Monthly Archives: December 2014

Doctor Who and the Dalek invasion of Planet Earth 2150. The MMT version.

Many years ago when Doctor Who storylines were more comprehensible than they now are, or at least they were to me, the Daleks invaded planet Earth.


Even though the series was and still is made by the BBC, and the Daleks were their invention, the evil Daleks still chose to base their Earth invasion operations in the London of 2150.  Or, maybe it was something to do with an abundance of a mineral to be found somewhere in the Home Counties which was running out on the Daleks’ home planet of Skaro. The Daleks , not being very nimble creatures, would be much better at extermination than mining, so naturally required the services of the local able bodied , but unwilling, population.

The Dalek solution was to convert suitable humanoid specimens into Robomen. This involved the forced fitting of a thought-control device, which looked rather like a motor cycle helmet with a transistor radio strapped on the side. This turned them into willing workers for the Dalek  Empire. It may well also have been part of the Dalek undoing. Thought control devices are childsplay to the Doctor,  who would have, in the final confrontation,  rewritten the source code in half a minute  flat to entice the Robomen to switch sides.


If the Daleks had taken the trouble to visit the British  Library to look up some old MMT textbooks they could have found an alternative solution. They would have noticed how much time and effort us Earthlings invest in our houses and property. They wouldn’t have bothered about pounds or dollars, but they may well have then decided to levy a property tax denominated in Kaleds: the currency of the Dalek empire. Non payment of taxes of course would mean the property would be destroyed , and all occupants exterminated!

Of course, the future Earthlings would not have had any Kaleds themselves. The Daleks then would have placed job advertisements in the local newspapers offering generous payment in Kaleds, so the ‘lucky’ workers would have had not only enough to pay their own taxes, but some extra too, to spend on buying goods and services from others who needed the Kaleds to pay their taxes. I suppose the Doctor’s best tactic then would be to teach a version of neo-liberal economics to the Dalek financial elites who would  possibly have been persuaded they were running out of Kaleds and had to cut back their spending, balance their books,  and sack all the newly recruited Earthling miners. But that would be too far fetched a plot line even for Doctor Who!

I’m not sure if we children of the 60’s would have been quite as fascinated by Daleks if they’d turned out to be just tax monsters, but we’d certainly have learned a useful lesson in economics.

John Quiggin, MMT and Russia

Professor John Quiggin ruffled a few MMT feathers with his recent blog entitled “MMT and Russia”

Does he have  a point? Well, yes and no.  He’d have been on safer ground if he’d challenged MMT advocates to suggest a suitable policy for Russia which has both double figure inflation and unemployment rates. Or soon will have, if they aren’t quite there at the moment.

Sometimes there is tendency, in MMT circles,  to make glib comments along the lines of “sovereign currency issuing governments don’t need taxation to finance expenditure” which while technically correct, perhaps don’t give quite the right impression. They suggest we are irresponsible about creating high inflation.
There is that danger in Russia. The MMT fix for Russia wouldn’t simply be about letting their public sector deficit increase as it might be in America, the Eurozone or the UK.  Deficits in the UK and the USA are only possible because there are willing international buyers for government securities denominated in the currencies of those countries. The demand for Russian securites denominated in rubles is much lower.

There would have to be a JG in Russia, with possibly strict wage and price controls, and those on that JG would have to work very hard to replace imported goods, previously made affordable by relatively high oil revenues, with domestically produced ones. Those JG jobs wouldn’t be an easy option for the currently unemployed.

Instead, JQ gets quite a lot wrong about MMT. Saying , for example:

“To sum up, while MMT provides a different and sometimes useful way of looking at the interaction between monetary and fiscal policy, it doesn’t change the basic equation that, in the long run, public expenditure is paid for by taxes.”

What’s the long run? As Keynes famously remarked we are all dead in the “long run”. See Bill Mitchell’s blog:
for a more comprehensive discussion of just why MMT isn’t wrong.

According to the principle of sectoral balances its is easy to show that:

Govt Deficit = Private Saving + Net Imports.

In other words, all money spent by the Government will be returned in taxation, as that money is spent and respent in the economy. Where else can it go? That is unless someone saves it. Either in a piggy bank or in a bank account. Or if it is spent on net imports. That means that money gets saved in the central bank of the big exporters. Then, and only then, it becomes unavailable to the taxman.

We see that countries like the UK, the USA can happily go on running deficit after deficit for year after year. These governments aren’t just funded by taxation. They are funded by these deficits too.

So can it continue? Will they have to repay it in the “long run”? Are these deficits a burden to British children and grandchildren?

Could a job guarantee work in Russia and other less affluent countries? Well, yes it could. The idea has worked in the few cases where it has been tried. Notably in Argentina and India in recent times. In addition, though, the taxation system would need to be improved considerably to ensure taxes were collected as required and, equally importantly, on time and before the receipts weren’t eroded in value by inflation. The lack of  decent taxation system is a common factor found in many countries which are still suffering from high levels of inflation and which does indeed blight those economies. It isn’t being neoliberal to say that.

All Governments should also think in resource terms rather than solely in monetary terms. That includes especially human resources. Having a high percentage of the workforce hanging around doing nothing is wasteful in the extreme.  Incidentally, and to that extent MMT is badly named. It is not really even about money per se. Neither is it even that modern! Is it a theory? Maybe. But then so is gravitation. So, if we do think in resource terms we can see that if, say,  food production, for whatever reason, doesn’t keep up with food demand then, all other things being equal,  there will be less to go around that is required and it will rise in price.  Price being the mechanism by which scarce resources are rationed. Neither MMT nor any other economic theory can change the reality of that.

