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Can you please send to the author of this BBC article?
https://www.bbc.com/news/business-50504151
I doubt they’d notice…
The pictures alone suggest that was a shoddily put together piece
BBC News is dreadful when it comes to macroeconomics. At least another part of the Beeb has a clue…
https://www.bbc.com/reel/video/p08jbbry/why-we-need-to-debunk-the-deficit-myth-
Indeed
Richard
I was and am a big fan of MMT but my ardour was dented by this seemingly authoritative and expert critique by a seriously powerful, but obviously market oriented, financial economist. I would like your take on it if possible.
My first post!
https://wcoats.blog/2019/04/14/modern-monetary-theory-a-critique/
Well, that’s interesting.
Firstly, you base your rejection of MMT on the basis of it being Keynesian, And yet you offer no alternative analysis (and nor does the author that you cite) as to how the economy should be controlled when it is very clear that monetary policy has ceased to have any realistic impact given that interest rates are at the zero bound. What is, then, your preferred economic policy?
Second, the lack of citations in the pice you quite is telling: selective quotation hardly makes a case.
Thirdly, have you read Stephanie Kelton’s ‘The Deficit Myth’ i.e. have you really appraised the evidence or have you simply read one rather ill-informed blog (and I am being kind there) and formed an opinion?
I think your research is rather too limited. I cannot refute all the errorsin detail” Stephanie does
To be fair to Alan, he is not suggesting that he personally shares the views of the article. Like many of us I suspect, who are scrabbling up the MMT learning curve, he is working out how to unpick the critiques of MMT. And there are many more critiques than supportive pieces currently, many from heavyweight sources.
Reading the piece as an amateur it comes across as the standard monetarist, neo-classical critique of MMT, with all the assertions, assumptions and political biases that implies. The sentence that suggests bank lending is funded by deposits was a give away. The author might want to read Andy Haldane (BofE) paper from 2014 that explains how money is created digitally.
It would be helpful to have a checklist of the standard claims of conventional economists and the counter arguments. Deficit Myth (that Im half way through) provides some of it.
So to Alan – do read Deficit Myth and then see if you can dissect that critical article. I think Kelton provides a lot of the counter arguments.
I’d also recommend the podcast Pitchfork Economics which includes an episode with Kelton:
https://podcasts.apple.com/gb/podcast/pitchfork-economics-with-nick-hanauer/id1445901378?i=1000480302812
American, but covers many of the same issues discussed here
Richard has offered some strong counters to the points raised in the article cited by Alan Doran but like Robin Stafford, I did not read Alan’s comment as a straight denunciation of MMT, but rather as a recognition of the difficulties faced in promoting it against the massed forces of orthodoxy.
Having now read Warren Coates article and its attachments I note that although eminent in his field, he is ‘Chicago School’ trained and his PhD examiner, back in the day, was none other than Milton Friedman himself. We need no reminders that these are the people whose ideas have dominated mainstream thinking for the last 40 years and their version of ‘the truth’ is going to take an awful lot of effort and patience to challenge and dislodge.
Reading Coates also provides a timely reminder that Economics is arguably closer to religion than science in its epistemology. I must admit to a wry smile when he mentions the role of theory and empirical validation in his piece; this from someone who believes in the the sanctity of PQ=MV (the Quantitative Theory of Money) as a valid explanator of the relationship between money and economic wealth.
Its surely safer to accept the premiss that systemically, Politics and Economics are inevitably intertwined and the latter cannot be decoupled and examined scientifically in an ideology free zone. This is usually quite apparent when we look at beliefs on ‘the other side’ but we probably need to accept that it applies on our side too.
Thanks
Thanks Alan – Im tempted to say that Coates’ articles is quite useful as it captures most of the arguments used against MMT, however wrong headed or unjustified. A deconstruction of the article, with the points it makes and their refutation would be a a powerful tool for anyone trying understand MMT.
Im not sure Im qualified – perhaps we should crowd source!
I am not see I have time….
I agree entirely Robin and I actually went back to the article again to see if I could, in my own amateurish way, begin to attempt such an exercise. But I found that given the structure of the presentation it was not that easy to pin down precisely the salient critiques that he was making or more precisely,how he backed them up with robust theory and tangible empirical evidence.
