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November 26, 2019



Capital can't produce without labour, but labour can't produce without capital either. That is why they split the value added. (About 2/3 and 1/3, IIRC.)


«how the Labour party can best answer the question: “how are you going to pay for it?"»

I think that the actual question most people ask is "*who* is going to net-lose from this policy?" rather than the euphemistic "*how* are you going to pay for this policy?".

That is the real question is about distributional impact.


If ever there were a splendid Labour leader, that person is Jeremy Corbyn. Any disdain felt for Corbyn has been manufactured by an impossibly malicious media and impossibly selfish Conservatives.

Robert S Mitchell

If you accept mainstream economic assumptions, but stop short before the natural conclusion that austerity and lower taxes are always good, you are seen politically as merely soft-hearted, too weak-minded to follow the assumptions through to their natural, logical conclusion.

You should answer the question "how do you pay for it?" with: print money and fully index the economy. Real purchasing power thus remains stable no matter the nominal rate of inflation. No one net loses under a plan where the central bank prints money for an automatically inflation-protected basic income. (You could buy gold or bitcoin with your already inflation-protected basic income each month, to further hedge inflation in your own way.)


I had to check that Lincoln quote. It comes from speech from December 3th 1861 when he was discussing slavery : https://www.presidency.ucsb.edu/node/202175

The lines before the quote give a better context:

" It is the effort to place capital on an equal footing with, if not above, labor in the structure of government. It is assumed that labor is available only in connection with capital; that nobody labors unless somebody else, owning capital, somehow by the use of it induces him to labor. This assumed, it is next considered whether it is best that capital shall hire laborers, and thus induce them to work by their own consent, or buy them and drive them to it without their consent. Having proceeded so far, it is naturally concluded that all laborers are either hired laborers or what we call slaves. And further, it is assumed that whoever is once a hired laborer is fixed in that condition for life.

Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless."


I get the idea that it’s wrong to compare a national government to a family household, because a government has its own currency, central bank, tax system etc - all things families don’t have. But all I take from that comparison is that governments, like families, aren’t omnipotent: sooner or later they bump up against limits and trade-offs. Does anyone think governments are omnipotent? It feels like MMT advocates think they are, but I admit, I just don’t get MMT.

Right now, for instance, it might be beneficial for the government to allow a degree of low-level inflation, because it would inflate away some of people’s debts. That doesn’t mean there are no side effects to such a policy; or that, if they get away with a little bit of inflation, they can happily go full Weimar Germany.


Chris been reading your posts for the last couple of months. As ever, thought provoking. Thanks.

@ georgesdeletour,

How about never saying MMT again?

What about:

This bit. I don't believe you, I often read your posts here.... but just in case.

'Does anyone think governments are omnipotent? It feels like MMT advocates think they are, but I admit, I just don’t get MMT'

Well up until there are no 'real resources' left to employ by either the public or private sector and you get to near full employment .... and (1)your not on a gold standard or (2)pegged to the dollar ... (3) floating exchange rates, etc. (4)well all the things Mitchell, Mosler, Wray et al, actually say. Government has 'Powerful tools'... 'Policy Space'...Yes... I think that's what these scary, MMT monsters would say.

ps thanks for all your contributions here too.I often look for your EU thinking.


«governments, like families, aren’t omnipotent: sooner or later they bump up against limits and trade-offs.»

As rule the limit is imports, that must be paid in hard currency, cannot be paid in any soft domestic currency. Because the domestic government cannot force foreign suppliers to accept their domestic currency, like it can with residents.

The second limit is acceptance by residents of domestic currency: the government does not have an unlimited power to force them to accept it. All "soft currency" countries like Italy and Greece before the Euro, or Serbia and the UK presently, actually have an informal dual-currency regime: the soft currency is used to pay weak economic actors, and the hard currency is used to pay strong economic actors. Serbia has the Dinar and the Euro, the UK has the pound and the dollar.

