I sometimes mention the Meese-Rogoff result from 1983, where two prominent (now, if not then, later) neoclassical economists reluctantly admitted that no neoclassical exchange rate theory was of any use at all in forecasting movements in exchange rates, and that this had nothing to do with the market being informationally efficient.

Even 40+ years later, this result has never convincingly been overturned.

Among other things, it means that changes in relative interest rates are not a useful method of forecasting later changes in exchange rates.

Here is the original paper.

Empirical exchange rate models of the seventies (you may as well say of the 2000s) - do they fit out of sample?

Answer - no, or not obviously.

Next time you recommend a low (or even zero) policy interest rate, and somebody asks you about collapsing exchange rates, show them this.

Meese, R. A., & Rogoff, K. (1983). Empirical exchange rate models of the seventies: Do they fit out of sample? Journal of International Economics, 14(1–2), 3–24. https://doi.org/10.1016/0022-1996(83)90017-X

In private conversations, economists from the dominant New Keynesian branch of the neoclassical school will often accept that they have no reliable model of inflation.

Their discussions and the dynamic stochastic general equilibrium models they use to give mathematical credibility to those discussions are dominated by the notions that inflation is generally a problem of excess demand and that the management of inflation depends vitally not only on limiting demand today, but on ensuring that businesses and households expect demand and therefore inflationary pressures to remain limited in the future.

Increases in current or expected future inflation need to be met with larger increases in policy interest rates, so that downward pressure is placed on excess demand, to ensure that unemployment does not fall below its non-accelerating inflation rate (NAIRU), and it may even be necessary to have a period of higher unemployment to place downward pressure on inflationary expectations. Failure to do this early enough might require bigger and longer-lasting job losses later on to restore price stability.

There will be a variable in their mathematical models to represent increases in costs driven by shocks to supply, and they might occasionally discuss the impact of distributional conflict on NAIRU, but that is about it where inflation is concerned.

An implication of this is that the management of inflation is something best left to skilled central bankers and their economics team and that the best governments can do is to avoid putting upward pressure on demand and inflationary expectations by avoiding structural fiscal deficits, because otherwise central banks will be forced to raise interest rates higher and crowd out productive private-sector investment to make room for unproductive government spending.

But as I said, they will sometimes admit that none of the above has overwhelming empirical support, and that they are really flying blind. They have often in recent decades overestimated inflation risk and subsequently had to chase inflation rates down with interest rate cut after interest rate cut in sluggish economies without being able to drive demand up and push inflation up into their desired target range. Subsequent to the pandemic and the break-out of war between Russia and Ukraine, the opposite happened. The original drivers of inflation were primary sector prices which are traditionally volatile and are omitted from the measures of underlying inflation most central banks use to guide policy decisions. Central bankers did not anticipate the persistent inflation which happened. On this occasion, they underestimated inflation risk.

The fact is that they lack the tools to manage inflation effectively in the first place. To understand this, we need to think about inflation more carefully. Measures of inflation are not a natural phenomenon, and there is no single and objective rate of inflation at a particular point in time in any country. In most discussions of inflation, people are talking about the annual rate of increase in a statistic called the Consumer Price Index (CPI).

The CPI measures the rate of increase over time in the cost of a sample of goods and services which is supposed to represent changes in the cost of living of a representative household. There are many technical issues and problems involved in constructing and recording such statistics, which we will not examine here. In Australia, the CPI reflects thousands of prices, collected now every month, divided up into 87 product classes, with something like 10% of the sample related to the primary sector of the economy, 30% secondary sector and 60% tertiary sector.

Dividing up the index like this into sectors reminds us that the economy is not only a monetary system, but also a material system. The ecological economist Herman Daly borrowed a term from biology, when he referred to an economy as a trophic system. The primary sector includes food, energy sources, metals and non-metallic minerals; the secondary sector includes manufactured goods; and the tertiary sector refers to services.

The secondary sector depends on the primary sector, and the tertiary sector is based on both the primary and the secondary sectors. The ultimate basis for economic activity is the natural environment of which we are all a part and on which everything depends.

Gardiner Means and Michal Kalecki, in the 1930s and subsequently, explained that it is generally only in the primary sector of the economy that prices can be described as market determined, and that the traditional demand-supply model has any validity, as an explanation of movements in prices over time. In the secondary, and especially in the tertiary sector, prices are administered by firms, estimating unit costs and adding a mark-up onto costs to determine selling prices. The mark-up needs to cover financing costs, and will be greater in industries where there is a higher degree of monopoly or less competitive pressure. In the administered price part of the economy, increases in demand which do not increase unit costs will not be inflationary, especially when firms have unused capacity which can be applied to supply additional demand in a growing market in defense of market share. Under normal circumstances, firms will be reluctant to raise prices relative to their competitors, and aware that prices charged are a form of social contract with their customers, so outside of periods when a primary sector shock has created uncertainty about inflationary pressures, will be reluctant to increase prices for any reason except an increase in production costs.

This description of the economy as a trophic system reminds us that it is generally primary sector prices which are not only the most volatile prices in the economy, driven by demand and supply and especially supply-side shocks, but also the most systematically significant. The most severe inflationary episodes in high income countries since 1945 have been driven by such primary sector shocks. Energy prices drove such events in 1974, 1979 and 2022 particularly. There are exceptions. After the COVID pandemic, for example, it was more about the release of spending power in economies where supply chains had not yet had time to recover, creating bottlenecks and consequent shortages.

These shocks have an initial impact on the economy and on inflation via the primary sector part of the CPI, but of course this greatly underestimates their significance over time. As cost increases percolate across the secondary and tertiary sector, prices rise more quickly than before there too, and there are then feedback effects, where secondary and tertiary sector prices impact costs and supply conditions in the primary sector. This can be, and was in the 1970s, prolonged and exacerbated by a social conflict between labour and capital, as workers react to an acceleration in their cost of living by seeking larger rates of increase in nominal wages to defend their real wage rates. Such wage increases are defensive however, and not generally the cause of the inflationary episode.

Firms in the administered sector with more price-setting power are able to defend their profit margins and even build them, as this process develops, because price increases are more easily co-ordinated by price leaders and their fellow oligopolists at these times, and because their customers are less able to identify whether increases in prices are justified by cost pressures. It is this effect which Isabella Weber and others termed sellers’ inflation after 2020, and which contributed to her calls for strategic price controls and windfall taxes in such industries.

There are of course also material linkages between industries within each sector, with primary sector producers relying on energy inputs; finished manufactured goods incorporating manufactured components, and service sector industries depending on other service firms to provide their finished products. The important point is that the economy is not a set of independent markets, each with its own equilibrium, where resources are allocated according to movements in relative prices, but instead an interconnected system of material and monetary flows. Shocks to one part or some parts of the system, like a pandemic freezing supply chains, a war, or disruptions due to climate change, have the potential to impact the whole system, and to generate feedback effects. The economy is in a sense a circular system, with everything depending on everything else.

This observation takes us back to the French physiocrats like Quesnay in the 18^th century, to Karl Marx, to the founder of general equilibrium economics Leon Walras (at least in a sense) and to the enigmatic Pierro Sraffa. They all saw the economy as a system of linkages. But the most useful representation of the economy as a material system that has been developed is Wassily Leontief’s Input-Output (I-O) analysis.

I-O analysis fell out of favour somewhat in the 1980s, but is enjoying a comeback, partly because economists like Weber and the MMT economist Patricia Pino and others have identified how useful it is at identifying vulnerabilities to inflation and potential mechanisms to limit such vulnerabilities, and partly because high quality data is now more widely available than was once the case because of developments in national income accounting.

