Jeremy Corbyn must break out of the neo-liberal framing

Two articles in the UK Guardian this week summarise what is going on with the British Labour Party at present. The first (August 3, 2015) – Jeremy Corbyn’s supporters aren’t mad – they’re fleeing a bankrupt New Labour – refutes the notions propagated by the previously dominant ‘New Labour’ factions that the Left of the Party are in some way mad, deluded, or otherwise sick. Instead, it argues the Left are part of a new “grassroots political movement” reacting to the bereft nature of New Labour which is without a “clear vision, or a set of policies, or even a coherent distinct set of values”. The second article (August 3, 2015) – Corbyn’s economic strategy would keep Tories in power, top Labour figure says – provides proof of concept. It is written by the Shadow Labour Chancellor Chris Leslie and reflects an abysmal understanding of macroeconomics that only a deluded free-marketeer would dare suggest had anything to do with reality. The article demonstrates that the top echelons of the British Labour Party parliamentary wing are caught in the destructive neo-liberal Groupthink economics that not only caused the GFC but has also led to austerity being the norm for policy makers these days. And there is no doubt that it is a failed doctrine and not worthy of a progressive opposition. The new “grassroots political movement” is reacting sensibly to the intellectual carnage at the top end of their Party and lets hope it is triumphant and purges these ideas from Labour forever. But, first, it must break out of the neo-liberal framing that is pervasive in its first major statement.

On July 22, 2015, Labour leadership contender Jeremy Corbyn presented his so-called – The Economy in 2020 – manifesto, which represents his economic policy position (his team called it a “vision”, which is a word that always invokes suspicion in me!). Visions often evaporate into meaningless blather that hides a lack of substance and understanding.

The ‘2020 plan’ notes that “austerity is about political choices, not economic necessities”, which is clearly correct.

But the ‘Plan’ also has some worrying aspects – the most obvious being that the concept of “money” being “available” is intrinsically linked to alleged extra taxable capacity among the “richest 4% of households” or the “very rich” or “corporations”, which clearly is a retrograde (and misleading) framing for a progressive policy platform to adopt.

The ‘Plan’ also falls into neo-liberal framing when it says:

… We all want the deficit closed on the current budget …

Why would we “all want” that? There is no rational economic reason, for a currency-issuing government, to think that a balanced fiscal position is responsible, desirable or even possible.

The fiscal balance should never be a policy target – whether it be an immediate aim or some stretched goal into the future.

The relevant goals should be about the outcomes that make societies prosperous and inclusive – goods schools and hospitals, good public transport, full employment, strong income support safety nets for those who cannot work, socially responsible minimum wages etc.

There is no sense that the narrative should be about balancing the fiscal deficit.

There is also an inherent contradiction in the position.

Austerity is about the spending position of the economic system as a whole. The economy is either subject to a spending gap – where total spending is insufficient to absorb the available productive capacity – and or it is not.

So when we worry about austerity it is because policy choices are deliberately forcing the economy to operate at below potential and mass unemployment is one of the consequences of that policy failure.

Accordingly, when there is a spending gap, the fiscal deficit is too small, given the spending decisions of the non-government sector.

There needs to be more net public spending.

So, discussions about taxing the rich or the corporations to get “money” to match government spending in these cases is rather missing the point.

There is no shortage of ‘money’ per se for a currency-issuing government. One should never tie the spending capacity of such a government to whether some cohort can ‘afford’ to pay more tax.

The ‘Plan’ thinks that the deficit will be closed:

… through growing a balanced and sustainable economy that works for all … And by asking those with income and wealth to spare to contribute more.

A balanced and sustainable economy (whatever that is) might actually require a permanent, on-going fiscal deficit to be sustained by government while the non-government sector spends less than its overall income and manages sustainable levels of private debt.

Certainly, that has been the norm in the Post World War II period. It is highly unlikely that a government will be able to sustain full employment and run a balanced fiscal position.

Further, it is neo-liberal framing to hold out that the role of taxation is to generate funds which allow the currency-issuing government to spend.

Taxation functions to create real resource space in the economy so that the government can run its socio-economic program by bringing the idle real resources back into productive use.

A government should increase taxes for a particular non-government group only if it wants that group to have less purchasing power.

Concepts of ‘making the rich pay their fair share’ is missing the point entirely. Will increasing the current tax burden on higher income groups and thus deprive them of that purchasing power help the British government achieve full employment and reduce poverty?

I cannot see any direct link. The government can achieve full employment and reduce poverty without any ‘assistance’ from the rich at all. It has that capacity. The progressive ‘tax the rich’ narrative always sounds to me as the policy goals are in some way dependent on the rich pulling their weight.

