Forum menu
Many well respected economists don’t understand it/accept it. But you know what – let’s assume these respected economists are the ones calling the shots – why have they made a such mess of the economy?
I can'r remember who said it above but like flying a plane.... if I tried it and crashed that means the plane is flawed then?
Or is the system perfectly good but has been abused / run badly for the last 14 years.
Are you saying the 'traditional' model has never worked?
why is Reeves obsessed about the 22bn black hoke when [IF YOU SUBSCRIBE TO MMT] there is no need to be
I don’t get why you don’t understand actually.Reeves doesn’t subscribe to MMT. She’s talking as though the economy is a household.
I think it's you that doesn't understand. The 'fact' above is only a fact if you believe in MMT. She doesn't, therefore she's 'obsessed' about dealing with the deficit (or if my feeling is right, some of it)
I and others have been bleating on for ages.
I think we can all agree on that point.
The downsides of spending too much money are inflation – which can be controlled with taxation. (Removing money from the economy.) And you need the resources to make it all work.
The money is the easy bit.
Money and budgets are largely irrelevant in terms of restrictions – just an IOU mechanism for keeping measure on movement of money.
So if that's all there is too it why aren't governments all around the world doing it.
Many well respected economists don’t understand it/accept it
Maybe that's why......
let’s assume these respected economists are the ones calling the shots – why have they made a such mess of the economy
Hello, have you not been paying attention for the last few years, respected economists have not been calling the shots, Liz Truss, Boris Johnson and other idiots with populist agendas and simple answers for complex problems have been calling the shots, which is why the economy is such a mess , Brexit anyone?
So again assuming we accept the current government is actually full of grown ups who generally want to sort the problems out please give one credible reason why they aren't embracing your economic advice?
MMT is a classic case of the logical (?) consequences of that age-old weakness of a lot of theoretical economics which includes the phrase “all other things being equal”; as though whole economies behave in isolation. By ignoring inconvenient facts that if you set off on a course of MMT you need someone to fund it, and some of the finders will be overseas investors who may not necessarily agree with your course of action and/or will demand a higher price for their support in terms of higher interest rates. And that is without allowing for the trashing of the exchange rate, higher inflation and higher interest rates etc.
Just because the arcane intricacies of part of the monetary system can be explained, it doesn’t mean you can game a whole economy on that insight; that’s balancing an elephant on a pin head material.
Seems to be a lot of naivety on here among those asking why MMT isn't openly supported by the govt and making comments like 'if it worked everyone would be doing it'. The explanation of why govts and politicians don't openly acknowledge or support MMT is one of simple politics and power. The people with all the power are also the ones with all the money. They stand to lose out massively if MMT is implemented for the good of the whole economy rather than a tiny group of super rich people and corporations. The politicians are dependent on the support of these people and corporations to put them in power, so they continue with the status quo. Also can you imagine the anger and outrage if politicians suddenly admitted that everything they've told voters about the economy being like a household was a flat out lie?
And for those saying 'respected economists don't support it', that's coming from an assumption that economics is a science and those practising it are impartial and objective. The very opposite is true. Mainstream economics is nothing more than a study in how neoliberal capitalism and modern nation states work and spends most of it's time finding justifications for these rather than questioning whether they work or what the alternatives are. Most economists are no more than willing apologists for a system in which they have a vested interest so are not objective or reliable authorities on whether MMT is viable or not.
Seems to be a lot of naivety on here among those asking why MMT isn’t openly supported by the govt and making comments like ‘if it worked everyone would be doing it’.
Actually, my comment was, 'Sri Lanka openly supported it and it doesn't seem to be going well for them.'
I know, I know, it's not 'real' MMT because if it was they wouldn't have had any problems...
Not saying it's not a useful way of looking at government spending, but like most theories and models it's better at dealing with ideal situations than reality.
Actually, my comment was, ‘Sri Lanka openly supported it and it doesn’t seem to be going well for them.’
Which only supports my point that MMT-critics aren’t being objective or impartial. Comparing the Sri Lankan economy and govt policies to the UK is clearly ridiculous. That and most other criticisms of MMT are no more than economic flat-eartherism. If MMT was so wrong it should be very easy to debunk, so why rely on straw men arguments about Sri Lanka, Zimbabwe, Weimar Germany etc?