For example, he makes value judgements such as “MMT is an unsuccessful attempt to convince us that we can finance the Green New Deal and a federal job guarantee painlessly by printing money”.
Such attribution of ‘unsuccessfulness’ may indeed reflect his judgement but his substantiation of this judgment often appears somewhat haphazard and self-referential.
Similarly he says “Printing money does not produce free lunches”. Well which MMT scholars exactly have said that this is the essence of what its all about (although ironically, as an aside, some of us have indeed enjoyed a couple of half-price lunches this week, courtesy of that most unlikely benefactor, his munificence the Sunak). Prof Coates misses the point that its human and other resources that produce ‘the lunch’ and all that MMT says is don’t let us obstruct that process of production by claiming there is insufficient money available.
He then goes on to say “MMT claims to be aware of the risk of inflation and committed to stable prices (an inflation target) but ignores it most of the time”. This may indeed be his perception but this is surely a total distortion of the proposals made by scholars such as Kelton who refer extensively to the inflation constraint.
I was left feeling that in many instances it was a bit like wrestling with a blancmange. Before we could seriously begin to deconstruct and analyse his arguments they would need ideally, to be more clearly structured. For example, perhaps he could have placed them in a numbered sequence following a format such as ‘here is a seminal MMT proposition. Here is why I judge it to be wrong and here is the proof that it is wrong’. This might have been a much more constructive basis for reasoned analysis and debate.
Thanks
I did not engage with it for the reason you have not
It does not include an argument but is instead hyperbolic
“Regions like Scotland and…”
But apart from that, a great video, good to have the uk context for MMT, apart from being geographically challenged.
This isn’t a cheeky question Richard, but which kingdoms do people in England think were united to make the United Kingdom? You know, where do they think the name comes from? I find it unfathomable that the entire population of one of those Kingdoms doesn’t actually know, but every time I see casual mentions like this from intelligent people – I don’t know what else to think.
It is astonishing that they think Yorkshire and Scotland are equivalent, I agree
In terms of being non-money issuing governments they have some similarity, I agree
But regions? I agree…
Well, it’s going to be a good test to find out if anyone actually watches the video when I post it – if there is no angry commentary back I may be failing to inspire! It will, unfortunately, take away from the fact that Scotland is not a currency issuer which is good to emphasise (if they get the region part wrong,,, what else have they got wrong? So it loses credibility).
I quite often wonder how things may have been different if (each of our countries had) a different capital city – what if York had ended up as the seat of power in England (as it very nearly did)? Think of the change in demographics – London is pretty much very far away from anywhere else in England – would York have been more central and as such ended up giving a more even distribution of power? (And for Scotland, Perth instead of Edinburgh). I don’t really know enough to consider all the things that might have been different – but surely location has a big influence on how well a country can be run – or do we need the seat of power to be more remote to give it more respect? Could something as simple as location of the seat of power change how that power is used?
Then I sometimes think – what if you had a roving capital city? Say it moved every 50 years – towns and cities could put bids in like for the Olympics – and this would give different places around the country each a chance to get the kind of inflated investment capitals get, over the centuries – it would also stop inflated house prices and such like, because your location might not be quite as sought after in a few years! But after a few centuries you should end up with a country with equally well kept infrastructure and investment in all areas – surely?
Just part of my idle musing, triggered by the mention of Yorkshire – which I certainly have nothing against as I’m part Yorkshire (though very few family left there now) and have fond memories (haha, my great granny had an outdoor toilet! I’d never seen the like before), and it does have the same population as Scotland I believe, but it is STILL just a region of England.
Interesting….
And my granny had an outside loo and a tin bath hanging on the kitchen door….
I’ve just watched the video and, to be fair, what the voiceover actually says is “None of us, whether the nations ‘n’ regions like Scotland or Yorkshire, nor business corporations, nor individual households, can issue the Pound.”
I’m as annoyed as anyone by the tendency of many politicians and commentators to treat Scotland as a region rather than a nation but I don’t think it helps Scotland’s cause carelessly to take the phrase “regions like Scotland and” out of context to make what is in this case a spurious point.
