The politics of MMT

The politics of MMT

I was prompted to remember some of my recent Macroeconomic reading as someone was asking about Modern Monetary Theory (MMT). I read Reclaiming the State (Gibson & Faizi) last year, and I picked it up again to re-read the section on International Trade. I have not yet finished it, but I remember thinking that while public finance may not be a constraint on the economy, the long term balance of trade may well be, even for a monetary sovereign.

Meanwhile this article “Brexit the slippery slope of left sovereigntism from modern monetary  theory to spiked” at https://tendancecoatesy.wordpress.com explores the political inertia that MMT’s exponents may be riding. Much of it is based on an interview with James Meadway, once John McDonnell’s economics adviser which is available, at the link below/overleaf. For Coatsey’s regular readers they will be unsurprised at his pugnacious attacks on Faizi’s endorsement of the Full Brexit and Spiked. Meadway’s musing are interesting in that he emphasises that MMT, like Keynesianism  says nothing about inequality and ownership of the means of production. The interview also addresses the moderation in Labour’s 2017 Manifesto. Below/Overleaf are links and excerpts for further reading of Meadway’s views …  …

Thinking about macroeconomics with Anneliese Dodds

Thinking about macroeconomics with Anneliese Dodds

While writing, Responsible Opposition, about Sir Kier Starmer’s 1st speech of the year, I pointed out that Anneliese Dodds would be giving the Mais Lecture, which had been previewed in the Financial Times (paywall). They said that she will,

 …  call for a ‘responsible fiscal framework’ based on ‘pragmatism, not dogmatism’  … [and] … signal … that the Labour party is backing away from the hard-left economic policies of former leader Jeremy Corbyn, seeking instead to fight the Conservatives on economic competence and protecting the UK’s recovery from the damage caused by the Covid-19 pandemic.

Chris Giles – Financial Times

The speech has now been delivered and I heard/watched it live. The first thing to say is that I do not consider this to be a repudiation of late stage Corbynomics.

I needed help to work out what was said, it was a very low key speech, certainly not in the style of a UCATT shop steward, more in the style of one of the academics from the cast of Inspector Morse. There was no emphasis and so we need to work out what’s important and what is just said in passing. Stephen Bush points out the unusual nexus of welcome from James Meadway & Chris Giles, he writes,

… [ the speech] attracted a glowing write-up from the FT’s influential economics editor Chris Giles and an approving tweet from James Meadway, the adviser who more than anyone bar John McDonnell himself shaped the Labour Party’s economic strategy under Corbyn

Stephen bush – New Statesman

Meadway’s tweet was trolled by Richard Murphy, who was one of the authors of Corbyn’s original Corbynomics manifesto and is a supporter of modern monetary theory (MMT), but Labour stepped away from these monetary & fiscal policy  ideas after 2016.

I found the speech underwhelming, almost academic in its tone, which given the host may have been appropriate. I am certainly of the view that it is not a step away from or a rejection of McDonnel’s policies. If anything, the call for a ‘responsible fiscal framework’ based on ‘pragmatism, not dogmatism’ is an attack on Osborne and the politics of austerity and his remaining fans in the Tory party. She praised the independence of the Bank of England, but this has had its problems; it failed in 2008 and it was politicians that rescued the economy and the argument for its independence is based on the argument that politicians and their electors can’t be trusted to make the right decisions. If those decisions are painful, why should they? Independence is a way of baking in neo-liberalism. She was clear however that monetary policy is not enough to build a successful macroeconomy.

Over-relying on monetary policy levers for economic growth – as the UK has arguably done for the past decade – can lead to undesirable outcomes. Without accompanying fiscal action, low interest rates and gargantuan quantitative easing programmes can exacerbate inequality and concentrate economic gains in the hands of those who were already asset-rich, at the expense of those who rely on income from their labour. Risky indebtedness, especially combined with a highly unequal distribution of assets, can exacerbate inequality.

Anneliese Dodds

She spoke on fiscal policy; did she repeat McDonnel’s Golden rule? If she did, she qualified it by saying that borrowing to invest is only available because of the low interest rates. I have two things to say, firstly, I thought interest rates are a policy instrument, so if a government which is a currency sovereign wants them low, then low they are! Secondly, defining what is current account expenditure is not simple. Why is the education budget not considered an investment in human capital?

Is this as good as it gets? We are to be grateful that a Labour Shadow Chancellor still intends to borrow to invest and that monetarism is no longer part of Labour’s macro-economic tool kit.

On the upside she mentioned wealth inequality and aggregate low wages as constraints to growth but no mention of remediation which would be an effective wealth tax, a better minimum wage, reformed procurement policies and labour law reform. She also mentioned critically the growth in value of unproductive assets, such as art and wine; but surely this is the result of quantitative easing and a side effect of the increasing marginal propensity to save by the rich, again addressable by a wealth tax.

She announced a series of technical changes to the budget management process, all of which are good, but not particularly left wing and so likely to be nicked by the Tories. These consist of ensuring equality & carbon impact analyses on the budget and spending plans and placing a longer term time frame on the budget together with using more very long term bonds.

I also noted that while it seems that Labour is committed to a high wage, high skill economy, our reticence to talk about the means by which we select the short and medium term winners is not talked about; under Corbyn’s leadership, the new National Investment Bank was to be the instrument for seeding innovation and new jobs, but the means of funding it, and the way in which loans and grant were to be allocated remains unclear.

