The Guardian published this letter from Caroline Lucas MP and me last night:
Your editorial (9 June) rightly calls for the post-coronavirus economy to be rebuilt in a fairer, labour-intensive and environmentally sustainable way. What wasn't addressed, however, was the crucial question of how such an enormous transition could be paid for.
In the short term, the government's sensible response to the crisis has been to turn on the spending taps, maybe to the tune of £300bn. Expanding this to tackle the climate emergency is made easier by the government's ability to borrow money at negative interest rates. Green quantitative easing could also help, while members of the Green New Deal group have also proposed that private savers' money be used to help fund the green transition by changing the rules on Isas and pensions, so that some of the £170bn saved annually in such accounts and pensions might be invested in government-backed green bonds.
In addition, over time there will also be higher tax takes from the industries and workers newly involved in such an enormous programme that will help pay for it. The green new deal can be paid for, but the government must pump-prime the process, and all political parties should support such a move.
Caroline Lucas MP
Green party
Prof Richard Murphy
City, University of London
The back up data is here and the report linked in that post.
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Good stuff and well done.
Why is the acronym MMT not used here? We wonder why people don’t know about MMT but here you hide behind such things as ‘borrowing’ and government backed bonds. I worry that the first people to openly embrace MMT will be the Tory Party but they’ll use it for all the wrong reasons to further enrich their own kind. Then the Labour Party will look up in surprise and say, ‘you never told us we could do that!’
I would put my money on the GND not happening.
Much of the politics here are around Ann Pettifor, who is doing her utmost to make the delivery of the GND as hard as possible
I admit I have now decided to move on from that
But when this report was written we were still trying to accommodate her nonsensical and blatantly false positions
But that makes it very hard for someone like Caroline
And as a matter of fact, what I have written about is a form of private caoital lending that could be used. Let’s not pretend otherwise
Out of interest, what is Caroline’s position on MMT?
Interested
I really don’t get it Richard – this letter goes completely against your post of 13 Jun: https://www.taxresearch.org.uk/Blog/2020/06/13/the-old-and-new-economic-orders/.
What has happened to the MMT approach? And the sterling effort in the Twitter debate with John Weeks… and now this? What’s gone wrong? MMT need you, and need you to be consitent, this is a backward step, sorry. Caroline Lucas may not be a fan of MMT – I’ve yet to see any sign of it, but Lorna Slater (co-leader Scottish Greens) is MMT savvy and attended a talk with Bill Mitchell last year in Edinburgh – perhaps Lorna could assist in getting some alignment? If the Greens don’t get MMT they’ll never get anywhere.
It’s not the slightest bit inconsistent with that I posted
To presume that the only source of capital is the state is wrong
Funds saved need not be useless – although most are
It is entirely possible for private savings to be used as capital – and that is exactly what we are arguing, and exactly how we are using the tax system should be used to assist this possibility, which is wholly MMT compliant
I admit we have had massive problems with Ann Pettifor in the GND group
But I am not being inconsistent for a moment – there is a chance to use pension and ISA funds for public purpose and why shouldn’t we use the tax incentive – which MMT recognises an entirely valid reason for tax – for this purpose?
I stress, MMT is absolutely critical, but it does not mean the microeconomy ceases to exist
The problem is your end in not getting this
Please don’t think MMT is the solution to all issues – because it does in very many macroeconomic ways keep yourself open to microeconomic possibility to assist macro aims and when people want to and will save what is wrong with using that saving for public purpose?
The government is not borrowing and does not need to borrow from wealthy corporations, businesses or individuals. When these three groups buy bonds, they are stashing their extra cash in the safest deposit account in the land, the Bank of England/Government deposit account. They are happy to do this, even to be charged to do this, because of the instability of the stock market.
Taxes are not required for government expenditure, they are required for reducing inflation and for social engineering. Tax the rich, if you don’t there will be negative consequences for society, ably demonstrated by the last 40 years of British neoliberalism, the inequality it has caused and the reduction in life expectancy that has resulted.
Concurrently, my bank has also just announced a reduction on interest for my savings because, clearly, my function is to spend.
I agree the government does not need to borrow – but it will want to, nonetheless – because the government does need to borrow to control interest rates
Would you want them to lose that control? If so, why?
Surely interest rates are controlled by the Bank of England/The Government? When the Government/Bank of England receives deposits in its savings account (bonds – I do not like to call this borrowing because language matters), why does this control their decisions on interest rates?
It controls what is offered to the depositor
The depositor can take it or leave it
But if they leave it the gov’t now has the means to change the rules of the game
And so it controls it
Great letter.
Is there any chance, Richard, of a post setting out the relationship between MMT and the Green New Deal, which addresses your difference with Ann Pettifor?
Or would that be inappropriately stirring up a hornet’s nest?
Possibly…
But the summary is simply
Ann believes MMT says everything it does not
And does not believe it says anything it does
And that makes it very hard to reason with her
She perpetually argues for what looks like MMT and absolutely denies what MMT says
It makes it very hard to progress
Thanks for your honesty Richard. I suppose the wagon can only go as fast as the slowest horse.
