Stephen King, who is HSBC's Senior Economic Adviser and author of ‘Grave New World' has an article in the FT today under the title 'The case against Modern Monetary Theory'. It makes false claims about MMT, as usual.
King starts by suggesting that:
In a world in which government debt is rapidly rising, it's hardly surprising that there's growing interest among investors in Modern Monetary Theory. After all, one of its central claims is that budget deficits are, from a financing perspective, an irrelevance. So long as increased government borrowing doesn't lead to inflation – and, at the moment, there really isn't much of it around – we can all afford to relax.
That's not what MMT says, of course. What MMT says is not that we can be relaxed about financing, because financing is not its focus. What it actually says is that if there is unemployment that a government wishes to address, then assuming that government spending is appropriately directed to achieve that goal then financing is not a constraint until full employment is achieved. Then it says three further things.
The first is that if spending is continued without any further action when full employment has been achieved then inflation will result.
Alternatively, and somewhat overlooked, more tax at that moment can limit that inflation risk.
But, third and more important still, if the government still thinks its programmes more important than additional private sector growth at that point then a bit more tax reduces private sector demand for labour, so releasing it for publish sector use without inflation arising.
That's what MMT really says. But King is having none of it. He says:
As Stephanie Kelton notes in her book The Deficit Myth, governments with access to a printing press are “currency issuers” (exceptions include, most obviously, members of the eurozone). As such, all their spending could, in principle, be financed via the creation of cash. Taxes may serve other purposes – the redistribution of income and wealth, the discouragement of “sinful” behaviour – but, in the world of MMT, they serve no useful macroeconomic role.
I have to say that there are some in MMT who do take this view. That's deeply regrettable, naive and just wrong. I have already demonstrated why, but I have been deeply frustrated by such people in my time, so I can't deny King's claim. But that's not what is said by what I might call the exponents of what I might call 'pragmatic MMT'. This is the MMT promoted by those at the interface between it and the real world. I would call myself an exponent of pragmatic MMT. I would describe Stephanie Kelton as another. She and I first discussed this tax issue quite some time ago, and found common ground, I think.
We would actually agree, quite strongly, with King when he says:
In the real world, however, taxes are crucial.
We would also agree with some of his reasoning, when he says:
The fundamental difference between government finances and those of companies and households is not access to a printing press but, instead, the coercive power to raise taxes. A company making a severe loss cannot reduce that loss by imposing taxes on everyone else. A government can. A worker receiving a pay cut cannot force others to make up the difference. A government can.
Precisely. This is why tax gives money its value. It is why MMT says tax is so important. It's why MMT says a government realising this can be monetarily sovereign. It's why tax can be used as a macro instrument in MMT.
It's also why King is right when he says, as MMT does that:
Armed with this knowledge, creditors are understandably willing to accept mostly lower returns on government bonds than on other investments. Put simply, the risk of government default in the face of an adverse economic shock is lower than for other would-be borrowers.
Of course that's true. Actually, the risk is non-existent. It's why this monetary sovereignty - the power to control the economy delivered by the power to tax - is so core to MMT.
But then, as always happens, King goes off-piste and begins to make things up, saying:
[I]magine for a moment that governments embrace MMT. Imagine too, as MMT proponents suggest, that control of the printing press is taken away from unelected central bankers and given to “accountable” elected fiscal representatives. Would we be any better off?
How many errors can a person make in a paragraph? First, governments don't embrace MMT. It describes what actually happens now in places like the UK and USA.
Second, money is not printed. It is created.
Third, central bankers do not have the power of printing presses now. Every penny of QE is, for example, created with explicit HM Treasury consent. That is hardly surprising. The Bank of England QE operation is controlled and indemnified by the Treasury. See the letters at the bottom of this link as the evidence of that.
Fourth, elected representatives are accountable: there is a ballot box. HSBC have shown themselves far too comfortable with China's suppression of democracy in Hong Kong. They should not make their contempt for it here quite so apparent.
And would we be better off? That is not a question that flows from these claims. That would depend on entirely what policy this action was used for, and not to the mechanics itself.
King thinks otherwise. He says:
Far from it. Giving elected representatives the keys to the printing press is the equivalent of giving a gambling addict the keys to the casino.
In other words, democracy cannot be trusted and politicians, without the wise paternalist constraint if the banking community exercised through their club in Threadneedle Street, would run amok. The little faith he has in democracy is all too apparent.
That he then makes some rather strange claims about tax is inconsequential. Instead I turn to his conclusion. He says:
Thanks to Covid-19, government debt is rising rapidly and, for that matter, appropriately. In the face of recurring lockdowns, we are better off allowing companies and workers to enter a period of economic “hibernation” in the hope that, once the virus is under control, they can thaw out. The alternative of multiple business failures and mass unemployment is of no use to anyone.
