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oday’s blog comes just before the weekend commemorating 100 years since the end of the First World War, the ‘war to end war’. When it started people thought it would be over in a matter of months but it turned into a fight to the bitter end. It is regarded as the first “total war” in which military and industrial resources and people were mobilised on a scale never before thought possible. Trench warfare created an endless demand for men, munitions and supplies with often no apparent gains or victories. But by the beginning of 1918 those resources had been drained too much. Demoralised German workers, suffering from food and fuel shortages, threatened revolution at home. The German leaders eventually asked the forces allied against them for peace.
The armistice went into effect at 11am on 11 November, 1918.
The war did not end all wars. The brutality and pitiless nature of the war and the sacrifice of the combatants did help to change the world, though. The reaction to the two world wars, the ravaging of communities by the 1919 flu epidemic and the Great Depression combined to bring about the great social benefits of the NHS and the Welfare State. 100 years on those benefits are under serious threat and among those who will suffer the consequences of a fraying safety net will be those who have given military service in both war and peacetime.
This weekend we will respect their memory in a modern way. We will not post or comment on social media from sunset on Friday to sunrise on Monday.
The idea of a weekend of quiet reflection appeals to us even more in the context of recent arguments on social media over MMT. A great deal of noise is being generated over what is, at heart, a matter of too many people, on both sides of the argument, who are not prepared to understand, or take the time to read, what MMT actually is. We read various criticisms along the lines of ‘MMT hasn’t taken account of taxation and integrated it into a more comprehensive theory or explanation of how a modern economy works’ or ‘MMT still needs to be developed’. And we also see supporters saying they like the basic ideas but ‘we still need to tax the rich and MMT should say that’.
There is clearly some confusion in the ‘taxes don’t pay for spending’ message, in that it is being interpreted as ‘we don’t need taxes’. Perhaps someone would like to bend their creative talents to thinking of a neat way to encapsulate that idea that carries the real message better?
With this in mind, this blog is going to run through a few of the basics that should be understood by supporters and critics alike.
MMT is a ‘theory’ in the way that relativity or evolution is a ‘theory’, in other words it is an intellectual school of thought based on empirical evidence of how things work. It is a blend of established macroeconomic theories including Chartalism and the work of successive and influential 20th century economists such as John Maynard Keynes, Abba Lerner, Hyman Minsky and Wyn Godley. That is why it is called ‘Modern’, in the same way as we would say ‘Modern Art’. These people have influenced the work of more recent economists and finance experts. Professors Bill Mitchell, Stephanie Kelton, L Randall Wray and Warren Mosler have been working together to develop it into a comprehensive and coherent body of work for 25 years.
It is an antidote to the neoliberal economic traditions which have a firm grip on the way our politics is currently ordered in the way that Keynesian economics was the antidote to the chaos of the post-gold standard years.
When governments spend they create new money. When they tax they destroy it. When commercial banks make loans they create new money. When the loan is repaid the money is destroyed. All money creation, whether by government decree or bank license is ultimately backed by the government, not by the private sector. Regardless of who is in government this radically transforms any understanding of the relationship between the government and the non-government sector compared to the existing neo-liberal polity which places government as supplicant at the feet of the City. That matters. This is ‘political’ even though it may not be party-specific political.
Criticism frequently comes from those who are defending the economic status quo (defending balanced budgets as an objective in its own right, etc) whilst maintaining that they support strong social policies. The reason we had strong social policies post WWII was because there was a consensus around Keynes. Privatisation became the order of the day because Keynes was discredited and Friedman took his place in the ascendancy, the ground having been assiduously prepared in advance by the Mont Pelerin Society. This orthodoxy must be swept away if there is to be any change from austerity. There are those who believe that rehabilitating Keynes will do the trick, but Keynesian economics is tied to the social, institutional and political conditions pre 1971. We are no longer in that world. We need a new dominant economic narrative.
Wishing you all a peaceful weekend.