I appeared on the ABC radio program – The Economists – today (April 25, 2019). The topic of today’s shows is – Debt, deficits and good housekeeping: what’s the fuss about?. The presenters talked among themselves for about 10 minutes and then brought me on for an additional 20 minutes to provide more commentary and detail. Australian listeners can listen to the repeat program on Radio National at 13:30 on Friday. Overleaf I provide details of how anyone can access the program audio. Given the topic, it starts off with a great 8-second snippet from AC-DC (a great band).
In Part 1, I introduced the discussion about the use of industry policies in the Keynesian period after World War 2. Most nations adopted a mixed planning-market based system for allocating productive resources and the state was always central in setting out planning parameters, direct ownership and employment, and regulation. It was a system that researchers described as being “highly successful”. Two approaches to industrialisation were taken: (a) export-oriented (for example, South Korea); and (b) import-substitution (for example, India), although in most cases, nations used both strategies. As neoliberalism emerged and the fixed exchange rate system broke down in the early 1970s, the IMF, whose purpose was intrinsically tied to providing foreign reserves to nations under the fixed exchange rate system, no longer had a purpose. They reinvented themselves as the neoliberal attack dog for corporations and global capital. They also provided cover for governments who were embracing the Monetarist ideas of Milton Friedman and intent on imposing fiscal austerity. These governments had become captured by corporate interests and by appealing to external demands from bodies such as the IMF, these governments could depoliticise harsh policy shifts away from Keynesian full employment. I used Britain as an example. Tony Benn, a Left Labour member in the British Parliament and Secretary for Industry, proposed an alternative industrial plan to revitalise British industry in 1975. It was rejected at the time by Harold Wilson and Denis Healey, who were intent on imposing fiscal austerity and deregulating. They used the scare that the IMF would have to bailout Britain as a ruse to force their Monetarist ideology onto the British Labour Party. It was no surprise that in an era where governments started abandoning fiscal support to maintain full employment, deregulated labour and financial markets, and abandoned domestic protections for their industries, many industries would go to the wall. The IMF claimed that this shows industry policy focused on import-substitution can never work. But the culprit was not flawed industry policy. Rather, it was the withdrawal of all the accompanying support structures that made it work, but which ran counter to the neoliberal ideology of ‘free markets’. Now the IMF is having a rethink based on the devastation that neoliberalism has caused. On March 26, 2019, the IMF published a new working paper (19/74) – The Return of the Policy That Shall Not Be Named: Principles of Industrial Policy. Now, we are reading that the IMF has conceded that industry policy interventions that were the basis of economic planning in the Keynesian era were highly successful and only stopped being so, in some cases, when fiscal austerity was imposed and trade controls were abandoned in the 1970s. This is Part 2 of the two-part series on this topic.
In 1975, Tony Benn, a Left Labour member in the British Parliament and Secretary for Industry, proposed an alternative industrial plan to revitalise British industry. At the time, the Prime Minister and Chancellor were becoming attracted to Monetarism and started framing and implementing the austerity-type fiscal strategies that are common today. Benn opposed this approach, and, instead proposed a far-reaching alternative economic strategy that involved increased industrial planning to revitalise British industry. The growing ‘free market’ orthodoxy at the time, spearheaded by the IMF and the World Bank, which had transformed into neoliberal enforcement agencies, were vehemently opposed to any form of industry policies or state intervention. As a result, Benn was basically shut out of the debate and this helped transform social democratic politics into the mess it is today. Ironically, now the IMF is changing its tune. It has recently rediscovered how effective industry policies of the type Benn was proposed actually can be if supported by coherent policy structures. Irony two is that these supportive policy structures are the opposite to those typically proposed by the IMF. At the time, there were economists (such as yours truly) who knew that the descent into neoliberalism would be a disaster and hamper growth and more equal distributions of wealth and income. But that view was also shut out. Now, without shame, the IMF are basically admitting the decades of insufferable neoliberal policies that they forced onto nations may have been wrong. Industry policy is back in focus. Imagine if they never had seduced the world with their snake oil. British politics, for one, would have been quite different. Brexit could very well happened in 1975 under a Labour government. And more. This is Part 1 of a two-part series which will finish tomorrow.