Of course, I agree with that. But this is profoundly wrong:
In the process, however, we are in effect borrowing from our collective economic futures. At some point, some of us will be presented with a bill which, if hibernation policies succeed, we will be in a reasonable position to pay. The political process will decide whether that bill comes in the form of higher taxes, more austerity, rising inflation or eventual default. That, I'm afraid, is the deficit reality.
It is quite staggering that a supposed economist working for a major bank does apparently know so little about what is happening in our economy at present.
First of all, we are not borrowing right now. Quantitative easing ss covering the entire cost of the coronavirus crisis, and will very obviously continue to do so, as I have already noted this morning.
Second, quantitative easing is not going to be unwound: it is new credit money creation (as the Bank of England confirms) that is essential to fill the gap created by private sector banks not lending at present.
Third, this means that quantitative easing reversal is not debt repayment: it is removal of money from the economy, and that would crash it as surely as not keeping businesses going now, as King says he wants.
As such King shows he is unaware of what is happening in the real world.
Worse, he shows that he does not appreciate that it is something akin to MMT (akin because MMT would not use QE by choice) that is keeping our economy going right now.
We should be thankful that people like Stephen King are not in charge and that we have means to make sure that they are not.
We should worry that the FT gave him space.
We should just hope that one day he realises how wrong he is.
Our future depends on people doing so.
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Why should we worry that the FT give Stephen King, a respected, experienced and very well informed economist space?
Are you trying to shut down debate and stifle free speech?
Not at all, but publishing nonsense that should embarrass an author is another thing
Why are you worried if someone embarrasses themselves? It’s not your problem if they do.
If you aren’t trying to shut down debate, why then do you say “We should worry that the FT gave him space”. That sounds very much like something someone would say if you were trying to stop them from being able to have their say.
Also, who are you to say what are false claims or not? I’ve seen over the last few days you make quite a lot of claims which people have shown evidence to be false. Should we shut down your blog too?
No one has yet shown there to be a falsehood
They have offered different opinion
The falsehood in his article is that it claims things MMT does not say
“I’ve seen over the last few days you make quite a lot of claims which people have shown evidence to be false.”
I don’t believe you till you list them. Go for it Jonas! Put your money where your mouth is!
Jonas.
Can you give us some specifics?
Can’t have a debate without them.
I doubt Richard Murphy will let this be posted seeing as he hasn’t posted my last, but Helen and Vinnie are asking, so here are a few:
Claims national debt went down, when ONS and every other economist out there recognise it has gone up:
https://www.taxresearch.org.uk/Blog/2020/10/21/the-uks-national-debt-has-gone-down-this-year-whatever-the-ons-likes-to-claim/
Claims about the Bank of England which commentator Tony shows are false before Murphy presumably blocked him.
https://www.taxresearch.org.uk/Blog/2020/10/21/the-uks-in-a-total-mess-rewriting-the-bank-of-englands-mandate-might-be-a-good-place-to-start-if-we-want-to-begin-putting-it-right/
Claims QE cancels debt. Band of England state that this is not the case, and commentator Steven makes various points before I assume he was also blocked.
https://www.taxresearch.org.uk/Blog/2020/10/19/the-uk-government-has-not-borrowed-anything-to-pay-for-the-coronavirus-crisis-the-facts/
But the national debt has gone down: the Treasurt now owns more of it than it did in March
And the Bank of England mandate only relates to a 2% inflation target
And QEv does cancel debt: the Bank of England Asset Purchase Facility is actually an predation of HM Treasury and so the Treasury owns its own debt: that is cancellation
So your claims are all false
If you are going to say I am wrong you really have to get your facts right
“Giving elected representatives the keys to the printing press is the equivalent of giving a gambling addict the keys to the casino.”
A bit rich coming from a banker. They lent money as it it were going out of fashion and created the worse economic crisis since the 1930s.
Isn’t that precisely what is happening now, though? £billions being given to private companies, unscrutinised, for pie in the sky, or failing, projects and expensive procurement. It seems to me that the government has perfectly understood the ‘sovereign currency issuer’ message and is taking full advantage.
I think they are just playing political games with their ‘We don’t have the money to fully support tier 2 & 3 areas and we certainly can’t pay for meals for children in poverty over the holidays’ . They *know* that most of the electorate is fully on board with the ‘household economy’ myth and are actually expecting to have to ‘pay it back’ with austerity and higher taxation in the future.
What I’m asking myself is what effect, adverse or positive, will the pouring of £billions into the hands of their cronies have on the ‘real economy’ and what does it do for MMT? Can MMT equally describe money being created for private gain as it can money being created for enhancing the public good? I’ve understood it to be completely apolitical.
(I hope that makes sense…)
It does make sense
Money ‘spaffed’ (to quote Johnson) is wasted under any system, and MMT would say so
MMT presumes a government intent on creating full employment, not one intent on enriching a few
Maggie Downie.
