Modern Monetary Theory

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The ultimate goal of government is to deliver freedom from fear and ours is not doing that

Published by Anonymous (not verified) on Thu, 28/01/2021 - 8:44pm in

There are days when the most appropriate type of blog post are those that are full of policy ideas, and detail. There have been quite a number of those of late. That reflects much of what is going on in my work life at present.

But there are other days when the best thing to do appears to be to stand back and think. This post is of the second type. It is a reaction to the comments received on my suggestion that we should have dedicated bond products to tackle the economic problems that we have in our society, and the problems that they are creating, but it is also something more than that.

Breathe deeply and it is readily apparent that not all is well in our society.

100,000 Covid deaths tell us that. When so many were very obviously unnecessary, as evidenced by the fact that other countries have not suffered our death rate, something is quite literally terribly wrong.

Brexit tells us that too, because it is very obvious now that the problems it has created for a great many businesses whose access to overseas markets is now restricted or lost for good will have a serious consequence for the UK market.

That Northern Ireland is no longer what can really be described as a full member of the UK is astonishing, even if largely ignored.

Headlines now make it clear that the run down to Scottish independence is happening. It’s now ‘when’ and not ‘if’ as far as the English press is concerned. The battle for independence is almost certainly already won.

The IMF now says that the world’s economies can no longer survive without the support of governments, and if the effort is made to make them do so then the whole edifice of the financial markets might collapse.

Trump has gone. That populism can be beaten has been proven, but one victory does not suggest that the war is won as yet.

The ‘anti-woke’ backlashes are vicious, real and indicative of prevalent fascist thinking.

Climate change is ongoing and ignored by many.

Young people have decidedly uncertain futures. What many might do is very unclear.

We have a government that by universal consent is the most incompetent in anyone’s living memory. But the Opposition is not much better. Outside Scotland it seems that competent people are not being attracted into politics.

And underneath all those symptoms there are real people, many of whom are stressed to limits that they did not know existed by the problems that living with Covid have created. For some that is the quite reasonable fear of the disease. For others it is lost work, and income. For many it is home schooling. Many business owners fear losing their companies, and with it their livelihoods and those of the people that they employ. Others fear losing their homes as debt accumulates. Loneliness is a real issue.

A year ago none of this had really begun. Covid was a threat, albeit one that government should have taken much more seriously than it did. Now it has transformed life in a way almost unimaginable. What does that mean? And what, as importantly, might it mean when and if this ever ends?

Perhaps the most important thing to say is that whatever now happens in tackling this disease Covid has now indisputably changed things for good. Societies around the world cannot experience all this and then say ‘let’s go back to where we were.’ Not only is that not possible because too much has changed, it is not desirable.

That is because where we were was unsustainable. That is true literally in terms of the environment. But it was also true in terms of the economy, where 2008 had exposed all the failings within the system that we had. But, crucially nothing had yet been done to address them. And it is true within society, where inequality has been tolerated for too long, and has been been fuelled for political gain at enormous cost to us all.

It may not seem possible to address all this in one blog post and yet in a way there is. That is achieved by asking what were the assumptions that got us to where we are, and to then ask what we have learned, after which we can then ask what assumptions should drive us forward from here towards something that should work better.

So what were the assumptions? This list may not be complete. This is not an exercise that has been given many weeks of preparation. It’s been very largely prepared on this morning’s breakfast table. But I would suggest that they are that:

- Nature is ours to exploit at will;
- Those who can command the resources of nature can charge their fellow humans for them even if the person commanding them secures those resources for nothing;
- That those who did use the command of resources to back their creation of money were entitled to charge other for the use of that money, and that this hierarchy of monetary power is still justified in the era when relationship between money and natural resources has been broken;
- The resulting hierarchies of power are ethically justified;
- The resulting hierarchies of power should therefore be maintained;
- The market expression of those hierarchies of power remains valid;
- Markets are as a consequence of greater significance than governments in the hierarchy of power;
- Government exists to service the needs of markets, meeting their demands for the environment in which they can function but without being expected or required to unduly challenging the consequences of that trade;
- Markets are efficient if they profit maximise on behalf of the owners of wealth;
- The resulting market allocation of disproportionate wealth to those who are already wealthy is justified as a result;
- The maintenance of financial wealth through the control of inflation is the primary economic goal of government;
- The relationship between inflation and employment is such that high employment rates result in high inflation. Unemployment is the accepted price of controlling inflation as a consequence;
- That inflation management has been delivered through interest rate policy is without economic distributional consequence even though it is apparent that, overall, those with wealth gain from the policy and those in debt and with limited wealth pay the price for it;
- Inequality is a price worth paying for the achievement of economic goals. If some groups in society happen to be overly represented amongst the winners and losers that is an acceptable outcome.

I am entirely sure I have missed very real issues. Equally I hope I have written sufficiently openly to embrace very many aspects of this issue within the words I have used. That was my aim.

