Why does this “we’ve maxed out the credit card” narrative persist?

If MMT worked then someone, somewhere would actually be doing it. After all, the business of governments is to stay in power & what government wouldn’t want to have a happy, prosperous electorate who would reward you for  wise economic policies every 4/5 years at the ballot box.  Just think. The government could spend what it likes and it wouldn’t matter as there are apparently no downsides. Why do you think this hasn’t happened somewhere in the world?

The government could spend what it likes and it wouldn’t matter as there are apparently no downsides.

It seems to be that the only argument that is ever used on here against MMT is this one. And it’s bollocks, because MMT doesn’t say that there are no downsides. Can you come up with something else?

So what are the downsides? Is this why no government is following an MMT based economy?

My understanding – and its very superficial is that MMT is Keynes on Steroids.  the main difference is how much money you can create and pump into the economy before you start devaluing your currency and creating inflation.  Also when you pay back created debt

It’s because it’s a simple, appealing lie that suits some politicians very well.

That’s it, that’s the entire reason, but the thread’ll be able to run for pages anyway. No matter what you think about inflation, about MMT, about anything else, the version peddled by politicians is a lie and doesn’t fit any of the possible competing models anyone might bring to the table.

Are any of the contributors to this thread economists – with something beyond a first degree – or financiers?

That background would provide a degree of credibility to the various posts.

Without that academic rigour, the posts are all…meh

That background would provide a degree of credibility to the various posts.

Without that academic rigour, the posts are all…meh

Not really.  Understanding economics is one thing, opinions on what should be done in an economy is another which as TJ says, there are a lot of different opinions based on different biases.  Nobody is right until they can be proved right and until that point all forecasts and choices pushed are pretty much even.

Also, MMT is not something we choose to do or implement, it describes how the economies work currently.

And neither of these things answer the OP.  For that answer, look to who that narrative benefits (clue – it is not the ‘working people’)

That may well be but the companies involved will be offshored for tax reasons and owned by foreign entities, the UK manufacturing base has been gradually sold off since the mid 80’s.

Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims. I’ve quite often seen these claims and counter claims but never really seen an honest assessment with evidence.

*predictably, the first two google results are 1) it’s in decline 2) we’ve jumped from 9th to 8th…

The government could spend what it likes and it wouldn’t matter as there are apparently no downsides.

That is not what MMT implies, there has to be a tangible thing produced by the spend to generate the money-go-round.

The economic falacies we’re subjected to are the peaceful version of 1984’s constant war. Not spending the money is a political choice and should be pointed out loudly every time it happens.

So what are the downsides?

The capacity of the economy to usefully use it.

It’s because it’s a simple, appealing lie that suits some politicians very well.

When it first started to be used, it wasn’t. But its a simple way of saying a very complex arrangement of money creation, demand, resources management, mandatory (budgeted departmental spending)  and capital spending (shit that happens) It’s a lie, obviously, but in many ways its also true. You can only spend to the capacity of the economy to absorb it.

[Money]s not scarce when you can print it, which is rather the point of the thread.

You have unwittingly hit the nail on the head there. You just need to go back and understand what “scarcity” in an economic sense means and how it generally has an inverse relationship to value.

And then you’ll see how printing an infinite amount of money reduces its value (ie inflation). In fact, this statement ceases to be true in high inflation economies – either economic actors insist on being paid in kind or in other currencies, or they simply withhold their labour/goods/services:

[fiat currency] has agency in the economy because businesses, workers and banks accept it as currency.

Meanwhile:

in the UK, we don’t have a lot of natural resources that give us stability in the long run either.

If Scotland were independent it could nationalise its immense oil, gas and water wealth and develop a reserve currency.

Are any of the contributors to this thread economists – with something beyond a first degree – or financiers? That background would provide a degree of credibility to the various posts. Without that academic rigour, the posts are all…meh

Two things: welcome to forums. Second, unless everyone signs their real name to things and allows their qualifications to be verified, there’s nothing to stop anyone claiming to be anything so “credentialising” is a bit pointless.

Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims.

Perhaps not data but a nice real time illustration: Port Talbot steel works?

A major industrial resource, first privatised and then sold to foreign investors who subsequently keep threatening closures and job losses in order to get what amount to government negotiated subsidies for them to continue to run it into the ground.

