Modern Monetary Theory

Education…education…education

Published by Anonymous (not verified) on Mon, 03/12/2018 - 2:24am in

Aerial view of students wearing mortar boards at a graduation ceremonyAnd in the news this week…

 

Education…education…education.

 

Last week the Public Accounts Committee published its findings on the sale of the student loan book.  The government was criticised for having sold yet another public asset for half its face value, but it explained that net government debt would fall as a result, enabling it to borrow more. The PAC, in its turn, said in its report that it had expected the Treasury to get the best possible deal on behalf of the taxpayer and achieve its aim of reducing the public sector net debt.  And then according to the Office for Budget Responsibility, in its Student Loans and Fiscal Illusions working paper published earlier this year, the sale was also a ‘perverse incentive’ to make it appear that the public finances had improved. It then went on to estimate that the government’s plans would, in addition, deprive the Treasury of billions in repayments over the lifetime of the loans thus making the country poorer in the long term.

The fiscal language of government and its institutions cited above is instructive, and demonstrates how government’s success or failure is being measured in household accounting terms rather than the effects of its spending policies on environmental, economic and social well-being of the nation.  A good deal for taxpayers, reducing public deficit and debt, depriving government of revenue, borrowing from the future and debt burden are all examples of recurrent tropes which are fed into the public arena daily by politicians, journalists and institutions. So, it is no surprise that people are led to believe that the state finances resemble their own household budgets and they judge a government by how much it reduces or increases the deficit or debt. The vocabulary of income, spending, borrowing and debt however does not apply to a government which issues its own currency and the term fiscal responsibility should be confined to measuring how such a government balances the economy by ensuring that money creation does not exceed the productive capacity of the nation.

 

And in more news on education

 

“Privatisation, marketisation, neo-liberalism and austerity are beams of the same sun.”

Steve Watson, Faculty of Education (Cambridge University).

 

While the government focuses on accounting gymnastics to balance its accounts, the dire state of higher education has been in the public spotlight this month as it was revealed that the universities watchdog was forced to give a struggling institution an injection of cash so that it could remain afloat. This followed news earlier this month that three universities were on the verge of bankruptcy and having to rely on bridging loans to keep going.  The financial uncertainty was said to be linked to falling numbers of 18 year olds applying to go to university, increased competition for students and more stringent immigration controls on foreign students who, in the absence of adequate government funding, bring much needed revenue to university coffers.  The University funding policy and funding report published in 2016 noted that given limited government funding and the fact that not all universities can borrow more over the long term, they will need to maintain and grow their student numbers, including those from outside the EU, to fund increased investment.  As governments fights over allowing foreign students to access higher education and adequate funding streams from government a train crash would seem inevitable.

How have we come to this pass? The process started in the 1990s with the first steps towards the marketisation of higher education.  New Labour followed the Tories lead and gave universities the right to charge tuition fees, thus changing the very basis upon which universities were funded. Private debt instead of government spending became a primary mechanism to finance higher education. As Steven Watson who lectures in the Faculty of Education at Cambridge University notes:

“The introduction of student loans, tuition fees and subsequent increases are all part of the commodification and privatisation of higher education. The Higher Education and Research Bill that was hurried through before the general election in 2017 further embeds the consumerization of higher education, with the creation of the Office for Students and providing opportunities to establish challenger institutions to increase competition in the sector.”

Universities have become businesses with a product to sell and students have become customers with choices. University management elites command huge salaries whilst lecturers increasingly face the prospect of insecure contracts and low pay. According to an analysis by UCU published in 2016 university teaching is now dominated by zero-hours contracts, temp agencies and other precarious work.  It also noted that the richest Russell Group institutions rely heavily on insecure academic workers.

Instead of higher education being about learning, exploration and creativity, it is increasingly becoming commodified; serving the interests of capital rather than the development of the individual for life and the benefit of society. Already, as Steve Watson notes, there is the potential for subjects that do not have a direct link to the world of work to disappear or be reconfigured for employability.  And while universities struggle for funding and try to cut costs, students face the prospect of a lifetime of education debt without even the certainty of finding a good, well paying job at the end of it.

