If the media are to be believed, much of the debate in the coming UK general election will be about the approaches the various political parties will take to economic austerity should they form the next government. As I see it, their positions can be broadly characterised as follows: Tories – more austerity; Labour – less austerity; Lib Dems – not sure how much austerity; UKIP – who knows? – But probably austerity for foreigners.

So, it seems to be an accepted fact that austerity is needed and only the scale of it is contested. That means that the government must either spend less or tax more and as no one wants to pay more tax, spending will have to be cut. Basically, we have all been financially irresponsible and the reckoning has arrived. The country is broke. There is a massive deficit which contributes to an even bigger debt which, sorry to say must be paid back. You wouldn’t run your own household like this would you? And what is the country if not a household writ large?

Yet, do we really understand what the proposed scale of austerity, which means cuts in government spending, will actually mean? Various commentators have suggested it would result in a return to a level of state provision similar to that last seen in the 1930s. That would translate as smaller NHS, fewer police, reduced benefits for the most disadvantaged. Less public housing. More fee based services. Bigger class sizes for school children. Higher university fees. More unemployment.

What if none of that was actually true? What if there was legitimate debate to be had about how the economy actually worked and the source, purpose and function of the money we are apparently so short of? What if public expenditure deficits were neither good nor bad but merely a tool in the government’s tool kit. What if governments didn’t need to tax or borrow to raise funds? What if governments could guarantee full employment? What if this type of economic thinking was part of the mainstream debate? The debate would not just be about “crushing austerity” versus “austerity lite” but austerity versus a completely different economic approach. What if the electorate was offered a real choice?

That choice could be on offer and indeed it should be. To deny people that choice and let them vote for policies thinking that there is no alternative is a negation of democracy. I want to suggest that there is a real, robust, academically respectable alternative to the very limited economic choices our politicians currently offer us. It is called Modern Monetary Theory (MMTand has been developed over the past 20 years by Professors Bill Mitchell (University of Newcastle, New South Wales, Australia) and L. Randall Wray (University of Missouri-Kansas, US) and their respective research teams.

It is a rich, nuanced and sometimes counter-intuitive theory and is supported by substantial empirical research. It does not promise economic, far less social, Nirvana, but it does propose a different approach which puts human well-being and shared public purpose at the heart of economic policy. Private enterprise, individual initiative and personal autonomy and ambition are at the heart of its prescriptions. It is essentially about ensuring full employment so that the real resources or the economy – labour and materials – can be fully utilised to meet individual and collective needs. At the heart of the theory is the realisation that “money” in a fiat currency (which most countries have used since the end of the Bretton Woods gold standard system in 1971) is created solely by governments. Governments spend money into existence for the use of everyone else. Therefore governments are never revenue constrained, do not need to tax before they can spend and economic activity is only constrained by the level of skills people have and the type of materials they have to work with. Governments are emphatically not like households. Households, companies and individuals have to work to get money so they can spend it. That is a real constraint on them. Governments, as monopoly issuers of the currency, do not have that constraint and can spend as much as is necessary to ensure the real resources of an economy are fully employed.

Modern Monetary Theory directly and dramatically contradicts the received economic wisdom of the government, the opposition, most economic think tanks, almost all financial journalists and a majority of economists. But it is a real viable alternative to the neo-liberal economic consensus which has brought us austerity. MMT could be tried and it definitely should be talked about – vigorously, passionately and continuously. Otherwise we will accept one or other version of austerity, believing it to be the only option. When it absolutely is not.

There are many questions – what about inflation? Won’t it lead to the sort of things that happened in Zimbabwe and the Weimar Republic? What about public spending crowding out private investment? What happens to the debt we already have? What about the exchange rate? And many more. Rest assured – MMT comprehensively addresses these issues. But, of course, those and many other questions need to be asked, debated, contested and answered.

As it currently stands, the tragedy is that they won’t be. Not because people aren’t interested, but because the electorate aren’t ever told there is a robust and credible alternative to the ever present narrative of austerity. Austerity is the only game in town.

