Funding gaps and black holes

Asking the STW economic and political experts.

So we have funding gap, and a bit of a black hole as well.
https://www.theguardian.com/world/2024/oct/17/first-edition-22bn-black-hole-explained

But surely the real black hole, is the over £2.7 trillion nation debt.
https://www.bbc.co.uk/news/business-50504151
Over £3 trillion according to the national debt clock.

Are ‘we’ simply printing money into existence?
Surely that’s going to ‘break’ at some point.
Either it devalues till it’s nothing, or we can’t service the interest payments, or a combination of both.

A black hole walks into a bar and orders a drink.

The bartender asks if it would like food with that.

The black hole says, “No thanks, I’m a light eater.”

Yes I know, I don’t understand the gravity of the situation.

This has been done on a couple of threads already.

I don’t blame you for wanting to start another as none of it made sense on the other ones.

I predict this will quickly become an MMT thread. No bad thing, as I’d kinda like to understand the theory better…

MMT spend money that is your because, well, it’s your own currency. Hope that all the people you deal with don’t make things much more expensive for you because you’ll never run out of money because it’s your own currency.
This is what I don’t understand about the whole MMT thing. If you are funding your own infrastructure builds through “printing money” why won’t people just charge more for stuff? What stops inflation going through the roof?

If you are funding your own infrastructure builds through “printing money” why won’t people just charge more for stuff? What stops inflation going through the roof?

Maybe that’s one of the reasons we don’t do MMT?

If you are funding your own infrastructure builds through “printing money” why won’t people just charge more for stuff? What stops inflation going through the roof?

Maybe that’s one of the reasons we don’t do MMT?

And other countries who don’t do MMT at the same time have a more valuable and expensive to us currency, so making importing or trading a more expensive thing to do.

Maybe that’s one of the reasons we don’t do MMT?

We do. Despite it’s name mmt is not simply a theory, it describes how money works in an economy with its own fiat currency.

If you are funding your own infrastructure builds through “printing money” why won’t people just charge more for stuff? What stops inflation going through the roof?

Nothing, other than your competitor who also wants the job will undercut your inflated prices.

MMT as a model just describes how things work, it’s not a political philosophy.  MMT doesn’t say you can print unlimited money in the real world, it just describes what happens if you either do or don’t.  In simple terms the government and central bank have to balance inflation somehow, either they print free money for themselves, which pushes up inflation and interest rates.  Or they try and restrict their own spending, which tends to push down inflation and interest rates.

So in that sense MMT describes:

The Cameron  and Osborne austerity era (low spending, low interest rates).  If you’re a cynical lefty then their mates benefited most form tax cuts, and their mates companies benefited most from cheap loans to invest.  The rest of us benefited very little from tax cuts/freezes, and low interest rates just drove house price inflation so no one saw a benefit.

The Covid into Truss era (high spending, followed by low tax resulting in high interest rates)

You can’t have a free lunch.

You can also consider how it relates to other economic models and / or  philosophies.  Keynes’ philosophy describes how you could use MMT to prop up an economy through a recession, because a recession (or a bubble) isn’t the market finding an optimal solution therefore an intervention has a positive impact not a negative one.  The same way governments should tax more in a bubble.  Or Marxxism which focuses on the economic capital of the worker.  MMT and Marx agree that money is a made up construct and the real value is elsewhere, so don’t think of things in fixed monetary terms, a house isn’t £200,000, it’s 5x man-years of labour, the supply of money is supply of labour is what dictates what the value of  5 years labour actually is represented by financially.

It’s why the whole “government debit card” analogy does still work, they don’t have to balance the books, but if for example in a bubble they opted not to raise taxes and pay down the debt (even if you don’t believe in paying it down from a political philosophy standpoint) then your alternative is to watch inflation and interest rates rise which also hurts people.  It’s just a question of who you choose to hurt and what the subsequent impact is.

It’s all a pyramid scheme.

Just get out before it collapses.

Yeh, so I read the general gist is the governments/ banks fettle the economy to their own needs.  They don’t really apply an economic theory per se, but will spill out that rhetoric.
I have a feeling it’s a house of cards.

Interesting, nobody hasn’t mention Austrian economics based on sound money principles.

Interesting, nobody hasn’t mention Austrian economics based on sound money principles.

“Austrian Economics” is just Thatcherism (or rather, Thatcher was just adopting the Austrian model 200 years later).

Always important to start by remembering that about a third of the national debt is owed to the UK government.

waveydavey
Free Member
Asking the STW economic and political experts.

There are no political or economic experts on here, only opinions.

Hence the perma-wars on the political threads. 🙂

What’s the point of increasing funding for this and that, when the supply is constrained anyway?

Like, if we fund lots of new housebuilding or new hospitals, that just means we’re outspending the builders’ would-be customers who wanted an extension built.

