It is Wednesday and only a few points plus a sort of reflection on a recently departed musician. The few points really relate to the latest news from Scotland that it is thinking (once again) of seeking independence but using a foreign nation’s currency (one version) or pegging to another nation’s currency (another version. We should be clear – an independent Scotland requires its own currency, which it floats on international markets and has a central bank that sets its own interest rates (that is, determines its own monetary policy). Using a foreign currency or pegging to a foreign currency immediately voids national independence. The fact that the leading players in the independence debate don’t seem to comprehend that point is a worry. The fact that there is also strong sentiment to be part of the European Union post independence also tells me that the notion of independence is not well understood or developed in Scotland. That’s the bad news today. The good news is much more interesting – check it out.
Today’s blog post considers the Australian election and some issues that arose from my recent trip to Scotland – all of which bear on the progress of our work in the public debate. In Australia, we have just held a federal election and it was expected (and certainly the polls and bookies expected) that the Labor Party would win easily after 6 shocking years of conservative rule. Those 6 years have been marked by scandal, three leaders (Prime Ministers), massive internal divisions within the government, on-going climate change denial and a slowing economy. But Labor was thrashed in the election and I offer a few reasons why I think that happened. For Scotland, as they debate independence in the lead up to another referendum (as yet unscheduled) they have been struggling with the choice of currency issue and whether the new independent nation should join the EU. After initially thinking they would stick with the British currency for some time, the debate has swung heavily in favour of introducing their own currency as soon as is possible after the independence is achieved. Clearly, I have favoured that option for several years. But the overwhelming thinking is that the new nation should join the EU. That is a choice that I think would bring grief. And given the fact that the rUK will retain “continuing nation” status, a newly independent Scotland would be under significant pressure to use the euro. In other words, the currency choice and EU membership trends at present are incompatible. During my visit there I urged the activists to ditch their pretensions for EU membership and become truly independent.
This is the second and final part of my series on Scotland as I prepare for a visit to Edinburgh and Glasgow this week. You can see the details from my – Events Page – and I urge interested readers to support the events that are run by activists. I will be talking about issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. I have noted in the past that this is a controversial issue in itself that is also made more divisive because it has become intertwined with the vexed issue of EU membership. In Part 2 I provide a detailed critique of the so-called ‘six tests’ that the Scottish Growth Commission put forward as being determining factors as to when Scotland could move off the pound. I find the tests to be just neoliberal artifacts designed to keep Scotland on the pound indefinitely and thus curb any real independence. I also consider issues such as EU membership. And I provide some historical details of the way a monetary union might dissolve.
Later this week, I will be in Britain to participate in a series of events. You can see the details from my – Events Page – and I urge interested readers to support the events that are run by activists. Two of these events will be in Scotland where we (Warren Mosler and I) will discuss, as outsiders, issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. I have noted in the past that this is a controversial issue in itself that is also made more divise because it has become intertwined with the vexed issue of EU membership. I certainly don’t intend to use these presentations to lecture the Scots on what they should do. What I hope to achieve is to set out a framework based on Modern Monetary Theory (MMT) principles to allow the protagonists to make their own decisions, free of the neoliberal sort of monetary myths that I think have dominated the independence debate to date. I am always cautious discussing the pro and con of situations where I have no direct material stake and a less than full understanding of specific cultural and historical influences that are at work. But the Scottish question is interesting and demonstrates many of points that nations should be cogniscant of when discussing monetary sovereignty.
This is Part 2 in my two-part series analysing the 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018). In Part 1, I considered their approach to fiscal rules and concluded, that in replicating the rules that the European Commission oversees as part of the Stability and Growth Pact, the newly independent Scotland would be biasing its policy settings towards austerity and unable to counter a major negative shock without incurring elevated levels of unemployment and poverty. In Part 2, I focus specifically on the currency issue. The Growth Commission recommends that Scotland retain the British pound, thereby surrendering its independence. Moreover, while it is part of the United Kingdom, the British policy settings have to consider the situation in Scotland. Once it leaves, it will still be bound by British fiscal and monetary settings but those settings would be designed to suit the remaining British nations. So if the British government continues with its austerity obsession, Scotland would be forced to endure that end. Hardly, the basis for an independent nation with progressive aspirations.
The 354-page report from the Scottish Growth Commission – Scotland – the new case for optimism: A strategy for inter-generational economic renaissance (released May 25, 2018) – could have been published by the IMF given its adherence to the flawed neoliberal macroeconomic framework that that institution imposes on everything. It is too generous to call the Growth Commission’s work ‘analysis’ – a series of unfounded assertions with logical extrapolation from that flawed basis is more accurate. If Scotland were to create an independent nation on the basis of the ‘blueprint’ outlined in the Growth Commission’s Report then it would soon be heading into a mediocre oblivion – a future where it would be unable to effectively counteract the fluctuations of non-government sector spending and a future where fiscal policy was forced to be pro-cyclical. Scotland would end up another failed austerity state. This is Part 1 of a two-part series where I examine the Report and its implications. In Part 2, I will examine the currency issues in more detail. I hope to be in Scotland in early October as part of my next speaking tour of Europe – more details later.
