Episode 195 – Trussonomics with Neil Wilson

** Check out the transcript for this and every episode of Macro N Cheese on the Real Progressives website. 

Grumbine: I follow a lot of Brits on Twitter, and not just regular rank and file activists, but a lot of the actual economists. And the folks that are considered left, very strongly remind me of neoliberals.

Wilson: Because they are. [laughter] What we have, you see, is this wonderful thing called the Oxford degree in philosophy, politics and economics [PPE]. And what happens is, when they graduate from that, there’s a Sorting Hat, and it just puts them in either the Labor Party or the Tory Party, depending upon what the Sorting Hat thinks. They’re all exactly the same. They’re all the same graduates, they’re all the same set of people. The economists are like that, too. They just get a Sorting Hat when they get the degree, I swear to God.

Here in the US, we’ve been watching the administration scramble to deal with inflation. That chaos is nothing compared to what’s going on in the UK. They are soon to be on their fifth prime minister in six years. (As a point of reference, Maggie Thatcher was PM for 13 years; they don’t have term limits.)  

When Steve asked Neil Wilson to come on the podcast to talk about Liz Truss, he must have assumed she would last longer than six weeks! Oh well. It’s still an informative episode. As we well know, the MMT lens is useful regardless of economic conditions.  

Neil talks to Steve about the political lessons he has learned from the Tory’s attempt at handling of the economy. He and Steve talk about the EU and Brexit, and how the war in Ukraine is affecting the energy situation in the UK and Europe. 

Neil is an associate member of the Gower Initiative for Modern Money Studies in London, a co-author of “An accounting model of the UK Exchequer” and a co-editor and contributor to the forthcoming book “Modern Monetary Theory: Key Insights, Leading Thinkers” 

Macro N Cheese – Episode 195
Trussonomics with Neil Wilson
October 22, 2022

[00:00:04.690] – Neil Wilson [intro/music]

That’s the system that we have in this country is everything operates within a parliament. It’s one of the last parliaments in the world and the reason for that is because the UK managed to find a way of making it work.

[00:00:19.990] – Neil Wilson [intro/music]

If we can have three times installed capacity of wind then almost certainly we’ll be able to maintain the country in electricity without actually needing storage so much. And that I think is a great idea. That the pipeline is huge and hopefully it will all get built. So, it would actually be a genuine energy exporter of the rest of Europe. If you’re an island nation with loads of windy seas around you, they need to be made use of.

[00:00:42.400] – Steve Grumbine

Hey guys, this is Steve from Macro N Cheese. This week’s podcast was recorded exactly one week before Liz Truss resigned. The good news, this podcast is solid. Neil Wilson takes us on an MMT journey from the UK worthy of all your time. So, please don’t let Trussonomics get in the way of enjoying this week’s excellent podcast.

[00:01:35.140] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host Steve Grumbine.

[00:01:43.140] – Steve Grumbine

Alright, this is Steve with Macro N Cheese going across the pond today. I’m going to talk to a person who I once saw on social media. He is none other than Neil Wilson and Neil is an expert in finance and information systems. He is also an associate member of the Gower Initiative for Modern Money Studies [GIMMS] in London, a co-author of an accounting model of the UK Exchequer and co-editor and contributor to the forthcoming book “Modern Monetary Theory: Key Insights, Leading Thinkers”. So without further ado, I’m going to bring on my guest, Neil Wilson. Welcome to the show.

[00:02:26.140] – Neil Wilson

Good evening. Or is it afternoon where you are at the moment?

[00:02:30.900] – Grumbine

We can call it good evening. I’m not really big on US exceptionalism. So we’ll go with the UK time frame.

[00:02:37.240] – Wilson

Yes, it’s very dark here. The sun is set, we’re very far into the north of the latitudes and winter is coming in more senses than one.

[00:02:45.710] – Grumbine

I think we’re 5 hours apart. So it’s not too bad.

[00:02:50.040] – Wilson

Yeah, it’s not too bad. Although it’s Friday. I should be in the pub by now.

[00:02:58.160] – Grumbine

Let me ask you about your current state of affairs. We in the United States got to live the Ronald Reagan experience and we’re still in many ways living with the massive culture shift that occurred under the Reagan revolution. Even today. In fact, it’s no longer the right wing Reagan revolution. Both political parties in the United States have embraced this neoliberal construct.

It has had some very negative effects, I believe, in my country and looking around the world, it has probably caused more damage than just about any other belief system or political or economic system ever. And we’re struggling with trying to put a name to it. People don’t like the word neoliberalism, but at the end of the day, it’s about mass privatization and austerity.

It’s about a public position for austerity, I think, in many ways, and Margaret Thatcher said that there is no such thing as public money, only taxpayer money. There is no alternative. We’ve been living with this false reality for a very long time and it’s in that framing, that lack of awareness that most have, that Modern Monetary Theory exposes quite clearly as false. Nearly every premise Thatcher and Reagan put forward is largely a construct of this ideological framework, not reality.

[00:04:26.960] – Grumbine

And you are now bringing in a lady that looks remarkably like Margaret Thatcher.

[00:04:33.110] – Wilson

Wouldn’t say we’re bringing them in. She was elected by 0.2% of the population, the Conservative Party membership, who obviously fancied a Margaret Thatcher cosplay, so that’s what they’ve got.

[00:04:45.640] – Grumbine

Well, I know in the United States we have a very different system of government. We have the President, we have a Congress, and then we have a Senate. That Congress typically is focused on the purse strings and writing the bills, and then the Senate is there to ensure that no populism makes it through the door. It’s the superdelegates of the world to prevent progressive legislation from getting to… At least that’s the joke anyway, in our circles. What’s it like in the UK? I know you have a very different structure with Parliament. How does that work?

