As I noted yesterday, last evening I accepted an invitation to speak on a panel…
Elements in a strategy for the Left
Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat.
In my recent book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – a central organising concept is that a progressive future is only possible if progressive citizens do two things:
1. Learn how the monetary system operates and understand the capacity of the currency issuer and the opportunities and constraints that the government has.
In other words, educate ourselves so that we have the capacity to refute the neoliberal lies that sustains the current system that has seen progressive outcomes diminish markedly.
2. Take control of the political process and expunge neoliberal factions from progressive political parties (like the Blairites in the British Labour Party, almost all the Australian Labor Party, the Wall-Street embedded elites in the US Democrats, much of the traditional machinery of the European Socialist parties etc).
Reclaiming the state is about reclaiming the legislative and regulative capacity of the nation state so that it is directed at advancing well being for the many rather than the few, to steal Jeremy Corbyn’s so excellent catch-cry.
It is not really rocket science.
As I have asked previously, if the nation state is dead why does Wall Street spend billions of US dollars trying to influence who wins government and, once government is decided, on influencing the outcome of specific legislation?
We know that the corporate sector spends billions in an effort to influence elections for the ‘nation state’. Why, if the nation state is dead?
Why do organisations such as the Dow Chemicals spend $US13.6 million lobbying government in 2016, if the state no longer has the capacity to limit their activities?
Why do “Many of the UK’s largest companies shroud their lobbying efforts in secrecy and do not disclose their political engagements to the public or shareholders” and spend billions of pounds lobby government? (Source)
Why did “six of the big energy companies” spend “tens of millions of dollars for a climate change denial campaign, despite knowing the claims were false”? (Source)
Even though the Greek government surrendered its currency sovereignty upon joining the Eurozone, why did the ECB essentially threaten to bankrupt its financial system in 2016 at the time of the referendum if they didn’t think the government had any legislative capacity to take independent decisions?
Why in small nations such as Australia is there a multi-million dollar lobbying industry? Why do gun lobby groups spend hundreds of thousands of dollars “helping minor rightwing parties win seats” at elections in Australia? (Source)
Tobacco, gambling, medicines, energy, and the rest – why do they outlay billions to influence government legislation if the state has withered away?
When Jürgen Habermas just writes the throwaway line that the “functional imperatives of a global capitalism” are “politically uncontrollable” he is ignoring the reality that those type of questions provide.
Of course, global capitalism has functional imperatives that lead the interests of capital to co-opt, capture, threaten, bully, bribe, nation states and all the rest of it.
Short of military invasion these interests have to work through the legislative and regulative machinery of the nation state.
These interests have set up a huge capacity to advance their interests – extremely well-funded think tanks with massive and highly competent marketing capacities to propagandise at will; the infiltration of educational institutions to influence who is appointed, what is taught, etc; the concentration of the media to control the messaging that comes from the backroom donors via the think tanks and the academics that have been co-opted.
When progressive luminaries such as Jürgen Habermas just mouth the same propaganda (in this case the ‘nation state is powerless narrative’) you know how successful the strategic campaign has been.
It has taken 50 odd years to get to this point.
The Powell Manifesto was published on August 23, 1971. I considered that document in detail in this blog post – The right-wing counter attack – 1971 (March 24, 2016).
It was a major strategic turning point in the rise of neoliberal thought and political control. It married the growing assault on Keynesian thinking in the Academy from Monetarists with the aspirations of American capital that was under siege from what they considered to be the domination of social democratic policy frameworks that aimed to share the benefits of economic activity more fairly and comprehensively.
As the Reclaim Democracy introduction to the Manifesto notes:
Though Powell’s memo was not the sole influence, the Chamber and corporate activists took his advice to heart and began building a powerful array of institutions designed to shift public attitudes and beliefs over the course of years and decades …
Most notable about these institutions was their focus on education, shifting values, and movement-building.
Those aspirations are what I see the – Reclaim the State Project – as sharing, but from a progressive side.
In other words, there is no choice in my view but to concentrate progressive action on what goes on within national borders.
The likes of Jürgen Habermas are wrong to call a renewed focus on national politics and the capacities of the nation state – a “frightened retreat behind national borders”.
That is just emotional language designed to link anyone who thinks the nation state should be the focus with the Right wing racist political movements.
In the same way that the Remainers in Britain have tried to shoehorn anyone who dares say they support Brexit into either the stupid or racist category, or, preferably both.
It is failed categorisation.
