Monday, 25 August 2014

Ann Pettifor, the loud mouthed idiot.

When someone keeps screaming the same point from the rooftops despite it having been explained to them they’re talking nonsense, then I start getting abusive. Anyway, details are as follows.
On 26th April this year Ann Pettifor published an article claiming that full reserve banking (FR) had similarities to monetarism: allegedly a flaw in FR. I pointed out why her monetarist point did not stand inspection in a comment after the article (the first comment) actually.
But rather than take heed of my criticism, she went on to have her article re-produced, using slightly different wording on two other sites: on the Open Democracy (on 1st May).the IDEA site (on 25th June), and on the IPPR site. Plus she did a tweet in the last week or two making the same nonsensical monetarist point.
Clearly Ann Pettifor is convinced she has an important message for us, so let’s examine it.
Incidentally her articles are garbage from start to finish, and I’ll deal with some of this nonsense in forthcoming posts, but for the moment I’ll just deal with the monetarist point.
Her actual REASONS for comparing FR to monetarism in the original and two subsequent articles are near non-existent. In the original article she simply claims that advocates of FR think (I’ve put her words in green):
“it is possible to manage aggregate economic activity within an economy like Britain’s if an “independent committee” can just pre-determine money growth, and then shrink or expand activity. This is very close to what monetarists tried to achieve….”. And that’s it!
And in the IDEA version of her article all she says by way of supporting the “monetarist” charge is: “…the notion to my mind is preposterous. It is an approach reminiscent of the misguided and failed monetarist policy prescriptions for controlling the money supply in the 1980s.”  And that’s it (again).
OK let’s examine this (in a lot more detail than Ann Pettifor is able to).
Monetarism at its simplest and most innocent is simply the idea that the quantity of money has an effect. Indeed even the mentally retarded have doubtless tumbled to the fact that if the state printed a billion tons of £20 notes and distributed them to all and sundry, there would be an effect (to put it mildly). Plus about 99% of economists agree with the “mentally retarded” so to speak.
As to monetarism a la Milton Friedman, that takes the above idea much further: claiming that the economy is best regulated PURELY by adjusting the money supply. That’s clearly more debatable.
Thus in claiming that FR (or indeed any other idea in economics) is similar to or amounts to monetarism, it is VITALLY IMPORTANT to explain EXACTLY where the idea lies on the above “innocent  - Friedman” scale. If the idea is at the innocent end of the scale, then the “monetarist” criticism is no criticism at all. But Ann Pettifor can’t be bothered with or doesn’t understand the above sort of details.  

The fiscal element.
The next absurd element in Pettfor’s criticism of how the allegedly “monetarist” stimulus is effected under FR is that that mode of effecting stimulus has actually been implemented big time over the last three years or so – without any “monetarist” objections from Ann Pettifor far as I know. Details are thus.
Over the last three years we’ve implemented fiscal stimulus and followed that by QE. Now the former consists of government borrowing £X, spending £X and giving £X of bonds to lenders, while QE consists of the state printing money and buying back those bonds. But that simply nets out to, or comes to the same thing as the state printing £X and spending it, which is what the allegedly “monetarist” stimulus under FR consists of! Perhaps Ann Pettifor hasn’t heard of QE.

Fiscal matters – continued.
Next, Ann Pettifor seems to be unaware of the fact that when the state prints and spends money, the stimulatory effect DOES NOT come purely from the money supply increase. That is, the simple fact of spending more money on say education and health results in more people being employed in schools and hospitals (revelation of the century, I don’t think). As to the “monetarist” effect, that’s entirely separate.
Indeed, therein lies one of the beauties of COMBINING monetary and fiscal stimulus in the above way. That is, economists are far from agreed on how effective fiscal and monetary stimulus are, thus it’s not a bad idea at all to combine the two! If in fact one is near useless, while the other is effective, then combining the two is bound to work.  

The next absurdity.
The next absurdity in Pettifor’s “monetarist” criticism is that the latter “print and spend” policy is not advocated JUST BY supporters of FR. Ann Pettifor will be devastated to learn that plenty of economists who are NOT famous for supporting FR (and may not support it at all) actually favour the print and spend policy. For example advocates of Modern Monetary Theory tend to favour simply creating and spending base money in a recession.  Plus Claude Hillinger, a German economist advocates print and spend. See paragraph starting “An aspect of..” on p.3 of his article here. Plus Simon Wren-Lewis (Oxford economics prof) advocates “print and spend” (albeit just at the zero bound).
Plus Keynes advocated the idea. As he pointed out in a letter to Roosevelt in the 1930s, stimulus can be effected by increased government spending funded EITHER BY borrowing or by “printed money” as he put it. See 5th paragraph of his letter.

Other bits of Pettifor nonsense.
Readers will have noticed that it’s taken me about a thousand words to demolish approximately ONE SENTENCE in Pettifor’s articles. That is, I’ve had to set out some basic elementary economics and in detail to explain where she’s gone wrong.
Unfortunately, the rest of her articles contain plenty more elementary errors. But in a way, that’s a good strategy: i.e. pouring out a torrent of emotionally appealing and plausible sounding nonsense is a great propaganda ploy: your opponents will have to expend a huge amount of time demolishing the nonsense.
And the word “monetarism” is a favourite “hate” word for lefties. So just trott out the “monetarist” charge and you’re on to a winner. Not that I’m suggesting that “righties” is any less naïve.

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