[00:05:18.790] – Wilson

I’ll try and give you an overview. The way the United Kingdom works is a constitutional monarchy, which we’ve just changed. We now have a king. Since the Queen sadly died a month ago. The King has absolute power in the UK. All power rests in the King. Nothing happens unless he says so. However, he’s not allowed to use any of it because we have Parliament and the Parliament has to pass legislation that the King then assents to.

So that’s the system that we have in this country – is everything operates within a Parliament. It’s one of the last Parliaments in the world and the reason for that is because the UK managed to find a way of making it work. In our system, we have five year Parliaments and the basic fundamental rule is that no Parliament can bind a successor.

So any Parliament does something, the next Parliament can undo it, no matter what it is. And that’s our system. Within that system, we elect MPs. There are 650 within the House of Commons and one of those MPs is then selected as being the Prime Minister. And they are the Prime Minister because they have what’s known as the confidence of the House.

In other words, they could survive a vote of confidence and get more MPs than anybody else. And so when the election happened last, which was in December 2019 if memory serves, we got the bon viveur Boris Johnson elected as Prime Minister. And the Tory Party, who are the majority party in the country, threw him out this year and decided they fancied a change, but they couldn’t agree on a single replacement.

They ended up with two. When that happens, it goes back to the Tory Party membership, about 300,000 people, who then selected the veritable Liz Truss, who as far as I can see, her only talent is avoiding getting sacked. She’s a terrible orator. She doesn’t appear to have much of a plan and just seems to be the not-Rishi-Sunak candidate, as far as I can tell.

So, anyway, she’s now the Prime Minister, so much so that after she got appointed Prime Minister, the Queen decided to die. That’s how bad it was. I think it’s only a vicious rumor that it was directly connected. There’s a newspaper here, a tabloid newspaper that set up a YouTube channel, a live YouTube channel, which has got a photograph of Liz Truss on the left and then an iceberg lettuce on the right. The general gist is they want to see which is going to last longest. Is the lettuce going to rot away, or is Liz Truss going to get sacked? That’s where we’re at. [laughter]

[00:08:08.510] – Grumbine

Sounds very promising, but maybe it’s a good thing, though, because if she gets sacked quickly… But let’s talk about her. You just laid out what Parliament is and you’ve laid out the role of the king within the monarchy.

[00:08:19.810] – Wilson

That’s the Crown, as it’s technically termed. It doesn’t matter whether it’s a king or a queen, but, yeah, the Crown is the office, and obviously the king or the king and queen occupies the office. That’s the technical term for it. Yes, we’re ruled by the king in Parliament and Prime Minister effectively has all the authority but none of the power, and the king has all the power and none of the authority. That’s the split that keeps things sweet.

[00:08:43.990] – Grumbine

[laughs] So tell me about Truss. The conversation came out where some were saying maybe she’s not so bad. She sounds like she might have heard of Modern Monetary Theory and I think Stephanie Kelton put out a couple articles out of her substack “The Lens” that said “In Truss we Trust” or something like that and [laughter]… What exactly is “Trussonomics”?

[00:09:11.950] – Wilson

Well, as far as I can tell, she’s a Hayekian, was a Hayekian at university. She’s essentially a reformed monetarist, so she sort of leaned very heavily towards market monetarism. The policies that she put forward, at least she did with what is now a previous Chancellor [of the Exchequer] as soon as he got sacked this afternoon. Breaking news that. So, yes, we’ve got a new chancellor as well now.

That’s the second one inside a month and a half. So, anyway, the previous Chancellor was her best friend, so she’s just thrown him under a bus, and he and her came up with the program for Government, which they wrote down in a book called “Britannia Unchained”. And it’s basically Hayekian monetarism, as far as we can gather.

So what the previous Chancellor put forward, Kwasi [Kwarteng], he put forward the straightforward monetarist view. Which is that monetary policy is the instrument by which inflation is controlled, and that is entirely within the remit of the central bank, the Bank of England. And what they do on the fiscal side, then, is they alter tax policy to try and stimulate investment and remove as much regulation and red tape as possible to allow businesses to invest.

So that was their basic philosophy. The problem is, and this is important from an MMT point of view, she didn’t do the groundwork with the members of Parliament, the people in the legislature, and they’ve refused to support it. So this goes back to the central MMT point, that government and the spending that government can undertake is controlled by the legislature and the people who are within parliament.

So our parliamentarians wouldn’t wear it and they’ve required the Prime Minister to replace her chancellor with a new guy who’s called Jeremy Hunt, who used to be our Health Minister and was completely useless at that. So I haven’t got high hopes for him in this job either.

[00:11:21.190] – Grumbine

In the UK, you had wonderful public services, robust national health service, many citizens benefits, things that people in the United States could only dream about. And little by little, the US neoliberal experience, we often say it’s our number one export.

[00:11:43.710] – Wilson

Yeah, thanks for that. Yeah, cheers.

[00:11:46.540] – Grumbine

I know. I feel horrible! I need to be Ed Snowden so I can tell the truth on all these people and hopefully you guys will take me in in the UK when I lose my citizenship.

[00:11:56.830] – Wilson

That’s the thing about it, you see, once you’re on these islands, you are treated by the NHS [Naational Health Service]. That’s the great benefit of it, is that we don’t differentiate between citizens and anybody else. If you’re here legally, then you are treated by the NHS. It is quite remarkable construction and certainly something that needs to be preserved.

[00:12:16.890] – Grumbine

Is it going to be preserved, though? All that I see and hear is attack after attack on the NHS and the intent to privatize.

[00:12:27.010] – Wilson

Well, it’s kind of interesting as the NHS is already 50% privatized because all the general practitioners, the GPs, what you would call the medical doctors, are all private and always have been private within the NHS, generally. They have a contract with the NHS to provide services, but they are private. So the NHS has always been a private-public partnership, where it’s always been based around the premise that healthcare is based upon the need, not ability to pay.