The only choice for progressives is to concentrate on taking back control of the national legislative and regulative frameworks.
You can also see the ridiculous Madame Lagarde’s recent interventions on behalf of Emmanuel Macron in the same way. She knows, like all neoliberals where the power lies – in national legislative and regulative frameworks.
Yes, they can be bought, which is how the neoliberals have operated.
But they can also be influenced and ‘won over’ by inspirational, grass roots campaigns that citizens themselves organise on shoestrings.
The recent New York Democratic Primary victory by Alexandria Ocasio-Cortez has shown that a campaign run out of the back of a shop that was shared with a livery cab company and her organisers held meetings and trained activists on the sidewalk (Source).
She was up against big Democrat money – Real estate developers, Wall Street money. See Joseph Crowley’s funding sources.
Jeremy Corbyn’s retention of the leadership of the British Labour Party is also an example of the power of small. Grass roots action makes small big.
That is what the traditional Left has forgotten.
It is little wonder that Alexandria Ocasio-Cortez’s victory has been so quickly attacked by the forces on both the Right and the traditional Left. Both know that if her approach gathers pace and spreads then the neoliberal game will be up.
And then you have characters like Larry Summers trying to retain an image that he is somehow progressive by writing in his recent Financial Times article A jobs guarantee – progressives’ latest big idea (July 2, 2018) that:
The impulse behind the latest “big” progressive idea of offering job guarantees is entirely valid …
If these questions have persuasive answers, that would be terrific. But right now, I am inclined to think that the idea of a jobs guarantee should be taken seriously but not literally. A combination of wage subsidies, targeted government spending, support for workers with dependents, and increased training and job-matching programmes represent a more viable strategy for meeting demand for guaranteed employment.
First, what rock has this character been hiding under? The idea of a right to work has really been core progressive policy for centuries.
Second, his article lists a series of questions that evidently haven’t been answered. Modern Monetary Theory (MMT) proponents including myself have over the last 25 or so years written hundreds of thousands of words defining these issues, answering these sorts of questions, and providing evidential perspective.
Summers hasn’t read a thing it seems if he thinks he has just come up with all these questions now that Alexandria Ocasio-Cortez has been victorious in making a Job Guarantee (along MMT lines) a core campaign promise.
Summers is the sort of guy who cannot stand to be on the outer.
When financial market deregulation was all the rage he was at the centre of it.
In my blog post – Being shamed and disgraced is not enough (December 18, 2009) – I discussed how Summers in cahoots with Robert Rubin and Alan Greenspan were featured on the front cover of the Time Magazine as the “Committee to Save the World”.
in the late 1990s, Rubin and Summers attacked any notion of regulation of the financial markets.
In particular, they homed in on the attempt by Brooksley Born, who became the head of the US federal Commodity Futures Trading Commission, to regulate the out-of-control Over the Counter derivatives market.
Summers telephoned Born in 1998 and told her that “You’re going to cause the worst financial crisis since the end of World War II.”
Soon after LTCM collapsed. Within 10 years the whole world financial system nearly collapsed as a result of policies the likes of Summers advanced.
Third, after praising the idea of a Job Guarantee he then deploys the “faint praise” tactic by saying we shouldn’t take the idea of a Job Guarantee literally – that is, that the state uses its currency capacity to provide jobs – but rather should think about other policies.
And he lists a whole swathe of typical neoliberal labour market activation policies – mostly supply-side – which are the norm for organisations like the IMF, mainstream economics departments and the like.
In other words, the anathema of the sentiments that Alexandria Ocasio-Cortez was advancing.
A denial of what the majority who voted for her were enthused about.
That is the way the traditional Left operates if it is not leading the charge in imposing austerity under direction, in some way or another, from the European Commission, the IMF, the World Bank or Wall Street.
Paul Krugman is another commentator who seeks attention and continually holds out that he is progressive but then advocates New Keynesian solutions, which are a core part of the problem.
His latest New York Times article (July 5, 2018) – More on a Job Guarantee (Wonkish) – is in the Larry Summers faint praise vein.
He claims that a “federal jobs guarantee is more problematic” and then cites a range of neoliberal (pretending to be progressive) commentators as authority.
All his “caveats” really come down to constructing the policy in monetary cost terms. Never mind that it “might bring a substantial number of … non-working adults back into the workforce … a good thing from a social point of view” – it is bad because it would cost a lot of money.
