The Fight for the NHS/MMT economics

[matthewr]

Similarly, you keep telling me and ks.234 that MMT is more unintuitive than mainstream macro.

MMT is basically an extension of Keynes so by definition it must be least as unintuitive as Keynes. Granted the unintuitive nature may be entirely the fault of the Keynesian parts (although I would disagree, I think the MMT part is just as unintuitive) but you still have to deal with it and have effective answers for Magic Money Tree style arguments.

And FWIW I spent literally years on here trying to explain to people how austerity was a bad idea, how national economies don't work like households, how modern money is created, etc. etc. It's essentially a full time job and as soon as you stop everyone reverts to their intuitive thinking and you have to start again. Which is exactly what happened when COVID emerged and we collectively forgot everything we learned in the GFC a handful of years earlier.

(show me a New Keynesian equivalent of 'The Deficit Myth', for example)

https://www.amazon.co.uk/dp/B011QAEKYE/?tag=pinkfishmedia-21

 

[Sue Pertwee-Tyr]

It seems to me that you might be able to convey the MMT Job Guarantee idea to those who buy into the 'household budget' model.

The idea seems to me to be (alert: likely gross oversimplification ahead...) that faced with a recession and/or inflation, people are apt to lose their jobs, so the idea would be that the state steps in and gives them jobs that need doing, so they remain productive and ready to resume when things settle down again and the immediate situation is stabilised.

That's not a million miles away from the (right of centre) view that people should contribute something in return for their benefits. And people are already open to the idea that if you lose your job, you get another, or if you lose some income, you might need a second job to supplement it.

So why isn't this concept explained as that the state becomes the employer of last resort where necessary, and spends money on not unemployment benefit, but in getting jobs done that, ordinarily, there's no workforce to get done? Whether that's filling potholes or clearing scrubland, or building schools, hospitals, power stations or rail links, the principle isn't all that difficult to grasp, is it? And the people doing the jobs develop new skills and experience, so are all the more employable when things turn up.

Have I oversimplified to the extent of rendering the argument meaningless?

 

[ks.234]

MMT is basically an extension of Keynes so by definition it must be least as unintuitive as Keynes. Granted the unintuitive nature may be entirely the fault of the Keynesian parts (although I would disagree, I think the MMT part is just as unintuitive) but you still have to deal with it and have effective answers for Magic Money Tree style arguments.

And FWIW I spent literally years on here trying to explain to people how austerity was a bad idea, how national economies don't work like households, how modern money is created, etc. etc. It's essentially a full time job and as soon as you stop everyone reverts to their intuitive thinking and you have to start again. Which is exactly what happened when COVID emerged and we collectively forgot everything we learned in the GFC a handful of years earlier.



https://www.amazon.co.uk/dp/B011QAEKYE/?tag=pinkfishmedia-21

I feel that I now have effective answers to Magic Money Tree arguments, that I did not have before, thanks to my reading of MMT.

 

[matthewr]

It seems to me that you might be able to convey the MMT Job Guarantee idea to those who buy into the 'household budget' model.

A Job Guarantee is of course something you could have under any economic system and is arguably more of a policy suggestion than an economic one. I would argue UBI is a more efficient version of this policy and avoids the make work aspect of the idea.

So why isn't this concept explained as that the state becomes the employer of last resort where necessary, and spends money on not unemployment benefit, but in getting jobs done that, ordinarily, there's no workforce to get done? Whether that's filling potholes or clearing scrubland, or building schools, hospitals, power stations or rail links, the principle isn't all that difficult to grasp, is it? And the people doing the jobs develop new skills and experience, so are all the more employable when things turn up.

There is of course a history of that idea with Thatcher, Osborne and then Blair and later Labour parties.

 

[Enfield boy]

Did your understanding of Keynesianism teach you that Government spending is not related to income from tax, and the implication that Thatcher’s “there is no government money, there is only taxpayer money’ mantra was a lie?

