Patricia Pino-ren Labour’s economic alternative to neoliberalism
(https://www.thepileus.com/economics/labours-economic-alternative-to-neoliberalism/)
(i) Alderdi Laborista eta DTM
It is often said that ordinary people do not have sufficient understanding of complex issues to make important decisions. But it is seldom mentioned that this is what those who rule us have intended for us. This is especially true when it comes to the subject of economics.
Our current economic system is guarded by those who endeavour to keep the public ignorant and easily manipulated. But while it is true that ordinary people may not understand the intricate financial structures that govern their lives, they can certainly tell that there’s a problem with our current economic model: Neoliberalism.
The Labour Party movement endeavours to provide an alternative. But while most of its members enthusiastically promote it, it is rarely given a name. I would like to suggest one here.
Modern Monetary Theory (MMT) takes lessons from Keynesian theory, but it is primarily based on sound understanding of macroeconomics, that is, the relationship between government spending and the non-government sector.
In recent years, MMT has achieved a much higher public profile, as people seek alternatives to the neoliberal domination of the economic debate.
Initially, as a result of challenging the dominant view, MMT was largely ignored. Now, after successfully predicting the financial crash of 2008 and the Eurozone crisis, interest in it has skyrocketed.
(ii) Patricia Pino eta Bill Mitchell
Professor Bill Mitchell, one of the original developers of MMT has blogged on the subject for many years. His blog has a strong following from readers all around the world. Many within Labour, including myself, believe that this sound economic theory should form the basis of the alternative we propose.
Recently, I had the opportunity to discuss MMT at length with Professor Bill Mitchell himself. My objective was to find a way to explain its fundamentals in a way which could be easily understood by anyone, without the requirement of an academic background. He was kind enough to help me in this task.
To understand MMT, it is best to start by comparing it to Neoliberalism.
(iii) DTM eta neoliberalismoa
The Neoliberal Model
In the Neoliberal Model the economy is the ends in itself
The Neoliberal model presents the economy as an entity whose needs are separate and above the needs of people and the planet. Within it, our individual success and that of our planet is considered separate from that of the economy.
Thus, the indicators used to measure economic success are remote to our personal needs and those of the environment. We speak of ‘GDP’ and not ‘well-being’, of ‘fiscal balance’ and not ‘happiness’. Moreover, economic success must be prioritised, even if it comes at the expense of leisure time, of air quality, of health and life expectancy.
The economy also acts as a sort of moral enforcer: issues such as personal debt and poverty are blamed on the individual rather than seen as a failure of the economic model. If poverty is rising, the conclusion is that those people are not doing enough for the economy and thus, cannot expect to be rewarded.
The Progressive model
In the Progressive model the economy is a means to an end
Within the progressive vision offered by MMT, it is acknowledged that people have a reliance on the planet and thus the needs of the environment are our needs.
The economy is reduced to a tool which serves our interests and that of the planet. Targets in this model are based on specific goals related to well-being: reduce poverty, reduce carbon emissions, etc.
Policy interventions are appraised only in terms of how functional they are in relation to these goals. The economy is not a moral enforcer but a tool to achieve our collective objectives.
It should now be evident why the neoliberal model presents a destructive path. Immediate environmental and human concerns (namely climate change and destitution) are relegated to issues of secondary importance. But to replace this model with that proposed by MMT a number of challenges remain.
(iv) Erronkak
(a) The neoliberal myths and how to challenge them
The reason why we have so readily accepted the neoliberal model, Is because powerful metaphors have been used to galvanise it.
The best example of these is the household analogy. We are encouraged to make parallels between government economics and household economics, as if government fiscal outcomes were comparable to personal budgets. This is as intuitive as it is dangerous: practices that are considered responsible in households can often be very destructive in governments.
‘The household analogy’.
Like Newton’s 3rd law of motion, government spending policies have an equal and opposite effect on us, the private sector. All government spending is our income, a government surplus is our deficit (debt) and a government deficit is our surplus (savings). Government spending isn’t just necessary to run our public services it also helps us to increase our wealth.
Unfortunately, during its long historical battle against egalitarianism, neoliberalism cemented myths in the public psyche that were designed to make people fear government spending. Phrases such as ‘living beyond our means’, ‘bankrupt the Nation’ and ‘budget black hole’, evoke the household analogy and make us project our personal financial fears onto the running of the economy.
The following are a few basic principles of MMT which must be understood in order to challenge the neoliberal myths:
(b) The Government cannot run out of money
The Bank of England issues currency on behalf of the government. Much in the same way that a scoreboard in a cricket match can never run out of runs to post, the government can never run out of money. Therefore, government is not physically limited in its spending. The requirement that government needs to either collect taxes or ‘borrow’ before it spends is arbitrarily imposed, in the (false) neoliberal belief that fiscal balance is a desirable economic target.