That is a neoliberal construction of ‘cost’. The cost of the Job Guarantee, in this context, would be the extra real resources that those “non-working adults” would consume and the program would require to provide productive work.
The dollars in the official public accounts are not a “cost” at all for a currency-issuing government. Focusing on these ‘numbers’ is the way the mainstream economists dupe the public and divert attention from socially productive policies.
And Krugman finishes by trying to claim progressive economics credentials by calling out the “Larry Kudlow or Sam Brownback-style voodoo economics, which passes for mainstream economic thinking on the other side of the aisle”.
So he wants his readers to think that the Democrats in the US as being progressive. Alexandria Ocasio-Cortez is progressive. Most of the Democrat Party elite, many of which have openly criticises Alexandria Ocasio-Cortez’s policies as being naive, unrealistic, unaffordable, etc, are not.
And the likes of Madame Lagarde knows full well that the nation state has to be compromised if global corporate interests are to be served when she told a French audience last week that:
This centralised budget capacity does not need to become a payment facility … It can very well have disciplinary conditions attached.
That is exactly what the Stability and Growth Pact does at the national level. It compromises national fiscal capacities so that they cannot advance generalised well-being.
While Germany and France talk about a ‘centralised budget capacity’ the reality is that it will be small and so hamstrung with restrictions that it will be beyond a joke.
But the elites all know that national governments have to be tethered tightly or else the global capital domination can be effectively controlled.
As an aside but contextual, Jürgen Habermas was correct when he noted that the need for a European-level fiscal capacity was:
… not just about fiscal stabilization, but about convergence – the credible political intent of the economically and politically strongest member states to fulfill the common currency’s broken promise of convergent economic developments.
The neoliberal elites are constructing this aspect of the ‘reform’ debate exclusively in terms of “fiscal stabilisation” – to help out nations in trouble but not to engage in any permanent transfers.
And to put a line under that, they want the Member States to contribute to the ‘European Monetary Fund’ and pay it back, and, if that wasn’t enough, they want the Member States most likely to draw assistance from the ‘Fund’, to pay more into it in the advance than other nations.
In other words, the weakest nations will be slugged more in advance and compromise their capacity to build effective public services and infrastructure in good times and then have to endure withering austerity in bad times as it is forced to pay back the money it contributed in the first place.
Ever heard of currency sovereignty!
But Jürgen Habermas point about a central fiscal capacity being about convergence, which is the way effective federations operate is exactly why it will never be constructed in that manner in the European Union.
The reason being that it would require permanent and on-going transfers from the richer income states to the poorer states. Exactly how Australia works!
The influential Member States in Europe are never going to agree to that sort of system.
Please read my blog post – The Meseberg Declaration – don’t hold your breath waiting (June 26, 2018) – for more discussion on this point.
Which brings me to an interesting article I read on the Left Foot Forward site (July 7, 2018) – After decades of following a failed economic model, we need to reshape the state.
This is an example of a ‘nearly’ argument that ultimately fails because it keeps using neoliberal frames and language despite a very progressive agenda being outlined.
The author Prem Sikka (an accounting academic) in England writes that:
We have missed far too many opportunities to steer our economy in a positive direction. It’s time for the left to address the role of the state today … the government remains wedded to the dogma of privatisation. During the last forty years, successive governments have privatised key sectors at knockdown prices – often with disastrous outcomes for consumers and taxpayers.
The discomfort starts with the use of the term “taxpayers”.
And then the first neoliberal frame enters:
The revenues from the sale of publicly owned assets could have been used to fund investment in new industries or social infrastructure, but that did not happen.
Which means the reader is immediately channelled into believing that government spending (including public infrastructure) requires “revenues” and if “revenues” are used in one way they cannot be used in another.
The framing is typical of the problematic way the Left tries to engage in these debates.
The fact is that a currency-issuing government such as the British government can provide currency (pounds in this context) to fund any investment in new industries or social infrastructure that it chooses.
There is no “revenues” required.
The only reason why “revenues” might need to be associated with public spending is if the economy is already operating at full capacity and the government has to deprive the current users of some of the fully utilised real resources so they can be diverted into the infrastructure projects.
But the “revenues” are not ‘funding’ anything. They are the tool through which the government deprives the non-government sector of access to resources – they represent the diminution of non-government purchasing capacity.
That diminution would be necessary in that context to provide the real resource space for government to occupy (and build the infrastructure).
In times where the nation is operating below full capacity that diversion of real resources is not necessary.
The author continues in this vein however.
