I’ve been thinking about the events that unfolded after British Prime Minister Liz Truss and her chancellor, Kwasi Kwarteng, released their so-called “mini budget.” It seems that almost everyone has embraced some version of this explanation: Truss/Kwarteng: “Behold, our economic plan!”
Oct 1, 2022·edited Oct 2, 2022Liked by Stephanie Kelton
And notice that since the intervention of the Bank of England the pound has recovered to the levels pertaining before Kwarteng's statement. So much for the "bond vigilantes".
Very often when you see divergences developing between price action and news flow (which remains unremittingly negative), that often signals a major turning point. Like Stephanie, I think the Truss/Kwarteng package is awful, not because it will "bankrupt" the UK, more because the government is deploying its fiscal freedom is a profoundly wrong-headed manner.
The government as a whole might have a choice, but the Truss/Kwarteng cabinet/ERG/Brexit Ultra contingent doesn't - the IEA, Tufton St and the ERG (and Mercer, Murdoch et al) supported and bankrolled them through the Brexit campaign and now it's payback time and they want their Brexit goodies. Truss can't deliver the Brexit goodies with sensible fiscal policies and practice - that was never how Brexit was intended to work.
Brexit has to deliver a non-functional UK public sector that's ripe for privatisation and asset-stripping and an economically depleted and politically defeated populace that will constitute a captive and economically enslaveable client base for the corporations that take over the privatised public sector estate - that's what Brexit was designed to do, that's why the bunch mentioned above have backed it since way back when it was first conceived in the days of Atlantic Bridge.
And the quickest way to do that is to do what Truss/Kwarteng are doing.
That's why Truss/Kwarteng have done what they've done and why they won't change their stance on it if they can possibly help it - not because Kwarteng is stupid or ignorant, (that's more of a moot point with Truss); but because they are in political debt up to their eyeballs for favours rendered between 2015 and 2020 and the IEA and Tufton St are calling the shots now.
Unfortunately the British Labour Party under the current Blairite faction leadership will probably want to be ‘fiscally responsible’ and will also insist on or acquiesce to further raising the cash rate because ‘that is how you fight/control inflation’. They want to pull two important macroeconomic levers in the wrong direction.
The Conservatives are wrong to favour tax cuts for the rich over more government spending on what is important to the British people and/or tax cuts for the less well paid. A flatter tax system is just wrong and is fundamentally unjust.
However unlike the now quite ridiculous Keir Starmer led Labour Party the Conservatives appear to have realised (still to be confirmed in practice) that the debt and deficit position of the UK government is not really that important as presumably they like Trump have realised (more accurately they have become bold enough to act) that the BOE/FED just ‘print’ the money.
The Conservatives if the above is indeed true appear to be utilising the MMT understanding of macroeconomics or as a minimum the Keynesian understanding of macroeconomics to meet some of their political/taxation/spending objectives which would be a good thing if it proves to indeed be true.
Unfortunately those objectives favour the rich or the financially better off unlike Jeremy Corbyn’s period as Labour leader where he and his left wing progressive faction wanted to follow a similar expansionary fiscal approach but direct those extra funds towards the public and environmental benefit.
The capital owning ruling class however own the bulk of the British mainstream mass media and influence the feeble publicly owned media and they effectively blocked a Corbyn Labour victory in 2019. This problem of mass media control, which the Blairites acknowledge and submit to by adjusting their fiscal and monetary policy to suit the wants of ‘The City’, along with the popularity of implementing Brexit favouring quite rightly the Conservatives and especially the populist Clown effectively blocked what most of us would consider a more optimal political/economic path for Britain.
The Blairites are not worthy of government nor are the Conservatives but that is all that is currently on offer when your mass media and democracy has been effectively hijacked by the capital owning oligarchy.
All is not lost however and it is still not too late forJeremy Corbyn or an equivalent to retake the leadership of the British Labour Party and to get the media coverage they need by any means available to cut through. Something however is needed to trigger a leadership and factional change.
The importance of third parties and coalitions should also not be neglected and that may make up the necessary difference for a macroeconomically competent progressive government to gain office possibly next general election in late 2024 or January 2025, or the following election which is unfortunately a very long time way.
Having read the deficit myth and several of your interview pieces I don’t feel completely a beginner with MMT. I would like to know what the effect of the Bank of England buying bonds is. As far as I can see this means that the balance sheet of the bank expands also that less of the deficit is funded and the amount of interest paid by the government will be reduced since some of it is being paid to itself. If we take this to the limit none of the deficit would be funded there would be no interest to pay. How would the famous intimidating bond markets react? Please forgive if this is a stupid question (though I have heard that there are no stupid questions).
In Australia at the moment there is a legislated tax cut to the higher tax brackets from 2024. Most pundits and the media are now pressuring the newish government to repeal the tax cuts on the basis that we can’t afford then etc. I never thought we would see a situation where so many people who stand to benefit from these tax cuts are actively campaigning against them - and their reasoning is completely irrelevant!
