Progressive narrative should be human focused and uncompromising

I was reading an interesting article at the weekend (February 17, 2012) in The UK Independent – The Left should learn about plain speaking from George Galloway – which was about language and the way ideology is communicated. The use of nomenclature and communication methods is clearly central to the way a paradigm establishes itself and maintains its popularity even when its legitimacy in theoretical and empirical terms evaporates. The article points to the failure of the “left” to construct an alternative narrative that relates directly to the human experience. It demonstrates that the “right” can lie but relate those lies at a human level to gain traction. They appeal to our intuition which as I noted in this blog – When common sense fails – is bound to lead us astray. There was an excellent example of this in two articles recently. The left has become so paralysed by its embrace of management-consultant styled, neo-liberal techno-speak that it can no longer speak to us at the human level. With millions of people unemployed it should be a political no-brainer to address the concerns of that cohort to garner political support. Instead, so-called progressive governments and parties in advanced nations fall foul of the neo-liberal dialogue about “scroungers” and “dole-bludgers” and demonstrate their resolve by invoking harsh welfare-to-work policies. Nothing progressive will ever come from that surrender to neo-liberalism. That is what this blog is about today.

The Independent article focused, in part, on the British left-wing politician George Galloway, who apparently has a habit of upsetting the middle-class sensitivities in Britain. He is vilified by many, who stand on very shaky ground themselves.

One example of that point was he has made “apparently sympathetic remarks about brutal dictators (although, unlike some of his detractors, he hasn’t sold them arms, funded them or even been paid by them)”.

There are countless examples of sanctimonious hypocrites in public life. For example, a common example are those who tar anyone who advocate government intervention with the dangerous communist brush but then encourage trade and profit-making with China, even though they know they violate human rights and allow workers to be exploited unconscionably.

The article suggests the British Labour party is full of politicians that speak:

… the language of the political elite – technocratic, stripped of passion, with too much jargon and management speak, with phrases like “direction of travel”. But Galloway offered direct, clear answers; he spoke eloquently, and with language that resonated with non-politicos; he had enthusiasm, conviction and – to borrow a Tony Benn phrase – said what he meant and meant what he said.

The problem is that as the neo-liberal dominance spread in the late 1970s, the insecurity of the major progressive parties intensified. The Independent notes that far from embracing a more direct narrative that spoke to people about what was happening to them under neo-liberalism:

New Labour remorselessly helped to professionalise politics, it bred a generation of “on-message” politicians with focus group-approved lines. Verbless sentences – “new challenges, new ideas”; macho cliches – “taking the tough decisions”; platitudes like “fairness”. A new breed of political Kreminologists were assembled to decipher insufferably dull speeches and articles by politicians.

That trend has developed everywhere. In Australia, the Australian Labor Party doesn’t stand for anything anymore.

This article (February 19, 2013) – Final nail in PM’s coffin – examines the pending demise of the Australian Prime Minister – either at the hands of her own party soon or in September at the hands of the electorate.

The current Labor government is a pale imitation of what we expect from a progressive movement. The article describes the PM as a ” dead woman walking” and “her certain demise” arises from the fact that “she has provided no clear direction as to where she is leading the country”.

The journalist exposes a series of “contradictions” that Labor has fallen into as it loses any other purpose other than to gain and retain power.

For example:

With the carbon price in place, the government should be earning kudos from the many Australians who care about the environment and are concerned about human-induced climate change. But the carbon price is more than offset politically by the government’s uncritical support for the coal and the coal seam gas industries.

And the contradictions don’t end there. When in opposition, Julia Gillard attacked the Howard government for its heartless, punitive policy towards asylum seekers, but then introduced much more punitive policies herself … The Prime Minister has also disappointed many Australians with a foreign policy that is not discernibly different from that of John Howard. She kept the troops in Afghanistan and has thrown Australia open to American bases. She has rejected another referendum on the republic and keeps the portrait of the Queen at naturalisation ceremonies.

I would have added that her government’s heartless treatment of those on income support has trumped the venality displayed by the conservative government that Labor replaced. The previous government gained socio-pathological satisfaction by “fining” (technical term “breaching”) the unemployed who they claimed failed activity tests, which might have been demonstrated by them failing to attend an interview with some heartless case manager or another.

Income support recipients who were breached then lost weeks of support – when they were already skating along the bottom in poverty. It was an ingenious way to engender motivation and incentive. Not!

The evidence was that the majority of those “breached” were homeless (so didn’t receive letters about the interviews), mentally ill (so were having episodic issues when they were meant to be at the interview) and similar sorts of situations.

The current Labor government not only kept this system (largely) but have also refused to increase the unemployment benefit despite the acknowledged fact (even from right-wingers) that the unemployed are being forced to live well below the poverty line and the gap has grown over the life of this dreadful government.