This is the second and final part of this cameo set, which aims to clear up a few major blind spots in peoples’ embrace with Modern Monetary Theory (MMT). This is all repetition. I don’t apologise for that and it does not reflect a slack or bad editorial approach from yours truly as some critics have claimed. Repetition is how we learn. Reinforcing things in different ways (aka repetition) helps people come to terms with concepts and ideas that give them dissonance. MMT is certainly about dissonance as the current level of hostility towards our work is demonstrating. It is also challenging existing ‘fiefdoms’ in the academy and beyond, which also creates aggression and retaliation. The problem is that most of the current criticism merely rehearses the same tired lines of inquiry. A stack of mainstream (New Keynesian) economists now regularly claim they ‘knew it all along’. The short and truthful response is – ‘no they didn’t. The standard mainstream macroeconomic theory cannot accommodate MMT principles unless it jettisons its core propositions and becomes something else. At any rate, as noted in – Operationalising core MMT principles – Part 1 – I am happy to help clarify quandaries that newcomers have with MMT if they are genuinely trying to work out what it is all about. I have no desire to interact with ‘critics’ who are just defending mainstream macroeconomics in its death throes and have no genuine interest in really understanding MMT beyond the superficial and no penchant for reading the now lengthy body of work we have generated in the academic literature. Yesterday, I considered a typical inquiry about an important operational detail of implementing a Job Guarantee. Today, I consider a related topic. If a government is facing a situation where it needs to shift workers to the Job Guarantee pool to stabilise inflation, how does it do that? The ‘critics’ often claim we only advocate tax increases to fight inflation and because they are politically tricky to engineer MMT essentially fails to have an effective price anchor. Today, I bring together many past blog posts to summarise the MMT position on counter-stabilising fiscal policy for those that might be struggling to put it all together.
I was going to write about Jamaica today but this topic emerged that I thought I should deal with before I write about the home of reggae. In fact, some of the material is input into a reasoned discussion about Jamaica so it logically precedes it. With the increasing profile of Modern Monetary Theory (MMT), social media activists are wont to talk about MMT in various ways that, in many cases, do not bear resemblance to our work. But that doesn’t stop them claiming things about what we have written or said and then proceeding to say how this is a ‘big problem’ with MMT that they cannot accept. Then their own local commentators chime in reinforcing the point. It is obvious that the original writer hasn’t read our work or if they have they haven’t grasped it (including the nuance and subtlety) but still feels privileged to hold themselves out as experts to wax lyrical about the technical flaws in the said work. This gets amplified by the responses from the readership who have probably read even less – to the point that we end up with MMT being constructed as something ridiculous and foreign to its original. Sort of like start by saying you are discussing 2, call it 3 and say it equals 4. It is a problem because it confounds people and also gives those who oppose our work ways to further misrepresent it in the public debate.
It is Wednesday, and only a short blog post beckons today. I have restrained myself from commenting on Theresa May’s unbelievable Brexit deal, which has the dirty paws of the European Commission all over it. Regular readers will know that if I had have been a voter in Britain in June 2016, I would have resolutely and happily voted in favour of Brexit. And if I was a British Parliamentarian now I would vote to reject the ‘deal’ and force the Brexit on British terms. I will write a little more about that in a further post. But today, I just want to pass comment on the extraordinary UK Guardian article from Phillip Inman – A leftwing UK post-Brexit is as likely as a socialist Rees-Mogg (November 24 2018) – which summarises the problem quite well. I say ‘well’ because it illustrates the progressive surrender that has allowed the neoliberal era and monstrosities like the European Union to persist. You can see it all over the place – surrender that is. The Democratic obsession with Paygo in the US. The British Labour fiscal rule in Britain. The ‘we will have a bigger surplus’ boast from the Australian Labor Party, when there is around 15 per cent underutilised productive labour. Inman’s article is encouraging the Left in Britain to lie down and surrender to the dictates of the neoliberal, corporatist machine that is the EU. It presents an impoverished vision of the future and a disgustingly vapid depiction of the possibilities that a truly progressive British Labor government could achieve once it jettisons the neoliberal frames.