One paper which is worth reading for everyone with an interest in policy making is Inflation in times of overlapping emergencies: Systemically significant prices from an input–output perspective (Weber et al. 2024). This paper repeats Leontief’s critique of the standard mainstream aggregative approach to inflation and uses I-O analysis to drill down into the economy and discover those microeconomic prices and industries which are significant drivers of inflationary episodes. I won’t list them here, but they are what you would expect based on our discussion so far, in most cases primary sector prices, like food and fuel, or secondary sector prices very close to the primary sector, like chemicals or food processing. Exceptions are wholesale trade and housing costs.

A very recent paper, which again I highly recommend, is Understanding the inflation risks of public capital investment: An input-output modelling approach (Pino-Argumedo 2026). In this paper, Patricia Pino outlines a method for assessing the potential short-run and long-run impact on prices and therefore on inflation risk of public investment projects within the Leontief framework. She incorporates a measure of the degree of excess capacity in each sector of the economy, and traces through the potential inflationary impacts of additional demands for real resources during the construction phase of the project, and then the potential disinflationary effects of the increase in productive capacity which the investment provides on its completion. This is in my opinion an important contribution to the modern monetary theory approach to public finance.

Modern monetary theory tells us that a currency-issuing monetary sovereign government is limited in the investments it should make not by purely financial concerns, but by the productive capacity of the economy and inflation risk. Aggregative fiscal rules make no sense. A better approach to public finance is to fund through currency issuance investments which make use of available real resources today to create a future economy which provides human and environmental well-being while avoiding or mitigating the risk of inflation driven by current bottlenecks and future shocks. Patricia Pino’s application of her I-O modelling exercise to the UK tidal lagoons project is an excellent example of what is possible.

Since I have mentioned MMT, you might wonder how all the above fits in with Warren Mosler’s story of what determines the price level in an economy. It won’t surprise anyone if I say Mosler is absolutely correct that in modern economies the currency issuing government has a great deal of influence over the price level, via the prices it is prepared to pay for goods and services. He recommends the introduction of a transition job, or job guarantee, scheme. The government can set the minimum wage in the economy via this program, and other wages and prices will then be set relative to this minimum wage. The government here is choosing to set an individual price to anchor the general price level and then allowing the economic system to set all relative prices.

There is nothing wrong with the logic of this in principle, and it does not contradict what economists like Weber say when they discuss price shocks in I-O frameworks. Mosler is talking about the absolute price level and Weber and others are discussing relative prices, both now and over time. However, you could criticize Mosler’s view on the grounds of political economy, which to be fair is not his primary concern, as he is more interested in economics from a technical perspective than a political one. In the event there is a shock to primary sector prices, perhaps due to a catastrophic climate event increasing food prices, it will not be possible to leave the job guarantee wage fixed in nominal terms, and indeed the government would have to increase the prices it pays for goods and services more generally, to maintain social stability. So while in principle the government sets the price level by fixing what it will pay for an hour of labour, in practice in an era of shocks and emergencies the description of inflation shocks as being mainly driven by primary sector shocks, transmitted through the economy as a trophic system of material dependencies, with strategic industries and prices which need to be addressed to limit inflation vulnerabilities is rightly where economists like Weber and Pino-Argumedo are concentrating their efforts.

And if you are one of those central bankers or other neoclassical macroeconomists who are prepared to admit your approach to modelling inflation is not reliable, may I recommend the following papers for you to read, in the order they are listed below.

Key Readings:

Weber, I. M., Lara Jauregui, J., Teixeira, L., & Nassif Pires, L. (2024). Inflation in times of overlapping emergencies: Systemically significant prices from an input–output perspective. Industrial and Corporate Change, 33(2), 297-341.

Argumedo, P. P. (2026). Understanding the Inflation Risks of Public Capital Investment: An input-output modelling approach. Working Paper 2026-05. UCL Institute for Innovation and Public Purpose, University College London.

1. Kelton v Moore.

2. Galbraith v Rogoff.

3. Mosler v Murphy.

1. Kelton v Moore (2025).

The most recent of these dates from last year, and features Professor Stephanie Kelton going into the lion’s den, in a sense, because it was organised by the conservative Steamboat Institute, with a stated mission to “promote America’s first principles and inspire active involvement in the defense of liberty”.

The question Stephanie was asked to debate was ‘Should the U.S. federal government make reducing the national debt a fiscal priority?’ It would be an unusual politically conservative institute that would not have a clear prior view on this issue, and it is unsurprising that the majority of the audience before the debate was in the ‘yes’ camp.

Stephanie’s opponent was Steve Moore, at the time senior economist at the Heritage Foundation, long time contributor to The Wall Street Journal, and advisor to the presidential campaign of the then newly inaugurated Donald J. Trump.

Moore led off the debate, using emotive language like obscene, outrageous and fraudulent in the context of federal spending. He claimed that ‘everybody knows we can’t keep doing this’. He stated, rather than argued, that the national debt would be a burden on people’s children and grandchildren and on future generations. His view was that growing the economy would be essential to reduce the debt, and that the way to grow the economy was to cut what he saw as fraudulent spending on social security, Medicaid and other programs. He was in favour of privatising social security and educational funding. Failure to reduce the national debt would be, he claimed, dangerous, catastrophic and would lead to crisis.

He never quite articulated how this would happen.

Professor Kelton responded by saying she was ‘not afraid of the red line’ (that is, of fiscal deficits and what we misname the national debt). She was not interested in the usual debate between Democrats and Republicans, where both sides agonise over the fiscal balance, and blame each other for ongoing deficits.

Kelton explained to the audience how the US government spends – Congress authorises spending, and then there is an instruction to the Federal Reserve to credit private bank accounts and the electronic reserves those banks hold at the Fed.

Government spending and all spending has an inflation constraint – indeed, an inflation or real resource constraint was consistently emphasized by the modern monetary theorists in all three debates discussed here – but there is no solvency constraint for the federal government of an economy with a monetary system like that of the USA.

Stephanie went on to explain that the government must spend reserves into the system before they can be used to pay taxes; that a government deficit is essential in a country like the USA for there to be a private sector financial surplus; that government deficits are therefore needed to provide the credits to keep the economic system afloat; and that the so-called national debt is just the savings in US dollars of everyone else.

Dollars spent into the private sector could sit in checking accounts at the Fed or be converted into treasury securities and transferred to savings accounts at the Fed. Paying down the national debt would be dangerous and had led to depressions or severe recessions every time it had happened across US history.

Why prioritise shrinking the surplus of the non-government part of the economy, she argued, when doing so was unnecessary and even dangerous.

Steve Moore essentially ignored everything Kelton had said, and instead blamed Joe Biden for the post-pandemic inflation which had happened in the USA and claimed that MMT had been tried and failed in Latin America.

He did not seem to understand that modern monetary theory is a description of the monetary systems which actually exist today, and that it is MMT economists who (arguably) more than anyone else discuss the limitations that fixed exchange rates and/or foreign currency denominated debt and poor trust in public institutions and the tax system impose on those countries with some or all of these characteristics.

This was pointed out by Stephanie Kelton, who explained that post-pandemic inflation was a global phenomenon to which both objective research and common sense have indicated that fiscal support contributed only in a marginal way.

Moore then argued that Covid shutdowns were a catastrophe; that Reagan’s spending was good and Biden’s bad, for reasons he could not fully articulate; that ‘you don’t stimulate the economy by just giving people money’; and that ‘we should cut the capital gains tax’. His supply-side policy ideas all seemed to imply making the distribution of income and wealth in the USA even less even than it had been already.