Yes, the tax cuts overwhelming favour higher income earners, but why don’t people advocate for lower and fairer taxes??
And notice that since the intervention of the Bank of England the pound has recovered to the levels pertaining before Kwarteng's statement. So much for the "bond vigilantes".
Very often when you see divergences developing between price action and news flow (which remains unremittingly negative), that often signals a major turning point. Like Stephanie, I think the Truss/Kwarteng package is awful, not because it will "bankrupt" the UK, more because the government is deploying its fiscal freedom is a profoundly wrong-headed manner.
The government as a whole might have a choice, but the Truss/Kwarteng cabinet/ERG/Brexit Ultra contingent doesn't - the IEA, Tufton St and the ERG (and Mercer, Murdoch et al) supported and bankrolled them through the Brexit campaign and now it's payback time and they want their Brexit goodies. Truss can't deliver the Brexit goodies with sensible fiscal policies and practice - that was never how Brexit was intended to work.
Brexit has to deliver a non-functional UK public sector that's ripe for privatisation and asset-stripping and an economically depleted and politically defeated populace that will constitute a captive and economically enslaveable client base for the corporations that take over the privatised public sector estate - that's what Brexit was designed to do, that's why the bunch mentioned above have backed it since way back when it was first conceived in the days of Atlantic Bridge.
And the quickest way to do that is to do what Truss/Kwarteng are doing.
That's why Truss/Kwarteng have done what they've done and why they won't change their stance on it if they can possibly help it - not because Kwarteng is stupid or ignorant, (that's more of a moot point with Truss); but because they are in political debt up to their eyeballs for favours rendered between 2015 and 2020 and the IEA and Tufton St are calling the shots now.
https://www.opendemocracy.net/en/liz-truss-kwasi-kwarteng-mini-budget-think-tanks
Unfortunately the British Labour Party under the current Blairite faction leadership will probably want to be ‘fiscally responsible’ and will also insist on or acquiesce to further raising the cash rate because ‘that is how you fight/control inflation’. They want to pull two important macroeconomic levers in the wrong direction.
The Conservatives are wrong to favour tax cuts for the rich over more government spending on what is important to the British people and/or tax cuts for the less well paid. A flatter tax system is just wrong and is fundamentally unjust.
However unlike the now quite ridiculous Keir Starmer led Labour Party the Conservatives appear to have realised (still to be confirmed in practice) that the debt and deficit position of the UK government is not really that important as presumably they like Trump have realised (more accurately they have become bold enough to act) that the BOE/FED just ‘print’ the money.
The Conservatives if the above is indeed true appear to be utilising the MMT understanding of macroeconomics or as a minimum the Keynesian understanding of macroeconomics to meet some of their political/taxation/spending objectives which would be a good thing if it proves to indeed be true.
Unfortunately those objectives favour the rich or the financially better off unlike Jeremy Corbyn’s period as Labour leader where he and his left wing progressive faction wanted to follow a similar expansionary fiscal approach but direct those extra funds towards the public and environmental benefit.
The capital owning ruling class however own the bulk of the British mainstream mass media and influence the feeble publicly owned media and they effectively blocked a Corbyn Labour victory in 2019. This problem of mass media control, which the Blairites acknowledge and submit to by adjusting their fiscal and monetary policy to suit the wants of ‘The City’, along with the popularity of implementing Brexit favouring quite rightly the Conservatives and especially the populist Clown effectively blocked what most of us would consider a more optimal political/economic path for Britain.
The Blairites are not worthy of government nor are the Conservatives but that is all that is currently on offer when your mass media and democracy has been effectively hijacked by the capital owning oligarchy.
All is not lost however and it is still not too late forJeremy Corbyn or an equivalent to retake the leadership of the British Labour Party and to get the media coverage they need by any means available to cut through. Something however is needed to trigger a leadership and factional change.
The importance of third parties and coalitions should also not be neglected and that may make up the necessary difference for a macroeconomically competent progressive government to gain office possibly next general election in late 2024 or January 2025, or the following election which is unfortunately a very long time way.
Which begs the question, does MMT appeal to the Financial Markets?
Having read the deficit myth and several of your interview pieces I don’t feel completely a beginner with MMT. I would like to know what the effect of the Bank of England buying bonds is. As far as I can see this means that the balance sheet of the bank expands also that less of the deficit is funded and the amount of interest paid by the government will be reduced since some of it is being paid to itself. If we take this to the limit none of the deficit would be funded there would be no interest to pay. How would the famous intimidating bond markets react? Please forgive if this is a stupid question (though I have heard that there are no stupid questions).
In Australia at the moment there is a legislated tax cut to the higher tax brackets from 2024. Most pundits and the media are now pressuring the newish government to repeal the tax cuts on the basis that we can’t afford then etc. I never thought we would see a situation where so many people who stand to benefit from these tax cuts are actively campaigning against them - and their reasoning is completely irrelevant!
Yes, the tax cuts overwhelming favour higher income earners, but why don’t people advocate for lower and fairer taxes??