The reality is quite different of course. The government does not need the rich to implement a progressive social policy program.

It might need to increase taxes at some point to ensure there is sufficient real resource space to accommodate the spending without causing inflation. But Britain has significant idle resources at present and so there should be no talk about having to free up private real resources to ensure government has sufficient spending scope.

As part of a greater vision changing the composition of the taxation revenue might be deemed useful to break up inheritance dynasties etc. But those considerations have nothing to do with the capacity of the government to spend.

For now, British Labour should not hold out to the rich that they are somehow essential to ‘funding’ the progressive spending plan. They are not!

The ‘Plan’ thus skates on the neo-liberal frame and I would be advising the Left Candidate to break out of that framing stranglehold – to reject the neo-liberal Groupthink entirely – its language, its preoccupations and the sort of questions its continually thinks are important to answer.

Forget the deficit. Forget the fiscal balance. Focus on what matters – employment, equity, environmental sustainability. And as we would soon see – the fiscal balance will just be whatever it is – a relatively uninteresting and irrelevant statistical artifact.

In that sense, the ‘Plan’ wants to elevate to “centre-stage”:

… a publicly-led expansion and reconstruction of the economy.

Which is more the framing that is required.

But then we lapse again. After stating that “Britain needs sharply rising levels of investment in the economy”, the next related statement is:

Faster growth and higher wages must be key to bringing down the deficit.

No, faster growth and higher wages are the keys to improving prosperity, to reducing poverty and to providing inclusive opportunities for all.

The “bringing down the deficit” obsession is just taking us back inside the Groupthink.

The ‘Plan’ advocates the creation of a “National Investment Bank” which will:

… invest in the new infrastructure we need and in the hi-tech and innovative industries of the future.

All of which is sound. It is clear that private credit markets to not fund large scale investments that are in the national interest.

I would rather this body be called a ‘National Infrastructure Authority’ rather than suggest it will operate as a ‘bank’ which will be funded by stripping “out some of the huge tax reliefs and and subsidies on offer to the corporate sector”. Once again, this is suggesting the top-end-of-town is somehow necessary to provide funds for essential public infrastructure.

That erroneous reasoning is akin to the logic that Ayn Rand laid out in Atlas Shrugged – that the rest of us required the resources of the movers and shakers for our prosperity. It is so far removed from the truth.

A currency-issuing government doesn’t need to “strip out some of the huge tax reliefs” etc from the rich or the corporate sector to provide the spending necessary to empower a ‘National Infrastructure Authority’ to determine the best infrastructure to invest in etc.

That is why I would disabuse the nation of the idea that the rich are going to provide the funds that will then be used to help the poor. It is nonsensical logic and plays right into the hands of the rich. It vindicates their (false) rhetoric.

The rest of the ‘Plan’ gets bogged down in tax envy sort of politics.

Apparently, the “biggest issue facing British politics right now … is how to get some of the wealthiest individuals and biggest corporations to pay anything like their fair share.”

Fair share of what? Why is that the biggest issue? It is only an issue if we buy into the neo-liberal frame that the funds that are not being collected from the rich constrain the ability of the government to spend on its socio-economic program.

Which is, of course, a completely false frame and should be buried by the progressive left.

So, I was quite underwhelmed when I read the ‘Plan’. I was hoping for statements about the revitalisation of the public school system in Britain; new investments in green technology; and a full employment scheme motivated by a strong public sector job creation program – perhaps a Job Guarantee.

I was not expecting several pages of claims that the rich need to give the government more money so it can spend more and that the deficit should be eliminated.

But, apparently, the ‘Plan’ is being seen by others in the Labour Party – the tediously erroneous ‘austerity-lite’ New Labour brigade as a “starry-eyed, hard left” economic strategy.

Which just goes to show how far right the neo-liberal framing has the debate.

The UK Guardian article reported on an interview that the current Shadow Chancellor, one Chris Leslie, gave after Jeremy Corbyn had outlined his anti-austerity manifesto, such as it was.

I am hoping Jeremy Corbyn wins the nomination because Leslie has declared “he would decline to serve under” his leadership. Britain will be better off it the likes of Leslie do not achieve high office.

He claimed in the BBC Radio 4 interview that the leadership struggle has become “a fork in the road for the Labour party”.

Given the statements of the other three candidates, all of which have “pro business” leanings, it is truly a fork in the road for the progressive side of politics. Only Corbyn has a chance to redefine the political debate and then he has to escape the neo-liberal frame he is operating in – perhaps unwittingly, but clearly nonetheless.

