The best thing about the Green New Deal you never knew and why this could be our new superpower

Short of living under a rock since Greta Thurnberg started getting regular visits from her school attendance officer, everyone knows what the Green New Deal is; a government led transformation of our carbon intensive economy to a green one providing lots of well paid jobs in the process.

A few of you might have your suspicions about how it could be paid for ranging from:

  • hope (economic boom, so taxes!)
  • to panic (it’s the bees!  We need to ignore the cost and just get on with it!)
  • to cynicism (ahhh, I remember the first Green Deal).

You’d all be wrong.

The Green New Deal should be paid for in the same way we pay for Quantitative Easing (or to give it its proper name, Enriching The Rich Because Trickle Down).   At the stroke of a keyboard, money will appear in the government’s accounts, ready for spending into our hot little hands.

OMG!   But what about the money we’ll owe China?   Haven’t the boomers already screwed the planet?   Don’t let them add to the debt mountain!

Keep Calm and Read On.   Economics 101 has meant that you think about an economy like a household budget.   Money is earnt, then spent.   The difference every month is the deficit, the cumulative figure is debt.

Debt is bad.   Debt needs to be paid back.   Debt means higher taxes.   Too much debt means higher interest rates!   I don’t care what Ford Prefect says, PANIC!

Hold your horses Milton Friedman!   Fear not!   Drum roll please………..    Because the UK issues its own currency (just like the USA, Canada, Australia, China), it cannot run out of Pounds Sterling.   Don’t get me wrong, it CAN run out of real stuff (labour, raw materials, infrastructure) to spend this money on (which leads to inflation), but it cannot run out of money.   There is ALWAYS money to pay for stuff, as long as there is stuff to buy.

I’m just gonna sit here for a while and let that sink in…….

For councils, companies, you and me, money is something we can run out of, save or owe.   For a government that issues its own currency, money is not an asset, it’s a tool that can be used to stimulate the real resources of its economy.

So, as long as there’s enough people, steel, aluminium, silicon, carbon fibre and all the rest, we can have a Green New Deal.   No one HAS to be taxed to pay for it.   Not a single pound HAS to be borrowed to pay for it.   Not from China, not from baby Jago’s or Cecily’s indebted future.

This counter to monetarism is called Modern Monetary Theory.   Modern Monetary Theory allows us to put government back at the heart of money creation rather than monetarism which puts the emphasis on money being created by debt.

Modern Monetary Theory lets us reclaim the idea of the state; it’s not just a safety net, it can be a springboard for the entire country.   We can park tanks under Labour’s gazebo – their ideas are too wrapped up in punishing the rich and centralising control.   We can proudly demolish the Tories’ shepherd’s hut who are now exposed as wilfully or unwittingly selfish; austerity was a political choice not a necessity (sorry Coalition Lib Dems).   We can expose the lie we’ve all been sold since Jim Callaghan laid out the welcome mat for the IMF, our State is STRONG.  We are not at the mercy of the money markets or Google or The Donald – we have our own currency and we have real resources.   Let’s get all those people trained for new and exciting green careers and in the meantime, need another 10,000 doctors?   Hit that keyboard, there’s the money!

CUE – APPLAUSE!

Oh, but wait a minute, we like 10,000 doctors, and ok we’ve created the money.   But we actually need 10,000 doctors not just the money for 10,000 doctors.

Welcome to what we should actually be talking about; managing the real resources of the economy rather than the budget.

Embracing Modern Monetary Theory gives us the power to stand for something people can understand in a single sentence, rather than always being defined about what we’re not.  Modern Monetary Theory could be our new superpower and means we can have a message of hope and fairness for all  …… We’ll pay for the Green New Deal, will you work with us to make it happen?

* From Oldham East & Saddleworth, Mark Kenyon is a party member, activist and candidate in the May council elections

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54 Comments

  • Phil Beesley 14th Feb '20 - 6:17pm

    I’m a green sceptic. I believe in green ideas but I’m not convinced by solutions proposed by climate activists.

    I want to do something that works. That means that government employs people who have run lorry fleets, designed power stations, managed a rubbish dump — alongside other professionals such as actuaries, manufacturing engineers, accountants etc. Government needs to employ people who understand how the mess was made — why choices were made — in order to put things right.

    Money is less important than government taking advice from people who understand where we are coming from and who wish to go somewhere better.

  • Hang on, I greatly take issue with this:

    “Short of living under a rock since Greta Thurnberg started getting regular visits from her school attendance officer, everyone knows what the Green New Deal is”

    I very much doubt that’s true. I’ve never heard anyone in real life ever mention it. Politicians pop up and talk about this and other buzz-phrases like “green industrial revolution” without really articulating what this actually means.

    I think you over-estimate the amount the general public pay attention to this sort of thing; millions of people have no real idea who Greata Thurnberg is, or follow the policies of Extension Rebellion – just so you know.

  • Jonathan Monroe 14th Feb '20 - 7:39pm

    And the last time this country was self-sufficient in real resources was probably in the early eighteenth century (if you exclude imported luxuries such as pepper) or the Heptarchy (if you don’t). And all the foreigner we trade with want to be paid in money, and will only take payment in Sterling if we have credibly promised not to print too much.

    On the specific issue of a Green New Deal, nobody has come up with an idea for how we might decarbonise the economy to the extent that Greta Thunberg is calling for while maintaining existing consumption patterns. To save the planet, someone has to consume fewer real resources, and MMT can’t change that. The liberal way of taking real resources away from the masses in a democratic mixed economy is by taking away the money claims on those resources with tax increases – and neither MMT nor traditional Keynesian economics argues otherwise.

  • Mark Kenyon 14th Feb '20 - 9:07pm

    Seems like you think that this would preclude a free market? It doesn’t. It empowers a government to correct the excesses and failures of the free market by focussing on maximising real resources in whatever policy direction (GND, HS2, whatever) rather than obsessing on who gets paid back.

    Focussing on “how do we pay for it?” is either closet monetarism or worse, enabling privatising of everything by the back door.

  • “empowers a government to correct the excesses and failures of the free market” – oh wait – the excesses and failures it has helped cause in the first place. Good luck with that!

