What if everything you think about money is wrong? And does it matter for the UK economy if it is?
Most people believe governments must tax or borrow before they can spend. That belief shapes every political debate, every austerity programme, and every argument that public services "can't be afforded." But what if that belief is simply false?
In this video, I explain why modern monetary theory (MMT) is forcing a reckoning with economic orthodoxy, and why understanding how money works and how money creation actually functions is essential if we are ever to escape the trap of unnecessary austerity and constrained public investment.
The parallel with Galileo is not accidental. Just as heliocentric astronomy was resisted by those with institutional power to lose, the truth about government spending and fiscal policy is resisted today by politicians, commentators, and economists who cannot afford to admit they were wrong. The cost of that resistance is paid by the rest of us: in underfunded public services, stagnant wages, and a UK economy that fails the majority.
This is economics' Galileo moment. The choice is between a comfortable illusion and the truth.
This is the audio version:
This is the transcript:
I want to talk about Galileo, modern monetary theory, and the question of economic truth. That's because I had a conversation with a journalist this week about changing views on money. He had asked for my help with regard to a training session being run by his organisation on tax, about which I know quite a lot, but I suggested to him that a session on modern monetary theory would be of more use. He said there was no chance of changing the views in his organisation about the way in which money worked. That, he said, would be too difficult to deal with.
His belief is that ideas on money are so entrenched that they cannot be shifted, and his view, I think, does reflect the dominant view about economic narratives at present, that they are fixed and cannot be changed. But that, however, raises questions over whether the truth can overcome economic orthodoxy, and this, of course, was the challenge that Galileo faced. He said that the Earth revolved around the sun when everyone believed that the sun revolved around the Earth. He had to change orthodoxy. So too did those who believed in modern monetary theory. Galileo, of course, won, and that is the starting point for this argument.
History shows that dominant ideas can be overturned. Resistance to change does not make existing beliefs correct. Scientific truth eventually displaced accepted falsehoods in the case of the revolution of the earth, and the same possibility must exist in economics.
What, after all, would've happened if Galileo had not succeeded in changing opinion? False ideas would've remained embedded as accepted truth. Power would've continued to suppress inconvenient facts, and progress would've been delayed or even denied. That is the risk we face in economics today. There is, therefore, a parallel between Galileo and MMT.
MMT challenges deeply embedded beliefs about money. It questions how government spending actually works. It confronts the idea that public finance is constrained like a household, and this creates resistance from those invested in the old story.
The core MMT claim is that government spending creates money. Money is introduced into the economy by state action as a result. This reverses conventional thinking about public finance, which says that tax fund spending: it doesn't, and MMT thinking does make it clear that governments are not financially constrained in the usual way. That is the idea that many people, including the journalist I spoke to, I think, find difficult to accept.
The reality is that taxes do not fund spending, but instead reclaim money from the economy that's previously been spent into it by the government in fulfilment of its democratic mandate to supply the services that we all depend upon. Tax is, in that case, a tool for managing demand and inflation, and that reframes the whole purpose of a state's tax system.
In the process, it challenges the household analogy of government budgeting, and it alters how we think about fiscal policy choices.
The idea is resisted because it overturns familiar narratives and influential voices fear having to admit that they have always been wrong. That I suspect is the biggest reason for resistance to MMT that exists. Institutional power depends on maintaining current beliefs, and that power is pretty strong, and that of MMT is not.
At the moment, the risk is that the media and commentators are reinforcing the orthodox story, and change is threatening their authority and credibility as well. That's why they may be persisting in their refusal to recognise a story that they know is true. There's fear in admitting their previous understanding of money, and it's as strong as that of the politicians and economists. Economic reporting is often presented by those with little training in economics, and they do, as a result, repeat orthodox assumptions. That shapes public understanding in misleading ways, and it blocks meaningful debate on how the economy really works.
The cost of misunderstanding now is, however, very high. Policy decisions are being based on incorrect assumptions. Public services and investment may be unnecessarily constrained, and we may get austerity because the truth is not understood. The economic potential of our economy is, in effect, being limited by false beliefs, and society is going to bear the consequences of those errors.
