People keep asking me the question, “What if the UK openly adopted modern monetary theory? Would markets panic and run? Suppose they did. What would happen then?” people say to me, and what I want to show is that if they did, and I don’t think they would, that panic could be turned into a plan to build a stronger Britain.
‘Just when I think I’m winning
When I’ve broken every door
The ghosts of my life blow wilder than before
Just when I thought I could not be stopped
When my chance came to be king
The ghosts of my life blew wilder than the wind’
Fisking Part 1…
People keep asking me the question, “What if the UK openly adopted modern monetary theory? Would markets panic and run? Suppose they did. What would happen then?” people say to me, and what I want to show is that if they did, and I don’t think they would, that panic could be turned into a plan to build a stronger Britain.
He is hearing the siren voices – ‘Heil Murphy’
In other words, what we’re dealing with is a load of hype, misinformation, and nonsense, none of which is related to any form of reality that I can recognise. But the reality that I can see as a possibility of openly acknowledging that modern monetary theory is not only true, but can change the way in which we manage the economy, and that’s all positive.
An interesting paragraph in that he isn’t in the real world. His reality is not one that exists in the real world. The absurd notion that MMT reflects reality is clear evidence of hype, misinformation and nonsense.
First of all, modern monetary theory is not a policy. It is simply a description of how money works. More than that, it is actually a description of how money works now. We never need to adopt modern monetary theory for the UK to use modern monetary theory because modern monetary theory explains what the UK government already does.
I’d say there’s disagreement even among MMT advocates over the details. Warren Mosler (for example) has been described as ‘just wrong’ by Murphy. Who is correct? Are either?
The UK government has its own central bank.
Which has to do with the price of fish?
It has its own tax system.
Again – great, fine and dandy..
The rule of law applies in this country.
Some would question that in the wake of the Starmer government but we’ll let that pass for now.
And every single day when the government issues an instruction to the Bank of England to make payment for something that has been approved by a Budget passed by Parliament, the Bank of England has no choice but make the payment, and it never looks in the government’s bank account to see if there’s enough money there or not, because it doesn’t need to, because legally it can simply mark up the government’s overdraft, which it runs on its behalf, and make the payment to whomsoever the government has instructed. That is the economic fact and reality of what goes on between the Treasury and the Bank of England every day, and that is what modern monetary theory describes.
Based on Bond Markets and the current situation in Japan we are probably not far from the point where this will no longer apply, and as in Zimbabwe the theory comes crashing down in a heap. Interesting that the theoretical approach of neoclassicists is inadequate because ‘it doesn’t correspond with the real world’ but the MMT basis for its action is somehow an iron clad law.
MMT, for short, simply says that the Bank of England can, like any other bank, the fact of which has been acknowledged by central banks around the world, create money out of thin air by simply picking up a computer keyboard and entering two numbers, one of which is a positive, and the other of which is the exact opposite, except it’s a negative. One of which records a payment, and one of which records the fact that the bank is owed back the money that it has just paid out on behalf of its customer; the customer, in this case, being the government.
I’ll leave Rocco to comment on whether this corresponds to his experience of ‘Double entry’
Ritchie: People keep asking me the question, “What if the UK openly adopted modern monetary theory? Would markets panic and run? Suppose they did. What would happen then?”
People: Sir, this is a Nandos.
Weimar wheelbarrow will become the Murphy wheelbarrow in history books.
Having chosen the leaf as the unit of currency (MMT) he’s now talking about burning all the forests.
I was under the impression the UK adopted MMT in 2008. With another (un)healthy dose of adoption during Covid. So if you want to know what happened, you only have to look. Markets are at the panicking stage, aren’t they?
BiS
You’ve always said it’s Murphy’s world and we only live in it! I think his certitude (And will fisk the rest of the post later) really hides the fact the policy has been singly the most catastrophic ever undertaken by a government in peacetime history, with rampant inflation and asset bubbles all over the show. I consider the entire rotten edifice has about two decades life left in it and I’m probably being optimistic with that.
So he’s now suggesting we completely ignore reality? Sounds all sane and balanced doesn’t it?