The public is fed a daily diet of the benefits of choice, competition and private-sector efficiency and innovation, whether we are talking about education, the NHS, or the energy, rail and water sectors, when the reality is that it has more to do with accruing capital, than providing high quality public services. We are also fed the daily lie that the government has no other alternative as it has no money of its own and must seek to balance its accounts to prove its financial competence.

BUT the national economy is not one great big household, and a government which issues its own currency could, by making a political choice, spend on our public services tomorrow. Why would it not do so?  Education is an investment which is not just about economics. It gives people the skills they need for life, enables them to ask questions and seek solutions as well as confront the challenges of our times from social issues to environmental ones. Getting with monetary realities is a first step in challenging the neoliberal, market driven status quo.

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The post Education…education…education appeared first on The Gower Initiative for Modern Money Studies.

An MMT View of the Twin Deficits Debate

Published by Anonymous (not verified) on Thu, 15/11/2018 - 7:33am in

Invited Presentation by L. Randall Wray at the UBS European Conference, London, Tuesday 13 November 2018 Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often … Continue reading →

The post An MMT View of the Twin Deficits Debate appeared first on New Economic Perspectives.


A Better Way to Think about the “Twin Deficits”

Published by Anonymous (not verified) on Wed, 14/11/2018 - 1:59am in

(These remarks will be delivered today at the UBS European Conference in London.)

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

The budget and trade deficits are unsustainable as both the private sector and the government sector rely on the supply of dollars lent by foreigners. At some point the Chinese and others will demand payment and/or sell out of dollars causing US rates to rise and the dollar to crash.

While that’s a simplified summary, I think it captures the main arguments.

Here’s the way I see it:

  1. Overnight rates are set by the central bank; deficits raise them only if the central bank reacts to deficits by raising them.
  2. Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)
  3. Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.
  4. Current account deficits result from the rest of the world’s (ROW’s) desire to net save US dollar assets. So long as the ROW wants to accumulate dollars, the US trade deficit is sustainable. So there is a symmetry to the two deficits, but not the one usually supposed.
  5. The US government does not borrow dollars from China. China’s net exports lead to accumulation of dollar reserves that are exchanged for higher earning Treasuries. If China did not run current account surpluses, she would not accumulate many Treasuries. All the dollars China has came from the US.
  6. If the US did not run current account deficits, the Chinese and other foreigners would not accumulate many Treasuries. This shows that accumulation of Treasuries abroad has more to do with the trade deficit than with Uncle Sam’s borrowing. (Compare the US with Japan—where virtually all the Treasuries are held domestically.)
  7. A sovereign government cannot run out of its own liabilities. All modern governments make and receive payments through their central banks. Government spending takes the form of a credit by the central bank to a private bank’s reserves, and a credit by the receiving bank to the account of the recipient. You cannot run out of balance sheet entries.
  8. Affordability is not the question. The problem with too much government spending is that it diverts too many of the nation’s resources to the public sector—which causes inflation and leaves the private sector with too few resources.
  9. So, no, I don’t worry about sovereign government debt if it is issued in domestic currency—although I do worry about inflation, and about excessive private sector debt as well as non-sovereign government debt.
  10. To conclude: We’ve reversed the twin deficit logic and emphasized quantity adjustments. The twin deficits are the residuals that accommodate the desired net saving of the domestic private sector and the ROW, respectively.
  11. Usually the domestic nongovernment sectors want to accumulate dollars so the only sector left to inject dollars is the US government. This means Uncle Sam runs a deficit because others want to accumulate dollars. The government also accommodates the portfolio desires of the nongovernment by swapping dollar reserves and bonds on demand.
  12. Finally, if the ROW does not want dollars anymore, it can buy goods and services in the US. That will reduce the external deficit, stimulate domestic demand, and thereby reduce the fiscal deficit.

A Better Way to Think about the “Twin Deficits”

Published by Anonymous (not verified) on Wed, 14/11/2018 - 1:59am in

(These remarks will be delivered today at the UBS European Conference in London.)

Q: These questions about deficits are usually cast as problems to be solved. You come from a different way of framing the issue, often referred to as MMT, which—at the risk of oversimplifying—says that we worry far too much about debt issuance. Can you help us understand where fears may be misplaced?

Wray: First let me say that I think the twin deficits argument is based on flawed logic.

