MMT and Economic Growth

Most economists , including the MMT variety, are wedded to the notion that economic growth in itself is a good thing. Of course, it has indeed been that over the last centuries. Few of us would be happy living under the same conditions as our 19th century forebears for example.Looking at inscriptions on the headstones of an old cemetery, or the reading of a few chapters of a Dickens novel provides enough evidence of the harsh living conditions that most endured then. Infant mortality was high. Many women died in their prime due to complications of childbirth. Improvements have largely been made possible by economic growth. In our modern economies we notice that unemployment falls when economies grow. Workers can negotiate higher wages as businesses can sell their products and services into marketplace. Everyone is happy. Governments get re-elected!

Economic growth is largely a product of human ingenuity. Give a group of workers the task of doing something, like making a car for example, when they have no experience of even seeing a car before and they’ll struggle to do it. The cars they produce won’t be very good. They will consume a lot of labour power and be relatively expensive, so that only the very wealthy can afford them. That was the case in the early years of the car industry. But as the workers gain more experience and apply their intelligence to the problems at hand, the cars are continually improved. The labour time to make each one falls as production techniques improve too. Fast forward to where we are now, and we have very good cars made very efficiently by far fewer workers at a fraction of the cost of a century ago. It is the same story in just about every industry we can think of.

Those in the Green movement question that we can have economic growth forever citing the fact that economic growth implies an exponential consumption of the finite resources which are available to us. It’s a good question and it’s one we are going to have to answer sooner or later. We might want to make a start on doing that now in the context of our present economic problems. In the UK and Europe we have seen no real economic growth since the 2008 GFC. The situation varies from country to country but typically GDP per person is just about what is was a decade ago. Even so, this is still approximately twice what it was a generation ago. So is everyone twice as happy now as they were then? Or are they exactly as happy as they were a decade ago?

Of course they aren’t. There’s much more unemployment and underemployment now. There are more homeless people than there were, there aremore people relying on food banks. The state of the NHS and the education system is worse than it was. In 1980, students still had grants, but now they don’t, even though supposedly we are a much wealthier society, notwithstanding the difficulties brought about by the 2008 crash. This is not what I remember being told by Sir Keith Joseph ( a Tory politician very close toMargaret Thatcher) in the early 70’s when we clashed at a student meeting where he was speaking. He criticised me, in particular, and the left in general, for being overly concerned with the redistribution of existing wealth and not enough about the creation of new wealth. His message was that social and economic problems, of which we were both aware existed, were best solved by having a more productive economy and allowing the wealth creators free rein to create wealth unhindered by State interference. It would have been inconceivable to the rest of the meeting, and maybe even to Keith Joseph and myself, that some 40 years later we’d have had the levels of growth we’ve had but still the same economic problems would remain unresolved.

We don’t need degrees in economic theory to know that if the proverbial ‘economic cake’ is much bigger but there are still those surviving on meagre rations, that the imbalance must be due to how that cake is cut. The question of who gets what does matter when discussing Economics. Economic growth has to be more than about mopping up surplus labour in a capitalist economy. If we do achieve some growth, that’s fine, we all can feel a bit better off. If we don’t, we should all feel that we are neither better nor worse off, instead of, as now, feeling that we have to run just to stand still. Do we need a different type of economy for that to happen? The critics of MMT might argue that it’s little more than a patch for the problems of a capitalist economy. I wouldn’t accept that but we do have to explain how MMT can work for everyone if we are to establish meaningful links with the political left. A Job Guarantee on a minimum wage won’t be enough for many.

If we do want that, we have in the words of Labour’s old Clause 4 to provide an economic theory which can help to “secure for the workers by hand or by brain the full fruits of their industry and the most equitable distribution thereof”.

 

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4 responses to “MMT and Economic Growth

  1. Stephanie Kelton “we only worry about growth because we worry about the debt”

    • I normally agree with Stephanie and I can’t find the context in which she said this, but I’d say that even if we learned not to worry about public debt, we’d still worry about growth. As things are, economies do need growth to prevent unemployment rising.

      Productivity naturally does rise due to human ingenuity. We can always figure out ways of doing the same thing quicker. That’s largely driven by technology. Banks don’t need so many tellers now that most people and businesses use internet banking. Supermarkets are phasing out checkout staff in favour of automatic scanners. Factories are using robots…..

      In a more sensible society we could use these changes to reduce the working week or give ourselves longer holidays, but the underlying point I was trying to make was that MMT won’t necessarily help us do this, even if we establish its validity. We need a political dimension too.

  2. You said, “some 40 years later we’d have had the levels of growth we’ve had but still the same economic problems would remain unresolved.”

    From this, I deduce that someone or some group of people must have appropriated the wealth produced.

    We have a failed taxation system that constantly fails to redress the imbalance. The fruit of labour is denied to the producer of this wealth.

    We know the big, global companies pay next to no tax or shift their profits where they pay the least tax.

    All taxes, at this point of time, are taxing labour. Where is the incentive in that?

    There is an alternative available. This alternative is known under many different names, like the single tax, land value tax or capture of land/natural resource rents. The public knows it under the misnomer “land tax”.

    It all goes back to Henry George and the book he wrote, “Progress and Poverty”. I’m sure, you know more about it than I do. What I wanted to point out is that all taxes are evil, because they tax labour. The “Land Tax” taxes the value of the land that has been created by the cooperation of all people.

    Therefore, this value should be captured and redistributed for the benefit of all members of society.

    Of course, we need the political dimension too.

    But isn’t everything political in public life?

  3. “this value should be captured and redistributed for the benefit of all members of society”

    There is re-distribution. Two operations:

    1. Tax-away, extinguish purchasing power via the land-value tax.

    2. Add net financial assets to the balances of domestic private sector entities (preferably in a targeted manner).

    If the two sums (in operations 1 and 2 match, fine. If not, no problem. There is no taking X from A and giving IT to B.

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