Maybe I am naive then but why does MMT have to benefit the little person? Surely MMT would be brilliant for the last bunch - sod the deficit, keep printing money, give enough to the little man to keep them happy enough, while shovelling more and more into the pockets of the rich - business owners, property owners, etc. You'd be in power for ever, whereas taxing the little man to benefit the rich?
I mean there's also a widely help opinion that extra money to the rich doesn't cause inflation, because they can't spend it and what stuff they spend it on isn't generally inflationary. I don't think villas on Caribbean islands and superyachts are part of the basket of goods used to measure CPI?
Most economists are no more than willing apologists for a system in which they have a vested interest
You'll have to explain that further. Most economists don't seem to be superwealthy, what's their interest and how are they benefiting?
Well, Stephanie Kelton certainly seems quite keen to use Greece as an example of the dangers of a country not being it's own currency issuer.
I think anyone with even the vaguest understanding of the Greek economy knows that MMT would not have saved it in 2008. Greece is a strawman many MMT proponents turn to regularly.
The problem with MMT is it completely ignores the fact countries have to trade with each other.
The US can ignore the fact that other countries have to trade with it given the fact their currency is used to by so many other countries.
Any country pretending it is the US is likely to find itself struggling paying for imports before too long if it pushes the idea that it can print as much money as it likes.
what’s their interest and how are they benefiting?
Employment.
Sorry, you'll have to give a bit more than that. What do you mean?
Employment.
The employment argument, I'm assuming, is the government guaranteed job thing?
Even though it's not strictly speaking a part of MMT it always seems to get tacked on there.
Let's face it, what we are talking about is UBI and not a guaranteed job. Unless it's a job I can do without actually having to do anything or even be there it's not a guaranteed job.
Stephanie Kelton wrote an excellent book full of easy to understand analogies but **** me did it make people think they understand far more than they do.
I am not an ecconomist. I know very little but I at least know enough to have an understanding of the scale of my lack of understanding.
Unfortunately most people have read Kelton's book and suddenly they have the answers to all the world's problems and have no problem telling everyone else they've been brainwashed by Big Economy.
There are some interesting people out there with interesting ideas about MMT but unfortunately none of them seem to be on this thread.
So let's forget about MMT as it seems to confuse people. What if Reeves just ignored the 22bn, after all there is always a deficit, this is just 22bn more. No need to cut services, or cut anything in fact, and just carry on with plans for growth (requiring investment). Once growth happens then the 22bn goes away without any further damage to public services.
If you want to do stuff like remove winter fuel allowance from those who don't need it then great do that but don;t pretend it has to be done because of 22bn just come out and say it was done because it was not setup properly in the first place. Same for increase of any taxes, if that is for equality or to control inflation or whatever but just state that.
She can't, because she believes (idk why, some would say dogmatically) in the balance the books process. If as you say that's not important I'm yet to understand why it isn't widely adopted.
You can only do the things you say if you believe the processes of MMT work. She doesn't, so she can't.
Sorry, you’ll have to give a bit more than that. What do you mean?
The system provides them with employment. Their job is to provide the economic basis for whatever political argument. Some economists are very right-wing, some are very left-wing, nothing they argue is based on "truths" otherwise they would all agree.
Politics/economics is based on priorities, you decide your priority and work from that starting point.
Zimbabwe was earlier suggested as an example of economic failure. Depending on your priorities Zimbabwe was/is not necessarily an economic failure. If the priority was to make Robert Mugabe and his cohorts very wealthy it was a huge success.
If as you say that’s not important I’m yet to understand why it isn’t widely adopted.
A challenge for you, theotherjonv. Find me and economy in the world that has balanced books. It is widely adopted, it's just a question of degree. You note I don't use "MMT" because I don't like it. It suggests a frivilous and irresponsible attitude to money supply management. I don't expect the government to balance the books and would encourage printing money to invest in and grow the economy in an ecologically and socially responsible manner. At the same time I wish them to look at all of their departements and cut where money is being squandered or not producing desired results. And I very much wish to see a more equitable and progressive tax system that makes tax evasion on the curent massive scale imposible.