I submitted a question on this i.e. selecting industrial and innovation winners, which the moderator, Prof. Barbara Casu put as her first question; if Anneliese Dodds had wanted to talk in detail, this would have been in the speech, it wasn’t and her answer to Professor Casu’s question added no clarity.

It was a very technocratic speech, delivered in a technocratic style, presumably designed not to frighten the horses. It was a rejection of both modern monetary theory (MMT) and fiscal consolidation but not a manifesto for socialism.

ooOOOoo

The speech was introduced by the Dean of Faculty at CASS, Paulo Volpin, and the questions moderated by the Professor of Banking, Barbara Casu. Both would seem have been initially educated in Italy, I hope that the new immigration rules post Brexit will allow others to follow their route and come to the UK to teach.

I have written previously about Corbynomics on this blog and also on MMT on my bliog, and on my wiki, and on QMT in my obituary on David Graeber, on the blog. …

More from Meadway

More from Meadway

I went to one of the local labour political education workshops at which James Meadway was speaking. Odd, since I had been reading of his views, in particular with respect to his contention with MMT; I wrote them up on this blog. but it was good to hear him in person.

I have written about MMT and its contention with the Labour front bench a couple of times and summarised my understanding of the MMT position on International Trade. A couple of years ago I wrote on their views on Monetary vs. Fiscal policy, this latter article also summarises and links to articles critical of MMT.

Meadway emphasised two things, “Not all Currencies are equal”, the dollar is still the international trade denominator. The second point is that making debt default the policy tool to deal with private sector foreign exchange debt is not wise as the biggest FX debt holders are probably HSBC and Barclays. While the UK public sector FX debt is tiny, this private sector debt is not and it’s questionable if we could bail the banks out a second time which since the ring fencing of retail and investment banks is mired in the swamp would jeopardise the people’s savings.

He also emphasised the importance of ownership, investment and universal services as socialist agenda items and thus the creation of an irreversible shift in power; not so sure my memories of Thatcher selling off the Mutuals is evidence that this will work but it will be a powerful manifesto. …

Fiscal credibility, ptui!

Yesterday, I went to a meeting on Brexit, Free-movement and immigration; conversation in the bar afterwards segued from, “why did a Corbyn led PLP argue to abstain on the Tories Immigration Act?” via a  post match analysis of Lewisham Deptford’s Brexit/Anti-Brexit meeting to consider the radicalism of Labour’s 2017 Manifesto and the development of macro economic policy since then; it doesn’t do so well when compared with the Corbynomics of 2015. One of the key developments since then has been the development of Labour’s Fiscal Credibility Rule, which promises to only borrow to invest.

To those who think this is smart, I ask why so-called current account spending on education is not seen as “investing” in Human Capital, but this is not it’s main problem.

However, I awoke this morning to see one of Richard Murphy’s tweets where he is contending with Jonathan Portes & Simon Wren Lewis, the rule’s author’s it would seem. It got a little testy. Anyway, here’s Richard, detoxifying, or not the twitter spat, and making the point that the Fiscal Credibility Rule is not based on Modern Monetary Theory. because it acknowledges the monetary constraint, and not the real world one. Murphy refers to his earlier piece, A challenge to Simon Wren-Lewis on modern monetary theory and Labour’s fiscal credibility rule in which he critiques the Fiscal Credibility Rule. My precis of his position is that the rule is based on a neo-classical approach, fundamentally legitimises austerity and fetishises debt reduction. I had a look for the Portes/Wren Lewis original position and assume that “Issues in the design of fiscal policy rules” is it.

My research took me to this, which Bill Mitchell claims to be his last words on the Fiscal Credibility Rule, the article contains the following powerful line,

The problem is that this reinforces the narrative that deficits and public debt are in some way ‘bad’ and as I note below this will not turn out well.

One of the problem’s exposed by Bill Mitchell’s article is that it suggests that the Fiscal Credibility Rule is a bit like Lord Buckethead’s nuclear deterrent policy, it only works if the secret is kept, in this case that Labour does not believe that the Fiscal Credibility Rule is a necessary macro-economic constraint even if the economists that wrote it do so.

ooOOOoo

To some extent, this article is just a reading list, there’s not so much of me in it., but I have promised myself a precis of Chapter 7/8 of Fazi and Mitchell’s Reclaiming the State, which is a relatively simple and short exposition of MMT. …

Money Tree

Dianne it seems got here finance numbers mixed up when stating that a Labour Government will recruit another 10,000 policeman but the short answer to how a Labour Government will pay for its programmes, is that they’ll grow the economy and thus increase taxes collected, they’ll borrow for infrastructure, they’ll print money for liquidity they’ll collect more taxes from the rich and close tax loopholes to ensure the rich and that companies pay their share. …

Beyond People’s QE

Beyond People’s QE

A day or two ago, Alex Little, published a blog post called ‘Lessons for Corbyn in “Lerner’s Law”’. Lerner’s law suggests that using your opponents language limits your ability to make the argument. Little quotes Bill Mitchell, the inventor of Modern Monetary Theory (MMT) as to how Labour’s leadership in articulating the Darling Plan and its successors talk about balancing the budget and fixing the deficit concede the argument to the Tories. Little’s article also points at Lerner’s economic theories, described as “functional finance” and points at the wikipedia article on it. He argues that by describing the proposed pump priming as PQE, and accepting that when growth takes off, the government may transition to bond financing, by even accepting that we need to live within our means, the theory and benefits from the a more overt radical financing will be lost. …