With anything it’s not like there’s a ton of suitable people equipment and materials sitting around that are just unlocked by spending money. Or even the facilities to train or produce them. Even if you have untrained people it just means you’re pushing them towards one thing instead of what they might have done instead, like we might make more builders but now there’s a shortage of mechanics.

A black hole walks into a bar and orders a drink.

The bartender asks if it would like food with that.

The black hole says, “No thanks, I’m a light eater.”

Yes I know, I don’t understand the gravity of the situation.

This isn’t just a joke, it’s also an analogy for how things work – except the horse with the long face is missing.

Why the long paws?

“Austrian Economics” is just Thatcherism (or rather, Thatcher was just adopting the Austrian model 200 years later).

Thatcher may have been a proponent of Austrian Economics, and at least knew that printing money is not good (in the long term).
But did the Pound get backed by gold, or other form of sound money?

No, so again economics being fettled by politics.

There are no political or economic experts on here, only opinions.

Hence the perma-wars on the political threads. 🙂

lol, yeh, opinions are good.

What’s the point of increasing funding for this and that, when the supply is constrained anyway?

How is it constrained? (no debt ceiling, and if there is, it just gets raised)
Politicians and banks print what they need. They will give you the rhetoric you need to hear.

When did we start trusting politicians and bankers?

other form of sound money

There is no such thing as sound money. Money is merely numbers in a spreadsheet, and like Tinkerbell, it will work as long as people believe in it. If people stop believing, everything comes crashing down.

What’s the point of increasing funding for this and that, when the supply is constrained anyway

As Stephanie Kelton, one of the leading lights of MMT, points out there are other deficits that are much more important than the numbers in a spreadsheet, such as employment, education, health care, and housing.

lol, yeh, opinions are good.

I agree but by God, opinion masquerading as fact leads to all the temporary closing of threads whilst they are cleaned up by the mods and the personal nature of the arguments on the political threads. It’s the underlying issue on many of the threads most sane members fear to post in.

I’m no expert, that’s just my opinion! 😀

What’s the point of increasing funding for this and that, when the supply is constrained anyway?

Like, if we fund lots of new housebuilding or new hospitals, that just means we’re outspending the builders’ would-be customers who wanted an extension built.

Lots of people building extensions has limited impact beyond a housing bubble, building hospitals has much wider economic benefit from all the high quality jobs, the better health of the population letting them work etc

There is no such thing as sound money.

cough.. what is sound money

Money is merely numbers in a spreadsheet

Try persuading Tesco to let you have your shopping by showing them the numbers on your spreadsheet. This is the problem with trying to limit a definition of money. It is simultaneously numbers created in a computer, and a commodity who’s value is partly driven by its scarcity and worth.

But surely the real black hole, is the over £2.7 trillion nation debt.

Debt in this instance is both a measure of the size of our economy and the money we owe ourselves. In reality some of it is money we expect our children and grand children to pay instead of us. Try not to feel bad, they’ll do the same in turn.

ernielynch Full Member
Despite it’s name mmt is not simply a theory, it describes how money works in an economy with its own fiat currency.

The way it is often presented here (or at least my impression of that) is that MMT has two parts – the model of how an economy works, but also an accompanying  “therefore the government should manage the economy in this way…” which usually involves more government spending via increased national debt/printing of money or similar.

It feels like there is less disagreement here about the model side of MMT than the policy conclusions some people draw from it.

 “therefore the government should manage the economy in this way…”

MMT has been tried. By Sri Lanka. Google it and you’ll get any number of commentaries about why it didn’t work – and an equal number about why it wasn’t really MMT. One thing that can’t be denied though is that one of the founding elements of MMT theory is that it won’t drive inflation, that it did precisely that – quite disastrously in the Sri Lankan experience should give anyone sane pause for thought.

The thing is, MMT is probably a good policy to have in your back pocket, that it gained in popularity after the COVID driven economic crash is not co-incidence. The things that its proponents [on here especially] often miss though is the need for full employment policies, and that includes the govt becoming the employer of last resort to ensure that happens.

It feels like there is less disagreement here about the model side of MMT than the policy conclusions some people draw from it.

The problem appears to be that many people still struggle to accept that running a nation’s economy is not like running a household budget.

Comparing a nation’s economy with a household budget is one of Margaret Thatcher’s most successful and enduring legacies. She repeated it at every given opportunity until it became an accepted mantra which no one dared to challenge.

It was used with enormous success in 2010 by the Tories and LibDems to justify austerity, and it was very widely accepted by voters. Today this mindset is still being used to justify regressive economic policies which maintain the status quo and block any meaningful change.

That is why imo it is important to relentlessly attack the false thatcherite narrative. There is still a considerable way to go before the myths behind budgetary deficits are laid to rest.

