Planning public works – history has a lot to say if we listen properly

A few weeks ago, in my three part series answering questions about Modern Monetary Theory (MMT), I addressed the issue often raised about the fiscal policy emphasis in MMT, that it is difficult to time government spending injections to match the cyclical need. These criticisms go back a long way and were used by the likes of Milton Friedman to build up his case against discretionary fiscal activism in favour of monetary rules. Of course, that was an ideological preference, given the Monetarists wanted ‘small’ government and technocrats implementing economic policy. The basic precepts of Monetarism have not stood the test of time and the GFC and its aftermath have showed, beyond doubt, that monetary policy is an ineffective means of stimulating aggregate spending and that fiscal policy is the best way to counter non-government spending collapses. In those blogs, I outlined several ways in which fiscal policy could overcome ‘timing’ issues and deliver prompt stimulus when needed and be able to contract the stimulus in a timely manner once non-government confidence and spending had recovered. The points I raised are not new and have been discussed and made operational many times in the past. A tweet from my MMT colleague Stephanie Kelton last week reminded us of this again when the US National Resources Planning Board (NPP) was mentioned with a link to the The Internet Archive is a “non-profit library of millions of free books, movies, software, music, websites, and more” and is a fabulous resource for researchers. Reading the Report from the NPP is like music to the ears! History has a lot to say if we listen properly.

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Renationalisation – when self-promoted genius becomes plain lame

There are times when so-called progressives outdo themselves with their (usually self-styled) ‘genius solutions’ to the ravages of neoliberalism. They come up with elaborate ‘solutions’ that people on the Left get feverishly excited about yet fail to see how obviously ridiculous these strategies are when all the options are allowed. They, in fact, step further into the mirky neoliberal world by trying to be progressive because they fail to see what the basic issue is. One recent example of this was the proposal by Britain’s Big Innovation Centre to divert the private sector into doing good for society in general. Apparently, the British government could resume control of the failing (privatised) essential services without laying out a single penny. This would apparently allow them to avoid running foul of Treasury borrowing limits yet satisfy the overwhelming desire by the British public for a restoration of quality services. It is clear that the British public are sick to death of the privatised services and are ready for a large revival of public sector activity. In that environment, why would the government, with such a powerful mandate and plenty of political cover, maintain the economic myths that were advanced to justify the (unjustifiable) sell-offs of public enterprises? Once we cut through these economic myths, it becomes apparent how lame these ‘solutions’, which perpetuate profit-seeking, corporate ownership of the essential services in Britain, really are.

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An MMT response to Jared Bernstein – Part 3

This is the third and final part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. In this blog I deal with the last question that he poses to Modern Monetary Theory (MMT) economists, which relates to whether currency issuing governments have to raise revenue in order to “pay for public goods” and whether prudent policy requires the cyclically-adjusted fiscal balance to be zero at full employment to ensure “social insurance programs” are protected. The answer to both queries is a firm No! But there are nuances that need to be explained in some detail. While Jared Bernstein represents a typical ‘progressive’ view of macroeconomics and is sympathetic to some of the core propositions of MMT, this three-part series has shown that the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda. For space reasons, I have decided to make this a three-part response. I also hope the three-part series have helped those who already embrace the core body of MMT to deepen their knowledge and render them more powerful advocates in the struggle against the destructive dominant macroeconomics of neoliberalism.

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An MMT response to Jared Bernstein – Part 2

This is the second part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. Part 1 considered the thorny issue of the capacity of fiscal policy to be an effective counter-stabilising force over the economic cycle, in particular to be able to prevent an economy from ‘overheating’ (whatever that is in fact). Jared Berstein prescribes some sort of Monetarist solution where all the counter-stabilising functions are embedded in the central bank which he erroneously thinks can “take money out of the economy” at will. It cannot and its main policy tool – interest rate setting – is a very ineffective tool for influencing the state of nominal demand. In Part 2, I consider his other claims which draw on draw on the flawed analysis of Paul Krugman about bond issuance. An understanding of MMT shows that none of these claims carry weight. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. Jared Bernstein represents a typical ‘progressive’ view of macroeconomics but the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. For space reasons, I have decided to make this a three-part response. I will post Part 3 tomorrow or Thursday. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda.

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The IMF still has the same spots

Just before Xmas (December 22, 2017), the IMF proved once again that leopards don’t change their spots. Thy released a Working Paper (No. 17/286) – Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor – that demonstrated they hadn’t learned a thing from the last decade of crisis and fiscal interventions (stimulative and opposite). The paper demonstrates no understanding of context, history, or the role that fiscal policy should play in advancing general well-being. It is a technical exercise laden with the ideology of mainstream macroeconomics that fails badly. The problem is that the mainstream political parties (on both sides of the fence – Labor and Conservative – although pretending there is a fence is somewhat far-fetched these days) will use it against each other, and, in their shameful ignorance, against the best interests of the nation and the people that live within its borders. And … on reflection using the leopard example is an insult to the leopards. The IMF is an ugly, destructive institution that should be defunded and their buildings given over to the homeless.

