I doubt Rachel Reeves wanted to lecture the country on the state of the public finances over their cornflakes, so what she had to say must have been important. Right? Her curious little speech on Tuesday morning, flanked by sharply folded Union Jacks in the Downing Street media room, basically said tax rises are coming - without explicitly saying tax rises were coming. Her warning was coded under layers of "years of failure", "difficult circumstances", and "poor productivity". This matters because one of the promises Labour made in its otherwise throwaway manifesto was no taxes on "working people". A promise made, a promise about to be broken.
Contrary to what politicians think, most of the British are electorate are not mugs. They are also quite capable of listening to justifications for unpopular or painful policies, and accepting them if they believe there is no alternative and they trust the government of the day. So limbering up to break tax promises wouldn't automatically put a black mark against the Labour's name, provided most people thought they were doing an okay and competent job. Unfortunately for this government, this is far from where the public are.
On the mess Labour inherited, most people would agree the Tories made a hash of things. In the abstract some would even accept the "tough choices" Labour promised to get matters fixed, albeit that pledge had less to do with getting the economy chugging and was more about managing political expectations. What the public weren't and aren't prepared to accept were self-evidently cruel, stupid, and counter-productive decisions. For instance, in her Tuesday morning address Reeves rightly attacked the Tories for their austerity programme, which led to crumbling public services and sucking demand out of the economy. Yet isn't the latter what she did with her Winter Fuel nonsense, and what would have happened with her plans, now largely abandoned, to hammer disabled people? Labour's stubbornly catastrophic polling shows that, as far as the electorate are concerned, they have traded away their right to look serious, and no amount of grown up cosplay and wittering about fiscal rules will change their mind. Their minds look made up, and Labour inhabits the same political place of pain John Major did after Black Wednesday, Gordon Brown after the election-that-never-was, Boris Johnson during Partygate and Pinchergate, and Liz Truss following ... Liz Truss. That is until the party retires its leadership. Then it might claw its way back to prominence.
The other problem is that, just like the Tories that came before them, Labour is seemingly determined to make "working people" pay for the country's difficulties. Leaving aside the fiscal rules, even if state finances resembled household finances, there was no hint whatsoever that Reeves was preparing to make further inroads into wealth. Be it propertied, sitting idly offshore, zipping through the City's speculative circuits, or materialising as dividends or rents. She might want to raise tax receipts to "modernise" the state, but at base what her speech previewed was a scheme for preserving the exact same class relations that exercised Nigel Farage's foray into economics.
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17 comments:
Where's Zack then? He could hardly ask for a clearer cue.
The assertion that most of the British electorate are not mugs rings a bit hollow and wishful, in the face of their astonishingly dismal track record. It would seem on much safer ground to suggest that at least they aren't mugs enough to buy what Starmer/Reeves/McSweeney desperately want to sell them.
In which light, Streeting's recent absence from the headlines feels a bit like a horrible omen of how they might try to wriggle and slither their project past the reckoning due to it next year.
Does it not worry you (collectively) that your economic model relies on the existence of large pots of free money that you can take without consequence? That your approach to economics is that of a six year old who thinks every day is their birthday?
Have those flags been ironed? Are you even supposed to do that? Won't you have the British Legion, or Dragon King of Arms, or somebody, down on you like a ton of bricks if you steam iron the Union Jack?
Ms Reeves and Mr Starmer's discomforts have helped me see an unpleasant side to my charater - I find I am enjoying their suffering. I can try and justify it on the basis of their actions against Corbyn between 2016-19, their smugness in opposition that all that was needed was their skills and brains and some 'adult policies' and all would be well but really it is just pleasure to see their best laid plans lacking substance and their genuis exposed as not very smart at all.
No doubt I will pay the price for my pleasure in 2028 or 9 when something far worse comes out of the undergrowth in England. But until then, enjoy the show.
You seem to be getting more low-effort anon trolls these days, Phil. Perhaps you've been noticed?
The other day we had one trying to wave the "reverse racism" flag. Today we've got one whining in dismally formulaic fashion about leftists and their magic money trees, apparently under the illusion that they themselves somehow project any credibility as an economist.
Ha. Noticing someone disagrees with you does not of itself constitute a refutation.
But seriously, if a technocratic managerial class can simply summon infinite amounts of money from nowhere to dispense as they see fit this removes all power from workers; their individual labour is pointless, and they have no means of exerting influence by for instance withdrawing their labour. Their financial state is determined solely by the opinions the managerial class have of them. Progress comes from influencing the state not their own labours. This is not socialism.
ANON 19:19, as a very old Marxist socialist and someone who used to teach economics, I can assure you that it is not "trolling" to point out that the entire "Modern Monetary Theory" analysis is pure magical thinking, not genuine economic analysis.
