Tuesday, June 11, 2019

Labour's fiscal credibility rule isn't neoliberal–whatever MMTers say — Simon Wren-Lewis

Simon Wren-Lewis's response to Bill Mitchell proves Bill's point. I can't wait to see Bill's smackdown, if he bothers to respond. I don't have the time to waste. SWL is out of his league here.

SWL doesn't get that the conventional approach is neoliberal. Reiterating it and saying it is not neoliberal doesn't cut it. I have little hope that SWL or the rest of the left neoliberals will ever get it. They will have to be replaced.
Simon Wren-Lewis | Emeritus Professor of Economics, Oxford University

See also

Olivier Blanchard shows his neoliberal colors.

Market Watch
Greg Robb


Kaivey said...

I bought the New Statesman in my youth thinking it was socialist. Well, maybe it was a bit, but it's really just another liberal waste of time like the Guardian.

Ralph Musgrave said...

I’m with Wren-Lewis on this one. Labour’s new fiscal rule (which WL helped compose) is actually not much different to MMT. The rule basically says that when interest rates are at or near zero, fiscal stimulus should be used, and when interest is well above zero, interest rate cuts should be used to impart stimulus. In short, under Labour’s fiscal rule, interest would bump along a bit above zero.

That’s not much different to Warren Mosler’s permanent ZIRP is it? Actually I don’t fully buy the latter idea: i.e. I think (like Milton Friedman) that letting interest rates go above zero is a useful option to have in reserve for emergencies.

As for why Bill thinks Labour’s rule is neoliberal, possibly that’s because the first two sentences of the rule are pure neoliberalism: they say that the deficit must be cut to nothing in 5 years or so. That of course flatly contradicts the small print of the rule. And WL has said he had nothing to do with those two sentences.

It’s obvious why those two sentences were inserted: to get elected, any political party absolutely has to pretend to believe in the household analogy. I.e. they have to pretend they think government debts must be paid back because that simple minded idea appeals to the average voter, and about half of newspaper economics commentators (who know precisely nothing about economics).

The document setting out the rule is here:


Kaivey said...
This comment has been removed by the author.
Kaivey said...

Yes, the media and Conservative politicians have often in the past tried to scare the electorate saying that Labour would go on a spending spree if elected. New Labour made a virtue out of sticking to the previous Tory budget.

Alphonse said...

Well yes, Ralph, but bond coupons are a misdirected and regressive fiscal injection. A rate rise like a a pull on a dodgy monetarist handbrake while the foot further depresses the fiscal throttle. And fiscal policy can target particular inflationary spot fires (resource limitations) in a way that broad brush interest rate policy can’t.

Alphonse said...

At the very least, Labour’s Fiscal Credibility Rule needs a second trigger for when high private debt levels deprive rate cuts of traction above the ZLB.

Unknown said...

Simon Wren-Lewis understands it all perfectly well. Elements of the left want a dream to hang on to and that dream is MMT when it is in fact keynes revisited. Bill Mitchell and the Richard Murphy (who really is a fool) are desperate to be relevant but other than a few disciples they really are not.

Greg Hannsgen said...

I have addressed issues raised in Wren-Louis's pieces on MMT in this blog post.
address: https://greghannsgen.org/2019/06/17/mmt-misconception-watch-mmt-not-calling-for-taxes-to-target-inflation/
This month, I have added some new pages to my economics site to counter recent criticism of MMT. A comment to Wren-Louis's blog I did last night has not been moderated in, and no comments whatsoever appear below his post.