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Anything we can actually do, we can afford

I often make the point in talks that the fictional world that mainstream economists promote leads to poor decisions in the real world by our policy makers. We saw that in the 1980s and 1990s with the large scale privatisations of public enterprises, touted as employment-enriching, productivity-boosting strategies to provide ‘more money for government to spend on welfare’. We now have enough data to know that in almost all the examples the promises have not been fulfilled and the outcomes worse than what would have been had the enterprises been maintained in the public sector and motivated to provide public service rather than private profit. The same mistake is being made with the response to the climate emergency. Economists and commentators are claiming we need to ‘repeat the privatisations’ to get enough investment cash to facilitate the necessary restructuring. They are wrong and if governments, operating on the assumption that they do not have ‘enough cash’, rely on private funding for climate initiatives then the outcome will be poor for societies.

I have been in London for the last several days and my conversations with people in politics and related have all suggested to me that there are very few people who are prepared to challenge the mainstream economic consensus.

Even those on the actual Left (which means I exclude the Labour Party leadership) believe that the ‘City’ (financial markets) and the press will somehow engineer electoral oblivion for any aspiring politician who might dare to oppose the ‘sound finance’ narrative that both the Tories and the Labour Party are locked into.

My two substantive blog posts from last week were about that sort of myopia:

1. Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment (January 24, 2024).

2. Civil society is in jeopardy in the UK as funding cuts erode local government capacity (January 22, 2024).

I read in the UK Guardian over the weekend (January 27, 2024) and article – To get to net zero, we may have to sell off the UK’s future – which summarises how the so-called ‘progressive’ media ferments this type of flawed thinking.

It even carries the subtitle:

The cost of decarbonising is vast. Something like the privatisations of the 80s may be needed to raise enough funds

We agree on one thing – “The cost of decarbonising is vast”.

But the journalist is thinking in ‘money’ terms whereas I think in real resource terms.

Many existing resources used in the carbon producing industries will have to be scrapped.

And many existing resources will have to be reallocated to new endeavours.

The scale of the transformation is likely to be up there with the significant structural shifts that we are familiar with in history, which were also very disruptive in social terms – think the industrial revolution.

The message from the UK Guardian article is that:

… the next government … must provide the private sector with the kind of incentives that will lift investment in Britain’s economy ….

Transforming the economy will come at an outsize cost. Worse, it’s an escalating cost that is way beyond the public finances of Britain and possibly even the EU.

What could possibly be “beyond the public finances of Britain” in monetary terms?

The famous quote by John Maynard Keynes was repeated at an event I spoke at on Friday in London:

Anything we can actually do, we can afford.

That quote is from a larger tract from a BBC Radio Address Keynes gave on April 2, 1942, which has been subsequently published by The Listener, on April 2, 1942.

You can also find it published in his Collected Works XXVII page 264 ‘How much does finance matter?’.

Here is a fuller text of that address:

For some weeks at this hour you have enjoyed the day-dreams of planning. But what about the nightmare of finance? I am sure there have been many listeners who have been muttering: “That’s all very well, but how is it to be paid for?”

Let me begin by telling you how I tried to answer an eminent architect who pushed on one side all the grandiose plans to rebuild London with the phrase: “Where’s the money to come from?” “The money?” I said. “But surely, Sir John, you don’t build houses with money? Do you mean that there won’t be enough bricks and mortar and steel and cement?”

“Oh no”, he replied, “of course there will be plenty of all that”.

“Do you mean”, I went on, “that there won’t be enough labour? For what will the builders be doing if they are not building houses?”

“Oh no, that’s all right”, he agreed.

“Then there is only one conclusion. You must be meaning, Sir John, that there won’t be enough architects”. But there I was trespassing on the boundaries of politeness. So I hurried to add: “Well, if there are bricks and mortar and steel and concrete and labour and architects, why not assemble all this good material into houses?”

But he was, I fear, quite unconvinced. “What I want to know”, he repeated, “is where the money is coming from”.

To answer that would have got him and me into deeper water than I cared for, so I replied rather shabbily: “The same place it is coming from now”. He might have countered (but he didn’t): “Of course I know that money is not the slightest use whatever. But, all the same, my dear sir, you will find it a devil of a business not to have any …”

Had I given him a good and convincing answer by saying that we build houses with bricks and mortar, not with money? Or was I only teasing him?

