There was an article in The Times on Saturday in which its economics editor, Philip Aldrick, said in his opening para:
Modern monetary theory, received wisdom states, is little more than economics for quacks and charlatans. Far-left “democratic socialists” like Bernie Sanders, twice a US presidential hopeful, love it because there is no limit to how much public borrowing the theory allows and because it frees the state from the chokehold of the bond markets. For the rest of us, weaned on principles of fiscal prudence under Gordon Brown and George Osborne, it's batty. Even its acronym lends itself to ridicule: MMT, magic money tree economics.
He added:
Yet if you stop to think about the diagnosis that almost every establishment economist has made since the pandemic, modern monetary theory provides a lot of answers.
And then he went on to say:
Of course, no self-respecting policymaker will publicly subscribe to an idea that even Jeremy Corbyn's Labour Party thought was extreme. But then every policymaker laughed at the idea of “people's quantitative easing”, or “helicopter money”, before the Bank of England printed £450 billion for the state to pay the wages of nine million people and finance the rest of the budget deficit. Coronavirus has ripped up the economic rulebook, so why shouldn't the economic fringe have some wisdom to impart?
I was personally amused by part of that.
Clearly I cannot reproduce the whole article. But it ends up saying:
MMT is inoperable, but that's not to say it's irrelevant. Far from it. In one respect, it offers a way through the post-pandemic recovery that could help to fix both the economy and the public finances. But it means turning policy upside down. When it comes to inflation, the active institution should be the Treasury, as MMT prescribes.
The impossibility apparently relates to tax being used to control inflation. But the point is the article exists. Take wins where they can be found, I say.
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On the assumption that MMT is accepted by mainstream politics at some point. Wouldn’t that likely result in a new institution whose mandate is to manage the inflation via taxation and which is independent from the political influence? (Basically central banks for taxing.) At least I could imagine that some people will argue for that.
It’s called The Treasury
How is the treasury independent from the political influence? It’s literally part of the government.
There is an irony to this.
They never needed to do QE in the first place. All QE is moving of financial assets with a fixed rate of interest, back to financial assets with a variable rate of interest. They could have simply spent more on public services like they should have in the first place.
If they never did QE, they simply carried on issuing bonds equal to the deficit, then not much would have changed – maybe higher interest rates since investors would be less desperate to get hold of fixed rate bonds.
The irony is that without the QE, people would never have become aware of the governments ability to create money. They would be able to decide with far more legitimacy that they need to raise tax, or make cutbacks. By deciding to go down the QE route, the government has taught the population that it is 100% in control of its currency, there are no such thing as bond vigilantes. And now the cat is out the bag.
You ignore the reasons why they introduced QE that I explained in Sunday
There are many dimensions to this
They cannot be ignored, even if outdated now bu events
It must be difficult for some to admit that, all that they held to be true, was infact wrong. Credibility in shreds.
It’s a slow process of acceptance or stubborn denial till the end.
Events will overtake the deniers
.
What is the alternative to MMT going forward?
Death by a thousand cuts?
The debt will never be paid off and everyone will notice.
Well, its about time if you ask me.
But its the orthodox economists that worry me the most.
The article says “MMT is inoperable” but it is operating now there is just a reluctance to admit it. The danger is in a misguided attempt to put the cat back in the bag and re-introduce austerity measures.
Do you know where Joe Bidens new Treasury Secretary appointee Janet Yellen is in regard to MMT?
Nowhere..as far as I know
Quoted in March 2019, she was against
https://www.bloomberg.com/news/articles/2019-03-25/yellen-says-she-s-not-a-fan-of-mmt-as-list-of-detractors-grows?utm_source=url_link
Sources tell me she is listening and observing
Interesting that the Times thinks that MMT is “inoperable” as a general economic principle but quite happy for it to become very operable for the pandemic crisis to pay for the furlough scheme. Similarly after the fiscally suicidal policies in the 1920s and 30s they were quite happy to spend unlimited amounts on weapons and forces for the Second World War without even blinking.
Adair Turner (Chairman of the FSA until it was abolished in 2013), in his book ‘Between Debt and the Devil’ (2016); and whom we may speculate, at the time of the Crash and afterwards, may have been one of those senior finance sector apparatchiks who were bamboozled while operating in the space between the two protagonists he describes in his title ; has the presence of mind to acknowledge that: “Central Banks and Governments together can create nominal demand in whatever quantity they choose by creating and spending fiat money. Doing so is considered taboo – a dangerous path toward inflationary perdition. But there is no technical reason money finance should produce excessive inflation, and by excluding this option, we have caused unnecessary economic harm” (p.214). He kens noo.
A Taboo in anthropology may be viewed in these terms: “According to anthropological definitions, tabooed behavior–be it verbal or otherwise–must be negatively sanctioned. Sometimes sanctions take the form of public rebuke. At other times they are expressed through collective scorn or ostracism.” (SH Brandes, ‘An anthropological approach to taboo words and language’; 2018).
The effect of a Taboo is to eliminate an idea so dangerous to the prevailing ideological orthodoxy that it requires to be expunged from legitimate enquiry and consideration altogether. The only acceptable acknowledgement of the Taboo subject’s existence is indirectly, through the tolerated resort to abuse, or ridiculing apologists for the taboo subject. MMT becomes the Magic Money Tree. A special air of hushed reverence surrounds the sanctified terms ‘Taxpayer’s Money’, or the ‘Household Budget’ in a contrasting reinforcement of the ritual political obligations paid by neoliberal, orthodox authority to ancient public shibboleths that preserve the endemic ostracism; even as the defenders of neoliberalism use their authority and power in government and banking by applying the mechanisms and methods of MMT in an international pandemic crisis; but with the wanton, unfocused abandon of an orthodoxy now lost, confused and out of its depth.
In the case of MMT, the problem from the very beginning, was that the essential idea within it revealed to the world the dirty little secret behind Austerity, delivered with lethal effect after the Crash (a crash that was in turn the sole responsibility of neoliberalism), and inadvertently divulged everything neoliberalism stands for: a shabby secret that the survival of economic neoliberalism’s credibility the apostles of neoliberalism in power now urgently required to hide. Mr Aldrick is struggling to come to terms with the depth of the intellectual and moral failure of conventional neoliberal economics; he wants to uphold his Taboo, while disavowing it.
So very well put
Orthodox economists not even aware that it was government created money that enabled the fluid exchange markets we have today! Many mainstream economists still stuck in the dark ages!
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557233
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2770569
Thanks for the links Helen.
Some more bedtime reading to put on my list 🙂