Michael Hudson talks about bad use of MMT in the podcast linked bellow.
It’s a very interesting article (if you can get past the intro music!!!)
The bit about bad MMT is 11 minutes into the piece.
https://realprogressives.org/podcast_episode/episode-88-debt-deflation-and-the-neofeudal-empire-with-michael-hudson/#fwdmspPlayer0?catid=0&trackid=0
I know – unbelievable.
These people have no sense of shame or history.
Yes – Stephen King has plenty of form when it comes to talking BS about MMT and other matters.
Samuelson said virtually the same thing over 50 years ago. Unlike King perhaps, he knew that what he was saying was false.
Although King is not in charge, we have Johnson-Cummings and Sunak in charge. Could we be any worse off? I won’t try to answer my own question.
King is struggling because he does not understand, or wishes to resist the real depth of the relationship between money, debt and society.
Perhaps the most important insight for this is provided by Graeber, ‘Debt’ (2011) on the concept of ‘Primordial Debt’ (Ch.3, pp.43-71); it is worth reading. Graeber provides a useful early summary of the ideas, at p.56: “The core argument is that any attempt to separate monetary policy from social policy is ultimately wrong. Primordial-debt theorists [e.g. Bruno Théret] insist that these have always been the same thing. Governments use taxes to create money, and they are able to do so because they have become the guardians of the debt all citizens have to one another. This debt is the essence of society itself. It exists long before money and markets, and money and markets themselves are simply ways of chopping pieces of it up.”
True
Send the FT a brief letter – refuting King’s key assertions?
I am in discussion with them
A couple of points, it is not the Bank of England, but the commercial banks who create the vast majority of new money in the UK. A right which earns them some £24 billion a year and considering that this is usually more than their combined profits, one wonders why they pay themselves so well.
Secondly, we do QE because the EU bans the creation of money by central banks to be used for the benefit of the nation. So we use third parties and end up borrowing from ourselves. It is a bit heretical but – as two parties to a debt can agree to write it off – I can see no reason why we should not – after say 10 years for the sake of decency no other reason – cancel any QE balances.
The commercial banks may create money by granting loans, but only with the consent, and under the supervision of, government.
I completely agree that the banks have a bloody nerve to pay themselves so lavishly with QE created money. What was the total bailout back in 2009?
I don’t see anything wrong with Richard criticising the FT article, especially when it so misrepresents MMT. It would be great if Richard or Stephanie was granted the right to reply by the FT. I’m sure you that’s what Richard’s discussions with the FT are about.
Such a reply could be picked up by other commentators and thus bring MMT to greater public notice.
I am unaware of any regulatory system whereby a bank must seek, “… the consent, and under the supervision of, government,” before granting a loan.
I would appreciate you point me in the direction of such regulations.
That means they have to get a government licence to act as a bank in the first place
And a central bank reserve account at the Bank of England
Mr Bishi
All banks require a Govt licence to operate and the FSA is meant to regulate the industry.
The European Central Bank can create QE money if it wants and does so., for example for finance for climate change reduction projects. Individual EU states cannot do their own QE if they use the Euro for their domestic currency. This is why the ECB can refuse to finance Greek, Italian, Portuguese etc budget deficits if they wish in order to satisfy the fiscal conservatives in Germany, the Netherlands and elsewhere..
But they’re nit working that way now…
An interesting point; thus the prohibition of ‘monetary financing’ for all EU members (including non-Euro members as I understand it), would require an elaborately Byzantine method to be used for Governments to use the assistance of QE; which of course lends to the pervading air of confusion about what is happening.
I would be interested in comment on this.
Mr Bishi.
Interesting point you highlight.
There are no figures anywhere that say how much new money is created by banks when they create loans and how much is created by government when they spend.
One would think it would be crucial (who gets to create all the money) to know the percentage split, but no figures are collected by ONS or anyone else, as far as I am aware?
Right
Amongst the many ONS failings…
And BoE stats are, if anything, even worse
I keep coming back to this thought.
The debate about “Public verses Private” is in essence, a debate about who gets to create the money that the economy needs.
What do we all prefer?
Government created money spent on schools, hospitals, social care, education and general well-being of society
Or Bank created money in the form of private and corporate debt?
The fact that there is no measurements of this, is just staggering to me!
A glaring omission and you don’t have to ask why do you?
Hi Vinnie,
Richard is far more able than I to navigate those horrible ONS datasets, however my take is, though important, its not really that insightful to get bogged down in minutiae, so I take a ‘broad brush’ view. So the budget figures & various obvious sources is where I would start (following stats are from Wikipedia / BoE / IFS)…
1. How much money government/BoE creates a year (what people call government spending) for 2020 = £928 billion
…not sure if this also includes cash (created by the BoE) = £8.8 billion
…guessing latter figure includes ‘Scottish’ private bank notes (as are produced under licence of BoE)
…guessing Royal Mint coins should be counted too :)…but obviously a smaller amount
2. How much money removed through taxation = £873 billion
3. Private bank created money in the form of loans = £293 billion
…Me simplistically assuming that the ‘97%’ measure still holds true in 2020
…i.e. £8.8 billion cash created by BoE = 3% vs Private bank loans => Private banks created £293 billion as loans
…but keep in mind that £293 billion is only there due to private bank customers going into debt by exactly £293 billion!
