British House of Lords inquiry into the Bank of England’s performance is a confusing array of contrary notions
On November 27, 2023, the Economic Affairs Committee of the British House of Lords completed…
It is Wednesday so just a few things to report and discuss. I have noted in recent weeks an upsurge in the Twitter noise about Modern Monetary Theory (MMT) and various statements along the lines that MMT economists are male chauvinists, mindlessly attack other heterodox economists because we are a religious cult, that we thrive on conflict, that only the US has a sovereign government and more. Quite amazing stuff. And these attacks are coming mostly from the so-called heterodox side of the economics debate although not exclusively. It is quite an interesting exercise to try to understand the motivations that are driving this social media behaviour. Things that would never be said face-to-face are unleashed with regularity these days. There appears to be a sort of self-reinforcing ‘echo chamber’ that this squad operate within and it seems to lead to all sorts of bravado that would be absent in face-to-face communication. None of the attacks seem to have any substance or foundation. They just reflect an insecurity with the way that MMT is creating awareness and challenging progressives to be progressive. And, they just make the Tweeters look stupid. I thought I would document some of the recent trail of nonsense to let you know what is going on in case you haven’t been following it. It is a very interesting sociological phenomena.
I have noticed a cluster of Twitter users who are increasingly adopting what one might construct as being a sort of digital stalking behaviour.
They chime in after one of my blog posts or Op Eds with some inane comment, that is designed to damage Modern Monetary Theory (MMT) and my reputation but always misses the point.
There is a squad of them, all attention seekers, who like Pavlov dogs, jump in with inane reinforcements of an initial insult.
And so it goes.
Their little echo chamber world gives them security to say things on Twitter that they would not have the temerity or the intestinal fortitude to say to my face.
I have met some of them face to face and ‘butter wouldn’t melt’!
I was already subjected to claims that I was “delusional” and “incompetent” when I said I would have voted for Brexit had I been eligible.
But in the last few weeks, after I renewed my analysis of the British Labour Party’s Fiscal Rule and showed it to be unworkable in a deep recession, a new volley of attacks emerged.
Most of these attacks tried to derail the input by claiming I didn’t understand the rule or I had misrepresented it.
They suggested I didn’t understand what a rolling window was – very complex I know – and just kept repeating that claim endlessly, like what happens when an old record player reaches the end of the record and you cannot be bothered getting up to change it.
Although that sound is better than the ‘noise’ that came out these Tweeters.
I think I put those claims to bed in my last blog post – The British Labour Fiscal Credibility rule – some further final comments (October 23, 2018).
While the Tweeters were ranting about rolling windows they conveniently ignored the fixed end-constraint commitment in the Rule that the debt ratio would be lower after the first term of a Labour government.
And as I showed, it would be impossible to achieve that target and not impose austerity in the face of a major decline in non-government spending growth.
They seem to have gone quiet on that front after that.
But the attacks generalised.
As regular readers will know I am interested in the discussion as to why social democratic parties and the ‘Left’ have fallen so far out of favour.
My work over many years has been researching and writing about that theme for obvious reasons.
Without an effective progressive political voice there is little chance of retarding and stopping the damage that this neoliberal era is inflicting on societies.
My 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – explored them in the context of the history of European integration.
Our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – explores those themes in detail.
Our follow up book (2019) will extend the theme into new areas.
My position on Brexit is informed by that research in addition to my work as one of the first MMT economists.
I find it disappointing that the Left has been trapped by neoliberals into believing that the state is no longer a viable unit in the face of global capital.
I find it disappointing that key institutions and players on the progressive side use neoliberal frames and language, clearly not understanding the research findings from fields such as cognitive linguistics and social psychology that makes it clear that this behaviour only reinforces the neoliberal dominance.
I also find it disappointing that such institutions and players continue to use concepts that are core to mainstream macroeconomic theory (for example, New Keynesian) to argue progressive cases.
