An MMT-Green New Deal and the financial markets – Part 1

Next week, I am attending a meeting which I hope will finalise discussions I have been having with some key prospective partners in putting together a major MMT-Green New Deal initiative in Australia which will have global ramifications. It will bring together MMT with climate action and indigenous rights interests. We propose to begin a ‘roadshow’ in November to start our campaign. Our discussions to date have been very productive and we will issue a ‘White Paper’ in the coming months to articulate what we conceive as a jobs-first, equity-first MMT-Green New Deal might look like. This work will also form the basis of talks I am giving in the coming month throughout Europe and the UK. I have already started sketching elements of my thinking on this topic under the category – Green New Deal – which also contains a long history (now) of relevant commentary. Today, I am focusing on another element that I consider to be a core part of a progressive MMT-Green New Deal campaign – dealing with unproductive financial markets. I am not for one minute thinking any of the analysis today (or any of the GND stuff) is likely to be implemented without a massive and lengthy struggle. I think I understand vested interests. So a valid retort to the ideas is not to accuse me of being politically naive. My role, as an academic, is to work through things and lay out blueprints to guide directions of activity based on that thinking. It is not to assess the likelihood of success of the blueprints being implemented. I sort of see these blueprints as being benchmarks – to assess where we are at and how far it is to go. And as debating vehicles which define what opponents have to address. But, moreover, I do see them as being guides for campaigning strategies, which can then be implemented by those who know more about those things than I ever will. This is a two-part series.

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Spending equals income whether it comes from government or non-government

It is now clear that to most observers that the use of monetary policy to stimulate major changes in economic activity in either direction is fraught. Central bankers in many nations have been pulling all sorts of policy ‘rabbits’ out of the hat over the last decade or more and their targets have not moved as much or in many cases in the direction they had hoped. Not only has this shown up the lack of credibility of mainstream macroeconomics but it is now leading to a major shift in policy thinking, which will tear down the neoliberal shibboleths that the use of fiscal policy as a counter-stabilisation tool is undesirable and ineffective. In effect, there is a realignment going on between policy responsibility and democratic accountability, something that the neoliberal forces worked hard to breach by placing primary responsibility onto the decisions of unelected and unaccountable monetary policy committees. And this shift is bringing new players to the fore who are intent on denying that even fiscal policy can stave off major downturns in non-government spending. These sort of attacks from a mainstream are unsurprising given its credibility is in tatters. But they are also coming from the self-proclaimed Left, who seem opposed to a reliance on nation states, and in the British context, this debate is caught up in the Brexit matter, where the Europhile Left are pulling any argument they can write down quickly enough to try to prevent Britain leaving the EU, as it appears it now will (and that couldn’t come quickly enough).

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On money printing and bond issuance – Part 1

There are continual Twitter type debates and Op Ed/Blog-type articles going on about whether MMT says this, or that, or something else. The critics are refining their attacks by hammering on about “printing money” and hyperinflation, and, more recently that MMT ignores ‘power’ (whatever that is). The latter leads them to conclude that MMT is thus a naive approach and is inapplicable to a political agenda aiming at changing things for the better. These debates (if you can call them that) are also a very American-centric sort of to and fro, which exemplifies the tendency of the US to think the world and all ideas stop at its borders. In this two-part series, I seek to clarify some of the points that are raised (not for the first time) (-:, which, in turn, demonstrates how poorly constructed these attacks. I know it is often said that attackers haven’t read the literature. But in these situations it is a fact. In part 2 tomorrow, I will also touch on why I think some MMTers are becoming defensive in the wake of these attacks. So, in Part 1 I consider the ‘money printing’ story. Specifically, is MMT just about ‘printing money’? The answer is obvious – profoundly no, but we need to understand where these types of allegations come from (which swamp!).