But Leslie thinks that Corbyn’s “hard left … policies”:

… risk hurting some of the most poor, the most vulnerable, those on the lowest incomes.

What, by pursuing full employment, pay equity, better public infrastructure … etc?

He told the BBC that Corbyn’s idea that the Bank of England could use overt monetary financing to fund public spending was dangerous:

Take this suggestion that there should be a people’s quantitative easing, in other words the Bank of England should be able to just turn on the printing presses and magically deal with all the public service and public investment needs that we have. At one level that sounds fantastically easy – if there is a shortage of money print some more. The difficulty is that if that then provokes higher inflation, if that then means that interest rates go up who will pay the price for that? It is the poorest and those on the lowest incomes who already find the cost of living very difficult.

Which is why Britain will be a better place if Leslie disappears from the public landscape.

Please read my blog – OMF – paranoia for many but a solution for all – for more discussion on this point.

I also spend a Chapter in my new book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – on Overt Monetary Financing.

Overt Monetary Financing (OMF) would require the central bank to use its currency issuing capacity to underwrite the fiscal deficits of the national government in order to create growth and employment in their domestic economies without encountering the restrictions that private bond markets place on their spending.

OMF, erroneously called the ‘printing money’ option, is universally considered to be taboo among neo-liberals because they wrongly claim it will lead to inflation, and perhaps hyperinflation.

However, in reality, it can be a very effective way for governments to responsibly manage economic growth without having to issue public debt.

How can a relatively simple monetary operation between a central bank and its corresponding treasury department (both part of what we call the ‘consolidated’ government sector) possibly be considered a taboo?

OMF simply means that in some form or another, the treasury arm of government tells the central bank it wants to spend a particular amount and the latter then ensures those funds are available for use in the government’s bank account.

Various accounting arrangements might accompany that action. For example, the treasury might sell some government bonds to the central bank to match the value of the funds that are placed in the treasury’s bank account. None of these accounting arrangements should cloud the fact that central banks can create money out of thin air.

Why go through all the hoopla of creating elaborate corporate welfare structures – like issuing government bonds to private sector traders – when the central bank can just create funds out of thin air?

What are the limits? Answer: the available real resources.

You will wonder why central bankers would keep pumping out liquidity for the government to spend once the economy was beyond full employment and was no longer able to increase output?

Would central bankers be so irrational that they need to be placed in a straitjacket to stop their destructive tendencies? These questions might seem ludicrous or crass but they are merely responding at the logic level that maintains the taboo.

Leslie’s claims about “printing money” and the inevitable inflation just put him into the hysterical group of commentators.

All transactions between the government sector (treasury and central bank) and the non-government sector involve the creation and destruction of net financial assets (‘money’) denominated in the currency of issue.

Typically, when the government buys something from the non-government sector it just credits a bank account somewhere. That is, numbers denoting the size of the transaction appear electronically in the banking system.

These numbers signify a new financial asset has been created to the favour of the recipient of the spending. The reverse is true when taxes are paid. There are no printing presses involved!

OMF would be an incredibly efficient way to operationalise government spending. An instruction would be sent to the central bank from the treasury to transfer some funds out of its account at the central bank into an account in the private sector, which is held by the recipient of the spending.

A similar operation might occur when a government cheque is posted to a private citizen who then deposits the cheque with their bank. That bank seeks the funds from the central bank, which writes down the government’s account, and the private bank writes up the private citizen’s account.

All these transactions are done electronically through computer systems. So government spending can really be simplified down to typing in numbers to various accounts in the banking system.

Why why do economists claim that OMF would lead to out of control inflation? Whenever governments increase their deficits, mainstream economists and their pawns in the financial media make claims about the likely inflation that they say will result.

Leslie appears to be a member of this squawking squad!

They should have reflected on recent history.

The large fiscal and monetary stimulus packages introduced by many governments to offset the GFC have not resulted in the predicted inflation. It isn’t the first time that the doomsayers have been proven wrong.

When QE, for example, was first introduced in Japan in the 1990s, mainstream economists rushed to predict that the massive expansion in central bank reserves would be inflationary.

Students in every mainstream macroeconomics class, and that means almost all students, would have predicted, based on the nonsense they were learning, that the high deficits and high public debt ratios in Japan at the time, should have driven interest rates sky high, that bond markets should have stopped buying government bonds, that the government should have run out of money, and all the time that these disasters were unfolding, that inflation should have been be galloping towards hyperinflation.

Nothing like that happened. Neo-liberal economists wrote off their mistakes by claiming that Japan is ‘so strange’ that it is a ‘special case’ and therefore not generally applicable.