What have we learned? I suggest this, taking Covid and other factors into account:

- Nature is not ours to abuse;
- We are just a part of the global ecosystem;
- If we ignore nature it can bite back;
- There are no free gifts from nature: nature is there to be preserved, come what may;
- Charging for that which is costless to us, whether that be nature or the money that is created out of nothing, is a mechanism for reinforcing social hierarchies of power, but is not a reflection of fair economic reward;
- Jobs matter;
- Businesses are very largely dependent upon government to ensure their survival;
- Modern banking only exists because of government guarantees that it will meet its liabilities as they fall due;
- Hierarchies of power based on the command of natural resources and the ability to manage money are, then, perpetuated solely at the whim of the state;
- Those who have power based on these hierarchies have tried to capture the state to perpetuate their power;
- In the meantime global warning continues;
- For a great many the real quality of life continues to decline;
- The stress within government between those there merely to perpetuate the power of those outside government and the demand that those with the ability to exercise the power that government really has do so is becoming apparent;
- People now appreciate that government can create money at will. It is not a scarce resource, after all;
- If the ability to create money can be used to save banks and business it can also be used to save jobs and the planet;
- There is no inflation despite money creation: the myth that this would happen has been shattered;
- The myth that high employment creates high inflation has been shattered at the same time;
- People have had enough of living in fear, and most especially the fear if things that they now know government could, if it so chose, allay;
- The desire for change has arrived.

Again, I am quite sure that this list might be refined. My suggestion of it is that it is sufficient for now, whatever its weaknesses and omissions, to let me move towards what my conclusions might be.

So, what should we assume to be the basic building blocks of a post-Covid world? I suggest these things, knowing once more that they will, be incomplete and in need of revision from the moment I publish them:

- Nature is ours to enjoy, and work with, but not to exploit;
- The price of our enjoyment of nature is the work that we must do to sustain it;
- The enjoyment of nature is a common right, and not one for which charge should be made by those who have appropriated that legal entitlement for themselves;
- The idea that land might be owned has ceased to be useful; we are at best only ever its stewards, tasked with perpetuating its wellbeing;
- It is the role of government to oversee this stewardship and to secure that it takes place;
- The ability to create money has now passed entirely to government, and it alone has the right to do so now;
- The control of banking and finance, whose activities are now almost entirely dependent upon the guarantees of government, does not, in that case, create entitlement to special privilege within the economy or society at large;
- The ability to create money must be used in the interests of all in society, and not just financiers;
- The maintenance of low interest rates is a social good, but not one that should be delivered at cost to society within itself;
- The power to create money must, in that case, be directed towards social advantage, as must the use of money for the gain of society at league be encouraged by direct government action;
- The goal of money creation should in that case be to deliver:

- Sustainability;
- Full employment;
- Living wages;
- Greater equality;
- A social safety net for all.

- The ultimate goal of government is to deliver freedom from fear;
- The freedom from fear delivers opportunity for all without constraining their freedom to choose within the boundaries created by society, to be interpreted to permit personal expressions to the greatest degree that is consistent with those constraints;
- Markets have a very real role to play in this process: they can and do create the opportunity for people to work as they wish to produce products that society wants. But they are inherently flawed by their ability to unduly concentrate economic power and the command of resources in the hands of a few, which have not always restrained themselves in the exercise of that power. Markets need regulation as a result, and fair taxation, to ensure that they and the participants within them work in partnership with government and society to meet the aims of us all, rather than to exist in opposition to those goals by focussing upon the extraction of value for the advantage of a few.

There are, of course, many assumptions implicit within those I note.

But the greatest of all the objectives is in many ways that the ultimate goal of government is to deliver freedom from fear. This is what I think our government has very clearly failed to do, compounding the errors of so many governments that went before it. And it is that freedom, excerpted within the constraints of our planet and the understanding that we now have of our economy and the money that powers it, that it is now our duty to deliver.

I think we can do that, and all that goes with it. But we cannot do so without recognising that there are now very profound ideological boundaries within our society, which may be encapsulated in this thinking. How to address them is part of the issue that I raise. And yet we have to achieve that goal because as I see it this is the way out of this mess rather than its perpetuation. And that is a prize worth having.

Christine Desan’s Work In Relation To MMT – a guest post

Published by Anonymous (not verified) on Thu, 28/01/2021 - 7:03pm in

It was recently decided on this blog that in general guest posts here were not a good idea, but that the occasional elevation of a comment into a blog post, at my discretion, was fine. I am happy to go along with that.

I am also delighted that Helen Schofield, who is one of the regulator commentators on the blog has, as I asked if she might, summarised her thinking on the relationship between Christine Desan’s work on money and modern monetary theory.  

