Steven Hail’s point by point response to the Daily Telegraph Article by Jeremy Warner which suggested the Jeremy Corbyn’s economic plans will turn us into Zimbabwe.
“Did you see that awful newspaper tosh – I think it was in The Telegraph – predicting a Corbyn Britain would inevitably generate Zimbabwe 2008 style hyperinflation?
When dealing with people who say or write such things, it is always essential to take a deep breath, accept they may genuinely believe what they say, remember you might have believed some of that yourself once, keep your voice calm and respectful, and explain patiently and quietly why such views are mistaken.”
Statement 1: ‘Of course the government has to balance its budget, or it won’t be able to pay back its debts, or we will burden our children’.
Answer 1: ‘Governments almost never balance their budgets, and that has been true nearly everywhere in the world for a very long time. They aren’t burdening our children. They are allowing us to save, by providing us with the safe assets we want and need to save, supporting employment and business profits, and investing for the future. They don’t need to pay back their debts. It isn’t really debt at all. It is a form of money’
Statement 2: ‘You will turn us into Greece.’
Answer 2: ‘Greece isn’t a monetary sovereign. If Greece had its own currency and a floating exchange rate, this certainly wouldn’t solve all their economic problems, but on the other hand the Greek government would not be insolvent, unemployment would be much lower, and the Greek people would be far more prosperous than they are at the moment. Monetary sovereign governments cannot ever run out of their own currency.
Statement 3: You want us to print money and turn into Zimbabwe or Weimar Germany’
Answer 3: ‘No cash would be printed, as such, so we prefer to avoid that phrase. The point is that a lack of demand in the economy arises because the non-government sector wants to save, rather than to spend. It is up to the government sector to supply them with the safe assets that they want – this can be in the form of interest bearing government bonds, or it can be in the form of money. There really isn’t much difference between these two forms of asset for the non-government sector. The government does not actually need to issue bonds. It does not need to borrow. Bonds are, in part, issued to meet a demand for them from the private sector. Interest payments on them are a form of ‘welfare’ to savers. issuing bonds also results from an anachronistic and out-dated approach to managing public finance, which might have been more suitable before 1971, but is outdated under floating exchange rates.
Statement 4: ‘What about Zimbabwe and hyperinflation?’
Answer 4: ‘Hyperinflation results from increasing spending more and more when there are fewer and fewer things available to buy. In Zimbabwe, a very poorly planned and violent land reform caused the supply side of an agricultural economy to completely collapse. In Germany, a war, and an unjust peace treaty wiped out the productive capacity of the economy. When government try to spend money on non-existent goods then it is bound to drive prices up, and will cause hyperinflation. We are not arguing that governments can spend money without limit, without causing inflation to take off. We are arguing instead that when there is spare capacity in the economy, and when people are unemployed or underemployed, the government budget position is not a good reason for not taking up that spare capacity and employing those unemployed people.
Statement 5: ‘Government spending causes inflation and crowds out private spending’
Answer 5: ‘When there is an output gap and unemployment, government spending will do neither of those things. It will reduce unemployment and crowd in private spending, as the employed have more income to spend. There are many and varied benefits to society and to productivity in the economy from maintaining full employment too. At full employment, any increase in spending – public or private – can cause inflation. It is only when you are at the full capacity of the economy, that government spending and private spending are alternatives. The potential for too much spending in total to be inflationary is why taxes are an essential part of economic management. They create room in the economy to allow for non-inflationary government spending. This does not mean you need to balance the budget though. Usually, governments have to net spend. ‘
Statement 6: ‘This sounds too good to be true’
Answer 6: ‘Nonetheless, it is true. Our constraints are ecological and real. They are not financial.’
Statement 7: ‘What about a capital flight, current account crisis, collapse of the pound, and imported inflation, which so many are saying would result from a Corbyn government.’
Answer 7: ‘There would be no current account/trade crisis as such. The modern foreign exchange market is driven by capital flows and not by trade flows. It is by no means automatic that there would be any capital flight from a Corbyn-led UK. A full employment economy is a good place to invest. However, if there was a capital flight, the result would be potentially some pressure for the pound to depreciate. This could cause some moderate and temporary inflation pressure. In a diverse economy such as the UK, this could be managed, especially given that the right institutions are in place, and the right economists – such as Australia’s Bill Mitchell – are listened to for advice.
Statement 8: ‘What advice would you give?’
Answer 8: ‘One important institution would be the implementation of a locally managed by nationally funded employment guarantee scheme, at an acceptable (non-poverty) social wage. This would play an important part in stabilising an unstable economy in a fair and ecologically sustainable way.
There are many other things which need to be done. Allow me to refer you to Professor Bill Mitchell’s blog site. I recommend you stay on that site for a few hours. It is fascinating and there is much to learn.
Stay on it long enough, and you will learn about what in the next few years should displace the sterile orthodoxy of the neoliberal economics which has guided both Labour and Conservative governments in recent decades.
The future can be much brighter.’