The attraction of MMT is that it clearly demonstrates that the economy is not a god to be appeased but a human invention. The economy should work for humans. It is a system to be managed. Why do our politicians fail to recognise this? The analogy of the economy as a household is simply wrong. Have you ever wondered where the Bank of England got all that money for “Quantitative Easing” (£375 billion) or where the US Fed got its QE funds ($1.7 trillion) from? Well, they just made it up because central bankers know that they can create the money from nowhere by typing into a spreadsheet and that’s about as far away from the way a normal household funds itself as you can get.   MMT can tell you in detail why this is possible and it can offer a rigorous and consistent explanation of why these initiatives have only been partially successful because governments have failed to follow the most important prescriptions of the theory.

MMT is not a magic formula. In an MMT economy choices would still have to be made about what to do and when to do it. No economy has infinite, instant resources. There will still be political arguments aplenty. There will be winners and losers. The state would not wither away with the government of people being replaced by the administration of things. But wouldn’t it be better to be arguing about whether we should use our resources to build a road or a school rather than being told that, despite having unemployed construction workers and plenty of building materials, we somehow can’t afford either because we don’t have the money?

I believe that we should refuse to accept the economic debate as it is presented to us. The current discourse is far too narrow and conducted from a single perspective. There’s a saying that if you only have a hammer, every problem is a nail; unfortunately, if you think, as our politicians seem to, that the national economy is no different from a seriously indebted household then the answer will always be austerity.

As a community of scholars we should be committed to the search for what is true. We should know better than most – in fact, it is our job to know – that the popular and the obvious are often just a mask for half-truths, no truth and lazy thinking. Sometimes the unpopular – even the heretical -turns out to be true. Remember Galileo!

So, the next time a politician canvasses your vote with their favourite version of austerity, look them in the eye and ask “Is there really no alternative?” I know I will – it’s no less than my democratic duty!

—II—

Note; for those who may be interested in finding out more about MMT see Bill Mitchell’s regular blog: http://bilbo.economicoutlook.net/blog/

Also a good introductory text is:

Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems

  1. Randall Wray

Palgrave Macmillan (7 Aug. 2012)

 

 

Mark Jakeman

Third Year PhD Student

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Politics is a fascinating subject which can be applied to many different areas, and with our latest series of blog posts we aim to show you just that. Our own Professor Beatrice Heuser has reviewed a selection of films, which can be linked to modules offered on some of our courses. movieposter

This first post looks at our module on Contemporary Diplomacy (find more about this and the MA Diplomacy here) and the film The French Minister (2013)

 

The French Minister (orig.: Quai d’Orsay, Bertrand Tavernier, 2013). 

Foreign (and security) policy is largely about words and texts – the negotiation of treaties, statements, speeches.  This film turns around a speech the French Foreign Minister “Taillard” (Villepin) is to make at the UN Security Council to define his country’s position in the planned war against “Ludmenistan” (Iraq 2003).  We follow the efforts to produce this 10-minute speech by a young speech-writer, brought in from the outside to provide “fresh blood” in a ministry where everybody else is a civil servant (diplomat) with a mind-set honed for bureaucratic politics – beautifully illustrated by this film – rather than epic statements.  Those of us who have worked and written speeches for Taillard-type characters recognize the truthfulness of this film, and never cease to marvel at how the texts (speeches, declarations …) emerging from this convoluted process can sound as though policy had been made in a rational fashion.

If you’ve seen The French Minister, or hope to see it soon, let us know what you thought!

 

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On the 5th February, 6.30pm-8pm, our very own Dr Daphne Halikiopoulou will be speaking at LSE on the topic of the upcoming Greek elections.

This should prove to be an engaging and topical discussion, with Dionyssis G. Dimitrakopoulos Senior Lecturer in Politics at Birkbeck College, and Dimitri Vayanos Professor of Finance at LSEspeaking alongside Daphne.

Location: Thai Theatre, New Academic Building, LSE

FREE event OPEN TO ALL, on a first come first serve basis.

Want to find out more? Click here.

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There are numerous options for how to hold a constitutional convention. In this post, first published on the openDemocracy blog, Alan Renwick argues that we should not rush in hasty decision. Instead, we should make sure we get the very best option for lasting democratic change in Britain.

Politicians from across the political spectrum have come out in the days since Scotland’s independence referendum in favour of a constitutional convention to determine the future shape of the UK. Ed Miliband, Nick Clegg, Nigel Farage, and Green Party leader Natalie Bennett have all said this is the best way to resolve the constitutional anomalies created by further devolution to Scotland and to seek a revival of our democracy. Some Conservatives apparently also share that view – though the party’s leadership stands against it.

