EU deliberately subjugates prosperity to maintain its neoliberal ideology

While the Brexit shambles wound on in London, with the Prime Minister being walloped one day by her own party, and then the next given a victory, courtesy of some Labour Party bungling (the no-confidence motion), across the Channel things have been turning markedly sour. While the Europhile Left hold Europe dear to their hearts, the reality is that their dreamworld is falling apart. This is not only because of the incompetence of its polity but also because of the deliberate strategies of the polity to privilege ideology over economic reality. But if the Europeans continue down their ideological path, there mightn’t be much to exit from for the British. Late last week (January 14, 2019), Eurostat published their latest output data – Industrial production down by 1.7% in euro area – which as the title indicates is not good. Once again, the fiscally-starved Eurozone is trailing behind a sinking EU28. Over the 12 months to November 2018, industrial production in the Eurozone fell by 3.3 per cent and by 2.2 per cent in the EU28. The declines are across all product categories – capital goods, energy, durable consumer goods, intermediate goods and non-durable consumer goods. What we understand from this is that the policy makers in the European Union deliberately choose to subjugate economic prosperity and the well-being of people (jobs, incomes, savings, etc) to maintain an adherence to an ideology that purposely redistributes real resources and incomes to the top end of the distribution and provides lucrative paths for European Commission executives to move between these ‘political’ roles into highly paid banking and related jobs. It is neoliberal central, in other words, and is beyond reform.

On January 13, 2019, French President Emmanuel Macron penned a – Lettre aux Français to his “Chères Françaises, Chers Français, Mes chers compatriotse”.

All very stirring I am sure.

But pure neoliberalism and denial.

UNder the guise of launching a “great national debate” about the “great questions of the future”, Macron, instead reasserted the mindless logic of the European Union, which the Gilets Jaunes are rebelling over.

The logic is simple when the Government is using a foreign currency (the euro).

Taxes are required to ‘finance’ public services.

Macron writes:

Tax … makes it possible to pay to the most fragile social benefits but also to finance some big future projects, our research, our culture, or to maintain our infrastructures. It is also the tax that pays the interest on the very important debt that our country has incurred over time.

And you immediately realise how skewed the logic has become.

In the past, even those economists who fail to understand the role of taxes in a fiat monetary system would acknowledge that tax revenue should cover recurrent spending (including debt servicing) and debt-issuance should cover capital expenditure.

This is the only way (using their logic) that intergenerational equity can be achieved by matching burden with benefit.

This logic says that it is grossly unfair to impose tax burdens on the current generation to fund long-lived public infrastructure assets that future generations will also gain benefit from.

Macron’s logic doesn’t even acknowledge that and, instead, proposes a much more radical ‘taxes’ pay for everything.

He continues in his letter to argue that tax relief for lower income groups to help improve the growing inequity in France are impossible “without lowering the overall level of our public spending”.

In other words, the idea that a fiscal deficit can be used to achieve social purpose is banned. That is pure European Union ideology being imposed.

He also proposes that ‘savings’ could be made by cutting the scope and layers of government.

Environmental sustainability is also cast in a ‘finance model’ – how can we afford an “ecological transition”?

The whole exercise is a smokescreen – talking about grand visions of democracy and citizenship – but all shackled in the day-to-day reality that the Gilets know only too well – the stifling straitjacket of European Union austerity.

Which is once again manifesting in the declining economic activity in the major economies.

The Eurostat data is very disturbing.

Eurostat report that:

In November 2018 compared with October 2018, seasonally adjusted industrial production fell by 1.7% in the euro area (EA19) and by 1.3% in the EU28 …

In November 2018 compared with November 2017, industrial production fell by 3.3% in the euro area and by 2.2% in the EU28.

The following graph shows the evolution of Industrial Production (indexed to 100 at the peak month April 2008) for the EU28 (blue) and the Eurozone Member States (orange) from January 2000 to November 2018.

The pattern is interesting.

The early years were marked by recessions in Germany and France (which led the European Commission to change the Stability and Growth Pact rules to suit these two nations, something they refused to do later for Greece).

The frenetic period of growth leading up to the GFC was driven by the construction sector as Germany financial surpluses found their way into the periphery of Europe.

Then the rapid crash, which was initially met with rising fiscal deficits and a V-shape cyclical pattern (standard recession profile).

But that recovery in 2009-10, which followed the US recovery path closely (for the same reasons – fiscal support) was too much for the European Commission ideologues who saw their ‘fiscal rules’ being violated.

The relevant question that should have been asked was how could have they devised such ridiculous and unworkable rules that did not allow for sufficient flexibility in the face of an economic crisis.

But the denial was massive and the technocrats then enforced austerity and activity fell again and this time the recovery is slow and weak and anything by V-shaped.

The departure from the V-shape is because potential output has also been damaged by the austerity.

As the authorities demanded reductions in fiscal deficits and forced a second recession, capital formation expenditure collapsed.

Capital formation not only adds to current spending but also adds to the supply-side potential of the economy. Firms will not invest if the outlook is poor and they can service current expected demand (sales) with the productive capacity already in place.

So as a consequence, the sharp drop in capital formation across Europe, has led to a decline in potential GDP.

All preventable.

Here is the same period graphed but focussing on the major Eurozone economies: Germany, France, Italy and Spain. This allows us to see the dominance of Germany in the overall evolution of the Eurozone industrial production index and how poorly performed the other major economies have been.

Germany caught up in the period after reunification by imposing ‘internal devaluation’ starting inn 2003 (Hartz). This strategy deliberately gamed their Eurozone partners by shifting trade competitiveness in favour of Germany and dramatically undermining the export capacity of the other Eurozone nations.

Clearly, the crash affected all four economies to a similar degree:

1. Germany went from peak 100 in April 2008 to a trough of 76.4 in April 2009.

2. France went from peak 100 in April 2008 to a trough of 81.6 in May 2009.

3. Italy went from peak 100 in April 2008 to a trough of 73.8 in March 2009.

4. Spain went from peak 100 in April 2008 to a trough of 76.9 in March 2009.

But Germany recovered more quickly while the other three nations have languished.