As the debate went on, to my ears Moore became increasingly inarticulate, and at one point asked whether Kelton’s 2020 New York Times bestseller The Deficit Myth had just come out.

Kelton finished off by firstly explaining the role of a job guarantee in eliminating involuntary unemployment and then describing how alarm bells regarding the national debt had been used to scare people across the entire moder history of the United States. She used the period 1980-2020, when the so-called debt had increased continually while interest rates had fallen almost the whole time, to show that the loanable funds theory that deficit spending crowds out private investment by raising interest rates is a fallacy.

She pointed out that the increase in interest rates and bond yields since 2020 was a consequence of current and expected future US monetary policy and nothing to do with bond market vigilantes.

If anything, it is the Federal Reserve which is the bond vigilante.

At the end of the debate, much to the chagrin I believe of the Steamboat Institute and Steve Moore, the overwhelming majority of the (largely conservative) audience had switched sides. About two-thirds of them now accepted that U.S. federal government should NOT make reducing the national debt a fiscal priority.

2. Galbraith v Rogoff (2020)

Five years earlier, in a very different geopolitical environment, Professor James Galbraith debated Professor Kenneth Rogoff at the Gaidar Forum in Russia. This debate was more academic in tone, which is unsurprising given the two economists involved. Galbraith is a leading Post-Keynesian economist, with experience as an economic advisor to not only US governments but also governments in a variety of other countries. He is close to the leading MMT scholars and was the keynote speaker at the first International Modern Monetary Theory Conference in Kansas City in 2017. He is perhaps the most widely respected MMT or MMT-adjacent economist among neoclassical economists.

His opponent, Kenneth Rogoff, is a leading neoclassical macro and international financial economist. Rogoff is a former chief economist at the IMF, now a professor at Harvard, one of the most prominent neoclassicals not to have received a Bank of Sweden Nobel memorial award, and a participant in a number of controversies relating to economic theory and policy over the past 45 years. To someone like me, his best contribution was one of his earliest. In 1983, he was the co-author of a paper explaining that no neoclassical model for forecasting movements in floating exchange rates between major currencies could be shown to be of any use at all. This conclusion – the Meese-Rogoff result – has held up pretty well in the decades since, and ought to help undermine your faith in neoclassical economics generally. It did not do that where Professor Rogoff is concerned.

Rogoff said something I have heard people say many times before – that modern monetary theory is not modern, not really a theory and not monetary. He also claimed it not to be empirical, in that it had been tried in Latin America with no success. This may appear familiar, as it is pretty much exactly what Steve Moore claimed five years later.

Galbraith responded by explaining ‘it is a descriptive analysis of how credit-based monetary systems actually work’. MMT has policy implications, but it is not in itself a set of policy proposals (you could argue that the job guarantee is an exception to this, as this is a policy proposal which is almost universally promoted by MMT economists). According to Professor Galbraith, ‘all competent central bankers and all competent treasury officials’ understand the basics, although they may not admit to doing so in public.

Incidentally, this is what my colleague Morgan Edward has found to be true in his recent research on the New Zealand monetary system. Competent policy economists will often admit in private things they will not say in public.

Galbraith explained that the word ‘modern’ in MMT is drawn from the first chapter of Keynes’ Treatise on Money in 1930, where Keynes claimed that money had been ‘modern’, in the sense of being based on credit and on fiat, for at least 4,000 years (Galbraith said 5,000, which is more in accord with what we know today, but not what Keynes wrote in 1930). MMT is ‘monetary’ because it is about monetary systems. MMT is a ‘theory’ because it is a simplified framework describing how such monetary systems function in practice.

Professor Rogoff complained that MMT economists do not use equations, as though something cannot exist within the discipline of economics if it is not reducible to a mathematical model. He missed the point here, because there are plenty of mathematical models which have been constructed to be consistent with the MMT framework, so it is not the case that economists whose work is consistent with MMT principles do not use equations. The Godley and Lavoie models of the macroeconomy, for example, are made up of systems of equations, and are consistent with MMT, even if Marc Lavoie does not describe himself as an MMT economist. Godley published significant work with Professor Randall Wray, who is one of the leading MMT economists, and the author of the primer to which Rogoff refers in his debate.

I found it interesting that Rogoff accepted that central banks do not genuinely have their own separate balance sheets; that they are essentially a part of government; and that they carry out functions which could otherwise be done by governments themselves. He went further here than a lot of Post-Keynesians are prepared to go.

I also found it interesting that Galbraith argued that economic growth is not the most important variable for governments to use an objective, and that what matter more are the quality of life and the sustainability of the environment. An MMT perspective means that you do not have to pursue economic growth as the only means possible of reducing the debt to GDP ratio, and that you do not rely on tax income generated by growth to allow you to fund public services. There is an echo here of the increasing overlap in recent years between modern monetary theory and ecological economics.

Galbraith explained that modern monetary theory is closely connected to Lerner’s functional finance and to Keynes’ famous statement that ‘anything we can actually do, we can afford’. It is a description of how money and credit systems actually work.

‘Taxes...are necessary, but they are not necessary to raise money for the state…but rather to give value to the money that is created.’

On watching both the Kelton-Moore and Galbraith-Rogoff debates, you cannot help being struck by how difficult the Austran-school and neoclassical economists both find it to be to escape the misconception that modern monetary theory is about advocating for inflationary money creation, when it is as both Kelton and Galbraith explain simply a description of the fiat monetary system within which we all live.

3. Mosler v Murphy (2013)

The third debate is from much further in the past at Columbia Law School between the founder of MMT, Warren Mosler, and Austrian-school economist Robert Murphy.

I have less to say about this debate, because it was taking place in an economy which was still recovering from the Global Financial Crisis and the Great Recession, which are receding into history in 2026 (not that they have no lessons for us today).

Mosler argued, among other things, for a permanent zero-interest policy from central banks like the Federal Reserve; for limiting the issuance of government securities to 3-month treasury bills, if they are to be issued at all; for a transition job or job guarantee scheme; for a different approach towards banking regulation and the provision of liquidity to the banking system; and, interestingly and presciently when we remember what happened during and after Covid, for the domestic sourcing of key strategic inputs.

Murphy explained that the Austrian framework is centred on the individual, and on certain assumptions (although he never questioned these assumptions) about individuals, what motivated them, and about what markets are as institutions and how they function. He claimed, to my mind unconvincingly, that Austrian-school economics is not ‘libertarian political theory packaged up as economics’.

His view regarding asset swaps undertaken by the Federal Reserve following the 2008 crisis was that ‘what Bernanke is doing is really bad’ and that ‘you don’t cause economic prosperity by printing money’.

Mosler explained that in a floating exchange rate system money and interest rates do not work they way they are described to work by Austrian school economists. In particular, given that governments normally deficit spend, the natural outcome if the government does not issue securities and if the central bank does not pay interest on reserves is for overnight interest rates to be zero. In a sense, if the Austrian school economists do not like government intervention, they should support zero interest rates, because if no action is taken to create non-zero rates, the rate of interest will move to zero.

Murphy believed that the low or zero interest rates of 2013 would inevitably lead to a boom, which would be followed by a bust. Predicting is hard, of course, especially when you are trying to predict the future, so we should not be too hard on him.

Warren Mosler, similar to Kelton and Galbraith years later, patiently explained the role of a currency issuer in a modern monetary system. You have to spend first before taxes can be paid. You cannot have a reserve drain before a reserve add, logically and in practice. Without a fixed exchange rate or a gold standard, there can never be a solvency issue for such a government.