They always end up in a tangle about taxes, debt and fail to understand that such a framework emerged from an ideology that is anti-government intervention and blames unemployment on individual sloth and choice.
By embracing a ‘market’ paradigm, progressives always come unstuck.
In that vein, it is a valid academic exercise to examine contributions from writers, think tanks etc who hold out that they are progressive and to indicate where I think they are not helping advance the progressive case.
I don’t hold to the argument that just because someone claims to be ‘heterodox’ or ‘progressive’ that they are above criticism from another ‘progressive’.
If they write nonsense then I think it is a valid exercise to point that out.
If they use neoliberal frames and language then it is a valid exercise to point that out and to draw out the implications of that.
The Tweet Stalking began again last week after I published this blog post – Left-liberals and neoliberals really should not be in the same party (October 25, 2018).
The post discussed several instances of how the progressive side of the macroeconomic debate was shooting itself in the foot in various ways (concepts, framing, language etc).
Soon after I posted the blog, this Tweet popped up:
This character had attacked Thomas Fazi and me over our Brexit and European Union position in the past.
Note the language and accusations.
I was “attacking the good heterodox economists” as if I was committing a sin – being bad.
Let’s consider the Tweet first.
Factually, the section in the blog post that dealt with this issue had nothing to do with the concept of endogenous money.
My blog post considered a research paper published by the Greenwich Political Economy Research Centre (at the University of Greenwich) – Macroeconomic Evidence and Policy Proposals Beyond Unconventional Monetary Policy (June 13, 2018) – which purported to examine the divergences in prosperity among Eurozone Member States.
These are the “good heterodox economists” referred to in the Tweet above.
There was, in fact, no mention of “endogenous” or “endogenous money” in the text of the paper. The paper is not about endogenous money at all.
The paper discussed Quantitative Easing (QE) (asset purchase programs) and list (uncritically) “four transmission channels through which QE could influence the economy” with a footnote to a report from the European Parliament Directorate General, which if you read it is totally mainstream.
The third channel identified was “the bank-lending channel” and the paper notes that:
QE may reactivate economic activity through a bank- lending channel by allowing banks to concede new loans more easily.
The paper then outlines how it will “address” the transmission channels empirically.
The authors write:
… we analyse whether QE-led expansion of the money base has effectively triggered an expansion of lending activity to the real economy. We do this by tracking the evolution of excess reserves held by the credit system as a ratio to the total money base …
Excess reserves are the amount of liquidity available to credit institutions that credit institutions hold idle on their deposit accounts at the ECB beyond regulatory requirements rather than mobilise them through the economy via new loans or asset purchases.
They conclude that:
By the end of 2017, almost 40 percent of ECB-created liquidity was kept idle on credit institutions’ deposit accounts at the ECB itself rather than being fruitfully utilised for the extension of new loans to the real economy. This is an astonishing amount. It goes without saying that this fact considerably diminishes the alleged capability of QE to stimulate the provision of loans to the real economy from the supply side by injecting new money into the economy.
They concluded that “only a limited part of fresh resources injected in peripheral economies via QE were eventually used … to provide loans to domestic firms and households.”
My blog post really traversed these points and noted that:
1. QE is just an asset swap – reserves for bonds.
2. The asset swap drives up prices of the bonds, which lower their yields, and this might stimulate borrowing under some circumstances.
3. Banks do not loan out reserves (except overnight to each other).
4. Loans create deposits and are not reserve constrained.
5. Reserves are added later if necessary.
6. Loans are restricted by the demand from credit-worthy borrowers.
I asked the question: Why is a heterodox economics research unit still publishing stuff that is based on pure mainstream myths about how the banking system works?
So the blog post was nothing to do with endogenous money.
Endogenous money theory tells us that loans create deposits, which then call up the need for reserves.
What the “bank lending channel” the paper was discussing leads to is the causality – reserves create loans.
That is, exactly the opposite of endogenous money theory.