Their ad hoc defence was convenient because the Japanese experience with sustained high fiscal deficits, the world’s largest public debt to GDP ratio, close to zero interest rates, and deflation, was totally at odds with their economic theories. It was a mind-boggling failure to explain reality.

The reason they keep making these false predictions is that they rely on two textbook notions – one which is just plain wrong while the other has limited applicability during a recession.

The first notion is the rather technical sounding concept of the ‘money multiplier’, which links so-called central bank money or the ‘monetary base’ to the total stock of money in the economy (called the money supply).

The second notion then links the growth in that stock of money to the inflation rate. The combined causality then allows the mainstream economists to assert that if the central bank expands the money supply it will cause inflation, which is their prima facie case against OMF.

As is often the case, many financial commentators who wax lyrical about the dangers of OMF do not even fully understand the theoretical route that is alleged to link central bank monetary expansion with inflation.

Please read my blog – Money multiplier and other myths – for more discussion on why the money multiplier is a flawed concept and inapplicable to the real world.

The second flawed aspect of the antagonism against OMF relates to the mainstream theory of inflation captured by the so-called Quantity Theory of Money (QTM).

The QTM links the expansion of the money supply with accelerating inflation. It is the most intuitive part of the neo-liberal story and the one that resonates with the public.

While the QTM was formulated in the 16th century, the idea still forms the core of what became known as Monetarism in the 1970s and is the principle reason for the taboo against OMF.

The QTM posits that an expansion of the money supply causes inflation because it adds nominal spending growth to a fully employed economy.

The only way the economy could adjust to more spending when it was already at full capacity was to ration that spending off with higher prices. Financial commentators simplify this and say that inflation arises when there is ‘too much money chasing too few goods’.

The main problem with the theory (there are several) is that capitalist economies are rarely operating at full employment. The Classical theory essentially denied the possibility of unemployment.

The fact that economies typically operate with spare productive capacity and often with persistently high rates of unemployment, means that it is hard to maintain the view that there is no scope for firms to expand the supply of real goods and services when there is an increase in total spending growth. If a firm has poor sales and lots of spare productive capacity, why would it hike prices when sales improved?

Thus, if there was an increase in availability of credit and borrowers used the deposits that were created by the loans to purchase goods and services, it is likely that firms with excess capacity will respond by increasing the supply of goods and services to maintain or increase market share rather than push up prices.

In other words, an evaluation of the inflationary consequences of OMF should be made with reference to the state of the economy.

If there is idle capacity then it is most unlikely that OMF will be inflationary. At some point, when unemployment is low and firms are operating at close to or at full capacity, then any further spending, whether funded by OMF or some other scheme, will likely introduce an inflationary risk into the policy deliberations.

OMF does not increase the inflation risk at all.

All components of total spending, private consumption expenditure, private investment, exports and government consumption and investment spending carry inflation risk if they become excessive. Inflation is caused by total spending growing faster than the capacity of the economy to produce real goods and services in response.

In that situation, firms have no flexibility to increase production, and thus ‘ration’ off the spending growth by putting up prices. Significantly, the reserve position of the banks is not functionally related to that process.

The central bank can ‘sterilise’ the liquidity impacts of the deficit spending by selling bonds to the private sector. But that doesn’t reduce the inflation risk of the initial spending. It just means the private sector has more bonds and less deposits. The government spending has already occurred. Of course, no responsible government would desire to expand the economy beyond its real limit given the political problems it would face should inflation rise sharply.

OMF thus doesn’t add any new elements to this risk.

Leslie clearly doesn’t understand any of this and should disqualify himself from commenting on such matters.

He also made the rather crazy claim that the British public would boycott any new public services provided by Corbyn’s Economic Plan because they would not have been legitimised by public consent:

If you don’t get that collective consent amongst taxpayers then those taxpayers will go for private health insurance or private education. You actually undermine the case for the public realm which is what we should all be about in the Labour party.

Which is about as desperate as it gets. I can just see it – British children walking out of public schools on mass and heading to their local private school. British people with legs hanging off after accidents demanding the ambulances boycott the local public health authority and take them to some private hospital.

As desperate as it gets. Since when does a policy that rejects the essence of the neo-liberal mythology that New Labour was built upon become illegitimate in the eyes of the public?

Conclusion

There is a lot at stake for British Labour in this current leadership struggle. I would generalise that and say that what is happening in Britain and the US (with Bernie Sanders) now represents a real chance on the left to re-define the progressive narrative and firmly take it out of the neo-liberal framing that has trapped the debate for the last few decades and compromised successive governments.

There is no future for Britain in New Labour. It is an old, failed approach. The losses in England and Scotland should tell the Labour Party that its appeal is gone.