“…higher tax takes from the industries and workers newly involved in such an enormous programme that will help pay for it.”
I’m confused – I thought the whole point of MMT is that countries with control over their own currencies did not have to resort to taxation to pay for things, and that there were other reasons to tax.
Does the above statement not promote the very idea that MMT has tried to challenge and overturn, and leaves us open to the other way of paying for things through austerity and the consequent and ideologically-driven destruction of the lives of the most imperilled in society?
As a matter of fact to control inflation large scale public spending will require extra tax to control inflation risk
The point made is that this will happen
Ignoring that as a means to respond to those who say that money creation will always be inflationary is important I think
Why isn’t it?
Would IU have written it quite like that as sole signatory? No….but it’s not wrong: there will be more tax p[aid and that’s important to make sure that there is the means to invest without creating inflation
I must agree with Rod Whites message.
There can be no green new deal without MMT framing.
I know playing politics is hard when those whose life work has been based around neoliberal framing of economics, are holding it in higher regards than the future of our planet. But, you need to keep plugging away. The key damage in your letter is this:
“……made easier by the government’s ability to borrow money at negative interest rates.”
Any armchair economist who thinks of the government finances as a household, will compare this ‘borrow at negative interest’ to the introductory offers given to us by banks in order to get us to take up a loan. And we all know what happens afterwards, with them jacking up the interest rates in the future!. Kind of deal we all have learned to steer clear of. Of course, in the context of government spending, its all bollocks! But, there’s enough brainwashed people out there who will vote against it.
The government can borrow at negative interest rates
Let’s not pretend otherwise
And MMT says controlling interest rates at or around zero is fundamental
And it says that there are good reasons for debt to exist to control that rate
So this framing is MMT consistent in my opinion
The government need not borrow but it sure as heck will
But there will also be private sector funding too, and that’s why we argue for other mechanisms as well
I do not think this is MMT inconsistent – and maintaining low rates is also MMT consistent
I agree with the broadest approach of what is possible, not only in terms of ‘money’ but also public perception. Get the public on board and satisfy them of the economic case as best that can be understood, then progress can be made.
That’s the argument…
Good work Richard (and Caroline)
My sense is that this needs something of a gradual, ‘nudge’ strategy. MMT is a red rag to a bull for too many people and we are a long way from getting acceptance from even a small group of those with influence or power. This is even though QE in very large doses seems acceptable for tactical interventions and for me at least, is money creation and so an example of MMT in all but name.
Also as you say, MMT is not the whole story – tax rises and effective tax gathering, changes to ISAs and pensions, green bonds and conventional borrowing are all reasonable tools to be deployed, with or without MMT and go a very long way towards funding what is required. They are more likely to be ‘open doors’ so it seems sensible to me to push them open whilst continuing to chip away at the arguments for MMT and maybe its acceptable flavours’ like QE.
After all, MMT is just a means – it is not an end in itself
I agree
And MMT is about an aspect of macro policy but does not then say everything must be government-funded out of money creation
“As a matter of fact to control inflation large scale public spending will require extra tax to control inflation risk”
Are you absolutely sure about that or is it something you *think* will happen ?
Have the Japanese raised taxation in the last 20 years ?
There’s nare a stream in Japan without a brand sparkly new bridge built on it, under 3% unemployment and inflation in Japan remains stubbornly under 1%.
“Spending causes inflation” is a neo-liberal trope.
I’d go as far as to say that you could increase the UK zero rate band to £36k and you’d see no inflation at all.
Lots of growth! But no inflation.
We live in a post-scarcity world. Higher demand cannot cause inflation.
Only lack of supply can cause inflation.
Raising tax is not just about raising rates
Raising tax means that the people the GND will pout to work at good rates of pay will pay more tax than they would otherwise have done
WHich is exactly what I am referring to
You reveal your lack of credibility with your claim on the zero rate band
And the fact that you think spending cannot cause inflation – MMT is absolutely certain that it can
In contrast to the letter, I think government borrowing via issue of bonds is not a possible way to provide net fiscal stimulus, green or otherwise. If, as is typically the case, bonds are not bought using newly issued credit, all the bond sales can achieve is transfer of funds from the private sector to the public sector. This is the lesson of Japan’s failed attempts (apparent attempts?) at fiscal stimulus over decades. See prof Richard Werner’s several works on macroeconomics, effectively a version of MMT, plus the enjoyable “Princes of the Yen” documentary. So mention of MMT is in fact very necessary.
Are you saying there is no private capital that can be engaged in the GND?
That’s what this suggestion is about
Are you saying that is nit possible?
Why?
Ann Pettifor is participating in this webinar this Thursday 18th June with Joseph Stiglitz:
Capitalism after COVID: What next for the global economy?
“The coronavirus pandemic has shaken the foundations of global capitalism.
What might be the long-term impact on the world’s economy? Are we facing the end of globalisation as we know it? And what are the prospects for emerging from the crisis with a fairer and more sustainable economic system?”
https://us02web.zoom.us/webinar/register/7515918897831/WN_7DxtdG59QpqY7ml1caKwlQ
Be interesting to hear what they all say