That’s the central premise of the NHS. And for 75 years now, the private and the public together have provided around that central theme. And it’s actually the central theme that’s being attacked. This idea that it’s based upon need, not ability to pay, that’s the thing that’s under attack. It’s not necessarily private-public, it’s the underlying philosophy that people of money should be able to jump the queue.

And as we found out when everybody was queuing to see the Queen laying in rest the other week. People in the UK really don’t like people who jump the queue, and we don’t like fast tracks at theme parks either. We find those a little bit uncouth that people should be able to jump the queue just by paying a bit extra. It’s not seemly. And it’s that that’s under attack. This idea that we’re all the same within the UK, and you just get in line and you get seen by a doctor when your case is the most important one to see. That’s the problem.

[00:13:50.130] – Grumbine

This is class war?

[00:13:51.850] – Wilson

Yeah.

[00:13:53.290] – Grumbine

What is class like in the UK? To have an upper class connotates you probably have a lower class, otherwise you wouldn’t even be talking about in terms of upper and lower.

[00:14:04.200] – Wilson

Yeah.

[00:14:04.720] – Grumbine

What is class like in the UK?

[00:14:07.460] – Wilson

Classes is very stratified in the UK. We have a working class with the people that actually do useful things. We definitely have a professional middle class who think they know what’s best for everybody else, and generally the working class laugh at them. And then we have a genuine upper class who are extremely wealthy people.

Generally they are rather nice. It’s usually the upper middle class who are the pains in the backside. They’re the ones that think they’re better than what they are. It’s a strange structure. The existing government we’ve got at the moment was elected by a strange coalition between those at the very top of society and those at the very bottom.

And it was a peculiar mismatch against the people in the middle who were very much fond of nannyism and globalism and generally telling people what to do. The working class don’t like to be told what to do. They just want to be left alone. They want things to work, they want the bins to be emptied, they want to be able to get to a doctor when they see it, and they grumble.

And they just don’t like being nannied, I don’t think. I come from a working class background, so I consider those to be my people and they don’t like being nannied. It’s centuries old. As far as I can tell, it’s still the same split between the Normans and the Saxons that first came about after the Norman Conquest in 1066. There’s a wonderful poem by Rudyard Kipling about the Normans and the Saxons, which, when you actually read that, it still rings true today. The Saxons do grumble, and when they grumble, you need to leave them alone.

[00:15:37.990] – Grumbine

I actually did a great course not too long ago on that period of time stemming off of some of the Dark Ages, and it’s quite fascinating the further you go back as you get towards the dissolution of the Roman Empire and see how things constituted themselves. The great British Empire was massive, and there was a meme that went around that said, freedom from British rule is the single largest celebrated holiday in the world. You had the largest empire.

[00:16:09.540] – Wilson

Yes, that’s it.

[00:16:11.110] – Grumbine

When did that come to an end?

[00:16:12.940] – Wilson

The end of the empire? This is a lesson for Americans from an ex-imperialist to the current imperialists. The empire came to an end during the Edwardian period in the early 20th century with the Great War, the first World War. In the First World War, the British used up the entire fortune it had amassed over the Victorian period and destroyed the fundamental operation of the country.

And we’ve been in decline ever since then. And as a British person who understands that, when I watch the way the Americans are behaving at the moment, I think they’re going through their Edwardian period. So, yes, it’s been remarkable because the British Empire is dissolved without too much bloodshed, and the nations that were under the British Empire have been committed to go independent and in quite a lot of cases, assisted to go independent.

There has been some fighting, obviously, Ireland being the case in point, split in two as a result of the war a century ago. And that still is not 100% – well it’s like 80% resolved. That’s still the ongoing sore within the British Isles. So, yes, we did have the reserve currency, we did rule. The sun never set on the British Empire, and it’s all gone.

We’re now left with the rump of the British Empire within the United Kingdom and the second most held currency after the dollar, as far as I’m aware. Also the second largest trade deficit, something like that, whatever it is, lots of people hold sterling and we still have a very large import deficit like you do, except we don’t have the reserve currency to back it up.

[00:17:46.840] – Grumbine

Got you. So we’ve done a lot of studies on the French Revolution and the squabbles between the French and the British, and the triangulation with the UK and the Spaniards. And insanity with the sugarcane trade in Haiti. That had a tremendous impact on the shape of world events, even to this day. And there’s a real case study here to understanding that even then, the real issue wasn’t about currency, it was really about real resources.

Haiti had the real resources, they just didn’t have the military might, the ability for that island to serve the colonial outpost throughout the US. The Central American, the island and the South American outposts from these colonial nations, that was really the hub of everything down there in Haiti. And it just shows you the real value. The real thing that everyone is after is the real resources. And with the UK being an island nation in the current form, what is the leverage of the UK government in terms of their import-oriented strategy, given that they are not the primary world reserve currency? I don’t think that really necessarily matters.

[00:19:11.250] – Wilson

No, no.

[00:19:11.250] – Grumbine

This is the common narrative that we frequently hear. How is it that the UK, which has been reduced, like you said, to an island that is heavily dependent on imports. How is it that they’re able to survive on that without being the world reserve currency?

[00:19:27.270] – Wilson

Well, we’re living on past glories. We do have the City of London, which is important because it’s in the middle of the world’s time zones and provides quite a lot of shipping insurance across the world still. So the rump of the British Empire is operated within a very small part of the City of London. You can literally walk around it. It’s even smaller than Wall Street.

And that’s where, if you want shipping done, you can wander around various places and you can get it all done in next to no time. That’s the great advantage of it, is that it’s all set up, it’s all there, it all works and everybody tends to use it and they carry on using it largely through inertia, in the same way that people use the US dollar to pay for things, because, well, it works, why bother inventing anything new?

