Whilst there, I met Veronica Scmalz, who describes herself as La jaune Schreibmaschine. That means The Yellow Typewriter, but it mixes French and German.

She writes poems for people, on the spot. She asked what concerns me. We had a brief conversation, and she wrote this:

The translation is this, and I admit I had to use AI to achieve it:

Banks controlling society

Banks controlling society
make people
spiral down into
a vicious circle
between needing money and
having none.

It is astonishing how far
we have become
unimpressed by
the birds and the sky.

But for me,
that is what keeps me
awake at night,
eating away at my soul.

This comes from writing in seven languages:

1. English – “spiral down into”, “how far”, “the birds”, “awake at night”.
2. Spanish – “Banks controlando la sociedad” (Banks controlling society).
3. Dutch – “mensen” (people), “tussen” (between), “geen” (none), “mijn” (my), “dat” (that).
4. German – “Geld” (money), “und” (and), “für” (for), “Schreibmaschine” (typewriter).
5. Italian – “un circolo vizioso” (a vicious circle), “es impresionante” is Spanish rather than Italian.
6. French – “mais pour moi” (but for me), “la jaune” (the yellow).
7. Portuguese – “impressionante” (impressive or astonishing).

Some deliberate linguistic ambiguity arises because several words are shared between languages.

I am a little in awe.

In this podcast, I talk to Professor Guy Standing, best known for developing the idea of the precariat and for his longstanding advocacy of universal basic income.

Guy argues that neoliberalism has created a growing class of people living without the security, rights and occupational identities that previous generations could often expect. But precarity is about more than insecure employment. It means becoming dependent upon employers, landlords, bureaucrats and others simply to get by.

That insecurity is having profound political consequences.

Our discussion moved from the precariat to Guy’s idea of the commons: the natural resources, knowledge, education, institutions and other forms of common wealth from which private interests increasingly extract rents.

Guy argues that those profiting from the commons should compensate the commoners, of whom we are all one. That revenue could be placed in commons capital funds and used to provide everyone with a social dividend, helping underpin a universal basic income.

We discussed as a result why basic income could act as a “social vaccine” against economic uncertainty, why security can increase freedom rather than discourage work, and why reclaiming the commons might offer the basis for a radically different progressive politics.

This is ultimately a discussion about something bigger: who owns our common wealth, who should benefit from it, and what is the economy actually for?

This is the audio version:

There is no transcript for this podcast, as it would be very long. I have, however, summarised our conversation as follows:

I recorded this podcast with Professor Guy Standing, someone I have known for some time and whose work overlaps with my own in some important ways, a few days ago. Our conversation ranged widely, but at its heart was a simple question: how do we create the economic security people need if they are to live well, participate in democracy, and have genuine freedom?

Guy began with the idea for which he is probably best known: the precariat. His argument is that the economic changes associated with neoliberalism and globalisation have created a new class whose defining characteristic is not simply insecure employment, but a much broader condition of precarity.

People in the precariat lack stable occupational identities, employment benefits and reliable pensions. They are frequently dependent upon money wages while being exposed to, and often carrying significant debts. Most importantly, Guy argues, they increasingly lack effective economic, social and political rights.

That distinction between insecurity and precarity matters. Insecurity means facing risks. Precarity means being dependent upon the discretionary decisions of employers, landlords, bureaucrats, family members and others simply to get by. People are required, in effect, to ask for permission to survive.

That has profound political consequences.

Guy divides the precariat into three broad groups.

The first are the “atavists”, often drawn from older working-class communities, who are attracted by political promises to restore an imagined past. They are often older, from the traditional working class, and male.

The second are the “nostalgics”, including many migrants and minorities, who lack a secure sense of belonging in the present. Their aim is to live well now. 

The third are the “progressives”, who are often younger and highly educated people who were promised opportunity but instead emerged into a world of debt, insecure employment and unaffordable housing.

I found Guy’s description particularly powerful because each group has a different relationship with time. One looks backwards, another struggles to find security in the present, while the third is searching for a viable future.

That brought us to the commons.

For Guy, the commons are much more than commonly owned land, as they were once described. They include the natural environment, the sea, education, knowledge and the accumulated intellectual and institutional inheritance of society. He argues that much of this common property, and the wealth derived from it, has been appropriated for private gain.

That process is fundamental to modern rentier capitalism. Land, natural resources, intellectual property, patents, finance and other monopoly rights allow relatively small groups to extract enormous incomes from resources and knowledge that depend heavily upon our collective inheritance and, very often, publicly funded investment.

The obvious question is: why should they receive all the benefit? Guy’s answer is that they should not.

Those who profit from taking resources from the commons should, he argues, compensate the commoners. The resulting revenues could flow into 'commons capital funds', with at least part of the return distributed to everyone as a social dividend.

This provides a very different justification for a universal basic income from the one usually offered. A basic income is not simply another benefit, nor is it charity provided by the state to people deemed to be in need. It can instead be understood as a dividend arising from our shared claim upon common wealth.

That also changes the meaning of redistribution. Instead of waiting until an increasingly unequal economic system has distributed income and wealth and then attempting to correct the resulting inequalities through taxation, Guy is proposing that everyone should have a claim on the returns generated from resources that properly belong, at least in part, to us all.

There is also a second argument for basic income, which I found compelling. We have moved from a world dominated by probabilistic or calculable risks to one increasingly characterised by uncertainty. Climate shocks, financial crises, corporate failures, technological disruption and other events cannot easily be predicted or insured against. They do not have the probabilistic characteristics required to do that. 

Guy therefore describes basic income as a “social vaccine”. It cannot prevent every economic shock, but it can give people sufficient security to withstand one and, crucially, to recover afterwards.

That security matters for freedom as well. Someone who is permanently frightened about paying the rent, feeding their children or servicing their debts cannot enjoy meaningful economic freedom. Nor can they necessarily make the choices that allow them to develop their abilities or participate fully in society.

Guy argues that evidence from basic-income experiments challenges the claim that providing security makes people idle. Instead, he says, people often work more, acquire skills, improve their health and education, and become more economically active. Local economies can benefit because additional income generates demand for locally produced goods and services.

This led us towards something bigger than basic income itself.

Both of us reject the idea that paid employment is the only activity that creates value or gives life meaning. People demonstrate extraordinary skills through caring, voluntary activity, hobbies, community participation, creative work and micro-businesses, while conventional employment frequently fails to use much of their ability.

The progressive objective should therefore not simply be to manufacture more jobs. It should be to give people sufficient security to undertake worthwhile work, broadly understood, and to participate in the communities in which they live. That is where Guy’s ideas about the precariat, the commons, basic income and rentier capitalism come together for me. This is a cohesive basis for a better society.

Contrast this with the existing economic settlement, which has concentrated wealth and power while simultaneously increasing insecurity for millions of people. That insecurity is now producing political consequences. Some people are looking backwards towards authoritarian populism and an imagined lost past. Others are searching for a progressive politics capable of offering security, belonging and hope.

Our discussion suggested that reclaiming the commons could be central to that alternative. Instead of allowing the returns from our natural resources, knowledge, technology and shared inheritance to accrue overwhelmingly to rentiers, we could capture part of those returns for everyone. A commons capital fund could turn common wealth into a social dividend. That dividend could provide the basic security people need to make meaningful choices about work, family, community and participation in democracy.

That would not simply be another adjustment to the existing economic system. It would begin to change who has a claim on wealth, who receives the rewards generated by society, and ultimately what we think the economy is for.

Guy and I agreed that we had barely scratched the surface. There is clearly much more for us to discuss, and I hope we will return to these issues in another podcast.

Poll

The issue, however, is not the price. It is its significance and consequences.

The significance is threefold.

First, despite all Trump's claims, it is clear that oil is not flowing through the Strait of Hormuz as a result.