  • Mark,

    this link https://www.jacobinmag.com/2019/02/modern-monetary-theory-isnt-helping will give you a good idea of why so many economists and commentators find the claims of MMT proponents rather naive. You won’t like the conclusion, but it is an assessment grounded in reality nonetheless:
    “More broadly, we have a private economy driven by exploitation, overwork, asset stripping, and ecological destruction. MMT has little or nothing on offer to fight any of this. The job guarantee is a contribution, though a flawed one, and it’s not at the core of the theory, which proceeds from the keystroke fantasy. That fantasy looks like a weak response to decades of anti-tax mania coming from the Right, which has left many liberals looking for an easy way out. It would be sad to see the socialist left, which looks stronger than it has in decades, fall for this snake oil. It’s a phantasm, a late-imperial fever dream, not a serious economic policy.”

  • Isn’t the general problem with a government trying to mint its way out of a lack of funds that people lose faith in the currency and, eventually, refuse to accept it?

  • This is a very strange article. With most of the links to strange things rather than anything to do with economics. However two are to do with economics – one is to Alan Greenspan stating that governments (with a fiat money system) can create as much money as they want (but this might cause inflation which will constrain the economy) and that such governments cannot become insolvent with respect to obligations in their own currency. The other is to an overview of Modern Monetary Theory. It doesn’t seem to me that this article is a serious attempt to explain Modern Monetary Theory and the constraints on its use.

    Most economists recognise there is something called Monetary Theory which “is based on the idea that a change in money supply is the main driver of economic activity. It argues that central banks, which control the levers of monetary policy, can exert much power over economic growth rates by tinkering with the amount of currency and other liquid instruments circulating in a country’s economy.

    “According to monetary theory, if a nation’s supply of money increases, economic activity will rise, too, and vice versa. A simple formula governs monetary theory, MV = PQ. M represents the money supply, V is the velocity (number of times per year the average dollar is spent), P is the price of goods and services, and Q is the number of goods and services. Assuming constant V, when M is increased, either P, Q, or both P and Q rise.

    “General price levels tend to rise more than the production of goods and services when the economy is closer to full employment. When there is slack in the economy, Q will increase at a faster rate than P under monetary theory”
    (https://www.investopedia.com/terms/m/monetary_theory.asp).

  • We need to start with the actual planet that we have. We are slowly recognising that anything we do has a result for the planet as a whole. We know, but find it difficult to accept, that motor cars that run on petrol change our atmosphere. The same applies when we create chemicals like plastic that previously did not exist. Or growing food that completely changes the places where it is grown. We have changed the ecosystems on the planet in ways that we are now starting to investigate. And then we go on to the effects of antibiotics and other drugs which we use not only for ourselves but for our animals. We then allow them to spread in our river systems to change life in them.
    A starting point has to be to consider the theories of behavioural economics.
    We need to consider how we can get to the stage where we actively manage our planet, with a clear idea where we want to go. I was interested in reading in earlier comments that most people are not aware of the green issues. People I speak to and listen to are very aware of the issues. They see little they can do about it.
    Our present situation illustrates the clear failures of what is called capitalism. It is destroying our environment. It is being managed on a random basis by people able to grab the power.
    The solution? I do not think there is one. But I applaud those who at least are willing to try.

  • I’m sorry, I just don’t buy this new economics. As the author himself concedes, without sufficient slack in the economy there is a real risk of inflation. I would add to that a risk to the currency (but we won’t be flying, so who cares if foreign holidays become unaffordable !!) and these are not trivial isues, they will impact on real peoples lives.

  • We just had Labour do very badly in the election based on McD’s idea of massive spending out of thin air (the planned tax rises might have paid for five percent of it) so if you want the LibDems to go from a minor party to a micro party then embrace these economic ideas. It might work if the UK was self-sufficient in food and commodities, wasn’t totally reliant on imports (and therefore the strength of Sterling or lack thereof) and didn’t have most of the workforce lounging around doing non-productive work. A huge chunk of wealth is sucked out of the country every year by the Chinese et al, that is the real problem.

  • Laurence Cox 15th Feb '20 - 11:01am

    What objectors to MMT forget is that we already pay taxes like income tax in arrears. Before 1944 when PAYE was introduced, everyone would have paid their income tax at the end of the year. PAYE is actually a withholding tax, paid against the individual’s future tax liability:

    https://en.wikipedia.org/wiki/Pay-as-you-earn_tax

    So, in effect, the Government already operates MMT in that it spends money before it recoups it in taxation. The other aspect of MMT, that there is no absolute requirement to ‘balance the books’ each year is nothing more than what we knew as Keynsianism, which worked well throughout the 1950s and 1960s before falling foul of external factors in the 1970s.

    Gordon Brown’s decision to give the Bank of England independence and the responsibility to control the rate of inflation through interest rates, which can be ramped up or down quickly, means that the Government can concentrate on the longer-term trajectory of the economy. Indeed pushing out the date at which the deficit disappears can be seen as a very MMT response to a low growth rate.

  • Peter Martin 15th Feb '20 - 11:59am

    @ Mark,

    Good Luck in getting your message across on how the economy actually works! It’s pretty much as MMT says it does now that there’s no gold standard involved any longer. So, it’s not a question of ‘getting MMT implemented’. It’s already here and has been since at least the early 70’s.

    You’ll probably have noticed that the left is relatively more accepting of these ideas than the right. It took just 20 words into his initial response before Joe Bourke was into mentioning Mao and Stalin! He’s probably saving up Zimbabwe and Venezuela for next time!

    Having said that, I would say you do need to make the point that just because the Govt can, and does, create its own spending money (that’s where money comes from) that it shouldn’t necessarily create all it likes. It all depends on how well the economy is doing. The mainstream would say that the Govt needs to raise taxes to get spending money. MMT says it doesn’t but it does need to raise taxes to create a demand for the currency and prevent inflation. It just requires a little lateral thinking to understand the process from the POV of a currency issuer.

    @ David 1,

    The word you are looking for is “inflation”. As Chris Cory says there is always “a real risk of inflation”. That’s the time to tighten up on fiscal policy! Not when you’re worried about a rising deficit in the aftermath of a global financial crash. A failure to understand this simple fact has cost the Lib Dems dearly. I very much doubt we’d be out of the EU but for the austerity years of the Coalition.

    @ Michael BG,

    “Assuming constant V, when M is increased, either P, Q, or both P and Q rise.”

