MegaSack DRAW - This year's winner is user - rgwb
We will be in touch
Which bits don’t you get? I’ll do my best or answer “don’t know”/”nobody who’s being honest knows”.
What would happen if the UK government created enough money to buy all existing UK government bonds and then went ahead and bought them all?
As far as I can tell, according to MMT, this would have no effect as it's merely an asset swap.
Also, why, according to many MMTers, is the Euro a bad idea while the US dollar is fine. Why wouldn't individual States be better off creating their own currencies and central banks?
Or the UK? Why shouldn’t the four nations, or even each county, have its own central bank and currency?
Earlier on this thread someone claimed that Liz Truss didn't listen to economists and suggested "look what happened".
You can always find an economist to agree with whatever political proposition.
In the case of Liz Truss there were at least seven "leading" economists who backed her unfunded tax cuts:
The seven economists, led by Dr Graham Gudgin from the Centre for Business Research at Cambridge University, said tax cuts were necessary because they were putting “unbearable strain” on family finances.
Other signatories on the letter include Graeme Leach, chief economist at Macronomics; Dr Gerard Lyons, senior fellow at Policy Exchange; and independent economist Julian Jessop.
The rest comprise Douglas McWilliams, executive deputy chairman at the Centre for Economic and Business Research; senior private economic forecaster Harry Western; and Shanker Singham, academic fellow at the Institute of Economic Affairs.
See also 'so long as there are enough resources'
What resources, exactly?
Edit: in response to Jon's last post
In the case of Liz Truss there were at least seven “leading” economists who backed her unfunded tax cuts:
And 4 of them (that I know of) are tufton st knobs, blow the building up, and its contents
My questions are up thread. I still haven't had answers I can get my head fully round on resources, do we really have the resources to do all the things we want to, we rely on external so printing money to export it in exchange for the goods we need, what does that do? Ed had a plan to overcome that but it's generation type timing.
People seem to have avoided the point about whether the balanced budget is automatically bad, or whether it works but has just been done badly / abused.
And re running a deficit, I guess the difference in my head is minimising it and using it like a last resort necessity in times of need (post war, covid, etc) vs using it as the norm. So yes, maybe most economies run a deficit because they have to, that's not the same as not being bothered about it because MMT/we can correct later by taxation if needed.
What did I read - the parts that are true are not new, the parts that are new are not true?
Oh dear, i wish i hadn't been at the wind up on MMT, it's turned into a full blown argument!
For my piece, as stated a few times, i think MMT is a great theory, but i just can't see it working in isolation in one western country, it opens up too many risks, it's not the system, or the actual processes behind it, it's the world markets, competing countries, personal interests and so on that could potentially cause more influence on our economy if we used MMT, think i said last time it's a bit like communism, it's great in practice, but then when you start using it with people, then the flaws of those people will corrupt it.
Likewise, I didn't expect this and was desperately pissed off yesterday. The question was 'How do people (in fact a perjorative 'the dreamers') think it's going; I gave an honest answer and then the same 'but MMT' broke out, plus some personal attacks / practically calling me a Mitty.
I think I'm a bit more aware what it means, I still don't get why if it's that great it isn't widely used to its full extent (not as necessity in times of crisis) or quite how it works mechanistically when we are resource constrained and relay on imported labour and materials, but that's in an earlier post.
And the final point, Reeves clearly is not an exponent of MMT, so constantly posting to say 'if we had MMT' is unhelpful. The relevant comment is on how well they are managing the policy that they are using.
Earlier on this thread someone claimed that Liz Truss didn’t listen to economists and suggested “look what happened”
She ignored the "Office for Budget Responsibility (which) was created in 2010 to provide independent and authoritative analysis of the UK’s public finances." https://obr.uk/faqs/#what-is-the-obr
The problem is that it doesn't have any power and doesn't set policy
Not only that, but she challenged the "orthodoxy" of HM Treasury and the BoE, two more long-standing checks and balances https://www.reuters.com/world/uk/taking-orthodoxy-britains-new-pm-truss-wants-act-fast-2022-09-05/
As Ernie says, she took advice from another group and the rest is history...
Picking you main concern which seems to be not having a balanced budget, theotherjonv:
The balanced budget is bad because it leads to stagnation and ultimately recession and then depression. It restricts the size of the economy to what is possible with the amount of money already circulating. An economy needs more and more money in circulation as it grows because money can only be cycled within the economy so fast and when there's a shortage growth stops.