The heartless (neo-liberal) response of the government is that they prefer to focus on generating jobs not worrying about income support. At the same time they mouth these meaningless motherhood statements they pursue macroeconomic policy which increases unemployment and is a net destroyer of jobs.

On one page of their Budget Papers you will read that they are designing policies for jobs growth, and then, on another page, you will see that they forecast rising unemployment. Lies and contradictions of the sort the Independent article focuses on.

The Independent article considers the “Right is better at communicating because it uses stories so much; the Left often rely on cold facts and statistics”.

Apparently “people connect better with stories”.

It cites the “classic right-wing story of our time” the comparison of “the national deficit to a household budget”. Apparently:

Any serious economist will tell you this is gibberish – which house has a money printing press, and will mum get sacked if young Dan stops spending his pocket money?

Which is why we shouldn’t believe such a myth but according to the article this sort of narrative (lie) “resonates with people”.

The article also cites the way we use pernicious nomenclature to vilify the unemployed – as lazy, dole-bludgers, scroungers etc – living the high-life watching TV all day on at least 60 inch flat screen – and all at our expense. Such nomenclature is promoted by the media and governments who are intent on justifying the harsh treatment of the disadvantage that they know their policies caused.

What better way to blame the victim and divert attention from the cause of the problem – the poorly designed macroeconomic policy which generates the deficiency in aggregate demand that leads to the mass unemployment?

As an aside, I might question the claim that “(a)ny serious economist” would use the household-government budget analogy. The fact is that it is used all the time in undergraduate economics classes.

This raises another issue. Apparently, the latest from the Modern Monetary Theory (MMT) attack squad (the squads that are forming to attack MMT) is that MMT sets up “strawman” targets which it calls mainstream economics and in doing so fails to address what mainstream economists actually think and advocate.

This is becoming a repeating theme among those who seek to challenge the statements we are making. It is a good sign – a sign that the mainstream is recognising that an increasing number of people are seeing through the fictions that the economics profession has been trading on for years.

In this vein, apparently I have said that mainstream economists deny that governments can “print money” but you will find a recognition that governments can print money “in any graduate macro book”. Of-course you can and in any undergraduate text book as well.

But you will also find in all mainstream macroeconomics textbooks an elaborate discussion of the government budget constraint (GBC), which builds a narrative about the impacts of government “finance” by drawing an analogy between the household and the sovereign government. It asserts that the microeconomic constraints that are imposed on individual or household choices apply equally without qualification to the government.

The GBC is in fact an accounting statement relating government spending and taxation to stocks of debt and high powered money. However, the accounting character is downplayed and instead it is presented by mainstream economists as an a priori financial constraint that has to be obeyed.

So students are shifted away from realising that the GBC is merely an ex post sum that has to be true because it is an accounting identity, and encouraged into thinking it is constitutes some behavioural and financial constraint on government spending decisions.

The GBC is always true ex post but never represents an a priori financial constraint for a sovereign government running a flexible-exchange rate non-convertible currency. That is, the parity between its currency and other currencies floats and the the government does not guarantee to convert the unit of account (the currency) into anything else of value (like gold or silver).

This literature emerged in the 1960s during a period when the neo-classical microeconomists were trying to gain control of the macroeconomic policy agenda by undermining the theoretical validity of the, then, dominant Keynesian macroeconomics.

The narrative developed by suggesting that just as an individual or a household is conceived in orthodox microeconomic theory to maximise utility (real income) subject to their budget constraints, the government was also constrained by a budget or “financing” constraint. Accordingly, mainstream macroeconomics developed an analytical framework whereby the budget deficits had stock implications – this is the so-called GBC.

Within the mainstream model, taxes are conceived as providing the funds to the government to allow it to spend. But taxes are alleged to distort individual incentives to work (and do other things) and should be minimised.

Further, this approach asserts that any excess in government spending over taxation receipts then has to be “financed” in two ways: (a) by borrowing from the public; and (b) by printing money.

Please note: an MMT proponent (me) acknowledges (as I have always done) that mainstream economists knows that governments can print money.

But here is the twist. From a policy perspective, they believed (via the flawed Quantity Theory of Money) that “printing money” would be inflationary (even though governments do not spend by printing money anyway).

As a result, students are told that if governments are to run deficits (and that is generally discouraged) then they should be “funded” by debt-issuance. However, it is claimed the costs of debt issuance is to push interest rates up because the government is increasing the demand for scarce savings, which, in turn, crowds out private investment. All sorts of variations on this nonsense has appeared ranging from the moderate Keynesians (and some Post Keynesians) who claim the “financial crowding out” (via interest rate increases) is moderate to the extreme conservatives who say it is 100 per cent (that is, no output increase accompanies government spending).

The point is that students learn (whether in undergraduate or graduate classes) that these so-called “financing” options have different impacts on the degree of expansion arising from government spending. They learn that government spending accompanied by bond-issuance is likely to be less inflationary (because there is the crowding out dimension) than if the government just prints money.

