It’s Wednesday and also a holiday period, so just a few things today. First, I discuss a research paper that has concluded that central bankers have been using the wrong model for years which has resulted in flawed estimates of the state of capacity utilisation, and, in turn, created excessive unemployment. Second, we have a…
Corbyn should stop saying he will eliminate the deficit
The New Labour group are clearly getting desperate in Britain and Blair himself has come out again to vilify Jeremy Corbyn and predict a Labour annihilation at the next general election. Clearly Blair and his cronies haven’t understood that their time in the sun is over. They recreated the Labour Party into a Tory mirror image on key issues and the grass roots of the Party is now reclaiming the lost ground. The UK Guardian article (August 12, 2015) – Syriza’s Greece: the canary in the cage for Corbyn’s Britain? – illustrates how stuck in the neo-liberal mud the British economic debate has become. It tries to claim that Corbyn is a throwback to the past and the policies that old Labour tried in the 1970s failed and would fail again. Clearly, the writer and most of the commentators which resonate the same message haven’t really understood the difference between a currency-issuing government and one bound by a mania for fixed exchange rates and fiscal surpluses. Increasingly, the attempts by Corbyn’s support base to appear to be ‘fiscally responsible’ tells me that he will not succeed in altering the debate if he continues to promote ideas that equate fiscal responsibility with deficit elimination. Fiscal responsibility is equated with achieving full employment with price stability – and in the current climate that would require a fiscal deficit some percent of GDP larger than what it is at present. Corbyn’s camp should be talking about that rather than deficit elimination, which is a ridiculous policy target to aspire to.
In 2002, at a dinner in Hampshire, Margaret Thatcher replied to a question about her greatest achievement. She said:
Tony Blair and New Labour. We forced our opponents to change their minds.
That about sums it up when we read statements from the modern Blairites that electing Jeremy Corbyn would be the best thing for the Tories.
My view, from afar, is that the Tories would be terrified of a modern left leader and a progressive labour policy platform. That is, as long as the change translates into a re-framing of the debate and challenges the basic macroeconomic myths that go through to the keeper too often these days without scrutiny.
That was one of the legacies of Blair. New Labour propagated the neo-liberal economic myths too and gave the Tory narrative credibility when it had (and has) none.
The article suggesting that Syriza’s experience is “the canary in the cage for Corbyn’s Britain” is asinine to say the least but allows us to establish a general principle that also applies to all the trash talk coming from the New Labour camp who just cannot face irrelevance it seems.
It is actually difficult to discern the message from the ‘Canary’ article it is so poorly written. Apparently the writer, a long-standing Guardian editor/journalist thinks the latest Greek fiasco – the bailout deal – is “far from perfect” but irrespective, “we certainly should … be pleased” that the Troika and the Colonial Administration (aka Greek Syriza Government) have agreed on terms.
Apparently this is a sign of “greater willingness to be flexible” on Syriza’s behalf and is being interpreted by the journalist as evidence:
… that a democratic mandate can (just about) coexist with the constraints of a fragile monetary union and the disciplines of a globalised financial economy.
I wonder which planet the journalist was on when typing that up.
Apparently, Syriza – “a radical government” has not only survived but is “even prospering – after savvy compromise”.
The 29-page document that is now public – Greece – Memorandum of Understanding for a three-year ESM programme – drafted August 11, 2015 doesn’t look much like prosperity to me – for the Greek people or the political fortunes of Syriza which is in the process of tearing itself apart because a substantial number of left members cannot tolerate the sell-out that the Prime Minister has dealt them.
As a slight digression, there are things in the 29-page document that do not offend me at all. Reforming the professions to reduce their rent-seeking capacities, forcing high income earners to pay taxes, improving the effectiveness of the public administration so that it actually delivers high quality public services, improving public procurement processes to eliminate corruption, and the like are all sensible reforms that reduce special interest group leverage and help the government provide necessary support to the economy.
But the fiscal targets – a primary surplus (that is, fiscal balance net of interest payments) of “a surplus of 0.5 percent in 2016, 1.75 percent in 2017, and 3.5 percent in 2018” are ridiculous given the state of the economy.
With the economy contracting further over the next 12 months and tax revenue falling substantially as a result, these targets are totally unrealistic.
The ‘Memorandum’ also requires the Greek administration (we can hardly call it a government anymore) to “monitor fiscal risks … and … take offsetting measures as needed to meet the fiscal targets”.
In other words, the fiscal rules (targets) are set in stone and further spending cuts and tax hikes will be required given there is little chance that the economic outcomes over the next three years will deliver revenue to the Administration that would enable them to meet their targets.
There is nothing in the Memorandum about creating works and restoring full employment. Nothing about putting young people back into work.
It would take the most extraordinary imagination to interpret the process and the result (the 29-page document) as being a “savvy compromise” or a sign of flexibility.
