Podcast: Interviewed On Macro & Cheese

Published by Anonymous (not verified) on Sun, 19/05/2019 - 7:55am in



I was interviewed by Steven Grumbine for the Macro & Cheese podcast, discussing Modern Monetary Theory. Link:

Getting all Tied Up (2)

Published by Anonymous (not verified) on Sat, 18/05/2019 - 6:00am in


Economics, Marxism, MMT

This series considers Paul Mason’s “Risks are ‘a Thing’… and so is the Death of Capitalism”, a critique of MMT.

The previous post discussed Mason’s political doubts about tying the Green New Deal to MMT. Although that is evidently an urgent concern, by itself it has little theoretical implications for Marxists. The focus of this and the next posts are the two subheadings “What does MMT say?”, “What’s wrong with MMT?”, where Mason expresses his views on what MMT is.

Before proceeding, disclosure is in order. I claim no expertise on MMT. My level of involvement is that of an experienced hobbyist, which means that I have been following -- as a non-professional observer -- those I call MMT founders for some ten years and reading the material they make freely available online. Occasionally I’ve dwelt in the more strictly academic literature, but only that closely related to Marxist theory. In this sense I’ve written about the relationship between the labour theory of value and fiat money, about difficulties I find in the Kalecki profit equation and about the Confidence Fairy. In particular, I haven’t read the latest MMT texts.

If that more technical literature contradicts what I write here, I appreciate readers letting me know.

Under those two subheadings Mason explains what, in his views, MMT says and where it goes wrong. His largely unfavourable assessment, however, is not my concern.

What concerns me as a Marxist is his claim that MMT has a theory of value. Out of several instances, this is the most elaborate and unequivocal expression of his belief:

“What the MMT-ers have uniquely done is elevate a theory of money into a theory of value: the state, by creating money, creates value. If this were true it would annul all the risks involved in the biggest peacetime borrow-and-spend programme ever attempted. It would also, as we shall explore below, provide a neat way to abolish capitalism without class struggle.”

That startled me because, in all these years following MMT, I’ve never seen any Founder ever making that claim at all, let alone making it “explicit”, as Mason writes somewhere else. Not once. To be clear: maybe individual Founders have their personal theories of value, but I’ve never seen one pointing to a set of theoretical propositions and calling it “The MMT Theory of Value ©”.

Perhaps the best example is Prof. Bill Mitchell, Founder whom I follow more closely. There’s no need to argue he isn’t a neoclassical: that’s evident. He also writes highly of Marx. That shows intellectual integrity. He refuses to pile up on Marx, although it is de rigueur in his milieu. Much more importantly, he is knowledgeable and understands key Marxist notions, including exploitation (see also).

All that must be credited to him. Justice demands Marxists respect him for that. But that doesn’t make a Marxist of him. In fact, I’ve never seen him endorse (or disendorse, for that matter) Marxism, especially its theory of value, or commenting on their compatibility or not with MMT, let alone him calling himself a Marxist. There’s nothing wrong with that, but it makes it risky to associate him with any theory of value.

The lack of a theory of value is not peculiar to MMT, it’s common to all post Keynesianism (larger school of economic thought usually said to include MMT as a branch). More recently things may have changed radically without my knowing it, but by 1998 it was no well-guarded secret that,

“Post Keynesian price theory has no real existence beyond the idiosyncratic writings of various Post Keynesian economists, its various renditions are theoretically incompatible to a lesser or greater degree, and it has not been entirely freed from neoclassical concepts and terminology.”

The author of that quote was the late Prof. Fred Lee, who in life taught at the University of Missouri-Kansas City (one of two/three top MMT academic strongholds).

If I were Mason, I’d give Lee the benefit of the doubt.

The next post shows where Mason took a wrong turn.

