A guest post by Mark Russell
(You may have heard people mention “Modern Monetary Theory”, but like me you may not have known what it is. So I asked someone who does know what it is to write a piece explaining it. Hope you find this article as informative as I did! WGD)
A few miles north of Bridge of Orchy, as the A82 skirts Loch Tulla and climbs steadily over the Blackmount towards Rannoch Moor and Glencoe, a lone rowan tree grows atop an enormous boulder, just a few yards from the road. It’s an improbable place for a tree; its roots taking support and nourishment from the shallowest crack in a rock in the most inhospitable environment.
Yet every September it produces an impressive harvest of berries and does so year after year, despite its exposure on a seemingly barren piece of rhyolite. In 1970, it was almost six feet high – as tall as my Dad – who climbed up the rock one day to cut a small branch to bring home to Lochgelly for our garden. Within a few years, it too was heavy with berries at the end of each summer.
Throughout my childhood, the rowan would invariably be cited in parental lessons about money. Unlike berries, money didn’t grow on trees – it had to be earned and saved before it could be spent – a mantra reinforced repeatedly over the years by my elders and politicians like Theresa May, who claimed ad nauseum, that government had no Magic Money Tree – particularly when defending her policies of austerity.
It isn’t true.
On 8th October 2008, the then PM, Gordon Brown, announced his package to rescue the British banking system and immediately made available £400 billion to eight banks and building societies. Few asked, “where’s the money coming from” or “how are we going to pay for it” – but the bankers and politicians knew the source and understood precisely how the government was going to ‘pay’ for it.
The government (or currency issuer) was the source – and it was ‘paid’ by imputing numbers into a bank account. The money wasn’t transferred from government deposits or by raising funds through bonds, gilts or taxes; it was created out of thin air by pressing a few keys on a computer. It’s that simple.
De La Rue’s printers didn’t go into overdrive – nor was there hyperinflation – and the bankers were naturally delighted that the consequences of their greed and dishonesty were ameliorated by the UK government’s very own Magic Money Tree. One day they were skint and facing penury; next morning they were celebrating with champagne, pay-rises and bonuses. Quelle surprise!
‘Quantitative Easing’ was just the Bank of England buying bonds, shares and other assets in exchange for deposits made by the central bank in the commercial banking sector, by crediting their reserve accounts through a digital transaction. The purpose was to create excess reserves that could be loaned to chase a positive rate of return, which in turn would provide greater liquidity and stability. All well and good, but the ‘money’ was no more than an accounting adjustment in the respective accounts to reflect the asset exchange.
The secrecy of the global banking system and lack of transparency in government fiscal reporting obscure, deliberately, the true nature of these financial exchanges and capital creation. However, thanks to a small group of economists and academics, a new economic paradigm has evolved that provides a greater understanding about these financial mechanisms and how they may be harnessed by governments to fund their operations and policy objectives.
Modern Monetary Theory (MMT) outlines the principles for a progressive, sustainable society, which has no funding constraints. It is, in effect, the Magic Money Tree – and if used responsibly, could transform society across the planet.
At this point in history, our civilisation faces enormous challenges. Pollution of our atmosphere and oceans threaten our very existence, primarily as a result of uncontrolled population growth and all the attendant waste that humanity produces. The impact of pollutants on the climate and weather systems is well recognised, but the deterioration in air quality in particular, poses a far more immediate and deadly threat than extreme weather and rising sea levels.
We all have to change the way we live if humanity is to survive – and that level of readjustment, together with all the environmental restoration that’s urgently required, cannot be funded sustainably (or desirably) by borrowing from the banks or markets. But for currency issuing countries like the UK – that isn’t a problem.
MMT is best explained as a macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, Russia and Canada are not operationally constrained by revenues when it comes to government spending. In other words, such governments do not need taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency.
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default”
Alan Greenspan. 2011
MMT challenges conventional beliefs about the way the government interacts with the economy, the nature of money, the use of taxes and the importance of budget deficits. These beliefs, in part reinforced by our well-intentioned parents and grandparents, are really no longer accurate, useful or necessary.
You may ask if that is the case, why do we have such horrific levels of poverty and homelessness in the UK? Why the cuts to public services and infrastructure if government spending isn’t constrained by revenues? Why do we have universal credit instead of a universal income? Why is Holyrood’s budget restricted? How could Gordon Brown magic-up £400,000,000,000 from thin air and gift it to the wealthiest in society whilst child poverty reminiscent of Victorian times rose during his tenure in No10?
Why – if not to preserve the status quo? I guess those responsible for these policy decisions have their reasons, but at least they can count on being suitably rewarded for their loyalty once their time in office comes to an end. But at what cost to the rest of us?
Scotland, therefore, can do something quite remarkable should it choose independence. It still retains the rights to issue the Scottish pound and can legally establish its own currency issuer or central bank, through which its government can credit the commercial banks’ reserves to provide sufficient money for the economy and all its policy objectives. Without reliance on raising taxes, issuing bonds or borrowing from the private sector and markets.
“Too wee, too poor and too stupid”, really isn’t applicable anymore. Everything Scotland needs to be an economically sustainable, progressive sovereign country is within its grasp – providing it adopts and exploits the MMT paradigm to create its currency reserves then applies transparency and good housekeeping principles to all transactions.
Is there a risk? The reality is that governments across the world have been using their own Magic Money Tree to create any amounts of cash for many years. The USA printed billions of dollars and shipped them out in crates to Iraq and Afghanistan to fund day-to-day military and security operations during the ‘war on terror”. The money wasn’t taken from the American people through taxation; if recorded anywhere; it is merely as an accounting entry on a Federal Reserve ledger.
Japan embarked on a course of fiscal stimulus, money creation and increased government spending following the asset collapse and economic crash in 1992. It runs a substantial deficit and will continue to do so – but that does not constrain or limit its spending in any way whatsoever. Its economy is stable and its citizens enjoy a high standard of living, despite the enormous impact of the tsunami and the ongoing operation to recover and isolate the nuclear corium from the Fukushima power plant.
And the UK – which eventually gifted some £535,000,000,000 to the commercial banks since 2008. Where did it all go? Can it all be accounted for? How much ended up off-shore in our own secretive banking network? I wouldn’t like to guess, but it also raises the question that if the UK government utilised these arrangements to create over half a trillion pounds for the banks, has it done so to fund other commitments and expenditure – and what might that be for?
One of the founding proponents of MMT, Professor Bill Mitchell, gave a lecture at the Labour Party Conference on the 23 September this year, where he outlined the potential for sovereign nations to adequately fund the Green New Deal. I’m certain a Scottish audience would be extremely receptive to his suggestions.
Scotland’s reputation for building a progressive and inclusive society was gained in no small part through the wisdom of its famous sons and daughters during the Enlightenment. In ‘The Wealth of Nations’, Adam Smith observed:
“What improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy [when] the far greater part of the members are poor and miserable.”
Smith could never imagine a Magic Money Tree when he wrote his book in Kirkcaldy during 1775 – and would likely be incredulous at the suggestion. Yet today, a few miles along the coast in North Queensferry, sits a Fifer of lesser repute who certainly knows otherwise.
Scotland has an incredible opportunity to take a completely different direction with the ability to fund it fully without impoverishing its citizens – indeed, quite the opposite. Its Magic Money Tree is in Holyrood, not atop a boulder on the Blackmount, but its harvest could be just as productive and beautiful as the rowan.
Use it responsibly. Use it now. Before it’s too late.
Reblogged this on Ramblings of a 50+ Female.
Excellent article, clear and concise.
But, does anyone know what Kevin thinks about it. 😀
Don’t say that name three times, or he’ll appear.
He’ll be busy knocking out some pie charts and bell curves.
Thank you so much Mark. Economics that actually made sense! I can’t wait for a BritNat to throw the old chestnut “Scotland can’t afford to be independent.
Dear WGD, I hope you and your partner have a good ‘itch free’ Christmas and New Year.😁 This post reminded me of something I have said to many people since 2009 after I had tried to understand what Gordi Broon had done in 2008 and the term QE? QE is just numbers in a spreadsheet? I related it to a personal mortgage. Along the lines of – Say I have a mortgage of £400,000 and do not want to pay for it anymore. I visit my friend who works for the bank I have my mortgage with. I say to said friend can you write my mortgage off? Of course says friend what’s your mortgage account number. It is xzdsefvhh**””’ a few presses of the key board in the excel spreadsheet press enter and ‘whalla’ mortgage gone. Appreciate it is probably a bit more complicated than this, but it gets the point across. Who says money does not grow on trees. Best regards Craig
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Reblogged this on Tory Britain!.
A most informative and thoroughly enjoyable read, thank you for explaining the mysteries of economics to me. Look for ward to your next guest contribution to the the WGD.
Excellent piece… a positive, practical view of the worth and potential of humanity. Populism propaganda suitably demolished.
Good article. Just a couple of points omitted. It is important to note that the government issuing money: 1. insists that all taxes are paid in its own denominated currency; 2. Uses taxation to control inflation in situations of full employment and 3. Issues bonds in its own denominated currency to remove excess currency if required.