It runs something like this: the government decides to spend too much, causing a budget deficit that competes with private borrowers, driving interest rates up. That appreciates the currency and causes a trade deficit.

The budget and trade deficits are unsustainable as both the private sector and the government sector rely on the supply of dollars lent by foreigners. At some point the Chinese and others will demand payment and/or sell out of dollars causing US rates to rise and the dollar to crash.

While that’s a simplified summary, I think it captures the main arguments.

Here’s the way I see it:

  1. Overnight rates are set by the central bank; deficits raise them only if the central bank reacts to deficits by raising them.
  2. Budget deficits result in net credits to bank reserves and hence put downward (not upward) pressure on overnight rates that is relieved by bond sales by the Fed and Treasury—or by paying interest on reserves. In other words, there’s no crowding out effect on rates. (Inaction lets rates fall.)
  3. Budget deficits result from the nongovernment sector’s desire to net save government liabilities. So long as the nongovernment sector wants to net save government debt, the deficit is sustainable.
  4. Current account deficits result from the rest of the world’s (ROW’s) desire to net save US dollar assets. So long as the ROW wants to accumulate dollars, the US trade deficit is sustainable. So there is a symmetry to the two deficits, but not the one usually supposed.
  5. The US government does not borrow dollars from China. China’s net exports lead to accumulation of dollar reserves that are exchanged for higher earning Treasuries. If China did not run current account surpluses, she would not accumulate many Treasuries. All the dollars China has came from the US.
  6. If the US did not run current account deficits, the Chinese and other foreigners would not accumulate many Treasuries. This shows that accumulation of Treasuries abroad has more to do with the trade deficit than with Uncle Sam’s borrowing. (Compare the US with Japan—where virtually all the Treasuries are held domestically.)
  7. A sovereign government cannot run out of its own liabilities. All modern governments make and receive payments through their central banks. Government spending takes the form of a credit by the central bank to a private bank’s reserves, and a credit by the receiving bank to the account of the recipient. You cannot run out of balance sheet entries.
  8. Affordability is not the question. The problem with too much government spending is that it diverts too many of the nation’s resources to the public sector—which causes inflation and leaves the private sector with too few resources.
  9. So, no, I don’t worry about sovereign government debt if it is issued in domestic currency—although I do worry about inflation, and about excessive private sector debt as well as non-sovereign government debt.
  10. To conclude: We’ve reversed the twin deficit logic and emphasized quantity adjustments. The twin deficits are the residuals that accommodate the desired net saving of the domestic private sector and the ROW, respectively.
  11. Usually the domestic nongovernment sectors want to accumulate dollars so the only sector left to inject dollars is the US government. This means Uncle Sam runs a deficit because others want to accumulate dollars. The government also accommodates the portfolio desires of the nongovernment by swapping dollar reserves and bonds on demand.
  12. Finally, if the ROW does not want dollars anymore, it can buy goods and services in the US. That will reduce the external deficit, stimulate domestic demand, and thereby reduce the fiscal deficit.

FUTURE DOLLARS

Published by Anonymous (not verified) on Sun, 11/11/2018 - 11:34pm in

By J.D. ALT In recent essays I’ve made reference to a new framing of what is actually happening when the U.S. treasury issues a bond. It seems to me, this new framing goes to the heart of MMT and might … Continue reading →

The post FUTURE DOLLARS appeared first on New Economic Perspectives.


A weekend of quiet reflection

Published by Anonymous (not verified) on Sat, 10/11/2018 - 4:46am in

TSoldier asleep in the trenches in World War Oneoday’s blog comes just before the weekend commemorating 100 years since the end of the First World War, the ‘war to end war’. When it started people thought it would be over in a matter of months but it turned into a fight to the bitter end. It is regarded as the first “total war” in which military and industrial resources and people were mobilised on a scale never before thought possible. Trench warfare created an endless demand for men, munitions and supplies with often no apparent gains or victories. But by the beginning of 1918 those resources had been drained too much. Demoralised German workers, suffering from food and fuel shortages, threatened revolution at home. The German leaders eventually asked the forces allied against them for peace.

The armistice went into effect at 11am on 11 November, 1918.

