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Central Banks Are Always Involved With Government Finance

Published by Anonymous (not verified) on Sun, 18/10/2020 - 1:17am in

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central banks, MMT

I have been seeing quite a few comments to the effect that central banks are propping up government bond markets now, and what happens if that stops? This is akin to saying the Bears 46 defence was not that good if they did not have all those players who were tackling their unlucky opponents. That is, that is how the system works, and it is a basic misunderstanding to expect things to be different.
I will mainly concentrate on Canada, where Quantitative Easing (QE) is a novelty.  There have been some parallel discussions in the United States, where I will make a few comments (where I do not have strong convictions, so they will be short). 
The easiest way to understand government finance in Canada is to buy my book, which coincidentally has the title Understanding Government Finance (link). In it, I do MMT-style operations analysis on a simplified version of the pre-2020 Canadian system (in Chapter 3). The operations look very different than the pre-2008 U.S. system based on required reserves, which is the basis of most textbook descriptions.
 Bank of Canada balance sheetThe above figure shows the balance sheet structure of the Bank of Canada (BoC) during normal conditions. (Time scale is 2012-2019 to avoid the deviations caused by crises.) The top panel shows that the liabilities of the BoC are mainly two items: bank notes in circulation (dollar bills, coins), and a deposit by the Federal Government (the Receiver General account). All payments to and from the Federal Government end up at this account; the Federal Government does not bank at private banks (at least with respect to Canadian dollars).
The bottom panel is what makes the Canadian system normally different than the U.S.: it shows the deposits at the BoC by the members of Payments Canada (the wholesale payments system), which are private banks. These correspond to "reserves" in American parlance, but is a misnomer since reserve requirement have not existed in Canada since the 1990s. (The Fed finally dropped reserve requirements to 0%, so we might see convergence in terminology.) As the figure shows, banks have a target balance for their overnight balance at the BoC/payments system of $0, and this is for all intents and purposes achieved. (Note that the balances were non-zero during the Financial Crisis, and now as a result of QE).
Let's assume that the banks perfectly hit their $0 target every day (which is close to reality). What does that mean? It means that the BoC has to offset perfectly the net transactions in the Receiver General account. 
So what? Look at what happens on a hypothetical day where the Federal Government issues a bond, and everything else nets to zero. The BoC has to inject exactly the same amount of money into the private banking system. Under normal circumstances, this is either:

  • the BoC buys other Government of Canada bonds (the BoC normally takes down a portion of bill auctions, which would cause some neoliberals' heads to explode), or
  • the BoC "lends" against Government of Canada bonds via repurchase agreements.

In other words, 100% of the auction is "financed" by the BoC operations. All the auction does is increase the Receiver General account balance, the BoC balance sheet grows, and private sector balance sheets are rearranged (they end up with new bonds, and either have repo liabilities or sell bonds to allow this).
If 100% of GCAN auctions are normally "financed" by the BoC, it makes no sense to ask the BoC to step away from financing the Federal government.
Let us pretend some brain surgeon wants to "wean the Federal Government off this dependency." What would they do? They need to ramp up the Receiver General account size to give a larger buffer to eliminate the risks associated with rollover risk. All this does is bulk up the BoC's balance sheet: the Federal Government increases its gross issuance, but other bonds (or repos) just pile up on the asset side of the balance sheet. From the private sector's perspective, this is just generous corporate welfare to primary dealers (mainly banks): they buy some bonds at auction, then flip other ones right back to the BoC. The spread they earn on flipping increases, while the net debt outstanding has not changed.
Although this policy might be popular with banks, I think we need to be stern and wean them off welfare. There are plenty of grocery stores that need delivery people if they need the extra cash.
If we look at 2020, there are two factors that are amplifying the amount of purchases by the BoC.

  1. The Federal Government has increased its balance, which implies the flipping mechanic described earlier.
  2. The BoC decided to be like the other cool New Keynesian kids, and plunged into QE operations. Aggregate private bank balances are no longer zero, they are being forced to be positive. This means that the BoC has to buy or lend against bonds.

However, not all operations are GCANs, the BoC has waded into provincial names as well. My guess is that this was probably needed to allow the issuance needed to survive the crisis, since funds may have hit risk limits (and might be wary of default risk in the middle of the panic). Canadian provinces are the front end of the Canadian welfare state, and so their finances are more pro-cyclical than U.S. states.Post-Script: U.S. Treasury Market Too Darned Big?There was some excited chatter about remarks by the Fed's Randal Quarles. They suggested that the Treasury market had grown too big for private markets to support, and so the Fed would need to keep intervening.
I am unsure about the context of those remarks, and I believe that they are tied to some technical work that has not yet been fully unveiled. As such, I do not have much conviction about what he said.
However, my feeling is that people are not looking at this like the Fed does. The New Keynesian Federal Reserve is obsessed about monetary policy settings being transmitted without distortions (which is probably why they publish term structure models that ascribe all the volatility in market prices to moving term premia, and not rate expectations or inflation breakevens). There is an extreme distaste for Treasury market volatility.
Fixed income markets are dealer markets, and their capacity to warehouse risk is always finite. There is always the possibility that there could be short-term flows that overwhelm that capacity. However, the Treasury Market is a market, and there is a mechanism to deal with such imbalances: price changes. Just let prices crater enough, the markets will clear at some point. Meanwhile, such price volatility generates profit opportunities for competent dealers, and so they might increase trading capacity.
This is a dilemma created by ascribing to neoliberal mythology. They want to insist that Treasury market pricing is a free market, so that there is a cudgel to threaten fiscal policy with. But at the same time, they do not want their precious monetary policy interrupted by markets acting like markets. A basic rule of thumb is that if you ask for the impossible, do not expect to get it.
(c) Brian Romanchuk 2020

What is the real burden that the government’s “hard choices” will pass on to future generations?

Instead of more political rhetoric and more of the same orthodox solutions dressed up as change, we need radical progressive action to pave the way for a kinder, more equable and sustainable future.

 

Planet Earth in handsImage by Anja from Pixabay

After this crisis, if anybody dares mention a ‘need’ for austerity or tax cuts for ‘wealth creators’ aka useless parasites, or calls for pointless fiscal retrenchment, then ridicule their rank stupidity, economic illiteracy, immorality and their inability to learn simple lessons.’

Phil Armstrong, GIMMS Associate.

 

The debt warriors are continuing their rear-guard action. In the hope that all is not lost in the battle for minds as people get wiser; the battle to keep people believing that the vital extra spending, which has in effect kept the economy afloat, is going to have to be paid for. Sustaining the illusion is vital for their purpose and the people need reminders and nudges to keep them in the dark and demonstrate that the government is fiscally responsible. Where have we heard this before? And look how that ended up. Ten years of punishing austerity and the killing off of our public services in the name of balanced books.

This week, the Conservative MP Harriet Baldwin said on BBC Politics Live.

‘It’s the right time to talk about [balancing the books] because we have to maintain the confidence of the bond market.’ We have a plan to bring the public finances under control’

This little gem suggesting that government is beholden to the bond markets (when it is not) followed Rishi Sunak who said in his conference speech earlier in the week that he had ‘a sacred duty’ to ‘leave the public finances strong’ hinting that there might be tax rises ahead. He continued by saying that ‘If… we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?’