The real point is that this a well-produced, clear and persuasive video about MMT.
Ah yes, I did indeed miss the ‘nations ‘n’ regions’ – it was the flow of narrative ‘regions like Scotland and yorkshire’ that caught my attention in that flow, while associating the ‘nations’ with the previous phrase. No inaccuracies then! My apologies.
It’s factually incorrect, legally, constitutionally, historically etc, for Scotland to be called a region, not so much I took any offence for it – if I got offended every time it happened,,,, well, yes it is common.
The video actually says “nations and regions like Scotland and Yorkshire …” So at least hints at Scotland’s standing. But, sure, they would never have thought to say something like “nations and regions like England and Ayrshire …”
I’m not aware that England has a unitary authority that acts as a currency user. As such, to use that as an example would have been silly.
Excellent video to go with the deeper education of Richard Murphy’s mini lectures.
BUT… on money creation by the regions, I venture a clarification? Do tell me if the following statement is not correct.
In 1844 the Bank of England (created in 1694) became the SOLE issuer of bank notes in England (previously local regional banks were able to do so). That model of central national bank has been spread throught out the world. Thus the model of control of money creation was centralised and these ‘central banks’ were actually privately owned!
As they still mostly are.
But now it is nationalised
Sadly, when you challenge individuals on their comments in the media about their understanding of the UK’s monetary system they just throw insults back that you’re a screwball MMT fanatic. They never offer any evidence to prove why MMT is wrong and their understanding of the UK monetary system is right. The only conclusion to draw is there are a lot of voters in the UK who are just lazy yobs. It’s very understandable when you encounter such individuals why the country’s in decline because it’s an ill-informed and loutish political system that barely deserves to be called a democracy!
Helen, there are also a lot of voters who have never had a chance to hear another narrative. Of course there are those who we will never convince but the majority are almost certainly open to a new narrative if it is put to them. I just hosted an “MMT discussion group” this evening. I had 15 folk ready and willing to come along to a face to face meeting to find out about MMT – we had to revert to a Zoom meeting as covid19 restrictions in Scotland do not currently allow 15 folk to meet indoors. We still got 9 at the Zoom meeting (tech issues prevent a few from joining). During the discussion it was totally obvious that some had a “Wow” moment, others still need more time to get to grips with it. This is bottom up “missionary” work and there is no short cut to winning the battle for hearts and minds. Scotland would never have become a Christian country if the early missionaries had dismissed the Picts as a bunch of “lazy yobs” – the same applies now.
The video you shared here Richard is another useful means of getting the message over and I have shared it with the discussion group since we finished or meeting.
The MMT narrative is essential to building a properly functioning democracy in which people can make informed choices about what they want and how it can be achieved.
Thanks for sharing Jim
Good luck!
Jim says: ‘The MMT narrative is essential to building a properly functioning democracy in which people can make informed choices about what they want and how it can be achieved’.
Most people assume that government sees this as its role. Sadly this is a myth even more pernicious than the ‘affordability’ myth. All democratic governments see democracy as a necessary restriction to their freedom of action. This government sees democracy as an unacceptable restriction on its freedom of action and does all it can to undermine it, from its fervent support for the undemocratic FPTP election system to the illegal prorogation of Parliament and its intention to curb the power of the judiciary who pronounced it illegal.
If only getting such as Leveson ‘done’ were as fanatically pursued as Brexit…..
PS Thanks so much for the MMT video. It’s a wonderful educational tool!
Thank you Jim
I was beginning to think I was a lone voice, ‘crying in the wilderness’.
The only thing I’d take issue with you on is the statement “there are those you’ll never convince”. I truly feel that given enough time, patience and most importantly empathy and humour, you can convince everybody.
That’s why I despair when I see so on Twitter so called intelligent people engaging in bitter slanging matches with16 year old unemployed labourers.
On that point I remember being employed as a Key Worker, working with young homeless kids, tasked with providing the necessary skills to enable them to ‘hold down’ a council tenancy.
The policy in Scotland re care leavers was and probably still is, to place them in homeless hostels to mix with drug users, drug dealers, people with mental health issues and others with deep seated anger issues.