My belief is that we may be approaching a Galileo moment in economics. The choice is now between truth and comfortable illusion, but that comfortable illusion is now leading to consequences that are themselves so uncomfortable that truth might have to prevail. We might need change that will require willingness to rethink the basic economic assumptions on which all our mainstream thinking is based. As a consequence, those who are trying to shape public opinion on this issue do now have the opportunity to raise questions that might challenge the power of the prevailing narrative.
So, will economic truth displace entrenched orthodoxy, or will fear prevent necessary intellectual change? History suggests change is possible but not guaranteed. The outcome depends on courage and honesty. The stakes are not abstract, but deeply practical. Our economic well-being may well depend on what happens. Understanding money correctly is essential for good policy. Persisting with false ideas carries the risk of a real potential social cost. The Galileo question is now ours to answer; whether we change or not will shape our economic future.
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The truth will come out only restricted by vested interests. Look at how climate change is now acknowledged despite all the anti propaganda by the fossil fuel lobby. Similarly with the genocide in Gaza and Iran when people see what’s going on before their very eyes on their screens.
It is not just that “tax and spend” narratives are treated as customary, commonplace and conventional (and that applies in many strands of political thought on the right and the left, as much as the prevailing neoliberal economic model) but also that they are treated as authoritative, correct, and unchallengeable.
It is a dogma, treated as inherently true and impervious to contrary evidence. So any dissenting view is treated as heretical and laughably wrong.
The really weird thing is that essentially all the central banks agree that MMT is an accurate description of how modern fiat monetary systems work. The typical response to that challenge is to say it doesn’t matter and to ignore it. People are good at rationalising cognitive dissonance.
Is is like the water economists swim in, or the air they breathe. It is taken for granted. They can’t see it, even if it is pointed out.
Agreed
I should add that all manner of pseudoscientific charlatans going against established positions pray Galileo in aid, as some sort of proof that the accepted establishment view is always wrong and that any contrary view must necessarily be right.
The real lesson of Galileo not that that all established views are wrong – they are established for a reason, good or bad – but rather that every view remains provisional and must respond to new evidence and better explanations.
If you can’t do that, it is a matter of ideology and belief – more theology than economics.
Thanks
From what I detect at the moment, the ‘enlightenment’ has been cancelled – we seem to be going backward to an age of what can only be described as some sort of enforced uniform mono-culture of what life should be like, how it should be ordered and who should come first.
The worst of it is, this seems to be a reaction to the over simplified, reductionist version of life Neo-liberalism has portrayed – complexities, dynamics and realities have been ignored and problems have been allowed to build up. Now the answer seems to be to double-down on ignorance.
We are now in an age of un-reason. Thomas Hobbes would recognise the old place as it is now – ‘nasty, brutish and short’. Some of us want boats being pushed back into the sea, societies being wiped out for real estate, and lust for war. In a word, to some humans, Death has become fashionable again, because Neo-liberalism and fascism are essentially Death cults anyway. Neither values life, and that ‘uncaring’ is everywhere at the moment. Some will say that humanity has been forsaken. No – it is WE that have forsaken ourselves at this moment. Forsaken ourselves for what exactly? For lies, deceit, greed, obsequiousness, quick short term rewards, the comforts of ignorance and partiality.
There is a new dawn on the horizon – of course there is – but it is ever distant as we seem to find new infernal ways to delay it. ‘Got to keep going somehow is all I can say.
Much to agree with. Thanks.
“And not through eastern windows only
When daylight comes, comes in the light.
In front the sun climbs slow, how slowly
But westward look, the land is bright.”
Imagine the following conversations, if government ministers had to confess that when they said, “we can’t afford it”, they were lying. ..
Chancellor: Austerity was unnecessary. I could have raised tax allowances in line with inflation. Interest rates could have reflected inflation rather than excessive City profits. Social security could have met genuine needs instead of institutionalising poverty.
Justice Minister: Sorry I lied about why we couldn’t have a fuctioning justice system or legal aid, or jury trials, or a better deal for victims and timely justice.
