Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Thursday 12 May 2016
What’s Ann Pettifor on about?
In 2015 she signed a letter to the Financial Times (along with others) supporting QE for the people – i.e. printing money and spending it on a selection of public sector items: infrastructure etc.
But here she says she has a “fundamental” objection to the above print and spend policy. Bit of a self-contradiction there. She says her objection to “print and spend” is that it involves technocrats deciding “nominal demand”.
Complete nonsense! We could perfectly well have a system under which politicians have access to the printing press and determine nominal demand. In effect that system was in operation in the UK prior to when Gordon Brown gave the Bank of England independence.
A second flaw in her argument is that central bank technocrats ALREADY HAVE the final say on a stimulus package (or “nominal demand”) because, at least in the UK, they have SPECIFICALLY been given the power to negate any fiscal stimulus with interest rate rises (if they think the resulting inflation would be excessive).
That incidentally is one of the main points that Scott Sumner makes over and over again, and he calls it “monetary offset”.
At least that’s certainly the case with an INDEPENDENT central bank, which is what we have in the UK. Presumably Ann Pettifor is unaware of that very basic characteristic of the existing set up in the UK. Certainly I’ve never know her object to that power of nominally independent central banks, plus after Googling for five minutes, I can’t find an article of hers which objects to BoE independence. (Incidentally I said “nominally” there because ULTIMATE power always rests with politicians: politicians if they really want, always have the power to metaphorically bash down the front door of a so called “independent” central bank and forcefully replace the head of the bank.)
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Almost perfect, but... the politicians who have really attempted to gain oversight on the anarchic central bans have always meet an unnatural death. The independence of the central bank is NOT matched by an independence of the couterparty (the government) because when you have the power of creating money unaccounted for (in the cash flow statement, as an example...) and you can spend it or lend it like crazy, no politic power can resist... Imagine the endgame: you send in the special forces to arrest them all - who can bid their salary higher ? The game is rigged at the beginning with the withdrawal of money creation power in private hands of liers, robbers, dishonest people by design.
ReplyDeleteFar as I can see the evidence is that politicians behave in a FAIRLY responsible way when they have access to the printing press, with Robert Mugabe and the Weimar period in Germany in the 1920s being being the glaring exceptions to that rule. I’m sure every politician with access to the printing press does A BIT of extra money printing just before elections. However Bill Mitchell (Australian economics prof) produced a chart which shows there is not much relationship between the degree of CB independence and inflation. See chart here:
Deletehttp://bilbo.economicoutlook.net/blog/?p=9922
However, like you, I’m still wary of letting politicians near printing presses.