This is exacerbated by "withdrawals" in the economic sense. Some money ends up in places it's not working, it's withdrawn and these withdrawals slow the economy unless conpensated by "printing" more.
If more money is needed the government can do that very easily by "printing" and spending, more fuel for the economy.
There are limits, if a government prints too much money and/or spends it unwisely then inflation rises which negatively impacts buisiness. It also erodes confidence in the currency which results in devaluation making imports more expensive but exports potentially attractive - unless the increased Wages/prices due to inflation compensate for the exchange rate changes which means the impact is more or less cancelled it's just the numbers that change.
A lot of this can't be managed precisely because it's ultimately the markets that decide. Sometimes they brush off what seem like damaging moves and sometimes they bite. The US has staggering amounts of debt and isn't adverse to monetary easing, it's still afloat and Dollar denominated assetts highly popular.
The Liz Truss situation was far far more complex than we have been led to believe.
It definitely wasn't as simple as she wanted to do tax cuts and then economy crashed (it didn't really crash as such - in fact the pound recovered rather quickly.) Interest rates were already several months into increases too.
The 'unfunded' media jubilee description became legend quickly and is from the same school as Reeves' black-hole. Economic nonsense but carried a lot of weight with house-hold analogy.
None of this means Lizz Truss was doing something good, of course not. But the story in the media was missing lots of info.
In fact the BoE published a paper explaining there part in the process just recently. Taking some blame for the situation. That's a matter of record but published only recently.
I've covered it before with some links from the BoE a few weeks ago.
Other news - Lucy Powell says ...
The economy could have crashed had the government not found savings by cutting winter fuel payments for pensioners, a minister has said
This is just total nursery school economics logic.
This current batch of Labour MPs are ridiculous economically speaking.
https://twitter.com/RichardJMurphy/status/1830310652931440904?t=8Olw_7VfVt69qD_-eBivew&s=19
There was absolutely no need for this farce. Total out of control stupidity.
The balanced budget is bad because it leads to stagnation and ultimately recession and then depression.
Because, or if?
Is it possible to run a balanced budget and not lead to stagnation? Matching more money to growth, but still in balance?
Now you've changed what you mean by balanced budget, you're learning. 😉
You still need to take into account withdrawals so will have to print more than theoretically needed just to match growth. And then you need to print a bit more to be sure you aren't under supplying. That's why the inflation target is never 0%. I would argue 2 is a bit too low and leads to flirting with recession.
“Office for Budget Responsibility (which) was created in 2010 to provide independent and authoritative analysis of the UK’s public finances
I agree with your point with regards to Liz Truss but I feel it is stretching it a bit to describe the OBR as being independent.
The OBR was set up by George Osborne specifically to make the case for austerity and balanced budget, the clue is in the daft name. It was an important part of the whole austerity/clearing the deficit narrative.
The economists appointed by the Chancellor of the Exchequer at the OBR understood their brief and knew what was/is expected from them.
Which goes back to my point........ decide what you want to achieve and then find an economist who will back you up.
Also, why, according to many MMTers, is the Euro a bad idea while the US dollar is fine. Why wouldn’t individual States be better off creating their own currencies and central banks
Because individual countries cannot control their spending by giving up their sovereignty in the case of the euro.
States in the USA aren't individual countries.
The dollar is particularly stable and powerful. I don't see how it would make any sense. Particularly when it needs central government finances to fund the massive military bill. Some things are centralised and some aren't.
Besides it's in the constitution.
Don't forget MMT models as it is. We're just staying that governments don't optimise that process and they misrepresent it.
The question (and its obvious answers) gets to the heart of why the limits on what can be done with the US dollar are different to the limits of what can be done with GB Sterling, or could be done with any of the smaller currencies Europe has done away with.
Because, or if?
Is it possible to run a balanced budget and not lead to stagnation? Matching more money to growth, but still in balance?
No. Check the evidence .
The USA has run two surpluses in the last 50 years. Resulting in a depression then a recession following Clinton's.
It's impossible to balance a budget and expect substantial growth because you don't leave money for the private sector to spend.
A government sector deficit matches the private sectors surplus.
If you reverse that - the private sector holds the deficit. A deficit in the private sector is will lead to negative GDP.
Which is exactly what Labour believe will lead to growth.