Keynes which is as close to accepted widely as anything this is not true.  You can pump money in to stimulate growth so long as there is space in the economy to do so.  Its only after a certain point that inflation will become an issue.

Yes, true, although I would suggest rephrasing slightly that Keynesian Demand Management stimulates demand. Whether KDM results in growth or inflation depends on whether there is excess capacity in the economy (so that supply increases), how sustained the initiative is (a single overnight dump won’t help), and how much money goes outside the domestic economy (where a big chunk of US stimulus money went on consumer crap from Temu).

The UK currently has a 50 year low in unemployment but also relatively low inflation. In a mixed economy like the UK, that’s not a classic illness for which Keynesian economics is the cure. If the government was going to do anything, it should probably be long term infrastructure investment of the type the private sector can’t or won’t do – like HS2 or Northern Powerhouse or massive regeneration projects over 20 years.

https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemployment/timeseries/mgsx/lms

https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/l55o/mm23

Is this why no government is following an MMT based economy?

MMT=/= just printing money. It’s a model that explains how most western mixed economies work currently.

Are any of the contributors to this thread economists

I certainly am not.  those posts of mine have completely exhausted my economic knowledge 🙂

It’s a model that explains how most western mixed economies work currently.

Is this not opinion rather than fact?

I have an Economics ‘A’ Level, most of which I’ve forgotten. 🙂 But it did teach me that highly complex systems such as modern economies often do not respond in an orderly way to simple solutions.

It’s because it’s a simple, appealing lie that suits some politicians very well.

This.

But so is any way of describing government finances that can and will be digested by more than 1% of the population. Any simple description has to leave so much out as to be “wrong” or a “lie”… including anything you learned at A level economics and much of any degree level course.

The risk with exponents of MMT as a path to the government spending far more and quickly is that they dismiss so much themselves. Their descriptions are far more detailed than the “lie” of using home or business finances as an analogy, but still rely on leaving out so much else as regards how the economy and the state function as regards to essential outside influences and suppliers, and internal demographics and production.

This:

MMT=/= just printing money. It’s a model that explains how most western mixed economies work currently.

My understanding is that MMT is not a method that can be tried out to see if it works, it’s merely a description of what is already happening. That it doesn’t fit the household budget analogy very well is nothing to do with the efficacy or accuracy of the description MMT provides, it’s more that the analogy is just incorrect; the economy is difficult to understand and politicians have chosen a way to explain things that they think people will be able to relate to and consequently understand, that it’s inaccurate doesn’t matter because our misunderstanding is actually quite useful.

For the Cameron/Clegg coalition the household budget analogy provided a useful tool to justify austerity measures and lack of public service spending. As far as I can gather, this was political choice; it was not that the country had run out of money. They simply chose to spend the money elsewhere for their political priorities, but at the expense of public services (which were clearly not their priority).

In its simplest terms, the whole Tax pays for spending is false. The government borrows money every day, which is then put into the economy. Tax merely removes that money from the economy. So, it could argued that the household bank account analogy works to a certain degree (i.e. money out & money in), but it’s just too simplistic.

The problem is, I’m already bored typing this so getting the public at large to switch on to it and then understand it is impossible. So, what happens is… the household budget analogy ?‍♂️.

I think a fundamental problem is that when people are told that the government will never run out of money to spend, most people are outraged and just cannot believe it. That’s usually when the conversation collapses because a description of the checks and balances is complicated. It’s easier to just accept the analogy then move on.

If MMT worked then someone, somewhere would actually be doing it.

Believers in the theory will say the US and other countries are doing it

Why does this “we’ve maxed out the credit card” narrative persist?

imo it’s because the government of the day are happy to allude to it to indicate the level of their appetite especially wrt borrowing – but the problem is that without a better analogy it is a gross simplification of the complexities of the system – especially wrt to growth

…which is compounded by the general public then running with the analogy and simplifying it to spending money vs making money as per a credit card which dumbs it down to the point where it’s misleading.

Like every complex system that’s dumbed down for newspaper and clickbait headlines the main reason it’s not challenged is that to challenge it you need to understand it properly which results in threads like these every so often – and the general public find them tedious and won’t buy a paper on the back of the discussion.