    I’m surpised at you. In the era of endogenous money supply you can’t make this assumption. I thought you undertstood this. But if you could, then a rising Q is what we want to happen. A rising P is also what we want to happen to hit inflation targets.

  • Peter Martin 15th Feb '20 - 12:29pm

    @ Joe Bourke,

    I ploughed through your referenced Jacobin Article by Doug Henwood, as far as

    “PK economics has several sub-schools, and there’s not much point in getting too deeply into each, but there are some general points about it relevant to a discussion of MMT. Most PKs are left of center, and some are even socialists.

    Well Goodness me! Why didn’t he say so right at the start of the article and save me the trouble of having to read on? Clearly something that meets the approval of even some socialists can’t be any good at all!

  • There is no mystery to how money is created. The Bank of England explains it an easily understandable format https://www.bankofengland.co.uk/knowledgebank/how-is-money-created – “Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans”
    Banks create money not wealth. Once that is understood you can start to understand the difference between cash flow and the production of real goods and services.
    Any institution that has its credit accepted can create money in the form of financial instruments.
    Companies will issue shares and bonds, govenments will issue currency and bonds. These are all financial instruments that create an obligation between the issuer and the holder of the instruments. In the case of a company the clai m is against the assets and future income streams of the business. In the case of governments the claim is against assets under the control of the state and the future income streams of taxpayers.
    When a business is growing it will increase its issuance of financial instruments to finance its operations. When the government expands its activities it will increase its issuance of financial instruments. As the economy grows, both business as a whole and government will increase its level of credit issuance.
    The economy can only grow to the extent that productivity can be increased whether by more efficient use of technology, higher employment rates where there is persistent long-term unemployment or population increases.
    The Bank of England’s current forecast for medium term potential growth is 1.1%. Potential output can be thought of as an economy’s natural speed limit, the pace at which it can grow without pushing up prices. The growth forecast reflects a lower forecast for population growth, as immigration drops after Brexit. But mainly it results from a gloomier view of productivity.
    Lower potential growth will keep up the pressure on the public finances,as tax receipts have less room to grow. Weaker output growth means slower improvement in living standards. To avert that, policymakers will need to focus on solving the British productivity puzzle.
    The party needs credible economics spokespeople of the calibre of Vince Cable who can translate economic concepts into readily understandable policies.

  • Peter Martin 15th Feb '20 - 1:19pm

    @ Joe Bourke,

    We’ve had all this before about the banks “creating money”. Of course they do but we have to understand that they don’t have any magic powers. They are creating an asset in the form of what they are owed and a liability in the new money they create. The way they come out ahead is to charge fees and interest so that their assets become greater than their liabilities.

    For the assets to be worth anything they do have to demand that they are repaid.

    It’s not at all the same for Government. The Government hardly ever repays any of its net debt. And nor should it want to.

    Hopefully at least someone in Govt does understand that that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable). If we add all the world’s National Debts it comes to about $70 trillion. WE don’t owe that to the Martians!

    it is just as true to say that the world owns over 70 trillion in financial assets, expressed in USD, as it is to say that the world owes 70 trillion in financial liabilities.

    If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and the exchange of goods and services would be reduced to barter.

  • Peter,

    any institution that issues financial instruments rarely repays its net debt/equity. Share capital is permanent capital. Businesses issue new debt and repay maturing debt just as the governments do. Both business and government issue bonds. Business issue shares that give stockholders a claim on their future income in the form of dividends. Banks create credit that intermediate borrowing and lending. Government creates money when it spends. That is the states equivalent to shares. Government spending tranfers money to the providers of public goods and services and to the recipients of welfare spending. Those transfers are claims against the income of taxpayers that are settled by the collection of taxes. Government spending precedes taxation and will outpace tax receipts in a growing economy, such that budget deficits of 2% to 3% of GDP will be the normal condition of the economy.
    In a faster growing economy (such as exists in recovery from a recession or post-war reconstruction) higher levels of borrowing and debt can be sustained and existing debts depleted by inflation.

  • Mark Kenyon 15th Feb '20 - 6:21pm

    I’m humbled by all of your erudite contributions.

    To those doubting Thomases, MMT describes a state of reality; govs spend money into existence, money is not always “paid back by tax revenue”. However as others have pointed out above, MMT doesn’t necessarily prescribe that governments HAVE to support every hair-brained scheme championed by the left.

    Gov could though, if:
    A) it wants to
    B) there’s enough real resources for the project.

    If in the case of GND, gov decides to build 10 nuclear power stations with the french and the chinese and they want paying in euros and dollars, then that would be a risky and likely inflationary move that would be foolish.

    If, they decided to insulate everyone’s home for free, build a host of off shore wind farms and maybe fund research into battery tech and provide the seed cap for the manufacturer of gigawatts of storage, then that could all be funded with sterling with no inherent inflationary risk as long as the real resources of the economy were managed.

    Printing money suits the right when:
    A) there’s a war to be fought
    B) tax breaks
    C) QE

    We should embrace the reality of the economy and speak for people who want Gov to be strong and are mystified and frustrated when gov says “we cant afford to provide social care for your mum or your pension or build that new school”.

  • Mark Kenyon 15th Feb '20 - 8:53pm

    @joseph bourke

    MMT doesn’t advocate ANY policies. It describes modern economies with fiat currencies. It’s true the MMT does appeal to the progressive agenda but to list some wild spending and say that disproves MMT in some way, misses the point. Acknowledging that out government is NOT restricted by debt to finance sensible, empowering and productive projects is a votewinner and would transform the lives of millions.

  • Peter Martin 15th Feb '20 - 9:26pm

    @ Mark,

    Agreed. Except I’d say FLOATING fiat currency.

    @ Joe,

    The pound wasn’t allowed to float in post war decades. Inevitably any govt coudn’t do what needed to be done when it was trying to defend an overvalued pound most of the time.

  • Katharine Pindar 15th Feb '20 - 10:55pm

    Joseph, could you kindly explain to this economic novice why the pent-up demand for far more houses to be built is not regarded as a ‘favourable investment opportunity’ to be taken advantage of? There was a great growth of house-building after WW2, why not now? If shortage of workmen to build is a problem, surely the development of factory-built units which can be rapidly assembled must help? Could capitalists not purchase land stocks from the building firms? I thought planning permission had been speeded up, though possibly at the expense of standards, and under the present government I suppose there is no threat to capitalists of the land-value taxation we should like to see brought in. So how is it that wealth is not being poured into building units of accommodation, and how can it be partly diverted to that , do you suppose?

