This is the front cover of today's Guardian:
What it makes clear is that some face hunger as a result of increasing poverty in the UK.
Whilst others face literal injustice.
And yet more face social injustice as a result of educational disparities.
And all because of a background of a health system that is still not coping.
But what is the government discussing? They are talking about which very marginal tax rate increases to make, which discussion is anyway (I am quite sure) just a softening up exercise for the claim to be made that there are no acceptable tax increases and so we must have austerity instead.
Our state is failing. The programme with this aim, first put in place by Cameron and Osborne, is now beginning to succeed. The most basic delivery of services is now becoming hard, if not impossible, in the face of demand. And the planned response is, I have no doubt, to make further cuts, even as we face economic meltdown.
And yet this is a country rich in resources.
Everyone could be well fed in this country.
The people to make our courts, schools, healthcare and so much more could be found. They are in this country, now. Many or doing jobs that add little value to society right now because that's the way we organise our economy. We refuse to value what is important to our wellbeing. And the result is hunger, injustice, inequality and failing health.
Which is because we believe that we can only have health care, justice and so much else as mere by product of whatever it might be that the private sector wishes to persuade some to buy even though they really do not need it, whilst refusing to accept that some needs go wholly unfulfilled, we end up with this dire situation.
The pretence that tax pays for public services comes with a cost attached.
The pretence that tax creates injustice for the wealthy that requires that the state be kept small has massive consequences.
The claim that there is such a thing as taxpayers' money and that it is limited in supply imposes rationing on those with greatest need.
And these claims are all fallacies. They are myths propagated by a few to pretend we cannot deliver what is really required in our society.
Despite which many on the left buy into this belief that the state is constrained by a shortage of money from the private sector. Labour did under Corbyn. It still is under Starmer. They too carry responsibility then with their claims that ‘Everything is fully costed' as the world's of many collapse around them.
No wonder I get angry with those who say there isn't enough money when the thing needed to start solving these problems is currently available in almost limitless supply, cost free, given the current state of the economy.
When are we going to accept that fact, for fact it is?
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How would a money creation facility work? Would the Bank of England decide upon a suitable level of money creation? Would there need to be some sort of counterbalance to stop inflation? I.e. reducing the ability of private banks to lend as freely as they currently do? Maybe higher capital to loan ratios?
There are no precise rules
Just as there are;t on interest rates, or tax
The aim is full employment
Money is created for that purpose
The risk of inflation has to be appraised – but is almost non-existent at present (barring a Brexit food supply meltdown)
And the counter balance is tax
If you view economic life through a Sectoral Balances lens then it’s also clear the rules under which nations trade with each other also have to be fair and those rules extend to helping other nations catch up to become economically sustainable as far as this is possible. It’s very obvious human beings are a long way from being fair to each other both within their own countries and between countries.
A major part of this is a dismal failing to understand how money and monetary systems work including Sectoral Balances. So a country like the UK. for example, may have a democracy but monetary illiteracy means there’s little idea how to get much in the way of fairness or sustainability out of it. It obviously doesn’t help either in this direction electing emotionally stunted individuals like Trump and Johnson to be your country’s leader either!
Agreed
I feel I need to read up on inflation more. In my mind, I have quite a simple equation. Money supply and/or real demand for goods can push up inflation, the production of goods counter-balances this. Obviously, the total quantity of goods/services has reduced over the last 6 months (massive supply shock) but the money supply must have stayed roughly the same. Therefore, I expect inflation. But this must be too simplistic.
It is way too inflation
In fact money supply would have crashed but for government lending
And wages are the constraint, in the sense of ‘are there enough?’ or not as indicated by full employment, and goods and services are not, and we have mass unemployment now
And tax cancel money supply
I have done videos on this
Appears general agreement that UK has moved from a weak state status into one that is failing. My sorry is that the disintegration will continue with Brexit, and the worsening trend into the failed state will happen. It is becoming clear that none of our political masters are up to the damaging task. There is a lot of fiddling (both literal and metaphorical) as this particular Rome burns.
Hello Richard.
Part of the problem, it seems to me, is that for all the great blogs you write, the outreach just doesn’t penetrate into society enough.