Hard choices would have to be made as he pledged to ‘balance the books’. He posited that the public would accept that taxes would have to rise given the size of public spending during the crisis and suggested that the government might have to break some of its manifesto pledges. Wait for it…it’s coming.

The implication is that those billions of pounds borrowed to keep the economy afloat and functioning will have to be paid for and that the burden, if not addressed, will pass to future generations in the form of higher taxes. Keeping the illusion going was further emphasised at the weekend when the government rejected extra support for workers in lockdown areas because ‘the national debt is rising’ and it would cost too much.

So deeply is the ‘tax pays for spending’ narrative embedded in the public consciousness that research published this week by Ipsos Mori suggested that of those responding almost half favoured raising taxes to fund public services in the context of Covid-19 with the most favoured option being a wealth tax for people earning over £500,000.

Still resolutely stuck in the ‘taxes fund spending’ mode, people implicitly understand that somewhere along the line they have lost out, not just personally but in terms of a public infrastructure which Covid has demonstrated is no longer fit for purpose due to cuts. And, quite rightly they want redress, as long as perhaps it’s not them that have to pay. Whilst there is a big difference in approving a concept and actually accepting it as the reality for one’s own pocket, the government is relying on that false narrative for it to get away yet again with murder.

In the light of monetary realities, knowledge of which is increasingly coming into the spotlight and challenging the status quo orthodoxy, in searching for answers the better questions to ask the public might have been:

Do you want the government to spend more on improving our public services in the interests of the nation?  

Do you want to restore those public services to publicly paid, managed and delivered provision?

For the truth is, that these decisions are political ones, not linked to taxes or borrowing or the state of the public finances.

At the other end of the political spectrum, this week on Double Down News Grace Blakely exposed, quite rightly, the increasing horrendous gap in wealth distribution and its damaging effects on society. However, she then went on to suggest that the billionaires should pay the costs.

At a time when the Swiss Bank UBS reported this week that billionaires increased their wealth by more than a quarter at the peak of the crisis when at the same time millions of people were losing their jobs or struggling to get by on furlough schemes and Universal Credit it might seem a just call to ask the extremely wealthy not only to pay what they owe but pay more. After all, over decades, working people have seen their living standards fall, as their share of productivity has ended up in the hands of ever fewer people so it is infuriating to see that the gap between the haves and have nots which was already huge, growing even more rapidly as billionaire’s wealth hits new highs. An increase in the pay of politicians announced late this week (the Tories having already rejected a pay increase for nurses) shows little solidarity with people’s struggles and it must surely start crossing people’s minds that something is seriously awry not just in terms of wealth distribution but also in the way they understand how power works and who pulls the strings.

But it is equally disheartening to note that we have left-wing economists and commentators reinforcing the mantra of ‘tax pays for government spending’ in the daily smoke of mirrors that suggests that state spending is like a household budget and that the solution is to get the filthy rich to pay more.

While our public infrastructure continues to crumble before our eyes and people suffer it’s time for the left to stop talking about getting the rich to pay for it, however much that appeals to a sense of fairness. Only by recognising how government really spends and using that knowledge to propose an alternative vision for the future can we win that battle. If it does not, then any plans that future progressive governments propose will always be constrained by this false narrative.

In the words of Deborah Harrington, who sits on GIMMS advisory board:

‘Billionaires can’t ‘pay for’ the coronavirus crisis. Only governments can. The left should stop promoting the neoliberal theory that we are all dependent on and beholden to the rich for our public services. They are cheering their support for Thatcher, May and all the others who claim the government has ‘no money, only taxpayers’ money’. Tax the rich because they are too rich. Tax the rich because inequality is damaging to a healthy society. Tax the rich because they use their disproportionately accumulated wealth to buy government policy that makes them even richer. Have the courage to say that the extremely wealthy are a drain, not a gain, for society. Stop trying to push the idea that if you could only persuade them to pay their taxes willingly everything would be just fine. Even better, have pre-distribution mechanisms that stop them accumulating so much in the first place.’

The question some might ask is have politicians on any side learned anything? Forty years of economic orthodoxy have left many economies around the world in poor shape and unable to address the crisis. And yet whilst Rishi Sunak considers disingenuously and publicly how he is going to ‘pay for‘ his fiscal injection (to keep the right narrative alive in the public mind) it most certainly will not stop money pouring into the bank balances of private corporations.

And given the Chancellor’s Conference speech it will on the other hand most likely mean that the public sector will once again be squeezed. It is a guise for delivering what they have always intended – to destroy the public sector as publicly funded, managed and delivered infrastructure that serves the public good with no profit motive, through the toxic ideology that business is more efficient. The lie of a so-called small state is smashed by the realities that it increasingly exists to serve global corporate interests.

Whilst government ministers laud their actions and monetary largesse, anyone following media reporting or previous GIMMS blogs will know that the real beneficiaries of public money have been large corporations who have failed to deliver the promised efficiency and worse without public accountability. The prospect of Westminster Plc draws ever nearer.

And the promised levelling up? It will likely be just one more casualty of a wretched economic system, and just more of the typical political rhetoric which politicians are so good at – on both sides.

In the wake of the Chancellor’s speech, the Guardian in its unexpected and timely editorial this week noted ‘it makes no sense to compare personal experience with the economics of a nation’. Quoting the late Labour MP Roy Jenkins who observed correctly that a family budget was not the same as a national budget and said that Margaret Thatcher had traded in ‘lousy economics’, it noted how much of the political economy had been conceded to the right and that the present Labour shadow chancellor still in orthodox mode could not match his ‘unapologetic Keynesianism’.

Sunak’s speech seems indicative of what to expect in the future. Yet more penny-pinching when it comes to our public infrastructure. It suits a carefully crafted narrative to suggest that such spending would bankrupt the economy or burden future taxpayers. A narrative the public continues to buy for now, at least as a reflection of how it believes that government spends.

While our imaginations are still stuck in Mikawber mode, the real threats to the future are being cynically put on the back burner when those threats are the ones that we need to be addressing urgently. It seems that, in political terms, ultimately the quest to balance the books is being made to appear a far more important objective than addressing climate change and politically created and unnecessary inequality. Our planet is to be sacrificed on the pyre of balanced budgets and big business gets to create a greenwashed world in its image – that of profit and greed.

As we watch the fires in South America continue to burn as a result of deforestation to make way for cattle pasture and soy plantations, and the tropical wetlands continue to burn in the Pantanal, a combination of a man-made arson and drought caused by the climate crisis, we need urgently to shift the narrative to one of sustainability and human and planetary health.

This year of environmental disasters – fires, drought, floods and Covid-19 – is a reflection of our failure to act and should be the wakeup call we need. Our leaders, for all their fine words, are complicit in this destruction. Some wilfully and openly ignore the threats, others indulge in ‘environmentally friendly’, rhetoric whilst doing very little, and at the same time global corporations some of the biggest polluters sell us their greenwashing propaganda.

Along with climate change, poverty and inequality continue to rise. It was reported this week by the charity Save the Children that living standards for the UK’s poorest had plunged during the pandemic. It noted that over a third of families on Universal Credit and Child Tax Credits have had to rely on help from charities for food or children’s clothes over the past two months and two-thirds had incurred debt to get by. Half of those surveyed said that they were in rent arrears or behind on household bills. Earlier research carried out by Save the Children and the Joseph Rowntree Foundation in June revealed that 70% of people had cut back on food and other essentials when the pandemic began and the charity warned that the winter will be more difficult for many families as heating and other household costs rise and the prospect of further job losses increase the pressure on overstretched household budgets. With the threat of a cut in Universal Credit next April, the future is looking even more uncertain for some of the poorest people in our communities.