A caveat is required. Economist Peter Cooper, PhD, whom I also follow regularly, is extremely qualified and he’s both a Marxist (specifically, a TSSIer) and an MMTer (see also). I don’t want to put words in his mouth, but he seems to believe Marx’s ideas, including his law of value, and MMT are fairly compatible (for what it’s worth, so do I).

That said, he’s what I call an enthusiast, not a Founder. As valuable as his views are, they are not the official MMT stance.


Fairness imposes a correction. There are some economists (which I failed to mention above), generally considered post Keynesians who -- much like Mitchell -- have high views of Marx. Like Mitchell, they also are knowledgeable about Marx’s theories. Normally they describe themselves as Sraffians. Unlike Mitchell, they unambiguously adopt a variation of Marx's theory of value, although it's unclear to me how much more of Marxism they retain. A blogger in this category is Robert Vienneau.

At least a member of this subset, Prof. Matías Vernengo, describes himself as a friendly critic of MMT.


Published by Anonymous (not verified) on Thu, 16/05/2019 - 6:10pm in

Remarks by L. Randall Wray at “The Treaty of Versailles at 100: The Consequences of the Peace”, a conference at the Levy Economics Institute, Bard College, May 3, 2019. I’m going to talk about war, not peace, in relation to … Continue reading →

The post HOW TO PAY FOR THE WAR appeared first on New Economic Perspectives.

ZEN and the Art of Modern Money—Part 3

Published by Anonymous (not verified) on Mon, 13/05/2019 - 6:55pm in

MMT for People in a Hurry By J.D. ALT POST #3  (Post #1, Post #2) OPERATION #2—The federal government buys something big for the collective good. NOTE: A much appreciated comment at Naked Capitalism re: Post#1 suggested that the term … Continue reading →

The post ZEN and the Art of Modern Money—Part 3 appeared first on New Economic Perspectives.

Getting all Tied Up.

Published by Anonymous (not verified) on Thu, 09/05/2019 - 6:34pm in

(right-click to open a larger image in a separate tab)
The big and tiresome MMT versus everybody else punch-up seems to be abating. Finally. Readers may guess the whole thing has left me unimpressed.

But my expectations about the part of the debate involving mainstream economists were low to begin with, so their bit in the debate didn’t surprise me. What surprised me, in the worst possible way, was how awful the MMT/Marxists debate was.

Commenting recently on that, Prof. Bill Mitchell, one of MMT founders, writes that Marxists are getting all tied up on MMT.

As both a Marxist and a sort of MMT sympathiser, I reached the conclusion he is right, unfortunately. But there’s more to that.

That’s why I decided to write this. It wasn’t a decision taken lightly and I suspect I won’t be making new friends in either side. In my opinion, Paul Mason’s “Risks Are ‘a Thing’ and so is the Death of Capitalism” (April 27, Medium), without falling in the gratuitous nastiness I witnessed in both Marxists and MMTers, illustrates that.

I start today a series considering his article.

Mason opens his piece referring to the political inconvenience he sees in “hitching” the American Green New Deal -- which he supports -- to MMT ahead of the 2020 US elections. That shall be the focus of this post.

Our own Australian federal elections could be considered a dress rehearsal for next year American elections, as the Australian Labor Party has included in its platform strong redistributive measures and a more decided effort to control climate change, much like the Democratic Socialists of America intend to do.

Here our unnamed version of the GND is being the target of intense scaremongering from the ruling COALition. But our “GND” has not been hitched to MMT. Instead, it has been premised on raising taxes to pay for the expenses, much to Bill Mitchell’s disapproval.

Based on local experience, to me it’s unclear whether hitching the GND to MMT in the US shall hinder or not. Would a reference to MMT (and a consequent relaxation of “fiscal rectitude”) have weakened Labor’s position or strengthened it?

The organised labour movement, represented locally by the Australian Council of Trade Unions, is strongly behind the Labor campaign, but neither its “GND” component, nor “fiscal rectitude” seem to be determinant. Instead ACTU spokespeople constantly mention as motivation the wage increases Labor promised. The ACTU militancy has the COALition hyperventilating.

