Jo Mitchell — Misunderstanding M

Jo Mitchell corrects Richard Murphy on what MMT actually says.

Critical Macro Finance
MISUNDERSTANDING MMT
Jo Mitchell | Senior Lecturer, University of the West of England, Bristol

Chris Dillow — Obstacles to full employment

Is full employment sustainable? For me, this is one question posed by the row between Richard Murphy and Jonathan Portes and Simon Wren-Lewis over Labour’s proposed fiscal rule....

Disappointing for a someone that is sympathetic to Marx, as Chris Dillow identifies himself.

Stumbling and Mumbling
Obstacles to full employment
Chris Dillow | Investors Chronicle

Brian Romanchuk — Do Central Governments Need To Issue Bonds (Again)?

The old "should the government issue bonds" debate has come up again. I would point the reader to this article at Mike Norman Economics, as well as the Richard Murphy article it refers to. I would argue that there is limited room for debate. The Treasury of the central government certainly can stop issuing bonds, conditioned on there being changes to the legal/regulatory framework for the central bank. The more important question is whether such a policy is a good idea. My argument is that doing so would run into a variety of consequences, and other policy decisions would need to be rethought (mainly the structure of pension provision).

Bond Economics
Do Central Governments Need To Issue Bonds (Again)?
Brian Romanchuk

Bill Mitchell — MMT is just plain old bad economics – Part 1

On August 6, 2018, British tax expert Richard Murphy who is becoming increasingly sympathetic to the principles of Modern Monetary Theory (MMT) published a blog post, which recorded an exchange with one James Meadway, who is the economics advisor to the Shadow Chancellor John McDonnell in Britain. The exchange took place on the social media page of a Labour Party insider who has long advocated a Land Tax, which McDonnell is on the public record as saying will “raise the funds we need” to help local government. He called it a “radical solution” (Source). An aside, but not an irrelevant one. It reflects the mindset of the inner economics camp in the British Labour Party, a mindset that is essentially in lockstep with the neoliberal narrative about fiscal policy. Anyway, his chief advisor evidently openly attacked MMT as “just plain old bad economics” and called it a “regression in left economic thinking” which would ultimately render the currency “entirely worthless” if applied. He also mused that any application of MMT would be “catastrophic” for Britain. Apparently, only the US can apply MMT principles. Well, the exchange was illustrative. First, the advisor, and which I guess means the person being advised, do not really understand what MMT is. Second, the Labour Party are claiming to be a “radical and transformative” force in British politics, yet hang on basic neoliberal myths about the monetary system, which is at the core of government policy implementation. Astounding really. This is Part 1 of a two-part series on this topic, most of it will be summarising past analysis. The focus here is on conceptual issues. Part 2 will focus more specifically on Balance of Payments issues.

Bill Mitchell – billy blog
MMT is just plain old bad economics – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ben Wray — The magic money tree is real: Treasury confirms taxes are not needed to fund government spending

A LETTER from the Economic Secretary of the Treasury has confirmed that the government does not need to raise money from taxation to fund government spending, leading to advocates of increased public investment to declare “the magic money tree exists, as a matter of fact”....

The argument goes that the government can only spend what it has raised in taxation, with any additional financing having to be raised through debt from financial markets which subsequently has to be repaid. Former Prime Minister Margaret Thatcher famously said “The government has no money of its own. It’s all your money.”

But Treasury secretary John Glen’s 18 July reply to Peter May, a Modern Monetary Theory (MMT) advocate who had written to his MP Ben Bradshaw last year to inquire of the Chancellor as to where money came from, was in contrast to Thatcher’s position.

Glen answered: “While it is theoretically possible for monetary authorities to finance fiscal deficits through the creation of money, allowing governments to increase spending or reduce taxation, without raising corresponding financing from the private sector, there is a risk that money financing could rapidly undermine the stability of inflation expectations.”...

Common Space
The magic money tree is real: Treasury confirms taxes are not needed to fund government spending

Ben Wray

Scott Fullwiler — Corbynomics 101—It’s the Deficit, Stupid!

The proposal obviously counters the austerity mantras going around in British politics (not to mention most other places), though Corbyn himself has paid lip service to balancing the budget, as well. The controversy, beyond the typical concerns with greater government spending of austerians, are fairly predictable for anyone who has taken a standard macroeconomics course (usually with a textbook written by someone who didn’t see the financial crisis coming)—

• first, the often heard QE = “printing money” = massive inflation argument is pervasive here with regard to PQE, as well;

• second, there are substantial concerns being voiced that “forcing” the BoE to finance the NIB will undermine the “independence” of the central bank and monetary policy;

• third, PQE gives the government free reign to spend by eliminating the need to fund its deficits in the financial markets.

So, here I want to look at the accounting and some basic operational realities of this proposal in order to understand how PQE does or does not do what the naysayers say it will.….

Leave it to Scott to tie things together in a neat bundle showing the accounting. Everything anyone wanted to know about PGE and a lot more. Hope the Corbyn people pick up on it and run with it.

New Economics Perspectives
Corbynomics 101—It’s the Deficit, Stupid!
Scott T. Fullwiler | James A. Leach Chair in Banking and Monetary Economics and is an Associate Professor of Economics at Wartburg College

Simon Wilson — What is QE for the people?

Presents both side on the issue about as well as can be expected in this kind of venue.

In his campaign presentation on the economy a few weeks ago, Corbyn suggested giving the BoE “a new mandate to upgrade our economy to invest in new large-scale housing, energy, transport and digital projects: QE for people instead of banks”. The plan is based on proposals from Corbyn’s main economic adviser, tax campaigner Richard Murphy.…

Murphy suggests that this form of QE is only now being considered because “money has only recently been properly
understood for the first time”. He seems to believe that advances made in the subfield of economics known as “modern monetary theory” (MMT) make people’s QE feasible. (Crudely, adherents of MMT hold that governments with the power to issue their own currencies will always be solvent, and that inflation is caused primarily by resource constraints, rather than monetary growth.)

Here's the contra:

By contrast, most other economists, commentators and politicians – Labour and Conservative – view people’s QE as having obviously dangerous inflationary consequences.

Why is that?

It would fatally compromise the BoE’s standing on global credit markets. As Robert Peston put it in his BBC blog,m“the lore of central banks – which, rightly or wrongly is almost universally accepted by investors – says that central banks should only look at whether there is too much or too little money in the economy… and not at narrowerquestions, such as whether there are enough roads or houses being built in Britain”. 

If markets believe the BoE is no longer exercising judicious restraint in its creation of new money, and is instead the de-facto vehicle for funding politically popular projects, sterling would weaken and inflation rise.

By how much? That’s impossible to say. But even if we are not talking about Weimar Germany, there is little doubt that investors would conclude that the risk of investing in sterling and the UK had grown.

In other words, because "expectations." 

Money Week
What is QE for the people?
Simon Wilson

Richard Murphy — On banking: a reply to Positive Money

So let me assure PM: I want the understanding and reform you do but please address the real concerns that many who have sympathy have with what you’re saying. We’re spending our time on this to make the process work. We’e worried you’re not delivering a workable or democratic or accountable solution, and that’s worrying.

Tax Research UK
On banking: a reply to Positive Money
Richard Murphy, author of The Courageous State: Rethinking Economics, Society and the Role of Government