and controls the syphons allowing people further down the pipe line to have drips after the wealthy have filled their swimming pools. You get the idea. The analogy never talked about the toilet which was a missed opportunity in my opinion.
I dealt with that here, in the last couple of days 😉 . Can’t remember which thread but my post included “Bazalgette”, “pipe dream”, “sewage” and “uphill” – and there won’t be too many of those!
Imagine how establishment denial and suppression of the “water flows downhill” theory might affect sewage disposal and water distribution, and who might have a vested interest in that, say around the end of the eighteenth century.
https://www.taxresearch.org.uk/Blog/2025/12/05/is-spend-and-tax-just-the-same-as-tax-and-spend/#comment-1057149
I did read your post Robert and it was a good read, however, it isn’t the one I’m referring to.
Randall Wray recently published a dense—probably why almost no one is talking about it—book plainly titled “Understanding Modern Money Theory: Money and Credit in Capitalist Economies”. It spans everything from the origins of money to the founding of the Bank of England, along with what really defines a capitalist economy.
If I dare suggest (once again, and instead of my previous idea) that you interview him… would that equally qualify as a boring proposal?
I should ask him
“We have to live in a world where markets rule, and gamblers, quite bizarrely, make the biggest returns because they use us as the stakes in their games of high-stakes poker with our national fortunes”.
The framing of the UK economy as being run like a casino is so helpful.
I was introduced recently to the concept of characters in a video game who are controlled by the game’s software, acting in the background but who cannot influence the actual play called Non-Player Characters (NPCs) and I feel that this is the role currently assigned to us.
However there is another game possible in which we can be active players but it is deliberately hidden from us. Again you show that MMT is the key which unlocks these possibilities so thank you.
Off topic but when you bring the roadshow to Liverpool ( !) I agree that we should be more ambitious in welcoming you than offering a bookshop ( excellent as “Books from Nowhere” is) . Might Anfield stadium be available? But even if it has to be Old Trafford I look forward to attending later in the year!
🙂
Let’s see how the test event goes….
MMT economists have constantly warned that treating the macro economy of a nation like a household is disfunctional. The current Labour government’s Fully-Funded Rule is a classic example of this mistreatment. However, many politicians and voters and some MMTer’s don’t really understand the real reason for this disfunction is an issue of cybernetics. It’s simply a matter of not understanding that inputs to a system will return as outputs influencing subsequent action.
It translates first of all in recognising a government can’t control fiscal output because of the varying inputs of the private sector’s spending and saving. When private sector confidence is optimistic private economic activity increases and tax revenue rises and welfare spending falls. The converse is obvious. MMT calls these automatic stabilisers.
What is not obvious, however, is that if government attempts to both gauge these future varying inputs and pre-empt them by raising taxes in order to balance the government’s books like a household this constitutes an “input” to the private sector resulting in less optimism in this sector!
The same cybernetic process can be observed in a Marxist state whether it is purely state capitalist or a mixture of this and market capitalism. There is always the danger that government leaders will make bad decisions affecting the economy and without democracy there will not be the prospect of peaceful cybernetic feedback from the people.
Both of these explanations explain why in the Green Party, for example, Zack Polanski needs to keep people like Grace Blakeley and James Meadway at arm’s length because they don’t appear to understand these cybernetic processes.
Guilty as charged. I have made a career out of gambling on financial markets.
When I started at a US bank in the mid-80s I think there were about 500 of us….. that number is now about 5,000 (although we parted ways 25 years ago).
The purpose of securities dealers is to get money from those that have it to those that need it. It is an important function but has it really changed in those 40 years? It happened quite happily in the 19080s so why those additional 4,500 people? They are all mouths to be fed – and they are fed by a “tax” on the real economy.
Thanks
I’ve just been watching Stephanie Kelton talking to Ash Sakar.
She talked of separating government spending – using MMT to make the deficit not a control on spending and to use that spending for social ends from taxation policy. In this way she suggested we do not need to pursue “difficult” taxation policies such as taxing wealth .
Taking this to us extreme there would be no need for tax at all. Is that the correct conclusion? If not what is the need for tax?
She seemed to allow for the possibility that a change in the balance of taxation could reduce wealth inequality. That assumes that if tax in wealth is increased the money could be redistributed. How would this be if government does not need the tax for its expenditure?
I have to admit that I think you have misunderstood Stephanie, whose postioon in tax (and we hacve talked about this together, a lot) is very close to mine.
Tax is essential.
Tax in wealth is essential to reduce inequality.
There is no way Stephanie would suggest otherwise.
What she did say, I am sure, is tax is not needed to fund spending: it is needed to cointrol inflation.
Thanks Richard, I may have misunderstood, but I sat watching the interview waiting for Ash to ask “If government expenditure can be funded without tax, why do you need tax at all?”
I have my own thoughts about what the answer/s may be, but if you could give me a link to a post you have done addressing this, I would be grateful.
I have written such posts @ thousand times. Please just ask Google to offer you links.
Wouldn’t it be easier if the british government suddenly announced they would accept Gilts as payment of taxes (like with collateral at the central bank) end debt narrative.
Why?
What would the reason be?
Absolutely spot-on. And even though the way central and local government is currently run makes it impossible the British public still expect this to happen – we can tell this by how often people say “they” should be doing X or Y (often not being clear about who the specific “they” is…)
So right now, our authorities are not able to achieve X and Y thanks to the shackles of the household budget analogy and austerity but are still judged by the people as having failed for not doing X and Y. No wonder there is so much dissatisfaction with incumbent politicians.