The London shipping insurance market is very similar, so that’s very important. But we are in a bit of a pickle because we are not food independent and we are not energy independent. And that’s come home to roost this winter because we’ve had policies that relied upon the worldwide energy market to obtain the energy that’s required to operate the United Kingdom.

We’re now in a situation where we haven’t got enough and we can’t get hold of it and it’s become very expensive. So much so that the Hayekian government has had to introduce an energy price cap in the UK to stop inflation getting completely out of control. Now, that might stop it on that side, but it still doesn’t tell anybody where they’re actually going to get the extra ships full of liquefied natural gas from.

There is a worldwide shortage of it. And whether we’ll be able to get through the winter with enough electricity produced or keeping the houses warms is still an open question at this particular point in time. All the infighting within the current government isn’t really getting us to the point where we can answer that.

[00:21:20.290] – Grumbine

What are the impacts of the destruction of the Nordstream 2 and the lack of production of Russian fuels? Was that a primary source of energy for you, or were you getting it through other means?

[00:21:33.160] – Wilson

No, it was next to nothing. It had very little impact on us. It’s had far greater impact on Europe. But of course, they then start asking for the LNG that we need. They don’t have the terminals to offload it. We have the terminals within the UK to offload the LNG. That’s liquefied natural gas for anybody who prefers the long version.

So we’ve had this strange situation over the summer where we’ve been offloading the gas in the UK, shipping it to our gas power stations, running the power stations longer than normal, and then exporting the power to the continent because they don’t have the gas from Russia to power their power station.

So it’s an unholy mess that is being made worse because everything’s market based. And of course, as you know, once you don’t have excess supply in markets, then everybody starts doing hoarding and price gouging, making a killing. That’s what’s happening in the gas markets over here.

[00:22:25.170] – Grumbine

So going back to Brexit, a lot of people made it out to be that these working class were just a bunch of racists. I listen to Bill Mitchell quite frequently and Bill has a very different take on that, being Aussie, and I know that he’s tied into a lot of things that happen over there with Gower. But from your perspective as a person living there, it seems to me like Brexit on many levels was a rejection of neoliberalism.

[00:22:55.540] – Wilson

It was very well considered, I thought, certainly within the working class that I consider myself to be part of, that we want to make our own decisions and not be ruled over by technocrats. That was the general sense of it. It was a reassertion of the crown and parliament system that we have and that we would prefer that the decisions were made there and not elsewhere.

And it was essentially a recovery of the country, a form of patriotism that will allow us to do our own thing and go our own way. And as you can see, it’s still causing a split within the country with those people who want to go towards a global regime where everything is decided by experts from on high versus those people who would prefer things to bubble up from below and be decided within their own parliament.

It’s not a resolved matter by any stretch of the imagination. It’s not really been used particularly to improve anything yet. And that’s sort of sad, because it could be. The UK in particular is, I would consider to be one of the most “MMT-ready,” if you like, countries in the world. We have our own central bank. We own it and control it completely.

We’ve got an overdraft facility that’s fully usable by the government whenever they feel like they want to use it, sat there and everybody doesn’t want to talk about it. We never borrow from the markets at all. Every single penny of the government ever spends in the UK is always borrowed from the bank of England every day. And then it is reversed out into the market.

A higher interest rate. Why? Don’t know. There we go. We also have, strange enough, something that’s remarkably close to a job guarantee. If we could just get the wage rate up to something sensible and allow people to choose to go on it. And of course, we’ve got a universal healthcare system, so we’ve got all the bases covered. It’s so frustratingly close. It just needs a bit of a nudge in the right direction. In two or three little directions and we’re there.

[00:25:13.690] – Intermission

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[00:26:04.690] – Grumbine

That’s amazing to me because one of the things, as an American looking through history, UK seems to be rich with tradition, cultural norms that people take very seriously.

[00:26:17.980] – Wilson

Yes.

[00:26:18.880] – Grumbine

It’s just very much a part of who they are. The idea of change of progress means something very different in a country that has been around for a very long time.

[00:26:32.160] – Wilson

Yes.

[00:26:32.640] – Grumbine

And has roots and holidays from 700 years ago. Whereas in the United States, as far as a colonized country – because I do understand the indigenous people probably resent us talking about this being a “young country” – but within the space of the time frame of the current state of the United States, we still struggle with an identity at times, even though I think our identity is quite clear.

It is the neoliberal factory of the world. [laughter] The UK seems like a rather conservative place in the sense that it likes its traditions and national borders and some of these things are concepts that in the United States mean different things.

[00:27:17.850] – Wilson

Yes.

[00:27:18.370] – Grumbine

And so when we talk about nationalism in the United States, it’s got a very racist connotation to it. Anti-immigrant bend. It’s got a harshness to it.

[00:27:29.910] – Wilson

Yeah, that’s right. We just don’t have that over here, Steve, at all. This country is incredibly tolerant. It is a country that has accepted people coming in from the outside for thousands of years and they’ve come from all over the place. And people tend not to resent incomers as long as there aren’t too many of them too fast. It’s the rate at which people come in that people tend to complain about.

In other words, we don’t have enough housing for people who actually live here. So are we bringing more people in? We don’t have the space for them, we don’t have enough food to feed the people who are already here. So the reactions to immigration are entirely rational, based upon the fact that it’s a relatively small island with a very dense population center in the southeast where all the economic activity has been concentrated, it’s not been spread around the country properly.

So we end up with the situation where we have a desire for people to come in, but only at a relatively slow rate. And I don’t think it’s uncontroversial. I seem to remember Bernie Sanders saying that immigration is a Koch brothers plot to reduce the wages of the working class. So I wouldn’t consider it to be a controversial position.

