A commentator on this blog called Jeremy Holmes posted this question yesterday:
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?
First of all, I have to apologise for the amount of time I take up in your day. When I look at our YouTube statistics, I often feel a little shocked, surprised and flattered at the total number of hours people spend watching my channel.
Then, let me turn to your question. The first thing to say is that I think you were a little mean by restricting me to three choices. I would have many more things than that that I wished to undertake on my first day in office, not that this will ever happen, I stress. However, let me restrict myself to five, having noted that the point is not to “implement MMT”, but to use its insights to change how policy is made. I would prioritise the following.
First, I would replace existing fiscal rules with a framework for economic management based on sustainable real resource use, inflation management and a policy of full employment, with a focus on removing artificial constraints on necessary investment.
Second, I would launch a programme of targeted public investment in sustainable energy, energy saving and sustainable transport, housing, health and care, and associated educational needs to mobilise underused capacity and address structural weaknesses in our economy. Call it a Green New Deal, if you like.
Third, I would introduce a job-creation programme targeted at areas with persistent unemployment and underemployment to ensure full employment and support local economies. This would obviously be linked to my second objective.
Fourth, I would reform the relationship between the Treasury and the Bank of England to ensure coordinated fiscal and monetary policy, rather than over-reliance on interest rates. I would initiate reform of central bank reserve account interest payments.
Fifth, I would start a redesign of the tax system to manage inflation, reduce inequality and discourage rent extraction, rather than pretending it funds spending. This would embrace the need for the greater redistribution of income and wealth in our economy.
The objective of all of these is straightforward: they are designed to manage the real economy in the public interest, rather than constraining it with myths about money.
And the next day, I would start reconstructing tax relief for the UK's savings and pension systems to ensure funds are redirected to productive investment within the economy. Tax subsidies to pointless speculation must end.
Will that do?
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Very good, all financial bases covered. We all know the pushback would be enormous “the bond markets”. My stock answer to this is. Bond prices in the secondary market might fall initially due to speculation. Interest paid by the government on these bonds doesn’t change but pension funds who hold these assets will suffer a loss in asset value even if temporary – this was the real concern during the Truss debacle. If the BoE does have to raise interest rates then the cost of new bonds issued would rise. However, with a well-constructed plan in place any immediate rise in rates should only be temporary as market confidence returns. Furthermore, there other factors in play as anyone who’s tracked inflation rates and interest rates over the last 80 years will know. Inflation is always a result of shortages in supply and is temporary. Shoot me down in flames.
I met a Jeremy Holmes who was /is a psychotherapist. I think he spoke at a conference I helped to organise about 15 years ago.. Writes on attachment theory.
I helped at and attended a couple of conferences organised by Confer where he spoke at… but is it the same Jeremy Holmes?
The frightening thing is that, given your energy, you would probably achieve all that! Seriously, though, all of those things are achievable if the government has the will to do them. Why won’t they?
That is the gret unanswered question
This is the only thing I will give the right-wing extremists any credit for – they have the conviction to carry out their policies come what may. Trump does his tariffs and wars despite all sensible objections from the establishment. Truss went full steam ahead with her budget, though she did wobble when the BoE pushed back. Point is, they are not afraid of their convictions, but often the left wing are, though the current government lacks any convictions so it is not really an issue for them. Of course in these cases the policies are absolutely destructive, but the point is they are confident enough to ignore old orthodoxies. The current government is terrified if they differ with received wisdom over a decimal point in the budget.
It’s just such a shame that is only politicians with the will to break with orthodoxy are on the right. Perhaps this will finally start to change. I wonder at what point centrists will finally admit that implementing failed policies leads to failing societies.
‘if the government has the will to do them’
The answer is obvious. We need a govt that does have the will to do them. So a party that is not captured by neoliberalism. So not Tory, Labour or Reform.
Well, I’ll try and answer it like I tried (and failed) yesterday – and concisely.
This country has been led to believe certain things about money presented as facts – such as everything is paid for by taxes (there is no such thing as government money). This leads many to another false conclusion – that all the money there is already exists – it is a closed loop system. Add in prejudices against taxation (no one wants higher taxes apparently), which means that no one really wants improved services. The logic of the lies some of us swallow works against us.