I am fairly tied up today on the Gold Coast where I presented a Keynote address to an unemployment conference. But I was reading the news on the plane this morning from Melbourne. While in Melbourne for work last week, I stayed over and saw a great movie at the weekend at the Melbourne Film Festival – Human Capital – which I recommend. On the plane this morning I noticed our intrepid Prime Minister has taken to lecturing the Scottish about their political destiny. His exhortations are both hypocritical and reflect a failure to comprehend the options that national sovereignty would provide Scotland, which has a referendum coming up on September 18. But even if they build a bit of national solidarity in Scotland (against the foreigner), the First Minister who is pushing the YES vote is still proposing to enslave the nation to a foreign power – none other than Britain. His currency Plan A amounts to madness and would not underpin a vibrant independent Scotland. As such I would be voting NO at the referendum but feeling bad that the so-called progressive political classes in Scotland were so entranced with neo-liberalism that they forced obvious YES votes to become NO votes.
There was an article in the UK Guardian (October 29, 2013) – Mainstream economics is in denial: the world has changed, which reported that the economics profession had been “stupidly cocky before the crash” and “had learned no lesson since”. It followed a – report – last week (October 25, 2013) that students at Manchester University had proposed an overhaul of orthodox teachings and economics. The latest Guardian article concludes that the economics profession is in “denial”, that is, “the high priests of economics refuse to recognise the world has changed”. I will come back to that in a moment, but evidence of this denial is swamping the debate about the upcoming Scottish decision on whether to break from Britain. So-called informed policy briefing papers have started to emerge, which will distort the choice available to the Scottish people by perpetuating basic myths about the way monetary systems operate and the choices particular currency arrangements provide government. As I’ve said before, if the medical profession offered the sort of analysis and professional opinion that my own profession offers, then they would be very few practising medics because they would have all been sent broke through malpractice lawsuits.
I am in Perth today speaking at a public service employees union congress. The talk is based on a major report we have just finished tracking the implications of public spending cutbacks in Australia on the volume and quality of public service delivery. We did several case studies – one of which was child protection – and the cutbacks will lead to increased child abuse in Australia without doubt. The story is pretty grim and I will write about it once the Report is made public by the commissioning party. But with travel (Perth is a long flight from anywhere and I have to get back to Newcastle tonight – 6 hours) and commitments I haven’t much time to wax lyrical on my blog. But I have been meaning to write about the upcoming Scottish referendum on independence from Britain and it fits a nice theme with yesterday’s blog – The demise of social democratic parties – they are all neo-liberals now – where I argued that good intentions come to naught if the economic policy paradigm used is erroneous. I would recommend the Scots vote yes at the 2014 referendum. But only if they introduce their own unpegged, floating currency and avoid any talk of joining the Eurozone. Further, the yes vote should be conditional on the government committing itself to achieving full employment on the back of their newly created currency sovereignty. Then the yes vote will improve welfare for the Scottish people. If they continue to use the British pound – then nothing will be gained.
I provide a lot of research support for trade unions in wage determination cases in Australia, where wage agreements are uniquely decided in judicial processes. The cases are onerous and highly contested and as an expert witness I am often grilled for lengthy periods by the employers’ barristers in the evidential phase. One of the things that has been relevant in the last year or so has been the wage caps and freezes that government employers are placing on their workforce as a way of ‘saving money’. Prior to the pandemic they were forcing real wage cuts or zero real wages growth on workers under their wage cap strategies as part of their pursuit of fiscal surpluses. Now they are imposing freezes to reduce the size of their deficits. And, the same is happening in other jurisdictions such as the UK. Not only were the wage caps in the public sector damaging the well-being of public workers, in some cases, the lowest paid (cleaners etc), but they were also providing ‘wage guidance’ to the private sector, at a time when household debt is at record levels and consumption growth wage faltering. At a time when consumers are already wary and saving higher proportions of their disposable income, freezing wages is not a responsible thing to do in a pandemic. The UK government, for example, does not need to ‘save money’. But as part of the recovery from the pandemic, the government will benefit from households having been able to pay down debt while saving more and from the maintenance of their real purchasing power. There are no grounds for freezing wages – public or private.
