On blood letting, Covid economics and Goldilocks

“It ain’t what you know that gets you into trouble. It’s what you know that just ain’t so.” (Mark Twain)

Blood letting is the withdrawal of blood from a patient to address illness, used for about 2,000 years. It harmed patients! William Harvey disproved its theory in 1628. Practice and professional endorsement continued into the 20th century via expert endorsement, “official” endorsement, public trust, inertia, fashion and lack of analytical thinking.

How powerful expert ignorance, endorsed by the powerful, politically and socially, and accepted by an insufficiently educated and ill-informed public can be! And this includes current economics and its “Deficit Myth”. (See Stephanie Kelton’s book of this title which informs this article.)

Our alleged deficit is a myth. We are a currency issuer, not a currency user. Our government does not function like a household which cannot issue its own currency. It cannot run out of money and is not solely dependent upon taxes and borrowing for its spending. “Book balancing” is a theoretical restraint. Real restraints are inflation, employment levels, natural and social resources and infrastructure efficiencies.

Efficient economy balance matters more than budget balance. Increasing “deficits” will not make future generations poorer nor will reduction increase their wealth. Such will depend upon our management of the actual economy.

Flourishing economies need fiscal deficits. Unless more money is expended than retrieved, where does the money for the private sectors come from? A practical indicator of governmental overspending is inflation which can be addressed through taxation, which is also a source of governmental power, a wealth re-distributor and a behaviour influence. “Taxation” and its purposes need differentiation.

The same applies to debt. Since 1971 gold standard disconnect, currencies are debt based. Money is created through the creation of debt e.g. mortgages. Without well managed debt our economy and society cannot function. Debt which creates better stuff and services, strengthens vital infrastructures etc., is to be encouraged: debt for the purchase of financial derivatives is not.

The Goldilocks vital principal applies– “Not too much and not too little”.

This applies to rates of interest. Currently, the LIBOR rate is between 0.15 and 0.27: credit card rates seem to range between 18.9% and 76%. [Mode around 30%?]

Acceptance and use of Modern Monetary Theory promotes narratives of opportunity: the “Deficit Myth” promotes economic and personal depression.

Creation of a National Job Guarantee Scheme, using national/sovereign money and local planning and practice, would reduce personal and community hardship and fear, stabilise the economy, maintain “employment fitness”, set decent standards for lower paid work, enhance environments and infrastructures, cohere local communities, create realistic social confidence and purposeful economic security, stabilise aggregate demand, incentivise the private sector to remunerate well, measure and overcome the great social and economic inefficiencies of involuntary and ill-rewarded employment.

PS Real deficits include climate crisis, child poverty, inequality, continuous war etc.

PPS Government borrowing can be managed as a secure place for investors, an interest rate management tool and not a vulnerability.


* Steve Trevathan is chairperson of Lyme Regis and Marshwood Vale Liberal Democrats.

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  • Peter Martin 24th Sep '20 - 9:34am

    There is a growing acceptance of what has become known as MMT. Partly it has been forced on all governments as a result of the Covid problem. Previously, whenever there was a desire for Govts to spend more on social programs, ‘progressives’ got themselves into all kinds of trouble trying to explain “where the money was going to come from”. They’d nearly always be at pains to explain that their pet project was all “fully costed” by a penny on income tax or whatever.

    Hardly anyone asks that question any longer with any degree of seriousness. If they do, I haven’t seen Rishi Sunak bother to give an answer.

    Dr Dirk Ehnts goes as far as to say the PTB in the eurozone are “Fully Committed to Modern Monetary Theory”. I don’t know about that but at least some people might be! So we are making progress.


  • Simon McGrath 24th Sep '20 - 9:43am

    Hooray! we can all be as rich as we like as the Govt can just print the money. What could possibly go wrong

  • Peter Martin 24th Sep '20 - 9:48am

    There’ll always be someone like Simon who doesn’t quite grasp the point of what’s being said, and can be relied upon to come out with a silly comment.