Mosler explained the role the tax system plays in guaranteeing a demand for money using an amusing metaphor which I won’t repeat here. The point he was making is that if your taxes are denominated in a unit of account and must be paid using government currency tokens with nominal values fixed in that unit of account, then there will always be a demand for those tokens. The more difficult it is to obtain those tokens the higher the real value of a unit of the currency. If people are unable to sell their labour to obtain the tokens, they will be involuntarily unemployed. It is the existence of the tax-driven monetary system which creates the unemployment. A job guarantee would eliminate such unemployment.

The initial purpose of monetary systems was to provision governments, and the role of currency-issuing governments in modern monetary systems is to be a scorekeeper, and to ensure enough points are issued to meet the demand for the government’s financial liabilities at full employment. Government deficits fund private savings. The government as the scorekeeper can never run out of points – there can never be a nominal crisis – but of course it can run out of things to buy – there can be a real crisis.

Robert Murphy said that ‘it is not that Warren is wrong’ but that he did not like the system. There was an entertaining intervention by Mike Norman, asking Murphy what he would put in its place.

Murphy did not in my view have any coherent alternative to offer.

Of course I am biased, as is everyone else, but in my view in the case of all three of these debates one side was patiently explaining how modern monetary systems work and exploring potential implications for macroeconomic and financial policies, while the other side had either not bothered to engage with modern monetary theory, or had not been able to overcome their preconceptions when doing so, and so had not been able to counter the arguments Kelton, Galbraith and Mosler had outlined.

But judge for yourself.

Modern Money Network. 2013. MMT vs. Austrian School debate [Video]. YouTube.

Russian Presidential Academy of National Economy and Public Administration. 2020. Modern monetary theory: A new outlook / The Gaidar Forum 2020 [Video]. YouTube.

Steamboat Institute. 2025. Should the U.S. federal government make reducing the national debt a fiscal priority? [Video]. YouTube.

Over the next month or so, Modern Money Lab will be touring England, Sweden and Belgium, holding fun, interactive seminars with the title From Austerity to Resilience - How to Build a Better Economy. These seminars will include discussions of MMT as a lens for understanding economic issues and framing policy choices; an MMT-informed approach to budgeting; a discussion of the treasury bond market and how to nullify any impact that market might have on policy implementation; and finally how to make progress, in the face of indifference and even hostility across the media, politics and most of the economics profession.

There are so many things I could write about here in the context of the above, but the administrative demands of running the world’s only global online Masters degree in both modern monetary theory and ecological economics are so heavy, that I hardly have any time to myself.

Let me select one issue and calmly explain a simple truth that might shock you. There is no good reason for currency-issuing governments in fully fiat monetary systems to borrow. None whatsoever. This is such a shocking truth that many excellent MMT economists, including members of the political party I support in both the UK and Australia, would prefer me not to say it. People prefer not to scare the horses – if I can refer to newspapers like the Times, former politicians like Rory Stewart and journalists like Fiona Bruce in those terms – and to discuss instead minor reforms to the bond market. I have come to believe this is a losing strategy, and that it is better to be straightforward and to say clearly and calmly that we do not need a treasury bond market and it should be phased out.

Before you stop reading in shock, let me reassure you that I have discussed this with bond traders, central bankers and more than a few financial economists, and these conversations have always ended with them agreeing that in principle the bond market is an anachronism which we do not need, and that its valuable economic functions, such as they are could be performed by other mechanisms which would not be described as government debt.

Imagine that - an economic narrative free of the bogeyman of a government debt burden, to be bequeathed as a heavy yoke to future generations. This is the most powerful single reform you could imagine to empower those who aspire to take on board the lessons of Stephanie Kelton’s 2020 bestseller, The Deficit Myth, and to build a better, more resilient, more equitable and more sustainable future economy.

In a pure fiat economy, the tax-collecting central or federal government issues a currency which it later collects back in taxes. It is the tax liabilities of the private sector which create a demand for the currency and provide room within the productive capacity of the economy for the government to provide public services and to make public investments. If the non-government part of the economy has a desire to add to its savings and strengthen its collective balance sheet over time, then it will be necessary for the government to spend more of its currency into circulation than it deletes from circulation using taxes and other methods. The government in other words will run a deficit, in order to fund non-government surpluses.

This is normal practice for such governments. It is not at all shocking. High-income governments, on average, run deficits every single year for this reason. According to the IMF, the nearest such governments came to running a collective budget surplus was 2008, just before the Global Financial Crisis. It is not government deficits which are unsustainable – except in the special case of a country with a persistent trade surplus, if it government surpluses which are unsustainable, since they delete savings from private sector balance sheets.

So it is normal for governments to run deficits. If we define government net debt as the sum of all past deficits (net of any surpluses), then it is normal for governments to accumulate what we call government debt over time. So far, of course, treasury bonds (and other treasury securities) have not come into the story.

Once upon a time there was a good reason for issuing treasury bonds. Governments used to fix their currencies against the US dollar (until the early 1970s) and before that (at least temporarily) under the gold standard to gold. This involved a commitment to exchange the currency for something they could run out of (a foreign currency or a commodity). In those days, issuing treasury bonds to temporarily drain currency from circulation which had been put into circulation due to government deficits made sense.

Under a fully fiat system, this is no longer the case. The currency is not fixed to any foreign currency or commodity, and there is no government commitment to exchange its currency for anything which it can run out of at a fixed rate. This motivation for bond issuance disappeared many years ago, in the case of the majority of high-income country governments, including both the UK and Australia.

This is not of course the reason most people think governments need to auction treasury bonds. Most people are unaware of the distinction between currency issuers and currency users. They do not appreciate that all spending by currency issuers involves the creation of new currency (new government money) and that the currency has to be spent into the monetary system before it can be used to pay national taxes or to buy treasury bonds in the primary market (i.e. when they are first issued). Consequently, they believe that governments need to issue bonds, so that they can borrow money in order to allow them to spend or invest those funds. You and I know this is factually incorrect, and that the ‘government as household’ metaphor which lies behind this fallacy is pernicious and distorts discussions of government policies in a variety of ways.

The damage done by the fallacy was at least mitigated, in the days of regulated interest rates by the use of a ‘tap’ system for bond issuance. In those days, central banks like the Bank of England and Reserve Bank of Australia would determine the rate of interest to be offered to investors on newly issued treasury bonds, and if private investors did not wish to take up the available bonds at the selected interest rates, the central banks would hold those securities on their balance sheets, and would thereby ensure that government spending authorised by parliament would take place, whether or not banks and other investors wished to purchase the bonds.

This changed after interest rates were deregulated, which happened in most high-income countries in the 1980s. Where central banks, like the Reserve Bank of Australia, chose to conduct monetary policy in a deregulated banking system by targeting the overnight interest rate at which private banks lend to each other (in Australia, the cash rate), they needed to keep the banking system short of cash to enable them to do so. This is often called a scarce reserves system of interest-rate management. Until the late 1990s in Australia and the early 2000s in the UK, central banks did not pay interest on bank reserves (sometimes called exchange settlement reserves). In those days, because government spending creates reserves, while taxes delete them, additional reserves created by deficit spending would in the absence of bond issuance cause central banks to lose control of interest rates. It was necessary to match deficit spending with treasury bond auctions to keep banks short of reserves and allow the Bank of England, or the Federal Reserve, or the Reserve Bank of Australia, to control money market interest rates.

