Nationalise the banks: don’t blow up the banking system
Steven Hail
I reluctantly adopted an MMT frame for thinking about macroeconomics more than one decade ago.
Reluctantly, because it caused me to question much that I had been taught, accepted as useful, and myself taught to others about economics in the previous 20 years or so.
On a less significant level, I had gone through a similar experience with behavioural finance and the orthodox approach to financial economics about 10 years earlier.
Always be a cynic. I recommend an MMT frame to people now because it is technically correct and because it has important implications for economic management in general and the fiscal space available to monetary sovereign governments in particular.
The last thing MMT is, or should be, is a cult, or something people accept because it fits their wishful thinking.
Remember that it doesn’t imply additional spending – government or private sector, doesn’t carry an inflation risk, doesn’t replace the real constraints we face due to a limited productive capacity, and doesn’t provide an easy resolution to our ecological problems.
What it does tell us is that anything which is possible, given our real resources, is affordable. What it does tell us is that we can afford full employment. What it does tell us is that there is no financial constraint in the way of investments in clean energy and ecological repair or in the way of a more even distribution of income and wealth, sustainable prosperity, and a decent and dignified life for all.
For years now, I have received regular (evangelical) emails from well-meaning people who are emotionally highly committed to either/both a stand-alone universal basic income and positive money /AMI proposals to eliminate debt money creation by banks.
The reason I have not accepted either of these proposals as useful is that I put them through the same scepticism I applied years ago to MMT. They didn’t pass the test.
A stand-alone UBI will be set at too low a level to raise people out of poverty; it will divide the population (as they are now) into the ‘haves’ with secure jobs and the ‘have nots’ who are left on the scrap heap; it will not be inclusive; it will not act as an anchor for inflation; it will not stabilise an unstable economy by expanding in a downturn and contracting during an upswing in the economy.
There is no reason you cannot have an unconditional basic income for people who choose not to participate in a job guarantee. But a job guarantee will provide people with a higher income; it will be socially inclusive; it will be a far more effective way of delivering a more even distribution of income over time; it will drive up wages and conditions of work for the low aid and those in insecure employment; it will stabilise the economy; and it will act as an anchor for inflation.
The job guarantee can be used to transform what is deemed to be activity worthy of recognition by remuneration.
It just makes more sense. Remember, I’m not saying you can’t have an unconditional income for people who don’t want to participate although they are able to do so, but a UBI on its own is not in my view a path to sustainable prosperity.
I base this view on a great deal of thought and reading a lot of research. I did not start off wanting to take one viewpoint over another. I started off as a sceptic.
PM proposals which place money issuance in the hands of a panel of experts, and which no longer allow for an elastic supply of credit to business by deposit creating institutions, supervised by a central bank (or other banking supervisor), lack the flexibility to meet the needs of a complex economy, and in any case PM proposals are entirely unnecessary.
The assets private banks are allowed to hold, and the activities they are permitted to engage in, should be tightly restricted, and that is not the case at the moment. There should also be a public interest bank, owned by the central government, which people can bank with, if they choose. I do not disagree with Bill Mitchell’s view that the entire banking system may be better nationalised.
Banks provide a public service, and bank employees – particularly in banks which are too big to fail – are basically public servants. Like Bill, I would leave only the small mutual banks, credit unions and building societies in the private sector. But this is not the only option.
Private banks, and the financial system as a whole, can be regulated and supervised to ensure they act in the public interest, which is more or less how things worked between the 1930s and the 1970s – an era when there were no major banking crises.
Whether you are in favour of nationalising the banking system or not, the Positive Money proposals, to end commercial banking as we have known it for generations, in favour of an approach to lending and borrowing apparently inspired by neoclassical loanable funds theory, are unnecessary. In my view, they are also unworkable, in anything beyond a very small economy. But that is irrelevant, really. We just don’t need them. There is nothing fundamentally wrong with our monetary system today, which we cannot fix through regulation and/or nationalisation.
There are good reasons to maintain an elastic supply of lending to business and endogenous money.
You want democratic control of the process? Nationalise the banks: don’t blow up the banking system.
Again, I did not start off with an emotional opposition to PM. I hope I looked at what was suggested, thought about the proposals based on 30 years of teaching financial economics, and found them wanting.
Of course, you don’t have to agree with me.
I just ask people to avoid an emotional commitment to an idea, or set of ideas and proposals, at least until you have first been a complete sceptic and tried to demolish the logic behind them, and subsequently found yourself unable to do so.
If I disagree with you, it won’t be because I think you are a fool, it won’t be because I am a capitalist bighead, it won’t be (I hope) because I am a fool, it won’t be because I am part of a cult, and it won’t be because I haven’t spent a lot of time thinking about what you have written to me about. There is no need to take it as an insult.
It is just my view that MMT is technically correct, in the sense that it is completely realistic, that a well-designed JG is essential for a sustainable, equitable inclusive future economy, that an unconditional BI can at most be a supportive measure for a JG, that the PM proposals make no sense, and that it is difficult to imagine how those proposals could be amended in such a way as to make them useful.
That doesn’t mean we can’t nationalise the banks, and perhaps we should do that very thing.
Steven Hail