So why would the Tweeter try to make out I was vindictive and stupid by criticising this paper?
Was it a case of him not understanding what endogenous money means or not properly reading the paper I was criticising or both?
Or was it just that he was trying to degrade MMT and my reputation?
All he achieved was making a fool of himself in public.
There was more in this theme (see below) but I want to keep the chronology consistent.
Four minutes later the same Twitter Attention Seeker popped up again with this Tweet:
Again, in the blog post – Left-liberals and neoliberals really should not be in the same party (October 25, 2018) – I had considered the intervention by Theresa May in the House of Commons the day before where she tried to score political points at the expense of Labour by highlighting issues relating to the Fiscal Rule.
The designer of the Rule (Simon Wren-Lewis) took exception to her comments and accused her of lying.
I wrote the following:
Yesterday, in the context of the Tory promise to end austerity, the British Prime Minister verballed him to put pressure on Labour in Parliament …
The reality, if you have read the chapter, is that Wren-Lewis actually wrote that the IFS had said the numbers didn’t add up but if that was to be the case then it didn’t really matter anyway.
The chapter in question, was a contribution Simon Wren-Lewis made to a new book, which contains material about the fiscal rule and was the basis of Theresa May’s statement in Parliament.
Now the Twitter Attention Seeker was claiming that I was just “repeating, once again, @theresa_may’s lie about @sjwrenlewis”.
Wrong. Totally wrong.
I used the term “verballed”.
The Twitter Attention Seeker clearly didn’t understand that I was actually supporting Simon Wren-Lewis’s conclusion that the British Prime Minister was misrepresenting him.
If Mr Michell had taken the time to understand the terminology he would have realised that “verballing” means (Source):
Usually used in a debate, it seems to suggest that someone is twisting or misconstruing someone else’s statement. Of course, it comes from the adjective verbal, but seems to mean something different.
…. The putting of damaging remarks into the mouths of suspects during police interrogation
… misquoted him greatly.
…. To attribute a damaging statement to (an accused or suspected person)
You have to appreciate the context to choose the relevant meaning of the term.
Clearly, Mr Michell was too intent on scoring points against me and whipping up the little Twitter squad to take the time to understand the meaning of the term.
And in doing so, completely missed the point of that section of the blog post, which was not to give Theresa May any validation but to point out that the Fiscal Rule would become a focus of the Tory attack on Labour and that while this first attempt by May was incompetent and crude, they would, over time, refine the attack and give Labour grief.
A few hours later, one of the authors of report previously mentioned (one of those “good heterodox economists”) chimed in with a reaction to Michell’s first Tweet:
The sarcasm (“thanks for the 101 lecture”) just masked the fact that he didn’t understand the point I was making either.
Whether Ben Tippett understands “endogenous money” is beside the point – as above, their paper was not about that and my criticism had nothing to do with that.
In other words, Twitter noise and aggravation for no constructive end.
A little while later on, the person who had called me “delusional” after the Brexit referendum, chimed in with her particular attack on me in this context:
1. My blog post was nothing to do with gender. Since when is it ‘male’ to point out an error in the academic debate?
2. To cast it as a disagreement (“we disagree”) is to then suggest the Tweeter agrees with the mainstream position that reserves are loaned out by banks and are required prior to loans being made.
It was not a disagreement. The Greenwich paper was a wrongful construction of the way modern banking works.
3. And then the insult “a macho sense of superiority”. That is no argument. Just the ‘squawk squad’ in action.
Michell chimed in three minutes later, on song, with a further extension of the insults. You can find the thread if you are interested.
Then the Greenwich guy responded to Pettifor and Michell with this (and the quote is from a Positive Money advocate who had claimed that I am running a “crusade to willfully (sic) misinterpret and misrepresent progressive economists who don’t preach MMT”).
So now the “good heterodox economist” is pushing the MMT is mysogynist line and that MMT “thrives off conflict”.