It's the exact opposite of reality.
competing countries, personal interests and so on that could potentially cause more influence on our economy if we used MMT, think i said last time it’s a bit like communism
This is preposterous.
And inaccurate.
For the umpteenth time the USA, Canada, New Zealand, UK and Japan all currently operate government spending that works according to MMTs description.
That is - the central bank funds spending but bond sales and taxation do not.
We don't 'use' MMT. It is the system in place already.
Why does this take so much explaining?
What is not accurate is what Labour are currently saying.
Just look to the pandemic - the Tories managed to spend 400bn without taxation. It wasn't even mentioned.
It was a political choice.
If MMT wasn't accurate they would not have been able to do that because they would have been waiting for 400bn to come in from tax on a shut down economy!
And Labour can't deal with budget adjustment of 22bn?
It's terrible terrible economic thinking and makes the Tories look competent.
(Although let's not forget hunt claiming he'd found some extra money a few months back. More bollocks.)
If MMT wasn’t accurate they would not have been able to do that because they would have been waiting for 400bn to come in from tax on a shut down economy!
I accept it can be used in necessity, it's whether it's sensible as a choice and what defines necessary.
After many decades of wealth transfer from public sector added to simply no real investment in the UK from both a public and private sector perspective.... its going to be very difficult to fix this within the boundaries of market expectations. The market has been in charge of the UK economy since Thatcher. The British public is easily swayed with a few quid (council house sales, Gas shares)
In short we are not in control of our destiny, that ship sailed long ago.
Why does this take so much explaining?
Because you never explain it properly?
The government can make any surplus available through lending which at the time in the US was through Freddy and Fanny
I don't know what you mean by this.
Not running a government surplus creates a deficit in the private sector.
All US surpluses:
1817-1821 depression 1819
1823-1836 depression 1837
1852-1857 depression 1857
1867-1873 depression 1873
1880-1893 depression 1893
1920-1930 depression 1929
1998-2001 recession 2001 Followed by the Great Recession.
Starmer seems to be taking a very blunt approach
1. Pensioners fuel allowance = no one is safe from tax takes, benefit cuts.
2. Riot = you go to prison = no matter who you are
3. Online racism = go to prison = wind you neck in.
4. Tory black hole = we have a shit show to sort
6. Strike settlement = you owe us.
1817-1821 depression 1819
1823-1836 depression 1837
1852-1857 depression 1857
1867-1873 depression 1873
1880-1893 depression 1893
>100 years ago when the economic system was very different
1920-1930 depression 1929
1998-2001 recession 2001 Followed by the Great Recession
Both caused by Stock Market bubbles
And we are due another one, when the crypto bubble pops
Because you never explain it properly?
Maybe but I've tried my best and pointed to lots of papers, research and books.
My guess is some people just don't like the idea and prefer the story they've been told so keep misrepresenting it.
I get that. I was the same when i started studying it 6/7 years ago.
However there's a big body of work out there including a feature documentary just released. If you're interested it doesn't take long to figure it all out.
I do my best within the confines of a forum and am personally fascinated by the subject and appalled by current economic understanding - and politically Labour are going nowhere without making better choices.
I'd suggest to watch Finding the Money or reading Stephanie Kelton's book if you want it from the horses mouth.
Correlation doesn't always equate to cause and effect, Rone.
>100 years ago when the economic system was very different.
The underlying description of taxation not funding spending is centuries old.
Both caused by Stock Market bubbles
Stock Market bubbles are consequence of something else - in themselves they only reflect underlying economic conditions or expectations.
Downturns follow surpluses. Because of less money in the private sector as the government has taken too much back via taxation.
It ain't complicated at that level.
Why do you think the USA has boomed over the last few years - because of massive fiscal expansion.
Spending.
Interest income.
Government money.
Fiscal flows being +
Against an earlier allegation that the reason economists continue to push (I'm not sure what the 'old' theory is, I've seen it called Neoliberalism but maybe that's a derogatory term) what they push because it keeps them in work, I've also seen comment that the major proponents of MMT all seem to have a Youtube channel and/or a book to sell, is that unfair?
Correlation doesn’t always equate to cause and effect, Rone.
Non-government sector surplus accurately matches a negative government deficit.
If your reverse that - create a government surplus then you are draining money from the private sector.
What do you think happens when money is taken out of the private sector than the government puts in?
