Papers are filled with talk of the Theresa May's NHS Brexit dividend this morning.
Thankfully, it appears that no one buys the story. Not one serious media outlet believes there is a Brexit dividend. The UK will still be paying the EU after Brexit. And because Brexit will shrink the economy there will be less tax paid.
So, Theresa May is lying.
And then most in the media come to the question ' how are we going to pay for it?'
I took part in a broadcast on this last evening on LBC Radio. The presenter very clearly did not believe me when I said that we did not have to.
I patiently explained that there are three ways in which government spending impacts the economy. First, I said that the government could simply create the money in question. I pointed out that over the last decade the government has created £435 billion to, in effect, bail out our banks. That is more than £40 billion of new money a year and there has been no inflation as a result: any inflation we have had is because of changes in oil prices or because we have left the EU. I did, therefore, argue that we could as a consequence create new money for the benefit of the NHS as well.
Alternatively, we can let more people save with the government. That, after all, is all that government bond issues are: they are the creation of new savings accounts managed by the government for people who want to save with it. And, as I explained, as more and more people come to retirement age, more and more of them want more and more government debt to underpin their pension payments and as a consequence the demand for government savings accounts is growing exponentially. So, I argue, why not let them have what they want, especially when it has the benefit of having almost no net interest cost and providing funding for the NHS at the same time?
Third, I suggested that we could tax to recover the spending that the government had promised to make on the NHS. But, I argued, this would be a particularly bad idea because right now the economy is quite vulnerable because of Brexit, and we are suffering lower growth than most countries in the EU, and in the USA. Raising tax will only exacerbate this: it will take money out of the economy when what the economy needs is a cash injection. So, I argued, this was the worst option available and it will create alternative hardships that can only increase demand for the NHS.
I could tell that the presenter was not convinced. His whole preamble had been about ' having to pay for the NHS'. Although I had very clearly explained how we could do that all that he wanted to hear was what additional taxes would be levied and on who.
It's pretty depressing that the state of national comprehension of the issues involved with funding our government are so low, but we have to face the reality that education on this issue is going to be a long haul. And the biggest obstacle to overcome? As the presenter put it to me "If it is as easy as you suggest why aren't the government doing this?"
I offered three explanations. First, it may be that the government does not understand. Second, he had to understand that the government wants to shrink the size of the state and therefore do not want to use the capacity that the government has to create money to increase public services. And third, he also had to understand that the government does want to privatise the NHS, whatever they say, and as a result they do not want people to believe that it could be free at the point of delivery without penalty. Imposing a tax would be deliberate to make people feel that privatisation could be a better option.
Again, the presenter sounded incredulous. Politial reality and LBC Radio do not always mix.
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Well, you tried. And more importantly, you keep on trying.
And presumably his listener is in at least one and a half minds, if not actually two minds, about what was being said.
I think we’re in the position that Eddington was when it was put to him that he was one of only 3 people who understood Einstein’s theory of relativity – he paused for a moment, wondering who the third was.
Little chance on Question Time then.
The presenters name wasn’t Dunning or Kruger was it?
It is interesting that LBC radio is questioning where the money comes from for the NHS. They don’t question where the money is coming from for the Trident nuclear submarines upgrade, new aircraft carriers and aircraft, HS2. Hinkley Point, Heathrow expansion……………….
Bill Hughes says:
Interesting point, Bill.
Even within the confines of NHS there is a massive disconnect between attitudes about how money is spent.
It’s far easier for example to find funding (even voluntary donations) for capital equipment; cat scanners and MRI machines and the like, than for non tangible care services.
It’s probably got a lot to do with a general ‘materialism’ which has been unchallenged king for decades.
There is in the world of consumer spending a hint of a shift in thinking these days. More people are realising that when you’ve got all the material trinkets you have to find something valuable to spend money on – like buying ‘experiences’. It’s not quite mainstream thinking yet, but it’s out there.
There’s also a bit of traditional sclerotic thinking that equates building aircraft carriers with ‘real’ jobs; that is, belonging to the old fashioned industrial economy. Metal bending and that same logic doesn’t apply somehow to creating real jobs in the ‘softer’ industries.
We have some ‘funny’ ideas, many of which are deeply entrenched like the barely remembered simplistic, traditional, religious teachings of childhood. We learn a little bit then stop learning.
..or wars, we always have money to spend in far off places that is no business of ours being there.
Bill Hughes:
I’ve just watched Stephanie Kelton’s talk in London, which is now available at https://www.youtube.com/watch?v=6IBEoWSiTHc&feature=youtu.be
Your point comes up when someone who campaigns for the NHS asks a question near the end (more of a statement).
It’s really worth watching, so I won’t recount it here, but the “questioner” talks about Bevan resigning from cabinet because of a dispute over spending on health and defence.
