The U.K. Debt/GDP Ratio Is NOT Going To 1000%

The U.K. Office of Budget Responsibility (OBR) published its “Fiscal Risks and Sustainability” report (link) and it contains the eye-catching chart above. I will draw your attention to the top line which represents a “worse case” projection of the debt/GDP ratio marching merrily off to 1,000%. I do not expect to be able to pay off on any bets in 2076, but I find it safe to say that the debt/GDP ratio will not do that. Even the low end projection is implausible.

I will first explain why the high projection is nonsensical, which then leads to a discussion why any methodology that produces such a scenario is unsound.

Yet More U.K. Bond Market Vigilantism

I have been getting ready to leave town, and so wrapping up other projects. The only thing that popped up in my internet browsing was the Return of the Bond Market Vigilantes, this time courtesy of a tweet on May 30th by the U.K. Green Party Leader, Zack Polanski. The short text was “We must stop being in hock only to the bond markets. No one voted for the bond markets.”

UK MMT Wrangling

There’s been a rise of Modern Monetary Theory (MMT) wrangling on my Bluesky timeline, largely the result of intra-left mudslinging. I just want to stick my nose into the discussion, although I do not really spend much time thinking about U.K. policy options (I tend to either shake my head or snort in derision whenever U.K. economic debates surface). (The last piece of my EU5 series has been delayed.)

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.

Comments On "The Race Between Asset Supply And Demand"

Adrien Auclert, Hannes Malmberg, Matthew Rognlie, and Ludwig Straub presented the paper “The Race Between Asset Supply and Demand” at the Jackson Hole shindig (link to paper). The paper argues that the demand for assets has so far outstripped supply, and the abstract has the eye-catching conclusion: “Making debt sustainable requires a fiscal consolidation of at least 10% of GDP, but debt could reach 250% of GDP without pushing up interest rates.”

Fed Independence And The Rates/Inflation Debate

The drumbeat from the White House to replace Powell as the head of the Fed is increasing, and we are seeing potential candidates for the replacement echoing President Trump’s line that the United States needs low interest rates now. (President Trump argued Monday that the policy rate should be 1% or lower - link to news article.) I have just written an article about the difficulties finding writing opportunities about economic theory debates, and I guess I needed to be more careful about what I wish for.

Economic Debates Comments

I am catching up after my vacation, and have been somewhat struggling to find timely topics to discuss. One of the problems of the Trump administration for me is that the focus of discussion are on political economy topics — and the administration’s actions do not have a whole lot of serious support.

Trump gave in to his love of posting tariff rates on social media, and just unloaded another broadside on unfortunate (mainly non-OECD) countries. It remains to be seen how sustainable this round of tariffs will be, but it seems more likely that he can ignore domestic complaints that result from trade relations with countries that are smaller trade partners than countries like Canada and Mexico.

MMT Documentary - Finding The Money

There is a MMT documentary now out — “Finding the Money.” I have not watched it yet, as it is on a streaming service I recently dropped. (My family rotates through the various streaming services, so I will watch it once we swap around again.) Obviously, I cannot give any recommendations about it, but it sounds like a good introduction to some of the debates.

Unfortunately there was a lot of howling on X (the everything app) about one aspect: the economist Jared Bernstein had a bad interview based on running into a question that he had not thought much about (I believe it was along the lines of “why would a floating currency sovereign borrow its own currency?”). The unfortunate thing is that there were a lot of activists playing this clip up, which then was picked up by right wing political opponents of Bernstein. This then led to a backlash by liberal-left mainstream types about Bernstein being set up. (From my understanding, other mainstream(-ish) critics of MMT came off better within the documentary.)

A Response To A Question About Post-Keynesian Interest Rate Theories (...And A Rant)

I got a question about references for post-Keynesian theories of interest rates. My answer to this has a lot of levels, and eventually turns into a rant about modern academia. Since I do not want a good rant to go to waste, I will spell it out here. Long-time readers may have seen portions of this rant before, but my excuse is that I have a lot of new readers.

(I guess I can put a plug in for my book Interest Rate Cycles: An Introduction which covers a variety of topics around interest rates.)

"Paying For Two Wars"

Comments by Treasury Secretary Yellen and President Biden about “paying for two wars” has attracted some chatter. For example, Adam Tooze just wrote an article on it.

As Tooze notes, saying that America is paying for two wars is a particularly bad framing for support for Ukraine and Israel. A good portion of United States aid is shipping “obsolete” weaponry (admittedly not as obsolete as Russian 1950s era equipment that is showing up on the front line), the offloading of which saves the United States the expenditures associated with decommissioning it. The United States is not going to have combat personnel on the ground under most plausible scenarios, and so the usual disruptive effects of a war are not present for the United States.

Advantages To Procedural Changes In Bond Market?

From my recent Torrens Zoom call, I ran into questions about procedures in the government bond markets. The main question was whether I saw potential changes to the markets to improve things. The second was more of a concern about the complexity and opacity of the bond market.