Health Secretary: I didn’t need to privatise the NHS, or freeze pay. That was just me looking after my rich donors. Sorry your relative died unnecessarily, “we all die eventually”.
Home Secretary: It wasn’t really immigration that was the problem. We just didn’t want to build the houses, or invest in the infrastructure. Sorry about all the hatred, racism and violence that shattered your communities.
Environment Secretary: Sorry about the sewage in the rivers that literally ruined your life. It was neoliberal dogma that caused it, we knew what we were doing, we just didn’t care.
Education Secretary: We could have provided for your child’s special needs. We decided not to, and then lied about it.
Journalists: Sorry we perpetuated the myth of the household analogy, the national debt and balanced budget. We preferred an easy life to telling the truth and doing our jobs properly.
Yes, I can see why its been a long slog getting the truth out there. But the truth will out. 2008 crash, Covid, 2026 war, have all exposed the location of the magic money tree to the general public. They know its there, even if they aren’t yet skilled in aboriculture.
KUTGW!
I like.
Thanks
Rachel Reeves would not do this. I think she really believes what she tells.
The elephant in this particular room is why do we get the politicians we get? We, the people, vote for them. Is it a problem of who will stand up as a candidate? Was Douglas Adams right when he wrote that anyone who wants to be president of the universe is automatically unsuitable for the job? Are the really sensible people all too sensible to put their heads above the parapet? Are the really intelligent people too aware of their own imperfections to have the confidence to put themselves forward? Am I asking too many questions without offering a single answer?
I can imagine being PM
I can imagine doing the job
Would I enjoy it?
No
While we discuss alternative economic models, for those interested in UBI, here’s some thoughts from the brilliant local co-op press, The Bristol Cable about a local green council proposal. Enjoy. (I’m neutral on UBI)
https://thebristolcable.org/2026/04/the-greens-ubi-proposal-doesnt-go-far-enough/
Thank you
Trump has announced a request to Congress for a defence budget of $1.5 trillion and cuts to housing, health and other social programs.
Galileo’s insight only affected the intellectual world-at least to start with. I feel even the Americans will recognise that the old regime is bankrupt. I that politically we will see a Nicolae Ceausescu moment. He went on the balcony to make a speech as he had done many times before and a section of the crowd started to boo. Within a short time it became evident that he had lost control.
I need to write about that budget
The British, and the world, economy has become increasingly enshittified since Thatcher and Reagan started the neoliberal era. We have been in a state of near continuous austerity and increasing inequality since then.
Modern economies cannot operate with a Gini coefficient tending towards 1, that is with all the wealth owned by very few people. That truth was recognised a century ago when Henry Ford paid his workers well so that they could afford to buy the cars that his company made.
With that in mind, it feels like we are reaching a tipping point. It seems to me that people increasingly realise that the falsehoods, “we cannot afford it”, “there is no more money”, seductive though those are, are false. Many people now realise that enshittification and increasing inequality cannot continue.
Whist people may not understand why neoliberal tropes are false they may now be open to alternative explanations. I hope so.
Tim,
It’s also a century since the UK’s general strike which was, in part, triggered by the government moving to cut wages. It’s hard to imagine such staggering ignorance in a government today. Oh, sorry, I’m late. April 1st was on Wednesday.
What was missed by government and big business in 1925/6 was that industry’s employees and their customers were/are the same people. Increased aggregate wages equals increased aggregate sales.
The final trigger for the strike was chancellor of the exchequer Winston Churchill’s decision, made under pressure if I correctly remember what I’ve read, to reinstate the gold standard at a pre-war valuation of the pound which instantly raised the price of coal exports to more than the USA wanted to pay.
Churchill later admitted that he was probably the worst chancellor the UK had ever had. A degree of humility we are unlikely to see in most politicians. RobertJ’s post has it right.
Galileo needed to overcome belief. MMT has to overcome money and hence the ability to wield power. Thus, I am far from sure things can change. Explaining the truth about money has, for me, significantly failed much of the time. The truth deniers seem to see their position of power and wealth being under threat if they acknowledge the truth of MMT’s explanation. It is perhaps that belief that they hold dear which has to be overcome?