The war did not end all wars. The brutality and pitiless nature of the war and the sacrifice of the combatants did help to change the world, though. The reaction to the two world wars, the ravaging of communities by the 1919 flu epidemic and the Great Depression combined to bring about the great social benefits of the NHS and the Welfare State. 100 years on those benefits are under serious threat and among those who will suffer the consequences of a fraying safety net will be those who have given military service in both war and peacetime.

This weekend we will respect their memory in a modern way. We will not post or comment on social media from sunset on Friday to sunrise on Monday.

The idea of a weekend of quiet reflection appeals to us even more in the context of recent arguments on social media over MMT. A great deal of noise is being generated over what is, at heart, a matter of too many people, on both sides of the argument, who are not prepared to understand, or take the time to read, what MMT actually is. We read various criticisms along the lines of ‘MMT hasn’t taken account of taxation and integrated it into a more comprehensive theory or explanation of how a modern economy works’ or ‘MMT still needs to be developed’. And we also see supporters saying they like the basic ideas but ‘we still need to tax the rich and MMT should say that’.

There is clearly some confusion in the ‘taxes don’t pay for spending’ message, in that it is being interpreted as ‘we don’t need taxes’. Perhaps someone would like to bend their creative talents to thinking of a neat way to encapsulate that idea that carries the real message better?

With this in mind, this blog is going to run through a few of the basics that should be understood by supporters and critics alike.

MMT is a ‘theory’ in the way that relativity or evolution is a ‘theory’, in other words it is an intellectual school of thought based on empirical evidence of how things work. It is a blend of established macroeconomic theories including Chartalism and the work of successive and influential 20th century economists such as John Maynard Keynes, Abba Lerner, Hyman Minsky and Wyn Godley. That is why it is called ‘Modern’, in the same way as we would say ‘Modern Art’. These people have influenced the work of more recent economists and finance experts. Professors Bill Mitchell, Stephanie Kelton, L Randall Wray and Warren Mosler have been working together to develop it into a comprehensive and coherent body of work for 25 years.

It is an antidote to the neoliberal economic traditions which have a firm grip on the way our politics is currently ordered in the way that Keynesian economics was the antidote to the chaos of the post-gold standard years.

When governments spend they create new money. When they tax they destroy it. When commercial banks make loans they create new money. When the loan is repaid the money is destroyed. All money creation, whether by government decree or bank license is ultimately backed by the government, not by the private sector. Regardless of who is in government this radically transforms any understanding of the relationship between the government and the non-government sector compared to the existing neo-liberal polity which places government as supplicant at the feet of the City. That matters. This is ‘political’ even though it may not be party-specific political.

Criticism frequently comes from those who are defending the economic status quo (defending balanced budgets as an objective in its own right, etc) whilst maintaining that they support strong social policies. The reason we had strong social policies post WWII was because there was a consensus around Keynes. Privatisation became the order of the day because Keynes was discredited and Friedman took his place in the ascendancy, the ground having been assiduously prepared in advance by the Mont Pelerin Society. This orthodoxy must be swept away if there is to be any change from austerity. There are those who believe that rehabilitating Keynes will do the trick, but Keynesian economics is tied to the social, institutional and political conditions pre 1971. We are no longer in that world. We need a new dominant economic narrative.

Wishing you all a peaceful weekend.

 

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The post A weekend of quiet reflection appeared first on The Gower Initiative for Modern Money Studies.

Why governments need to issue bonds despite modern monetary theory

Published by Anonymous (not verified) on Sat, 10/11/2018 - 1:37am in

I wrote this in June. In the light of my blog on modern monetary theory today and the comment I made in it that the government must act as the borrower of last resort I think it appropriate to republish it. I do so knowing it contradicts modern monetary theory. Political judgement and the needs of financial markets suggests that doing so is appropriate for the reasons I note. Modern monetary theory is not, in other words, the answer in all cases: it can just inform the process in which a government decides to engage. 

_______

In principle a government with its own central bank does not need to issue gilts to cover its deficit: it can simply run an overdraft instead, and pay no interest. In practice there are good reasons why debt is issued.

First, people need safe places to save.

Second, those with pensions need locked in and guaranteed income streams.

Third, the banking sector has, post 2008, needed government bonds as a mechanism to secure overnight deposits.

For these reasons I am not opposed to bond issues at low or effectively no net interest cost. And that is possible right now.

