Orthodox neoliberal economics has run its course. It no longer provides the answers or the outcomes we need, not for our citizens, and certainly not for the health of our planet. In this article I examine why we need a new approach, I suggest what that approach should be, and how we can get there. We are facing huge challenges right now – there’s no time left for excuses.
What is the point of economic polices?
What is the point of government economic policy? Is it to keep inflation operating within a small window of around 2% – helped by ensuring a big chunk of people are kept unemployed? Is it to ensure the government ‘deficit’ never exceeds an arbitrary 3% of GDP, providing a solid argument for not spending more on the health service? Or perhaps it is to promote self-correcting markets by promoting free trade and deregulation – at the expense of increasing inequality and pushing people into poverty?
Or is it a combination of all of the above and more? Maybe the government’s job, when it comes to economic policy, is to juggle a set of financial indicators to ensure things don’t go awry; evidenced by indicators like falling GDP or inflation going up, or the government getting too big. Because, if it does go awry, the Bank of England will be forced to raise interest rates, penalise mortgage payers and push the economy into a recession. And, of course, while they are at it, reward the already wealthy who will win big from huge interest rate returns.
Ha, ha, ha, you’re so funny Jim.
I’m not funny at all. I’m not laughing. Every line of the above two paragraphs reflects the truth of how the UK government has tried to manage the UK economy. Sadly for us all, that won’t change soon because both main UK parties base their policies on the same orthodox neoliberal economic set of beliefs. Beliefs that are nonsense with economic models based on unrealistic assumptions.
Neoliberal economic policies are not based on examining how money is created and flows through the economy, not based on empirical evidence of how the economy works in practice, and certainly not based on the belief that some things are better managed by central government, like for example, energy and water. Anyone with any sense knows that such critical national resources should not be farmed out to profit-hungry private firms.
Orthodox neoliberal economics – dangerous to your health
Neoliberal economics is not just nonsense, it’s dangerous nonsense, a fact attested to by 300,000 excess deaths, record high in-work poverty, 100,000 Scottish children pushed into poverty due to austerity and the 670,000 UK households struggling to pay their mortgages in 2022/3 due to unnecessarily high interest rates. Since the beginning of the 1980s, with Ronald Reagan in America and Margaret Thatcher in the UK, ‘free market’ fervour took hold. Their approach to running the economy has increased inequality, driven up poverty, driven down wages, increased the cost of living, and exacerbated climate change.
If that’s success, then I’m in need of a state re-education programme. It’s clear: we need an alternative way of managing the economy.
If we continue down the path we are on, we will destroy our planet. Neoliberal economics assumes growth can go up forever and that resources are unlimited – there’s nothing in the model that takes into account the resource boundaries of our planet. And if we continue down this path, inequality and poverty will continue to increase unless we start to make different choices.
Nicholas Sowels writes in: ‘Changes in Official Poverty and Inequality Rates in the Anglophone World in the Age of Neoliberalism‘:
“This article reviews the evolution of inequality and poverty in the Anglophone countries (the United States, the United Kingdom, Canada, Australia, New Zealand and Ireland) since the shift to neoliberal economic policies in the late 1970s. It provides brief summaries of the key definitions of inequality and poverty, which are separate but related phenomena. The article confirms the general impression that inequality has risen more quickly in this country group than in other developed countries.”
It is time for a paradigm shift – orthodox neoliberal economics has failed the majority of our citizens
It’s time to step off the orthodox neoliberal economics train. It’s heading in the wrong direction. We need something different. We need to know first where we want to go and second, how to get there.
The wellbeing economy is where we want to go – because it is about the wellbeing of our citizens and it’s about maintaining a healthy planet. Modern Monetary Theory (MMT) tells us how to get there. MMT teaches us that it is not money that is limited, but the planet’s resources – including the human beings living on that planet. When finances are not the issue, the onus is on us to design a better future for all citizens, within the limits of our resources. We get there by spending the money required to implement those policies.
A new approach to managing the economy
So, what I am saying is that government economic policies should be about ensuring the health and wellbeing of its citizens, and everything else should be in service to that. And we should adopt this approach while ensuring those economic policies don’t contribute to the destruction of the planet. You know, like a government that assumes markets should work for people, not the other way around.