In fact, the proportion of leading MMT women economists is much higher than the female proportion in the overall economics profession.
And I don’t see my female MMT colleagues holding back when confronted with neoliberal frames and language.
Are they just being male chauvinist pigs?
Their macho insult was interrupted by a beautiful Tweet from Spanish MMT advocate Stuart Medina Miltim:
It was a very nice touch.
“Anglo bigotry” indeed.
The Greenwich guy tweeted a follow up a few minutes later which which ignored the point about bigotry by claiming that the “main issue is a strawman” and that “Econ has a deep problem with male chauvinism”.
Note, earlier his Tweet had said that MMT is “Very male”.
And the point is that the matters I raised were not of the “strawman” variety. They went to the heart of their representation and words and concepts they used in their paper.
I rarely respond to Tweets like this and will never enter an extended conversation on Twitter. But I arrived home later in the evening and read what had been going on during the earlier part of the evening (as above) and wrote this Tweet, and Michell responded as below:
So Michell was trying to play dumb (which is easy given the quality of his social media performance) by saying he “didn’t mention gender”.
Yet he had bought into the accusations from Pettifor and Tippett by retweeting or amplifying their mindless allegations.
Further, what of his question:
… are you saying that ‘endogenous money’ doesn’t concern the relationship between base money (reserves) and bank lending?
The paper I criticised had the causality flowing from reserves to lending which as noted above is not what endogenous money is about.
Endogenous money means that reserves are driven by loan activity.
Michell appears to be oblivious to that critical difference.
And then things calmed down for a while.
Today, I saw some of the anti-MMT ‘squawk squad’ suggesting that MMT is devoid of any notions of power and apparently that I haven’t read any Marx.
I thought the intervention from my MMT colleague Stephanie Kelton was beautiful. It is actually the Retweet from Randeep Ramash, the UK Guardian feature writer who I thoroughly enjoyed meeting in London recently. ‘Owned’ – brilliant one-word response.
The links were to these blog posts:
1. We need to read Karl Marx (August 30, 2011).
2. The roots of MMT do not lie in Keynes (August 25 2015).
The Amazon link was to our book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
And the images she attached were to relevant sections in the index of that book:
To further cement Stephanie’s point here is an excerpt from the Table of Contents of our soon to be published MMT textbook – Macroeconomics:
MMT is firmly ground in aspects of class struggle and many of the insights that Marx developed have found their way into the body of work we can call MMT in one way or another.
The pointless accusations though stirred some nostalgia.
I went to my bookcase and fondly viewed my complete collection of Marx and Engels which have been with me for many decades now.
Here is a photo I took of my original copy of Capital Volume 1.
It is a bit rough around the edges.
And here is the date I purchased it. I had just taken a job as a Tutor at Monash University in 1978 while I completed my first postgraduate studies (Masters at that point). For the first time ever I had a little money and could buy my own copy of Marx’s works rather than having them out on almost perpetual loan from the university libraries.
I imagine that I purchased that book before some of these Twitter heroes were born!
And note the publisher – Progress Publishers – which was the state-run publisher in Moscow that assumed the role of the Foreign Languages Publishing House in 1931.
They made the works of Marx and Engels available to English-readers at very low cost. My complete set of works (Capital, TSV etc) were all selling for $A3 each in the late 1970s.
That was a lot to me at the time but cheap by relative standards.
I understand that their whole inventory was destroyed when the Soviet system collapsed and Progress Publishers ceased to operate.
But my reading of Marx goes back much further than this.
I wrote in this blog post – Don’t let neo-liberal (idiots) loose with a spreadsheet! (August 2, 2016) – that I spent many hours in my youth sifting through all sorts of radical books in the International Bookshop (operated by the now defunct Communist Party of Australia) in Elizabeth Street, Melbourne.
When I was a university student without much cash at all one – great staff member – there used to give me an orange on a regular basis – she always had one available and I guess she knew I haunted the place.