As the FT has noted today, 10 year government bonds have not paid more than 1.5% in the last few years. And the demand for 50 year bonds is so strong that they are paying lower interest rates than 30 year gilts.

The FT’s conclusion is that this indicates a capacity to issue more debt because the demand for it exists. I am entirely sure it does.

And if other debt was packaged for a domestic market - as an NHS bond, for example, in an ISA wrapper - then I suspect there would be a very strong take up. What is more the myth that the debt is so bad would be shattered: it would be seen as the simple savings system that it is.

The simple fact is that markets need and would readily buy more government debt. Gilt issues are six times over-subscribed at present. It’s completely baffling that the government refuses to supply people with the savings products they want - and most especially longer-term locked in ones - when there is no net cost to doing so in interest terms and the country is crying out for the benefit of the spend which it will not get if these funds are instead directed into private savings arrangements.

Is it really too much to hope that someone, somewhere, might see the sense of what even the FT thinks is the obvious thing to do, which is to issue more debt to assist the provision of improved government services!

Modern monetary theorists need to take a long and hard look at how they are campaigning if their case is to be won

Published by Anonymous (not verified) on Fri, 09/11/2018 - 5:33pm in

This is not an easy blog to write. I am well aware some people will not like me for writing it. And I am going to say it anyway, because I think it is necessary.

I have thought a lot about modern monetary theory of late. I think I can rightly claim to have introduced quite a lot of people to this idea in the UK. I arrived at the thinking that is, in effect, modern monetary theory via work I did on money fifteen or so years ago (before this blog existed) and through my thinking about taxation.

People's Quantitative Easing was one of the manifestations of that process, which I do think is an MMT  variant even if some would appear to deny it.

What I wrote about tax and money in The Joy of Tax is further evidence of this direction of travel. The tax angle, in particular, is very unusual amongst modern monetarists. In fact, it was precisely because many modern monetarists showed little or no appreciation of the importance of tax justice in their work I was very wary of directly aligning with MMT for quite a long time.

Eventually, I took that risk. And I have to say that right now I beginning to regret having done so. I am not alone:   I know others who I respect, and who wholly understand what MMT is saying, who are asking why it is worth having anything to do with MMT.

Let me be absolutely clear. I am not moving from my belief in what I think MMT says. There is something elegantly simple and radical about what is called modern monetary theory, even if nothing it has to say is modern, theoretical or in some ways much to do with money. What MMT says, as far as I am concerned, is as follows.

First, in a country with a fiat currency,  which means that there is no asset backing to the money in circulation, which money does as a result only get value as a consequence of a government's promise to pay, there is, at least in theory, no limit to the amount of money that a government can create.

Second,  a government creates money every time it spends because it instructs its central bank to extend it the credit to do so on every such occasion. It is not constrained by the availability of taxation funds when doing so: money can always be created by a bank on demand and at will, and central banks will always do this when instructed to do so by the governments that own them.

Third, to prevent this new money creating excess inflation a government has to tax to withdraw currency from circulation. This is the primary fiscal purpose of taxation, although tax also has other, as significant, purposes as noted below.

Fourth,  the government does not need to borrow if it runs a deficit.  Firstly that is because it can, at least in theory, simply run an overdraft at its central bank, on which no interest may be charged. This negates the need for borrowing. Second, government borrowing actually makes little apparent economic sense in an economy using the fiat money of the national government because the money that is supposedly borrowed has already been created by the government when injecting cash into the economy through its spending. But, and I stress the point very strongly, that does not mean that a government should not appear to borrow.  A government has a social duty to be the borrower of last resort to its population and financial system. That is the function of government borrowing, and it is vital to the efficient operation of any fiat currency using economy.

Fifth, the same social obligation means the government is not indifferent to the way in which taxation is levied, or to non-payment of tax, even if sufficient tax is collected to secure the fiscal balance that it desires. Tax  might have a primary goal of  controlling inflation, with the secondary advantage that the tax charged for this reason provides the currency with value,  but tax also has the other deeply significant social purposes of correcting income and wealth inequality; repricing market failure; delivering fiscal  policy by incentivising or penalising certain activities and  by reinforcing the social contract that exists between a government and its electorate. Tax is a reflection of the values of the society we live in and is the primary mechanism any government has for reinforcing them. For MMT to be indifferent to taxation is, therefore, completely incorrect. It would also mean that MMT  was indifferent to the distribution of impact of taxation, both nationally and internationally, and I cannot accept that this is its intention.