The future is for a progressive force to articulate a plan that places full employment, equity, inclusion and environmental sustainability at the forefront and disabuses the public of the fiscal myths that it has been indoctrinated with by the right-wing think tanks, media and politicians (including New Labourites).

The only danger is that the left remains trapped in these neo-liberal frames itself. It has to address that issue as a matter of haste.

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That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    32 Responses to Jeremy Corbyn must break out of the neo-liberal framing

    1. Alexandre Hanin says:

      For the sake of argument, let’s say a country’s industry produces shoddy goods in an inefficient (expensive) way. It’s consumers increasingly stop buying those goods, choosing to spend their money on better products from abroad instead, which causes unemployment at home.

      You say the solution to unemployment is always more public spending. But this would raise the trade deficit, weakening the country’s currency, unless some import controls are put in place. In both cases, locals are ‘forced’ to buy more shoddy, inefficiently produced goods.

      Now I know the permanent struggle for competitiveness doesn’t solve anything, but is this ‘always more public spending’ solution really the panacea?

    2. Neil Wilson says:

      “But this would raise the trade deficit, weakening the country’s currency,”

      To weaken a country’s currency you have to strengthen another’s currency. Why would a country that exports and is following an export led policy allow its currency to become so high that it trims back imports?

      Once again you’ve fallen into the mental trap of thinking that a country’s currency ends as soon as you reach the borders. It doesn’t. The world is a place largely without capital controls and that means whoever saves the currency wherever they are are part of the currency zone.

      There is no difference between a person saving currency within the country and one that save outside it. They have precisely the same effect.

      And there are lots of export led countries in the world *which means they are in competition with each other*.

      So what happens is when demand for imports rises to the point where the export led country is going to get priced out, it takes action to stop itself getting priced out. Which it has to do if it wishes to continue with its export led approach.

      The result is the central bank holding foreign currency, the build up of ‘sovereign wealth funds’, or fixed exchange rates with 17 other countries which you then cripple by draining the money from them – all designed to stop an export led nation having to face up to a strong currency.

      So even taking into account the fact that MMT is very keen on investment in infrastructure, R&D and training to improve the domestic output productivity rate, your argument falls down.

      Because exporters need to export, and they are in competition with each other.

    3. Chrislongs says:

      Bill,
      Governments do not need the rich but the reverse applies as evinced by the lobbying ,think tanks & donations plus refirement sinecures offered to politicians.

    4. Alexandre Hanin says:

      @Neil

      Thanks for your answer. I think it makes sense for rather big countries, but I’m not so sure about smaller one. Would China, say, care about the value of the Danish krone, for example?

      Alex

    5. sam w says:

      “But this would raise the trade deficit, weakening the country’s currency, unless some import controls are put in place.”

      Only it does not automatically follow that a sustained trade deficit WILL weaken a countries currency at all. Zero evidence of that.

    6. The option of having the state just print money (rather than borrow money) raises the question as to what’s the optimum mix of “print” and “borrow”.

      Strikes me that depends on what you think the optimum rate of interest. Personally I vote for Warren Mosler’s “permanent zero rate” idea, or similar. Milton Friedman advocated much the same: i.e. that the only liability the state should issue should be a zero interest yielding liability, that is, cash.

      Having said that, it also strikes me there’s an argument for HAVING interest yielding government debt, but keeping the rate very low, which is what Japan does. Arguably that’s a more stable system because given an outbreak of irrational exuberance, it’s more difficult to spend government debt than to spend cash.

      Incidentally, Keynes made it clear in the 1930s that “print and spend” was a viable alternative to “borrow and spend”.

    7. James Schipper says:

      Dear Bill

      Helmut Schmidt once said, “Wer Visionen hat, muss zum Arzt”. I quite agree. What we need are not politicians with vision, but politicians with correct understanding.

      Drastically and rapidly increasing the taxes on the rich may cause unemployment in the luxury industries, unless all the luxuries the rich consume are imported. If rich Brits buy x number of Jaguars and Rolls Royce in a year, and if they will stop buying them because their taxes have gone up so much, then there will be layoffs in those companies. Granted, if the rich go from luxuries to more modest products, there will be more demand in the sector producing modest goods and services. If 5-star hotels lose most of their clients, then 3-star hotels are likely to get more clients. However, there will inevitably be dislocation costs. I don’t think that we need things like 5-star hotels and other luxuries, but their sudden disappearance will cause problems for ordinary people working in them.

      I’m afraid that it isn’t only neoliberal groupthink among the elite that will cause problems for politicians who embrace MMT. The masses may also punish politicians who frankly state that deficits don’t matter as long as there are idle resources. As a rule, voters regard the government as if it were a household, just as they tend to see a country as a company. Since a household can’t just keep running deficits, it is assumed that a government can’t do it either. The reality is that electorally the cards are stacked against supporters of MMT.