The last time austerity was sold to the British people it achieved nothing at all, other than it kept the Tories in power for 14 years.

cough.. what is sound money

You’ll have to do better than a thinly veiled sales operation for dodgy crypto schemes, with a side order of right wing politics.

 one of the founding elements of MMT theory is that it won’t drive inflation

Kelton points out that creating money absolutely will drive inflation if it causes excess demand in the areas of the other deficits – so if you have a skills shortage, making more money to spend on things that need those skills will be inflationary, or if you have a housing shortage… So the first priority for the money you create must be to address those other deficits. Sadly, this is not something that can happen overnight, but addressing the deficits in education, skills, housing, public transport could be done in ways that are not inflationary and will make everyone’s lives better, apart from those who profit from those deficits.

Comparing a nation’s economy with a household budget is one of Margaret Thatcher’s most successful and enduring legacies.

Try the pre-war Baldwin Government in the 1930’s. It’s first mentioned is this little book that was published by the govt to justify the actions of the National Government (mainly a depression, appeasement and a general strike, but that’s for a different thread, probably)

But did the Pound get backed by gold, or other form of sound money?

No, so again economics being fettled by politics.

You are aware of what the problems with the gold standard are I assume?

If the UK still had this you know you’d be a lot poorer than you are know are (unless you have a lot of old money) as when you constrain money this way in an economy you end up with horrible wealth inequality. No growth, unless you go and capture a rival ship carrying the stuff,,,,,

The people pushing sound money always assume they’ll be the ones getting it when the reality is they almost certainly wouldn’t.

The last time austerity was sold to the British people it achieved nothing at all, other than it kept the Tories in power for 14 years.

Well it had a strong negative impact on the economy as it helped perpetuate low productivity by killing possible infrastructure investment when it was cheap to make it, pushing it down the road to when it has become a lot more expensive

You’ll have to do better than a thinly veiled sales operation for dodgy crypto schemes, with a side order of right wing politics.

Read this, it’s more on economics and politics than anything else.
The Bitcoin Standard

You are aware of what the problems with the gold standard are I assume?

If the UK still had this you know you’d be a lot poorer than you are know are (unless you have a lot of old money) as when you constrain money this way in an economy you end up with horrible wealth inequality. No growth, unless you go and capture a rival ship carrying the stuff,,,,,

The people pushing sound money always assume they’ll be the ones getting it when the reality is they almost certainly wouldn’t.

Yes, so paper money was once backed by an asset, in fact that is why a pound was called a pound, it was transferable with a pound of silver.
Thus no need to raid a ship.
How much has the Fiat pound worth now in terms of silver?

Also to note, there was the Bretton Woods where a gold standard was imposed on the Dollar to give economic stability post war. 1971, Nixon un-pegged the Dollar, now worth 95% of what it was.

yes, there are. Commodity currencies still exist the Canadian and New Zealand dollar spring to mind. Their economies are much much smaller than ours though, and they bring their own (pretty obvious) downsides. including environmental issues – oil production for the Norwegian Krone and Canadian dollar for instance.

Try the pre-war Baldwin Government in the 1930’s.

There was never any suggestion that Thatcher was the first and only person to falsely compare a nation’s economy with a household budget.

What made Thatcher unique was that it was absolutely central to her mission to abandon the postwar social democratic consensus and embrace instead neoliberalism.

As I previously pointed out she used that false narrative at every given opportunity until it was deeply embedded into the voting public minds. She heavily exploited the fact that she was allegedly a housewife from a humble background to drive home this “sensible housewife who understands how to budget” persona.

It sounded so logical and was even more convincing when New Labour also embraced this false premise and created the new political consensus. The LibDems were late to the party and it had to wait for Charles Kennedy’s tragic death before they too could jump on the neoliberal bandwagon under Nick Clegg’s disastrous leadership.

Commodity currencies still exist the Canadian and New Zealand dollar spring to mind

Are they?

https://en.wikipedia.org/wiki/Canadian_dollar

https://en.wikipedia.org/wiki/New_Zealand_dollar

Notwegian kroner isn’t tied to the price of oil either a la gold standard.  Just because you fill a tank of petrol doesn’t mean there’s less kroner in the system.

Which commodities control the amount of New Zealand and Canada?

Read this, it’s more on economics and politics than anything else.
The Bitcoin Standard

Bitcoin is just the same as any other currency, apart from the inherent scarcity. It is still just something that only has value if people believe it has value. It has no inherent worth at all. It is also parasitic, consuming vast amounts of resources paid for in other currencies just in order to exist.

How is it constrained? (no debt ceiling, and if there is, it just gets raised)

I wasn’t referring to the supply of money. Read the rest of my post.