This narrative is why neo-liberal governments changed the institutional mechanisms through which they issue debt and eschewed central banks from buying primary issue debt. Mainstream economists told policy makers that it would be less inflationary.

As I explained in this recent blog – I wonder what the hell I have been writing all these years – the mainstream model claims that money creation (borrowing from central bank) is inflationary while the latter (private bond sales) is less so. These conclusions are based on their erroneous claim that “money creation” adds more to aggregate demand than bond sales, because the latter forces up interest rates which crowd out some private spending.

What would happen if a sovereign, currency-issuing government (with a flexible exchange rate) ran a budget deficit without issuing debt?

Like all government spending, the Treasury would credit the reserve accounts held by the commercial bank at the central bank. The commercial bank in question would be where the target of the spending had an account. So the commercial bank’s assets rise and its liabilities also increase because a deposit would be made.

The transactions are clear: The commercial bank’s assets rise and its liabilities also increase because a new deposit has been made. Further, the target of the fiscal initiative enjoys increased assets (bank deposit) and net worth (a liability/equity entry on their balance sheet).

This means that there are likely to be excess reserves in the “cash system” which then raises issues for the central bank about its liquidity management. The aim of the central bank is to “hit” a target interest rate and so it has to ensure that competitive forces in the interbank market do not compromise that target.

When there are excess reserves there is downward pressure on the overnight interest rate (as banks scurry to seek interest-earning opportunities), the central bank then has to sell government bonds to the banks to soak the excess up and maintain liquidity at a level consistent with the target. Some central banks offer a return on overnight reserves which reduces the need to sell debt as a liquidity management operation.

There is no sense that these debt sales have anything to do with “financing” government net spending. The sales are a monetary operation aimed at interest-rate maintenance. So M1 (deposits in the non-government sector) rise as a result of the deficit without a corresponding increase in liabilities. It is this result that leads to the conclusion that that deficits increase net financial assets in the non-government sector.

If the government, instead sold bonds to match the deficit, then that would just reduce bank reserves. The deposits created by the net spending remain and thus the private net worth augmentation of the government spending is not altered.

What is changed is the composition of the asset portfolio held in the non-government sector.

The only difference between the Treasury “borrowing from the central bank” and issuing debt to the private sector is that the central bank has to use different operations to pursue its policy interest rate target. If it debt is not issued to match the deficit then it has to either pay interest on excess reserves (which most central banks are doing now anyway) or let the target rate fall to zero (the Japan solution).

This doesn’t lead to the conclusion that deficits do not carry an inflation risk. All components of aggregate demand carry an inflation risk if they become excessive, which can only be defined in terms of the relation between spending and productive capacity.

But it is totally fallacious to think that private placement of debt reduces the inflation risk.

I have yet to read a critique of MMT that challenges any of that analysis. Merely saying MTT says that mainstream economists deny governments can print money when they don’t won’t cut it. We don’t say that and our discussion is deeply entwined in the operations of the banking system. That level of detail is absent in mainstream textbook treatments of the monetary system.

The other curious attack on MMT that came across my desk today was that apparently the “money multiplier is a ceteris paribus example, not a description of the causal device”. Hmm, whatever that means. Think back to 2008 when the Federal Reserve started expanding the monetary base. What were the reactions of leading mainstream economists? Inflation, inflation, inflation.

Why? Because they claimed the money supply would burst. Why? Because they were using the monetary multiplier as their model. This model considers that building bank reserves (expanding the monetary base) increases the ability of the banks to lend. Apparently, the expansion of the base will expand the money supply (the monetary multiplier) and this will cause inflation.

The money multiplier model is much more than a “ceteris paribus example”. It is a view of how the banking system operates. Within the view, students learn to manipulate assumptions (in that sense, play ceteris paribus) – such as what happens with different values of reserve deposit ratio etc. But they are never taught to question whether the banking operations that are central to the multiplier represent reality.

If we polled undergraduate macroeconomics classes around the world we would find a vast and overwhelming majority of students would spin a story about banking that is consistent with the money multiplier model – that is, concur with this “mainstream” view. Erroneously, of-course.

The fact is that the model does not represent reality. Bank lending is not reserve-constrained as in the money multiplier model. The central bank cannot control the money supply by manipulating the monetary base.

MMT notes that banks are able to create as much credit as they can find credit-worthy customers to hold irrespective of the operations that accompany government net spending. Loans create deposits and banks do not need bank reserves to lend. That point is a major departure from the mainstream conception of the way banking operates.

So saying that the money multiplier is just a ceteris paribus idea belies the pedagogy that surrounds it.

It is interesting though that in these emerging attacks on MMT, there is a desire to suggest that mainstream thinking knew all about the things MMT presents all along. Which is intending to portray the view that MMT is just an ideological and “ridiculous” smokescreen to avoid “admitting … [we] … want a larger state”.