One further point, the USA has only been able to finance its enormous current account deficit and maintain solvency as the worlds largest debtor nation by virtue of issuing Treasury (T) bonds to other economies – notably China, in effect making the dollar the world’s unofficial ‘reserve currency’, and the US the worlds largest debtor economy.
It then uses these deficit funds to maintain its power through massive weapons expenditure, and issuing threats across the globe – as well as insisting the major strategic commodities (e,g. petroleum) are denominated in dollars.
This demonstrates both the efficacy of MMT as a driver of an economy (the US has off-shored much of its real economy) – and the massive vulnerability of a such an economy. In the case of the US, using such a system to finance imperial pretensions. If T-bonds are called in, or petroleum denominated in anything other than dollars, the whole edifice crashes.
Scotland will not make this mistake. We have no imperial retentions and we have a sound economy backed by real assets and an ingenious population, which will only improve after independence.
Do not let anyone suggest that and independent Scotland is not viable. Quite the reverse.
Hi John – yes you are quite correct. MMT is a paradigm that encompasses all the tools you outline. My grandmother used to say “anything in moderation” and how wise she was. Unfortunately we haven’t learned what moderation is yet! We have to learn that first – if we haven’t already – then apply the principles.
Yes, I truly believe Scotland can lead the world in this revolution. But it has to believe in itself first. Hopefully this might help assuage some fears.
All the best.
That is exactly why so much aggression was directed against Libya and Syria and is also why the drums are beating over Iran.
All have proposed or actually gone ahead with converting to the Euro for oil trading.
It’s something most progressive nations should ponder even if their is a high level of risk for the simple reason that it would ultimately reduce the incidence of war and the price that extracts from the world’s poor.
Let Scotland find yet another way to lead the world to a better path.
Yes I agree
George Kerevan wrote a good article on MMT on 7/1/2019, I think for the National. He thinks it would be worthwhile in an indy Scotland in the short term but he provides a number of caveats which should be taken on board. Richard Murphy is also worth reading on the subject.
Indeed a timely exposition of what another Mark, Blyth, and many others have been banging away on about for years, and a timely one given the multiple red herrings which are and will more vigorously be flung as independence looms closer…
If memory serves at my age better than my recollection of the speaker’s name on the lecture, the “economic catastrophe” inherited from the Brown government, ostensibly down to “bailing out” the home banking sector that the succeeding Tories primarily benefited from, caused austerity measures to imposed by the Tories (and a retrospectively “reluctant” Swaynseon), insisted be paid back (by the general public for a debt which never existed)… Oh how they must have cried laughing into their Pimms, and not a cheep of dispute over the false narrative from the Opposition now deposed…. Nudge, nudge, wink, s’alright Gordy, keep it going, free bar….
It is foreign debt where problems arise, and even though an indy Scotland need not incur it, you may rest assured UK will insist it is an imperative given the ginormous debt accrued by dint of “subsidy junkie” history, repeating the success of the 1707 stitch-up over the Scottish pound… Well, since it all worked so well following the successful Darien blockade, why not? What ?
A thoroughly enjoyable read and wonderful exposition. Much as your Lochgelly Rowan took root from barren parts, one can but hope your article via WGD takes root further afield 😉
Why do we all have to work at all?
Mark, a lovely take on MMT and Mitchell’s presentation.
Pay someone to dig a hole and another one to fill it in.
With the ‘magic money’ they buy things that others produce for wages, and they subsequently buy other stuff.
Mark Carney released £60 billion in QE following the Leave result in 2016, and the bankers have never had it so good.
‘Capitalism’ gushes Johnson is the way forward for Little England.
It will be a long hard struggle to wrest the levers of global commerce from the .01%.
Not while they control the banks and the armies.
A casual stroll through a supermarket today, with its shelves bursting with pointless shiny Christmas tosh may indicate how far from Mitchell’s ‘liberal’ Government regulated New Green Deal we really are.
Cobham’s has just been sold to a US Finance House. Not long now before ‘Old England’ is inducted as the 51st US State. I’m sure that Johnson renewed his US Passport; he’s New York born after all.
What a quality site WGD is.
Rhode Island Red chlorinated chickens, steroid Aberdeen Texas beef, and Jack Daniels mash Scotch will flood Scotland in 12 months as capitalism swarms all over our land like ravaging forest fires.
“It will be a long hard struggle to wrest the levers of global commerce from the .01%.”
Why bother when you can ignore and thereby externalise their influence?
And I don’t swallow the “casual stroll through a supermarket today” either, the stroll was incidental to the obligation to go through the ritual, “Bah Humbug” and “WALOS” held in abeyance until out of earshot 🤣 but somebody surely got an earful and an immediate apology afterward… 🙂
Yet a peaceful and happy christmas to you and yours Jack, from the eastern side of the EU mainland. Have a gid een…
WGDs aren’t just for christmas…
Another Bob, Bob Cratchit, Tiny Tim’s Dad, comes to mind as we are thrust into Dickensian Olde England wretchedness..
No matter your faith, or none, I echo Tiny Tim’s greeting to us:-
‘God bless us, every one’.
All the best to you and yours, Bob, and all Duggers.
It’s good to see WGD taking an interest in MMT, it was a poster ScottieDog elsewhere who got my attention maybe a couple of years ago. So every so often I mention it, including on The National. It’s a shame Andrew Wilson doesn’t cover it, even though it’s understandable the Growth Commission Report HAS to be neolib oriented to get the nod of approval from the trad economists.
As a challenge to the SNP as well, Labour had a presentation about MMT, why are the SNP SO FAR BEHIND THE TIMES?
I tend not to mention it on the Herald, can’t be bothered with the unaphoristic reply “Money doesn’t grow on trees”. Same as “There’s no such thing as a free lunch”. Well, the answer to both is yes there can be, if you do it right!
Forgot to say, thanks to Mark 🙂
“As a challenge to the SNP as well, Labour had a presentation about MMT, why are the SNP SO FAR BEHIND THE TIMES?”
Perhaps you might explain what Labour trailblazed on the subject since to give SNP a better idea of where not to go wrong as a follow through?
I followed a brilliant exposition of Salvador Dali techniques many years ago, yet struggle with two coats of emulsion… Just sayin’…
“Q&A from British Labour Party Annual Conference Event, September 2017”
I’m just pro-independence not anti-Labour. 49% of GE intending Labour voters at end 2019, would also vote YES, according to the Times Panelbase survey at end of Novermber. That’s nearly 10% of all voters in Scotland.
I’d welcome all party members of all parties, and the politicians, to vote YES.
How about you?
Forgot to say, that’s Bill Mitchell’s blog – there’s some great articles there, including this one if I can find it in my bookmarks
“How to discuss Modern Monetary Theory”
Thanks Paul – and to all the correspondents on the post. MMT is not a panacea – like every human creation, it has the potential for good or otherwise. Used responsibly – i.e. the good housekeeping principles our elders encouraged – it can transform everything for the better. Used responsibly, it will simply accelerate our demise.
Jack – there is much work to be done. Money is simply an abstract human construct. Our pollution and the threat it has created, unfortunately, isn’t. The principles and practices in MMT aren’t new – they’ve been used for millennia by different civilisations, long before Bretton Woods and the Gold Standard. The true value of money – and the wealth it produces – is dependent on the intent and outcome of the transaction.
If it is unimportant and inconsequential, then the construct has failed and so will we. All of us.
Let’s not make that a reality. This planet is a truly remarkable place. Don’t let the few destroy it for future generations of humans and all the other species that inhabit this place.
We can do anything we want. We can achieve everything – if we have the right tools and motivation. Money is just part of the tools. Motivation depends on what we do with it.
Thank you again for your contributions.
*irresponsibly – at the end of the first Para. WordPress, you’re a bugger.
🤣 I did fall over that, blink and go whit ?
You are pushing against an open door, Mark.
Hear, hear, I say..
Great thought boiler of a piece. Thanks again.
Lets bloody do it!
Thanks for writing that Mark , and thanks to WGD for facilitating Mark to bring an explainer to a wider audience. 🙂
Speaking as someone who has taken the time (years) to attempt to educate myself on how money and economics ‘really’ works, as opposed to the fantastical fairy story that Governments, politicians and their backers the financiers prefer to peddle, I would recommend to all to ponder and remember a few Basic _Truths_.
1) Money is a social construct. We now operate under a ‘fiat money’ system.
2) Fiat money has NO INTRINSIC WORTH. -the bank notes we are familiar with only have perceived worth because you expect to be able to exchange them for tangible goods. (i.e. exchange a piece of paper for real stuff)
3) Margaret Thatchers oft repeated line that ‘the economy is like a household budget’ was and still is a deliberate deception. It is a lie.
4) We are all used to being in the position of a currency _user_ . Perhaps people have some vague notion that the government or Bank of England provides the money and we all use it.
This is the result of only one viewpoint ever being openly discussed – that of the ‘currency user’, as if it was the only possible view that could be taken. -A bit like Thatchers TINA (There Is No alternative) doctrine. Also propoganda and a deliberate misstatement.