There were two contrasting philosophies at work.
1. What I call the ‘my door is always open’ approach. Lay down the rules and put the onus on the youngster to obey and if any issues arise then it’s the kid’s responsibility to come and question.
2. What I call the ‘outreach’ approach. Allow the service user limited time to come to terms with what he / she must feel is a hostile and frightening thing.
If the kid misses, either deliberately or by accident, a pre-arranged meeting/session, go to him/her, spend time, have a laugh and a joke etc.
To utilise option 1 could lead to entrenchment. A kind of “if that’s what they think of me then f**k them that’s the way I’ll be” mindset.
Sorry if you think I’ve strayed off topic with the analogy and I know patience and tolerance are perhaps now regarded as quaint and old fashioned in todays two hundred miles an hour environment but as you rightly say to do otherwise is counter productive.
David Livingstone (another famous Scot) didn’t convert masses to Christianity
by dismissing the natives as “bloodthirsty stupid yobs”
I produced this video and wrote the text. This is an interesting kerfuffle over whether I called Scotland a ‘region’ and an unfortunate misquotation. For many reasons, not least living the vast majority of my years in Scotland, I am very aware of Scotland’s nationhood. I am also sympathetic to the notion of Scottish independence. The text is accurate: nations and regions like Scotland and Yorkshire, both of which are currency users in the context of the piece.
Thanks David
And good work
Apologies David, I did mis-hear the precise wording – no kerfuffle on Richard’s blog – and it did give us the opportunity to discuss outdoor toilets. And for me to indulge in a bit of thought experimenting.
I wrote a reply above to someone else before seeing your comment here – though I still hear even now, from the flow of the narrative, ‘regions like Scotland…’ rather than ‘nations and regions like,,,’ – just niceties of how phrasing goes together with pauses and emphasis, and might be my particular way of listening. But I certainly haven’t mentioned it anywhere else I have posted your video, so you have absolutely not had any bad press from me, except the mention here quickly shot down.
It’s a great video, and fabulous to see something on MMT with graphics that specifically relates to the uk, so I do really appreciate your time and effort spent.
In fact, it just came to me there, it was the use of plurals that threw me off: ‘nations’ (only one nation mentioned) and ‘regions’ (only one mentioned) – usually with the plural you would want more than one example ,,, perhaps – I’m no grammatical expert. So my brain automatically expects several regions to be mentioned and ignored the nations as relating to something we were not given examples of. It’s not a big deal though,,,
I just tend to overanalyse!
Dave Woods
The video is great.
I will share far and wide!
Keep up the good work.
Richard.
Is the video going in the wiki resources section?
Just on the wiki. I find it quite a hard to navigate to the videos. I can never remember where they live. Perhaps it would be better if a link to them was on the home page?
That is on my rather long list of things to do
Thank you David Woods and colleagues, I found that video helpful. Apologies if this has already been posted, but I was surprised to come across this BBC Reel giving the floor to Stephanie Kelton to debunk the deficit myth. Perhaps the ‘umbler parts of the Corporation are allowed to broadcast this kind of thing, as long as it is kept strictly off the main news and current affairs programmes. https://www.bbc.com/reel/playlist/rethink?vpid=p08jbbs4&fbclid=IwAR2R3O8b_ozD9oniWVt0hn1erP0Q9BRmYrAvhZAy0v089T5jDX0KjOh6sNg
please stop arguing about regions – get that Scotland is a nation and I support Scotlands right to self-determination via a new vote on independence (don’t want them to separate from UK but if they choose so, so be it). However that is not the point here; there are two I can think of in this moment 1. how do we get more people to stop swallowing the Tory story about national debt which they use as a reason to reduce the state, which has been/is a disaster for most people and 2. how do we get other political parties to openly adopt these ideas as policy and work to persuade enough of the electorate to believe and vote for it.
Exactly so Ellen. It is inconceivable that Osborn did not know that his austerity policy was based on a lie. After all he justified HS2 with MMT reasoning. This is indeed the real scandal that no-one seems to recognise.
Ellen asks “how do we get other political parties to openly adopt these ideas as policy and work to persuade enough of the electorate to believe and vote for it.”