  • richard underhill 24th Sep '20 - 10:17am

    On her own admission today Labour’s Shadow Chancellor is ineffective, pressing the government 40 times to adopt her proposals. Maybe the Chancellor and the PM are unsympathetic trade unions AND businesses. This “corporatism” was anathema to previous Tory governments and Labour historians should know that.
    She could be congratulated for her persistence, but she presumably has the support of the Labour leader, who is a lawyer.
    We should remember that our former Prime Minister designate, Roy Jenkins, was a former Chancellor of the Exchequer, who criticised the performance of Winston Churchill as Chancellor of the Exchequer, who himself admitted that he did not understand what the Governor of the Bank of England was talking about.
    After Roy Jenkins stood down as SDP leader their second leader, Doctor David Owen, agreed with the then Liberal leader that the role would be decided by which party had more MPs after the following general election.
    Comparisons with now are inexact, but if we follow the Ashdown-Blair friendship with the leader of Newer Labour we would need to be realistic about how a majority in the Commons would be created and be COHERENT. We have painful experience of the extent to which a coalition partner’s leader can deliver on mutual promises. David Cameron is no longer an MP and therefore not PM either.

  • John Marriott 24th Sep '20 - 10:29am

    @Peter Martin
    No, Mr Martin, it’s cocksure people like you, whose overweening certainty actually grates. Given that, I’m really surprised that you can’t see fit to snuggle down into Labour’s new respectable nest.
    @Simon McGrath
    I agree with you and I at least appreciate the humorous way you expressed your opinion. It’s not unlike the take I have on the idea of a UBI, a much beloved concept of those whose view of economics would appear to be diametrically opposed to that of knowledgable people like Mr Martin.

  • Innocent Bystander 24th Sep '20 - 10:36am

    Could I join you on the naughty bench please ? I am afraid that I, too, am too stupid to see the Emperor’s beautiful new clothes. I must be really dim.
    If only I could just drop my years of common sense and accept there is an economic world where
    a) you can spend as much as you like, borrow without fear of debt or repayment
    b) creditors love to lose money, and will eagerly lend you more even if you default
    c) in countries which go bankrupt the citizens didn’t want their life savings, pensions and jobs anyway and are happy to lose them as long as the country still exists. Scraping food from dustbins is good exercise they say.

    It’s just a shame that all these impoverished nations in Latin America and Africa haven’t heard of the miracle that is MMT.

  • The UK has a long history of govn’s spending more than they take in tax, the result is massive house price inflation that ruins the lives of many by shackling them to 40 years mortgages, a ruined currency, confiscatory taxes if you start earning serious money and an endless list of the problems with the welfare funded poor. The UK is fast becoming the nation of funny money, a nice dose of deflation, high interest rates and a much stronger currency the only way out of future ruin, which will kill political careers so is unlikely to happen any time soon.

  • Simon McGrath 24th Sep '20 - 11:26am

    John M – thanks !
    The problem I have with UBI ( apart from not seeing why people should be taxed to give money to those who don’t need it) is that its supporters are so unwilling to say how much it will cost or how they would fund it

  • Peter Martin 24th Sep '20 - 11:48am

    @ Frank West,

    “The UK has a long history of govn’s spending more than they take in tax”

    That’s because the government creates money as it spends and it is simply not realistic for it always to come back as taxes at the same rate. If it did you wouldn’t have any money in your wallet or any money in the bank. The Govt needs to keep its eye on the level of inflation and adjust its spending and taxation levels accordingly.

    @ John Marriott,

    I could be more conciliatory and agree with you about deficit spending but then we’d both be wrong.

    @ John Marriott and Simon McGrath,

    I’m not sure how the UBI has crept into it. Steve has suggested the idea of a Job Guarantee which is much more sensible alternative. If you don’t need the money you don’t have to do the job.

  • So, tell me, this guaranteed job of mine, can I choose ? What if I don’t fancy the work on offer ? Can I retrain ? That will be good because a friend of mine can’t even get the funding to qualify as a teacher because she’s already been to uni. If UBI is a policy that fails the “real world” test (as some claim) that applies to Job Guarantee in spades.
    And the money tree, can one of the hot shot economists out there tell me, if we print a whole shed load of money and the Americans (for arguments sake) don’t, what will happen to the exchange rate and the cost of American goods or holidays in Florida ?