It won't always produce a recession but it definitely won't create an upturn.
That is what Labour are saying that if you get the books in the balance then the economy will grow.
That's a technical impossibility.
Maths.
You're mixing up cause and effect.
Why do you think you need to run at a deficit after a recession?
Tax incomes reduce as the economy shrinks, and welfare costs go up because people need support due to job losses.
proponents of MMT all seem to have a Youtube channel and/or a book to sell, is that unfair?
Lol. Maybe that's because all the majority media business platforms push the hell out of Neolibralism. Same in all walks of life.
In what way is that comparable to Professor putting a modestly priced book out there?
Warren Mosler makes all his papers for free. He's the originator of MMT.
Remember orthodox get the big guns. Everyone else has to struggle for the debate.
Stephanie Kelton and Warren Mosler don't have monitised platforms as far as I know.
Besides Mosler made his money on hedge funds.
Not all MMTers are from the left.
Stephanie Kelton and Warren Mosler don’t have monitised platforms as far as I know.
You just told me to read her book!
Why do you think you need to run at a deficit after a recession?
Tax incomes reduce as the economy shrinks, and welfare costs go up because people need support due to job losse
Absolutely .
The government always picks up the tab and is the lender of last resort.
We don't run a deficit after recessions explicitly - we run them nearly all the time! There have only been 5 surpluses in the UK in the last 50 years.
Deficits are normal.
What Labour are saying is the opposite.
That we should have more austerity because the last version of austerity didn't work out.
It's toss.
It will fail.
I'll ignore the 19C examples because there was th egold standard and I agree with Chew, conditons were different.
Because of less money in the private sector as the government has taken too much back via taxation.
In the case of Clinton it was done hand in hand with Greenspan at the Fed. Greenspan, a prudent monetarist could have dropped rates in anticipation. Greenspan had a habit of making self-fulfilling prophecies because he was the one directing where things went. If you really think the economy is slowing you drop interest rates rather telling people the economy is going to slow.
Even if a government runs a surplus the central bank can make money available to the private sector at attractive interest rates thus stimulating growth and avoiding recession. The limit was tested in Germany with negative interest rates and a surplus, check out the pre-Covid period in Germany.
Several countries have in the past or currently run a budget surplus without any dire economic consequences. However that doesn't mean that other countries should try to imitate. They probably wouldn't have the oil reserves, tech boom, industrial might, social injustice or whatever has made that surplus possible.
In Germany I found it shocking that the government was running a surplus while a part of the population was working mini jobs below the minimum wage and living in abject poverty. A surplus at the expense of social injustice.
Against an earlier allegation that the reason economists continue to push (I’m not sure what the ‘old’ theory is, I’ve seen it called Neoliberalism but maybe that’s a derogatory term) what they push because it keeps them in work
Obviously someone has to provide them with personal money otherwise simple economics dictates that they will be unable to pay their bills, but a lot are undoubtedly politically motivated.
I don't know why you are generalising and claiming that economists continue to push neoliberalism btw, some do and some don't.
The idea that all economists agree on fundamental issues is strange. Milton Friedman won the Nobel Prize for economics in 1976, 32 years later Paul Krugman won it. How much do you think the two have in common?
I quite like your healthy sceticism and cynicism with regard to economists, Ernie. 🙂
And sorry, Rone I have no more desire to read some of those authors than Ron Hubbard. 😉
Good work all, a politics thread I hesitated to join but have quite enjoyed, night night. 🙂
Deficits are normal.
Accepted; but is there a difference between small, controlled deficits or just brakes off who cares, we'll just print more money deficits.
I still think, as I've said before, that there is a possibility of mix; there's a spending desire, the receipts to fund it, and then a deficit that can be covered by borrowing, The Gov is reviewing 1 and 2, deciding where they can reduce / delay (1), increase (2) and then if that's out of balance and there's still stuff that needs funding that can't wait then a decision will have to be made on borrowing as a last resort.
I don’t know why you are generalising and claiming that economists continue to push neoliberalism btw, some do and some don’t.
I'm not trying to (generalise) - IANAE and probably mixing up my schools and policies. I've studied more economics today than ever before. What I mean to say is that you said the reason 'Non-MMTers' continue to push their theories is because it keeps them in pay (or now you added because politics) and I only said it as a precursor to the counterclaim that anyone proposing MMT is doing it on the back of something they're selling. And counter to the "a lot are undoubtedly politically motivated" I've also seen MMTers called 'political activists masquerading as economists'. I suspect that's unfair, but it does seem to me there's a few creating the theories and then a substantial number of political acolytes. Here included.