The second is that Trump does not expect it to do so. Iran and the Houthis have created a stranglehold.

The third, and most obvious, is that Trump is consequently willing, to save his own skin, to do a deal with Putin, the benefit of which will be that Putin has the funding he needs to continue the war in Ukraine.

The consequence is a massive rift in the relationship between the EU, Britain, Ukraine and the USA.

Russia is also being empowered at the same time, which can only increase world tensions at a time when they are already being artificially inflated by politicians' hype.

The world did, then, become a considerably more dangerous place last night, and all because Israel did, earlier this year, persuade Donald Trump to go to war on Iran, and there is no prospect of either of those countries coming out of the resulting debacle with any hint of a victory. Instead of conceding, however, Trump is willing to do a deal with a fellow fascist. That is the world we live in now.

Let’s be clear, this deal covers only a few months. The crisis will continue thereafter.

From April this year, I forecast that we would face shortages of fuel, gas, food, and other raw materials from late summer onward, with issues becoming critical in October. It seems that I got my timing absolutely right.

Trump is now panicking. No other explanation explains this deal, which trashes most aspects of normal international relations the way the Molotov–Ribbentrop Pact between Germany and Russia did in 1939. That ended badly, and I suspect this one will, too.

The signs that we are heading for a crash grow almost by the day. The AI share price market saw a major disruption this week when OpenAI admitted its revenues were $20 billion a year less than markets had thought. They also admitted they will burn through $250 billion in cash over the next few years, which is the equivalent of five times their current annual revenue. If ever there was an economic model waiting to collapse, that is it.

And the Financial Times is this morning forecasting a major meltdown in the airline industry because of the crisis created by the cost of jet fuel. Even Ryanair is saying things are getting desperate. Failures in that sector were among the other forecasts I made.

And the impacts of food shortages have not hit as yet.

I said in a video yesterday that politicians would reach for MMT when they were desperate, and they have no choice but to change. I think that the moment of desperation might be approaching very fast.

Economists traditionally distinguish between demand-pull inflation and cost-push inflation. Demand-pull inflation happens when spending exceeds the economy’s capacity to supply goods and services. Cost-push inflation happens when essential costs such as energy, food and materials rise because of supply shocks.

I also identify a third form: “greedflation”. This happens when companies use their market power to increase prices by more than their costs have risen, increasing their profit margins in the process.

These different causes require different responses. I argue that raising interest rates might suppress demand, but it cannot create more energy, food or other scarce resources. Higher rates also increase mortgages, rents and business costs while discouraging the investment that could increase productive capacity.

Instead, policy should match the cause. Excessive demand can be managed through taxation. Excess profits can be tackled through regulation and taxation. Energy shortages require investment in domestic energy, while other supply shortages require investment in the capacity needed to produce more.

Inflation policy is therefore about much more than changing interest rates. We need to ask what is causing prices to rise, who is gaining, who is losing and which policy actually addresses the underlying problem.

There is no single solution to inflation because there is no single cause. Understanding that is essential if we want economic policy that works. This is what Understanding Economics is all about.

This is the audio version:

This infographic supports this video:

This is the transcript:

Hello, I’m Richard Murphy, and this is Understanding Economics, the series of videos that I’m creating to explain economics in the way that I see it. And I stress that point: this is about economics in the way that I see it, because I see it as what is called a heterodox economist. That means I am outside the mainstream. But given that mainstream economics has clearly failed us, or we would not be in the mess that we are in, heterodox economics matters, and that is why I’m making this series, which I hope will be of use to you.

In this video, I’m talking about inflation, and that is one of the most important economic concepts because people think, quite correctly, that it can affect their well-being and they don’t like that.

Inflation means the prices of goods and services are rising over time. That’s all it is about. The same goods and services that were available last year for £1 now cost £1.05, and that is inflation of 5%.

There is, by the way, an opposite to inflation, which is called deflation, but I am not discussing that here. If deflation happens, the goods that cost £1 last year cost, for example, 95p now, and that is when prices generally go down. But it is a phenomenon that we have not seen for a very long time, and so I’m going to discuss inflation instead.

But, and this is the key point, inflation can happen for very different reasons, and those different causes matter. You cannot cure inflation until you know what is causing it. And that is the key message of this video because our authorities, our central banks, which are being tasked with the job of controlling inflation, do not seem to understand that point.

The two major causes of inflation are described by economists as demand-pull inflation and cost-push inflation.

Demand-pull inflation happens when people want to buy more than the economy can produce. The economy is in the jargon term that is used: overheating. People have too much money in their pockets, and they’re trying to buy more than is available. As a consequence, they go into the marketplace, can’t find what they want, and they bid up prices. And people who have goods and services for sale know that they can get increased prices because people are willing to pay them. That is demand-pull inflation, and you have hardly seen it during the course of your lifetime.

The alternative is cost-push inflation. Cost-push inflation happens when the cost of energy, materials or other essential items like food rise, not because of excess demand, but instead because of what are called supply shocks. There have been many of these of late. I’ll discuss them more in a minute, but the point is the price of things goes up because of a physical event.

People don’t want to buy more of these things. They are essential items, and they need them. If they’ve got to buy them, they may well buy less of something else. But the fact that buying less of something else is not recorded within the measure of inflation, the fact they’re buying more of the essential item is, and people feel they are worse off, and that is the consequence of inflation. But these different causes need different responses, and that is the key point of this video.

Those who are responsible for controlling inflation, whether they be in government, whether they be in central banks, in Treasuries, or anywhere else, do need to take causes into account.

Now, what has caused recent inflation in this country? From 2021 to 2023, inflation in this country was caused mainly by supply shocks. We had disruptions in global supply chains as a consequence of COVID. When we were let out of lockdowns and everything to do with that, there was a flood of money that came into the market, and I admit this doesn’t make it look like demand-pull inflation, but the fact is that the flood of money was artificially created by COVID because people could not spend, and there were supply chain shocks.

People wanted to buy new cars. There were no new cars on their way from China because ships were not sailing.

People wanted to buy new kitchens, but there were no new kitchens available because people hadn’t been going to work to make the units, the sinks, and everything else that they wanted to buy. The fact is, this created a supply chain cost-push inflationary shock.

That was exacerbated within months of it happening by Russia invading Ukraine in February 2022. That drove up energy prices for oil and gas and then for fertiliser, and also for some forms of foodstuffs like wheat, because Ukraine is a major exporter of wheat to the whole of Europe.

Now the fact is that actually there were no supply shocks in this particular case. There was enough energy, there was enough gas, there was enough fertiliser, and there was enough wheat. But the point was that financial markets and speculators within them thought there wouldn’t be. They forced prices up, and the consequence was that we got inflation.

And the war in the Gulf started by Donald Trump and Benjamin Netanyahu is repeating that process all over again. Only this time there are real supply shocks. We are short of oil, we are short of gas, we are short of fertilisers, we are short of some of the materials required to undertake industrial processes. And the fact is that we do have a real supply shock, and people who have to pay more for their petrol, their diesel, their gas, their energy and their foodstuffs will not be able to buy other materials as a result. They will feel worse off, and they will feel that’s the case because there have been very real price rises, and we know that is true.

So we have UK supply problems, and Brexit only made all of those worse. I think I should mention that along the way.

But profits matter too in these situations. Over the last few years, there has been ample evidence that some companies have exploited the situations that we have faced as a country to increase their profit margins, meaning they have increased prices by more than their costs have risen. And as a consequence, because of their market power, which means they can control prices that we have to pay, some companies have made excess profits as a result. Energy, banking and food all provide important examples of situations where this can happen. And I call this type of inflation ‘greedflation’. It is a third category of inflation, and we have to take it into account.

And now my point is that if we have three categories of inflation, having only one policy response can be wrong.

