Modern Monetary Theory

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The right wing of economics really do need to learn some very basic things about money

Published by Anonymous (not verified) on Fri, 16/10/2020 - 5:39pm in

My attention has been drawn to the Zero Hedge website where this has been posted:

The conclusion of the piece was:

I was asked to comment on this. I have three comments to make.

First, there is no such thing as fractional reserve banking anymore. Even the Bank of England says that is history. So, the whole basis for this post is wrong.

Second, Zero Hedge appear to be unaware that the quantitative easing process has the effect of creating new bank deposits which are then held with a central bank. This is not by accident. This is by design. And those deposits are not made within the commercial banking system by way of commercial banking loan, because this is central-bank money, and not commercial bank money, and the two are not the same.

Third, that central-bank money is created by loan, just like all of the money is created in that way, but the loan arrangement is entirely within government-controlled functions. This is what differentiates it from commercial bank-created money. Commercial banks can only create money by lending to third parties. Government can do it by lending to itself. In the UK that is done by government / Bank of England interaction. In the US, substitute the Fed, but the outcome is the same.

Given these three facts, what Zero Hedge reveals is that it has no comprehension of the way in which the banking sector, or quantitative easing processes, work. It's quite scary that such ignorance still exists.

Perhaps more importantly, it also reveals that it is entirely unaware of the difference between commercial bank-created money and government-created money.

Less surprising is the fact that it has not thought about whether, given that such a difference exists, it is appropriate for deposits held by commercial banks with their central bank should be shown as deposits on their balance sheets, or as something quite different.

I do not wish to be presumptuous here since this is an issue that I am currently working on. However, it seems to me that some fundamental accounting errors are now being made with regard to such issues. That error is partly in government accounting. There central reserve accounts maintained by the commercial banking sector with the central bank are shown as liabilities. However, in practice those commercial banks have no control over the redemption of these deposits, which can only be moved between those banks, but not ever, in effect, be reclaimed by them at their option, meaning that they do not behave like any normal bank liability. In that case, as they are effectively not repayable, are they liabilities at all?  And in that case do these accounts need to be differentiated in the accounts of those commercial entities as being something fundamentally different from bank deposits?

I will return to this theme, but suffice to say for now that I think that significant new thinking on this issue was required.

What Labour should be saying when challenged on the cost of a lockdown

Published by Anonymous (not verified) on Wed, 14/10/2020 - 6:36pm in

I have noted that Labour politicians are being asked the question, time after time, ‘Have you costed the circuit breaker?’

The question does, of course, refer to Keir Starmer’s advocacy of a two to three-week lockdown to break coronavirus transmission rates. This is seen as an inevitability now, but the government has ducked it, so far. Labour has taken the opportunity to show a first real sign of leadership by Keir Starmer. And then that question comes in.

So let me answer the question in the only way that I could, if it was asked with me. My response would be that of course I have not, because it would be impossible to do so. The complexities are beyond anyone. But the judgement about whether this policy remains relevant, and whether the cost that it will result in is worthwhile, is one that can still be made. That is possible because the alternative can also be appraised. And, in this case, it is very clear that the alternative is to lay, followed by many more deaths, followed by NHS chaos, followed by what, in all likelihood, would be a much longer lockdown, resulting in increased cost. As a consequence, if cost is the issue, although it cannot be precisely appraised, it is possible to work out that a lockdown now is the best possible option.

I do wish that a Labour politician would say this, patiently, and clearly, looking straight into a camera. The claim that lack of precision in costing invalidates a decision has to be rebutted.

There is, though, more to this than that. what has to also be said is that sometimes there are things that have to be done, irrespective of cost. We as a society have to maintain the safety of those we live with, and that means protecting the NHS. That may well be overwhelming. That it is under-resourced is an issue to discuss, but maybe on another day. What matters now is that people are cared for, including those people who work for the NHS, who are also vulnerable, which far too many people forget.

