My old friend, Larry Elliott, wrote this in the Guardian yesterday:
Some things have changed since the long hot summer of 1976. One of the abiding legacies of Britain's shift to the right in the 1970s was the idea that there was no difference between the government and a household when it comes to spending, with the implication that either can go bust if it lives beyond its means. That notion lives on today, with even the most modest of ministerial spending pledges met with the challenge: how are you going to pay for it? If Burnham is serious about rolling back neoliberalism, he needs to start by challenging this entirely wrong-headed idea.
I agree.
I sent him a note of thanks.
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Reading the BTL comments was as depressing as usual, though. Elliot didn’t convince many of them of the correctness of his statement. Sadly, I think it’s going to take a great deal more than a throwaway line at the end of a Guardian Opinion piece to shift the myth. But kudos to him for trying.
Change happens in stages
First they ignore you.
Then they ridicule you.
After that they get very angry.
Then you were right all along.
there were a few comments which , to me, echoed Richard’s ammunition points. Too few and not as many upticks but some progress.
I also looked at the BTL. A great deal of certainty about bonds markets/the role of same. Closed minds/no thinking – which is what one would expect given 46 years of grooming. I see identical attitudes in some of the LinkedIn sites (mostly elec eng and power systems). It is almost as if large numbers of people are no longer even able to question & try to think for themselves – nope what they want is certainty.
Larry was the person who told me long ago (advice repeated by Polly Toynbee, to whom I was then still talking) “Never look below the line; not if you want to stay sane”. I am sure both have stuck to it.
Thanks for reminding me of a great Bowie lyric (no doubt purloined, but it’s the use/context/delivery that makes musical lyrics great): “I don’t want knowledge! I want certainty!!”
I haven’t read the Guardian for years but remembering when I did, I’m not at all surprised by BTL comments from readers on this and other matters.
Good for Mr Elliot. A lone voice of sense in a UK meeja that long ago gave up any pretence at either thinking or asking questions apart from the imbecilic
‘ow yer gonna pay fer it”??
But as was noted in another blog, the gov wants to rein-in independent voices cos it’s losing control of the info’ space. Be interesting to see if any other journalists with Elliot’s standing are willing/able to raise questions and make points that lead to more questions … and an unravelling of what passes for the neo-libtard consensus.
I noticed too, precious few commenters seemed to get that core message. I’m trying to think of ways to communicate this on to people i know, and those i don’t. I’m tempted to call phone in shows often, but i often bottle it for fear of being unable to deal with a challenge. Next time I’m between jobs I’m going to study this more… hopefully soon
Well done that man! I will keep challenging my rag to explore the world of real economics…
I must say, the last 3 days have been some of the most depressing when it comes to seeing how the economy is reported in the majority of the media. All 3 announcements of minor government expenditure (or reduced taxes), have been immediately followed up with the same “how will we pay for it?” question with seemingly even more vigour than ever before!
It’s convinced me that the shadow of Liz Truss and the bond market discipline for any “unfunded” spending is going to accelerate the decline of the economy quicker than I possibly imagined. And I sit here baffled that seemingly nobody is able to see the bizarre circular nature of this so called market discipline! Correct me if I’m wrong, but isn’t it a case that the bond markets are setting the government “debt” interest rates, by betting on the future interest rates of the Bank of England, who themselves set the interest rates, ultimately under control of the government, who are then supposedly restricted by the interest rates that are purely a consequence of the betting on a decision made by an institution under their control?
You get the madness of this
To that end I had a fruitless exchange with a chap on Bluesky who seemed to believe the bond market funded and determined government policy, and that the government money all came from commercial borrowing. I ended up blocking him as he became abusive. Alas there are many such BTL in the Grauniad (shows how old I am).
I, too, was pleased to see that last paragraph in his article.
Given the “household analogy” is so deeply embedded in our thinking perhaps we could challenge it in another way.
My wife is a keen gardener. The level of production is not determined by my ability to pay for the produce – rather, it depends on the skills she has, the time available to do all the tasks and the weather. I will often cook (to allow the gardening to continue) and when we sit down to eat we don’t discuss what price she should pay for the meal…. and the quality would not be improved by her paying more – it depends on the quality of the produce and my skill. We do discuss what needs doing and what our priorities are…. but never about how much we would charge for our time/skill. If we want a better life we both need to upskill not haggle over what my bit is “worth”.