MMT Humour !



How to Balance the Government Budget. The MMT way! (Part 2)

To fix the UK economy requires that aggregate demand be increased. Nearly all politicians understand that. Except, the favoured way, and some might say the only way, for those on the right of the political spectrum is to create a credit bubble to encourage more private spending through more private borrowing. That’s not an option for the foreseeable future as the private sector is now saturated in debt. So saturated , in fact, that we’ll have another crash in the next couple of years unless the next government acts quickly to prevent it. That will require them to spend in a sensible fashion but nevertheless spend big time. Realistically, it is going to be a difficult sell electorally. The problem, for those politicians wishing to advocate this line, will be questions such as “where’s the money going to come from?”  and comments such as we “can’t afford” to do that.

Of course, the money comes from where all money comes from in the first instance, and as Keynes said, if something can be done it can be afforded. The only danger of too much spending is too much inflation. The danger of too little spending is the recession we have now, both in the UK and, even worse, in the Eurozone.

The problem is that the electorate, and most politicians, don’t understand economics. That’s not surprising. The mainstream media don’t explain it at all correctly. To most people, the government is like a company or a household. To spend money it has first to acquire money. That’s true for a user but not at all the case with an issuer of currency.

It’s rather like living in society where everyone thinks the world is flat. If we insist the world is really round then they might not like that and vote for someone else. We, in turn,  wouldn’t like that so the best approach may be to pretend we think the world is flat too, and work our way around the problem as best we can!

One way is to redefine what we mean by ‘government deficit’. As Neil Wilson has recently noticed, Ed Balls has been astute enough to use the term ‘current deficit’.

I think we all missed the inclusion of the extra word for slightly too long, so full marks to Neil for spotting that. Maybe, we gave Ed slightly more criticism than he may have deserved over his advocacy of ‘balancing the books’.

So what could be the plan? The idea is simply that we shouldn’t count capital spending, just current spending. On a personal level,  current spending is our going down to the pub and drinking a few pints. We’ve nothing to show for it the morning after. Capital , or investment spending, would be on building a house or investing in a viable business. The value of that would, if we drew one up,  appear on our personal balance sheet, so even if we went into the red financially we would still be in the black overall once the value of the physical assets was counted.

So how’s it going to work for government?  Current spending is, amongst other things, paying out unemployment benefits. Capital spending includes electrifying all railways and building houses.  The government is in a very advantageous position when it comes to doing anything in the economy. Unlike you or I, it doesn’t have to borrow money at high interest rates. It can either just create the money or borrow it via the sale of gilts at very low interest payments. Also unlike a private developer which has to pay taxes to government during the course of the development, government actually receives taxes. Therefore if a private developer can build at a profit, then government can do the same thing and make an even bigger ‘profit’.

So say it decides to build a £100 million residential development. It classes that as investment spending or capital spending so it doesn’t appear on the books as a ‘current deficit’.  It hands out contracts to builders in the private sector and most of that money gets spent on wages. Either directly, on the wages and salaries of building workers, architects etc, or in the process of the labour that goes into making bricks, concrete, timber, tiles etc. So straightway some £30 million or so comes back as taxes and NI payments. The bricks, concrete etc attract VAT when they are purchased. So that’s probably another £10 million or so going back into government coffers. That revenue is classed as current revenue so it reduces the ‘current deficit’.

Then that remaining £60 million gets spent and respent in the economy. At every stage taxes are levied. 20% VAT, corporation tax, capital gains tax, fuel taxes, alcohol and tobacco taxes, yet more income tax and NI, plus lots more taxes too that we can all think of. The end result is that nearly all that £100 million goes back to government. At the same time building workers who were unemployed have now found jobs so don’t need to be paid dole money any longer.

Then government can take delivery of those £100 million worth of flats or houses , say about 400 of them at £250k each.  It then sells them to a housing association or  co-operative and gets all its money back. But it’s already got it back anyway! Alternatively it can rent out the residences directly, or via a lease arrangement with the co-operative, and collect the lease or rents, which at present day prices, especially in London, will pay off any interest multiple times. That way it still owns the properties and their value appears as an asset on the government’s balance sheet.

In other words it makes a tidy profit on the deal. And no it’s not necessarily inflationary, when there are unused resources available.  Government will have created something extra for sale in the economy. Inflation has to be about more money chasing the same amount of goods not more money chasing extra goods.

It can repeat the same idea in lots of other ways too. For example, it can extend and modernise the Underground in London. It can start to construct Underground railways in other major cities like Manchester, Birmingham  and Liverpool. The spending is classed as ‘investment’ or ‘capital.’ The revenue from the spending is classed as ‘current’.  The price tag  is not important, providing that the resources are available and unused, and providing  we create useful jobs paying living wages, we can  always afford to pay for them. By creating jobs we are not just investing in infrastructure, but we are also investing in people, enhancing their participation in  society and providing them with the means to support themselves and  their dependents. We can always afford that.

Is this what Ed Balls has in mind?  His Bloomberg speech shows  he knows enough about economics to suggest that he does.