The transitory view of the current inflation episode is getting more support from the evidence.…
German Bundesverfassungsgericht decision is no victory for EU federalists
The banner on the home page of the German citizens’ group – Bündnis Bürgerwille e.V. – says “Recht gilt auch in der EU” (Law also applies in the EU) and the sub-header “EU – Verträge müssen eingehalten werden” (EU treaties must be complied with). I have sympathy for that sentiment but not the politics of the so-called ‘Citizens’ Will Alliance’, which recently sought to block German government approval of the much vaunted, much delayed, fairly small recovery plan. The mainstay of the EU is the Eurozone because it comprises 19 of the 27 EU nations and the largest nations. The dynamics of the EU economy are driven by what happens in the largest Member States of the Eurozone. The European Commission has been dithering for more than a year to get a fiscal stimulus plan in place and by the time it eventually gets the pittance proposed flowing, significant economic and social damage will have been done, given that if all 27 states ratify the plan, funds (loans mostly) will only start flowing in July – like 18 months after the pandemic began. The Bündnis Bürgerwille group has challenged the German participation in the German Constitutional Court, the Bundesverfassyngsgericht, which delivered its (interim) decision last week. Bündnis Bürgerwille lost, or did they?
The NextGenerationEU recovery plan
In July 2020, after much horse trading was required to keep the Northern States (particularly the so-called Frugal Four, who are just fronts for what Germany and the Netherlands want) from abandoning the process, the EU agreed to spend €750 billion over five years on its = NextGenerationEU (NGEU) – 750plan.
This was its supposed stimulus plan to help the Continent deal with the ravages of the pandemic and prepare it for a more productive green and digital future.
Those, latter goals, are sound.
But the €750 billion is about 5.6 per cent of EU 27 2020 GDP and that will spread out over five years. A fairly modest response and delayed in impact.
Further €360 billion of the amount will be in the form of loans that will have to be repaid.
The majority of the package is taken up by the = EU Recovery and Resilience Facility – which is worth €672.5 billion.
The €360 billion in loans belong in this component.
Would I rate this stimulus commensurate with what is required? Hardly. It is mean and the fact that it is dominated by repayable loans reduces the stimulus effects.
Member States have until April 30, 2021 to lodge their “national recovery and resilience plans” which have to include structural reforms (yes, the usual nonsense) and investment agendas over the next five years.
Reuters reported last week (April 18, 2021) – Italy risks missing Recovery Plan deadline due to EU concerns, sources say.
Apparently, despite Mr Draghi, a darling of the EU taking over the Italian government, the technocrats in Brussels are unhappy with the extent of the ‘reforms’ being proposed and are blocking the process until, presumably, Italy comes to heel, as they have in the past.
The controversy over the €750 billion package lay in the way it was to be funded.
Under the NGEU package, the EU will issue debt (sell bonds and bills via a group of primary bank dealers in the months up until September.
Around 30 per cent of the €750 billion will be covered by ‘green bonds’.
The EU information page – The EU as a borrower – investor relations – provides necessary details of their plans.
To service the debt (pay interest), the EU will have to raise around €15 billion per year.
The loans will be “repaid by the borrowing Member States” and the “grants will be repaid by the EU budget.”
The EU is proposing to increase the contribution from each Member State to the EU central budget to repay the grants.
Part of the controversy is that the EU will curry favour with the bond markets by using its so-called “headroom”, which is:
… the difference between the Own Resources ceiling of the long-term budget and the actual spending. To ensure sufficient headroom, the EU is increasing the Own Resources Ceiling of its budget by 0.6 percentage points of the EU’s Gross National Income (GNI).
The Own Resources ceiling determines the maximum amount of own resources the Commission can call from Member States in any given year to finance expenditure. This gives certainty and predictability to Member States for their budgetary and financial planning. A sufficiently high ceiling allows the Union to cover all of its financial obligations and contingent liabilities falling due in a given year.
So ultimately, the Member States are paying for the stimulus and once the EU starts enforcing the Excessive Deficit Mechanism again, such repayments will place a massive strain on the individual Member State fiscal positions, particularly Italy, which will get around €200 billion of the grants and loans.