4. How much is removed through bond sales = £55 billion
…usually this equals ‘the deficit’
5. How much returned when bonds mature = Good question!
– Would be interested to know myself, as the national debt always ‘racks up’, which suggests (possibly simplistically) that the £s released at maturity are pretty much all reinvested in new bond sales. Of course, to hyper-ventilators, this ‘rolling over’ the debt is just us can-kicking down the road to avoid us paying off our debts, that will inevitably lead to a day of reckoning & financial Armageddon.
5. How much money removed from economy when bank loans repaid = Sorry I don’t know!
…Though various ‘money supply’ measures (M3 and all that may help)
…but again, be careful as all the way through a loan’s lifetime (from day 1 & later as the loan is paid down) the outstanding value of the loan is ALWAYS offset elsewhere in the economy by somebody who is liable to pay back the exact same amount. So there are never any net financial assets in ‘the economy’ due to bank loans.
…having said that, there’s no doubt that private bank loans don’t have no impact e.g. housing bubbles are generated through easy credit
https://en.wikipedia.org/wiki/Budget_of_the_United_Kingdom
https://www.bankofengland.co.uk/statistics/banknote
https://www.ifs.org.uk/publications/14708
It’s Friday evening and I am whacked…
I admit I have not got the energy to look at this
I hope others can
Stephen Ferguson.
Thanks for all of that.
I need to spend a while digesting the content but thanks for going to the effort to find the stats.
No bother Vinnie. Not claiming these stats are accurate, but I hope they’re close enough in order to get a feel for the numbers.
Personally I think private sector money creation/destruction is far less interesting than government money creation/destruction, because that is THE debate that has to be won. Otherwise, as George Monbiot often so eloquently explains in the Guardian, its unabated capitalism all the way. The stakes really couldn’t be any higher: without MMT winning through (and in very short order), we’re almost certainly going to lose first our democracy and then our very civilisation.
Stephen Ferguson.
Just getting my head round the figures you posted.
Regarding the figures for bank created money. You say,
“but again, be careful as all the way through a loan’s lifetime (from day 1 & later as the loan is paid down) the outstanding value of the loan is ALWAYS offset elsewhere in the economy by somebody who is liable to pay back the exact same amount. So there are never any net financial assets in ‘the economy’ due to bank loans.”
But is that correct?
On paper the statement is correct, but there is a “lag” between a loan being spent and the corresponding debt being repaid. The money is flying around the economy having been spent but the equivalent amount has not been removed.
If banks stopped creating new loans, then the debts would eventually be all paid back and net zero would be reached.
But banks are never going to stop creating new loans, so the effect is ever more “bank money” being created faster than it is being repaid.
So is this process not constantly increasing the amount of money in the economy?
Granted, this may have little effect on the government’s ability to create/spend its own money? The simplistic “model” in my head thinks that, there is a finite amount of new money that can be created into an economy at any one time, before creating inflation. If the banks can create as much as they like, it reduces the amount that the government can then also create. I guess, that the amount of bank created money may not be of a significant amount to prevent the government from spending what it wants???
Regarding taxation.
The £873 billion that is being removed/destroyed is, as far as the Treasury are concerned, Central Bank Reserves. That’s what the government needs to see destroyed in order to allow it to keep spending.
But there is a corresponding £873 billion also being removed from the “currant accounts” of everyone on the “High Street” side of the economy. (Not sure if Broad money would be the correct term?). That Broad Money, could have been bank created loans or government spent money. So. It would be difficult to to quantify how much bank money is being removed from the economy??
Am I right in thinking that the interest paid on a loan on top of the original amount has to come from more loans being created by banks or from government created money spent into the economy? Interest can only be paid if the economy keeps expanding? So the government never taxes more than it creates. It has to leave some of the money it creates in the economy, to allow the economy to grow. If it doesn’t create a “deficit” every year then the economy can only grow through bank lending??? Otherwise no money could be found to pay interest on loans?
I agree when you say.
“The stakes really couldn’t be any higher: without MMT winning through (and in very short order), we’re almost certainly going to lose first our democracy and then our very civilisation.”
I see that in order to tackle Climate Change (the greats of all our problems) we need to move away from a growth base economy.
I can’t see how we can use our remaining natural resources in a sustainable way and still have an ever expanding economy????
But without growth, the whole banking system collapses. Where is the money coming from to pay the interest on bank loans, if the economy doesn’t expand???