By November 2018:

1. The German industrial production index stood at 100.7 (in other words about what it was at the onset of the crisis).

2. France, 88.5 – hardly any recovery from the trough and a loss of 11.5 per cent since April 2008.

3. Italy, 79.7 – – hardly any recovery from the trough and a loss of 20.3 per cent since April 2008.

4. Spain, 78.2 – hardly any recovery from the trough and a loss of 21.8 per cent since April 2008.

These are massive losses in national income for these Member States and they are amplified through the Eurozone otherwise known as the Austerityzone.

My conclusion that the European Commission deliberately prioritises neoliberal ideology over economic well-being of the Member States was reinforced by the Business Insider article (January 14, 2019) – Europe has made a political decision to go into recession.

Note they use the term “political” while I prefer the term ‘ideological’ – but the intent is the same.

The article says that the Eurostat data is “horrible … for November … It looks like Europe is heading into recession”.

They provide this graphic (taken from a private consulting report) which shows the moving average industrial production performance for the large Eurozone states.

The decline back into negative growth is clear.

But more telling is their assessment (drawn from two separate sources – proprietary research services) that:

The tragedy is that the contraction is being helped along by a deliberate political choice made by Europe’s own governments: Their effort to rein in deficit spending, to cut fiscal stimulus, and to balance their budgets in the 10-year aftermath of the 2008 financial crisis. “Austerity,” as it’s known, has shrunk the potential size of the European economy and retarded its ability to grow again. And now that the manufacturing sectors of Italy, France and Germany are all stagnating or shrinking, austerity is hurting their ability to pull out of the dip …

In both studies, the analysts concluded that Europe inflicted on itself permanently lower actual GDP growth, following the crisis.

I read a lot of Tweets etc from those hanging onto the Europhile dream that the European Union is not a neoliberal construct.

They even claim that it serves as a bulwark against neoliberal excesses.

Well if the relative conservative think tanks such as The Institute of International Finance and Oxford Economics (whose work the Business Insider is summarising) conclude that the fiscal rules are deliberately prioritised even if that means a permanent reduction in growth, employment, income and prosperity, then it is hard to defend that Europhile position.

Yes, I know the next response.

Dear Bill, the European Union is not the Eurozone.

No it is not but the rules are the same and the intent of the European Commission is that everyone would be using the common currency. Only some political hiccups (Denmark’s rejection of the Treaty referendum, and Margaret Thatcher’s understanding that currency sovereignty is crucial) prevented the 19 being much closer to 28.

The common currency is a project of the European Union not something separate.

The Eurozone is just the most advanced implementation of the neoliberal, corporatist, anti-democratic structure that the European Union has evolved into.

The days of the European Union caring about workers and their rights and social well-being are long gone.

They are steadily chipping away at the legislative structures that earlier incarnation of the Union had created so that all policy conforms with its neoliberal masterpiece – the Single Market.

The BI article reports that the Oxford Economics study found that:

Since 2008, Europe lost economic activity the equivalent of Spain’s entire GDP … Spain’s GDP is about $US1.3 trillion and the country employs about 19 million people, to give you an idea of just how much is “missing.” While it is not directly the case that there would be an extra 19 million jobs in Europe if governments here had been more fiscally supportive, that is nonetheless the scale of the issue we’re talking about.

The cause of these losses goes right to the architecture of monetary union and the way the European Commission enforces it:

… they proceeded cautiously on government spending and didn’t cut taxes, to balance government books … The result was less money sloshing around in Europe – and lowered economic growth … Contractionary fiscal policy at the height of the crisis contributed to this enduring decline in both actual and potential output …

And the familiar refrain:

By lowering GDP permanently, fiscal consolidation increased the long-run debt burden rather than reducing it (as was the aim) …

In an BI earlier article by the same BI journalist (November 29. 2018) – Austerity has measurably damaged Europe: here is the statistical evidence – summarises the Institute of International Finance findings.

The key point is that:

For conservatives, fiscal “austerity” was the answer – limiting debt, deficits, and consequently government spending, in order to put the economy on a sound basis for future growth.

The left, by contrast, argued that fiscal spending was the solution – using the government to supply the investment money that disappeared in the private markets during the crash, thus priming the pump (but at the risk of funding it with more debt).

We now know, categorically, which view is correct, even though Modern Monetary Theory (MMT) is a more sophisticated version of this representation of the “left” here, given that the last qualification “at the risk of funding it with more debt” is a non-sequitur.

But there is no nuance at all in the conclusion that those who opposed the stimulative fiscal activism were part of the problem.

That includes: most academic macroeconomists, the IMF, the World Bank, the OECD – most of whom have subsequently tried to reinvent themselves as supporting some stimulus etc or using terms such as “growth friendly austerity” (which of-course doesn’t exist).

What these BI articles are highlighting is the essential stupidity of macroeconomic policy conduct in this neoliberal era that the core MMT group have been exposing for more than 25 years.

It is good that the mainstream media is starting to catch on – but, what took them so long!


So there you have it.

A deliberate choice to subjugate economic prosperity and the well-being of people (jobs, incomes, savings, etc) to an adherence to an ideology that purposely redistributes real resources and incomes to the top end of the distribution and provides lucrative paths for European Commission executives to move between these ‘political’ roles into highly paid banking and related jobs.

A total neoliberal disgrace in other words.

Which then leads one to question the sanity of the Europhile Left who dream on about reforming this nightmare.

And I noted last night a Tweet from one of those attention-seeking characters feigning outrage that Thomas Fazi and I would dare advocate Britain leaving the European Union and demanding my core MMT colleagues answer his question as to whether they supported our position.

It drew no response. I urge all those interested in MMT to ignore these facile attempts to create controversy and divide-and-conquer.

MMT is on a roll at present and awareness of our work is growing and seeping into the mainstream media as these BI articles attest.

