Regular readers will know I have been a long-time critic of the fiscal rules that…
The Brexit scapegoat
The UK Guardian continued its anti-Brexit bias in its article (January 4, 2019) – Brexit anxiety drags UK economy almost to standstill. Read the words which clearly mean – Brexit anxiety causes UK economy to stall. No nuance. No comparability. Just plain, unproven bias. Now, let’s be clear. The British economy has slowed considerably in the last quarter and the chaotic political behaviour among the British government is bound to be causing anxiety among voters. The British establishment is looking more comical lately than it usually does. But, as I have demonstrated previously, the trajectory of the British economy that is emerging pre-dates the Brexit referendum and has more to do with austerity biases in policy design and the state of private domestic balance sheets (accumulated debt positions) than it has to do with Brexit anxiety. Further, the data that the Guardian reports (the latest PMI results) also suggest that the Eurozone and Germany, in particular, are also recording similar declines in sentiment and activity. It is hard to blame Brexit on that.
My blog posts on Brexit from 2016 and beyond include:
1. Britain should exit the European Union (June 22, 2016).
2. Why the Leave victory is a great outcome (June 27, 2016).
3. Brexit signals that a new policy paradigm is required including renationalisation (July 13, 2016).
4. Mayday! Mayday! The skies were meant to fall in … what happened? (August 24, 2016).
5. Austerity is the problem for Britain not Brexit (January 9, 2017).
6. The Left lacks courage and is riddled with inferiority complexes (January 11, 2017).
7. Why Britain should not worry about Brexit-motivated bank relocations (May 16, 2017).
8. Britain’s labour market showing no Brexit anxiety yet (May 30, 2017).
9. Britain doesn’t appear to be collapsing as a result of Brexit (December 13, 2017).
10. British Labour remainers – the reality seekers bogged down in myth (January 31, 2018).
11. The facts suggest Britain is not as reliant on EU as the Remain camp claim (April 16, 2018).
12. The Europhile Left use Jacobin response to strengthen our Brexit case (May 22, 2018).
13. The ‘if it is bad it must be Brexit’ deception in Britain (May 31, 2018).
14. How to distort the Brexit debate – exclude significant factors! (June 25, 2018).
15. Brexit doom predictions – the Y2K of today (August 26, 2018).
16. More Brexit nonsense from the pro-European dreamers (December 27, 2018).
17. British data confirms strong FDI continues despite Brexit chaos (December 12, 2018).
18. The Brexit scapegoat (January 7, 2019).
UK Guardian and the Brexit scapegoat
The UK Guardian article basically reports on the latest – IHS/CIPs Markit Services PMI Index (IHS Markit and the Chartered Institute of Procurement and Supply Services Purchasing Managers’ Index), which was released on January 4, 2019.
Sure enough, the key findings are:
Modest rises in business activity and new work
Job creation eases to 29-month low
Business confidence at second-lowest level since 2009
We read that:
1. “business activity rising at one of the slowest rates seen over the past two-and-a-half years”.
2. “a slowdown in job creation to its weakest since July 2016.”
3. “Reports from survey respondents suggested that Brexit-related concerns were a key factor weighing on business-to-business spending at the end of 2018.”
4. “A number of firms also noted that subdued consumer demand had acted as a brake on sales in December.”
5. “Another relatively weak rise in business and consumer spending contributed to a lack of new work to replace completed projects in December.”
Related statements from the partners who produce the survey all noted something to do with Brexit anxiety, which is where the UK Guardian takes its leave from.
The UK Guardian article essentially paraphrases the press release from IHS/CIPS.
It also mentions the latest Bank of England data, but fails to draw any of the insights from that data, because it is intent on sheeting home all the blame for Britain’s slowing expenditure onto Brexit.
But if one examines the broader data, it becomes clear that Brexit is probably not a driving factor in the current malaise.
On January 4, 2019, the Bank of England released its latest – Money and Credit – November 2018 – data, which shows movements in borrowing and deposits by UK households and business firms.
The data shows that:
1. “The extra amount consumers have borrowed each month to buy goods and services has slowed in the second half of 2018.”
2. “Mortgage market activity has been broadly stable since 2016”.
3. “Borrowing from banks remained robust” for businesses.
An earlier Bank publication (September 16, 2014) – Household debt and spending – makes it clear that there is the “potential for household indebtedness to lead to large adverse impacts on aggregate demand” despite the fact that in “standard economic theory … Debt plays no causal role in determining the amount of spending”.
Thus acknowledging the lack of attention by mainstream macroeconomic theory to financial stocks and flows which is built on a “number of simplifying assumptions” which when relaxed allow for “a more active role for debt in explaining spending patterns”.
In mainstream economic theory, the simplifying assumptions include:
… households are assumed to be able to borrow as much as they choose; the cost of borrowing is held constant; households can accurately predict their lifetime income; and more generally, these models assume that there is no uncertainty around the future path of economic variables.
The reality is very different – “households are not certain about their future income and they do face (time-varying) constraints on their ability to borrow”.
The Bank research suggests that “UK households with high levels of mortgage debt made larger adjustments in spending after 2007”, and the general global research results suggest similar outcomes.
On July 26, 2018, the British Office of National Statistics released a report – Making ends meet: are households living beyond their means? – which showed that:
UK households have seen their outgoings surpass their income for the first time in nearly 30 years … To fund this shortfall, households either have to borrow – at which point they could be living beyond their means – or dip into their savings.
And our data show they are borrowing more and saving less …
In total, households accumulated more debt (due mainly to loans) than assets (such as deposits, bonds, shares and pensions) in 2017 for the first time since records began in 1987. If this were to continue, households could risk lacking enough collateral to cover their debts.