Milton Friedman won the Nobel Prize for economics in 1976, 32 years later Paul Krugman won it. How much do you think the two have in common?
I have no idea, it's not my area of expertise, but you seem to know a lot, why don't you tell me? Are you an economist BTW, how do i know if you are reliable or just a bloke on an MTB forum?
Since the 80's the UK has become a less equal society, with the gap between the poor and rich widening. Where did all of the money handed out in the pandemic go?
It all flowed from the Government to the rich.
The taxation system needs to be overhauled to recover that money, by overhauling the "wealth" taxes, such as Council Tax, Capital Gains and Inheritance. All of which will be unpopular and may not achieve any additional tax in this parliament.
and then if that’s out of balance and there’s still stuff that needs funding that can’t wait then a decision will have to be made on borrowing as a last resort.
Or printing rather than borrowing. Both have consequences. If you borrow (issue bonds) and there isn't much market appetite for them then the effective interest rates determined by how the sale goes will be higher. Higher perhaps than is healthy for the economy. If you just print the money you are diluting your currency which sends a negative signal to the markets and the central bank will probably raise rates to prop up the currency which will be as bad - but at least there's nothing to pay back.
In fact most governments that have their own currency and need money do both.
called ‘political activists masquerading as economists’. I suspect that’s unfair
Do you honestly believe there is any difference between the two? Politics is the application of economic choices.
have no idea, it’s not my area of expertise, but you seem to know a lot, why don’t you tell me? Are you an economist BTW, how do i know if you are reliable or just a bloke on an MTB forum?
Jeezus no, I am a carpenter, my only area of expertise is in how to swing a hammer. And yeah I'm just a geezer on a MTB forum, don't trust anything that I say!
I only post on STW to help sort things out in my head, I don't expect to convince anyone, just myself maybe.
On the question of what Milton Friedman and Paul Krugman have in common, not a great deal beyond both being Nobel Peace Prize winners. In simple terms Milton Friedman was very right-wing and Paul Krugman is rather left-wing. Obviously it's a bit more complicated than that but for the purpose of this discussion that's the point I was making.
I have no idea, it’s not my area of expertise, but you seem to know a lot, why don’t you tell me? Are you an economist BTW, how do i know if you are reliable or just a bloke on an MTB forum?
It doesn’t really matter. I could show you evidence of my qualifications as an economist (whatever that would be to satisfy you) but it has no bearing on my opinion as others have said because my opinion would be different than someone else with exact same qualifications. As this is the 22bn thread the only question that needs an answer is what do you really need to do about it ranging from nothing at all to cutting all sorts of things.
What would actually happen if you took the do nothing at all option and why is that so bad?
Very good article from well respected neutral observer in today’s Times.
I wasn't talking to you, that was at Ernie who I have been discussing stuff with offline as well.
It's not the 22bn thread, it's the How's the Government doing thread; it's only the 22bn thread because for some people the answer to everything seems to be 'but MMT'. I tried to answer the wider question 2 days ago and IME it's doing well, with a calm and level headed approach that gives confidence.
What would actually happen if you took the do nothing at all option and why is that so bad?
IDKIANAE. But we've been trying to discuss to find out. With your qualified insight (most if not all of us here are armchair enthusiasts, I think), there's a number of unanswered questions back in the past couple of pages, maybe have a read back and have a go at them instead of starting it all off again.
Apologies wrong thread, but does illustrate the blurring of the two, as you note. Wasn’t aimed at anyone or any point of view, just trying to inject some independent facts/opinion.
Assuming the MMT is an accurate description of how things work, why do we think the current government have things so wrong? Has the Chancellor been indoctrinated into the false dichotomy through her education?
Surely once you get into the top spot for anyblength of time, you will see for yourself how things work?
Has the Chancellor been indoctrinated into the false dichotomy through her education?
Yeah I blame her education. Rachel Reeves read philosophy, politics, and economics, at Oxford, exactly the same as the last two Tory prime ministers - Rishi Sunak and Liz Truss.
Sounds like the far right have made more progress in Germany.