He correctly notes that the history of privatisation is one where governments have handed public resources “over to corporations on very favourable terms”.
They did that because they didn’t want the political flack that the privatisation failed to attract interest from the private bidders.
So to make sure there was a sale they discounted the ‘market value’ of the entity.
But to then claim that the government “squandered” the money and could have done more with the funds.
That is where the neoliberal frame dominates the logic and the argument that conservative governments and Blairite-type social democrat governments actively diverted what should be public space and public activity to private, profit-seeking space is lost.
It is also true that:
Neoliberals have redirected the state to serve their purposes. Under their policies, the state has become a guarantor of corporate profits. The Private Finance Initiative (PFI) has been a bonanza for banks and contractors. PFI schools cost 40% more to build and a hospital 70% more to construct compared to if they were financed by government borrowing.
The first sentence is core Reclaim the State Project logic.
The last sentence is along the lines of Paul Krugman’s ‘cost’ confusion.
The fact is that privatisation and public-private partnerships (PFIs) are disastrous because they allocate public funding guarantees to private operators in line with a profit motive rather than social benefit.
The motivation is the problem. Public infrastructure should be about advancing maximum public benefit not advancing private profit.
The profit motive has also distorted the pattern of public infrastructure development created under PPP or PFI projects. For example, we get toll roads instead of public transport developments.
The toll roads get clogged relatively quickly which then leads to further toll roads. The pattern of urban development deteriorates even further as the profit motive drives planning.
Prem Sikka is correct to conclude that the neoliberal “economic experiment” has failed and “is not conducive to social stability or possibilities of building a sustainable economy”.
He is right in concluding that:
The toxic consequences of neoliberalism are evident in its philosophy of light-touch regulation. The daily parade of tax avoidance, money laundering, bribery, corruption and misselling of products, especially in the financial sector, are a direct consequence of the light-touch philosophy.
But linking that to funding shortfalls for currency-issuing governments means that the path to ‘reclaiming the state’ is lost.
The Left then gets lost in a haze of arguments that sound more or less like ‘we will run surpluses but do it in a fairer way’.
Lost.
Conclusion
Prem Sikka should actually scrap most of his article and start with his final paragraph:
The left has long known that the state is a key institution – now we need to develop strategies to restructure and redirect it to build a more equitable society.
And then – remind the Left that the state is a key institution. Start with Jürgen Habermas is you like who thinks that global capital has bypassed the state and that pan-European movements are the only way forward.
And then, once we have jettisoned the myth that the state is powerless, the Left can build that ‘discovery’ into an MMT framework.
And that is more or less what we did in our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.
1. Learn how the monetary system operates and understand the capacity of the currency issuer and the opportunities and constraints that the government has. Bill Mitchell
One of those constraints is how much price inflation the public will tolerate before throwing those responsible out of office.
That said, please note that the demand for fiat is artificially suppressed in that citizens may only use unsafe, totally inadequate for modern commerce physical fiat, a.k.a. “cash”, i.e. the non-bank private sector may not have convenient, inherently risk-free debit/checking accounts at the central bank itself as the banks, etc. do.
Therefore, with suppressed demand for fiat, the amount a monetarily sovereign government can deficit spend for a given amount of price inflation is also suppressed.
The MMT folks think they have a solution for this by limiting, via regulation, bank credit creation to productive uses only since those should tend to lower price inflation. But notice that automation to dis-employ workers certainly qualifies as a productive use – apart from the injustice done to the workers via what is, in essence, because of government privileges for the banks, credit unions, etc., the use of the PUBLIC’S CREDIT but for PRIVATE GAIN.
Our current, two-tier money system, whereby only the banks, etc. may have accounts at the Central Bank and the non-bank private sector must largely work through the banks is rooted in expensive fiat, i.e. the Gold Standard, and is thus obsolete now that fiat is, as it should be, inexpensive.
Not that banks should be forbidden to create net new deposits but their privileges whereby they extend the public’s credit but for private gain should be responsibly abolished.
I also keep hearing that we live in a borderless world. Funny, why do I still have a passport? Why are there so many customs officials and border guards in this borderless world?
I also keep hearing that we live in a global village. Funny, how come most people know so little about the world outside of their country. Don’t villagers know what goes on their village?
I also keep hearing that distances don’t matter anymore. Funny, why do so many Eastern Canadians go to the Caribbean for a beach holiday and so few go to Hawaii? Could the length of the flight have something to do with it? Why has the average Canadian never phoned someone in Japan or Indonesia or never visited a Japanese or Indonesian website?
