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The New Economy cannot flourish with fiscal austerity

I often get E-mails from readers – some hostile others more reasonable – telling me that I should stop arguing for more economic growth. The reasoning is relatively straightforward – the Earth is buckling under the rapacious resources demands of the capitalist system and not only is that process likely to be finite, notwithstanding substitution via technological advances, but also in the process of exhaustion the amenity declines. The argument juxtaposes ecological claims with other claims relating to the desirability of the current neo-liberal dominated system which relies, seemingly, on creating more inequality, a reduction in government oversight and allows the worst aspects of the capitalist system to run amok. However, somewhere along the way, the 99% or whatever percentage it is (I think it is substantially lower than 99) miss the boat. The current crisis is used to demonstrate that conjecture. I haven’t time to reply to all the E-mails and I try to provide “collective” replies (which should tell you something in itself) via my blog posts. So today I am addressing that issue. The message is simple – I am very sympathetic to localised, new economy-type collective ways of organising social and economic activities. I support egalitarianism and co-operative solutions rather than competitive, dog-eats-dog approaches. I don’t mind working and giving my surplus to aid those who are unable for whatever reason to achieve the same material outcomes by their own hand. I am happy with consolidation rather than growth. But despite the romantic appeal of all this – as the solution – we have to understand that there is still something called a monetary system and a currency to deal with. Localised solutions are still constrained by the sovereign state they are located in and their fortunes are determined in no small way by the way the currency-issuing government conducts its fiscal policy. There is no escape from that.

In the New York Times Sunday Review article (May 26, 2012) – Let’s Be Less Productive – we are asked to consider whether:

… the pursuit of labor productivity reached its limit?

Viewed as the “engine of progress in modern capitalist economies” where “(o)utput is everything. Time is money” – productivity has been the way material wealth has grown over the eons.

The article says that “productivity may also have some natural limits” and we should work to reduce our addiction to growth to prepare us for when material advance is no longer possible.

The article proposes that we see unemployment as a problem of not sharing the hours of work appropriately – an idea they say is “now enjoying something of a revival in the face of continuing recession”.

While well-intended (to eliminate unemployment) such proposals fail, in my view, to address the principle cause of mass unemployment – not enough aggregate demand.

Ah, but then I am accused of being captive of a spending obsession. My response – not at all. I am just not going to be captive to the neo-liberal obsession with creating buffer stocks of unemployment to allow the elites to expropriate more real income than they might be able to if all workers were working to their desired limits and secure.

Modern Monetary Theory (MMT) tells us that spending equals income. One person’s purchase is another person’s income. If there is not enough spending then someone has no job. Rationing hours of work to fit this constraint merely imposes the burden of the inadequate fiscal policy onto workers.

I do not think progressives should let our governments off the hook like that so easily.

The NYT proposes an alterntive “strategy for keeping people in work when demand stagnates”:

Perhaps in the long run it’s an easier and a more compelling solution: to loosen our grip on the relentless pursuit of productivity. By easing up on the gas pedal of efficiency and creating jobs in what are traditionally seen as “low productivity” sectors, we have within our grasp the means to maintain or increase employment, even when the economy stagnates.

The article also says that “this may sound crazy; we’ve become so conditioned by the language of efficiency”.

I agree with the author (one Tim Jackson) that this is a very viable solution. I construct that solution in the form of a Job Guarantee.

Tim Jackson says that “there are sectors of the economy where chasing productivity growth doesn’t make sense at all” – such as, personal care services.

If we allocate more spending to areas such as “medicine, social work, education” etc, then we can have “growth” (in employment and happiness) without imposing a heavy resource footprint on the nation.

Someone asked me the other night after I had presented a workshop on the Eurocrisis – how I deal with ecological issues while continually calling for full employment.

My preference for full employment is based on the role that employment plays in our social lives as well as its intrinsic role in giving us independent access to the distribution system. Work defines people. It gives us inclusion and self-esteem. Unemployment alienates and disclocates as well as the material impoverishment it brings.

I answered the question by posing the situation that musicians (who always struggle for gigs) could become JG workers and, in return for their income security and being part of the wider employment scene could reciprocate by conducting rehearsals in school halls and teach kids about bands, instruments, song-writing etc.

Artists likewise. Surfers could teach children water safety (to eliminate the drownings that occur each summer) and dune maintenance and physical fitness in return for being employed.

By the time you go through the list – we have a very green employment structure and inclusion. Win-win the management consultants call it. Me too!

If we need this employment to be highly skilled (and therefore closed to many of the current most disadvantaged citizens) then the public sector can easily offer work in personal care and environmental care services at above JG wages.

The NYTs article says that:

The care and concern of one human being for another is a peculiar “commodity.” It can’t be stockpiled. It becomes degraded through trade. It isn’t delivered by machines. Its quality rests entirely on the attention paid by one person to another. Even to speak of reducing the time involved is to misunderstand its value.

Care is not the only profession deserving renewed attention as a source of economic employment. Craft is another. It is the accuracy and detail inherent in crafted goods that endows them with lasting value. It is the time and attention paid by the carpenter, the seamstress and the tailor that makes this detail possible. The same is true of the cultural sector: it is the time spent practicing, rehearsing and performing that gives music, for instance, its enduring appeal. What – aside from meaningless noise – would be gained by asking the New York Philharmonic to play Beethoven’s Ninth Symphony faster and faster each year?

I agree with all of this and have actively promoted these ideas throughout my professional career. Much to the chagrin and/or amusement of most of my profession I might add. Their loss!

But the point to understand is that to fulfill these new economy ideals we still have to have appropriate fiscal policy to ensure that there is sufficient spending support for these jobs.

Running budget surpluses when the non-government sector is draining aggregate demand will not get us to this new level of social efficiency.

Progressives have to understand that the macroeconomic policy settings are crucial to achieving these more local goals. Too often, the new economy is held out as being a local solution. Well it can only be that if the aggregate solution allows it to be.