It was almost 50 years ago but I don't recall it going that far, that may have been too much for the exam boards and their bosses! My memories are more about the times that led to JMK, the theories on "perfect competition", The "multiplier effect" being driven by "marginal propensity to consume" and bank liquidity ratios. All a long ago in what felt like a very different land before Thatcher and Reagan torched what was left of the brief period of optimism for working people after WW2.

 

[Jim Audiomisc]

Yes. The problem seems to be that Keynesianism doesn’t even try to communicate outside academia

Galbraith did communicate it outside academia quite well. One reason most other academic economists didn't like him much.

 

[ks.234]

A Job Guarantee is of course something you could have under any economic system and is arguably more of a policy suggestion than an economic one. I would argue UBI is a more efficient version of this policy and avoids the make work aspect of the idea.
.

Would you say why you prefer UBI to Job Creation?

 

[ks.234]

A Job Guarantee is of course something you could have under any economic system and is arguably more of a policy suggestion than an economic one. I would argue UBI is a more efficient version of this policy and avoids the make work aspect of the idea.
.

Your post has prompted a bit more reading and I came upon this from the GIMMS website:

Whilst both the Universal Basic Income and the Job Guarantee seek to resolve the same problem the macroeconomic consequences of each would be very different. The Job Guarantee is a public sector option for employment paid at a living wage to anyone willing and able to participate. Funded by central government and locally administered as a permanent scheme, it provides the non-profit sector with additional labour, acting as a buffer stock in either the standard public sector or private sector. See GIMMS’ factsheet on the Job Guarantee.

Whilst MMT establishes that the government has the ability to finance both the UBI and the JG as stand-alone programmes, the UBI is an income for doing nothing, whereas the JG is a participatory income in exchange for contributing one’s time to public purpose. This is important as a mechanism for the government to preserve the value of its currency, as ultimately, the currency is worth, at the margin, what one must do to obtain it from the government. If a UBI were to be paid at a high enough rate for people to live on and pay their taxes, directly or indirectly, it would introduce moral hazard as it removes the monetary need for anyone to work.

This would mean that the government would no longer be able to use its currency to provision itself with the workers it desires to provide the public services necessary for it to fulfil its mandate to provide public infrastructure to serve the public purpose. Nor would the economy be able to hire workers to produce goods and services for people to purchase with that currency or, said another way, if supply capacity in the economy were to decrease due to a lack of workers and incomes increase it would create hyperinflationary pressures. Firms would raise wages (and prices) in an attempt to attract workers who have no immediate need to work. The universal basic income would not ultimately give the desired standard of living and would instead erode the value of that income.

As Warren Mosler says, ‘If you (the economy) don’t have to do anything to earn the currency, it’s worth nothing.’
​

 

[Heckyman]

I have no trouble with the explanation of money creation / tax is not necessary for spending etc., but the bit I'm seriously struggling with is how, in the long term, NHS spending could be increased faster than the growth rate of the economy without the need for eventual tax increases or more extreme measures like financial repression.

 

[ks.234]

I have no trouble with the explanation of money creation / tax is not necessary for spending etc., but the bit I'm seriously struggling with is how, in the long term, NHS spending could be increased faster than the growth rate of the economy without the need for eventual tax increases or more extreme measures like financial repression.

Not sure I understand the question. Why does spending on the NHS a depend on growth rate and tax increases?

Isn’t the point that the only impediment to government spending before the event is government will and the votes to implement it.

 

[Joe Hutch]

Just as an aside, back in the mists of time when I worked for the Department of Employment in the early days of the first Thatcher government, there was a host of job creation schemes, one of which was the Youth Opportunities Programme. I was asked to proofread the draft publicity material. It began: ‘The purpose of this programme is to take young people and give them a feel [line break] for going to work.’

I pointed out the possible double entendre, but was told that I had a filthy mind and that no-one else would read the words the way I had.

Right, back to yer MMT.

 

[Heckyman]

Not sure I understand the question. Why does spending on the NHS a depend on growth rate and tax increases?

Govt can of course spend first, but if that increased spending isn't at some point covered by increased economic growth and/or taxation, I don't see how debt doesn't just keep increasing -- then if so at some point it has to be paid down (I accept not paid off entirely). I must be missing something?