I’m not sure that even MMT can solve this puzzle?
I am posting your comment without having time to give it the attention it might deserve …sorry – but it looks like you have the wrong end of the stick. I am hoping someone like Helen might address this.
“it looks like you have the wrong end of the stick”
It wouldn’t be the first time!!!
Hi Vinnie,
I’m not claiming to be an expert, but here’s my shot at your questions…
“there is a “lag” between a loan being spent and the corresponding debt being repaid.”
– Correct, but I wanted to emphasise that the financial assets created when a loan is made always net to zero even at the time its made.
A bank loan basically involves two parties exchanging two kinds of money: (a) the bank creates £X and lends it the borrower (b) the borrower ALSO creates £X and lends IT to the bank. The borrowers £s are usually called a ‘loan agreement’, but they’re nevertheless money. Of the two parties, the private bank’s £s are far more acceptable (will be accepted at all branches of that private bank and all its account holders). Neither the borrower or bank are ‘up’ or ‘down’ on the deal (though the borrower has to pay interest, which is a reasonable fee to gain access to the private bank’s more liquid £s). So on DAY 1, the two cancel out. Likewise halfway through the loan period the borrower & bank will still have exactly matching £s that they owe each other, but the numbers will be half (i.e. £X/2). Again neither party is ‘up’ or ‘down’ as at that moment in time both will have assets = £X/2 and liabilities = £X/2. This holds true all the way through until the loan is paid off in full.
“the effect is ever more “bank money” being created faster than it is being repaid. So is this process not constantly increasing the amount of money in the economy?”
– Not sure about it increasing £s constantly, however, as I mentioned in my post, private bank-created £s do have an impact on the economy (e.g. housing bubbles). The various measures of the ‘money supply’ (M1, M2 etc.) may tell us, but again I’m not expert enough on that to comment. Note that the term ‘money supply’ isn’t used often in MMT (I think because that all too easily confuses government & private bank money, which are not the same)
“The simplistic “model” in my head thinks that, there is a finite amount of new money that can be created into an economy at any one time, before creating inflation. If the banks can create as much as they like, it reduces the amount that the government can then also create.”
– There’s only a finite amount of stuff that can be bought, so you’re right to think only so much money can be spent without that demand fuelling inflation due to a scarcity of stuff. Note that the private banks always need borrowers to come to them for a bank loan to be created, so they don’t “create as much as they like”. The government has levers to pull that can dampen borrowers enthusiasm down (e.g. setting the base rate high, will push up private bank interest rates and so discourage borrowers turning up at their doors. Or simply setting credit limits for certain kinds of loan in ‘hot’ areas of the economy. Of course they can just raise taxes too). The goal is always to have sufficient ‘fiscal space’ in the economy so that the government can spend its money into that space for, in MMT parlance, the ‘public purpose’.
“Regarding taxation…But there is a corresponding £873 billion also being removed from the “currant accounts” of everyone on the “High Street” side of the economy…So. It would be difficult to to quantify how much bank money is being removed from the economy?”
– No, not difficult. The £873 billion removed from current accounts is private bank money. Removed by the private banks in response to instructions from the BoE (acting on behalf of the treasury). Of course it would be in millions of different sized chunks over the course of the year. On each occasion £X would be removed from somebody’s private bank account (by the private bank) and then £X would also be immediately removed from that private bank’s account at the BoE (by the BoE). I don’t know the exact operational details, but that’s essence of the activity.
“Am I right in thinking that the interest paid on a loan on top of the original amount has to come from more loans being created by banks or from government created money spent into the economy?”
– It doesn’t matter. You might be a soldier who is paid direct by the government with a loan for new car. Some of that salary will go toward paying off her car loan. The money came from government, but it ‘lives’ at the currency-user level as private bank £s (the government £s that allowed the private bank to increase her account on pay day of course still sit in that bank’s account at the BoE).
“Interest can only be paid if the economy keeps expanding?”
– No, that’s a fallacy. Interest paid to private banks doesn’t disappear from the economy. It all ends up in somebody’s account (e.g. bank employee wages)
“So the government…has to leave some of the money it creates in the economy, to allow the economy to grow.”
– The government has to leave some of the money in the economy so that we can save. There’s no other way saving can happen.
On the endlessly growing economy, this (as you say) is the problem. And I agree, it’s possibly humanity’s biggest challenge, as, before we can even begin to address our planetary problems, we have to figure out how to ‘degrow’ which is the exact opposite we’ve being doing for 100’s of years via capitalism. But there’s a glimmer of hope with MMT. Not least because it allows us to understand, for the first time in history, the thing we know we must change – the economy.
I recommend economists Steven Hail and Phil Lawn, who have both written extensively about sustainable MMT (many videos also on the net). Also worth checking out is ‘degrowth’ economic anthropologist and writer Jason Hickel, who is a significant recent advocate of MMT and especially the role MMT would play in de-growing the economy.