  • John Marriott 24th Sep '20 - 1:41pm

    @Peter Martin
    You’re not sure how UBI “crept in”? How long have you been contributing to one of the greatest tangential websites EVER (I getting to sound like a certain Orange man)? Going off at a tangent is part of many LDV contributors’ DNA!

    I hope that I’m not putting words into Simon’s McGarth’s mouth; but my reference to UBI was an attempt to illustrate the kind of reaction that it has produced as, apparently did your apparent advocacy of ‘spend spend spend’, because, however you angle it, there will have at some stage in the future be a ‘pay back’ time. I think it was David Raw, who wrote about “giving money to billionaires”. He, like Simon and I, appear to have a sense of humour, that appears to be lacking in your case. Perhaps it’s time to take yourself less seriously? With that in mind, why don’t you get back in with your former Labour buddies?

  • Peter Martin 24th Sep '20 - 2:12pm

    @ Chris Cory,

    “…… if we print a whole shed load of money and the Americans (for arguments sake) don’t, what will happen to the exchange rate?”

    You can answer this question yourself. If the Govt creates a sum of money, gives it to you and you don’t do anything with it, what will happen to the economy? Anything?

    But, now you spend that money. What will happen? Nothing?

    If you spend you’ll be reflating the economy and if too many people do that reflation will turn into inflation. The pound will fall and your trip to Disneyland will be more expensive. This is just the same inflationary effect. If this starts to happen the Govt needs to restrict its own spending, or reduce yours by giving you a tax bill.

    John Marriott,

    “spend spend spend” ??

    You’re getting confused in your advancing years. You are mistaking me for someone else who might have said that. But unless they are a big lottery winner I doubt it!

  • Steve Trevethan 24th Sep '20 - 2:16pm

    The serious question of “giving money to millionaires” is one form of the ever present problem of government monies going to questionable recipients without sufficient oversight and regulation.
    Here is an article on a Covid related example.

  • Steve Trevethan 24th Sep '20 - 3:09pm

    Thanks to all who have contributed to this article!

    P.M. – Thank you for you encouraging post! The “Renaissance Bonds” preamble looks to be a well-founded start.
    S.McG. – Perhaps the article was not definite enough about the very real and vital restraints/controls upon government spending. There is a list in paragraph 3. Can you think of any more?
    r.u. – “The Deficit Myth” by Stephanie Kelton provides American examples of the ignorance of politicians concerning economics which endorses your point. Let’s hope and work so that we and the Labour Party can advance economic thinking and practice.
    I.B. – Might it be the actuality that the countries where the inhabitants go dustbin scraping are those which do not have monetary sovereignty?
    Creditors – to whom do we owe any “government deficit” in our currency and under what conditions?
    What is a government “deficit” in our own currency other than borrowing from ourselves, if that?
    F.W. Yes, the cost of mortgages is excessive and harmful and is related to Neo-Liberal economics and the desire of governments to get re-elected. M.M.R. with cost/value pricing would reduce this avoidable harm to families and our national competitiveness.
    The Germans keep house prices down through legislation and so are helped to be more competitive. (See “The Production of Money” by Ann Pettifor)
    P.M. Thanks again!
    C. C. – No job acceptance compulsion has been mentioned and is not needed.
    Why not include retraining in a National Job Guarantee Scheme? Good suggestion!
    P.M. Thank you again! Economic management majoring on inflation control and full, decent employment is both economically and socially efficient.

  • Innocent Bystander 24th Sep '20 - 3:27pm

    No Steve, sorry.
    Our church supports a mission for street children in Honduras. We get first hand frequent reports from the people we have sent.
    Their govt has complete control over their currency (the Lempira) so if they just consulted your reading list they would be rich.
    Unaccountably, they seem not to have spotted how miraculous MMT is.
    The reports I have listened to have brought me to tears.
    MMT is superficially seductive but collapses at the simplest challenge and is a dangerous poison which shelters this weak and greedy generation from the consequences it is wilfully inflicting onto the oncoming one.

  • There is no question that running a large deficit is the right thing to do at the moment.

    The biggest bad consequence people will highlight is inflation. Well this is not a problem *at the moment* with near zero inflation.

    Indeed the possibility of DEflation is a bigger problem as the depression of 1he 1930s shows.

    We have throughout history fought wars by paying people to fight and work for the state and sticking the bill on the national debt. We have never repaid a penny of this.