And a wise politician would then also point out that this question does also make no sense when, so far this year, taxpayers have not been asked to make any additional contribution to the cost the government has incurred to tackle coronavirus. Nor, come to that, will they ever be asked for that contribution with regard to this year. And that is because, so far this year, the entire cost of the coronavirus crisis has been covered by quantitative easing (QE). In other words, newly created money has been used to pay for the cost of the coronavirus crisis. This money creation will never be reversed. The net consequence of it is that our banks and building societies are significantly more solvent than they might otherwise be, and that is a good thing in the face of a potential financial crisis. And, importantly, if this money had not been created by the government in this, or another way (and there are other ways, which may be better) then we would have faced a substantial shortfall in the cash circulating in the economy because people and companies have, quite reasonably, been saving during the course of the crisis, and that would have meant that there was a much worse economic crisis to come then there might otherwise be.

What is more, given that this situation will continue, it’s quite reasonable to think that more QE will be undertaken and as a consequence whatever the cost of this lockdown might be it is very likely that it too will be covered by new money creation in due course and the cost is, then, covered by the government itself.

Do I expect to hear that explanation? I am afraid not. But I wish I did.

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

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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.

Tax and modern monetary theory: getting the facts right

Published by Anonymous (not verified) on Sat, 10/10/2020 - 9:47pm in

Jo Michell is an assistant professor of economics at the University of West of England with whom I have often crossed swords. He thinks himself to be in the left, and a bit of a tax expert. And he hates modern monetary theory. I think such an emotive work appropriate on this occasion.

He has just written an article for Tribune magazine under the title ‘What should the left think about tax’. According  to Torsten Bell of the Resolution Foundation in an email sent out yesterday this proves that ‘Now while there are micro elements of this Modern Monetary Theory argument that are right, its big picture conclusion is what you might politely call garbage.’ That’s some claim to make by the person who was Ed Miliband’s chief of staff and who is still deeply influential in Labour, I suspect. So what did Michell say?

If I summarise his argument they are as follows (italics being used to highlight quotations):

1. The Tories are thinking about tax increases so Labour should be thinking about tax.

2. Labour is saying that it is absolutely the wrong time to be talking about tax rises.” This is correct  from a Keynesian perspective, he says, but he thinks that some argue so from a different perspective.

3. These, he says, are those who argue that there is effectively no connection between taxation and the size of the public sector: government spending can be increased to any desired level, it is claimed, without needing to worry about raising tax revenues to “pay for” it. Michell argues that they say this because, as Michell agrees is the case,  the Bank of England – a public sector institution – is the issuer of pounds sterling. He then claims that some say as long as the Bank of England is willing to issue pounds on behalf of the government, the government can spend without needing to tax.

4. As Michell notes, the argument is technically correct in terms of the mechanics – the UK government will never run out of pounds. But, he adds, the conclusion that “taxes don’t pay for spending” is incorrect.

5. At this point Michell goes into an esoteric discussion of what ‘paid for’ means, which includes the (stunning) revelation that in many cases that involves the reallocation of balances in bank accounts, and that absence of cash can then be a constraint on spending in normal circumstances, but given his previous conclusion, not for governments. From this he concludes Given that a shortage of cash can never constrain government spending in the narrow technical sense, it is claimed, taxes therefore don’t pay for spending. Spending is instead “paid for” by the Bank of England electronically issuing new cash.

6. This, he notes  is technically correct – but it is a narrow, mechanical, and ultimately misleading definition of how the government “pays for” things. This, he says is because What really matters are the goods and services that cash balances purchase.

7. He then goes on to say The government can purchase these by printing more money if two conditions hold. The first is that there is some “slack” in the economic system: in other words, there are unemployed or underemployed people who can increase their activity to produce the goods and services. The second is that the private sector (households and businesses) is willing to hold the extra money created by the government. As he then  notes To the extent that these conditions hold, there is indeed a ‘free lunch’ for the government, due to its ability to print new pounds.

Let be me be clear: to this point Jo Michell has not found anything to argue about with MMT. He has, in fact, said it’s technically correct. He is right to do so. His only error to this point is with regard to his understanding of how bank payments work, which he thinks beyond the reach of MMT.