I know all the major MMT economists very well. Many are close friends. Some want a larger state while others want a smaller state. The point of MMT is that it provides a more coherent framework to evaluate the consequences of imposing one’s values on the policy design. It is free from the biases and lies of mainstream economics, which unambiguously pushing for a smaller state, despite there being nothing in the theoretical model to suggest a larger state is better or worse than a smaller state.

Anyway, I digress.

All of that has to do with the way narratives are spun. The Independent article, while suggesting the conservatives are better at lying – and inducing the general public to accept lies as self-evident truth, does say that the “Left” should avoid indulging in “casual dishonesty or inaccurate generalisations” but at the same time relate the stories they tell to human beings.

The right lie and relate those lies to human beings. That is how they gain traction and support for the myths which lead to policies that promote their own hegemony.

The left should tell the truth and yet relate those truths to human concerns rather than get bogged down with techno-speak, thinking that such formality makes them look like better economic managers.

The Independent article quotes the linguistics expert George Lakoff who emphasises the importance of “framing” – or story-telling:

Facts and figures, when used, should create a moral point in a memorable way.

The former progressive parties have all fallen prey to the influence of “management consultants” and accept the language and concepts promoted by the right. The Independent uses the “scrounger” nomenclature as the example. So both sides of politics want to get “tough” on the unemployed. Extending that – both sides of politics claim budget surpluses are the exemplar of fiscal responsibility without educating the public as to the impacts of fiscal surpluses, if for example, the non-government sector is intent on saving more than they earn.

The Australian Labor Party goes along with the idea that they have to respond to polling – from voters who are conditioned by the conservative media to uncritically accept lies. They have abandoned the notion that they might try to lead the debate and de-condition the electorate and promote a wider knowledge base.

So the battle becomes – “we will generate a bigger surplus than the other party”

The battleground should be – is a surplus responsible at this time given other spending patterns. But the debate becomes fixated on who has the largest surplus, when at this time, any surplus is the height of fiscal irresponsibility and certain (in Australia and most nearly everywhere else) to destroy real GDP and employment growth and further increase poverty rates.

The Independent says:

New Labour ideologues always feared policies that sounded too left-wing, but the truth is most voters do not think in terms of “left” and “right”, they think in terms of issues that have to be addressed, with policies that are coherent, convincing and make sense with their own experiences.

There was a good example in the press recently of how the conservatives present information within an attractive story line and how another perspective opens up new ways of thinking.

There was a Bloomberg Op Ed article yesterday (February 18, 2013) – Greece May Get Cruel Reward for Its Success – that ran the line that Greece is moving to success because it has “reached a primary budget surplus, the Holy Grail of austerity” and that:

… news should be worthy of a ticker-tape parade, after three years of Draconian retrenchment and a partial writedown of privately held Greek debt.

Further, this is a “a genuine achievement made at enormous cost” and there followed a paragraph of data about financial ratios. The article is full of words or phrases such as: “impressive”, “reap its reward”, celebrating the “success in eliminating the primary deficit” etc.

The entire article didn’t mention unemployment nor poverty once.

It then chose to rehearse the mainstream narrative – “A country that doesn’t pay back its debts can expect either to lose market access entirely, or to borrow at an unsustainably high cost” – well only if the nation uses a foreign currency and the relevant central bank doesn’t defend public purpose.

The article asserts, without analysis, that “accepting further spending cuts seemed the better option” than restoring the Greek currency. Without explanation, the latter option would lead to “sovereign and bank defaults and a huge drop in living standards for Greeks”. Why? The sovereign state would not have to default on its own currency loans. It could protect all bank deposits easily.

And while imported goods and services might rise in local currency price terms the government could ensure that the 25 per cent unemployment fell to frictional levels (2-3 per cent perhaps). The gains overall of increased national income would be huge. The temporary losses involved from the depreciation might initially be large but they would also be finite.

It is not a neo-classical argument to note that when a currency declines exports become more attractive (so more rich Germans holidaying in the Greek Isles) and imports become less attractive. Neo-classical economics has never had a monopoly on those insights.

The article finishes by stressing that giving up austerity now would be a “a disastrous choice” and has to be backed up by “structural reform of the Greek economy”. So even more pain.

That is the intuitive narrative that is then supported by the “lazy Greek” nomenclature and “living beyond its means” and those sort of catch-cries that garner appeal and support.

On the other hand, there was an article in the New Internationalist Magazine in January 2013 – Greece: what the potato movement did next – which spins an entirely different narrative.

The article sets the scene immediately using facts that relate to human experience. No management techno-babble about “responsible fiscal policy” etc. We read:

Even after securing billions in loans from the so-called ‘Troika’, the Greek economy continues to shrink at an alarming rate. Jobs are vanishing. Unemployment is double the euro-zone average and 55 per cent of people aged between 15 and 24 can’t find work.

