Saturday, 11 February 2017
More nonsense from Ann Pettifor.
I’ve just stumbled across more nonsense in AP’s talk the other day at the LSE. I should really have included this new material in a post I did a few days ago on this subject. But no harm done: as I said in that post, this is only a provisional look at her ideas. I’ll do a proper review when I get a copy of her book.
Anyway, the new passage I just stumbled across is as follows. (It starts at around 38.30 in this audio.)
“The sovereign money movement propose that we should abolish debt, strip banks of their powers to create currency in the words of Mary Mellor, the sociologist, and return to a debt free, gift base economy. This would effectively nationalise the money supply which would be expanded or contracted by a committee at the top of the world or a central bank, so that new public money could be issued by new public money authorities, free of debt to meet public needs. Interest rates would be left to the will of the market.
I worry at the authoritarian implications of transferring such economic power to unaccountable bureaucrats at the central bank. But for the purposes of this discussion, debt free money is an oxymoron. There is no such thing a debt free money. Or if there is, it is very likely something quite different: a grant or a gift. Now there is no reason why society should not aspire to building a gift based economy, one in which everyone relies on others for what Mary Mellor calls “provisioning”: for clean air, works of art, or a smart phone. But today while we still enjoy the remnants of a gift bearing culture. We have failed to build an entirely gift based economy.”
Let’s take that sentence by sentence.
“The sovereign money movement propose that we should abolish debt, strip banks of their powers to create currency in the words of Mary Mellor, the sociologist, and return to a debt free, gift base economy.”
“Abolish debt”?? God knows where AP gets that idea from. If she actually read Mary Mellor’s works or those of Positive Money (both advocates of a sovereign money system) AP would find that under such a system businesses and household carry on very much as they do now. Far from “abolishing debt”, people would continue to get mortgages, though what advocates of sovereign money DO CLAIM is that under their system, debts would decline SOMEWHAT.
AP might also like to ponder the fact that at least four Nobel laureate economists advocate a sovereign money system, including Maurice Allais and Milton Friedman. And another economist what advocates sovereign money is Lawrence Kotlikoff. Nowhere in the works of the latter will AP find anything about “abolishing debt” or converting to a “gift based” economy.
Incidentally, I do get the sense that Mary Mellor, who is fairly left wing, does actually want to implement a gift based economy (whatever that is). However other advocates of sovereign money certainly do not, and even Mary Mellor keeps that aspiration well separate from sovereign money.
Next, let’s take this sentence: “I worry at the authoritarian implications of transferring such economic power to unaccountable bureaucrats at the central bank.”
Seems AP doesn’t understand how the EXISTING system works because very much the same powers are exercised by “unaccountable bureaucrats” in the shape of the Bank of England Monetary Policy Committee (shock horror).
To illustrate, the independent BoE has created VAST amounts of money over the last few years as a result of QE. As it happens, the BoE did consult with the then UK finance minister Alistair Darling before implementing QE. However, given that the BoE is nominally independent, I doubt there was anything FORCING them to consult. Moreover, far as I know other central banks did not consult before implementing QE.
Secondly, that dreadful “unaccountable” Monetary Policy Committee actually controls how much money private banks create as a result of the MPC’s control of interest rates. In short, the total amount of power wielded by “unaccountable bureaucrats” under our existing system is not much different to the amount they would wield under sovereign money. Certainly the MPC does not consult politicians when adjusting interest rates.
Next, AP says “There is no such thing a debt free money. Or if there is, it is very likely something quite different: a grant or a gift.”
That point has actually been extensively debated by economists in recent years. The consensus is that money created by private banks is indeed “debt based”. Or put it another way, for every $ of money created by a private bank, there is a $ of debt. Or to use a popular phrase, privately created money “nets to nothing”. MMTers often make that point.
As to central bank created money, obviously that is OSTENSIBLY a debt owed by CBs to the holder of such money. Indeed UK £10 notes actually say the Bank of England will “pay the bearer on demand the sum of £10”. But that phrase is just a historical anachronism. I go into this issue in a bit more detail here.
And finally as regards AP’s claim that sovereign money (i.e. base money) necessarily involves a grant or a gift is pure nonsense. There is precisely nothing to stop the state creating fresh “state created money” (aka sovereign money) and spending that on hospitals, schools, defence, roads or whatever. In that case, the money is not a gift in the sense that the private sector gets the latter goodies for free. The private sector has to engage in a huge amount of blood, sweat and tears in order to bring hospitals, schools and new roads into existence. Plus the main contractors responsible for creating those investments sub-contract various jobs to sub-contractors and pay them cash. I.e. commerce carries on as before. There is nothing resembling a “gift economy” there.
Moreover, fiscal stimulus followed by QE (what we’d done big time in recent years) equals “create sovereign money and spend it”. That is, as a result of the crisis, governments have borrowed $X, spent $X and given $X of bonds to lenders. Governments (or rather their central banks) have then printed fresh sovereign / base money and bought back those bonds. That all nets out to “government prints new sovereign money and spends it”.
Far as I know, neither the US nor the UK have suddenly turned into “gift” or “semi-gift” economies because of QE etc.