(c) There’s no such thing as ‘taxpayers’ money’
If the government has unlimited access to Pounds, why does it need to tax us? Put simply, taxes give value to the currency. It is the guarantee that government will honour currency as a means to pay for our tax liabilities which give the currency its worth. The way tax is distributed can also help achieve other outcomes such as reducing inequality, discouraging damaging behaviour (e.g. tax on cigarettes), amongst others.
(d) Government ‘debt’ is not debt at all
What neoliberals call government debt is in fact savings to the private sector. This is composed of bonds and guilts which are purchased by the population at large (and often also by foreign investors).
The reason they are so popular is because they are seen as the safest form of investment. Unlike savings accounts in banks and shares, government bonds do not run the risk of default. Government can always pay its liabilities. These savings are merely a service the government provides, it is not a source of income as government does not need an income.
(e) Government spending does not cause hyperinflation
This is one of the most difficult concepts to grasp, not least because mainstream economics has accepted as dogma the explanation that excessive spending caused crises in places like Zimbabwe and Venezuela.
The truth is, inflation and its more extreme counterpart, hyper-inflation, are the result of an inability to meet demand with supply. All spending, either from government, from private sector debt or other sources, results in higher incomes and is therefore likely to increase demand for goods and services.
If this demand can be met by an equivalent increase in supply then there is little risk of inflation. Therefore, as long as there is spare production capacity (namely, unemployment), the government can spend.
(f) MMT and the Labour Party
Many of Labour’s anti-austerity policies already fall in line with the progressive economic vision that MMT offers. The full employment, Northern investment, National Education Service pledges can be easily justified with MMT because it does not require spending to be balanced with taxation or the issuing of government bonds.
Macroeconomics is a complex subject, and I would expect the issues discussed here to have raised many questions. I would very much like to explain other aspects of MMT in future, but my immediate aim is this:
We Labour members must endeavour to change our language around economics so that they do not reinforce neoliberal myths: the rich must be taxed to reduce inequality not to fund our spending, government money belongs to all of us not just the tax payers, and government issuing of bonds (‘debt’) is not an indicator of bad economic performance.
Ultimately, explaining left wing policies with right wing economic narrative will simply not do. Ordinary people can sense inconsistency, just as they can sense the chaos in our current economic structures.
MMT provides us with an economic model which ensures government can provide security for all its citizens in partnership with business enterprise and Labour. This is the positive anti-austerity vision the Labour Party needs to ensure unity and prosperity for all.
Patricia Pino
Patricia Pino is an engineer, artist and campaigner living in London. She joined the U.K. Labour Party movement in early 2015 and is a board member of Republic: a non-politically affiliated organization campaigning for an elected head of state. Though her values are aligned with those of the organizations she has joined, she believes in thorough questioning of the issues rather than blind loyalty to any particular ideology. Throughout her involvement in the Labour movement, she written extensively on issues regarding economics. An advocate of Modern Monetary theory, she endeavours to present new economics findings in a way which is accessible to the masses. She has often been assisted by renowned MMT economist, Bill Mitchell, in this task. It should be noted that she writes only on a personal capacity — her views may not necessarily reflect the views of the various organizations she has joined.
Gehigarriak:
(1) Steve Grumbine Hosts Patricia Pino: Dismantling #Neoliberalism
Patricia Natalia Pino, author at The Pileus joins Steve Grumbine to discuss the global scourge of #neoliberalism and how to defeat it.
https://www.youtube.com/watch?v=U4ERLKF0Gz8
(2) Patricia Pino eta Bill Mitchell
The fringe event that promises to empower Labour’s Progressives against neoliberalism
(3) Patricia Pino eta Jeremy Corbyn
Copeland, Corbyn & the Labour Party: A member’s view
Jeremy Corbyn does not need to borrow to pay for his policies
(4) Facebook-enj Patricia Natalia Pino
Ive always liked this graph as it shows clearly the damage done in the last 40 years. The Gap between productivity and wages has largely been filled by private debt.
Noiz LAB edo/eta ELA sindikatuetan DTM erabiliko duten horrelako sindikalistak?
Zeren esperoan daude?
joseba says:
Patricia Natalia Pino-ren How to kill a country: the continued destruction of Greece
The ruling party of Greece, Siriza, under the leadership of Alexis Tsipras, is keen to prevent another bailout in August, but the reforms imposed upon Greece in the last 8 years have all but destroyed any remnant of hope in the birth place of democracy.
https://www.thepileus.com/economics/kill-country-continued-destruction-greece/
“… Why debt matters to Greece
Unlike the UK government, which creates currency as it spends, the Greek government, like all other Eurozone members, cannot issue its own currency. Greece’s finances are thus similar to those of a local council or a household: It needs to raise income before it can spend. Thus, we say that Greece is not ‘monetarily sovereign’.
For monetarily sovereign nations like the UK, the national debt is little more than a number indicating the net supply of currency into the economy (Govt spending minus taxation). It never has to worry about not being able to pay for its liabilities. By virtue of their unlimited capacity for money creation, monetarily sovereign governments can always pay. And this is reflected in other economies such as Japan, who despite relatively large debt to GDP ratios, continue to fulfill all their liabilities in their national currencies.