Now on the blog
Perhaps the idea of NHS bonds might be palatable to the ignorati. They could always be paid for by BofE magic money tree money, just as the war bonds which paid for the First World War were. If the BofE can stump up, as we know it can, from nowhere to fund obliterating the cream of a generation, then it ought to have no problem paying for the ongoing health of the survivors’ descendants in similar fashion.
I do like the idea of “NHS Bonds, like War Bonds” as a way of conveying the basic concept that people can grasp. It would appeal to those who buy the ‘bring back Empire’ narrative; often pensioners with outdated conceptual tools (such as the household budget analogue) for grasping and assessing modern economics. I think sometimes we focus on complex detail when what is required is a simple starting point for communicating a concept. ‘NHS Bonds’ would clearly be a technical simplification, but it is a good starting point for a conversation in the pub.
So, economists… if Richard’s second proposition to finance with government bonds were linked to the NHS in this way in the public imagination, would there be any catches in framing NHS funding this way? Were War Bonds a success in the public eye? How would one counter any ‘yes but’ arguments?
There is a catch – in the sense that this is not required according to MMT
But it makes clear three things
a) Tax is not required
b) Government debt is just a savings product
c) People like government debt
The “presenter’s” lack of knowledge (& possibly a lack of curiosity concering “how do things work”) says a great deal about him and his ability (or lack thereof) to undertake interviews. Perhaps he should get out more – or maybe he should stick to interviewing footballers, “celebreties” etc. A more open minded interviewer would also (perhaps) have asked for web links etc for more info on the subject of gov finances. That said: there are none so blind as those that refuse to see.
1) The NHS has been free at the point of use since 1945 (when the UK was a MUCH poorer nation than today).
2) Ask these clowns how they would feel were they fatally injured in an accident and the NHS unable to save them for want of funding. Would they be happy with their untimely demise if they knew that more than enough real resources existed or could easily have been brought into existence to provide the care that could have saved their life?
Because this is what it’s really about. Are we happy to sit by and let people die because we can’t or won’t organise our vast wealth and enormous productive capacity so that we’re able to care for the sick and injured?
Even if we were (we aren’t) facing a situation of imminent inflation due to reaching maximum productive capacity is anyone really happy with a situation where we can produce one extra sports-car/yacht/designer-handbag but cannot give a family their loved one back alive and well?
Anyone who seriously prefers the extra plastic crap has an empty hole where their empathy and imagination should be. We’d do well to avoid letting such people anywhere near positions of authority over public communications or control over the economy.
I am really pleased at your efforts Richard. I hope this is just the beginning. What programme was it? Can you provide a link? I’d like to hear it.
6.05pm last night
Is it copyrighted can you produce a copy?
Sorry – no idea if it is available
I want to listen to this. When was it broadcast?
James O’Brien would be a great presenter to tackle this 🙂
I am not sure it is available
Sorry
Mariana Mazzucato in her book “The value of everything” (a play on Wilde’s quip that neoliberals are economists who know the price of everything and the value of nothing) points out that the concept of a zero return on State spending is a political choice. The NHS isn’t a black hole into which the government throws endless amounts of money never to be seen again. As has been pointed out on this blog the money does work, creates employment, spends into the economy and returns via taxation.
But there is another side to this investment which is never counted in economic terms which is that many users of the NHS are made well again, or well enough to be active in the economy in some form, or are able to return to society and enjoy a reasonable quality of life or even have their lives saved. How does that figure in terms of ROI ? Then there’s the preventative work the NHS does, helping to reduce costs further down the line.
I hope it wasn’t James O’Brien who interviewed you because the snips of his forensic interviews and rants that I’ve see on Facebook make me think he’s made of better stuff than that. Don’t disappoint me.
I forgot to notes who it was….
I have now listened to it and the show was called Clive Bull. Is he the interviewer?
And I must say you got an awful lot of information in in a very short period of time, Richard. All good stuff that was coherent consistent and a pleasure to hear. But I think maybe too much for ordinary folk to follow. Bull clearly didn’t try and the next caller thought it the ‘economics of the madhouse’ so he didn’t either.
Although I was very glad to hear it and thought it very worthwhile to do it did make clear what a presentational problem MMT ideas are. We need to keep promoting the ideas but I would be happier if we could make it a bit sexier. Not blaming you for that of course.
Thanks
I accept I did not make it as sexy as I hope
I’ll keep trying
But I can to you – I am used to broadcasting and this is hard
Alan McGowan says:
“I have now listened to it and the show was called Clive Bull.”
Obviously a bowdlerised, short-form pseudonym. 🙂
Most LBC shows are available to listen to on their ‘Audio Again’ service. Unfortunately there is a small subscription to pay for this.
I agree with Rod White – James O’Brien is by far the best of them and his rants about Brexit and the lying incompetents we have the misfortune to be governed by are wonderful. I would love to hear Richard on his programme! James is very intelligent and open to new ideas
They know my number ….