    We are fighting the war against Covid in a similar way – putting people to fight it by locking down and furloughing them.

    Even if inflation is a problem with running a deficit it clearly isn’t at the moment.

    And indeed the way back from Covid is clearly to run a massive Keynesian deficit.

    Personally I’d run a structural deficit of £50-£100 billion a year for the foreseeable future even in “good” times.

    Firstly you can run such a deficit without high inflation as the UK, USA, Japan show.

    Secondly remember that (real) interest rates are negative so it’s cheaper to do something today than tomorrow.

    And the are a lot of things we need to do today that will actually increase our GDP tomorrow – infrastructure, green our economy, educate our kids.

  • “Economic management majoring on inflation control and full, decent employment is both economically and socially efficient.”

    The LibDem’s are supposed to be a free market supporting party and into fair competition (the emphasis being on fair), the govn’s role largely that of a referee. A proper market works wonderfully well (food is ridiculously cheap, for instance, thanks to the hyper competition between supermarket), surely the more the govn intervenes the less efficient things become, think peak Soviet Union when you had a long waiting time for expensive but crap cars – and most other things.

    If the Socialists had won there would have been wonderfully paid jobs building battleships that would have then been sent over to a scrapyard for dismantling by well paid but lower skilled comrades and then the scrap would have been sent to be melted down at a third factory so that the cycle could begin again. Ok an exaggeration but you get the idea of the kind of think that would happen if a govn went into mega-money printing mode and took on the role of full employment for all…

  • John Marriott 24th Sep '20 - 4:24pm

    I acknowledge Mr Trevethan’s superior grasp of fiscal matters. As my late uncle used to say, your bank is only really interested in you when you are “in the red”. I guess that the concept of “live now, pay later” is certainly alive and well at the moment. I’ve no idea what this ‘Modern Monetary Theory’ is all about; nor do I want anyone to waste their time trying to explain it to me. At my time of life, as long as I can pay my bills, that’s good enough for me. Surely that philosophy could apply to nations as well. Perhaps it’s because I grew up in an age when you needed an appointment with your Bank Manager (remember them?) if you wanted a £5 overdraft. Old habits die hard, I‘m afraid.

    And there lies the problem. While most of the world seems to survive by borrowing someone else’s money, I would have thought that a day of reckoning will have to come sooner or later. If not, why don’t we just all agree to forget about each other’s debts? Post WW1 Germany (sorry Mr Martin) tried printing money as a means of paying off its Versailles Treaty reparations more quickly and we all know what happened to inflation in the Weimar Republic’s early years.

    I’m sure that what the government is doing makes sense, although it really does seem to run counter to what previous Tory governments have told us was essential for a sound management of the economy. The cynic may counter that, if it’s OK now, why not before? So, Mr Trevethan, I bow to your superior knowledge; but I can’t help feeling that one day the edifice of MMT might come crashing down around us. Mind you, given that, as Mr Martin is keen to remind me, I am approaching the end of my life’s journey, it may be for others to worry about. I still subscribe to the Micawber theory of economic theory.

  • Peter Martin 24th Sep '20 - 6:32pm

    John Marriott,

    “Surely that philosophy could apply to nations as well.”

    Not if they are currency issuers. That’s the starting point of MMT which does require a little lateral thinking. It doesn’t mean Govt can spend without limit but it does mean that, if they can issue the currency, they do have to be ‘in the red’ otherwise they haven’t issued anything. Think about it.

    Look, its not just the Weimar republic that prints, or has printed, money. There’s no Gold coins in Switzerland. They print their francs. The EU prints euros. The Americans print dollars. The Japanese print their Yen. ‘Print’ really means creating in a computer by tapping the keyboard.

    That’s not a matter of opinion. That’s just how it is.

    @ Innocent Bystander,

    You can’t get away from from your own vertical thinking. Is this the opposite of lateral? There’s more to MMT than spending lots of newly created money. The prerequisite for any well functioning economy is to have a well structured, and well enforced taxation system. Not because the Govt needs the money but because it wants the population to need the money to pay their taxes. The demand make the currency worth something.

    Does Honduras, as far as you understand their economy, fit the bill in this respect?