A related ONS publication (October 8, 2018) – Alternative measures of UK households’ income and saving: April to June 2018 – showed that:
1. “real household disposable income (RHDI) … has remained relatively flat since the second half of 2015.”
2. “In 2017, cash-basis RHDI fell by 0.6%; this was the second successive year of decline”.
3. “The cash-basis saving ratio was negative 0.6% in the latest quarter; compared with negative 0.8% in the previous quarter.”
4. “This was the third successive quarter in which the cash-basis saving ratio has been negative, meaning that households’ spending exceeded their gross disposable income, on a cash basis, in Quarter 2”.
Further, on June 5, 2018, the ONS released this report – An expenditure-based approach to poverty in the UK: financial year ending 2017.
It showed that:
1. “In the financial year ending (FYE) 2017, of the UK population 22.8% was considered to be in income poverty and 21.8% was deemed to be in expenditure poverty.”
2. Morever, in 2013/14, the proportion of British households enduring expenditure poverty was 19.64 per cent and this has risen to 21.85 per cent by 2016/17.
3. Income poverty rates also rose in the period 2015/16 to 2016/17.
More recently, ONS released the latest – Quarterly sector accounts, UK: July to September 2018 (December 21, 2018) – which showed that:
1. “In Quarter 3 (July to Sept) 2018, real household disposable income showed no growth”.
2. “In Quarter 3 (July to Sept) 2018, the households saving ratio fell to its joint third lowest on record to 3.8%, down from 4.1% in the previous quarter; while the 2017 saving ratio has been revised from 4.1% to 3.9%”.
3. “Non-financial corporations have seen their financial debt levels remain at near records high in the last few quarters …”
These are longer-term trends for an economy that has been subjected to substantial and sustained fiscal contraction and running a continuous external deficit.
Under those circumstances, the only way any growth could have occurred in the economy was via increased private domestic sector deficits, which is what the data over a long period of time has been telling us is that has happened.
Sustaining growth through ever-increasing private domestic debt is not a sustainable process and eventually the balance sheets of the private domestic sector borrowers become so precarious that they put the brakes on and that means spending growth slows.
At present, Britain is producing the pre-conditions for another balance sheet recession and that will occur if the British government continues to undermine growth with its contractionary fiscal policy.
Further, the problem of the PMI Surveys is that the evidence generated is not hard fact but largely ‘sentiment’.
We have a scapegoat – Brexit – blame it for everything when you do not want to actually list the real causal factors.
For example, there was no mention that the ongoing fiscal austerity which has ramped up in the last several months has anything to do with the flat domestic demand, which drives growth.
There was no mention of the low wages growth that has put a brake on household consumption expenditure at a time when household debt has been rising to dangerous levels.
And there was no mention of the what is happening elsewhere to get some sort of comparator.
And if we look at what the PMI results for other nations is we get a very interesting and broader insight.
Take the – IHS Markit Eurozone Composite PMI (released January 4, 2019).
We read:
1. “the index was at its weakest level for over four years.”
2. “The slowdown in growth during December in part reflected lower activity in France” – the scapegoat there is the “gilets jaunes’ movement”.
3. But, “growth tended to weaken elsewhere, led by Germany which registered its weakest outturn for five-and-a-half years.”
4. “IHS Markit Eurozone PMI® Services Business Activity Index declined for a third successive month during December to hit its lowest level in over four years”.
Get the picture?
Drilling down for Eurozone leader using the – IHS MARKIT GERMANY SERVICES PMI (released January 4, 2019) – we read:
1. “Business activity growth in Germany’s service sector slowed to the weakest in over two years in December … a further sign of the eurozone’s largest economy losing momentum”.
And more generally, the – J.P.Morgan Global Services PMI (released January 4, 2019) – noted that:
1. “The upturn in the global service sector slowed in December, following the weakest expansion of new order intakes in over two years.”
2. “The average index reading in the fourth quarter (53.4) was the weakest since quarter four of 2016.”
And so it goes.
The task for those who want to sheet home all the current British problems to Brexit anxiety is to explain why there are similar trends in many nations across the globe and why much of the current global slowdown is explainable using sensible economic logic by trends that have been established well before the Brexit vote (austerity bias, record levels of private debt, slowing housing markets etc).
Scapegoats also tend to be nationally specific to serve the interests of the dominant political economic ideology.
Brexit in the UK, Gilets jaunes in France, Trump trade war elsewhere.
All these scapegoats serve political and ideological purposes and obscure the global trends.
And why might the US be outperforming the other nations at present despite the ‘Trump trade war’?
Well it might be something to do with his fiscal stimulus which is running counter to the global trend in fiscal policy.
I wouldn’t deny for a second that the uncertainty arising from the political incompetence being displayed by the May Government and the divisions now revealing themselves in Labour over Brexit are causing anxiety in Britain.
But I have been tracking all these trends for years and the problems facing Britain pre-date the Brexit period.
The common ground is that both the Brexit debacle and the underlying problems with the British economy can be understood in terms of the ideological bias that the British government has towards austerity and its incompetence as a policy maker.
The same might also be said about the France economy slowdown-Gilets dilemma. They are driven by a common cause – the incompetence of Emmanuel Macron and the austerity bias of the Eurozone.
A different view on Brexit
Richard Thomson from an English cross-border corporate restructuring firm sent me an interesting article that he had written about Brexit, which points to how pathetic the strategies deployed by the British government are at present and the sort of surrender mentality that the Left has adopted in to this question.
He applies the “Golden Rules of Restructuring” to the Brexit question because he believes the “similarities between Brexit and complex cross-border financial restructurings are extensive”.