When challenged on their threadbare pseudo economic claims that a government with its own sovereign currency can simply create money by printing it - up to the point where all human and physical resources in the state are fully employed - I can only express head-shaking dismay that so many of today's "Left" (actually Left Liberals) refuse to understand that the global capitalist money (and bond) markets can destroy any currency overnight , and hence make it impossible for us to purchase anything from other states with what will be a worthless pieces of decorated paper, not tradeable money anymore.
If the UK was a closed "autarkic economy", like North Korea , or Stalinist era Albania, the MMT theory might hold up, but in the case of a UK economy totally integrated into the world inter trading economy, and not having much domestic physical product producing industry left, or the farming capacity to feed our population, we would be in deep do do almost overnight if a government tried to use MMT to run its economic policy. The bond and currency markets broke Liz Truss's bonkers neoliberal government in a few months. A Left government pursuing MMT would be broken in a few days as shortages and hyper inflation kicked in . The MMT drivel put about by the likes of accountant (not economist) Richard Murphy, are fools gold - an alternative to a socialist government using nationalisation, comprehensive planning, currency controls and state direction of private and nationalised firms to deal with the inevitable sabotage of the markets to even mildly Left economic policies. Magical thinking by today's Left is a poor substitute for coldly rational analysis and solid economic understanding, and a comprehensive economic PLAN.
What does 'make further inroads into wealth' even mean? It's sounds suspiciously like the Scrooge McDuck Moneybin theory of (not) economics peddled by populist charlatans like the Boob Whisperer. The populist, but unsubstantiated, narrative is that the fat cats with their moneybins are not paying their share, but numbers I've seen quoted (with links to the supporting HMRC factsheets) suggest top 0.1% of UK earners pay more income tax than the bottom 50% of UK earners. Now we can quibble over exact numbers, but nobody is seriously contesting this isn't broadly correct. So then we get to the 'wealth' argument; if wealth was really in a moneybin we could just go and expropriate it and spaff it, but it's not. Most wealth is actually invested in assets, and whilst not all assets are economically productive the majority are likely to be more economically productive than what Gov't will 'invest' in (securing funding for genuinely productive investments isn't a problem). Very little 'wealth' will be sat idly in a moneybin, it will be circulating, even if it is going through tax havens or 'speculative circuits' these things are are vehicles not moneybins. Ignoring the practicalities of expropriating wealth (wealth taxes are infamously impractical and inefficient tools), and ignoring all the probable second-order effects (what happens to true investment if you do this?), even if UK Gov't successfully managed to expropriate all the wealth of top 1% (not 0.1%) and successfully realised it's full value it would probably only cover 6 months of spending and the spending would only be to sustain the existing problems. The UK's real issue is productivity, Labour has done nothing positive in this regards, and it is the core reason why Reeves is rehashing last year's material, and will continue to do so until her replacement starts rehashing the same material.
It is strange how people who claim some knowledge of the dismal science then go on to talk about "using MMT" as it it were some sort of recipe or method. It's a theory describing how money is created and moves around the 'economy'. MMT simply explains that a state creates the money it uses (if it has its own sovereign currency, like the UK). Banks also create money - when they issue loans. None of this is disputed - the Bank of England have several papers describing how the process happens.
So, no, MMT is not 'done' it's just a description of what happens in reality. How a governent choses to act on that knowledge is what matters. But we have a government that does not recognise that it spends money into existence, nor that tax is in this context the process of taking that money back. Instead it seems to think a country is just like a household, and has to 'balance the books'.
One analogy I like is that of the government being an oak tree that produces acorns, which all the little squirrels (us) collect and exchange. Because we are squirrels, we think the government is like a giant squirrel that has to collect acorns off us, to then give them to other squirrels, not realising that it is producing them in the first place. We think of it as a game of pass the acorn. We get acorns from other squirrels, and the government takes some off us and then passes them on. We never ask where the acorns came from in the first place. But for us to think this is forgiveable, the fact that our chancellor believes she is a giant squirrel, rather than she is part of the tree, is tragic.
MMT does not say that a government can create as much money as it likes with no consequences. It says that the constraints on an economy are the real resources (including labour and physical capital), not money. If these are at full capacity, then spending (creating more money) will drive up prices - because there is no spare capacity to absorb it. In the oak tree analogy, the oak can only make as many acorns as it has the physical resources to produce. There are limits, but these are very different from imagining that the tree has to extract them from the squirrels before it can distribute them. The tree is not limited by what the squirrels are hoarding.
Why does the tree collect any acorns from the squirrels, you might ask. Obviously, this analogy is inexact and fails somewhat here, but if we imagine that the tree does demand that all the squirresl return a certain number of acorns, that is not because the tree needs them to pass on to the squirrels next year. It does so to prevent the squirrels from being overwhelmed by acorns, and ensure that the acorns are valued.