    No, I didn’t think so.

  • John Marriott 24th Sep '20 - 7:49pm

    @Peter Martin
    Well, I guess that’s OK then. If only I had your certainty. I’m afraid that ‘lateral thinking’ never was my bag. You don’t seem to be converting that many LDV aficionados to your cause at the moment. Now ‘vertical thinking’ might be worth trying. Could that be another way of describing a ‘race to the bottom’?

  • Innocent Bystander 24th Sep '20 - 8:15pm

    Many thanks but I’ll tell President Juan Orlando Hernandez that you won’t be popping across to lift them from poverty with MMT and that it doesn’t apply to countries like his anyway.
    Well, it only gets any audience at all in the Fool’s Paradise West where the reality which he faces hasn’t arrived yet.
    But it will. Oh dear, it will.

  • Denis Mollison 25th Sep '20 - 8:24am

    Good article, thanks, and I liked Michael 1’s comment.
    The negative reception is depressing, for example Frank West’s “you get the idea of the kind of think that would happen if a govn went into mega-money printing mode and took on the role of full employment for all…”. He should look at how FDR’s original New Deal successfully did pretty much that to rescue the US economy in the 1930s. Hint: they didn’t just build and dismantle battleships.

  • Innocent Bystander 25th Sep '20 - 9:05am

    FDR’s programme ended in big trouble but was rescued (as was Hitler’s autobahn scheme) by a world war.
    The war created powerful and capable industries that quickly exploited the technologies for peacetime profit and made America what it is. But that’s capitalism.
    We were busy nationalising (and thus destroying) everything in sight and concentrating on creating a welfare state, not an economically successful state.

  • Money isn’t a natural phenomenon.
    Money was created by humans and part of what was created was the rules of the game.
    One Important part of human activities is power.
    Those with the most power get to change the rules, at least as far as they are concerned.
    The question we need to address is what groups have the power.
    My opinion is that this is true of any group of humans. But we must always remember that we are also human.
    The idea of objectivity is a mirage.

  • Peter Martin 25th Sep '20 - 10:15am

    @ Michael1,

    “Even if inflation is a problem with running a deficit it clearly isn’t at the moment…..”

    There’s a time delay involved. If the Government is spending more into the economy than it is getting back in taxes, the difference has to be being saved by someone. Either domestically or by one of our overseas trading partners. An increased deficit is a sign of increased saving which is not going to be inflationary.

    It’s when that saving turns to spending that the inflationary problems might start. When this happens the Govt’s deficit will fall as a more bouyant economy will produce more tax revenues. So what will undoubtedly be hailed as a success by a neoliberally inclined Govt will be a sign of trouble if the Govt struggles to control it!

    “And indeed the way back from Covid is clearly to run a massive Keynesian deficit.”

    Possibly. But the best way to get some economic benefit is to put money into the hands of those who will spend it now. It will then come back as taxes as the money circulates in the economy and the deficit won’t increase as a result. You’ll then not be creating ” a compressed spring” which could release its energy suddenly and in an uncontrollable manner.

  • I like Martin Wolf’s comment about Stephanie Kelton’s book ‘The Deficit Myth’ https://www.ft.com/content/74448b70-b144-11ea-a4b6-31f1eedf762e

    “It is right, because there is no simple budget constraint. It is wrong, because it will prove impossible to manage an economy sensibly once politicians believe there is no budget constraint [at all].”

    It is easier to misunderstand MMT than to understand it. Though I have read a fair amount about MMT, I feel my study of the subject is still at an early stage. Big questions remain in my mind eg are there degrees of monetary sovereignty? Does the USA have more monetary sovereignty than the UK because its currency is used throughout the world and demand for the dollar is only partly linked to the US economy? Does the UK have more monetary sovereignty than, say, Honduras, because foreigners are willing to buy bonds denominated in UK currency? My guess is yes to all these but I’d like to know more.

  • Peter Martin 25th Sep '20 - 12:40pm

    @ (Not so) Innocent Bystander,

    I didn’t say that MMT didn’t apply to Honduras. It applies to all currency issuing countries. All economists would agree that Government can’t spend without limit and that there needs to be a well organised and well enforced taxation system for a successful economy. Corruption needs to be rooted out. MMT economists aren’t any exception, but their reasoning, as you might have noticed, may be slightly unfamiliar and therefore more difficult to follow, to some.