This intellectual/cognitive gelding of our understanding of money and how to solve our problems – even before we do what you have done in this post – to set out how and what you would do as well as thinking about capacities etc., – is I would argue the biggest cognitive barrier to setting us on the road to the politics and economics of Care.
Basically it is fear over money that holds us back. Add in the myths about the power of the market, ‘inward investment’ (someone else will pay not us) etc., and low wage growth and increased personal debt and you’ve a perfect storm of misinformation with which to curtail people and politicians alike.
This country wants so much, but is simply not prepared to pay for it in some way and would rather rob Peter to pay Paul because it has been conditioned to do so by a corrupt political economy. The whole thing is just grotesque. I stand by this opinion whether we agree or not. MMT unlocks fear over Money; money unlocks what we agree are under utilised or new resources.
That’s a brilliant first day Richard. And so understandable for ‘ordinary people'<p>
Might be worth putting it to David Aaranovitch – who does BBC R4 Briefing Room. ‘Just as a thought experiment – is there another way of running the economy?’. He may just bite.
Thanks
Not sure where he gets the idea of a Labour/ Green government from. The Greens are all for collaborative working but there has to be some common ground and similar way of working. Zack has totally ruled out working with Starmer and I can’t see him going into any formal alliance in the way the Lib Dems did. We are a long way off an election but I can’t see Labour recovering and I can see the Greens, SNP and Plaid increasing their vote share and the Lib Dems holding where they are strong.
Sadly, we will be in such a mess by the time we get another election the status quo will not be an option. It would be good to see strong non partisan alliances develop with really thought out policies. The group work is being done and we need people like Richard who can see the wood for the trees, are by choice non partisan and have the time and energy to help. Whatever we now think of Blair, his government did hit the ground running and had some really good policy ideas like Sure Start. Yes, they inherited a better economy, but they also had vision and some political heavyweights. I shouldn’t get nostalgic, but we have lost some really good politicians in the purges exercised by both major parties and this need to only have yes men/women.
I do not see Labour being near any government in the UK soon
Me neither. I’m half expecting the parliamentary Labour party to totally implode after the May elections. Just hopefully not like Your Party! There are decent MPs like Clive Lewis who I have no idea how they are still in the party that would easily belong in the Green Party, and since many know they are going to lose their seats why continue to be loyal? Reform are still too popular for me to want an election yet, but a forced vote for PR followed by an election next year might not be such a bad idea.
If only….
When can you start, professor Murphy?
There will be opposition from the usual suspects, mainly the vested interests of the finance industry, but I’m sure the public will support moves in the directions you suggest.
The benefits will accrue fairly quickly with an uplift in the employment figures, the main driver of economic growth.
Also, no mention(thankfully) of reducing welfare, which is austerity by another name. That too, will also add to growth.
The oft- repeated mantra of all parties is that we cannot do much without growth, yet we seldom see policies which are guaranteed to achieve growth.
Re “Where is the political will?” My theory is that the wealthy and powerful (who make/influence the political decisions) are only interested in their own interests i.e. more wealth and power. I imagine they spend their energy and time thinking how to further their own agenda, outdo their rivals and expand their own wealth and power.
So of course doing anything that benefits society at large is irrelevant to them as it has no benefit for them. Who cares about roads, NHS, railways, education etc, etc when you can just travel by private jets, buy your own island and can pay privately for the rest.
I think we only factor in as a source of cheap labour to provide their services/labour for their corporations.
Cynical? I think this theory chimes with the reality of what we witness regularly by actual and wannabe autocrats, kleptocrats and oligarchs.
A Green New Deal like this would be wonderful! How does the Green Party’s vision of its fiscal policy match up to yours? I suspect it doesn’t.
It does not, as yet
More details of Richard’s plans are contained in his Taxing Wealth Report Summary which I heartily recommend. https://www.taxresearch.org.uk/Blog/downloads/
Since economics is essentially a study of human behaviour and persuading politicians to change their beliefs involves the same animal, I’m re-reading Desmond Morris’ The Naked Ape for the first time in 50 years. Morris recognises the difficulty of changing ingrained beliefs in the face of overwhelming evidence as a basic human characteristic among many adults (chimpanzees behave in exactly this way) but also that some retain the childish trait of wanting to learn everything about everything (which chimpanzees do not). We clearly need to get the MMT message across to a younger audience while they are still willing to accept a new idea and to to target those adults in politics who are less chimp-like.