Back to the economy - the question should be, how can more capacity be generated (i.e. growth) or, can any capacity be freed (because maybe some of it is being used to do things of little benefit to society). So, with a tree, it needs access to sunlight, air, water and fertile, healthy soil. To maintain the soil, it drops leaves which enrich it, and it cooperates with various fungi to exchange energy and minerals. By investing in its fungal partners, it grows bigger and is healthier. This is like a government investing in its people and the things they need to be more capable and effective (education, healthcare, housing etc.). If it does this, it can easily produce more acorns (or spend more money). The key is what the money is used for. Currently we are using it badly and not improving the soil, or growing branches to intercept more sunlight.
While bond vigilantes may think they rule the world, in truth they react to perceived errors and weaknesses, like swarm of oak eating bugs, seeking out the weakened trees and consuming their acorns. If the tree is healthy, it is unlikely to be attacked, and can usually resist one if it is tried. The key is to maintain the health and vigour of the tree. Something that Reeves and Starmer are failing to do.
I'm also shaking my head in dismay at the desperation and/or delusion of commenters who continually bring up whatever axe that they have to grind on posts that have nothing whatsoever to do with it, and try to pretend that they're engaging with the topic.
Not only does Phil's blog post, which we all here are commenting on, not say anything about MMT - but I don't recall this blog ever endorsing MMT.
And so posts like that of anon 11:58 and anon 23:02 are rather baffling. It looks to me almost as though some kind of SEO/astroturfing operation is going on here, with those comments not being posted to be seen or read by humans, but by web crawlers of some sort.
Anon 19:09 here. Some people appear to have leapt tall conclusions in a single bound, and somehow interpreted my sarcastic mockery of the low-effort drivel posted by anon 10:31 as being an endorsement of MMT. It was not.
To date I have no particular opinion of MMT, not having had occasion to read up on what its claims are actually supposed to be. And even if it might be a hot button issue in other parts of the leftist internet - since it seems to be close to a nerve for several commenters here - as far as I can tell it has little to do with the blog post which we are all commenting upon.
Cerunnos, you have truly "jumped the shark" in the daft analogies with your "squirrel " and "forest growth" metaphors ! Try real economic analysis, mate, its quite important. It is interesting that when challenged on MMT it's proponents usually retreat into " it's only a theory" nonsense. MMT as a theory about money and money creation , implies actual government policy practice , and DOES indeed claim that a government with a sovereign currency can create as much money as it likes , with no inflationary consequences, as long as all domestic human and physical resources have not been fully employed. It chooses to ignore that the UK, as with most economies, is interwoven with global capitalist supply chains , and the vital value of our currency as relative to all other currencies, particularly the Dollar, determines how much vital stuff we can buy from other economies.
MMT is economically illiterate baloney, and any government attempting to simply increase domestic money supply without carefully planning the global economy induced domestic consequences of this , particularly the potential catastrophic reaction of the global money markets, will create hyperinflation very quickly. MMT is not "just a theory" , but is a dangerous, economically ignorant, alternative to genuine comprehensive socialist economic planning. Sorry ANON 19:27, that you are so unsettled by this diversion about MMT from the main thrust of Phil's article, but that is what happens with open live free discussion. Live with it and don't sulk!
This circus of anonymous armchair experts reminds me of the joke, that astrology was invented to make economics look like a science. I suppose it's fitting that every random twit seems to think that they can have a turn at the pulpit.
If socialism isn't about redistribution, then what exactly is it about? Ergo, the phrase "inroads into wealth" in this context means no more or less than redistribution and de-concentration, and says nothing about how. Presumably there are various options for skinning that cat.
Amongst all the blathering, self-defeating phrasing being churned out here (imagine typing "economically illiterate baloney" and thinking that you sound like anything other than a brain dead Telegraph reader!), I see a few that could perhaps form an anchor for something recognisable as meaningful discussion. "Comprehensive socialist economic planning" is an interesting one. It certainly sounds like something which we'd all want an actual socialist government, should there be one, to do - anyone (other than Kamo) care to differ?
And yet, investing that much effort into planning whilst there is no chance at all of those plans being used might reasonably be considered a bit of an exercise in futility. So accusing a politician in Polanski's position of not doing that, does sound a lot like swearing emphatically that the horse should be pushing the cart.
What is the point of this comment ANON 17:36 ? It says absolutely nothing. Try putting forward an argument or position of some sort please so we can truly appreciate just how very clever you are.
@Anon 22:15. There are two proposals of substance made in that comment, which you appear to have missed. First, that nobody here has given us any real reason to think that "comprehensive socialist economic planning" is something which they do not support, even though several commenters seem to be reacting as if that had happened. Second, that Zack Polanski - who I see being singled out for defensive ridicule on the basis that he doesn't have a comprehensive economic plan, nor any announced intent to generate one - might be better served politically by not generating one, YET, and the idea that he doesn't have one right now is not especially terrifying.
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