Enter the German Bundesverfassungsgericht
Bündnis Bürgerwille group claim they believe in the rule of law, which in the European context if dominated by the various European Union treaties that bind behaviour across the Member States.
When I say that I have sympathy for their mantra – EU – Verträge müssen eingehalten werden – I am referring to the fact that the Eurozone is only surviving because the ECB through its massive government bond-buying programs (and the PEPP accelerated its scale of purchases recently) is effectively funding Member State deficits, which I consider to be strictly its legal mandate under the Treaties.
Everyone looks right and left to avoid owning up to this fact because they know the dysfunctional architecture of the Eurozone would mean many countries would be insolvent by now without the ECB ‘breaking’ the treaty law on bailouts.
So, I think the Bündnis Bürgerwille group are correct in their worry that the EU says one thing and allows another, when convenient.
But that is not what their challenge to the German Bundesverfassungsgericht (Constitutional Court) was about.
The Bündnis Bürgerwille group didn’t like the idea of Germany having to pay more to service debt that would fund initiatives in Italy and elsewhere.
They claimed that under the Treaties, the EU itself, is not allowed to take out loans.
They were not against the additional spending required to deal with the fallout from the pandemic, but wanted each Member State to be responsible for its own affairs and spending.
On March 25, 2021, the German Bundestag ratified the EU Council’s decision to allow loans to be taken out to fund the NGEU. The Bundesrat (the legislative body that represents the sixteen Länder of Germany at the federal level) approved on March 26, 2021.
The Bündnis Bürgerwille group, through a German legal academic, sought an injunction to prevent the German President from signing the legislation, which would, in turn, prevent the EU from moving ahead with its NGEU borrowing plans.
Their claim was that Germany might be held liable to repay significant proportions, if not all, of the 750 billion euros plus interest under certain circumstances, which violated the German constitution (Basic Law).
On March 26, 2021, the German Constitutional Court issued an interim – Injunction – preventing the German President from signing the legislation until it could hear the full argument.
The argument is that:
1. The EU is a “union of states” not a “federal state” and the German Constitutional Court has previously ruled that the Member States are the “Herren der Verträge” (‘masters of the treaties’) and thus determine what the EU can and cannot do with regard spending.
2. They consider this retains the democratic sovereignty of the Member State parliaments and the treaties were designed and agreed to on this basis.
3. They object to the NGEU’s ambition to create ‘joint debts’.
4. They want the European Union’s “own resources” to fund the NGEU, which means it must seek revenue rather than issue debt to fund the program.
5. Under the EU proposal, if the “own resources” are insufficient to serve the debt obligations, the EU will be able to demand additional funding from the Member States. The complaint is that Member States should not be responsible for other Member States spending and debt repayment obligations.
6. Under the NGEU, the German Bundestag would lose control of its overall fiscal affairs and the European Commission could make demands on it to repay loan commitments overall. There is a possibility that Germany would have to pay the whole debt.
Well it was an interim decision.
The German Bundesverfassungsgericht considered the application opposing the Bundestag’s legislative approval of the NGEU and on April 15, 2021 made an order, which was published yesterday (April 21, 2021) in this press release – Unsuccessful application for preliminary injunction against promulgation of the domestic act ratifying the EU Own Resources Decision (‘EU Recovery Package’)
The press reaction was interesting.
1. DW proclaimed yesterday (April 21, 2021) – “Top German court tosses objection to EU coronavirus recovery fund” (Source).
2. CNBC (April 21, 2021) = “German court dismisses legal challenge against the EU’s pandemic recovery fund” (Source).
3. Financial Times (April 21, 2021) – “German court clears way for EU recovery fund deployment” (Source).
And more like this can be found.
But if you read the summary reasoning from the Constitutional Court, the reality is a little different.
The Court did not approve the German government’s decision to ratify the NGEU on March 25, 2021.
There was no final judgement given.
The Court concluded:
The constitutional complaint lodged against the German act of approval in the principal proceedings is neither inadmissible from the outset nor clearly unfounded: the applicants have demonstrated that it is at least possible that domestic ratification could encroach upon the constitutional identity of the Basic Law … or that the decision to be ratified might exceed the EU integration agenda … in a manifest and structurally significant manner.
So the decision is not a rejection of the basic logic of the case brought before them.
