We are heading into an economic crisis on a scale comparable to the aftermath of a World War. Supply chains are fracturing. Energy costs are rising. Shortages of fuel, food, and raw materials are already visible. And the economic framework that has governed the West for the last 45 years - neoliberalism - is not just incapable of managing what is coming. It is designed to make it worse.
This is not an accident. Neoliberalism deliberately keeps people unemployed. That is not a side effect - it is deliberate. Unemployment is how neoliberals control inflation, operating through the relationship between joblessness and interest rates. Neoliberalism, by design, chooses to manage an economy suboptimally.
In a crisis of the scale we are now entering, neoliberalism's response will be to further restrict government action and accept failure by design. Poverty will rise. Unemployment will rise. Real resources will go unused. And people will suffer, not because there is no alternative, but because the dominant ideology refuses to see one.
The alternative exists. It is modern monetary theory, or MMT, and what MMT tells us is this: money is not a constraint on government action if the real resources exist to achieve the goals we need to fulfil. A sovereign government that issues its own currency can always spend to the limit where full employment is reached.
The question is never "can we afford it?" The question is always "Do we have the real resources - the workers, the materials, the capacity - to achieve it?" If we have, an MMT approach says action should be taken, and the money to fund it will always be available, as will be the taxation to balance any inflationary consequences.
As a consequence, an MMT economy will, by trying to put all available resources to use, always deliver better outcomes for people than a neoliberal economy can in any situation and will most definitely do so now. That is a simple, straightforward statement of fact.
In a World War-level economic crisis, the question of which economic framework guides government policy best is not academic. It is about which system has the best chance of delivering an economy where people live free from fear.
In this video, I explain why neoliberalism will make the coming crisis worse, and what MMT offers instead, and why the choice between these two frameworks is the most consequential economic decision our society will make.
This is the audio version:
This is the transcript:
We are at this moment in a critical point in history. We are about to suffer what might, in scale, be the equivalent of the aftermath of a world war.
I know we haven't had a world war, but the disruption that is being created by the war by the USA and Israel on Iran, is having the same consequence as a world war.
Supply chains are disrupted. We are going to be short of fuel and energy. We're going to be short of food and other raw materials. We are going to be living in a world of chaos unless we manage our economies appropriately, and at this moment, that means we need to liberate our economic thinking to understand what type of economics might let us manage this situation best.
I'm going to argue in this video that we have a choice between two systems of thinking. One is neoliberal thought, the type of thinking that has dominated the West for the last 45 years, and the other is the type of thought created by modern monetary thinking. They are by no means the same.
Neoliberalism seeks to impose constraints on what is possible within an economy.
Modern monetary theory seeks to maximise the possibilities that are available to us using all the resources available at a point in time.
The consequences are very different economic outcomes, dependent upon the approach we choose.
What do we therefore need to think about, because these two approaches are completely different?
MMT, modern monetary theory, asks a simple question. It asks: “What can we do in our economy given the resources that we have got?”
Neoliberalism asks a very different question. It asks: “What can we afford to do given the limited amount of money that we've got?”
One of these two, modern monetary theory, does then seek to open all the options that are available to us, and the other one seeks to close them down. This is a massive difference of economic approach.
MMT starts with need. It asks the question: “What do people require at this moment, and what must be delivered to ensure that people can live well?” It then looks at the available resources within the economy; that is, people, capital, raw materials, government capacity, institutional and market capacity, and then it seeks to match need to that capacity. It tries to build an economy that actually goes out of its way to ensure that everybody has what they need to survive and hopefully a little bit more as well.
MMT doesn't ignore financial constraints. What it does is recognise that a government that understands how money works can always find the money it needs for whatever is possible within the economy it is managing. Governments can always create their own money, remember. That is a simple, straightforward fact, recognised now across the Western world.
But as a consequence, what MMT makes clear, and which others deny, is that government spending creates the money that is put into circulation in our economy. Taxes come later on. They are not there to fund the government spending. They are there to withdraw money from the economy that the government has spent into it to prevent inflation arising. And therefore, money is not a constraint on action if real resources are available to achieve the goals that a government has identified need to be fulfilled so that people can live free from fear.