I had a few beers with some well-educated, well-read individuals recently. I asked them how many books they had read that were authored by a Latin-American, East-European or Asian? Answer: none except some 19th-century Russian classics like War and Peace.
Regards. James
Hi Andrew. It is cool you want to end the discussion with a nutshell summarization, but usually when putting words in other peoples mouth’s “The MMT folks think they have a solution for this by limiting, via regulation, bank credit creation to productive uses only since those should tend to lower price inflation”, a quote representing said words would be nice. Not that I’m accusing you of making a spurious straw man argument with some unknown agenda.
Willy, it is interesting the sentence you quote. Check out this piece from today’s Guardian on a suggestion about how the BoE could put a damper on property speculation.
James, your questions are beside the point. Any reasonably well-educated person will have been exposed to Russian classics such as War and Peace and The Brothers Karamazov as well as Crime and Punishment. As for the Japanese and Indonesian websites, there might be any number of reasons why such sites are not visited, one of them being that they don’t know the language or don’t know it well enough. With these two languages, this is highly likely. This is why I don’t go to French websites, and it doesn’t follow from this that I don’t know anything about France. All that you can infer from this is that I most likely don’t know French or am not sufficiently comfortable with it.
Willy, sorry, but I forgot to mention the title of the Guardian BoE piece — Bank of England should aim to freeze house prices for five years – report.
Hi Willy,
No, I don’t want to eliminate discussion but provoke it with my honest assessment of what MMT plans to do about the ability of the banks to consume allowable price inflation space that might otherwise be used for deficit spending by the monetary sovereign (e.g. US Treasury) That understanding comes from long debates with Neil Wilson and other MMT promoters about a year ago, iirc and their position is summarized as “asset side regulation” of the banks, etc. since according to Warren Mosler:
The hard lesson of banking history is that the liability side of banking is not the place for market discipline. [*] Therefore, with banks funded without limit by government insured deposits and loans from the central bank, discipline is entirely on the asset side. This includes being limited to assets deemed ‘legal’ by the regulators and minimum capital requirements also set by the regulators. from Proposals for the Banking System – Warren Mosler [bold added]
However, having now read the entire huff post article, I may have been too kind in assuming that “asset-side regulation” of the banks would be used to prevent them from consuming allowable price inflation space since only the ability to repay the loans seems at issue there. But even if “asset-side regulation” of the banks would prevent them from consuming allowable price inflation space that the monetary sovereign might otherwise use there would still be the ethical issue of the use of the public’s credit to dis-employ the public!
[*] I disagree since even without deposit insurance, a lender of last resort, or any other privilege for the banks except for their exclusive access to inherently risk-free demand accounts at the Central Bank, the liabilities of the banks for fiat toward the non-bank private sector are largely a sham since the non-bank private sector may not even use their Nation’s fiat except for unsafe, unhygienic, totally inadequate for modern commerce physical fiat, a.k.a. “cash”.
Thanks Bill for a brillant expose on the current malaise of the left. This one of your best pieces
Even though the Greek government surrendered its currency sovereignty upon joining the Eurozone, why did the ECB essentially threaten to bankrupt its financial system in 2016 at the time of the referendum
Should be 2015.
Andrew Anderson. Your comments are incoherent to me.
Mr Schipper. It’s called globalization for the wealthy and the powerful.
I read the title of that Guardian piece with interest, but still haven’t psyched myself up yet to read the text because I know it will probably make me angry.
Angry because…yes well, house prices should be more than just frozen; they should be re-adjusted to be in line with the earnings of ordinary people, including the low paid. Clearly that is a job which only the government could do, and even it would have its work cut out.
We’d need a totally new approach to housing; one in which housing, and property in general is not an asset to be speculated over, but one to provide a roof over people’s heads, with high standards. And also to provide premises for people to work in and for business and trade to take place.
It would look nothing like today’s housing “policies” (which basically consists of letting “developers” run riot, just so long as they make the appropriate political donations).
There is no way that a Tory government would do anything like this, and scant chance of the Lib Dems doing it. Corbyn and McDonnell? Hmm…well, they might go some way towards it; they would at least build more council houses, but I don’t really see them taking control of housing in the way that needs to happen.