The government has given the task of managing inflation to the Bank of England through the use of interest rates to try to control the level of demand within our economy, but that will only work when we have demand-pull inflation, when there is too much money chasing too few goods in the economy, but that is not the situation we are in.

We are not at full employment. We have not got an overheated economy. We have economies that have been suffering successive supply shocks, and that is the inflation we’re dealing with, essentially cost-push inflation. And in that situation, increasing interest rates does not produce more energy. It does not produce more food. It does not provide other scarce resources.

But despite the fact that there is no solution to the inflation problem and its causes by increasing interest rates, the government still lets the Bank of England increase those rates, and the result is increased mortgage costs, increased rents, increased business costs, and so more inflation, because if you put up the price of money, you increase the rate of inflation. That is something that most economists do not know, but as a matter of fact, it’s true.

For example, if a business has to pay more interest, that interest becomes part of its costs. Of course, it will try to recover that by increasing its prices. And in some cases, for example, in car leasing, the interest rate is a major part of the cost that is passed onto the consumer, and the price is bound to rise.

The consequence is clear. Millions of people will be made poorer as a consequence of this policy, and that is not an accident. That is by design.

And in fact, there’s another consequence that is created by design. This policy is intended to make people unemployed because that is the way in which the message that the Bank wants to impart, that we must suppress consumption, is delivered into the economy. There are fewer jobs. The pressure on wages goes down whilst the pressure on prices goes up. This is what the Bank of England is trying to do. It is not only trying to suppress the well-being of millions, but it is also trying to create greater inequality in the country.

And a government that creates its own currency does not face the type of problem that the Bank of England believes it does. The government in that situation can control inflation using taxation. But the government in that situation cannot produce unlimited goods and services. So what it has to do is balance demand with taxation. And the essential job of tax inside any economy is to achieve that outcome. We ignore this point.

We always say that interest rates are used to control inflation, but that is not true. The primary purpose of tax is to take money that the government has created as a consequence of its spending, as modern monetary theory explains, out of the economy so that it cannot cause inflation. And in fact, tax is so good at that job, and so effective at it, that we just don’t notice it’s doing it.

And the problem of not noticing that it’s doing its job so well is that we use another tool which is wholly ineffective, which is interest rates.

And how do I know that tax is so good at this job? Well, look at periods when we don’t have external supply shocks. For example, the whole of the 2010s. We had very little inflation indeed during that decade. Tax controlled the situation, and we had stable interest rates. Something did control inflation because the government spent trillions into the economy. What controlled inflation, as a consequence? Tax did. It does work.

And this is what we need to do. We need to match the solutions to inflation to the causes that we can see which are happening.

If there is too much spending in an economy, whether that is created by the government or by the private sector, we must use tax to reduce spending power, and those who can afford to pay should bear most of the cost. That is the way in which an effective inflation policy works 99% of the time. That is what the government does with regard to its own spending, and that is what should also happen if we have demand-pull inflation.

But we don’t have demand-pull inflation most of the time. Sometimes we have ‘greedflation’, which is created by companies exploiting their monopoly power, and in that case, we need to regulate markets, regulate companies, and tax those profits.

That is the right response to greedflation, but we are not seeing that. We are not seeing sufficient extra taxes on oil companies at present, although they are making exceptional profits, and banks are squealing for a reduction in their tax rate, even though high interest rates are heavily benefiting them.

At the same time, if we have an energy shock, the signal that we should respond to is the fact that we do not have enough domestic energy in our economy, and the answer to that is to invest domestically. What do we do? We increase our domestic energy supply. We have wind power. We have solar power. We could have tidal power. That is the answer to that type of inflation. That is tangential, but it’s the right thing to do.

And at the same time, if we have supply shortages, for example, with regard to food, what should we do? We should invest in the capacity of our economy to produce more. If we could produce more, we would not have a supply shock. We would have sufficient. We would not then get inflation, and that is why investment is the right answer. But putting up interest rates makes that harder, which is why it is the wrong tool. We must, in that case, choose the right tool. That is essential when we’re managing inflation.

And the point is this: a single inflation number does not tell us who is suffering, nor does it tell us who gains from the policy used to tackle inflation. We must ask who gains, who loses and why. Then we must decide how to act to suit the circumstances, and these, I stress, are political choices requiring judgement. They are not merely technical ones. And the knee-jerk reaction that we keep on getting from the Bank of England to put interest rates up every time there is a threat of inflation is a technical solution, but the wrong one in most circumstances. We need to get much more clever when it comes to inflation.

Inflation has, as I’ve said, many possible causes. The big issue is find the cause first and then use the policy that deals with it. Our problem is that for far too long we’ve managed it through those knee-jerk reactions I’ve described, and we have not considered the right policy options that are available to us or the right actions to take. If we did, we would have a better economy because we have understood it better, and that is the whole point of this series on understanding economics. It is about how we understand the situation that we are in and how we can manage our circumstances better.

There is a whole playlist that is listed below this video of other videos available in this series, and there are now around 20 of them. There’s plenty for you to watch. Do start at the beginning. It is probably the best place to start in this case, but pick and choose if you wish. There are plenty of topics to address because economics is a massive subject, but understanding it really helps you manage the way in which you react to what is going on in the world around us.

Poll

Bailey began by acknowledging that the world economy is facing an extraordinary combination of threats. These include the war in the Middle East, repeated supply shocks, weak economic growth, the risks associated with artificial intelligence and increasing instability in government bond markets. He and I are on the same hymn sheet when it comes to these issues.

He also acknowledged that the financial system has, so far, coped reasonably well with these pressures. Banks remain adequately capitalised, and financial markets have continued to function despite significant increases in government bond yields. But Bailey was then very clear that this resilience cannot be taken for granted. I would again agree. If markets crash, as I think they will, resilience cannot be assumed.

His particular concern was, however, that governments might find it increasingly difficult to respond to economic crises because of the consequences of weak growth, higher borrowing costs and repeated demands for government intervention. He said:

Lower growth and repeated supply shocks weaken the public finances while increasing pressure on governments to provide support.

He then added:

If markets begin to doubt the fiscal trajectory, bond yields can rise further, tightening monetary and financial conditions.

What Bailey is very clearly suggesting in that case is that financial markets can, might, and maybe should, constrain the ability of governments to respond to crises, even when that response is necessary to protect the wellbeing of the people for whom those governments are responsible. That is an extraordinary admission from the Governor of the Bank of England, revealing a complete lack of understanding of the nature of government finances in a country like the UK, and an embedded view on his part of where power should lie in this country that is deeply troubling

That said, I note that Bailey acknowledged that governments have a responsibility to intervene when economic crises occur. He said:

Governments can ordinarily use their balance sheets to cushion a severe downturn and rebuild fiscal space when conditions improve.

That is, of course, entirely correct. Governments exist, in part, to provide the economic stability that markets cannot deliver. But Bailey immediately qualified his statement, saying:

But when shocks become more frequent, underlying growth is weaker, and the succession of shocks leads to a higher level of government debt, this becomes much harder to sustain.

His very clear conclusion was that governments must maintain the confidence of financial markets in preference to serving the interests of the people of the country they govern. He said:

Fiscal policy must ... be directed towards stability and be seen by markets as credible. Clear frameworks, including fiscal rules, can help contain risk premia when shocks occur.

This is where Bailey's argument falls apart. He is effectively saying that governments must be prepared to respond to crises, but only if financial markets approve of what they are doing. The implication is that the needs of financial markets must take precedence over the needs of people. That, of course, is an idea implicit in the corporatism of fascism. That is not a principle that I can accept.

There is another problem with Bailey’s argument, and it is one that he himself identifies. He acknowledges that government bond markets have changed fundamentally. They are increasingly dominated by leveraged investors rather than institutions seeking long-term, relatively secure investments.