PS Vinnie, please see blog post by Jason Hickel, “Degrowth and MMT: A thought experiment”…
https://www.jasonhickel.org/blog/2020/9/10/degrowth-and-mmt-a-thought-experiment
That blog is very good
Stephen Ferguson.
Thanks for spending the time to reply to my queries.
I’m going to need a few days to digest and process your points as well as the links you added.
I think this thread will stop taking comments soon, so I’ll have to continue via a different thread in the future.
My brain is going to explode with all the new concepts I am having to grapple with!!!!!!
Loving it!
A few commenters have replied “interesting point”. I hate to disagree, but its nonsense. The UK government creates 100s of billions of £s a year and yet the meme that private banks create the vast majority of £s lives on and on. To be precise, this ‘97%’ assertion is a cleverly couched myth as it is a measurement of ALL private bank money created DIGITALLY vs UK government-created CASH (i.e. ONLY takes into account that fraction of government £s that are printed on bits of paper!).
This ridiculous comparison – of course only between a tiny part of ‘vertical’ government money vs ‘horizontal’ bank money – tells us virtually nothing and really should be ignored.
NB: It was first pushed by ‘Positive Money’ for many years in their campaign to paint private banks as the bad guys following the 2008 crash (not that most were ‘good guys’, but that’s not the point) and then, for some incomprehensible reason, was also quoted by the BoE of all people in their 2014 paper on money creation.
Agreed
Stephen Ferguson.
But it would be good to know exactly how much money the government/BoE does create a year. That is Central Bank Reserves and Cash.
Plus it would be good to know how that total compares to Bank created money in the form of loans.
It would also be interesting to know how much money is then removed from the economy through taxation.
It would also be interesting to know how much is removed through bonds. (And how much is returned when bonds mature)
And finally, it would be interesting to know how much money is removed from the economy when bank loans are repaid.
Just read this today on the BBC website;
https://www.bbc.co.uk/news/business-54635804
He could have pointed out that government debt bought in the wake of the financial crisis hadn’t been sold back into the market and there have been no adverse effects, but a surprisingly clear article for the beeb – summarised as “no the country will not run out of money, the money for funding free school meals is there but the government is choosing not to spend it”.
HSBC has an unenviable record when it comes to money-laundering charges for which they were fined, but not prosecuted in the US thanks to the intervention of Osborne. That’s the kind of democracy HSBC likes.
This kind of record doesn’t mean you discount the utterances of their senior economic adviser but you might want to regard them from the distance of a “long spoon”. It’s the usual strategy when faced with something you don’t understand, just make things up, create a false prospectus, a straw man and lambast it for the assertions you yourself have created. Much easier than tackling the concept on its own terms, using evidence. Much easier just to lie.
He mentions Stephanie Kelton saying that Governments with their own currencies are “currency issuers”, but seemingly hasn’t read her book, for she certainly never said any of the things that he rails against, in fact she pointedly and in straightforward terms that even a chief economist could understand, said the exact opposite.
Hope you get a chance to reply in the FT.
One ray of light…. there is healthy debate below the line. Many FT readers Do get it.
FWIW my comment was…
“Oh dear. If you misrepresent what MMT actually says it is easy to demolish. Does the author not understand or is he using a “strawman” because arguing against the “real thing” is more difficult?? “
Just bought my copy of
The Deficit Myth. Stephanie Kelton.
Been holding out till the paperback edition. Can’t wait any longer (March 2021) and have bitten the bullet.
Looking forward to reading it
It’s a long wait
I think the publishers realised people would give in…
Ha! I got a special on the Kindle version; 99p!
Doh!
Mine cost £20!
Bill, I looked on Amazon for my kindle and it is £9.99
I would assume you got it somewhere else?
It was a limited period special offer
[…] Fellow financial blogger and tax injustice crusader Richard Murphy has been the first to respond in blog form, so here’s part of his […]
[…] Fellow financial blogger and tax injustice crusader Richard Murphy has been the first to respond in blog form, so here’s part of his […]
As always individuals like Stephen King like to shoot their mouths off without properly understanding what they’re talking about. The zombification of this country in the last half century has made great strides! So many people believing the private sector on its own can rescue the private sector economy during this severe crisis!
“So many people believing the private sector on its own can rescue the private sector economy during this severe crisis!”
In normal times it is the public sector (Government) that constantly rescues the private sector from the exigencies of what is risibly titled the ‘business cycle’ (in the UK an endless repetition of punctuated periods of boom and bust), ensuring that the markets look “free”, when they are elaborately protected from the havoc that would accompany genuine ‘free markets’ if they were given free rein; not I hasten to add for the public interest or the common good, but to ensure the continuance of the private sector vested interests and ‘status quo ante’ that fund politics, and ensure power and politics serves only ever serves those who have power. Nobody notices, and few commentators, most serving the existing order, wish to notice.
