A slow-burning revolution is starting to overturn neo-classical economic orthodoxy

KeynesAs the world struggles to deal with threatening outbreaks of violence – most dangerously, in the Middle East and the Ukraine – another less dramatic and slower-burning revolution is getting under way. This revolution does not threaten violence – but it does promise change, and almost certainly change for the better.

The revolution that is gathering pace is a shift in understanding and increasingly in policy. What we are now beginning to see is the painfully slow and invariably reluctant abandonment – in the face of evidence that is now impossible to ignore – of an economic orthodoxy that has dominated the global economy for nearly four decades. Continue reading

How the government’s super-platinum credit card works

photo_10465_20091207This brilliant, witty explanatory piece by Neil Wilson first appeared at 3Spoken three years ago but is never more applicable

Modern Monetary Economics shows us that monetarily sovereign governments (like the US, UK and Japan) are able to spend money before they receive any tax. That’s what puts the ‘fiat’ [Latin for “let it be done” – Ed] in fiat currency [which is a currency which derives its value from government regulation or law rather than a commodity such as gold or silver], but it appears at first glance to be counter intuitive. How can that be?

If you think about it most of us come into contact with this concept every day – its called a credit card. So if you imagine that a government does all its spending on its credit card, then you’ll have the structure about right.

There are differences though. A monetarily sovereign government is able to get the best credit card deal in the world. It is a super-platinum credit card with the following benefits:

It has no spending limit

Continue reading

Central banking, state capitalism, and the future of the monetary system

pound-coins-e1327533990776The role of commercial and central banks in the process of providing credit may seem to be clearly understood by economists, bankers, and policymakers. But there are common misunderstandings about money creation, equilibrium, public money, central banks, and interest rates. The outlook for the global monetary system is not overly optimistic in the absence of overcoming these misunderstandings and altering the philosophies of bankers.

This presentation comes from the 67th CFA Institute Annual Conference held in Seattle on 4–7 May 2014 in partnership with CFA Society Seattle.

The liberalization of finance after the 1970s led to a significant buildup of debt in many parts of the world, especially in Africa, Latin America, and parts of Asia. The inexorable rise in private corporate, household, and individual debt leads to the question of whether professional economists truly understand money, finance, and credit. Good predictions and sound investments cannot, in my view, be made without a solid understanding of money. Continue reading

There is a magic money tree. It’s called investment

Supporters of austerity have long argued that there is no viable alternative because of persistent government deficits and rising debt. David Cameron put it starkly arguing that “there is no magic money tree“. However these assertions contain two important fallacies.

Firstly, it is evident that, if government is increasingly indebted it must be the case that the private sector is also an increasing owner of that government debt- government cannot be a net debtor to itself. Therefore rising government debt represents a transfer of incomes, from the public sector to the private sector.

Secondly, economies can grow. Otherwise human society would still be in its most primitive phase. Therefore there is no fixed amount of output in the economy, or the monetary denominator of that output. Continue reading

The economic contradictions of Mr Miliband

Two faces of MilibandThere is much to welcome in Ed Miliband’s address last Saturday to the Labour Party’s national policy forum. For example, his argument that Britain suffers from a low-pay economy. While the number of those in employment has grown, real pay has fallen dramatically over the lifetime of the present government.

At PRIME, we calculated the fall in real pay from May 2010 to May 2014 as 6.1%, using the CPI inflation and total pay stats from the Office for National Statistics. In his weekend column in The Independent on Sunday, David Blanchflower estimates the fall in real pay as 8% over the identical period, using the somewhat higher (but now less “official”) RPI inflation numbers. Continue reading