These investors borrow to speculate. Their positions can be unwound rapidly. When markets move against them, margin calls and other contractual obligations can force them to sell assets, whether they wish to do so or not. Bailey explicitly acknowledges that these processes can amplify market instability. I noted all of these issues yesterday.

In other words, and let me be quite clear about this, Bailey recognises that financial markets are not necessarily rational mechanisms for determining the appropriate price of government debt.  He also recognises that, as far as many market operators are concerned, they no longer exist to fund the government, as conventional thinking suggests. Instead, leverage, automated trading, contractual obligations, and the need to cover losses elsewhere can drive their behaviour. These are precisely the mechanisms that can create financial crises, again as I pointed out yesterday.

And yet Bailey’s answer is that governments must organise their fiscal policies to maintain the confidence of those same markets. There is a fundamental contradiction here.

If financial markets are increasingly unstable, why should governments be required to submit their economic policies to their judgement? Why should the ability of a government to provide healthcare, education, housing, social security or the investment required to address climate change depend upon the behaviour of highly leveraged financial institutions? And why should the Bank of England accept that this is an appropriate constraint on democratic government? To that, Bailey provided no answer. He could not, within the constraints of his own thinking, which presumes the government is dependent on bonds to finance its activities.

There is an alternative way of looking at this issue. The UK government is the issuer of sterling. It does not need to obtain sterling from financial markets before it can spend. It creates the money that it spends, with taxation subsequently withdrawing purchasing power from the economy. And bonds do not fund anything. They are safe places for financial institutions to save surplus funds.

That does not mean that government spending is without limits. Of course there are limits. Those limits are determined by the real resources available within the economy, the capacity to increase those resources, the risk of inflation and the consequences of government spending for economic and social wellbeing. They are not ultimately determined by the willingness of financial markets to purchase government bonds.

The Bank of England also has the capacity to intervene in government bond markets when financial stability requires it. It demonstrated that in 2022, when it intervened to prevent instability associated with liability-driven investment strategies in pension funds from becoming a wider financial crisis, created in no small part by its unprecedented and unexpected decision to commence active quantitative tightening

Bailey knows all this. He also knows that the Bank of England and the Treasury are parts of the same state, even if they have different responsibilities and operational arrangements. What is required is a coherent approach to monetary and fiscal policy that recognises these realities.

That would mean accepting that the government’s first responsibility is to meet the needs of the population while maintaining price stability.

It would mean recognising that government bonds are a mechanism for providing secure savings opportunities, rather than an unavoidable means of financing government spending.

It would also mean accepting that the Bank of England has a responsibility to prevent financial market instability from undermining the capacity of the government to act in the public interest.

None of this requires unlimited government spending. It requires responsible economic management based upon the actual constraints that the economy faces.

Bailey is right that we face a world of repeated crises, weak growth and increasingly unstable financial markets. He is also right that governments must be able to respond to those crises. But his suggestion that governments must maintain fiscal rules designed to reassure financial markets, even when those markets are themselves a source of instability, is profoundly mistaken.

The purpose of economic policy is not to satisfy bond traders. It is to ensure that people can live securely, that public services can function, that the economy can prosper and that society can thrive.

If financial markets threaten those objectives, it is the financial markets that need to be managed. It is not the needs of the people that should be sacrificed.

That is the distinction Andrew Bailey appears unwilling to make. And it is one that matters enormously for the future of this country. It is a question of who rules, and why. Bailey seems to think financial markets rule because they might have the power to do so. I think people and democratic government must come what may. The difference of view is not theoretical. It may be at the epicentre of the coming crisis in this country.

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I am being  extremely dense, so excuse me.

I get that buy a government bond 30 years at 6%, that’s a steady fixed rate of interest for 30 years. When it matures I get my money back.

If interest rates go to say 10% on the face of it I should sell and try to buy the 10% government bond.

I may not be able to sell my bond for my cost price ( say £1bn) and make a loss of say £300mn. If this is my only capital is not a sensible strategy. I need to keep my capital. So I sit it out.

What I find difficult grasping is how does the secondary market in government bonds affect interest rates when no new money is being ” created”?

To me it seems to be just “clever financial stuff” that makes a lot of money for the City. With the usual City risk of no one has any idea what is going on and there will be crisis at some point.

Why should the UK issue new government bonds at a higher rate of interest  due the secondary market swings, when it can just sit the “game” out?

Has the UK government committed to a policy that is daft?

I have been asked to share my response more widely, as some people thought it was useful. This is what I wrote, although I have expanded one section here to emphasise the choice that the government can make:

You are not being dense. You have asked an important question about the government bond market.

Your understanding of your 30-year bond is correct. If you hold it to maturity, you receive the promised interest and your capital back, assuming the government honours its obligations. What happens to its market price in the meantime need not concern you.

The secondary market is different. Existing bonds are traded between investors, and their prices change according to what buyers are prepared to pay. When prices fall, the yield to someone buying those bonds rises. No new government money is created by that transaction. It is simply a transfer of an existing financial asset.

The problem arises because the government uses secondary-market yields as a benchmark when issuing new bonds. Investors will not normally buy a new bond offering substantially less than they can obtain on an equivalent existing bond. The government is therefore asked to offer higher yields on new issues.

But your final question is the crucial one. Why must the government accept those terms?

The answer is that it does not have to, as a matter of monetary necessity. Government spending creates money. Bond issuance then offers savers an alternative way of holding financial wealth. The government does not need to obtain money from bondholders before it can spend.

The UK has chosen institutional arrangements that link government financing to bond issuance and market pricing. Those arrangements could be changed, although doing so would require decisions about monetary policy, interest rates and inflation management. In particular, the government could decide not to issue bonds when interest rates are too high and borrow from the Bank of England instead, waiting for a more orderly market before issuing bonds again. Technically, nothing stops it from doing that. It does not do so by political choice alone.

So you have identified the fundamental issue. Why should the cost of government financing be dictated by secondary-market transactions when the government is the issuer of the currency in which those bonds are denominated?

That is exactly the question I think we should be asking. The government is not bound by the bond market. Since 1981, when Sir Geoffrey Howe, Thatcher's then Chancellor, introduced the so-called full funding rule, it has chosen to be so, but that decision could be revoked. The question is: why isn't that being done now?

How about a “triple lock” on wealth to help stop it’s current explosion at the very top? What would each of the three locks be?

I assured him that I would think about this. What follows might be considered an expanded comment response, but not a full-blown treatment of the issue.

I think a triple lock on excessive wealth is an idea worth developing. The objective would not be to stop people becoming wealthy, but to prevent the concentration of wealth becoming so extreme that it undermines economic fairness, social mobility and democracy itself.

I would suggest three locks, each addressing a different way in which wealth accumulates and perpetuates itself.

The first would be a tax lock.

Income from wealth should never be taxed more favourably than income from work. Currently, the tax system usually rewards those who already own assets more generously than those who earn their living by working.

Capital gains should be taxed at rates equivalent to income tax. Dividends and other investment income should face appropriate national insurance-equivalent charges. There should also be a serious review of the reliefs and exemptions that disproportionately benefit the wealthiest.

The principle is straightforward. A pound received because someone owns wealth should not be taxed less than a pound earned by someone who works.

This would reduce the rate at which the wealthiest accumulate additional financial claims over the resources created by everyone else.

For more details and ideas, see my Taxing Wealth Report.

The second would be an inheritance lock.

The ability to pass enormous fortunes from one generation to another, often with substantial tax advantages, is one of the principal mechanisms by which economic inequality becomes permanent.

I would reform inheritance taxation to ensure that substantial transfers of wealth, whether made during life or on death, were properly recorded and taxed. That would require closing the loopholes associated with trusts, lifetime gifts and preferential reliefs, whilst protecting reasonable transfers between ordinary family members.

The aim would not be to punish people for providing for their children. It would be to prevent the creation of a hereditary economic elite whose advantages have little or nothing to do with their own contribution to society.