This was no longer true when central banks started paying interest on reserves. There was no need to keep banks short of reserves any longer. Central banks could and have controlled interest rates by simply changing the rates they pay on bank reserve balances. There is no need to auction treasury bonds to drain excess reserves from the banking system. In a sense nothing would change if no new treasury bonds were issued – instead of the government having debt in the form of interest-bearing treasury securities, the central bank would hold the debt in the form of additional interest-bearing bank reserves. The difference is of course that nobody ever argues the central bank can run out of reserves, and the government itself no longer has what people misleadingly regard as debt.

Other reasons for issuing treasury bonds include the provision of default-risk free investments to fund managers; the provision of benchmark default risk-free interest rates across the term structure, defining what finance people call the ‘pure yield curve’; the provision of collateral for financial market participants; and the role bond traders might be seen as playing in ‘disciplining’ government policy decisions.

As for the first three of the above, the best way to continue with those functions, if they are deemed to be of public value, is to have the currency-issuing central bank issue tradeable term deposits with itself. As for the so-called disciplining function, which is often more about enforcing austerity when it is inappropriate, that should be the role of government and ultimately of democratic processes.

I have already written too much, so fears you might have of impacts on the foreign exchange market, or about how you would replace the kinds of unfortunate and sometimes paralysing fiscal rules which governments that are intimidated by the bond market have seen fit to impose in countries like the United Kingdom in ways which are not inflationary, will have to wait for future posts.

What I have been trying to argue I hope is clear. Far from being intimidated by the bond market, governments could simply phase the treasury bond (or gilt) market out entirely and for ever.

To quote from something we published a while back (Hail and Joy, 2020),

They are unnecessary. There is no compelling reason to issue them. They confuse people. They bias macroeconomic discourse, policy making and outcomes. They are an anachronism. They belong, alongside tally sticks, the gold standard, the London discount houses, and neoclassical macroeconomics, in the history books.

Source: Hail, S. and D. Joy. 2020. Federal Debt and Modern Money. Policy Note No. 121. Global Institute for Sustainable Prosperity. May 2020.

https://www.global-isp.org/wp-content/uploads/PN-121.pdf

Austerity is a political choice, not an economic necessity. This event makes the case for a different approach and shows what it looks like in practice.

Four sessions. Four perspectives. One coherent argument for change:

1) MMT as a Policy Frame with Steven Hail, Associate Professor of Economics at Torrens University and founder of Modern Money Lab, Steven Hail is one of the leading teachers and communicators of MMT globally.

2) Public Investment and the Cost of Living Crisis with Patricia Pino An economist specialising in inflation and industrial policy, Patricia is Executive Director of MMTUK and co-host of the MMT Podcast. She is a PhD candidate at University College, London.

3) Taming the Bond Market with Sheridan Kates An ecological economist with a Masters degree in Economics from Torrens University, a newly elected Green Party councillor in Islington, and a co-convenor of the economic policy group in that party, Sheridan brings a focus on public money and fiscal sovereignty to the question of bond market constraints.

4) Framing a Shift from Austerity to Sufficiency with Christian Reilly Co-host of the MMT Podcast, Christian has spent years making heterodox economics accessible to non-specialist audiences across the UK and beyond. Christian holds a Graduate Certificate in the Economics of Sustainability from Torrens University.

https://events.humanitix.com/anti-austerity-economics-brighton

As you talk the audience through the operations of the public financial system in the country in which you are giving the talk, if that is the approach you choose, you will see the first group becoming interested, despite themselves. The second group will start to grip their seats or desks, as they become more frustrated, if not annoyed, because they know there must be something very wrong with what you are saying, but they can’t quite articulate what it is. They will have a lot of questions, but that won’t help them to demolish the logic of MMT or to punch holes in its factual accuracy. You will have responded to them asking whether you think the government should ‘print money’ to finance spending, by explaining that currency issuance is literally the only way the currency issuer can spend, and it happens every day. At the end of the event, they will shake your hand, as the nice people they are, and say through gritted teeth that they might watch the movie Finding the Money or read The Deficit Myth, but what worries them about MMT is inflation. If you want to annoy them further at this point, you could welcome them to MMT, because they have just stopped worrying about government insolvency, loanable funds theory and crowding out, and all the other dogmas of public finance. It might be better not to do this, but just to hope you have planted some seeds. You were once a neoclassical economist yourself perhaps, like me, and you understand how difficult escape from mistaken preconceptions can be.

It is an uncomfortable experience in some ways, and one I have been through a few times down the years. Why do it? Why not just attend MMT conferences and other places where you are speaking to the converted, or at least to those with open minds? Because these people have influence, authority very often, and sometimes power. Some of them get onto television or podcasts. Some engage with government departments. Occasionally you are talking to people who have designed part of the very monetary system which they do not themselves fully understand and which they (often innocently) misrepresent. You can’t reasonably complain about these misrepresentations if you have never tried to engage with their authors.

Economic policymaking, the world over, but especially in the Eurozone and countries like Australia, Canada, New Zealand, the United Kingdom and the United States of America, is beset by myths and misconceptions, and resulting paradoxes. The reason is very simple. It is the almost universal misrepresentation of how monetary systems work, and consequently of the appropriate role for a currency issuer to play within its monetary system, and the opportunities and constraints currency issuance provides.

Policymakers assume they need to grow their economies to generate the tax revenues to meet an almost insatiable demand for public services and to make interest payments on their growing debts. No such imperative exists, because tax revenues and bond sales don’t pre-fund public spending. Often, they can’t grow those economies anyway or can do so only temporarily and at the cost of an increasingly fragile financial system or a dependence on the complex architecture of global trade. This is because their framing of fiscal policy means growth becomes dependent on foreign demand or unsustainable private-debt fuelled spending. Myths and paradoxes indeed.

The myths constrain environmentalists too, when they argue they need to tax fossil fuel companies or technology companies or just billionaires generally to pre-finance investments in renewables and the infrastructure of a sustainable, post-growth, well-being economy. They don’t. Tax the rich, but because they are too rich and command too much political power and too many real resources. You don’t need their money. The paradox is obvious – how can you phase out fossil fuels when you need to tax them to pay for the transition we need to make?

What is frustrating is that these misconceptions have been the driving force behind what some have called the hard neoliberalism of conservatives and the soft neoliberalism of labour parties around the world for many years. Growing inequality and the underfunding of public services, justifying their privatisation, then inadequate regulation and a supporting game of mates, leading to inequities, waste and the undermining of the social fabric all stem from something very simple. Some regard it as a conspiracy, but for the great majority of people who have been sucked into the narrative, as politicians, journalists and (regrettably) professional economists it is a genuine misunderstanding of the system, buttressed by a profound reluctance to accept that what they have for so long taken for granted is plain wrong.

Today’s alpha male politicians talk of hard choices and the need for policy frameworks and more or less hard rules constraining the budget and government debt as though they have no idea how the money system operates and must fear tomorrow’s politicians, whom they worry will bankrupt the nation. To prevent this, New Zealand has its Fiscal Responsibility Act, Australia its Charter of Budget Responsibility, the EU its Fiscal Compact, the US its Debt Ceiling, and more generally governments pledge to live within fiscal targets relating to balancing the budget on average over time, having a ceiling for deficits, and/or reducing a measure of gross or net government financial liabilities over time. The institutional details differ, but the framing is essentially the same, even if in the case of the European Union the rules are imposed upon individual members rather than being determined by national governments themselves.

These rules are often honoured more in the breach than in the observance of course, because they defy the degree to which the fiscal position and the government’s debt as a share of gross domestic product are endogenously determined by private sector behaviour and the need for government to provide at least some support to economies and communities affected by economic cycles. As an economist called Michal Kalecki showed us many years ago, a shift in national income from labour to capital and an associated rise in inequality, puts downward pressure on private spending. Absent a build up in private debt or a growing trade surplus, this requires rising budget deficits to support economic activity. If you want smaller deficits, my conservative friend, shift income back to labour and reduce inequality. Yet another paradox with which to wrestle.