There are no easy answers to this question but I will reiterate what I said in my previous comment…..that bottom up “missionary” work is an essential part of it. Political parties are pretty much top down, command and control organisations but they are mass membership based organisations. Their members have at least some active interest in political and economic matters so they are a good place to start. My attempt to form a local “MMT discussion group” is aimed at people who are active either in a political party (the SNP in this case) or another campaign group such as the local “Yes” group . and members of the local Extinction Rebellion group for example. Hopefully this is the basis for a viral spread of the narrative of MMT upwards through these party and non-party political networks. The SNP leadership is already under pressure from within the party to adopt a Scottish currency at independence, thanks to the stirling efforts of Tim Rideout and there is a growing interest in MMT within the Yes movement in Scotland and the SNP membership. Richard’s work is an invaluable contribution to this process as it is creating the narrative that can be carried by the messengers on the ground.
And there you have the problem in a nutshell.
In World War 1, the British Soldiers were described as
‘Lions Led By Donkeys’ and nothing seems to have changed.
Everywhere I look now I see the proof
Take the media. The BBC for example.
The Lions (the brilliant and dedicated journalists) must be so demoralised at having their efforts vetoed by the donkeys.
A similar tale can be told re the NHS.
Politics is another example.
Alas the system is designed to encourage and promote the donkeys whilst discouraging and punishing the lions.
And unless this is changed things will keep on deteriorating.
Andy Nimmo.
I know all I know because someone else educated me.
People don’t understand MMT because they haven’t been told/educated about it.
Why were we not all taught about it at school?
Because they don’t want us to know!!!!
I am 54 and have only really asked myself the right questions and faced my ignorance in the last five years. You can’t blame people for not knowing. They have been let down and misinformed by those who should be informing them.
A question.
You have explained that MMT is not so much a theory as a description of how economies actually work.
It says that a country with a fiat currency can decide to invest in what ever is needed, subject to the capacity of the countries resources.
That is not too difficult to imagine for England, but as soon as you include the other parts of the UK, it starts to get more difficult because some have very different priorities — like Scotland.
Looking at the EU and USA. How would it ever be possible to get agreement for investment in Texas and Maine or Washington or in Germany, Spain and Romania.
In USA, states have their own local taxes, I believe.
Is it really possible for very large unions to operate economies or is it necessary to break them up into smaller Fiat economies? (And let the unsuccessful ones starve to death?)
MMT is intimately related to fiat currencies and describes management with such a currency
Subnational government has, in that case, top work on the household, currency user framework
I see no way around that
I do not think that is the end of the world
But isn’t the Euro currency a fiat currency for the whole EU? And the $ for the whole USA?
Yes
So?
Norman Willcox.
I’m not sure what your argument is???
MMT shows how government spending is financed, not how that money is spent.
Does Scotland, Wales, NI have different priorities than England????? Perhaps but that doesn’t say that what MMT claims is wrong.
If the right wing wants to build 20 aircraft carriers and the left wants to build 20 hospitals, MMT just says how they can be financed, not on the merits of each project.
I agree
This is a difficult comment to understand
Hello Vinnie.
I am not arguing — I have been easily persuaded that MMT describes how money works.
There does seem to be some pressure to get hoi polloi, and perhaps even more so, politicians, to accept that MMT is true and to stop asking “where is the money coming from”.
So what? I suppose I had felt that if MMT could be universally accepted then we might all benefit from an economy that worked for all and would reduce the unfair distribution of wealth.
But MMT doesn’t do that, as you say. It seems to me that unless it could do that then it is just an academic discussion with little practical value.
I suppose if the Chancellor gave a statement telling the electorate that, given the high unemployment conditions, he was free to issue as much money as was needed to improve the UK economy, and that he would now like to have from anybody and everybody costed proposals for projects, that might put a cat amongst the pigeons. I guess he would be instantly dismissed by pressure from the rich elite backers, fearing that they would lose the ability to play banking games.
The range of proposals of the way to spend the budget would be very disparate, coming from rich and poor areas and the difficulty of deciding the best and fairest way to allocate spending would not have been made easier. There is a significant proportion of the electorate for whom finding a fair distribution is absolutely not an aim!