So we have to become au fait with macroeconomics and see that the way the neo-liberals push governments to run surpluses is the main game to be attacked before we can all go off in our Kombis (loaded up to ensure not too many cars are being used) to some “local” nirvana.

A fully employed sustainable economy will still require real GDP growth rates of say 2-3 per cent (depending on labour productivity and labour force growth). It will still require aggregate demand (spending) to grow. But its employment structures will be very different.

Then consider this article (May 22, 2012) – The Rise of the New Economy Movement – by Gar Alperovitz, who is an American academic and co-founder of the Democracy Collaborative.

He says that:

Just beneath the surface of traditional media attention, something vital has been gathering force and is about to explode into public consciousness. The “New Economy Movement” is a far-ranging coming together of organizations, projects, activists, theorists and ordinary citizens committed to rebuilding the American political-economic system from the ground up.

The broad goal is democratized ownership of the economy for the “99 percent” in an ecologically sustainable and participatory community-building fashion. The name of the game is practical work in the here and now-and a hands-on process that is also informed by big picture theory and in-depth knowledge.

Sounds good.

Apparently, there is to be an bursting out of “thousands of real world projects — from solar-powered businesses to worker-owned cooperatives and state-owned banks” which will rewrite capitalism and become “state and local laboratories of democracy” which “may be applied at regional and national scale when the right political moment occurs”.

The article provides a lot of interesting examples of what is happening by way of co-operative movements in the US. It does sound very exciting.

These economic and banking type developments – private co-operatives are dove-tailing with the Occupy movements to present a public opposition to the Wall Street model of crony capitalism.

Sounds good.

Various proposals such as to put “worker, consumer, environmental, or community representatives of “stakeholder” groups on corporate boards” are outlined. Other plans include setting up citizen funds to reclaim “a significant portion of the state’s mineral revenues and returns dividends to citizens as a matter of right”.

And it goes on – all sounding good.

We learn that:

Recently, the United Steelworkers union broke modern labor movement tradition and entered into a historic agreement with the Mondragón Cooperative Corporation and the Ohio Employee Ownership Center to help build worker-owned cooperatives in the United States along the lines of a new “union-co-op” model.

The aim of all this is to “… put an end to the most egregious social and economically destructive practices in the near term … [and] … lay foundations for a possible transformation in the longer term”.

The author says that one of the contraints of the New Economy movement is that it:

… confronts the enormous entrenched power of an American political economic system dominated by very large banking and corporate interests-and bolstered by a politics heavily dependent on the financial muscle of elites at the top.

My view is that the real constraint is the poor economics education within the population. The elites, mentioned above, exploit this collective public ignorance and hold out neo-liberal free market economics as the only alternative. Even though there is nothing free about the market organisations they lobby governments to create by deregulation etc, we (the collective) don’t know that and are ill-equipped to see through the myths.

We know there is something wrong when “400 individuals at the top now own more wealth than the bottom 160 million” (in the US) but at the same time we support fiscal austerity because we think TINA.

Imagine if everyone understand the fundamental principles of macroeconomics (developed by MMT)? How long would the Wall Street elites maintain their lobbying sway? How long would politicians who advocate undermining our fortunes and the future of our children via fiscal austerity last in office?

Answer: not very long.

The author says that:

… driving the movement’s steady build up, day by day, year by year, is the growing economic and social pain millions of Americans now experience in their own lives-and a sense that something fundamental is wrong. The New Economy Movement speaks to this reality, and just possibly, despite all the obstacles-as with the civil rights, feminist, environmental and so many other earlier historic movements-it, too, will overcome. If so, the integrity of its goals and the practicality of its developmental work may allow it to help establish foundations for the next great progressive era of American history. It is already adding positive vision and practical change to everyday life.

All of which I agree with BUT …

No where in the article is there any reference to fiscal policy nor to the role of the currency-issuing government in maintaining macroeconomic conditions that would allow these localised initiatives to bloom and become the base for democratic revival.

I am not suggesting all articles about the economy etc should deal with that issue in the depth that I might as a practising macroeconomist. But it would have only taken one sentence to establish that the author understood how crucial it is for the “local” movement to also develop and articulate a powerful narrative critical of the current neo-liberal macroeconomic orthodoxy that my profession puts out.

The omission is very telling and this shortcoming permeates much of the New Economy-type literature.

And, speaking of Mondragón.

In the 1970s, as a student I studied the Mondragón Cooperative Corporation (MCC), which was formed in the 1950s and was continually held out as an example of how the capitalist system can be improved by evolution rather than revolution.

The MCC is a capitalist formation with a difference – “a corporation and federation of worker cooperatives based in the Basque region of Spain”. It has evolved into a very large set of interlocked co-operative firms employing around 80 thousand people directly across various industry sectors (Finance, Industry, Retail and Knowledge).

The business approach is participatory and worker-focused and owned with one-person, one-vote rules applying.

However I often read statements such as (Source):

The Mondragon Cooperative Corporation employs 104,000 workers/owners in 140 cooperatives. Only 4 of their businesses closed in the last 60 years. They have NO unemployment. If one coop reduces staff others pick them up. Even now, with the financial turmoil hitting Europe, the unemployment rate in Mondragon is Zero.

Which is an absolute lie.

The truth is very different.

You might like to read this article (October 24, 2011) – Mondragón Revisited – which was written by a former Australian (left-wing) politican, Race Matthews.

He notes that:

In the face of the global financial crisis that has Spain’s unemployment level standing currently at some 22 per cent, the Mondragon co-operatives offer an astonishingly successful alternative to the way we organise business and economies …

Have they?

Race Matthews quotes the HR Director of Mondragón who says “We are private companies that work in the same market as everybody else. We are exposed to the same conditions as our competitors.”

We learn that Mondragón’s retail businesses “experienced for the first time since its inception in 1959 losses consequent on massively reduced consumer demand”.