You’ll have to explain that further. Most economists don’t seem to be superwealthy, what’s their interest and how are they benefiting?
They benefit with their careers. As Ernie says economics is about opinion and belief. It’s more of a religion than a science. Asking a mainstream economist whether MMT is a good idea or not is like asking a hardcore Muslim whether Jesus was better than Muhammad. I’m not saying they don’t know their subject, of course they do, but it’s not a science, and their opinions and analysis should not be seen as sacrosanct.
I'm not the economist (or even someone pretending to be one as I suspect the exponents on here are) I've been clear what my experience is. I don't need to find an economy with balanced books to prove any point, I'm asking others to provide some balanced opinions so I can understand more and make my own mind up. So far I can see some basis for MMT but when then when I ask about the bits I don't get, the tone of answer becomes dismissive one words or "I don't get why you don't understand"
Which bits don't you get? I'll do my best or answer "don't know"/"nobody who's being honest knows".
i don’t need to find an economy with balanced books to prove any point, I’m asking others to provide some balanced opinions so I can understand more and make my own mind up
But you appear to be ignoring the responses to your enquiries. You post :
She can’t, because she believes (idk why, some would say dogmatically) in the balance the books process. If as you say that’s not important I’m yet to understand why it isn’t widely adopted.
The response is :
Find me and economy in the world that has balanced books. It is widely adopted
And you come back with :
I don’t need to find an economy with balanced books to prove any point
Deficits are normal, unless you can prove otherwise? Now you can make up your own mind and answer your own question......... are balanced books necessary?
Which bits don’t you get? I’ll do my best or answer “don’t know”/”nobody who’s being honest knows”.
What would happen if the UK government created enough money to buy all existing UK government bonds and then went ahead and bought them all?
As far as I can tell, according to MMT, this would have no effect as it's merely an asset swap.
Also, why, according to many MMTers, is the Euro a bad idea while the US dollar is fine. Why wouldn't individual States be better off creating their own currencies and central banks?
Or the UK? Why shouldn’t the four nations, or even each county, have its own central bank and currency?
Earlier on this thread someone claimed that Liz Truss didn't listen to economists and suggested "look what happened".
You can always find an economist to agree with whatever political proposition.
In the case of Liz Truss there were at least seven "leading" economists who backed her unfunded tax cuts:
The seven economists, led by Dr Graham Gudgin from the Centre for Business Research at Cambridge University, said tax cuts were necessary because they were putting “unbearable strain” on family finances.
Other signatories on the letter include Graeme Leach, chief economist at Macronomics; Dr Gerard Lyons, senior fellow at Policy Exchange; and independent economist Julian Jessop.
The rest comprise Douglas McWilliams, executive deputy chairman at the Centre for Economic and Business Research; senior private economic forecaster Harry Western; and Shanker Singham, academic fellow at the Institute of Economic Affairs.
See also 'so long as there are enough resources'
What resources, exactly?
Edit: in response to Jon's last post
In the case of Liz Truss there were at least seven “leading” economists who backed her unfunded tax cuts:
And 4 of them (that I know of) are tufton st knobs, blow the building up, and its contents
My questions are up thread. I still haven't had answers I can get my head fully round on resources, do we really have the resources to do all the things we want to, we rely on external so printing money to export it in exchange for the goods we need, what does that do? Ed had a plan to overcome that but it's generation type timing.
People seem to have avoided the point about whether the balanced budget is automatically bad, or whether it works but has just been done badly / abused.
And re running a deficit, I guess the difference in my head is minimising it and using it like a last resort necessity in times of need (post war, covid, etc) vs using it as the norm. So yes, maybe most economies run a deficit because they have to, that's not the same as not being bothered about it because MMT/we can correct later by taxation if needed.
What did I read - the parts that are true are not new, the parts that are new are not true?
Oh dear, i wish i hadn't been at the wind up on MMT, it's turned into a full blown argument!