Helen supplied this to me in eight comments, but I think they might become our blogs to be published over the next few days. I have not edited them. I offer them as Helen did to me, in the hope that they might stimulate discussion. These are the first two.


Christine Desan’s Work In Relation To MMT

Instalment One

Richard asked me to write about the relevance of Christine Desan’s work to furthering MMT knowledge. Desan’s first degree involved her in the Sociology of Religion and her second degree was in Law. The main message of her work as I see it is to point out to us that the design of money is continuously evolving in its design. I suspect her involvement with the Sociology of Religion made her aware of the fact the cooperative endeavour embedded in nature, of which we’re part, is very much part of the evolutionary design of money.

The recognition “evolutionary design” was going on made Desan pay attention to history but I think it helps before you start looking at money’s history to ask “What are the key tasks we’re asking money to do for us?” It seems reasonable to narrow these tasks down to three; firstly, to overcome the “coincidence of wants problem” in private exchange, secondly, to enable the government, or chief stakeholder in a society or country as Desan calls this agency, to easily obtain resources from members of the society or country to deal with collective needs including threats, and thirdly, to enable saving by society members or country citizens to deal with future events and desires.

As MMTer’s we should all be familiar with these three tasks for money, collective and private with savings, there is, however, one other very important need necessary to accompany them and that is any money created must hold its value for as long as possible. Desan like Richard argues the best promise available to achieve this is government created money. I have to tell you that it’s with this argument that historically contention breaks out and thinking gets confused but let me start with Desan’s first argument on “value holding” which is really an enhanced core MMT argument.

Desan quotes the work of Gary Gorton (also a professor at Harvard University like her) and other colleagues. Gorton asks the question what constitute safe-assets. He argues there needs to be two essential factors information-insensitivity and good collateral.

The first factor is not having to constantly check that the so called safe-asset will “honour” its promise to be reliable for medium of exchange and savings purposes. The classic case of this is the early days of private sector banking where there’d be insufficient reserves to honour a bank’s promises. So, for example, in the case of gold-smith banks who offered receipts for holding gold and silver coins and bullion in their vaults and those receipts were subsequently traded to buy goods and services then come the time an individual decided to redeem a receipt for specie coinage or bullion but the gold-smith bank had over-issued too many receipts and there’d been too many redemptions there was a problem. Once word got out there’s likely be a bank run. In the 19th century and early 20th when cheques were being used there were often problems of them bouncing at banks down the line or customers being able to withdraw savings from the bank for lack of reserves. It may, of course, been too many bad loans that resulted in lack of reserves.

The second factor that determines what is a safe-asset is having good collateral. One of Gorton’s colleagues Tri Vi Dang calls “debt on debt” the best form of collateral. This is the ability to redeem or retire a debt. Clearly contractual law applies if a bank wants to redeem a bank loan either holding the debtor to the original loan repayment agreement or a modified version of it. It can of course take action to recover money from a loan defaulter via the defaulter’s collateral but note the law might limit the amount. In the United States, for example, there is a $10,000 limit on credit card recovery. The best “debt on debt” agency is obviously government which sets the laws including its powers to impose taxation and get coercive about it if it needs to. Again this is what Richard means when he say’s “the government has by far the best promise” meaning ability to retire money so as to maintain its value as long as possible.

Instalment Two

The second argument Desan puts forward is that whilst the work of Gorton and colleagues makes sense you also have to take into consideration what the state of the society or country is in that the safe-assets are being used. To identify just how stable that society or country really is. Is it under threat from something like other societies or countries or the environment or disease, is there internal conflict with power struggles taking place. Desan tells us that the long history of societies and nations using specie money, gold and silver, is that if there’s a collapse of civilisation or another society or country takes over yours there’s always the possibility the coinage can be melted down and sold as bullion either within your own territory or abroad.

It’s believed that in the Western world coins were first invented by Greeks in Lydia (now part of Turkey) sometime in the 7th century BC. The use of silver coinage was a central part of the Roman Empire. Whilst they imposed taxes in kind on some countries in the Empire (wheat from Egypt, for example) generally speaking they preferred taxes paid in their coinage. Notably they made sure that silver mines were firmly controlled and coins were struck by “mint magistrates.” Italy itself contained few silver mines and the creation of the Roman Empire would have been driven in part by the desire to obtain more silver for coinage. It should be noted the Romans traded with Greek colonies in Italy which used silver coinage. Clearly taxing in coinage although thought of as tribute from non-Italian countries in the Empire had the effect of maintaining the value of the coinage as long as possible from the ravages of inflation. However, the Romans minimised taxation on Romans in Italy unfairly distributing the tax burden to the non-Italian countries, ultimately this was probably one of the drivers that led to the collapse of the empire. It would also seem unclear whether the Romans understood the concept of monetary inflation or indeed deflation by issuing too many or too few coins but emperors did engage in debasing the coinage in order to make government spending money go further.