That isn’t a criticism of yourself. You could hardly do more. You seem to work 24 hours a day, 7 days a week.
What is needed is a network to spread a few, easily digestible, penetrating insights, to the general public. Insights that stick and make the public question and doubt the accepted neoliberal doctrine.
The people with the most personal outreach are celebrities, footballers, actors and musicians.
Some of these people must be progressive. A great many are I would suggest.
It seems to me that the majority of people are under the misconception that the government has no money, and it’s taxation before spending. It’s not that the public don’t want progress, but they don’t believe it’s possible. What the public continually hear from politicians and the media, is that the government must balance its books like a household needs to.
It is around this issue that a clear, truthful, understandable message should be formed, and repeated ad infinitum. To open the collective mind of the public, so to speak, to allow in further progressive understanding.
Maybe ‘progressive influencers’ could be a conduit to make this happen.
I wish I knew the answer to this, but I don’t
I was sketching out an MMT primer over the weekend
How do we break through?
Hi Richard
I’ve also been thinking along similar lines to Gordon. Have you ever approached or considered approaching the makers of current affairs TV programmes or even pitched the idea of a programme or series to someone like Faisal Islam, who could in turn pitch it for you. A topical catchy title like “The real answer to the COVID economic fallout” rather than something with MMT in the title it might also gain more interest?
Alternatively (as much as I dislike the approach) it may be worth considering a crowd funding exercise and then use the same facebook advertising tools that the right-wing use so well, to spread the message via targeted ad-campaigns.
Just some thoughts, but thank you for everything you do.
Thanks Scott
On and offline I am being challenged to do this
I admit I think there is almost no chance of getting such a programme on air…but I have to try
It’s difficult. I wish I had a great answer.
At the risk of seeming flippant, which is not my intent, Marcus Rashford has been in the media a few times for more than footballing reasons.
Maybe you know someone at the Guardian who could put you in touch with him. If Marcus Rashford could take the time to listen to you, then maybe he could be the start point for pushing your MMT primer?
I’m sorry I don’t have a better answer.
I’m not sure I have the right contacts…
We’ve now reached the stage where most mainstream politicians don’t even under history! There we have Joe Biden invoking Franklin Roosevelt’s New Deal without having any real understanding of the monetary mechanics underlying it! Here’s Keynes’s end of 1933 letter to Franklin Roosevelt again in which he says:-
“The object of recovery is to increase the national output and put more men to work…. [A]n increase of output cannot occur unless by the operation of one or other of three factors. Individuals must be induced to spend more out of their existing incomes; or the business world must be induced, either by increased confidence in the prospects or by a lower rate of interest, to create additional current incomes… or public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money…. It is… only from the third factor that we can expect the initial major impulse.”
https://www.bradford-delong.com/2007/07/a-historical-do.html
And yet we get articles like this strongly suggesting that Joe Biden has an economic team that hasn’t got an inkling of what went on in the 1930’s and Second World War in terms of using the monetary system:-
https://theintercept.com/2020/09/01/biden-economic-policy-us-economy/
There really needs to be a New Democracy Movement that ditches all these has-beens and Neoliberal political parties. A movement that puts a very big emphasis on educating voters to understand that they’ll never get away from a primitive democracy until they recognise understanding how their monetary system really works is an integral part of democracy.
Agreed
Education would seem to be the key. What we actually get through the state instead is grooming and it’s there, I would suggest, because it works. Countering that is very difficult, taking advantage as it does of one aspect of the primacy effect to embed misinformation into our worldview. Still, once people believed the sun went round a flat earth so it can be done 🙂 The central banks are our allies at the moment as many of them are openly publicising the fact that banks aren’t the warehouses they’re popularly assumed to be and that money’s created by the press of a keyboard button. I suspect myself this is because they want to see the high street banks done away with and be able to replace them as providers of the money supply but that’s a concern for another day. Right now their authority can be usefully piggy backed on. We’ll no doubt al be aware the BofE’s stated views on the subject can be found by searching for ‘money creation in the modern economy’ but here’s perspectives from other CBs some might not be aware of: Here we’re advised by the Norges Bank, the Bank of Norway, that “When you borrow from a bank, the bank credits your bank account. The deposit — the money — is created by the bank the moment it issues the loan. The bank does not transfer the money from someone else’s bank account or from a vault full of money. The money lent to you by the bank has been created by the bank itself — out of nothing: fiat — let it become. The money created by the bank does not disappear when it leaves your account. If you use it to make a payment, it is just transferred to the recipient’s account. The money is only removed from circulation when someone uses their deposits to repay a bank, as when we make a loan repayment… To sum up: banks create money out of nothing and withdraw it when loans are repaid.”