German politics over the past parliament should hold a warning for the UK, a supposed left wing government, implementing austerity and cuts hasn't appeased the right, it just emboldens them, it has created the environment for them to gain further ground.
About the only thing that macro-economists from every stripe will agree on is that excess money creation leads to hyperinflation.
But what if you could do it secretly? Without anyone else in the world system realising? Or if they did - managing to convince them that your currency could still buy their currency at the current rate because it's all fine because we're giving our people a nice time.
It's worth actually reading Kelton's book. I notice that this discussion hasn't even touched on what I took to be the important message from it, where she writes about the deficits that actually matter, unlike the fiscal one. These are deficits in things like health, education, infrastructure. If these things are deficient, then yes, 'printing money' is more likely to end in inflation, because the economy cannot use the money that is printed. But if you use the money to fix those deficits, then you are likely to have a sustainable positive effect.
It’s not the 22bn thread, it’s the How’s the Government doing thread
Whoops, good point! In my defence the 22bn should have been part of this thread anyway as it is clearly a UK government thing 🙂
Surely once you get into the top spot for any length of time, you will see for yourself how things work?
Loads of people know how things work but again it is what choices you make and why which are important. If a different chancellor was in place with the same challenges their choices would no doubt be different. No real right or wrong, just different opinions and approaches to how you think it should be.
About the only thing that macro-economists from every stripe will agree on is that excess money creation leads to hyperinflation.
And that you need to pump money in to the economy to produce growth? By my understanding Keynes would have us putting money into our moribund economy now. the main difference with MMT is when you switch the spending off
But if you use the money to fix those deficits, then you are likely to have a sustainable positive effect.
I've tried to - at least in my mind - but haven't yet had an answer I can really get my head around properly.
Bring it to a bit what-iffery, but help me understand.
We have a deficit in healthcare / crumbling hospitals. We decide we need to build 40 new hospitals. We can afford it, we'll just create the money to pay for it as MMT says we should.
For that we're going to need umpteen tonnes of steel, concrete, etc., and the labour to build them. None of which we have in abundance at the moment, to do it in any reasonable timescale it'll all be imports.
How does that work? We're suddenly the richest country on the planet, comparatively speaking because we can afford whatever it takes. What does it do to pricing, to the value of our currency, etc. if we suddenly open the wallet and say to China and India to take what they want? Does the £ retain value when the rest of the world knows we'll just print more if we run out? Does pricing just go up again and again?
Ed gave a kind of answer as to how we need to fix further upstream (although that's generational, not a 5 year plan). And I guess some of the same problems arise if we say we're funding from household style finance too, except it's no longer open season and there's a limit to what we can afford.
We have a deficit in healthcare / crumbling hospitals. We decide we need to build 40 new hospitals. We can afford it, we’ll just create the money to pay for it as MMT says we should.
What return are you getting for that investment?
Are UK companies involved in the building - would think so
Are UK employees involved in the building - would think so
Once built is the health of the UK improved (faster time back to health, lower waiting lists etc,.) - would think so
Is it actually worth doing - god knows
For that we’re going to need umpteen tonnes of steel, concrete, etc., and the labour to build them. None of which we have in abundance at the moment, to do it in any reasonable timescale it’ll all be imports.
Exactly! You've just discovered yet another deficit that needs to be addressed before you can really open the money taps. And another reason why running down all of your local industry is a pretty bad idea - it only leads to a downward spiral.
IMO we have plenty of capacity. Huge demand that is suppressed by a lack of money. there is no need to continue austerity and cutting services - it will contract the economy. we need infrastructure
Are UK companies involved in the building – would think so
Maybe the name on the door but as noted, most of the materials won't be.
Are UK employees involved in the building – would think so
Maybe in the management but the people actually building them? You can't get a builder for love nor money.
Once built is the health of the UK improved (faster time back to health, lower waiting lists etc,.) – would think so
Yep. But we want that now, not in a generation after we've rebuilt the infrastructure that enables us to do it ourselves. As OWG notes, it would be great if we hadn't lost that ability but we have and we need the benefits now, so that's the hand we have not the hand we want.
What return are you getting for that investment? Is it actually worth doing – god knows
Does it matter, it's an investment of paper money, we need the hospitals so we can afford it?
What does MMT do to a country's finances overall if we're just creating money to satisfy an absolute need but one we are reliant on others, who will be paid by UK money, to deliver.