The logic of currency issuance has been explored many times, most coherently by modern monetary theory economists, but also to an extent in previous generations by people like Georg Friedrich Knapp in his State Theory of Money, Alfred Mitchell-Innes in his Credit Theory of Money, and the great John Maynard Keynes in chapter one of his Treatise on Money. To issue a currency, you must impose a tax liability on the private sector, where those liabilities are denominated in the unit of account you have selected. You can then spend tokens into circulation which have their value fixed in that unit of account. There will be a demand for them in the private sector as what Randall Wray has termed ‘that which is necessary to pay taxes’. Taxation and currency issuance transfers real productive resources from the community to the currency-issuer. Spending more tokens into the economy than you tax out leaves tokens for the private sector to save and provides a basis for the development of a monetary economy. The constraints on the currency-issuer and on the whole economy are defined by the availability and productivity of real resources – the people and skills, the natural resources and physical capital, the technology and institutional capacity which exist within the community or can be created. The currency-issuer is clearly not going to run out of the currency it issues. It does not need to borrow its own currency. It will normally run deficits, if the private sector normally desires to add to its collective savings. It could issue government bonds to provide savers with a safe interest-bearing asset.

You can explain the above in general, or you can talk about how it all works in the country where you are giving the talk. The specific institutional details will differ. In every case, government spending will create reserves in the private sector which taxation and government bond issuance will drain. Taxation destroys currency the government has previously spent, while bond issuance converts it from transactions balances into what are effectively transferable term deposits at the government’s central bank. When the government issues bonds, it is not competing for the savings of the private sector, which could drive up interest rates. It is supplying the very currency to the system which is then available to purchase the bonds it chooses to auction. This is true more or less everywhere – in the USA, the UK, Australia, Canada, New Zealand and in Eurozone countries too. Even within the Eurozone, government spending is via currency issuance.

In New Zealand, the above is backed up by an accounting entry at the central bank called the Crown Settlements Account, which can be negative as well as positive, and records the creation of new currency placed into the government’s account (which it chooses to hold with a private bank) at the beginning of each day, outgoings and incomings across the day, and then clears the bank account back to zero at the end of each day. It is clearly the case in New Zealand to anyone who bothers to check, that government spending each day involves the issuance of new currency and taxation deletes currency from the system.

In the United Kingdom, the system is a little more complicated, and I will avoid discussing the Consolidated Fund and the workings of the Debt Management Office here, but just as the Crown Settlements Account can and has gone into overdraft in New Zealand, so the UK Government has a Ways and Means Account which can be used to support currency creation, and was last important in that role in 2020.

Canada has something similar to New Zealand and the United Kingdom, albeit with a little less flexibility. The United States does not but has an arrangement where primary dealers in the bond market are expected to bid for new bonds and have direct access to the Federal Reserve when short of liquidity. Australia has perhaps the least flexible system of all the above, as it currently has no government overdraft facility at the central bank, although there is a mechanism for the government to override decisions made within its central bank in an emergency (a mechanism which has existed for many decades and never been used).

Australia’s apparent lack of flexibility did nothing whatsoever to limit the ability of its government to engage in large scale spending during the pandemic in 2020 and 2021. The Reserve Bank of Australia simply created reserves in the private banking system through secondary market purchases of treasury bonds, and other measures, to ensure that there was sufficient demand for newly-auctioned treasury bonds in the primary market at virtually zero interest rates to replenish the official public account.

In other words, the details vary from country to country, but in (almost – see Greece below) all countries there are mechanisms in place to ensure that spending authorised by parliament or congress can always take place, and this spending always involves currency issuance. We perhaps should not use terms like ‘deficit spending’ as all spending is always via currency issuance. This is even true within the Eurozone, subject to the qualification that purchases of treasury bonds in the secondary market, or any other measures to facilitate government currency issuance, are subject to the rules of the Euro system. This is what drove the Greek government towards insolvency and default in 2012. Greece’s national bank was not permitted to facilitate government spending in euros the way a national central bank could do in its own currency, and indeed the Bank of England did do for the UK government, outside the Euro system.

The following things are literally true:

1. A currency-issuing government spends via currency issuance.

2. It does not need to pre-fund spending via taxation.

3. It does not need to raise funds via bond issuance to fund spending.

4. Taxes and bond issuance have other functions within the monetary system.

5. Bond issuance itself is a choice and not a necessity.

6. Such a government can never become insolvent in liabilities denominated in its own currency.

7. If the government has no foreign currency denominated debt and the currency is on a floating exchange rate, the government faces no purely financial constraints.

8. Government deficits and non-government surpluses and the government’s debt is the net financial assets of the non-government sector of the economy.

9. The then economist at the Federal Reserve Bank of St Louis, David Andolfatto, wrote in December 2020 that “it seems more accurate to view the national debt less as form of debt and more as a form of money in circulation”.

10. What limits non-inflationary spending within an economy is the productive capacity of the economy and not funds available to the government (which in fact has limitless additional funding available if needed, regardless of the level of the so-called national debt.

11. We are not dependent on money from rich people to fund investments in a sustainable well-being economy.

12. We are dependent on our productive resources and of course everything depends on our climate system and the health of the biosphere of which we are a part.

The implication of the above is that budgeting should be centred on planning for the development and use of those productive resources to provide essential public services and on making essential investments while managing inflation, with projections for the fiscal balance and government financial liabilities being outcomes of that process.

As for inflation, that issue, and the related issue of how central banks conduct monetary policy, and why central banks are not the right institutions to be responsible for managing the cost of living, will need to be the subject of another article.

A further article will explore the case for Richard Murphy and Zack Polanski to reconsider their in my view unjustified (and I hope able to be reversed) rejection of a national job guarantee as an insurance against involuntary underemployment and automatic cyclical stabiliser in an economy managed by people using an MMT lens.

There is no one-size-fits all approach to estimating the GPI, and it is arguable that such standardisation is not appropriate. Most studies incorporate approximately twenty-five components. This would make the construction of comparable data across many countries problematic, even if excellent data series were available, but of course they are not. This is a bigger problem for social statistics than economic ones, and even more so for ecological data. I have known people spend years attempting to create time series comparable with data published by the IMF and World Bank on GDP and other macroeconomic statistics, with very limited success despite considerable personal sacrifices.

My reaction to this is the construction of a greatly simplified proxy for full GPI statistics, which perhaps ought not to be dignified by using the term ‘Genuine Progress Indicator’. This proxy can be termed a (not the) ‘Genuine Economic Progress’ Indicator, or GEP.

While recognising the reasons GPI studies start from personal consumption data, in most cases it makes little difference to begin from Gross National Income (GNI) per capita, adjusted for inequality in a way similar to that used in GPI studies. No study of well-being can be complete without the inclusion of a valuation for domestic labour. In addition, a cost item relating to involuntary unemployment and insecure employment is essential. Ecological costs can be proxied by appropriately weighted data on carbon dioxide and other greenhouse gas emissions, where the higher of consumption-based and territorial emissions is included each year for each country, and material footprint data, not only relating to supply chains associated with domestic consumption but also including the material footprint of exports.

Using conventional and conservative approaches to these included items, it is possible to construct Genuine Economic Progress data sets in inflation-adjusted US dollars (or any other currency) for almost every country in the world, quickly and conveniently, particularly if reasonable interpolations, extrapolation and imputations are employed when gaps exist in the data.