It is brute force austerity forced on Greece by the Troika which saw the ECB violate the terms of its existence when it engineered massive financial instability in the Greek bank system and brought the economy to a standstill through liquidity constraints.
Syriza’s leadership were too gutless to force the issue – that is, invoke Plan B which would have thwarted the ECB intransigence and would have demonstrated that an exit from the Recession Cult that is the Eurozone was possible and beneficial.
There was nothing democratic about it. Democracy in Greece is somewhat dead. The Troika now control economic and social policy. The Greek Administration cannot introduce any legislation without drafting input from the Troika technicians and must legislate a raft of measures that will obviously undermine the welfare of the Greek people, against their stated wish to end austerity.
So the judgement of our UK Guardian editor/columnist is somewhat questionable, to say the least.
The journalist’s point though is to comment on British “Labour’s leadership prospects”. He think Corbyn will triumph and that his electoral platform would be “another disaster”.
Apparently, Corbyn’s “challenging” agenda should take a lesson from the “clever autocrats” in China “who struggle to macromanage China’s economy from Beijing” and “are learning the hard way”.
Apparently, Syriza’s reality check – it is hard to discern exactly what the author is on about – but a reasonable interpretation is that Syriza started with a hard-core agenda but has had to face reality – and accept fiscal rectitude is somehow the exemplar of policy responsibility (with 25 per cent unemployment and rising!).
Apparently, Syriza’s path back to reality is something Corbyn might study – which makes Greece the canary in the mine!
And with China apparently behaving like Labour did in the “good old days” when it allegedly lost control of the economy and invoked “just the sort of panacea” that the Chinese are now attempting which “isn’t working very well”.
So it was a long rambling article to tell us that the New Labour elevation of the free market (or copying Thatcher) was the only reality that works for Britain and any attempt at increased state intervention will fail just as it apparently did when Labour was not New Labour.
Apparently Syriza has learned that lesson too – hard left politics is out with the dinosaurs and the global pressures of Capitalism force governments to promote market forces to allocate resources and punish those which try to resist that inevitability.
Hmmm, the only reality check that Syriza was forced to accept was that if it wants to stay in the Eurozone and continue to use a foreign currency then it has little capacity to act independently of the rules that are set down by the technocrats in Brussels/Frankfurt and Washington (IMF).
It didn’t teach us anything about the intrinsic capacities of a currency-issuing government to articulate and implement a progressive domestic policy. Syriza could have resisted the Memorandum nightmare by exiting the Eurozone and restoring its own policy independence.
I won’t repeat what I have written many times about that option. By now it would have been growing strongly (if it had have left in January when elected) and things would have been settling down on the foreign exchange markets. Its banking system would be safe from failure and unemployment would have been tumbling (especially if it had have introduced a Job Guarantee).
Then it could have tackled some of the reasonable features of the Memorandum (noted above) with full political sovereignty and a growing economy. The oligarchs could have been reduced in influence by the sheer dint of force of popular acceptance of the leftist manifesto introduced by a currency-issuing government with complete control over interest rates.
The point is that a currency-issuing government which floats its currency and doesn’t issue any liabilities in foreign currencies has all the power, irrespective of how global the economy has become.
A Corbyn government could target domestic policy aspirations and neutralise any private bond market influence if it wanted to. The Bank of England sets the interest rates and could be instructed by the Treasury to support public spending without any need to issue debt to the private bond markets.
Of course, while a currency-issuing government can ensure all productive resources that are available for sale in that currency are productively utilised, that is a different thing from being able to guarantee a particular material standard of living.
The material standard of living that a society can achieve is ultimately limited by the real resources it can command. A currency-issuing government has no financial constraints but it certainly faces real resource constraints.
Which means that if a nation is heavily dependent on foreign imports then it can suffer falls in its real standard of living (access to real resources) should the external sector decide that the real terms of trade have to change.
For Britain, with a relatively large external deficit, this might happen if foreigners decided they no longer wanted to accumulate net financial assets denominated in sterling.
But that reality doesn’t stop the currency-issuing government from achieving full employment and price stability and equity. It just means that real living standards can fluctuate if the external sector deficit rises or falls.
All of which tells me that unless Jeremy Corbyn gets some new advice that allows him to re-frame the debate somewhat then not a lot will be gained if he was to become leader.
I have written about this recently – Jeremy Corbyn must break out of the neo-liberal framing and Correcting political ignorance and misperceptions.
So I don’t want to rewrite those blogs.
But again on Tuesday (August 11, 2015), the UK Guardian Op Ed by John McDonnell (a Labour MP from around Heathrow) – Jeremy Corbyn would clear the deficit – but not by hitting the poor – tells me that the Corbyn camp are in a sort of netherworld where they have one foot in a progressive world and narrative but the other in a neo-liberal world which will thwart their progressive agenda.