Moreover, I’ve only heard of a union branch moving openly against Labor’s climate change action proposals: the CFMEU-QLD (union covering miners). That had nothing to do with large economic concerns (fears of inflation or recession), but with the immediate need for well-paying jobs (which Indian coal mining giant Adani -- surprise, surprise -- has promised to deliver in spades) in a region with high unemployment. (See also)

In Australia MMT would have likely attracted unanimous condemnation from economists, as it did in the US; but the COALition didn’t need that to mount an as strong as fraudulent scare campaign targeting … the upper middle-class and wealthy retirees who see themselves as “battlers”. In fact, the pretext here has been precisely the increased taxation “fiscal rectitude” entails.

(source, image courtesy of George “Nasty Porky Pig” Christensen)
Next posts in this series shall dwell on matters more substantial to Marxists.

Underemployment And The Phillips Curve: Australian Experience

Published by Anonymous (not verified) on Wed, 08/05/2019 - 11:00pm in

The relationship between labour market slack and inflation (typically referred to as the Phillips Curve) is complicated, as it depends upon the structure of economic institutions. The post-1990 era saw labour market reforms that led to widespread underemployment. This article summarises some points from the Modern Monetary Theory (MMT) textbook Macroeconomics by Mitchell, Wray, and Watts (affiliate link). I replicated a chart of Australian data -- which of course meant that I needed to add support for data from the Australian Bureau of Statistics on my research platform.

Unemployment and Inflation
 Australian Inflation and Unemployment RateNote: Unfortunately, the R plot formatting on my new computer is messed up, as can be seen here.
The figure above shows the annual rate of change of CPI inflation in Australia (top panel), and the the (seasonally adjusted) unemployment rate. (Unfortunately, I have been too knee deep in Python to fix my R plot formatting on the new system.)

If we look at the period up until 1990, the behaviour was somewhat as-expected by economic folklore. After 1990, the relationship broke down. CPI inflation was steady as a rock, while the unemployment rate charged up and down in both directions.
 Inflation/Unemployment Rate Scatter PlotWe can see the lack of relationship easier in the above figure, which is a scatter plot. The blue line is the standard linear regression between the two variables; pretty much no relationship.

It is possible to hear a lot of hand-waving explanations about the lack of relationship between inflation and unemployment: central bank inflation-targeting credibility, expectations, etc.
The MMT Textbook TakeOne of the rather foolish complaints about MMT is the lack of formal models. However, the formal approaches don't do particularly well. In this case, there was supposed to be a NAIRU: a level of unemployment at which the inflation rate would accelerate. As discussed in Section 18.5 of Macroeconomics,

This scepticism [about NAIRU] was reinforced because various agencies produced estimates of the natural rate of unemployment that declined steadily throughout the 1990s as the unemployment rate fell (see Figure 18.7 [in the textbook]). As the unemployment rate went below each natural rate estimate (and inflation continued to fall) new estimates of the natural rate were produced, which showed it had fallen further.

 Underemployment Rate In AustraliaYup, formatting still broken.
However, the textbook notes that the structure of the labour market changed in the 1990s. In particular, underemployment rose (above).

This actually rescues a statistical relationship (below).

 Scatter of Underemployment and Inflation in Australia
The textbook argues that this relationship holds up under more sophisticated econometric analysis.

I do not have the time to delve deeper into the MMT analysis of inflation, but these complications that we see in the real world explain the perils faced by formal models: if you ignore concepts like underemployment, the models will break as new regimes are entered.

This is why I am not concerned about the lack of simple models that allegedly "explain MMT": those simple models are useless, so who cares?
Platform Work!I needed the underemployment data from the Australian Bureau of Statistics (ABS), as it is not available at various data aggregators. Unfortunately, I was not able to find the data either on the new ABS SDMX page, so I would have to get them from Excel files.