The following chart relates to Australia

.

Both GDP and GNI per person trend upwards over the years, with the gap between the two series reflecting the net outflow of primary income from Australia each year, a consequence of many years of net investments in Australian assets by the rest of the world.

Australia’s GEP peaks in 2008 however, just prior to the economic impact of the Global Finance Crisis and has trended downwards ever since. This is partly a reflection of rising ecological costs, associated with the increasing material footprint of Australia’s exports, and the rising global social cost of emissions (not associated with land use - the LULUC data often used to justify claims of a rapid fall in our emissions is excluded here) in a rapidly overheating world. The other big contributor is a rising monetary estimate of the cost of net income inequality, which greatly increased in the 1990s, but has a greater monetary weighting in the GEP more recently, due to GNI per capita being higher.

The challenge is to maintain full employment and provide economic security, in an economy less reliant on fossil fuel exports and with a lower material footprint, with radically reduced net income and wealth inequality (and all that implies, including for access to affordable housing), and an accelerated transition towards minimising consumption-based domestic emissions of carbon dioxide (with all that implies for electrification and electricity generation). Then perhaps, rather than GEP falling despite the rise in GDP, Australians will be able to enjoy rising Genuine Economic Progress, regardless of whether the scale of economic activity is rising or falling.

It is another thing entirely to learn lessons from this and other shocks. One such lesson to learn is that inflation is in general not a monetary phenomenon. Milton Friedman and his colleagues from fifty years ago were wrong, as have been the generations of politicians, economists, journalists and other pundits who subsequently chose to give up on thinking seriously in favour of adopting his misleading and extraordinarily simplistic policy prescriptions.

It is not the case that central banks can control inflation by controlling one or other monetary aggregate, or even by setting a policy interest rate at some optimal level. It is not the case that governments should aim simply at cutting marginal tax rates to incentivize rich people while punishing the poor, starving private services until they can be privatized, while aiming to balance their budgets, or run surpluses, or avoid deficits on current spending, or to cut gross or net debt to GDP ratios, or any other simplistic one-size-fits-all fiscal target.

Markets are tools which have their uses. They are human institutions, with strengths and weaknesses. Sometimes the best way to allocate goods or other resources is to use a marketplace for that purpose, at least if you have first ensured that there is a low degree of inequality of income and wealth. But the microeconomic totem of demand and supply is only useful as a guide to how markets work in financial markets, in primary sector industries (agriculture and minerals) and in a very narrow range of other contexts. Even then, they are far from perfectly competitive, with supply chains often controlled by a small number of megacorps (Diesendorf et al., 2024).

All economies, modern and ancient, rely on energy and food (which of course allows for survival and also human energy), but in terms of contributions to national output and to the consumer price index, in modern economies it is the secondary and especially the tertiary sector which are dominant. In services and manufacturing, prices are not set by demand and supply. They are administered by organisations, large and small, which add mark-ups onto their expected unit costs with the aim of achieving target rates of profit in an uncertain environment. That uncertainty necessitates them to seek as much as possible to control that environment, and where there are opportunities for growth, it spurs them on to seek further growth and to defend or increase their market shares.

They seek and develop a social license to profit from a surplus of revenues over their direct and indirect costs, with the rate of profit determined by the degree of competition with which they are faced, customer loyalty, the threat of new competition, the need to cover funding costs and finance new investment, and that social license. There are many differences between industries and across markets, but in general they prefer to avoid price competition which eats into that surplus, and to compete in other ways. Increasing prices above the rate at which industry-level costs are rising is also usually unattractive, because of the risk of losing market share, or attracting new competition, losing customer loyalty or even attracting scrutiny, including perhaps from competition authorities. This can change during a crisis, when price rises allowing for a shift in income from labour to capital are easier to co-ordinate and less likely to erode the social license.

Where natural monopolies for basic necessities exist, which have often been created by neoliberal privatisations, competitive pressures are lacking or insufficient to control pricing power, and it has been common to rely on statutory regulators to impose limits on this power to at least pretend to defend the public interest.

A revolving door between the regulated and regulators is one among many reasons that this approach to public good provision is fatally flawed. Privatisations driven by the government as a household fallacy, where raising money has been a driving factor in privatisations; or the profit motive incentivizes efficiency fallacy, when it just incentivizes further state capture; or the markets are an optimal tool for rationing services fallacy, when for basic necessities they most certainly are not. Public goods, broadly defined, are best delivered largely via public options, even where private sector provision may still be permitted, as in education or healthcare. This even extends to banking and finance – there is a strong case for a public option in retail banking, for public investment institutions, and public insurance.

Markets are not some divinely inspired invisible hand which ensures a kind of optimal allocation of resources, now and through time, and must dominate all high living standard economies. This is true neither logically, nor empirically. Conservative economists and neoliberal political philosophers sold a crisis-shaken world a pup in about 1980 and have created an unjust and fragile global economic order in the decades since (Monbiot and Hutchinson, 2024).

Monetary economies are human creations, which have been organized around currencies as units of account and currency tokens as media of exchange and liquid stores of value for thousands of years. Those units of account have almost always been chosen by currency-issuing governments, which have spent currency tokens into existence. Those currency tokens have been needed by those outside government to discharge their tax liabilities to the authorities issuing the tokens. They have also been available to facilitate transactions within the private sector, to allow for net saving within the private sector, and to allow for the creation of financial assets and liabilities, including private money, by private sector institutions. This created and supported exchange economies, and after the European enclosure movement, the explosion of colonial extraction, repression and enslavement, and the technological revolution which followed the enlightenment, it facilitated the growth of modern capitalism (Hail, 2018).

We know where capitalism led us – eventually to the post-1945 great acceleration in economic activity, which transformed the lives of billions but pushed us beyond the limits to growth, and then after the fossil fuel driven inflations of the 1970s, to post-1980 neoliberalism and neocolonialism, and to where we are today. It took economic and political events over many years to produce two Trump presidencies and the world in 2026.

Yet young people are still learning the totemic economics of the last century in our universities – all the, for some at least, comforting fallacies and over-simplifications of Milton Friedman and his less extreme colleagues, like Paul Samuelson. All of this – ever page of the best-selling Mankiw textbook – is an excuse to avoid thinking.

And our world needs some heavy thinking. Fortunately some people are doing it, and not to list a long series of names, but two very important modern thinkers are the ecological economist Kate Raworth, with her doughnut model of sustainable and equitable development (Raworth, 2017), and Stephanie Kelton, with her popular yet scholarly explanation of the real and imaginary limits on what currency-issuing governments can achieve in the promotion of sustainable prosperity (Kelton, 2020).

I said at the beginning that it is one thing to respond appropriately to another primary sector shock in 2026, with its echoes of the 1970s. That response ought to be based on an understanding of the trophic sector of the economy, with the administered prices in the secondary and tertiary sectors depending on the largely market-driven prices in the primary sector, and especially in fossil fuels.

It is another thing to lift our eyes to the horizon and to accelerate along the path to what will eventually surely be a post-growth, well-being economy. The inner ring of Raworth’s doughnut model provided a focus on the basic human needs which must be fulfilled to give everyone the opportunity of a good quality of life. In different studies and for different purposes, the list varies somewhat, and for example the minimum level of income security needed to meet basic needs will differ between countries according to differences in the cost of living, but the needs are essentially the same – water, food, income and purpose, education, energy, housing, social equity, gender (and other forms of) equality, political freedom, peace and justice, and a supportive community. The outer ring has its focus on planetary boundaries identified by Earth-system scientists (Rockstrom et al., 2009), including most notably emissions and risks to biodiversity, but could equally well be framed with reference to our ecological footprint (Global Footprint Network, n.d.).