Tim – just to note -“we cannot afford it”, “there is no more money”.
These tropes are only ‘seductive’ to those that use them in order to simply hide the truth about money to ensure that it is unevenly distributed because that how their funders want them to portray it. Those who are ‘seduced’ and use these tropes have victims.
The way this bullshit works for victims is that it creates fear over who will pay for it as well as hopelessness. I’ve told the following story before but it is like everything else on this blog worth repeating time and time again.
I work in the public sector. We moan about pay, shrinking budgets and resources, lack of investment daily. But at the end of the day many of us do not want our taxes to go up because many of us think taxes pay for ‘us’ – the very work we moan about. So therefore, many who think tax pays for their work ACCEPT that their budgets and other resources will stay limited because they want their taxes to remain low as well.
It is a perfect circular logic of enshittification.
I mean, you could not make it up could you? This is the low cunning of the unreason that is Neo-liberalism. You make people’s rational self interest actually work against them – what they do. You can imagine what happens in a room of ‘colleagues’ when I attempt to point this out!
Has the LGA ever confronted the government with MMT, the 1866 Credit & Audit Act, what the 1997 Act says about who runs the BoE, the ‘minted’ CBRA and much more? I wonder………………….
I think it would be useful to investigate the change from physical money, pounds shillings and pence (when I was growing up) there was never and idea about “tax payers money”) Money was obvesely made in the royal mint. A narrative is always very useful explaining changes.
The event came as we came off the gold standard via the USA
The change of denomination of the pence made no difference at all
Becoming a fiat currency did and that issue is at the core of MMT
I think MMT will become “conventional wisdom”. Why? Because it is true… and I am foolish enough to think that “the truth will out”.
Having said that, I fear that many on the left will be disappointed if/when MMT is embraced. The economy is still constrained by real resources available and hard choices will have to be made about how to deploy those resources. In addition, if voters (continue to) elect politicians that refuse to raise taxes then delivering the public services we are crying out for will lead to inflation. The things we REALLY need are not being delivered by the private sector so we do need more government spending and we must ALL pay more tax. (yes, the wealthy are undertaxed but the less wealthy will have to pay more, too).
Agreed
I fear that with our MMT assertions we are currently caught between Copernicus and Galileo at the moment. In fact we need a Galileo to come along with irrefutable and forceful evidence to propel the thinking into the main stream. Someone steadfast, confident in themselves, who is prepared to be ridiculed and even ostracised but someone with sufficient public profile to be listened to.
I tentatively believe that Zack Polanski could be this person, with the right team around him.
Richard, as you and John Christensen so clearly explained in your video in January, neoliberalism did not just happen. It was ‘planned, funded, and carefully rolled out over decades’ by the wealthy elite in the US and here, seizing on the monetarist theory developed by Hayek and Friedman and promoting it as a way of making themselves ever more wealthy. When Thatcher and Reagan came to power in 1979/80 they did so by promising to cut public spending, privatise ‘inefficient’ utilities and introduce wide ranging tax cuts which would put more money in everyone’s pockets. They overturned the Keynesian post-war economic model which had been accepted as economic orthodoxy until then, replacing it with a new neoliberal free market orthodoxy, which, as you say, has been imbedded in the minds of economists, politicians, journalists and political commentators ever since. I include myself in this as I have only recently come to understand the truth about how government finance really works since reading your blogs and watching your videos. While all our political parties continued to accept the household budget analogy (and I think even Corbyn’s radical left-wing manifestos in 2017 and 2019 promised to stick to fiscal rules and balance the budget) there was no chance of challenging neoliberalism, but think if Zack Polanski and other Green Party members and supporters, and economists like yourself and Yanis Varoufakis continue to challenge the neoliberal mantra on social media, in articles in the Guardian and New Statesman and on radio and TV (when given the chance) it may bring about the change in thinking that is required.