We learn that Mondragón and Spain’s “largest manufacturer of white goods … has successfully managed down production by 30 to 40 per cent in the face of a precipitous contraction of the effectively discretionary consumer durables market”.

We learn that a Mondragón credit union (“Spain’s ninth largest bank”) lost “seventy-five per cent reduction in its profitability” during the crisis so far.

So how have they been able to maintain low unemployment within the permanent workforce?

Answer: they rely heavily on temporary workers. They were the ones who became unemployed as the co-operatives had to dance to the falling aggregate demand.

This article – What is happening to Mondragon in Spain’s economic crisis? – tell us that 50 of the Mondragón co-ops are making losses.

They deal with this, in part, by transferring “worker members … from one coop that isn’t doing well to one that is”. They have also cut wages by up to 8 per cent in the hardest hit areas.

They have an internal income support scheme but still workers face losses in annual incomes.

But it is this dichotomy in the workforce which is far from democratic. The Mondragón co-operatives typically have two types of worker – (a) the worker-owners who participate in decision-making and share profits; and (b) the hired labourers (temporary workers) who do not vote, participate in decision-making and have no job security.

I haven’t time today to detail the way in which this segmented labour market operates and some of the insidious social practices that evolve (bullying, coercion etc).

It was these disenfranchised workers that took the fall when aggregate demand slumped and sales collapsed. Co-operatives and other forms of corporation are alike – they need spending to maintain prosperity (however that prosperity is distributed).

The New Economy movement walks a similar path to the Social Entrepreneurship Movement (SEM), in that they both focus on local, community-designed and implemented solutions.

SEM claims that main welfare-role for government should be to assist the development of local social entrepreneurs, encourage entrepreneurial projects and to ensure that resources and service delivery are devolved to what they call place management models.

They aim to break the government-individual nexus and use public funds to subsidise private entrepreneurs. They also support strengthening the ties between non-profit organisations and business for mutual benefit. They claim that by investing directly into the community, private corporations are empowered to determine where social spending is allocated. And so the company and the community enjoy a mutual benefit.

There are major concerns with these proposals. I published a fair bit on this about a decade ago. A freely available working paper is available as a sample – Social Entrepreneurship – false premises and dangerous forebodings.

First, basing social spending according to corporate aims starkly contrasts with the social justice orientation of the Welfare State where resources were allocated according to an ordering of societal needs, determined in the public domain, rather than by corporations.

Second, using non-profit organisations to administer state welfare programs for commercial gain may fundamentally change the character of these organisations. In particular, imposing sanctions (income-losses) on some of the most disadvantaged members of the community may conflict with long-standing organisational goals and values. This may cause internal conflict between the enterprise and welfare divisions of such organisations, as clients sanctioned by one part of the organisation seek emergency assistance from another.

We have the situation in Australia where successive governments (Labor and Conservative) have increasingly outsourced service delivery of welfare and labour market programs to the private sector, supposedly to increase efficiency. The data and evaluations tell a vastly different story of waste and corruption and inadequate outcomes, but that is another story for another day.

But the churches have been among those at the centre of the outsourcing and have sought to create profitable arms of their organisations to, for example, case manage the unemployed. However, government policy is also to penalise the unemployed for various “activity” infractions, For example, a person losing his/her home because they can no longer pay the rent receives a letter to attend an interview at the employment agency but does not get it because they are homeless. Result – their benefits are withdrawn for some weeks as a punishment. Schizophrenics who have episodes on the day of their interview and fail to attend are similarly treated by this heartless neo-liberal rabble we call our government.

Anyway, the churches who are the servicing these contracts – have to rat on the unemployed who then lose income support. The punished then walk out one door of the church office and into the other door which delivers emergency food aid. This schizoid nature of welfare agencies these days – that is, those who have been co-opted by our neo-liberal governments is driving a wedge into them and the tension is dissipated by many abandoning the emergency aid function – with shocking results.

Third, community pooling arrangements are proposed as a radical new form of welfare provision. So we get these ideas that government allocations for health, education, housing, training and employment and all social security payments which are paid to individuals (as a right of citizenship) should instead be pooled and invested in community cooperatives, which then pay a living wage for community employment.

This model of community entrepreneurship thus sees the government as a venture capital provider and underwriter of small-scale capitalist production. The StartUp Loans which I analysed in this blog – StartUp Loans – neo-liberal smokescreen which denies macroeconomic reality – are in that mould.

They ignore the fact that small business failure at the best of times is very high. Such schemes cannot be a reliable employment generator.

It is also undesirable to implement an income support system where the fortunes of the disadvantaged receiving assistance are dependent on entrepreneurial vagaries. Further, community entrepreneurship is susceptible to a major source of market failure referred to by economists as moral hazard. The government would have a moral obligation to prevent an entrepreneur from failing.

The entrepreneur thus faces distorted risk and return choices because they can effectively ignore downside risks of any particular development plan. Market failure would be endemic and wasteful investment schemes would proliferate. There is no moral hazard in a government provided welfare model where the allocations are based on a system of political accountability.

Fourth, the SEM claims that social cohesion is only developed at the community level. However, social cohesion can take many forms. Some countries like Japan, Switzerland, and Norway maintained Keynesian policies and avoided the sustained unemployment that beset most economies after the mid-1970s.

In Paul Ormerod’s 1994 book – The Death of Economics (Page 203) we read that each these countries retained:

… a sector of the economy which … functions as an employer of last resort … [and] … exhibited a high degree of shared social values … [or] … social cohesion, a characteristic of almost all societies in which unemployment has remained low for long periods of time.

Social cohesion, here, refers to the willingness of citizens to allow the state to use macroeconomic policies to maintain full employment.