For my piece, as stated a few times, i think MMT is a great theory, but i just can't see it working in isolation in one western country, it opens up too many risks, it's not the system, or the actual processes behind it, it's the world markets, competing countries, personal interests and so on that could potentially cause more influence on our economy if we used MMT, think i said last time it's a bit like communism, it's great in practice, but then when you start using it with people, then the flaws of those people will corrupt it.
Likewise, I didn't expect this and was desperately pissed off yesterday. The question was 'How do people (in fact a perjorative 'the dreamers') think it's going; I gave an honest answer and then the same 'but MMT' broke out, plus some personal attacks / practically calling me a Mitty.
I think I'm a bit more aware what it means, I still don't get why if it's that great it isn't widely used to its full extent (not as necessity in times of crisis) or quite how it works mechanistically when we are resource constrained and relay on imported labour and materials, but that's in an earlier post.
And the final point, Reeves clearly is not an exponent of MMT, so constantly posting to say 'if we had MMT' is unhelpful. The relevant comment is on how well they are managing the policy that they are using.
Earlier on this thread someone claimed that Liz Truss didn’t listen to economists and suggested “look what happened”
She ignored the "Office for Budget Responsibility (which) was created in 2010 to provide independent and authoritative analysis of the UK’s public finances." https://obr.uk/faqs/#what-is-the-obr
The problem is that it doesn't have any power and doesn't set policy
Not only that, but she challenged the "orthodoxy" of HM Treasury and the BoE, two more long-standing checks and balances https://www.reuters.com/world/uk/taking-orthodoxy-britains-new-pm-truss-wants-act-fast-2022-09-05/
As Ernie says, she took advice from another group and the rest is history...
Picking you main concern which seems to be not having a balanced budget, theotherjonv:
The balanced budget is bad because it leads to stagnation and ultimately recession and then depression. It restricts the size of the economy to what is possible with the amount of money already circulating. An economy needs more and more money in circulation as it grows because money can only be cycled within the economy so fast and when there's a shortage growth stops.
This is exacerbated by "withdrawals" in the economic sense. Some money ends up in places it's not working, it's withdrawn and these withdrawals slow the economy unless conpensated by "printing" more.
If more money is needed the government can do that very easily by "printing" and spending, more fuel for the economy.
There are limits, if a government prints too much money and/or spends it unwisely then inflation rises which negatively impacts buisiness. It also erodes confidence in the currency which results in devaluation making imports more expensive but exports potentially attractive - unless the increased Wages/prices due to inflation compensate for the exchange rate changes which means the impact is more or less cancelled it's just the numbers that change.
A lot of this can't be managed precisely because it's ultimately the markets that decide. Sometimes they brush off what seem like damaging moves and sometimes they bite. The US has staggering amounts of debt and isn't adverse to monetary easing, it's still afloat and Dollar denominated assetts highly popular.
The Liz Truss situation was far far more complex than we have been led to believe.
It definitely wasn't as simple as she wanted to do tax cuts and then economy crashed (it didn't really crash as such - in fact the pound recovered rather quickly.) Interest rates were already several months into increases too.
The 'unfunded' media jubilee description became legend quickly and is from the same school as Reeves' black-hole. Economic nonsense but carried a lot of weight with house-hold analogy.
None of this means Lizz Truss was doing something good, of course not. But the story in the media was missing lots of info.
In fact the BoE published a paper explaining there part in the process just recently. Taking some blame for the situation. That's a matter of record but published only recently.
I've covered it before with some links from the BoE a few weeks ago.
Other news - Lucy Powell says ...
The economy could have crashed had the government not found savings by cutting winter fuel payments for pensioners, a minister has said
This is just total nursery school economics logic.
This current batch of Labour MPs are ridiculous economically speaking.
https://twitter.com/RichardJMurphy/status/1830310652931440904?t=8Olw_7VfVt69qD_-eBivew&s=19
There was absolutely no need for this farce. Total out of control stupidity.
The balanced budget is bad because it leads to stagnation and ultimately recession and then depression.
Because, or if?
Is it possible to run a balanced budget and not lead to stagnation? Matching more money to growth, but still in balance?