Sixth,  the fact that the government spends first, and taxes second,  means that the answer to the question 'how are you going to pay for it?'  is always available to anybody who understands this process. A government  decision can always be paid for, presuming the actual resources required to deliver it exist within the economy, simply by commanding the central bank to pay for it and then arranging, if necessary, for the additional tax due on the income that has been generated (because all government expenditure is, by definition, somebody else's income)  to be collected.

Seventh, the realisation that a government that only borrows in its own currency cannot, as a result of this understanding, ever default on its own debt because it can always issue the instruction to its central bank that the payment of that debt be settled,  is also of considerable advantage.  Such a government should never be beholden to financial markets if they do not overheat their economies.

And that's it. That is modern monetary theory in a nutshell. In essence: the sectoral balances balance. Government debt is private wealth. If you want government created money the government has to run a deficit. There is nothing to worry about in this policy so as long as the economy is not overheated as a result. And the art is not over-heating. But the risk of doing that is much smaller than the risk from putting the economy in the fridge to avoid the chance of doing so. This is a universal truth wherever the conditions for the use of MMT understanding apply.

By saying so I make clear a great many other things.

The first is that  modern monetary theory does not apply, and cannot be used,  when the government does not have a fiat currency, or has to borrow in the currency of another country, or lets the currency of another country be used in common circulation within its economy; then the preconditions for modern monetary theory to work do not exist. There is no point pretending that they do when they do not. A failing tax system also prevents MMT functioning in practice.

Second, modern monetary theory does not eliminate exchange rate risk. It still exists. That is in large part because most exchange rate risk has nothing whatsoever to do with government economic action. It is created  by political risk, as has been the case with the substantial down-rating of sterling since the Brexit referendum took place;  or it is created by external price shocks, as for  example are commonplace with regard to energy and other raw material prices;  or it can arise because of short-term speculation, which is only sustainable if economic fundamentals of the type previously noted have changed. But, and I do make this clear, if a government that thinks it believes in modern monetary theory believes as a consequence that it can create money without limit, then it is fundamentally wrong.  Likewise,  if it thinks it can spend without taking into consideration the limit of available resources within the economy itself and ignores entirely the impact upon imports then the use of MMT  can, and usually will,  have a downward impact upon the balance of payments and the long-term value of the currency. This may not be a problem if the process of change is gradual:   many economies have and will sustain themselves despite such long-term declines in value,  but it is pointless to pretend that the risk does not exist.

Third,  there is absolutely no necessary relationship between modern monetary theory and a jobs guarantee, or any other left of centre economic policy come to that.  They are, in my opinion, completely unrelated,  even if it is obvious that modern monetary theory does permit the government to pursue a policy of full employment at fair wages if that is its wish. But the last words are critical:  this may not be a government's wish,   although few parties are honest enough to say so. To presume MMT requries a left-wing agenda is just wrong: it is a description of actions, not an agenda for left wing governments, albeit that it can usefully inform the decision making of those who want such a thing.

Fourth, there is also no relationship between modern monetary theory and anti-neoliberalism. Modern monetary theory is not a theory or a philosophy, which is why it was so badly named. It is simply a description of a process that, as a matter of fact, happens, even if that is not widely appreciated.  In that case there is no conflict between modern monetary theory and neoliberalism and the neoliberal could, in my opinion, as readily prescribe to this idea as anyone of left of centre persuasion.

Fifth, there is also no link whatsoever between modern monetary theory and Brexit. If you believe in MMT you do not have to want out of the European Union. The simple fact is that there are far more factors to consider when discussing such a complex issue than how the government funding cycle works (which is what MMT addresses). It's true that some aspects of EU policy appear antagonistic to MMT, but as quantitative easing showed, most things can be worked around where there is the political will to do so within the EU. And that is the important point: it's creating the political will to change the international environment that matters and MMT can only be one factor in that process of change, at best.