And we cannot ignore the global situation. Save the Children also noted last month in a jointly authored report with UNICEF that the number of children living in multidimensional poverty (access education, healthcare, housing, nutrition, sanitation and water) across the world had soared to around 1.2 billion due to Covid. To put it starkly, an additional 150 million since the pandemic began in early 2020. It also noted that around 45% of children were severely deprived of one of the critical needs mentioned above before the pandemic and that the picture is likely to worsen in the months to come.

While the arguments rage about the size of government, its colossal spending and future tax burdens, the cost of such arguments on human lives and the planet seem of secondary concern as the government continues to pursue its market-driven dogma which is neither free nor fair.

The promised V-shape recovery has not materialised and left prospects bleak for the Covid generation whose employment prospects are quickly vanishing into the mist and threatening their future health, security and livelihoods.

Instead of real jobs with good pay and conditions, Rishi Sunak is offering people ‘job coaches’ to beef up their CVs or training to improve their future job prospects. Never mind that without government intervention in the form of adequate spending and other targeted measures to improve the economic outlook, those jobs will never materialise. Relying on business to find solutions will lead us to a dead end.

Or as earlier this week the Conservative MP Robert Jenrick called for ‘grassroots volunteering and ‘togetherness’. Where was the government when it was telling us austerity was necessary to get the public finances straight as it dismantled our infrastructure and other vital public services? A government that also promoted individualism, greed and selfishness, has overseen huge wealth inequalities and divided our communities. The word ‘togetherness’ doesn’t seem to fit the bill.

Instead of real solutions, the government is offering the usual toxic rhetoric painted as positive proposals for a so-called new normal which aims to consolidate the toxicity, not address it.

At a time when jobs are being lost, GIMMS repeats its question. Why not rebuild our public sector offering good wages and secure employment? Why not introduce a Job Guarantee that provides a living wage, training and good employment conditions to bridge the gap when times get tough and provide a transitional staging post into private sector employment when the economy improves?

Rethinking the sort of society, we would like to live in will be of paramount importance in the coming months. The old model is not fit for purpose and we and the planet deserve something better.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

Event recording

Phil Armstrong in Conversation with Bill Mitchell

Bill Mitchell spoke to Bill Mitchell for GIMMS on 27th September 2020.

 

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The post What is the real burden that the government’s “hard choices” will pass on to future generations? appeared first on The Gower Initiative for Modern Money Studies.

Meija/Albrecht MMT Paper Updated

Published by Anonymous (not verified) on Fri, 09/10/2020 - 4:37am in

Tags 

MMT

Jackson Mejia and Brian C. Albrecht updated their paper on time consistency and the Job Guarantee. The updates took into account concerns raised by MMTers regarding the treatment of the Job Guarantee. Since I am in the middle of another project, I have not been able to read it yet. I just want to highlight its release. I referred to an earlier draft of this work in my manuscript, and so I should update to reflect this paper. (I expect that the complexity is beyond my target for my book, but I should make a stab at discussing it here.)

This paper is notable in being an attempt to model the Job Guarantee from a mainstream perspective. This is far more constructive response than some other nameless senior academics have provided.

Standing at a crossroads in time

Published by Anonymous (not verified) on Mon, 05/10/2020 - 3:38am in
‘Democracy is not just a counting up of votes, it is a counting up of actions.’

Howard Zinn
Crossroads signpost with signs saying "possible" and "impossible"Image by Gerd Altmann from Pixabay

Do you remember when Andy Haldane, the Chief Economist at the Bank of England, insisted that Britain was enjoying a ‘V-shaped’ recovery way back in July? Since then much has happened but not a V-shaped recovery and the future is looking pretty bleak. Despite that, Haldane’s concern this week that ‘our pessimism is holding us back’ and that companies hiring and corporate investment were the ‘missing ingredient in the recovery’ leads one to wonder if the Chief Economist is living on a different planet.

The prospect of a rise in unemployment by the end of 2020, less generous government support than hitherto, people saving more than spending and a collapse in business investment would suggest that people are retrenching as a result of lack of confidence. Businesses will not invest while they are unsure whether that investment will repay itself in increased profits and people won’t spend whilst their lives are turned upside down and they have no idea whether they will have a job next week. It seems that Andy Haldane is stuck in some other world that does not exist for the majority of people.

A combination of government policy, cuts to public sector spending over the last 10 years which has left public infrastructure in tatters, combined with the uncertainty caused by Brexit and the final straw of Covid-19 has left the nation in a state of collective inertia wondering what will happen next. Tin hats are the order of the day, not party bunting and champagne. Glasses of confidence are in short supply!

We stand at a crossroads in time and Covid-19 has revealed in stark terms the putrid underbelly of an economic system which has predominated for decades. Rising poverty and inequality, huge social injustice, wealth distribution skewed in favour of those who already have more than sufficient and the ever-present elephant in the room, climate chaos, all the result of a toxic ideology and excessive consumption.

This week the Royal Botanic Gardens of Kew published its fourth report in the ‘State of the World’ series. Professor Antonelli, the Director of Science wrote in its introduction:

Never before has the biosphere, the thin layer of life we call home, been under such intensive and urgent threat. Deforestation rates have soared as we have cleared land to feed ever-more people, global emissions are disrupting the climate system, new pathogens threaten our crops and our health, illegal trade has eradicated entire plant populations, and non-native species are out-competing local floras. Biodiversity is being lost – locally, regionally and globally [……]

We share this planet with millions of other species, many of which existed long before us. Despite the fact that an exploitative view of nature has deep roots in our society, most people today would agree that we have no moral right to obliterate a species – even if it has no immediate benefit to us. Ultimately, the protection of biodiversity needs to embrace our ethical duty of care for this planet as well as our own needs.

Whilst 40% of all the world’s plant species are at risk of extinction according to a report published last month by the UN the world has failed to achieve in full any of the biodiversity targets agreed in Japan in 2010 and indeed this is the second consecutive decade that governments have not done so. The Global Biodiversity Outlook Report offered a convincing and authoritative overview of the state of nature indicating that the natural world is suffering badly.

According to Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity, it underlined that ‘humanity stands at a crossroads with regard to the legacy we wish to leave future generations’ and that ‘earth’s living systems as a whole are being compromised. And the more humanity exploits nature in unsustainable ways and undermines its contributions to people, the more we undermine our own well-being security and prosperity’. It outlined the need to shift away from ‘business as usual’ across a range of human activities.

The bottom line is that our own well-being and survival are dependent on rethinking our relationship with nature and each other.

Amidst the disturbing backdrop of the threat to the planet caused by failure to address these serious biodiversity losses and the growing evidence of the consequences of climate change across the world from devastating droughts, fires, storms and flooding, the consequences of government political decisions and spending policies continue to play out daily in people’s lives.

Evidence of both ignorance and wilful conduct by our elected politicians is shocking. Whilst a household budget description of the public finances continues to dominate in political and establishment circles, the potential for addressing the consequences of spending cuts or indeed the serious challenges we face will always curtail any action.

The reverse of the toxic climate coin is the huge wealth inequality and poverty which has done so much damage to economies around the world.