As we know in the UK the Romans left here but they also left other countries in Europe and yet the use of specie money continued. In the UK it continued for over 1600 years although there was a two hundred year break after 400AD where little specie money was used except probably for trading with other countries. Since we don’t know if the Romans understood the dangers of monetary deflation and inflation we don’t know if that knowledge was lost in the UK when they finally left in 400AD. I suspect the British learned the lesson of inflation for the simple reason European countries were often at war internally or with each other with the collapse of the Roman Empire and Kings and Queens, ultimately Parliaments, were almost constantly looking for money to fight these wars and debasement of the currency was one way to do this. Indeed in England for all but three years in the 17th century the country was involved in fighting one war or another!

Specie money was therefore both a hedge against uncertainty particularly war outcomes but even in interludes, periods of peace, there was always the potential for it to have a deflationary effect because merchants could sell coins at a higher price often abroad for melting down for non-coinage and coinage uses. It seems reasonable to argue that once the tight empire control grip of the Romans had gone England never really succeeded in getting a tight control of its species money right up until the end of the 17th century. Indeed unlike the Romans England allowed private citizens to bring silver or gold bullion along to Royal mints and have coins created. The government exercised seigniorage by keeping some of the coins created for its own use. Of course if a higher price could be obtained for selling silver or gold as bullion private citizens wouldn’t bother having coins created which ultimately meant government hadn’t very good control over the amount of currency in circulation and therefore demand in the economy. It could only increase its control by securing silver or gold from abroad and it could be said this was a driver of imperialism.

Sunak is the most dangerous man in the UK and looks intent on cementing his reputation

Published by Anonymous (not verified) on Mon, 25/01/2021 - 7:35pm in

I feel as if I have spent much of the last year saying to people that now is not the time to raise taxes when those who should have known better have been arguing otherwise.

It is good in that case to see the FT publishing an editorial saying exactly that this morning, to which they add the suggestion that Rishi Sunak’s determination to curb borrowing will harm the economy. The latter is a sentiment with which I also entirely agree.

The editorial represents one of those continuing moments when the FT tries to talk sense, without quite being able to hide the conflicts that must fester only just below the drafting of its words.

So it can suggest that the Tories face trilemmas of their own making because it promised before Covid not to deliver austerity, or raise any major tax, whilst now seeking to deliver ‘sound finances’. At the same time it can also suggest that resolving this apparently insoluble problem can be deferred. As it notes:

[T]he Conservative party has yet to decide what its commitment to “sound public finances” actually means in an era of low interest rates; borrowing might be at a record high but debt service costs are still falling.

Nor, come to that, has anyone else, except modern monetary theorists, that is.

What is quite certain though is that there is near unanimity, even amongst the likes of the OECD and IMF, that this is not the moment for cuts or tax increases. And that’s simply because the UK, like every other major economy, is in need of government life support  at present when the private sector is falling apart as a result of wholly appropriate Covid restrictions.

So will Sunak accept the advice? Right now I doubt it. Sunak can, in straightforward terms, do the right or wrong thing. The right thing is obvious and logical. The wrong thing, in the form of cuts and tax increases, is dogmatic and solely about  party politics.

I think we can be sure he will go for dogma and petty politics. It’s not for nothing that Sunak is thought to be the most dangerous man in the UK right now, with massively costly policy failures in terms of human lives already to his name. Andy I can’t see him changing his spots. We will all pay the price for the tax increases and cuts he is already trailing pre-Budget.

Labour needs a big idea. But would it use one if it saw it?

Published by Anonymous (not verified) on Mon, 25/01/2021 - 7:05pm in

I am well aware that nit al, readers of this blog are fans of the Guardian. And yet, beneath its veneer there is comment worth reading.

I read Larry Elliott’s critique of Labour’s economic policy as criticism yesterday, most especially when he said:

Starmer wants Labour to be seen as a competent party rather than an ideological party. To ram home that message, Dodds made clear that there was no question of a Labour government giving orders to the Bank of England, which would remain fully independent. She clearly has no time for modern monetary theory, the idea that central banks can be ordered to finance government spending and that the only constraint on them doing so is rising inflation.

If that was the case his headline writer did him no favours.

John Harris was clearer, saying:

Our basic system of government is in crisis, from the Whitehall departments that still lord it over faraway towns and cities, to the profiteering shadow state represented by Serco and all the rest. That the Tory dream of “levelling up” is so far the only political trope that has brought any of this to life is proof of the work Labour has to do. There’s no guarantee the party will rise to the moment.

He added:

Nonetheless, two questions ought to be nagging at [Labour’s] upper ranks. If mass vaccinations finally contain the virus and the Conservatives start to look capable rather than incompetent, how will Labour present itself as an alternative? And if a moment of crisis, institutional failure and rising despair is not a time to think big, when will be?

