But the absence of foreign denominated debt does not mean a currency such as the pound cannot be subject to sustained speculative attack.
Pretty much limits the “sustained” part. The attackers would be cutting their own throat “trashing their own savings”. I’m sorry to break it to people, but the pound does have some solid value behind it. As does the dollar, the renminbi, the yen and the chocolate-backed Swiss Franc. They’re not going to collapse. So any possible depreciation won’t and can’t really cause inflationary spirals. Just a price bump, at worst. Depreciation boosts exports and shrinks imports and so is self-limiting. So the pound goes down a little. It did after the Brexit vote. Did the sky fall?

the experience of other radical social democratic governments in Europe (France in the early 1980s, Sweden in the early 90s) as well as the not so radical Wilson/Callaghan government of the mid-1970s suggests that any future Labour government should be worried about the money-markets.

This is based on a fabricated, but common history. First, calling France or Sweden “radical” then is more than a trifle overdone, for “conservative” could be a better word. Sweden & France were trying to return to the successful postwar policies – but after they had been declared unfashionable. The nonsensical story is that these governments were forced to abandon their traditional “conservative” 😉 “Keynesian” policies, or that the UK was forced to beg from the IMF. The reality was that these were choices, very bad ones. “Doing nothing” would have been a far superior choice. For instance, France commissioned a report from US economist Robert Eisner on its expansionary policies. His recommendation was to continue them as they were succeeding well and to ignore the not very meaningful currency depreciation. Mitterrand, as the so-called “left” does so often, decided to destroy his own program for no economic reason. Or from an irrational obsession with fx currency values, grossly disproportionately to its economic importance. Around the same time Austria, under Bruno Kreisky – followed the same policies – quite successfully, but nobody remembers that. Alain Parguez & Bill Mitchell have also written about France’s entirely self-inflicted destruction back then.

Stephen Ferguson’s link is very, very good. IMHO the best and clearest explanation and reply to common objections to MMT & international worries are the two relevant chapters in Abba Lerner’s 1951 Economics of Employment. As Lerner comments, the basic possible negative systematic effect of expansion on exchange rates is depreciation due to rising imports, due to prosperity. But he notes how absurd this argument is, as it is an argument against prosperity from any cause whatsoever. (And is therefore only made against government led expansion in favor of the general populace, never against the usual crony capitalism for the rich). For a rich developed country, the benefits of functional finance expansion dwarf the self-limiting and only speculative effect of depreciation. In general, countries like the UK are obsessed far, far beyond reason with matters of foreign exchange. It just is not that important, compared to the domestic economy that austerity blithely wrecks with wild abandon.

The best thinkers in the Marxist tradition always understood that socialism in one country was not a sustainable option.
No, that’s Trotsky, who was wrong. All he had was rhetoric, backed by no rational arguments. Socialism in one country most certainly is not only economically sustainable, but economically superior to, outcompetes non-socialism. By the way Abba Lerner, (MMT grandfather) first met Hyman Minsky, (MMT father) after he returned from visiting Trotsky to unsuccessfully convince him that his one country stuff was wrong.

“the MMT principles apply to all sovereign countries. Yes, they can have
full employment at home. Yes, that could lead to trade deficits. Yes
that could (possibly) lead to currency depreciation. Yes that could lead
to inflation pass-through. But they have lots of policy options
available if they do not like those results. Import controls and capital
controls are examples of policy options. Directed employment, directed
investment, and targeted development are also policy options.”

http://neweconomicperspectives.org/2014/02/mmt-external-constraints.html

But with respect to your specific point about Turkey and Venezuela I agree of course that having a considerable debt denominated in foreign currency is a serious problem which makes a falling exchange-rate far more devastating in its consequences (as evident in the East Asian crises of 1997-8 or repeatedly in Latin America). One could also refer to Greece with debts denominated in euros which only the ECB could produce, giving the ECB in particular a chokehold over the Greek state evident within days of the election of the Syriza government in 2015.

But the absence of foreign denominated debt does not mean a currency such as the pound cannot be subject to sustained speculative attack. That won’t be a response to full employment as such but to a government which threatens to raise their taxes and regulate their activities. There doesn’t have to be collusion – just a recognition of what works to their advantage. If there coiuld be a run for the exits which would devalue their assets the issue for them is who gets through the door first.

Your other substantive point is that real physical capital cannot ‘flee’. That’s also true and worth noting but not relevant to my argument. My point was about the impact of a falling exchange-rate on inflation via import prices. That I would argue is where the fault-line becomes a gaping crack.

Not that you – and Meadway, Wren Lewis et al – are not entirely right in this debate with Murphy and the MMT ideologues. The latter are not living in the world as it is, but in the world as they hope and believe it could be.

But, politics. You did this, disingenuously, to other Labour economists. So therefore you also own the disappointed anti-neoliberals.

What SWL, JP and James Meadway seem to miss is that both training and depreciation are current spending items (where they are placed is via international accounting standards so not open to debate).

So with training it is going to mean you can build hospitals but not staff them under this rule.

Secondly with depreciation being a current spending item means just to keep up will need more and more investment, this is a bridges to nowhere policy.

Is it Neoliberal? No I don’t think so but it’s certainly neoclassical (neoclassical econ isn’t necessarily neo-liberal but all neoliberals are neoclassicals). This rule comes from a time before the welfare state, it appears the above 3 mentioned do not realise that.

I see you are fully signed up to the Murphy/MMT snake oil. Let me point out some of the (various) problems with MMT.

MMT states that a country can print as much of it’s own currency as it wants, and therefore never default. This is not a new observation. Because MMT relies on the economy being a closed system – with no leakage – it ignores the possibility of a technical default through exchange rate weakening. In real terms, if you knew the government was printing money many people will do something with that money before it devalues. Either convert it into another currency or buy something with it, driving inflation even higher.