A quarter of the Greek population is now living in poverty – a proportion worse than Iran’s or Mexico’s. And with taxes rising, the minimum wage falling, and social welfare being withdrawn, it’s hard to see a bright side.

So the human tragedy of the “primary surplus success”.

The article is actually very interesting because it describes how local communities are coming to terms with the enforced poverty and working out new ways of engaging with each other.

Farmers are now selling produce directly to households and by-passing the middle-person. Goods are therefore cheaper as one link in the capitalist profit making chain is avoided.

People are returning to self-sufficiency which is being “interwoven with more contemporary ideas like sustainable living and ethical consumption”. Collectives are spreading to promote sharing and local attachment to work and output.

It provides a number of examples of this sort of poverty adjustment including the development of local currencies in preference to using the Euro. Local communities could improve their economic outcomes if the authorities were to accept these currencies in return for tax and other formal obligations. That would broaden the demand for the currency and allow the local organisations to step beyond the tyranny of the Euro.

Better still the Greek government could just reintroduce the drachma and stop using the foreign currency (Euro).

It is interesting that collective kitchens are spreading which improve the nutritional quality and also serve as a meeting place to discuss politics. The Greek government has tried to ban these kitchens.

The article draws the following lessons from what is happening at the grass roots level in Greece.

1. Local activism is becoming “a social experiment that might suggest an alternative model of development”.

2. There is a growing view that “an economy based on solidarity, according to the values of co-operation, democracy, equality and equity” is the path forward. Exactly the opposite to what the elites are seeking to promote.

3. “There is a galaxy of initiatives in Greece, with people inventing ways to overcome economic, social and environmental problems that the state seems unable to resolve. Similar initiatives are flourishing in other countries with troubled economies”.

Once this collectivism develops into a mature form, then the next step is to reinvigorate the state as the monetary authority and empower it once again to use its fiscal capacity to promote prosperity and to stop serving the interests of the elites.

The problem with local solutions is not that they promote the values of solidarity etc but that they still run up against a spending constraint as long as the national government is running surpluses (or deficits that are too low given non-government spending).

One local community might be able to improve their lot but if there are aggregate demand constraints not all communities can increase their prosperity.


The Independent article notes that:

The appetite for left-wing populism is greater than it has been for a generation. Much of the Establishment – from banks to the media – have been discredited by scandal. Free-market capitalism is a wreck. But the Left is a long way from learning how to put its case.

The steps are clear. First, start understanding how the macroeconomy actually works and challenge at the elemental level the budget and debt myths propagated by the conservatives.

When a conservative politician or commentator says a rising budget deficit will be inflationary – ask them to explain in detail how that will evolve.

Second, build these localised collective visions that empower citizens once again to take back control of the political processes so that the “Troika” (as representative of the unaccountable elites) are marginalised and confined to history.

Third, promote the cause of citizens and the environment as the goal of economic activity rather than whether corporations make more or less profits.

Fourth, demand a major overall of the economics curriculum being taught in our universities.

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.

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21 Responses to Progressive narrative should be human focused and uncompromising

  1. Shane H says:

    The other silly thing about the ‘household budget’ analogy is that most households carry a huge debt burden called a mortgage but everyone thinks that’s fine for individuals but not for governments.

  2. Neil Wilson says:

    MMT is just a different way of looking at the system. It’s the same system the mainstream looks at but the viewpoint is different.

    And looking at something from a different point of view highlights different things and downplays other things.

    New-Keynesian economists should really be described as New-Procrustean economists. They have one size of bed and all must be made to fit it however much pain and suffering that causes.

    MMT just asks looks at the situation from another point of view and asks the heretical question: “why don’t we just adjust the size of the bed?”.

    Viewpoint matters.

  3. Esp Ghia says:

    Another brilliant post!

  4. Philip says:

    While it’s undoubtedly true that the so-called left could learn a lot from Galloway’s straight talking populism, and so there’s much to recommend him as a politician, the man still makes my f*****g skin crawl. He has his own brand of paranoid, self-righteous sleaze that, frankly, would be the death of any leftist political party if it were ever reproduced on a national scale. While he likes to dismiss his critics as mere agents of nefarious hidden interests (and, to be sure, there are lots of those about) many of his political positions are nevertheless deeply suspect. Despite his indisputable talents as a populist politician he is a very long way from being any kind of model for future politics in general.

  5. Neil Wilson says:

    ” many of his political positions are nevertheless deeply suspect.”

    They may be. But you know where you stand with him.

    But his Rhetorical skills would give Cicero a run for his money.

    You can learn a lot from studying Galloway, Jesus and Hitler without necessarily agreeing with anything *in* the delivered message.

  6. The Dork of Cork says:

    I would prefer a can do socialist with a real world focus rather then as a effective performer but a international fop.