The important point is that the conclusion is that the “rules are counter-intuitive vs usual business (or political) practice”.
And they dovetail closely with the sort of arguments I have been making since this debate began and which Thomas Fazi and I lay out in our recent book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017)
Richard Thomson’s article (December 19, 2018) – The Case for Hard Brexit – a Restructuring Specialist’s Perspective – demonstrates why the British government’s Brexit approach and the view of the Europhile Left in Britain is bound to deliver poor outcomes.
He lists the “golden rules of corporate financial restructuring” and applies them to the Brexit imbroglio.
Rule 1: “Develop your unilateral path (ie a restructuring that is not reliant on consent from the opponents)” – the fact that the British government has been going cap-in-hand to the European Commission over the ‘agreement’ violates this rule.
Rule 2: “Be the “deal-setter” for consensual discussions (never be a deal-taker)” – which amounts to leading with “your proposal” and giving “your opponents … a simple choice between this and a worse deal for themselves”.
Rule 3: “Define options to avoid it becoming a negotiation” – make the options clear from the start.
Rule 4: “Management are Golden” – the government is in charge of this and will oversee the results. The pressure must be on to push the Government into accepting that in the adjustment period, fiscal policy will have to stimulate growth and see the economy through the changes.
Rule 5: “Move at the speed required to hit the earliest restructuring date” – delays etc only increase the costs.
And he lists a “Bonus Rule”, specifically in relation to the Brexit issue – “consistent success comes from focussing on Process not Outcome, and whilst actively avoiding Provocation”.
He applies these rules that he uses in cross-border corporate restructurings to the Brexit issue.
You can read the detail directly from his article.
But the logic is clear – if we “flip” the “who needs who” concept (currently the debate is dominated by the claim that Britain needs the EU – particularly among the Europhile Left that is killing off Labour’s prospects) – then we redefine Britain as “master of their own destiny” with all the power it needs within its own legislative remit to present the EU with a take it or leave it deal.
Why would Europe be interested?
Well, for an important start, “the key decision makers (Ge, Fr) are producer economies” while the UK is “more a services economy” and “more globally aligned”.
In other words:
Flipping the fear back on your opponent is a key part of the art of restructuring.
Brexit is turning into chaos because the British government and the Left have adopted the view that Britain should be subjugated to the EU – to the corporatist, neoliberal, unelected European Commission.
Reversing that idea of ‘dependency’ would change the game dramatically.
What about the Bonus Rule?
Richard Thomson says that this is to overcome the current impasse where Britain must re-establish the “process with the UK as lead”.
And:
The case for developing hard Brexit is clear: it is a tool to ensure the development of high-quality options, so that the best route can be taken.
The EU has clearly been an “obstructive opponent” in the negotiations.
This is because the British government has been a supplicant.
And as his article closes, the analogy with corporate financial restructurings ends, with the acknowledgement that “there is no equivalent to the UK going into liquidation”.
He writes that:
The UK is fully capable of thriving on the world stage whatever the outcome. Unlike Greece, the UK is not a “deal taker”… I just hope that our politicians wake up one day and realise this.
And this is what the British Labour Party leadership should be hammering home every day.
Hiding behind fake fiscal rules to appear reasonable and capable and trying to walk a tightrope between the Blairites, the Europhile Left and those who desire to reestablish full sovereignty for Britain is bound to fail.
Jeremy Corbyn and John McDonnell should be out there telling the British people that Britain’s legislative capacity once freed from EU constraints and its fiscal capacity will always be sufficient to prevent recession and improve domestic living conditions.
Conclusion
Brexit will force sectors to adapt and things will change a bit.
But a no-deal Brexit is no catastrophe if the British government realises its own capacity and abandons the neoliberal bias and inferiority complex with respect to Europe.
Admin Note
I am working on a new theme at present. I increased the font size 1 point today to see what it looks like although my new design which is slowly evolving when I get a little time will be quite different to the current format.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.
The 4 main things that economists get wrong are —
I’m not an economist, however, that doesn’t mean my opinion is worthless.
Professional MMT economics professors will tell you that the modern fiat currencies mean that Neo-liberal economics is just wrong. However, even MMTers see endless growth as an excellent thing and possible on a finite planet.
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So, my list of errors is — assuming you have a fiat currency.
1] The US Gov. (for example) can crate all the dollars it wants to.
. . a] This means it can’t go broke. It can always pay its bills as they come due.
. . b] The national debt is also the amount of dollars that the Private Sector of the economy have saved. This is a good thing and not at all a bad thing. The Private Sector needs those dollars.
. . c] The only risk with deficit spending is some inflation. Runaway inflation would be almost impossible in a nation like the US.
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2] International trade *IS* a zero sum game. This means for every transaction/sale there is an exactly equal amount of change in the trade balance of the 2 nations involved. One is positive and one is negative, the net is zero. It must be.
. . . Now, many nations want to have a positive trade balance. They see this as a good thing for them. No economics theory I know of points out that this is not stable. It is not in equilibrium. This is because some other nation must as a result have a negative trade balance. If even one nation keeps having a positive trade balance it follows that all the other nations must in total have a negative trade balance. Someday this is going to cause a problem.
. . . [In a sense this is like the private lender=borrower situation, below. The nation with the trade surplus is accumulating foreign money. It can’t keep buying assets in foreign nations forever. In the limit as time goes to infinity, someday it will own every asset on earth and it is getting the profits from those assets too. Before that situation is reached the other nations will seize those assets that they can just take. The surplus-nation is making endless ‘sort of loans’ and should understand that they will never all be paid off.]