Corbyn’s budgets were pure neolberalism, whether his supporters like to agree or not
tweeted:
Classic Reversals in History:
Galileo
Sun O Earth |1610 | Telescope | Earth O Sun
Darwin
Design ➔ Life |1859 | Evolution | Life ➔ Design
MMT
Tax ➔ Spend |1971 | Gold out/Fiat in | Spend ➔ Tax
#MMT
MorpheusHumans ➔ Machines |1999 | The Matrix | Machines ➔ Humans
Take the Red Pill, Neo.
Thanks for this great post Richard. Likening the struggle to get MMT accepted as an economic fact to the struggle Galileo had to establish scientific fact is beautifully easy to understand. Why it is so strongly resisted is not so easy to understand. I hope the following comment in response makes sense.
Your post and the comments reminded me of the recent TV programmes exposing the horrors and dangers of Ultra Processed Foods. One ‘victim’ suffering from UPF Addiction Disorder explained that unlike alcohol, tobacco or gambling addictions, food addicts face the additional problem that they cannot abstain from food since it is essential for life (unlike alcohol, tobacco or gambling).
Could it be that, since everyone in society is dependent on money in some way or other in order to live (like food), this is at the root of why so many people – from politicians and media to ordinary people – have such a hard time taking a rational view. It’s easier not to think about the subject of money, for if money is not what we think it is (pots of tax payer pounds), then every time we pay for groceries, housing, services, we have to acknowledge that we currently have no control over where it comes from and how it is used. The resistance you describe in your post is surely based on fear.
Much to agree with
Really enjoyed this one. I do hope we see a shift. What was the thinking in the post WWII world? Was it that we need to rebuild and we’ll worry about recovering costs later? Or was it more of an mmt view then? And e/if MMT gains acceptance, what chance is there of stopping money doing the usual trick of passing through the hands of those that need it until it gets into the pockets of those that don’t? At which point it falls out of sight of any govt (from what I can see).
Thank you.
Post-war governments were not using MMT explicitly, but they behaved in a similar way: they focused on rebuilding, full employment and stability, and worried less about deficits in the short term.
On your second point, you are right. Money will tend to accumulate with the already wealthy unless policy intervenes.
That is why understanding money is not enough. Governments must also use tax, regulation and public services to shape distribution — otherwise inequality will grow.
The poll had this, “Change is possible, but very slow”
But maybe it’s the classic “slowly and then very quickly” as going bankrupt was once described.
success in changing public opinion will depend to some extent on how well the message is taught and by what methods. Comedy and a bit with a dog.
And on the subject of how to get the message across:
With the authority of 16 years spent with the fancy job title ‘Senior Lecturer’ teaching adults the complex technology of radio and TV broadcasting, which gave me some useful insight into how best to explain difficult new concepts to complete beginners, may I humbly suggest the following:
I have watched several of your videos over recent days and on more than one occasion you have used the word ‘overdraught’ as part of your explanation of how money is created out of nothing when the government spends it into existence. I suggest that you stop using this word and simply say something more vague, that the government doesn’t have a current account with the bank of England in the same way you and I do for example. There is no account balance that must be reduced when a payment is made. This last sentence is the most critical point in my opinion.
The problem is that whilst you understand the government overdraught as simply part of the administrative process of government finances, to the general public an overdraught is borrowing, debt that must be repaid with interest. Moreover an overdraught is often seen as a reaction to a short-term funding crisis where expenditure exceeds income and your current account has run out of money! This is the exact opposite of what you are trying to explain and as soon as you use that word I suspect many people will think you are saying something about government borrowing and fail to get your intended message.
The word is overdraft
It describes a loan
That is what happens
There is a loiabn
It uis within structures withi government
It is interest free
Bur let’s not deny reality
Hello Richard, I have no problem accepting your posts on MMT – but I struggle with understanding its’s implications. Does it mean that governments can just provide services without consideration of the ‘cost’? Does this increase in services lead to inflation and increasing bond yields? I would love you focus more on the implications of MMT in your posts.
Andrew
I have done so many times. Start here. https://www.taxresearch.org.uk/Blog/glossary/M/#modern-monetary-theory
Richard