Many MMT adherents do not now seem to appreciate these points, which I think are facts. I have found myself at the sharp end of their comments as a result. I find that just a little bit ludicrous. Those less persuaded than I am by MMT simply take offence when such comments are directed at them, and in many cases I can see exactly why they do that.

MMT is a fact. It does not require aggression to explain it.

Nor does it require the presumption that a person not yet persuaded is a neoliberal. Or a Blairite. Or any other term of abuse that comes to hand. That just alienates people. And that is not the way to change the world.

And a little humility about MMT would also be good. As Frances Coppola said the other day (and she was right on this, in a twitter exchange where I otherwise disagreed with much of what she said), MMT has not got its head around tax. That is true. It largely ignores its social functions, the tax gap, why it is important, and why tackling tax abuse is a fundamental task of government. That is because far too many MMT proponents think the government can simply print money instead of taxing. And that is not true. MMT cannot, in my opinion, function without an effective tax system.

So I am making a twofold plea. The first is that MMT understands tax. The Tax Justice Network and I are discussing how we might assist in this process. There will be more to follow on it.

The second is that MMT proponents do not think that espousing politics that are supposedly the consequence of MMT (when they are not) and which are unlikely to be unacceptable to most in the electorate is necessarily good for MMT. It isn't, and will simply alienate the vast majority, including many of those who are utterly opposed to neoliberalism and all it stands for.

To put it another way, however good MMT might be as an explanation of an aspect of the economy, it does not answer all questions and is no substitute for sound political judgement.

And please note, abusive responses offered here will be highlighted as such, or will simply be deleted. I know only too well that the world is changed by politically sound argument. That's what I have been engaged in doing for a long time. MMT will only succeed by following that path, in my opinion. Discussion is good, of course. But let’s not make it personal.

Money for nothing

Published by Anonymous (not verified) on Fri, 09/11/2018 - 6:34am in

This is well worth watching, and is brand new:

Pensions, Universal Credit and the IMF

Published by Anonymous (not verified) on Sat, 20/10/2018 - 5:23am in

Hands holding empty WalletThe IMF has been busying itself with the UK’s financial position, reported in the FT on the 10 October as “languishing close to the bottom of the international league table for the strength of its public finances (…) The UK’s poor position reflects the fact that the government owns few assets compared with other countries after a wave of privatisation in the 1980s and 1990s, but has big public debts and future pension liabilities to finance in the decades ahead.”

Considering the IMF’s role across the globe, especially in (but not limited to) developing countries, it must be tempting for the government to say, ‘but you told us to’. Indeed the change from full employment as the mainstay of public policy starting in 1976 was a direct result of the then Labour government’s acceptance of the punitive terms of an IMF loan. The IMF demanded a huge cut in public sector spending. It caused a major policy shift.

Since that period, privatisation has been the economic policy of successive governments. All the major infrastructure, utilities and manufacturing industries which had been brought into public ownership in the immediate post-war period have been sold off, as single share offers, wholesale private transfers, or partial staged transfers. And public services are following suit with the piecemeal privatisation of services and sale of public land.

The privatisation agenda and the austerity agenda have become the mainstream economic narrative. This ideology is guided by the notion that leaving the market to its own devices with minimal interference from Government will allow it to find its natural equilibrium and be positive for the economy and citizens alike.

The IMF also joined the clamour from right wing politicians and think tanks for scrapping the triple lock on the UK state pension. Quoting figures from the  Office for Budget Responsibility which suggests that public spending on health care and pensions will increase significantly between 2023 and 2043 it advised that ditching the triple lock could allow the government to make substantial savings on pensions. It also suggested that such savings could help to fund the NHS.

Last year the government announced plans to extend the retirement age to 68 which will affect millions of workers. The DWP claims that the changes will ‘save’ £74bn and aim to ‘maintain fairness between generations in line with continuing increases in life expectancy’. It claimed that ‘combined with our pension reforms that are helping more people than ever save into a private pension and reducing pensioner poverty to a near record low these changes will give people the certainty they need to plan ahead for retirement’. But a report published by the OECD in 2017 said that the British State Pension is now the worst in the developed world. Among those aged 75 and over, 18.5% have income levels below the poverty line, most of whom are women, for which the main reason was the low level of the state pension. Claims that private pensions will save the day for future generations does not alter the fact that is the State pension which provides the safety net in retirement, especially amongst low income groups.