It’s just possible that an MMT aware Green Party might come up with the sort of thing needed. The GPEW is not yet fully MMT-aware, but some of them are getting there. I think Jonathan Bartley is interested. Some of us in Oxford tried to move things along a little by organising a joint talk given by Molly Scott Cato, Green MEP for the South West Region and the GPEW spokesperson on Economics, and Dr Steven Hail, an MMT Economist from the University of Adelaide, who will be well known to many people here. Steven’s MMT credentials are of course impeccable (and he’s also very Green-oriented). Molly isn’t yet fully convinced about MMT I think, but she’s getting there.
An edited video of the talk is here:
https://vimeo.com/278241007
Do please watch, download, and share as much as possible. Thank you.
The remainers will be rewarded well by the neoliberal globalists.
The neoliberal globalist Tories will fold and shake hands with the neoliberal globalist EU. The estbalishment never wanted to leave and never wanted a referendum they were forced into it. They’ll do what they have done for the last 40 years and side with big business and the bankers and the neoliberal globalists.
On doing so 17 million voters will now be looking for a new political home. That’s if they even decide to vote again.
Of course both big business and the bankers recognise this and the neoliberal globalists are waiting to see what form this takes. Will it be something new or will UKIP rise from the ashes.
Either way big business and the bankers will offer them the money to get it off the ground. They’ll support them to the hilt and offer them money left, right and centre. That’s after using their influence to overturn the referendum result.
In short they will capture the 17 million voters and their new home and then use their lobbyisits to capture whatever political party emerges.
Rinse and repeat, rinse and repeat, rinse and repeat, rinse and repeat
Remainer globalist neoliberals who lose their seats at the next election won’t shed a tear they’ll be offered a job in big business or the banks or given a high paying role flying around the world helping the neoliberal globalists spread their poison.
Ed Miliband’s press adviser went on to be spokesman for City of London Corporation
Jeremy Browne, a former Lib Dem minister, went on to be corporation’s “senior representative in Europe” on £200,000 a year.
Gary Follis, former chief of staff to shadow chancellor Ed Balls, went on to work for the Association of British Bookmakers.
Vince Cable, former Lib Dem business secretary special adviser, Emily Walch, went on to executive director for external relations at the British Banking Association.
Tony Blair went on to work for JP Morgan
Gordon Brown went to work for a Californian bond dealer called Pimco.
Alistair Darling went on the board of Morgan Stanley offering advice to the US investment bank on issues such as regulation and risk management.
Andrew Balls, brother of Ed Balls – Mr Brown’s former right-hand man – went on as chief investment officer for global fixed income at Pimco.
Ed Balls’ former spokesman, Alex Belardinelli, went onto public relations for Uber.
Ed Davey, former energy secretary, has taken several jobs in the energy sector. Mongoose Energy and senior adviser to MHP Communications, a group whose clients include EDF Energy rip off their customers.
Jim Murphy, former leader of Scottish Labour became a partner in new private equity firm.
Ruth Kelly another Labour cabinet member joined HSBC strategic unit.
Former Secretary of State for International Development, Douglas Alexander, joined international law form Pinsent Masons as a “strategic advisor”
I could go on and on and on and on and have not even scratched the surface.
The loony liberal left are being mugged and they can’t see the woods for the trees.
Chuka Umunna, Keir Starmer, Owen Wilson are licking their lips at the oppertunites ahead of them along with all of the other Blairites.
The neoliberal globalists will reward them for what they are doing.
Bill,
I may be wrong, but I believe that Prem Sikka’s text is yet one more evidence that everyone outside MMT paradigm believe that the government works like a household and money is like gold – no matter whether people are at the right or left-wing of the political spectrum.
The core problem, in my view, does not reside in neoliberal’s struggle for power. It resides in the human ignorance. People indeed legitimately believe that the government is like a household because they cannot realize that their daily-life intuition about finance is not applicable to the government. It is all about a serious problem of cognitive bias, in my opinion.
It would be very hard to convince men of the old days that the Earth was round and not flat, because their intuition would tell them that Earth is flat and they would not be able to understand the big picture.
If you insisted that they actually knew better and it was all about a conspiracy of the political leadership, you would not achieve much, and they would think you were even more crazy than before (when actually the craziness is on them).
In my view, cognitive bias is the enemy of MMT – the neoliberals are just one obstacle. Of course, I may be wrong.
To Andrew Anderson:
“””Therefore, with suppressed demand for fiat, the amount a monetarily sovereign government can deficit spend for a given amount of price inflation is also suppressed””””
“””But even if “asset-side regulation” of the banks would prevent them from consuming allowable price inflation space that the monetary sovereign might otherwise use(…)”””
I hope I did not miss your point, but I cannot see a real difference between cash (“fiat”) and bank deposits in the way you are analysing them.