In the UK, as many more people turn to the social security system for support as a result of the ending of the job retention scheme, many will find out first-hand how far from generous those benefits are and have been for those living on lower incomes. The ‘lazy scrounger’ narrative which has done so much harm will increasingly come into the spotlight as the middle-class professionals find themselves relying on state support. The real-life daily realities of many low-income families in precarious employment or subsisting on less than adequate social security payments will begin to emerge to a section of society which has hitherto thought itself immune.

The effects on the economy as incomes have plunged over the last few months, particularly for those in receipt of Universal Credit, will be further highlighted as the redundancies pile up and living standards begin to fall. It will bring into sharp focus the policies which over more than a decade have sought to divide people and create a two-tier society of ‘haves’ and ‘have nots’ on the basis of the lies trotted out regularly that such public and social infrastructure is dependent on a tax/contribution paying nation and that it is the private sector which creates the wealth to allow that to happen.

The argument that contributions paid in relate to a pot of money put aside by the state on our behalf must be knocked on the head and replaced with the real description of how the UK government actually spends. That what is paid out is a political choice determined by an agenda and is unrelated to how much revenue the government has collected. Household budget descriptions of how money works serve only to deliver that pernicious agenda and do not represent monetary reality.

It was depressing, therefore, to hear Labour’s Lucy Powell reinforcing the narrative of affordability when she was asked about Labour’s commitment to the pension triple lock earlier this week. She suggested that it would be dependent on knowing ‘what income you have got coming in and what outgoings you need to make’ and that ‘the single biggest determination of that is the level of employment, and level of growth in our economy’.

Once again, the suggestion is clear; that the government can’t afford to protect the incomes of retired people for whom the state pension is their only source. She, like so many others, makes a false connection between the health of the economy and tax revenue by suggesting that pensions, other benefits or indeed essential public and social infrastructure are dependent on a healthy economy and people paying their tax. It is disheartening that such economic ignorance lives on and the health of the economy is reduced to monetary affordability.

This was again brought sharply into focus this week by a report published by the Labour Women’s Budget Group which called for a universal care service. As has already been previously noted, Covid19 has highlighted the existing inequalities in society and the failure to invest in health and social care which has led to many preventable deaths both before and during the pandemic. In the midst of a climate emergency as the Women’s Budget Group points out, the pandemic has revealed huge cracks in our public and social infrastructure along with wealth disparities and social and racial injustice. The group underlined that business profit and greed has in recent times come before a caring more equal society. It called for reforms to create a caring economy ‘a blueprint for a world where work and care can be shared harmoniously, where the economy is measured in well-being and sustainability’.

These are laudable objectives, but yet again we hear the household budget tropes put forward to justify such action. That it would be a good time to consider a universal care service because interest rates are at historic lows and research has shown that taxpayers would be happy to pay extra. Once again, a constraint is immediately revealed by the suggestion that the limits to spending are monetary. Putting aside for a minute the fact that the constraints are not monetary but related to real resources, there is a better reason to consider such action:

Because a civilised society takes care of its young and elderly.

And far from being unaffordable in monetary terms, the government as the currency issuer can, assuming the real resources are available, make a political choice to invest in the lives of its citizens to improve their lives and ensure a vibrant, healthy sustainable economy.

And whilst tax plays an important role in achieving government policies, not only is tax not required to make such an investment, but also in these difficult days raising them would at this point depress the economy even further and may indeed turn taxpayers against such an expenditure.

Such a care service should not only be paid for from public funds, it should be managed and delivered as a public service and not be in private hands.

If we want a caring and environmentally sustainable economy instead of yet more exploitation no matter how eco-friendly it is presented as, fundamental to that change is a government which puts people’s interests over and above the interests of capital. We need politicians that recognise both the value of a well-educated and trained workforce to address those challenges and the role a Job Guarantee might play to ensure a just transition for those most likely to lose out.

This week, the government announced a package of measures that will allow people to study at college paid for by a national skills fund and a more flexible higher education loan scheme. Reminiscent of New Labour’s ‘Life-Long Learning’ programme, Boris Johnson announced a ‘lifetime skills guarantee’ promising that the government would help people to get the skills they need to navigate this quickly changing world. On the face of it, this is a good plan. However, training and skills in themselves good and positive as they are, are no substitute for actual jobs if, as Warren Mosler has pointed out, you’ve still only got ‘nine bones for 10 dogs’ people will still remain unemployed.

While the government continues to see job creation as a private sector exercise and absolves itself from the responsibility of governing in the interests of the nation as a whole, those jobs won’t be created by a private sector without confidence that their investment will pay a return. That confidence only derives from the actions of government through its policies and spending decisions.

For ideological reasons, the government never mentions job creation in the public sector which is where we sorely need investment. As has been pointed out many times in previous MMT Lens blogs, it could address unemployment through an expansion of the public sector (which has over 10 years been starved of funding and adequate staffing levels) to create a public and social infrastructure that meets the needs of the economy and is fit for purpose. That could be supplemented by a permanent Job Guarantee to manage the cyclical ups and downs of the economy by providing work, training and skills for those who will be most affected by this very different world that is heading our way. It is ironic that this government has cut funding to education and training over the last 10 years making it more difficult for people to gain the skills they and society needs.

Worse, over decades, starting with New Labour, it has also made education a cost to the individual instead of being funded by public money. As if somehow it is only the individual that benefits, when in fact society and the economy gain positively from a well-trained, educated workforce whether in public or private sector employment.

So where do we go from here? Are we asking ourselves the right questions? And are we prepared to make some difficult decisions?

We are at a pivotal moment in history and the future will depend not just on government action but the public willingness to engage in a serious adult conversation. Engaging requires the facts about what is possible and what is not and about the change that is needed to ensure a viable future for humankind. It requires understanding how we have been led down an alley without an exit by those politicians serving the interests of a tiny section of society. Those same politicians and institutions which daily use false narratives to suggest that there is no alternative to more pain in the future if we are to dig ourselves out of the financial hole all this spending is causing.

The only hole we have to dig ourselves out of is the hole that has been created by this false narrative that saving the planet is unaffordable, that the economic crisis caused by Covid-19 has made it even more unaffordable and making people’s quality of life better is far too expensive. Challenging such notions should be top priority. Whilst it remains to be seen whether such a government is on the horizon there is no excuse for inaction. For ourselves and for future generations.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

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The post Standing at a crossroads in time appeared first on The Gower Initiative for Modern Money Studies.

Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead.

£1 coin and £10 Bank of England banknoteImage by bluebudgie from pixabay

The old world is dying, and the new world struggles to be born; now is the time of monsters.

Antonio Gramsci

In the week that the Chancellor Rishi Sunak announced his latest Job Support Scheme, everywhere you look the TV journalists and other media pundits are bewailing the rising cost in terms of “borrowing” and government debt. TV presenters can’t help themselves. ‘We’ll be paying for it for years to come’, is the on-going mantra being drummed into the public consciousness, just in case we forget. It was even suggested on this week’s BBC’s Money Box programme that it would take 3000 years to repay the national debt! An astounding calculation made on the basis of current borrowing levels and the annual tax take. However, given that a sovereign currency-issuing government like the UK’s doesn’t even have to borrow to spend, it’s just another example of household budget accounting.