. . . The US should not allow itself to have an endless negative trade balance. In this one case Trump can see what no one else sees. The world should not let Germany and Japan have endless trade surpluses. Someday there will have to be a reckoning.
. . . There needs to be a way to feed free money to those nations doing the buying, or nations can’t be allowed to have endless trade surpluses. It is as simple as that.
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3] While Gov. debt is a good thing, private debt is a dangerous thing. Unlike Gov. debt that can be rolled-over endlessly*, private debt must be paid off or written off by the lender. When banks make loans they create money out of thin air, adding to the money supply and the GDP. Paying the loans off destroys that money and writing it off can make the lending bank insolvent. Either way it is bad for GDP growth. The GFC/2008 was caused by too much private lending/borrowing.
. . . BTW, it is isn’t proper to just blame a truthful and honest borrower if there is a problem, because the lender is just as much at fault; and for every borrower there is a lender.
4] Endless economic growth is also impossible on a finite planet. Someday it must end. What happens then? Why not find a way to stop the endless growth now? Growth is just kicking the can down the road and hoping that the sh*t doesn’t hit the fan in your lifetime or you kid’s (?). This seems irresponsible to me. Besides it adds to AGW and *could* as a result kill *EVERY* human on the planet. Actually it *will* kill every human unless it is stopped someday.
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.* . The US has effectively proven this over the last 35+ years by borrowing $20T and not paying it off much at all (only a small surplus for 3 years in the late 90s). If Gov. borrowing was a problem one of the 3 recessions in those years would have exposed that problem. The fact that no problem was exposed proves (by experiment) that Gov. borrowing doesn’t cause problems. Even inflation is well in hand now.
. . If the debt gets “too large” the only proper way to reduce it is to create dollars to pay some of the bonds as they come due. Running a Gov. surplus will damage the economy a lot.
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People, please comment on this.
Steve_American,
I too share your desire for enlightened insight into complex outcomes.
I am intrigued by Bill’s somewhat vague Conclusion: “Brexit will force sectors to adapt and things will change a bit.
But a no-deal Brexit is no catastrophe if the British government realises its own capacity and abandons the neoliberal bias and inferiority complex with respect to Europe”
What will CHANGE, and by how much – and how far-reaching? What exactly does the government’s CAPACITY embrace?
I am constantly questioned in local neighbourly discussions about how far fiscal expansion can go – even if resources are not a limiting factor.
In the UK we have seen the scale of manufacturing wilt over time, to be replaced by increasing (and worse paid) services. It has been accompanied by a falling exchange rate; it costs more therefore to import the same amount of goods (necessities) – that I am told will diminish our standard of living unless we find ways of replacing lost international trade (or we become a more closed economy).
Then I am accused of closing my mind to the possibility of a UK economy that fails to match the growth (eg pace of economic activity) of rival nations that could even result in the possibility of a fully employed UK economy, but one that cannot match living standards of rival economies. An ironic future example could be the state capitalist economy generated by China.
The basis of all these disagreements centres on the role that competition in enforcing winners and losers in the economic world.
Bill, I do not agree with your prescription for Jeremy Corbyn and John McDonnell. They do not have such a platform. The best we can hope is that they get to understand what you are saying but keep it all under wraps until they are in government. The vast neoliberal machine here will not allow them to do otherwise.
Bill
It’s perhaps worth pointing out that Richard Thomson’s negotiating steps are merely those taught on any bog standard negotiation class. Most management courses (and courses for trades Union officials)
provide these as a standard element. He has made it all sound rather sophisticated but the context of “cross border financial restructuring” is all smoke and mirrors. A well thought through negotiating strategy about, say, holiday entitlements for factory workers, would follow the same process. It is a mark of how totally incompetent Theresa May’s government is, that they have failed to get even these basics right. That Thomson’s article can been seen as anything other than
“a statement of the bleeding obvious” is equally damning. It was obvious from the start that without a proper negotiating, strategy things would rapidly go off track for the UK government. It is absolutely no surprise to those of us who have had to conduct serious, national level negotiations that we have ended up where we are. A shameful betrayal of the British people by its own representatives.
But a no-deal Brexit is no catastrophe if the British government realises its own capacity and abandons the neoliberal bias and inferiority complex with respect to Europe.
That ‘if’ is doing an awful lot of work.
All present and prospective governments here have shown little appetite for such changes.
The degraded economy is hardly robust enough to handle the process anyway.
A far more likely outcome is the doubling down of neoliberal austerity under the chaos that is coming down the pike. The protagonists are incapable of thinking any other way.
Brexit is now just a means to an end for these people.
Much as I hate linking to the guardian these days:
The authors argue for a free trade agreement that would loosen government controls on capital and data flows and be “more liberalising than any other free trade agreement in the world”. They say that it could become a model for future deals post-Brexit. It would remove tariffs and throw out the precautionary principle that has guided much EU regulation on GM foods, chlorine-washed chicken, hormones in meat, pesticides and chemicals in cosmetics.
Out of one neoliberal frying pan and into the fire.
If there was a worse,more self defeating way of achieving the ends you describe (and I am in sympathy with), I can’t see it.
As for our current polity being anything but a rule taker, I can’t see that either
@Carol Wilcox,
I’m afraid I don’t agree with your prescription:
“The best we can hope is that they get to understand what you are saying but keep it all under wraps until they are in government”
A strategy of keeping quiet about your party’s real economic intentions until after a GE win is not only cowardly and dishonest, but undemocratic.
The tragedy is that Corbyn and McDonell have had since that tumultuous moment in September 2015 to overturn the “govt as household” narrative.