This article is keen to emphasise that “economic competence” is equivalent to understanding that the fiscal deficit has to be brought back into balance.
He even quotes the opinion poll by Jon Cruddas (a conservative Labour MP) that received airplay last week. I provided a critique of that exercise in the blog last week – Correcting political ignorance and misperceptions.
Polls reflect what people are conditioned to believe NOW. It is no surprise that people have misconceived views about fiscal deficits given that both sides of politics in Britain have rammed the neo-liberal message down their throats for the best part of three decades.
As I noted in that blog – framing can alter the way people view something. It would be a relatively easy task to get the Labour media machine into action over the next five years re-framing the whole macroeconomics narrative.
That would be a show of leadership.
Thinking that a poll that reflects the views of the indoctrinated NOW is to be the disciplining factor for the foreseeable future is the abandonment of leadership and reflects a very poor understanding of social psychology.
There is no correspondence between a fiscally responsible position and the state of the fiscal balance. There is nothing automatically responsible about a balanced fiscal position. History would tell us that, in fact, a small continuous deficit is probably the most responsible stance a currency-issuing government can adopt, given the saving preferences of the non-government sector.
So despair comes to mind when I read John McDonnell write:
So let me make it absolutely clear that Labour under Jeremy Corbyn is committed to eliminating the deficit and creating an economy in which we live within our means.
Why would he be committed to that?
Who has done the modelling to show that with a current account deficit of around 5.9 per cent (in 2014) and an already overextended private sector (in terms of debt), that a fiscal deficit of zero will be appropriate?
It clearly would not be. It would drain too much expenditure from the economy and squeeze the private domestic sector into more debt as the economy was slowing.
A fiscal balance now or in the foreseeable future would drive Britain into recession.
I don’t see a major shift in the external situation and the private domestic sector needs to restructure its ‘balance sheet’ to bring the debt liabilities down to sustainable levels.
Even John McDonnell acknowledges that the current dynamic is leading to excessive “credit expansion and City speculation, and a growing debt bubble”.
Hasn’t he put the parts of the jigsaw together? Clearly not. Who among Corbyn’s advisory group actually knows which jig saw pieces to manipulate?
With a current account deficit and the need for the private domestic sector to reduce its debt position (start saving overall), there cannot be a substantial reduction in the fiscal deficit – now or later.
These balances are all interlinked through income shifts. Corbyn’s team simply has to understand that the neo-liberal narrative about running fiscal surpluses is deeply flawed and imparts a recession bias with mass unemployment the casualty.
And it inevitably leads to fiscal deficits anyway as tax revenue collapses as economic activity falls.
So Jeremy Corbyn should stop talking about deficits as if they are a legitimate policy target. He should instead start urging his supporters to write Op Eds that educate people about the role of deficits in sustaining full employment and prosperity.
These Op Eds have some years to alter the narrative. Then the opinion polls will shift and the Conservatives will have a real fight on their hands.
John McDonnell thinks the progressive position is to eschew deficits but to force the rich and high income earners to do the lifting:
Where the Corbyn campaign parts company with the dominant economic thinking of both the Conservative government and the other Labour leadership candidates is that we don’t believe that the vast majority of middle- and low-income earners who didn’t cause the economic crisis should have to pay for it through cuts in tax credits, pay freezes, and cuts in essential services. Instead we believe we can tackle the deficit by halting the tax cuts to the very rich and to corporations, by making sure they pay their taxes, and by investing in the housing and infrastructure a modern country needs to get people back to work in good jobs.
Once again, there might be good reasons to increase the tax burden on high income earners and corporations to reduce their purchasing power.
But that argument should not be conflated with the size of the fiscal deficit argument.
Even if there is good sense in reducing the capacity of the high income earners to spend by forcing higher taxation rates and better compliance onto them, there will still be a need for whatever deficit is appropriate given the external balance, the saving desires of the private domestic sector and the state of the economy overall.
So Corbyn’s Labour might take from the rich to give to the poor, which is something I would endorse. But it still remains that the overall net position of the government will require deficits.
So confusing distributional equity issues with a determination of the appropriate size of the fiscal deficit is fraught and should be avoided by the Corbyn camp.
Thus, John McDonnell should rethink his position summarised by:
We accept that cuts in public spending will help eliminate the deficit, but our cuts won’t be to the middle-and low-income earners and certainly not to the poor. Our cuts will be to the subsidies paid to landlords milking the housing benefit system, to the £93bn in subsidies to corporations, and to employers exploiting workers with low wages and leaving the rest of us to pick up the tab.
Who says that cuts to net public spending are appropriate? Why would Corbyn want to do this? What does he think will be the impact on unemployment?
At present, Britain’s fiscal deficit is too small. I don’t see much changing in the years ahead to alter that conclusion and the need for on-going fiscal support for growth.
