Critical Economics

Ann Pettifor on the debt crisis – and how to get out of it

We speak to Ann Pettifor about the Jubilee 2000 debt campaign, the sovereign debt crisis, and how to get out of it. Ann argues that in addition to bankruptcies and debt write downs, we need labour intensive investment in infrastructure to grow the economy and protect the environment.

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Ann is director of Policy Research in Macroeconomics (PRIME), and a fellow of the New Economics Foundation, and was intrumental in the Jubilee 2000 campaign that resulted in the cancellation of huge amounts of debt in developing countries. Now the developed world faces a debt crisis – how do we get out of it?

Ann points out the much of the political focus has been on Government debt, and yet private debt is arguably more of a problem.

There are two ways we can tackle debt:

1. Through bankruptcies, cancellations and write downs

2. By growing the economy

Ann argues that we should grow the economy – for instance, through a Green New Deal – with labour-intensive investment. How would we fund it? In a depressed economy, raising taxes would put added pressure on people already feeling the pinch. The best way is for central banks – for instance, the Bank of England or Federal Reserve – to create new money. Although this flies in the face of conventional economic thinking, it is similar to the argument made by Stephanie Kelton and the Modern Monetary Theorists, though Ann comes to the problem from a different perspective.

Her ideas are laid out in a paper called The power to create money ‘out of thin air’. Download and read it! Control of the money supply is one of the most important powers the state has, and its not being used effectively.

Ann argues that it’s important that new money be invested in the productive economy, and not be used to speculate.

Ann reminds us that Government budgets are not at all like household budgets – this analogy is completely false. The Government budget is dependent on the size of the ‘cake’ of the economy – grow the cake, and there is more money in the economy.

Ann also talks about the need for a return to ethics in finance, and talks about the need for social institutions – the faith community, universities, trade unions, NGOs and political parties – to engage with and challenge the ethical frameworks of international finance.

 

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