 

[Sue Pertwee-Tyr]

Your post has prompted a bit more reading and I came upon this from the GIMMS website:

Whilst both the Universal Basic Income and the Job Guarantee seek to resolve the same problem the macroeconomic consequences of each would be very different. The Job Guarantee is a public sector option for employment paid at a living wage to anyone willing and able to participate. Funded by central government and locally administered as a permanent scheme, it provides the non-profit sector with additional labour, acting as a buffer stock in either the standard public sector or private sector. See GIMMS’ factsheet on the Job Guarantee.

Whilst MMT establishes that the government has the ability to finance both the UBI and the JG as stand-alone programmes, the UBI is an income for doing nothing, whereas the JG is a participatory income in exchange for contributing one’s time to public purpose. This is important as a mechanism for the government to preserve the value of its currency, as ultimately, the currency is worth, at the margin, what one must do to obtain it from the government. If a UBI were to be paid at a high enough rate for people to live on and pay their taxes, directly or indirectly, it would introduce moral hazard as it removes the monetary need for anyone to work.

This would mean that the government would no longer be able to use its currency to provision itself with the workers it desires to provide the public services necessary for it to fulfil its mandate to provide public infrastructure to serve the public purpose. Nor would the economy be able to hire workers to produce goods and services for people to purchase with that currency or, said another way, if supply capacity in the economy were to decrease due to a lack of workers and incomes increase it would create hyperinflationary pressures. Firms would raise wages (and prices) in an attempt to attract workers who have no immediate need to work. The universal basic income would not ultimately give the desired standard of living and would instead erode the value of that income.

As Warren Mosler says, ‘If you (the economy) don’t have to do anything to earn the currency, it’s worth nothing.’
​

This assumes, I think, that any UBI provides enough income to demotivate people, rather than (as I understand the concept) just enough income to ensure a basic standard of decent living. So, somewhere closer to the 'living wage' rather than the punitive levels set by UC, but not enough to provide a standard of living that would remove the incentive to do work.

But I could see that a Job Guarantee could be a more socially acceptable solution. But what happens if you find yourself out of work, but don't want to take up the public purpose work offered under the Job Guarantee? Do you forfeit the right to benefit? That starts to get a bit Thatcherite, if so.

 

[Sue Pertwee-Tyr]

Also, of course, the 'public purpose' work could be vulnerable to political intervention. So, picking crops, or working in abbatoirs, or clearing fatbergs from sewers with a trowel. If you're not careful, and given the 'wrong' regime in power, you're into the realms of chain gangs, or community service.

 

[ks.234]

Govt can of course spend first, but if that increased spending isn't at some point covered by increased economic growth and/or taxation, I don't see how debt doesn't just keep increasing -- then if so at some point it has to be paid down (I accept not paid off entirely). I must be missing something?

AIUI, any spending can be inflationary. The point of MMT is to balance the economy between full employment and inflation. Available resources are a limit to government spending so it is only at the point that those employed are producing more than the demand for those things being produced that there is a problem. At that point there are a number of tools available to re balance the economy that can correct demand with making people unemployed

The fundamental point being that while government spending can cause inflation, while we live in an economy that requires vastly more resources for the NHS, for Care, Education, Climate Change, global responsibilities, peace on earth and goodwill to all men, that such a point is a long way off.

 

[laughingboy]

MMT is basically an extension of Keynes so by definition it must be least as unintuitive as Keynes. Granted the unintuitive nature may be entirely the fault of the Keynesian parts (although I would disagree, I think the MMT part is just as unintuitive) but you still have to deal with it and have effective answers for Magic Money Tree style arguments.

For me, if there was a single thing that opened my eyes to macroeconomics it was an explanation of sectoral balances - the understanding that a government's deficit represents money in someone else's pocket. That's not exclusive to MMT, but most accounts of Keynesianism don't emphasise it - rather, they seem to regard it as an irrelevance, a mere mathematical/accounting identity.