People keep asking me the question, Richard who? It’s really sad that a pensioner feels the need to have imaginary friends. The only people who talk to him are his mad wife, the poor son and pilgrim retard. Perhaps it’s time to rescind his pubwatch ban so that he can have some company.
And then there was part two:
And then the government taxes.
This is the key point. We would have to admit, if we actually acknowledge that modern monetary theory applies in the UK, that tax never funds government spending. And nor, incidentally, do government bonds issued into the market ever fund government spending. Acknowledging that we use modern monetary theory, which we do, I keep on making that point, but it’s absolutely fundamental that you understand it, requires that we recognise that tax has the role of cancelling the inflationary tendency that would otherwise arise because the government has spent more money than the economy can absorb. And that money does therefore have to be taken out of circulation, which is what tax does in the first instance, and which bonds also do by simply providing a safe place of deposit for the amount of money that the government creates in excess of the amount of money that it taxes back.
That’s all that MMT says happens, and that’s exactly what happens in the UK. So let’s be clear about it. Accepting that MMT takes place is no more than acknowledging the truth.
I would say, as the great BiS points out that, it is arguably the case that the UK government has been performing some of the tenets of MMT since 2008 and that prior to that MMT wasn’t much more than a convenient fiction but what does not follow is the notion that there is absolutely no limit on what either a Commercial bank or the BoE can create, nor does this mean contentions like ‘Banks don’t need deposits to lend’ are true.
So why do so many people get confused by this? And what do they really mean when they say, “Suppose the government admits that it’s doing modern monetary theory”, and why are there left-wing economists, people like James Medway and Anne Pettifor, or Grace Blakely, who go into breakdowns of fear when they say “MMT is not how the world works”, when bluntly it is, and they’re all wrong when they deny it.
Because it’s complicated and not as simplistic as you like to portray it. Dig at Meadway is interesting as he beat Murphy to the job of economics advisor to Mcdonnell when Labour was led by Corbin and would not report into Murphy. at which point Murphy threw his toys up in the air and walked away.
Ah, that’s because they don’t want to admit that if MMT were in existence, the policies that they should be promoting, like full employment, like investment to achieve social goals, like tackling climate change, all of them would be possible. And all of them would be possible in a way that, if we have a tax system that matches the spending by creating a charge on wealth, could reduce inequality, which they claim they want, but which they aren’t willing to support by acknowledging the proper role of tax within our society.
So MMT would mean Full employment ‘would be possible’? Doing what exactly – Soviet style job creation? Some equivalent of the Alphabet agencies of the New Deal. How the Buggery would MMT fund any more wasted money on Climate change mitigation than is already out there? Also almost any serious economist has looked at the ‘Taxing Wealth’ report and concluded it would not raise a fraction of that which Murphy posits even on a one-off basis, and it was considered so bad that even the worst government in British history, the Starmer administration, hasn’t looked to use its recommendations.
So what we have to talk about is what markets would do if we actually went for this true, and I would describe it as social democratic approach towards policymaking, that I believe MMT enables, which is providing the funding for our schools, our hospitals, our transport systems, our climate change, and our local services, which are critical to the well-being of millions in this country.
At least this is based on someone who actual held a position in an economy, albeit a developing one.
https://en.wikipedia.org/wiki/Gideon_Gono
Let’s just suppose we actually acknowledge that government has a positive role to play in the economy, which is what acknowledging the possibility of MMT really means.
At last I find agreement. Government has a role to play in the economy. That’s removing itself from vast swathes of it where it mismanages and misallocates resources on a prodigal scale, hugely stripping back its legions of employees and enabling the private sector to allow people to prosper and live freely. Of course grifters would find opportunities far fewer in such a state, so it may not accord with the Sage’s view of how it should work
It’s a complete fantasy. Basically: “we can have everything we want and nothing bad will happen because reasons”. There are school kids with better developed understandings of how the world works.
“How the Buggery would MMT fund any more wasted money on Climate change mitigation than is already out there?”
Sadly, there is no ceiling on theft and scams.