    MMT can also be used to understand the problems of the eurozone. Even though the individual countries aren’t currency issuers the principle of sectoral balances still applies. So the deficit/surplus of any particular government is equal to everyone else’s surplus/deficit. Therefore its likely to be highly counterproductive to insist that Governments meet an arbitrary target of say 3% of GDP max deficit. If everyone else wants to save more than this, ie be in surplus by more than 3%, there’s not a lot a Govt can do. Other than depress the economy to such an extent that saving is no longer possible.

  • Innocent Bystander 25th Sep '20 - 1:13pm

    I find it amusing, and informing, that the response to a challenge to MMT, always, but always, includes the allegation that anyone who does not accept the doctrine is simply unintelligent.
    Of course, Hans Christian Andersen showed that those who claim such a defence must have a lot to hide.

  • Peter Martin 25th Sep '20 - 1:42pm

    @ John Medway,

    Any government can have monetary sovereignty if they have the power to levy taxes. The bigger and more powerful they are the better. Having said this even a small country like Iceland (pop 300k) manages perfectly well. They obviously know what they are doing.

    This power could, in principle, be used by cash strapped local governments too. If they levied an additional council tax payable in their currency of issue they could potentially solve some of their financial problems and provide jobs for local people too. So, for example, Lancashire council could issue the ‘Lanc’ and require everyone to pay say 10 lancs per year.

    The council would pay everyone one Lanc to do an hour’s work. So, all local taxpayers could do 10 hours work for the council to settle their tax bill. But some residents would rather just pay and so the Lanc would acquire a value on an exchange market which could be say £8. So it would mean residents could settle their tax bill by rolling up their sleeves and doing 10 hours work or buying 10 lancs for £80. These lancs would come from those prepared to do more than 10 hours work. Either way the council wins.

    They’d always be in debt in terms of lancs but why would they care about that?

  • John Medway 25th Sep '20 - 3:05pm

    @Peter Martin
    One problem is that “sovereignty” is really, like life and death, an all-or-nothing concept – either you have it or you don’t, either you’re dead or alive. I was slightly abusing the word when I talked about “degrees of monetary sovereignty”. When a country has monetary sovereignty, there are times when it is both possible and beneficial to run a budget deficit. However, I would have thought that the potential benefits of doing so would vary with the underlying strength of a country’s economy – its productive potential based on its physical, human and financial capital and its creditworthiness based on the stability of its currency and of its political system, freedom from corruption etc. I agree that all countries with monetary sovereignty would benefit from recognising and exploiting that sovereignty in an economically literate way.

    The basic tenets of MMT appear sound to me (as opposed to the idea that a state with monetary sovereignty resembles a household in the nature of its financial constraints). What interests me now is the issue of what, at a given time, are the prudent limits on deficit spending. One is obviously set by the rate of inflation. Another might be the yields on government bonds. A trickier issue is the scale of the the current account and the nature of the capital account – the balance of direct foreign investment, portfolio investment, foreign acquisition of infrastructure and other home-based assets. I’ve got a long way to go in sorting that out in my mind. It leads on to the question of what is the gap between what is possible with neoclassical economic thinking and with MMT.

    I get your point that it is sometimes possible for entities other than central governments to seize some monetary sovereignty (am I abusing the language again?) by issuing parallel currencies. Tax-raising entities obviously have an advantage here. I often wonder whether parallel currencies might be of enormous help in Greece or Italy. The same might apply in some US states.

  • David Evershed 25th Sep '20 - 3:17pm

    The increase in money supply (the govt printing money) is causing plenty of inflation. It is the inflation in asset prices – the price of houses, land, equity shares and bonds.

  • Peter Martin 25th Sep '20 - 4:11pm

    @ David Evershed,

    The concept of ‘money supply’ is problematic. How do we define what it is? The conventional definitions aren’t much use. Would you prefer to have £10k of Premium Bonds or £10k in cash? It doesn’t make much difference, right? You’d feel equally well off with either. But one is counted as money and the other isn’t.