It is only in major national crises such as the self-inflicted disasters that even cosseted pseudo-free markets bring to everyone, like the 2007-8 financial crash: or when the chaotic geopolitics of a world, never far from crisis actually erupt (from the OPEC crisis in the 1970s, to the ever present threat of war); or natural disasters – like pandemics, disrupt normality: only in these circumstances do the public become aware of the inadequacy of free markets, the phoney nature of neoliberal fake-libertarian ‘equilibrium’ theory, or the inability of the private sector to save itself, still less anyone else, and even less the whole of society; including the poor, the disabled or the excluded.
“As always individuals like Stephen King like to shoot their mouths off without properly understanding what they’re talking about.”
Indeed, he appears to be producing more fiction than his namesake…
Snap! Just had my copy of ‘The Deficit Myth’, Stephanie Kelton, arrive in the last hour. Hardback again, but looks like it’s worth it. Next on the list ‘Debt : The First 5000 Years’ by David Graeber which I think is a paperback.
I’m rapidly becoming a convert to MMT. I have a few small issues, especially with Job Guarantee (as I’m a long time UBIer) but it’s more in the detail, and I can see how both can co-exist quite well. And yes Richard, I am reading through your Policy Paper ‘Financing the Social State: Towards a full employment economy’ 🙂
That’s a while ago!
Yes, 2013. But you linked to it a week or so ago when I brought up UBI in another one of your threads. I’ve only just cleared the time to start reading though it. Hopefully I’ll end up a little better informed.
Julian Snape
Debt: The First 5,000 Years is a great enlightening read. Enjoy.
Go for a hat trick and get Bullshit Jobs as well. You won’t be disappointed!
I think that Job Guarantees are often suggested as something to do with MMT money, but I don’t consider it a core part of the theory. I am with you, a UBI would be a much more efficient way to stimulate economic growth and adaptation. Government trying to put people to work just has so many ways to go wrong.
Mainstream MMT says it is core
Stephanie Kelton is more open
I think policies for full employment are key
“Government trying to put people to work just has so many ways to go wrong.”
This is central. The electorate elects governments because we recognise the fundamental importance of a universal franchise and individual libert. Then governments ignore their fundamental obligation to individuals to provide all its services through public and private sector institutions, who all have vested interests to protect, and government relationships to covet. Almost the only direct contact the elector has with the government that is supposed to be serving hime her is through a parliamentarian, who serves party first and last; and by paying taxes exacted by government.
It should be remebered here that the Chancellor’s U-turn yesterday on financing the furloughed was based on two critical factors; the determined opposition of Manchester led by Andy Burnam (not a parliamentary representative), and the fact that Tier 2 arrived in London. The MPs were incidental; most had sold out, and certainly were not prepared to stand up against the government for their constituents. the Westminster system failed – as usual in this crisis; the real politics was elsewhere.
Incidentally, so badly constructed is this response that the burdensome and Byzantine nature of the Barnett consequentials that should arise from the Chancellor’s measures still threatens to hamstring the resonse of the devolved governments to the crisis. The British system does not work properly; it isn’t designed for the modern world.
Wholeheartedly agree
The failure to fund Wales, Scotland and Northern Ireland is deliberate, I am sure, for being ahead of the game
[…] wrote about Stephen King's article on MMT in the FT this […]
[…] Fellow financial blogger and tax injustice crusader Richard Murphy has been the first to respond in blog form, so here’s part of his […]
[…] Fellow financial blogger and tax injustice crusader Richard Murphy has been the first to respond in blog form, so here’s part of his […]
Vinnie @3.49.pm
I’m still struggling to assimilate what you’ve written !
Nobody knows how much new money is created by banks when they create loans or how much is created by HMG when they spend ?
I must have lost my thinking cap
How can we run an economy when we don’t have the figures ?
Nobody knows the trouble we’re in—— specially the lunatics running it
I must have misread you !
Rob Gray.
Alas. That’s exactly what I was saying!!!
I guess that the figures aren’t there for a couple of reasons.
On the government side:
If they publish the figures they are admitting that they create money and are not just spending other people’s. (acquired through taxes or borrowing)
On the Banks side. It is probably a difficult figure to calculate. Money is destroyed when loans are repaid but new loans are also being created constantly.
Actually……. Why would that be so difficult to calculate???? The figures must exist. They just need to be correlated.
Maybe it’s the same as with government money. They don’t want people to realise that that’s what they are doing.
But as you point out, how can we run an economy when we don’t have the figures!!!???
Agreed with all of that.
If they make plain the figures sooner or later people will start asking why we’re paying interest on this money, money created for the purpose rather than existing money loaned. “Banks are not warehouses” says the BofE’s Michael Kumhof https://vimeopro.com/bankofengland/research/video/332687750
Consider how hard that realisation will affect the predators who extract the wealth from what we in the Western world are encouraged to think of as our civilisation. It reveals it to be more like a battery farm. No wonder these figures are kept quiet.
