Struggles from below

This week, we published an article by the prominent Australian economist Dr Steven Hail about a new strain of economic thought called Modern Monetary Theory (MMT). The controversial doctrine, made popular recently by the Sanders presidential campaign in the US, elicits bipolar reactions across the world of economics.

We featured this explainer piece not take sides in the debate but rather to add to the growing voices calling for the debate to actually take place. Before society commits to decades of austerity to pay off the vast levels of government spending seen in the pandemic, under assumed premisses about how the economy "works", we best double-check our workings just in case. 

In Britain, the government has imposed stringent austerity measures since the end of the 2008 financial crisis, which has not only torn chunks out of the social fabric but is also widely deemed a backfiring economic policy. For all its current problems, the US instead chose to stimulate its economy after the crisis and recovered faster than the UK as a result. As an interviewee for an upcoming article told me recently: "You don't put a sick patient in hospital and then take away their healthy inputs—their food, their water—you give them more."

MMT may indeed end up containing false assumptions when properly put under the microscope, but the wider debate about our economic options must still take place for us to come to that collective opinion. Not least as we're currently using an economic system that we know contains fundamental flaws but we still teach as akin to the universal laws of physics to our first-year economics students.

As Kate Raworth's celebrated bestseller Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist recently illustrated, we still hold a number of outdated principles dear. Take the theory of 'rational economic man', which holds that every human being only pursues ends that maximise their economic well-being. Well, as both a human being and a journalist, I guess I'm living proof to the contrary.

Another is the 'circular flow diagram', the graphical representation of the flow of money, goods and services in an economy that depicts a virtuous closed loop between businesses and households, who feed off one another in blissful perpetuity—the greater the flow, the greater the benefit for both parties. One British university has erected a real-life model of the diagram in its entrance hall, consisting of dyed water flowing around transparent piping. The fact that the theory doesn't account for external factors such as where the water comes from, or the electricity used to power it, goes a long way in explaining the difficulties we've got into with our environment: an economic system built on exponential growth will eventually run into the limits of our very finite planet. 

Our economic model is littered with these kinds of erroneous, and often dangerous, assumptions. But you can't crash the car if it's already broken down on the side of the road; we've got the rarest and most fleeting of opportunities to pop the hood and take a look, let's not waste it.