Redistribute spending by all means if equity is your goal. But at present cutting net spending is a ridiculous policy target to sign up for.
I am very excited about the Corbyn challenge. There is a chance to clear out the New Labour crust that has welded neo-liberal narratives onto the Party and restricted its capacity to offer a progressive alternative to Britain.
But, increasingly, the attempts by his support base to appear to be ‘fiscally responsible’ tells me that he will not succeed in altering the debate if he continues to promote ideas that equate fiscal responsibility with deficit elimination.
Fiscal responsibility is equated with achieving full employment with price stability – and in the current climate that would require a fiscal deficit some percent of GDP larger than what it is at present.
Corbyn’s camp should be talking about that rather than deficit elimination, which is a ridiculous policy target to aspire to.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.
This Post Has 40 Comments
Sent this to Corbyn in response to one of the many e-mails I’m getting at the moment from Labour leader hopefuls.
We’re all doing our level best to get the conversation going at this end. Just need to find the open door.
I really hope you manage (or have managed) to arrange that meeting with Corbyn.
His team clearly need some help in reframing the narrative…
As will Neil, am trying to get him to open his mind to a broader approach. So far, he has indicated that he is following the advice of Richard Murphy of Tax Research UK. This seems to consist primarily of taxing the rich to pay for programs for the poor, to simplify a little. At the Leeds meeting last Saturday, I was able to hand him an envelope containing a couple of your blog posts plus supplementary readings and was able to mention that you wished to meet with him and that I thought he might get something out of such a meeting. He told me to write to him to remind him, which I duly did. His schedule that day was so ridiculous that I was lucky to be able to do what I did. Either he hasn’t read them or the message hasn’t had time to sink in.
I have it on good authority that many of the rank and file within the Labour machine are frightened he will win and they feel that they have good reasons for this: he won’t perform well at PMQs; they feel that they won’t be able to work with him [for whatever reason, as there appear to be no rational grounds for this]; his victory will spell the doom of the Labour Party. These fears seem to me to be irrational, but they are what they are. I am uncertain whether he is aware of how widespread this set of misgivings is or how deeply they may lie.
In addition to the backbiting within the Labour Party itself, you have the likes of Wren-Lewis appealing to what is known as the Overton window as a guide to how Corbyn should perform. Basically, the Overton window is the idea that politicians should never do anything that the public couldn’t, or wouldn’t, vote for. So much for the idea of inspiring the electorate. As the Overton window strikes me as a VERY conservative idea, it cements W-L’s place within the Deficit Dove camp, so far as I can see, and, therefore, renders his suggestions irrelevant to Corbyn and those who support him.
If I remember correctly, Britain had double-digit inflation before Margaret Thatcher. Maybe that’s what many Blairites are afraid of.
It is possible that Corbyn and his supporters are already convinced that deficits aren’t necessarily dangerous but are also convinced that convincing the electorate of the unimportance of balanced budgets is a hopeless task. Politicians who want to win can’t afford the luxury of being guided solely by their convictions.
In Canada, there is a federal election right now. All 3 main parties (Conservatives, Liberals and the NDP) emphasize their commitment to balanced budgets. The NDP (New Democrats) is the Canadian equivalent of the British Labor Party, and for the first time ever, they have a real chance to form the federal government. They insist on being “fiscally responsible” in order not to scare off centrist voters. As I pointed out before, politicians who aren’t committed to “fiscal responsibility” are electorally at an disadvantage, unless majority opinion changes, which of course requires a complete reframing of the economic debate.
No doubt exists in my mind that Corbyn should have the sense to learn about MMT and act on it.
That would be his trump card – no pun intended. Only by embracing a better economic discourse would Labour get into a position where it could throw down a challenge to the Status Quo. We all understand that Labour is not performing and left wing parties everywhere are struggling for relevance.
Richard Murphy is not only Jeremy Corbyn’s economic advisor but also someone who has publicly said that he is an advocate of MMT. We can only hope that Murphy is capable of moving Corbyn away from an economic mentality obsessed with taxation and deficits.
Notwithstanding his public advocacy and instead judging by his voluminous writings, it seems Murphy himself has yet to fully make the break from gold standard thinking and fully accept MMT. A few quiet words from Bill Mitchell to Richard Murphy may save a lot of unnecessary political problems in the years ahead!
“Polls reflect what people are conditioned to believe NOW. It is no surprise that people have misconceived views about fiscal deficits given that both sides of politics in Britain have rammed the neo-liberal message down their throats for the best part of three decades.”
That’s the big problem. I was hoodwinked by it too. And it took me a couple of months to understand why it is rubbish when I first heard about MMT. I’m retired so I’ve got plenty of time and do read things. As I have said before, I believe that at least 50% of people (probably much more) never read a newspaper or listen to the news, other than the sports pages, so re-educating is difficult. They only go to work, go to the pub and go to football, and that’s where they get their biases from. If they did read the news it’s all biased anyway as the Guardian article demonstrates. The BBC is not much better.