We don’t have a particularly large racism problem in this country. The current cabinet is all shades and types of people and nobody cares particularly. That’s not to say that there aren’t people out there, but it’s considered to be relatively uncouth.

[00:29:01.840] – Grumbine

With that in mind, given that trust is of the Tories and the Tories are the Conservative Party in the UK. They remind me, ironically, far more of the Democrats in the US because we don’t really have a left party.

[00:29:20.170] – Wilson

No, you destroyed your Socialist Party in the First World War.

[00:29:23.380] – Grumbine

Yes, we sure did. And we’ve been suffering ever since. When the Tories are in charge, what does that substantively mean to someone in the UK? What can you expect?

[00:29:39.360] – Wilson

It’s odd. The Conservatives like to be in power and they tend to morph slightly. I suppose the one central point that the Tories seem to agree on is the veneration of the market as a god. And this idea that the market is central to everything. That the whole issue over the last month and a bit has been to do with this idea that the Tories worship the market like a god and therefore if the market says something, it must be appeased and offerings must be given up to it.

In that strange way that those sort of people think. So what we would consider from a rational MMT lens point of view, where the gilt markets, the bond markets in the UK, the government bond markets, the yields went up when the previous Chancellor made his announcements. And that was perfectly irrational because they didn’t actually believe that what they’d said they were going to do all summer, they were actually going to do.

And when he actually stood up in Parliament and said, yes, we’re definitely going to do it, they went, oh, dear, we seem to have mispriced gilts. The rate of interest is going to have to be much higher. And so that’s what happened. And then everything else effectively cascaded from that.

[00:30:50.960] – Grumbine

So, with Truss in power, what do you expect to happen in the UK?

[00:30:55.840] – Wilson

Well, given the way the Tory Party is, there’s going to be, as far as I can see, an internecine war within the Tory Party, because they’re split two or possibly three ways between those people who are still pining for the EU and globalism, and those who want a more monetary free market. Institute of Economic Affairs, which is the right wing think tank over here.

That Laffer curve type ideology, and there’s a big bun-fight going on between those two within the Tory Party at the moment that’s ripping them apart. So I’m not actually sure whether very much forward progress will be made any more than there’s been over the last three years. Obviously, we’ve had the pandemic, but even once we got the pandemic out of the way, it didn’t appear to be very much in the way of any consensus behind doing anything. So I suspect what we’re actually going to see is two years of not a lot before we actually end up with the next election.

[00:31:56.660] – Grumbine

You said that the party itself will elect the PM.

[00:32:02.310] – Wilson

Yeah.

[00:32:02.910] – Grumbine

And there’s a lot of conversation that Truss may not be around very long. The Trussonomics was basically dead on arrival.

[00:32:12.030] – Wilson

Very much so, yeah.

[00:32:13.420] – Grumbine

With that in mind, what kind of economics do you expect? Are you expecting austerity to sweep the land or are you expecting any kind of bold, visionary changes, or are you considering this just largely business as usual?

[00:32:29.580] – Wilson

I suspect it will be very much business as usual – “Nothing to see here. Look! A squirrel!” – type economics. The Prime Minister has said there will be no spending cuts. Of course, she said there were going to be tax cuts last week, so who knows whether she’ll change her mind by next week? But I don’t think there’s a majority within the Tory Party to enact much in the way of spending cuts.

I don’t think there’s a majority within the Tory Party to enact much in the way of tax cuts either, which is why they’ve rolled back two that they’ve proposed. The higher rate tax cut was scrapped last week and today they’ve reversed the corporation tax. It wasn’t so much a cut as they put it back to what it was to start with, and then they’ve reinstated again now, so it’s going to go up from 19% to 25%, as far as I can tell.

They have reversed the individual tax rises that were put in, and I expect those to go through because the manifesto on which the party was elected said they wouldn’t raise those. So putting those back to what they were at the start of the Parliament, I think that will probably get through. But, yeah, each measure is going to have to be judged on its own merits as to whether it’s actually even going to get a vote to get through Parliament or not.

There’s a lot of politics going on. I can’t see any move to fixing the actual fundamental problems that we have. I don’t even know that anybody is talking about it. Fundamentally, the UK is now a poorer country than it was three years ago because the pandemic has taken a lot out of us and our supply side has been damaged much as it has across the rest of the world, and that causes a real loss.

And nobody is sitting down and talking about where that real loss is going to be allocated across the population and who’s going to have to stand it. It’s just every single interest group saying, “not me.” But it’s got to go somewhere, and somehow. And what saddens me as someone who’s in MMT, you’re sitting there going, “we need to talk about the real loss and how we’re going to allocate it.”

Nobody even wants to have that discussion. They want to talk about pounds and numbers, spreadsheets. They never want to talk about the actual, real things, like the gas, we haven’t got enough, so who gets to have less? It’s both sad and crazy at the same time.

[00:34:41.360] – Grumbine

Indeed, with the war going on with Ukraine and Russia and the impacts on the EU, and seeing how OPEC has once again fallen into some pretty crummy business, to say the least…

[00:35:04.160] – Wilson

[laughs] Very tactful. Very tactful.

[00:35:04.160] – Grumbine

If the United States, who is supposedly the big bully, can’t make a change there, how does that impact UK? Where do you expect to get additional energy from?

[00:35:20.290] – Wilson

We got a great pipeline, but nothing in the ground at present.

[00:35:24.640] – Grumbine

Nuclear has got a lot of different negatives and it’s got some very good positives. But overall, there’s volatility there.

[00:35:33.060] – Wilson

Oh, we’ve got Rolls Royce nuclear power, quite literally Rolls Royce nuclear power capability here. That’s the company that makes them.

[00:35:41.510] – Grumbine

I never knew that.