Inflation is a constraint inside a modern monetary theory economy. Those who say otherwise have failed to understand MMT. MMT does not want inflation. What it recognises is that the government can spend to the point of full employment and the sustainable use of resources, but thereafter it can't because it will create inflation. So there is a balance to be found, as is the case inside a neoliberal economy, but the point I'm going to argue throughout this video is that the place where the MMT economy will find its balance is very different from the point where a neoliberal economy will find its balance.
MMT achieves this in a very simple way. It says that government action can be used to assist the management of the optimal outcomes it wants. It says tax can control inflation. It says that regulation can shape markets. It says that legislation can be used to directly intervene when the government needs to deliver outcomes that are fair and necessary. It focuses on well-being.
Neoliberalism starts from a very different place. It starts with constraints, and these constraints are, by the way, all entirely artificial. They're created by economists. They're created by politicians. What are these constraints about? They're constraints about the limits to taxation and what society will supposedly tolerate, although no one has tested those ideas out. They're constraints on what level of spending they think that society can sustain from government. They argue that there is a limit, although what we can see just from looking across Europe is that the levels of government expenditure vary widely from country to country. So what these constraints are, nobody really knows, and do they really exist? I doubt it.
They claim that there are limits to what level of deficit can be managed by a state, but there's no evidence that this claim is true. Japan is the outlier that has proved that government debt can reach levels way beyond those which are sustained within Europe and the USA, but can survive nonetheless. Those levels of government debt are created from somewhere, and that is by deficit spending.
So, all of these constraints within neoliberalism are there for one reason. They are there to stop government acting, and they recognise that the priority of neoliberal economics is to constrain government and not to meet the needs of populations.
What is more, neoliberal thinking trusts markets to deliver. It accepts that price signals can allocate resources efficiently within an economy, even though poverty can result as a consequence. And it assumes that all consumers are equal, even though very obviously they're not, because wealth allocations are very different right across the economy as a whole. And markets are assumed to be efficient as a result, when all the evidence of history, let alone the last 15 or so years, says precisely otherwise.
The role of government is, as a consequence, deliberately limited within neoliberalism, and it is not within modern monetary theory.
In neoliberalism, it is said that the role of government is to defend the state, to uphold markets, and to prevent extreme poverty, but very little else is permitted.
In contrast, MMT does something else. It says the role of government is to deliver freedom from fear, and action should be taken to the limit of what is necessary to ensure that happens. This is the most important point in the contrast between neoliberals and MMT. Neoliberalism always says that constraints must apply. In MMT the constraint is said to be created by real resources.
But there's another point to note as well. Neoliberals argue that the outcome of thinking in an MMT way will produce an economy that is entirely consistent with that which neoliberalism does anyway produce. They say that neoliberalism does permit the running of deficits. They argue that MMT does the same thing, and they argue that the size of deficit in both cases is constrained by the rate of inflation that is desired by the government that is letting a deficit be run.
So, they argue that if the rate of inflation that is going to be permitted is roughly 3%, a 3% deficit is permitted because the 3% deficit will inject into the economy the money will result in a 3% inflation rate. The argument is a little simplistic. The causations are not direct, but broadly speaking, there's some logic to this. But these neoliberals make a fundamental error of judgment, as do those who try to dismiss MMT.
The point is that a 3% deficit in a neoliberal economy is not the same as a 3% deficit in an MMT economy, and there's good reason for that.
Inside an MMT economy, the opportunity to run the economy at an optimal level will have been taken. In other words, all resources will have been put to use.
In a neoliberal economy, that will not be true. Constraints will have been put upon resource usage. People will have been left deliberately unemployed, because that is neoliberal policy: it is how neoliberals try to control inflation via the interaction between unemployment and interest rates, and as a result, the level of activity in a neoliberal economy will always be lower than that in an MMT economy. That means that the outcome from the two will be fundamentally different.