CEA MMT Panel Post-Mortem

I participated in a “Yay/boo for MMT!” debate Zoom panel for the annual Canadian Economist Association conference. I do not think I said anything outrageously stupid or got anyone raging mad at me, so I beat my expectations going into it.

(I do not know if these panels will be publicly available after the end of the conference.)

The Canadian "Fiscal Crisis Of 1994-5"

I have now arrived at the part of the preparation for my panel that I have dreaded: the Great Canadian Fiscal Crisis of 1994-1995. This is an event that Canadian Establishment figures will talk your ear off about if you bring up Modern Monetary Theory (MMT). My problem with this crisis is that I spent my working life staring at charts of yields, economic data, and exchange rates, and never even noticed anything unusual during that period in Canada. It was only much later that I heard about this alleged crisis. (I was out of the country until August 1994, and too busy teaching my first course as a postdoc in engineering to notice what was happening in the markets or the news.)

Central Bank Independence As A Secret Ingredient?

Following up on my comments on the paper: “Deficits Do Matter: A Review of Modern Monetary Theory” by Farah Omran and Mark Zelmer, I am going to do a high level discussion about their claims about the value of an independent central bank. (For new readers, I am discussing this paper as I will be on a panel about Modern Monetary Theory (MMT), and Mark Zelmer is one of the participants. I am using my articles here as a way of thinking about my prepared remarks.)

Silly "MMT" Drama

If I were smart, I would skip mentioning this, but there has been some drama between “Richard J. Murphy” and MMT proponents. Since I mentioned him recently, I blundered into creating a moral obligation to dip further into this mess. I do not really know who Richard J. Murphy is, but he apparently is high profile among some section of British progressives, which is the source of the drama. As a crotchety old school Canadian Prairie Populist (who is inexplicably stuck in Montreal), intra-left drama is not something I find surprising nor interesting. The issue here from my perspective is that Murphy is attempting to commandeer “MMT.”

Comments On The Omran/Zelmer MMT Critique

This article is a grab bag of comments on the paper: “Deficits Do Matter: A Review of Modern Monetary Theory” by Farah Omran and Mark Zelmer. I have mentioned this article before, for the good reason that Mark Zelmer will be on the other side of a panel on Modern Monetary Theory (MMT) that I will be on in late May.

Tax And MMT Mudslinging...

I have been tied up courtesy of a major power failure, Easter, and other family obligations. Over the weekend, there was a blow up on Twitter between Richard J. Murphy and what appeared to be dozens of Modern Monetary Theory (MMT) proponents. (I ignore any Twitter thread involving lots of people and lasts more than a day, so I cannot fill in more details.) The dispute was about the role of taxes (although it devolved into whining about attitudes). Since many of my readers will have found me via Twitter, I just want to explain why this is largely a non-issue.

Learning From The Crisis (MMT Perspective)?

The panel I am on is shifting its topic a bit to include some discussion of the latest crisis. Although this is more topical, it is not exactly moving in a direction that fits my knowledge of Modern Monetary Theory (MMT). I see two broad issues. The first is the discussion of bank failures (so far!) which I have a limited ability to comment on. The second is more useful for a MMT debate: interest rate policy is not exactly as costless as neoclassical arguments suggest.

Yet More Rambling About My Upcoming MMT Presentation

Along with Eric Tymoigne, I will be on the “pro-” side of a “pro-/con-” Modern Monetary Theory (MMT) panel at the online part of the annual Canadian Economic Association (CEA) conference (on May 30, the live conference is in early June in my old hometown of Winnipeg). As a non-academic non-economist, if I were smart, I would keep my head down and offer fairly cautious remarks from the perspective of an educated outsider (with obvious biases). Whether that happens when I start opening my mouth remains to be seen (“No plan survives contact with the enemy”).

Government Bonds As Money

I ran into the periphery of an argument about the question “Are government bonds money?” on Twitter. I have seen variants of this question in “internet MMT” discussions for some time. I think this question confirms my view that we need to abolish “money” from economic theory.

I am keeping this article as brief as possible. For more information, a lot of this ground is covered in my recent MMT book.

Academic MMT View — No

This first thing to note is that from what I have seen of academic MMT discussions, “money” and “bonds” are distinct. One thing that I see is that “money” shows up in two ways in most MMT writing.

1. The most common is that “money” is a stand in for “government money” — which is the monetary base. This corresponds exactly to the way money and bonds show up as M and B in both heterodox and mainstream models that do not have a banking system. (This leads to the straw man attack that “MMT ignores that most ‘money’ is created by banks!”)

2. If we want to look at “broad money,” bank money is seen as “pyramided” on top of the monetary base. (Which answers the previous straw man attack.)

MMT After The Pandemic Shock

It is likely that I will be participating (remotely) in an academic panel about Modern Monetary Theory (MMT), with a “pro” and “con” side at a Canadian academic conference. This article is my initial thinking, and is a way of soliciting feedback. The “story” behind the panel is whether we learned anything from the pandemic shock.

(Note: I have been tied up with some consulting work, so my writing output has been down. That project is wrapped up, so I should have more writing time.)