[00:35:42.720] – Wilson

Yeah, it’s the Rolls Royce make nuclear power plants for submarines and the general idea over here is to try and use that technology to actually provide nuclear power across the country using what’s called small modular reactors. So, yes, we do have Rolls Royce nuclear power capability. We just need to get that stuff out there and out somewhere.

It’s a great idea because if you use essentially, what, our submarine nuclear power plants and you scale them up, then when they reach the end of their life, you can pick them up and move them somewhere else. It’s quite a clever system. Whether it actually get past regulators or past the anti nuclear mob, I don’t know. But I’m excited about all that sort of power stuff. Electric cars and things like that. Wind turbines and wind farms and offshore stuff.

[00:36:30.490] – Grumbine

Everything’s got a silver lining. And to me, the silver lining of OPEC overplaying its hand right here is with a forward thinking nation, with bright people looking at the future that are not just in it for the money, the opportunity is here. Make some bold changes to get away from OPEC having that kind of stranglehold on the world.

[00:36:55.500] – Wilson

Yeah, it is very much like that. The UK ideas are quite bold. As usual with the UK, we have lots of bold ideas and then nobody ever puts somebody up to make them happen. But the idea, as far as I can tell, is to put such a massive amount of capacity within the United Kingdom that the wind will always be blowing somewhere and we will always be able to generate sufficient power for the country, regardless of the atmospheric conditions.

And the way that we’ll deal with the excess is to export it to the continent. So therefore we’ll become a very large energy exporter, whereas at the moment we’re obviously a fairly large energy importer. So that was the vision and I think it’s a very grand vision and certainly one that’s got an awful lot to be said for it.

If we can have three times installed capacity of wind, then almost certainly we’ll be able to maintain the country in electricity without actually needing storage so much. And that, I think, is a great idea. The pipeline is huge and hopefully it will all get built. And if we can throw a few Rolls Royce nuclear reactors in there as well, that would be even better. So it can actually be a genuine energy export to the rest of Europe. If you’re an island nation with loads of windy seas around you, they need to be made use of.

[00:38:09.640] – Grumbine

So the EU is going through some stuff because of their dependence on Russian oil.

[00:38:16.270] – Wilson

Yes, Russian gas, primarily. It’s the gas that’s the problem. Less oil.

[00:38:20.740] – Grumbine

Yes. Germany is usually the de facto king of the EU and even they are struggling, this seems like, of all the things that we’ve experienced, resource wars are nothing new. That has been since the dawn of time, whether it was going after bronze.

[00:38:42.490] – Wilson

Yeah.

[00:38:43.610] – Grumbine

What is the relationship between the UK and the EU in terms of cooperation and a shared sense of what’s happening?

[00:38:53.140] – Wilson

Yeah, it’s very much trading partners in the same way as we see the US. We don’t want to be part of the US, but we love selling them stuff, you know, the same with us. So it’s seen like that, I think, largely. Obviously, there are people who would prefer us to be inside the EU, but it’s seen as a trading relationship.

Though there are bones within that particular arrangement, but I don’t see it as ever really breaking down. There is a lot of saber rattling going on between various people who perhaps ought to keep the mouth shut more often. But yeah, there’s not really a big problem selling stuff, the EU, and there’s not really a big problem with importing anything from the EU.

And certainly, as far as energy is concerned, they haven’t got a lot of choice at the moment because they haven’t got enough power stations. So we do have a problem across the whole of Europe in terms of providing sufficient independence. It’s something I’ve been thinking of just in terms of MMT as well as systemic autarchy, which is this idea that a nation needs to be able to be self-sufficient, and not necessarily self-sufficient within itself, but any external stuff that it brings in.

It needs to have sufficient supply, different areas of supply, different sources of supply, to cover itself in case one or many of those sources folds. If Germany had done that with Russia, it wouldn’t be in this situation, it would have a second supply of gas that would have been sufficient to power the nation. The problem you’ve got with neoliberalism and globalism and the “one world” idea is that it’s all based around the idea of efficiency.

Economic efficiency, extracting as much cash out of the system as possible, rather than resilience, the ability to be able to withstand shocks and continue functioning regardless. And in nature, you get this trade off between efficiency and resilience. Anything that’s too efficient or anything that’s too resilient tends to get eliminated. There needs to be that happy medium in the middle. Neoliberalism just goes straight to efficiency, as far as I can see, because they can always socialize the losses. We see that every time there’s a bailout.

[00:40:56.730] – Grumbine

Fadhel Kaboub, who has frequently been on this program and everybody knows him in the MMT space. Fadhel talks frequently about sovereignty of energy, sovereignty of food and value added products, not just the base products.

[00:41:12.940] – Wilson

Yeah.

[00:41:13.570] – Grumbine

Given that the UK is a small island and is suffering in some respects due to the energy shortage, what kinds of imports does the UK depend upon and what is its main export?

[00:41:27.430] – Wilson

The main export is City [City of London] – finance – and insurance. That’s what we ship the most of. Its services is what we sell the most of. On top of that, we’ve still got quite a big production and manufacturing system, although that tends to be largely passed through, I should think. So you bring components in on the import side, assemble them and then ship them out again, particularly in cars and machinery and things along those lines.

So we’re by no means not got a material economy, but the service economy is definitely the biggie. So you’ve got finances one, and then you’ve got advertising, PR and marketing as another. Fairly sizable worldwide exports. On the import side, we are dependent upon energy and we are dependent upon food imports, and obviously we import a lot of cars and things along those lines, but our entire import structure isn’t all needed imports.

There’s quite a lot of discretionary on there and so we’re only price takers in the energy and food areas, really. The other stuff is discretionary, where we shouldn’t be price takers. So a lot of the near liberal theories as well, your currency has gone down there for the price of everything is going to go up. It’s like, how does the price of things go up when the item’s discretionary?

