On August 6, 2018, British tax expert Richard Murphy who is becoming increasingly sympathetic to the principles of Modern Monetary Theory (MMT) published a blog post, which recorded an exchange with one James Meadway, who is the economics advisor to the Shadow Chancellor John McDonnell in Britain. The exchange took place on the social media page of a Labour Party insider who has long advocated a Land Tax, which McDonnell is on the public record as saying will “raise the funds we need” to help local government. He called it a “radical solution” (Source). An aside, but not an irrelevant one. It reflects the mindset of the inner economics camp in the British Labour Party, a mindset that is essentially in lockstep with the neoliberal narrative about fiscal policy. Anyway, his chief advisor evidently openly attacked MMT as “just plain old bad economics” and called it a “regression in left economic thinking” which would ultimately render the currency “entirely worthless” if applied. He also mused that any application of MMT would be “catastrophic” for Britain. Apparently, only the US can apply MMT principles. Well, the exchange was illustrative. First, the advisor, and which I guess means the person being advised, do not really understand what MMT is. Second, the Labour Party are claiming to be a “radical and transformative” force in British politics, yet hang on basic neoliberal myths about the monetary system, which is at the core of government policy implementation. Astounding really. This is Part 1 of a two-part series on this topic, most of it will be summarising past analysis. The focus here is on conceptual issues. Part 2 will focus more specifically on Balance of Payments issues.
After my day in the sun as a poet, I am back to being an economist. I have been researching operational issues relating to how a society can take back control and Reclaim the State, as part of the work I am doing for our follow up book (with Thomas Fazi) that I hope to get out next year sometime. The current book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) is very conceptual. The Part 2 follow up will be conceptual in part but also operational. How to do it rather than what needs to be done. More specifically, I have been examining public procurement policies and how they have been captured by neoliberal interests to benefit capital at the expense of broader objectives (regional development, skill development, productivity growth, investment, employment, wages growth, etc). Over the last 3-4 decades, the way governments spend their money (contracting etc) has changed dramatically and governments have been bullied into acting as if they are ‘profit-maximising’ firms with no other agenda when making multi-billion dollar market purchases. However, in Britain this might change if British Labour are elected. Jeremy Corbyn announced this week that he was going to dramatically change the way the British government spends if he is elected. His ‘Build it in Britain’ strategy will scrap the narrow, neoliberal approaches to public procurement policies and instead use the spending capacity of government to advance broader goals. So while it might end up that a contract to a local firm requires higher government outlays, if that contract also delivers other benefits to the nation (as above) then the local firm would not be disadvantaged. Under the current ‘value for money’ hype local firms cannot ‘compete’ in many cases and these broader benefits are thus not generated. I see the ‘Build it in Britain’ strategy as an exercise in sensible logic and a major statement that the neoliberal command on British Labour is in retreat – for now anyway.
I have written about the concept of dynamic efficiency before. The most recent blog post on this theme was – The ‘truth sandwich’ and the impacts of neoliberalism (June 19, 2018) – which examined how social mobility across generations has been declining as a result of the decades of entrenched unemployment driven by neoliberal austerity biases. I also outlined the proposition in this blog post – US labour market reality debunks mainstream view about structural impediments (January 15, 2018). The point of all this is that establishing high pressure labour markets brings about more than just workers who want to work having jobs. It brings other major benefits that workers can enjoy and forces firms and governments to manage their affairs differently from when there is entrenched unemployment. The UBI proponents never really understand that point as they continue to surrender to the proposition that mass unemployment is inevitable and all the governments should do is keep people alive with some guaranteed income. All these dynamic efficiency gains are then not realised and capital has the run of the field.
You know, an Italian won the British Open golf championship yesterday (the first Italian to ever win a golf major) because of the uncertainty surrounding Brexit negotiations. The causality is impeccable. I am sure about that, although it might take me a while to work it out. But if a British golfer cannot win their Open Championship (Rose tied for second, two shots back) then it must be because of Brexit. Everything else that goes wrong is, so why not the golf? It is the same when three former US policy makers, central bankers, Wall Street-types, claim that the US no longer “have to tools to counter the next financial crisis”. They know full well that that statement is a blatant lie. But they say it. To remain relevant as their stars dim? To do service to their conservative mates? All of the above and more. But the media grab the headline and the American public and the public in general is dealt another piece of neoliberal misinformation that helps entrench the hold on power by the elites. But things are changing, and these entrenched elites and the vested interests they serve don’t like it a bit.
This is the second and final part in my response to the Social Europe article by Stuart Holland (July 11, 2018) – Not An Abdication By The Left – where he attempts to eviscerate various writers who have dared to suggest that the “social democratic Left in Europe … has run out of ideas” or that “there has been an intellectual abdication by the Left”. He uses his experience as an advisor to Harold Wilson in the 1960s and to Jacques Delors in the early 1990s as an ‘authority’ for his rejection of the claims that the Left has abandoned its social democratic remit. He holds the likes of Delors and António Guterres has shining Left lights. In Part 1, I showed that the view that Delors and Guterres are beacons of Left history and that the social democratic Left has not sold out to the neoliberal orthodoxy (particularly at the political level) is unsustainable. Holland distorts history to suit his argument and is in denial of the facts. In Part 2, I trace the argument further by examining the 1993 Delors White Paper, which was meant to be the European Commission’s response to the mass unemployment that was bedevilling the Continent at the time (and remains, by the way) and later propositions that Holland was associated with in relation to Greece during the GFC. They further demonstrate that Stuart Holland is attempting to maintain an indefensible position.