Anyway, the ‘no Marx in MMT’ and ‘Bill hasn’t read any Marx’ is just a further extension of the mindless attacks that are going on via Twitter against our work.
And not long after that, in the same thread as the ‘no Marx in MMT’ claims, there was this incredulous Tweet:
This is another myth that is now being advanced by many British Tweeters who are trying to discredit MMT – that ‘MMT only applies to the US’.
Even John McDonnell’s advisor claimed that.
I covered that claim in detail in these blog posts:
1. MMT is just plain good economics – Part 1 (August 9, 2018).
2. MMT is just plain good economics – Part 2 (August 13, 2018).
3. 2. MMT is just plain good economics – Part 3 (August 14, 2018).
So, lets get it straight – again.
It is certainly a “self-evident” fact that Australia, like all currency-issuing countries that do not borrow in foreign currencies or peg their currencies by any arrangement is sovereign in that currency.
To say otherwise is to misunderstand what currency sovereignty means.
The Australian government:
1. Issues its own currency exclusively. No-one else creates Australian dollar currency.
2. Requires all taxes and related obligations to be extinguished in that currency.
3. Can purchase anything that is for sale in that currency at any time it chooses, without financial constraints. That includes all idle labour.
4. Its central bank sets the interest rate.
5. The currency floats.
6. The Government does not borrow in any currency other than Australian dollars.
Conclusion: more mindless tripe circulating on Twitter from attention seekers who have nothing constructive to offer.
The following text will appear as the Preface in our forthcoming textbook – Macroeconomics – which will be published by Macmillan (Red Globe Press) on March 11, 2019.
The reality is coming closer.
Text starts here:
This book presents a comprehensive, university level study course in Macroeconomics from a Modern Monetary Theory (MMT) perspective.
Our approach is grounded in the operations of real world institutions, and our approach clearly identifies the policymaking capacity of central governments. The pedagogy thus starts by putting the currency-issuing government at the forefront.
We want students to understand how a modern monetary system operates, how the government and non-government sectors interact, how the central bank and the banks interact, how the labour market works, how trade and capital flows impact on economic outcomes and much more.
Students will appreciate what the capacities of a currency-issuing government are and how fiscal and monetary policy can be used purposefully to enhance the well-being of the nation.
Unlike earlier pluralist approaches to macroeconomics where the teaching sequence begins with an exposition of the standard mainstream macroeconomics (dominated by the New Keynesian approach) and then qualifies that conceptual structure and framing with some ‘real world’ criticisms and quibbles, we feel students are better informed if we build the narrative from the ground up based on an understanding of how the monetary system actually operates.
In adopting that approach, we are informed by our view that the mainstream macroeconomic approach does not provide coherent knowledge upon which to understand those real world monetary operations.
We believe that students who are taught in the mainstream tradition are introduced to concepts and explanations of how the monetary system operates which are simply incorrect when applied to the real world.
The consequences of these major flaws of reasoning have, at times, been devastating. Just think about the Global Financial Crisis (GFC). Mainstream economists did not see it coming, and, when the world was on the precipice of a total financial collapse, many advocated government spending cuts to maintain low fiscal deficits. Alternatively, think about the intractable problems within the Eurozone – problems that were identified even before the launch of the euro by MMT economists but which still are beyond the grasp of mainstream economists.
Among other mistakes, the mainstream approach was used to form predictions that quantitative easing would lead to accelerating inflation. That the rising fiscal deficits would push up interest rates and bond yields and that governments would run out of money. Also, that adoption of the euro would allow European nations to converge toward high and sustainable growth rates with rising living standards for everyone.
None of those predictions turned out to be accurate, yet governments that listened to this sort of advice forced millions of workers to lose their jobs and ensured that economic recovery would be a long, drawn-out and painful process.
The literature shows that economists working in the MMT tradition were much more prescient in understanding why the GFC occurred and why it quickly led to an even worse crisis in the Euro area, and what the likely outcomes of the subsequent government interventions would be.