MMT always creates full employment. That is its goal. Everyone who can work has the chance to do so within an MMT economy. Whether that is done through a policy of full employment, delivering optimal outcomes through fiscal policy, or whether it is done by a job guarantee, doesn't matter. The point is, full employment is always targeted. Resources are always fully used. Output is maximised, and income is maximised not only for individuals but also for the government, of course. What this means as a result is that not only is more income generated and that people are better off in an MMT economy, more tax is collected as well, and if more tax is collected, it is possible therefore to run a bigger government deficit and still meet a deficit target of say, 3%.
The point is, this economy is going to be better for people. It's going to be better for the government. It's going to be better for society. Neoliberal economies are smaller than MMT economies. That is the way the world is. Deficits are not the same in absolute value, then, in MMT economies as neoliberal economies. They may be higher in MMT economies, but they will be no bigger in percentage terms. That difference is what matters.
Neoliberalism chooses to run at below full capacity.
MMT chooses to run at full capacity.
This is the approach that fundamentally differentiates these two worldviews of how we should manage an economy, and that is a fundamental difference.
This matters now. We are at a moment of crisis. This is where I started this video. We are facing the risk of economic breakdown as a consequence of war. Supply chains are broken at present. We haven't got fuel. We haven't got gas. We haven't got food. We aren't going to get the raw materials we need to keep all our production open. We are facing the risk of seriously rising poverty, not just in the UK, but around the world. Markets cannot cope with this situation. We can only survive the crisis to come on the basis of one approach.
Neoliberalism will further restrict government action in a situation like this and accept failure by design.
MMT will instead mobilise resources, put them to use and manage the crisis in a way that helps us get through it.
MMT will ensure that needs are met and the economy keeps functioning despite disruption.
Only MMT thinking can manage the challenges that are about to hit our economy. That is my point. Understanding this difference is, therefore, key. Understanding it will determine the outcomes and our chance of success during the troubled period we're about to face. One path, the MMT path, delivers optimal outcomes. The other, the neoliberal path, will deliver suboptimality. We have to make a choice right now. Right now, we need to go for the best economy we can get. Only MMT can supply it.
That's what I think. But what do you think? Do you disagree? If you do, there's a poll below. Let us have your comments. Please share this video if you like it. I think this is an important issue and one we need to debate, so I'd be appreciative if you did that. Please subscribe to our channel, and if you are so inclined and want to support the work that promotes these ideas, if you'd like to leave a donation, there's a link down below. I'd be very grateful.
Poll:
Loading ...
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!
Neoliberalism engineers global crises deliberately. Read:
The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein
https://amzn.eu/d/fAmspcx
Watch: The Shock Doctrine (ENGLISH) – FULL DOCUMENTARY : The Rise of Disaster Capitalism
https://www.youtube.com/watch?v=aL3XGZ5rreE
Thanks
As ever, this cannot be said often enough. Along with….
‘Neoliberalism chooses to run at below full capacity.
MMT chooses to run at full capacity.’
I think that the ruse with Neo-liberalism here seems to me to ensure that money can be employed for get rich quick chaos driven speculation by markets rather than socially useful ‘real long term investment’.
I came here to say that I very much like the framing of MMT as running the economy at full capacity, but PSR beat me to it. It’s a relatively subtle change in emphasis, but I think with all the money printing criticism that MMT unjustifiably attracts, describing how MMT uses resources more effectively for the entire economy is a nice way to promote the arguments. It shifts the focus from the inputs (spending) to the outputs (productivity). Discussions focussed on maximising productive capacity and taxation (to control inflation) offer a better landscape for discussing MMT amongst a wider audience I would suggest. Anything to avoid immediately falling into the trap of only ever discussing spending , debt and money supply when arguing for MMT.
Thank you
Sorry about that Simon W – it was an early start that’s all.
It is Berlusconi style economics. Budgets don’t matter to me but they do for you. I can cut taxes for my friends and give them state contracts. Problems? What problems. Everything can be solved with more entrepreneur optimism. What politicians like David Cameron called market confidence post 2008 is the same snake oil. The problem facing this ideology is that the public has no confidence. It has been drained and eroded and they will leap onto other snake oil unless they can be guided to spot for themselves the snakes and learn to say no to them. Hungry said no to their snake. We can do them same.