Those economists left behind (like this attention-seeker) are feeling a bit lost and stupid. Ignore them.

Call for financial assistance to make the MMT University project a reality

I am in the process of setting up a 501(c)(3) organisation under US law, which will serve as a funding vehicle for the MMT Education project – MMT University – that I hope to launch early-to-mid 2019.

For equity reasons, I plan to offer all the tuition and material (bar the texts) for free to ensure everyone can participate irrespective of personal financial circumstance.

Even if I was to charge some fees the project would need additional financial support to ensure it will be sustainable.

So to make it work I am currently seeking sponsors for this venture.

The 501(c)(3) funding structure means you can contribute to the not-for-profit organisation (which will be at arm’s length to the not-for-profit educational venture) in the knowledge that your support will not be publicly known.

Alternatively, if you wish to have your support for the venture publicly acknowledged there will information presented on the Home Page of the MMT University to acknowledge that funding.

To ensure the project has longevity I am hoping to obtain some long-term support proposals.

At present, I estimate I will need about $A150k per year.

Note that most of these funds will support an administrative support staff (1 person fractional), data charges, and video editing and design staff (as needed).

I will personally take no payment for the work I am putting into the project nor will other key Modern Monetary Theory (MMT) academics, who have agreed to help in the educational program.

So I cannot do this without sufficient support. My research group does not have the financial capacity to support this venture.

I also do not wish to place advertisements on my blog posts.

You will be contributing to a progressive venture.

Please E-mail me if you can help.

I have some funding pledges already but I am not near the target yet.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

This Post Has 37 Comments

  1. I still do not know all the nuances associated with Brexit but ask: could the British Government simply comply with most EU rules except those that are damaging to the ordinary Brit such as the restriction on fiscal deficits?

    Of course that would probably require a change of government as the Conservatives have shown themselves to be enthusiastic supporters of austerity.

    Germany gets away with flouting the rules, what’s stopping Britain from doing the same- and encouraging Italy and France do do the same.

    I am probably being naive.

  2. Not sure why you call the confidence vote ‘Labour Party bungling’. They are powerless but what it did was reveal the utter stupidity of the Tory Party who having voted against her deal promptly fell in line behind her expressing their support of her leadership. The problem in the UK is that everyone knows the system is broken but no one knows how to change it. The people who tell us what our opinions are are all doing very nicely under the current system and the rest of us just have to sit and listen to the bullshit. I spent lunch yesterday with about 20 old work colleagues all with PhDs in scientific fields and not one of them had any idea what MMT was. All the discussion was – how are you going to pay for it, blah, blah, blah. I don’t see any hope particularly when one of the UKs biggest supporters of MMT is also one of the biggest supporters of Remain and abuses anyone who dares support BREXIT on his blog on tax research. He detests neoliberalism , acknowledges that the EU is neoliberal but genuinely believes it can be reformed from within.

  3. There is, of course, the inescapable parallel that supporters of a no-deal Brexit could stand accused of being similarly prepared to ignore a potential economic hit in pursuit of their political aims as well!

    I suppose that the defence would have to be be that any such post-no deal economic decline would be a) contingent rather than deliberate, and b) temporary, with the aim of future expansion via global trading and “Singaporisation” (Tory hard Brexit), or state intervention and reversing austerity (Lexit).

  4. I think that every time we approach the problems of Neoliberalism as it appears here in a discussion of the EU, then we need to also situate them in their greater globalist context in order to show the full totalitarian extent of the globalist project of which the EU is a key part.

    Neoliberal economic practices and indeed the far right imperialist Neoconservative geopolitical foreign policy which the progressives have generally adopted through adhherence to the worship of their Messiah Tony Blair – have become the standard totalitarian and imperialist economic and geopolitical ideologies of globalism. One needs to appreciate that an objection to Islam for example is very much a Neoliberal economic objection to the principles of Islamic financing which the FT reports as follows:

    “The overarching principle of Islamic finance is that all forms of interest are forbidden.

    The Islamic financial model works on the basis of risk sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits between them….

    Both Muslims and non-Muslims can benefit from Islamic Finance as, by principle, it aims to be a more transparent and fairer system of finance. Many of the instruments or investment methods that have contributed to the financial crisis are not permitted by Sharia, such as short selling or non-asset backed derivatives.”

    Islam it seems from a Neoliberal economic perspective is getting its economics terribly wrong and they must be made to fall in line with the totalitarian Neoliberal model under the new globalist world order. Islamic financial rules, whilst not likely to create a great deal of speculative wealth on paper as Neoliberalism has done, seems likely to generate less speculative wealth but more real world investment and appears to be a much safer proposition if you wish to avoid speculative financial crisis when all the wealth on paper disappears.
    Islamic economics is therefore fundamentally opposed to the Neoliberal model in a very big way and one can see that this constitutes a very great problem for the totalitarian Neoliberal mind-set and the precise rules by which the entire world will be allowed or forced to conduct its business.

    It is these apects of the theology of Islam that have prompted a number of Arab states into embracing Socialist approaches to government. The first welfare state in the whole world was established in the Middle East and it was established as a Theocratic state following Islamic religious teachings and not as a product of the enlightenment philosophies of Western Liberal rationalism.

    The war on terrorism was never prosecuted as a war on terrorism. Indeed, hypocritically both the US and UK have been arming, sponsoring and training terrorists in the ME. The war on Terrorism was only ever a war on what was still standing of Socialism in the ME. Iraq, Libya and Syria’s oil were all under state ownership and they needed to be liberated for their more efficient exploitation by Neoliberal economic forces. The liberation of the oil was always more important than the liberation of the people, indeed Neoliberalists are happy to install any tyrant to oppress the people as long as that tyrant is prepared to offer them 50% on the sale of oil or whatever other natural resources that country may possess. The globalists have proven that they do not believe in sovereign democracy for their own Western countries so why would they believe it is appropriate for the people of the ME?