      Regards. James

    8. Prue Plumridge says:

      Great article Bill and all the more reason to double our efforts to get a meeting for you with Jeremy! But as James says above it’s not just the elite that need education it’s ordinary people who need it too.

    9. Hepion says:

      Dynamics in the currency markets are such that every trade has an counterparty. Usually exports pay for imports and vice versa, so a country producing low value export goods could only import that same low value, and trade would be balanced. But with so many countries fixing their exchange rates, counterparty of the currency market trade could very well be authorities that want to influence exchange rate, in which case it is the government of the trade surplus country that pays for exports, and that leads to trade imbalance.

    10. Neil Wilson says:

      “Would China, say, care about the value of the Danish krone, for example?”

      China may not, buy another country may. And it only takes *one* country in the world to deploy the infinite capacity of its central bank to purchase foreign currency for long term storage to halt the slide *for all*.

      So it for you to show that *all* export-led countries in the world don’t care about the Danish Krone and never will.

      Since neo-liberalism is all about export-led growth, then you have a big mountain to climb before you can show what you believe is true.

      *No* theory for FX movements fits with the empirical evidence. If you think you know better, then trade the markets and see.

    11. Neil Wilson says:

      “Concepts of ‘making the rich pay their fair share’ is missing the point entirely.”

      It is in one sense, and it is economically. However politically it may be a useful tool. If you target the financial savings of the rich and assume that they have a large spending ratchet – finding it difficult to reduce spending to maintain their ‘profile’ – then you can gain some leverage.

      Because if people support the ‘tax the rich’ agenda and that taxation is about confiscating stock of savings then it has no economic effect overall. The effect is entirely political.

      You can then have discussions with the rich about educating the population about how the money system work, and force the rich to explain to the general public why confiscating stocks of savings isn’t really necessary.

      And then there is the political effect of reducing huge piles of savings, which is to diminish the status and power of the wealthy to influence events.

      So it may be the case that the Corbyn economic viewpoint is mostly politics. A lot of the ‘closing loopholes’ paying for things arguments strike me as very political – since the tax gap is notoriously difficult to close and has knock on spending effects anyway.

    12. Sandra Crawford says:

      It is very enlightening to understand that government does not need to tax to spend, that it creates the currency and therefore does not need to tax accept to control inflation and redistribute. However it is very easy to slip back into the language of arguing that taxation is needed from the rich, without quite explaining that government is manipulating the economy, not using tax to spend. A socialist government can destroy the rents that wealthy individuals/corporations receive from monopolies on railways energy and water, land and property.
      Taxing the railways in Britain and removing all of the subsidy would create the space for government to nationalise it, and indirectly redistribute the wealth of the railways by reducing the fares to EU levels for instance. Taxing landlords could reduce high rents and redistribute wealth to tenants. Taxing land would stop speculators getting a capital gain and make them sell it cheaper for housing for those in need.
      The nuance for Jeremy to get is that tax (or lack of) manipulates where government wants wealth to accumulate rather than thinking that the wealthy pay for services and jobs.

    13. Nigel Hargreaves says:

      Unfortunately I, as a person here on the ground in the UK, think you want to forget about Corbyn. It is well known that old people with beards are unelectable (albeit he evidently won his constituency). Come 2020 he will be well over 70, and by then the Tories will have engineered a mini-boom so everyone thinks their policies are hunk-dory and will vote them back in for a second term (third really).

      Hope I will get an opportunity to hear you speak if you are coming to England.

      BTW I got all three right in the quiz, so your temporary incapacity must have prevented you from inserting that usual sneaky twist to the questions. Clearly you are now back on form.

    14. Andy says:

      Perhaps it might be better for Corbyn to lose.
      I could imagine the Socialist Campaign Group MPs leaving at that point and setting up their own party with this level of support. There would be clear blue water between the new party and Labour and less disunity.
      It would also provide more time for the Left to grasp the basics of the monetary system.
      I joined the Labour party last week to support Corbyn and will write to him this week after I take a good look at this 2020 economy plan.