If I were a more sensible person, perhaps I would have just grabbed the series I needed from the files with a cut and paste operation. However, since I want to add Australian data to my coverage, I bit the bullet and added an expansion to my research platform that parses the excel files.

The pandas numerical library does the heavy lifting (along with the xlrd module), but the challenge is going through the spreadsheets to find the desired series. The series in each table are split into multiple worksheets. My routine does a brute force search: open each Excel file in the data directory, and then iterates through each worksheet, looking for ones that have the correct layout. Not exactly elegant, but more advanced solutions would wait on adding more programming support routines into the platform. Right now, I want to keep new additions to the minimum so that I can do a code base clean up (refactoring).

A minimal interface to SQLite databases is built, but it needs to be beefed up so that it is easier to search for series that are in the database. The list of external providers is now:

  • DB.nomics
  • FRED (St. Louis Fed)
  • CANSIM manual downloaded table (CSV) parsing.
  • Quandl.
  • Australian Bureau of Statistics via Excel. (Very minimal...)

With the ABS statistics added, the only only sources I am likely to add in the near run are the UK and Japanese statistical agencies (if I cannot get the data from DB.nomics). This is to support my quest for international data to beef up my book on recessions. Since the platform functions for me, I will let other development drop to the back burner while I try to finish off my book.

(c) Brian Romanchuk 2019

Bernie and AOC are Functional Finance (and Socialists) but not necessarily MMT

Published by Anonymous (not verified) on Wed, 08/05/2019 - 4:35am in

Might not be MMT, but it isn't Socialism
So there has been a lot written on Modern Money Theory lately. There is this piece by The Economist, Jerry Epstein's paper, and Lance Taylor's one, more on the Democratic Socialist ideas than MMT per se (here). There was also this op-ed by Robert Shiller in the NYTimes, and the two posts by Tom Palley, that I reposted here on the blog. Finally, Christine Lagarde also commented on MMT during the World Bank/IMF Spring Meetings.

I can and I will not comment again on my views on this. As I said before, I'm a fellow traveller in the sense that I do agree with MMTeers on functional finance (even though Randy Wray, at the Easterns, presenting Stephany Kelton's slides suggested that functional finance was a late addition to MMT,  coming from Matt Forstater and Stephany in the 1990s; my take on that here, where I say that Ed Nell is the likely source), endogenous money, and with minor disagreements on the origins of modern money (by which I mean early transitions to capitalism) on some version of Chartalism. I also, noticed that I depart on certain tendencies to believe that capital mobility and flexible exchange rates make MMT applicable to developing countries, and about taxation (on the latter, I was criticized, and received both emails and tweets suggesting I misrepresented MMTeers views on taxes).

Here is where I think the dual nature of MMT as a theoretical school derived from Minsky and some strands of Post Keynesian economics* and a political movement connected to progressive parts of the Democratic Party becomes relevant. The thing is that MMT has been now associated with Democratic Socialism, with Bernie Sanders and Alexandria Ocasio-Cortéz (AOC). Stephany after all was and is Bernie's advisor, and he has embraced certain proposals beyond what I would call a pop-functional finance stance on fiscal policy. For example, his job guarantee proposal** (again I hope he wins, and I do hope Stephany plays an important role in a Bernie administration; one can hope).

However, it's worth noticing two things that are relevant in this more political context. First, Warren Mosler has posted his presentation at the New School (Mosler's slide pictured above) in which he defends the elimination of personal and corporate income taxes, and sales taxes (here). Mosler is in many ways the more public face of the non-academic face of MMT. Note that Warren plays a crucial role in the political movement associated with MMT. Also, Randy noted in this piece that he was "'a bit disappointed' that Ocasio-Cortez connected tax hikes to the Green New Deal." And no, please, I do not need to be lectured on how causality goes from spending to taxes (as much as from investment to savings; same effective demand logic). The point is that even if taxes are not necessarily to fund spending, taxes do allow for important changes in the economy.