Whilst those of us with a better understanding of how money works shout at the TV with incredulity that the same falsities are being repeated endlessly, many of those same journalists and presenters fail to make the very real connections between government spending, the state of the economy and the lives of its citizens.

Whilst the implication of unaffordability and a future tax burden prevails as a reason to curtail spending eventually, the real price has been and remains a human one; economic instability and uncertainty for people and the prospect of more damage to the environment. We can’t afford to improve people’s lives or even save the planet! Apparently.

Whilst we read endless articles reporting on the declining state of our public services and local government, the injustice of a social security system which is failing too many people the elephant in the room largely goes unacknowledged; the role that government plays in the welfare of its citizens through its spending decisions. While we see huge sums of money being poured into private profit, our public and social infrastructure is in a state of decay. Their choice is clear.

At the same time, the left-wing social media pages continue to shoot themselves in the foot by posting articles and memes with language designed to increase the public’s fear of too much spending and its consequences on future generations; ‘UK national debt soars to record levels as Covid pushes up borrowing’ is one such posted this week.

Whilst such pages are clearly and quite rightly aimed at holding the government to account for their abysmal management of the economy and its consequences for some of the poorest people in our communities, they do so within the context of a household budget narrative. Such a narrative will, without doubt, constrain a future progressive government, not liberate it!

Instead of focusing on deficits as if they were a measure of good or bad stewardship of the public finances, we might better and more correctly point out the government’s economic record. How did it respond to the on-going crisis and the economic fallout? Had it, through its spending policies, ensured a well-functioning public infrastructure able to rise to the current challenges? Did it spend sufficiently to secure the financial stability of its citizens during this uncertain time? Or not?

In an unstable and uncertain environment, the job of the Chancellor is to mitigate those losses with sound policies and sufficient spending to keep the economic boat afloat as long as is necessary, whilst also ploughing additional investment into the public and social infrastructure to support the economy. Instead, government spending policies over the last 10 years have left the country’s infrastructure in a perilous state and unable to respond effectively. The price in human lives, poverty and rising wealth inequality is to be added to the devastating effects of the pandemic.

And yet, still in mainstream reporting, it’s as if people’s lives matter less than digits on a computer. And all this despite the growing understanding of the sovereign powers of a currency-issuing government. Whilst politicians, think tanks and journalists still have their heads firmly stuck in the sand like ostriches, people are led to believe that there will be no alternative to a future reckoning if the country is not to be bankrupted or future generations of taxpayers burdened with huge debt.

The role of the media and indeed the political opposition, if we did but know it, is to challenge government. Not to uphold and reinforce its power. Their role is to make the government accountable for its political and spending decisions and to bring to public notice when it abuses its sovereign powers in favour of other estates. Its job is to ask questions. Instead, whilst they approve of government intervention at this serious time they still prefer to talk about the state of the public accounts, rising public debt and the consequences for future generations. Thus, they continue to reinforce the myths about how sovereign governments really spend. The neoliberal economic orthodoxy rules.

The Chancellor’s plans sit very much within the neoliberal economic orthodoxy, despite the vast sums of essential government spending to prop up the economy and secure people’s financial security. He has already let it be known that he is considering a freeze of benefits and public sector pay and abandoning the pension ‘triple lock’. It will no doubt be presented as a necessity to get public spending under control and pay back the vast sums of money it has supposedly ‘borrowed’.

However, the truth is that it will be more to do with the government’s long term aim which had its origins in the actions of successive governments since Thatcher to transfer public provision to the private sector whilst ensuring the state’s role as a cash cow to the corporate sector.

Whilst Sunak’s increased spending was and remains vital, there has been valid criticism of his plans both early on and now with the proposed job support scheme which was referred to more correctly as an ‘unemployment creation scheme’ by the tax campaigner Richard Murphy. Sunak has failed on all levels and the promised V-shaped recovery is looking less and less likely.

Apart from being a short-term solution to a problem which is likely to persist for some time, it will require employers to share the cost of paying wages with damaging consequences. This will, without doubt, provide a significant motivation to make staff redundant, not preserve jobs. It fails to support those working in the hospitality industry whose businesses have been put on hold due to Covid-19 restrictions and furthermore the 3 million self-employed often working in creative industries have also once again lost out and will not benefit from these new measures. Far from being the party of the entrepreneur (unless of course, you happen to be rich one like Dyson and likely to contribute to your party funds), Sunak has shown complete disregard for the army of self-employed and small business entrepreneurs who make valuable contributions to the economy.

As the furlough scheme draws to a close, many thousands of people have already lost their employment and found themselves on Universal Credit. And yet many, despite the increased benefits now being paid, find themselves with insufficient income to manage their finances. Many hundreds of thousands will be added to that number over the next few months as the prospect of further restrictions resulting from the coming second wave of Coronavirus and the government’s inadequate plans.

The Resolution Foundation has suggested that it will be a significant mistake to end the £20 a week boost to tax credits and Universal Credit now being proposed by the Chancellor, the cut to come into effect next April. This the Resolution Foundation suggests rightly would clearly affect income and spending.

It has said that the rise in unemployment, combined with planned benefit cuts, means a ‘grim outlook for living-standards’. It has also noted that ‘The £20 a week boost can be seen as a reflection of the fact that out-of-work support was not adequate when we entered the crisis and – without the boost – certainly won’t be adequate in future. […] Ending the boost would mean withdrawing perhaps £8 billion from disposable incomes in 2021-22, precisely from those groups and places that need it most to support spending and the economic recovery in 2021-22.’ Removing that boost will have a huge negative impact on disposable incomes.

And here we come to the crux of the matter and one which the Chancellor cannot ignore. And that is, quite simply, that one person’s spending is another’s income. Rises in unemployment and proposals for public sector wage caps will drive the economy even further down the slippery slope.

On the one hand, Sunak says, ‘we must learn to live without fear’ and then counters that by saying ‘I cannot save every business. I cannot save every job’.

Whilst he implies he has no power to do otherwise and that people will have to bear the burden, he fails to mention that the government is in control. That it alone has the means, as a sovereign currency issuer, to mitigate the worst effects on the economy of the pandemic and indeed has the ability to use it to address the next great survival challenge bearing down on us like a tsunami – that of climate change (which seems strangely to have been put on the back burner).

The government, by dint of being the sovereign currency issuer, can spend what it needs to, within the limitations of real resources. It could rebuild a publicly-provided and paid-for infrastructure, both locally and nationally, thus providing more socially useful jobs paid at a living wage and could implement a permanent Job Guarantee to act as the economic stabilising mechanism to see us through this difficult time and most importantly to ensure a just transition towards an environmentally sustainable economy.

With such serious issues at stake, we must challenge the notion that the government cannot afford to deal with mass unemployment, poverty or climate change. We must challenge the notion that the government has to impose higher taxes or debt on the nation which limit what can be achieved to improve people’s lives.

Quite simply, the idea that there aren’t sufficient numeric digits available to make a better world is a fraud of the highest order. The future depends on our understanding it and challenging those that tout those lies either wilfully or unknowingly.

 

Further Reading:

National Debt https://gimms.org.uk/faq/what-is-the-national-debt/

Government Borrowing https://gimms.org.uk/faq/doesnt-the-government-have-to-borrow-when-it-spends-more-than-it-taxes/

The Job Guarantee https://gimms.org.uk/job-guarantee/

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

 

Event recording

Phil Armstrong in Conversation with Bill Mitchell – Online

An audio recording of the event is now available via the MMT Podcast here

 

Join our mailing list

If you would like GIMMS to let you know about news and events, please click to sign up here

Support us

The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead. appeared first on The Gower Initiative for Modern Money Studies.