Rob Gray asks “How can we run an economy when we don’t have the figures ?” Indeed, Rob, but it goes way beyond figures relating to money creation: we’ve got devolved governments in Scotland, Wales and N Ireland. I can’t speak for Wales and NI, but in Scotland’s case we don’t know how much we export to other parts of the UK or indeed how accurate the figures are for exports beyond the UK (I’ve seen statistics suggesting England exports more whisky than Scotland because so much Scotch is exported through English ports).
We also have much, but not all, of Income Tax (IT) devolved to Scotland, but with residual problems about identifying residential status and estimates of IT derived from investments being estimated, the reported figures are partially estimates. VAT is also supposedly devolved to Scotland for national accounting purposes, but, in the absence of separate VAT numbers for all businesses trading in Scotland, the total for VAT raised here is entirely estimated. This in turn results in retrospective adjustments which play havoc with trends and annual reporting. Just don’t get me started on the annual charade of the GERS figures, which are the icing on the cake of economic disinformation.
You couldn’t run a sweetie shop with such poor data, so you might ask why the UK’s data collection is so poor. There is no logical answer to that and one can only presume that those in power prefer to keep those not in power in the dark. Another front for British Gansterocracy?
Spot on Ken
And you know GDP is literally made up too? Some of it is completely notional nonsense
Keeping the public in the dark is the “logical” answer to your question. Distortion, misinformation and burying the facts beyond recovery is a policy necessity. How else do you keep the Union together?
Surely the BoE must have the numbers somewhere. One of the Govts main economic responsibilities is to control the money supply. No?
Search BoE stats
I gave not git the time…
GerryC.
I wouldn’t know where to start looking????
If the figures are out there, it would be good to know them.
As I have said previously though. If they print the figures, they are admitting that the BoE/government creates money rather than just spending other people’s!
The FT article was utter drivel.
You’ve rightly taken it to pieces. However I must question your concession that “some in MMT” take the view that “taxes serve no useful macroeconomic role”.
Who in MMT thinks that?
I am aware that some do…..
Those who do so quote Warren Mosler when doing so, I hope incorrectly
But Neil Wilson was pretty indifferent in this issue, and quite influential for a while, for example
I’m very sure Warren Mosler was misquoted.
Can’t recall Neil Wilson ever saying this, but he might have. Though he could be persuasive and make very telling points, at other times he could be a little too gnomic and dismissive. Very knowledgable, but only up to a point. I never thought of him as any sort of spokesperson for MMT.
More power to the FT for allowing debate to flourish. I think there’s a difference between reading the comments in a specialist publication where readers are informed and not.
Uninformed readers more like. Very few comments under that FT article (and the related article pointing to this blog post) are valid criticisms not driven by ideological bias.
Just a quick thought.
If the government has spent £200 billion + on furlough and other support measures during covid, how have they paid for it?
They haven’t raised the money through taxes as taxes haven’t gone up.
If they have “borrowed” the money then they must have sold £200 billion + bonds. Is there any proof of these sales?
If not, then they must have harvested it from the non existant magic money tree.
Why can’t commentators in the MSM not join up the dots and come to the conclusion that the government must have created the money????
In two letters
QE
They Bank of England has created all the money spent
Richard.
When you say QE, how does that work?
Is the BoE buying existing bonds that are already in circulation or is the BoE buying new bonds direct from the Treasury?
I am working on a decent explanation of this – sometime soon I hope…
Richard.
Is the basics of how it works as follows?
The Treasury is selling bonds direct to the BoE (rather than through a third party via the bond market).
The assumption by political/economic commentators, is that, at some time in the future the BoE will sell the bonds on into the financial markets.
The Treasury will then be liable for interest and maturity payments on those bonds.
This creates the illusion that the Treasury has “borrowed” the money even if repayment has been deferred, to some future date. This allows commentators to talk about it as being a future debt? ( But only if the BoE sells the bonds on to the bond market)
The question still remains, “where did the BoE get the money to buy the bonds”?!!! Thin air of course!
But will the BoE ever sell the bonds on?
Is this form of QE is different from that practiced after the crash in 2008?
Was post 2008 QE used to buy bonds from the bond markets rather than direct from the government? With low interest rates, it was hoped that financial institutions would invest the money received from the bonds into other sectors of the economy, rather than buy more bonds to replace the ones sold?
Have I got the basics correct?
PS. Can you keep this particular thread “Live” for a few more days. I want to run some questions past Stephen Ferguson, but need a bit of time to get my thoughts coherent!
Sorry, can’t change being open or everything is – and that is too much work
I will look at the QE blog again….
No worries Richard.
Looking forward to the QE blog.
I’ll have to catch up with Stephen Ferguson on another thread.