And the way one taxes is as important for functional finance as the way one spends. Sure the limits what can be done are political. In that respect I should say that functional finance suggests that the limits to fiscal policy, beyond the productive capacity (which might be endogenous and demand driven, and hence difficult to reach unless the economy is growing really fast), are essentially political. But exactly for that reason how one taxes, and is a central political question.
Taxes on the wealthy are central for social democratic (Democratic Socialism) policies. At any rate, this establishes in my view were I depart from MMT, which would be on the willingness to tax the rich. I'm not for eliminating income taxes (I'm happy to reduce sales taxes on some things, but increasing on others), and I would be in favor of a wealth tax too. And I'm happy that a higher tax on the well to do is discussed and tied to a popular cause like the Green New Deal (I was for that back in 2012). It should not be a surprise then that MMT finds support in Wall Street, since they would certainly like no personal or corporate income tax.
* I assume that is correct; Randy said in that roundtable mentioned above that they were kicked out of post-Keynesianism, and they didn't leave. I assume that explains the renaming MMT, which I never quite understood. See this old post in which I was surprised about the new label, which I associated back then to endogenous money.

** Here I should note that while I'm not against a job guarantee (JG), I have nothing against regular fiscal spending, like, for example, infrastructure spending to get the economy going. Again, on the panel, when I asked Randy, suggesting that Wynne (Godley) had asked the same in the past (according to my recollections), he said that conventional fiscal policy (what he calls pump priming) was inflationary, and the JG would be better. I'm even less afraid than MMTeers on demand inflation, it seems.

ZEN and the Art of Modern Money (Part 2)

Published by Anonymous (not verified) on Tue, 07/05/2019 - 6:36pm in

MMT for People in a Hurry By J.D. ALT POST #2  (See POST #1 here) FIRST: Prime the fuel-pumps As it stands, our diagram-machine has no fuel (“money”) in it, so it can’t operate. We could go through an exercise … Continue reading →

The post ZEN and the Art of Modern Money (Part 2) appeared first on New Economic Perspectives.

Is world-leading NHS healthcare an affordable proposition?

Published by Anonymous (not verified) on Mon, 06/05/2019 - 2:33am in

In this age of fiscal austerity the viability of the NHS as a publicly funded and delivered service has been constantly called into question. Those challenging the necessity for cuts to spending are lambasted as being fiscally irresponsible. Can the taxpayer fairly  be expected to foot the bill or future generations the burden of increased government debt? Difficult decisions are unavoidable they say and justify the healthcare reforms that are underway. 

However, the consequences of NHS funding cuts in real terms are in growing evidence affecting both the health of the nation and the economy.

In this excellent piece David Laws, a Consultant Anaesthetist, and Professor Charles Adams challenge this view and explain in simple terms  how modern money really works.  As they note:

“As a sovereign nation, the UK can always afford high quality universal NHS healthcare. Money is essentially an accounting system designed to facilitate our collective activities and development. Fiscal policy needs to be activated to meet the needs of our society as there is now observable failure of the prevailing reliance on monetary policy and preservation of rent-seeking private interests. It is evidently wrong to assert that healthcare access and quality is limited by the availability of money. The constraint, in truth, has never been the potential availability of money, but the desire to resource the NHS appropriately. In the words of John Maynard Keynes, ‘Anything we can actually do we can afford’.

This post originally appeared on the Progressive Pulse website here


The unquestioned assertion that a highly developed currency-issuing nation cannot afford high quality healthcare [1] is based upon a set of inter-related and almost universally-held false assumptions:

  • Money is in limited supply (as there is no ‘magic money tree’).
  • Taxes fund government spending.
  • Private banks lend out pre-existing savings.
  • NHS spending is a burden on the economy rather than a boost to the economy.