In our Debt Based Money system there also exists the ‘exorbitantly priviledged’ Position of the ‘currency creator’, but not surprisingly the Banksters never ever talk about themselves in that way.
In our Debt Based Money system, debt creators (e.g. commercial Banks) magic up the money to ‘give’ to you _after_ you have signed a contract committing to repayment of a ‘loan’.
Think about it. They charge you an arrangement fee and then you pay interest, possibly for years PLUS you repay the ‘principal’ sum.
In the days when Financiers handed over chests of gold coins this might seem like a reasonable enough arrangement, as they understandably demand recompense for the risk that they might never see their gold coins returned.
Think about that for a while. Then think about is some more! 😉
Since 1972 and the era of paper-money-backed-by-nothing, Bankers are NOT putting any value at risk. They can trade on your loan repayment _contract_, which is an _asset_ to them. It cost virtually NOTHING to create the loan contract. think about that for a bit!
The Central Bank (e.g. Bank Of England) and the ‘Commercial Banks’ e.g. RBS, Loyds, etc. create debt at no cost and charge currency users for the privilege of using the money that they are mandated to use, at the behest of State Fiat, ie. basically the threat of state backed violence.
The state cedes its rite to dominate money supply through the use of state backed violence to Financiers, and then Finaciers charge fees to the state to create a national Debt which keeps piling up.
All this while this ever expanding mountain of unpaid debt tends to drive down the purchasing power of the ‘money’ in the hands of ordinary users. Some people call this effect ‘inflation’. The currency creators get p spend the ‘new’ money that they have created at its nominal value (‘face’ value) but as more and nmore money is created and spent into the real economy the purchaisng power of the individual tokens tends to decrease.
This effect is not a secret and has been has been known for centuries at least.
see ‘The Cantillon Effect’ named after Richard Cantillon. see wikipedia: https://en.wikipedia.org/wiki/Richard_Cantillon
Thanks for this succinct description of the ‘money’ racket whereby the government privilege to create money has been privatised – and as ever, all the risk has been nationalised.
Our governments are fully owned by Big Finance. Once you know that, all the other aspects of the racket fall into place. Just ask Alastair Darling, Tony Blair, Gordon Brown, The Clintons, and Gideon (George) Osborne. Find out who they ‘work’ for now (i.e. who maintains their lifestyles – and why).
See also George Kerevan’s excellent article here:
What we can be sure of (and ask yourself what Mr Wilson’s so-called Sustainable Growth Paper is about) is that if an independent Scotland’s to thrive, the new Scottish government will need as a minimum (and much more too):
1. Have our own currency
2. Maintain strict control over the creation of money in its myriad forms
3. Retain these functions within public ownership.
If the Finance sector gets its hands on these functions, Scotland will be sunk before we set sail.
Ironically , the Blackmount Rowan tree is on the estate of the Fleming family , owners of private Fleming merchant bank, “inventors” of the unit trust . That financial instrument provided the money tree that led the family from humble origins in rural Perthshire to fabulous wealth , from jute mill clerk to millionaire in one lifetime .
I love that rowan tree!
My understanding of MMT is that it evolves the old philosophy described by Keynes and put into practice by Roosevelt, who successfully decided to spend US government money to unstick the American economy during the great depression. It’s not a new theory, but monetarist theories (based on restricting the amount of money in an economy) keep coming back into fashion.
Because even with MMT there is a constraint, which is society’s (or rather the financial system’s) trust in a currency. Money certainly can be magicked out of nowhere – it is what a bank does every time is creates a loan – but if banks suddenly started giving everyone a hundred million pounds just for the fun of it, the country wouldn’t get richer, the currency would just be rendered worthless. That is the spectre that haunts monetarists, but the constraint is vastly overstated for political reasons. Governments in fiscally sovereign countries can carry massive levels of debt in their own currency.
I am sorry, but I feel that, for the benefit of anyone reading this forum who may be new to these ideas and looking to learn something new here, I feel that I really must debunk some of the unfortunate things that you have just typed! ;-(
the old philosophy described by Keynes and put into practice by Roosevelt, who successfully decided to spend US government money to unstick the American economy during the great depression.
see ‘countercyclical spending’ or ‘the state must be the spender of last resort’
monetarist theories (based on restricting the amount of money in an economy) keep coming back into fashion.
‘monetarist theories’ have been utterly debunked. Over and over again . By empirical Data.
In science the word ‘Theory’ has a meaning: an idea has to pass through multiple rigorous stages of examination to become accepted as a ‘Theory’.
It would just be better for everyone if so called ‘Orthodox’ or ‘neoclassical’ Economists would stop willfully abusing the word.
‘Debunked Monetarist Dogma’ would be clearer and technically correct.
Because even with MMT there is a constraint, which is society’s (or rather the financial system’s) trust in a currency.
So if you read and understand MMT the constraint is that reduction in purchasing power of the currency units should not occur if the new money that is spent into the real economy does not exceed the productive capacity of the economy (i.e. producing something worthwhile with the labour purchased with the new money cannot be inflationary)
I would ask you to not conflate the Currency Traders notion of ‘Trust in currency’
or the Debt Peddlars propaganda with MMT and related ideas to an unsophisticated audience here.
That is the spectre that haunts monetarists, but the constraint is vastly overstated for political reasons.
To my Jaundiced eye this formulation of words also propagates a fundamental error. In my long exposure to these matters I have come to recognise two types of people who propagate the monetarist myths- Those who _do_ understand and are attempting to deceive you (think Gordon Brown) and those who repeat the dogma and have not (yet) made the logical mental journey to have progressed through their own debunking of the Dogma of Neoliberal Financialisation. I take it as read that you are most definately Not in the cynical deceivers category. 😉
A dispassionate observer will see that Financiers are happy to benefit from massive profits accrued through _their_ ability to create money (whilst pretending that they do not do it) while cynically espousing Monetarist Dogma to prevent Governments from creating new money, thus keeping monopolistic control of the fee generation accrued through the ‘Exorbitant Privilidge’ of creating the new money that they then lend to governments at a rate of fees.
I would encourage people to think about that for a bit.
Admittedly this is very dry stuff, one might read Professor Steve Keens book on the subject, for he is utterly unarguably correct.
Governments in fiscally sovereign countries can carry massive levels of debt in their own currency.
This is by far the most important point of all and it is entirely correct. 🙂
If people remember one thing they should remember this:
Scotland must NEVER be inveighled into accruing foreign debts in any currency whatsoever other than its own currency, lest we become monetarily enslaved.
The cautionary example here is the system of Dollar Hegemony that the USA, the World Bank and the IMF have used for economic repression for all these long decades. 😦
Thanks all for reading!
This stuff really is imprtnant and it is good to see that quite a number of YESsers do appreciate that.
I concur fully with that.
I’ve briefly looked at the ideas of Jaques Fresno and the Resource Based Economy (RBE) and I think there are some very interesting ideas there.
It’s certainly worth a look.
Thanks for replying! I’m still getting my head round this. Are you saying MMT isn’t essentially rebadged Keynsianism?
I’ve read a couple of books and articles on the subject, but I’ve still to see an explanation that makes sense to a layman. I’m looking for something that is intuitive to grasp, like the (false but popular) monetarist trope that government expenditure is like a household budget.
> Thanks for replying!
You are welcome!
Us indedendentistas are well used to having a media and a government continously promoting false narratiives with false figures.
The road to a modern understanding of money is similarly bedevilled with vested interests and partisan idealogues!
Fortunately in recent years some more accessible honest actors have apeared.
In my Not So Humble Opinion part of the difficulty with comprehension of ‘MMT’ has been caused by the longstanding promoters themselves.
Fortunately if you take the time to read and understand the reasoning of Richard Murphy you will be exposed to a more rational analysis.
Here are some bookmarks for such as are curious:
“I live my life in practice and not in theory”
“Modern monetary theorists need to take a long and hard look at how they are campaigning if their case is to be won”
“Why Bill Mitchell is simply wrong on modern monetary theory and imports and exports”
“Modern monetary theory in a nutshell”
I will also observe here that most people have a notion that because they handle money in their everyday lives, that they understand money, whilst they are mostly living in a state of profound ignorance.
For a broader view I would also highly recommend to read David Graebers excellent book- Debt: The First 5000 Years
Positive Money have also done good work:
Not rebadged exactly. The gold standard was still in place during Keynes time but we now have a free-floating fiat currency after 1971.
Except that it didn’t work, Roosevelt’s “New Deal” that is.
Only massive military spending from around 1938 and putting their economy on a war footing did that.
Sorry to barge in, Mark, but I thought you (and perhaps others) might like this old story of mine, which I ‘hooked’ upon when I learnt my compatriot was ending his stint as the Archbishop of Canterbury. (Of course, in that respect, the fable is now dated, but I just liked using the ‘witty wordplay’ (i.e. groan-worthy puns) in my wee piece.)
Looking forward to collaborating with you on various exciting projects in 2020!
11. (of 60.)
The three trees
Scene: A clearing in a wood. Two lean, young trees standing side by side. Facing them is a taller, older looking tree with slightly careworn bark. It seems as if they are having an animated conversation. Let’s listen in.