So yes, you are right. I know nothing. Now I am resigned to seeing no change for the better.
I am still baffled Norman
MMT describes how the system works
And it suggests as a result very clear policy options that most economists don’t consider to be available
As a result things like the Green New Deal are on the policy agenda
I am not sure how you are concluding what you do
I understand your point that the politicians, converted to believing MMT, could then see that options like the Green New Deal might be doable at the moment, but they still might not do them – with this lot they certainly won’t!
I also looked at the other end; if we should arrive near utopia and have full employment but unfortunately, the government still has not arranged for proper health and social care and effective classless education, what will MMT show the economists they should do? Presumably they should now find something or someone to tax more heavily so that people are thrown out of work to provide budget space for more investment?
It seems to me that what the country needs is a major shake-up of our democracy so that more enlightened people get to decide on how the economy should be run for the benefit of all – explaining the workings of money does not, of itself, fix that.
I am sorry if I have taken the blog off-piste. Perhaps I should now let it lie.
I still like watching and value your videos – thank you.
Re your second para, what I think I find odd us your use of language
What is wrong with choosing healthcare etc?
You clearly get MMT
Great video. At last someone has made one that fully explains how our money system works. I have been trying to do it by chalk on board. Adopted for out Facebook group The Green New Deal Party as we are writing a manifesto at present. The rest of the UK Parties seem to have forgotten about climate change and environmental collapse and Labour has gone back to the right, basically accepting the economics of the past, which is appalling. We are a socialist Party who believe that tackling poverty, inequality and injustice is part and parcel of the Green New Deal. Thanks for putting this up. Have watched all your other YouTube stuff btw.
Thanks
It’s more of a problem in top down command and control political systems where priorities are set by a powerful central government. If the principle of subsidiarity is applied local communities, districts and regional bodies play an active role in deciding on the priorities for the society and money can be allocated from the central government in line with those choices. It’s all about the quality of the democracy.
I have no problems with MMT and to say that its essence describes the modern banking system is a truism. I have reservations about what it is being asked to do. There is a touch of the Philips Curve mentality in the back ground – a trade off between unemployment and inflation and a belief that somehow the wisdom of governments can efficiently allocated money to the right projects to bring about more public goods whilst keeping private consumption steady. I am not saying that governments cannot make enlightened decisions I am saying that they can make spectacularly bad decisions – badly built high rise flats, inefficient commerce, mono forestry overpriced public goods like HS2 and public procurement. I think disconnecting MMT from green new deal and full employment would be a useful start. (Even though I support in principle these aims.) All natural systems have limits and money by itself cannot bring goods and services into existence. Inflation is a horrible experience. A universal tax particularly viscous to those on fixed incomes. The idea of full employment is a deeply complex problem set and not an easy metric. I believe that having modest aspirations for MMT is the best way for it to succeed.
I am baffled?
Why would you want to set the objective of failing?
Do you work for Ofqual?
Or No.10?
Steve Bollen.
“All natural systems have limits and money by itself cannot bring goods and services into existence.”
I agree.
But where does MMT claim that the money alone can bring goods and services into existence?
The limit is always the resources available to utilize.
MMT just states that a lack of money is not the constraint, real resources is.
Spot on
And succinctly put
“I am saying that they can make spectacularly bad decisions — badly built high rise flats, inefficient commerce, mono forestry overpriced public goods ”
That’s not a criticism of the “wisdom of government”, but of the UK’s dysfunctional democracy under our grossly unfair FPTP voting system. So right now we find ourselves stuck with the “spectacularly bad decisions” of the unbelievably awful Boris Johnson (&, lets not forget, his pal Dominic) who gained 100% power on 43.6% of the vote.
As George Monbiot rightly puts it, in the context of Covid & the climate and ecological disasters, “We have the worst possible leaders at the worst possible time”.
Its time for progressives (especially Labour ones) to get real and switch to PR asap.
David Smith has an article in today’s Sunday Times about MMT. Lots of comments have been made.
I do not have a Times sub
But I have seen an extract
It’s the comment of someone who has not the slightest comprehension of macroeconomics, as endorsed by Ann Pettifor