Of course, we are not self sufficient so we do need stuff from outside but our ability to obtain this depends on how good we are as a team in delivering a surplus of vegetables that others might want.
In that sense, our nation is like a household
Thank you
I agree with that paragraph by Larry of course but earlier in the article he says:
“The chancellor may get lucky and be able to pay for higher spending through stronger growth, but with the strait of Hormuz still closed and oil prices creeping up again it would be inadvisable to bank on it. That leaves borrowing more or higher taxes. A bit of extra borrowing may be available while sticking to the fiscal rules but Burnham and Healey have big ambitions and are wary of upsetting the bond markets, which are already charging the government interest rates of 5% to service its debts. Something has to give.
“Healey has floated the idea of war bonds to pay for higher defence spending, but that would be borrowing by a different name. Inevitably, therefore, taxes are going to rise in the autumn budget and the only real questions are: by how much, who pays them and what damage they will cause.”
I can’t reconcile this with challenging neoliberalism but perhaps I’m missing something.
All Larry is doing Marc is describing the orthodoxy that will happen – the behaviour as a result of the artificial constraints we are aware of here. Peter will be robbed to pay Paul – for example look at where the money to pay for bus fares and lower business rates will come from (and some of that is the pure politics of populism – about not giving money to ‘strangers’ for example, which under this new but old broom called Andy Burnham is quite sad and worrying).
Larry then finishes on musing about the artificial constraints that lead to populism and there he is dead right.
What would the difference be?
I suppose we could say that neoliberlaism and – can we call it the MMT view? – are to some extent just both ways of seeing/presenting the same information.
Although I accept that the government is really not like a household, the household analogy does resonate to some extent: the government can’t simply spend without thinking how the newly created money will affect the macroeconomic situation. So although “how will you pay for it” is an unsophisticated response designed to disrupt the government, there is no doubt that some kind of response – increased taxation or bond issue or (shock, horror) real economic growth – will be required in due course. Similarly, government bonds can be thought of government “borrowing” and private sector “saving” at the same time.
If only the media would allow a more grown-up and nuanced discussion rather than stoking up opposition and a poorly-informed and entirely adversarial debate.
I think you are right that there is room for a more nuanced discussion, but I would make one important distinction.
MMT is primarily descriptive. It explains how the monetary system actually works. Neoliberalism is normative. It starts from a set of bbeliefs about how the economy ought to be organised. They are therefore not simply different ways of presenting the same information.
I also agree that government cannot spend without regard to the consequences. The issue is not whether there are constraints, but what those constraints are. They are inflation, resource availability, environmental limits, productivity, and the capacity of the economy—not an arbitrary financial limit.
I would also be careful about saying that increased taxation or bond issuance is necessarily required after spending. They may be appropriate, but for different reasons. Taxation may be needed to control inflation, redistribute income or change behaviour. Bond issuance may be desirable because people want a safe savings vehicle. Neither is required because government has to “pay back” the money it has spent.
So I think the household analogy still misleads because it starts from the wrong premise. A household must obtain money before it can spend. A sovereign government creates the money that the household uses.
I completely agree with your final point. We need a much more mature public debate about these issues. At present, far too much political discussion begins and ends with “How will you pay for it?” when the more important question is, “Can we do it without creating inflation, and will it make society better off?”
“If we keep taxing the people who create the jobs, who generate the growth, we’re not going to have any taxes at all.”
Badenoch says this yet again, and it’s infuriating. She needs to read what you have to say on the matter, Richard.
But she does not want to believe what I say
I too was pleased to read his final paragraph this morning. My gut feeling was that he is trying to pave the way
Getting people to understand the realties outlined in this blog is going to be, as most of us here realise, a long game. The forces ranged against such understanding are formidable and quite capable, as we’ve seen, of overpowering the gov, especially one that hints at adopting ‘socially friendly’ or ‘liberal’ policies.
I think we are past the being ignored stage and well along the road of being ridiculed, but not at the end of that road. It’d be a very brave and honest politician who stuck their heads above the parapet. I haven’t yet seen such a person in national government.
The angry phase might be easier, when it arrives. Angry opponents make very poor debaters because their argument has usually been lost. That is why they are angry and a very good reason why we shouldn’t get angry. Frustrated, yes, but no more than annoyed; it’s bad for your health.
Well, I am stressed. That’s way beyond frustration.
They ridicule because they know they can no longer ignore you but can not defend their position.
Progress – me thinks.