    15. Bob says:

      ” It is well known that old people with beards are unelectable”
      It is? Can’t he shave his beard? The only thing Corybn needs now is the Fountain of Youth :b

    16. Bob says:

      “For the sake of argument, let’s say a country’s industry produces shoddy goods in an inefficient (expensive) way. It’s consumers increasingly stop buying those goods, choosing to spend their money on better products from abroad instead, which causes unemployment at home.”
      No they will go onto the Job Guarantee.
      I doubt conventional economics will help much with this. MMT is not The True Path Godlike that can solve all problems, including supply side issues
      However, let’s give it a try:
      Consumers buy goods in GBP. Now foreigners can’t use GBP at home, cos no one accepts it, and they have to pay wages taxes etc. They have to either save it (export-led) or trade balances if the Marshall-Lerner conditions are satisfied. (I think??)
      Also, what does this have to do with the UK? Are you saying the UK sucks?

    17. Mark Blyth explains a lot about the European crisis – including why the center left parties are dying at the moment. He compares Labour in England with the Democrats in USA – the Democrats are doing and saying the same things as the Republicans only with half the power and enthusiasm. And then they do not understand, that people do not want to vote for them…

      This is one of the best talks I have heard on the European Crisis. If you do not have time to listen to it Bill, others might like to. If you listen to it Bill, I would be very interested in your opinion on it. I think you will agree very much. Here is the link and details:

      Mark Blyth Mackenzie Lecture 2015 – Austerity and the Politics of Money – May 1, 2015

    18. Kevin Harding says:

      Corbyn’s flirtation with OMF is I think significant.
      It is a direct challenge on the household analogy.Good luck to him.
      The point about taxing the rich more is not to fund anything but it is
      absolutely vital!
      Why should so few people have first choice over the products of everyone
      else’s labour? Can the rest of us have some of that too or are we only good
      enough to consume the real resources the elite don’t fancy?

    19. bill says:

      Dear Neil Wilson (at 2015/08/04 at 21:11)

      You noted:

      It is in one sense, and it is economically. However politically it may be a useful tool

      I am surprised you said that Neil.

      Progressives typically get caught up in the political frames of the neo-liberals which then negate any chance of them developing a coherent economic vision because they get trapped by the political statements.

      Progressives have to not only develop a new economic understanding but also a political re-framing. I think it is very bad ‘politics’ to talk about taxing the rich to feed government spending because it just reinforces the neo-liberal frame that governments are financially constrained (not to mention stoke the egos of the billionaires and confirm their sense of centrality in the system).

      It might take more than one political cycle to really re-educate the electorate but it is better that way than to simply fall into the paradigm of the opposition which traps the progressives into a fight over the who is the better neo-liberal.

      best wishes
      bill

    20. larry says:

      Corbyn’s stance on tax, at least of late, is due to the influence of Richard Murphy, a tax expert. Murphy contended some time ago that he is an MMTer without noticing it. In a recent interview by Channel 4 News, Corbyn answered some financial question by referring to taxation. He does not seem to have yet grasped that taxation is distinct from government spending exercises. Corbyn is getting his tax info from Murphy. Murphy may be excellent about what the consequences of certain kinds of taxation might be, but possibly less cogent about the relation of taxation to general macroeconomic policy.

    21. larry says:

      “Taxation functions to create real resource space in the economy so that the government can run its socio-economic program by bringing the idle real resources back into productive use.”

      I may be wrong but I don’t think either Corbyn or any of his team will understand this sentence. I might consider quoting from Ruml’s article of 1946, which might give some pause. The questions are not taxation questions, but policy questions arising from deeper macroeconomic considerations, not unlike your suggestions, though they are not identical.

    22. Bill and Neil,

      “Concepts of ‘making the rich pay their fair share’ is missing the point entirely.”

      I tend to agree with Neil. A left politician like Bernie Sanders or Jeremy Corbyn has to say that the rich need to pay more tax. I suspect both are quite well aware of the MMT argument on this point and understand it fully. But, they don’t use it because it would cause them too big a political problem.

      It causes me a bit of a problem too to be honest about it. If the rich are allowed to get away with not paying what most non-MMT people would consider “their fair share” why not everyone else too? In MMT terms we can argue that we don’t need to tax the rich because they aren’t spending that money. So if I promise not to spend the money I would have used to pay my next tax bill, can I be excused too?

      Yes, taxes are primarily for the purpose of regulating the economy and preventing inflation. So, to make Bernie Sanders and Jeremy Corbyn MMT compatible, don’t we just need to extend that argument to future economies as well as the present one?

    23. The Dork of Cork says:

      Not dealing with the depreciation of assets that in most cases are not needed.
      The great MMT all hands on deck drive toward super production will lead to ffailure for most.

    24. The Dork of Cork says:

      Growth is not needed to distribute purchasing power.
      More them adequate resources are currently available to sustain humans not exposed to advertising.

    25. Neil Wilson says:

      “I think it is very bad ‘politics’ to talk about taxing the rich ”

      There are two parts to the tax argument.