We thus believe that an approach that starts with a sound understanding of how the monetary system works and the capacities of the government as the currency-issuer within it, the hallmark of the MMT approach, provides a sounder platform for students to learn about the economy.
While we present a detailed descriptive understanding of the day-to-day operations of economic institutions (government, central banks, commercial banks, households, firms, trading entities, etc), we are also mindful of the past. To provide students with a contextual perspective, we also introduce them to a rich historical analysis, both in terms of the history of economic thought itself, and the economic history of nations. There is much to learn from history. Many of the current debates that are conducted about policy options are just repeats of debates in yesteryear. More pointedly, some of the resulting propositions were categorically shown to be poor options in the past. We believe that students need to be aware of these issues so as to be better informed of the viable policy options available to government.
We believe the concepts drawn from cognitive sciences such as framing and language are important components in conducting an informed economic narrative and in report writing. In that context, a highly innovative feature of the book is to show students how we use language to frame economic narratives, to convey economic concepts and form policy options. In this way, we place macroeconomics in a broader social science context, which we consider enriches the learning experience for students.
We have not shied away from recognising the benefits of formality – the use of mathematics and statistical techniques. The book provides a solid introduction to more technical aspects of the subject – students will gain knowledge of mathematical techniques, not for their own sake, but because they help us gain a more effective understanding of the material covered.
Further, students will learn how to deal with real world data and apply that knowledge to real world situations. We see that as being essential preparation for students once they enter the professional stage of their lives and are required to prepare meaningful economic commentary.
Macroeconomics is an exciting area of study not the least because it has a profound influence on our everyday lives and the prosperity of our nations.
We want students who use this book to gain a thorough knowledge of the field of macroeconomics in order to equip them with the skills necessary to make sense of the important macroeconomic debates and to be able to constructively participate in those debates.
We hope you enjoy the journey.
William F. Mitchell
L. Randall Wray
Martin J. Watts
One of my favourite artists – Tony Joe White – died last week (October 24, 2018) aged 75.
Here is the Guardian’s (October 28, 2018) – Tony Joe White obituary.
I last saw him play in 2017 in Newcastle. I had seen him play several times before that.
He used an old Fender stratocaster and a Bassman 4 x 10 40 watt amp (1959 version, although he was using a reissued version last time I saw him). But the perfect combination.
He usually just played sitting alone with a drummer in the background.
And then would go crazy on guitar with distortion, wah-wah and other stuff going. It was a really special sound.
I loved his call for requests. People would shout a song from his repertoire and he would do it. One night, he was at the Workers’ Club in Newcastle and we shouted out “Saturday night in Oak Grove Louisiana” and it was obvious he hadn’t expected that request or had played it recently.
And boom – out it came. Beautiful.
Here is TJW with his beautiful song – Rainy Night In Georgia – from a BBC show screened on September 27, 2013.
He wrote the song in 1967 and it first appeared on is 1969 album Continued.
It was covered a lot (initially by Brook Benton).
On the provenance of the song, he told a journalist Ray Shasho in an – Interview – on January 17, 2014 that:
When I got out of high school I went to Marietta, Georgia, I had a sister living there. I went down there to get a job and I was playing guitar too at the house and stuff. I drove a dump truck for the highway department and when it would rain you didn’t have to go to work. You could stay home and play your guitar and hangout all night. So those thoughts came back to me when I moved on to Texas about three months later.
On his motivation to be a musician, he said:
… one day I was about fifteen and my brother brought home an album by Lightnin’ Hopkins. I heard that and boom, turned it around man. I started sneaking my dad’s guitar into my bedroom at night and learned the blues licks.
On touring Australia, he said:
I always like to go back to Australia especially because the people over there remind me of early Louisiana or Texas days on a Saturday night.
And here is ‘Saturday night in Oak Grove Louisiana’, a town close to where Tony Joe White grew up:
One of the originals of our era.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.