  • Mark,

    I have rarely ever heard anyone suggest that government is restricted by debt to finance sensible, empowering and productive projects. It has been Libdem policy for several years to rapidly increase borrowing for productive investment while interest rates remain at historic lows.

    Peter,
    until the pound was floated in 1971 devaluation was the means by which sterling crises were resolved. The pound was devalued 30% by the Labour government to $2.80 in 1949 and again in 1967 by 14% to $2.40.
    By the mid-1970s, Britain’s economy was in dire straits again. Attempts to stoke a boom early in the decade resulted in a severe bust a few years later, exacerbated by an oil crisis. Inflation topped 25% in 1975 and the newly floating pound was in free-fall, eventually hitting a then-record low of $1.58 in October 1976. The $3.9 billion IMF loan to halt the decline was the largest ever taken out at that time.
    The pound began the 1980s worth $2.30, but by early 1985 it touched a record low of $1.05. Against a soaring U.S. currency swelled by global trade imbalances, parity with the dollar – once unthinkable – became a real possibility. Eventually, the pound rose against the dollar after the world’s five leading industrial nations at the time struck the Plaza Accord in which they agreed that the U.S. dollar was overvalued and would take action to weaken it.
    In 1992 Britain crashed out of the Exchange Rate Mechanism – a system designed to reduce currency fluctuations ahead of the launch of the euro.In a bid to prop up the pound, the government hiked interest rates to 15% and the Bank of England sold $40 billion worth of reserves in the months leading to Black Wednesday. In all, the cost to Britain was more than 3 billion pounds.
    The pound lost around 20% of its value in the wake of the Brexit referendum hitting lows against the dollar not seen since the mid 1980s. Today the exchange rate is $1.30, close to half of value after the 1967 devaluation.
    With a floating currency, devaluation is automatic and controlled by foreign exchange markets not government. That is the key difference from a fixed or pegged exchange rate system.

  • Peter Martin,

    It seems you didn’t notice that “Assuming constant V, when M is increased, either P, Q, or both P and Q rise” is a quote from the Investopedia website setting out monetary theory? We could argue that with Quantitative Easing monetary theory didn’t work because the huge increase in money supply didn’t increase either growth or inflation or both by as much as we should expect with monetary theory. There were reasons for this and it doesn’t mean that monetary theory is generally wrong.

    Joe Bourke,

    You set out the history of British economic policy from the Second World War to the 1970s. You point out that the balance of payments was the factor in having ‘stop-go’ policies. With a floating pound I am not sure this would be a factor today. In the 1970s the government made mistakes in its Keynesian policies and these were major factors in the rise of inflation as was the oil crisis of the 1970s and the huge increase in oil prices. By 1978 the Labour government had got control of inflation and unemployment was falling. If the Labour government’s policies had been followed in the 1980s rather than Thatcherism inflation and unemployment both would have been less than they were.

    None of this history alters the facts that governments can take action to increase economic growth but has to be careful not to increase inflation by too much. As you point out that during the period of full employment the British economy grew on average by 2.8% a year. Therefore the Bank of England’s guesstiment of UK potential for economic growth is an under estimate.

  • Katherine,

    wealth is being poured in to build accommodation. The problem is that much of the newly built accommodation is executive homes and luxury apartments not affordable for the average family and out of reach for those on average salaries without significant capital for a deposit. The laws of supply and demand cannot operate in the housing market as they do for manufactured goods and services. The reason lies with the way the land market operates in the UK. There is an inadequate supply of land with planning permission and the supply that is available is largely monopolised by the mass house builders. By controlling the release of land onto the market, large house builders can keep land prices at elevated levels with minimal levels of affordable housing delivered at 80% of the market value of the full priced units.
    The only practical way around that is for regional authorities to be able to assemble land banks for strategic development. This is where reform of the 1961 Land Compensation comes in to allow public bodies to acquire land at existing use values, before values are vastly inflated by the grant of planning permission. This is how much of the new towns development and public housing schemes in the post-war decades were built.
    Public or private borrowing for housing development should never be a constraint. The limiting factors are the availability of development land in the right places, skilled labour, construction equipment and building materials. Pre-fabricated housing units may be part of the answer but the key issue to be resolved is affordable land.

  • Michael,

    we will see soon enough if the BofE central forecast is overly cautious. As the FT reports https://www.ft.com/content/d372be42-4357-11ea-a43a-c4b328d9061c
    “The MPC estimated Britain’s economy would be able to grow at only an average rate of 1.1 per cent over the next three years without sparking damaging inflationary pressure. This is less than half chancellor Sajid Javid’s ambition of boosting the growth rate towards 2.8 per cent.”
    “Risk management considerations favoured a prompt response to downside risks at present in order to ensure a sustained return of inflation to the target,” they wrote in the MPC minutes.
    If the MPC’s fears are realised, it will be much harder for the government to raise living standards, keep the public finances healthy and improve the performance of weaker regions. One other reason for caution among the majority of MPC members was that they were unable yet to factor into forecasts the additional public spending on infrastructure that Mr Javid has earmarked for his March Budget.

  • Peter Martin 16th Feb '20 - 3:26am

    Katharine,

    Much of what Joe says is true but there’s more to it than blaming the builders. Despite the lip service politicians might give to the creation of affordable housing, the last thing they want to see is a fall in UK house and land prices. The entire economy floats on a sea of privately owned debt with property and land used as the collateral for the debt. Damage the collateral base and ……….

    The official line should be that we want expensive and barely affordable housing.

    @ Michael BG,

    You don’t need a quote. It’s just algebra and a dodgy assumption. QE works to the extent that it lowers interest rates in the long term bond markets. The BoE enters the market as a buyer, so prices rise. Meaning that yields and interest rates fall. That’s all it does. It’s neither here nor there that the so-called money supply increases. Monetarists are flogging a dead horse in thinking that QE will have much effect on the economy once interest rates have hit what some call the “zero bound”.

  • Peter Martin 16th Feb '20 - 3:32am

    @ Joe.

