Modern Monetary Whatnow?
Dear Editor
Modern Monetary Whatnow?
In last month’s Kibworth & District Chronicle Michael Rodber responded to my December article ‘Inequality in a Just World’ with a couple of headline comments. To his first, (economics is not true science…. so there’s no absolute right or wrong), I gently remind him that no general scientific theory has been or ever can be proved true, so to expect it of economics seems a bit harsh. His second, that we must trust the government to implement economic policies, is not something I’d contest. If not them, then who? Michael did correctly identify modern monetary theory (MMT) as an economic framework for the article, and rightly stated that it is debated among economists. MMT radically challenges conventional views of our economy and is one of the most widely discussed economic theories of our times. But most of us have never heard anything of it, which is an issue in itself.
Here’s the thing: We all use money. We mostly have to earn it to spend it. We hear the country is short of it, yet despite trying for years the country does not seem to have solved the problem. But MMT points out that the government does not need to earn money to spend it. The government issues the money we use and so can’t run short. That’s worth reflecting on. It creates money that we spend. The Bank of England must, by law, create the money to fund government expenditure that has been approved by Parliament. This is typically in a budget, but if the government demands funds for an emergency such as a banking crisis, a pandemic, a war or whatever, then it can require funds be made available. And the government makes money by spending it into existence! It says to its bank “pay that person so much”. The bank increases some numbers in that person’s bank account (and the Treasury loan account) and bingo, money is made. Tax simply reduces those numbers. There’s no stock of cash or gold. It’s just numbers. You can’t run out of numbers. But these are numbers we need to pay for stuff. Balancing the books would get rid of them. That doesn’t seem a good idea. (If interested Google fiat money).
Many of us understand how to use mobile phones. Few of us fully understand how they are made. Money is like that. The economist J. K. Galbraith wrote “The process by which money is created is so simple that the mind is repelled.” And according to MMT, every time someone on TV accuses the government of having maxed out its credit card, or talks of spending taxpayers money, or asks what spending will be cut or what taxes will be raised to pay for it, they promote a false narrative. And this narrative has become so accepted that most of us refer to it in everyday conversation as if it is established fact. But MMT says a government need not, should not, budget like a household. The view that money is a scarce resource is wrong and damaging. It encourages the view that different groups in society are competing for fixed and limited government funds. But, because we keep hearing it, many of us believe the government must cut spending, even if it increases inequality, harms the vulnerable, hollows out public services, makes many of us poorer, and damages businesses that depend on people to spend money to buy the goods and services those businesses wish to sell. Further still, it encourages the view that, if someone, somewhere, can’t make money from combatting climate change, then, it seems, we can’t afford not to burn the planet. If MMT is right this matters. If it is wrong, someone needs to credibly explain where money comes from and how the government can run out of it.
Deciding what you do with the economy is politics. But it helps to understand how it works, and MMT undertakes to describe that. So yes, MMT is widely debated. It is promoted by many eminent professors around the globe. They argue that the true limits in an economy depend on the human and physical resources within it, not money, and those resources can often benefit from being invested in. It is discussed in books, articles, blogs, podcasts, YouTube videos etc., many freely available online. People offer many possible reasons why none of this is ever discussed in the mainstream media, including simple ignorance, misunderstanding (e.g. MMT does not say you can print money without limit), and vested interests, too many to debate here. The absence of mainstream coverage prompted this article in case some Chronicle readers might like to know about it. Clearly, whether you do is a matter for you. That Michael is sufficiently intrigued to wish to debate and summarise matters in future Chronicles is gratifying, and I am willing to debate. But explaining stuff can take a lot of copy space (as this shows). Whatever happens going forward, if any readers are interested or want to know a bit more, then, if you are able, I suggest you Google Why we need to debunk the ‘deficit myth’. www.bbc.co.uk/reel/video/p08jbbry/why-we-need-to-debunk-the-deficit-myth-
or type the following in the YouTube search bar:
→Top 10 things Stephanie Kelton wants you to know about the economy. Stony Brook Uni
→Why do governments issue bonds when they don’t need to? Prof Richard J Murphy
→Is the UK heading into VERY dark times? Prof Steve Keen
Larry Dolan