SEN advocates want community to replace the state as the vehicle for social cohesion and argue that the community-focus would help to overcome the “one size fits all” aspect of bureaucratic Welfare States. However, a series of separate communities pursuing competitively driven aims do not necessarily develop shared values or social cohesion. They are indeed more likely to develop social antagonism toward each other.

Moreover, the substitution of community-developed, for bureaucratically determined, programs may introduce discord between sections of the community with divergent priorities, including intolerance of minorities. There are suggestions in Australia, for example, that indigenous Australians, among the most disadvantaged people in the world to our eternal disgrace, should be subject to income support pooling arrangements and local rules be applied – such as church attendance, etc – in return for a share of the pie. Intolerance can quickly spread in localised situations.

Unique programs in each community also imply the erosion of the individual right to a minimum service standard. Not only are rights exchanged for the concept of earning entitlements by proving deservingness, but, members of dynamic communities with greater entrepreneurial skills will be relatively disadvantaged.

The assumption that positive outcomes of a small number of organisations will automatically be transferable to every community is also problematic. Social entrepreneurs would compete with private companies and employment generated in these communities may be partially or totally offset losses in the private sector.

In short there are numerous dangers in pursuing the SEM model of community entrepreneurship. Communities working together with the fiscal power of the federal government to achieve national goals would best ensure the protection of citizens’ rights originally secured by the introduction of the Welfare State, and, avert the possibility of divisiveness between and within communities.

Many of these dangers spill over into the more general New Economy models of economic organisation.


I would not like it thought that I am opposed to Mondragón-type developments. Exactly the opposite is the truth. But realities are sometimes different to the romantic narratives that evolve to provide succour in times of stress.

The Mondragón-type initiatives are dependent like all economic activity on the overall state of the macroeconomy. They have clearly suffered in the downturn because the Spanish government has been unable to conduct appropriate fiscal interventions given it has no currency sovereignty.

While the worker-owners have not suffered the indignity of mass unemployment, the secondary labour market workers (the temporary workers) have. Just like everywhere, the most disadvantaged workers go first.

Localism can only flourish within an appropriate fiscal environment that maintains aggregate demand at levels consistent with full employment. That is the same however production is organised.

I support the New Economy initiatives but implore the leading lights to educate themselves about MMT and why macro matters.

That is enough for today.

This Post Has 37 Comments

  1. I have to say that I am opposed to any arrangement involving church and state. If welfare were in the hands of the religious leaders in my part of the country, then only church going Baptist would qualify. I know they would say different, but that is the case. Mormons, Jehovah’s Witnesses, Muslims, gays, nor lesbians need apply unless they are ready to be ‘born again’. Being agnostic I would starve.

  2. Bill
    Is Modern Monetary Theory the same as Modern Money Theory?
    There seems to be a bit of rebranding going on.

  3. “I often get E-mails from readers – some hostile others more reasonable – telling me that I should stop arguing for more economic growth. The reasoning is relatively straightforward – the Earth is buckling under the rapacious resources demands of the capitalist system …”

    While I’m not denying that we have an ecological and resource problem, I think that there is a conceptual problem here that is, in a way, analogous with the MMT versus “hard money” debate. Some people see “economic growth” as “hard growth” – that the circulation of more money must involve the creation of hard goods which require hard resources. But with fiat currencies and with more “value” being created through services today rather than “hard” products, things are not so simple.

    All the more reason to concentrate on real resources and real democratic (and ecological) structures.

  4. Dear Andy (at 2012/05/31 at 20:23)

    We use the term Modern Monetary Theory (MMT). Who is doing the re-branding?

    best wishes

  5. If I may support anecdotally, just how ingrained the efficiency thinking is:

    A couple years ago one of the protestant churches in Germany brought in a consultant to make their services “more efficient”. The recommendations were as expected: cut down on time spend on each case, replace volunteers by professionals (nurses and such) who would be faster and use resources more efficiently,…

    The church! Trying to become more efficient! No matter what one thinks about organized christianity, this is obviously oxymoronic.


    But as to Bill’s main point: one of the arguments that I like to use is that restructuring of production processes, and newly increased government regulation, would reduce the resource footprint. Cheapest production under the “free market” paradigm is often only cheap because environmental costs do not have to be borne by the producer. There are vast differences in the water consumption that different approaches to producing the same output need, for instance, and there are obviously different ways of generating electricity.

    It is my impression that countries that have high “productivity” are typically also relatively “clean” producers (and ones with relatively high work safety standards). So I’d assume that far from resource consumption rising in lockstep with productivity, increased productivity would reduce it.

  6. Bill
    I think it’s just my imagination. Too much coffee.
    I read the Fiebiger paper and response, noted the references, then noticed Randy had starrted referring to the MMP as the Modern Money Primer. I put 2 and 2 together and got 5.

  7. Bill,

    You may know of this material already, but here it is.
    Your comments on the the difference between social justice and corporate aims has been discussed at length in the work of Rawls and G.A. Cohen. In Rawls’ “A Theory of Justice” he develops a distinction between efficiency (Pareto) and justice. In short, Rawls finds that just outcomes may not be efficient outcomes. The upshot being that if we prize just outcomes their “inefficient” nature should not concern us since justice takes precedence. Why that is is a longer argument.
    G.A. Cohen develops may of these ideas, and critiques Rawls also, in his last major work “Rescuing Justice and Equality.” In particular Cohen is interested in critiquing the notion that inequality is efficient and just. He also has a lot to say about the building of a community spirit, i.e. political friendship.
    I though you may find this interesting.

    Justin Holt

  8. This is a big, important issue and I’m very glad to see it addressed in such a straightforward way. Many, many progressives have latched onto the notion that they can just localize their way to an anarchist or co-operative paradise without having to worry about what the state does or becomes. What it is rapidly becoming in America is described by Christopher Hedges (a leading voice of Occupy) as “inverted totalitarianism.” In other words, we impose this totalitarianism on ourselves via our mass acceptance of the ideology of “free markets” and “personal responsibility.” This leads to the “What’s the Matter with Kansas” conundrum in which every reverse for the working class is re-imagined as an outcome engineered by the vast secret conspiracy of liberalism, with the result that the person affected drives *himself* ever-more-mindlessly toward the right.

