Hey there, Deficit Denier, climb down out of that Magic Money Tree!

Modern Monetary Theory: Real Economics

“Deficit Denier” ??

The accusation of being a ‘deficit denier’ seems to cause real problems for many progressives.  We should meet this accusation head-on.  WTF is a ‘deficit denier’ anyway?  This is the obvious question that needs to be asked. Is anyone denying the UK and US governments spend more back into their economies than they receive in taxation revenue? No-one is. Neither is anyone denying,  during the very rare  times the government is in surplus, the reality that everyone else is then in deficit themselves. Someone has always to be in deficit. What is there to deny?

We try to be deficit comprehenders. Just like Stephanie Kelton’s deficit owls. We try to understand and explain why a sovereign government like the UK can be in deficit for an extended period of time and why the bailiffs aren’t knocking on the door demanding an immediate repayment of all loans.


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Tory Party channel the Manchurian Candidate

Michael Gove just put out the following statement in response to Jeremy Corbyn’s speech today:

Labour have confirmed that they are a threat to our national security, our economic security and to the security of every family in Britain.

I felt like I’d heard these words before and it gave me an eery feeling. One of my favourite films is The Manchurian Candidate, in which an entire US platoon are brainwashed and when asked to describe the platoon’s commander, automatically respond  “Raymond Shaw is the kindest, bravest, warmest, most wonderful human being I’ve ever known in my life.” Has something similar been done to Tory MPs? See what you think:

“So what do you think of Jeremy Corbyn?”

“Jeremy Corbyn is a threat to our national security, our economic security and to the security of every family in Britain.”

“Er, thanks Minister.”

Michael Fallon has also been afflicted. It’s not too dissimilar to this:

In the film, Raymond Shaw has been brainwashed to become an unwitting assassin. What have they done to Corbyn though? I think we should be told!

Arguing against “really simple” economics

I blogged earlier about Labour’s decision to sign up to George Osborne’s “fiscal compact” and whether or not that was a good idea. I’ve just been reminded of a bit from Thursday’s Question Time when a member of the audience talked about being “really simple” with the government’s budget being just like his own. I wonder if this kind of thinking is was prompted John McDonnell’s move yesterday. As you can see in the video, economist Yanis Varoufakis quite succinctly set the audience member right, prompting applause from the rest of the audience. It shows that this kind of “common sense thinking” can be countered quite easily if the will is there. I suppose the question is whether the bloke who asked the question changed his mind after the exchange, or still thinks he is right:

Labour chooses to play on away team’s turf for next five years

The Labour Party Conference starts tomorrow and on its eve, Labour’s Shadow Chancellor John McDonnell gave an interview to the Guardian in which he committed Labour to signing up to George Osborne’s “Fiscal Charter”, which commits the government to running a surplus by 2019-2020 and beyond in ‘normal times’. In effect, the fiscal charter is meaningless because governments don’t have total control over either their spending or the amount of tax they collect, so the government’s budget balance is largely dependent on factors outside its control. That said, it was a ‘clever trick’ designed by George Osborne to trap Labour. I guess they were supposed to reject it on the perfectly reasonable grounds that it’s economically illiterate, after which Osborne and co. could paint Labour as ‘fiscally irresponsible’.

McDonnell’s decision then is a tactical one. One would hope he realises the fiscal compact is nonsense, but he has decided for whatever reason to go along with the charade. In doing so he is like a sports captain who agrees that his team will play all their games away from home. It doesn’t mean you won’t win the league, but it does make your task a lot more difficult. McDonnell is clear that committing to ‘live within our means’ does not mean a continuation of austerity for the poor, but rather a shift of the burden onto those on higher incomes.

Playing on the away team’s turf in this context means you must cost every policy along the lines of “We will pay for x by raising tax on y or cutting spending on z”. You also need to get organisations like the Institute of Fiscal Studies to mark your homework and say “yes the sums add up”. If your plans include raising taxes on the rich, there will be no shortage of people queuing up to tell you apocalyptic consequences will follow as a mass exodus of ‘wealth creators’ ensues. Labour should be ready for this. They’ll also be attacked along the lines of their plans not being believable. “You can’t trust Labour” etc etc.

The alternative for Corbyn’s Labour would have been to bring the Tories onto their home turf. They started to do that, even getting the term “Corbynomics” coined. Some of the ideas within Corbynomics – PQE in particular – took a look of flak and they now seem to have backed away from them somewhat. To me though, they had sparked quite a bit of interest in academia and they could have used that as a launch pad to start to talk about the economy in new and much more interesting ways. It would still have been tough, but it would have been in keeping with Corbyn’s “new politics” vibe.

So now they are playing on the Tories home turf instead of their own, can they still win? It’s not impossible, but it makes anything they propose open to the same old attacks. If I had to guess, I would think Corbyn and co. realise they will face the constant threat of a coup from now and for the next five years, so are trying to head that off by appeasing some in the party. There’s an idea that what you say in opposition and then what you do when in power don’t have to bear too much similarity to each other – Osborne is keenly aware of this – but whether McDonnell’s tactics are wise here, I’m not so sure.

