MMT strips way the veil of neo-liberal ideology that mainstream macroeconomists use to restrict government spending.
We learn that these constraints are purely voluntary and have no intrinsic status. This allows us to understand that governments lie when they claim they have run out of money and therefore are justified in cutting programs that advance the well-being of the general population.
By exposing the voluntary nature of these constraints, MMT pushes these austerity-type statements back into the ideological and political level and rejects them as financial verities.
Antonio Gramsci, the philosopher, journalist, writer, and politician wrote in 1929, ‘The old world is dying, and the new world struggles to be born; now is the time of monsters.’ Whilst he was writing for a different time and a different historical context, events have shown clearly that those same monsters are still residing in Washington, London and Brussels, and the drivers of foreign policy are still the same. Unfettered hegemonic power aided and abetted by Western leaders to preserve the toxic economic paradigm that prevails, all dressed up as promoting freedom and democracy. While the power struggle continues and the industrial military complex feeds off war funded by public money, domestic economies collapse, public infrastructure decays, and people’s lives are ruined.
The economist Jeffrey Sachs noted in a recent conversation with the biologist Roberto Danovaro that all the arms spending in the world in 2022 had been calculated at $2.2tn. At the same time as politicians vote ever greater sums of money for ploughing into death and destruction, preferring to play the destructive game of empire, they question the affordability of creating public infrastructure, addressing the vast inequities in wealth and access to real resources, or action to preserve what is left of our land, seas and biodiversity, the very structures which sustain human life. They turn their backs on the consequences of toxic policy and spending decisions. Through the media we are a captive audience to their narratives and lies while the planet burns with endless wars, power struggles and the consequences of ecological overshoot, meaning living beyond the capacity of the planet to carry us.
Using the US economy as an example, its reliance on military spending makes no sense when valuable resources, along with vast numbers of skilled personnel, are focused on supporting a military machine dedicated to foreign interference rather than serving public purpose and the well-being of citizens at home.
As rising sea temperatures inexorably upset the fragile balance of the oceans’ diverse ecosystems, disrupting the food web, and threatening more extreme weather, wildfires tear through Canada and the increasing incidence of drought threatens the future of global food supply, Western governments seem to be going backwards.
At the same time as government plans to hit net zero, (however misguided that agenda is), were criticised in a humiliating report by its own advisers, showing targets being missed on every front, Keir Starmer confirmed that permits for drilling for gas and oil will continue for decades to come, even under a Labour administration.
It seems our priorities are seriously skewed. Decades of climate change conferences seem nothing more than a clown world of illusion and deceit. We can have unfettered growth to keep the corrupted economic system functioning with a bit of greenwashing thrown in, trickery to make it seem that the corporations are doing something to mitigate our human-created predicament, based on exploitation and planetary rape and pillage. Or, we can bite the bullet for real change. So far, the former option seems preferable to those favouring the status quo.
As the MEP Clare Daly so passionately noted recently in Brussels.
‘Unfettered growth is unsustainable. We can’t window dress our way out of environmental collapse, or misery caused to workers all over the world, forced to be more competitive, more productive, work longer, harder, faster, for less. The old, destructive economic model has to go.’
But of course, it always boils down to money, and according to politicians, the things that count like serving public purpose or addressing the climate crisis are unaffordable (unless it’s a war or keeping the industrial military complex profitable).
None the more so than Labour’s Rachel Reeves who said last month that she’d ‘always been very clear that Labour’s fiscal rules are non-negotiable.’ So, in the plainest of terms, she is saying that they don’t care how much this further damages the economy, decays public infrastructure, or hurts citizens. She also made it clear that Labour had scaled back plans to ‘borrow’ £28bn a year to invest in green jobs and industry in an attempt to prove its fiscal credibility.’ In other words, roll on the rising waters.
At the same time, the former shadow Chancellor John McDonnell weighed into the debate, suggesting that ‘Labour doesn’t need to sabotage its green prosperity plan – just to cost it clearly’. What was needed he said, was ‘to reassure markets that any costs would be covered and funded even within its existing fiscal rule’. Whilst also indicating that Reeves would have to be open about using taxes, he proposed a step-by-step plan for implementing Labour’s green prosperity agenda which would show in detail, ‘what the government’s expenditure and financial needs would be and how any borrowing would be paid back.’
What do these words demonstrate? In a nutshell. Pure folly. That a green prosperity plan, or indeed investment in public services and infrastructure, or provision of a functioning social security system are all dependent on taxes or borrowing, or that markets need to be reassured, is an exercise in subservience to an economic system that puts the state of the public finances above public purpose. And which has been shown to serve political ideology rather than being based on monetary reality.
The household budget framework of counting the pennies instead of public well-being, while presiding over the shifting of wealth to ever fewer hands. As Oxfam showed in January this year, globally the richest have bagged nearly twice as much wealth as the rest of the world put together over the past two years.