    I agree with Bill – only a wide-ranging and public debate will ever end the tyranny of neoliberal ideology, and only a radical re-alignment of state power will get us out of the current depression. This means that our suffering will probably go on for a long time, because the forces of reaction have a stranglehold on all politics and almost all media. But the general rule for revolutions is that they seem to come “out of nowhere” just when things look their bleakest.

    The growth thing is another progressive crotchet – there are many peak-oil progressives who have convinced themselves that economic growth has stopped forever and can never be revived because there is not enough energy to physically support it. This contingent believes that this economic depression is permanent and shouldn’t be complained of. We should just get busy and plant something. This obviously allows the dominant social forces a free hand and abandons even the idea of a national government. But while we can pretend to ignore the state, it has no intention of ignoring us. The FBI, we learn, is coming after Occupy with a vengeance, and we will soon see the first show-trials… Stay tuned.

  9. This post is very interesting to someone like myself who understands MMT and follows the New Economic Movement (NEM). Let me first say, that it’s very unfortunate that cooperatives, particularly worker cooperatives have to operate in a market economy. Austerity is a symptom of a much larger problem (or disease) and the remedy is simply treating the symptom.

    The problem I have is that MMT (with JG), assuming that people truly understood it, only reforms a broken system but also requires a political solution that can easily be unraveled with the next election. Reforms themselves can never deliver more than survival. We need something far more than survival.

    Many in New Economy Movement (NEM), unlike Social Entrepreneurship Movement, look to provide an alternative to capitalism and not putting a pretty face on it. There are people in the NEM working on alternative forms of currency (I know, I know), alternative means of exchanging goods and services (ex. time banking) and alternative ways of working (far more democratic). Gar Alperovitz asks: “if you don’t like capitalism or state socialism then what do you want?” This is the question that many in NEM are trying to answer.

    You are absolutely right to point out the struggles that Mondragon is facing which are largely a result of having to operate in a market economy and not because of their business model.

    Again, this post is interesting to me, because it presents a conflict for me. I do believe that MMT, if practiced, would work to reform the system. But reforming the system is not enough and my fear is that it would only postpone needed transformational changes to our economic system.

  10. @Bill ~ I think you should have reframed some of your argument here in a more MMT-specific form, given that MMT is the form of macro-environment for which you are advocating. Specifically, whenever the state utilizes unemployment as its buffer stock, whatever co-op types of institutions might occur locally will also be FORCED into adopting their own forms of unemployment buffer stocks. These might not be identical to those utilized by the state, but they of necessity will occur nonetheless. It is only when the state, that is, the sovereign currency issuer, adopts a full employment policy that these smaller co-op types of institutions can reach their fullest envisionments of placing a humanitarian floor on the living standards of all.

    @Dennis ~ Currencies are currencies, no matter which format you choose for them to have. As long as a currency contains a store-of-value component, you’ll end up with a form of capitalism, be it beneficent or otherwise. Beneficence occurs in how the currency is employed, not in what format it takes. — As for time banking specifically, I would refer you to Paul Krugman’s babysitting co-op as an example. In spite of the quite beneficent goal of providing easy access to quality babysitting, the babysitting co-op experienced “depressions” as the “banked” time values themselves became the object of desired accumulations among members of that co-op community.

  11. The blunting of peak oil means that ‘growth’ – in the old school tradition – remains a viable option. But it is the myth of scarcity that holds back social progress and reform of our public institutions. We have the technological means to provide a guarantee, not only of jobs, but of food, housing and other necessities of life.

  12. Like Dale, I am also concerned about the growing appeal of localism among progressives as a comprehensive general approach to our economic and social challenges. I have no doubt that a readjustment of some responsibilities and functions from national to local control can be beneficial in specific instances. But some of the things proposed strike me as ineffective and wasteful steps backward, and the creation of escapist stop-gap approaches that buy a little time and temporary local peace at best but also represent a surrender to larger-scale powers and global forces that are not going away. My guess is that almost all of the large nations and “states” that dot our world are here to stay, and that progressives need to dedicate themselves to seizing political control of these nations, not running away from them into insulated alternative communities.

    For example, a strictly local currency managed by some sort of local monetary cooperative might seem like a step in the direction of freedom, away from the great monetary leviathan of the central bank. But for earnings in these local currencies to be spent outside their small regions, they will have to be exchanged for other currencies. This will require a vast national network of financial intermediaries and money barons. As long as people are not content to live entirely within the means provided by local resources, and seek to exchange their goods and services for others outside their region, there will be large multiregional forces building economic power by coordinating and profiting from those interactions.

    A similar impulse toward dropping out and personal liberty caught on in the 60’s, and as a result we have had four decades of increasingly conservative and economically savage neoliberal rule. The “leave me alone” outlook of the youthful counterculture naturally morphed into the “leave my business alone” deregulatory and desupervisory mania of the adults those young people grew into. I worry that the current generation of progressive activists are poised to make the same historic mistake.

    I also am frustrated by what I see as progressive confusion about the concept of economic growth. Growth is not equivalent to everything getting bigger and more resource intensive. Efficiency improvements are a key to achieving the same or higher levels of well-being, with the employment of fewer natural resources.

    I would also like to register some skepticism about the dreams of a “robot future” we seem to hear so much of these days, with humans retiring to a life of leisure pursuits as they hand productive functions over to autonomous technology. I just don’t find that vision realistic. Human beings are vulnerable and finite animals facing, if I might might wax poetic, the infinite abyss of their mortality and sufferings. The gap between what they have and what they want will always be effectively infinite. As they achieve efficiency in the production of goods and services needed to preserve their existing standard of living, opening up more “free” time, they will then begin to use the additional time to work on the innovative satisfaction of wants that they previously didn’t even bother to address. If they earn how to live for 100 years, they will want to extend their life span to 110 years, or 120 years, or beyond. I don’t believe human beings will ever stop working, struggling and achieving, because they are inherently incapable of permanent satisfaction with whatever their lot happens to be at the time. My guess is that they will always maintain a roughly equal balance between work, play and sleep.