I have also, again, said that I don’t think Corbyn is electable, worse so by 2020, because of his age and appearance. However, having studied his policies I do think he is the best of a not-very-inspiring bunch. If he can achieve a makeover as Thatcher did, maybe he’s in with a chance.
As for supporting deficit reduction – he’s got to say that hasn’t he? Because of what I said in the first paragraph. People are not going to vote for someone who says “I’m going to increase the deficit”. What he actually does in the unlikely event he becomes Prime Minister is another matter.
Good if you get a chance to speak to him.
James. Yes Britain had double-digit inflation the seventies – in fact it went up to around 28% in Harold Wilson’s days, and I was paying 25% interest for business finace. Hard to believe it nowadays. But that was all because of the huge rise in the price of oil that fed through to everything. Today oil is driving deflation. (For now).
But isn’t part of Corbyn’s plan to spend into the economy through what he’s calling People’s QE.
My understanding (which may be wrong) is that this is essentially spending ‘off the books’ i.e. the spending part of it won’t be counted in the budget calculation (but the increased tax take that results from that spending, will.) Presumably the idea is to get all the economic advantages of deficit spending without counting it as deficit spending.
While I agree that’s not as good as persuading people of the truth that increased deficit spending would be good for the UK economy and the fiscal balance of itself is, as Bill has said, a ‘relatively uninteresting and irrelevant statistical artifact’, it’s surely a step in the right direction in terms of the wellbeing of the people.
My suspicion is this this isn’t pure politics (aka lying) on the part of Corbyn and his team but rather a misunderstanding of how the system works. But ironically, it may be the best way forward in terms of gaining popularity and winning elections. Like, I suspect, many others who read this blog, I’ve found explaining the reality to people a hard slog (as per Nigel Hargreaves’ second paragraph above).
I completely agree with the theoretical concepts of MMT, but I’m not quite sure how it would work in practice.
Let’s say British citizens and politicians finally get that money is not a finite resource, and that the government can spend as many Pounds as it likes, inflation and real resources being the only limiting factors. That would be great, but how would public spending be curbed if need be?
It seems to me that it’s easier for a politician to spend more than less. If farmers are enraged (as in France), it would be quite easy to simply shower them with money to satisfy them. Yes, this could result in inflation and waste, but these concerns will usually seem less worrisome in the short term than a disgruntled electorate. By spending more, you’ll probably generate more support than disapproval… at least till the next election.
So while I’m appalled, intellectually, by the ‘living within our means’ mantra, I wonder what would happen if people suddenly understood how our monetary systems really work. Citizens are not exceedingly rational, reasonable, and altruistic; politicians want to win the next election. How do you know they will ask and take enlightened decisions, and what do you propose to ‘help’ them?
I think the British labour party and the Liberal party of Canada may be reading from exactly the same play book. Justin Trudeau, the Liberal leader, talks about being “in deficit” as if it were a disease now and has also committed to the Robin Hood aproach of increasing taxes on the rich so that spending on what he considers the “middle class” interests can commence without upsetting the precious budget balance too much. This at least recognizes that the middle class is in decline but the high rate of unemployment, underemployment, and the poor are rarely if ever mentioned.
Four long years of opportunity to reframe the terms of debate in parliament have once again been wasted and it’s not because they have had insufficient debriefing on their neoliberal ways.
The childrens story of the “emperor with no clothes” conveyed a very powerful message; it’s fear of looking like a fool that keeps nearly all but small children from shouting out the obvious truth. Even the national broadcaster, the one entity that is mandated to inform the public has been very careful to display reverence toward the neoliberal mythology.
As a candidate Corbyn is great, he comes across with a sincerity that is missing in politics at the moment.
However the real problem lies with the left of centre politics in the UK in general. The “left” have too much of a reputation as appealing to the heart to the point that it becomes implausible and insincere. They want to appeal to every fringe group imaginable rather than defining what they are actually for without fuzzy language.
Labour are stuck just sniping at the heels of the Tories while they set the agenda. In opposition the Conservatives have cast Labour as the petulant child to the Tories’ who act the responsible parent with Labour doing much of the work for them. Labour and Ed Balls especially did nothing to counter all the nonsense about the ” fiscal profligacy,” in fact now all the three establishment stooges are saying that Labour was careless with the economy. The Labour children have now apologized to parents and have promised to behave in the future, but they remain children. This image is now etched into the public consciousness and I encounter it every day especially amongst older people.
I’m not an economist or journalist, and I believed the debt doomsday predictions, when the predictions were false I looked for an alternate theory and found MMT theories about 3 years ago. A good question to ask is why haven’t any of the left wing mainstream “left” wing journalists found MMT? They must have come across these theories before.
