Common Weal director Robin McAlpine finds that the debate around Modern Monetary Theory can help the independence movement develop an economic case for independence far better than a redacted version of the Growth Commission
IT’S been really interesting to start the year with a debate over Modern Monetary Theory. I think it speaks well of the independence movement that we’re even looking at these important issues, thinking which is woefully absent from much of the UK economic debate.
For those who haven’t seen it, it was started by Gordon McIntyre Kemp of Business for Scotland in his National column which drew responses from Richard Murphy, George Kerevan and Cameron Archibald among others.
I won’t go into all of the details of MMT here – the articles above all provide a decent primer. What I think is useful (and what I think Gordon kind of got wrong) is not to think of MMT as a new programme of action or a different philosophy or an ideology.
In fact, what MMT really does is describe what we already do but describe it more accurately. The reason I find it so interesting is that this different perspective helps think more effectively about fiscal and monetary policy.
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The real heart of MMT for me is explaining that national finances simply aren’t like household finances. Debt is a problem for households, but then households don’t control the money system.
As we know, governments can simply create money if they want to, something households can’t. The problem comes not from the theory itself but from how some advocates have explained it.
The standard line is that a country with its own currency can’t go bankrupt. This is technically true, but it’s a bit meaningless. There are things that can happen to you that are pretty damn awful which aren’t bankruptcy.
The factor people tend to talk about is inflation, but it is certainly not the only problem. If a nation increases the amount of its own currency sufficiently, eventually it will inevitably impact on exchange rates.
Put simply, if you keep printing large amounts of new money, other economies aren’t going to treat that money as having the same value forever. Sooner or later your exchange rate would drop and the cost of imports would rise substantially. That would be a very big problem indeed.
But then, no serious MMT advocate is suggesting this is feasible. They’re just saying that the reality of economics means governments should run at a deficit a lot of the time and they simply shouldn’t worry about national debt – so long as exchange rates are steady, inflation is under control and especially if much of the debt is denominated in the national currency.
It is really a theoretical argument with monetarism and austerity. Very loosely, these are arguments against public expenditure which were popularised by Thatcher. ‘Live within your means’ sounds like it requires you to spend only what you have. But a government’s ‘means’ go far, far beyond it’s bank balance.
That’s the point – almost everyone in the world apart from Westminster, the EU and the Growth Commission have recognised that austerity (cutting or squeezing expenditure during economic difficulties) is damaging to recovery. Even the IMF thinks its a bad idea.
I’m a pretty strong proponent of MMT as a way of seeing public finances. But here’s the funny thing – it didn’t really change what I thought we should do. It just described it better.
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An independent Scotland shouldn’t consider for a second running a budget surplus in the early years. It shouldn’t even seek to reduce the deficit – because both these things would simply suck demand out of the real economy. It would harm economic development.
Rather we should be driven not by ‘balancing the books’ but by investment. The more we are investing in the economy in those early years, the better. Public debt is just another way of saying public investment.
There is only one condition for this – we need to have our own currency. If we were using Sterling, the London money markets would control monetary policy and would demand austerity. If we used the Euro, the EU would demand austerity. In both cases public policy would be run by their bankers – in the interests of their banks.
So it is really good that we are having this conversation, because only by having it will we learn. The Guardian’s Aditya Chakrabortty (one of the few economic commentators in Britain I really rate) put it very well in a column this week.
Post-Brexit, everyone (and I mean literally everyone) knows there’s something really wrong with the UK economy, but almost no-one both knows what it is and is willing to say it.
In reality, quite a lot of people know what’s wrong – we’ve got a consumption and private debt-driven economy with very high inequality and very low productivity, and with the greatest degree of centralisation in Europe if not the developed world.
But the necessary economic reforms would challenge the money-making scam which is the City of London, so the official view is that all the economy needs is to cancel Brexit. Which is clearly nuts because the fundamental problem has nothing whatsoever to do with Brexit (which is symptom not cause).
This is the fundamental problem with the Growth Commission report – it has lots and lots of words but does not engage with a single one of the big, fundamental economic debates taking place around the world.
Common Weal will soon be publishing a substantial report making the case for an economic development strategy for an independent Scotland based on investment rather than keeping bankers happy by changing nothing.
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In developing the report we took a look at the big economic philosophies of our era to find out what we could take from them. We identified 18 – of which MMT is only one. If we’re serious about Scottish independence we need to engage with the big economic thinking of our time.
That means Foundational Economics, economic decentralisation, Local Wealth Building, the Entrepreneurial State, Circular Economics, Deconsumerisation and Definancialisation, Deglobalisation, Feminist Economics and much more.
These ought to be at the heart of the UK debate after the 2008 financial crisis and post-Brexit – but they’re not. The UK debate is really the Growth Commission expanded – just tell people that a bit more of what we’ve been doing for the last 40 years is all we need.
It isn’t. There is barely a serious economist anywhere in the world not worried about the risk of another financial crisis in the next few years, and very few not worried about some giant structural challenges ahead (not least the impact of automation).
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But as we know, economics became a discipline that thrived by telling rich people what they wanted to hear and by turning a blind eye to inconvenient problems. There is still far too much of that going on.
What worries me is how we’re going to have this debate. I hear rumours that the SNP leadership is hoping to cut and paste bits of the Growth Commission report into a much shorter document. You know, like editing ‘this film is not good’ into ‘this film is … good’.
But this is the opposite of facing up to why the report is wrong and would mean the debate starting from the wrong place. That’s just trying to manage the party by ignoring the big questions.
And let’s not kid ourselves on that this is anything other than a Scottish Government sinking deeper and deeper into real trouble.
From redacting text in a legal case to try and screw over a previous First Minister (followed by yet another humiliating climb-down) to frankly outrageous attempts to distort the work of academics to fool the public into thinking its education policy has any support at all, Nicola Sturgeon is now in full crisis aversion mode.
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We’re struggling to get any leadership from her on independence (as Alex Salmond made clear in understandably angry comments after the court case). She is simply in no place to lead a serious debate on the economics of independence.
That’s why I’m grateful to Gordon McIntryre Kemp for opening up this debate, even if I think he got it wrong on this occasion. Because if the movement doesn’t generate this thinking on its own, we’ll end up with a kind of redacted case for independence.
Nice thing, nice thing, redacted, redacted, redacted, platitude, generality, nice thing, redacted.
This is a pivotal moment in the global economy. Scotland deserves a much better debate than its been having on our economy.
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