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The lame progressive obsession with meaningless aggregates

Maybe the British Labour Party could get Nancy Pelosi to do some stupid tweets for them as well. She is an expert at it – see my blog – When neoliberals masquerade as progressives. She thinks it is smart progressive politics to post tweets criticising her political opponents for a policy that “explodes the deficit … dumping … debt on every man, woman & child in America”. A fallacious argument. But moreover, a very stupid strategic argument because it fails to educate the public on what deficits and public debt are and what the capacities of a currency-issuing government and locks the progressive side of politics into no-win dilemmas. When it is their turn to govern they quickly find that they have no room to move on government spending because their own taunts when in opposition are thrown back at them. Same the world over. The progressive side of politics seems to have a lame obsession with meaningless aggregates – like the size of the fiscal deficit or public debt to GDP ratio. Pathetic is not the word.

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Household debt is part of a broader problem – be informed

The head of the Australian Prudential Regulation Authority (APRA), which was created in 1998 as part of the sham to separate regulation from policy and pretend the Reserve Bank of Australia was independent, gave a speech in Sydney yesterday (November 21, 2017) – Housing – The importance of solid foundations. The reason the speech is important is because it demonstrates the disconnect in policy making and the failure of key policy makers and regulators to connect macroeconomic dots. Australia – like the rest of the world – needs politicians and officials who understand how the macroeconomic aggregates are connected. One cannot have a conversation about household debt without recognising that it is, in part, directly related to the fiscal position of the government and the nation’s external position. While the APRA boss is correct to highlight the precarious nature of household balance sheets given the record and increasing debt levels being borne by households who are experiencing a wages squeeze and a government intent on austerity cuts, he should be educating the public on the broader context. Then there would be more acceptance of expanding discretionary fiscal deficits and a wages policy designed to bring real wages growth back into line with productivity growth. If that was the case, much of the idiotic conversations – some masquerading as ‘research’ results would disappear.

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What matters about the Paradise Papers

A cursory glance at the World’s leading tax havens illustrates the hypocrisy of politicians getting wound up about the revelations in the recently released Paradise Papers and the Panama Papers before them. Many of the havens are within the direct legislative jurisdiction of nations such as the US (which is itself a tax haven) and the UK, for example. And we should not forget that Luxembourg, Switzerland are key European homes of tax avoidance. Remember that the current President of the European Commission “spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations” (Source) ably supported by the Netherlands, another nation engaged in the practice. If the politicians were truly worried about this issue they could do something about it directly with the stroke of a legislative pen. Britain could, for example, eliminate Jersey, the Isle of Man, and its Overseas Territories from this corporate scam. The US could do similarly. The EU could bring in new rules to stop Luxembourg. But they don’t stop it, which tells you everything. But, the problem of tax avoidance and evasion is not fiscal. Progressives get stuck on that point. It is largely irrelevant. The real issues are inequality, power and macroeconomic stability. That is what this blog is about.

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When neoliberals masquerade as progressives

One wonders what goes on in the heads of politicians sometimes. Perhaps not much other than a warped sense of their purpose in life – which for some seems to be to advance themselves rather than advance societal well-being. In recent days, fiscal debates have raged on both sides of the Atlantic. In the US, there is the Trump tax cut debate. The correct progressive response would be to focus on why these cuts will not advance anybody but the rich and will do very little if anything to create new jobs. Unfortunately, prominent Democrats such as the awful Nancy Pelosi have been spouting stuff about the tax cuts increasing the federal deficit and federal debt. At a time, when the Republicans are abandoning the deficit terrorism to advance their own interests, the Democrats seems to be reinforcing the ‘deficits are bad’ narrative. Instead, they could have seized the opportunity to say to the American people – see deficits are fine but the real issue is what we do with them. Pelosi and her ilk seem incapable of adopting that quality of leadership. In the UK, the reality is dawning on the British government that the austerity harvest is anything but what they had hoped it would be. No surprises there. Austerity undermines growth which can easily increase the fiscal deficit when the goal is the opposite. But the way that reality is being handled in the progressive press is pathetic. The UK Guardian, for example, has headlines about ‘black holes’ and is giving oxygen to reports that talk about the deteriorating fiscal situation in the UK. Readers are left with nothing but neoliberalism reinforcement of the ‘deficits are bad’ myth. A shocking indictment of the progressive debate in the UK.

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IMF policies undermine the health of mothers and children in the poorest nations

In our new book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – Thomas Fazi and I argue that a new progressive agenda would see the abolition of the IMF and the World Bank and the creation of a new multilateral institution that is entrusted with ensuring poor nations can access necessary funds to prevent their societies collapsing. This organisation would not be a bulwark for inflicting neoliberal policies on the poorer nations, but rather, a body that assisted nations in developing first-class health, education and environmental care capacities and infrastructure in a fully employed environment. It would help insulate such nations from the vicissitudes of global finance by supporting capital controls and other anti-speculative policy tools. The current multilateral framework dominated by the likes of the IMF and the World Bank have failed categorically in this regard. Recent research, which, in part consolidates a rich body of research going back to 1987, has found that the so-called ‘structural adjustment policies’ that accompany assistance from these organisations have materially damaged child and maternal health in the nations where these conditionality programs have been imposed. The IMF likes to talk about intergenerational fairness, especially in relation to the alleged burdens that fiscal deficits leave for future generations, but then they support and implement policies that unambiguously damage the health and well-being of children in poorer nations, while allowing real resources to be sucked out of those nations to the benefit of the global rich. A criminal enterprise.

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