I attended (perhaps like you?) the talk around that time given by Bill, Richard Murphy, and Anne Pettifor in London. I was sorely disappointed not to see JMcD in the room; the topic was “Re-framing the Debate”, as I recall, and had both JC and JMcD been on board with MMT at that point, the intervening three and a half years could have been put to tremendous use, weaning the public off Thatcher’s “govt has no money of its own” nonsense.
At that point they were the leftist bogeymen beyond the pale, and, reputationally, had pretty much nothing to lose by proselytising the MMT narrative. They may as well have been hung for a sheep as a lamb, but despite the inevitable initial ridicule, after three and a half years of constant MMT framing the message would have eventually got through to a wider constituency – and the fact that it’s correct and truthful would have inoculated it against much of the criticism.
Of course, now we know that, being poorly advised, they were never on board with MMT – but the principle remains: if your strategy is to constantly and timidly trim your message due to fear of the power of your opponents, how would anything ever change? That was Harriet Harman’s approach on the Welfare Bill whilst interim Leader, and, as the absolute nadir of Labour Parliamentary politics, it sucked.
This wasted opportunity makes me truly despair.
Steve American, Monday 16:31
I have made similar comments in the past. Perhaps I should link them. MMT is about the how a government can use its power of money to take control of an economy with out using its monopoly of coercion to take control of an economy.
At the international level anarchy and chaos reign. I have suggested that perhaps principles taken out of Parecon, used at an international level could possibly be used to get what resources the leaders of countries want most to make their populations happy enough that they can avoid civil strife in their respective countries.
Yet for that to happen it seems that at least parts of the current world leadership would have to be removed by FORCE as there sure as hell is not going to happen by democratic means. Yet removing such leaders would not be sufficient to achieving an international approach to solving our problems.
The removal of penis heads is only a prerequisite. After that the rulers of China the USA and Russia and maybe India, are going to have to set up some kind of international system that the world will accept because it offers the leaders of the rest of the world hope that their populations will not be left high and dry to starve to death while humanity tries to deal with the mess that it is in. Which will allow these leaders to have hope that they can remain in power at least through the transition period.
IF IF IF IF IF IF IF IF IF there is to be a transition period at all.
I think that if humanity is going to survive the century much more than mmt is needed. My view is that the following are crucial building blocks for the foundation of the future if there is to be one for humanity.
1.) The developement of nuclear fusion power. Solar and wind can no doubt buy us extra time. But I suspect that for block number two nuclear fusion will be needed.
2) Measures that actually counter act the geophysical processes that humanity has already set in motion.
3.) The world goes in to an economic hybernation. Nothing that is not essential gets done. Of course for this to work with out causing overwehlming social strife will require a socialist revolution first. Such a revolution is not likely. If it happens it can only be carried out by a highly disciplined elite cadre. The idea that a workers revolt could pull off a revolution in the 21st century is a fantasy from the 19th century.
4.) This one is optional. The developement of artificial intellegence, AI could be a blessing. It could also lead to our downfall. But if the world had leaders were actually trying to do the right thing could their connected minds not act as a biological super computer?
I think that I forgot something. Maybe I will remember it later.
One of the cornerstones of MMT’s ideological bias has been the determination to tackle inequality. That is something we all generally desire; indeed it is acknowledged as a foundation of a civilized society, notwithstanding that as an aim it sits oddly in a starkly neoliberal economy.
Time and time again inequality is described as if it were a deliberate strategy by supporters of Capitalism and right-of-centre governments, to keep wage earners in an inferior position in society – the greater numbers of low earners, the greater the power of the elite.
A large number of voters are likely to support a viewpoint that the very wealth fraternity has too much leverage over the conduct of government and economic policy, but they are also aware that other factors determine the extent of inequality and how it can even apply among the lower paid ranks themselves.
That is one of the reasons that immigration has become such an issue, and why it is being applied to attitudes towards Brexit. In Economic Impacts of Immigration to the UK: MW 235, a piece by Migration Watch UK: https://www.migrationwatchuk.org/briefing-paper/235 there is reference to the impact of immigration on wages at the lower end of the wage spectrum; and also reference to fiscal impact.
I am not familiar with this organisation, so am unsure of its credibility. But if what it is saying bears up to scrutiny it represents a perspective that needs to be considered in drawing conclusions on inequality.
I recently had a disappointing experience on Naked Capitalism, a blog which I had often found informative and useful and thus looked forward to reading every day (like I do this one). After encountering a series of posts or comments on Naked Capitalism that struck me as little more than hand-wringing and second-guessing over the Brexit decision, I made several comments to challenge the pessimistic perspective and explain the possibilities of a post-Brexit Britain, free from EU neoliberal chains, which might be able (even be forced) to get its political act together and move in the direction of that new inclusive, citizen-protective form of nationalism envisioned in “Reclaiming the State.” My comments were met with snide rebuke, culminating in Yves’ characterization of my position as “laughable” and the flippant dismissal of Bill’s work on this issue as EU hatred. So when Bill talks about “the surrender of the left,” I now know even more clearly what he is talking about. The whole thing is incredibly sad, tantamount IMHO not simply to a failure of nerve but to a refusal to draw hope and strength from the human spirit. Global neoliberalism is killing not only individual lives and national economies but the entire planetary ecosystem upon which all of life depends. There is simply no option but to gather our courage and fight to overcome that evil system with all that it is in us…or, having given our best, go down trying. My appreciation for what Bill has done and continues to do has deepened in light of this recent unpleasant experience with Naked Capitalism.
The writer seems to think that the “left” is the left….
Mr American. You threw out a lot at one time. And sometimes it’s hard to tell if you are making a point or finding a fault.