What he fails to note is that the reallocation of balance between bank accounts does not actually alter the overall sum of bank balances in existence. It’s a telling omission on his part, indicating he has little understanding of central banking, which MMT requires. But having missed this point he then begins to turn on MMT. As a result my commentaries will now follow each of his arguments.

8. Michell then says But while most economies do operate with some slack – there are always unemployed people – this capacity is not limitless. Eventually, a point will be reached where the goods and services purchased by the government cannot be newly produced, so the government will have to compete with the private sector for economic resources.

MMT entirely agrees. This is not an argument against MMT. It is precisely what MMT says. There is slack. It’s called unemployment, which MMT thinks should be eliminated, which it proposes to do by way of what might be called a Keynesian style stimulus until such time as that goal is achieved.

When that is achieved MMT says two things. Either the stimulus has to stop because the alternative is inflation because too much new government created money is chasing too few goods or, alternatively, taxes have to increase to reduce demand for private sector created goods  so that the space is created for non-inflation inducing government spending. Tax, however, does not pay for that additional spend. Its role is to  reduce demand to make space for that new government spend. It is, in other words, an instrument of fiscal policy that makes that relocation of resources possible. You would think the left would wish to embrace such an explanation, but apparently not.

9. Michell then notes that Likewise, the willingness to hold cash balances is not without limit: at some point, those holding newly-created pounds will use these balances to spend on goods and services, or to purchase assets such as houses or  stocks and shares. Investors may sell pounds in exchange for other currencies, reducing the international value of the pound. At this juncture Michell is just wrong. Of course those newly created pounds might be used. That is, of course, the purpose for their creation. How else is demand stimulated? But Michell does not realise two things.

First, if a consumer spends they reallocate bank balances. They don’t destroy them. The fall in the balance of the person who spends simply  increases the balance in someone else’s account. The overall cash held in central reserve accounts with the Bank of England does not change. If only Michell knew some accounting and basic double entry, on which secure foundation MMT is built, he would appreciate this.

If only he had the same understanding he would, secondly, also appreciate that if someone sells pounds to buy foreign currency someone else now owns the pounds they sold. Again, they do not disappear, as he assumes to be the case.

What is more, if he understood these things he would appreciate something much more powerful, and that is that there is only one thing that does change the amount of cash actually in issue, which as he notes is all ultimately government created, and that something  is tax. Just as commercial bank loans are cancelled and the money that they create under government licence is destroyed as a result of bank loan repayment, so does tax cancel government money creation, which means that in MMT tax is the mechanism for controlling the money supply, and so inflation. But for the lack of understanding of the very basic issue of double entry book-keeping (a failing he has in common with many economists) he misses that quite essential point, which means MMT breaks economics from the shackles of neoliberal central bank, interest rate driven, inflation focussed control that does not only not work now (if it ever did without also destroying employment) but also destroys democratic accountability for economic management and passes it to the banking system.

It’s a shame that Michell wholly misses the point that MMT restores economic power to the left. I am bemused as to why he wants to maintain neoliberal control instead.

10. Michell ploughs on. Having not noticed that MMT has already embraced his previous arguments and turned them to good effect, he then says There is, therefore, a limit to the extent to which the government can “pay for” its spending by printing new money. Beyond this limit, the government must either borrow, or tax. This is the sense in which tax “pays for” spending: it makes economic resources available to the government that would not otherwise be available.

Which is precisely what MMT says. MMT is obsessed by inflation risk and that the consequences that failure to understand this risk might create. And it assigns to tax, for the reasons I have already noted, the task of countering that risk by withdrawing demand from the economy if it were to arise. Instead Michell makes a more limited claim:

By levying taxes, the government can reduce the spending of some individuals, or reduce spending on particular goods and services. For example, by taxing those on higher incomes, consumption on highly-polluting luxury consumption may be reduced. This means more resources are available for other activities, such as building transport infrastructure or providing for the consumption needs of care workers.

Which is as MMT would also have it.

And he continues:

The climate emergency and the pandemic require a fundamental restructuring of the economy. The scale of investment needed means that bottlenecks are inevitable, requiring reductions in expenditure elsewhere. More home insulation may require fewer new kitchens to be installed, for example.