Have a look at the article in the Guardian from March 2014 and the editorial comment:-
“The Bank of England’s dose of honesty throws the theoretical basis for austerity out the window”
I saw this article last year and thought finally someone is paying attention, but nothing happened. Not A Thing. The Guardian are still talking about reducing the deficit in a more “left wing” way. Why no follow through even with the facts are printed in black and white in front of them? It’s because if deficits don’t matter as MMT suggests, buying into the MMT paradigm means the Guardian/Independent think they will lose the legitimacy can’t talk about “taxing the rich” “The Superich” “loopholes/offshore” “Tory mistakes/overspends” and all the other class struggle opinion pieces which drive their circulation/clickbait.
MMT severely threatens the narratives of the Left as well as the right so we just get the “theory induced blindness” and the left of center media remains in the neo-liberal paradigm where it’s current narratives have the most value and are more marketable.
The problem is bigger than just lack of knowledge or complete ignorance.
In any case it would be great if Corbyn could meet with some MMT people, because I suspect his words alone will not be enough to undo the debt miasma which has covered the country, there needs to be a authority figure to complement Corbyn’s almost lovey-dubby approach.
“Four long years of opportunity to reframe the terms of debate in parliament have once again been wasted and it’s not because they have had insufficient debriefing on their neoliberal ways.”
Well it seems your left of center parties are stuck in the same rut as ours. They have done more than just accepted the neo-liberal view. They have based policy and gained political capital from attacking the opposition within the neo-liberal paradigm. It’s a sunk cost, because the modern left (in the Anglosphere) base their counter attacks and much of their polices on the neo-liberal orthodoxy being correct.
Accepting MMT would show the right to have no clothes, but the centre-left to be standing in cold room wearing a thong, objectively the center-right is worse; but only just.
Alexandre Hanin, perhaps the politicians would actually start to do what they are paid to do: vigorously debate fiscal policy guided by what best serves the public good and the public interest, rather than catering to a long raft of private lobbyists and imaginary budget constraints. Wise use of the “taxpayers money” is a mandated duty of parliamentarians and they have all the tools they need to safely go where ever that takes them provided they maintain a mostly self sustaining domestic economy and don’t become dependent on a currency they don’t issue.
I understand, but that’s a rather vague answer.
Richard Murphy is looking forward to meeting with Bill on his visit to the UK – see comments thread http://www.taxresearch.org.uk/Blog/2015/08/13/money-does-not-grow-on-rich-people/#comment-area
Surely one way be to set an annual spending budget and stick to it.
That may sound a bit counter-intuitive but a transparent budget for jobs and growth would be a sensible way to start don’t you think ?
As I understand it from Richard Murphy’s blog he and Bill are now talking about getting together when Bill visits the UK. Richard Murphy helps advise Corbyn. Here is an interesting blog by Richard Murphy how QE was used to reduce the UK “deficit”:-
The attack on Corbyn by Yvette Cooper today was depressing. She says that an an economist, she thinks that “printing money year after year to pay for things you can’t afford doesn’t work – and no good Keynesian would ever call for it.”
The duplicitous false attribution to a man whom she does not really understand because she has been indoctrinated with neoliberalism is plain to see. She is trying to convince everyone that even the great man of social democratic economics would not agree to increase government spending by either deficit or omf.
Keynes called for printing money and hiding it in bottles in coal mines and said if we can create something we can afford it. The unemployment rate, poverty, underemployment and use of food banks are just the conditions for the spending and money creation he advocated.
The statement that “we can’t afford” things makes me suspicious that she may even believe that the UK government needs taxes to spend, and is as restricted as a household.
Jeremy needs to know how to counter this nonsense.
“Jeremy needs to know how to counter this nonsense.”
Let’s hope he reads Bill’s book then.
It’s all in there.
On the taxing taxing issue, it seems to me that the economic and social effects of inequality are what is important (as opposed to raising cash). It may or may not be not the right economic circumstances currently in the UK even to raise taxes on the wealth especially and income of the very richest (I’m not sure of all the consequences here) but I think it is something that has to be done at some point for a healthier society. Wilkinson and Picket have shown the social costs of inequality in The Spirit Level and many economists such as Piketty, Stiglitz and co have considered the damaging economic consequences.
There is good article on the economic impact of inequality here by Larry Elliott:
(It’s not so much about tricks down really, despite the words in the URL).
Is inequality of concern to MMTers?
It’s true that Jeremy Corbyn needs to educate the public how the British monetary system really works but he’s not properly up to speed on its workings himself. Richard Murphy who’s been advising Corbyn and believes in the MMT arguments is now talking with Bill Mitchell and Stephanie Kelton and perhaps with a good wind Jeremy Corbyn and his key advisors will quickly understand the essential MMT arguments and see the need to sell them to Labour party members first followed by a massive public education campaign involving those members. A tough challenge ahead for MMT but a possible mass breakthrough in the offing!