    However, social inequality and economic domination and hierarchy – slavery being the most stark example – does mean that while the aggregate balance stays about the same, some classes of individuals might shift the work burden to other humans. So the goal of equitably sharing that work burden is a good one, and a cornerstone of democratic society.

  13. No where in the article is there any reference to fiscal policy nor to the role of the currency-issuing government in maintaining macroeconomic conditions that would allow these localised initiatives to bloom and become the base for democratic revival.

    One of the basic operating principles of MMT is that the currency-issuing government should provide appropriate support for full employment, economic growth, etc. However, the currency-issuing government is always implied to be the national government at the highest level–at least, that’s how I read it.

    But does it have to be the national government? Can it be a local government, say a town or city? Does the currency-issuing entity have to be a government, or can it be something outside formal government structures? Etc. My own answer to these questions is that it can in theory be any authorized entity, even down to the individual level (personal reputation as credit, etc.). The ideal situation is that such entities are democratically controlled.

    If we truly want to examine all options available for a better, more democratic, equitable future, shouldn’t we open the door to larger considerations such as this? I might be nit-picking here and may be reading too much or too little into what is normally written here, but it might be healthy to move away from constantly referencing currency-issuing governments and instead be clear that the current arrangement of monetary authority in governments is just one of many choices that our society can make. I suppose I’m also a little afraid that if MMT or similar ideas gain traction in a big way, we’ll be stuck fixating on the national government and won’t consider what may be gained from some manner of devolution of monetary authority to different scales. Is the national government the most efficient level (in terms of social progress, human advancement and happiness) at which monetary authority should reside, especially in the case of enormous and sometimes fractious countries like the United States?

  14. Dan Kervick:

    For example, a strictly local currency managed by some sort of local monetary cooperative might seem like a step in the direction of freedom, away from the great monetary leviathan of the central bank. But for earnings in these local currencies to be spent outside their small regions, they will have to be exchanged for other currencies. This will require a vast national network of financial intermediaries and money barons. As long as people are not content to live entirely within the means provided by local resources, and seek to exchange their goods and services for others outside their region, there will be large multiregional forces building economic power by coordinating and profiting from those interactions.

    You could just have the central government be the intermediary, as a form of public utility. This would avoid a landscape of middlemen while preserving the potential benefits of many local currencies–namely, the valuation of local currencies would be more likely to accurately reflect local conditions and needs vs. a national currency that spans hundreds or thousands of communities with varying conditions.

  15. You could just have the central government be the intermediary, as a form of public utility.

    Indeed. The social choice that needs to be made there is whether the efficiencies that are sometimes achieved by an environment of multiple, competing private firms seeking their own profit rewards are sufficient to offset the efficiencies that come from a unified and non-redundant system in which less of the value created by the services is delivered to private owners.

  16. Not noted in your Mondragon comments is that new factories outside of Spain, in lower cost areas like Poland, and possibly China at some point, are NOT worker owned, but just ordinary workers who can be and are laid off as needed. Mondragon claims it will eventually make them co-ops, but they aren’t at the moment.

    Also on a lighter note: “Van Dyk said music and art are state subsidized in Holland, including clubs, which allows them to book even the smallest bands without worrying about the financial consequences. “That’s unheard of in any other country,” van Dyk said”.

  17. Let me first say, that it’s very unfortunate that cooperatives, particularly worker cooperatives have to operate in a market economy.

    Why is that unfortunate if they produce marketable goods and services?

  18. Might be better to emphasize ‘full employment and price stability’ more often than ‘growth’. Bill does use the former phrase a lot as well.

    One could also talk more about a ‘high standard of living’ that is vague but obviously includes things that are not necessarily captured by ‘growth’.

    Those people who talk about a simpler life and limits are generally sitting very comfortably in some OECD country, not in a grass hut in Africa. They are condemning a good part of the world to continued misery and it makes me angry. Especially since technically there is no reason we can’t provide a high standard of living to everyone. As a scientist I am very confident in the truth of this.

    A little off-topic here, but to give one example, nuclear fission can supply all the energy needed to support a high living standard for everyone into the conceivable future, with virtually no impact on the environment (particularly climate change). From my point of view, nuclear power is as misunderstood by the general public as modern monetary systems (there are plenty of pronuclear blogs … reminds me of MMT blogs … that can provide details).

  19. Thank you Bill for addressing a topic that was in my head for some time.

    My background is in environmental science and I have been always worried about our ecological footprint which is unsustainable given the current standard view of economic growth.

    And that brings to my mind another important topic I think. The way economics relies in the GDP indexes. When I was at the university I made an essay about another indicator to measure economic growth the GPI, genuine progress indicator. I’m pretty sure that maybe you have already tackled this issue but IMHO it’s very important in order to measure true and sustainable growth.

    Using the GDP, if a nation expends more in enviromental damage control policies due to more unsustainable deveploment and pollution of ecosystems, these “investments” may be accounted for growth in the GDP. I know is not that easy, but using an index that does not discount the adverse effects os some activities in the enviroment may induce us to think that we are growing, when in reality we are just degrading our environment for the future. Is that economic growth?

    Maybe some kind of ecological accountability should be included when computing GDP, but AFAIK that is not the case at this moment. Have you or any other MMTer adressed this topic? Thank you!

  20. Bill,

    “I am just not going to be captive to the neo-liberal obsession with creating buffer stocks of unemployment to allow the elites to expropriate more real income than they might be able to if all workers were working to their desired limits and secure.”