I was in a meeting the other day and one of the attendees announced that they were sick of government and were looking at other solutions such as social capital and community empowerment to solve the deep problems of welfare dependency that they were concerned about. The person said that all the bureaucrats had done was to force citizens onto welfare with no way out. It had just made them passive and undermined their free will. It was a meeting of progressive people. I shuddered. This is one of those narratives that signal surrender. That put up the white flag in the face of the advancing neoliberal army intent on destroying everything in its way. The ultimate surrender – individualise and privatise national problems of poverty, inequality, exclusion, unemployment – and propose solutions that empower the individuals trapped in ‘le marasme économique’ created by states imbued with neoliberal ideology. The point is that the Asset-Based-Community-Development (ABCD) mob, the social capital gang, the new regionalists, the social entrepreneurs are just reinforcing the approach that creates the problems they claim they are concerned about. The point is that it is not the ‘state’ that is at fault but the ideologues that have taken command of the state machinery and reconfigured it to serve their own agenda, which just happen to run counter to what produces general well-being. That is why I shuddered and took a deep breath.
Piety has no bounds it seems. The Sunday Times ran an Op Ed at the weekend (September 12, 2020) – John Major and Tony Blair: Johnson must drop shameful no-deal Brexit bill or be forced to by MPs (paywall) – which told us how angry former British Prime Ministers Tony Blair and John Major are with Boris Johnson about the Government’s intention to introduce the Internal Market Bill to ensure the so-called Withdrawal Agreement is compatible with national law. They started by appealing to the international treaty status of the Withdrawal Agreement, which outlined Britain’s terms of exit from the EU. The Op Ed called the decision by government as “shocking”. The Remainers are jumping on the ‘breach of international law’ bandwagon like there is no tomorrow. Of course, they never highlight the fact that they want to be part of an arrangement, which is created by international law and which regularly violates that law to serve its own political and elite interests. And those breaches, which include gross human rights abuses and deliberately undermining the prosperity of its own citizens through mass unemployment and more, have had severe consequences for humanity. The fact that the British government is now declaring national law will no longer be subjugated and subservient to international agreements is not in the same ball park of international violations.
There will be no blog post today as I am travelling for the next 24 hours or so to Europe via LA. I have a detective novel to read – well 79 in fact, I have just started the complete Maigret series written by Belgian author Georges Simenon – so in the spirit of that great song from the Who – I hope I get finished with the series before I get old! And regular transmission will probably resume from Paris on Tuesday. While I am flying I will not be attending to comments that need moderation. So it might be some time before you see your comment published (or not). I hope to see many MMT people at one or more of the events where I will be speaking in the next two weeks – the details are overleaf.
It is my Wednesday blog post and my relative ‘blog day off’. But there has been an issue I want to write briefly about that has come up recently and has become a recurring theme. I am writing today to put the matter on the public record so that spurious claims that arise elsewhere have no traction. As our Modern Monetary Theory (MMT) work gains popularity, all manner of critics have started coming out of the woodwork. There is now, quite a diversity of these characters, reflecting both ends of the ideological spectrum and places in-between. The mainstream economists and those who profess to be ‘free marketeers’ bring out their big guns pretty quickly – inflation and socialism/Stalinism. Standard stuff that any progressive proposal to use government fiscal policy gets bombarded with since time immemorial. Easily dismissed. More recently, those who claim to be on the ‘progressive’ side of the debate have become more vociferous in their attacks, sensing, I suspect, that MMT have supplanted their relevance as the defenders of the anti-neoliberal wisdom. These characters resort to all sorts of snide-type attacks ranging from accusations of anti-Semitism (which I have covered previously), siding with Wall Street, ‘America-first corporatist sycophants’ (latest ridiculous book from G. Epstein as an example), giving succour to fascists and the Alt-Right, and that sort of stuff. Today, I want to address that last claim, which recently has been raised by a number of so-called progressive critics.
When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea of the massive scale of these losses that accumulate day after day. Now, it seems, the ‘sound finance’ school is going a step further. We are probably facing an environmental emergency in the coming period (years, decades) but the question commentators keep asking is not what we can do about it but ‘how can we pay for it’? So ‘sound finance’ has already destroyed the lives of millions of people around the world as a result of mass unemployment and poverty, now it is turning its focus on the rest of us. Madness. Paradigm change has to come sooner rather than later.