#4. I don’t know if I’d say there is a limit to growth. Not all growth is by quantity. Some growth is by increases in productivity, or quality. But yes, growth at this time has a large quantity component, and that is limited by the amounts on this planet. They might even be bound together, so you can’t get one without the other. I don’t know. We don’t try. People want more, always.
@Newton Finn,
It seems me and you were commenting together on Yves Smith’s analysis of Brexit, specifically Corbyn’s attitude and that of the UK Labour Party prior to Christmas – like you, I called Ms Smith Out for using information from a highly biased Guardian, not only that, one of The Guardian’s worst offenders, who’s detestation of Corbyn is legion, and has been for more than three years – I gets accused of strawmannirg and Ad Hominem attacks when pointing out that nothing Jonathan freed land states can be trusted and recommended another source be used.
Ah well, not my loss and always happy to read this Blog to get some perspective in economics and reality – oh, and like Prof Richard Werner & Prof. Steve Keen, I voted as they did, which effectively was for a Lexit.
Mr American. There is much to learn and cause for thought in MMT. But I have limits to what I accept at this time. I believe there is truth to the Triffin Dilemma. The foundation of debt is trust. When trust turns to coercion, economic disintegration follows. There is no theoretical limit to govt debt. But in practical application there is. I also think there is a limit to the saving that an economy is capable of.
Mr S, sadly, I could not agree with you more. I wish it were otherwise. I, too, despair.
The ongoing bias toward austerity masks the main reason to remain a sovereign democratically governed nation, rather than a fiscally neutered member of an oversized, anti democratic federation ruled from the shadows. The May government should be exercising it’s fiscal capacity to improve domestic conditions, to the fullest, if it wants to demonstrate the point of leaving.
Austerity anywhere seems a lame excuse for not having any vision and goals for the nation to strive for. If you don’t have any why seek to rule?
This font size is just about perfect.
@ Mr Shigemitsu
@ Carol Wilcox
I have to agree with Mr Shigemitsu here:
“The tragedy is that Corbyn and McDonell have had since that tumultuous moment in September 2015 to overturn the “govt as household” narrative.”
My thoughts exactly – here and the rest of that post.
I’m infuriated that Corbyn and McDonnell have blown this historical opportunity and I’ve quit the Labour Party in disgust.
Yes brexit will be used as a scapegoat for any bad economic news but the idea
there is some special negotiating tool available to one side to get what they want
is a bit weak.
Dear Bill,
I look forward to the new blog theme.
I read a lot on my (old) iPhone, and I have to say that the font here is, even now, eye-crossingly small!
I won’t complain at all if it becomes considerably larger – a lot of readers nowadays will be using similar smaller devices, rather than desktop screens.
Best, Mr S.
The Guardian has been increasingly hysterical over the last few months, almost every article has a Brexit reference jammed in lest anyone forget.
As for Corbyn and McDonnell, well it was clear 3 weeks in to their leadership back in 2015 they were never going to budge from tax and spend. I’ve said it before and i’ll say it again, they, nor anyone else in the PLP has the intellect to be able to explain clearly how a modern economy operates, so they revert to what they know instead. They have a deficit of courage too, pardon the pun.
The vast majority of change comes from the ground up, not the top down. That’s how it’s going to have to be in my opinion. Most likely it’ll come from the US and the UK will dutifully follow.
Adam, you say: ‘I’m infuriated that Corbyn and McDonnell have blown this historical opportunity and I’ve quit the Labour Party in disgust.’
I sympathise with those feelings but in reality, in the UK Labour IS the only show in town who will ease austerity even using neo-lib framing of the monetary system. Millions of people are suffering the savaging of the welfare system and privatisations have turned the country into scam-ridden, rip-off merchant’s paradise – and by pulling out from supporting Labour you are simply contributing to another Tory term and possibly a more Right Wing version of that (Make the U.K Great Again!).
Look, I get what you are saying and largely agree-but let’s also get clear that there is large scale child poverty, increasing homelessness, private debt going through the roof and you’d rather let the Right in again than stick with a Party that will at least nationalise and spend and stop persecuting the ill, vulnerable and jobless?
Unsatisfactory as it is, I’m still going to support Labour for whatever ease it can bring to so many who have suffered marginalisation and vilification under the ghastly Tories. By waiting until the framing is right we then let in the worst option. Let’s get Labour in and keep at them about the framing, we’ll get there eventually and in the meantime the poorest and most vulnerable might have a chance to feel a bit more human.
I’m with Carol on this one.
Economist Joseph Stiglitz is not an overt MMT theorist (as far as I know) and yet he substantially agrees with what Bill Mitchell is saying re the EU, the Euro and Brexit. This is because, like Bill Mitchell, he understands economics, he pays attention to the empirical data and he cares about the truth.
https://www.theguardian.com/business/2016/aug/10/joseph-stiglitz-the-problem-with-europe-is-the-euro
Rather than add other links, I simply suggest a search Youtube for some of Stiglitz’s talks about the EU and Euro. Stiglitz is not just a one-eyed American. He admits in these talks that the USA has plenty of its own problems. But he makes the point that the EU in general, and the Euro area in particular, are very interesting because they constitute an experiment. He draws attention to the data and outcomes that that the experiment has produced. He explains why these empirical outcomes occurred by (fairly standard) theory.
We can note that Stiglitz and Mitchell both predicted the Euro disaster. Their theories, albeit with some different emphases, proved robust and accurate enough to predict the empirical outcomes within reasonable allowances for complexity and uncertainty. I don’t know about you but I pay attention to people who make predictions, explain the theory behind their predictions and then have their predictions turn out to be substantially correct on a regular basis. It’s a very good indicator that their theories possess adequate and useful correspondence with reality.