    How does the JG achieve that (reduce elite’s expropriation of real income)?


  21. Hi Bill
    Great post. Following on from comments above above: I have a friend in Crete, she says the place is dying for more spending as they are resorting to barter. It would be great if someone could set out a structure for these folks (say at local government scale – issuing ‘local credits’) using MMT, especially as we seem to hit a brick wall of understanding at the national scale. One thing I’d add regarding government being able to force people to pay taxes in their currency, is that there could be considerable attraction in being a member of a successful MMT ‘club’ – so maybe membership fees in ‘local credits’ are sufficient. The point is it gets MMT seen to be working transparently and in practice. And it would help local economic activity.

    Regarding growth and ecological impact: GDP increase of $10,000 could reflect the sale of a superb violin with a team of artisans having worked on it. Or it could be the cost of flying to a resort. Those are our choices. We can also sructure the costs, eg pollution rather than labour taxes, to make the less desirable activity more expensive.

  22. “Some people see “economic growth” as “hard growth” – that the circulation of more money must involve the creation of hard goods which require hard resources.”

    The problem is on the field of economists. I can hearing that growth does not equate growth in consumption of physical resources, but data has yet to prove that.

    And yes, I’m talking about well developed nations too. In fact, as we have failed during the last decades to have sufficient growth for close to full employment and thrilling economies we choose to pursue the model of physical consumption growth in form of housing bubble and all the ‘aggregate demand’ it generated by mutiplier effect (including the ‘exporting’ nations like Germany or Japan).

    I can show you data with the close correlation between resource extraction and consumption and GDP growth. Sorry guys but is you have to prove this link can be broken in any significant way!

    That said, I think we can use MMT precisely to avoid unemployment and income inequalities and polarization without growth (at least significant growth). And despite all the criticism of Japan (much of it deserved), it has done a reasonable job at keeping social stability in a non-growth environment.

    Add to all this demographic trends; even with ‘quality’ growth, in aggregate is going to be very difficult to offset decreasing population growth forces. We have to find macro stability without growth, after all for the most time, humanity has lived without explosive growth in fairly stable environments. And if after that we have growth, we will welcome it, but seeking growth at all costs as a religion like nowadays will only bring pain.

  23. Kind of unrelated, but to gain wide acceptance MMT still has an almost impassable mountain to climb. I was trawling through the UK opinion polls and came across this little gem.

    “in December ComRes asked whether people agreed with the statement that “The Government should not increase public borrowing any further and its top priority should be to pay off the nation’s deficit as soon as possible” and found 74% of people agreed. Taken in isolation that would have suggested overwhelming support for the government’s position… except that ComRes also asked if people agreed that “The Government should borrow more in the short term to increase economic growth as much as possible even if it means reducing the deficit more slowly” and found that 49% of people agreed. In other words, 23% of people agreed both that the government should not borrow any more, and also that they should borrow more. ComRes’s findings in that poll suggest that the picture is not as clear as the single question today would suggest.”

    With so many blindly accepting the mainstream propoganda lines, MMTers should be prepared for a prolonged spell in the wilderness. I’m optimistic a semblance of wisdom will prevail in my lifetime though. I’m only 49.

    “YouGov do a similar question as a semi-regular tracker, asking people to say if the government should stick to its present strategy of reducing the deficit, even if this means growth remains slow, or whether the government should change its strategy to concentrate on growth, even if that means the deficit stays longer or gets worse. The last time YouGov asked that, also this month, showed 33% supported the present strategy and 39% wanted to change (29% weren’t sure or didn’t want either), so slightly more support for Labour’s stance than the Conservative one.”

    Obviously, some are suspecting that Government defcits are not quite the evil dragon portrayed in the media. If the blindly accepting public actually ‘enjoyed’ a balanced budget for 10 years, a few more might be whistling a different merry tune.

    On another totally unrelated note. The financiers anti regulation propoganda is still working…….33% think the government are cutting regulations too much, 34% [Which includes 33% of the nations gibbering idiots] think they should be cutting them more, 11% think the current balance is about right. The human propensity for self flagellation never ceases to amaze me.

  24. Also from the UKpolling report site.

    “On dismissals, 17% think it should be harder for companies to sack workers, 39% think it should be easier, 33% think the current balance is about right.”

    For the 39%…… is it a mix of self preservation and egotistical belief in their own abilities? Their organisation (and they hope themselves) will do better if their (peceived) lazy colleagues are canned. Geez what a world we live in.

    Psychological tests show the young are getting more individualistic and narcissistic through the decades This could get worse before it gets better. The idea of generation Y being all caring and sharing is a crock of shit.

  25. “I can show you data with the close correlation between resource extraction and consumption and GDP growth. Sorry guys but is you have to prove this link can be broken in any significant way!”

    I’d be stupid to deny any correlation, Leverage, although I’d be interested to see the actual figures to see if the correlation was falling. What you’re raising here is actually the challenge – to develop an economy that is more reliant on human resources rather than natural ones. What I was trying to convey was that the economy is not as simple as some would make out.

  26. If nothing else changes except growth in human-to-human services. There will still be an increase in demand for non-human resources. The service providers would demand better food, transport, furniture, vacations etc for the extra work they perform.

    For there to be economic growth WITHOUT growth in demand for finite resources. There must ALSO be a change in consumption habits.

    There is no other way around it. We either have to have less stuff, build better quality products that last longer, re-use, recycle, lower per capita energy consumption etc etc. It’s not difficult to understand what needs to be done. Whether it can happen with the dearth of wisdom at leadership level is another question.

  27. As all economic activity is measured in $ and cents. An extra $200 spent on foot massage is the same as $200 spent on disposable party favours. We can shift our consumption habits and still have economic growth. I’m all for a daily foot massages and less throwaway crappola.