The European Parliament elections start today and finish at the weekend (May 23-26). The Europe Elects site provides updated information about the opinion polls and seat projections, although given the disastrous showing of the polls in last Saturday’s Australian federal election, one should not take the polling results too seriously. But it is clear that there is an upsurge in the so-called populist parties of the Right at the expense of the traditional core political movements (centre-right and centre-left). It is also easy to dismiss this as a revival of ‘nationalism’ based around concepts of ethnicity and exclusivity and dismiss the legitimacy of these movements along those lines. However, that strategy is failing because the ‘populist’ parties have become more sophisticated and extended their remit to appeal more broadly and make it difficult to relate them to fascist ideologies. The fact that the progressive (particularly Europhile variety) continue to invoke the pejorative ‘nationalist’ whenever anyone begs to differ on Europe and question why they would support a cabal which has embedded neoliberalism and corporatism in its very legal existence (the Treaties) is testament to why the traditional Left parties are showing up so badly in the polls these days. The British Labour Party, for example, should be light years ahead of the Tories, given how appalling the latter have become. But they are not a certainty if a general election was called and the reason is they have not understood the anxieties of the British people and too many of their politicians are happy to dismiss dissent as being motivated by racism. The Brexit outcome so far is a good case study in that folly.
I am in transit for most of today on my way to Scotland for the first of the presentations in my current speaking tour. You can find details of all the activity during this tour on my – Events page. The blog will resurface on Thursday. But don’t despair – overleaf is a movie, some audio and some great guitar playing to while away the hours. Or there are plenty of past blog posts to re-read and think about.
I have been doing research on local government funding in the UK recently as part of preparation for a workshop I am presenting in London on Sunday, May 12, 2019. The workshop – Local Government Funding: Challenging the Status Quo – is primarily designed to tackle this issue from an Modern Monetary Theory (MMT) perspective. My brief is to speak about the way in which flawed understandings of the capacities of currency-issuing governments, combined with a vicious, ideological attack on working people from a government fully invested in neoliberal transfers to the elites, have ravaged the capacity of local government in the UK to deliver essential public services. See the Events Page for more details. It is a public event and I hope people support it. In – The austerity attack on British local government – Part 1 (April 30, 2019) – I examined the way in which the central government austerity had impacted on the major service areas in Britain and considered some of the motivations that have been driving this agenda. In this Part, I am examining the way in which these cuts have been distributed at the local government level. How their grants have been cut and how they have been forced to rely on their own income bases to maintain a semblance of service delivery. I also consider the shifting composition of service delivery in the face of these cuts from broader areas that define a sophisticated society to the raw essentials of human social care. I clearly cannot provide a complete account of what has been going on in two blog posts and that is not my purpose anyway. For example, I am not considering the controversial Universal Credit scheme and the way housing benefits, previously paid by councils have been rolled into that scheme. So bear that in mind when reading. Any reasonable person observing what has been going on in Britain would conclude that this period of Tory government has been a disaster for the well-being of citizens and regions.
On Sunday, May 12, 2019, I will be presenting a workshop in London on – Local Government Funding: Challenging the Status Quo. Basically, I will be speaking about the way in which flawed understandings of the capacities of currency-issuing governments, combined with a vicious, ideological attack on working people from a government fully invested in neoliberal transfers to the elites, have ravaged the capacity of local government in the UK to deliver essential public services. See the Events Page for more details. It is a public event and I hope people support it. To prepare for that workshop, I have been digging deeply into the data to fully acquaint myself with how the ideological austerity push has been distributed across central and local government service delivery. It is no easy task. The data is a ‘dog’s breakfast’ and coming to summary positions is quite time consuming. There are also nuances in the way local government is structured (particularly since the Thatcher years where devolution and cost-shifting was accelerated), which mean that care must be taken in making sensible comparisons. Here are some of the things I found. I have learned a lot in this process, which is a good thing. This is Part 1 of a two-part series.
In a few weeks I am off to Britain again to participate in a series of events. Two of these events will be in Scotland where we (Warren and I) will discuss, as outsiders, issues pertaining to the monetary arrangements that might accompany a move to Scottish independence. It is a controversial issue in itself, but, unfortunately, is also intertwined with the vexed issue of EU membership. And the complication then becomes that progressives, who might otherwise be attracted to the Modern Monetary Theory (MMT) way of understanding the monetary system, also exhibit the standard misconstrued Europhile view that the EU, neoliberal though it is, can be reformed and that an independent Scotland should be part of that mess. And, in doing so, they then take problematic positions on the currency question. So a sort of ‘nest of vipers’ sort of situation, from the Aesop’s fable – The Farmer and the Viper. As in the Fable, the Europhiles embrace of the EU will always pay them back in grief. Anyway, while I am always cautious discussing the pro and con of situations where I have no direct material stake and a less than full understanding of specific cultural and historical influences that are at work, the Scottish question is interesting and demonstrates many of points that nations should be cogniscant of when discussing monetary sovereignty. And besides I have to get up in Edinburgh and Glasgow in a few weeks so as a researcher I am trained to be prepared and seek the best understanding that I can of the complexity of the situation. I will be writing a few posts on the Scottish issue as I prepare for that speaking tour.