You seem to be implying that the ever-decreasing demand for cash in favour of bank deposits within the private sector is a sign that the sovereign is losing “allowable price inflation space” or a sign that bank deposits are “consuming allowable price inflation”.
The logic behind this seems to be that if we, the private sector, do not want to hold cash (which is both the physical form of bank reserves and the only way that we, the private sector, can hold and use “state money”), then deficit spending can only get as far as the demand for cash goes.
It seems like you are not acknowledging that deficit spending creates as many bank deposits as bank reserves simultaneously in the private sector. Deficit spending creates both new bank reserves and new bank deposits in the same amount (assets go up and liabilities go up in the banks’ balance sheets), private banks being intermediaries for the recipients of the net spending by the sovereign. Bank loans are not the only source of new bank deposits…
So, I don’t understand why the private sector would not want to demand or use the “money” coming from the sovereign since, in practice, both of them (cash and bank deposits) are pretty much the same for any of us. I personally do not make any difference in the “goodness” of money when i use my bank deposits to make a payment or when i use cash from my pocket to make the same payment. It would seem to me that “the allowable price inflation space” for deficit spending is the same regardless of the “form” the money takes.
Does private money creation affect the capacity of the sovereign to net-spend without pushing prices up?
Yes, it does.
But does the fact that bank lending creates bank deposits which are not (at least at inception) necessarily fully backed-up by state money unavoidably create less inflation space?
I do not think so.
The private sector does not behave differently depending on whether it holds bank deposits originally created by bank loans or bank deposits originally created from deficit spending by the sovereign. All sources of spending carry equal risk of inflation no matter where they come from.
André said:
“If you insisted that they actually knew better and it was all about a conspiracy of the political leadership, you would not achieve much, and they would think you were even more crazy than before…”
Fadhel Kaboub gave an interview recently. In it he said:
“Politicians are the last people to follow [a movement]. You talk to them behind closed doors and they understand, and then they say “but I can’t say this publicly because I get attacked by all kinds of media and other political parties…””
The New Postcolonial Economics.
https://www.buzzsprout.com/172776/745220-the-new-postcolonial-economics-w-fadhel-kaboub
William,
I am sure that many politicians do pursue their own hidden agenda instead of the public welfare or the interest of their constituents. They act mischievously, they lie, they conspire and, in some countries, many are outright criminals (involved in crimes including murder). I am pretty sure that such “but I can’t say this publicly because I get attacked by all kinds of media and other political parties” is common behavior. I do not dispute that.
However, there are left-wingers like Prem Sikka and many others who have nothing to gain by hidding behind that kind of lie (that governments are like households).
Actually, there are many left-wingers that rely on challanging the establishment and disrupting the status quo. Some of then will do the opposite you say: they will actually try to lie and appear more challanging and “revolutionary” than they really are.
However, no matter how disruptive, left-wing and progressive a person is (be him/her a politician, economist, reporter, philosopher, artist), he/she will believe that the government works like a household (except if he or she is a MMTer).
I cannot avoid thinking that such wrong perception is much more related to widespread cognitive bias than to some kind of conspiration to maintain the status quo…
Hi Bill,
I fear we are running out of time for a good result regarding a change away from neo-liberal politics. The corporate takeover of the global economy is getting close to success. [see link] Trump’s backing away from the TPP is a minor hiccup. Once our sleazy politicians sign away our national rights to TISA and similar treaties, any change away from neo liberal policies will be subjected to ISDS clauses which override constitutions etc. Governments wanting to be progressive will be stymied by the corporate world and their legal cohorts;
https://rielpolitik.com/2018/07/08/corpro-fascism-the-global-corporatocracy-is-just-a-pen-stroke-away-from-completion/
To Bruce Wayne:
To simply things conceptually, let’s imagine that physical fiat, a.k.a. cash has been completely abolished. Then we shall have the outrageous situation that citizens may not use their Nation’s fiat AT ALL but instead must work completely with private bank deposits! (That’s largely the case now since, like you said, and with no other options, citizens largely prefer to work with private bank deposits rather than physical fiat)
Now new bank deposits, like you said, are created both by deficit spending by the monetary sovereign (along with bank reserves 1-for-1) and by bank lending (“Loans create deposits”) but please note that deficit spending by the monetary sovereign need only provide the required interest to support bank loans that are many times larger; e.g., at 5% interest up to 20 times larger. Potentially, that is a lot of politically allowable price inflation space to be consumed for a relative small amount of deficit spending.