It is all the more shameful that George Osborne in his witness statement submitted to the Covid Inquiry last week, suggested that austerity had had a positive effect because it meant that the public finances had recovered. And that ‘reducing the deficit and debt as a percentage of GDP’ had been essential to rebuilding ‘fiscal space to provide scope to respond to future economic shocks.’ We witnessed the consequences of his austerity on our public infrastructure, poverty and inequality rose, public services decayed and people died.
When you read the headline in The London Economic which claimed in 2022 that Osborne had plunged the UK into austerity due to an error on a spreadsheet, it ignores the fact that regardless, austerity proved a useful tool to deliver cuts to public services and privatisation, the very bread and butter of neoliberal ideology.
It is also yet more galling to learn that George Osborne, the author of austerity, and his former opposition sidekick Ed Balls, who in an about turn, at the time, pledged to match coalition cuts, are pallying up to ‘discuss and analyse the state of the economy’ in a new podcast set to launch in the autumn. If it weren’t so serious it would be laughable. Two men from the same neoliberal stable making it up as they go along and no doubt telling us it’s all unaffordable.
While both Labour and the Tories doggedly embrace fiscal rules and doff their cap to the City and big corporations, it is, frankly, sounding the death knell to any sensible strategy aiming to manage ecological overshoot on the principle of creating a society based on less not more.
One can only read this as a deliberate, destructive act, given the growing awareness of monetary reality in the public domain. Our future is sealed by such gross distortions of economic and monetary reality. A place where the state of the public finances and fawning over the corporate estate come as top priorities, while at the same time the consequences of the human obsession with the ‘great arrow of progress’ and endless growth plays out before our eyes.
So, while they bow and scrape to the markets, the answer to the question of who’s in charge is simple, even if we are given the impression of the opposite. Government alone has the power of the public purse and the power to legislate. The real decisions are about who are the beneficiaries of those powers. We only have to look around us to know the answer to that question, while Tory and Labour fawn over their corporate supporters, society decays.
We have the monetary means to address the challenges. After that, the only decisions are political. There are no excuses. While opposing political parties play the fiscal credibility game, people get hurt. One can only assume on that basis that it is deliberate and calculated. While MPs like Wes Streeting and others talk about hard choices, people have died and will continue to die.
These narratives are insidious. They are messages doled out continuously to create public acceptance that nothing is to be done. Government institutions, think tanks, the media and even charities play their part in sustaining the neoliberal orthodoxy.
While Save the Children pitch for funding to help children in the UK and around the world, mitigating as always governments that deliberately shift responsibility to the charitable sector for the structural poverty and the child hunger they have caused through their policies, the Charity First Love, quoted in the Guardian, believes that food banks are not the answer. Instead, it suggests, what we need to do is employ advisers to help people boost their household income. The implication here is that all people need is a bit of advice or training to lift themselves out of poverty. In this scenario, the elephant in the room remains totally out of the picture. The source of poverty. We need to clear that up. It’s not people’s shortcomings in managing their finances, or not having the tools to find better-paid work. In many ways, this is reminiscent of Warren Mosler’s ‘Unemployment, Dogs and Bones’. It doesn’t matter how well you train your dog, if there are still only 9 bones for 10 dogs, the result will always be the same. Hungry dogs!
The source of poverty is government. The same government which has the power to legislate for a real living wage, good working conditions and secure employment, to ensure that the social security system meets the needs of all, so people can live decently with dignity and without fear, along with the power to create high-quality public infrastructure that supports citizens in good times and bad, but chooses not to. With a good government in place, we could achieve all this, whilst underpinning it with a Job Guarantee, funded via the public purse to ensure economic stability. Without one we are left with poverty, hunger and food banks, and societal decay. Political choices dedicated to harm.
Whilst Emmie Revie from the Trussell Trust suggests that what we need is a social security system which provides protection and the dignity for people to cover their own essentials, which of course is a vital part of the equation, we cannot ignore government’s role in creating poverty through its policies or indeed as we are currently seeing allowing its central bank to use monetary policy and interest rates to beat working people into submission, fearful that if they don’t they may face the prospect of unemployment.
As interest rates rise with no seeming prospect of an end, another wealth transfer is underway to the already well-off, while working people bear the brunt in higher mortgages and rents, and what the US economist Isabella Weber terms in her recent paper ‘sellers’ inflation’, which is impacting disastrously on prices and the cost of living.
As Thomas Fazi put it in a recent article,
‘What’s left is a recessionary policy that will do little to appease inflation, but will serve to punish workers for daring to protect their incomes. And this comes as no surprise: not for the first time, in the silent class war being waged by big business against workers and consumers, Britain’s technocratic elites have made it amply clear on whose side they stand.’
As Phil Armstrong said in a recent MMT podcast, in terms of the pain being caused to those affected by interest rate rises, ‘It’s insanity on a monumental scale.’