But we want that now, not in a generation after we’ve rebuilt the infrastructure that enables us to do it ourselves
You can't have it now. Building 40 hospitals (and then staffing them when built) is clearly a long term thing so the return in regards to a healthier nation is a long time off.
That may be the main return if most of the money is going out of the country to get it.
How does that work? We’re suddenly the richest country on the planet, comparatively speaking because we can afford whatever it takes.
How do you think the post-war housing boom which peaked at 300,000 homes a year was paid for?
During that period the country was totally skint due to WW2. It was also the time when the UK decided to create the first totally free and universal healthcare system in the Western world.
Were these social-democratic governments concerned about "black holes" in the economy? And what was the effect of all this spending on the economy - boom or bust?
But you're missing or avoiding the question. If we just create money that goes out of the country to other nations, and they know we have limitless supply to pay for the things we've decided we need, what does that do to the country's currency and finances overall.
How do you think the post-war housing boom which peaked at 300,000 homes a year was paid for?
During that period the country was totally skint due to WW2. It was also the time when the UK decided to create the first totally free and universal healthcare system in the Western world.
By creating money. But money that largely stayed in our economy (although noted, once we'd decided on setting up an NHS and the other infrastructures we 'raided' the commonwealth to staff it)
I'm not arguing any more about whether we can or can't technically create the money, I'm asking what happens to the country's finances when we do it and have to send it all overseas for materials and labour.
How do you think the post-war housing boom which peaked at 300,000 homes a year was paid for?
Lending/money support from the USA? Huge amounts of it. It was very much a UK government building program, and could only have been done by the state then, but it was not done without international support. This is a very different time though. Very much worth reading up on Keynes & Bevan etc, and their work absolutely should inform what happens now... but now is not then, not least in terms of support/exposure from the USA/dollar.
Assuming the MMT is an accurate description of how things work, why do we think the current government have things so wrong?
Back in the day, money was tied to a physical resource, so people got used to the concept of having a finite amount to spend. That ended a long time ago, but the thing is that Tories want small government - this is not a secret, it's what they've always wanted. Small government means less spending, less regulation and more freedom to do whatever you want and make lots of money for yourself. The key point is the little people intuitively understand the 'not enough money to do the things' line, so Tories lean on this to discredit the large government approach. Our lack of economic and political education in the UK means that people swallow it whole. Therefore, any Labour government can't just turn on the taps because Tories will just go 'ooh, tax and spend, 1970s, Labour are irresponsible' and this will stick. They have to do it on the sly.
Which is what the Tories did anyway - they claimed we needed to stop spending because there was no money (austerity) then they spent shitloads anyway. How did we do that if there wasn't any money George? I think that Labour could do better with the message - it's not like people don't also intrinsically understand the concept of borrowing to invest. Most of us borrow a massive amount of money to buy a house, knowing that it will one day become an asset and pay us back several fold. Or we might borrow to start a business. That's what this is like.
Lending/money support from the USA?
The UK postwar housing boom wasn't financed by the United States. In fact it is indeed worth pointing out that 300,000 homes a year were being built at a time when the UK had huge debts including to the US.
Tim Harford has some thought-provoking analysis (as ever) on inequality. The short story is that it isn't actually getting worse, at least according to the standard measures.
Whether the standard measures are missing something, or it's just a popular talking point by the "something must be done" crowd is perhaps open to debate. None of us can actually experience the overall situation in the UK even if many of us see things looking bad on a local level, so people will always be swayed by anecdote.
As for deficits, even acknowledging that a modest deficit is healthy and appropriate would be a huge step forward for both the main parties who continue to blether about "balancing the books". Thatcher's analogy of a household budget has done so much damage to political culture in the UK over the past few decades, it's possibly the worst aspect of her legacy, more so even than the damage to heavy industry (which TBH was going to happen sooner or later anyway, she might have made it worse but wasn't the fundamental cause).
It must be noted that unlimited "opening the wallet" leads to inflation, precisely because the amount of goods is finite. To what extent this is a real risk for a given budget is a complex and uncertain question that sophisticated economic analysis may have some insights into and usually isn't amenable to a trite sound-bite answer.
It's notable that the huge quantitative easing around the 2008 global financial crisis, and the more recent huge spend through covid, did not have major inflationary impact. The former was certainly an eye-opener to me at the time, I was frankly not best pleased at the time as I was expecting responsible savers (ie me!) to suffer significantly when govts bailed out the banks around the world, but it didn't really happen that way, at least not much.
the thing is that Tories want small government – this is not a secret, it’s what they’ve always wanted.