Now please imagine instead that citizens have the option of debit/checking accounts at the central bank itself and that all other privileges for the banks have been abolished, especially deposit insurance and the buying of assets from and lending to the private sector by the central bank. Now bank deposit creation is much more risky since quite a few of the new deposits will be transferred from the now uninsured/deprivileged banks to inherently risk-free debit/checking accounts at the central bank itself – dragging now precious reserves 1-for-1 with them. Thus deficit spending is much less likely to cause price inflation because of the increased demand for fiat by the non-bank private sector.
Hilarious to see the neoliberal spambots gibbering about how much mythical “price inflation” the citizens will stand when real rates of return on bond are below zero and have been for quite a few years now, while at the same time real wages continue to plummet for non-supervisory workers. The only “inflation” discernible ianywhere n the G8 is inflation in the insane prices for megayachts, superluxury mansions, $20,000/day luxury vacations, million-dollar sports cars, high-end hookers, and Patek Phillipe luxury watches.
We don’t need any kind of complicated explanation of Modern Monetary Theory, all we need to do is go back to Keynes’ 1936 The General Theory of Employment, Interest and Money. In an economic environment where real wages continue to fall for most of the population (except the top 1% and their lucratively-bribed lobbyist/lawyer/economist/politician enablers and toadies like Larry Summers and Brad DeLong and Noah Smith and Barack Obama and Donald Trump) and where GDP skyrockets while the actual value of production continues to drop for everything but wildly overpriced electronic toys like iPhones and white-elephant non-working superweapons like the 1.5 trillion dollar F-35 stealth fighter, we need to run the largest deficits we can plausibly imagine in order to boost the economy. And we need to spend those deficits not on useless tax cuts for the obscenely wealthy or on F-35 fighter planes that can’t fly in a storm and can’t fire their weapons, but on useful infrastructure and useful jobs for the bottom 90% of the population.
What kind of useful infrastructure? Oh, I don’t know…maybe America should run up a 10 trillion dollar/year deficit building vast swaths of nationalized housing like the 60% of social housing in Vienna or the nationalized housing that’s standard in the entire country of Singapore? And how about spending 4 trillion or so repairing America’s collapsing bridges and potholed highways and disintegrating sewer mains and imploding water pipes? And how about 8 or 10 trillion a year for a job guarantee to build public goods like a nationwide high-speed passenger rail system and a nationwide low-cost federally-funded terabit fiber internet network and knocking down our cities and redesigning ’em from the ground up around people, instead of around cars?
And when ignorami scream “How do we pay for this?” just answer “Real U.S. T-bit interest rates are negative right now, so the rest of the world is currently paying us for the privilege of lending us money.” At a real rate of return of -0.1%, in a hundred years or so the debt will disappear even if the U.S. government pays _nothing_. Real interest rates are N*E*G*A*T*I*V*E. Real median non-supervisory wages are D*R*O*P*P*I*N*G. In an economic environment like this, the U.S. government should be running 10 trillion dollar a year annual deficits, or 20 trillion a year, or 50 trillion a year. Imagine the largest number we can dream up and then double it, there still won’t be any inflation in this economic environment because of the tremendous array of socioeconomic forces acting in concert to reduce workers’ wages and depress capital spending and shrink aggregate demand.
The post-2008 world economy is an environment where most ordinary working people have never recovered from the economic collapse. It’s an environment 10 million Americans lost their houses while old people now work for Amazon part-time while living in the cars. It’s an environment where CEOs pay themselves hundreds of millions per year in bonuses while offshoring and automating and firing tens of thousands or workers. It’s an economy where everyone’s job is getting reduced to a low-wage temp gig while landlords grow obscenely rich doing nothing as their houses rent for grotesquely high prices as ArBnB dorms. The deflationary forces of offshoring + automation + neural nets/AI/robotics + giant corporate monopolies and monopsony + financialization of housing + a U.S. economy increasing turning into a massive prison/police/surveillance/military/torture complex where 1/3 of all people in America under the age of 25 have been arrested and giant corporations make $30,000 per year off the slave labor of every prison inmate is an economic hellscape where the choices aren’t between inflation or the status quo, but between spending enough government money to create decent jobs that pay a living wage and the French revolution.