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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
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
I'm sorry this it mostly incorrect though I appreciate the effort to discuss rather dismiss MMT.
The UK government never borrows to spend.
They always issue currency when they spend - it's a matter of technical record that they do.
Always. Every single time.
The borrowing which is not borrowing in the sense of the word as such - which is issuing bonds never pays for anything - it acts to match the spending that has taken place, if a deficit should occur.
It is a throwback back to gold standard financing and has been kept in place because it's an anachronism which helps with interest rates and reserve drains.
The government doesn't need to borrow what it issues.
Yet again - a link to the only peer review paper conducted into central bank and government financing.
https://twitter.com/spatchcockable/status/1817605543596302395?t=fZUnSeaBE5R1AJmb7TOdVw&s=19
Summary:
This paper provides the first detailed institutional analysis of the UK Government’s expenditure, revenue collection and debt issuance processes. We show that public expenditure is always financed through money creation rather than taxation or debt issuance. Spending involves the government drawing on a sovereign line of credit from a core legal and accounting structure known as the Consolidated Fund. The Bank of England then debits the Consolidated Fund's account at the Bank and credits other government accounts held at the Bank; a practice mandated in law. This creates new public deposits which are used to settle spending by government departments into the economy via the commercial banking sector. Only the UK parliament can mandate expenditures from the Consolidated Fund. Revenue collection, including taxation, involves the reverse process, crediting the Consolidated Fund’s account at the Bank, thereby offsetting past injections. Similarly, gilts have been issued to temporarily withdraw money to assist in achieving the monetary policy interest rate target. Under the current conditions of excess reserve liquidity, however, the function of debt issuance is best understood as a way of providing safe assets and a reliable source of collateral to the non-bank private sector. The findings support neo-Chartalist accounts of the workings of sovereign currency-issuing nations and provide additional institutional detail regarding the apex of the monetary hierarchy in the UK case.
A Labour guy (think a past one) on LBC just said the government would be fine if it didn't need to borrow £££ from the foreign financial markets.
Good Christ. Seriously. He doesn't appear to know it has its own line of credit and Bank.
No wonder the public don't get it.
We shouldn't be arguing much at all these days about government spending mechanisms as you'd be ignoring all the money created during COVID.
The bond issuance that they matched to COVID spending was effectively netted with Q/E.
So no borrowing or taxation took place from the private sector.
(The spending that took place in Covid follows the exact same mechanism for day to day spending even if the scale was huge.)
Seems to me most folk are ignoring the evidence because they're not actually comfortable with what they're being told.
Think of it like this: Reeves is now taking money out of the economy with the WFA farce and simultaneously wanting growth.
The government needs to add money to the economy to get growth not taken it away.
It's really not complex at this level.
The complex bit is politically what things require the spending. The normal debates we have.
Reeves is now taking money out of the economy with the WFA farce
Is she?
She's decided not to spend it on that, in order to spend it on something else. You say she's taking out, she's just not opting to put any more in. Correct me if I'm wrong, while we supposedly run a 'household model' they are actually putting in more than they get back already - it's just you want them to put more in?
She’s decided not to spend it on that, in order to spend it on something else.
She's spending it on a black hole isn't she?
We don't know, they're in the process of working out what the must-do things are (YMMV) and how much they cost, and how to pay for them - or if not affordable, what can they do instead that may be more cost effective. At the moment there's a difference in spending plans left by the outgoing admin, and what they think we can afford to spend, emotively called a black hole to make the point.
Literally what I hope they'd be doing after 59 days now, rather than just chucking money at whatever the media says is most important.
rather than just chucking money at whatever the media says is most important.
Isn't that the whole point of an election manifesto?
Otherwise the alternative is "just vote for us and after we have won the election we'll tell you what we are going to do".
It all sounds arse-about-face to me. And not very democratic.
theotherjonv - what they should be doing is twofold - protecting the poorest with significant benefit improvement and spending money on infrastructure - both will prime the economy for growth. doing what they are doing is going to cut growth and cause further issues
the economy is crying out for a stimulous.
The UK postwar housing boom wasn’t financed by the United States.
The US loaned the UK nearly $4 billion dollars to keep the economy afloat in 1946/7. The Canadians also chipped in another $1.5 billion, and this was on top of Lend Lease throughout the wartime period.
what they should be doing is twofold – protecting the poorest with significant benefit improvement and spending money on infrastructure
And they may do. We haven't had the SR yet (which might be a 1 year interim one while they really sort out priorities with a larger one to follow next year). I know eg: 2CBC, but there's a taskforce looking at the bigger picture that may recommend reinstating, or may have a better / more cost effective idea. It's day 59.....