It’s reported that Angela Rayner is going to back the SEND cuts. Then you have Robertson suggesting that ” the welfare budget is out of control, needing to be slashed to pay for defence”.
WWII showed that a state to meet its military needs must control production through it’s own factories etc they did not outsource military production. Imagine the UK saying to Hitler, “I say old chap do you mind sending over the engines we need for our Spitfires”!!!
Take the US today being aggressive against China means they cannot access the rare earth metals to produce the military kit etc.
The world is at a important point, showing that neoliberal “just in time” is potentially fatal.
Look at India, 1bn people are facing serious trouble with heating and energy to run the country. The lack of petro chemicals means that the huge Indian generic medicine industry is about to stop, with massive consequences to our health here in the UK and elsewhere.
It is clear that neoliberalism has utterly failed and must be scrapped. Relying on austerity to “solve problems” is going to be the cause of serious economic failure for the world.
There is a video coming on this theme
Thanks Richard I am dismayed by the continuing focus on the narrative about taxpayers money paying for things we need. I like your focaccia on running the economy at full capacity. This is a very understandable story. Desperately needed.
MMT is true. It is the best description of money there is. Also true that Neoliberalism has failed to deliver decent results for the vast majority of people over the last 40 years… but Neoliberalism was a policy choice, MMT is just a fact of life.
Now, Neoliberals base their policies on wrong assumptions about people and money but I don’t think it correct to compare “a policy” with a “description”.
But the decription enables a very different approach to policy, as I explain.
As a non-economist I am totally – but perhaps naively – persuaded by the MMT argument you and Stephanie Kelton put forward. My wife and I listen to your engaging and persuasive vlogs every morning after breakfast.
My question: you are Chancellor in a forthcoming Labour-Green Party coalition that has just won power. What are the three specific and practical first steps you and your civil service team will instigate to re shape the economy along MMT lines?
I will reply in a blog post, probably in the morning
The UK needs new infrastructure, hospitals, schools, doctors etc which could also be retained in the public sector as assets. The industry sectors involved in these works keep telling us we don’t have enough skilled people and materials may also be an issue. We no longer have freedom of movement of the skills base.
So we don’t appear to have the requirements to spend efficiently and effectively in this area. How do we solve that problem or are we stuck in this loop of political dogma by our failed two party system?
You have identified the real constraint — and it is not money.
The UK does need more infrastructure, healthcare capacity and skills. The claim that “we cannot afford it” is misplaced. The issue is whether we have, or can create, the real resources required.
At present, there are shortages of skilled labour and, at times, materials. But that does not mean we are stuck. It means policy has to be directed at expanding capacity, not suppressing demand.
That requires three things.
First, a sustained programme of training and education, aligned with the sectors where need is greatest. Skills shortages are a policy failure, not an inevitability.
Second, a willingness to use migration policy pragmatically, where domestic capacity cannot be created quickly enough.
Third, a commitment to long-term planning and investment, so that supply chains and production capacity can respond with confidence.
What we have instead is stop–go policy, underinvestment, and a failure to coordinate. That is not an economic necessity; it is a political choice.
So no, we are not stuck. But we do need to shift the focus from “can we afford it?” to “how do we mobilise the resources to do it?”
There are many people who would like to retrain to become skilled workers in many areas. But having to pay £9,000 per year for the privilege, and ending up with a student loan that often increases year after year, is not a good incentive.
Indeed, I would say that it is deliberate, ensuring that workers have to make constant payments, making it harder to save. It’s the same idea with poor countries, giving them loans that required interest payment that can never be repaid. It ensures that the well-off continue to loot those less well off.
We see the same scenario with private finance initiatives and private equity.
And we’re told that capitalism is the best option we have.
It isn’t, and increasinbgly people realise that
But for Trump’s war I would have been landing in Manchester today to attend my nephew’s wedding and meet my sister’s 3 grandchildren for the first time “Displeased” is putting it politely.
I am an immigrant in Australia, I came here in 2004 as part of my wife’s luggage. Australia has a point’s based immigration system. Age and other elements affect your points and we made the required total because my wife’s qualification as a chartered management accountant was on the list of occupations in demand. Now retired in Tasmania, life is a lot more comfortable than I expect it would be had we stayed in England. That is obviously what immigrants to the UK are hoping to achieve when they apply for a visa.