«Does anyone think governments are omnipotent? It feels like MMT advocates think they are»

There is a large part of the MMT supporters who stupidly or wilfully ignore the "if there are unemployed real resources" qualifier of MMT, and in particular ignore the foreign trade constraint, which is actually what matters in most cases.

«but I admit, I just don’t get MMT»

But it is so simple: it is not a theory but a description, and all it says is that as long as there is a relative scarcity of money (with respect to real resources) issuing new money is not inflationary, and it that case issuing new money is better usually than trying to loan funds from domestic or foreign lenders.

One of the consequences is that speaking purely in financial terms, governments don't need to borrow via bonds etc, but can just issue more money, and then "repay" it by having a budget surplus.
But governments know that very well, they very often issue bonds purely for political reasons, some more defensible than others.

Robert S Mitchell

"as long as there is a relative scarcity of money (with respect to real resources)"

World capital is about $1 quadrillion, or more than an order of magnitude greater than world GDP. There already is a superabundance of money with respect to real resources. Inflation is not a problem because money is printed faster than prices rise.


"as long as there is a relative scarcity of money (with respect to real resources)"

The typical example there being a recession, where there are underused plant and labour because money is scarce.

«World capital is about $1 quadrillion, or more than an order of magnitude greater than world GDP. There already is a superabundance of money with respect to real resources.»

That's indeed true overall, but not everywhere: there is a big difference between "general gluts" (underemployed resources in all markets) and "partial gluts" (underemployed resources in some markets), that was well known to "classical" political economists, but has been lost in recent decades apparently.

So for example a wall of money is fuelling demand for UK properties and chinese workers, but not UK workers.

«Inflation is not a problem»

It has been actually rampaging for decades at 7-10% in both the UK southern property market and in the Shenzen labour market. Annual wage increases of 7-10% have also been happening for some years in Poland.

The "official" measure of "inflation" in effect only measures local wage inflation, rather than the cost of living or overall inflation, by design.

One of the policies that have been used to keep some markets in a glut of resources while other markets are in shortage has been to create that 4 quadrillion wall of money from debt tied to collateral rules, rules defined by crony governments.

So anything that can be bought with debt and can be collateral for that debt, like southern english property or chinese made Apple cellphones, has an excess of "money" chasing it. English labour not so much.

As to the UK my personal and somewhat unusual opinion is that the overall political economy has been overheating for decades, there has been no "austerity" as seen in past decades, some of the symptoms being the large rate of debt increase and the large trade deficit, thanks to simultaneous "Barber" and "Lawson" booms, and the rapidly increasing lifestyles of property (and business) rentiers. But the domestic economy of most english resident workers has been at best stagnating. No wall of debt money for them.

The message of the "sane" MMTers is that government spending could be financed by money printing to employ the underused resources of UK labour and production (they never add that the private debt boom should be ended though, that's unpopular).


Stop fighting the last war.

The problem for Labour is they are on the wrong side of the argument on Brexit and immigration for their supporters in the North. :)

The modest (not in a Jonathan Swift way) proposal for tax increases has largely been accepted.


The criticism is the ability to execute on the investment.


"In contrast, Johnson argued that Labour has "vast ambition" and that it wants to "change everything" – but questioned whether this was achievable."

Work continues on the Jonathan Swift type of modest proposal, that will frighten the horses.


The Labour proposal.


The report says: "If multinational X (like Amazon or Google) has 10% of their sales, assets and labour in the UK, they ought to be taxed on 10% of their global profits."

Robert S Mitchell

@Blissex I mostly agree with your post but my prescription is a money-printed and automatically inflation-protected basic income.

The problem with MMT is that it uses a very rigid and theoretical model of sectoral balance sheets to "prove" that the private sector cannot create new net financial assets without transacting with the central bank. But mortgage backed securities served as new NFAs on private balance sheets long before the Fed created reserves to back them. MMT's inflation model is also fully orthodox, whereas I agree with Fischer Black that inflation is noise, i.e. psychological. See https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1986.tb04513.x


I am not an economist and speaking personally.