The Court thought that it was not a near certainty (“highly likely”) that they would find the ratification decision was a violation.
In that case, they had to consider the costs of continuing their inquiry with the injunction against the ratification process proceeding (the President’s signature) continuing, which they said might involve a lengthy period, against, relaxing the injunction, while they proceeded to examine the merits of the case.
Therefore, the decision in the present preliminary injunction proceedings must be based on a balancing of consequences … the consequences that would arise if the preliminary injunction sought were not issued but the act of approval were later found to be unconstitutional are less severe than the consequences that would arise if the preliminary injunction were in fact issued but the constitutional complaints lodged by the applicants ultimately turned out to be unfounded in the principal proceedings.
Put another way, and in the context of the global pandemic ravaging Europe, the Court thought the damage would be much worse if they considered the case with the injunction in place, which would prevent the NGEU proceeding, and they ultimately found the case to have no merit, relative to the damage that would arise by relaxing the injunction and then finding the case had merit.
In their statement of facts they made it clear that:
The constitutional complaint lodged in the principal proceedings is neither inadmissible from the outset nor clearly unfounded.
They then recited why:
1. “The right to democratic self-determination” is inviolable and the Bundestag determines what the EU can do with respect to Germany not the other way around.
2. “The budgetary powers of the Bundestag and its overall budgetary responsibility are protected” under the Constitution. The EU cannot make imposts on the German state without its approval.
3. “It is for the Bundestag, as the constitutional organ directly accountable to the people, to take all essential decisions on revenue and expenditure …”
4. “It would thus be impermissible under the Basic Law to create permanent instruments that would essentially entail an assumption of liability for decisions taken by other states, especially where this could have potentially unforeseeable consequences.”
To the extent that measures agreed on at the supranational level can structurally affect parliamentary budgetary powers, it must in addition be ensured that the Bundestag retains sufficient influence on how the funds provided will be used. It would thus violate the principle of democracy if the type and level of public spending were, to a significant extent, determined at the supranational level, depriving the Bundestag of its decision-making prerogative.
6. It was “at least possible” that the NGEU arrangements “infringes the Bundestag’s overall budgetary responsibility, encroaches upon the Basic Law’s constitutional identity, and violates the applicants’ right to democratic self-determination.”
The upshot of the decision is that the ratification by Germany can proceed but under specific conditions including that Germany cannot be liable for any more than its proportionate contribution, that the funds are only used for COVID relief and that no additional EU borrowing is countenanced.
The German Constitutional Court has made it clear that any hint that this development is providing a pathway to the creation of a ‘federal Europe’ with permanent debt raising capacities would be unacceptable.
That the elevated own resources contribution is strictly temporary and tied to the pandemic relief. It cannot be used as permanent expansion of the Brussels footprint.
Stay tuned. There is more to play out here.
But for the progressives who think the NGEU is a sort of Trojan horse to get more federal fiscal capacity, the Court’s statement would belie that aspiration.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.
This Post Has 21 Comments
Portugal is one of the 19 countries of the eurozone.
During the 20 years of the euro, we have seen the destruction of industry (mainly textiles).
To give alternatives to oligarchs, the country went on to privatize everything, even state monopolies.
The tourisme industry became the great beacon of private investment and the pandemic ruined that too.
So we accepted all this in the name of a union, which means that the Portuguese Constitution doesn’t apply when it comes to EU business.
Portugal and other 17 countries don’t call for courts outside the union.
But there’s one country, Germany, which keeps calling for home courts to curtail union policies.
Clearly, Germany should be quitting the euro.
Then, the rest of us could work to bring real convergence, with a lesser appreciated currency to begin with.
Germany would go back to the deutch mark, which could then be fully appreciated, as to reflect the country economic strength.
Obviously, that’s the part they don’t want to hear.
The alternative will be the caotic ending of the euro, because nothing can live on life support for ever.
One way or the other, someone will have to switch off the ventilator.
Maybe the German Constitutiuonal court will end up doing it.
“[..] would mean many countries would be insolvent by now with the ECB ‘breaking’ the treaty law on bailouts.”
without the ECB ‘breaking’?
Dear Roberto (at 2021/04/22 at 9:20 pm)
Thanks very much for picking up the typo.