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The EU pronouncement of a Greek success ignores the reality

I keep reading ridiculous articles about Brexit in the UK Guardian. The latest was comparing it to pre-WWI Britain and suggesting there were no signs of a “Damascene moment remainers hoped for”. I thought that reference was apposite – given the reference invokes St Paul’s conversion after he was struck blind. Good analogy – blind and remainer. The Brexit imbroglio is all the more puzzling because it seems to be a massive mismatch of scale – a currency-issuing nation and an organisation with no currency and no democratic legitimacy. And that is before one even contemplates the nature of that organisation. On August 20. 2019, the European Union provided us with a perfect example of why no responsible government would want to be part of it. In its – Daily News 20/08/2019 – there were three items. The last item told us that construction output in the EU28 had declined by 0.3 per cent in June 2019. The first item was a sort of cock-a-hoop boast about how great Greece is after the EU saved it from disaster. Parallel universe sort of stuff. Britain will thank its lucky stars after October 31, 2019 when it goes free from that madness. Even though the remainers remain ‘blind’ without their Damascene moment”

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Inverted yield curves signalling a total failure of the dominant mainstream macroeconomics

At different times, the manias spread through the world’s financial and economic commentariat. We have had regular predictions that Japan was about to collapse, with a mix of hyperinflation, government insolvency, Bank of Japan negative capital and more. During the GFC, the mainstream economists were out in force predicting accelerating inflation (because of QE and rising fiscal deficits), rising bond yields and government insolvency issues (because of rising deficits and debt ratios) and more. And policy makers have often acted on these manias and reneged on taking responsible fiscal decisions – for example, they have terminated stimulus initiatives too early because the financial markets screamed blue murder (after they had been adequately bailed out that is). In the last week, we have had the ‘inverted yield curve’ mania spreading and predictions of impending recession. This has allowed all sorts of special interest groups (the anti-Brexit crowd, the anti-fiscal policy crowd, the gold bug crowd, anti-trade sanctions crowd) to jump up and down with various versions of ‘I told you so’. The problem is that the ‘inverted yield curve’ is not signalling a future recession but a total failure of the dominant mainstream macroeconomics. The policy world has shifted, slowly but surely, away from a dependence on monetary policy towards a new era of fiscal dominance. We are on the cusp of that shift and bond yields are reflecting, in part, the sentiment that is driving that shift.

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German external investment model a failure

I read an interesting research report recently – Exportweltmeister: The Low Returns on Germany’s Capital Exports – published by the London-based Centre of Economic Policy Research (CEPR) in July 2019. It tells us a lot about the dysfunctional nature of the Economic and Monetary Union (EMU) and Germany’s role within it, in particular. Germany has been running persistent and very large external surpluses for some years now in violation of EU rules. It also suppresses domestic demand by its punitive labour market policies and persistent fiscal surpluses. At the same time as these strategies have resulted in the massive degradation of essential infrastructure (roads, buildings, bridges etc), Germany has been exporting its massive savings in the form of international investments (FDI, equity, etc). The evidence is now in that the returns on those investments have been poor, which amounts to a comprehensive rejection of many of the shibboleths that German politicians and their industrialists hold and use as frames to bully other nations

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Germany is now suffering from the illogical nature of its own behaviour

Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States.

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When the Left disgraces itself

In Monte Python’s Life of Brian we were introduced to the “People’s Front of Judea”, which was “one of many fractious and bickering independence movements, who spend more time fighting each other than the Romans”. The segments featuring the Front were very amusing. It was humour but redolent of the sort of historical struggles that have divided the Left over the centuries. In Australia, the history of the Communist Party, for example, is one of many factions, splintering into new parties and leaderships after disputes about Bolshevism, then the Communist International and Stalinism, then the so-called “imperialist” war by the Allies against Nazism, then Krushchev’s revelations about the crimes of Stalin, then the Soviet invasion of Hungary, then the split between the Soviet Union and China and the rise of Mao, then the Soviet invasion of Czechoslovakia, and so on. This sort of division is mirrored around the world on the Left side of politics and struggle. I have been reminded of this history in recent weeks as the ‘war’ against Modern Monetary Theory (MMT) has been ramped up from so-called progressives. However, this ‘war’ seems different to the sort of internicine struggles that have historically bedevilled the Left. We now have all manner of strategies emerging, ranging from classic Association fallacies to ridiculous claims that MMTers perpetuate ‘anti semitic tropes’, and on to plain invention, a.k.a. straight out fabrications or lying. There is no real attempt to embrace the body of work we have created over the last 25 years. Quite the opposite – the ‘critics’ haven’t an original thing to say about the substance of MMT. They have instead decided to smear us with increasingly hysterical assertions. Which raises the interesting question for me – what is driving this aberrant behaviour? Fear, a sense of irrelevance, jealousy, Brexit, spite, … what? I have conjectures but no real answers.