https://www.norges-bank.no/en/news-events/news-publications/Speeches/2017/2017-04-25-dnva/
Here it’s the ECB’s [European Central Bank] turn to describe how money is created as debt by the privately-owned commercial banks, when they explain: “Commercial banks can also create so-called “inside” money, i.e. bank deposits — this happens every time they issue a new loan. The difference between outside and inside money is that the former is an asset for the economy as a whole, but it is nobody’s liability. Inside money, on the other hand, is named this way because it is backed by private credit: if all the claims held by banks on private debtors were to be settled, the inside money created would be reversed to zero. So, it is one form of currency that is created — and can be reversed — within the private economy.”
https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html
Here’s the German Bundesbank explaining where money comes from, and that banks aren’t intermediaries as popularly imagined, “In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending — ie that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money)”
Does this mean they’re printing banknotes all night and day then? Non, according to France’s BNP Paribas: “Printing banknotes accounts for only a tiny fraction of money creation. There are two different types of money creation. On the one hand, the central bank creates so-called ‘central bank’ money (or ‘high-powered money’, the ‘base money’ or the M0 monetary aggregate), consisting in all issued bills and coins, plus commercial bank reserves with the central bank. This form of money is only exchanged between banks on the interbank market.
On the other hand, banks create scriptural money (non-cash), representing short-term customer deposits included in their liabilities. These deposits are an integral part of money since they are extremely liquid and allow for fast payments. Scriptural money accounts for a greater share of all money creation than fiduciary money.
As for the M3 monetary aggregate (also known as the ‘money supply’ or ‘broad money’), 95% of it is composed of the money that you and I use, meaning the bills and coins in our wallets and the amounts of our demand deposits (checking accounts), our holdings requiring a notice of withdrawal of three month or less (savings accounts) and our term-deposits with a maturity of two years or less. More precisely, the M3 aggregate also includes debt securities with a maturity of less than two years issued by banks, which can be traded on the money market, as well as shares in money mutual funds. But these instruments account for only a small share of the money supply (about 5%). So the money supply consists in a portion of central bank money (bills and coins) and scriptural money, which is by far the larger share. In December 2018, fiduciary money amounted to 1,175 billion euros, scriptural money (short-term customer deposits) totaled 10,541 billion euros, while the total money supply in the eurozone reached 12,638 billion euros.
That is why printing money (or producing fiduciary money) is actually part of money creation, but it is only a small fraction of the whole. Moreover, this form of money creation is mostly offset by the monetary destruction caused by the Eurosystem pulling old bills out of circulation. In 2018, these actions represented 94% of the flow of new bills placed in circulation in the same year, and 83% of the total value of all bills in circulation.
Finally, despite the development of new payment methods (debit cards, contactless payment, e-wallets, etc.), fiduciary money remains deeply ingrained in our habits. Indeed, bills and coins made up 7.5% of broad money (M3) in 1997. Remaining stable since 2015, their proportion reached 9.5% in 2018
https://group.bnpparibas/en/news/money-creation-work
Here’s the Bank of Canada describing not only how money is created for the Canadian govt to spend into the economy but also how the private banks create money from nowhere, both as ‘loans’:
“Private commercial banks also create money — when they purchase newly issued government securities as primary dealers at auctions — by making digital accounting entries on their own balance sheets. The asset side is augmented to reflect the purchase of new securities, and the liability side is augmented to reflect a new deposit in the federal government’s account with the bank.”
“However, it is important to note that money is also created within the private banking system every time the banks extend a new loan, such as a home mortgage or a business loan. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money (see Appendix B). Most of the money in the economy is, in fact, created within the private banking system.”