Harris seems to nail the question down in an appropriate fashion, with Elliott making it clear that when it comes to the economy the answer would appear to be ‘not now’.

That, though, leaves an entirely appropriate question open, and needing to be asked. It is if Labour is not about big ideas when they are very clearly required, then what is it for?

And, as appropriately, if it is not about challenging the ‘profiteering shadow state’, which is a phrase Harris appears to coin and which resonates very strongly with me as a description of the edifice that the Tories have created then, again, what is it for?

I wish I knew the answers to these questions. But if it was looking for inspiration I might suggest that it should listen to the video I have put put this morning in which I describe how the state should now be using its power to redirect accumulating savings for social purpose to provide the capital for the economic, social and environmental transformation that we need. That’s a big idea. But will Labour jump on it? It would be good if it did. Because it has to jump on something right now.

How to beat the deficit narrative by selling the idea of debt

Published by Anonymous (not verified) on Mon, 25/01/2021 - 6:06pm in

In this final video in my series on quantitative easing, green QE and modern monetary theory, I moved towards the practical goals of policy. I am only ever interested in theoretical issues if they can deliver practical outcomes.

I have shown in my previous videos that QE has created an enormous stash of savings for some (but not all) at present and these are not being put to productive use, but are instead being used for speculation. This is creating instability in the economy at a time when there is a desperate need for investment.

But, the debt narrative is preventing the possibility of investment programmes at the scale that we need, and so in this video I explain how we can use the ideas in green QE to re-orientate those savings towards productive use, and so to fund the Green New Deal.

The proposal is pretty dramatic. What I suggest is that by getting people to own the debt, quite literally, we completely change the narrative, and turn what is at present an obstacle into an opportunity to unleash the potential within the economy to deliver the good that we need.

Why Green QE and MMT can co-exist

Published by Anonymous (not verified) on Sun, 24/01/2021 - 8:07pm in

This is the third in a series of videos on why I think that the UK should move away from conventional quantitative easing towards what I call green QE.

I know that there are many who are proponents of modern monetary theory who have reservations about this suggestion. I understand why. In this video I explain what the basis of that reservation is. I then go on to suggest that since MMT is unlikely to be accepted at present as the basis for the management of the UK economy we have to live with what we can do if our greater goal is to provide the funding that is required for programmess like the green new deal which will, inevitably, be necessary and will provide the stimulus that we need to get over the crisis created by coronavirus.

So, I explain the pragmatic reason for green QE and how its underpinnings are, in any case, based on the power that MMT has, applied in a way that delivers those benefits to the best possible effect at present.

I will never be accused of delivering perfection. I am aware that theory and practice do not always coincide. Green QE may not be as good as MMT, but it is certainly a lot better than conventional QE and that compromise is one I can live with.

The need is to fix the system, not just to provide ‘sticking plasters’

Food Bank Cupboard stocked with tinned and packet foodImage by Staffs Live (CC BY-NC 2.0)

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

Franklin D. Roosevelt


It feels lately that we, like Lewis Carrol’s Alice, have fallen down a rabbit hole into an immensely troubling surreal situation with seemingly no idea how we are going to extricate ourselves.

Whether it is the distressing daily reports of Covid-19 deaths, the disturbing video accounts of the huge pressures on our NHS or care services, the political upheavals taking place across the Atlantic and elsewhere or the most serious challenge of all, climate change, it seems ever clearer that we are in Antonio Gramsci’s ‘time of monsters’ in which ‘the old world is dying and the new world struggles to be born’.

What that world will look like remains to be seen, but recent political events would seem to suggest that we still have some way to go before the ‘old world’ breathes its last. The pandemic, combined with the consequences of forty and more years of Neoliberalism Central which has infected every aspect of our lives and dominates political decision making, has created not only public disillusionment, but also petrification as our institutions sit in their blinkered bunkers holding on for dear life to all they knew.

Whether it’s the existing and growing union between government and global corporations, policy decisions which have increased inequality and poverty and encouraged charity, volunteering and philanthropy to take up the reins of public provision, or the promotion of sound finance as a vital component of good governance, the old structures are embedded in our consciousness.

It wasn’t always like this.

During the second world war, William Beveridge was appointed to investigate social security in Britain and his report, published in 1942, identified five major problems which prevented people from improving their lives. These were:

Want (caused by poverty)

Ignorance (caused by a lack of education)

Squalor (caused by poor housing

Idleness (caused by the lack of jobs or the ability to gain employment)

Disease (caused by inadequate health care provision)

It was recognised that government had a role to play in addressing those five ‘evils’ and as a result of the Beveridge report, the post-war government set up the social security system and pursued policies which aimed to address them including full employment. It may not have been perfect, but it changed people’s lives for the better.

Over recent decades, that connection between the state and publicly paid-for provision, management and delivery of services has been broken. Responsibility for such provision is increasingly being shifted into the charitable/voluntary sector, whilst at the same time, the dominant orthodoxy of individual responsibility has led to shaming and blaming people for their situation as the government takes a back-seat role.