1) Money is created ‘out of nothing’ on bank computers

In 1973 the Bretton-Woods international exchange rate system, where currencies were ultimately pegged to the price of gold, was formally ended. Since that time we have used an international fiat monetary system where the value of each currency is determined by the workings of international financial markets. Fiat (Latin: ‘let it be made’) money is created from nothing on the basis of a promise – a promise to deliver goods or services in the future. Only if we believe in these promises and the systems that support them, does money have value.

The following description of the monetary system and its components is highly schematic to aid elucidation of the underlying principles. Money is created either when the government spends or when a bank makes a loan.[2] We can think of government spending and bank loans as the beginning of two interconnected money circuits. The government and bank circuits form the duopoly of money creation, rather like the pulmonary and systemic circulations of the cardiovascular system only in this case the circuits work in parallel. Both circuits are supported by the central bank which creates a unique type of money held within the bank known as electronic reserves (Figure 1). To extend the analogy of the cardiovascular system, the central bank is akin to the heart, individual bank accounts would be equivalent to the capillaries and the wider economy would be the working cells of the body.

The two monetary circuits commingle through banking transactions so bank money and government money become indistinguishable to bank account users. After money is created it flows through the economy and eventually returns to the issuer.

Schematic diagram of the monetary system of a sovereign nationFigure 1: Schematic diagram of the monetary system of a sovereign nation. Bank account users cannot distinguish the origin of their deposits.

2) The government money circuit – taxation removes money from the system

In the government circuit, money is spent into the economy and is effectively cancelled when it returns to the government via the payment of taxes. The collection of taxes is not a prerequisite for government spending as many people assume, but exists at the end of the government money cycle when taxes removed prevent too much money being created. Taxation mainly helps to control inflation and alter peoples’ behaviour in a way that should be beneficial to all. The net result of deficit spending is to leave savings in the form of Government Bonds in the hands of the private sector (Figure 2).

Schematic diagram of the government spend and tax circuit with a deficit.Figure 2: The government spend and tax circuit with a deficit. The difference between spend and tax equals private sector saving and is known as the deficit.

Conversely, a government surplus (where taxation exceeds spending) would destroy these savings. The superficially sensible idea of running a balanced government budget simply prevents saving in the private sector. This is illustrated in models a) and b) within Figure 3. In a) the government injects money via a fiscal stimulus in year zero. Taxation means that over time all this money is returned. In b) the public choose to save a fraction of their income which leads to the deficit. Savings simply delay the return of money in the circuit. In other words, the private sector is only able to save money because the government supports this activity by running a deficit. The government circuit is leaky by design. For example, people are encouraged through tax breaks to save for their future (e.g. pensions & ISAs). Therefore, the national debt is not what we currently owe but what we currently own.


Sectoral Balances models showing the relationship between Government spending and private sector surplusesFigure 3: (a) model which shows that after government spend (fiscal stimulus) if people do not save then all the money comes back as tax, whereas if people save this leads to the deficit (b).

3) The private bank money circuit – banks create credit and don’t lend out savings

Most of our money is created in the form of bank loans (credit). When a loan agreement is signed the bank creates a new bank deposit to the value of the loan in the borrower’s bank account. Money is returned to the bank by the repayment of the loan plus interest (Figure 4). Similar to government spending, bank lending influences private sector behaviour but the allocation of money creation is not democratically controlled. The primary purpose of bank lending is to enable individuals and businesses to function and to generate profits for bank shareholders, both over the short and long-term.

Schematic showing how banks create credit when they make loansFigure 4: The bank circuit where loans concurrently create bank customer deposits and private debt leading to bank profits.

Banks must have a licence issued by the government to create money in this manner and aspects of their activities are regulated. However there are no formal economic, social or environmental responsibilities associated with the creation and allocation of bank credit despite the significant influence these decisions have over our lives. Bank credit creation is predominantly distributed towards land (property) and financial asset speculation which dwarfs their support for entrepreneurship. The majority of UK small businesses are actually self-financing.[3]

As the proportion of unproductive private debt increases in an economy a correspondingly increasing proportion of economic output is directed towards servicing this interest-bearing debt. Consequently the private bank money circuit tends to be inherently destabilizing as it drives assets towards the already wealthy making the economy increasingly fragile.

