Friday, 2 November 2018

Malcolm Sawyer’s ideas are pretty much Keynes/MMT compliant.

Sawyer, who is a former economics prof at the University of Leeds in the UK, published a paper last month entitled “Six simple propositions on budget deficits, public debt and money.”

I like the layout of the paper in that the six points are simple and clear. A slight blemish is that the numbers of the sections in the main text do not tie up with the numbering of the six propositions in the abstract and introduction, e.g. proposition No2 in the abstract and introduction is dealt with in section 3 in the main text. I’ll use the numbering as set out in the abstract and introduction. Here goes.

The first proposition is, “Money availability is not a limitation on government expenditure as the central bank is able to provide any required finance. The key considerations should focus on the issues of the social desirability of the proposed expenditure and the eventual funding of the expenditure.”

Well that’s pure MMT / Keynes. So I have no problems with that. Incidentally, Sawyer does not mention MMT as such, but he does mention Abba Lerner who is often said to be the founding father of MMT.

The second proposition.

The second proposition is, “Phrases such as ‘magic money tree’ are designed to confuse and mislead.” Sawyer’s basic point is that the phrase is very emotional and political and adds nothing useful to the debate: quite right.

The third proposition.

This is that, “Proposals such as people’s QE do not enable any stimulus which cannot be obtained from conventional fiscal policy and is anti-democratic putting expenditure decisions in the hands of unelected central bankers.”

The reference to “anti-democratic” is not true. At least under the version of peoples’ QE advocated by Positive Money (and Sawyer specifically cites PM) “unelected central bankers” most certainly do not take political decisions.

As PM has made clear repeatedly, under PM proposals, the central bank decides the AMOUNT of stimulus (which is what it already does in that an independent CB can negate what it regards as excess or deficient fiscal stimulus via interest rate adjustments). In contrast, decisions which are obviously political, like what % of GDP is allocated to public spending and how that is split between education, health, etc is left with politicians. Quite right.

The fourth proposition.

This proposition criticises the idea that public investment should necessarily be funded via public borrowing. I actually criticised that idea myself in a recent paper of mine entitled “The Arguments for a Permanent Zero Interest Rate”. Indeed, I’ve been criticising that idea for years, so I agree with Sawyer there.

The fifth proposition.

This is: “The target for budget position should be to secure full employment and capacity. Funds would be forthcoming to underpin such a position.”

Well that again is pure Keynes/MMT. As Keynes said, “Look after unemployment and the budget will look after itself”.

The sixth proposition.

This is that, “Public debt should be judged sustainable (and not excessive) by reference to the level of debt which results from a budget position as forthcoming from proposition 5. Public debt is to be considered as less of an issue (when government can cover interest through taxation and through money creation) than private debt and foreign debt.”

Sawyer here essentially goes along with the popular myth that the debt should be “sustainable” (popular fashionable word). Well if I were to buy one pint of beer a day and throw it down the drain, that would be “sustainable” and for the simple reason that, like most people, I could afford to buy and throw away one pint of beer a day.

You’ll be amazed to learn that that “sustainability” argument is not a good reason to throw away one pint of beer a day. Or to put it more bluntly: s*d sustainability.

Government debt makes sense if there are good reasons for incurring government debt. (Forgive the statement of the obvious, but seems it’s necessary to make that statement of the obvious.)

Well now Sawyer himself pours a certain amount of cold water on  one of the most popular reasons given for government debt, namely that it can fund public investment, which is ironic. Moreover, I examined the other alleged justifications for government debt in section two of my above referred to paper, and far as I can see they are largely if not complete nonsense.

But there must be at least a hundred economists worldwide who have kept themselves busy over the last year at the taxpayers’ expense writing papers and articles on what level of debt is “sustainable”.  Nice work if you can get it…:-)

1 comment:

  1. The "magic money tree" proposition brought to mind this article:

    " I wrote a new mortgage-backed system that enabled investors to choose the specific combinations of yield and risk that they wanted by slicing and dicing bonds to create new bonds. It was endlessly versatile and flexible. It was the proverbial money tree."

    Moral: the private sector is already printing money as they wish. In a crisis the Fed backstops the private money creation with public money creation.


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