      The first is the total amount – which is not really directly under the control of government determined as it is by the machinations of the private sector which then determines how much the government has to spend to maintain maximum flow in the economy.

      The second is the distribution of taxation and savings between the various entities. Now that is under the control of the government and its tax collectors.

      Yes there are dynamic feedback loops, but you can operate largely within those two classes of thought.

      So making the rich pay more and the poor pay less is a *redistribution* argument within the distribution category. That has limited overall economic effect (limited to the differences in marginal propensity to consume of the money taxed and spent elsewhere).

      It is important to get across the idea that taxation and saving are linked and that there is a total. But that doesn’t mean you also throw out the discussion over the distribution of taxation and saving amongst society’s members.

      The job is to get across to people that these two points are separate arguments. Far too often they are conflated.

    26. Kevin Harding says:

      Taxation functions to create real resource space not just for government but for
      poorer households.There is no left without egalatariansm.Understanding monetary
      mechanics does not make you left wing.Personally I have no desire for the
      socialism of common ownership but my support for the mixed economy is dependent
      on it delivering greater equality.
      Pre distribution (not including minimum income guarantees) is a very wooly vision.
      It is just wishful thinking.Progressive tax and welfare is as central as full employment
      to any left politics and was central to the post war settlement.Which is why the other
      candidates abstention on a budget which cut the income of the poorest and increased
      income of the richest as well as framing the debate in terms of the household analogy
      ties them firmly to neo liberalism .

    27. Neil Wilson says:

      “Taxation functions to create real resource space not just for government but for
      poorer households”

      tbh, restricting bank lending and banning useless things is a better way of freeing up real resources. Taxation is pretty hard to target effectively except in very simple cases.

      Resources are not infinitely fungible. Using the Holy Power of Taxation on bankers fails to cause doctors to arise fully formed form the primordial soup.

    28. Kevin Harding says:

      Neil the idea is to target taxation on rich people through banded income tax
      levels and land value taxation then rich people would be less able to own and
      control so much of the worlds real resources.
      Nothing is infinite .Nothing is holy .But I do agree the finance industry needs
      to be better controlled .

    29. Neil Wilson says:

      “Neil the idea is to target taxation on rich people through banded income tax
      levels and land value taxation then rich people would be less able to own and
      control so much of the worlds real resources.”

      A better way to do that is to ensure that income levels are increased elsewhere.

      You don’t have to take money away from rich people if they already have to pay it out in salaries to get anybody to work for them.

    30. jake says:

      The crux of the matter is that we don’t need to tax the “rich” and their savings to pay for a reversal of austerity.
      Having said that tax policy should be used to to target “savings” which are really just claims on productive parts of the economy such as the land rent that workers-tenants pay to Land lords,and interest on private debt and to some extent excessive profit shares.

      They should tax away this unearned income and prevent these income claims from absorbing an increasing amount of income,as it leads to demand defficincies in the economy as it absorbs the wages of productive workers. These flows of income from claims end up being saved by the rich who have a lower propensity to spend than the rest of people.

      The lack of a tax on these claims encourages people to make more claims on future production through land monopoly and financial privileges and ownership of capital, as opposed to productive investment. Which squirrels away an increasing amount of workers´income away from consumption/demand and towards the rich who have a lower propensity to spend.which in turns lessen investment

      It is these sorts of “savings” that need to be addressed through tax policy and more. The key is addressing the demand deficiencies, and fixing the self re-inforcing dynamics. moralisticly however a distinction can be made between earned and unearned income.

      what we need to address is a situation where Workers are paying so much of their economic output in dividends, rents and interest that there is not enough left to spend in the economy, through tax. Other than just compensating demand leakages through running deficits, we should also address the distributional issues related to excessive “savings” and wealth hoarding from unearned sources of income.

    31. Kevin Harding says:

      the problem is that ‘distributional issues’ are as old as humanity!
      Just as the market can not deliver jobs for all it can not distribute real
      resources in anything like a fair and reasonable manner.
      Yes with higher minimum income levels we may not need to return
      to top income tax levels of 50’s and 60’s in U.S. and UK (80% +)
      but such levels were compatible with full employment and decent growth.
      Pre distribution is not a policy it is wishful thinking.
      It is turkeys voting for Christmas .Shareholders often are more concerned with speculation.
      Executives own shares so do there families ,friends and neighbors.

    32. Jay Spencer Green says:

      It’s particularly ironic given that Jones talks here about the “Overton window,” suggesting that he understands the concept of framing.

      http://www.independent.co.uk/voices/commentators/owen-jones-if-socialists-really-did-run-the-show-working-people-would-benefit-7786007.html

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