Jacob Rees Mogg gave a quite extraordinary interview on Sky this morning, seeking to justify Liz Truss's plan to cut taxes by £30 billion and to borrow to, as he would put it, pay for it.
He dismissed the inflationary impact of this, saying Patrick Minford was 'misunderstood' when he offered advice on this issue. I have often felt that about Minford, but always presumed the misunderstanding was Minford's alone.
More importantly, he made two additional points. One was that governments always borrow, and we should not worry about it. And, to add to that, he suggested that because £875 billion of QE funds (which he did not get quite right) were owed by the government to itself they should be ignored when calculating the national debt and that it was really only about 60% of GDP as a result, and so of course we could borrow more.
It would seem that Jacob Rees Mogg has been reading this blog. But it was not what I was expecting a Tory to say.
Now, when will Labour and others pick up the theme and argue how the borrowing that we need can be directed towards a Green New Deal rather than the callous cuts that the Tories still plan?
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Well, I think I have finally seen it all!! Jacob Rees-Mogg embraces MMT.
Leaving the single market means non members face additional checks and declarations etc. The EU had the infrastructure in place from day one. We, I read, have not and Rees-Mogg postponed putting them in place again recently. He said that placing obstacles in the way of free trade was ‘an act of self harm’.
We have to say he’s right but then why did he campaign to leave it?
Now we have the admission that borrowing is not the sin against financial rectitude that so many Conservatives have preached.
That’s two things. What’s next? Nationalisation of energy?
Can someone send a tweet the Rees Mogg clip to Rachel Reeves – and ask if she/Labour agree ? They are scared stiff of even looking at the issue. Just keep parroting ‘fiscal rules’ ‘fiscal rules’, ‘fiscal rules’.
Yet more self justification and the use of facts to support an extremist position.
It’s alright for us to spend money on what we want want but not what you want.
Rees Mogg comes across as a buffoon bu he’s very sly and cunning buffoon believe you me.
It’s about the only thing to come out of this terrible “contest” (Race-to-the-bottom) that’s pleased me. TBH about the only thing I ever agreed with Corbyn on was the concept of “peoples QE”, largely because I’d been writing about it in my investment blog for ages. Talking about the corrosive effects/mispricing of markets (And thus resources – the QE2 commodity inflation spike that nearly caused global recession and brought the EZ to its knees was almost entirely financial/synthetic in cause) directly attributable to QE, while the policy could be used to take our creaking, dark satanic, Victorian infrastructure and create a modern green economy with a massive economic multiplier.
Truth is a coherent policy along these lines would also bring in huge amounts of private capital as many investors are well aware of the challenges we face.
M&G Eric Lonegran has done some great work on this.
Sadly not just the Tories, but all the current crop of politicians seem as allergic to a clear “vision thing” as the tepid Major was all those years ago.
I still recall in video conference a few years ago MMT advocates Stephanie Kelton and Warren Mosler expressing the view that the right could quite easily adopt MMT principles but use them for regressive goals, eg tax cuts for the already wealthy.
The Nazis in addition actually used an MMT style policy to fund German economic recovery after the collapse of their economy in the 30s under the astute policies of Hjalmar Schacht.
This possibility is real
Rudi Dornbusch observed that ‘The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought’. Eliminating the debt held by the BoE doesn’t eliminate the liability, it just transforms it to an at notice liability of the Bank. And if you are government, you can force the populace to accept your liabilities. What you cannot do is to control the inflationary effect when you have overdone the trick. The flowers are prettiest at the edge of the cliff, but when you feel the cliff edge collapsing it is too late to reverse course. The best rule in finance is that if it seems too good to be try, it is. Monetising government debt has been tried since time immemorial. If it worked, Venezuela and Argentina would be economic powerhouses. And the fact that the U.K. has credit, so it can do some of it, doesn’t mean politicians can’t destroy the credit. The external value of the currency collapses and the ‘you can’t go bust in your own currency’ becomes irrelevant.
Tell me how money is a liability of the state when it creates that money
In detail please…step by step
And your claims about Argentina and Venezuela are infantile – they borrowed in the currencies of other countries
So, now argue properly or not at all
Perhaps we disagree what a liability is. There is a claim on the Bank of England for pounds sterling, not very different to that inherent in a banknote. Exercising that claim in itself doesn’t put the government in any jeopardy: as you will no doubt say, all you can get is another promise. But the value of the claim is not determined by the government. And in inflationary times, it becomes ultimately worthless. When, as a government, your liabilities are near worthless, then issuing more of them gets you nowhere. Your country turns to alternative money, but not before your society is damaged by high levels of inflation. Remember Lenin.
As for Argentina and Venezuela, no doubt if those governments had been able to persuade others to accept their own currencies, they would not have borrowed in USD.
Liz Truss approach to unfounded tax cutting will simply have the consequence that interest rates will need to be higher that they would otherwise be in order to contain inflation. And higher interest rates will
drive the recessionary outcome that she purports to wish to avoid.
Please don’t be fatuous
When was the last time a country like the UK had a currency that became totally worthless?
Evidenced facts, please, or don’t call with this sort of trite nonsense again – and Argentina and Venzuela are not remotely like the UK as they borrow in foreign currency
Your last go at a grown up answer….
Errrmm Christopher – what about the role of tax in cutting inflation these days? There so much more money around now than there was in 1970s.
The problem with Government money creation is not that it is done and causes problems, it is that it is done in a context of tax cutting which is all too fashionable these days and little understood.
Why do you think Denis Healey sought IMF support in 1976?
Germany 1923?
Central banks and Treasuries learned lessons in the 1970s and 1980s about how costly it is in terms of unemployment to recover stability in a currency’s value. You can now see the social tensions from inflation rising in the U.K. just as they did in the 1970s. Policymakers should be straining every sinew to ensure it is not necessary again, not pouring petrol on flames. It’s painful: Venezuela and Argentina are what happens if you don’t recover the situation.
We never needed help from the IMF – it was wholly unnecessary
And the Weimar comparison shows just how uninformed you are. Do you have no clue why that happened?
And have you thought that central bank policy in the 80s may have been horribly wrong?
No, I am sure yu have not. Please don’t try again until you have learned some economics and history
You asked for an example of the complete destruction of monetary value in an advanced economy because you implicitly asserted it cannot happen.
More fundamentally, do you think that the levels of inflation in the U.K. and US in the 1970s were in some way acceptable? I lived with my grandmother who had modest savings in War Loan the value of which was stolen by inflation. Society descended into a fight of all against all in which no one could ever agree ‘differentials’ leading to a series of steadily rising wage demands. In such a society businesses don’t create as much wealth as they should because they are using a measuring yardstick to connect decisions across time that’s constantly changing.
If we can agree inflation is very bad for welfare, then it needs to be reduced. How do you think policymakers at the end of the 1970s should have brought it down? No, I don’t think central bank policy was mistaken. I think judgements about monetary stimulus in the last couple of years were flawed ( for understandable reasons too much money has been created) , and the consequence now is that inflation is higher than it should be even if you take out commodity (food / energy) prices.
Finally, I have the old fashioned belief that arguments are not improved by personal abuse: it’s usually an indicator of weakness
So you have no evidence whatsoever to support your claims
And no one thinks we are anywhere near the 70s
So bluntly, you’re a fantasist.