To reiterate, food banks are no accident and nor can they be blamed on lazy shirkers wanting something for nothing. They are the direct result of government spending and legislative policies and the focus on the public finances as a measure of economic health, instead of people’s well-being which, after all, is at the heart of a healthy economy.
Charities initially stepped in to fill the gap created by those policies, even as now donations fall, and volunteers dry up, thus from their perspective creating a dilemma in terms of finding a solution. But the answer is certainly not advice!
For a charity to suggest that all people need is a bit of counsel or guidance is symptomatic of a system which has co-opted them to mitigate it and shift the responsibility onto those people forced to use food banks to alleviate their distress. We don’t need charity; we don’t need food banks. What we need is a government to do what only it can do as a currency issuer to spend for public purpose. The pandemic and now the cost-of-living crisis has brought sharply into focus the role government could play if it chose to do so and stopped deferring to the message of financial affordability or market displeasure. The only constraints are the ones created by real resources and the decisions about how they are distributed.
While charities largely fail to call out the elephant in the room, public institutions give us daily lessons in the narratives they construct to justify public policy. Last week, the neoliberal think tank, The Institute of Economic Affairs, discussing pay review body recommendations claimed that, ‘All public sector pay settlements must come from higher taxation or further borrowing’. It went on to suggest that neither option was desirable, given that public debt stood at record levels. This claim, of course, is rooted in the pursuit of ideology, not monetary reality. As always, the argument is reduced to the affordability of public service pay awards or their potential to fuel further inflation. The same arguments that are used to justify cuts to public sector spending or privatisation.
Let’s just take a moment to correct this misleading narrative, again. All public sector pay settlements result from government, as the currency issuer, authorising its central bank to create the money with a simple keystroke on a computer keyboard. These are political choices, whether it’s funding for the NHS, education, social security payments, local government grants, other vital public infrastructure which supports a functioning economy, reacting to economic crises, funding wars and the arms industry, it all comes from the same place. Government. Again, and it’s always worth repeating, the only real decisions are the ones related to how resources are distributed and who benefits, meaning our values and how we organise society.
Furthermore, the idea that public debt is dangerous and will lead to bankruptcy as George Osborne and David Cameron suggested way back in 2010 is a political construct with a specific purpose in mind. When you know that public debt after the second world war stood at around 248% of GDP, and the government set up the NHS, and built thousands of council homes, it makes the current hoo-ha over public debt being over 100% look positively ridiculous. We didn’t go bankrupt then, any more than we can, today.
An understanding of how government really spends is a vital part in the jigsaw of monetary reality. It cannot have gone unnoticed by now, and as we have already noted, that there is never any shortage when it comes to the billions being pumped into funding a war in Ukraine, or bailing out banks or other financial institutions, but when it’s a question of serving public purpose then suddenly it becomes unaffordable, and the IEA feeds us a pile of crock about borrowing and debt. On that subject the Establishment becomes silent.
We are at a crossroads and yet politicians along with the supporting orchestra continues to reduce the arguments to financial ones, rather than ones relating to human and planetary well-being.
Excuse us if we repeat ourselves. In a sane world, in the light of the overwhelming challenges we face in addressing ecological overshoot, and the existing and growing inequitable distribution of real resources that accompanies it, we would decide our spending priorities and its beneficiaries.
While politicians predicate their plans on unsustainable growth at any cost, based on the lie that such growth will create the funding for public infrastructure to support a healthy economy and a green transition, we will fail at the first hurdle to address this existential crisis.
Even if we have left it too late to arrest the ultimate outcome, it doesn’t mean we should not be doing what we can to create a global economy where people are valued, have jobs that are truly productive and benefit society, where growth is not the ultimate measure of success, and where the concept of less is more is what guides our vision for the future, and guides our priorities and spending decisions. We may be an island but we don’t live in isolation. Our vision must extend outwards to encompass a strategy to support those whose nations have been harmed by Western exploitation.
As Professor Bill Mitchell explained in a recent blog entitled ‘The New Global Financing Pact equals the old failed global financial arrangements’;
‘…world leaders should be talking about advancing and funding large-scale public education and training and healthcare programs in the poorer nations to build the productive capacity rather than suggesting they do not have enough money to accomplish meaningful development.
Involving the private financial markets will just create further layers of speculative behaviour via debt and derivative instruments that will likely cripple the poorer countries That has been the ‘same old’ strategy which has not worked.’
Currently, there are no politicians even thinking along these lines. The status quo reigns. They are plunging us instead, into an unthinkable future of planetary degradation and human suffering, while out-of-control corporations use the crisis as an opportunity to keep the truck rolling. Call it green and carry on as before, regardless.
Kicking the can down the road is a crime against humanity and the planet that supports our existence. The starting place for a change is here.
We have the monetary means to address the challenges. After that, the only decisions are political. How resources are distributed to create an economy that is built on fairness and sustainability.
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