  5. Rod White:- “I don’t see any hope particularly when one of the UKs biggest supporters of MMT is also one of the biggest supporters of Remain and abuses anyone who dares support BREXIT on his blog on tax research…”

    Agreed. Personally i wrote off the person in question (regarded by his fawning acolytes – weirdly to my mind – as an infallible oracle) some time ago as mainly a conceited windbag. (Although he is capable of producing the occasional, surprising, gem – in the rare intervals when he stops playing to his gallery; a bit of a Jeckyll and Hyde if you ask me).

    Although he is a sincere (I believe) supporter of MMT, his take on it is in some respects distinctly less rigorous than Bill might approve-of, which in a lay-person (like me!) might be passed over 🙂 but in an academic – which the person in question is – is perhaps less forgivable. His endorsement is nonetheless welcome IMO because – whatever one’s qualms about his other pretensions – he undoubtedly does have influence.

  6. Dear Bill,

    “MMT is on a roll at present and awareness of our work is growing and seeping into the mainstream media as these BI articles attest.”

    I’ve only been aware of your and your collegues work for a couple of months so I can’t even begin to imagine how it must feel to you that your work is no longer as obscenely overseen as it used to be. I’ve long felt that an economic formula that yields that we as society can’t afford simple human dignity and a modest degree of compassion must be wrong at it’s core and MMT proved to me that feeling wasn’t wrong. Since I get most my information around MMT from your blog I sincerely thank you for your effort.

    I hope you are recovering well from your illness.

    Best wishes!

  7. @ RobertH

    Today he’s taken it upon himself to define what MMT is, and what it isn’t. A bit cheeky, if you ask me.

    I wear my ban from posting on that blog proudly!

  8. Much of your article sounds quite reasonable. Still think Brexit is a tactical mistake.

  9. OK up until now I have not made a single comment reguarding the Brexit debatte. The reason why is from my point of view the entire debatte takes place inside of a matrix which makes the outcome of the debatte irrelevent. To defend this assertion I need to start at an eagle eyed level far above the fog that envelopes the ground.
    I have to start with globalization and borders. Globalization is not neccissarily a bad thing. Jesus, Mohammad, Thomas Paine, and Karl Marx were all globalists. Friedrich Nietzsche was a globalist too. A world with out borders is the dream of many people in the world. Just as many people dream of a world with even more borders, Catalonians, or Kurds for example. From the point of view of an (alien) eagle looking down upon humans (is this pun intended?) the eagle recognizes that neither a world with or without borders really makes any sense. Then once there is a border is oftern makes just as much sense to draw that border 20 kilometers to east or west as it does to leave it just where it currently is.
    Now if the poeple of the planet had a homoginized culture borders would not be a problem. That is where globalism comes in. Those famous men that I mentioned above have all tried to create a believe system that would allow the people of the world to create a global culture.
    The ULTIMATE problem of the world today is that those who are creating our global culture are doing a terrible job of it. We can see, not primarily from what they say, but from what they do, that the people in charge are not inspired by Marx, Paine, or even Jesus or Mohammad. They are inspired by Friedrich Nietzsche.
    Therefore from my point of view this whole debatte does not take in to account the really big picture.
    The really big picture is that not only is the EU not soverign, neither is the UK. The EU is a continuing criminal enterprise that is subordinate to an even bigger continuing criminal enterprise, which is NATO. NATO in turn is subordinate to an even bigger conitinuing criminal enterprise which is the 5 eyes group. Which in turn is subordinate to the ultimate continuing criminal enterprise in this dimension of the Universe which is the US military industrial complex.
    An implication of this true understanding of how power really operates in most of the world is that
    the US MIC does not care if the UK is or is not in the EU. In the end it will still be part of thier global empire. The people of the UK will still have some automony but no real independence. The government of the UK and with it the people of the UK will still operate with in the matrix of the global empire. How can one say if the people will be better or worse off in the future when one does not know what the plans of the empire’s global leadership is. Either in or out of the EU the leading military, economic, and politcal figures who are working on behalf of this global empire with in the provence of the UK will be comparitively well off. Leaving the EU could result in some average people having a few more crumbs on thier plate at the end of the day as well.
    Now if we use the methaphore of corruptEuropean politcs as being a big swamp The Brexit will build a dike through the swamp. It will not drain the swamp on either side of the dike. In fact it is not even possible for the people of the UK to drain the swamp on thier side of the dike by themselves.
    As long as the UK is a core capitalist country operating with in the US MIC matrix the job of draining the swamp can not even begin.
    To even start the process of regaining its soverignty the UK would have to leave not only the EU but NATO and join an alliance with Russia to break the matrix that has been imposed on the world by the US military industrial complex. No I am not saying that Russia offers an alternative example of economic developement. What I am saying is that to even start healing the planet the planet needs a better balance of power. You can not expect leaders anywhere to work with other leaders that they can not trust. How can you trust someone that still has so much power that they are still trying to expand and maintain their empire?
    Now some readers might question my belief that the leadership of the US military industrial complex is accountable to no one but themselves. Well I think that such a thing can be easiyl postulated once you realize that where else do unlimited amounts of money, vast amounts of information about everything under the sun, and the capabilties to employ force at level ranging from nuclear blackmail to slipping someone a date rape drug and then suggesting that they committ suicide, come together?
    With such a vast array of assets at their disposal why should people doubt that they can manipulate world history. Anyone who has spent anytime in the military at all would know that the military uses backward planning (pun intented or not?). Therefore it is easy to imagine that many of the narratives that are being disseminated in our societies today were actually thought up a decade or more ago to be able to move the world in the direction that the leadership of the US MIC wants it to go. Things at time may seem to not go in their favor. But, that could only be because they have bigger fish to fry.
    One final thought I do not support a revolution to make life on planet earth better for anyone let alone everyone. I support a revolution on planet earth so that everyone can survive with no one needing to endure terrible hardship so that others can survive. Yet at this point it might be to late to achieve such a goal.
    Oh and who will carry out the revolution? The only beings who can, angry aliens who see the world from a higher perspective. Such beings may exist only in my imagination. No one ever accused me of being an opptomist.

