Voodoo economics on Threadneedle St.

25 Nov

The daily posts of British MMT pundit and tax specialist Richard Murphy fall a long way short – in range, depth and analytic power – of the writings of American political economist and debt specialist, Michael Hudson. Why compare them? Because both crave a better and fairer world, and both have voiced sympathy with Modern Monetary Theory – though MMT is more defining of Richard Murphy’s outlook than of Michael Hudson’s.

The former fails to recognise that Britain, like all the major EU economies, is still an imperialist power. And that as well as having quite specific problems – car crash Brexit, 1 and being further down the road of rentier  domination than, say, Germany or France – the UK shares with Europe the devastating costs, to be counted for decades to come, 2 of its leaders’ betrayal of their own citizens in the failed war on Russia in Ukraine.

I’m told Richard was taken to task below the line by his more clued up followers for repeatedly referring to that needless bloodbath as “Putin’s war”. 3

The above is by no means the only refutation of the “Putin’s unprovoked war” 4 brainwashing. Just the most word-efficient.

To do so from his position displays so wretched a failure of understanding – this is a matter not of opinion but of facts easily ascertained – as to place a huge question mark over his fitness to speak on any other aspect of political life.

Yet despite his woefully limited perspective on such matters, I feature Richard’s posts from time to time. What he excels at is pithy take-down of the cruel stupidities of ‘austerity’. That’s a kind reading, by the way. The reason I give this man time of day is his awareness (not on show today so you’ll have to take my word on this) of the reality that while there’s incompetence aplenty on Threadneedle Street, it is knowingly waging class war. (As are the Fed and central banks across the West.) And that His Majesty’s Loyal Opposition – led by a lawyer smiled upon by the ruling class but weirdly unable to discriminate between a nation’s ‘right to defend itself’ (which does not, legally speaking, apply if said nation is an unlawfully occupying power) and mass murder – has repeatedly declared its intent to do likewise. 5

So without further ado, let me hand over to Professor Richard Murphy, writing today:

The tortured logic of the Bank of England is total gibberish

The FT features an interview with Huw Pill, the chief economist at the Bank of England, today. In it, he says:

The decline in headline inflation is largely exogenously driven. It’s basically driven by the fact that we’ve seen this decline in energy prices and slowing food price inflation, and we’ve seen international goods prices basically stabilise. Those are the three main external sources that drove inflation up, and they have all now gone in the other direction and are bringing inflation down.

In other words, the fall in inflation that we have seen has nothing whatsoever to do with the increase in interest rates in the UK. It is all down to factors totally beyond the control of the Bank.

A wise person would have concluded as a result that the Bank had made a serious error when raising rates and that it should now be saying that they needed to fall. But Huw Pill is not a wise man. Far from it, in fact. What he said to justify continued high interest rates (which is his obvious goal) was:

This is why I emphasise the supply side of the economy. To the extent that you think that slowing activity, spending and employment growth are associated with a deterioration in the supply performance of the economy — and not just a weakening in demand — you are not opening up that slack, that easing of resource pressures, which will bring domestically generated inflation down.

Very politely, that is gibberish. I don’t think the FT understood what he is saying. Certainly, their analysis article does not shed much light on this claim.

As I read it, I think he means that because the UK economy has structural weaknesses in it (most especially a shortage of skills) then even if demand falls there might still be inflationary pressure because the economy is unable to meet even normal low levels of demand for goods and services now without inflation arising. That, I think he is saying, means that inflationary pressure still exists and so that weakness in the structure of our economy must be punished through penal interest rates, causing untold misery and havoc.

It takes a quite exceptionally tortured mind that is desperately seeking a reason to justify already wrong action to come up with such logic. In effect, he is saying that because the beatings have had no effect as yet, he must find another reason to continue them because he is enjoying imposing them so much, even if he is well aware that further beatings cannot in any way address the actual weaknesses in the economy that he claims exist.

As I have already noted this morning, all that this indicates a poverty of thinking that is simply staggering. Pill is utterly dedicated to the theory of monetary policy that demands that interest rates be high. He is so dedicated to that idea that he is indifferent to reason and is clearly beyond worrying about the consequences of his thinking.

And you wonder why I am worried? I am because, not least, Rachel Reeves 6 says that she believes in these people.

How much more must we suffer before sense is seen?

Footnote: The more I think about what Pill said the more bizarre it seems to be. His logic seems to be that suppressing the economy and its capacity to change so that inflation might be beaten is much more important than letting the economy actually fulfil its primary function with society of ensuring that need (I stress, need, not want) is met.  To suggest that he has lost all sense of priorities is to be kind to him.
* * *
  1. Left advocates of a Leave vote in 2016 had better analyses than did liberals who vaguely thought the EU a Good Thing, and who’d soon be pouring venom on blue collar “racists and xenophobes” who’d had wages undercut by labour mobility, and few second homes in Dordogne or Costa Brava. But Lexiteers were never able to say how, in Really Existing Tory Britain, Brexit/Lexit/Schmexit would benefit Britain’s workers. They still can’t.
  2. The costs to Europe of the US war on Russia in Ukraine are not confined to the billions in military aid to Kiev, nor to soaring inflation and the loss in competitiveness of its industry. They are also to be measured in the even more economically suicidal shunning of trade with Eurasia. Never in the field of human conflict was so much criminal folly committed by so few to the detriment of so many.
  3. Professor Murphy’s “woefully limited perspective” on the war in Ukraine is the focus of a dedicated post I wrote in January 2023. See Ukraine Take 1.
  4. “Of course the Ukraine war was provoked”, Noam Chomsky wittily observed. “Why else would media  feel the need to endlessly intone that it was unprovoked?”
  5. Commenting on this site 14 months ago – see Zugzwang for TrussTwengbevin wrote:

    The natural political division in the UK right now is between Blairism and Socialism …The Tory ‘brand’ is no longer fit for purpose. Blairism serves the ruling class better. And when it is opposed by Toryism it is unbeatable because the only alternative is a clumsier version of itself.

    I don’t suppose Professor Murphy would put it in quite those terms, but neither would he find much of substance to disagree with.

  6. For the benefit of non Brits, Rachel Reeves is Shadow Chancellor. So when Labour – “led by a lawyer smiled on by the ruling class” – takes office, as seems likely next year, one economic illiterate, the ably self-serving Jeremy Hunt, will be replaced by another.

Leave a Reply

Your email address will not be published. Required fields are marked *