So in the end it’s not in the interests of the newspapers and media to challenge it, in fact it’s in their interests to run with it and mislead and make people feel something by reading the headline (worry/panic etc) enough for them to buy the paper and read the nonsense in the article/thread

And here we are! 🙂

IMO the problem with MMT is that it requires really detailed analysis for what inflationary pressures might arise from particular spending plans, and identify ways to reduce those.  Economists (and therefore governments) aren’t very good at that because economics isn’t a science.

It is,far less of a lie than believing that a countries economy is lkke that of a household, or small shop, especially when you print your own currency.

A lot of countries do it a little bit, on and off.  You can make very strong argument that when the UK gov applied austerity in a time of near zero interest races you had to be really stupid not to really push for a lot of growth and reinvestment, via painting money – austerity was applied purely as a point of dogma. Long term investment in infrastructure ( yes Inc HS2) would have put the UK in a far stranger position than  it is.

Downside is inflation of course

Printing more money is always seen as a last resort in a developed economy. Doing so causes inflation to rise, which in turn usually grows the inequality between the rich and the poor

Nonsense.

Government issues money every time it spends. It’s not a last resort.

There is this idea that somehow printing money is special or unique. It’s part of the process of regular spending. Happens every day.

Issuing money alone can’t cause inflation because you could issue money and the put it in a savings account etc.  It depends on what happens to it.

I urge the majority of people to just watch the recent film ‘Finding the Money’ for a round trip.  It’s just been released but has yet to have a UK date specifically. But you can get to see it.

If MMT worked then someone, somewhere would actually be doing it.

Ahem. UK, USA, JAPAN, NEW ZEALAND, CANADA etc all do it. Have done for several decades.

Trouble is with MMT is people haven’t taken the time to know what it’s about before launching a criticism.

Technically MMT is set of descriptions or lens that describes Government spending in a fiat system.

It doesn’t automatically say ‘let’s spend money’ all the time with no consequences.

The myth of the maxed out credit cards persists because the middle ground of politics and journalism refuse to do just 10% of understanding that might shift the narrative.

Just ask yourself – money for Ukraine and no money for removing the 2 child benefit cap. Why?

Where does the money come from? It comes from the BoE through a series of unnecessarily complex system of mirrors and pulleys – to make it appear like it’s being paid for by the private sector.

Then ask yourself where does the private sector get money?

Well yeah – totally simple logic that the only people tasked with issuing currency is the government via the BoE.  Because legally no other person can create currency. So it follows the private sector can’t create it.

Perhaps not data but a nice real time illustration: Port Talbot steel works?

There are different kinds of manufacturing industry.  Making steel is fairly basic processing of raw materials which has long been better done by other countries where the costs are lower and the raw materials are.  Developed countries need to move on to industries with higher tech and skill input e.g. making cars or even satellites etc.  Ultimately I suppose the most developed countries would simply design these things and export the manufacturing.

making cars

which we no longer do to any great extent.  We assemble some and make some parts

There is a myth also about currency fluctuation and devaluation.

This comes from the same silly logic about finite money.

Example – USA have spent trillions recently and in no way shape or form did their currency specifically devalue.

In fact their economy grew.

Currency is meant to float – it goes up and it goes down.

The things that affect currency are linked to how successful your economy operates within different metrics – not simply because a government spends money.

Also – paying interest at 5.25% is deficit spending too. It’s just that your Bank is paying to people with money already.

So let’s cut the shit – the money is available when a government wants to utilise it.

This is why Labour are going to seriously mess things up and a missed opportunity is going to develop if they don’t start tweaking their absolutely ridiculous fiscal rules.

My God op.

You. Are. A. Monster!

Somewhere in the Bat cave he stirs…

Ha ha cheers.

Luckily for you I’m on holiday in a different time zone.

But MMT even is more of a discussion here in Bernie Sanders’ state!

And just to push back a little if I can – what I find particularly frustrating is there are some clever people on this forum who seem to spend an amazing amount of time pushing back against MMT because in their Centrist landscape they know it unravels a bit of their economic logic; and thus the current Labour party.

An economic understanding that has been derived from the Tories by the way.