The pandemic, so far, has been a severe enough blow for some of the PTB to begin to modify their rhetoric, paying lip service to the idea of making neoliberal capitalism more humane and sustainable (oxymoron aside). The pandemic has also been a severe enough blow to compel the PTB to provide some immediate relief to average citizens in a manner which, pre-pandemic, would have been inconceivable. If the pandemic now steadily recedes, these small changes will be short-lived, and we’ll be back to exploitative and ecocidal business as usual. If, on the other hand, the pandemic stays with us and intensifies due to mutations and surges, then these small changes will of necessity increase in size and duration, perhaps permanently altering the neoliberal landscape. When I first became a lawyer, a colleague told me about his uneasiness in the profession, because it tended to make one want his or her injured client to get worse so as to increase the damages and the fees. I feel a similar uneasiness in the position I’ve set forth above and in other posts, but the terrible truth of it seems obvious.
Bündnis Bürgerwille e.V. concerned that Germany might, could pay for expenditure in other countires is ironic since it is quite likely that in fact the country will not, given that they have negotiated a substantial rebate on their contribution ot the EU budget. Only if peripheral countries see their GNI collapse -as a consequence of the insufficient size of the NGEU package, for example- Germany would eventually have to foot a larger portion of the bill. Current arrangements are fairly regressive. For example “VAT own resource for the period 2014-2020 accrued from the application of a uniform call rate (0.30% for all Member States except Germany, the Netherlands and Sweden that benefited from a reduced call rate of 0.15%) to the national VAT base”. So the wealthier countries contribute less than the poorer ones as a percentage of ther GNI! https://ec.europa.eu/info/strategy/eu-budget/long-term-eu-budget/2014-2020/revenue/own-resources/value-added-tax_en
I am still trying to find out if these arrangement will carry on in the 2021 and it seems like it will.
Clearly Germany always wins: depressed real exchane rate, capitve markets under accelerated loss of industrial fabric and reduced contributions to the EU budget. Solidarity!
When analyzing the impact of the NGEU for Spain it appears that the country will not be a net contributor in 2021 as it was in 2020. Net transfers with the EU increase from € -0.6 Bn in 2020 to € 5.800 billion in 2021 (or less than 0.6% of Spanish GDP). Big deal! Considering that the Spanish GDP experienced the largest drop in real GDP as a consequence of the pandemic in 2020 (-11%) if the EU would have been a real federation with a real EU Treasury the net transfer should have been much larger. And, anyway, that is money that the European Commission is only advancing to Spain. In reality there are no net transfers from the Northern European nations to Spain.
@ Newton Finn.
But as bill notes, those “small measures” have been woefully inadequate so far and there is little hope they will increase to anything like what is required as the pandemic intensifies. There isn’t an economic model – as we know it – that addresses these circumstances; but the basic principles of natural resources apply. The casualties are mounting – not just the dead – and a tipping point is not far on the horizon.
Then there is the climate/pollution catastrophe – and all the high-risk potential disasters like Fukushima, Chernobyl and the other 9,728 nuclear power stations that require maintenance and the time bombs of toxic weapon dumps in our oceans. I’m not terribly optimistic TBH.
In just two centuries since the industrial revolution, we’ve sown the seeds of our downfall – and accelerated the process in the last 50 years. We might have had a chance at the beginning of this century – but the scale and nature of the changes needed would have been rejected by most. Just think what we have squandered and wasted with our greed.
It’s all part of the same problem and is all linked together everywhere. However, I’m not sure if I could ever get my thinking about it across properly. I’ve spent the last 12 months thinking about this and only this and nothing else.
Non government sector saving desires – A money scarcity problem.
* Unemployment is always an unspent income story. What happens with a JG in place which means there is no to low unemployment. Income unspent will not cause long term unemployment as they walk into a job guarentee program. However, not enough income unspent can cause some serious issues. Generational ones.
* Export your way to growth means keep fiscal policy tight ( Maastricht Treaty) keeps domestic demand low. Sell your currency and buy the currency of your target market abroad to try and keep your own running costs low. Accumulate reserves of the nation you have targeted. But what happens when the ECB doesn’t do that and only subscribes to the tight fiscal policy. They can’t keep their running costs low and wages rise, exports go up your currency just keeps getting stronger. Household disposable income gets less and less as rent seekers claim it for themselves.