I couldn’t agree more. But what MMT does, by assuming that full employment is the objective, and by making clear that it can be achieved without inflation arising (which Michell has tacitly agreed, whether he appreciates it or not) is to suggest that debate on these resource allocation decisions is necessary because MMT makes clear that the state can demand that the necessary relocations of resources can take place. In other words, it empowers the state.  Michell fails to understand that: he does not see that MMT empowers the arguments that everyone on the left should wish to partake in.

11. Michell then begins to fall apart. To put it another way, his very obvious lack of understanding becomes clear. From his previous argument he concludes that It is misleading and unhelpful to claim, for example, that a Green New Deal can be implemented without taxing the wealthy. He adds monetary mechanics are largely irrelevant – what matters is that the wasteful consumption of the wealthy must be reduced to make resources available for socially-useful spending.

This is simply wrong for two really quite elementary reasons.

Firstly, Michell makes the mistake of thinking all pounds are equal. Given that no government wants to tax (a claim I presume he would agree with) then when a tax is imposed it has to be chosen for a reason. In the case he notes, where he assumes that there is full employment and that the aim of tax is to redirect demand, aiming his tax increases at the wealthy makes no sense: the wealthy save all or part of their income. This should not be hard for an economist to work out: that is, at least in part, why they are wealthy. So, extra taxes on the wealthy will reduce their wealth (which is an excellent reason to tax them, if that is an issue, and might also reduce their excess cash holdings created by government spending, which is, again, another excellent reason to tax them) but it will not have much, if any impact on changing demand. They will still have the means to consume even if you tax them more.  Don’t get me wrong: I am not saying don’t tax the wealthy. I am saying tax them for the right reason, which is that they are wealthy and that has harmful consequences for society, but don’t then think this will have much impact on consumer demand, because it will not.

And this is where MMT wins. Unlike Michell, who is a simple ‘book balancer’ when it comes to tax and the public finance, MMT recognises (as I have stressed in my academic work and The Joy of Tax, as Stephanie Kelton has also done in The Deficit Myth) that what you tax really matters, and that this involves a vector of aims. Indeed, as I have long argued, including in peer reviewed journal papers, there are at least six reasons to tax, which are to:

  1. Raise revenue, either to fund government spending or, alternatively, to reclaim the money that the government has already spent into the economy;
  2. Ratify the value of the currency of the jurisdiction;
  3. Redistribute income and wealth;
  4. Reprice goods and services;
  5. Reorganise the economy through what is called fiscal policy.
  6. Raise democratic representation – people who pay tax vote;

The idea, that Michell puts forward, of book balancing, is not amongst these reasons because it is not necessary.

But this also puts other claims that Michell makes into context. For example, he argues that The changes mooted by the UK Treasury include aligning capital gains tax with income tax, removing additional pensions relief for the better off and increasing corporation tax. These are progressive changes and long overdue. The changes also attract widespread public support. Opposing them means siding with wealth over work and rich over poor.

His implication of ‘opposition’ is that MMT would oppose such things. No I don’t. Nor do I suspect anyone who really understands MMT would. I have promoted some of these ideas for a very long time, not least in The Joy of Tax. What he describes are wholly inappropriate tax reliefs and low rates because they reallocate wealth upwards, and that is an issue that needs to be addressed. But that’s the reason to do them, and book balancing is not.

And since Michell has already conceded that tax does not finance government spending he should agree when MMT says that these changes should be made because they are the right thing to do, come what may.  MMT is empowering the left to do what is right.

12. Michell then argues that At the same time, progressives must continue to argue for fiscal activism to maintain jobs and transform the economy. Claims that pandemic-induced increases in public debt need to be “paid back” are simply incorrect and should be refuted.

I wonder what else he thinks The Deficit Myth is about? I have to wonder if he has read it.

13. So next he says The public deficit will remain large until the crisis is over and the debt to GDP ratio will rise – that is exactly as it should be. The Bank of England can and should continue to use its money-issuing power ensure that the expansion of public debt can take place without generating financial or economic instability.

