Economics can seem a bit impenetrable to the lay person. Partly, it seems to me, this is deliberate on the part of economists to complicate the field – baffle with bullshit you might say. Accessible texts are difficult to come across; ones worth reading even more so. Economics and economic policy are too important to leave to the economists and politicians though, particularly since the dominant paradigm in economics has failed us so badly.
Whilst Eurozone countries are faced with a choice of austerity or default/Euro exit, there is no sound economic rationale for austerity in the major nations outside the Eurozone. High debt and deficits do not create an inherent risk of default, nor do they need mean higher taxes in the future, or place a burden on our grandchildren. These basic truths are emphasised by a branch of economics known as Modern Monetary Theory (MMT). There are a lot of passionate opponents of austerity on the left of the political spectrum, but I feel they don’t yet have the weapons necessary to argue effectively the case for an alternative. I think an understanding of MMT can provide a sound basis for making that case.
Here I just want to draw attention to two great primers on MMT. Both written by Warren Mosler, they are easily understood by the average reader although the ideas presented will seem counter intuitive at first. The first is called “Soft Currency Economics”. It can be read on Mosler’s website here. Here is an extract:
“The purpose of this work is to clearly demonstrate, through pure force of logic, that much of the public debate on many of today’s economic issues is invalid, often going so far as to confuse costs with benefits. This is not an effort to change the financial system. It is an effort to provide insight into the fiat monetary system, a very effective system that is currently in place. The validity of the current thinking about the federal budget deficit and the federal debt will be challenged in a way that supersedes both the hawks and the doves. Once we realize that the deficit can present no financial risk, it will be evident that spending programs should be evaluated on their real economic benefits, and weighed against their real economic costs. Similarly, a meaningful analysis of tax changes evaluates their impact on the economy, not the impact on the deficit.”
The second primer is called “The Seven Deadly Innocent Frauds of Economic Policy”. This can also be read for free via Mosler’s website here. Here are the ideas Mosler calls “innocent frauds”:
“1. The government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.
2. With government deficits, we are leaving our debt burden to our children.
3. Government budget deficits take away savings
4. Social Security is broken.
5. The trade deficit is an unsustainable imbalance that takes away jobs and output.
6. We need savings to provide the funds for investment.
7. It’s a bad thing that higher deficits today mean higher taxes tomorrow.”
Mosler is an American, and writes for a US audience, but the arguments he presents are equally applicable to the UK (or Canada, Australia, Japan etc). Please read and let me know what you think.