Food banks have become a normalised feature of Britain, as Therese Coffey, the Tory minister for the Department for Work and Pensions, indicated last year when she referred to people using food banks as ‘customers’ and suggested they were a ‘perfect way to help the poor’. It implies that government has no role at all in ensuring the economic well-being of its citizens, and worse, that the 14 million Britons who do not have enough to live on are there through their own lack of moral fibre!

When charities buy into this picture and act as mitigators for a rotten economic system (which drives the poverty and inequality, that drive, in turn, the consequences including hunger, homelessness, and illness), they are not aiming to fix the system, but to provide sticking plasters. As such, it demonstrates how they, too, have been captured by an ideology and accept it without question.

This was made shockingly clear in a paid-for content article in this week’s Guardian. The CEO of the Bethany Christian Trust, when talking about tackling the problem of food insecurity said: ‘if by giving someone a meal we’re sitting them down with people they can talk to about debt counselling, mental health issues, addiction, domestic abuse, or whatever help they might need, then that plate of food can work so much harder’.

Rather than starting with the political roots of these problems, charities increasingly view them as issues to be solved through improving the capacity of the individuals themselves to manage the challenges they face.

Quite simply, this facilitates the shifting of blame onto people, rather than highlighting the failure of the government to make provision for its citizens and is classic neoliberal text. As Neil Valley suggests in his article in the New Internationalist ‘The Self-Help Myth’.

‘The pervasive rhetoric of personal responsibility has transformed the role of government and society in the neoliberal era. Where once the role of government was to safeguard the general happiness of the majority of citizens, albeit to varying degrees, its primary role now is to facilitate the conditions where each citizen can take on more and more individual responsibility, absolving the state from its responsibility towards its citizens.’

Then step in charities to fill the gap in service provision and provide the mitigating support for the rotten toxic system which has created the need in the first place and designates those in receipt of such support as customers rather than victims.

The increasingly pervasive narrative, which is being driven further by the pandemic crisis, is that charities and the voluntary sector should be at the heart of our local communities to ensure that vulnerable people don’t fall between the cracks, rather than publicly paid for, managed and delivered state provision.

It was, therefore, all the more disconcerting this week to read the proposal in the left-wing publication The Tribune that a National Food Service should be set up. Whilst its aims to serve the public good rather than private profit are indeed laudable, one has to question the logic.

Of course, one could not object to the removal of private companies delivering public services, given that the tentacles of private profit are growing exponentially as government distributes contracts to its friends and large corporations with few strings attached, whilst at the same time the coffers remain largely bare to serve the needs of those who have for decades been at the sharp end of government policies. The resulting poverty and inequality have been highlighted during this crisis.

The proposal, however, seems to suggest that we mitigate for the crisis of capitalism being played out in the growth of hunger through mutual on the ground action, rather than dealing with its root causes – government policy driven by ideology. We don’t need a plan to ‘respond’ to this fundamental crisis of capitalism, we need a plan to change it; to put public purpose and the interests of citizens, not to mention the planet, at the heart of all government policy.

Over the last few decades, working people have borne the consequences of a toxic economic ideology underpinned by the notion of monetary scarcity, which has led to the reduction in their share of their productivity, which has translated into lower wages, insecure employment and underemployment and a decline in living standards. Poverty is the direct result. The constant repetition of these ideas via politicians, think tanks, economists and the media has led us to believe that this is the inescapable default.

Government, far from serving its citizens, has overseen through its employment and other policies, huge disparities in wealth and access to resources, allowing, for example, chief executives of big corporations to earn many more times that of their employees, not to mention garner political influence as a result.

To add to this picture is the decimation of our post-war public and social security infrastructure, which existed to provide health and social care through various publicly paid for institutions, to ensure that those in need had access to shelter, food and warmth, in times of personal tragedy, sickness, unemployment or economic collapse. When this infrastructure was built, the profiteers had no place in this model and nor should they today.

Whilst the human suffering continues to play out across the nation, the government cynically continues with its U-turns on policy in the vain attempt to keep its MPs and the public on side. Last week, as noted in the MMT Lens, Boris Johnson told MPs that ‘most people would rather see a focus on jobs and growth in wages than…welfare.’ This week, with his signature tune U-Turn, he has indicated a potential rethink of ending the £20 a week Universal Credit uplift, saying he wanted to ensure that ‘people don’t suffer as a result of the economic consequences of the pandemic’. You couldn’t make it up.

Yes, indeed, to more jobs through the implementation of a Job Guarantee, to drive better wages overall and restore the government’s role as the price setter and rebuilding public service provision. But in the meantime, let’s ensure while the consequences of the pandemic continue to cause economic and social pain, that all people have enough to pay their bills and keep food on the table without worry, stress or having to get into debt to keep their heads above water. We have witnessed the power of the public purse, let us not allow that knowledge to be polluted by the restoration of household budget politics.