The environmental clock is still ticking onwards

Published by Anonymous (not verified) on Sun, 20/09/2020 - 5:25am in
We need a sustainable vision for the future and the political will to deliver it like never before

 

Orange sky over town in California duing 2020 wildfiresView from the top of the Humboldt County Courthouse with smoke from inland and Oregon fires covering the county. National Weather Service, Public Domain

 

“Have we fallen into a mesmerized state that makes us accept as inevitable that which is inferior or detrimental, as though having lost the will or the vision to demand that which is good?”
Rachel Carson, Silent Spring

 

Next month will be the anniversary of the launch of GIMMS and the first MMT Lens blog. In that blog, we covered the Economics of Climate Change following the comprehensive report published by the IPPC (Intergovernmental Panel on Climate Change) which warned that we only had 12 years left to half the worst effects of climate change.

Two years on, the battle to save our planet and ourselves continues, as the loss of biodiversity and human degradation persists. This week has been a depressing reminder that the clock is still ticking whilst many of our leaders still have their heads firmly stuck in the sinking sand.

This year we have witnessed devastating fires across the world. In states across Australia and its territories, the fire season has been unprecedented with an estimated 18 million hectares of fire destroying vast tracts of bush, an area greater than that of the average European country and over five times the size of blazes in the Amazon.

During the first seven months of 2020, more than 13,000 sq. km of Brazilian Amazon has been destroyed according to satellite data analysis. Fires in recent weeks of human origin in the race to expand meat production through vast deforestation have been exacerbated by the worst drought in 50 years.

And in the last few weeks, we have seen the on-going death and destruction wrought by the fires in California, Oregon and Washington states. The weather and warming climate with record temperatures, heatwaves and drought have played an important role in that devastation, as has human behaviour through poor land management and badly planned housing construction.

The consequences for a global environment under huge pressure and human health around the world will be, over time, devastating and has been made much worse by the incipient challenge presented by the Covid-19 pandemic which has both revealed how our behaviour has influenced viral threats and put real resources under severe pressure.

Alessandra Guató, a tribal leader in the Amazon wetlands, said of the destruction in her own backyard:

‘We are part of this nature we live with her day by day and it was all devastated.’

And yet her comment applies not just to the disaster that has befallen the Guató tribe which has left them without food and threatened their livelihoods it is also a warning to us all which we ignore at our peril.

This week, David Attenborough spelt out our potential fate in a sobering programme aired on the BBC ‘Extinction: The Facts’ which follows on from last year’s documentary ‘Climate Change: The Facts’. It focused, in an extremely hard-hitting way, on the existential threat posed by the loss of biodiversity. It showed clearly what that loss and extinction means, not just for the planet, but for the human species. And it demonstrated with icy clarity that human activity is driving that extinction and that we are at a critical point in our history.

David Attenborough’s documentary coincided with the fifth edition of the UN’s Global Biodiversity Outlook Report which noted the importance of biodiversity in addressing climate change and long-term food security. It concluded that action to protect it is essential to prevent future pandemics. Elizabeth Mrema, The Executive Director of the Convention on Biological Diversity said:

As nature degrades… new opportunities emerge for the spread to humans and animals of devastating diseases like this year’s coronavirus. The window of time available is short but the pandemic has also demonstrated that transformative changes are possible when they must be made.’

This is maybe our final wake-up call.

And yet, according to analysis by the RSPB (Royal Society for the Protection of Birds), the UK has failed to reach 17 out of 20 UN biodiversity targets agreed at the Convention on Biological Diversity in Nagoya, Japan in 2010.

Whilst the government claims a better record, Kate Jennings, at the RSPB commented that the government’s assessment was a rose-tinted interpretation with lots of positive rhetoric that was not borne out by action. The report suggested that the UK has gone backwards, and the government’s significant failures include insufficient funding for nature conservation. Jennings said ‘‘we’re fundamentally dependent on nature so God help the lot of us if we don’t make serious headway in the next decade … past performance doesn’t inspire confidence’.

In 2016, the WWF’s Living Planet Report warned that overall global vertebrate populations were on course to decline by an average of 67% from 1970s levels by the end of the decade unless urgent action was taken to reduce humanity’s impacts on species and ecosystems. It called on governments to fast-track action on conservation, climate change and sustainable development. Now, at the end of that decade, little seems to have been achieved despite the political rhetoric. In the words of Mike Davis in an article in the Red Flag, ‘our imaginations can barely encompass the speed or scale of the catastrophe.’ While we stand by and watch in horror, we should remember the dire warning that Mike Barrett from the WWF talking about the 2016 report when he said:

‘Humanity’s misuse of natural resources is threatening habitats, pushing irreplaceable species to the brink and threatening the stability of our climate.’

This week has been an opportunity to reappraise where we are. To examine our behaviour as a human species and to understand the stark reality that saving nature is about saving ourselves. We coexist with nature not apart from it.

It was, therefore, all the more surprising to hear a Cambridge Environmental Economist claim in an interview this week whilst discussing the environmental and biodiversity challenges we face that the reality was that governments were strapped for cash, as if somehow that was an impediment to action.

At the same time, David Cameron, in an updated foreword to his memoirs, suggested in a Daily Mirror article that austerity had ‘fixed the roof when the sun was shining’ adding that ‘Covid-19 was the rainy day we have been saving for’ and that their actions ‘meant that the next but one administration was able to offer an unprecedented package of measures to prop up the economy.’ This seems as usual to be the Tories re-writing history in the face of on-going disaster.

For anyone who knows something about how government really spends, this would be a moment to fall off one’s chair in astonishment, given that the consequences of cutting public spending have been disastrous in terms of the economy, people’s lives and the public and social infrastructure. It has left it barely able to manage the on-going challenges of Covid-19 and is now revealing serious fractures in society caused by economic decline, lack of investment in public infrastructure, low wages, hunger, destitution, and homelessness.

This is not the work of a government whose role should be to serve its nation with sound policies aimed at improving lives and addressing climate change for the benefit of future generations.

The same old tropes about how government action is constrained by lack of cash or the need to balance its public accounts should now be consigned to the dustbin of history. We have watched as the government has found no money shortage to deal with the crisis we are currently going through. We have watched as it has spent like there is no tomorrow on giving contracts to all and sundry with no checks or accountability. Remembering at the same time the same lack of scarcity when the banks needed bailing out in 2008.

At the same time as a means of exercising economic control, it has cynically put the fear of God into the mind of the public that there will be a future price to pay. That in itself should be our wakeup call that government spending is not dictated by the contents of the public purse but by government choice and the need to respond to both the economic, environmental and health threats we are facing.

With that in mind, it is sad to note that a Cambridge environmental economist who ought to know better is not acting as a good advert for his environmental concerns by suggesting that there is nothing to be done because the government is strapped for cash.

It isn’t!

A tweet from 2018 by Stephanie Kelton puts it simply in a few words.

How I imagine the conversation between the last two people on Earth.

“There were plans to save humanity, but they didn’t cost it out’

They should have learned #MMT’.