“A key similarity between money creation in the private banking system and money creation by the Bank of Canada is that both are realized through loans to the Government of Canada and, in the case of private banks, loans to the general public.”
https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201551E
The IMF are getting in on the act too with this relevant paper entitled “Money Creation in Fiat and Digital Currency Systems”: “To support the understanding that banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks’ loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure.”
https://www.imf.org/en/Publications/WP/Issues/2019/12/20/Money-Creation-in-Fiat-and-Digital-Currency-Systems-48843
Pass it on 🙂 Not everyone’s going to be able to get this (more reason not to let just anyone vote, IMO) but some will. Some wars are won by increments, not great battles.
Bill I think this needs more Dre it than its got here
I wonder if this is for Progressive Pulse?
More ‘Dre’? I’m going to guess this is a typo but I’m not sure what for 🙂 It’s excerpted from here anyway
https://www.economania.co.uk/various-authors/where-money-comes-from.htm
‘educating voters’
I would agree that this is what is required, but I doubt it will happen in my lifetime. In the meantime the best we can hope for is a direction of travel. Many economists (right and left) agree that now is the time to spend to create employment and to not worry about borrowing. That is a bit of good news and I hope consensus, no matter how imperfect, continues.
A major impediment to getting the “break through” is that many of the prime “influencers”, like Think Tanks, are, or seem to be, economically illiterate, regard MMT as some weird fringe idea, an embarrassment for any self-respecting “top” economist to be seen taking seriously. They are embedded in and have helped construct and promote the orthodoxy of the past few decades – deficits, debt, bad; tax rises, public spending cuts good; privatisation good, public ownership bad; living beyond our means bad, austerity good medicine and so on.
Several of the usual think tank suspects were telling the Treasury Select Committee that tax rises will be required to “tackle record debt levels” once the recovery is under way and that everyone would have to pay. ( https://www.theguardian.com/business/2020/sep/01/major-tax-rises-needed-to-bring-down-record-debt-levels-sunak-told-recovery-coronavirus)
Increases in VAT and a widening of the basis on which it is levied was a favourite – one of the most regressive taxes which hits the poorest disproportionately hard. No surprise that well-paid “economists” have a liking for VAT, even suggesting it should be applied to food.
A truly radical, MMT-savvy left-of-centre think tank might help. But, to coin a phrase, “how would we pay for it?” And how would it’s thinking gain traction in the mainstream media, given that it would argue against the interests of the oligarchic owners and the plutocrats/kleptocrats who seem to be running this country?
Those think tanks we have do not seem to have economists willing to take any risk
‘MMT’s a cult, don’t you know?’ is the response on the left
And ‘It doesn’t have an answer to the class struggle and power relationships’ is another (which is also complete nonsense, but let’s ignore that
I see little hope of raising the money
I think all it requires is to reset the case. Think-tanks have proved comprehensively that they are a majot part of the problem, not the answer.
The reason they are successful is because major media players allow them to establish the agenda of discourse. They set up any issue by introducing some think-tank lobbyist (because invariably that is what he/she is) as an “authority” on the subject. Think-tanks have no entitelemt to that promotion.
We need a set of rules for think-tanks to be used by regulated broadcast media: the key test would be – who funds them. Anonymous funding should, prima facie exclude them from broadcast access to public opinion formation (because that is the nub of what is actually happening). Known funding could make them accessible – but only by their on-air acknowledgement of the source before interview commences. Where there may be a conflict of interest in the topic being discussed, then the broadcast of the think-tank’s opinion should only be allowed if they accept they will be questioned, first on the protential conflict of interest.
This is deliberately demanding, and will have the result of much reducing the appearance of think-tanks as arbitrarily chosen sources of knowledge. Some of them will disappear, I suspect as a result of the restrictions. Good.
I agree
Robert Harding on Abenomics may offer some lessons……
I’ll take a look
I consider myself an economic theory illiterate. I tried to read Small is Beautiful some years ago and barely made it to the end of chapter two before putting it down, never to be picked up again. I do read your blogs, but a lot of it goes straight over my head and although I know you’ve done some explanatory posts, economic theory 101, as it were, so far, I’ve made excuses not to avail myself of their content. I have the time, the emotional resources and the awareness that I would benefit from understanding how this all works, but it still feels like a “should”, and I have therefore resisted because in my head, economics is really boring. I suspect I am not atypical of the average illiterate….