It's what the Tories have always wanted for the last 45 years. The yet as unmatched post-war council house building programme was under a Tory government.
The irony is that despite convincing many people that she was committed to small government public spending increased massively under Thatcher.
In fact it is indeed worth pointing out that 300,000 homes a year were being built at a time when the UK had huge debts including to the US.
Well exactly, the post war rebuilding was only possible because of that lending, and the terms of it. Such an endeavour required the USA to play nicely with its dollar. This is always my worry when people propose that MMT means that what happens abroad, at the instigation of foreign governments and markets, is unimportant... that we can do anything we want without huge negative effects because we have our own currency... [ I'm not saying MMT says this, it doesn't, but some put on MMT blinkers that seem to allow them ignore the rest of the world when talking about the limitations and decisions involved for the UK ]
The massive monetary stimulus in 2008 didn’t result in inflation in terms of RPI because it was designed to stave off a catastrophic debt deflation - in other words it propped up the price of monetary assets rather than leading them higher. And as the calamity passed and financial players realised there was next to no jeopardy in holding financial assets because central banks would bail them out they did what has happened for ever, they started to bid up financial assets. With low inflation in goods and services, low interest rates and central bank underpin, the outlet became asset price inflation.
But you’re missing or avoiding the question. If we just create money that goes out of the country to other nations, and they know we have limitless supply to pay for the things we’ve decided we need, what does that do to the country’s currency and finances overall.
Even under MMT there are limits - so you can create money and use it for useful things up to a point when the country has surplus capacity. Its where that point is that the differing theories disagree. Go beyond the economies capacity to absorb the extra money you get inflation - thats my simplistic understanding
Thanks all for the inputs; I think I understand a bit better and apologies for getting (IMO justifiably) p'ed off at some over the weekend. I still stand by my understanding that you can't just 'MMT' everything and fix things, but I've been moved a bit more in understanding why a bit of fresh money/borrowing/deficit (still not sure which is which but I think I understand enough now conceptually) to address some issues is at least an option. I therefore don't know why Reeves is instead sticking to whatever the opposite policy to MMT is, but assume there are reasons - and in the meantime from where I sit I'm relatively impressed with how they are approaching the doing of it, and suspect the outcomes are going to be better than the pessimists think. SKS's recent pronouncements on 'pain to come' do worry, me, no denying, but easier to row back from the worst perceived outcomes than go the other way.
How do you think the post-war housing boom which peaked at 300,000 homes a year was paid for?
theres a mix of massively taxing the rich (inheritance tax peaked at something like 85%), huge gains in productivity and borrowing money. We were in the bretton woods system and didn't devalue our currency between 1950 and the end of 1967 - no money was "created" in the MMT way of thinking
We did run massive deficits – far larger as a % of GDP than now
a deficit is fundimentally different from issuing money to pay for things. A deficit is simply spending more than you collect in tax - thats pretty common amongst most modern countries. That shortfall can be met in two ways
1. borrowing more (extremely common)
2. issuing curency
MMT suggests leaning on #2 more heavily and frequently than has happened in the past (in this country it only really happened post-2008 crisis and during covid, under the banner "monetary easing"). The consiquences of this are argued about and not fully understood (by anyone) as its never really been practiced in the long term.
Well exactly, the post war rebuilding was only possible because of that lending, and the terms of it. Such an endeavour required the USA to play nicely with its dollar.
I am not sure that is entirely true. Postwar UK house building was pretty much based on the rented public sector (hence Harold Macmillan being described as "the council house builder") This is self financing in that if 200,000 homes are completed one year then the following year 200,000 rents are coming in. Construction materials and labour in house building are nowhere near as much as some might expect, the steady flow of rent would have an enormous impact on the following year's building programme.
The postwar economic boom also provided surplus income which found its way into building societies, plus mortgage terms were liberalised to encourage borrowing.
Giving the construction industry a huge boost is probably the most effective to way to stimulate an economy. It wasn't so much a case of whether the UK could afford its massive postwar homebuilding but whether it could afford not to. Beyond the actual construction of a home the consumer goods and services associated with a new home are massive.
IIRC the post war economy was boosted by a huge drive in exporting manufactured goods but NOT by borrowing