What are the outcomes when the two circuits combine?

If all the money was returned to the issuers the quantity of money would go back to zero (the balanced budget illustrated in Figure 3a). In practice the rate of new money creation is usually higher than the rate of money cancellation and the total amount of money in the economy grows over time to support economic growth (Figure 5). Ideally growth in the money supply should match the growth in economic activity, such that prices remain roughly stable and we maintain confidence in the value of our currency unit. Control of the rate of money creation and destruction in the government and banking circuits are known fiscal and monetary policy, respectively.

UK Money (M4) Supply 1987 – 2017Figure 5: UK Money (M4) Supply 1987 – 2017. Source: Bank of England.

The money supply increased significantly in the decades prior to the Global Financial Crisis (circa. 2007) primarily through bank credit expansion. In contrast, between 2009 and 2014 net credit was negative.[3] As bank credit creation wavered from 2008 onwards, government deficits rose to prevent a deflationary depression. The actual sector balance data for the UK is shown in Figure 6 and there is similarity with the simple model we presented in Figure 3. Note that the rest of the world is a net saver of UK money (these savings have to be spent in the UK ultimately). Note also that when these three sectors combine, the balance is near zero as this is nothing more than an accounting identity.

UK sectoral balances 1987-2017Figure 6: UK sectoral balances data from the ONS. The inverse correlation between Private and Public sectoral balances. Private sector savings mirror the public sector deficit as illustrated by the model in Figure 3.

Why two circuits?

Why do we need this duopoly of both a government circuit and a banking circuit? Why do we need both fiscal and monetary policy? As money is a collective good, should we transfer all money creation powers to government and demote private banks to the role of intermediaries as some propose? Or could we hand over all money creation to private banks as free-market fundamentalists would prefer?

Put simply, the commercial bank circuit serves private needs while the government circuit serves collective needs. The bank circuit exists to serve individuals and ‘capitalism’, while the government circuit exists to deliver on democratically controlled promises.

Economists often call our collective interests public goods. The failure of the private interest bank circuit to provide public goods is easy to understand by exploring healthcare. The market solution is to cater for the patient offering to pay the most. Even worse, the market may deliberately create a scarcity in order to charge a higher price. A market cannot operate effectively in matters of life and death. Kenneth Arrow a highly-respected pioneer of neoclassical economics and winner of the Nobel Prize in Economics in 1972 wrote ‘the laissez-faire solution for medicine is intolerable’.[4] In situations where competition is not viable, where demand is unlimited like health, and supply delivers societal benefits, then collective democratic control is the optimal solution. The House of Lords Select Committee on the Long-term Sustainability of the NHS report in April 2017 reaffirmed that the principal method of funding the NHS should be via government spending.[5]

What has gone wrong?

The art of economic management is to balance fiscal and monetary policy. An over dependence of one or other is doomed in the long term. The core failure over recent history lies in the inability of politicians and central bankers to regulate the banks and to use fiscal policy appropriately. There now exists UK Department of Health data to support the assertion that government austerity may be the primary underlying cause for the deterioration of health inequality measures in England.[6]

‘In her present condition, Great Britain resembles one those unwholesome bodies in which some of the vital parts are overgrown…and through which an unnatural proportion of the industry and commerce of the country has been forced to circulate, (which) is very likely to bring on the most dangerous disorder upon the whole body politick’. When one considers the unhealthy dominance of the financial sector within the UK and global economy today, it may be surprising to discover that Adam Smith wrote these prescient words in the Wealth of Nations over two hundred and forty years ago.[7]

In a similar vein, using central bank monetary policy alone to rescue the global economy has been misguided. In 1969, the world-famous economist, Milton Friedman said ‘The available evidence . . . casts grave doubts on the possibility of producing any fine adjustments in economic activity by fine adjustments in monetary policy’.[8] More recently, Mark Carney, the Governor of the Bank of England, reinforced this point in his ‘The Spectre of Monetarism’ speech published in December 2016 where he stresses that monetary policy needs to be in ‘better balance with fiscal and structural policies’. [9] The sudden change to no money growth after 2010 in Figure 5 is evidence of the complete failings of recent monetary and fiscal policy.