No democracy should be comfortable with the idea that economic power can be inherited almost without limit.

Is this possible? Yes, of course it is, but I admit I have not written how to do so yet.

The third would be a power lock.

This lock might be the most important of all.

Wealth does not accumulate simply because people save. It also accumulates because those who already possess substantial assets can use their ownership to extract income from the rest of society.

That happens through the creation of monopoly profits, the charging of excessive rents, harmful financial speculation, control of essential infrastructure, the exploitation of intellectual property rights and the ability to influence government policy, which reinforces all the others and may be the most damaging trait of all.

We need much stronger competition policy, effective regulation of rents and monopolies, tighter controls over speculative financial activity, and public ownership where essential services are natural monopolies.

We also need to prevent concentrated wealth being translated into disproportionate political influence through donations, lobbying and control of the media.

The point is that the ownership of wealth should not provide an unlimited right to extract income from other people’s work, or to dictate the rules under which the economy operates.

The three locks would work together.

The tax lock would limit the accumulation of new wealth through preferential tax treatment.

The inheritance lock would prevent existing concentrations of wealth from being perpetuated indefinitely across generations.

The power lock would tackle the economic and political structures that let wealth generate even more wealth, regardless of any corresponding contribution to society.

None of this requires the government to raise taxes because it needs the money to spend. That is not how government finance works.

The purpose would instead be to reduce inequality, limit the concentration of economic power, prevent excessive claims on society’s resources, and create conditions where everyone has a fairer opportunity to thrive.

That is why I think a triple lock on wealth could be a powerful idea. It would recognise that excessive concentrations of wealth are not simply an unfortunate consequence of the economic system. They are the result of political choices, and we can make different ones.

When we discuss triple locks in this country, this is one we do need.

History suggests that major changes in economic thinking happen during crises. Keynesian economics gained influence after the failures exposed by the Great Depression. The Beveridge Report helped prepare the foundations for the post-war settlement. Neoliberal thinkers were ready when the economic turmoil of the 1970s created their political opportunity.

The same happened after the 2008 financial crisis. Tax Justice campaigners had spent years developing arguments and practical reforms that suddenly became politically useful when governments needed answers.

MMT needs to be equally prepared. Importantly, I argue that MMT does not require us to invent a new monetary system. It describes how the existing system already works: government spending creates money, taxation removes money from circulation, and government bonds provide a savings mechanism.

The real change is therefore in how politicians understand and manage the economy. Instead of asking whether government can afford something, MMT asks whether we have the real resources required to deliver it.

A new hospital, for example, requires land, materials, builders, doctors, nurses and other staff. Money itself cannot create those resources. The challenge for government is to mobilise available resources while managing genuine shortages and inflationary pressures.

I believe another major economic crisis could force politicians to reconsider the economic assumptions they currently rely upon. Financial instability, war, AI, climate change or recession could provide that catalyst.

We should not want such a crisis. But if one comes, an alternative must already be available. MMT needs a clear, practical political narrative explaining what governments can actually do. When politicians need an economic life belt, MMT must be ready.

This is the audio version:

This infographic supports this video:

This is the transcript:

When will we get modern monetary theory, or MMT for short, in practice? That's a question I'm always asked, and my answer is that politicians will adopt MMT when they realise it offers the answer they need.

That recognition is unlikely to come in normal political times. Politicians always remain within their comfort zones whenever they can. They are human beings who like the status quo, as we can all see. So the catalyst for change will then be a crisis, and that is why preparation now, before a crisis finally hits us, matters so much. If we are to get MMT, we have to be ready for the possibility that politicians will need it, and I think they will.

Crises change economic thinking when old answers stop working.

Neoclassical economics failed during the 1930s. Keynesianism offered politics an alternative at that time.

The Beveridge Report of 1942 provided a plan for the post-war settlement and the creation of the welfare state. It was opportunistic in 1942. In 1945, it was desperately needed.

And let's be honest, Margaret Thatcher seized her opportunity when 1970s inflation discredited the existing Keynesian consensus of that moment, and she too created change as a result.

History suggests that crisis creates the space for economic change, and the financial crisis proved that point again in 2008. Gordon Brown, Barack Obama and the G20 needed explanations for what had gone wrong. The tax haven story that I had helped promote became part of that explanation, which they latched onto with enthusiasm. Tax justice campaigners like me had already prepared the proposals for reform that they then used.

It was not by chance that I was at the London G20 Summit in April 2009 asking Gordon Brown a question in front of 4,000 journalists. I was opportune as to the moment, to the potential to create change. Ideas that had previously seemed unlikely suddenly became politically useful. Many of the reforms we tax justice campaigners had demanded were then adopted.

The key point is, though, that the alternative must exist before politicians have realised that they need it. Keynes, Beveridge and neoliberal thinkers had all prepared ideas in advance. Tax justice campaigners had done the same before 2008. John Christensen and I had written our manifesto, and we had done the donkey work to have the tools available that we thought politicians would need.

None of these people could know exactly when their opportunity would come. They created the foundations for change without certainty of success, or knowing that their plan might even ever be needed, and MMT now needs to undertake the same preparation. That is my point.

Planning for that change is, however, possible. MMT has the opportunity, and it will be easy to do.

Vitally, modern monetary theory describes how modern monetary systems already operate. It does not require us to reinvent those systems. The monetary plumbing already works in the way that MMT describes.

The system itself does operate. We do know that government spending does already create money. We do know that taxes do take it back out of the economy and do not fund the government spending. We do know that bonds are savings mechanisms, and they also do not fund the government's spending. The necessary change that we need now is not in the financial system as such, but in the understanding of how it works and how it is managed. That is where our economists and our politicians, as well as our commentators, are all in denial.

The fact that the system will not, as such, need to change will make the transition to MMT thinking much easier than most people imagine.

But that doesn't mean to say there isn't work to do. MMT needs to have what I call "a better song to sing" by the time neoliberalism fails, and that may be soon. It must have all the necessary explanations as to what it can do, ready in advance. That is what that song is. It's the narrative that hangs everything together to say there is an alternative.

Politicians in a crisis will need an understandable alternative. We must have it. They will need to know what an MMT-managed economy would actually mean, and elaborate forecasts will not provide them with that political narrative. A practical explanation of what government can do will meet that need. This is the application of MMT that we need to develop now.

So we need to be able to explain the difference between asking the question: 'Can we resource it?', instead of 'Can we afford it?', and what the consequences will look like in practice, because that is the key change that MMT will deliver in practice.

A new hospital provides the obvious example. To build a new hospital, we don't go and look at a bank account and say, have we got the money? Instead, we have to go and ask, do we have the land, the materials, the builders and the architects? And then can we provide the doctors, the nurses, and all the other staff down to the porters who are required to staff the place? Only if those resources exist can the hospital be created. Money is not the fundamental constraint; resources are. That is the difference that MMT makes. MMT requires that we ask better questions.

So in the midst of the coming financial crisis, we must be ready to explain that money is not the big issue, even if everyone else thinks that it is. Resources are what will matter. It is resources that the government will have to direct so that it can deliver outcomes to overcome the problems that the crisis will create.

Government can always create money through its spending. That is a matter of fact. But that spending can bring unused, and most especially underutilised, resources, and there will be a great deal of those in the coming crisis, into productive use without necessarily creating the risk of inflation, whilst the existence of scarce resources may create inflationary pressure, but not if the process of change is properly managed, and that inflationary pressure in some areas is anticipated and change is made to manage it.

The objective will be to manage resources in a way that ensures that need is met and scarce resources are well used. That is the process that MMT enables, and that is critical. MMT is a process that does require better decision-making by our politicians. And at the time of crisis, there can be no greater need than better decision-making.