First lean, young tree (addressing the taller, older tree): Good morning, Brother. We are elders of our Church and we want to tell you about Jesus Christ.
Second lean, young tree (helpfully): That’s elders, Brother and not alders. A lot of people mix us up. But they’re a totally different sect to us.
Older tree: I’m afraid you’re barking up the wrong tree with me, my son. I could say you’re barking, full stop, but that would be a very un-Christian thing to say.
The two young trees say nothing.
Older tree (drawing himself up to his full height): You do know who I am, don’t you? (Pause) Don’t you recognise me?
Pause of about a minute. The two young trees look at each other in puzzlement. They look at the older tree and then at each other again. They are completely at a loss.
Second lean, young tree: I’m afraid you’ve got us stumped, Sir. Who are you?
Older tree (sighing): Dear boy. My name is Rowan. I used to be the Archbishop of Canterbury. Consequently, I was the leader of quite a few followers of Jesus Christ worldwide. I believe my roots are much deeper than yours too.
The two younger trees, although elders, fall silent(ly).
Politics for the New Politics
The value of coins.
Some years ago I wanted to put a blank into an open pipe in the house.
I went to the local plumber to purchase said blank.
Yes the plumber had them for sale, 16pence each.
I said I’d have 2.
He said ‘Do you have any 1pence coins on you.
Yes, says I.
Just use a penny coin, it’s the same size.
I’m told that it costs the mint 2.5p to produce a penny coin even now that it is just plated steel and not a copper coin. A greenback of 1$ costs the same as a $1000 to produce.
In Australia they have removed the cent from circulation, their smallest coin is the five cent.
As Mark says the value of the token bares no relationship to the face value and since 97% of the currency is electronic the mint can make as much as it likes.
A human construct much like the Gold Standard, MMT will be superceded in it’s turn.
A confidence trick but we are stuck with it’s use to barter with each other.
And tell all your friends and family to recall thei the next time they hear a WasteMonster politician talking about Scotland having to raise taxes or reduce services to ‘fund its black hole’. – Complete and utter lying propaganda as anyone (as I did) who knew this was aware. But hey – guess what the Billionaire owned UK MSM do not want the plebs to know this so that’s that.
Weimar period printing money. Collapse led to the 11WW. Millions died and it cost £Trillions. The EU was established to stop wars and starvation in Europe. It has been successful.
The illegal UK/US wars are ruining the economy in Europe. The (UK) EU contribution does not even cover the cost of the millions displaced and suffering. Other European counties have to pick up the cost and try to sort out the mess. The migrant crisis that was caused,
Now the Tories unionists want to destroy the economy with Brexit. The austerity has not worked people have died in the South. The price people have paid. Quantitive easing have made more poorer and the rich wealthier. The poorer were targeted. The NHS/Education and welfare funding cut. To give tax cuts to the wealthiest.
Scotland raises £63Billion in tax revenues. The rest of the UK raises £54Billion pro rata. Then borrows and spends more. £661Billion raised in the UK.
More could be raised in Scotland and better spent. Scotland loses £3Billion in tax evasion, £Billion Trident/Defence, £3Billion paying off loan repayments not borrowed or spent in Scotland, £Billions wasted on HS2 and Hickley Point. Gov jobs in the Mall which could be based in Edinburgh. Funding London HQ’s etc.
The Oil revenues were taken and misused for years. Scotland cannot borrow to grow the economy. Total £20Billion a year that could be saved or better spent. The Barnett settlement set up to defraud Scotland.
Thatcher had unemployment at 15%, interest rates at 17% and sold off utilities. Deregulated banking. Sold off the Building Societies owned by the members. The banks gambled the mortgage books on the stock exchange. It led to the banking crash.
The Tories had to get rid of her for closer ties with Europe to aid the UK economy. Geoffrey Howe and Co. Now the Tories want to renege. Social unrest and violence of the Thatcher/Blair years. The ConDem cuts and promises reneged upon, especially in Scotland.
Thatcher secretly and illegally took revenues and resources from Scotland. To fund London S/E, building Tilbury Docks and Canary Wharf etc. Deregulating banking causing the banking crash. Funding bankers who fund the Tory Party.
Thatcher Illegally gave the Press over to Murdoch for right wing support. Without a free and fair Press there is no democracy. The Brexit mess for all to see. People with nothing in the South being brainwashed to vote for Johnston. It is pathetic. It was obvious no one would vote for Corbyn but he would not stand aside. Clinging on to a bit of power. Despite being useless.
The SNP Gov is standing up for Scotland. Thousands more have joined the SNP since the election. The best time to have an IndyRef is when it can be won. Scotland is going it’s own way in any case. Demographic changes.
UK debt £1.7Trillion. UK assets £8.7Trillion. Scotland could have a wee nest egg to go on. The ECB would help in any case. They help German reunification and the Eastern bloc countries to self government and prosperity.
One of the reasons Scotland achieved Devolution 2000. The lack of democracy in the UK. Scotland outvoted 10 to 1 in Westminster. Scotland has done so much better with Devolution. Independence will be even better. If Scotland gets better off so does the rest of the UK.
Regarding the Weimar republic, creating Deutschmarks could not pay off Germany’s debt in francs.
Correct, and there were multiple contributory factors. Germany had spent heavily on the war but not sold war bonds as had the UK. So it’s economy was being inflated from 1914. Add to this the punishing reparations payments, export restrictions, Ruhr workers strike, during which the government continued to pay them, you have all the ingredients to create hyperinflation. Foreign denominated debt, civil unrest, collapse of production. These are common factors in an episode of hyperinflation. The “money printing” is an effect, not a cause. Only after wages and prices have spiralled do people start to need more cash. The banks respond by demanding more cash of the government bank. The amount of notes and denominations increase, but this is not and never does cause hyperinflation. The other factors have to happen first.
That rowans tenacity to thrive in the most inhospitable of places was the same tenacity that inspired Hugh McDiarmid to pen The Liitle White Rose off Scotland the alegorical poem that tells of the tenacity of the working class after the 26 general strike.
I commented at the start of autumn on here, on the sparsity of berries on my neighbour’s rowan tree. Folk lore has it that this was the sign of a mild winter ahead.
Meteorologically so far so good. Politically the harshest winter in living memory.
At the basic level Quantatative Easing is simply that every current pound is now worth 99pence. If you issue more currency against your assets each unit is worth less. If you doubled the currency in circulation against the same assets then your currency unit value halfs.
You fool the population because the pound in their purse looks the same but the exchange rate and the cost of imports suffers.( you gat less foreign currency and the price of imports goes up)
When you do it at a low enough rate then the public are fooled.
In simple terms the Government took a penny in the Pound from every person in the UK and gave it to the Banks.
Compare it to when coins were real gold and silver. People used to shave a little off each coin to sell. That is why coins production in true value metal stopped. The Government wanted to be in control of “shaving” the currency.
In fact QE is simply a swap of an undated UK government credit obligation (currency) for a dated UK government credit obligation (“stock”).
Currency created by the Bank of England and exchanged for Treasury stock sold by private banks is no more in circulation than the Treasury stock was. It is simply a different, more liquid, asset held by the banks.
I’ve been ploughing this path for getting on for a decade. This article in the Herald was almost seven years ago. MMT gets the accounting the right way round, but have never really addressed the big problem of the correct basis for the taxation underpinning credit creation.
I do not see any further attribution on that article except for:
10th March 2013
THE MYTH OF DEBT”
Are you able to say who wrote it?
I cannot tell a lie
So …. I have a question … 😉
paragraph 13 says:
the constraint on modern money creation by private banks is the capital required to cover losses on loans.
Private banks first lend or spend what are essentially “lookalikes” of central bank money
and then fund their dated interest-bearing loans (assets) with dated interest-bearing deposits (liabilities).
Perhaps you can explain this more fully?
It requires some parseing, and the way that I parse it results in it being a statement in contravention of observed reality ( which is that the deposits (liabilities) to pay out to the loan ‘customer’ are created out of nothing by way of the logic of double entry bookeeping) to balance the ‘asset’ of the interest bearing financial instrument (loan contract)
Naturally I allow the possibility that my reading is not the reading that the writer intended.
And Thanks For everything! 🙂
If you think about the word “deposit” you realise that it must mean the deposit of some kind of object, in this case a credit instrument (promise) created by a credit institution (officialese for ‘bank’).
There are two types of deposit. The first is an undated deposit (current account) when you can ask for physical cash (Bank promises again) at any time or order your bank to transfer your credit instruments/cash to the account of someone else.
When a bank creates money by lending it creates a loan (your dated eg a year) liability on the one hand, and credits your current account on the other while also creating an undated reserve asset to the same amount at the Bank of England.
The problem for the bank is that bank’s assets and liabilities are out of synch, since the bank’s liability is undated, while its asset (loan to you) is dated.
What happens once a day, during the clearing cycle, is that banks procure dated or ‘term’ loans for as little as one day in order for the banks assets (dated liabilities or accounts receivable) and liabilities (dated deposits/accounts payable) to match.