* No need to reward working class savers as they are going to save anyway. Too much saving is an unspent income story that causes unemployment. Yet when you look at Japan’s 266% debt to GDP ratio, low unemployment rates and inflation rates for years. At what point does too much saving actually become a problem. Does that not mean in other countries Japan shows there is massive room in the UK economy to not only reward working class savers for saving more but give them enough disposable income that allows them to buy everything they need. On top of being rewarded for saving more.
* How can you save for your own home and buy everything you need when most of your disposable income goes on rent and paying for privatised public services and education. Making the furlough payments a bail out for the land lords and rent seeking part of the economy. To keep them afloat and nobody else. Only causes real problems further down the line as pensioners live in poverty without enough saved income to pay the rent seekers and government in retirement.
I could write another 50 things down I think about in the bath. But for me it always leads to the same thing. Yes, it is an unspent income story but not an unspent income story that causes unemployment. There simply isn’t enough unspent income floating around. It is a money scarcity story which was once mentioned at a MMT conference. Now I’m really starting to understand what that means working at the cliff face everyday. New, safe, low risk , saving vehicles are no longer being offered in some places.
Each and every time you try and fix it it ultimately ends up a productivity story. As any fix depends on the skills and real resources you have available and what you do with them. For me we take the unspent income causes unemployment story very seriously but not so much the there is not enough unspent income floating around story and what we are going to do about it.
No need to reward working class savers for saving as they are going to save anyway. Completely ignores the money scarcity story. Not just when the working class are working, even more so when they are retired. That at all times just end up being consumption units. Middlemen between the monopoly issuer of the currency and the rent seeking class. With no surplus left over to pocket themselves. When they do pocket it have nowhere to put it to give them a reward and security.
With a job guarentee in place it will be harder to tell when an unspent income story becomes an unemployment story. However, you can certainly see every day of every week what happens when there’s not enough non government sector savings to go around.
With a job guarentee in place when does too much saving become a problem ? When does it become a real issue. When does riskier activity take hold. When do bubbles appear in markets. When does too much saving with a JG in place start to hurt the economy ? Nobody knows.
One thing is certain. There’s plenty of room in economies today to be able to reward working class families for saving and giving them enough disposable income to buy everything they need whilst working. Get rid of this generational money scarcity problem once and for all. Allow the working class to retire peacefully knowing their financial needs are taken care of. Without any risk and middlemen robbing them of their lifetime savings.
Introducing the JG and then carrying out fiscal adjustments after replacing a budget constraint with an inflation constraint is NOT going to solve the problem. We need to go much further than that.
We also need to challenge, fight and win the other side of the story. Which is the narrative that was created by the FIRE sector that caused the generational money scarcity problem in the first place below.
Starting writing up what the MMT lens advises when these 2 worlds and 2 narratives collide. As there will be a big bang when they do collide if the day ever comes we win an election. Start taking the non government sector savings desires money scarcity problem seriousley. Instead of the working class will just have to save more and save for a longer period of time to get the security they deserve. Should be a very large part of the ” public purpose” narrative not an after thought.
We need to be ready for when these 2 worlds collide and have all the right answers attached to the correct narratives. Narratives that large parts of the economy will vote for.
“Allow the working class to retire peacefully knowing their financial needs are taken care of.”
Which is a myth.
It’s not the financial needs that are the problem – that can be solved with a sufficient state pension. It’s the real production required to service that finance.
Working class saving is just a ‘self insurance’ replacement for state pensions. And we’re already doing that via ‘compulsory pension schemes’ and NEST. That’s what ‘working class savings’ looks like – another nice earner for the finance industry as they privatise the social insurance schemes.
We have a current production and distribution problem. Everything else is just insurance.
@Neil, Derek. I think we need to consider why people save. Private pensions are a saving scheme for retirement and are in fact a significant proportion of private wealth (may even be more than houses). Without tax allowances the industry probably wouldn’t function and it is a major part of the rent-seeking FIRE sector, so happy to see it become redundant.
With a generous state pension I don’t see the point of tax allowances for savings. And I don’t understand Derek’s perceived need for a reward for saving. Why should savers expect any more than that their money retain its purchasing power. Because the only reason to save, even for retirement or contingencies, is for future purchases.