  10. This is the headline for tommorows US newspapers and Faux news:
    President Trump twitters his intention to renegotiate the North ATLANTIC Free Trade Asscoiation (NAFTA) agreement with Mexico, Canada, and the United Kingdom.
    (This comment only makes sense in context with my previous comment that is awaiting moderation)

  11. Barri Mundee :
    Thursday, January 17, 2019 at 17:27

    “…could the British Government simply comply with most EU rules except those that are damaging to the ordinary Brit such as the restriction on fiscal deficits?”

    I believe that yes they can (or could have). The restriction on fiscal deficits is part of the Fiscal Compact and its predecessor the Stability and Growth Pact to which the UK is not a signatory. Furthermore Article 123 of the Lisbon Treaty prevents governments from obtaining “overdrafts” from their Central Banks. But that’s meaningless as far as the UK is concerned because the Bank of England issues the currency on instruction from the Treasury. The BoE does not and cannot offer the UK government overdraft facilities as it does not provide it with retail banking – two commercial banks do. I am informed from a reliable source that there is an opt out contained in the Maastricht Treaty anyway (hearsay – I haven’t seen it myself). The main restrictions the UK might have a problem with is those on State aid and doing things like re-nationalising the railways but, again, the Government lawyers might well be able to circumvent those assuming Mr Corbyn really did want to bring the railways under State control (no Tory government would).

    The trouble with this all is that the UK government has no idea how the monetary system works or how it can use its currency-issuing capability. The same goes whether the UK remains in the EU or leaves whether with or without a deal.

    As Bill quite rightly says the whole EU edifice is going to come tumbling down quite soon anyway.

  12. “The BoE does not and cannot offer the UK government overdraft facilities as it does not provide it with retail banking – two commercial banks do.”

    What about the Ways & Means Account?

  13. Simon,

    Ways and Means still isn’t an overdraft. It was used by Alistair Darling when when he bailed out the banks but it is still only an accountancy record of the creation of the Central Bank reserves that funded the bail out. The record could just as easily have been entered in the Consolidated Fund other than for possible statistical purposes. I make the caveat that this line of thinking is mostly my own and I have not absolutely proved it is correct yet. Getting close.

  14. Mr Shigemitsu:
    Thursday, January 17, 2019

    “Today he’s taken it upon himself to define what MMT is, and what it isn’t. A bit cheeky, if you ask me”.

    You’ve got to hand it to him – his conceit is boundless.

    “I wear my ban from posting on that blog proudly!”

    Me too (no hashtag).

  15. @ Nigel Hargreaves

    “…and its predecessor the Stability and Growth Pact to which the UK is not a signatory.”

    Actually that’s not the case…

    (from: )

    10.1 The EU’s Stability and Growth Pact (SGP) requires all Member States to maintain a budget deficit of less than three per cent of GDP, and to keep their government debt below 60 per cent of GDP. In 2008 the EU placed the UK in an Excessive Deficit Procedure (EDP) under the SGP, after the Government’s budget deficit rose above the three per cent threshold.108 Although EU law provides for sanctions where Member States do not correct budgetary imbalances when they are subject to an EDP,109 the UK is exempt from these by virtue of Protocol 15 to the Treaties.

    10.7 The UK is subject to the EU’s Stability and Growth Pact, but has a special position by virtue of Protocol 15 to the Treaties.111 This exempts the UK from the requirement to avoid excessive government deficits, and instead establishes a looser obligation for the UK to “endeavour to avoid an excessive government deficit”. The Protocol also exempts the UK from any sanctions the Council can impose on other Member States for failure to implement its recommendations to reduce the deficit (see above).

    The UK’s Excessive Deficit Procedure

    10.8 On 8 July 2008, following a recommendation from the Commission, the Council decided that an excessive deficit existed in the United Kingdom, triggered in part by the Government’s announcement in May that year that it was lowering income tax.112 On the same date it issued a Recommendation to the Treasury with a view to bringing the excessive deficit situation to an end by the financial year 2009-10 at the latest. In December 2009, having decided earlier that year that the UK had not taken “effective action”,113 the Council issued a revised Recommendation which envisaged that the deficit would be sufficiently reduced by 2014-15.114

    10.9 In June 2015 the Council again took the view that the UK had not taken effective action in response to its Recommendation of December 2009, although it recognised that measures had been put in place within the confines imposed by the exceptional economic constraints created by the financial crisis.115 It therefore asked the Government to correct its excessive deficit by financial year 2016-17. Specifically, it suggested the UK should reach a headline deficit of 4.1 per cent of GDP in 2015-16 and 2.7 per cent of GDP by the end of 2017.

    10.10 In November 2017, the European Commission published its latest economic forecasts. These showed that the UK’s budget deficit had dropped below the reference value of 3 per cent of GDP in 2016-17 and was expected to stay below that value beyond 2020. Although the Commission also found that government debt had reached 86.8 per cent of GDP, it expects it to decline in the coming years. As such, it recommended to the Council that it should close the Excessive Deficit Procedure. On 5 December 2017 the Council accepted the Commission’s Recommendation and formally placed the UK back in the preventative arm of the SGP.116

    10.11 The Chief Secretary to the Treasury (Elizabeth Truss) submitted an Explanatory Memorandum on the proposal to abrogate the EDP in respect of the UK on 18 December 2017. The Memorandum reiterated that the UK was never potentially subject to sanctions under the EU’s Stability and Growth Pact. As a result of the adoption of the Council Decision, the UK is now in the preventative arm of the SGP alongside all other EU countries except France and Spain.

    So, all the EU can do is send a grumpy letter; hardly anything to be scared about!

    Should there be a soft Brexit – or indeed no Brexit – I would suggest that a Jeremy Corbyn government carry out whatever policies it damn well wants to, up to and including state aid to industry, sector-wide nationalisation, and restricting free movement of capital, labour etc.