Now you've changed what you mean by balanced budget, you're learning. 😉
You still need to take into account withdrawals so will have to print more than theoretically needed just to match growth. And then you need to print a bit more to be sure you aren't under supplying. That's why the inflation target is never 0%. I would argue 2 is a bit too low and leads to flirting with recession.
“Office for Budget Responsibility (which) was created in 2010 to provide independent and authoritative analysis of the UK’s public finances
I agree with your point with regards to Liz Truss but I feel it is stretching it a bit to describe the OBR as being independent.
The OBR was set up by George Osborne specifically to make the case for austerity and balanced budget, the clue is in the daft name. It was an important part of the whole austerity/clearing the deficit narrative.
The economists appointed by the Chancellor of the Exchequer at the OBR understood their brief and knew what was/is expected from them.
Which goes back to my point........ decide what you want to achieve and then find an economist who will back you up.
Also, why, according to many MMTers, is the Euro a bad idea while the US dollar is fine. Why wouldn’t individual States be better off creating their own currencies and central banks
Because individual countries cannot control their spending by giving up their sovereignty in the case of the euro.
States in the USA aren't individual countries.
The dollar is particularly stable and powerful. I don't see how it would make any sense. Particularly when it needs central government finances to fund the massive military bill. Some things are centralised and some aren't.
Besides it's in the constitution.
Don't forget MMT models as it is. We're just staying that governments don't optimise that process and they misrepresent it.
The question (and its obvious answers) gets to the heart of why the limits on what can be done with the US dollar are different to the limits of what can be done with GB Sterling, or could be done with any of the smaller currencies Europe has done away with.
Because, or if?
Is it possible to run a balanced budget and not lead to stagnation? Matching more money to growth, but still in balance?
No. Check the evidence .
The USA has run two surpluses in the last 50 years. Resulting in a depression then a recession following Clinton's.
It's impossible to balance a budget and expect substantial growth because you don't leave money for the private sector to spend.
A government sector deficit matches the private sectors surplus.
If you reverse that - the private sector holds the deficit. A deficit in the private sector is will lead to negative GDP.
Which is exactly what Labour believe will lead to growth.
It's the exact opposite of reality.
competing countries, personal interests and so on that could potentially cause more influence on our economy if we used MMT, think i said last time it’s a bit like communism
This is preposterous.
And inaccurate.
For the umpteenth time the USA, Canada, New Zealand, UK and Japan all currently operate government spending that works according to MMTs description.
That is - the central bank funds spending but bond sales and taxation do not.
We don't 'use' MMT. It is the system in place already.
Why does this take so much explaining?
What is not accurate is what Labour are currently saying.
Just look to the pandemic - the Tories managed to spend 400bn without taxation. It wasn't even mentioned.
It was a political choice.
If MMT wasn't accurate they would not have been able to do that because they would have been waiting for 400bn to come in from tax on a shut down economy!
And Labour can't deal with budget adjustment of 22bn?
It's terrible terrible economic thinking and makes the Tories look competent.
(Although let's not forget hunt claiming he'd found some extra money a few months back. More bollocks.)
If MMT wasn’t accurate they would not have been able to do that because they would have been waiting for 400bn to come in from tax on a shut down economy!
I accept it can be used in necessity, it's whether it's sensible as a choice and what defines necessary.
After many decades of wealth transfer from public sector added to simply no real investment in the UK from both a public and private sector perspective.... its going to be very difficult to fix this within the boundaries of market expectations. The market has been in charge of the UK economy since Thatcher. The British public is easily swayed with a few quid (council house sales, Gas shares)
In short we are not in control of our destiny, that ship sailed long ago.
Why does this take so much explaining?
Because you never explain it properly?
The government can make any surplus available through lending which at the time in the US was through Freddy and Fanny
I don't know what you mean by this.
Not running a government surplus creates a deficit in the private sector.
All US surpluses:
1817-1821 depression 1819
1823-1836 depression 1837
1852-1857 depression 1857
1867-1873 depression 1873
1880-1893 depression 1893
1920-1930 depression 1929
1998-2001 recession 2001 Followed by the Great Recession.