Isn’t that you have to put your price down if you want to sell it, otherwise it’s not a discretionary item. You always get this as soon as you’ve defeated on every other single item the next thing, they always come up with this currency crisis. So half my battle, whenever I’m talking to anybody, is trying to explain to how floating exchange rates work.

No, it doesn’t work like that. There’s always this idea, isn’t it? If your exchange rate goes down, the price of things in your country is going to go up. Well, why won’t the price what they’re getting go down? Why does it have to be that way? Why are we always price takers? What’s the idea behind that? They could ever explain it as soon as you force them to look at it from the other side, or they need to sell their tomatoes, don’t they?

Where else are going to sell, then? At that point in time, their arguments all fall apart. It’s all a story. It’s all, again, to try and fight people into a way of thinking, could you defeat them on currency crisis like you can on everything else, government borrowing and all that sort of stuff. It’s ever so entertaining.

[00:43:32.980] – Grumbine

Yeah. Well, that brings me to two last points that I want to bring up before we close out.

[00:43:38.400] – Wilson

Okay?

[00:43:39.040] – Grumbine

I follow a lot of Brits on Twitter, and not just regular rank and file activists, but a lot of the actual economists and the folks that are considered left very strongly remind me of neoliberals.

[00:43:59.590] – Wilson

Because they are. What we have, you see, is we’ve got this wonderful thing called the Oxford degree in philosophy, politics and economics, you see. And what happens is when they graduate from that, there’s a sorting hat, and it just puts them in either the Labor Party or the Tory Party, depending upon what the sorting hat thinks. They’re all exactly the same. They’re all the same graduates, they’re all the same set of people. The economists are like that, too. They just get a sorting out when they get the degree, I swear to God.

[00:44:26.140] – Grumbine

I talked with Karen Van Sweden, Malcolm Revo. And what is their take on Scottish independence? And without Scottish independence, what is their take on the economics of Ireland and Scotland? How does that part of this play out?

[00:44:46.160] – Wilson

Yeah, this is a peculiar construction of the UK that just happens to have come around over the centuries. The Union of England, Scotland and Wales, and Northern Ireland is a peculiar construct. There is no Scotland, technically speaking. There is only one kingdom of Great Britain. Northern Ireland is sort of separate-ish. It has its own separate exchequer, but not really.

Scotland has its own sort of separate legal system, but it’s mostly very similar to the English one. So the whole thing is an absolute mess. But that’s what you get with organic growth. So, yeah, I would say they’re similar to states in the US-ish in that they have a separate parliament, but they don’t have a separate currency. They only get to legislate over certain things, not everything.

And so it’s more like a classic local government arrangement than separate countries. They don’t really have as much flexibility as the separate EU countries do. It’s just a statewide local government system where they’re now responsible for doing the bins, and come of the council area within England is responsible for doing the bins there. It is very much a local government arrangement, I think. I think it can be dressed up as being rather more than what it is.

[00:46:05.770] – Grumbine

What I want to do is give you the last word. We want to know as we walk away from this with Truss coming in and anything else that you feel is necessary to mention.

[00:46:19.200] – Wilson

Well, from my perspective, what’s happening in the UK at present is very important for MMTers to pay attention to. The politics in particular, it’s the politics that matters. It’s pretty clear that the previous Chancellor didn’t do the politics necessary to cover off what he was planning to do. There was a market reaction, invert commas, that frightened the horses within the Tory Party.

So if we’re laying the ground for anything that we want to do, we need to be absolutely clear. We give the script to the legislators to say this is what will happen and this is how we’re going to counter it. He really should have put the changes within the bank of England up front to head off what the market was going to do.

He should have effectively told the debt management office to only issue new Gilts at a set yield rather than running what’s called a full funding rule. Which is the thing that means that we have to sell as many bonds as the government spends. That we should just suspend that and say no we’re only going to issue these things at 2%, say. And if you don’t like them you can keep your bank reserves.

So, yes, MMTers need to realize this is what’s going to happen if we make the changes that we’ve got in mind and you need to make sure you’ve got your political groundwork covered and that the market will react. You need to have a mechanism by which you can shut it down and silence it much as the Japanese has done, as you mentioned as we started this podcast.

[00:47:45.790] – Grumbine

Very good. And Neil, thank you so much for taking the time to be with me. This is our first talk.

[00:47:50.640] – Wilson

It is. How have you managed to do that? We’ve been at this for years. Steve, how long have you been doing this now?

[00:47:55.780] – Grumbine

Well, I’ve been doing RP overall for seven, eight, but this podcast has been alive and well now for three years.

[00:48:04.990] – Wilson

Three years? Crikey yeah, seven or eight years since we first talked.

[00:48:09.120] – Grumbine

So we’re going to need to make sure we bring you back again and I’m really grateful to make this connection. I hope I can talk to folks like Richard Ty. You guys at GIMMS I have never been more proud. I remember before it came into being that we were doing this stuff before GIMMS was around yet and that whole thing was so well organized. They’ve done impressive work.

Deborah and the rest of you, please know I’m absolutely thrilled with your work. I really appreciate everything you’ve done. And Neil, it has been an absolute pleasure. So with that, my name is Steve Grumbine, and the host of Macro N Cheese. My guest is Neil Wilson of the Gower Initiative for Modern Money Studies. It’s great to be fellow travelers in this MMT world. So thank you so much for joining me today, Neil.

[00:49:00.400] – Wilson

Yeah. Thank you, Steve. Thank you very much for having me.

[00:49:02.560] – Grumbine

You got it. Have a great day everybody. We’re out of here!

[00:49:29.560] – End credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.

