Sunday, February 3, 2019

Richard Murphy—A challenge to Simon Wren-Lewis on modern monetary theory and Labour’s fiscal credibility rule

Richard Murphy challenges Simon Wren-Lewis to put up or shut up.
So my question is, I suppose, inevitable. What I would like Simon to do is show how he and Jonathan Portes have written, as he claims, a rule that delivers a real-world political economic solution (because that is what Labour's rule is, because it is not an academic paper) that is the same as modern monetary theory. And I want him to show this even though:
i) The rule he has written works subject to financial constraints, and not the constraints of the physical economy, and
ii) It does so even though it requires a balanced current expenditure budget and modern monetary theory quite specifically does not;
iii) MMT does not set time limits for actions to resolve funding issues and the Portes / Wren-Lewis rule does.
What I would also like to see is Simon's own explanation of why MMT does work, since he accepts it does, and his explanation as to why Jonathan Portes is wrong in that case.
Of course, the explanation can be theoretical, but I should add that this is really about the political economy. This would not matter nearly so much if Labour had not adopted the Portes / Wren-Lewis rule. So the explanation has to work at that political economic level as well: i.e. the power relationships inherent in the two approaches also have to be the same for the challenge to be achieved as that is what political economy is concerned with....
Actual policy is where the rubber hits the road.

1 comment:

Ralph Musgrave said...

I suspect Murphy has been taken in by the first three sentences of Labour’s fiscal rule which advocate balancing the budget, an idea which every MMTer and most economists know perfectly well is nonsense.

I’m 99% certain those sentences were just inserted by Labour POLITICIANS with a view to winning votes from the large section of the population which thinks government deficits and debts are the stuff of nightmares. Murphy is politically naïve. BTW, the rule is here: