Modern Monetary Theory
It really is time that politicians took note of modern monetary theory
The Guardian has an editorial this morning that I recommend reading in full, but which I will discuss here nonetheless.
Of most note in their introduction is the observation that:
Jeremy Rudd of the US Federal Reserve writes scornfully in his latest book, A Practical Guide to Macroeconomics, that economists’ role today is to justify “what elite interests want to do anyway: deregulate, pay fewer taxes, keep wages as low as possible”.
There is, I think, considerable truth in that assertion.
What, however, they go on to say is that:
One school of thought attempting to rewrite the textbooks is called modern monetary theory, whose face is Stephanie Kelton, a former economic adviser to Bernie Sanders. She argues that there is no financial constraint on government spending; money can be created and invested so long as there is capacity in the economy to absorb the cash. If not, inflation will follow. This shouldn’t be controversial. John Maynard Keynes said as much in his 1940 book, How to Pay for the War. The theory is not just about deficits: a strong exporting nation should pursue fiscal surpluses – an insight attributed to Prof Kelton’s tutor and ex-Treasury adviser Wynne Godley.
That is spot-on, including the suggestion that inflation is one of the core concerns of MMT, which those macroeconomists who serve elite interests, always seek to deny.
As they also note:
Her current argument that rising US interest rates might be inflationary finds her agreeing with her sharpest critic, Larry Summers. Such challenges should be welcome in Britain. The US debates have produced an industrial policy powered by government deficits – and the world’s fastest growing advanced economy.
That argument that the raising of interest rates has, itself, caused inflation is something that will be familiar to readers of this blog because I have rehearsed it here on several occasions.
As the Guardian then notes, all current mainstream political and economic opinion does appear to be aligned against such thinking at present. But as they also noted, one voice has suggested that this should automatically mean that the outliers should be listed to, when saying:
The history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgements were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored.
Ed Balls said that in 2010. But he's mainstream now, serving the interests of the elite with an agenda that will tick all their boxes.
Tax does not pay for government spending
I posted this video on YouTube this morning.
As I wrote in the explanatory note that accompanied it, probably the biggest challenge to understanding how the economics of governments really works comes from the need to understand that governments of the sort we have in the UK are not funded by taxes. They are funded by central bank money creation. Tax exists to control inflation (and tackle inequality, market failure and other things). Until it's appreciated that spending creates taxation and not that tax funds spending, nothing else about how the government works makes sense.
The transcript is as follows:
Taxes do not pay for government spending. It is one of the hardest things that anyone has to get their head around when they really come to understand economics. that taxes really do not pay for government spending. I promise you it's true.
Every single penny that the government spends is created by the government. Let's be totally honest, you do know that. If you pick up a five-pound note, it says, ‘I promise to pay the bearer on demand the sum of five pounds’.
They haven't paid the bearer on demand five pounds. They promise to pay the bearer on demand five pounds.
Why? Because money is debt and the government has created a debt to you.
So where does tax come into all that? Tax comes into all that because when you pay your taxes, the promise the government has made that it will accept your money in payment is fulfilled. They'll take your money back. in payment of your debt.
Let me be clear what happens then in the real financial world that we actually live in. Whenever the government spends it simply extends its overdraft with the Bank of England. Day in, day out, that's what happens. And then it asks us to pay tax because if it allowed all that money to float around the economy, of course we would get inflation remarkably quickly.
So, it asks us to pay tax to cancel the impact of the new money that it has created. And that cancellation is by taxation, and it's there to control inflation.
The spend comes first. It's paid for by money created by the Bank of England.
The tax comes second. It's there to control inflation, to ensure that the value of the money that we have in circulation remains broadly steady over time. That's the goal.
But it's never the case that the tax pays for the spending. The spending has to come first, or the money doesn't exist with which the tax can be paid. It's really that straightforward.
It takes a lot of effort to reverse what you've always thought, that tax pays for spending, to realise that spending actually pays for tax.
But it is literally true that without government spending, there could be no tax paid. There could be nothing, in fact, because there'd be no money at all.
So we have to get our heads around that fact because then we truly understand how the government functions and then we can talk about what it can do with this extraordinary power it has to create money at will, whenever it wishes, if it wants to, to deliver the outcomes that we as a society want, balanced by the taxation that we pay to control the inflationary consequences of doing so.
Why more government spending can require more tax revenue
I posted this video, which explains why more government spending in the UK is likely to require more tax revenue to be raised, at least whilst the benefits of that spending are generated if infaltion is to be avoided, on YouTube this morning:
The transcript is:
Do we need to raise more taxes if the government is going to spend more? It's a really important question and one that people are asking me because I've written the Taxing Wealth Report. That shows that the government could, by simply changing the rules on some of our taxes with regard to the way that they impact on the wealthiest people in our society, raise up to maybe £90 plus billion of extra tax a year.
So, people are saying to me, do you think that's what we should do? And is that a precondition of making the extra spending that we want? Let me explain what the relationship between government spending, money and tax is, because that provides the answer to the question.
The government creates our money.
If you doubt it, look at a five-pound note. Who made it? Ultimately, all the money in our economy was made by the government, just like that fiver.
I know some of it is theoretically created by banks, but they can only do it because the Bank of England gives them a license to do so, and who owns the Bank of England? The government does. So, in other words, all the money that is ultimately created is done by or under license from the UK government.
How does that money get into circulation? In the case of the government, and they start the whole process rolling, it is by spending. That five-pound note was not gifted to somebody by the government, it was spent into the economy.
They used the fiver - of course they could have used a bank account as well, but in this case we'll say the fiver - to buy something. They spent. And then they taxed. It has to be that way round, because if they hadn't spent first of all, there wouldn't be the money in existence to pay the tax.
So, it's always spend and tax and never tax and spend in an economy.
But when we look at spend and tax, the tax element is there for one very important reason, and that is to cancel the spend. If the government did not tax, and it spent £800 plus billion a year into the UK economy, and therefore let all that money float free, we would of course have massive inflation.
Now, that obviously isn't possible, so therefore, you have to tax to prevent inflation. That's its primary purpose.
All its other functions - redistribution, repricing market failure, reorganizing the economy through fiscal policy, and so on. - those things are all secondary - important - but secondary to cancelling inflation.
Now, if we are at or near full employment, and we want to spend more - the government wants to spend more - the risk is that it will create inflation by doing so. So, if, as at this point of time, we are either at full employment or we have unused resources that can only be put into use gradually, we have to tax whilst those resources are put into use or else we create inflation in the meantime.
Then we could go into a vicious downward cycle, the benefit of that spend would not be received by society, and therefore things would fall apart. So, the tax is put into place because of the additional spend, but not to fund it. It is part of the transition process to let us grow, that we must tax more.
And that is why the Taxing Wealth Report talks about raising more revenue, because these issues are fundamentally related.
Money for nothing and my Tweets for free
I was sent a promotion by Abebooks yesterday suggesting I might like to buy a copy of 'Money for Nothing and My Tweets for Free', which I wrote and published in 2022.
This is what they linked to:
This is really not necessary.
First, the book, most of which remains as relevant as when I wrote it, although I would rewrite the inflation section now, can be downloaded free here.
And if you want a hard copy it is available from Amazon, priced so I basically make no profit, at £4.95.
Stephanie Kelton in action on late night US TV
This was Stephanie Kelton on The Daily Show in the USA last night, talking about modern monetary theory:
In case the link does not work (and YouTube seems to be unreliable this morning), it's also here.
The Taxing Wealth Report 2024 and modern monetary theory – again
I had a Twitter direct mail message from a quite well-known person a few days ago, asking two questions about the Taxing Wealth Report 2024. The first was:
If you were PM would you do all those things or just some ?
The second was:
Second question - didn’t you say that govts don’t really need tax money in order to spend ? Inflation allowing, they can just print? Maybe inflation doesn’t allow any more?
I am obviously not going to disclose my correspondence name, but since what they have asked has been quite commonly raised since I published the Taxing Wealth Report, I thought it worth sharing my replies now, noting that more will follow.
With regard to the first question, I said:
No - because there is no need for them all at once. There may be over time, but the change would need to be gradual. Right now, this is a menu of options, not a list of necessities.
There are good reasons for this:
- The changes would be too much if all were done at once.
- Spending would be too great if increased to match this revenue, and there would be negative feedback from the economy that might be harmful.
- Redistribution cannot be done overnight.
In other words, being radical still requires that the rate of change that is possible within society and the economy be respected.
On the second, I said:
Your question on the role of tax in the macroeconomy is a good one, and one which several people have asked me. I will produce both a blog and video on it, soon. However, in preparation, let me explain it to you.
It is always true that taxation follows spending i.e. the government has to create the money with which tax can be paid before it is possible to collect it. It is, therefore, always, technically possible to finance some elements of spending without taxation as deficits can be run. But as the more sober proponents of modern monetary theory (like Stephanie Kelton and myself) suggest, this is only possible subject to the constraint of inflation, which we now are reminded is very real.
If an economy is at full employment, or if it is not but only has resources that will take time to put into use, then any attempt to increase its spending when there aren’t resources to acquire will create the risk that additional government spending might result in inflation unless it is matched by additional taxation soon thereafter.
This is clearly the situation that the UK is in at present. It is said that there are more than two million people who might be able to work, but they certainly won’t until the government spends more on mental healthcare, in particular. So, with that expenditure necessarily being frontloaded and those people not being able to work until sometime after those services begin, additional taxes might well be required in the meantime to control inflation. We can grow if that spending happens and those people really are able to work as a result (which is another question, altogether). But that growth must be put to beneficial use and not be wasted by the risk that inflation creates, which would immediately curtail it. Additional taxes, in the meantime, avoid that risk of inflation happening.
I have not changed my tune. Taxation does not fund spending. But additional spending can, in situations like the one that that the UK is in at present, require extra taxation. That might look like the same thing, but it isn’t, because if you understand that the spending comes first, then you also realise that the additional taxes should not be designed for the purpose of revenue raising alone, but should also reflect the social priorities of society, such as redistribution of income and wealth, and the need to address market failures like climate change. These are the ideas implicit in the Taxing Wealth Report 2024.
Does that make sense?
Comments are welcome.
As noted, more may follow on this. And please do not assume that I think 2 million people are available for work - I used an example.
Just wait: politicians will be shaking the magic money tree very soon
The situation in the Middle East looks to be very volatile. Israel’s attack on an Iranian embassy has given rise to an almost inevitable counter attack. No one’s actions are justified, let alone proportionate. I condemn the aggression on all sides: there are always better ways to solve disputes. No one knows what will happen next, barring one thing that is.
What I can guarantee is that whatever the cost of military action might be, the money to pay for it will be found.
The magic money tree at the Bank of England will be shaken in the short term, as it can always be.
In the longer term, more bonds will be issued.
So-called government debt will increase.
And all because payment will have been made for military action undertaken at ministerial behest for which Parliament will never be asked to give sanction.
In the short term, no taxes will rise and no other spending commitments will change.
Later, that might alter because the increased debt will be used as yet another excuse to impose austerity by those always looking to find one, even though the cost will already have been paid for and the debt need never be repaid.
So why note all this? Simply because what it proves are three things.
First, spending not only can, but always does precede taxation.
Second, spending capacity can always be found whenever it suits a politician to find it.
Third, there is no reason why such costs need suppress other spending. They are exceptional, but also affordable: if there were not the capacity to actually undertake the military activity then the cost could not have been incurred.
So what’s the point of saying all this? It is simply to point out that the scale of government spending, and what it is spent on, is always a matter of political choice, but that the capacity to fund the choices made can always be created if the ability to undertake the chosen activity it is to be spent on actually exists.
You can’t say MMT does not work because you think Scotland will be a failed state after independence
This tweet was posted over the weekend:
“I’m the Fox Mulder of MMT. I want to believe, but there’s a thing called the current account constraint...”@MkBlyth, professor of internatonal economics at @BrownUniversity savages Modern Monetary Theory at #Scotonomics festival. pic.twitter.com/XotdMBZh1Y
— Ian Fraser (@Ian_Fraser) March 23, 2024
The interview was by Karin van Sweeden with Prof Mark Blyth of Brown University in the USA, where he is professor of international political economy.
I happen to know both participants, although not well in either case.
I was infuriated by Mark’s comments and posted this last night in response to a typical comment supporting his position:
Mark’s claim was that he wants to believe in MMT but can’t because of the balance of payments problem that he claims it ignores. He summarised his argument on three ways.
First, he said Argentina has a sovereign government and currency and it has not avoided a debt crisis. This totally ignores that fact that Argentina is a still developing economy and is treated as such by much of the world. It also ignores the fact that it borrows in dollars, when MMT very strongly advises no country should borrow in any currency but its own. And ignores the fact that it has to do so because of its decidedly rocky history of political instability. To suggest that Argentina and Scotland are in the same place is, to be polite, crass in that case. Mark would have told any student of his that, I am quite sure. In that case to make the comparison in a public debate really was unwise.
Then he claimed MMT says a government can default on its debts, print some more money and carry on as before. This suggests Mark has never easy anything written about MMT. Anyone who is serious about it has never said such a thing, although no doubt some uninformed enthusiast on the web has. Mark should really be able to tell the difference, and not make such an absurd claim. It’s is unbecoming of a person with some stature to make claims that are very obviously untrue about an opponent’s arguments. Why is it that he and others think it acceptable to do so about MMT?
Third, he then utterly belittled Scotland, saying it had nothing to sell the world and as such its currency would be utterly worthless. As such he claimed that no one would accept a Scottish currency and as a consequence, the MMT argument that Scotland should have its own currency had to be wrong. This argument is utterly absurd, and it is easy to demonstrate why.
If, as Mark claims, Scotland would have nothing to sell in the world after independence (and that was his specific claim), then it follows that his claim that Scottish debts would have to be settled in either US dollars or sterling is the most incoherent position that he could adopt. As a matter of fact, if his argument is true, Scotland would have no means of acquiring those currencies after independence as, he claims, it would have nothing to sell in international markets, which is the only way to acquire them. It would, therefore, automatically default on all debts denominated in pounds or dollars because it would not have them.
On the other hand, it would never need to default on debts denominated in Scottish currency because it could always create that. So, rationally, anybody trading with Scotland in this situation would have their risk reduced by trading in a Scottish currency rather than in pounds or dollars, because at least then they were likely to be paid, which is a much better than not being paid at all, which is the position that he would apparently prefer.
Far from being smart, as he obviously thinks he is being, Mark is as a result actually putting forward the worst case argument that he could create for Scotland given the assumptions that he makes by suggesting it use a foreign currency. In the situation he describes only a Scottish currency could work for it.
But let’s also be honest and say the argument he makes is crass in any case.
Firstly, Scotland is an old country, with an old democracy, and a competent civil service, backed by a legal system with centuries of history behind it, which system is recognised to be stable and enforceable. It also, quite critically, has a strong and functioning tax system, which would, under an independent government, be capable of collecting even more tax than it does at present, and that is the true basis for the foundation of the value of a currency. In other words, every assumption that he makes about Scotland, which can be summarised by saying that he thinks it would be a failed state, is completely wrong.
It is also, very obviously true that his claim that Scotland will have nothing to sell after independence is quite absurd. Let’s ignore the fact that Scotland has, overall, over many recent decades on average run a trade surplus and instead note that Scotland has a greater capacity to create renewable energy in proportion to population than any other country in Europe, and this has to be the strongest foundation for its prosperity that it can have. I should also add that it has a lot of fresh water as well, and that is going to be an incredibly scarce commodity in the world, sometime soon. It also helps that it will have a very near neighbour who will be short of both. In other words, Mark’s claim that Scotland would have nothing to sell is ridiculous. There is in fact every reason to think that the Scottish pound will trade at a higher value than the English pound after Independence, for the reasons I note.
So let’s leave MMT aside for a moment, because Mark has clearly got no understanding of it. Instead let me just make the obvious point that what Mark said was that he thinks Scotland is too wee, too poor and too stupid to be independent, which is a standard Unionist argument that is both party patronising and downright rude. His claim that Scotland cannot pay is not in that case related to a currency question. It is related to his belief that Scotland will be a failed state.
MMT does not prevent states failing. Nor does it create failed states. All it does is describe how money works, more accurately than any other economic model that I know of. Doing so, it roots itself in reality. Indeed, no model is more rooted in the actual capacity of an economy than MMT because it recognises that physical capacity as the real constraint on activity.
MMT does, in that case, have nothing to do with then argument that Mark Blyth presented, which was based solely on wild comparisons between Scotland and Argentina and the absurd suggestion that Scotland creates nothing of value. Of course if you start from false assumptions, as Mark did, you get to absurd conclusions, as he did. But to then claim MMT had any part in that is absurd. It did not.
If an undergraduate student had offered the analysis Mark Blyth did they would have deserved to fail. It was embarrassing to see him make such a fool of himself. The SNP have appointed him as an adviser in the past. I sincerely hope they do not do so again. Someone who so clearly despises the country he left some time ago quite as much as he does really has no place helping the independence movement, in which he clearly has no belief.
Why are their Lordships so frightened of modern monetary theory?
I have already noted the bizarre evidence submitted by Joe Stiglitz to the House of Lords Economic Affairs Committee.