The big problem is housing and that can only be solved by annual land value taxation. (I have a strategy for UK implementation).
I know all of that Neil.
You know’ I know all of that. We’ve bumped our gums about it many times about what would be the best way to do it. Even brought it up in the BBC interview to highlight it.
“Allow the working class to retire peacefully knowing their financial needs are taken care of” is only a myth if you allow it to remain a myth.
It can all be set up very differently. Then the myth dies forever. Why the productivity story needs to be sorted out first before anything else so that any changes we purpose work efficiently and effectively.
Yes, the JG can help with a little part of that and a competition and monopolies commission with some teeth but we need to go much, much further than that and change the whole set up.
All we need is a change of perspective and move away from a broken model that promotes money scarcity and that the free markets needs to provide the returns on savings. Increasing the pension doesn’t help anybody when it comes to saving £50k for a deposit for a home. Building more houses won’t sort out the saving problem.
A lot of people are one pay check away from destitution. Which makes a nonsense of no need to worry about non government sector savings they are going to save anyway.
When we propose to set the interest rate to zero. We need to have a proposal at the ready that changes the system that voters ( savers) will vote for. If the non government sector save anyway that means a proposal “everyone” will vote for.
We’ve ignored it for far too long and it would be such a waste not to highlight what the lockdown shows because of the furlough payments and take advantage of that.
A paper has to be written and judged by our peers. As we will be attacked relentlessly by our opponents on that part of the zero rate policy.
Saving more for longer is not a vote winning policy when 1 in 2 of us are likely to get cancer. Families do not want to take on risk.
It needs to changed for ” public purpose” reasons under ” nice things to have” especially when you know how these returns and pension payments could be paid to the working class. The different ways they could make the payment. Instead of linking returns on savings to the FTSE 100 index.
When attacked relentlessly by our opponents on that part of the zero rate policy.
Is all we have to say is don’t worry about it folks. The working class save anyway they will just have to save more for longer ?
Is that it ?
Is that our response ?
Good luck with that ?
Public Purpose – nice things to have.
Living a full enriched life while you work with saving security and not pick up a pension payment when your dead ?
Stop worrying if you’ll ever reach pension age to get your reward ?
Stop worrying about the FTSE 100 index as it should never be linked to savings returns which most if not all structured short term saving products are are linked to.?
There’s a vote winner that everybody can vote for…??
The more I mull over MMT (thanks to Bill and his colleagues) and the fierce opposition it receives, CONCEPTUALLY, from mainstream economics (which applies MMT as a matter of course whenever it wants to or needs to), the more it becomes clear to this non-economist what’s really going on at the most fundamental level. Fordist Capitalism, which made money from things, producing and selling them, morphed in my lifetime into Finance Capitalism, which makes most of its money from money itself, manipulating it rather than focusing on producing and selling things. The old market, which was comprised of those who had enough money to buy things, became the new market comprised of those with enough money to service debt. This applies all the way up the chain from people to entire countries (see Greece), and the austerity to which people, countries, and everything in between are subjected these days is merely a word used to describe how tightly they can be squeezed to service debt. Once any debtor (from people to countries) is bled dry, cannot be squeezed any more, it simply becomes superfluous and disposable. THEN ALONG COMES MMT, going directly to the heart of the Finance Capitalist system–the alleged scarcity and externality of money which make the whole game work, scarcity and externality which MMT reveals to be fictions, ghosts of a bygone gold standard era. The last thing that those who profit from manipulating money want to hear publicly spoken, want anyone to come to believe, is that modern money is essentially of a fiat nature, called into being ex nihilo by currency-sovereign federal spending decisions and constrained (so as to avoid inflation) only by available resources. As defenders of Finance Capitalism have occasionally admitted, the public cannot be told the truth about fiat money because they might then insist on a different game, one which did not constantly squeeze them for money but rather created money on the federal level and invested it on all levels to meet their collective needs and desires. Given that I’ve reached this point where I believe the big picture is really that simple, yet remain suspicious of my thinking as a non-economist, I invite Bill’s readers to disabuse me of my ignorance and point out errors I’ve made or significant factors I’ve overlooked in coming to these rather sweeping conclusions. Again, I’m talking about the big picture here; well I know there are myriads of details, distinctions, clarifications, applications, elaborations, nuances, etc. to keep experts like Bill gainfully and productively employed for a lifetime. And also well I know that nothing I’ve said here is new but merely an effort to be as clear and concise as possible…if only for my own benefit.