4) NHS spending boosts the wider economy in excess of the money spent

Fiscal policy is very powerful but needs to be carefully managed. The NHS was conceived and built in times of high national debt. This could occur because creation of money is not an inherent constraint. Thanks to the government spend and tax circuit, the NHS nurse, doctor, physiotherapist or pharmacist need not cost anything as long as (they serve a useful purpose and) the money spent on them is also spent. In fact, it is more likely that society will profit through ‘crowding in’ more economic activity through NHS employees’ subsequent spending and a healthier public.

It is estimated that the fiscal multiplier for UK healthcare spending currently lies between 2.5 and 6.1. This means for every £1 spent on the NHS approximately £4 of economic activity results.[10] If you had a cash-back card that gave you £4 back for every £1 spent, you would not cut back on your spending! Only when we reach a position of over supply when NHS staff wait forlornly for patients to present do we reach a point where the multiplier falls to below one. We are, at present, an unsafe distance from a workforce oversupply scenario.

As a sovereign nation, the UK can always afford high quality universal NHS healthcare. Money is essentially an accounting system designed to facilitate our collective activities and development. Fiscal policy needs to be activated to meet the needs of our society as there is now observable failure of the prevailing reliance on monetary policy and preservation of rent-seeking private interests. It is evidently wrong to assert that healthcare access and quality is limited by the availability of money. The constraint, in truth, has never been the potential availability of money, but the desire to resource the NHS appropriately. In the words of John Maynard Keynes, ‘Anything we can actually do we can afford’. [11]


[1] Department of Health annual report and accounts 2016 to 2017 (accessed August 2017)

[2] Money Creation in the Modern Economy. Bank of England Spring Bulletin 2014 (accessed August 2017)

[3] Bank of England interactive database (accessed August 2017)

[4] Uncertainty and the Welfare economics of medical care. Kenneth J. Arrow. The American Economic Review December 1963. (accessed August 2017)

[5] House of Lords Select Committee on the Long-term Sustainability of the NHS. The Long-term Sustainability of the NHS and Adult Social Care Report Published 5th April 2017. p44. (accessed August 2017)

[6] David Buck, King’s Fund (accessed August 2017)

[7] Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. p468-9. Edited by S. M. Soares. MetaLibri Digital Library, 29th May 2007 (accessed August 2017)

[8] Milton Friedman and Walter W. Heller, Monetary vs. Fiscal Policy, W. W. Norton and Company Inc., New York 1969.

[9] ‘The Spectre of Monetarism’. Speech by The Governor of the Bank of England. December 2016. (accessed August 2017)

[10] Does investment in the health sector promote or inhibit economic growth? Aaron Reeves et al. Globalization and Health 2013.

[11] The Collected Writings of John Maynard Keynes. Vol. 27 p270. Activities 1940–1946: Shaping the Post- War World: Employment and Commodities ISBN 978-1-107-65156-2





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The post Is world-leading NHS healthcare an affordable proposition? appeared first on The Gower Initiative for Modern Money Studies.

ZEN and the Art of Modern Money

Published by Anonymous (not verified) on Sun, 05/05/2019 - 6:48pm in

MMT for People in a Hurry By J.D. ALT I’m expanding an earlier essay into a short, book-length piece I hope will be useful in the unfolding public debate about MMT. The piece will utilize the “operation” of a “diagram-machine” … Continue reading →

The post ZEN and the Art of Modern Money appeared first on New Economic Perspectives.