Now, I have been tipped off (by another economist) about the similarly absurd, anti-MMT evidence also supplied by Charles Goodhart and Olivier Blanchard to this committee. Both made their comments in their opening statements, like Stiglitiz did, and without any (apparent) prompting from the Chair.
Goodhart, whose work has become increasingly odd with age, said:
Yes, of course [government debt] matters. It has to be repaid with interest. The Government can always pay it by creating money to pay it off, but that causes inflation. One of the problems with MMT is that it assumes you can wait until inflation hits before doing anything, whereas the inflationary conditions can get worse and lead up to an inflation that is much more difficult to counter when it takes place.
Blanchard said two things that I want to draw attention to in his preamble. The first was:
Coming back to the question on debt, my answer is that debt is costly; I agree with the other two speakers. From an economic point of view, it decreases capital accumulation. Depending on what capital accumulation is decreased, it may be costly or not very costly, but it is an issue. From a fiscal point of view, as Charles said, it requires more taxes in future, although the answer there very much depends, again, on the valuable r-g. When r-g is zero, you can finance the interest for new debt and keep the debt ratio constant, so the cost in terms of future taxes may be quite limited. However, the notion that debt is costless is a non-starter.
The second was:
On MMT, I have never fully understood and, I think it is incoherent. One thing that has been said by some is that the central bank should basically cancel the debt it holds, which would decrease the debt. That is nonsense, but I will stop there.
Let me deal with these, in turn.
Goodhart is wrong: government debt is never paid off. It rolls forward and has increased steadily over time. There is not the slightest evidence that it is ever going to be paid off. In that sense it has no cost. That is hardly surprising: it represents cost-free money creation. We need that money in use. Why does he want to deny that?
Then there is the question of the cost of interest. As Blanchard said later in his opening comment, if r-g (the interest rate minus the growth rate) is zero, then there is no real interest cost either. And as Goodhart noted later in his evidence:
From having been negative, you are likely to get something like 3% to 4% inflation [now], 1% to 2% growth, and nominal interest rates at about 5% on average, so real interest rates on the order of zero.
So, there is no cost to capital repayment, and there is, in the case Goodhart outlines, no foreseeable real interest cost to borrowing. What, in that case, is the question of sustainability that they were pontificating about in a very narrow frame all about?
So, having demolished all they had to say with their own words, let me turn to their MMT comments.
Why did they raise this issue right at the start of their sessions? Could it be that they had been asked to do so?
No one defending MMT is being called, as far as I can see. What are their Lordships terrified of?
And as for the observations: Goodhart could not be more wrong about what MMT says. Its absolute suggestion is that money in excess of what is required to put all available resources to use must not be created if inflation is to be avoided. MMT says the exact opposite of what he claims.
Blanchard is no better. First he declares ignorance. Full marks for honesty and none for competence: why is he so scared of something he apparently knows nothing about. I simply do not believe his claim.
And what is nonsensical about saying a debt, when bought by the person who issued it is, for all practical purposes, cancelled and that if new debt is then issued, it is not in economic substance that which was repurchased? If he cannot comprehend that, then he really should not be giving evidence. This is, after all, what the UK Whole of Government Accounts show precisely because this is, when substance rather than form is considered, what really has occurred.
So let me explain what they clearly do not understand, which is that MMT is rooted in reality.
The question about whether debt is sustainable requires, first of all, the question to be asked, 'Is the government in debt?' The answer is it is not.
Second, the question then is, do people want to save with the government? The answer is undoubtedly that they do. It is savings that are credits on the government's balance sheet, not debt. Now you deal with the uneconomic reality of that. This is what MMT does.
Then, MMT looks more broadly at aggregate demand in the economy and the means of providing the liquidity required to maintain it at full employment levels. That is the question of concern, not the sustainability of debt. The debt is always sustainable if we have the aggregate means to pay for it - which we do at full employment.
The problem for these economists is that they were talking about microeconomic siloes of concern, not macroeconomic issues of reality. That's the difference between them and MMT.
Joe Stiglitz really should not talk about modern monetary theory when he so obviously has no clue about what it actually says
I have not had time to read all the evidence submitted to the House of Lords Economic Affairs Committee on the sustainability of the UK’s national debt. I have a feeling that doing so would be worthwhile. Even a simple summary of the evidence and weighting of it so that a summary of sentiment expressed was available would be useful. My own is here.
That said I have read the unedited transcript of the Committee’s aural hearing with Prof Joe Stiglitz, who I rather get the impression was chosen by the committee as the proponent of the “relaxed about debt” position.