    WTF are the EU going to do about it?

    Throw us out???


  16. Much as I like and respect Bill’s work and analyses, I am not enamored of the term he and Fazi use, namely “the Europhile Left”. It is nebulous enough to allow its user to wiggle out of being called on it.

    Please specify precisely what “the Europhile Left” means, what classificatory criteria you use to place a person or an organization or a political party or movement in that category, and whether *your* classification/labeling of particular persons, entities, movements, etc is “disprovable” by objective, empirical data.

  17. Mr Shigemitsu

    Thanks for that. As you say, what is the EU going to do about it? Typical poor drafting of EU documents that leaves the door wide open. If the UK government had a mind we could take the EU to the cleaners even if it remained a member. I voted remain and will do so again if there is another referendum. Sorry, Bill, but your great vision of a new Great United Kingdom global trading nation is all very well, but it requires an understanding of the monetary system and a huge amount of competence which has been demonstrated to be sadly lacking over the last couple of years. It would also take decades to achieve and, at 75 years old I haven’t got decades.

  18. @GreekStav,

    I understand the term “Europhile Left”, as used by Bill & Thomas here with reference to the UK in particular, not as a critical descriptor of the left in general, but as a way to differentiate those on the left (e.g. a majority of the current Labour Party membership and most Labour MPs, the UK Green Party leader, some Trade Unions etc.) who are not only in favour of EU membership for the UK, but have a kind of inversely nationalistic reverence and passion for the EU, from the older 1970s-style “Eurosceptic Left” (personified by those UK Labour figures such as Tony Benn, Peter Shore, Michael Foot, Bryan Gould, Ian Mikardo, etc,) who were very much against EU membership for the UK, and perceived the EEC/EC/EU as an undemocratic, business-friendly cartel, acting against the interests of workers.

    The latter is the tradition which Bill is generally supporting, hence the differentiation.

    Apologies if I’ve misunderstood the meaning of your post.

    Mr S.

  19. @Nigel Hargreaves,

    “…it requires an understanding of the monetary system and a huge amount of competence which has been demonstrated to be sadly lacking over the last couple of years.”

    I fear this is Functional Finances’s big achilles heel.

    However, govt incompetence hasn’t prevented the ruthless and effective application of neo-liberal economic policies, so they can do a good bad job when they want to!

    Bill’s, and the other core MMTers’, job is, I think, that of “Keepers of the Flame”; when a competent govt administration comes onto the scene, wherever and whenever that may be, it will have all the information it requires ready and waiting to go…

  20. jaw,

    Brexit is a strategic move not a tactical move. Hence, by definition, it cannot be a tactical mistake. Brexit, as a strategic move, presents tactical difficulties as Theresa May is now finding out. There is no way to Brexit without tactical difficulties. But Theresa May’s operational plan was and is incorrect. She gave the EU the upper hand in bargaining. The No Deal, Hard Brexit, Unilateral Default path was the correct path to offer up front. Then, wait for the EU to blink and offer a concessional deal. If they didn’t blink then be prepared to walk away as threatened.

    All this talk about Brexit being a catastrophe is nonsense. A world war is a catastrophe and Britain survived two of those. Are the Brits now so weak and stupid that they can’t survive a mere trade realignment? Not at all. That’s just unrealistic talk.

  21. Ikonoclast,

    Let me explain why I think Brexit *now* is a tactical mistake for the left.

    For the sake of argument, let us accept the following hypothesis:

    The UK does not need a close trading relationship with the EU, i.e. the UK has no need for membership of or privileged access to the Customs Union or the Internal Market. WTO is fine.

    If I understand you correctly, this is indeed your view.

    If the previous hypothesis is correct (and everyone knows it to be correct), then the EU has little or no leverage over the UK in any withdrawal or post-exit negotiations, and leaving the EU is very straightforward: all it takes is a simple majority in the House of Commons to instruct the government of the day to send a letter to Brussels. What left-wing Leavers should have done is win an election on a progressive platform as well as convince the UK that the above hypothesis is indeed true. Having won that election, they would have then been in a much stronger position to trigger a no-deal Brexit as well as implement the kind of post-Brexit policies they favour. At the moment, there does not seem to be a consensus in the UK that no-deal Brexit is not a catastrophe. Also, I am not saying the left is unable to organize itself, but I do have the impression that, at the moment, it is the right that is controlling the Brexit narrative and it is the right that will be driving post-Brexit policies, not the left. I may be wrong, but that is my impression. As a result, the UK is likely to end up with either a very soft Brexit that opens up little in the way of policy space or one that is controlled by right-wing interests. It would have been better to wait a bit and build a solid support base for the kind of Brexit left-wing Leavers want, I think.

  22. Gosh, Bill, I wonder what you’ve done to upset Richard Murphy on his Tax Research UK blog.

    He’s accusing you of being hyper-aggressive, tedious and hopelessly wrong.

    Since I’ve always rated Murphy as the most hyper-aggressive, tedious and hopelessly wrong blogger on the internet, that’s some criticism!

  23. @Mr Shigemitsu

    “So, all the EU can do is send a grumpy letter; hardly anything to be scared about!”

    I think you may be right there. Along with Germany and France, the UK was one of the three most powerful nations in the EU, it was a net contributor to the EU, it was not in the EUR, it has one of the strongest armies in the EU.

    Also, if the UK has nothing to fear from a no-deal Brexit, then the EU has no leverage over the UK in the Brexit negotiations.

    All this implies that, in or out, the UK has(d) a lot of independent policy space, and that being out does not increase policy space by very much, unless one has a fear of grumpy letters.

    For me, this begs the question, what is the tactical advantage for the UK of leaving the EU *now*?

    Inside the EU, the UK was able to influence EU laws and regulations to its advantage.
    Outside the EU, the UK has much less influence over the EU.

    Why sacrifice influence for no real gain in policy space?

    I don’t get it.

    Where is my error, what am I missing?