    In truth the British labour party was always closer to the Manchester school bankers then the landed aristocracy of the Tory club.
    Its not really a good choice in the UK is it ?

    None of them are Physiocrats and most don’t know what it means.

    Much of the French socialists have that Fabian whiff about them also.

    But at least some like Alain Rousset have a real world focus.

    He will just not leave that railway bone down………..despite huge setbacks to the Pau Canfranc project – (the Spanish side is closing down operations ) he continues to bait for the project despite the fact that a line to Bedous makes no sense other then as a starting off base for the future old / new international line.

    “Planned work in 2014 will focus
    on civil engineering (work platform) and the
    structures (bridges, tunnels, walls). By 2015, the work
    related to track and signaling will take over,
    before leaving the room for tests and trials adorning
    the quality of the track and its facilities. The
    work schedule prior consultation
    companies, allows for commissioning
    November 2015″

  7. The Dork of Cork says:

    The Dax Pau (linking to Oloron) line is also undergoing massive rework right now.

    This is effective medium scale regional government in action.

    Aquitaine is one of the few regions of France which has seen strong growth in local rail services linking medium sized market towns forming some sort of critical mass in local commercial hubs outside of Paris.

  8. AmEconist says:

    “Loans create deposits and banks do not need bank reserves to lend.”

    I think this quote summarizes a thread of MMT thinking that leads to conflicting concepts. Government control of the money supply can be avoided if borrowers can get their loan from a local printer of money (under current law, a ‘counterfeiter’) or from a bank that, with accounting entries, enters an accessible balance at the same time as a loan note is executed. Both methods of money creation are identically ‘counterfeiting’.

    ‘Counterfeiting’ by banks is allowed because a chain back to the original issuance of money supply by government is maintained via reserve requirements and deposit ratios.

    If bank loans come from savings, and savings are inactive money, then I prefer to think of a bank loan as an example of savings coming back into the active money stream, continuing on a path to future economic activity, taxes and savings.

    Finally, if taxes were always re-spent and savings never spent, all money supply would settle ultimately into the hands of savers.

  9. Jeff says:


    The other silly thing about the ‘household budget’ analogy is that most households carry a huge debt burden called a mortgage but everyone thinks that’s fine for individuals but not for governments.

    The irony is fantastic, isn’t it? Public spending is bad but private borrowing (e.g. mortgages) is good?

    Our federal government spends a trillion dollars and economists scream “hyperinflation” but 14 trillion dollars in mortgage debt following a housing bubble is somehow safe from any inflationary effects?

    The CPI must be a flawed metric because everyone knows current inflation rates are at least 6-8% in the US, despite higher levels from 2003-2008? (Was the CPI wrong back then, too?)

    I’m not an economist but I follow Prof. Mitchell’s writings because they make so much darned sense… if only the mainstream press were so enlightened. Alas, the delusional conservatives haven’t repented since the financial crisis–they seem determined for a battle to the bitter economic end.

  10. Adam (ak) says:

    I believe the problem with the current society lies much deeper and has very little to do with the inability of the “progressives” to revivie their narrative. This is a symptom rather than the root cause. I don’t have an answer (and I may never find one) but I believe that what has changed is the way information is processed by the society. How is it possible that young people of Spain can tolerate 50% unemployment rate and virtually nobody among them has proposed anything meaningful to change this situation? Has it anything to do with the relentless propaganda of “such obvious things” like that YOU are responsible for your own failure because you are lazy? Or is this also a result of generating enough noise through Facebook, Twitter, computer games, TV adverts etc. that the modern social communication system enabled by the invention of printing press has disintegrated? We live in the era of post-modern communication, the era of celebrities and b..t. The monitirong of social networks and swift counter-actions by the supporters of the current social order make our societies more thoroughly manipulated nad controlled than George Orwell could ever imagine. The dream of Felix Dzierzhynski has come true. You can say anything but nobody will hear you, the dominant nihilist paradigm will always prevail. We don’t need to send anyone to Siberia any more and we will save on Nagan bullets… We all know how the Chinese control their society – it is a centralised system in the hands of a post-totalitarian Mono-Party. Yet the decentralised control of ideas implemented in the neoliberal societies works not worse at all – another proof that Adam Smith not Karl Marx was right. Until the whole Western social thing, the living fossil, slowly slides into irrelevance and obsolescence. Nobody will care about Milton Friedman, Murray Rothbard and Ayn Rand in the world dominated by newly enriched “developing” countries. The parasite has to die with its host.

  11. Graham Wrightson says:

    Dear Adam (ak) ,
    your “You can say anything but nobody will hear you, …” reminds me of my time of 20 years in Germany from the sixties to the early 80s – before the fall of the Wall.

