Thursday, December 6, 2018

UK Labour’s Fiscal Credibility Rule: Neoliberal Orthodoxy Dies Hard — Joe Emersberger interviews Bill Mitchell


The problem is that when you just define these fiscal aggregates within their own financial terms you’re really losing the purpose and meaning of fiscal policy. The purpose of fiscal policy isn’t to achieve any particular fiscal outcome whether it be a balanced fiscal position, or a deficit of whatever percent or even a surplus of whatever percent. The purpose of fiscal policy as a tool is to advance wellbeing in the economy, to engage in government spending programs which are consistent with its electoral remit, and taxation to manage total expenditure in the non-government sector so that there is space – and what I mean by “space” is real resource space – for the government to basically buy those resources and conduct its programs. Taxation creates that space by depriving the non-government sector of the use of resources...
This is the purpose of fiscal policy. In a cyclical sense – in other words in the variation of economic activity – fiscal policy should play a very important role in being able to offset any fluctuations in non-government spending that would either cause unemployment if it were not offset, or would drive inflation if it were not offset. Fiscal policy has to be flexible enough to allow the government to meet that purpose. If you start imposing rules that are independent of purpose then you are likely to end up not meeting that purpose but also failing to meet your rules....

UK Labour’s Fiscal Credibility Rule: Neoliberal Orthodoxy Dies Hard
Joe Emersberger interviews economics professor Bill Mitchell about the British Labour party’s fiscal credibility rule

See also

More MMT.

The Unheard-of Center: Critique after Modern Monetary Theory
Scott Ferguson | Associate Professor and co-director of the Film & New Media Studies Track in the Department of Humanities & Cultural Studies at the University of South Florida. a Research Scholar at the Global Institute for Sustainable Prosperity), co-founder of the Modern Money Network: Humanities Division), and co-host of the Money on the Left podcast


Andrew Anderson said...

Everyone knows that money makes the world go round. from

Not really since the general population, except for grubby, unsafe, totally-inadequate-for-modern-commerce physical fiat, aka "cash", may not even use fiat, aka "money".

Instead deposits at government privileged usury cartels, aka "the banks", is what makes the world go round - for the benefit of the banks themselves and for the rich, the most so-called "credit worthy."

Konrad said...

For two years I have accused the Labour Party of being frauds because of their “fiscal credibility” rule, which is the same as the US Democrats “pay-go” rule. Both rules call for “balanced budgets,” which effectively means cuts in social programs should be balanced by ever-increasing spending for war and for weapons makers. Thus the Labour Party is pro-austerity.

The leaders of the Labour Party and of the Conservatives (just like leading Democrats and Republicans) all promote the “national debt crisis” hoax. All echo the lie that the US and UK governments run on tax revenue. All work for Wall Street and the City of London. All work for the bankers.

Ralph Musgrave said...

The BS in Labour's new fiscal rule about getting the debt and deficit down is probably just there for show: i.e. the average voter is still wedded to the "getting the debt down" idea: politicians have to tell voters what voters want to hear.

The fact that the previous UK finance minister George Osborne kept wittering on about "getting the debt down" for years on end, only to fail in that objective worries the average voter not one iota.

In contrast, the bit in the new rule which says interest rate cuts shall be used to implement stimulus when rates are well above zero, while fiscal stimulus kicks in when rates are near zero is OK by me. That will man rates always tending towards zero, which isn't too different to the permanent zero interest rate idea advocated by Warren Mosler and Bill Mitchell.

Andrew Anderson said...

That will man rates always tending towards zero, Ralph Musgrave

Fiat rates tend toward zero percent because only the banks and other depository institutions with accounts at the Central Bank may use fiat*. Hence artificially suppressed DEMAND. You OK with that? That citizens may not use their Nation's Fiat? But only a government privileged usury cartel?

which isn't too different to the permanent zero interest rate idea advocated by Warren Mosler and Bill Mitchell. ibid

I don't know about Bill Mitchell but Warren Mosler, ex(?)-banker, would allow banks, etc. to borrow unlimited amounts of newly created fiat at ZERO percent from the Central Bank. You OK with that too?

*except for mere grubby, unsafe, totally inadequate for modern commerce physical fiat, aka "cash."