This blog post is written for a workshop I am participating in Germany on Saturday, October 13, 2018. The panel I am part of is focusing on external trade and currency issues. In this post, I bring together the basic arguments I will be presenting. One of the issues that is often brought up in relation to Modern Monetary Theory (MMT) relates to the foreign exchange markets and the external accounts of nations (particularly the Current Account). Even progressive-minded economists seem to reach an impasse when the question of whether a current account should be in surplus or deficit and if it is in deficit does this somehow constrains the capacity of currency-issuing governments to use its fiscal policy instruments (spending and taxation) to maintain full employment. in this post I address those issues and discuss nuances of the MMT perspective on the external sector.
This is the third and final part of this series where I examine claims made by senior advisors to the British Labour Party that a fiscal policy that is designed using the insights provided by Modern Monetary Theory (MMT) would be “catastrophic” and render the British pound worthless. In Part 1, I examined the misunderstanding as to what MMT actually is. A senior Labour advisor had claimed, in fact, that any application of MMT would be “catastrophic” for Britain. He talked about MMT “policy prescriptions”, which disclosed an ignorance about the nature of MMT. In Part 2, I considered the British Labour Party’s Fiscal Credibility Rule and demonstrated that its roots were in core neoliberal ideology and any strict adherence to it would not be consistent with progressive outcomes. I noted that it was likely to promote a private ‘debt-bias’ that was unsustainable. In this final part, I explore some economic history over the last five decades to give some further force to the argument presented in Part 2. And I finish by arguing that a well governed, rule of law abiding Britain with a government building and maintaining first-class infrastructure, with excellent public services (energy, transport, health, education, training, environmental certainty, etc), with a highly skilled labour force, and regulative certainty, would be a magnet for profit-seeking private investment irrespective of whether it was running a continuous fiscal deficit or not. Yet, it is highly likely, given Britain’s history, that such a deficit (both on current and capital contexts) would be required.
When we published our latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – last September, Thomas Fazi and I approached the UK Guardian to see if they would publish an Op Ed by us summarising the main arguments presented in the book. We received no response. Pluto tell us that the book is one of their better sellers since it was published. And it is not as if the topic is irrelevant in the Guardian’s assessment. That is clear from the fact that on April 5, 2018, they published one of their ‘long read’ articles by Rana Dasgupta – The demise of the nation state – which is a direct refutation of the ideas advanced in our book. This ‘long read’ also falls into the same traps and analytical errors that we point out has besotted the Left side of politics since the 1970s. The article is clearly part of the Guardian’s agenda to appear progressive but, in fact, be anything of the sort. As I have noted previously, the Guardian seems content to publish a torrent of anti-Brexit articles and criticisms of Jeremy Corbyn rather than provide any semblance of balance.
Makroskop is a relatively new media publication in Germany edited by Heiner Flassbeck and Paul Steinhardt. It brings some of the ideas from Modern Monetary Theory (MMT) and other analysis to German-language readers. It is not entirely sympathetic to MMT, differing on the importance of exchange rates. But it is mostly sympathetic. I declined to be a regular contributor when invited at the time they were starting the publication not because I objected to their mission (which I laud) but because their ‘business model’ was a subscription-based service and I consider my work to be open source and available to all, irrespective of whether one has the capacity or the willingness to pay. But I have agreed to contribute occasionally if the material is made open source, an exception to their usual material. Recently, the editors approached me to respond to an article they published from a German political scientist – Modern Monetary Theory: Einwände eines wohlwollenden Zweiflers or in English: Modern Monetary Theory – Questions from a Friendly Critic. The article constitutes the first serious engagement with MMT by German academics and thus warrants attention. Even if you cannot read German you will still be able to glean what the main issues raised in the German article were by the way I have written the English response. The issues raised are of general interest and allow some key principles of MMT to be explicated, which explains why I have taken the time to write a three-part response. Today is Part 1.