I think he will struggle to find anyone in MMT who would disagree.

14. At which point Michell comes to what I presume he thinks to be his killer argument. He says But tax revenues and the size of the state cannot permanently diverge. Those who want to see a larger and more effective state need to make the case for progressive changes to the tax system that will ensure that revenue grows at approximately the same rate as expenditures over the long run. This is not to say that the two should be equal: they should not. A public deficit has been the normal state of affairs for decades – but deficits cannot grow without limits.

And let me assure him, once more, that not a person in MMT would disagree.

But what he fails to understand is that what MMT says that it is entirely happy with a balanced budget if sustainable full employment - the goal of left of centre politics these days, I would hope he agrees - is achieved. At that point of course MMT says tax and spend should equate. Taking more than spend then would create unemployment by reducing demand. Taxing less than spend at that point would create inflation. MMT spends a lot of time explaining why neither is necessary. So, quite literally, to claim that MMT says that spend can continue without tax, or that at a particular point spend should not equate with tax, or that deficits can continue growing without limit, is simply to promote a falsehood. Or garbage, to useTorsten Bell’s language. That’s not what MMT says.

15. And so is Michell’s conclusion garbage by implying MMT is a programme to cut spending, when he says We must not allow misguided arguments about “tax not paying for spending” to erode the tax base, increase inequality and open the door for free marketeers to argue for the need to cut back on essential social programmes. Literally nothing could be further than the truth about MMT.

Where MMT would agree with Michell is on his final sentence: If we want to see systemic change, it’s time for the left to argue for progressive tax reform on it own terms.

Which is, of course, exactly what MMT does, only on a vastly more informed basis than Michell is suggesting because MMT places tax within its true macroeconomic framing, which Michell wholly fails to do, and because MMT correctly explains tax’s relationship with fiat money, which Michell plainly fails to understand.

Michell and Bell rely on falsehoods to dismiss MMT. They plainly have not read it.

Their approach instead promotes the maintenance of the neoliberal system of central bank, interest driven, control of the economy that treats unemployment as a residual in the process of economic management, and considers those so unemployed ‘the price worth paying’ for inflation control. If that’s being left wing,  I am flabbergasted.

And in the meantime, the fight for true left of centre policy continues, and Michell and Bell are not part of that process as a result of their commitment to policies antithetical to anyone of true left wing orientation, who must put people and not money at the centre of their politics, Which is precisely what MMT does, despite its name.

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.

Register via Eventbrite

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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

Government Borrowing

The 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

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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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For the sake of refusing to costlessly create the money required to keep our economy going it is going to be destroyed

Published by Anonymous (not verified) on Fri, 25/09/2020 - 5:03pm in

I thought that yesterday’s announcement by Richie Sunak would be bad. I predicted that before he spoke. I also pointed out all the flaws in the scheme that I thought he might announce before he got up at the Dispatch Box.

All that surprised me in that case was that he managed to make it worse that anyone might have expected, and that he did not even pretend that this was a way of preserving many jobs.

At least in that respect he was right. My description of his proposal as an Unemployment Creation Scheme is, I think, much more accurate than his own description.

What Sunak did was something so typically British. He took a German idea and copied it, and got everything wrong in the process of doing so. The mistakes included:

- Making this a short term scheme when the German equivalent lasts for two years;
- Making the employer pay a significant part of the cost, which provides them with a significant incentive to make staff redundant, when the German scheme does not do so;
- Making no provision for retraining;
- Including a short term definition of what is a viable job, when government restrictions guarantee that many jobs that have been viable for decades fail his chosen criteria.

What might have been a good idea turns into a disaster as a consequence. The reality is that employers with people on the scheme will be required to pay them at least 66% more per hour than they would pay equivalent full-time employees, and that differential only get worse when the fact that the employer has to pay the national insurance and pension contributions on the government’s contribution to pay is taken into account. This is likely to increase the cost per hour by more than 80%. As a consequence the incentive to make many staff redundant and keep a much smaller number of full-time staff is enormous. The whole process completely backfires in its employment retention aim result.