Relinquishing monetary sovereignty is in itself a terrible idea. Think of what might have happened in the UK in the aftermath of the financial crisis had the government not been able to bailout the banks, or, if it had found itself unable to fund the unemployment benefits of the thousands that lost their jobs. We now know that the austerity that followed was purely a political choice.
Why then, did Greece want to join the Euro in the first place? This is not a difficult question to answer for anyone who understands the dominance of the elite class in our political sphere:
(…)
It was then a simple matter of counting on the economic illiteracy of most of the population to lure them with promises of prosperity which were not grounded in reality.
(…)
Greece and the Left
The continued public support for membership to the Eurozone in Greece is evidence that its leaders have failed to fully communicate to the Greek people what this membership means. Or perhaps they have convinced themselves that remaining in servitude is preferable to leaving in defiance. Grexit would not be easy. But it is still the best chance Greece has of escaping permanent decline, and the only way it can regain lost sovereignty for its people.
The Left’s often unconditional support for ‘internationalism’ means it falls short of holding to account those that have caused much of the suffering observed through out Europe. Solidarity for Greece must include condemnation of those who, under the banner of internationalism, have contributed to Greece’s destruction.
International cooperation cannot become an excuse for the surrendering of Sovereignty to central unaccountable entities like the Troika, who will inevitably abuse their powers to benefit private financial and political interests, while occasionally adopting progressive policies as a means of throwing its members off the scent of corruption.
If the Left in Greece and elsewhere does not actively challenge the democratic deficits within both the Eurozone and its parent entity, the EU, parties like Golden Dawn will take advantage of the political void left behind. What then, will be the ultimate cost of unquestioning reverence to the European project?
joseba says:
Bill Mitchell-en Greece – the next bailout is just around the corner
(http://bilbo.economicoutlook.net/blog/?p=37880)
When the latest Greek bailout deal between the Greek government and the European Commission/IMF) was concluded on June 16, 2017, I concluded that it was designed to fail. Please read my blog – Latest Greek bailout – a recipe designed to fail. Despite all the statements from the European Commission and the IMF to the contrary, the terms of the deal with the Greek government confirms that these institutions had abandoned any pretense to being interested in serious economic policy. For the European Commission, the desired irrevocable status of the euro, as a political statement, is all it seems interested in when it comes to Greece. They just don’t want to admit that Greece cannot reasonably function in this monetary union. This deal only stalled reality for yet another day and the only goal it serves is to keep Greece using a currency it cannot afford to use. And now the reality is emerging that the Greek economy will need a further bailout to survive for another period. The latest analysis from the German research group – Centrum für europäische Politik – shows that Greece remains close to insolvent and cannot survive within the Eurozone on its own. One has to ask what has all the austerity been for if the patient is still on life support some 10 years later. We know the answer.
The characters within and outside of the European Commission that are bent on maintaining the Eurozone statu quo no matter what have regularly told us that the Greek crisis is over.
(…)
The next Greek bailout
(…)
There was an interesting article in the conservative German daily newspaper Die Welt (January 20, 2018) – Brüssels Pläne für Griechenland sind eine große Illusion – which for those who do not read German means “Brussel’s plans for Greece are a big deception”.
The CEP research is discussed and leads to the conclusion that Greece will not be able to survive without further bailout funds.
It notes that despite the rhetoric from the Greek government (Tsipras claiming that “Greece was only ‘a breath away’ from freeing itself from the Troika”) which precipitated the riots in Athens last week, the Greek economy is still on death row.
The article considers Tsipras has “Augen seiner Landsleute vom Rebellen der Euro-Zone zum Handlanger der Geldgeber mutierte” (“in the eyes of the people he has mutated from being a Eurozone rebel to being a pawn of the financiers”).
(…)
The appraisal indicated that Greece’s:
… capital stock of the country shrank in 2017 more than ever before. In other words, the country … no longer invests in new factories, machinery and factories or patents.
Both government and non-government investment has fallen. The fiscal austerity has created such appalling domestic demand conditions that there is no incentive for private investors to expand productive capacity.
CEP concluded that the only way this situation can be reversed is that conditions for new investment have to improve, which will require an increase in public spending among other things.
Conclusion
It is clear that the European Commission’s dealings with Greece have nothing to do with economic reasoning, despite the articulation of those dealings being expressed in terms of economic aggregates.
All the Commission seems interested in is keeping Greece within the Eurozone. It knows that if Greece was to exit then the dominoes would start to tumble because Greece would immediately begin to grow as a result of its new found currency sovereignty.
Obviously, the Commission wants to prevent that reality so as to keep other Member States (such as Italy) in line.
It is a scenario designed to fail.
The next episode in that failure is about to be revealed.
And the feckless Alexis Tsipras meanwhile continues to do the bidding of those that are destroying his nation.
And the European Left keep telling itself that the reforms are coming … coming … just be patient. But the social democrats are just disappearing into political irrelevance.