My old friend, Larry Elliott, is in The Guardian today saying:
To make a real difference, [Burnham and Healey] need to tackle head-on the nostrums of the past four decades. Otherwise they will be for ever in thrall to them.
Top of the list is the idea that the UK government is no different from a household. That means it should match its spending to its income as closely as possible, borrowing prudently and within tightly defined limits. Otherwise it will “max out the nation's credit card” and risk spiralling into unsustainable debt.
This analogy has the benefit of sounding like a statement of the obvious to many voters, but is actually entirely false. There is no such thing as the nation's credit card, and a country that prints its own currency can never “max out” or face bankruptcy in the way an individual can.
The notion that the government is living well beyond its means is convenient for those on the political right who have an aversion to public spending. The reality is that, as John Maynard Keynes once said: “Anything we can actually do we can afford.” It was that mentality that allowed the Attlee government to create the welfare state when debt was running at more than 250% of national income – more than double today's level.
As he concludes:
All credit to Burnham. His analysis of what has gone wrong has clearly rattled his political enemies. Even so, he risks becoming the nearly man of British politics: the prime minister who asked the right questions but failed to come up with the right answers.
Larry is right.
And he does read this blog.
We are on the same hymn sheet.
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‘Have always liked Larry – good to hear that he is speaking up for reality.
A great article for sure and I know he’s your pal but where has he been the last 15 years? I read his articles and he’s never been an advocate of MMT from what I remember. If you read this Larry and I’m wrong humble apologies.
Retirement frees a person’s mind from the previous constraints that their employer imposed.
That explains a lot! Unaware that Larry (still shown as a Guardian journalist) had retired, I emailed him at the Guardian to thank him for his article, adding that more of this from the Guardian would be welcome. He replied with thanks, but I noted ‘freelance’ was now added to his address. However he said he would pass on my message to his colleagues.
Prior to this I had recently emailed several of his Guardian colleagues to express my disappointment that the Guardian – like all other MSM – never questioned the need the impose fiscal rules, but got no replies. Well, at least I tried!
Thank you
You may remember during lockdown giving a zoom talk to ISW. Some of our group took up your ideas immediately whilst others took longer to see the sense in what you were saying. Encouraging everyone I know to at least give your blog a chance has had the desired effect as more and more people are now on board with your ideas. It has not been easy but it has been worthwhile. Without your blog it would have been impossible. Take care
Thank you
🙂 🙂 🙂
Re-framing/Clarifying
1945 UK public debt ≈ £23.5bn (~250% of GDP)
~£23bn sterling-denominated (domestic debt + sterling balances)
→ ~98% ‘risk-free’ debt: no default risk, settleable in the UK’s own currency
~£0.5bn foreign-currency debt (US/Canadian dollar loans)
→ ~2% risky debt
So Attlee could build the welfare state at 250% debt/GDP because the public debt was ~98% ‘risk-free’ debt –– the binding constraint was real resources, not the bond market.
Caveat: “risk-free” means no default risk, not no inflation, FX or convertibility risk
#MMT
This can be stopped with an instruction from the Treasury to convert the BoE’s gilt portfolio to Zero-coupon “consols”.
UK Government Interest Payments – Historical & Forecast | UK-Debt.info
Worth noting, in the light of an earlier post, that Larry was one of the very few Guardian journalists in favour of Brexit. This was probably because he was one of the very few Guardian journalists (or journalists generally!) who understood money and MMT. This must have been very difficult for him given the polarisation of option, and the abusive insults flying around, about Brexit.
Took a look at the BTLs under the article. Some in general agreement and some bullshitters (who for the most part disagree for the sake of disagreeing). JamesValencia was pretty good. CaptainRogers being one of the bullshitters/hairsplitters. Interesting how very quickly people lose sight of the bigger picture.
I see no BTL comments. If I did I would have made one!
About BLOODY time!
Why has it taken him so long to writing about MMT?
Better late than never, I suppose…
Regards,
Chris
The fact that even so well regarded a journalist as Mr Elliot was not free to state such a basic truth until after he came off his employers’s payroll says all we need to know about the tyranny of the established press.
Hello Richard.
“Top of the list is the idea that the UK government is no different from a household. That means it should match its spending to its income as closely as possible, borrowing prudently and within tightly defined limits.”
Within the neoliberal system, what actually is the government’s ‘income’ and how does this align with public understanding of a household’s income?
Household income for many households would, in the main, be earned from working. There may also be rental income, speculative income, etc.
Governments don’t go out to work, in this sense, and I’m not sure how much they rent things out. Usually they’re selling assets off and renting them back, which I don’t think representative of households.
Tax in all forms is considered theft, so I don’t think that aligns with the majority of households either.
Maybe the government provides ‘services’ like defence and protection of property rights, but again it can’t be tax that pays this as all tax is theft. I’m not sure any government departments are subscription service for the public either.
Talking of services, I’m not sure many households spend their income directly on services for other citizens.
Also, households don’t automatically match their spending with taking on more debt. That would just be insane. Are gilts debt or not?
If the government can ‘print’ (create) money, is this its income and how does that align with a household?
Maybe dispelling this ‘the government is like a household’ myth means starting off accepting it and running through it, as it shall falter many times because it is just that; myth.
If society is to regard the government as like a household then comparison must be wider and deeper than ‘you can’t max out your credit card’ no matter how obvious that seems.
To summarise, destroy the analogy by taking it seriously, and it falls apart. I like it.
I wrote to Ollie Dugmore-New Stateman- last night having watched him on Newsnight.
He began with a reference to neoliberal past 40 yrs then began to spout their narrative to explain Burnham’s dilemma.
i kept very simple.
then i offered your name Richard for a further in-depth explanation.
we’ll see how good a journalist he is in chasing down a story that doesn’t fit the mould.
”it is easier to fool someone than convince them they have been fooled.”
Thank you
It was clear that the writer of the editorial on education that appeared alongside had not read Elliott’s piece.
Ollie Dugmore used to be on Police Joe You Tube and he came over then as very radical and progressive. I was quite shocked at how the New Statesman has almost turned him into a neoliberal “respectable” commentator following the Tory/Labour household analogy on BBC Newsnight last night.
I understand the reasoning that we can use our own currency to pay back govt loans, what I don’t understand is: if we rejoined the EU, then our currency would be tied to the Euro. Isn’t that the problem that France has? Why is this issue not in the news, or have I missed it? The question of having your own currency seems to be very important, and yet it’s hardly ever mentioned in the press.
Correct. That is all I can say.
“The question of having your own currency seems to be very important” is indeed correct.
But as I understand it, a country joining the EU does not automatically adopt the euro, but rather says it will do so (at some undefined future date). As currently no time limit is fixed, this can effectively be avoided. ?
My worry is that the EU might change their view on this as experience shows countries opt out.
Agreed. But can it be retrospective?