While we continue to think that cost is more important than saving the planet, we remain stuck in an economic paradigm which puts balancing the public accounts as being more important than a future for our children.

At the same time, with such arguments, we place similar constraints on our ability to ensure that our young people have the education and vital skills to challenge the existing narrative of ‘there is no alternative’ to create a better and more sustainable future and be in themselves a channel for the change we need.

According to the IFS in its 2020 report, state schools have suffered the biggest fall in funding since the 1980s and the promised additional expenditure by the government will not be able to reverse the cuts by 2023 leaving school spending 1% lower than in 2009/10.

This is absurdly the same IFS that whilst reporting on the dire state of our schools due to funding cuts at the same time bemoans the state of our public finances and worries about how government can pay for its huge round of public spending. A clear contradiction in terms.

As Mary Bousted, the joint secretary of the National Education Union, noted ‘It is a historic failure of the nation’s children’. All at a time when the government should be pulling out all the monetary stops to avoid the ensuing catastrophe both environmental and economic in terms of addressing climate change and levelling up society by dealing with the poverty and inequality. It is a bleak reminder of how government choices influence detrimentally the choices of others.

Our politicians, academics, unions and the public are caught in the glare of a toxic ideology which if not swept away will constrain the ability of the human race to build a better, more sustainable future for all.

The government has the means to manage these crises. It has the monetary tools to address climate change, unemployment poverty and inequality within the context of available real resources. It has the tools to implement a just transition towards a fairer, cleaner and more sustainable planet.

As the Reverend Delman Coates observed recently:

‘We must learn to see our government as a tool of empowerment for our communities, and demand it be deployed accordingly.’

It’s up to us to make that change happen.

 

 

Upcoming Event

Phil Armstrong in Conversation with Bill Mitchell – Online

September 27 @ 12:30 pm – 1:30 pm

GIMMS is delighted to present Phil Armstrong in conversation with Bill Mitchell. We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Register via Eventbrite

Join our mailing list

If you would like GIMMS to let you know about news and events, please click to sign up here

Support us

The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The environmental clock is still ticking onwards appeared first on The Gower Initiative for Modern Money Studies.

The "Noble Lie" on Public Spending and Inflation

Published by Matthew Davidson on Sat, 19/09/2020 - 11:00am in

[I suck at organising information. I've tried all sorts of fixes for this, both off-the-shelf and DIY. So now I'm going to just use tagged blog posts to organise things, so I can suck at this in public. No need to thank me.]

Introduction

Paul Samuelson, 1995

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Paul Samuelson on Deficit Myths — L. Randall Wray

Martin Wolf, 2020

In my view, [MMT] is right and wrong. It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint.

Summer books of 2020: Economics — Martin Wolf [mirror]

Ross Gittins, 2020

But once demand was growing faster than the supply of real resources, any further money you created would simply cause inflation. This is what’s really worrying the opponents of MMT (and me). If you let the politicians off the leash to spend as much as they liked up to a point, how would you ever get them to stop once that point was reached?

We're edging towards a big change in how the economy is managed — Ross Gittins

 

 

What’s the choice?

Do we accept there is no alternative to our rotten economic system or demand something different? Let’s re-examine our values and use our imaginations to redefine how we work and live.

Sign that says "imagine" fixed to a stone wallImage by Belinda Fewings on Unsplash

“We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system, the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).
This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence”.

(Michał Kalecki, 1943)

In 2010 Professor Michael Marmot published his independent review (commissioned in 2008 by the then Labour government) ‘Fair Society, Healthy Lives’ in which it was concluded that reducing health inequalities was a ‘matter of fairness and social justice’ and that ‘tackling social inequalities and tackling climate change must go together’. It recommended that reducing them would require action on six policy objectives:

  1. Give every child the best start in life
  2. Enable all children, young people and adults to maximise their capabilities and have control over their lives
  3. Create fair employment and good work for all
  4. Ensure healthy standard of living for all
  5. Create and develop healthy and sustainable places and communities
  6. Strengthen the role and impact of ill-health prevention.

The general election which the Conservatives won was premised on the illusion that Labour had spent too much and that it was necessary to restore the public finances to health. This, we were told, would necessitate a programme of austerity to cut public spending and balance the books. The government spent the next decade doing just that but at huge social cost as, a decade later, the evidence shows.

In February, just before Covid-19 began to take its toll both in lives and on the economy, The Institute of Health Equity published an update to mark 10 years from the 2010 report in which it highlighted the following:

  • People can expect to spend more of their lives in poor health
  • Improvements to life expectancy have stalled and declined for the poorest 10% of women
  • The health gap has grown between wealthy and deprived areas
  • Place matters – living in a deprived area of the North East is worse for your health than living in a similarly deprived area in London, to the extent that life expectancy is nearly five years less.

The comparison between the objectives in the original report and the current situation is stark. As Professor Marmot who is a director of the UCL Institute of Health noted:

‘This damage to the nation’s health need not, have happened … Austerity has taken a significant toll on equity and health, and it is likely to continue to do so. If you ask me if that is the reason for the worsening health picture, I’d say it is highly likely that is responsible for life expectancy flat-lining, people’s health deteriorating and the widening of health inequalities. Poverty has a grip on our nation’s health – it limits the options families have available to live a healthy life. Government health policies that focus on individual behaviours are not effective. Something has gone badly wrong.’

Addressing the Covid-19 pandemic and its on-going consequences has been made much more difficult as a result of the pursuit of unnecessary austerity driven by political aims and not financial necessity. Not only has our public and social infrastructure been devastated, but government policies have wrecked people’s lives – either through punishing social security reforms or wage policies designed to favour the interests of employers over employees. All being enabled by the lie that there was no money

Instead of prioritising the existing health inequalities that the original report revealed, the newly elected government chose, through its spending and employment policies, to purposefully ignore them. It pursued quite a different agenda which has proved to be more about reducing state intervention (with the incorrect narrative of unaffordability) whilst at the same time endlessly promoting the idea of personal responsibility and self-reliance.

Responsibility for the social determinants of health which should lie within the purview of government through its policies to ensure a healthy nation and economy, has thus been shifted downwards to citizens. The social and economic conditions in which people live determine both individual and national health and we have lost sight of the fact that the health of the nation is one of its most important assets. Poverty, poor wages and working conditions, the scourge of unemployment, a social security system unfit for purpose, poor housing, poor food, and a deficient education system are disturbing indicators that something is very wrong and demonstrate very clearly the toxic nature of market-driven policies deriving from neoliberal ideology.

At the same time, as a report published in February for the ONS (Office for National Statistics) ‘Social Capital 2020’ revealed, we are becoming an increasingly fragmented and divided society as trust in government has fallen and our sense of isolation and lack of community belonging has increased having a significantly deleterious effect on social cohesion.

So, when Boris Johnson and his cohorts began talking about levelling up, people began to feel hopeful that the government was beginning to take responsibility as a potential architect for restoring social cohesion through its spending and policy decisions to improve the lives of its citizens and create a society which understands collective obligation.

And yet to date, there has been little sign of government intervention on that score. In fact, the words ‘levelling up’ have yet to go beyond mere words. And indeed, as the debate about how the government’s vast fiscal injection will be paid for only this week, a Conservative MP suggested that the pandemic will make levelling up even harder, once again implying that scarcity of money will, in the end, put the brakes on further government action. It plays to our false understanding of how governments spend and allows the narrative of more taxes or perhaps another round of austerity to be justified.