MMT then decides to assume away any risk of inflation by saying inflation will ONLY ever occur at full employment. This leads to two observations. The first is that it is obvious that inflation can and does occur without full employment. The second being that MMT does not have a serious model for inflation (it assumes an L-shaped Philips curve).

Now, given that MMT has now got rid of monetary policy (by substituting fiscal policy, and printing money at 0% rates rather than issuing debt) and wants increased spending through far increased M0/M1 money supply, you would have hoped that they would have a detailed model at least of what that would do to inflation. Instead, we simply get the assurance that inflation simply won’t happen. This, as they say in the industry, is horses**t.

Ask Murphy himself for a definition of full employment is and he won’t give you one – mostly because MMT is used as a cover for ever increased government spending and control of the economy. Despite unemployment being at 40 year lows and sitting at the NAIRU level, Murphy still claims unemployment is a huge problem and we are nowhere near full emplyoment. Despite not being willing to give his definition of what full employment actually is. Ask him for an inflation model and you will simply get the “it won’t happen” argument.

The MMTers then argue that tax will be used to control inflation – whilst steadfastly refusing to detail by how much. yet again we can make a few observations. By not having an inflation model, MMT doesn’t really have a good idea about how much taxes would have to rise to control inflation – so controlling any inflation would be a hit or miss affair at best. But taxes would have to rise significantly if you are talking about the 50bn or so extra spending Murphy suggests, unless you are willing to accept significantly higher inflation, and that interest rates will be set to an effective zero. MMT also ignores the basic PV = MQ velocity of money. 50bn of extra MMT money printing would flow through the economy and multiply the broad money supply up by many times that amount, requiring even larger tax rises to counter, because again, you’ve got rid of monetary policy. Of coure if you raise taxes to that extent, you choke off growth at the same time, so any extra investment is likely to be choked off regardless. There simply is no free lunch.

You could also argue that if MMTers were worried about low growth, low inflation and unemployment the easier way to achieve their goals would be to simply lower taxes, but this does not seem to fit in with their government centric view of the economy – so higher taxes and printed money it is.

It is at this point worth noting that “traditional” QE is simply not the same as MMT style money printing. QE is in real terms an asset swap and does not increase the base money supply, or reduce the amount of government debt held (again something which Murphy quite incorrectly claims). QE works by increasing liquidity and lowering long term interest rates. When the debt bought through QE matures the QE has to be unwound or the debt rolled over – typically by issuing new debt into the market.

MMT money printing simply prints money, with the idea that more money = more wealth = more shiny things the government can buy. MMters are very keen to ignore any potential drawbacks of this tried and tested road to economic ruin.

As a (real) economist and a pension fund manager, we wargamed our response to Corbynomics before the last election. We actually used Murphy’s proposed 50bn a year of “people’s QE” money printing as a starting point.

Our initial reaction would be to reduce our holding of Gilts to the legal minimum and then hedge the rest with interest rate swaps. The cash would be reinvested in offshore assets, or in the FTSE (which derives 90% of its revenues from outside the UK, and acts as a decent inflation and currency hedge). We estimated a 25-40% drop in the value of the pound were no action to be taken to control the extra inflation generated.

To control the extra spending, we estimated the basic rate of income tax would have to rise to close to 40p in the pound. The higher rate close to 75p. The effect on growth of these wholly experimental policies would be to send the UK economy into a severe recession – there simply would not be a growth boost. Inward investment would dry up inflation would likely be a problem and higher taxes would kill the economy, all due to the irresponsible policies of the government, which would pose a huge risk.

Simply put, there is no free lunch. If you want the government to spend more, you could simply argue for higher deficit spending or increased taxes. And be honest about it. MMT simply will not provide a land of milk and honey with no negative consequences. Murphy and the other MMTers are either in denial, delusional or more worryingly, actively misleading people if this is the claim they are making.

MMT (itself not new, just a rebadging of chartalism) is as close as you can get to economic snake oil, and this is why it remains very much a fringe economic “theory” and there are many serious economists from across the political spectrum out there who have pointed out the various, gaping holes in it.

Why not try Murphy, and ask him if he can give you:

1. A detailed, numeric definition of full employment
2. A detailed inflation model for MMT
3. How much taxes would have to rise for each X amount of increased MMT spending.

My guess is he will be unable and very unwilling to provide you with such answers, bar in some form of rhetoric. I get the distinct impression that he is simply an MMT hanger on, and doesn’t really understand it, or much of economics in general. He likes it because it fits his worldview, however disjointed and fantasy filled that may be.

We also get your hand waving, speculative drivel about ‘money markets’ denominated in UK£. Apparently according to you these present perfectly willing holders of UK£ Gov (savings!) Bonds will suddenly decide en masse to trash the value of their own holdings. All of them, all together, in micro second synchronicity.
Leaving aside the extraordinary, illegal collusion that would take in a market regulated by *Gov*, are you seriously trying to tell us that these stg£ asset holders will do all that, risking massive losses, just because UK decided to operate its economy at full employment? Because UK Gov spent, in the long run, a few percent more of GDP into the economy, and created the growth, instead of private business/banks spending that money via investments?

And just supposing they did manage to cause some fluctuation/dip in exchange rates, so what? Real physical Capital cannot simply ‘flee’. Do you really think the parties on both sides of *real* trade, with substantial investment and mutual interests won’t spot some speculative capital account trading screwing with their investment returns, and not know that such speculative trades cannot be sustained for long absent any change in underlying fundamentals?

Your whole piece is riddled with the most implausible hand waving nonsense pretending to be ‘economics’. You are a disgrace.