    Government money creation is mainly just the swap of one type of IOU which doesn’t carry any interest (cash) for any type of IOU which has a tiny amount (bonds)

    All that does is lower interest rates which has led to an increase in private sector borrowing. That can’t be done any further. Borrowers are nearly always spenders. It is this spending which has pushed up asset prices. The lowering of interest rates isn’t the same thing as an increase in the money supply. It’s been designed to discourage private sector saving and encourage private sector borrowing.

  • Steve Trevethan 25th Sep '20 - 4:23pm

    Thanks again to all conversationalists!
    I.B. – Well done for supporting the many poor in Honduras. If you care to find the Global Research site on the Internet and put “Honduras” into the appropriate box, you will find that the Hondurans suffer deep and chronic under-employment as well as suffering regime change assisted by the U.S.A which wants to keep pay low. Their economy is kept artificially weak to assist U.S. companies. Major General Smedley Butler wrote about U.S. interference in South American states as in “War Is a Racket”.
    Alas, military power affects economics.
    Michael 1 – Thank you for a perceptive post!
    F.W. – What is your definition of a free market?
    j. M. – I do not have “superior knowledge”. I like money and so read about it. Like me you seem to have grown up in “The Thirty Glorious Years” (c.1945-1975) when debt was kept as a servant and not a master and Neo-Liberalism was not yet imposed.
    P.M. – Thank you yet again for your clear and economical explanations!
    J. M. – Neo-Liberalism is a race to the bottom for the many whereas M.M.T offers a race to the top for them.
    D. M. – Your refence to F.D.R.’s “New Deal” makes an excellent point.
    I.B. – During the period you refer to when U.S. general living standards were at their highest, so was their “National Debt” to G.D.P. ratio. (See The Deficit Myth)
    More later!

  • Peter Martin 25th Sep '20 - 4:30pm

    @ John Medway,

    ” One (constraint) is obviously set by the rate of inflation. Another might be the yields on government bonds…… ”

    Inflation is the only constraint. Since the GFC we’ve seen how Governments can set the yields on bonds to be what they’d like them to be. They could always do this, but recently is probably the first time outside of wartime that they have been so blatant about it. The change in yields no longer signifies anything at all.

    An added problem with inflationary considerations is that it doesn’t happen at a predictable time. It may not happen at all. Japan has a debt to GDP ratio of around 240% of GDP. The debt is mainly owned by Japanese citizens. If they are happy not to go off and spend it there’s no problem. Inflation is low, the economy may not be great but it looks like it will continue pretty much as usual.

    But, say there was a large volcanic eruption which severely affected agriculture and industry. If that spooks the population they’ll want to convert their Yen into something more tangible than Govt IOUs. That would trigger a Japanese hyperinflation.

  • Steve Trevethan 25th Sep '20 - 4:57pm

    Hello again!
    T.H. – Thank you for making the most important point about the crucial nature of power, its addictive appeal and the great, worthwhile and difficult need to seek some significant degree of objectivity
    P.M. – Thank you again! The point you make about getting money into the home and the High Street is vital for Covid and Post-Covid times. Keeping money in the “real economy” and not chasing book-keeping balances is so important if counter-intuitive for too many.
    J.M. – Might an informed, active democracy overcome Mr. Wolf’ problem? If you have not yet done so, try reading Stephanie Kelton, Warren Mosler and David Graeber. Yes, it is more accurate to think of monetary sovereignty on a spectrum basis rather than a binary. Stephanie Kelton discusses this point directly. If “The “deficit” is not a myth, to whom, when and under which conditions do we have to pay it?
    P.M. – Thank you yet again, again! Your point about the eurozone Neo-Liberal arbitrary 3% restriction on real-world growth is so important.
    I.B. – Where might I find the allegation that those challenging M.M.T are unintelligent?
    P.M. – Love the Lancs model! Might people working in Berkshire have a little discomfort?

  • @Peter Martin and @Steve Trevethan – Thanks for your responses to my comments. You’ve probably heard enough from me for the moment!