Based on my own experience, I think trying to educate people on economic theory, and expecting them to engage with it of their own free will is an exercise in futility, to be quite honest. Not that I’m suggesting giving up, merely, that we recognise the challenge and come up with a strategy that works.
I agree with the suggestions that a celebrity might do the trick, though I don’t know any, I’m afraid. Two other things that occurred to me, comedy and comic books. I was thinking that someone like Mark Thomas, if you could get him on board, might be able to make economics amusing whilst informing people, he’s done it with many other topics.
Also, comic books can take a perceived “dreary” subject and make it more approachable. I have a book (As the world burns, fifty things you can do to stay in denial, by Derrick Jensen), on climate change, and keep it out where it can be seen and easily leafed through. I’ve found it far more effective than anything I’ve ever said. There is nothing threatening about a cartoon book and most people don’t expect that reading one will teach them anything, which means they approach it willingly and with an open mind (Not a “should” in sight, lol).
I think that’s really important. Many of us are already struggling with overwhelm. The last thing the average bod wants to do is sit down with an improving book, full of words that they are unfamiliar with, after a rubbish day. There is a reason why tv is so popular with the masses and although I haven’t owned one for twenty years, I’m pretty sure it’s not because they are hoping that any minute now, there’ll be a programme on economics…. That’s why I think it needs to be part of something that people expect to enjoy.
There is a cartoonist called Kate Evans who has done stuff with refugees and various other projects who recently did a crowd funder thing for the publication of a book she wrote, I wonder if something like that might work? Not sure if it’s her thing but I chipped in towards the book so have her email and could ask her. She’s certainly into political activism, so I would have thought she might be open to this though whether she has the time, I have no idea.
Or some young folk to make some cartoon videos for sharing on the interweb, they work well. Short and sweet, because people these days have short attention spans. You have teenagers, can’t you get them or their friends to do something? Or point you at some young people that can, if it’s not their area of expertise. Or all of the above, to ensure maximum reach?
Just my thoughts. Meanwhile, I am going to make an effort to read some of the articles of doom. Thank you for writing them.
I think that’s an interesting idea
But it’s one heck of a challenge to write them…
I think Shadiya comes up with an interesting idea. But for me, people’s decision making is dominated by fear; no amount of understanding can overcome it. The fear – quite probably irrational – of prices spiralling out of control is quite terrifying, especially for people who lived through the 70s.
If one could demonstrate it had worked elsewhere, that can be quite powerful in overcoming fear The Japanese example is quite interesting, but they seem to reject that they are using MMT
You can’t reject that you’re using MMT
MMT describes what you’re doing
And the UK is doing a form of MMT already. £735bn of quantitative easing has not delivered inflation. What more evidence do you want?
I am appalled by this Tory party.
But the Labour party……………………..have no faith in people anymore despite claiming to care.
And they are so thick when it comes to economics, I’m embarrassed to be associated with them.
The last Labour politician who did anything for my family was Clem Atlee. Wilson was an economic illiterate – typical Oxford dunce….sorry Don. He brought a notorious asset stripping carpet bagger (Jim Slater) into his cabinet to advise his stupid Labour Government. It was financialization that started the decline of British industry well before Thatcher got started on her even more stupid policies.
I feel more represented here than by any political party. I just don’t want to know anymore.
From attending political meetings, I’ve found that those who want to help (and also those who oppose) base their involvement on emotions. But when you try to talk about MMT, and the power of sovereign currency to actually solve the problems that upset them, they look at you gone out!!!!
You’d think that they’d realise that the cycle of pain that we are in has a cause and all we have to do is change in order to stop this repetitive self-flagellation.
But like Einstein says about insanity, we just keep to what we have been doing for the last 40+ years even though enough of us know by now that its causing us problems. It is in fact a form of insanity that affects our political classes in particular.
But its also like being in some sort of religious death cult – too many seem to accept the only way out is via a painful end – heavy taxes, austerity, working ’til we drop, increased unfairness, limited opportunity, the destruction of fairly successful social system and of course the end of democracy.
Are witnessing the death of hope?
I hope not…