  24. Mr Shigemitsu and robertH – it seems as though a war is about to break out. The tax research man has a piece today accusing Bill of aggressive behaviour. Pots and kettles come to mind. Mind you, on this occasion I can’t say I agree with Bill over the import/export benefits and I found his defence last week rather muddled. Let battle commence.

  25. When Bill refers to the Europhile left I believe he is talking about the Progressive Neoliberalists or Blairite factions.

    I also thought Bill’s discussion of Michael Barrage’s report was a bit muddled.

    You should really read the report he refers to as it is the only one I know of that analyses trade with the EU in comparing how EU member states have fared in comparison with Non-EU countries trading under WTO and other arrangements since 1973.

    What concerns me about this report and a previous version issued in 2016 is that it has been marginalised or excluded from discussion yet it is the only objective view that has been offered. I have not seen any government or EU attempt to refute it so therefore I assume that it is more or less correct.

    Neither the EU or the UK government have ever actually recorded, measured and analysed the benefits of EU membership with regard to trade. It is just a common assumption that if the EU was designed to improve trade between member states that it must therefore necessarily deliver the trade advantages it promises. What Burrage’s report indicates is that is not the case at all and that the advantages of membership are so small that they do not justify the onerous costs of membership.

    I find Burrage to be fairly open and honest in his appraisal though I have not looked at the public data he analysed. Everyone should read the full report and draw their own conclusions however.

    In many ways it was always foolish to believe that politicians with different entrenched interests and agendas could ever come to agreement over Brexit. In a clean do deal Brexit, the business communities will come to the fore to solve the problems because they are united in their common shared business interests whereas the politicians are not.

  26. jaw,

    What you are missing is that if the UK remains in the EU it will continue slavishly to follow the edicts such as the S&GP not just because we are all goody two shoes but because the government does not understand about the policy space afforded by being the monopoly issuer of the currency. That, however, cuts both ways because they won’t if the nation is outside the EU either, so on balance I prefer to remain. But above that I am a democrat so I accept the decision of the electorate.

  27. @Nigel Hargreaves

    1) “slavishly to follow the [EU] edicts”. This might be a fairly accurate description of politics and the press in my own country, but in do not think it fits the UK.
    2) I think we are both democrats. However, – at the risk of being at the receiving end of a lot of flack after saying this – democracy is a process, not an event. Also, just because one has lost a vote, does not mean one cannot go on making the argument.

  28. jaw says:
    “Also, just because one has lost a vote, does not mean one cannot go on making the argument”.

    A bit facile: surely, that depends a) on the vote b) on the argument, in each case?

    In this case, it was a referendum. That means:- one question, one answer.

    (One can argue ’til the cows come home about how referenda fit into the context of whatever we choose to mean by “democracy”, but that’s for another discussion).

    Whether or not a referendum is the best means of democratically deciding complex issues is a separate debate. But a general election, or endlessly-repeated referenda, most definitely aren’t ideal (nor even superior) means either.

    There is perhaps *no* ideal means, but if a referendum is the one chosen – as it was in this instance, by a large majority of the House of Commons – then that “one cannot go on making the argument” *does* inexorably follow from that choice. And in an imperfect world I don’t see how you can get much more democratic than that.

  29. Recognising brexit was being driven by the right didn’t stop me voting out before
    neither will it the second time around if that happens.
    What a mess if a radical left government came to power after a second poll
    led to remain only to have its programme hampered by the EU !

  30. @Kevin

    Its not just the EU which will dictate our politics to us is it. We are attacked on two fronts as without some form of MMT then we have already seeded political sovereignty to markets. Writing on a web-site that somewhat ironically calls itself “Open Democracy”. Anthony Barnett makes the very sinister observations.

    “Brexit is a hard right project, framed by xenophobia and certain to generate adverse international conditions that will frustrate any egalitarian expansion of the UK’s economy. ‘Lexiteers’ – those on the left who support a left-wing version of Brexit – claim that leaving the EU will free a Corbyn government to pursue a socialist path unconstrained by Brussels. They seem to believe that Wall Street and Frankfurt will become Corbyn’s friends; and will help ensure that Britain’s chronic balance of payments deficit continues to be funded so that the City of London can be taxed by radical social democrats who seek a new model of egalitarian government. In fact, of course, if it is outside of the EU the markets will exploit the UK’s isolation to break any such progressive project. The point of the hard Brexit sought by hedge-fund millionaires like the leading Brexiteer MP, Jacob Rees-Mogg, is to ensure the United Kingdom’s vulnerability to global finance. Which takes us back to the need for alliance building against the threat of the hard right.”

    Brexit is not a hard right project and it is not a racist project. its supporters come from across the political spectrum. The EU itself is a hard right project and as Yanis Varoufakis has pointed out it has developed into an undemocratic political structure in line with that drawn up by the Nazis.

    Progressives are prepared to submit to their rule by unelected technocrats under the assumption that those unelected technocrats and investment bankers (most of them from Goldman Sachs) are or will remain benevolent when it is questionable whether they have any interest of the welfare of the people in the slightests. This is a very foolish and risky political assumption to make. One only needs to look at the very secretive and dubious European Stability Mechanism to see how Neoliberally draconian the EU will become when the next GFC quickly arises.

  31. @robertH

    I think endlessly repeated general elections or referendums are the only way to settle issues, time after time, after time. Unless and until there is a sufficiently large majority (say 2/3) in support of a common position, I don’t think one can consider an issue to be settled. Also, any issue is only settled for as long as the large majority holds. As it stands, I have the impression the UK is still a long way away from achieving a consensus position.

  32. If we in the UK succumb to the evidence free economic ‘arguments’ of Project Fear, by choosing to reverse Brexit all we will effectively do is prove once and for all that we and every sovereign member of the EU can never leave it in terms of economic practicality.

    Once we have foolishly made this economic submission, then we have also ceded any possibility of having an effective voice in the EU as all parties will have now accepted the universal impossibility of leaving it. Even Marine Le Pen in France has now reversed her ‘socialist’ objections to Euro membership.