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Europe should stay out of the race for IMF head

My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund leadership is not a bargaining counter (July 22, 2019). His conclusion is also spot on – “The eurozone crisis created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.” But it goes beyond the revolving door aspects of these positions and the Troika relationship that emerged during the GFC. The IMF is already in tatters – still in denial but realising its old positions are untenable – to allow the toxic austerity culture of Europe to take over the IMF would destroy any hope that the latter might abandon its neoliberalism and embrace the emerging macroeconomics paradigm that will replace dependency on monetary policy with fiscal dominance – just what Modern Monetary Theory (MMT) has been promoting.

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There are no financial risks involved in increased British government spending

On July 26, 2018, UK Guardian columnist Phillip Inman published an article – Household debt in UK ‘worse than at any time on record’ – which reported on the latest figures at the time from the Office of National Statistics (ONS). He noted that the data showed that “British households spent around £900 more on average than they received in income during 2017, pushing their finances into deficit for the first time since the credit boom of the 1980s … The figures pose a challenge to the government … Britain’s consumer credit bubble of more than £200bn was unsustainable. A dramatic rise in debt-fuelled spending since 2016” and more. While keen to tell the readers that British households were “living beyond their means”, there was not a single mention of the fiscal austerity drive being pursued by the British government over the same period. Nor was there mention of the fact that the entire British fiscal strategy since the Tories took office was predicated, as I pointed out years ago in this blog post – I don’t wanna know one thing about evil (April 29, 2011), on this debt binge continuing. A year later (July 20, 2019), the same columnist published this article – Labour and Tories both plan to borrow and spend. Is that wise? – which like its predecessor fails to present a comprehensive, linked-up, analysis for his readers and makes basis macroeconomic errors along the way.

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The Weekend Quiz – July 13-14, 2019 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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As you were Greece – remain in permanent depression – commitments are commitments!

I thought the most interesting aspect of last weekend’s Greek election was the post election response of the European Commission. I had thought prior to the election, when it was obvious that Syriza would lose office to the New Democracy Party, that the European Commission would perhaps turn a blind eye for a time to the new Greek government and allow them to break some of the ridiculous fiscal shackles that the Greek colony is enduring. Just like the Commission ignored the rule breaking by the Spanish conservative government in the lead-up to the December 2015 general election to ensure the Government could stimulate the economy and restore growth and retain office. I was wrong. Spain is not yet a colony. Greece is. It is to be spared no quarter by the sociopaths. Within hours of gaining office, the New Democracy leaders were confronted with news from the Eurogroup President, Mario Centeno – “Commitments are commitments” – the fiscal surpluses will continue and the “strict budget targets that were agreed” will not be relaxed (Source). As you were Greece – remain in permanent depression.

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That progressive paradise (aka the EU) does it again!

I saw a Tweet overnight suggesting the so-called progressive British Remainers had been a little quiet in recent days following the comical display of anti-democratic, corporatism aka filling leadership positions in the EU and the Eurozone. Where are they? Why aren’t they out there in the media (social or otherwise) extolling the virtues of their much-loved European Union, where progressive policies are the norm and the peoples’ interests are held above the narrow corporate interests? The problem is that they cannot show up at present. The EU has managed to appoint a cabal of new leaders, many of whom are plagued by past scandals, allegations of nepotism, convictions for negligence in public office, and the Presidential nominee is under investigation in the Bundestag and has been acknowledged as a failure in her management of the German defense department. Come to think of it they seem perfect for the top jobs in the EU. And how was this motley lot selected? By denying even the limited sense of democracy that has been present in this process in the past. It is beyond a joke. But then this is the Europhile cosmo left’s vision for the future. One could not dream all this stuff up one they tried.