I’d ask those people to maybe just spend a bit more time looking into it at least finding good counter arguments as they are part of the narrative problem too.

It’s possible to want a Labour party to do good things and subscribe to MMT as a description of government spending.

Labour need taking to task over this. Otherwise things will never change, and we all want stuff to change yeah?

 Because legally no other person can create currency. So it follows the private sector can’t create it.

Don’t the banks (not BoE) create money every time they lend?

Don’t the banks (not BoE) create money every time they lend

Commercial banks absolutely do.

A few things:

Commercial banks operate under the license of the BoE. They have reserve accounts with the BoE. They wouldn’t work without the BoE underpinning the entire structure. Hence your government backed 85,000 for all savers.

And second they make loans that always need paying back. So the net result is to cancel out the new money creation.

When the BoE issues money (currency) it doesn’t require it to be paid back. There is a debt out there (all money is debt.) But it can exist until taxation destroys it.

Only the BoE via the consolidated fund (the government’s current account) can inject money straight into public services as it does every day from a balance of zero.

Also one wheel god – there is distinction between currency and money.

Sometimes I use it interchangeably.  But reality is the currency is enforced.

Money is not.

But it’s easier to say money when in discussion.

Bond purchases can only ever be made with prior government spending. It simply would not work using commercial bank money to buy bonds.

So the government effectively has ‘created’ the money for the private sector to buy the bonds the government issues for borrowing. Ridiculous in mainstream explanation.

That is why the private sector can’t fund the public sector.

Bonds are simply a swap of reserves that are interest bearing from non-interest bearing assets.  It has absolutely nothing to do with borrowing money.

A government doesn’t need to borrow what is is the sole issuer of.

Hi Rone!

How does it work in the EU? Does the ECB basically act like the BoE, but for the entire bloc? How does currency ‘cancelled out’ by taxation in Spain relate to currency creation in Germany, and so forth? Do EU economies have to literally collect taxation and then “pay it back” to the ECB?

I always suspected that the British didn’t want to give up the BoE and their superpower printing press for obvious reasons, hence not going into the euro, but it’s curious to me that countries like France and Germany were willing to. What was in it for them?

Regarding taxation and its collection, am I right in thinking that HMRC never actually “collects” anything? Rather, it’s simply currency that is taken out of circulation and therefore destroyed? Also, when they talk about the deficit, which the MSM and politicians were obsessed with, they were actually talking about the money paid out on government debt, not the overall national “debt”. If so, who receives the money that the government pays to “service” its own debt? Itself?

Bonds are simply a swap of reserves that are interest bearing from non-interest bearing assets.

Sorry, but could you explain this further?

Also one wheel god

Thanks for the clarification @rone – and thanks for the promotion. Bow down and worship me, two-wheeled peasants!

Bow down and worship me, two-wheeled peasants!

🙂

piemonsterFull Member
That may well be but the companies involved will be offshored for tax reasons and owned by foreign entities, the UK manufacturing base has been gradually sold off since the mid 80’s.
Bit of a thread drift, does anyone have a good source detailing the current state of UK manufacturing which itself provides solid sources for its claims.

Check out Matt Kennard  – The Racket

Angus Hannard – Vassal State : How America Runs Britain

Vassal state will make you so **** angry though….best not to read it as you wait on a flight to the states.

There are different kinds of manufacturing industry.  Making steel is fairly basic processing of raw materials which has long been better done by other countries where the costs are lower and the raw materials are.  Developed countries need to move on to industries with higher tech and skill input e.g. making cars or even satellites etc.  Ultimately I suppose the most developed countries would simply design these things and export the manufacturing.

Well, the initial response and this are the two normal responses I see to the “does the UK manufacture anymore”.

A) we used to make loads of steel

B) we moved on to other stuff

Neither with sources about the true overall current state of UK manufacturing. Oh well, will go for a google.

Is it because Rachel Reeves had her parliamentary credit card suspended?

Cheers @somafunk I’ll go take a look

which we no longer do to any great extent.  We assemble some and make some parts

I suspect you’re doing that sector a bit of a disservice, it’s a bit more than “some” even if were not a world leader.

http://www.smmt.co.uk/industry-topics/uk-automotive/

Anyway, enough of my thread drifting