Adam Smith on tax-driven paper money


I am teaching Origins of Political Economy this fall which allows me to (re)read some classical books starting with Adam Smith. Having read Ricardo, students were wondering whether the metalist view still holds today and if not, what replaced it. I found this paper by Stephanie Bell very enlightening, which contains a quote from Adam Smith. Here is the full paragraph (source) from ‘Chapter II (continuation): On Money considered as a particular Branch of the general Stock of the Society, or of the Expense of maintaining the National Capital‘:

A prince who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind might thereby give a certain value to this paper money, even though the term of its final discharge and redemption should depend altogether upon the will of the prince. If the bank which issued…

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Corbyn has already won back nearly one in ten 2015 Tory voters

A poll came out yesterday which was the basis for this story in the Independent “Jeremy Corbyn ‘loses fifth of Labour voters'”. The poll found that 20% of people who voted Labour in 2015 said they were less likely to vote Labour again with Corbyn as leader. So is it fair to say that a fifth of Labour voters have already abandoned the party? Of course not!

The question asked if they would be more or less likely to vote Labour with Corbyn as leader. If you say less though, it doesn’t mean you will change the way you vote, you could just have changed from ‘absolutely will vote for them’ to ‘almost certainly will vote for them’. If the Indy’s headline was fair, then so is mine because 8% of Conservative voters said Corbyn being leader made them more likely to vote Labour. I could also have made the title “Over a third of SNP voters now support Labour”, or “More than a quarter of remaining Lib Dems to vote Labour with Corbyn”. All bollocks of course, but no more so than the Indy’s headline.

The poll did ask one interesting question though. It asked if Labour under Corbyn was more or less electable. Even after the battering Corbyn has received this week, 41% said more. Still a long way to go, but not as apocalyptic as advertised.

How could Corbyn maintain Party discipline?

It seems very clear that many in the Parliamentary Labour Party are hell bent on undermining Jeremy Corbyn at every turn. While not all are as up front about it as the publicity seeking Simon Danczuk, some big tests to party discipline await. It seems unlikely that the conventional ‘whipping’ system will be enough to keep MPs in line, particularly when Corbyn has been one of the most consistent rebels over the last 30 years. So what could Corbyn do?

To me, his strength lies in the mandate he has earned from the members and registered supporters of the Labour Party. A majority seemed to enthusiastically sign up to his ideas which he was not afraid of being open about (unlike the other three candidates). The other day, I received an email from Corbyn (seemingly sent to everyone on their mailing list) asking people to sign a petition against the trade union bill. In just a few hours, well over 150,000 has signed. More than double that number have now signed.

Why not then harness this enthusiasm in other ways? Corbyn could offer his MPs free votes on every issue, but the day before he can poll the members/supporters on the issue and publish the results by constituency. That way, if Labour MPs vote against Corbyn, they will know the strength of feeling in their constituency. It would really test the backbone of some of these brave dissenters to go against thousands of their own constituents. It would also be an good litmus test for any line Corbyn wants to take.

What do you think? Good idea, or am I talking rubbish again?

Sulking Labour MPs can’t abide democracy

To get on the leadership ballot, Jeremy Corbyn required the nominations of 35 of his fellow MPs. It’s estimated that only around 20 actually supported him from the beginning, while a further 15 nominated him in order to ‘broaden the debate’. One of these was Margaret Beckett. Having previously called herself a ‘moron’ for nominating Corbyn, she popped up again on local radio to lament at her ‘mistake’:

This is absolutely typical of the attitude of many of Labour’s former big names. That she thinks giving party members and supporters a wider choice of leadership candidates was ‘one of the biggest political mistakes’ she’s ever made speaks volumes. Democracy is fine it seems, as long as we don’t vote for the wrong person. Is it any wonder people are so fed up with the status quo?

Corbyn Wins!

So Corbyn won, and won even better than all predictions. Nearly 60% in the first round of a four person race is pretty incredible. Corbyn won 85% of the vote amongst the £3 sign-ups, but nearly 49% of full Labour members gave him their first preference. For all the talk of ‘entryism’, in the end it didn’t matter. Corbyn would have won anyway. This is a good summary of the results:

The wishful thinking of the anti-Corbynists in Westminster led to rumours of a late surge for Yvette Cooper. She managed just 17% of first preferences. It turned out to be what always happens on the eve of landslide elections – the media tries to make it seem close right up to the wire. And what of the margin of victory? As Guardian journo Nick Watt put it:

This is just not acceptable to many in Labour. Jamie Reed tweeted his resignation letter as Corbyn was giving his victory speech:

“Who he?” Said John Prescott (one suspects it was his desire to be known that was the reason for the timing of his resignation):

Further resignations soon followed, but for many of them, this is probably apt:

For some though, celebrations (of a sort). A certain Telegraph blogger seemed pleased his livelihood for the next five years was now assured:

The Tories also reacted with glee. “Over-egging it” springs to mind. Is Corbyn “unelectable” or “a serious risk”. They don’t seem to have made their minds up yet:

Even “The Donald” is excited:

Putting all that aside, it’s going to be an interesting few days/weeks/months. Can Corbyn build a team and come to a consensus about attacking the Government and proposing a clear alternative of their own? His first test will come straight away in Parliament as debate on the Government’s anti-union bill begins and the Welfare Bill comes back to the House. The Tories also seem keen to go to war again in the Middle East. It will be interesting to see how many of Corbyn’s Parliamentary colleagues agree. This is the first time in a long time I find myself actually enthusiastic about one of the main party leaders. Long may this optimism continue!