    I met a person, who became a good friend, and who had fled to the West before the Wall was built. He lived in a small town in East Germany where he was known for often speaking out publicly his mind about public issues. He described to me how one day he had criticised the East German government at a meeting in the town square. Many people were keen to come along and listen.

    That evening he had a covert visit from the town mayor who was also the leader of the local branch of the Sozialistische Einheitspartei (SED), the socialist unity party. The mayor told him he should pack his bags immediately that night and flee to West Berlin because the Stasi (secret police) were on their way to arrest him. My friend took the advice and fled.

    Upon arriving in West Berlin he took a breath of fresh air feeling relieved that he had escaped and could now speak openly without fear. However after some time he noticed that hardly anyone was interested in listening!

  12. The Dork of Cork says:

    This is a classic extreme & indeed absurd neo – liberal piece of work from the Irish economy slurry site.

    I don’t share all or indeed most of your views Bill but I think you should get off your blog – fight and take them in their own trenches before you are taken out of their site for calling them for what they are.

    If these “dishonest” people did pay their mortgages there would be less money for the “honest” people to pay their mortgages.
    So whats the difference ……..simple stuff and yet ???????????
    Nobody can be that stupid in their outpourings.

    We have a new narrative building in Ireland , infact its a very old one.
    The deserving poor vs the undeserving poor……….

    The high crime is of course the subtraction of the money supply by the banks and subsequent lack of money production by a state of any consequence.

    If these house “assets” were worth something rather then the extraction conduits they would have taken them already.

    The danger is however the banks will retake them if the physical economy transfers enough wealth towards their criminal operations.
    They can then and only then instruct their government minions to inflate.

    Its a obvious criminal cabal from top to bottom – no question in my mind.

    Palermo is at least run in a more honest fashion by the Mafia.
    Their extraction operations is probably run on a more sustainable manner.

    I believe the mafia must be awe struck at the bankers escapades.

  13. Dan Kervick says:

    Great post Bill.

    I have to say I am a bit ambivalent about the new localist movements. They remind me too much of the failures and misdirections of political energy in the recent historical past. I’m 53 now, and it seems to me that my whole life has seen one long spectacle of failure on the left, culminating in the staggeringly conservative, mercenary and heartless society in which we live. I don’t see the new localists as engaging in anything that is all that much different than some of the counterculture experiments in the late 60s, early 70′s “drop out” phase. They are also impregnated with the same quasi-libertarian, anti-government spirit of small-scale self-sufficiency and the pursuit of mainly personal liberation. The basic problem is that it is all based on a desire for Rousseauian “freedom”. Yes, we need some more freedom. But what we really need is solidarity and fraternity and camaraderie, and the willingness to wage large battles for big gains to improve the lives of millions, even billions of people. I’m not interested in “going off the grid” to produce my own milk and eggs, which I trade with the assistance of some homemade local scrip, while 100 million of my countrymen can’t make ends meet and are ground down every day by their shitty jobs and a shitty society – not to mention what is happening in Latin America, Greece, Spain, Africa, the Middle East and now China.

    The industrial laborers of the 19th and early 20th century didn’t go local and form their own little societies. They waged a war to change whole nations. That involved getting hit with sticks and shot at with guns. They were mowed down by corporate hired thugs. They went to Spain to fight fascists. In the US, they formed an occupying “bonus army” that was driven out of Washington by military troops. Finally, after electing one fairly decent guy four times and helping to win a global war, they caught a break and got a few decades of surging middle class prosperity and the most equal society the US ever enjoyed.

    I’m sick of framing. The left doesn’t need better words. The left needs more balls.

  14. John Armour says:

    ‘Counterfeiting’ by banks is allowed because a chain back to the original issuance of money supply by government is maintained via reserve requirements and deposit ratios.

    Not all countries have reserve requirements or deposit ratios.

    If bank loans come from savings, and savings are inactive money, then I prefer to think of a bank loan as an example of savings coming back into the active money stream, continuing on a path to future economic activity, taxes and savings.

    Banks don\’t lend savings. They are not intermediaries.

    Finally, if taxes were always re-spent and savings never spent, all money supply would settle ultimately into the hands of savers.

    Taxes are never spent by governments. They are collected for the sole purpose of controlling aggregate demand. In the absence of a positive balance for the external sector, excess savings would be countered with increased government spending.

  15. phil says:


    you said:

    “If the government, instead sold bonds to match the deficit, then that would just reduce bank reserves. The deposits created by the net spending remain and thus the private net worth augmentation of the government spending is not altered.”

    If the government sells bonds to banks, that reduces bank reserves. When these bonds are sold on to non-banks (and the public), doesn’t this reduce bank deposits?

    Deficit spending without bond issuance increases the total amount of bank deposits. Deficit spending with bond issuance leaves the quantity of bank deposits unchanged. Yes or no?


  16. phil says:

    Regarding deficits and deposits:

    Example 1: Government spending matched by bond issuance.