Isn’t that the whole point of an election manifesto?
In which they had a set of costed priorities rather than specific line by line activities. Costed by laying out where they thought there were savings and where they felt they would spend more.
And even then - it was costed on assumption of an existing financial position that now they've seen the books properly isn't the case. The stuff that is committed to can't be paid for (except by printing more money, I get it, but Reeves doesn't want to stretch that at this point).
Why are we being so critical of a Gov that is currently evaluating where they are and working out how to deal with it. Jeez, I even get the point now of 'they don't need to, just print more money and accept it' - but just for a minute live with the fact that whether YOU think the approach being taken is right or wrong, it's the approach being taken and they are doing it carefully and diligently.
There all in rich donors pockets.
Which "rich donors" want to increase taxes on the better off and increase the salaries of key public sector workers after a long period of their pay being held back?
Anyway... single word Ofsted grading being scrapped now...
https://www.theguardian.com/education/article/2024/sep/02/ofsted-single-word-school-ratings-scrapped
The US loaned the UK nearly $4 billion dollars to keep the economy afloat in 1946/7. The Canadians also chipped in another $1.5 billion, and this was on top of Lend Lease throughout the wartime period.
Yes I am aware of US loans to the UK. I repeat that the UK postwar housing boom wasn’t financed by the United States. I have already pointed out that house building is largely self-financing through rents and mortgages and the fact that it hugely stimulates an economy.
A housing building boom makes perfect economic sense when a country is broke as the UK was postwar. In fact any large construction programme does. They help to "keep the economy afloat"
Where have this government said they aren't planning an increase in home building? They have said that's exactly what they're planning, and the suspicion is that it is precisely because it is now possible without much in the way of increased gov spending (as you say) that they back this for growth stimulus.
I thought the weird little argument about the post war situation is the idea that the UK gov just waved its hands and massive investment occurred and negative effects were avoided by the power of issuing our own currency... when it happened precisely because we were supported by the USA in terms of both funding (new lending, huge discounts and extended terms) and through direct action to protect our currency. It's not an example of MMT and the power of the UK to do whatever it wants, it's an example of how international politics and cooperation can be absolutely key to national renewal.
Where have the government said they aren’t planning an increase in home building?
As far as I am aware no one has claimed that they aren't planning to increase house building. In fact I understand that they the government intends to liberalise planning rules precisely to encourage this.
The reference to the massive postwar housing boom was in relation to the question of where does money come from to do stuff.
Well, in that situation we were bailed out (and our currency protected) by the USA, so we could build homes, produce (non-war) things again and keep eating and heating. Just issuing more money without that help would not have allowed us to rebuild. Brits would have stayed starving in tents. The vision and work of the post war government should not be underestimated, and we should learn from it, but it shouldn't be allowed to feed another "Britain stands alone" myth/narrative.
EDIT: taxation played a big part as well... tax the rich... even if they're retired...
Have they? council housing or housing association or just encouraging builders to build more?
I certainly have seen no announcements from them about this. Got any links?
I’m sorry this it mostly incorrect though I appreciate the effort to discuss rather dismiss MMT.
The UK government never borrows to spend.
They always issue currency when they spend – it’s a matter of technical record that they do.
Always. Every single time.
I disagree. if you issue a bond (which is a way of borrowing some money), and then spend the exact same amount of money, you have not issued currency. Nothing has been created, nothing has been destroyed. Someone (an investor) has lent you the money you are spending.
Always. Every single time.
just because you have the ability to issue currency (which I agree the BoE has), does not mean that they do it.
Yet again – a link to the only peer review paper conducted into central bank and government financing.
clearly factually incorrect statements like that just degrade any chance MMTers have of winning people over. Peer review also doesn't make something true - I can't find any of the actual review of that paper to see if their peers agree, but given the number of established economists who believe in MMT is extremely low, it seems unlikely.
In the mean time, here's some other peer reviewed papers about how central bank and government financing work
https://ideas.repec.org/a/mes/jeciss/v55y2021i1p225-245.html
So no government built housing there Kelvin. Just private builders. This is NOT what is needed
I’d go for a large publicly owned building plan as well, but that’s not how Labour said they plan to speed up building. More than one way to get on with it though.
but it shouldn’t be allowed to feed another “Britain stands alone” myth/narrative.