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Students in Hong Kong today begin a week-long boycott of their classes in protest against the refusal of the Chinese government to accept democratic electoral reforms. Tom Kennedy, who graduated from the BA in Politics and International Relations at Reading in 2013, spent much of the past summer travelling in East Asia and teaching in Beijing. Here he offers a personal reflection on the unfolding developments.

On a clear night, the view looking towards Victoria Harbour is magnificent. It shines like an Asian Manhattan, a metropolis of invention and success. It is difficult not to be enthused by this wonderfully unique place. One can only imagine the emotions of Lord Patten, the last Governor of Hong Kong, as he boarded the boat leaving the harbour after overseeing the return of Hong Kong to China in 1997.

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Paul Goodman gives an insightful analysis of the politicking around English devolution that is going on within the Conservative Party at the moment. But do Conservative MPs really think the current situation is just about jockeying for short-term political advantage?

Two things ought to be clear. First, if Westminster fails to deliver on the promises given to Scotland over the last few weeks, the UK will break apart over the coming years. The SNP will win the 2016 Scottish Parliament elections by a landslide. They will then call another referendum saying Scots were conned into voting No first time round by a duplicitous London establishment that treats them with contempt. And they will win that referendum: many of those who voted No last week will feel deeply betrayed.

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An exceptionally high turnout is predicted in Scotland’s independence referendum next week. Voter registration is at record levels and the Chief Counting Officer has been urging people to avoid the busy times at the polling stations to beat the queues. But how high does turnout need to be to be exceptional? What are the records that could be broken? Alan Renwick here provides the definitive guide.

Will Scotland set any turnout records when voters go to the polls next Thursday? In order to find out, we need to investigate some points of comparison. Let’s start with UK general elections. Figure 1 shows turnout across the UK at all general elections since the arrival of universal male suffrage and something approaching universal female suffrage in 1918. The high-point came in 1950, when 84.0 per cent of eligible voters – the highest proportion in any poll in UK democratic history – made their mark. The low-point – aside from the unusual post-war election of December 1918 – was in 2001, when only 59.1 per cent of registered voters turned up.

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The Scottish referendum debate has taken a dramatic turn and it seems that the No campaign is about to pledge the creation of a convention to debate Scotland’s constitutional future. Alan Renwick has long argued that such a promise is needed. Here he argues that the precise form of a constitutional convention needs to be decided with care.

The race in the Scottish referendum has tightened. Indeed, this morning sees the publication of the first poll putting the Yes side ahead. Media reports suggest that the No campaign is about to respond by promising a convention to decide the future character of devolution within the Union. The convention, we are told, we include not just politicians, but “all parts of Scottish society”.

I have been arguing for months that the No camp should set out a positive vision for Scotland’s future: it should always have been clear that relentless negativism would risk turning Scottish voters against the arrogant elite that was seemingly doing Scotland down. I have also long argued that this positive vision needs to include proposals for a convention on future constitutional changes. So I welcome the fact that Better Together have apparently finally woken up to this need.

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The polls have been narrowing in Scotland’s independence referendum debate. Reading’s referendums expert, Alan Renwick, reflects here on whether the Yes campaign really could pull off an unexpected victory.

I wrote a piece for the Telegraph a couple of weeks ago pointing out that, if Scotland’s voters follow the patterns seen in most referendums around the world, they will vote No to independence on 18th September. The polls have consistently shown a lead for No. And opinion generally shifts in the direction of the status quo in the final stage of a referendum campaign.

Since then, however, the polls seem to have shown the reverse pattern: opinion seems to be shifting towards Yes, not No. So what is going on? Could Scotland really buck the trend?

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The Scottish Government this week released the first draft of an interim constitution for an independent Scotland, as well as details about the nature of the Constitutional Convention that would come together in order to write a final document. In a post first published on the Democratic Audit UK blog, Alan Renwick argues that though some elements of this are encouraging, a bolder approach – particularly in terms of convention membership, and the clarity of the document as a whole – would be preferable.

The Scottish Government has this week set out its plans for Scotland’s constitutional future in the event of a Yes vote in September’s independence referendum. Those plans come in three parts: an interim constitution to take effect on the day Scotland becomes an independent country; a procedure for drawing up a permanent constitution; and some ideas on what the permanent constitution might contain. Many of the proposals are sensible. But they also evince a disappointing lack of ambition. If our democracy is to escape its current despond, more innovative thinking is badly needed.

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