For one thing, he was making the very usual confusion between the problem of finance for an individual and the problem for the community as a whole …

The first task is to make sure that there is enough demand to provide employment for everyone. The second task is to prevent a demand in excess of the physical possibilities of supply, which is the proper meaning of inflation. For the physical possibilities of supply are very far from unlimited. Our building programme must be properly proportioned to the resources which are left after we have met our daily needs and have produced enough exports to pay for what we require to import from overseas …

Where we are using up resources, do not let us submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income, with no other denominator of values but this. I should like to see that war memorials of this tragic struggle take the shape of an enrichment of the civic life of every great centre of population …

Assuredly we can afford this and much more. Anything we can actually do we can afford. Once done, it is there. Nothing can take it from us.

Keynes, himself, did not articulate a Modern Monetary Theory (MMT) construction of the resource versus money confusion that mainstream economists get themselves into.

He talked, for example, about how at the time the Treasury could borrow at such a low rate that it would save money on unemployment benefits by stimulating the economy.

So he was very much into the ‘government has a financial constraint’ camp.

That point is rarely made when progressives just repeat the “Anything we can actually do we can afford” quote.

But it is clear that the issue of green transition is about real resources not ‘public finances’.

The UK Guardian journalist seems to think that we will not be able to make that transition without “money on offer from the private sector” and that “That leaves the shadow chancellor, Rachel Reeves, like all her counterparts in the industrialised world, needing huge amounts of private capital to get investment moving.”

He argues that the privatisations of the 1980s helped the UK government pay “its way” and later Blair’s PPPs and the like did the same thing.

But he thinks that there is now “even less state cash to play with these days” and so the government has to rely on the private sector.

This is from an allegedly progressive voice.

None of that is true.

Keynes’ questions are the only ones that should be asked.

Are there enough real productive resources available that can be freed to be deployed in the decarbonisation effort?

What will it take to free them if they are not already available?

What investment is required to develop new resources – such as technologies like bio concrete and the similar?

How quickly can the available resources be created or shifted – the timing is likely to be a constraint so that spending does not outpace the productive capacity of the economy.

That should be the focus not whether the UK government can type some numbers into bank accounts to do what is necessary.

I also note that the UK Greens last year at its Spring conference voted to reverse its long-held position against NATO and now holds out that (Source):

The Green Party recognises that Nato has an important role in ensuring the ability of its member states to respond to threats to their security.

However, while there was some dissent within the Greens about that deplorable shift in policy, even the dissenters proffered the ‘sound finance’ fiction.

For example, commenting on the decision, convenor of the Stop the War group was “sad” about the change of policy about NATO but then added:

Nato is also demanding more money for arms and the military which will be at the expense of our health, education and other public services — something the Greens have always, and should continue to, oppose.

The Greens should oppose the logic that government spending on A automatically means spending on B is compromised.

As I noted above John Maynard Keynes was correct when he wrote “Anything we can actually do, we can afford.”

If there are resources available then the British government can deploy them to do anything it wants without causing inflationary pressures.

If there are not free resources, then the government has to introduce policies to complement its spending ambitions, which, initially, free up the resources that the government wants to deploy.

Taxation is an important policy tool in this regard.

Taxation does not provide the government with necessary funds, but rather deprives the non-government sector of purchasing power, which means that the non-government sector has a reduced ability to command productive resources.

One way of thinking about this is to see taxation as creating unemployed resources, which can be brought back into productive use through the public spending.

The role of taxation then in this context is to provide the real resource space that the government can spend into without causing inflationary pressures.

There are other roles for taxation – for example, to shift allocation of resources away from ‘bads’ (like alcohol and tobacco taxes).

But taxes designed to deliberately reduce our purchasing power dominate and have nothing to do with ‘raising’ cash for government even though that is the way they are constructed in the public debate and seen by the voters.

That misrepresentation is a crucial part of the fiction and represents a major vehicle for social control within a system that works against the interests of the working class and facilitates large scale transfers of national income to the elites.