Its was great to see Bill on the 7:30 report last night. More people are learning about MMT. Hopefully before to long the main political parties will get the message.
I tend to agree with Nigel Hargreaves who put it very succinctly:
“As for supporting deficit reduction – he’s got to say that hasn’t he?…..People are not going to vote for someone who says ‘I’m going to increase the deficit’. What he actually does in the unlikely event he becomes Prime Minister is another matter.”
Except I think there’s a reasonable chance of JC becoming PM!
So, I think we need to recognise that politicians of the left, Bernie Sanders has the same political considerations in the USA, are not going to leave themselves open to political attack by openly embracing MMT any time soon. So, we need to lay off the criticism a little, I’d say.
But what we can get them to understand in private is different. We need to cultivate a dialogue, make full use of their contacts and use the media to push the message ourselves. We don’t have to worry about losing votes!
I say handle the deficit reduction question in another way.
Put the following question(s) to the electorate:
What is the downside to investing in a better NHS, full employment, education and infrastructure?
There is no reasonable man argument to be made against improving the lives of all citizens, is there?
Invariably the debate will turn to “how are we going to pay for it”, “that means increased taxes”, “what about the deficit”, etc. At which point the left categorically declines to play the same game.
The left simply needs to turn the tables and demand that those critics prove their assertions. So what if the deficit increases, decreases or turns into a surplus. What are the consequences of the deficit, versus the consequences of full employment, a better NHS, decreased poverty and better education for our children?
The deficit hawks arguments are easily proved to be bankrupt and publicly exposed as such.
The left by playing to the “deficit” idiocy renders them useless as a political force.
The result of that is that all the new young hopeful supporters wanting to change the world are immediately inducted into the Groupthink.
How is ‘we will the cut the deficit more slowly and with an even kinder gentler machine gun hand than the other candidates’ progressive ?
The only question that needs to be asked is why is there one set of rules for the elites and another set of rules for everyone else when it comes to government bailouts ?
The line needs to be drawn in the sand showing which policies benefit the elites and which policies benefit everyone else.
Go into too much detail and the average person on the street will simply walk away.
There is no avoiding the deficit question.In excepting the household analogy the ‘left’
have made a stick to beat themselves.Their opponents in politics ,the media ,economics
(the corruption of the wealthy) will beat them with that stick without mercy!
The challenge is to find ways to tackle this head on.Just some suggestions.
An appeal to facts the actual history of government sector deficits.
Introduction of sectorial balances.Always talk about private sector surpluses when
discussing government sector deficits.
An appeal to Keynes .Income =Spending(start by explaining that to Yvette Cooperz).
Bill is correct and moreso i think if he was to get an audience with Jeremy Corbyn or one of his advisers could also give advise on how the psychology of undoing the neo-liberal myth with the voting public.
Presumably the deficit + bad misnomer can be defused in multiple steps. With added layers of obfuscation if you’re a politician.
*State that government spending IS private sector savings. (Accounting identity)
*State that government cannot go bankrupt in debt denominated by its own currency. (keystroke spending mechanics at work here/quotes from central bankers etc).
*Show the history of the UK in sectorial balances showing the ‘high government debt’ actually created all the structural prosperity that the baby boomer generation which every voter agrees was the best ‘generation’ to benefit from a welfare state.
If it was a BBC interview obviously the interviewer would push Corbyn on this front but he could constantly reframe the ‘rising government deficit’ as ‘well what if the government tried to save the currency it issues? what will happen to household debt levels?’ then show the beautiful inverse proportionality between the rate of change in private sector debt to government spending. There are so many GOTCHA hooks in the debate that would force the interviewer to see the mechanical operational side to soverign fiat government spending that the issue could be defused in every interview the fellow gives. Plus Corbyn could point out the numerous flaws with the last 30 years of neoliberalism and ask the question ‘what do you prefer?’.
It would seem politics is always about framing policy so if all these politicians (and their think tanks/advisors) can frame so many policies against non existant fantasies you’d think it would probably be easier to frame something against a factually correct point of reference.
Bill, is there a clip of you on the 7:30 report available for us to watch?
Jeremy Corbyn is now becoming famous for his terse statements and refusal to engage in name-calling. In similar fashion it is possible to imagine how he might tersely “frame” the monetary mechanics of his “Corbynomics” and refuse to be drawn on a detailed examination of those mechanics. Simply that he will use the same method that the Chancellors Darling and Osborne have used to contain the government “deficit” the purchase of gilts whilst keeping a constant “weather eye” on any abnormal inflationary signs whether it is through using this method or private bank lending. See Richard Murphy’s paper and blog article:-
Jeremy Corbyn doesn’t use the word cut in relation to spending. He argues that the deficit can be reduced by growing the economy in the same way it was reduced that way in the post war period.