What kind of daft, upside-down world would that be? I hear you ask. Or maybe I misheard you – and you actually said: well, that sounds reasonable. Why can’t we do that? Well, we can.
What does a world in which the government works for the benefit of its citizens look like?
Here’s a list to get us started:
- Everyone who wants a job can get one.
- Everyone who needs health provision gets it free at the point of delivery, from a well-resourced health service.
- All citizens get free life-long education.
- Poverty is eradicated. There’s no need for people to be poor in a country that can spend as much money as it wants to spend in its own currency.
- Income and wealth are more fairly distributed.
- Environmentally friendly projects are speedily introduced so that we have a future to look forward to.
- An approach to protecting the environment is embedded within every policy decision the government makes.
- Citizens get to participate in the decisions that affect their lives, particularly at a local level.
- Citizens are afforded dignity by having enough income to support their needs.
This is an approach called the wellbeing economy, and it’s an approach we should be taking sooner rather than later.
That’s great Jim, but it sounds like utopian nonsense to me — how the hell do we pay for that?
Good question. And, as I hinted at earlier, it’s a question with an easy answer. A wellbeing economy can be paid for, if the government wants to pay for it: that’s the same rule that applies to any government policy.
I’m sure that it is news to you, because it seems to be news to most economists and politicians. There is no shortage of money to spend into the economy. It’s an undeniable fact that currency sovereign countries, like the UK government have a monopoly on creating their own currency. In the case of the UK that currency is the Great British pound. There are no limits to the creation of finances, but clearly there are limits to the things that that finances can buy. You can’t buy resources that have run out, you can’t employ people unless they are available for the things you want them to do and you can’t keep buying things when there’s no capacity in the economy, because that pushes up prices.
However, we are far from being at that point. And if we understand what the job is, we can manage that capacity and we can create more of that capacity. This is an understanding outlined in MMT.
I have covered this topic in more detail in other articles so I won’t give you chapter and verse, however I have listed some useful resources for you to check out at the end of this article.
Whether currency sovereign governments want to spend on PPE, Covid support, bailing out banks or saving health of the planet, they can – and do. As they have already demonstrated: $5tn dollars spend on Covid support for business in the US and an additional $3.5tn in Joe Biden’s ‘New Deal’. In the UK, as with any currency sovereign government, the fact is, that as long as there are unused resources in the economy, the UK government can buy those resources to fulfil their policy goals.
And none of that spending is funded by taxes. Again, I won’t labour the point because I’ve covered it elsewhere, but all you are doing when you pay your taxes is sending back some of the money that the government spent into the economy. What you are not doing is funding government services.
So, can we fund the wellbeing economy that works for the benefit of the people? Of course we can. If we have a currently sovereign government, it can be financed. All that is required is the will to make the payments – based on an understanding of how money in modern currency sovereign countries works.
Note: Scotland is a currency user not a currency creator
In Scotland, unfortunately, we can mostly only talk about these grand goals rather than implement them, because Scotland is not a currency sovereign nation. Only an independent Scotland with its own currency would be in a position to jump off this neoliberal train. Only as an independent, currency sovereign country, would we have the power to travel in a different direction. A direction that puts Scottish citizens and the planet at the centre of policy decisions.
Trying to run a wellbeing economy on a fixed budget, while another country holds all the main economic levers, determines which decisions we are allowed to make, determines the size of our fixed budget and is in charge of our monetary policy is not feasible. All we’d be doing is tinkering around the edges: we’d have all of the ideas but none of the power to implement them.
Do you want a wellbeing economy or to continue down the current path? I know what I prefer.
Suggested reading material:
What is a Wellbeing Economy by the Wellbeing Economy Alliance
A Wellbeing Economy? From the Scottish Government Think Tank
One of the best and easiest to read books on the MMT approach to the economic is, ‘The Deficit Myth’ by Stephanie Kelton.
Warren Mosler, the founder of Modern Monetary Theory (MMT), has a free PDF book you can download called ‘Seven Deadly Innocent Frauds of Economic Policy’.
And there was a great book published recently called, Modern Monetary Theory: Key Insights, Leading Thinkers. It is an up-to-date account of Modern Monetary Theory (MMT) with contributions from the world’s leading experts.