If a bank is unable to procure deposits from customers, or even from other banks (which was what happened in 2008 when trust between banks broke down entirely) then the Bank of England will act as ‘lender of last resort’.
So deposits are either undated bank credit obligations (where the bank essentially acts as a warehouse keeper for money recorded by a title registry) or dated bank credit obligations (deposits and loans). In the days when physical gold was deposited, transferred between accounts and lent the process was easier to understand. Once gold was replaced by IOUs the outcome is the same but the process is less easy to comprehend.
Thank you so much for taking the time and trouble to answer my question in such a clear fashion Chris.
The Jargon can sometimes present a hurdle to be overcome for someone who has no formal training in Banking.
Much appreciated! 🙂
I don’t twitter, but if I did, I would follow you!
Indeed. Loud & clear. And thank you.
A small number of us have been working to spread the work of MMT in Scotland for a couple of years now. Bill Mitchell and MMT co-founder Warren Mosler came here and gave talks in Edinburgh and Glasgow. Bill Mitchell returned in September this year for a talk on funding a Green new Deal. We want to get the word out to a wider audience. If Bill were to be available next year, would there be any interest in putting on an event?
Hi Malcolm – hoping to catch Bill in Manchester in February, but would certainly be interested if there was another lecture in Scotland.
Great to see Modern Money Reality being discussed by a wider IndyAudience.
A couple of things I didn’t above were the mention of real resources. Creating our own currency will give the politicians we elect the financial tools to enact their policies – providing the real resources are available. We cannot create people trained to insulate houses, install solar panels or drive the buses of our (hopefully) free transport systems without investing first in training people.
In Scotland we do have the important sovereignties to thrive, energy, educated population, food and water. Taxation is not required to fund government spending but to keep inflation in check, reduce inequality and discourage destructive behaviours. In an independent Scotland we will need an intelligent taxation system, that is not copying and pasting the UKs, to guard against offshoring and creating Scottish currency billionaires.
Thanks Kairin – and yes you are correct; MMT is much more than simply printing or creating money. It’s a economic framework that utilises all the levers open to policymakers to ensure stable, sustainable society. I tried to keep the article accessible as possible; economics isn’t the most riveting of subjects for many – and hopefully it might spur some interest to read further through the links provided.
And this of course…
I will describe what happens technically and then I will it explain it in an easy way.
I was invited on the BBC to talk about it. John Beattie radio show.
First the technical part.
When government spends it requests that its Treasury’s account at the BOE be debited and the reserve account of the recipient’s bank be credited and that the recipient’s current account at his bank be credited. ( some people do not like the’Treasury’s account at the BOE to be called a reserve account, but that is basically what it is.)
Government spending creates broad money, since new bank deposits are created.
When government raises tax or sells gilts, the reverse happens. The payer’s current account is debited, the payer’s bank’s reserve account is debited and the Treasury’s account at the BOE is credited. Government taxing or selling gilts (to the non-bank sector) destroys broad money.
The other thing to remember is that the government has a self imposed rule that its Treasury’s account at the BOE should not go overdrawn, which means there has to be a sufficient balance in the Treasury’s account before the government can spend.
This sufficient balance is acquired by taxing, selling gilts or writing an IOU to a commercial bank. By taxing or selling Gilts in order to acquire a balance in its Treasury’s account at the BOE, the government first destroys broad money and then recreates it when it spends.
When it acquires a balance in its Treasury’s account at the BOE by writing an IOU to a commercial bank, it simply creates broad money when it subsequently spends. But that’s no different to me writing an IOU to a commercial bank and spending the balance that my bank then gives me in my account.
It’s quite simple really. It’s important to remember it’s a self imposed rule that makes the govt do thins things way, but one that is generally adhered to in day to day operations.
When the Maastricht treaty was introduced they clouded the picture with even more self imposed constraints. Banned the use of the ways and means account. Which was more efficient and was a simple overdraft the government could use at its own bank.
Although they broke that rule when they bailed out Bradley and Bingly
Wow. your series of posts here is the clearest explanation that I have ever read,
Thank you, thank you, Thankyou! 😉
As a simplified walkthrough of what would happen if the Govt wishes to make a payment to me and that was the only transaction they were making:
Treasury would request the BOE to debit one of the Treasury’s account at the BOE by the payment amount and credit the reserve account of my bank by the same amount. It would also instruct my bank to credit my current account by this amount, which it would do once it had received confirmation that its reserve account had been credited.
That’s essentially all that happens. My bank doesn’t need to debit its reserve account in order to credit my account.
I receive my funds in the form of a bank deposit (my asset). The deposit is my bank’s liability which is matched by an asset in the form of the increase in the balance of its reserve account. The Treasury loses an asset when its account at the BofE is debited.
In the UK, as in most advanced economies, we have developed a highly advanced banking system – regulated by the government, with the government also supplying key components of the system – that enables participants to purchase stuff by creating their own debt, which becomes the seller’s credit. Some participants, who are respected enough and large enough and creditworthy enough, are able to issue their own debt directly to sellers (this includes the banks and clearly, the government). The majority of participants in the system are unable to issue their debt directly to sellers, so the system allows them to issue their own debt to the system, which in turn issues its own debt to the seller, which becomes the seller’s credits.
The system allows these created credits to be easily assigned amongst participants in the system (they can be used to make purchases, they can be used to pay taxes and can be lent from one participant to another) and crucially the system will accept any such credit in the discharging of any debt to the system. Participants in the system can choose to be creators of debt, or receivers of credits and will usually choose to be both at different times. The government, which regulates the system and supplies a crucial component of the system (the central bank) as well as setting the legal framework within which the system operates, chooses to use the system just like anyone else. It can choose to be a supplier of its own debt, which creates credits for sellers. It can choose to be a user of credits created by others’ debts. It can choose to do both at different times – which it does.
Here is a short explanation to aid thecasual reader of the next section:
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The term ex-ante (sometimes written ex ante or exante) is a phrase meaning “before the event”. Ex-ante or notional demand refers to the desire for goods and services which is not backed by the ability to pay for those goods and services. This is also termed as ‘wants of people’. Ex-ante is used most commonly in the commercial world, where results of a particular action, or series of actions, are forecast in advance (or intended).
The opposite of ex-ante is ex-post (actual) (or ex post). Buying a lottery ticket loses you money ex ante (in expectation), but if you win, it was the right decision ex post.
Now to explain it in an easy way and where Kevin Hague goes wrong by a country mile.
Hello meet Bob.
Bob works for the NHS. Bob banks with Barclays.
HM Treasury instructs the BOE to credit Barclays reserve account at the BOE. Barclays then Credit Bob’s current account.
The only rule is Bob has to spend all of his income and whoever gets it has to do the same. As Bob’s spending is someone else’s income.
The spending chain starts.
Bob pays his tax and buys a TV. The TV seller pays their tax and buys a bathroom. The showroom pays their tax and buys a wedding ring. The jeweller pays their tax and buys a kitchen table and so on and so on.
This plays out all over the country within millions of spending chains until the broad money comes back and destroys itself as explained above. The budget is balanced.
The tax did not fund the spending it took everyone’s spending power within the chain to control inflation. The right amount of money was chasing the goods and services on offer. The tax came after the spending. The more spent by the government the more taxes were collected as the spending chains were larger.
Now change the rules
Bob and everyone in the spending chain are now allowed to save some of their income. They can pay for a pension, save an ISA, a fixed bond or with NS&I. leave it in the current account or their savings account or on the mantle piece or under the bed.
HM Treasury has created 100 million via government spending but only collected 90 million from the spending chains throughout the country in taxes from that spending.
HM Treasury are running a 10 million budget deficit.
However, Bob, the jeweller, the showroom and anybody who saved some of their income within the spending chain share a 10 million surplus.
The budget deficit is the private sector surplus the national debt is just that surplus moved into gilts over time. When Bob invested in a pension or an ISA or NS&I. They call that government borrowing.
Government borrowing is just an asset swap from a reserve balance at the BOE to an interest bearing asset a gilt.
As you can see both the collection of taxes and the selling of gilts ( government borrowing) is done after the spending has taken place. Why government borrowing forecasts are always wrong. They never know how much money everyone is going to save.
The only constraints on the system is are they enough skills and real resources to absorb
a) Tax cuts
b) government spending
An inflation constraint. So it would be good jettison all the macroeconomic theory that construes the government budget constraint as an ex ante financial constraint instead of seeing it as an ex post accounting statement, with no operational relevance.
If at some point the interest payments as a % of GDP become so large and private sector spending is such that there is less non-inflationary room available for other discretionary spending then fine that is what taxation is for – to reduce private spending and/or the government can reduces its own spending somewhat. But before that happens the current account, tax revenue (from higher activity) and saving will be taking up a signifcant part of the adjustment.
But this is just saying that prudent government net spending is limited by the available real resources in the economy left by non-government saving desires.
Once you decide what size of government is needed, taxes are the thermostat on the wall.
Taxes too big = unemployment
Taxes too small = inflationary pressures everywhere.
The government spends first and then taxes. It does not tax and then spend. Even the Romans recognised that when they issued coins.