It is regrettable that politicians, journalists, institutions and think tanks, in their weekly forecasts of doom and gloom, continue to build up the narrative of money scarcity and a future price to pay for this massive round of government monetary intervention. A narrative that will be used to justify eventual hard decisions or another round of austerity in some form or another.

Whilst the livelihoods of many people lie in the balance, not just for now but in a rapidly changing world, we still have to endure the false notions of tax rises to pay for government spending and the penchant for sound finance. Such narratives suggest, not only that people must suffer, but also that the cost of saving our planet from climactic destruction will be too high.

The fact that the government continues to find huge sums of money to support businesses and yet quibbles over a few pounds to working people, suggesting that it is unaffordable should surely be a public conversation starter!

As the chancellor opines that there are some hard choices ahead, one of his treasury ministers clearly of the deficit dove variety, softens the blow by suggesting that the need for tax rises to tackle the record levels of government borrowing could be delayed at least until the economy ‘bounces back’. As if somehow increased tax revenues equate to the capacity to spend or pay down the national debt.

The experts at the Institute of Fiscal Studies and other think tanks then put the fear of God into the public that £40bn in tax rises might be necessary to put the public finances back onto a sustainable footing. Thus, making that public even more cautious about the government’s future spending plans. Self-fulfilling prophecies come to mind.

And then, just this week, when people thought that the vast round of government spending signified a change of approach to managing the economy, Rishi Sunak told Conservative MPs that he will be using his March budget to begin the process of restoring ‘order’ to the public finances through implementing higher taxes.

To those Tories who would like to see the Universal Credit uplift continue beyond April, he gave a reminder of its high cost which represents, according to his calculations, an equivalent of 1p on income tax plus 5p per litre on fuel duty. Thus, further reinforcing the idea that the provision of higher welfare benefits means collecting tax from elsewhere to cover it.

The ‘someone, somewhere will have to pay for it’ model of the state finances will no doubt be used cynically to drive further wedges between the haves and the have nots and justify the further decimation of the already inadequate social security safety net.

According to this narrative, the magic porridge pot is running on empty and needs replenishing in order to pay down debt and avoid a giant burden for future generations.

This tale of supposed coming woe serves to keep people in their place while reinforcing the old myths about how governments spend. It displays both economic illiteracy and a disregard for the lives of those who will lose out as a result, not to mention addressing the biggest challenge of all – climate change.

And then at the ‘left’ end of the household budget scale, we have economists, opposition politicians, unions and other so-called experts, urging the Chancellor to take advantage of low borrowing rates of interest to avoid tax rises until the economy gets back on its feet and restores tax revenues, or reinforcing the false narratives about taxing the rich to pay for the pandemic. The household budget model is endemic and those on the political left keep shooting themselves in the foot repeatedly.

A paper published by the LSE’s International Inequalities Institute last December, using data from 18 OECD countries over the last five decades, concluded unsurprisingly enough that tax cuts for the rich didn’t trickle down; that they contributed to inequality and did little to stimulate business investment.

The authors then went on to suggest that it was time to tax the rich more to repair the public finances. This was backed up in the same month when the Wealth Tax Commission, founded in April of last year, concluded that a one-off wealth tax would raise significant revenue and be fairer and more efficient than other alternatives. To be exact, it suggested that a ‘one-off wealth tax on millionaire couples would raise £260 billion’ The implication being yet again that such a tax could be used to repair the public finances.

Whilst we can’t avoid these false tropes, which lead the public astray and reinforce the messages that government spends like a household, we can challenge them. When Matt Hancock, the Secretary of State for Health and Social Care, bleats on as he did this week about the NHS Pay review body taking ‘account of the extremely challenging fiscal and economic context’ in its decision about future pay rises, we can show the public that such decisions have no connection, either with the current state of the public finances or the future monetary affordability of those pay rises.

We can reinforce the message that curtailing public sector pay won’t increase the ability of the government to ‘set the public finances straight’, any more than the decade of austerity did. It could actually have a negative, indeed disastrous, effect on the economy at a time when it will, without doubt, need continuing government support.

Aside from the fact that public sector and, indeed, other key workers have seen their pay dwindle in real terms as a result of a decade of pay freezes or inadequate employment legislation, and that the pandemic has revealed the vital nature of their contribution to society, all increasing taxation will do is leave less money for working people to spend into both the national and local economies. Also, should that increased taxation fall on corporations, (as is being suggested) who will likely pass that additional cost on through higher prices to working people anyway, it will create a double whammy effect.

Whilst a pay rise will increase tax revenues, it will not increase the government’s capacity to spend. But we see the false narrative again in a study published this week by the London Economic Consultancy. The report claimed that the government would recover 81% of the cost of any pay rise in additional taxes, which would, in turn, have significant ‘knock-on’ benefits for the Treasury. Clearly suggesting that tax funds its spending.

