Saturday, June 8, 2019

Chris Williams - The economic virtuous circle at the centre of MMT

Labour’s shadow economic secretary to the Treasury stated, earlier this week, that Labour doesn’t support Modern Monetary Theory (MMT). CHRIS WILLIAMSON asks why not

I still don't think MMT is explained very well, and to say that the government can never run out of dollars because it can print more just doesn't wash with the public. My brother thought it sounded like nonsense until I told him that society gears up to earn the new money by producing more goods and services, and so the money is matched by more products and hence doesn't cause inflation. It gets an underperforming economy running more efficiently, I told him. 'So it's a stimulus' he said to me? 'You've got it' I replied. 

After years of TINA, it's going to take a while to get the public on-board, but it will be fun, as they realise how they were conned by the right all these years.

I watched a video the other day where an academic was criticising MMT, saying that governments can't borrow their way into prosperity anymore than the public can by being maxed out on credit cards. Was this guy really an academic, or was be just sprouting nonsense propaganda, i.e. more TINA, which the public have bought.

There's borrowing and there's borrowing? If a government goes into deficit to create tax cuts for the wealthy who then spend it on share buy-backs, yachts, and mansions, the stimulus will be low, but if it is spent on public investment, like science, infrastructure, and better education and healthcare, it increases prosperity. It's investment.

What business was ever started, or expanded, without borrowing money, not many? What house was ever bought without a loan? And many people have borrowed money to buy a second property to rent out and have made a fortune. 

Another article I read was how the Chinese government was investing billions into science and technology and so China was leaping into the future, but in the West we leave it to the private sector, which prefers stock buy-backs and asset stripping instead. 

Earlier this week Jonathan Reynolds, Labour’s shadow economic secretary to the Treasury, set out what he said were the reasons “why Labour doesn’t support Modern Monetary Theory” (MMT). But Jonathan’s analysis is flawed, and although he might not support MMT, increasing numbers of grassroots Labour Party members do.
In a piece he wrote for Labour List earlier this week, he incorrectly suggested that people like me think: “…countries with a sovereign currency (such as our Pound Sterling) can print as much money as they like to meet spending commitments, without any adverse consequences occurring, because the central bank can always print more money.”
But that isn’t what I am saying at all, and I haven’t come across anyone else who supports MMT saying that either. MMT merely recognises that governments can use their sovereign currencies to pay for anything they want to do. Not by simply “printing money,” but by investing to utilise any spare capacity in the economy that is available for sale in that currency, including unemployed and under-employed workers.
By harnessing public spending in that way, it would avoid the inflationary pressures that are created when spending outstrips the capacity of the economy to absorb it.
Put simply, MMT would free an incoming Labour administration from the unnecessary economic shackles that have bedevilled previous Labour governments and it would help to facilitate Labour’s progressive programme.I
The Morning Star


Andrew Anderson said...

What business was ever started, or expanded, without borrowing money, not many? What house was ever bought without a loan? And many people have borrowed money to buy a second property to rent out and have made a fortune. KV

What borrowing? Have you forgotten that "bank loans create bank deposits"? There is no borrowing as you and I would borrow from each other. Instead there is the extension of the public's* credit but for private gain.

*Because of government privileges for private banks such as government provided deposit insurance.

Kaivey said...

That's true, Andrew, the money doesn't really exist, but (the promise to do) work does.

Andrew Anderson said...

So driving people into debt slavery via government privilege is virtuous?

And the rat-race is good? And the boom-bust cycle? And the wars that result from it? And the environmental destruction caused by the need for endless growth to pay the interest?

And, and, and ...?

Kaivey said...

Micheal Hudson says every time there is a bust we get deeper into debt to get out of it. The people who issue credit must be laughing, because they don't have to do anything much to get rich. The debt can just pile up.

Andrew Anderson said...

Our current banking model is a relic of the Gold Standard when fiat was too expensive/scarce/difficult to create for everyone to use without deflation so credit from private banks filled in the resulting vacuum. And since that source of purchasing power is lent into existence (not to mention for interest that does not necessarily even exist outside fiat hoards) it is unstable unless heavily privileged by government.

Now that fiat is, as it should be, inexpensive and easy to create, what excuse is there to continue to privilege the banks and, by extension, the rich, the most so-called credit worthy?

Or is stealing from the poor, the least so-called credit worthy, virtuous too? To create jobs for them? Except the "job creators" are now largely job destroyers via unethically financed automation.