The plain truth is that as we are increasingly learning government has become the agent of big business rather than the driver of social cohesion and well-being whilst at the same time acting as a cash cow for businesses, all without public accountability. Contracts being dished out left right and centre!

As has been noted in previous blogs the price we are paying is a heavy one. As voluntary organisations step in to bridge the gap whether it is university law students providing legal advice to plug the gap in access to justice, volunteers in the health service to support an overstretched NHS, or indeed those involved in food banks to keep hunger from the door of its many recipients we are being primed by an appeal to our goodwill to accept the idea that there is no alternative since public funds are we are told unavailable.

We are moving towards such goodwill actions becoming indispensable and the societal norm. Only last year the co-founder of Probonoeconomics Andy Haldane suggested that volunteering could help society and provide the NHS with skills which would otherwise cost ‘hundreds of pounds per hour’. At the same time, we have private residential care providers suggesting that robots could take the place of human contact in reducing loneliness amongst residents. When cutting costs and profit becomes the sole driver for human activity it is time to challenge such notions before it is too late.

Volunteering cannot become the default to plug those deliberately created gaps in health and social provision to serve a toxic market-driven ideology. Indeed, it could not fill those gaps adequately in the long term.

The implication that the government is financially embarrassed must be challenged. At every turn, we are treated to household budget narratives to defend government spending policy. And yet whilst the government can find billions for a test and trace service for Covid-19 (outsourced to private companies – Deloitte, Serco and G4S) it cannot find the money for publicly funded and delivered public service provision both at national and local level, a state-backed job guarantee or a basic living wage income to ensure that those who cannot work for any reason can live decently and without fear.

One of the key objectives of the 2010 report from the Institute of Health Equity mentioned at the beginning of this blog was to create fair employment and good work for all.

Good, well-paid employment either in the private or public sector is one of the vital ingredients for overall economic stability and a healthy society. The role of government therefore should be to ensure full employment as a policy objective to create stability both in normal and abnormal economic times such as these.

And yet whilst government continues to grapple with the economic fallout from Covid-19, which is not over by any means, its Chancellor seems to be sticking to his guns on closing the furlough scheme regardless of its implications and is supported by the Bank of England’s chief economist Andy Haldane who has warned against its extension on the basis that such a move would prevent a ‘necessary process of adjustment’ taking place.

On that basis, it would seem that rising unemployment will be in their eyes an acceptable price to pay for this shakeout whilst ignoring its damaging consequences on the economy and the knock-on effects on people’s financial stability and their health. Can we also suppose that it will likely be used to drive a further extension of a low wage, insecure employment economy?

The former Prime Minister, Gordon Brown at the same time has attacked the Bank of England for failing to place sufficient emphasis on job creation. As the architect of the supposed central bank independence he claimed would give it the freedom to control monetary policy. But this was, in reality, a convenient sham – a mechanism to sidestep government’s responsibility as an elected body to deliver economic stability. As Professor Bill Mitchell wrote in 2017 ‘The point is that central banks can never be independent of treasury departments and claims to the contrary were just part of the depoliticization of policy that accompanied neoliberalism’. The central bank is the servant, not the master.

Economic stability is in the hands of government through the policy choices it makes and its spending decisions. It alone has the power, through its currency sovereignty, to ensure full employment. Given the dire predictions for the economy in this obvious time of great change related to the pandemic and also the need to address climate change, we need a government committed to price stability through the implementation of a centrally funded and locally organised job guarantee to guide us through these difficult times. Whilst magic bullets don’t exist, it will be important to avoid a 1930s scenario of mass unemployment and ensure a just transition whilst the great climate change shakeout progresses. We need radical solutions, not next week, next month or next year we need them now.

And yet while Rishi Sunak talks about tax increases to pay for the coronavirus bailouts and the Treasury Committee suggests laying out a road map for the autumn budget for repairing the ‘hole in the public finances’ with a proposal for a temporary abandonment of the triple lock on pensions, the public are once again being primed for bad news. Whilst tax reform should be on the agenda, raising taxes at this juncture would be a foolish path to take which would do nothing to support the economy. And instead of repairing the ‘hole in the public finances’ a monetarily savvy government would be looking to repair the very real holes in the public and social infrastructure it alone has been responsible for over the last 10 years.

With the government we currently have in place, we might be whistling in the wind as it clearly has other objectives and other estates to serve. However, that does not mean that we, as an increasingly informed public through the power of civil movements, cannot force the sort of reset that would benefit ordinary people by redefining the role of government as a servant of the people rather than the rich and powerful global interests which currently influence policy and economic direction.

 

 

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The post What’s the choice? appeared first on The Gower Initiative for Modern Money Studies.

MMT Primer Manuscript Filled Out -> Publishing Pause

Published by Anonymous (not verified) on Sat, 12/09/2020 - 12:39am in

Tags 

Books, MMT

I have wrapped up the first pass of my manuscript. It is mainly a MMT primer, but it is built around a discussion of the upcoming expansion, and whether it will repeat the experience of past cycles. Although I initially planned for a shorter book (as always!), the manuscript is nearly 50,000 words, which is short when compared to full-length books (a novel is typically at least 100,000 words, a 50,000 word fiction piece would be considered a novella), but longer than my earlier books. (The word count should drop as I edit the text, but I cannot see it dropping below 40,000 words.) 
Most of the content was previously published as articles here, and what I had been doing is a cleanup of text, and putting the sections together. I am now doing an editing pass where I am mainly eliminating topics that crop up in other places. Since I do not want to go "here's an article I published last month, with three paragraphs removed!" output here will be fairly low.
The text was fairly easy to write, and I hope it is easy to read. The hope is that this means that the next editing steps will be relatively painless. I simplified the formatting - no equations, nor footnotes/endnotes, so that final publication formatting is easier.
I might be organised and attempt to do a simultaneous release of all editions. This would add up to an extra month, but it means that I am not stuck in a position where the Kindle version is out much earlier than the paperback.
(c) Brian Romanchuk 2020

Yet Another Example Of Mainstream Handwringing About Debt

Published by Anonymous (not verified) on Tue, 08/09/2020 - 3:30am in

Tags 

fiscal, MMT

John Cochrane has given us yet another example of how neoclassical economics differs from MMT on the question of fiscal policy. Arguing that there is "nothing new to MMT" is not paying attention.

I just highlighted some of the points of the article:

The first thing to note is that he uses the primary fiscal balance equation without any consideration that behaviour might change as the stock of debt rises. His entire mental model is based on a trivial mathematical framework where feedback loops between wealth and income do not occur.

In words, growth in the debt to GDP ratio equals the difference between rate of return and GDP growth rate, less the ratio of primary surplus (or deficit) to GDP. 

Next, interest rates paid are not a policy variable, they are determined only by what bond investors wish they could get.

 But if investors get worried about the US commitment to repaying its debt without inflation, they might charge 5% interest as a risk premium.

Finally, the U.S. faces the exact same rollover risk as Greece,

It's not a total guarantee. A debt crisis can break out when the country needs to borrow new money, even absent a roll over problem. But avoiding the roll-over aspect would help a lot! Greece got in trouble because it could not roll over debts, not because it could not borrow for one year's spending. 

I addressed these points in recent articles, so I will just observe that MMT contradicts all three.

(c) Brian Romanchuk 2020

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