Whether from the left or right of the political spectrum, the public is treated daily to a mishmash of false information dictated by the dominant economic paradigm which masquerades as truth. It’s no wonder that people are confused and feel disempowered or turned off by politics and economics, which they feel do not relate to their lives at all, even though, in reality, these things have everything to do with them.

While politicians, journalists and economists argue about monetary affordability and who should pay for government spending, people are dying and will continue to die for the want of a government that puts their interests first.

What happens next will depend on a successful challenge through raising public awareness that there is indeed an alternative to the vast disparities in wealth, the rise of poverty and inequality, the whittling down of democracy and increased corporate dominance in our lives. And it starts with understanding how government really spends.


Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

January 24th 2021 @ 4:00 pm – 5:30 pm GMT

GIMMS is delighted to present another in its series ‘In Conversation’.

Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Tickets via Eventbrite


Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.



Audio via the MMT Podcast here


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Sunak can try being the petty Chancellor, but he would be best not to do so. 

Published by Anonymous (not verified) on Fri, 22/01/2021 - 6:58pm in

The FT has an article today which begins be saying:

Chancellor Rishi Sunak has told Conservative MPs he wants to use his March Budget to start restoring order to the public finances, as he attempts to put “clear blue water” between the Tories and Labour.

The message is fourfold, apparently.

The first is that Sunak has told Tory MPs that there is no magic money tree.

The second is that it apparently shrivelled and died when continued support for universal credit won support from some Tory MPs.

The third is that austerity must begin, or the Tories will apparently forever look like Labour by suggesting that there is a bottomless pit of money that they can spend.

In which case, the message is that tax increases will start in March. Expect a 23% corporation tax and increases to capital gains tax in that case. Income tax, VAT and national insurance are all ruled out by ejection promises.

So what is there to say in response?

First, that no one now believes that there is no magic money tree. It has been proven to exist. Whether that implies acceptance of modern monetary theory or the simple evidence that QE has been wholly funding a deficit of £400bn in the last year is neither here nor there: the simple fact is that even the hardest nosed sceptic knows money can now be created by the government at will without either necessary tax or inflation consequences.

Second, I took part in a meeting of economists yesterday where it was said in good faith, and I think correctly and not by me, that there is now a consensus amongst all credible economists that now is not the time for either cuts in spending or tax increases (excepting, maybe, for redistribution). The agreed reasons were that this crisis is far from over yet, and the economy has further to fall as yet, meaning that any such changes would hit as matters were getting worse, economically.

Third, such petty politics will be very obviously that. They will be seen as simple game playing when that is inappropriate.

And fourth, whatever Sunak does is gesturing. The next year is going to see the third biggest UK deficit ever, at a minimum. The chance that it will be less than £100bn is close to zero. It could quite easily become the second biggest ever by exceeding the £150bn or so of 2008/09. And things will not be much better (if debt fetishism is your thing) for the years that follow up to 2024.

So, arguing that the magic money tree has ceased to exist is futile. It clearly  will not have done.

Arguing that universal credit cannot be afforded will in that case clearly look like victim selection.

Tax increases, without equitable rather than social justification, will also very clearly look wrong, and petty (as they will be, that justification excepted).

And since that justification requires matched spending to make it work any reference to debt reduction could easily backfire, especially when the economy has a long way to go down as yet.

So what could Sunak do? He could openly redistribute, and take the wind from Labour’s sails.

He could attach conditions to savings tax reliefs and link them to green investment,  as I have long argued to be necessary.

He could restructure allowances on pensions for the wealthy. That is simply something that is overdue.

But in each case he would have to prove he was spending to justify the change. Because what people now know is that this economy is on the life support that only government money creation can supply. And as a result they are not going to be happy letting it go.

Sunak can try being the petty Chancellor. But he would be best not to do so.

So, what is MMT?

Published by Anonymous (not verified) on Wed, 20/01/2021 - 7:46pm in

This was published via Bloomberg Markets yesterday, and I thought it worth sharing:

Just click the image to read the whole piece.

What is good is that it was published.

That it’s useful is a bonus.

What are the problems with QE?

Published by Anonymous (not verified) on Tue, 19/01/2021 - 6:30pm in

Twelve years ago quantitative easing was considered radical. It was called 'unconventional' monetary policy. Actually, it was government just using the power it has to create money at will, which had been pretty much denied until that time.

Now QE has become conventional - there will be more than £400 billion of it done this financial year in the UK alone. But there are problems with it. As a result I am creating a mini-series on the issues that QE is giving rise to, how we can address them, and how this relates to modern monetary theory, which some would like to see replace QE. This is the first in that series, and focuses on the strengths, and weaknesses, of what is now conventional QE.