I say you are right all it takes is a change in perspective and breaking free from broken models that have enslaved us.
Example to further the debate as it is always good to throw things out there.
Let’s say banking is nationalised for talking sake. Warren says it is already nationalised. But let’s say.
The government says save with us and we’ll give you 10% interest per year on your savings. I’ve used 10% to shake things up a bit. That return is not linked to anything not the FTSE 100 index or government bonds. Every year it is just going to be paid to savers as a furlough payment with no strings attached.
The government also say take a loan from us and the interest on your loan is zero. If you borrow £5K from us over 5 years all you pay back is what you borrowed £5K over the 5 years.
Now there’s a different perspective. That banks could never compete with.
What does the MMT lens say about that different perspective ?
a) Do we need a competitive banking sector to provide that return on savings and that loan instead at different rates ? Do we actually need banks to provide those services ?
b) Would the different perspective cause inflation ?
c) Can the private sector cope with that change in perspective. Do we as a nation have enough skills and real resources to absorb that change ?
d) Will it cause too much saving by the non government sector and create problems in the economy ?
e) How many job losses would there be and what are we going to transition these workers into ? What are we going to have them doing instead ?
Etc, etc, etc….
All of the usual questions that are asked when you look through the MMT lens.
So let’s say you can improve productivity before you introduce these changes so there are no issues at all. What’s the problem ? For the next ten years all the government concentrates on is improving productivity which is a MMT paper in itself. So that this change can be delivered.
We’ve done everything we can to improve productivity over the last 10 years but just can’t get this change to work. However, we can make it work if the government offers 5% interest on our savings every year and only charges 3% On every loan ?
This is my bug bear nobody is looking at this stuff. It seems we’ve accepted the old models and work around them. The MMT is a lens meme shows you how to look but nobody is looking. We could create concrete proposals and get millions of more people onside. Show the real benefits of the MMT lens instead of another paper about the accounting.
If the right wing ever accept MMT that is exactly what they will be doing. Writing papers on how to build Trumps wall for example.
We could do the exact same thing with pensions. Change of perspective – what would happen after 20 years of concentrating on productivity if we slashed the pension age to 50 and doubled the pension payment and never took payments off people every year that pretends to pay for it ?
Work out what would happen and what could be achieved without causing any problems. At the very least find out what would happen. So at the very least we would know what we need to do to change it.
But we suffer from a skill shortage. So writing these papers will take time. My view is that skill shortage needs to be addressed. So that we can start looking at these things. As there are so many things that could be looked at it if we ever are asked to create a manifesto by a political party that’s ready to accept MMT.
Could be wrong……. But…
We need to start moving away from the basics. Bills master classes are doing that.
Get the next generation of MMT economists primed and ready. Are any coming through ?
Start running with the lens so we are ready to win an election if asked. (I don’t think we are ready without a manifesto.)
It can’t all be left to the original founders who have already done more than enough.
Of course you have to tread that line of, if you start writing things up to win an election and write a manifesto you might put people off the idea of MMT. Those with vested interests to protect.
The right don’t care about that, they never have in the last 60 years. They just get on with things in an organised way. If the right accept the MMT lens. They’ll be off to the races and have a manifesto written before you can say the words “business purpose.” Public won’t even come into it, as everyone else is caught sleeping AGAIN.
How ironic would that be ?
Thanks for the interesting thought experiments, Derek. I couldn’t agree more that we tend to accept the old models and work around them, rather than allow MMT to stimulate our imaginations to envision new models to replace the old. Take the JG, for example. Bill has explained, on a personal level, the genesis of the idea and, on the socioeconomic level, how it would operate in limited fashion to make productive use of the existing pool of unemployed or underemployed, set a floor for the minimum wage, etc. But I suspect there’s “a method to his madness” here, meaning, of course, Bill’s restraint in describing the purposes of the JG. Similar to your thought experiments about the possible ripple effects of saving in and borrowing from public banks, the JG, even if expressly adopted only for limited purposes, would likely have far-ranging implications. Here in the exceptional nation, where we lack the universal health care enjoyed in other rich (but less exceptional) nations, the public option in the health insurance market, which Obama took off the table and Biden might put back on it, could serve as a foot in the door, eventually swinging it open to Medicare For All if the public option proved preferable to the private options. Likewise the JG, if adopted, might be a foot in the door to a much more robust public sector employment program, as Bill and Tom propose in “Reclaiming the State?” Where is the promised sequel to that utterly extraordinary book?
