Having noted that the Greens were a plausible recipient of my vote yesterday based on their green policies and support for proportional representation, I took a look at their economic policies and I found this bunch of cheap nonsense:
To summarize my reaction, if a party does not understand what money is and how it works then, in my opinion, it is not fit to govern. Given the above, that’s where the Greens are.
The policy statement appears to have come directly from an organization called positive money who has been writing this economic illiterate stuff for over a decade.
A while ago I wrote a blog post about why I was opposed to the ideas of Positive Money. Given that their ideas don’t seem to have changed, and the Green Party still seems to be dedicated to them, thus in turn completely crashing the economy (which is what would happen if they tried to implement such a policy), it seems worth reiterating. what my objections are. What follows is in italics as it comes from my 2018 post.
The idea with which I disagree is this, which PM says is central to its policy proposals:
The central bank would exclusively responsible to create as much new money as necessary to promote non-inflationary growth. It would drive money creation directly, rather than by using interest rates to influence borrowing behavior and money creation by banks. Decisions about money creation would be made independently of the government, by the Monetary Policy Committee (or a newly formed Money Creation Committee). The committee would report to the Treasury Select Committee, a committee of parliamentarians from all parties who scrutinize the actions of the Bank of England and the Treasury. The Committee would no longer set interest rates, which would now be set in the market.
The central bank would continue to follow the mandate set for it by the nation’s finance minister or chancellor. In the UK, this mandate is currently to provide “price stability” (defined by a 2% inflation target) and, subject to that, “to support the government’s economic objectives, including growth and jobs”. The inflation target acts as a cap to prevent money creation from becoming excessive, but subject to that, the central bank can create additional money.
I always have a hard time knowing where to start when faced with this proposition, it’s so overwhelmingly damaging. The following are objections within the limitations of a post of reasonable length. They’re not necessarily in order of objectivity: honestly, they all achieve that status.
First, I am opposed to any unelected committee taking control of our economic policy. I am opposed to the current charade of central bank independence and I am opposed to the alternatives. We elect governments to run economic policy and not unelected ‘wise people’ whose status may well be questionable and most of whom will be the slaves of some long dead economist.
Second, I am opposed to inflation being at the center of monetary policy. Of course it is vital, but more especially for the interests of those with wealth. The goal of money creation should be to ensure that there is enough to create full employment and rising average wages. Since the only inflation that the policy of money creation can control will not occur until there is full employment, making the goal of inflation is to get all the priorities wrong in that case and to put the interests of capital before those of labor. And that’s not what any progressive should be doing, in my opinion.
Third, this policy does not understand what money is. Money is, in the modern world, simply a promise to pay. It comes into existence when that promise is made. It ceases to exist when it is fulfilled. So governments create money when they promise to pay when they spend, and they keep that promise when they accept the money they create as taxes. And bank borrowers create money when they promise to repay loans, and do so after repaying them. Instead, banks promise to pay in the future by accepting net deposits: they say they will recreate the money when you pay it back. But in each case there is no physical thing called money. There is only one promise. That’s all. But Positive Money doesn’t appreciate that. They are saying that there is something called ‘central bank money’ and that a stock of it can be created and distributed for banks to use. This is simply not true: unless there is a promise to pay, there is no money, and promises that do not exist cannot be distributed between parties that do not know they can make them. The idea of positive money is not possible unless the fourth objection applies.
Fourth, PM’s proposal rations money. This is exactly what the gold standard did. He said money was in limited supply and countries were not free to create it at will. Limiting supply created a price for money – or interest – that rewarded those who had it and penalized those who did not, in a form of rent-extraction that reinforced inequality. We have been removing this rent: in my opinion, this is the best explanation for the rapid fall in real interest rates and the reason why they will not rise again: there is no premium to pay for a commodity that is now not artificially in short supply. . But, more important than this, the limitation in the availability of money restricted growth: desirable transactions could not take place because the means for settlement were said to not exist. But this scarcity is also artificial: there is literally no limit to the promises we can make. The only limit is the number we are able to meet. As long as we focus on productive capacity then (and this is critical) the government’s job is to allow all the money required to deliver that capacity and not restrict it by saying there is no cash available. But that’s exactly what PM would do: just as the gold standard in the 1930s caused a depression, so would PM.
Fifth, PM would also irreparably undermine the use of sterling. The reality is that people borrow and spend in sterling because they need to pay their taxes, and a banking system that can create credit to meet their needs enables them to do so. As a result, the government has macroeconomic control of the economy. But if credit creation were restricted, people would borrow and use other currencies: they would have no choice because sterling would no longer be credible. Not only would the microeconomic cost be considerable, as would the risk, but the loss of macroeconomic control would be catastrophic.
Finally, PM is in any case wrong: the entire sterling has already been created by the government. Of course, you can’t control other currencies, but as it stands in the UK context, that doesn’t matter – sterling is the invariable currency of choice. And it is created in two ways. One is by public spending, as explained here. Alternatively, it seems to be created by bank loans. But this is a chimera. It may seem like banks do this, but they do it only because customers are willing to offer to pay them in the sterling currency that the government creates (and nobody else creates it) and second because the banks are licensed by the government under very strict controls to accept those promises. It may seem like there are many banks creating money, but only one banking system is doing it, at the center of which is the Bank of England which already advances funds to lending banks on demand and controls their lending through reserve requirements and specific regulation such as as well as a specific policy, for example, to promote or retain mortgages. The idea that banks float freely and do what they want, as banks, in this system is not true. They do it like investment banks, but that’s a very different thing and why shouldn’t the two be in one organization. But to say that banks create most of the money now is simply wrong: they don’t. They work under license from the Bank of England in doing so. PM is addressing a problem that doesn’t even exist.
PM could play a valuable role in the campaign if he understood modern monetary theory, money and its role in the economy. As they are, they promote dangerous policies that would reinforce inequality, collapse the economy, and undermine any chance for the government to steer any recovery. It’s hard to think of many organizations looking to do much more damage than that. Why he thinks he’s progressive when he does is hard to imagine. Fortunately, there is the MMT alternative. It is the only viable option.
I could add one more thing. It is the category mistake at the very heart of Positive Money’s work and at the heart of Green policy. Implicit in both is the idea that there is something real, tangible and separable, which is money. It’s like they think it’s tangible. There is no such thing. There are only promises to pay. There are only mutual exchanges. Banks are just accounting devices that record those promises. And given that fact (because it is) what the Greens are proposing is not only absurd but dangerous.
I’m not sure I can vote Green right now.