One has to work with a theory of truth of course. The best theory is the correspondence theory of truth.
“That truth is the correspondence of a representation to its object is, as Kant says, merely the nominal definition of it. Truth belongs exclusively to propositions. A proposition has a subject (or set of subjects) and a predicate. The subject is a sign; the predicate is a sign; and the proposition is a sign that the predicate is a sign of that which the subject is a sign. If it be so, it is true.” – Charles Sanders Peirce.
That what Mitchell and Stiglitz have been saying re the Euro is substantially true can be shown in two ways. Firstly, what they say about national accounts, fiat currencies and finance is true because they are explaining the axioms and operations of a formal mathematical accounting system. Certain things are true by definition and/or by the rules and equations of the system. Secondly, certain outcomes they predicted for the real system(s) (the real economy and real people) have been proven true enough, within allowances for complexity and error. This satisfies an empirical or scientific test so far as it can be satisfied for what is, in its entirety, a wickedly complex science, namely political economy. Political economies demonstrate chaos, complexity, emergence, evolution and even (probably) indeterminacy to some extent. Perfect predictions are not possible.
What is of particular interest is the interaction of the formal system(s) with the real system(s). To reiterate, the formal system consists narrowly of national accounts, fiat currencies and finance. More broadly, the formal system consists of all the rules, regulations and customs of the entire institutional environment of society.
Formal statements in the formal system may be either descriptive or prescriptive or both. It is this ambivalent nature of formal statements which is not properly understood (or is denied) by orthodox economics and its justificatory ideology. Money is posited (by orthodox economics) to be a real measure of real value, achieved by the operation of the free market and its laws of supply and demand. Money is supposed to merely reflect real values (and facilitate its exchange in the form of real goods). Other than this, money is supposed to be neutral.
The neutrality of money is the idea that any money supply change makes no difference to real economic variables. It supposedly describes relative real values. Hence money is supposed to be descriptive of reality but not prescriptive, not to actually influence the real (not to prescribe how the real should be) by its supply or operations. But money in its form, its supply and its operations via finance is constructed, just as markets are constructed. They are both constructed in chosen ways in a socio-political context and could have and can be constructed in other ways.
I said above that “Formal statements in the formal system may be either descriptive or prescriptive or both.” We see however, that statements about a real system can never be prescriptive but only descriptive. The Laws of Thermodynamics can only be described once we have discovered or learned them. We cannot prescribe new laws for thermodynamics or anything else in the domains covered by the hard sciences (physics, chemistry, biology).
How then can a formal system “prescribe”? A formal system can only prescribe via rules which must pass through “logic gates” to be enacted. Logic gates (at the level at which we are considering matters) are in turn only found in human brains, maybe in some animal brains, and in certain machines (computers) made by humans. I will leave aside here the complex issue of whether logic gates exist in genes, cells and cell complexes. (They must, by the way, or how else does a brain possess or develop logic gates?)
These rules, which might be institutional rules on how to construct and use money, are then put into action by humans if such action is possible. Even legal laws are rules in this sense, they are not hard laws like the laws of physics. Where human rules contravene natural laws they cannot be put into action. The law of capital punishment (not a good law by the way) can be put into action. Humans can be killed. A law to resurrect a long clinically dead and even decomposed human (who was incorrectly convicted and executed) cannot be put into action. It contravenes hard, natural laws.
In like manner a set of formal rules (like the formal rules of currency in the Eurozone) can possess a tendency to violate natural, real system laws. These formal rules are not just descriptive (and often they are poorly descriptive of the real economy in any case) they are prescriptive; prescribing how money is to be made and used. In turn the prescription of how money is to be made and used has the strong tendency to prescribe how the real system should operate. It can push the real system to real limits but not beyond them. These real limits include not just real economy limits but real environmental and real human limits. In each case the real systems start to break down if and when pushed to the point of their real limits. Anyone who ignores real limits (beyond which damage occurs), in an effort to ensure prescribed formal system consistency (of the money system for example) is either a fool or a Machiavellian type with sectional interests quite different from the public interest.
@Gogs,
I’m not sure how to reply to most of your post. I would ask your friends which they see as better, being slowly squeezed to death or trying MMT?
@Curt Kastens,
I see international economic competition as the post-nuclear way to wage wars.
It seems Germany agrees and has found a good way to win.
If [and I doubt it is possible] civilization survives AGW to reach the 22nd Century, then humanity will see a new way to do a lot of things. It may be better or worse, but it will be different.
@Yok,
In that post I was doing both. All my points were really finding a fault.
I can see your point that a better computer may not take more resources and still cost more and so will add the the GDP. I *can’t* see your point that productivity increases add to the GDP. In fact it seems like the opposite is true because the same dollar value is being created for less labor and wages paid; those reduced wages paid become less money spent by the workers and this reduces the GDP.
@Yok,
Yes, there are limits. I think that those limits move over time. So, if the Gov. keeps the growth in debt, deficits, and the money supply growing slowly then the limits you fear will move out ahead of those growing money things. [Not sure of the word ‘thing’ there I hope you-all can grok my meaning.] In other words, I would bet my life on this statement being true, “In 1859 all the members of Congress and the Gov. in general would not be able to imagine how a $20T US national debt could be possible.”
“The British economy has slowed considerably in the last quarter and the chaotic political behaviour among the British government is bound to be causing anxiety among voters.”
Silly Poms – they should just get on with it.
Steve_American:“In 1859 all the members of Congress and the Gov. in general would not be able to imagine how a $20T US national debt could be possible.”