Politicians can still have their ambitions. They will still be able to make plans. MMT would encourage them to do so, particularly in a time of crisis. But what MMT shows is how those plans can actually be delivered. Resource management and inflation control become explicit parts of that decision process in a way that they aren't at present because micro-thinking about bank balances is all that matters. Artificial constraints will no longer dominate the discussion. Economic policy will become focused on what is physically and socially possible. That fact will be critical if, and I think when, we have another crash.

So, what could trigger this crisis that I'm talking about? I think you know the answers to that question.

Neoliberalism is already under severe pressure. We've done a video about that already this week.

Trump's economic policies could bring the world to its knees. His war could do the same thing.

An AI-driven financial collapse could provide another trigger point.

And so could the climate crisis. We are facing enormous stresses in the next year or two from drought, from floods, from fires, from El Niño, and that, of course, rolls on into food supply chains and water issues and everything else.

And the consequence of all of these things is that markets, banks and credit systems could again require government intervention for any of these reasons, and maybe all of them at the same time.

Recession and unemployment could then make existing policy impossible to defend. Neoliberalism would have failed. And in that situation, politicians will need a lifebelt or even a lifeboat. And importantly, a drowning person does not study the theory of lifebelts before grabbing one. A government facing crisis will need something to grab onto immediately, and something which they can understand instinctively.

Beveridge, Keynes, and the tax justice movement all provided lifebelts. So could MMT. It could provide; it does provide, a coherent explanation of what a government can do in a crisis. Its practical narrative must therefore be ready before the emergency. Political necessity can then turn an alternative idea into government policy, and that's what we need to be ready for.

We should not want this crisis. I stress that. I do not because crises cause pain, and I hate that idea. But the fact that we are going to get a crisis, I think unavoidably, does make preparation for this transition necessary.

The 2008 financial crisis caused enormous and lasting damage. Another major economic breakdown could be even worse. Think of the 1930s if you want to get your head around this, on the basis that no action, or only neoliberal action, is taken in response to the crisis that might develop soon, and then realise why an alternative is necessary.

Neoliberalism is making crisis unavoidable. The responsible response is to prepare an MMT alternative beforehand. Otherwise, the opportunity for constructive change could be lost.

What all this means is that the transition to MMT could come much sooner than people expect. People talk about it to me as if it is something that will happen in the dim and distant future. I think it is going to happen soon, in a matter of, maybe not months, but years most likely.

And the next major crisis will force politicians to reconsider their basic economic policies, and there will be fundamental change. They will need an alternative that explains how government can respond. People will demand it from them, and they will not accept austerity this time. The people of France and the people of Spain are already showing that. People's anxiety in general, expressed in their alienation from government in this country and so many others, shows that the appetite for change is real.

MMT already describes the monetary system those politicians are trying to manage. The task is now to make the practical possibilities from truly understanding that system very clear. When crisis comes, MMT must be ready to become the alternative game in town. That's my message. I intend to be ready. I am writing a book as the foundation for what I think is necessary. I hope we will have further discussions here on this point.

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The Iran war has blown a near-£12bn hole in Britain’s public finances, according to FT estimates, forcing chancellor John Healey to lean on Budget tax rises and spending cuts to fund efforts to ease the cost of living.

Higher borrowing costs and rising inflation have probably cut the UK chancellor’s fiscal room for manoeuvre from the £23.6bn forecast by the Office for Budget Responsibility in March to about £12bn, according to the estimates.

The reduction in headroom means Healey could be forced to announce painful tax increases and spending cuts in the Autumn Budget to retain the confidence of the bond markets and pay for measures to ease the cost of living for households.

This is total nonsense. This infographic explains that:

What the FT is faithfully reporting is, then, total drivel. Fiscal headroom is a work of fiction used to enforce austerity to create austerity:

I think that one needs updating!

All of this happens within the context of fiscal rules:

That's another one that looks like it needs revisiting. But the message is clear: we are being told utter nonsense, and the FT happily reproduces it.

Why is the question to ask? Why all of this? What is this mechanism of control all for?

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Every instinct I have tells me that the bond sales that are going on make very little sense because, although there are undoubted concerns about world events and additional government spending resulting from events like Donald Trump’s war on Iran, the AI boom and disrupted supply chains for climate reasons, these narratives are insufficient to explain the continual bond selling that must inevitably involve the recognition of losses that traders must feel uncomfortable with. There must, then, be another reason why this trend is continuing.

Having recently read an FT article, linked below, that suggested all is not what it seems, I decided to investigate this issue further, using AI to assist my search. I found at least three patterns of automated or contractually based reasons for bond markets to enter what is, in effect, a doom-loop spiral of bond sales once sentiment creates an initial shift in perceived value.

Having found this, I decided, quite unusually for me, to ask ChatGPT, on which I did this research, to draft an article on this issue, and I then decided to use it here with minor edits. Before doing so, I tested the hypothesis by repeating searches, and I think the explanations offered are entirely plausible. They are referenced.

In 2022, the UK had a bond crisis after Liz Truss’s government made what were undoubtedly unwise claims about its intentions. What they inadvertently triggered was a structured response from within the UK pension industry that had used government bonds, and the presumption of continuing quantitative easing, to underpin a particular form of funding. Kwasi Kwarteng’s budget, combined with the announcement that the Bank of England would end QE and replace it with quantitative tightening, undermined this funding arrangement, creating a major structural funding shortfall that had to be addressed with a further round of QE.

When I began this approach, I suspected something similar might be happening now. I now suspect this is the case. I am not sure how significant this is, but the FT has noted it, and the trend in US mortgage markets does appear significant.

The consequence is very real. Yet again, it seems that we are being punished by financial markets for their own failings. Even if this is only a partial explanation for what is happening, it is another sign of the considerable stress that supposed financial engineering is creating within our society. Supposedly clever people creating structures with bond instruments for purposes they were not intended to fulfil can produce unexpected outcomes, and in this case that might be an accidentally engineered doom-loop downward spiral in bond prices, which creates the corollary of an upward spiral in supposed government borrowing costs.

I put this forward as a hypothesis worth exploring further, at the very least, given the scale of the issue that we face and the total nonsense that has been talked about it in the mainstream media.

Much of the commentary on the current government bond sell-off rests on a dangerous assumption. It is that investors are selling because they have become pessimistic, and that once their mood improves, the selling will stop. But some of this selling may have very little to do with sentiment. Instead, it may be driven by contractual obligations and automatic risk controls, which means falling prices can create the conditions for further falls.

That distinction matters. An investor who thinks a bond has become cheap might decide to buy it. An investor facing a contractual demand for cash might have to sell it, however cheap they think it has become. The second investor does not necessarily have the freedom to wait for the market to recover.

One mechanism producing this pressure is a margin call. Investors who borrow to finance their holdings, or use derivatives, can be required to provide additional cash or collateral when market prices move against them. If they do not have enough cash available, they have to raise it by selling assets. Government bonds, precisely because they are normally readily saleable, can be among the assets they sell.

The problem is that those sales can push bond prices down further. As prices fall, yields rise. Other investors then suffer losses or face additional collateral demands, and they too may have to sell. The Bank for International Settlements has documented this interaction between leverage, margin calls and forced selling in government bond markets. What begins as a price movement can become a process that feeds on itself.

A related mechanism operates through the repo market, where investors borrow cash against bonds offered as security. If lenders demand additional collateral, increase the protection they require against losses, or decline to renew financing, the borrower may have to reduce its bond holdings. Once again, the sale need not express a view about inflation, government borrowing or the competence of a chancellor. It may simply be necessary to meet the terms on which the investor obtained its finance.

Alongside these contractual pressures are stop-loss instructions and portfolio risk limits. These can require positions to be reduced when losses or measured risks cross specified thresholds. The Bank of England explicitly identifies margin and collateral calls, withdrawals of repo funding, and breaches of stop-loss or risk limits as potential triggers for disorderly selling in the gilt market. This is a recognised vulnerability within the financial system.