    Thank you for your brief history on the pound’s fortunes. Some comments:

    “….until the pound was floated in 1971 devaluation was the means by which sterling crises were resolved. ”

    If you float the pound you don’t have the crises to have to resolve in the first place. Trying to fix the pound at an elevated level is a very expensive folly as you indicate with the Black Wednesday debacle. The speculators love it! Much better to keep out of the currency markets and let the speculators take money off each other.

    Fixing the pounds value leads Govts to do all the wrong things before they inevitably have to admit failure and make the devaluations you’ve listed.

    “With a floating currency, devaluation is automatic…..”

    So is revaluation. But these terms aren’t used any longer. They are associated with fixed currency regimes only

    The MMT advice is to let the currency float. Govts should concentrate on the basics of minimising inflation and maximising economic growth. Deficits and exchange rates will then take care of themselves.

    One reply to an earlier comment:

    “MMT advocates that the government should continue increasing deficit spending until inflation kicks in and then retrench by increasing taxes or reducing spending until deflation occurs”

    Nonsense. This is like saying that we drive our cars by putting our foot hard down on the accelerator and then step on the brakes hard when we see steam coming from the engine or if we get pulled over by the police.

  • Peter,

    that is precisely what is being advocated when Mark in his article writes “The Green New Deal should be paid for in the same way we pay for Quantitative Easing (or to give it its proper name, Enriching The Rich Because Trickle Down). At the stroke of a keyboard, money will appear in the government’s accounts, ready for spending into our hot little hands.”
    We are close to full employment now with the highest labour participation rate on record (much higher than the USA) and low levels of long-term unemployment.
    With a developed and open economy migrant labour is always available to fill gaps and unskilled labour is rarely if ever a constraint on economic growth unless it is imposed by restrictive immigration practices. When governments impose restrictive immigration, the constraints are overcome by offshoring jobs and capital to where there is a ready labour supply.
    This is a key reason why Keynesian approaches don’t work in an open economy trading in a globalised world with free movement of capital and operating near capacity.
    The standards of living of the population are determined by its level of technological skills, physical and intellectual property and the relative distribution of value created between rents to land, wages to labour and profits/Interest to capital. The UK’s problems lie with this relative distribution with an excessive proportion of value created being captured in the form of economic rents.
    After decades of significant balance of payments deficits, more than 50% of the value of companies listed on the London stock exchange is held by overseas investors as are 30% of UK government debt and the great bulk of high value residential and commercial property in London and other major cities, The rents, dividends and transfers abroad from these investments continue to widen the current account deficit.
    This is what leads Doug Henwood in the Jacobin article linked above to conclude “we have a private economy driven by exploitation, overwork, asset stripping, and ecological destruction. MMT has little or nothing on offer to fight any of this. The job guarantee is a contribution, though a flawed one, and it’s not at the core of the theory, which proceeds from the keystroke fantasy. That fantasy looks like a weak response to decades of anti-tax mania coming from the Right”

  • Joe,

    I am surprised that the ex-Chancellor of the Exchequer was aiming for 2.8% economic growth. I think that means he needs to increase government spending by £30 billion (can include tax cuts such as the change to National Insurance). I hope that Rishi Sunak will announce a £30 billion expansion to the economy for the financial year 2020-21.

    If the Bank of England is planning on using Quantitative Easing to stimulate the economy I don’t see any reason why some of this money cannot be given to the government to spend. It would be like MMT in that the government would just be spending money created by the B of E.

    Peter,

    Previously you have stated that the government can set the interest rate at any level and it is not determined by market forces. In the past central banks controlled monetary supply in part with the use of interest rate changes. Quantitative Easing is where the central bank buys government securities or other securities because interest rate changes are no longer effective. This is meant to free up the capital so it can be lent to someone else and so increase the money supply. This didn’t happen to the extent expected because of the financial crash and the reluctance of private investors to invest in ‘industry’. This is why some advocate that the amounts spent on quantitative easing should have been given to the government to spend with the expectation that this would produce more economic growth. As you support Modern Monetary Theory I would expect you to support this as well.

  • Michael,

    the budget and spending review should spell out where extra spending will be directed over the next few years. There are already commitments to a 3.4% real terms increase in health spending; recruitment of an extra 20,000 police officers; the pensions triple lock and ending of the benefits freeze; pay increases for public sector workers and large scale infrastructure spending on HS2, crossrail, Northern rail and flood defences as well as the potential tax cuts to NI you mention. It should not be any surprise to see deficit spending increase by £30 billion or even to see a mansion tax and restrictions on higher rate tax relief for pension contributions introduced.
    That does not mean, however, that the economy will necessarily increase in size by any more than the BofE central forecast of between 0.7% and 1.5% per annum. It does mean that resources may need to be redirected from the private sector to the public sector, if as anticipated by the BofE forecasts, government spending comes up against supply constraints in the economy.

  • Katharine Pindar 16th Feb '20 - 11:05pm

    ‘God gave the land to the people’ goes our Liberal song. No, apparently He gave it in Britain to the mass house builders. Thank you for your reply, Joe (but please spell my name correctly with the ‘a’ in the middle), much of which I was aware of, but I am struck by your sentence beginning, ‘By controlling the release of land onto the market large house builders can keep land prices at elevated levels’. Actually, that’s outrageous, isn’t it? Why isn’t there a law against it? Why don’t we propose one, rather than just wanting updating of an old Act? And shouldn’t there be a law against foreign or any investors hoarding land in London and not developing it for residential use? Peter, thank you for your response too – how about your Labour party leading the way with proposals to ‘take back control’ (to coin a phrase!!) in a genuinely helpful radical manner?

  • Katharine,

    this piece from last year gives a little more detail https://www.libdemvoice.org/grounds-for-change-the-case-for-land-reform-in-modern-england-61131.html

    The housing charity shelter actively campaigns for reform of the Land compensation act https://blog.shelter.org.uk/2018/09/another-step-towards-land-market-reform/ calling on the government to “address one of the biggest issues in housing: the urgent need to reform the 1961 Land Compensation Act.”
    They write ” [land reform] sits at the heart of our campaigning for high-quality, genuinely affordable housing”
    Last year while still leader, Vince Cable issued a press release noting how reform of the Land Compensation Act would allow a dedicated housing agency could build on land acquired compulsorily without profits from land scarcity.