I would not bet my life on this. Carl Sandburg’s biography of Lincoln has some very interesting speeches where Lincoln projected growth in population (and the economy) which was much faster than actually occurred. Something like a USA with 300 million people in 1950. Had Lincoln’s economic policies been followed for those succeeding decades, he might have been right.
And Seymour Harris’s 1947? book The National Debt included guesses for the future which were very much in the ballpark of what occurred in the next few decades.
Too late here to fully critique it, but what you are saying about international trade above is entirely mistaken. Far from being an unusual critique, it just recapitulates the same old, same old entirely imaginary problems that the media incessantly harps on. With no argument for these false propositions or completely incorrect observations like trade being a zero sum game. Basically, there are NO problems with international trade. For any developed country, and above all for the USA. It takes care of itself. It’s just a distraction from the domestic scene, to the sole profit of the wealthy.
Some guy, I can find no book with the title you gave by anyone, especially Seymour Harris. And it can’t be Seymour Hersh, as he was only 10 years old in 1947.
The full title is The National Debt and the New Economics. Seymour Edwin Harris – a very prolific Harvard professor, very prominent back then as one of the two or three leading supporters of Keynesian economics and Lerner’s functional finance. Completely forgotten now; been meaning to start a Wikipedia article on him, it’s a glaring lacuna. Wrote many and edited many more books.
That book is available in full at both hathitrust and the internet archive. They always do that with old books right after I buy a physical copy. 🙂 Dudley Dillard said in a review, well it’s a potboiler written at high speed, filled with typos, like most of Harris’s books. But it’s still probably the best book on the topic ever written.
@Some Guy,
How can it not be true that international trade is a zero sum game.
Nation A that imports $100K worth o stuff from nation B that exports the same $100K worth of stuff? It is entered into the account books of both nations under trade balance, right?
Steve, if all the players are included, then, in a zero-sum game, the gains and losses equal out. In such a game, what is one player’s gain is another’s loss. For a given player, an import is a gain, while an export is a loss. I may be telling you things you already know, but since I don’t know that, … . For a non-zero-sum game, this condition does not hold.
Some guy, thanks for this. A few physical copies are available on Amazon.
Some guy, also on Amazon is this, edited and with articles by Harris, The New Economics: Keynes’ Influence on Theory and Public Policy published initially in 1947. Articles by Lerner, Keynes, Joan Robinson, and others. Although you may already have it, I have mentioned it just in case.
Spot on with your analysis. There is a slowdown worldwide evident, the chaos with the current PM has worsened it, but Brexit is not the cause or only cause of it, a contributing factor maybe.
I hope that not to many of the public are not drawn in by such stories, though of course some will be.
Steve the American,
This is what I forgot.
A demographic shift caused by a legal policy that allows each woman to bear a maximum of two children in her life time. If that is draconian call me Vlad the alien.
I hope that this comment and my other comments in the past few days have shown a large enough spotlight on the environment for your taste. I wrote one other comment on the environment two days ago I think. For some reason that I can not phantom, for some reason that I can not digest, that comment was not posted. My post was not perverse. So maybe the decision not to post it will be reversed.
Some Guy Wrote: “Too late here to fully critique it, but what you are saying about international trade above is entirely mistaken. Far from being an unusual critique, it just recapitulates the same old, same old entirely imaginary problems that the media incessantly harps on. With no argument for these false propositions or completely incorrect observations like trade being a zero sum game. Basically, there are NO problems with international trade. For any developed country, and above all for the USA. It takes care of itself. It’s just a distraction from the domestic scene, to the sole profit of the wealthy.”
.
You assert this. Maybe you have an authority. The book is old so no way the author can understand MMT. If he doesn’t understand MMT then why should I accept him as the final word?
I asserted that if we assume that the same nations keep having a trade surplus; and the others a trade deficit forever, that there is a problem.
.
My analysis is based on the Sector balances of MMT theory.
Imaging there are just 2 nations in the world and they trade with each other like nations in the eurozone do now. That is, they both use the euro. Call them Germany and Greece. Ger. always has a yearly trade surplus of 1M E [here E=euros] and Greece must then have a trade deficit of 1M E per year also.
. . . This means that Ger. has an inflow of 1M E each year. This gets added to the Private Sector’s income every year. OTOH, Greece has an outflow of 1M E every year and it gets subtracted from the Private Sector’s income every year.
. . . For Greece, this is just the same as if the Greek Gov. has a surplus of 1M E each year. MMT asserts that whenever a nation’s Gov. has a surplus year after year {and the trade balance is zero} eventually that nation will go into a recession, right?. If the surplus continues it will go into a depression, right?
. . . Why is this not a problem then when it isn’t the Gov. with a surplus but its trading partner [here assumed to be Ger.]?
.
It just puts off the problem if the 2 nations have their own fiat currency. Now we can call the 2 nations Japan and USA.
. . . Now if the trade surplus/deficit is $1B a year. And the nations can create more $$ or Yen, then the US G0v. can create $1B a year to pay Japan but someday Japan will not want any more dollars, it will want stuff instead. It can buy real estate and stocks for example. Then the rents and dividends go to someone/corp. in Japan and will add to the so called trade deficit that the US has with Japan. This just makes the problem worse.
.
So, don’t just make assertions, tell me why my thinking is entirely mistaken. If you can.
@Curt Kastens,
My idea is different. Let every childless adult own a license to have 1 child.
When he/she has one it is transferred to the child. Then it can’t be sold or transferred until the child has its own child, is 25 years old, or dies childless [in which its the child gets it, the owner can sell it, or the original owner/parent gets it back respectively].
Mine is more complicated, but more fair to the men and allows more flexibility. For example if a couple have 2 sons how do they have leverage to get grandchildren?