I see Simon Wren Lewis is puttting his oar in in support of James Meadway – in the sense that he is supporting his Fiscal Credibility Rule (FCR). This same article is also, by the way, published in the New Statesman.
Since Simon Wren Lewis (together with Jonathan Portes – both former Treasury Civil Servants) created the rule it is unsurprising that he likes it. But he is supporting it in a way that includes MMT, which can only help the quest of where money comes from.
MMT wants to go one step further. It wants to use fiscal policy to stabilise the economy at all times, and not just when monetary policy is out of action. This is not a ridiculous proposal.
MMT is also a political movement of the left.
Now as I’ve previously suggested, MMT itself is certainly apolitical, but using its understandings are generally helpful to those of a left leaning outlook.
These attacks do however raise a legitimate issue. Why the need for a fiscal rule at all? Why not let the Chancellor choose the deficit depending on the economic circumstances? The answer is provided by something called deficit bias, which preoccupied economic policy before the global financial crisis (GFC). In the 30 years before this crisis, the ratio of OECD government debt to GDP almost doubled for no justifiable reason.
Contrary to many alarmists in the City, the world does not come to an end if you have deficit bias. Deficit bias just makes life harder for future governments. So it is good practice, and a sign of fiscal responsibility, for governments to follow a fiscal rule. Nothing about this good practice need be Neoliberal.
Now why on earth should we be bothered by deficit bias – every time we print a fiver we are adding to the deficit – so what’s not to like? But he goes on to use an orthodox Torygraph term, ‘fiscal responsibility’ – responsibility to whom? If the government creates money it is reponsible to its people but I doubt very many of them know or even care about fiscal responsibility. True we don’t want to create rampant inflation, but if that is the case why not say so rather than ‘fiscal responsibility’?
Personally, though I’d rather it were ‘straight’ rather than effectively a sleight of hand, I don’t have great problems with the Fiscal Credibility Rule, as long as we realise interest rates do not, in fact, work (and even if you considered that they do we should at least set different interest rates for different things). In my view it is, in effect (sorry, James Meadway) surreptitious MMT but by a less honest system. In so doing it feeds current economic thinking and it does seem remarkably uncourageous.
Still, one can argue that Labour has sufficient hills to climb without also adding the education of the electorate to their many tasks – particularly when the media is overwhelmingly hostile (and, ironically, Simon Wren Lewis has many good articles on this). Also, with the current Conservative Leadership elections, which I’ve heard referred to as the ‘Unicorn Grand National’, I have reluctant sympathy with that view.
It seems Simon Wren Lewis’s principle gripe is that he is labelled a Neoliberal by MMTers – principally, in fact, it seems, Bill Mitchell, whose ire has also been directed towards Progressive Pulse in the past!
Now what is Neoliberal? If it is economics as it currently operates then I think the charge sticks – if the FCR is new and radical then it probably doesn’t.
In the end I’d say that it is both.
So if you are being all things to all men then you probably are Neoliberal even whilst you are surreptitiously trying to undermine it.
What Neoliberalism actually is is always a problem – it is usually a shorthand insult – nobody actually stands up to say they hold it in high regard. It is usually considered to describe somebody who is socially liberal but economically conservative – typified by ex PM Cameron.
Yet when I hear his ex Chancellor, Osborne speaking it seems that he is economically conservative but based on delusional facts – such as , for example, the ‘fact’ that the the digital world was created by private enterprise!
I used to think Osborne was quite bright. I now think he should stick, as it were, to the family wallpaper business.
I suggest that Simon Wren Lewis, who although he has his heart in the right place, should not be helping to mix the glue.