Grace Blakely recent wrote “On MMT” in which she discusses an argument with Richard Murphy. Meanwhile, a few of the anti-MMT conventional Labour economists started up their usual attacks on MMT.
The problem UK MMT had was the lack of well-known local academic economists. This meant that whenever economic controversies involving the U.K. popped up, MMT did not have solid local representation. Although Richard Murphy is in academia, he is not the most reliable proponent of MMT.
If we look at “recent” economic controversies in the U.K., the two where MMT would matter the most, it would be the Truss Debacle and the Office of Budget Responsibility (OBR).
Truss-O-Nomics
Although I greatly enjoy mocking the hapless Liz Truss, she did manage to greatly damage MMT during her short-lived reign. Her economic programme unravelled as gilts (government bonds, short for “gilt-edged securities”) and the pound collapsed.
This brought back the narrative of “currency and bond market vigilantes,” which are beloved protagonists of a horseshoe of Post-Keynesian and neoclassical economists. These economists argue that you need to kowtow to the traders in the City or Bad Things would happen to your bond and currency markets.
Needless to say, I disagree with that assessment. There is ultimately little you can do about the currency in the near run (inflation stability will deal with the long run via purchasing power parity limitations), but the problem in the U.K. was not so much the currency movement rather the fact that hapless pension funds were getting killed on currency hedges. This is a regulatory failure and/or incompetence — the pension funds should have taken liquidity risk more seriously. As for the bond market, this was also a question of incompetence — the Treasury, the Debt Management Office, and the Bank of England should have had a much better handle on market conditions.
The (central) government bond market is a creature of the government, it only acts like a free market because of policy decisions that leave yields free to price the expected path of short rates. There is nothing stopping the government from issuing long-dated gilts on a “price basis”: set the auction yield, and see how many are bought. If not enough are sold, sell short-dated paper at yields that sit on top of the policy rate. But that sounds like “socialism” so we are stuck with a half-arsed compromise: the government has to pay people to hobnob with market participants to see what the market will bear, and then try to issue the amount of bonds that leaves long-dated gilt yields at the “right” levels. (Which ends up looking identical to just issuing bonds at a target yield from a modelling perspective.)
Since we want to pretend that long-dated yields are a “free market,” we are stuck with pretending that we need to care what gilt traders think about fiscal policy. However, this is not that serious a constraint in reality, you just need to avoid being as jaw-droppingly thick as Liz Truss, and you can probably avoid calamities. After all, the Bank of England has a lot of firepower to keep gilt market conditions orderly.
Office of Budget Responsibility
The Office of Budget Responsibility (OBR) theoretically could be a key player for a “MMT aware” government, given the MMT belief that inflation is the ultimate constraint on fiscal policy, and the entity with a mandate to control inflation (the Bank of England) does not have the correct tools to do the job.
The problem with this theory is that it is more likely that the OBR is a neoclassical Trojan Horse that just acts to constrain Labour (or other left wing) governments, while the right wing parties will happily ignore it when they enact tax cuts. (They would only pretend to care what the OBR thinks when they move to slash welfare spending.)
The fossils in the Labour Party who supported the formation of the OBR have not advanced beyond the 1990s, when the centre-left won elections following conventional tight fiscal policies. However, the political environment has changed — right of centre parties are no longer bound by quaint notions like “good governance” or “truth,” and so there is no point in wanting a one-sided mechanism that only binds yourself.
Brexit
Modern Monetary Theory is effectively agnostic on the question whether the U.K. was better off inside the E.U., but the same is effectively true of most other schools of macro economic theory. The trade-off between British control over regulatory policy versus cutting off trade with the Continent is “political economy.” (Things would have been different if the pound had been absorbed by the euro, in which case MMT thinking leans towards currency sovereignty in the absence of a credible euro-wide fiscal agent, however, even then, MMT-ers tend to stay away from pushing for a euro breakup.)
Privatisations
Modern Monetary Theory is built around a monetary mixed economy. Where the dividing line between the private sector and the public is not fixed dogma. A Job Guarantee does create some state capacity, but the variability of the number of workers and the fixed low pay mean that it is not going to be a mechanism for providing key services in a fashion that would be competitive with dedicated private or public entities with full-time employees with a variety of skill sets.
Recap
Having run through the major points of debate, it seems clear the pure MMT positions are in the same boat as pure neoclassical macro theory — they are not aimed at the topics of discussion. The main MMT takeaway is that the Labour government should not tie its hands to fears of the OBR or bond/currency vigilantes, but that is not the same thing as saying that they can do whatever fiscal policy they want. We are not in the deflationary malaise of the 2000s, so straight loosening of fiscal policy will hit inflationary constraints much quicker.
The Labour government did exactly what the neoclassical centre-left wanted, and managed to bring in zero major economic changes. This passivity has partly led to the their political implosion. In contrast, the Canadian Federal Liberal Party — one of the few competent anglo centre-left parties, argued that Canada was in a national crisis, and announced big policies to do something about that crisis. The business press whined about government debt — but they always do that, and so nobody noticed.
With that out of the way, we can now return to what this article was originally about.
Grace Blakely Article
By way of background, Grace Blakely is a socialist, and sees limited value in MMT for political struggles. She writes:
Socialists who sympathise with MMT have a strategic decision to make: do they spend decades trying to teach people how government spending really works, while much more powerful forces preach the common sense argument that the government is like a household, and can only spend as much as it earns? Or do they spend their limited time and resources supporting people to win the battles that they are already fighting in their communities, in their workplaces, and on the streets - and advance a policy agenda that supports them in these struggles? Less ‘learn MMT’; more ‘freeze the rent’, ‘strengthen workers rights’, and ‘public ownership now’.
Her thesis matches my previous arguments: MMT is about technocratic debates within a mixed economy, it is not a tool for winning all political debates. As my recap noted, only a few of the economic debates that showed up in the U.K. in recent years was really MMT territory. You can even note that the austerity policies of the 2010s were opposed by left-of-centre neoclassicals on neoclassical grounds. The MMT/neoclassical debate about austerity (which is what drove MMT into wider prominence) was often not about the policy, rather how to analyse austerity in the first place.
(To be clear, I am not a socialist. The subtitle to Grace Blakely’s piece is “Does the left want paternalistic technocracy, or democratic socialism?,” and given those options, I am on team paternalistic technocracy.)
My argument is that if you are worried about politics, you probably should be taking lessons from the apex predator Canadian Liberal Party instead of the grab bag of losers and incompetents that run practically every other political party in the anglosphere. Justin Trudeau wore out his welcome — so just send him off to hang out with Katy Perry and then bring in a competent neoliberal extraordinaire. All Carney needed to do is tie the hapless Pierre Poilievre to the clown show south of the border, and that give him all the political space he needed to ram through infrastructure, defence, and housing policies.
The Canadian Liberal Party used to be deathly afraid of currency and bond market vigilantes after some alleged “crises” in the 1990s, but the post-pandemic reaction shows that they are much more flexible than they used to be. The problem the U.K. faces is that pretty much everyone buys the vigilante story without questioning it, while Canada has decades more experience with a floating currency, so there is a greater sense of realism. Ultimately, this is a serious political problem for any left-of-centre party in the U.K., so there is a need for a constructive debate about that aspect of MMT.
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