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Why the financial markets are seeking an MMT understanding – Part 2

This is Part 2 (and final) in my discussion about what the financial markets might learn from gaining a Modern Monetary Theory (MMT) understanding. I noted in Part 1 – that the motivation in writing this series was the increased interest being shown by some of the large financial sector entities (investment banks, sovereign funds, etc) in MMT, which is manifesting in the growing speaking invitations I am receiving. This development tells me that our work is gaining traction despite the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon) who are trying to save their reputations as their message becomes increasingly vapid. While accepting these invitations raises issues about motivation – they want to make money, I want to educate – these groups are influential in a number of ways. They help to set the pattern of investment (both in real and financial terms), they hire graduates and can thus influence the type of standards deemed acceptable, and they influence government policy. Through education one hopes that these influences help turn the tide away from narrow ‘Gordon Gekko’ type behaviour towards advancing a dialogue and policy structure that improves general well-being. I also hope that it will further create dissonance in the academic sphere to highlight the poverty (fake knowledge) of the mainstream macroeconomic orthodoxy.

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Why the financial markets are seeking an MMT understanding – Part 1

One of the shifts I have observed in the last year or so in the way that Modern Monetary Theory (MMT) is being discussed in the public domain and the type of speaking invitations I am receiving is a growing interest from large financial market entities, who have not bought into the visceral, knee-jerk attacks from the populist academic type economists (Krugman, Summers, Rogoff, and all the rest that have jumped on their bandwagon). I spoke at a few workshops some years ago where economists from the large investment banks were the main audience and it was clear that they, in the main, appreciated what MMT was about. It is clear the characters that have to deal with putting funds at stake are keen to understand how the monetary system actually operates rather than how the mainstream macroeconomists pretend it operates – a pretense that advances particular ideological interests. What is also coming out more clearly is that the response from the mainstream is revealing a dissonance that they cannot seem to manage in any coherent way. We have seen statements from mainstream macroeconomists dismissing MMT as just ‘printing money’ and proposing Zimbabwe-like disasters. Others claim that they knew MMT all along and so there is nothing new. Others claim that all the insights that MMT holds out come down to whether one thinks monetary policy is less or more effective as a counter stabilisation told than fiscal policy. All statements attempt to simplify our work down to the level of irrelevance or downright crazy. Other interventions, such as the recent statements from the Bank of Japan Governor border on the surreal – ‘we are not doing MMT’ – well one doesn’t ‘do MMT’ anyway. But an MMT understanding provides a remarkably accurate depiction of what has been going down in Japan for nearly 3 decades – a depiction that the mainstream macroeconomists is incapable of providing. It seems that now, the financial markets are starting to get this point and seeking more engagement with MMT (if my invitations are anything to go by). This engagement is not without issues though. This is Part 1 in a two-part series discussing this topic. Part 2 will come tomorrow.

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The European Union once again reveals why it should be dissolved

While the Europhile progressives are publishing papers and holding talkfests to discuss their latest EU reform proposals, the on-going reality of the European Union continues to reveal itself – the pretense that there is a rule of law operating – as laid out in the Treaties and the idea that all are equal under that law. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and over the long period I have studied the concept of European integration it was obvious to me that despite the chimera of a strict, rule-based system that is run by technocrats, the actual practice of the Union is vicariously ad hoc – rules applied in cases where doing otherwise would present ideological problems, abandonment of the rules and outright illegal behaviour when there the interests of the corporate elites are at stake or the existence of the Union is threatened. And while law breaking, relevant officials produce complicated justifications of their behaviour as if what they are doing is within the boundaries specified by the Treaties. The Europhile progressives, meanwhile, continue to hold this embarrassing monstrosity out as the exemplar of freedom, globalism, cosmopolitanism and sophistication. They have reached such a state of denial that what is obvious to those looking in from the outside escapes their attention, or, in the mould of the European technocrats they just ride along with the spurious justifications for the unjustifiable. Europe in 2019.