  28. Like many others, I thought this was a very interesting post. As you say, there are many jobs that could be created if there are sufficient funds available, especially in service industries such as health and education, where the environmental cost would be negligible. Therefore, beneficial growth can be achieved. It is hard to measure productivity in these areas, though.

    I find the discussion of productivity quite confusing in any case. In public debates on this subject, I feel there is a lot of dog whistling happening which I can’t interpret.

  29. Tony,

    On the subject of productivity. Firstly, most of the bluster on International competetiveness etc is cover for asset owners to squeeze out more profit share and appropriate a greater share of surplus production.

    Secondly, there is something called work life balance. Increased productivity is not a prerequisite for a more fulfilling life and better society. The citizens should theoretically have some say into how much effort is devoted to sustaining our basic physical needs food, shelter, health etc. How much time and effort devoted to production of consumer goods. How much time devoted to hobbies, leisure and rest.

    The elites are obviously wanting us to devote all our efforts to make their own lives comparitively more luxurious. (As the world has worked since the dawn of time.) It’s up to us to tell them how we wish to utilize our own time.

  30. Tony, “there are sufficient funds available, especially in service industries such as health and education, where the environmental cost would be negligible”

    I’m not quite sure about that. Health services are indeed very costly in some cases and very resource intensive (both in energy and rare materials). And the same goes with education. For instance, a single data center in one office building consumes as much energy as the rest of the computers in this building alltogether.

  31. “A fully employed sustainable economy will still require real GDP growth rates of say 2-3 per cent (depending on labour productivity and labour force growth). It will still require aggregate demand (spending) to grow.”

    Really? It would be great if you could expand on this, Bill. It feels like one of your quiz questions, dense and carefully worded. It seems the word ‘sustainable’ is redundant, in that the conclusion would apply equally to an unsustainable economy. So we are rendered captive to the dictates of GDP growth, irrespective of sustainability considerations.

    There are many areas of the economy that have grown as the functions of the household have been outsourced or commodified. In many cases this produces GDP growth but fractures social networks. Can we not decommodify and demonetise significant parts of the economy, thus reducing GDP growth, and still be on a fully employed, sustainable (however we define sustainability) path? Or maybe just reduce the working week?

    It seems conflicting to see the concepts of sustainability and the imperative of continued growth united like this. At 2% real GDP growth, if humanity survives another 5000 years, the economy will have grown by a factor of 10000000000000000000000000000000000000000000.

    That’s not sustainable. No matter how many haircuts, massages, tarot card readings, etc. we substitute for resource-intensive activities.

  32. ParadigmShift: Peter Victor has the first formal model of a no-growth economy, which you can see at:

    A key message of his is that while material intensity is declining, it is impossible to dematerialize sufficiently to compensate for increases in scale (pace Jevons Law). He makes a pretty persuasive case that a steady-state economy is possible.

  33. Thanks Thomas

    I hadn’t heard of Peter Victor – it looks like he’s written a chapter for a CofFEE publication a few years ago. I guess Bill is familiar with his work. Hopefully we can get a fusion of MMT + ecological economics one day!

  34. Bill,
    Great question. Excellent discussion. I am part of a working group on what concrete economic proposals and alternatives we should be putting forth in our local Occupy group in Harrisonburg, Virginia. We are facing an unprecedented global ecological crisis (climate change, et al) and a global economic crisis at the same time. Whatever alternatives we fight for they must ultimately address both of these crises. Have you read David Korten’s work, especially the article he authored for the New Economy Working Group “How to liberate America from Wall Street Rule?” Korten certainly deals with more macro-economic issues than Gar Alperovitz for example who is especially focused on co-operatives and worker owned enterprises, etc. I have also been reading Michael Hudson’s recent book, “The Bubble and Beyond” which strikes me as containing messages that could be effectively popularized. For example, Hudson’s assertion that, “Debts that cannot be paid will not be paid” and the notion that the real question is how they are not going to be paid not whether highlights the fact that there is no business as usual path out of this crisis. Hudson turns Hayeck’s “Road to Serfdom” phrase on its head by showing how we are headed for a neo-feudal system based on debt peonage unless we counter the current counter enlightenment with a new enlightenment in the realm of economics which has become the new theology of the new 1%. Of course, the solution of a clean slate (forgiveness of debts) has a theological tradition connected to it as well (the Jubilee year abd Sabbath economics which are at the core of the biblical tradition) There has got to be a way to pull this stuff together in a way that works and has the power to motivate the masses to take political action. Thanks for raising the issue. Michael

  35. @Michael Feikema, if you haven’t already, check out Warren Mosler’s presentation to Occupy Dallas on June 23 here. The video was streamed live with equipment that was available, so the production value is not up to standard, but the presentation is excellent. The video may take some time to load.

  36. @ParadigmShift Victor’s model is explicitly a non-monetary model, so there may be some way to align his model with MMT. I seem to recall, but I cannot find where exactly (in the intro I think), that Godley and Lavoie at some point say in their book, Monetary Economics, that their post-Keynesian stock-flow approach could theoretically be extended to natural capital as well.

  37. The trope of “living within one’s means” is broadly applied within the community of people concerned about ecological impacts, not the least of which concerns carbon budgets. It is troubling to see respected sustainability economists reasoning by such tropes rather than by first principles. For example, in “Prosperity Without Growth?” Tim Jackson writes,

    “It took Britain almost half a century to pay off public debts accumulated through the Second World War. The Institute for Fiscal Studies has estimated that the ‘debt overhang’ from the current crisis could last into the 2030s. On the other hand, if the debt accumulates and the economy fails to recover, the country is doomed to bankruptcy.” (page 45)

    It is a tempting trope to employ because at the time of its writing, there was a great deal of emotion and concern about the global financial crisis that many progressives hoped could be channeled into concern about busting the global carbon budget. From what I understand of MMT, the problem with the application of this analogy is that carbon budgets are nothing like fiscal budgets run by sovereign governments denominated in currency they create.

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