3 things can then happen after we all receive money with HM Treasury signature on it.
you pay your taxes,
spend your income
The saving part tells you what size the budget deficit will be. The government budget constraint as falsely claimed to be an ex ante financial constraint. The truth is it is an ex post accounting statement.
The national debt tells you how much of those savings have been moved into gilts. A simple operation at the BOE from reserve accounts to gilt accounts.
Government deficit too big = inflation
Government deficit too small = unemployment
Government deficit has to meet the saving desires of the private sector.
Unfortunately, because current models used by the OBR and IFS only concentrate on the non sensical bit as if we use the Euro – The ex ante financial constraint part.
We have no idea what would happen if we cut those taxes by 10%. Or if we increased government spending .What we need to know is will it cause inflation?
So the non sensical budget constraint has to be replaced with an inflation constraint model.
Some ideologue always comes along and says that only applies to a closed economy.
Well if they had looked at the government accounts they would see we live in a closed economy.
Say Bob wanted to move his savings abroad ?
With flexible exchange rates you need a buyer and a seller of the transaction does not take place.
So if Bob wanted to do this
Then Bob needs a group of people or a person wanting to do this
£ <———————— $
The pounds do not leave the BOE all that changes is the name on the account.
Bob moved his savings abroad into a new currency and the new owner or owners of the pounds has the same options Bob had
1.Buy UK goods and services
2. Move the pounds into gilts
3. Keep the pounds in a reserve balance
4. Exchange them into another currency.
Hello meet Tracey.
Tracey works for the police and banks with Santander
Rinse and repeat and another spending chain starts
So where does Kevin Hague to wrong ?
You cannot get anymore right wing than Goldman’s Top Economist Jan Hatzius
He does it all by himself.
The difference is that the bank account the Scottish government uses will bounce cheques when they reach their overdraft limit. Payment authorisation would be refused without HM Treasury permission. Just like any other local county council area in the UK.
Nicola thinks she’s running something other than a glorified county council.
The UK does the tax collection across the UK. Scotland is nothing more than a glorified county council. If you did the accounts for North Yorks County Council you would find it too has a ‘deficit’ that is filled by the block grant and whatever ‘borrowing’ HM Treasury permits.
So the leakage out of the arbitrary line of the Scottish border within the Sterling currency zone is to anywhere else in the world (including the rest of the UK) – and the rest of the UK saves a lot of Sterling.
That leakage, plus any net savings within Scotland, is what causes the Scottish government sector deficit.
Ultimately in the same way that Greece needs to tax German savers, Scotland needs to tax UK savers. To have the power to do that you need UK savers saving in Scotland’s currency which the Scottish government can control and if need be tax. Otherwise Scotland will run out of money as it all drains to the rest of the UK.
government Spending only comes back if you have your own currency. If you use somebody else’s then it leaks into a different banking system. Greece spending ends up under the control of the Bundesbank. Similarly Scottish spending ends up under the control of the Bank of England, which is owned and directed by the UK government. As long as that arrangement stays in place, Scotland is owned and directed by the UK government – like any other county council.
That is the key issue with fixed exchange rates. You end up with control of the money under some other entity which you have to follow the directions of.
If Scotland became independent then what happens depends upon whether it floats its own currency or not. That is the only way to ensure that Scottish money doesn’t leak anywhere. What the size of the government deficit is will still depend upon how many people want to net save in that currency.
These leakages is what Kevin Hague totally ignores because GERS does not account for them.
Bob who works for the NHS and Tracey who works for the police gets paid as described above. Scottish government spending.
They both go on holiday Bob for a fortnight to Blackpool. Tracey a weekend to Belfast.
They spend their income in England and northern Ireland. Think of the spending chain now.
The taxes collected after the spending was in England and northern Ireland. HM Treasury who collected the taxes does not even know it came from Scottish government spending. No idea whatsoever.
So the actual spending on wages is on GERS but what happens afterwards the leakage isn’t.
Same goes for Scottish government spending on private business for doing work in Scotland. Then the business buys something in Wales, England or Northern Ireland using that income the leakage is unaccounted for in GERS.
GERS tells us nothing about taxes collected after the spending if it was a leakage. Leakages are huge.
If whoever received the money in England and Northern Ireland saved it. It becomes part of the Scottish government deficit.
Government Spending only comes back if you have your own currency. If you use somebody else’s then it leaks into a different banking system.
Kevin never talks about that the simple fact.
These leakages that are saved, plus any net savings within Scotland, is what causes the Scottish government sector deficit.
As an MMT’ r I would never vote for the type of independence on offer.
Never in a million years because I fully understand what is on offer.
Heart of Europe will go down in Scottish folklore as the biggest mistake since keep the £.
They all know Tim Rideout , common weal, etc, they know the truth but refuse to say it in public. They have politicised the truth.
They are lying to voters because voters voted to remain in the EU. Voters who have no idea how the government accounts work.
They know as soon as we sign up to the single market. Scotland is trapped by the Growth and stability pact, 2 pack, 6 pack, excessive debt procedure and corrective arm.
Reducing the private sector surplus in Scotland from 7% of GDP to less than 3% of GDP will destroy the Scottish economy. The poor and rural areas will be hit hard.
The private sector surplus being Scottish household and business savings. Destroyed.
Never mind the debt to GDP ratio which is the private sector surplus that has been moved to gilts mainly our pensions.
Nicola hasn’t told voters how she is going to slash that to get into the EU neoliberal globalist hug club. Never mind the permanent austerity once you are in there.
Well I couldn’t lie about it. Others did and lied with a smile on their face. Nothing but a bunch of charlitans worse than Labour and the Tories. The culture of the liberal metropolitan middle class. Completely detached from the working class.
I walked away from the deceit with my conscious clear.
I will not be blamed if these fools trap us in Europe. It will be their doing not mine.
Or have us begging on our hands and knees in front of an EFTA court just to get policy through
When there was simply no need for it. The double out. Our of the UK and out of the EU is true independence. Anything else is a fraud.
Carl Baudenbacher is a Swiss jurist. He has served as a Judge of the EFTA Court from September 1995 to April 2018 and was the Court’s President from 2003 to 2017.
Tells it as it is – Neoliberal central. EFTA an idea by a ship of fools flowing in a sea of shite.
Lies from opponents I could handle lies from people who say they are in the same side is a different ball game altogether.
They will trap us in a fiscal prison if they are not stopped. Then they will blame everyone else. It is what the middle class liberals do.
They say the Growth Commission needs ripped up but do not say the Growth Commission is what is needed in the heart of Europe.
They never tell you what MMT economists think of the EU. The experts who know the truth.
What a shame. I was beginning to get really interested in your posts. I am afraid the first sentence of your comment above has killed stone dead any interest I could have in reading the rest of your comment or any further comments you make in the future here or elsewhere.
I can see while I am writing this comment that your last sentence in the comment is a direct dig at the EU itself. Well, that just goes to reinforce my sentiment regarding your post: untrustworthy. And I say untrustworthy because Scotland did not give consent for leaving the EU this has happened not just in 2016 but ever since and lately with a mandate given to the SNP of 80% of the seats. That is the democratic will of the majority and therefore any move to take Scotland out of the EU other boils down in my view to the same colonialist position displayed by those down south: forget democracy – the voters in Scotland are wrong therefore their vote must be dismissed. Sorry I do not accept that.
The SNP presents a proposal. If you have strong views as you appear to have you can form a political party of your own and present another or fight to change things AFTER Scotland is independent. There is nothing stopping you. I don’t see why you expect others to do the work for you if you feel something is wrong. This constant defeatism and constant undermining of Scotland is, frankly, wearing and rather boring and only fits a colonialist view that I reject with all my being everywhere and every time I can see it hear it or smell it as I felt it when I read the first line of your last comment. I had enough of it. If you don’t like something, then change it, but do it yourself rather than whining from the sidelines expecting others to change it for you before you can bring yourself to make a move.
I invite you to read the decolonisation charter of the UN: unpreparedness cannot be an excuse to deny independence. Denying independence and encouraging others to deny the opportunity for independence and to make things better on the basis of alleged unpreparedness that I am afraid I do not believe appears, in my view, to be what you are doing.
Sorry, that kind of attitude doesn’t convince me at all, it makes me angry. Claiming that to embrace the huge mistake of a gammon brexit, embrace horrendous risks that include losing our NHS, our food industry, our brand, our environment and anything of value, embracing our powers being stolen, our democracy trashed, our wealth squandered, our children dragged out of Scotland due to toxic England governments and deprived of a future for the sake of a handful of ViP taxdodgers down south is better than embrace independence and take some risk even when some mistakes can be made but can be rectified, sounds not only incredibly hollow, but if you allow me to say, fake.
I think the problem is that the EU the UK (and Scotland) joined is not the EU we are leaving. This entire discussion concerns MMT’s state-centric “chartalist” monetary proposals based upon correct analysis of how government accounting and state credit creation works in practice rather than neoliberal myth.
MMT tends to focus on state credit creation and uses the conventional Neoliberal/Marxist ‘Labour Value’ economic assumption (hence MMT’s labour-centric Job Guarantee policy proposal). MMT skates past the fact that the vast bulk of modern credit/money creation is based on (capitalised) land rental value (ie bank mortgage loans) and the value of other productive assets (eg energy resources, and increasingly IP). I posted about this some 7 years ago here.