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The Greek colony remains in depression

On June 13, 2019, the European Stability Mechanism (ESM) released its – Terms of Reference for the Evaluation of the Greek Programmes. At the same time, the head of the ESM (Klaus Regling) was lecturing Greece, which is approaching a national election next month, that it “risks missing its budget target” (Source). Apparently, as the failed Syriza government tries to gain electoral support after years of abusing the Greek people who put their faith in them, the bean counters are worried that the permanent state of austerity that the Greek colony is now being held in by the Euro technocrats (and the IMF) might be relaxed a little. Regling claimed there was “great risk” in the Greek government engaging in fiscal slippage. When you look at the data, a fiscal flood is needed not just some ‘slippage’. But such is the oppression of the colony that the technocrats are bearing down on the Government. Meanwhile, the Europhile Left continues to laud the EU as a productive arrangement protecting progressive values. It is beyond laughable.

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A leopard never changes its spots – Jens Weidmann, ECB President aspirant

Various people are vying for the key positions in the European structures (EC President, ECB head, and a range of other positions) at the moment. The presence of French and German interests typically dominate these outcomes, although as a result of the Treaty of Lisbon changes, more weight was given to the jockeying of the various political coalitions that find their way into the European Parliament. But that process has new been compromised by the decline of the traditional parties as other political forces (Greens, En Marche, Liberal Democrats etc) have gained ground. So Europe is back to its Franco-German rivalry and emerging out of that process is the unthinkable – Bundesbank President, Jens Weidmann – becoming a front-runner to take over the ECB role. He is a man with a past and his current ‘political’ statements, as he lobbies for the position he clearly covets, appear to contradict that past. A leopard never changes its spots. Beware.

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Fiscal policy paralysis and ECB credibility in tatters

Last week, the EU finance ministers (the ‘Eurogroup’) met (June 13, 2019) in Luxembourg as part of their regular schedule. There was a lot of talk in the lead-up to the meeting whether Emmanual Macron’s push for a more coherent EU fiscal capacity to act as a counter-stabilisation capacity for the beleaguered Economic and Monetary Union (EMU). As is normal, there was no progress made and the press reports said that the finance ministers “continued to clash over almost every feature of the new fiscal tool, including the source of funding” (Source). No surprises at all. So the ‘fix the roof while the sun is shining’ agenda, that many Europhile Left commentators have been hoping for, was abandoned. The roof still has gaping holes and the EMU will once again fail badly when the next economic cyclical downturn comes through. And further, the lack of leadership in the fiscal area is creating a massive dilemma for the ECB and its conduct of monetary policy. In effect, the lacuna is demonstrating to all and sundry that monetary policy is incapable of achieving the aims despite the ECB deliberately breaching the legal framework established for it in the Treaties. The Eurozone dysfunction goes to a new level – and it is a time of growth.

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Seize the Means of Production of Currency – Part 1

Last week, Thomas Fazi and I had a response to a recent British attack on Modern Monetary Theory (MMT) published in The Tribune magazine (June 5, 2019) – For MMT. The article we were responding to – Against MMT – written by a former British Labour Party advisor, was not really about MMT at all, as you will see. Instead, it appeared to be an attempt to defend the Labour Party’s Fiscal Credibility Rule, that has been criticised for being a neoliberal concoction. Whenever, progressives use neoliberal frames, language or concepts, it turns out badly for them. In effect, there were two quite separate topics that needed to be discussed: (a) the misrepresentation of MMT; and (b) the issues pertaining to British Labour Party policy proposals. And, the Tribune only allowed 3,000 words, which made it difficult to cover the two topics in any depth. In this three-part series, you can read a longer version of our reply to the ‘Against MMT’ article, and, criticisms from the elements on the Left, generally, who think it is a smart tactic to talk like neoliberals and express fear of global capital markets. I split the parts up into more or less (but not quite) three equal chunks and will publish the remaining parts over the rest of this week.

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