Well that's an interesting development....... providing a counterargument to an argument which literally no one has made.
This was the counter argument :
Just issuing more money without that help [ from USA in term of funds, extended loans, discounts and currency protection ] would not have allowed us to rebuild.
I’d go for a large publicly owned building plan as well, but that’s not how Labour said they plan to speed up building
Well yes thats the problem. The method they are proposing is basically the same as the tories.
Removal of planning regulations because its well known that the only thing stopping the housing companies building lots of affordable houses vs the more profitable mcmansions is planning regulations.
Well that’s an interesting development……. providing a counterargument to an argument which literally no one has made.
The subtext of MMT is that you don't have to worry about the wider international community. Just create more money and it'll sort itself out in the wash. Increase taxes once you're at 100% employment. Easy.
It is quite possibly is that way for the US but the British Pound is not the global reserve currency.
Liz Truss's budget probably wouldn't have caused much in the way of problems had she been Speaker of the House (or much in the way of short term problems at least). But she wasn't, she was PM of the UK.
It's worth reading Stephanie Kelton's comments on Truss' budget. It really makes me think there might be someone out there more unhinged than Truss. Or perhaps not, and it's just that Kelton's theories quickly fall apart once she goes beyond the US border.
You can get shovels in the ground on more sites without granting permissions for more “McMansions” and/or removing the requirements for genuinely affordable housing (as the Tories did). The details of the NPPF will be crucial (and I’m not ready to dismiss it before the consultation period has even completed).
would not have allowed us to rebuild.
Rebuild? What on earth are you talking about? Are you now suggesting that what was destroyed during WW2 would have remained unbuilt if it hadn't been for the United States?
Your gratitude to the Americans is touching. Should we also thank them for funding our socialist healthcare system?
We should thank them for the support and financial shelter they gave us yes, or at least acknowledge it rather than try and rewrite history to make a point about the UK currency that doesn’t apply to that period (even if it might today, but even that is debatable… hence this debate keeps occurring in every politics thread we have).
You can get shovels in the ground on more sites without granting permissions for more “McMansions”
Well yes but the rather crucial detail is there is no real motivation for the builders to do so.
Why would a company risk its market by building lots of cheap affordable housing? They will make less money and also have to mark down their landbanks. Not exactly good business sense is it?
rather than try and rewrite history to make a point
Which is exactly what you have tried to do. Postwar US loans to the UK were not the reason for the massive house building programme, there had been massive house building programmes in the 1930s despite all the financial woes of that time and no "US loans".
The postwar US loan was to mitigate the lack of UK exports due to the economy being geared for total war, not global trade. It was earmarked to maintain British imperial presence globally.
Ok so let's build more McMansions or rather more realistically relatively small 3 bedroom family homes with a bed sized cupboard. Surely if they are selling it means smaller more affordable housing is freed up? A terrace may not be asappealing as newbuild starter homes but they are pretty good first homes.
Why would a company risk its market by building lots of cheap affordable housing? They will make less money and also have to mark down their landbanks. Not exactly good business sense is it?
A company will build lots of cheap affordable homes because it makes them money. Cheap affordable homes can, unsurprisingly, be cheap and quick to build. And cramming a lot of cheap housing onto a not very large plot can be more lucrative than building just one large mansion on the same plot.*
The issue imo is exploiting a chronic shortage and overcharging for the finished product so that it becomes unaffordable for many.
Anyway that's straying further OT and I am sure that there are surveyors on STW who can give a better critique than that, but maybe not on this thread.
Edit: * Think.....1 plot = 4 bed detached house v 4 one bed flats
Correct - and that does not pump money into the economy like council house building does. We desperately need affordable secure rentals in this country which are best provided by governments
it doesn't really matter what size house you build, its the quantity of homes which is important. Obviously you can build fewer 4 bed detatched houses per acre than you can 2 bed terraces (and fewer still compared to low-rise apartment blocks), but pure land supply isn't particularly limited in this country (land you can build on currently is).
Regardless of what the goverment do, there simply aren't enough skilled trades in the country to build significantly faster than we currently are, so the danger is the same problem that's hitting the free nursery placements - not enough reasonably priced labour to staff the need. That pushes prices up, which in turn makes everything less affordable.