  • Innocent Bystander 26th Sep '20 - 9:03am

    Despite my inability to think laterally and although I find , so I am reliably informed, that MMT is unfamiliar which must be the reason that I find it so difficult to follow I will try a stumbling response.
    MMT is Senior Common Room left wing socialism only believed by the comfortably off, intellectual middle class in their protected first world cocoon.
    You say that Honduras’ problems are the fault of a wicked, war mongering USA. I will mention that to our missionary ( also named Steve) when, or if, we ever see him back.
    That must be the reason their government keeps the nation in crime and poverty when just by studying your reading list they could have wealth beyond the dreams of avarice.
    I watched a Kelton video once. She missed the point entirely and offered a solution utterly irrelevant to the scale of the west’s problem.
    Of course debt isn’t a problem. I took on a big one once. But crucially I could afford to repay it and eventually I did but through hard work and living within my means.
    Nation’s are the same and no matter how much arcane nonsense is talked to deny that, they are.
    The UK is in terrible economic trouble, all the warning lights are flashing red and far from facing up to the painful remedies MMT offers a effort free magic potion.
    Some here talk of borrowing at this point in the economic cycle. This isn’t a cycle it’s a one way decline. Please read the graphs. It’s been downward for a long time.
    Economists talk about ‘money’ ad nauseum. It is not money that is traded it is value, worth, wealth. We are not self contained. We need fuel, food medicines and the sellers will only accept ‘value’ in exchange. Crucially, if they decide that our tokens of value are worthless they won’t cry, they won’t laugh it off, they will stop providing for a faded, pompous greedy, entitled nation any more but will sell their offerings to the rising, growing nations and let this failed one go without.
    Our credit rating was AAA. It is now Aa2. Honduras is BB- and that is our current direction. MMT is just a silly barley sugar dummy to make reality go away when we need drastic, and very urgent, internal reforms.

  • Steve Trevethan 26th Sep '20 - 6:21pm

    A final thanks to all conversationalists!
    I.B.-Thank you for your detailed contribution. Alas, I do not see either of us changing our views on this topic to any significant degree. Perhaps we can agree to differ?

  • Peter Martin 26th Sep '20 - 9:46pm

    @ IB

    ” Nation’s (sic) are the same …..”

    Unless you’re a currency issuer, you aren’t. If you can’t grasp that you’ve no chance. A currency issuer has to be in the red otherwise they haven’t issued anything.

    ” Please read the graphs ”

    OK why not? How about this one which shows the National Debt to be relatively low in historic terms.


  • Steve Trevethan 27th Sep '20 - 7:22am

    Congratulations to P.M for such a perceptive and pithy post!

  • Steve Trevethan,

    Thank you for this article, last year I wrote an article on the myth of the magic money tree and it was rejected, so it is great to see that the LDV editorial team are moving in their editorial policy. However, please when responding to comments use at least part of a person’s name and not just their initials.

    Would you support a motion to conference on economic policy which rejects the idea of a balanced government budget and a pilot of a job and training guarantee in north-east England?

    Peter Martin,

    The article by Dirk Ehnts is interesting but I think he is too optimistic. Once the crisis is over the European Central Bank is likely to stop buying back government debt and the 3% limit on deficits will be re-imposed bringing austerity with them. I wish the Euro zone could be reformed with full employment again as an achievable aim for national governments.

    Innocent Bystander,

    I think you have raised the issue of Honduras before. According to Wikipedia between 1983 and 1985 “About 44 percent of the government’s fiscal shortfall was financed through cash from foreign sources”. The national currency became over valued which reduced investment and exports. Inflation was also high, reaching 36.4% in 1990. In 1989 the IMF and the World Bank imposed austerity on Honduras (https://en.wikipedia.org/wiki/Economy_of_Honduras).

    MMT does not work when a country cannot finance its own deficit in its own currency. If inflation is rising then the government has to control it expenditure and can’t continue to stimulate the economy. Therefore MMT is not a spend, spend, spend economic policy but a different way of looking at government deficits from the incorrect way of neo-liberals and the inheritors of Margaret Thatcher with her mistaken claim that government finances are just like a households.

    Frank West,

    We are the party of Keynes and Beveridge; and of full employment. We don’t support an unregulated free markets because we know that free markets need to be regulated and government needs to intervene in the economy to counter the cyclical nature of the economic cycle of highs and lows.

    Denis Mollison,

    Can I send you a copy of my draft economics motion for spring conference for you to be a proposers of when I have written it?

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