There is another mechanism particularly relevant to the United States. When mortgage rates rise, fewer homeowners refinance their mortgages. Investments backed by those mortgages are then expected to remain outstanding for longer, increasing their holders’ exposure to interest-rate changes. Those investors may respond by selling US government bonds, or using derivatives to achieve a similar reduction in exposure.

This is called mortgage convexity hedging. The terminology is obscure, but the consequence is straightforward: rising yields can prompt transactions that push yields higher still. The Financial Times has identified this mechanism as a contributor to the current Treasury market sell-off. It is another reason why selling can continue without every seller making a fresh decision that the economic outlook has deteriorated.

None of this means that every bond sale is forced, or that concerns about inflation and government policy are irrelevant. Nor do we have enough public information to say precisely how much of the current selling each mechanism explains. But it does mean that interpreting every rise in yields as a considered verdict on a government is deeply misleading. Some of what is described as the judgement of the markets may actually be the enforcement of financing contracts and trading rules.

There will still be a buyer for every completed sale. The difficulty is the price at which that buyer is willing to transact. If sellers must obtain cash urgently, while buyers can wait, prices can fall sharply before a trade takes place. The existence of buyers does not prevent the downward spiral.

This is why there is no clear end in sight. That does not mean the selling must continue indefinitely. It means there is no basis for assuming that a change in mood will bring it to an end, because further price falls can themselves generate further obligations to sell.

A financial system organised in this way can amplify the pressures it is supposedly there to manage. The resulting higher yields then become the justification for more expensive mortgages, pressure on public spending and demands for austerity. Ordinary people are asked to bear the consequences of mechanisms over which they have no control. Before treating those consequences as unavoidable economic discipline, we should recognise how much of that discipline may be imposed by the financial system’s own contracts.

I think this is a moment to share my infographic on bonds. They are not meant to be toxic. It appears that in the hands of the wrong people, when used for an inappropriate purpose, they might be:

And this is the infographic on bond markets:

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Given the importance of this topic, it has now been updated to our current style.

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Paris, October 6, 2026

Dear investors,

There is one drawback to getting something for free: eventually, you get used to it.

For nearly 15 years, governments, companies and investors have lived in a world where money seemed almost endlessly available. Governments spent, companies invested, markets assigned value. Why choose when almost everything can be financed?

This era is coming to an end. Money has a price once again, and with it comes a discipline we may have been too quick to forget: the discipline of choice.

This shift is taking place at a time when capital needs have never been greater. The United States must simultaneously finance a staggering public debt and a technological revolution with an extraordinary appetite for investment. Data centres, semiconductors, digital memory, power generation: Augmented Intelligence requires infrastructure on a gargantuan scale. In my last letter, I discussed the upheavals it is set to bring. One question is now becoming more pressing: who will pay for it?

All of us, of course. Savers, investors and taxpayers are the ultimate providers of this capital. Governments and companies therefore find themselves competing for a finite pool of savings. There is nothing particularly new about this in economic terms, except that 15 years of easy money have almost made us forget that capital is scarce.

Europe must be careful not to cast itself as a victim of this new discipline. It needs to finance its defence, its energy independence and its infrastructure – and find the capital to plug its technological gap. After spending years regulating what it no longer knew how to produce, it will have to learn how to invest again. This awakening is welcome, but sovereignty is easier to proclaim than to finance.

How can we escape the formidable debt trap? If it proves lasting, the rise in interest rates – the scale of which we underestimated – would by itself increase interest costs by around 50% by 2030, both in the United States and France. At the same time, assuming budget deficits remain unchanged, public debt would rise from 100% to 110% in the United States and from 119% to 132% in France over the same period. These estimates do not even take into account the increase in pension costs resulting from demographic trends.

Easy money is a powerful anaesthetic. It allows governments to defer painful choices, keeps mediocre companies on life support and sustains the illusion among investors that all assets will eventually appreciate. When capital has a price again, projects must prove their worth and companies their ability to deliver a return on it.

Should this concern us? Scarcer money favours the most promising companies, particularly those harnessing Augmented Intelligence, while crowding out governments suffering from fiscal incontinence. Our role is to ensure you share in the success of companies that do not merely prosper in the world as it is but help shape the world to come. To date, we have backed Mistral, SpaceX, Revolut and Lovable in fundraising rounds ahead of their potential public listings – investing in what we believe could be tomorrow's leaders and, where possible, giving our clients access to some of these opportunities through our funds. Augmented Intelligence, space exploration, new financial services, the software revolution: each, in its own way, is part of the profound transformation of our world.

When money was free, simply owning the market could be enough. When money becomes expensive again, choosing becomes essential. Choosing the companies to which we entrust your capital, with the conviction that they will continue to shape the future.

That should keep us busy.

Best regards,

I read this with interest because there is a fundamental error running through Edouard Carmignac’s argument. Money is not scarce in the way he suggests.

People, skills, energy, raw materials, land and productive capacity are scarce. Money is not. It is created by governments when they spend and by commercial banks when they lend.

That makes the claim that governments and companies must compete for a “finite pool of savings” particularly misleading. Governments that issue their own currencies do not need savers to provide them with the money they spend. Government spending creates new money. Bond issuance subsequently provides savers with an alternative asset in which to hold some of that money. That remains true in France even now. 

The same mistake underpins the question “who will pay?” for AI infrastructure, defence, energy and everything else. The important question is not where the money will come from. Banks can create that for the right commercial proposition. It is where the engineers, electricity, semiconductors, construction capacity, land and other resources will come from. Those really are scarce resources, and choices about their use genuinely have to be made.

In addition, interest rates do not reveal some natural “price of money”. Central banks substantially determine interest rates as a matter of policy. Higher rates consequently redistribute income towards those who own financial wealth and away from borrowers. That is what has been happening. No force of nature has been involved.

But there is something more troubling about this letter than its mistaken economics.

Its timing matters. Across Europe, people are protesting against falling living standards, insecure housing, austerity, inequality and governments that increasingly appear unable or unwilling to meet their needs. In that context, a message saying that what its author describes as "the era of choice" has arrived because money is now scarce is not politically neutral.

The implicit message is that those protesting must accept the discipline of financial markets. Governments, we are told, have been guilty of “fiscal incontinence”. Public spending must therefore be constrained. Governments must compete for supposedly scarce savings. Private investors will decide which activities deserve funding, and the suggestion is that democratic governments must learn to live within the limits that financial markets impose upon them.

There is an implicit threat in that argument. It says, in effect: accept the world that markets have chosen for you because there is no alternative. Those who control capital will decide what can be afforded, what will be invested in and, ultimately, what governments are permitted to do.

That claim should be rejected.

What is most revealing is where Carmignac’s argument ends. He welcomes a world in which supposedly scarce capital flows towards companies such as SpaceX, Revolut and AI businesses while governments are “crowded out”. There is almost a sense of satisfaction in the way that prospect is presented. This, though, is not an economic necessity. It is a political preference dressed up as an unavoidable consequence of scarce money.

There is no economic law saying that resources must flow towards AI data centres rather than social housing, private space companies rather than public transport, or financial technology rather than healthcare. Those are choices about who gets command of society’s real resources and the purposes for which they are used.

And that is precisely why democracy matters.

The real conflict is not between governments and companies competing for a finite quantity of money. It is between competing claims on genuinely scarce resources. The question is whether their allocation should be determined primarily by those who own financial wealth and seek the highest financial return, or by democratic societies deciding what people need if they are to live secure, sustainable and fulfilling lives.

Carmignac appears to have made his choice.

The people protesting in the streets are entitled to make theirs.

And if they disagree, the people should prevail. 

France is experiencing widespread protests involving students, teachers, workers and parents. I argue that their anger reflects something much broader: deteriorating public services, economic insecurity and growing resistance to demands for yet more austerity.