    “…the major effect of Help to Buy is to drive up demand while having no effect on supply. Prices go up and buyers are forced off the housing ladder. The result is not help for those who need it, but a boost to the profits of big developers.
    Liberal Democrats have set out how government could be delivering 300,000 homes a year over the next decade, by creating a British Housing Company as a dedicated, not-for-profit body to build on land acquired compulsorily without profits from land scarcity.”
    The issue of land is at the heart of the housing crisis and the principal causal factor of in-work poverty. in 2017, Tim Farron introduced a relatively modest policy to provide a rent to buy scheme for first time buyers https://www.theguardian.com/politics/2017/may/16/lib-dems-unveil-rent-to-buy-pledge-for-first-time-homeowners. In my view, this could go much further and be extended to all current council tenants so that they could acquire their homes with the land remaining in local authority hands in perpetuity.
    When it comes to the acquisition of land that yields an income stream in the form of ground rents there really is no limit to the amount of debt that the government can issue for these purposes. As long as land can be acquired at its pre-planning consent value, It is a self-financing investment that enables the provision of affordable housing for the long-term with the land never being sold-off into the private market via a right to buy scheme.

  • Michael Maybridge 17th Feb '20 - 1:24am

    @Peter Martin I ploughed through Joe Bourke’s linked article all the way to the end, and the author doesn’t disapprove of anything because socialists like it, because he’s a socialist! (Also PKs refers to post-Keynesians, who the author tells us are among the ancestors of MMT, not MMT itself.) If you’re going to engage with Mr Henwood’s critique of MMT (and I, for one, would be interested in that) then I think it will need to go a bit deeper than ‘I don’t take him seriously because of some [apparently imagined] ideological bias’!

  • Peter Martin 17th Feb '20 - 2:37pm

    @ JoeB

    “We are close to full employment now with the highest labour participation rate on record (much higher than the USA) and low levels of long-term unemployment.”

    This a very right wing excuse. If you’d read them, you’ll perhaps remember many contributions on LDV, including some by Katharine, expressing concern about the plight of the working poor. Many people have to work all hours just to be able to pay the basics. From a neoliberal perspective this is even better than having to pay out unemployment benefits to an idle reserve army of labour. Underemployment and badly paid insecure employment have to a large extent replaced unemployment.

    The number registered as unemployed is still 1.3 million. The rate only appears low because of the need of many families to have more than one breadwinner which has meant a record number of people having to be in work.

    @ Michael BG,

    “This is meant to free up the capital so it can be lent to someone else and so increase the money supply.”

    It doesn’t work like this. Google {banks don’t lend reserves} for many references on the topic.

    @ Michael Maybridge,

    I didn’t actually write the words in your quotation marks. Nevertheless I would make the point that Doug Henwood’s critique , whether or not we might agree his left credentials, is basically no different from our own Joe Bourke’s , who certainly isn’t a socialist. Presumably that’s why Joe referenced him in the first place. There are a few non lefties, such as Goldman Sach’s chief economist Jan Hertzius, who do accept MMT but such examples are quite rare. There’s something about MMT that the political right just don’t like. Having said that, I could be wrong about Mr Hertzius’ politics. Maybe he is a closet socialist after all!

    Pavlina Tcherneva has done a pretty good job in providing a sensible critique of the article. Have you seen this?

    https://jacobinmag.com/2019/02/mmt-modern-monetary-theory-doug-henwood-overton-window

  • Mark Kenyon 17th Feb '20 - 3:56pm

    @ Peter Martin “there’s something about MMT that the right doesn’t like” …..absolutely! debt is a great income stream for the debt holder plus government created money can lead to big government, which as any disciple of The Gipper knows, is bad!

  • Peter Martin 17th Feb '20 - 6:40pm

    @ Joe,

    You’re twisting what Pavlina Tcherneva, in particular, and MMT proponents, in general, are saying. Why am I not surprised?

    So far the JG hasn’t been tried. But we’ve had MMT since the early seventies with introduction of a floating fiat currency. If it had been tried, we’d have noticed what PT is saying. ie “the whole point of doing targeted demand via a JG is that it sets a floor and a ceiling to government spending while anchoring prices.”

    But, as we haven’t, there is neither a floor nor a ceiling.

    And incidentally MMT ISN’T saying “MMT means that a future government can dodge hard choices”. As always the choices are about how to use the available resources to best effect. What MMT DOES say is that resources shouldn’t be wasted by having workers standing by idle, whether that be totally idle in the form of unemployment or partially idle in the form of having them perform crappy, poorly paid, and insecure jobs.

  • Peter Martin 17th Feb '20 - 8:28pm

    @ JoeB,

    Thank you for this old link. Mind you, it shows is that you’ve changed your opinion somewhat since 2012.

    Then you wrote ” Job Guarantees – an economic stimulus worth considering?” The article goes on to suggest that it is worth more than just considering. You also wrote relatively kindly “Thanks to all those who have posted references to Modern Monetary Theory”.

    Now you seem quite hostile. with such comments as “The job guarantee is a contribution (from MMT) , though a flawed one” and “It would be sad to see the socialist left, which looks stronger than it has in decades, fall for this snake oil. ”

    I doubt Pavlina would have been quite so positive with her comment if you’d originally used the phrase “many economists and commentators find the claims of MMT proponents rather naive”. Pavlina is, of course, one such proponent.

  • Katharine Pindar 17th Feb '20 - 10:32pm

    On providing more housing, it does seem that reforming the 1961 Land Compensation Act is key for us, according to Vince Cable last year and Joe Bourke now, together with the establishment of a statutory Housing Authority to buy compulsorily land for development. I suppose the plan is also for local authorities to be able to buy such land. As Peter Martin says, there is a collusion of those using land and housing prices as collateral for private debt. We appear actually to need a revolution in political thinking to ‘restore the land to the people’, then, Peter.

    Joe, I think proposals to give new young renters more rights to gradually buy their homes might run up against the natural mobility of young people, moving around from job to job and making and changing personal relationships, rather than stopping with one dwelling in one place for more than a short time.