Further education including apprenticeships and other vocational training is not just an investment for the individual, enabling them to get a better paid job, but also an investment in the future of the whole nation and should therefore be freely available to everybody with the aptitude required and the willingness to do the work. Cutting education spending to balance the budget is pure madness and will take years to correct.
To pre-empt the comment “why should the UK pay for your education so that you can then run off to Australia?” the answer is two-fold: 1) You can’t have it both ways. If you want immigrants you must allow emigrants as well. 2) If you make your country a better place to live with better job prospects, effective public transport and affordable housing that is cheap to keep warm and less than an hour or more’s commute from where the work is then fewer people may want to leave.
Neoliberalism constrains government. Unpacking that statement tells us a lot. Government is elected to represent our interests. If it is constrained then we are being constrained. Our government is using a model that limits us and protects others. That means we aren’t governed, we are colonised.
Totally agree, Richard. Depressingly, the lead story on the BBC and ITV news last night and on breakfast TV this morning was of course Lord Robison’s speech calling for money to be diverted from the welfare budget to boost defence spending, an idea which was of greeted by nods of agreement from the news presenters and not challenged in any way. Made me very angry.
There will be a video coming on this.
So, the Establishment expects people they have at best neglected, and at worst emiserated, to then fight their wars for them? They don’t even show the same wisdom as historical leaders.
Agreed
See tomorrow’s video
I have long been convinced of the logic of MMT economic approach after reading post Keynsians like Minsky etc, but only on a within country basis. If government debt is owed only to its own citizens then it hardly needs to be considered as debt under MMT. But when government debt is to foreign based investors the tax cycle is broken and the risk of inflation is higher. When looking at economic stats i always think this position is important eg French debt might be similar to UK but they are better placed as more of it is domestically owned. In the present circumstances if UK moved towards MMT it could be dangerous in an otherwise neoliberal world. Do you agree?
I think you are identifying an issue, but not quite framing it correctly.
The distinction between domestic and foreign holders of government debt is not about solvency. A government that issues its own currency can always meet its obligations in that currency, regardless of who holds the debt.
What does change with foreign ownership is the external dimension.
If interest is paid to overseas investors, there can be an impact on the exchange rate and on the balance of payments. That is a real issue, but it is not the same as saying the “tax cycle is broken” or that inflation risk is inherently higher.
Inflation arises when spending exceeds the real capacity of the economy. Foreign ownership of debt might influence currency movements, which can feed into import prices, but that is an indirect effect, not a fundamental constraint.
I would also question the implication that moving “towards MMT” is a policy choice that can be made or avoided. MMT describes how the system already operates. The real question is how governments choose to use the capacity they already have.
So the UK’s challenge is not that foreign holders make MMT “dangerous”, but that it has external vulnerabilities such as trade dependence, energy imports, and financial openness, that need to be managed alongside domestic policy.
Those are real constraints, but they are economic and political choices, not limits imposed by the monetary system itself.
why are you replying to messages in such detail.. last week you were too busy and too exhausted?
Because I try
Why are you asking?
Great points in general. However. The following is not true imho and I think might upset many MMT:ers.
“MMT starts with need. It asks the question: “What do people require at this moment, and what must be delivered to ensure that people can live well?” It then looks at the available resources within the economy; that is, people, capital, raw materials, government capacity, institutional and market capacity, and then it seeks to match need to that capacity.”
MMT is a theory about money. As you and Steve Keen discussed recently, economists have gone full monetary flows and abandoned the more Lentiov approach of counting infrastructure. Modern monetary theory aficionados and protagonists, despite your wishful thinking above, still want to stick to the more price-signal Hayek space and hand over the bit you are describing above to, let us call it, Modern Resource Theory. Even Steve Keen’s many Ravel models are mostly in units of money.
The new area of MRT is separate from MMT for good reasons (according to those I have talked to): MMT wants to explain how the focus should be taken from money onto resources and this cannot be encompassed within a theory of money. There is nothing to connect money and resources apart from prices and these have no demonstrably logical connection.