    Once this principle is assumed and established beyond anyone’s reasonable doubting of it, then there is no realistic sovereign or democratic control over the EU and the political directions it may travel in. There is no possibility of moderating or influencing it and all member states are utterly subjected to it by virtue of their submission to it under the terms of their complete economic dependence on it. This means that it is highly likely that without any restraint the EU which has a political structure that has strong potential to develop into a fully totalitarian entity will continue down that path and the people will be unable to object to it.

    This is a grave political error if we are genuinely interested in democracy. Leaving without a deal will not lead to financial catastrophe indeed, isolated from the EU, the UK will fare much better when the next global financial crisis hits as it will most likely start within the Euro dependent countries as they are far more vulnerable to financial crisis in the absence of monetary sovereignty.

    Therefore it is rather important to evaluate in advance as to how the EU is to deal with GFC2. Looking at the ESM it rather looks like it will involve more public bail outs of irresponsible financial institutions and even greater austerity and further Neoliberal cuts in public services, benefits and the continued dismantlement of the true progressive welfare state which was hard won by the working classes, trade unions and our struggles of two world wars fought for the very democratic principles we are now on the verge of foolishly surrendering.

    With democracy and sovereignty consigned to the waste bin of history we will have no possibility of influencing or determining the EU’s technocratic response to the next crisis.

    Make no mistake, once we submit to Project Fear there will be no turning back. As Varoufakis pointed out in 2013, absent democracy, there is a very real danger the EU will develop into a Supra-national concentration camp. The writing is on the wall for all to read.

    “I am writing today’s post as a Europeanist who wants to imagine Europe as our common home but who also fears that Europe is sliding into an unbearable authoritarianism threatening to turn our common home into a shared concentration camp.”

    So to all of those who regard themselves as Neoliberal progressives and Pro-EU then I would ask doesn’t the fact that you think and agree with all the views of the Nazi vision of its project for a Supranational Europe along the exact same lines as that of the EU, then doesn’t that logically make you at least a Nazi sympathiser even if you notionally and rhetorically declare or falsely identify yourself to somehow ‘belong’ to the historical label of the Left as it used to be before Blair?

    Who knew that the death of John Smith would bring such a terrible cost to Europe and the world in general as it resulted in Blair and the consequent Neoliberalization of the European Left and the Democrats in the US? Obama could have delivered ‘Change’ and we would not have had the Neoliberal EU we have today, we would not have had the invasion of Iraq and wars in the Middle East. RIP John Smith, your passing has cost millions unnecessary and untold economic and geopolitical suffering on an utterly overwhelming scale because you had a moral and ethical social conscience.

  33. On rereading my last comment the last part seems ambiguous and I would clarify it by saying that John Smith had a democratic, moral and ethical social conscience that has apparently gone missing since his untimely passing.

  34. Dear Bill

    “Very powerful” (echoing Jerry Brown).

    So much so that I decided I would use your article as a weapon. My local member of our national parliament is an educated, intelligent, ambitious and (I judge) very able young man who I think may have the potential to become a big fish in our small pool. From his writings I knew him to be armoured against MMT’s teaching but I fondly imagined that your article would have an effect on him not unlike that of a direct hit from an armour-piercing shell on a tank. I wrapped it up with some (I believed reasonably eloquent) arguments of my own – including citing the havoc wrought on the Greek people by the policies he was upholding – and despatched it hopefully.

    How naive of me! It just bounced off, and he continued to advance without a moment’s pause. Didn’t even blink. His counter was:- “A guiding principle for me has always been sound (public) finances and that one cannot live (for too long) over ones own resources. As the Swedish former social democratic prime minister Göran Persson used to say: the one who is in debt is never entirely free”.

    Now one could (given the prosiness) just assume that my estimate of his intelligence had been woefully misjudged, and write him off as a bad job. I don’t however; I think it was correct and that (aside from the fact that like most of us he doesn’t do himself justice when writing in a foreign language) the problem is much more fundamental. I continue to see him as an excellent example of his type and his age-group. 90 years after Herbert Hoover and his contemporaries were proffering “sound finance” as the only remedy for the Great Depression, and nearly 50 years after Nixon took us off the gold-standard, here is a thirty-something still mouthing the same mantra, totally impervious to your and your fellow-educators’ devastating critique of exactly that. So are almost all of his fellow-politicians in this part of the world and in so doing they are reflecting the outlook of most of their constituents. Try as a small minority among those constituents might – as I did – to shatter their complacency, any such attempt is doomed before it starts. They – all of them virtually – have been utterly insulated against any new thinking by the onditioning they’ve had and it’s already too late to try to break that down. They’re a lost cause, the intellectal slaves of the antediluvian fossils who taught them (just as Keynes remarked).

    That’s the key of course:- education, as has so often been said before by you and others (by no means all of them MMTers, be it said – Skidelsky for one). It would also be of great help if the immensely successful, deliberately-chosen external-to-academia, approach used by the neoliberals (Mont Pélerin, think-tanks and all the rest) were to be emulated but to be able to do *that* (even only on a more modest scale to begin-with) would necessitate finding some very influential backers with equally deep pockets, of which there might be only a vanishingly small chance in MMT’s case. I wonder if anyone’s thought of approaching Richard Branson? (yes I know many might greet that with a hoot of derision, but he’s more than a bit of a maverick in his way and very far from being rigid in his thinking; “Hope springs eternal etc…”)

    A depressing conclusion all in all, especially for someone of my advanced years because it carries the implication that I shan’t be around to witness the breakthrough when it does arrive – as I have faith it eventually must. Ah well, meantime one must just keep plugging away I suppose…

    Of course your magnificently ambitious project for an MMT University will be, if it can only be realised, a very significant step forward. It would meet a crying need and is the one shining light in an otherwise fairly gloomy (from my own particular point of view, for the reason given) prospect; I wish it the resounding success it so richly deserves.

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