Given that the incentive to make people redundant is now so strong I think we have to presume that a great many people now on furlough will be facing redundancy over the next few weeks. In this context, when I say a great many I mean millions: nothing else seems plausible now.

In that case I think that we have to brace ourselves for the consequences of this happening. Many of these are completely predictable, almost entirely because of the meanness of universal credit. They will include:

- Rent defaults;
- Mortgage defaults;
- Loan agreement defaults, Including large numbers of car loan agreements;
- Utility bill defaults;
- Personal bankruptcies;
- Homelessness;
- Increasing child poverty;
- Substantial increases in demand for public services, many being of an essential nature;
- Significant falls in economic demand across the economy;
- Large numbers of business failures;
- Rapid increase in corporate bad debt;
- The inability of landlords to meet their own loan obligations;
- Falling house prices;
- A banking crisis;
- Economic depression.

And all of this happens for one simple reason, which is that a majority of MPs on all sides of the House of Commons believe that we cannot afford to take on more national debt. For this reason they refuse to consider preserving jobs now as we transition to be the economy we want, with investment being provided now to speed that process of change. Instead they are, in effect, looking for cuts. And the consequence of those cuts is all too apparent, and is laid out in the list that I have made above.

It’s the case then that this lack of understanding of modern monetary theory is going to see our economy trashed, and the lives and livelihoods of many laid to waste, with untold harm arising. For the sake of refusing to costlessly create the money required to keep our economy going it is going to be destroyed.

The price we are about to pay for being enslaved by the ideas of long dead economists is going to be very great indeed.

And yes, I will say ‘I told you so’ as it happens, but with no pleasure when I know that all of this is avoidable now.

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.

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The Tax Research videos

Published by Anonymous (not verified) on Tue, 15/09/2020 - 4:09pm in

I began making videos with Mark Cooney of Spotted in Ely about three months ago, and this list of those we've made has grown pretty quickly.

There's no pretence that these are the ultimate polished product. Many are done in one take, and all are unscripted. But I hope they address issues of interest.

The wiki page of the current titles is here, and below


An introduction to economics

What is money?

What’s the difference between macro and microeconomics? 

What is modern monetary theory?

Does inflation matter in modern monetary theory?

What is quantitative easing?

Answering the question ‘How are you going to pay for it?’

Do we need a national debt?

Is the UK national debt £2 trillion as the Office for National Statistics claims?

Who owns the UK national debt?

The cost of government borrowing

How much debt would Scotland owe on Independence?

How we make money 

How we destroy money

How banks create and destroy money

What is the role of tax in modern monetary theory?

What are freeports and should the UK have them?

Could the UK go bust like it nearly did in 1976?

Does Scotland need its own currency on becoming independent?

What is inflation, and is it a risk? 

Should we end the furlough scheme?

Should we be increasing tax now?

The coming recession, and does it have to happen?

The impact of the property market on our economy

Modern monetary theory

What is modern monetary theory?

Does inflation matter in modern monetary theory?

How we make money 

How we destroy money

What is the role of tax in modern monetary theory?


Why we need tax reform

Wealth taxes

Should we be increasing tax now?

What are tax havens?

What is capital gains tax?

What is the role of tax in modern monetary theory?

Why we should tax the rich


Why accountancy is important

What is country-by-country reporting?

Why we need to rethink accountancy

Why Mark Carney has got climate accounting wrong

How to bring the climate onto corporate balance sheets: an introduction to sustainable cost accounting

The Green New Deal

What is the Green New Deal?

How do we pay for the Green New Deal?

Is Greta Thurnberg right?

Why Mark Carney has got climate accounting wrong

How to bring the climate onto corporate balance sheets: an introduction to sustainable cost accounting

Political economy

Universities and education after coronavirus


What really matters 


Does Scotland need its own currency on becoming independent?

Whey is GERS CRAp?


I’d like to thank Mark Cooney of Spotted in Ely for all his support in this project, because the channel was his suggestion and without him it would not be possible.  And since he’s paid by the adverts that will be a part of this programme in due course, please accept that they are part of the package that makes this possible.

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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