And FWIW I spent literally years on here trying to explain to people how austerity was a bad idea, how national economies don't work like households, how modern money is created, etc.

And, here's the thing, if the key communication struggle is to displace an intuitive-but-wrong 'household' understanding of government finances, then linking sectoral balances to a money-must-be-created-before-it-can-be-taxed message is the best place to start, as the combination provides a model of thinking about government spending that - once understood - can't be forgotten.

Not coincidentally, that's where MMT starts:

• government doesn't need tax to spend, it spends first and taxes later;
• government spending is someone else's income, which means a government deficit is someone else's savings.

https://www.amazon.co.uk/dp/B011QAEKYE/?tag=pinkfishmedia-21

Thanks for the recommendation.

 

[Joe Hutch]

It’s an interesting question. When young and single I for one would have been quite happy to have been paid enough to live reasonably well without having to work for a living, leaving a job free for someone who wanted more money, or ‘needed’ to work for reasons of self-esteem or whatever.

I guess it depends on how many lazy slackers there are, as opposed to hard-working go-getters.

 

[ks.234]

^…and there, in a nutshell, is the argument against UBI. It just encourages the sort of slacker who washes up on HiFi forums

 

[ks.234]

This assumes, I think, that any UBI provides enough income to demotivate people, rather than (as I understand the concept) just enough income to ensure a basic standard of decent living. So, somewhere closer to the 'living wage' rather than the punitive levels set by UC, but not enough to provide a standard of living that would remove the incentive to do work.

But I could see that a Job Guarantee could be a more socially acceptable solution. But what happens if you find yourself out of work, but don't want to take up the public purpose work offered under the Job Guarantee? Do you forfeit the right to benefit? That starts to get a bit Thatcherite, if so.

Yes, the big danger of the Job Guarantee is that it gets interpreted in an ‘I told you so’ Thatcherite manner, but the whole point about The JG is that it ‘establishes a basic minimum standard for a decent job with decent pay in the public sector, a standard which the private sector must match, (at a minimum) to attract workers. That would include good working conditions, a basic retirement income and wage benefits.’

The other point is that the Job Guarantee is not compulsory. As basic income is still available for people like @Joe Hutch!!

 

[matthewr]

Govt can of course spend first, but if that increased spending isn't at some point covered by increased economic growth and/or taxation, I don't see how debt doesn't just keep increasing -- then if so at some point it has to be paid down (I accept not paid off entirely). I must be missing something?

Spending is limited by the capacity (and therefore growth and productivity gains) of the economy and if you exceed this it will be inflationary. The point however is that the fiscal space available is orders of magnitude bigger than people think it is and in effect we can easily afford all of the major policy initiatives (the NHS, the Green New Deal) that right wing and centrist governments pretend are hard choices we have to make in the same way you decide if you can afford a new car or not after your recent promotion.

The counter argument is not that we will run out of money or that debt will increase beyond our means to ever repay it[1]. But rather that you end up with an economy stuck with anemic growth just below the rate of inflation and interest rates stuck at or close to zero. This is known as secular stagnation and has been the experience of the UK and the EU since 2008 and Japan for that plus a couple of decades.

The counter, counter argument is America, which has such a strong economy that it never seems to get stuck in this way for very long and is soon back to growth[2].

All of this is standard Keynesian economic thinking for academics and central banks and has been for decades, a blip in the 80s notwithstanding. Where the arguments differ is whether we should use this fiscal space as a matter of policy whenever there are unused resources in the economy (e.g. like Japan) or only when the economy is in recession and we have hit the limits of monetary policy (e.g. like Obama[3]).

[1] Debt in major western economies is already de facto unrepayable but as long as you don't do something foolish like join a shared currency union before you have the political and cultural integration to make the debt truly shared, then in practice it doesn't in practice matter.

[2] As long as they don't elect a Republican government.

[3] There is now very good evidence that Obama's stimulus worked but also that it was under-cooked by an order of magnitude. In the UK of course we proved the opposite by showing contractionary fiscal policy in a recession is indeed contractionary.