Which in the main, is what my posts over the last fortnight have been about. It’s difficult to get a year thinking about it across. As So many thought experiments run right through my thoughts throughout the year.
We need to move forward and show voters what the MMT lens can do. Stop complaining about things and moaning and show how we are going to change them.
Instead of just the same faces on social media repeating the same basics for years. It would send you to sleep.
The Powell manifesto – Universities- New York – Chile – Central banks – Euro – the World.
The chain of events of how they introduced neoliberalism across the world. The Right is a machine that is heavily funded and organised that runs over the top of anything in its path. For all we know they could be getting ready now as we speak. They’ll be ready alright that is a certainty.
If there is a move in geopolitics that finally means the MMT lens can be used to improve lives in the West. Who is going to be ready to use it first ?
Imagine if Stephanie Kelton said to Biden. We can show you beyond doubt that you can cut the pension age to X and increase the pension payments to Y. You can improve productivity using Z to achieve it. Will it win you many votes Joe ? Will it help you win the next election Joe, help millions of Americans and The US economy Joe ?
The whole debate changes. From the same tired old infrastructure spending, education, invest in R&D, spending increases and tax cuts which only concentrates on Z. Which would have to be done anyway along side a JG.
Z Needs to be done anyway it we are ever going to attach “any nice things to have” to the JG from the bottom up. Z is the key stone that holds the MMT lens together when you want to use it.
Let’s start getting really creative with the MMT lens. Start looking through it and start selling and advertising what we see. Really concentrate on Z so we can use it as there is so much more to the MMT lens than just the JG.
We shouldn’t just be happy if we get the JG implemented. We need to go much, much further than that and prove beyond doubt whatever we choose to do won’t be inflationary.
Anyhoo, thanks for listening to my rants for the last fortnight. Let’s see where we are this time next year and see if the MMT narratives on social media changes into some proposals.
Whilst the right get organised. Which the recent article in the American Conservative magazine called – MMT for Conservatives – Suggests they might be thinking about doing that.
A simple change that could be done tomorrow is use the MMT podcast.
How many podcasts do we actually need On
a) The JG
b) The accounting
c) The history of economics
Surely we have enough already ? No ?
Patricia and the gang are clever enough to come up with a designated podcast using the MMT lens and come up with a topic and different scenarios. Using their own thought process.
Give the podcast a fancy name :
Public purpose – Nice things to have using the MMT lens. Will it be inflationary.
Whenever they get prominent MMT’rs on or invite them on especially for the topic. We are off to the races and would be a very interesting podcast. the list of public purpose nice things to have and what we would do to change things is A very Big list. So they would never run out of ideas.
A very simple change that for me would be a step forward in the right direction.
Why are you saving £50k for a deposit on a house?
Why are there deposits on houses?
Just like the current 95% mortgage insurance.
The state is insuring the wrong people.
We have the Lifetime ISA where you can save £4K per year and the government throws 25% of whatever you save that year into the pot (essentially an income tax rebate). That’s available to anybody under 40 and its for the deposit for a house.
That’s been available for 4 years now and it’s hardly set the press alight.
“We need to move forward and show voters what the MMT lens can do. Stop complaining about things and moaning and show how we are going to change them.”
My thinking too, Derek. Last week I gave a talk to the Southampton Morning Star Readers Group. I had all these wonderful thoughts in my head about how I could enthuse them about govt’s potential and how it would expose the bastards in charge if they understood MMT. Unfortunately my thoughts were in a muddle and I made a complete hash of it. But you learn from your mistakes. I gave a talk yesterday to a small group of local socialists and it went well. All women – asked intelligent questions. They have a book reading club and are proposing to do Reclaiming.