The hidden flow of economic value extracted from Scotland by non-Scottish asset/equity owners and debt iinvestors, is staggering, and absent from the debate, being clouded by the discussion of public flows of funding/taxation and spending. Indeed it is the principal reason why Westminster & the City are desperate for Scotland to remain in the UK so that this Scottish wealth may continue to pass through the City to rent-seekers globally.
The Euro was and remains a political project to create a neoliberal superstate based on bank-centric zero sum economics of scarcity. As such it has failed, due to the imbalances in wealth which have been the consequence for millennia of combining private property in land with compound interest.
I am a strong proponent of European Union in principle, achieved Swiss-style as a bottom up confederation. But not the centralised top down, managerial European Union institution which we currently have, which can never be transformed from within.
Having said all that, I believe (and this is why I have lived, researched and developed policy in Scotland for 15 years) that Scotland is uniquely well-placed to lead what I have heard described as a Low Carbon Enlightenment.
In my opinion, Scotland cannot do that within either the UK or the EU. For me, independence as a principle has nothing whatever to do with the nation state as an institution long past its sell-by date.
Independence does not concern policy, but where it is controlled, and the same principle which the SNP applies in its argument for independence from the UK union applies equally to independence from the European Union.
Indeed, the independence principle can and should be applied functionally to devolve control of policy down to the level of policy delivery, which is why I have long written that West Lothian Questions have West Lothian Answers.
We are not leaving the EU. A bunch of England MPs with no mandate to speak, to act or to rule on behalf of Scotland and who have self-appointed as absolute rulers of Scotland are dragging us out without our consent and in my opinion, in violation of our rights as an equal partner in this union, in violation of our Claim of Right and totally against our interests. Not just that, actually, in my opinion without that consent from Scotland, in the context of a bipartite union of equals triggering A50 was also unconstitutional and should therefore be challenged in the European Court of Justice. I am incredibly disappointed that this has not been done yet, actually.
And all this damage to us personally, to future generations of Scottish people, to our country and to this union that is being kept under the illusion of being on life support by a handful of England MPs self-appointing themselves as absolute rulers, is only with the aim of locking us in a toxic USA-UK deal where our resources, our assets, without our consent and totally against our interests, will be used as bargaining chips for the benefit of the English ruling elite. And all this so a handful of ViP taxdodgers can escape EU tax avoidance laws.
Scotland did not give consent for the UK to leave the EU neither in 2016, nor in 2017, nor twice in 2019. And that is the only thing that matters in a democracy. If the UK of Great Britain was a real political union like the EU is, that should be more than enough to stop England MPs dragging the UK out of the EU. The fact that it is not begs the question of what the hell it is then, by decree of whom, when, where and with what right, as Scotland only entered a bipartite, voluntary political union.
If the VIP taxdodger gammons down south want to leave the EU in the context of a bipartite political union without the consent of Scotland, they should grow the backbone to run a referendum in the Kingdom of England and let the people decide, between preserving the UK by remaining in the EU or dissolving the UK to leave the EU. It is as simple as that. But you need balls for that and balls is what those gammons do not have: they want their cake and eat it.
I don’t care what the EU is or what is not. A quick look at the way its executive functions gives 100 lessons of what democracy is compared with this political construct we got in the UK. Another look at how Ireland has been treated in the last 3 years sends another lesson of what an equal partner actually is. Independently of all that, the reality is that the people of Scotland did not give consent to leave the EU and that is all what matters. The rest is purely academic, a massive castles in the air attempting to disguise the reality: Scotland has been deprived of its democratic rights and its rights as an equal partner in this union.
In the context of the UK being a voluntary, bipartite, international union of equals, Brexit cannot happen without Scotland’s consent. So the conclusion from where I am standing is that the UK of Great Britain has ceased to be a political union and it is not the SNP nor the Yes supporters who have terminated it, it was in fact the tories and their labour and libdem enablers who refused to stop them.
I cannot speak for the rest in Scotland nor I pretend to do so, but I am most certainly fed up to the back teeth of being constantly patronised by self appointed “experts” that incidentally always happen to have a colonialist mind, my opinion dismissed, my country ignored in news and press articles, my vote and that of my fellow Scots being constantly undermined or dismissed altogether, simply because it does not fit the narrative of the English ruling elite who is only too happy to continue exploiting Scotland for its own benefit while cowardly throwing a smokescreen that is now beginning to tear out on its own bllsht weight to cover its own inadequacy at government by claiming Scotland lives on subsides.
Enough is enough. Scotland has not given consent for the UK to leave the EU and that is that. If Scotland is dragged out of the EU without its consent, as far as I am concerned, the UK is not a union anymore.
I understand your point of view and your anger, but whether Scots like it or not we ARE leaving the EU and soon. Although I vote SNP because I favour Scottish independence, I do not believe that a neoliberal approach to political economy by the SNP elite is in the interests of the Scottish people.
If and when another referendum is fought and won (and I am hopeful but not optimistic) the SNP becomes redundant & the search for reality-based policies just begun by Dominic Cummings as factor for his absentee landlord master will begin in Scotland.
“but whether Scots like it or not we ARE leaving the EU and soon”
It is in the hands of the SNP to stop it. They have a mandate to stop it. They only have to want to stop it.
I would like to see the triggering of A50 challenged in the ECJ as unconstitutional because, in the context of a bipartite political union of equals, it has been done without the consent of Scotland, without a mandate from Scotland and in direct violation of both the Claim of Right and its right as an equal partner in the union.
I am incredibly disappointed, disgusted actually, that this has not happened nor I see any movement in this direction.
“I do not believe that a neoliberal approach to political economy by the SNP elite is in the interests of the Scottish people”
Well, with all due respect, if you don’t like neoliberal approach to political economy then you must be totally disgusted at tories, labour and libdems because by they collusion with VIP taxdodgers and foreign interests or simply by total inaction to protect Scotland’s status in this union, they have just put Scotland on a direct fly to the jaws of the biggest neoliberal monster ever: corporate America. In terms of neoliberalism, the EU is just an amateur compared with corporate America, which is exactly where we are heading thanks to the collusion of interests of tories, labour and libdems.
“If and when another referendum is fought and won (and I am hopeful but not optimistic) the SNP becomes redundant”
If a referendum has not taken place by the time the transition period has ended, Brexit has not been stopped by challenging its constitutionality in an international court of law or the union has not been officially dissolved by then (I don’t care by which route), I think you find the SNP will have become redundant due to their own inactivity. The people of Scotland are not stupid. They are well aware that they have had the opportunity to stop this madness since 2015 and in my eyes they have wasted every single opportunity we have given to them: the challenging of the triggering A50 without the consent of Scotland could have happened the day after.
I am afraid my vote for them on the 12 December is the last one they will get from me for free. If the end of the transition period comes along and all what we have had from them is just grandiose waffle and vacuous promises of a referendum that has never come on time, then I most certainly will not be lending them my vote anymore and I am sure I will not be the only one.
My vote will be up for grabs: anybody with the balls to stand up for stopping this continuous exploitation and democratic abuse of Scotland by our equal partner and the foreign powers pulling its strings, by dissolving the union, no matter which route, has my vote.
I do not want to hear any more words. Now I want actions, actions in an international court of law. Actions speak much louder than words.
“Having said all that, I believe (and this is why I have lived, researched and developed policy in Scotland for 15 years) that Scotland is uniquely well-placed to lead what I have heard described as a Low Carbon Enlightenment.”
I wrote on another forum yesterday in a discussion motor vehicle emissions:
“Hydrogen-fuel cell motors have been around for a few years – Honda and Toyota have production models on sale, but there are only three outlets selling hydrogen fuel in the UK. Principal opposition – the oil companies. Hydrogen can be manufactured easily and from the electrolysis of water and air using wind turbines. Might Scotland have a generous supply of all three? You still need a battery and electric motors, but the critical issue is supply and infrastructure – fuel points. The only thing coming out the exhaust is water.
Think of the work that could be created in Scotland in that industry alone. Hydrogen manufacture and storage, car conversions – swapping the petrol and diesel units for HFCs and electric motors. There’s a fleet of buses in Mexico using HFCs – boats, train and generators too. You don’t hear much in the UK – no doubt vested interests and media influence have their part to play.”
The transition from petrol/diesel internal combustion engines to HFCs could be achieved within a couple of years if Scotland’s engineering, manufacturing and labour was so directed. A perfect project for MMT to support.
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Thank you for the informative link. I presume Chris Cook is also a contributor on the thread?
Indeed, back on December 22nd
Thought so and thank you!
So this last posting seems to me to be a lot more political than the previous descriptive posts, a lot more about your own personal beleifs/convictions than the previous explanatatory sections.
Perhaps you might choose to explain why you take the much queried 7% figure as a given truth without any examination?
Perhaps you can explain why, with indipendance from UK plc and the Bank Of England, ALL of the possible choices then facing the people of Scotland cannot be navigated successfully, like say Iceland, Denmark, San Marino or Switzerland have done?