The fact that the Greens, who otherwise have more sophisticated appreciations of the challenges facing humanity, fall for the misrepresentation – either through ignorance or through deliberate design – tells us how far we have to go before any realistic shift in society will occur.

When I say ‘through deliberate design’ – I am referring to the fact that many Greens and other more radical political players (like the Workers Party in the UK, whom I addressed last Saturday in London) understand Modern Monetary Theory (MMT) yet choose (in their words) ‘strategically’ to ignore it and, instead, mouth mainstream economic fictions to avoid ‘scaring the horses’.

The basic principle of framing and language, which I have written about before, is that if you adopt the frames of those you oppose you just reinforce that opposing narrative.

Here is a blog post from the past that explains that point – Framing Modern Monetary Theory (December 5, 2013).

See also – The ‘truth sandwich’ and the impacts of neoliberalism (June 19, 2018).

The other reality is that most of these characters never get elected anyway.

So they would be better using their voices to spread the word to as many citizens about the mainstream economic fiction in the hope that more and more people become educated and eventually that will condition what happens in the political sphere.

Conclusion

Most of my conversations while I have been in London have reinforced my view that we have not made much progress despite the growing number of people who now understand the fiction.

The fact that even those that do have this understanding deliberately continue to use mainstream macroeconomic framing is particularly dissapointing.

It’s not as if they ever get elected anyway.

That is enough for today!

(c) Copyright 2024 William Mitchell. All Rights Reserved.

This Post Has 14 Comments

  1. “The fact that even those that do have this understanding deliberately continue to use mainstream macroeconomic framing is particularly dissapointing.

    It’s not as if they ever get elected anyway.”

    Hear, Hear

    I don’t understand it either. Pointing out that the other side is deliberately lying to protect vested interests is a powerful narrative.

    My suspicion is that although some people might notionally understand some aspects of MMT, they don’t like the conclusions that the whole of it leads to. In particular undermining some of the shibboleths that they desperately want to believe in.

  2. He argues that the privatisations of the 1980s helped the UK government pay “its way” and later Blair’s PPPs and the like did the same thing.

    This rather ignores tax receipts from North Sea oil and gas. You can see a timeline here for example. The government opted to cut/limit income and corporation taxes and rely on North Sea revenue to make up the shortfall. Thinking through this approach in MMT terms, the government chose to reduce overall economic activity relative to where it would have been in the world in which there was both a new economic resource (oil/gas production) and the will to use this resource to boost activity in the public sector.

  3. Excellent summary of the real issues with ‘spending’. It’s all about resource allocation. So sad this is all so alien to the British Left. A couple of points on the Politics of all this: 1) Former Labour MP Chris Williamson is one of the main figures heading up the Workers Party. He’s a consistent advocate for MMT; probably the highest profile politician that is. 2) it’s frustrating that the ‘left’ believe they lost in 2019 because of the ‘media’. It’s just such nonsense. Corbyn lost in 2019 because the large majority of the left that supposedly supported him were/are so utterly in awe of the EU that they derailed their own movement. It was not the machinations of the media barons that destroyed Corbyn, it was the fetishism of the left for the fake progressivism of Brussels neoliberal project. That fetishism is itself the product of a deep misunderstanding of the nature of neoliberalism – the left think it just means austerity when it’s really about the removal of democratic control and accountability from all aspects of decision-making. Maybe Bill could send them all free copies of Reclaiming the State? Although it’ll probably need dumbing down to Guardian-level readership. The silly ‘media won’t let us win’ mantra ignores the venom that the same media (which was in the past arguably much more influential than it is now) spewed out against Attlee and Wilson. Do they believe that in 2017 the media were so fair and cozy towards Corbyn that he came within a whisker of winning the election?? It’s self-delusion proving cover for the responsibility they hold for their own downfall.

  4. In Portugal, we discarded the ancient currency and adopted a foreign currency from the 2000s onwards.
    At the same time, we privatized everything that could make a buck.
    Now, the only source of income of the state are taxes.
    But, the rich don’t pay any taxes and the poor don’t have any money to pay anything.
    That leaves the middle classes with the bulk of the burden to keep the state alive.
    Funny how those political parties that drove us all down the cliff, are using the excessive tax burden of the middle classes for electoral purposes.
    This includes the travesty right-wing, pushing populist mumbo-jumbo, trying to get to power to push more austerity and more taxes.