Bernie Sanders has Stephanie Kelton as his economic adviser yet he doesn’t publicly explain the deficit ‘problem’ in the same way she would. I’m sure he’s up to speed with MMT, but he’s made the decision that he can’t say politically what she can say, or used to say. I think we have to respect his judgement on that point.
He was smart enough to give her the job, so he must agree with her. We have to be optimistic that what he’d do would be more along the lines of what he now thinks, rather than what he can say openly.
I found this post interesting:
I urge people to consider how hard is to build meta-narratives, for neo-liberalism it took decades of continued assault on the institutions and infiltration to change the framing. OFC is self-collapsing because is an unsustainable ideology, but still, don’t expect it to be easy. It’s a war of emotions and ideas, no amount of explaining of “sectoral balances” is going to change that, most people don’t understand and cannot understand those things.
That the debate is moving forward from talking about theory to talking about politics and framing is a good sign that we are moving forward at last. This is not an academic issue, and will never be solved using academic arguments. The ivory tower has to be abandoned and leave place to politics and people.
Is a hard war, but it can be won if the right decisions are taken. Fully embracing MMT may not be the most wise of the decisions right now, and may be counter-productive, coming with a good plan on how to frame and build a meta-narrative is the most important thing. If something can be done in UK or USA, we may have the possibility to challenge the continental Europe stalemate and things may start to improve.
Alexandre, sorry if my reply seemed vague. A few things came to mind when I read your comment, but I really only wanted to make the point that if people knew where the money came from, political debate would stay focused on the merits of the proposed project in terms of benefits to the public and it’s effects on real resources present and in future. The neoliberal polemical rhetoric based on the false notion of always needing to tax before spending is a debate time waster as well as a way to make a mockery of the democratic process and fools of the public. There should be parliamentary rules against such misuse.
It is the taxpayers money they spend in the sense that it’s the taxpayer who makes it valuable. Inflation and employment levels are deficit boundaries the public could understand, but this has been the best kept open secret.
Lee, all parties with possibly only the Greens who have very little strength here as the exception, have more or less bought into the neoliberal scheme even having signed onto agreements in support of things like public private partnerships which end up becoming privatizations eventually. There is no completely credible left remaining. As long as voters believe corporations hold the keys to their destiny, they will vote only for the best flavour of elite hegemony they can.
I appreciate that you’re a busy man Bill, but perhaps you could propose to Corbyn should he (in all likelihood) become next Labour leader, that the party hold an internal Q&A session with yourself where you explain MMT to them? It’s likely that many, including Yvette Cooper, genuinely believe that government spending needs to be curtailed and the ‘deficit’ reduced. If they could be disabused on this false belief then the party could prosecute an anti-austerity platform as a cogent alternative to the orthodox dogma.
Peter. I get that and appreciate the political issues but by explicitly stating his desire to cut the defict, he’s entered the Groupthink and his spreading it to his new following, many of whom are just kids. I’m sure you’re familiar with Bill’s ideas on the ‘Groupthink’ and the importance of using language in a way that reframes the subject. I was sceptical a year or so ago when he first wrote about this but I’m now signed up.
It’s important to remember that human beings have only lived with money for four thousand years whereas prior to that we lived on the basis of a reciprocal egalitarianism as hunter-gathers. Such cooperation made survival sense. Successful reciprocity without money, however, depends upon “favours” being returned. In other words each individual hunter-gather stored the “favours” they had done for others in a “mind bank” hoping that when “push comes to shove” those “favours: would be repaid. A lazy or sociopathic/narcissistic individual who persistently failed to return “favours” within the group/tribe would be judged by the majority to be “morally bankrupt.” This “hard-wired” attitude in human beings I believe lies at the root of our general aversion to “debt.” Indeed writers on money like Wray, Graeber, Dodd, etc. point out the etymological association of “sin” with “debt.”
Whilst I argue that Corbyn and the left in general have to find a counter narrative
to the household analogy on the most important issues he is very strong.
A government’s most important economic role is to direct real resources for the
public purpose and he does advocate directing more resources for education,healthcare,
housing and mass transportation.I left the Labour Party a long time ago I haven’t rejoined
to vote for Corbyn but I may if he wins.
There is a very heartening mass groundswell of support for his campaign.It is the ongoing
support for the failed neoliberal economics of the last three decades which is not
economically credible and that is an argument which resonates widely.
Is it too much of an oversimplification to tell people that there are 3 measures that are important:
1) the unemployment rate (participation rate might be better, but keeping it simple)
2) the rate of inflation
if 1) is high and 2) is low, then a higher deficit is necessary, and vice versa.
3) the concentration of wealth (too much is bad)
The last would have branded me a Commie in the past, but I think this is getting a better reception these days.