You have written a load already, and I appreciate the time, energy and commitment that this takes, but people who read to the end will have some obvious unanswered questions.
p.s. the video you link is around an hour long, so clearly people will read you words without having watched it, so some sort of indication as to the main take away point might have avoided a/this reader being left nonplussed.
Thanks for the clarity of your explanations!
You are very welcome.
Not political just simple accounting assets on one side liabilities in the other.
Let’s ignore the 7% figure and ask different questions then.
Once you know the budget deficit is the private sector surplus
Then surely you have to ask
a) why are the SNP happy to make sure Scottish households and businesses cannot save more than 3% of GDP.
When it means nothing ? It is farcical
Government deficit too big causes inflation
Government deficit too small causes unemployment
Government deficit has to meet the saving desires of the private sector.
We like to save a lot so why punish us ?
Why destroy our savings ?
b) Why are they happy to cap our savings that earn interest @ 60% of GDP.
We like to save a lot so why punish us ?
Japan has a debt to GDP ratio of 250%. Spent quadrillion of YEN. Low interest rates, low inflation and ultra low unemployment rate.
The 3% and 60% mean nothing. Yet, here we are neoliberal globalist central.
This is the main point it cannot be navigated successfully. The SNP have stated quite clearly what they are willing to sign up to.
By the time people figure it out it will be too late. We will be trapped.
Pour a cup of tea and watch the video it is better coming from the horses mouth. Otherwise my narrative might be called political.
How in any shape or form is going in front of a court to ask permission independence ?
It quite clearly isn’t.
If you get the chance ask TIm Rideout in private. He actually admitted it in Glasgow at the MMT conference it will be captured in video unless they edited it out. Tim will never openly take on the SNP about it. He should.
The SNP are going to ride rough shod over everybody and will sign up to all of this neoliberal nonsense.
A complete fraud to call it independence. A large part of the Indy movement do not even understand the dangers. They do not even know the HUGE differences between the Euro and sovereign currencies.
I have done my bit. I have screamed it from the rooftops. Nothing more I can do. I have taken on the GROUPTHINK head on.
When we get trapped there is a long list of people who will be responsible. They will continue to lie, cheat and deceive and refuse to take the blame.
The people who are lying about what is on offer are the ones who have politicised the truth.
Why is that ?
Well they know to get a majority to win a referendum on the double out is slim .True independence.
So it is a fudge with huge flashing red lights and sirens blaring at full blast. Warning, warning, warning. Beware and do not touch. That is not even being talked about or debated.
I have politicised nothing. I have told the truth and pointed clearly at these dangers. That any serious MMT’r or economist can see at the end of their noses.
Hell, even Kevin Hague recognises it will be austerity in steroids.
Yet, the SNP continue to bury their head in the sand and stick their arses in the air.
So ask the currency experts within the Indy movement in private what they think behind closed doors. Then you will realise if I am being political or not.
Doesn’t bother me anymore regardless.
a) I am blame free made it quite clear where I stand on the issue. I never spoke out of both sides of the same mouth saying different things.
b) By doing so cleared my conscious.
I do not know how some of these people sleep at night. That’s their problem they must be used to lying.
No MMT’ r would join the EU in its current form.
I can understand that you may not wish to be seen to continue beating on this subject, but to my view it is absolutely crucial to the course of Scottish life after Independance.
Is there some other forum or mechanism that you would prefer whereby we can continue this discussion?
…and yes I had deduced that your answers above were the arguments you were relying on – but others without the prior knowledge have now way of knowing these things if they do not read about them in popular fora such as this.
That, in part is why I think it is a valuable service to expose the Realities and air the arguments NOW and to as wide an audience as possibe.
Speak to the MMT Scotland guys.
Last time I spoke with Cameron Archibald. They were planning a MMT manifesto that would highlight these real dangers.
So at least voters could see them and vote with better understanding on these issues.
Do not be afraid of the abuse you will get. When you highlight the problems of EU membership. Stand tall, tell the truth and be true to yourself.
That is what matters.
Radical Indy are doing that there is nothing radical about it. They tell the truth.
A name change is in order and replace radical with something more positive.
The radical ones are the idiots in the SNP that do not know what they are doing.
That is all I have to say on the matter. MMT’rs could not be any clearer on the issue.
Said it again in both Glasgow and Edinburgh.
Let’s see what happens.
You know the names of the people who have stated quiet on the issue. Refused to educate Scottish voters in the issue.Found it so difficult to call a spade a spade.
So when we get trapped if we ever win independence you know who to blame.
I really hope you do hold these fools to account.
Good luck and all the best. You are going to need it.
One last word and this is my last post on the issue.
Plato imagines human beings chained for the duration of their lives in an underground cave, knowing nothing but darkness. Their gaze is confined to the cave wall, upon which shadows of the world are thrown. They believe these flickering shadows are reality. If, Plato writes, one of these prisoners is freed and brought into the sunlight, he sill suffer great pain. Blinded by the glare, he is unable to seeing anything and longs for the familiar darkness. But eventually his eyes adjust to the light. The illusion of the tiny shadows is obliterated. He confronts the immensity, chaos, and confusion of reality. The world is no longer drawn in simple silhouettes. But he is despised when he returns to the cave. He is unable to see in the dark as he used to. Those who never left the cave ridicule him and swear never to go into the light lest they be blinded as well.
GROUPTHINK is a huge problem within the Indy movement. Radical Indy are a fantastic movement understand the EU. However, all under one banner will use them then assimilate them for the cause. Use their vote and then ignore them when they GROUPTHINK win power.
You’ve done very well at secondary school and then go to university and shine through and achieve academic progress. The selction process as you go through university is that by the time your at the end of your undergraduate years. The bright sparks go through their post graduate studies and a PHD and they get an academic job the creme da le creme.
So you’ve invested a lot of your early years to get this PHD to get into the academy. With economics you end up with a very defined set of work tools and foregone a lot of income to get to this stage.
Not many academics become top line researchers most of them become text book pushers. So by the age of 45 you’ve risen to a certain rank in the academy and normally that’s the end of your progression. Good researchers can move up further and get a chair and get to be called a professor. Where a lot of people have reached their ceiling and pump out stuff from a textbook that the publishers brings around every year. Fill up your time as an administrator or a teacher.
The end of life syndrome approaches and all you are waiting for then is to retire on your pension and live the life and hope your health holds. So why on earth at that point would these people abandon their life’s work and admit that large parts of it are wrong. What’s the motivation for that. Particulary when you are in a group that have incredibly rigid rules with respect to promotion, with respect to asigning status, with respect to getting any publications or research money. In a very disciplined community in economics.
You’ve learned to play the game and jump through hoops along the way. You’ve learned not to rock the boat. You’ve reached your career progression and waiting for your retirement.
To come out then and say alot of the textbook pushing has been wrong is to defy your scholastic community. Stop the brightest when they are young from getting promotion, publications and research money. The group membership becomes your priority and when new imperical evidence presents itself to show the textbook pushing has been nonsensical. They’ll forego the oppertunity of a revision of their ideas as maintaining membership and status within the group is more important.
Groups work out all sort of ways to behave like that. When anomolies come in from the real world they revise history. They rewrite history to reflect the group. Look at all of the revisions carried out after the great depression. Some of stories now being told about the great depression do not reflect reality. they also just deny things and make stuff up. Deny that the whole financial system was saved in 2008 by global government deficits. That’s how they overcome their own personal doubts and maintain membership of the group.
It’s foundational and social psychology of group behaviour. Eventually when some rebels do come along the Paradigm collapses.
GROUPTHINK seeps out of every pour within the Indy movement and for me that is why it will fail.
I could name a dozen SNP activists who will never challenge the GROUPTHINK.
They are careerists. Challenging them will hurt their career prospects.
Lying comes easy to these people. They are too close or part of the GROUPTHINK.
Or get paid for writing the GROUPTHINK.
A very sad state of affairs
Thank you for taking the time to compile these extremely useful posts and I agree wholeheartedly with your comments. Hopefully Bill will be speaking @ COP26 in Glasgow later in the year and we’ll have a chance to catch up then.
I hope so Mark.
Derek you have learned how to talk a lot of shite in a way that some of us might think you are clever. That is all I am going to say on the matter.
For someone who keeps saying that’s all I have to say you keep finding more to say.
… He added unhelpfully. 😛
He added with a smile.
Can we park the personal invective ? We can all agree , hopefully, that there needs to be a much more serious airing of MMT and that the SNP management seem to have outsourced macro economics to ” the experts” . WGD has done great service , worrying at the bones of MMT. Let’s not fall into the trap of biting each other . Eschew the snarling and snapping , folk on the cusp of seeing the light will back off .
Just in case any readers thought this post was fanciful and impossible – this is a speech by the Bank of England’s MPC member, Gertjan Vlieghe, on the 23 April.
Now think of the possibilities for an independent Scotland with its own central bank on the Mound…
It’s not too late – and it may be an urgent necessity very soon. It would be helpful if readers can send this link with a short explanation to their MSP/MP and ask, why Scotland can’t do the same?