Neil Wilson 

Neil is an associate member of the Gower Initiative for Modern Money Studies in London, a co-author of “An accounting model of the UK Exchequer” and a co-editor and contributor to the forthcoming book “Modern Monetary Theory: Key Insights, Leading Thinkers” 

Blog https://new-wayland.com/blog/ 

Book Modern Monetary Theory: Key Insights, Leading Thinkers  

Gower Initiative for Modern Money Studies  

Rishi Sunak 

Rishi Sunak is a British politician who served as Chancellor of the Exchequer from 13 February 2020 to 5 July 2022, and Chief Secretary to the Treasury from 24 July 2019 to 13 February 2020.[2] A member of the Conservative Party, he has been the Member of Parliament (MP) for Richmond (Yorks) since 2015. 

https://en.wikipedia.org/wiki/Rishi_Sunak 

https://www.reuters.com/world/uk/prescient-or-traitor-rishi-sunak-is-favourite-be-next-uk-pm-2022-10-20/ 

Lizzy the Lettuce 

Victory speech: https://youtu.be/86-OaTi-hjc 

https://www.theguardian.com/media/2022/oct/21/inside-story-daily-star-lettuce-triumph-liz-truss 

F.A.Hayek 

https://en.wikipedia.org/wiki/Friedrich_Hayek 

There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union. — Milton Friedman (Hoover Institution) 

By 1947, Hayek was an organiser of the Mont Pelerin Society, a group of classical liberals who sought to oppose socialism. Hayek was also instrumental in the founding of the Institute of Economic Affairs, the right-wing libertarian and free-market think tank that inspired Thatcherism. He was in addition a member of the conservative and libertarian Philadelphia Society.[222] 

https://www.econlib.org/library/Enc/bios/Hayek.html 

Kwasi Kwarteng 

Chancellor of the Exchequer for the Liz Truss government between September and October 2022 

Akwasi Addo Alfred Kwarteng (born 26 May 1975)[1][2] is a British Conservative Party politician who has been the Member of Parliament (MP) for Spelthorne in northern Surrey since May 2010. He was Secretary of State for Business, Energy and Industrial Strategy from 2021 to 2022, and Chancellor of the Exchequer for the Liz Truss government between September and October 2022.[3] 

Britannia Unchained 

Britannia Unchained: Global Lessons for Growth and Prosperity is a political book written by several British Conservative Party MPs and released on 13 September 2012. Its authors present a treatise, arguing that Britain should adopt a different and radical approach to business and economics or risk “an inevitable slide into mediocrity”.[1]  

The book is written by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore and Liz Truss, five Conservative MPs who were elected in May 2010 and belong to the party’s Thatcherite-leaning Free Enterprise Group. The text sets out their vision for the United Kingdom’s future as a leading player in the global economy, arguing that Britain needs to adopt a far-reaching form of free market economics, with fewer employment laws and suggesting the United Kingdom should learn lessons from the business and economic practices of other countries, including Canada, Australia and the tiger economies of East Asia like Taiwan, Hong Kong and Singapore.[1][2] Four of the five co-authors became part of the cabinet of Prime Minister Boris Johnson in 2019,[3] with co-author Liz Truss becoming Prime Minister on 6 September 2022; she appointed Kwarteng as her Chancellor the same day. 38 days into his tenure, Kwarteng was removed from his post following the turbulent market reaction to his disastrous mini-budget,[4][5][6] while Truss would announce her resignation as Prime Minister less than a week later.  

https://en.wikipedia.org/wiki/Britannia_Unchained 

Gilt  

A gilt is a UK Government liability in sterling, issued by HM Treasury and listed on the London Stock Exchange. The term “gilt” or “gilt-edged security” is a reference to the primary characteristic of gilts as an investment: their security. This is a reflection of the fact that the British Government has never failed to make interest or principal payments on gilts as they fall due.   

https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/ 

 Article: Fury as MPs and four guests allowed to jump the queue to see the Queen 

 Kipling – Norman and Saxon 

https://www.kiplingsociety.co.uk/poem/poems_normansaxon.htm 

“The Saxon is not like us Normans. His manners are not so polite. 
But he never means anything serious till he talks about justice and right. 
When he stands like an ox in the furrow – with his sullen set eyes on your own, 
And grumbles, ‘This isn’t fair dealing,’ my son, leave the Saxon alone. 
 
“You can horsewhip your Gascony archers, or torture your Picardy spears; 
But don’t try that game on the Saxon; you’ll have the whole brood round your ears. 
From the richest old Thane in the county to the poorest chained serf in the field, 
They’ll be at you and on you like hornets, and, if you are wise, you will yield.” 

PPE (Philosophy, politics & economics) Degrees 

https://en.wikipedia.org/wiki/Philosophy,_politics_and_economics 

Philosophy, politics and economics, or politics, philosophy and economics (PPE), is an interdisciplinary undergraduate or postgraduate degree which combines study from three disciplines. The first institution to offer degrees in PPE was the University of Oxford in the 1920s. 

https://www.ox.ac.uk/admissions/undergraduate/courses/course-listing/philosophy-politics-and-economics 

https://www.theguardian.com/education/2017/feb/23/ppe-oxford-university-degree-that-rules-britain 

 Modern Money Scotland 

https://www.modernmoney.scot/ 

Kairin van Sweeden  

@IndyAnatomist, Executive Director @ModernMoneyScot, Co-Host @Scotonomics1 

 Episode 105 – The Case for Scottish Independence with Kairin Van Sweeden 

 Malcolm Reavell

@malcolm_reavell 

Malcolm Reavell is a co-founder of Modern Money Scotland. According to his Twitter bio, he is an “Ex-Aircraft engineer, retired IT guy, internationally renowned composer, now decomposing, still #MMT though.” 

Episode 138 – The Lightbulb Moment with Malcolm Reavell 

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