    1. government spends $100.
    2. bank reserves increase by $100, bank deposits increase by $100.
    3. government sells $100 bond to bank: bank reserves decrease.
    4. bank sells bond to non-bank: deposits decrease.

    End result: no net increase in bank reserves, no net increase in bank deposits.

    Example 2: Government spending not matched by bond issuance.

    1. government spends $100.
    2. bank reserves increase by $100, bank deposits increase by $100.

    End result: net increase in bank reserves, net increase in bank deposits.

  17. Peter Shaw says:

    In the spirit of Bill’s human focus, and Niel’s alternative viewpoint, I offer the following narrative on pensions & other benefits.
    I haven’t yet seen this view discussed, even among MMT supporters, so tentatively present it for their consideration.

    There is persistent debate on the affordability of current pension & medical schemes, viewing these as past-to-future processes, with the need for continual funding.
    I suggest this direction be considered an imaginary axis, where the real axis is now.
    At this instant, contributions from employees and employers, earmarked “pension” etc. comprise a flow of money into the wider economy (along the “now” axis). Simultaneously, there is a flow of money from the wider economy to beneficiaries. In a rational economy, these flows on average are equal.

    Should employment fall, causing an imbalance in these flows, there are four reasonable responses:
    1. Reduce benefits in proportion by force majeure;
    2. Increase proportionate contributions;
    3. Subsidise pensions from elsewhere in the economy;
    4. Create employment to balance, such as MMT’s Job Guarantee.
    Only the last offers hope of general endorsement.

    This support of today’s beneficiaries by tomorrow’s is arguably a process essentially separate from the rest of the economy, and so common rules may not apply; specifically, issues of capitalisation and yield appear red herrings.
    Oldsters beware; any offered “guaranteed” pension scheme must come at the expense of one’s fellows. The only safe way is sustaining the contributing-job-guarantee or its equivalent. Disemployment of the youth of the nation is a direct, immediate, and general threat.

  18. Peter Shaw says:

    The equality of the flows and its consequences are emergent macroeconomic properties from simple microeconomic self-interest.
    In this view, sustainable inflation-indexed pensions in practice must index current contributions.

    I’ve as yet not seen study of aggregate contribution and benefit flows. If these aren’t equal, someone is being subsidised, raising questions of who & by whom. Does anyone have relevant links, or other info?
    Or might we prevail on Bill’s ability to derive specific information from the public record?

  19. phil armstrong says:

    Phil – If government debt is sold to non-banks then , as you say, bank deposits will fall. The non-bank entity now has its saving in the form of a bond rather than a bank deposit. so all that happens is the composition of non-governemt sector saving has changed.
    Neil – as a Christian, democratic socialist I think you can learn for more of real importance from Jesus than the others you mention.

  20. Neil Wilson says:

    “as a Christian, democratic socialist I think you can learn for more of real importance from Jesus than the others you mention.”

    Don’t you think we’re in enough trouble from people pushing unsubstantiated beliefs onto others?

    You are very welcome to your beliefs. But please understand that is what they are.

  21. Blissex says:

    «The UK Independent – [ ... ] The article points to the failure of the “left” to construct an alternative narrative that relates directly to the human experience. It demonstrates that the “right” can lie but relate those lies at a human level to gain traction. They appeal to our intuition which as I noted in this blog – When common sense fails – is bound to lead us astray.»

    It is not so much that the left has lost the ability to speak effectively, it has lost its electorate. Most voters in the UK and Australia are deeply reactionary rentiers, who want ever higher property (house, shares) prices to their own benefit and ever low wages or welfare for everybody else.

    When 60-70% of voters are petty bourgeoisie, landlords (actually landladies mostly middle aged or older females), demanding massive tax-free capital gains year after year, at the expense if the working poor, there is no “progressive” story they can sympathize with. They believe that the working poor or the unemployed poor are their class enemies, exploiting them with parasitically high wages and welfare.

    One of the two most important political facts of the past 20-30 years was reported succinctly by the BBC:

    «In 2001, the average price of a house was £121,769 and the average salary was £16,557, according to the National Housing Federation. A decade on, the typical price of a property is 94% higher at £236,518, while average wages are up 29% to £21,330»

    This means that in those 10 years landlords of average UK houses have enjoyed (usually tax-free) capital gains of around £12,000 per year, nearly doubling their £14,000 after-tax average earnings, all easily extracted without selling the house thanks to second mortgages. Similar figures apply to Australia and used to apply to Ireland, and in a lesser form to the USA.

    Think of the political implications of such an enormous redistribution of income from the working poor upwards. The mindset of the petty bourgeoisie is “F*CK THE LOSERS! I GOT MINE”.

    The problem is not ineffective politicians on the left — it is a very effective manipulation of the economy to pump-and-dump asset prices to turn gullible working and middle class voters into rabid supporters of rentier interests.

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