Part of this will be a largely post fossil-fuel economy with a shift from economic globalization and long, complex supply chains to internationalization, with a sharing of key technologies in a global commons, and the localization of production where possible, including food production. Any loss of productive efficiency in the short run, the management of which in a transition is obviously crucial, will be overwhelmed b the benefits of insulation from future primary sector supply shocks and environmental and cultural gains.

We know broadly what needs to happen, at national and global levels, to grow our well-being while degrowing our ecological footprint. Friedman, neoclassical and Austrian school economics, and neoliberal political philosophy have nothing to offer us. It is destructive and dangerous, as Steve Keen has pointed out, with reference to climate change (Keen, 2021).

We require and must achieve a cultural shift and shifts in both economics education and policy narratives towards a quest for a better future framed by something like the doughnut, and a plan to make those investments nationally and globally which, after Donald Trump, might guide us to that future space of global social justice and sustainability.

Governments everywhere, and especially the governments of high-income currency-issuing monetary sovereigns, are an essential element in this (Diesendorf and Hail, 2022). Without them, the task at the global level looks unachievable. With them, informed by the modern monetary theory of Kelton and others, it does not. This is a complex and global problem about the use of real resources and technology on the one hand, and a focus on security for all, sufficiency, well-being and justice. Fiscal deficits and consequent private surpluses will remain normal and will be essential to the task. The money to pay for transition is not a commodity in limited supply, but instead, as Mat Forstater said in the 2023 movie Finding the Money, a tool invented originally by governments to organize and mobilise real resources (Poitras, 2023).

Understanding monetary systems; understanding the real resources we have at hand and those we can create; and understanding the requirements of a good quality of life, that unless they are available to all will not be available in a sustainable way to anyone, is the challenge of this and the next generation.

It is the promotion of these ideas which lead us to establish our global online Masters degree in the economics of sustainability, and it is what drives us on - admittedly at the cost of contributing to carbon emissions - this year to New Zealand (this month) and then the England, Sweden and Belgium.

I would love to meet you online or in person, if you share a similar worldview, or perhaps if you don’t, but are open to persuasion.

References

Diesendorf, M., Davies, G., Wiedmann, T., Spangenberg, J. H., & Hail, S. (2024). Sustainability scientists’ critique of neoclassical economics. Global Sustainability, 7, e33. https://doi:10.1017/sus.2024.36

Diesendorf, M., & Hail, S. (2022). Funding of the Energy Transition by Monetary Sovereign Countries. Energies, 15(16), 5908. https://doi.org/10.3390/en15165908

Global Footprint Network. (n.d.).

https://www.footprintnetwork.org/

Hail, S. (2018). Economics for Sustainable Prosperity. Palgrave Macmillan

Keen, S. (2021). The appallingly bad neoclassical economics of climate change. Globalizations, 18(7), 1149–1177. https://doi.org/10.1080/14747731.2020.1807856

Kelton, S. (2020). The Deficit Myth: Modern Monetary Theory and the birth of the people’s economy. PublicAffairs.

Monbiot, G., & Hutchison, P. (2024). The invisible doctrine: The secret history of neoliberalism (& how it came to control your life). Penguin.

Poitras, M. (Director). (2023). Finding the Money [Film]. Atlas Films.

Raworth, K. (2017). Doughnut Economics: Seven ways to think like a 21st-century economist. Chelsea Green Publishing.

Rockström, J., Steffen, W., Noone, K. et al. A safe operating space for humanity. Nature 461, 472–475 (2009). https://doi.org/10.1038/461472a

Weber, I. M., Wasner, E., Lang, M., Braun, B., & van ’t Klooster, J. (2025). Implicit coordination in sellers’ inflation: How cost shocks facilitate price hikes. Structural Change and Economic Dynamics, 74, 690–712. https://doi.org/10.1016/j.strueco.2025.04.005

So if you are a fan of a JG, consider the administrative challenges, the possibility it might be seen as a ‘work-for-the-dole’ scheme, issues relating to competition with the private or conventional public sector, and perhaps more fundamental criticisms.

If you are attracted to a UBI, broadly the same thing applies. Do your very best to attack the concept, in your mind if not fully in writing, before you recommend going down this path. That way, your arguments - should you choose to make them - will stand up to scrutiny.

One way to learn more about a job guarantee would be to come along to Patricia Pino’s talk for us this Tuesday - https://events.humanitix.com/patricia-pino-uk-job-guarantee. If you are in the Americas, the timing probably will not suit you, but the talk will be recorded. Much better to come along if you can though, particularly if you think will will have a question for Patricia.

Jim Byrne’s recent substack article is an example of an enthusiast for a JG writing fairly about a UBI, and you might take a look at it - https://mmt101.substack.com/.../universal-basic-income...

As Jim points out, many (if not all) of the common “micro” arguments against a basic income have been contradicted if not refuted by a series of experiments. He draws on a study published by the Stanford University Basic Income Lab in 2020 - https://basicincome.stanford.edu/.../Umbrella%20Review...

I agree with Jim, but of course you don’t have to do so.

To me a Universal Basic Income has to go to everyone (or it is not ‘universal’ - so payments to artists in Ireland ought not to be labelled as a UBI), and must be enough to live on (if the word ‘basic’ means anything). Tiny payments of a social dividend which subsidise incomes but are insufficient to have a decent quality of life don’t count, if we are to use this definition.

I pointed out a potential problem with this kind of UBI a few years ago, when the Australian Greens introduced such a policy (very briefly - they very soon dropped it again). The problem is that the gross financial cost of such a policy is huge, and even when you net out savings on welfare payments and extra tax receipts, it still involves a massive fiscal stimulus to the economy. Back of an envelope calculations by me a few years ago indicated that it would have involved a similar level of deficit spending in Australia to that which might exist at the peak of a pandemic or global depression, but when no such problem existed, and this would be spending which would not be temporary or counter-cyclical. The result on the face of it would be expansionary and inflationary, and not exactly consistent with degrowth, if that was your aim. I wrote about this briefly here - https://independentaustralia.net/.../a-job-guarantee-a...

Of course, you could change your tax system to limit any inflationary consequences, by deleting enough of the extra created dollars from the private sector, or you could look to cut government spending elsewhere, but the first of these might not be possible politically and the second might be undesirable.

If a UBI is a proposed response to job losses driven by AI, then it looks a little like a surrender, and an acquiescence on the part of policy makers to a future where a privileged elite of insiders still get to have paid employment, while a large under-class are supported at some basic level as customers, but denied access to jobs.

There are problems here of course with the ecological impact of rampant AI, and there may also be problems with the framing of interpersonal relations, between the included elite and the excluded basic income group.

Where this led me was to an advocacy for a voluntary public job guarantee, available to all but compulsory for none, supporting local communities and defending and repairing the natural environment, backed up by a non-universal (so still means-tested) guaranteed minimum basic income for all. This is not enough though. A third element is essential for social cohesion and ecological sustainability, and that is the provision of universal free (or at least affordable) public services and a right for all to necessary food, shelter, energy and transport.

Jim’s article explored basic incomes more than it did job guarantees, about which there is a huge amount more to say, so you could also take a look at chapter 7 of my 2018 book, Economics for Sustainable Prosperity, if you have access to it, or better still Pavlina Tcherneva’s 2020 book, The Case for a Job Guarantee.

Both books of course reference the work of Bill Mitchell.

Just a few ideas. Of course, you don’t have to agree with any of them.