The whole thing was bizarre on all sides. Stiglitz had clearly done little preparation, not knowing what the current UK fiscal was. The committee was keen to dismiss him as talking about the US than the UK. Quite what Stiglitz was really trying to achieve is often rather hard to discern, excepting one thing, which came in his opening exchange, which I share here:
The Chair: Welcome to this session of the Economic Affairs Committee. I am delighted to welcome Professor JosephStiglitz, who is joining us from New York. Professor Stiglitz, good afternoon to you.
Professor Joseph Stiglitz: Good morning.
The Chair: Good morning, rather. Thank you very much for joining us here in London on a wet and miserable afternoon.Can I start by asking you to set the scene with a very simple but big question: does debt matter? We have had evidencefrom certain quarters giving the impression that debt may not matter. What is your view?
Professor Joseph Stiglitz: Debt does matter, both economically, and, perhaps even more, politically. Let me first try toexplain MMT, the modern monetary theory, which has argued that it does not matter at all. I also want to make it clearthat the view held by many people, that it is the most important thing, is wrong. I am not at all worried about the level ofdebt in the United States. So the view that we face an existential crisis because of the debt is wrong, but the other view, that we do not have to think about it, is also wrong.
The origin of the view that it does not matter at all goes back to the 2008 financial crisis, where we expanded the basemoney supply enormously—by fivefold in the US and Europe—and there was no inflation. That led people to believe that you could increase the money supply enormously without any inflationary consequences. There was no inflation, because the money went from the Government into the banks’ coffers and they did not lend it, so it did not have any inflationaryeffect, but it did not have any benefit either.
If that money had gone into the banks, the banks had lent it, and the people to whom it had been lent had spent it, wewould have had enormous inflation, but we would not have needed to increase the money supply that much. We kept doing it, because we hoped that increasing the money supply would stimulate the economy, but it had a very weak effect.That is the fallacy in MMT: if you increase the money supply and nobody spends the money, it does not cause a problem, but it does not solve a problem, either.
What is clear, in that case, and given his own chosen priority afforded to the issue, is that Stiglitz apparently gave evidence with the primary intention of rubbishing modern monetary theory. The problem for Stiglitz, is that far from doing so, he made himself look stupid.
MMT has never said debt does not matter.
It has said, as I do, that it is misnamed. Stiglitz shows no sign of understanding this.
Nor is he apparently aware of this so-called debt’s role in private wealth holding, or its fundamental importance to banking, trade, pension funds and other institutions requiring government backed opportunities to save. I think MMT does all that. He does not.
Nor does he recognise the role government deposit taking (which some describe as national debt) has in withdrawing money from use in the economy to control inflation, which is a shame, because MMT does most certainly understand this.
He also talks hints very strongly that he thinks banking is an intermediary , or a conduit for the use of savers’ funds, even if the saver is the government through its money creation programmes. That’s a shame, because banks do not lend other people’s money: it is a widely acknowledged fact that they only lend the money that they create. How can he be so unaware of this?
He even suggests money supply can be created without being spent, which is to deny the essential debt basis of all modern money.
And he suggests by implication that MMT says you can spend without limit when that is the exact opposite of what it actually says, partly because MMT is obsessed with inflation and because it makes clear in a way that Stiglitz clearly does not underhand, presumably because he has never read anything anyone actually talking about MMT has ever said, that unless you spend within the physical capacity of the economy to absorb spending then of course money creation is inflationary.
So we have to conclude that Stiglitz did this deliberately. I stress, that I really would not mind if Joe Stiglitz had offered an honest critique of MMT to this committee. He is, of course, entitled to do so. Economics is full of disagreements. But he did nothing of the sort. He did three things.
First he revealed his ignorance, not just of MMT, but also of banking, the role of the national debt, and the fact that there is such a thing as double entry so that when discussing that issue we also have to consider the preferences of those who own wealth and their desire for safe places to save.
Second, he misrepresented the truth, and I am really not sure that this is what anyone should do before a parliamentary committee.
Third, as a consequence, he might have served his purpose but he made himself look stupid in the process. He might, like many economists, think that a worthwhile thing to do, but I would have thought that he had by now reached a sufficient stage of maturity to get over playing such silly games. It appears that he has not.
As a result he will, no doubt, enable those who wish to present an argument that what he clearly thinks to be debt, but which is not, must be repaid with the result that the UK economy will be pushed further into recession and further away from delivering what the people of this country need . Well done, Joe is all that I can say in response to that.