  • Katharine,

    it is a fair point about young renters. The UK has been unusual in this respect insofar as younger people have in the past tried to get on the property ladder earlier than is typically the case in Europe or the USA.
    Larry Elliott’s recent article https://www.theguardian.com/business/2020/feb/09/how-poverty-has-become-the-scourge-of-those-in-work discusses in-work poverty and low pay. He writes:
    “The most obvious way to tackle poverty pay is to raise wages. That can be achieved in a number of ways: by raising the skill levels of employees so that they can get better-paid jobs; by increasing the minimum wage by more than they rate of inflation: and by workers organising collectively through trade unions. Britain has under-invested in technical education and training, 16% of workers – around 5 million people – are classified by the government as low paid, and unionisation is weak outside of the public sector.
    Another option is to make the tax and benefits system more sensitive to the needs of the in-work poor. It is wrong to think that poverty affects a cut-off group of people forever living below the breadline: half the people enduring in-work poverty exit over a three-year period, while a similar proportion of people fall in. The tax and benefit system should make work pay and be there for people when times get tough.
    Finally, there’s housing. One side-effect of quantitative easing – the money-creation programmes used by central banks to combat the financial crisis – has been to boost demand for housing at a time when supply has barely increased. Low-cost homes are extremely hard to come by.
    The government’s “First Homes” scheme, which offers key workers big discounts on new homes, is not the answer and will simply lead to higher demand and higher prices. A better solution would be a national infrastructure plan with the provision of low-cost housing at its heart.”

  • Peter Martin 18th Feb '20 - 3:41am

    @ Joe,

    “There are indeed many economists and commentators that find the claims of MMT rather naive……”

    As Ms Rice-Davies once famously exclaimed in the witness box: “Well they would say that, wouldn’t they?”

    “I have learned something of the basic concepts since, but do not claim to have an in-depth understanding of the theories.”

    Fair enough, but how about at least, for now, keeping an open mind? If you’re seen to be criticising something without fully knowing what your objections are, it’s going to be difficult for anyone to avoid anyone concluding that your motivations are political rather than technical.

    “One side-effect of quantitative easing – the money-creation programmes used by central banks to combat the financial crisis – has been to boost demand for housing…..”

    Except it’s not a side-effect. It’s just about the entire reason for QE. The Govt doesn’t want to be seen to do the borrowing to finance the external deficit. Therefore someone else has to. This means using QE to lower interest rates to historic lows to encourage more private borrowing and using expensive property as collateral.

    @ Katharine,

    ‘restore the land to the people’

    I wouldn’t disagree but I’d say it’s more than about the ownership of land. From the POV of the working people of London, there’s no point building lots of expensive apartments and flats if they are only affordable by the super rich who often don’t live in them anyway.

  • Katharine Pindar 18th Feb '20 - 3:49pm

    Joe, many thanks for quoting the Larry Elliott article discussing in-work poverty and low pay. Those are the exact ideas I wrote about yesterday in an extra comment on the thread about a national Social Contract which Michael BG and I posted – https://www.libdemvoice.org/a-new-social-contract-putting-flesh-on-the-bones-63391.html, so I was pleased to read the Elliott quote. It’s difficult to find time to read both The Times and The Guardian, and I had missed that article. But I was prompted to write my own comment thanks to studying the OBR brief guide to welfare spending, to which David Raw had kindly provided me a reference. And the extra point I was making was that the forthcoming Tory Budget is unlikely to consider the needs of the employed poor, well covered by Mr Elliott, and that is one of the omissions important for our party to draw attention to. We can do so also by campaigning for renewal of the forgotten national Social Contract, in which government should commit to ending relative poverty whoever in our society is enduring it.

  • Katharine Pindar 18th Feb '20 - 3:57pm

    @ Peter Martin. Thank you for your support, earlier expressed, for the idea of a renewed national Social Contract, Peter. But as to the hoarding of expensive accommodation in London by the super-rich, that is exactly one of the two causes (along with land hoarding everywhere) which make me feel there have to be drastic and very radical moves by government to make sure ordinary people can get decent and affordable homes again. Just where I would like your Labour party to take a lead, which mine could support you in!

  • Katharine,

    these are strange times we are living through. Larry Elliott in a Guardian piece a couple of days ago writes “Boris Johnson is determined to break all the iron rules of politics.” https://www.theguardian.com/politics/2020/feb/16/boris-johnson-is-determined-to-break-all-the-iron-rules-of-politics.
    He says “Johnson’s starting point for next month’s budget is that he needs to begin delivering instantly for the not especially well-off voters in former Labour seats who delivered him his majority. The prime minister’s assumption is that these voters are not natural Tories, are cynical about politics and will be unimpressed if told there will be jam tomorrow but not today.”
    Javid was prepared to go along with the prime minister’s political project to “level up” the regions, but only up to a point. The former chancellor announced the biggest increase in public spending in more than 15 years last autumn and was planning a fresh stimulus for the economy next month.
    As Javid envisaged it, the budget would have three big themes: a boost to infrastructure; an emphasis on skills and training and less stringent rules for public finances, under which the government would be allowed to borrow for investment but not day-to-day spending.
    The prime minister, it appears, thought this wasn’t ambitious enough and wanted an even more expansionary package. Javid pushed back, floating the suggestion that any additional spending increases would have to be paid for by higher taxes. That certainly wasn’t part of the Johnson-Cummings blueprint and Javid was forced into a position where he had to go.
    The upshot of all this is that the budget will be more expansionary than it otherwise would have been. Getting rid of a chancellor is high risk, and as Paul Dales of Capital Economics notes, there’s not much point in getting rid of Javid and replacing him with Rishi Sunak if you don’t want anything to change.
    Dales said he was already expecting the impact of last autumn’s spending round and the forthcoming budget to boost the economy by 1% of GDP, which is about £20bn a year. “But now there is a chance that Sunak either announces some new, less restrictive fiscal rules or tweaks the current rules to allow fiscal policy to be loosened by more than 1.0% of GDP,” he said.

  • Peter Martin 19th Feb '20 - 4:42pm

    @ Katharine,

    “Just where I would like your Labour party to take a lead……”

    I think that’s unlikely. The economics of the Labour Party advisers is still very backward. Also the Labour Party are in no state to form a government for the foreseeable future. Naturally Jeremy Corbyn gets the blame but the decline of the Labour Party goes back further than his leadership. Jeremy Corbyn wasn’t responsible for the loss of nearly all Scottish MPs. The Labour Party’s Red Wall was only saved from demolition in 2015 because UKIP and the Tories split the anti EU vote. Once UKIP just about ceased to exist and the Brexit Party did badly in 2019 there wasn’t a hope.