  5. Thanks for the explanation of the functions of taxation at the end. Where taxation fits into MMT has always confused me.

    BTW in a previous blog you mentioned a second edition of your textbook. Is that still planned for later this year?

  6. Whilst your theme is absolutely correct, you cannot make a convincing argument for it by ignoring the antithesis to your thesis: that the free market is needed to supply the information about what should be built. To prevent people from simply dismissing it, you need to martial reasons why a nuanced synthesis is needed: the short time horizons of private investment, the difficulty of forcing externalities to be priced into investment, the fact that the agency problem plagues private businesses even more that it does government, the need for redistributive investment to counteract wealth accumulation.

  7. “Fictional worlds” are enticing, indeed!

    Carbon is not the problem. More spending is not the answer.

    GIGO.

  8. Dear Bill
    So sorry that I didn’t get to your talk last week.
    Thank you for the full Keynes quote which I’d never heard before. I’ll be using that, especially when engaging with Keynes fans – bet they didn’t know that.
    Carol

  9. Thanx for this, Bill. With the Australian Federal election coming up within the next 15 months or so, and as a Greens member, I’ll be taking this understanding to the Greens strategists, especially in my division of Hume currently held by the Liberal Shadow Treasure, Angus Taylor, who must be defeated. 🙂

  10. John B writes:

    “Carbon is not the problem. More spending is not the answer.”

    1. If the climate scientists are correct, then carbon is a significant problem.

    2. The Oz governement could spend a cool $1 trillion immediately (without taxing or borrowing) , if the resources for the PVs and wind farms are available. (China could supply them much cheaper than Oz, but apparently we have to ‘contain China’…..)

  11. “Even those on the actual Left (which means I exclude the Labour Party leadership) believe that the ‘City’ (financial markets) and the press will somehow engineer electoral oblivion for any aspiring politician who might dare to oppose the ‘sound finance’ narrative that both the Tories and the Labour Party are locked into.”

    That belief is understandable though, as they saw this happen when Liz Truss and her chancellor Kwasi Kwarteng proposed ‘unfunded’ tax cuts a few years back. They probably also cheered on her deposition at the time, for some reason believing that even the ‘City’ had suddenly become morally opposed to tax cuts!!!

  12. This morning my news alerts tell me Nassim Taleb (speaking recently at a catastrophe hedge fund conference) has said the US deficit is swelling to a point that it would take a miracle to reverse the damage and that we’re now facing a ‘death spiral’ of public debt.

    “Hmm, I wonder what Bill thinks of him?” I asked myself. Lo-and-behold I found this comment from 2010:

    “Taleb who keeps telling his readers how clever he is (if you have been unlucky enough to read his book you will know what I mean) now says (Source): ‘It’s a no brainer to sell short Treasuries … Every single human being should have that trade.’ This is because the US economy is approaching Armageddon day. Yes, another doomsday approaches. I think he should name the date and then we can send him our commiserations when he fails to stumble on the acorn.”

    https://billmitchell.org/blog/?p=7793

    🙂 Taleb obviously meant Armageddon would be at some point after 2023. And obviously some time before our sun fizzles out. If you continue to deny his analysis you must be “devoid of common sense, business acumen, scientific rigor, elementary intellectual abilities, historical and other erudition, curiosity” (thanks again to Bill, 2019 vintage: https://billmitchell.org/blog/?p=41547)

  13. “as they saw this happen when Liz Truss and her chancellor Kwasi Kwarteng proposed ‘unfunded’ tax cuts a few years back”

    Their problem is that they still believed in the magic of interest rates and the power of independent central banks. Nothing that happened in that period of time surprised people versed in MMT. It all happened exactly as MMTers would expect – once you know how the parts are connected together it’s obvious.

    The shock was caused by everybody else misunderstanding how the parts are connected together. And the victors writing the history books.

  14. I really enjoyed going to see you speak in London a couple of weeks back, thank you.

    Stay safe and well and keep doing your great work.

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