Any claim that cuts to pensions were based on intergenerational fairness were contradicted as it was revealed that at the other end of the generational divide 4.3 million families were being left poorer by the government’s flagship policy Universal Credit. This appeared to be a cut too far even for some Tories.

According to the Resolution Foundation 3.2 million working families will lose money estimated to be about £48 per week and on top some 1.6 million working families, who currently receive benefits, will not get universal credit at all. The evidence is clear the Conservative slogan ‘work pays’ is hollow rhetoric. As the Child Poverty Action Group notes:
“While UC does represent a real advance on many aspects of the current benefits system, it has been designed against a backdrop of fiscal austerity and an increasingly dominant discourse which emphasises individuals’ responsibility for poverty. The reality is that cuts to the generosity of aspects of UC mean that it will not reduce child poverty and may even drive more children into poverty than ever before. (It) critically fails to deal with the issue of adequacy of benefits, while ignoring many of the key structural factors that contribute to child poverty.”

Universal Credit would seem to be less about making things easier for people and more about using it as a vehicle to cut the costs of social security to deliver a political agenda at the expense of lives. It is important to note also that with or without UC George Osborne’s cuts announced in 2015 would continue to have a destructive outcome for some of the poorest people in our communities.

With the Conservative flagship in doubt and Chancellor Philip Hammond’s plans to continue austerity and cuts to public spending (despite Theresa May’s assurances that austerity is over) the question is being asked where could the extra money come from to restore its credibility. Iain Duncan Smith, the architect of the scheme, has suggested that the Chancellor restore the £2bn of cuts made by George Osborne in 2015. Doubt has been cast too on his plans to cut taxes for millions, as the current economic policy has to restrict spending or increase tax in order to maintain budgetary control. In other words to keep the Universal Credit system afloat he needs either more tax or to scrap his plans to give the NHS more funding. With the concepts of balanced budgets and fiscal credibility limiting his options to pay more to Peter he has to rob Paul. Yet with the NHS on the brink of another crisis winter and in a time of economic uncertainty this would be a very bad move indeed and add to the country’s economic problems and human suffering.

The question being posed is the wrong one. In terms of delivering both adequate funding for essential public services and a level of social security income that does not impoverish those who need it, the government has the power to authorise whatever level of spending it the productive capacity of the country can support. Spending decisions should be based not only on real resource questions, but on moral questions too, in the allocation of those resources. If the pension age was maintained and the pension benefit increased and social security was either moved on to an efficient and adequate Universal Credit system or returned to being a tailored basket of payments what would be the effect on inflation (if any) and how would that best be countered? The same question would apply to the spending on public services.

Our state money system bears no resemblance at all to our own household budgets which are defined by our income and expenditure. The only measure by which any government should be judged is whether it has met the needs of its citizens to ensure their economic and social well-being by balancing the economy and not its budget. To ensure intergenerational fairness and to ensure there is no excessive private debt burden in the coming years, the government must use its spending power to maintain and improve standards of income and services. If it does not then millions of children will continue to be deprived of good, safe services and future generations can look forward to bleak prospects at the end of their working lives.

When Aneurin Bevan resigned from the government in 1951, over arguments about the budget, he said “The great difficulty with the Treasury is that they think they move men about when they move pieces of paper about. (…) It has been perfectly obvious on several occasions that there are too many economists advising the Treasury, and now we have the added misfortune of having an economist in the Chancellor of the Exchequer himself. (We should) put the Chancellor of the Exchequer in the position where he ought to be now under modern planning, that is, with the function of making an annual statement of accounts. Then we should have some realism in the Budget. We should not be pushing out figures when the facts are going in the opposite direction.”

The perspective that MMT gives into the functioning of government finances connects money with resources in a direct way. There is no question of confusing the moving of pieces of paper (or digits on a computer screen) with the effect on real lives. It’s a lesson we seem to have to learn over again. It’s time the government started to learn that too.

Intergenerational fairness improved by fiscal deficits – Professor Bill Mitchell

The rising future burden on our kids – Professor Bill Mitchell

 

 

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The post Pensions, Universal Credit and the IMF appeared first on The Gower Initiative for Modern Money Studies.

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