Neoliberalism promised that markets, competition and economic reform would deliver growth, prosperity and greater freedom. Instead, I argue that many people have experienced insecurity while governments continue to prioritise fiscal rules, competitiveness and the demands of financial markets.

The contradiction is becoming increasingly difficult to sustain. Policies that have failed to deliver are being followed by demands for more restraint, more austerity and still greater deference to financial markets.

France’s experience in May 1968 offers an interesting comparison. The government survived those protests, but French society changed. Political systems can therefore be transformed even when the governments confronting protests remain in office.

Today’s conflict is also about democracy. Who should ultimately determine how society’s resources are used: elected governments and their citizens, European institutions, or financial markets?

I argue that neither continued neoliberalism nor the politics of the far right provides an adequate answer to the underlying problems of housing, healthcare, education, investment and economic insecurity.

France may simply be confronting these contradictions before other countries. If people withdraw their consent from an economic system they believe is repeatedly failing them, the neoliberal era could be approaching its end.

This is the audio version:

This is the transcript:

Is neoliberalism beginning to collapse under the weight of its own failures? I believe that is now a question that we need to ask. The warning signs exist. France is subject to mass rioting in more than 40 cities. It is thought that at least a quarter of a million people were involved during one day this week, and students are angry and even burning down their schools.

This is also being seen in Spain, where anger about housing, its shortage and its cost has now brought the government down and will be the subject of the general election that is now about to take place. There is a crisis going on.

War, the AI boom and financial instability are adding to the strain, and increasingly irrational markets are imposing very real social costs as a consequence of the pressure on bond interest rates, which is creating calls for austerity in many countries, including France.

Ordinary people are repeatedly expected to bear these costs, and the question is: have they finally had enough? Are we seeing the end of the neoliberal era, and is it, as might be the case in France, going to depart with a bang?

France may be showing us what happens when people refuse the status quo. Protests over schools and public services have developed into something broader. As I’ve already said, more than 250,000 people are estimated to have demonstrated across France on 6th October. It’s not just students now. Students, teachers, parents, and workers are finding common cause. Their anger reflects pressures found well beyond France. France may simply be where the pressures become visible first, but Spain is close behind.

The fact is, neoliberalism has stopped delivering. It isn’t giving people what they were promised. In France, markets were supposed to deliver growth, prosperity, and freedom. That was the whole Macron promise. But instead, insecurity and deteriorating public provision have persisted. That is what students are protesting about. They haven’t got teachers. They have schools that are falling down. And at the same time, governments are still trying to prioritise the interests of competitiveness, supposedly, and financial markets, above all else.

The paradox is this: failed neoliberal reforms are now being followed by demands for still more restraint on the basis of neoliberal prescriptions. Neoliberalism cannot cure its own failure with yet more neoliberalism. That is the problem that we are facing, and this is what people are realising. There is no route out for neoliberalism from the crisis it has created for itself.

And France demonstrates this contradiction particularly clearly.

Macron pursued tax reform, labour liberalisation, and pension reform. Public spending was constrained while competitiveness was prioritised, and yet growth remains weak, and unemployment is rising. It’s high already and is forecast to go up, whilst deficits and debt remain high despite those reforms, and the EU is weighing down on France and demanding reforms, as are its central banks.

France is consequently being told to impose still more austerity, the very thing that is giving rise to the troubles on its streets. Ordinary people realise that they’re being asked to pay for this economic failure. Schools, healthcare, pensions, and wages are the next round of restraint. And public services will continue to deteriorate if financial markets get the reassurance that they demand.

Fiscal rules are being treated as if they are unavoidable economic facts when they are simply made up by politicians, and democratic choices are being increasingly constrained by those supposed rules, and France is showing what happens when people are rejecting the neoliberal bargain.

And global instability is making this political conflict very much more dangerous. Trump’s Gulf War is creating profound economic uncertainty. The AI boom is driving extraordinary financial speculation. Bond and stock markets increasingly appear detached from economic reality, and yet the consequences are beginning to reach jobs, incomes and public services, and financial instability has therefore become a political problem.

People cannot afford to continue with the world the way that it is, and 1968 offers us a warning in that sense. I can just remember the riots in Paris in 1968. I was 10, but I was already an avid reader of newspapers. And in that summer, May 1968, the students in Paris rioted. They’d had enough. They were fed up. They were fed up with the oppressive social order of De Gaulle’s France. And students were joined in that year by workers, and millions eventually stopped work.

Now, I’ve got to be honest, De Gaulle survived the riots. He won the subsequent election, but French society was permanently changed. The fact was, there had to be an accommodation with the demands of those people who were on the streets, and that accommodation happened. Political orders can end even when governments survive. And that is the point I’m making here.

This time, the challenge is to neoliberalism rather than to De Gaulle’s conservatism. But in essence, the two are very similar. Financial markets and the hierarchy of power that are behind them represented both those causes. And at this moment, Macron is saying that financial markets should have the final word over the direction in which France should be travelling, and he is resorting to the request that government deficits should be cut. Public need is then to be subordinated to financial credibility, and the claim is, as always, that there is no alternative.

But the people on the streets of Paris and of so many other French cities are already saying they simply no longer believe that.

At the same time, they’re also saying they do not believe the far-right in France. We all know that Marine Le Pen is back in the presidential race in France for next year, and she is proposing massive cuts to the French government budget: €140 billion is what she says she will cut out of that budget.

She’ll be blaming immigrants. She’ll be blaming Brussels. She’ll be blaming public sector workers. She will be imposing cuts. But at the same time, France actually needs investment, housing, healthcare, and education. And the austerity that she would supply would be the same austerity that neoliberal markets and the EU would demand. It would be impossible to tell the difference. But the reality is that coercion cannot provide a lasting substitute for economic legitimacy. But that is what she’s claiming she can do. She will fail.

And the real issue is: who ultimately decides how society’s resources are used? Is elected government going to do so? Are people going to be allowed to choose them? Will European institutions impose their opinion, or are bond markets ultimately allowed to determine policy?

France’s lack of monetary sovereignty only makes this confrontation harder. It does, of course, have the Euro. It is not in the position that the UK is for the pound. This is therefore a struggle over democracy as well as economics. Control of institutions is what matters, and France does not know the answer to this question, and its people want to know that they will have a say.

France may then be ahead of everyone else in confronting this breakdown. I think it is. But it looks like Spain is very little behind. And similar tensions are now being seen across Europe, the G7, the G20, and OECD economies.

People have endured decades of promises that markets will eventually deliver. Their economic security and their public services have too often deteriorated instead, and political consent cannot be assumed indefinitely for a system that is so obviously failing.

France’s willingness to protest, and they’ve always had that willingness to protest; let’s be clear about that: the French go on the streets at the slightest provocation, but their willingness to protest now, in the numbers that are being seen, which are at record levels, maybe since 1968, may simply expose the problem sooner.

An era may be ending because neoliberalism can no longer meet people’s needs. France in 1968 showed that supposedly permanent orders can become negotiable, and people who eventually withdraw consent from systems that repeatedly fail them can create the process of change to replace them.

Neither the neoliberal centre nor the far-right has an adequate answer to any of the problems that France now faces. And if people refuse to accept the existing settlement, something will have to give. France may be showing us that the end of neoliberalism is nigh. That is what will have to give. The era when we are told that the market’s rule may be coming to an end.

That’s what I think. What do you think? There is, of course, a poll down below. This is a contentious issue. I’m aware of that. I do, however, believe quite strongly in the position I’ve stated. If you like that, please do like this video. Please do share it. Please do subscribe to the channel. Hit that bell button. You’ll be told when we make new videos. And if you’d like to support our work bringing ideas like this in front of you, then please do buy us a coffee. There’s a link down below.

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