    It will probably take at least a decade for Labour leavers to return. Even longer if Keir Starmer is elected. Without them there’s no chance of a Labour Govt.

  • Peter Martin 19th Feb '20 - 9:11pm

    @ JoeB,

    “……. less stringent rules for public finances, under which the government would be allowed to borrow for investment but not day-to-day spending.”

    You’re still not looking at this the right way. You’re still thinking that the Govt gets the money in taxes first then decides how to spend it and how much extra it needs to borrow. It has to be the other way around. The govt spends the money into the economy first and only then is it available to be collected as taxes.

    So, let us suppose the Govt gave big tax breaks to the wealthy. They probably wouldn’t spend it. The’d save it and the increased savings of the private sector would be the mirror image of an increased deficit by the Govt. That’s not what we want. That’s not what neoliberals want because they don’t like increased Govt deficits and debts. That’s not what MMTers want because it’s just putting money into the hand of the wealthy and having zero effect on the economy.

    Therefore to stimulate the economy the Govt needs to put money into the hands of the less affluent who are likely to spend it. Every penny spent is likely to be respent unless it is saved or picked up in the tax net. Every transaction gives the Govt a share of the proceeds in VAT revenue, income tax revenue etc. The deficit isn’t increasing anywhere near so much if the extra spending is properly targeted. It may even be decreasing if there is a multiplier effect.

    In other words, an increased deficit is a sign that fiscal stimulus isn’t working as intended. This is true for both capital and current spending. Therefore, it really makes no sense to say that a sign of failure should be OK for one but not the other.

  • Peter,

    As Jonathan Portes has written “…that (fiat) money is ultimately a governmental construct in modern capitalist economies, and central banks can indeed produce as much of it as they want—is not news, certainly not to “orthodox” economists, as MMT proponents might label Wren-Lewis and me.”

    “What does it mean to say that “there can only be spend and tax” rather than “tax and spend”? Both from an economic perspective and from a common sense one, taxing and (government) spending happen at the same time. It’s not much help to tell a chancellor trying to write a Budget—setting out her tax and spending plans—that reversing the order would magically solve all their problems.

    “Bangladesh is a sovereign nation just as much as the UK is (meaning, in this context, that it has its own currency managed by a central bank that is under the ultimate control of the government). But, no matter how large a deficit it ran, Bangladesh couldn’t afford universal NHS-quality healthcare for its people. It simply isn’t rich enough—it doesn’t have the doctors, nurses, or hospitals it would need. And this is the crucial point—if it tried to buy them and printed money to do so the result would mostly be inflation, with more money chasing a restricted supply of doctors and so on.”
    ” Yes, the UK can afford a high quality NHS. And education, and welfare system, and so on. But the idea it can do so without raising taxes is for the birds. Sure, the UK could run very large budget deficits, even with unemployment low. But the result would still be the same as that predicted by conventional economists. Inflation would rise. You can create money out of nothing, but you can’t create doctors, schools, or consumer goods.”

    There will always be more need and want then the physical resources available to satisfy them. The way to prudently manage this resource allocation is with financial planning that seeks to match current spending with current taxes during a fiscal year and applies public borrowing capacity (consistent with financial markets stability) to developing the host of capital infrastructure projects required including flood defences; road, ports and rail infrastructure; hospitals and schools, the transition to sustainable energy and a mass program of public house building.

  • Katharine Pindar 20th Feb '20 - 12:21am

    Joe B. Going back to your comment of the 18th at 5.26 pm, replying to me – thank you – I don’t really see that ‘These are strange times we are living through’, Joe. Surely we can always expect that Boris Johnson’s government will take whatever measures will most consolidate his personal power. So, ‘levelling up the regions’ is a priority now because of the votes said to be ‘lent’ by ex-Labour to the Tories in the GE. It won’t matter what it costs, what fiscal rules are at least temporarily broken, so long as that seems to be working.

    IFS director Paul Johnson, wrote in The Times on Monday that without tax rises ‘there is next to no room to reverse cuts on spending on local government, universal credit, prisons, social care …or any of the other public services that have borne the brunt of a decade of austerity,’ There have to be tax rises or junking the previous fiscal promises, he concludes. Well, what could Mr Johnson do about that through his new Chancellor of the Exchequer?
    I suggest he can raid Liberal Democrat ideas, and in the process win back some of the pink Tories who have veered to our party (some of whom comment here). So, we hear that the idea of a Mansion Tax, one of ours, is being considered. So is bringing in new bands for council-tax rating, a needed reform much mooted by us. And also in Monday’s Times, I read a feature writer, Clare Foges, proposing that ‘a serious sum of money, perhaps £5000’ be made available to every adult in the country aged over 24, who wishes ‘to retrain, reskill and re-imagine where they are going.’ The author carefully considers how such a proposal can be worked out. So, Mr Johnson, just raid the Lib Dem Manifesto for the exciting new (albeit expensive) ideas you need! I expect you will do just that.

  • Peter Martin 20th Feb '20 - 7:22am

    @ JoeB,

    ‘that (fiat) money is ultimately a governmental construct …..is not news, certainly not to “orthodox” economists’ …

    So why do othodox economists carry on with same theories they held to when we were on a gold standard and money wasn’t just a construct of govt?

    “……that reversing the order would magically solve all their problems.”

    It’s like talking to a petulant child at times. No-one is saying that. But it does help to know which is the cause and which is the effect. Govt spending is the cause. Increased taxation revenue is the effect.

    “….but the idea it can do so without raising taxes is for the birds”

    Not just a petulant child but a slow learning one! Yes it’s possible that an overheating economy will need to be cooled down by raising taxes. I’ve explained this many times.

    ” Bangladesh couldn’t afford universal NHS-quality healthcare for its people. It simply isn’t rich enough”

    The UK wasn’t in great economic shape after WW2. We didn’t introduce the NHS because we somehow suddenly felt “rich enough” in the immediate post war period. Poorer countries like Cuba can do well in the provision of health care or they can, more often, do badly on the grounds they “can’t afford it”. On the plus side there are often plenty of people who are available to work in health care who don’t cost anywhere near as much to employ as they do in the west. The Baumol effect applies. The richer the country the more expensive it becomes to provide basic health services.

    Many poorer countries could do much better if the political will was there to do it.

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