Former Austrian Chancellor Bruno Kreisky was quoted as saying during the 1979 Austrian election campaign that: “I am less worried about the budget deficits than by the need for the state to create jobs where private industry fails”. That is the statement of a social democrat. That is a progressive Left view. In June 1982, with French unemployment at 7.2 per cent (having risen from 2.4 per cent in 1974 after a near decade of austerity under the right-wing Prime Minister Raymond Barre), the French Minister of Economy and Finance cut 30 billion francs from government spending so that the fiscal deficit would remain below 3 per cent. In March 1983, the same Minister pressured his colleagues including President François Mitterrand, into imposing a further bout of austerity, cutting another 24 billion francs and increasing taxes by 40 billion francs. These were very deep cuts. The austerity under the so-called ‘Barre Plan’ had failed to reduce inflation. When the turn to austerity was repeated under Mitterand’s so-called Socialist government, France was already in a deep recession. Under the Socialist austerity period unemployment rose sharply to further to 9.3 per cent by 1987. By then the architect of that austerity, one Jacques Delors, was European Commission President and starting work on his next exercise in neoliberal carnage – the Eurozone. None of his behaviour during that period remotely signals a position we could call progressive or Left. Like his austerity turn (“tournant de la rigeur”), Delors had turned into just another neoliberal obsessed with fiscal surpluses, free markets (he oversaw the 1987 Single European Act), and privatisation (which he claimed was necessary to attract foreign direct investment) (Source). This is Part 1 of a two-part series on the abdication of the Left, which some still choose to deny.
Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat.
In examining the implications for an exit from a currency union, one of the issues that arises is the proportion of public debt that is issued under foreign law. This is a separate issue to the implications of foreign-currency denominated debt. Both issues are problematic and compromise a government’s capacity to remain solvent. I covered the former issue to some extent in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – when I was considering different strategies for exit. There has been some further research on the question of foreign law debt issuance by the ECB and its Working Paper No. 2162 – Foreign-law bonds: can they reduce sovereign borrowing costs? – published June 2018, has relevance. It is clear that a government reestablishing its sovereignty has the upper hand, especially if it has issued debt under its own legal system. Which is why the likes of the IMF and the European Commission has been keen to increasingly pressure governments to issue debt under foreign laws under the ruse that this is a show of faith to the private bond markets. Once again the increasing bias towards foreign-law debt is all about privileging private capital over the interests of citizens in national states. What is absolutely clear is that a sovereign government should never issue debt instruments under any legal system other than their own. What is even clearer – such a government has no need to issue any debt at all.
Last week, the Eurogroup met in Brussels and given all the Macron-Merkel buildup – see my blog post – The Meseberg Declaration – don’t hold your breath waiting (June 26, 2018) – the Europhiles were tweeting their heads off building themselves up into a ‘reform’ frenzy. If we were to believe half of it, then Germany was rolling over and about to agree to reforms that would put the Eurozone on a sound footing. Even progressive Europhile commentators held out hope of some big changes. Well not much happened did it. Like virtually nothing of any substance emerged from the meeting and matters were deferred (again) to December. Ho Hum! This is the European Union after all. At the same time, new voices encouraging an Italian exit appeared in the last week. Regular readers will know that in lieu of some unlikely turn of events in Europe where the elites about face and set in place effective reforms, I maintain that unilateral exit remains the superior option for an individual nation such as Greece or Italy. I am on the public record as arguing that given the size of the Italian economy in relation to the overall Eurozone economy, Italy should demonstrate leadership by finalising a negotiated exit with Brussels that minimises the damage for all parties. That would become the blueprint for other nations to regain their currency sovereignty and escape the Eurozone madness. Another voice joined that line in the last week.
It is Wednesday, so just a (relatively) short blog post today. I am using the time today to further scope out the material and logic for my next book with Thomas Fazi, which we hope to publish sometime in 2019. I will provide more details on that project soon but it is intended to be the followup to our current book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017). So, today, a bit of that sort of flavour. In 1977, the Young European Federalists, which has long campaigned for European integration, released its Manifesto, which coined the term “democratic deficit”. While they intended it to be a concept to advance their pan-European intentions, the idea resonates strongly in the current climate and can be used to support a return to grass roots democracy aimed at reclaiming the nation state from the neoliberals and the progressive pretenders who have become infested with neoliberal ideas. In the last week, we have seen two notable events. First, the entrenchment of the colonial status of Greece under the watchful eye and collaboration of so-called ‘socialists’. Second, the magnificent success in today’s New York Democratic Primary election by a truly progressive candidate. These events are diametrically opposed. The former tells you what is wrong with traditional progressive political parties. The latter tells us that we can do something about it.