(About 2/3 and 1/3, IIRC.)
Not currently Labour gets subsistence only.

"Does anyone think governments are omnipotent?"

"what these scary, MMT monsters would say"

"That is the real question is about distributional impact."
The 0.1% or print the money.

"World capital is about $1 quadrillion"
If it is in a Tax haven does it really exist?

I too agree with much but:
"in particular ignore the foreign trade constraint"
We have been doing that since 1979 or WWII.

MMT - Actually just the Free Trade constraint.

"It has been actually rampaging for decades at 7-10%"
Yes, Asset inflation. Not helped by Q.E.

"there has been no "austerity""
Go outside London and the South East or the top 1%. Public services have been cut back, people are in poverty.

"The large rate of debt increase"
Financialisation - debt for everyone to substitute for income.

"and the large trade deficit"
Thatcherism/Free Trade/Mercantilism.

@RSM - I not Blissex but:
No, Banks create nearly all of the money (financial instruments). Governments can create money, but do not (they let the banks create public debts by issuing bonds, unless - MMT) except in Q.E. (for the rich.)

Mortgage Backed Securities - MBS
MBS/Derivatives wasn't that the 2008 recession, the next one is in private capital (a consequence of Q.E).

Noise is not cyclical: I'm forever blowing bubbles (song).

Inquiring minds want to know...


"there has been no "austerity as seen in past decades"
«Go outside London and the South East or the top 1%. Public services have been cut back, people are in poverty.»

Indeed but that's not "austerity", it is at best "upward redistribution", at worst "class war".

Austerity means the squeeze applies to everybody, both fiscal and credit policies are tight, because the policy goal is to reduce consumption overall to cut the trade deficit (or finance a war).

The current policy is fiscal squeeze and credit bubble, and if 20-40% (mostly in the south-east) get a boom in living standards, and the rest get poorer, that's class war, that's redistribution.

To call that "austerity" means agreeing with David Cameron that "we are all in the same boat", or to use an euphemism for political purposes to avoid being "controversial", like J Corbyn does.


"World capital is about $1 quadrillion"
«If it is in a Tax haven does it really exist?»

Tax havens don't have massive vaults Scrooge McDuck style, the money actually is invested wherever, it is just "booked" for accounting and thus tax purposes in the tax haven.

So for example the various USA proposals to give large tax discounts if "profits held abroad" are brought back to the USA are ridiculous, the profits are already invested in the USA or wherever it is most profitable, that won't change anything, and there is no reason for the moving them off the book of the tax haven shell company to those of the USA company, just to have them taxed less, instead of taxed not all.

Robert S Mitchell

MBS are back in full swing. 2008 was a panic. Defaults were predicted to be much higher than the 10% rate that was realized actually. Investors did not lose money because the Fed stepped in to end the spreading panic by printing money. The lesson is that we can use money-printing to fund a basic income, too. The Fed can automatically inflation-protect it. You could buy gold or bitcoin each month though to hedge inflation your own way, too ...

Peter Cave

Media reports on the election suggest that many working-class voters who would benefit from Labour's programme don't believe it can be delivered ('Where's the money coming from?' etc). I think a solution to this problem has to include a systematic effort to get the public to explain these issues. Of course they will never reach everybody, but they have to be simple and clear enough that significant numbers of people can access and understand them, so that there is a chance that this understanding will percolate. Probably a range of media are needed - short downloadable pamphlets, manga, videos. Otherwise I don't see how we are ever going to overcome this problem, and people will carry on voting for Tory policies that hurt them till we all drown or burn. I don't expect professional economists or finance professionals to write them, but surely there are enough people out there who could? Heck, think of the number of economics graduates that are churned out each year! The Left needs to mobilise on this.

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