The tools of double accounting, prices, budgets, taxes, etc are not appropriate for managing resources. That is why the split is necessary.
Indeed, as I pointed out earlier, Modern resource theory is more akin to the principles of asset management – ISO 55001, than GAAP or valuation principles of assets on the books.
I argue this point in depth here on my blog.
Noted. Thank you
I totally get what Mr Hinton is getting at (and thank you) but let us be clear before we congratulate ourselves on our sagacity: the key public battle ground is STILL over money itself – the myths that all the money there is already exists and all that matters is arguments about what we salami slice the mythological short supply of it into.
This only leads no one getting enough, competing interests (identity politics to fascism) and ‘robbing Peter to pay Paul’ – the concept that someone has to lose somewhere in order that someone somewhere else gets what they need. False choice abounds.
On top of that, you have voters who have been trained to be customers – know what they want – expecting high quality services but low taxes – the equivalent of 2 + 2 = fish (they want it but don’t want to pay for it – even though their taxes do not pay for it anyway). Public sector workers think exactly the same.
The politics of care allow the resource/capacity issue to be realised but make no mistake, the ‘there is no money’ trope needs to be slain as a top priority. Witness the ‘spillovers’ from this – we now have a concocted choice between starving children and defence. This is a new low in my view and utterly repulsive as well as being a damned lie.
Some of us are going to Hell for sure. Those that concocted that are in my view beyond redemption and voluntarily elected not to be a part of humanity. I have to say ‘annoyed’ does not sum up my feelings on this.
I am not at all sure that you are right. Certainly what you are claiming does not follow from my video.
An essential complement to MMT, once the pernicious antisocial ideology of neo-liberalism was discarded, would be continuous central planning. MMT provides the “magic money tree” but there’s no magic resource tree. If we’re missing certain skills we could perhaps acquire them from another country but in practice that tends to be a kind of neo-colonialism – depleting the skills reserve of a poorer place to make up for our on improvidence.
We will have to plan for the provision of the needs of a caring society.
A continuous transparent rolling national plan would need to extend beyond the current parliamentary term anyway (how long to build the capacity to train the specialists that we need?) and the manifesto promises of the competing parties at each general election could be judged in terms of their support for the current plan. If they wanted to change the current pan they’d have to show their alternative plan indicating how the change of direction would be made.
As a plan extends further into the future its uncertainty level grows (even plans for tomorrow have some uncertainty); so the assumptions (we all make assumptions to compensate for our ignorance of the future) underpinning the plans would need in the light of unfolding events to be transparently stated and continually reviewed, along with the plan they support,.
Inevitably many of the underlying assumptions will be wrong (worse still, some of them will be unconscious!) and provision would have to be made in the plans for dealing with the potential effect of errors in those assumptions on whose accuracy critical aspects of the plan would depend.
But once established, such a regime could, I think, provide a much more stable and secure basis for the wellbeing of us all.
Wonderful exposition of MMT in the current economic landscape. Thank you.
I really look forward to the “Lord” Robinson vlog tomorrow. What an excuse for a person he is to proffer to sacrifice the poor and needy, and to make the majority of the population poorer in order that we can arm the nation to the teeth to protect the wealth of the tiny minority. Very big and “noble” of him. Is it any wonder that “Labour” is now a dirty word. Oh and by the way he studied “Economics”, he obviously failed to complete the course!
I almost daily reflect on the thought that Labour cannot get any worse, however it is astounding to be continually reminded that they can and do!
Agreed
Excellent explanation
I am cautiously optimistic when I read “it recognises is that the government can spend to the point of full employment and the sustainable use of resources, but thereafter it can’t because it will create inflation. So there is a balance to be found.”
My worry though is how it will be implemented in practice. I.e. the trust we can have in governments with their own agendas to find this balance. My cynical thinking is that the average politician (right or left) focuses on their ideology over empirical economic evidence and advice, expecially when they can create the money.
It will be imperfect, as is what we have now.
But trying to deliver what is best and allowing for margins of error is a lot better than building in suboptimality by choice and then still failing.
[…] commentator on this blog called Jeremy Holmes posted this question […]