Probably Iain Dale. Tory. It doesn’t seem to be among the free clips but you can sub fairly cheaply for archive access to all the shows.
It’s been the Tory line for a decade that we must pay down this awful national debt for the sake of future generations. It’s the rationale for austerity. It would be very difficult for someone like Mr Dale to hear you implying that debt doesn’t really matter. He probably hears both bonds and borrowing as essentially public debt and heuristically deletes it as a viable option.
Still often politics isn’t about convincing the headstrong person with whom your arguing, it’s about convincing the other people listening. Sorry I missed it, Richard, I’m sure you made an excellent case.
It wasn’t Dale
He nd I do cross swords, quite often
I agree with your comment on who needs convincing – I do this because a listener somewhere may take note
Never mind today’s story about extra money to fund the NHS. What I want to know is two things – where all the extra money that it has already had ( 2000-2018 ) came from, and where we are going to get extra doctors from when the BMA union restricts the supply?
Please read the national accounts re funding
Please provide any evidence that proves the BMA is blocking doctor recruitment. I can’t see it.
Well, It’s obvious it’s the BMA union causing the problem.
Government is totally hamstrung by overwhelming trades union power. The poor dears are utterly helpless against the tide of socialist workers who dictate every move that government can make.
I wonder you haven’t noticed this, Richard. 🙂
I wonder where ‘Angus’ has been for four decades? I hadn’t realised cryogenic suspended animation was so far advanced.
Thanks for patiently hammering away at this. Maybe enough heads hitting against this particular brick wall will eventually break through.
I can hope
An not just mine or it will be very bloodied
Tax pays for services drivel is getting the usual airtime on the BBC.
https://www.bbc.co.uk/news/health-44516123
I am considering writing in a complaint.
Please do
Thank you for your clear and concise explanation about the so-called Brexit dividend and explanation about QE, borrowing and the deficit. I appreciate clear explanations as I readily admit that this whole Brexit thing is very hard to understand to a layperson like me and I no way know more than you or other leading economists. If I remember correctly the presenter was Tom Swarbrick was once in the employ of the PM Theresa May, that explains a lot.
The economics of the madhouse? I must say that the first time I read about MMT I gasped, put the book down, made a cup of tea and re-read the section. At the end of it I thought, how obvious is that. Everything became crystal clear and it was then that I realised that all politicians of all parties are either exceedingly thick or just plain liars. I think it’s a combination of the two but I am saddened that Corbyn and McDonnell don’t seem to be making an effort on this front.
The press would crucify them if they did. Best left till after they’re elected, I’d think.
Biill Kruse says:
“The press would crucify them if they did. Best left till after they’re elected, I’d think.”
Better have the crucifixion now than later.
Why might they expect to be elected if they haven’t got something to offer but more of the same.
Are they really just going to sit and twiddle their thumbs until the Tories dismember themselves so they can take another election by default. ?
Yes, I guess that’s strategy.
“how obvious is that. Everything became crystal clear… ”
Interesting that you say that. My thoughts when I forced myself to accept the simple truth that governments’ spending are not constrained by taxes was to realise how lacking in clarity the rest of my ‘understanding’ of macroeconomics was. Nothing was crystal clear anymore and everything was murky and untrustworthy. And the feeling I have had ever since in reading about MMT is that the wider implications are easy when pointed out but very hard to grasp without guidance. So I tend to have sympathy with the plight (but not the views) of non MMTers.
But I am equally exasperated with McDonnell. He set off so well with his seminars and talked sensibly about mixed economies and ‘The New Economics.’ I had hoped that we were going to see that phrase everywhere in Labour publicity (I still do to be honest.) I thought that with weight behind it that concept could have exposed the Tories’ ignorance of macroeconomics. I thought ‘The New Economics’ could have grown to be an election winner. And what happened to the group of economic advisers that I think Richard was once one of?
He only talks to one of that group now and I know at least a couple who will not talk to him
I am not one of them
I remain deeply frustrated by McDonnell. I just wish he’d be a left winger
Richard, do you know who Mary Robertson is – apparently John’s senior economic adviser?
No, unknown to me
[…] by a ‘fair and balanced’ rise in taxes. PEF Council member Richard Murphy has argued that either creating money or letting more people save with the government (by issuing more government bonds) represent superior funding […]
That was tough going, but patiently handled by you. Thank you for persevering!
Every day, sometimes more than once I tweet your blogs as a reference or to back up my explanations when people challenge or need challenging on Twitter.
No doubt you’ll see this blog pop up very soon!
Thanks
The beeb is just awash with presenters and talking heads who talk such tosh. Labour is just an embarrassment … “Fully coated”.
Surely there are some people in the govt, parliament, boe, beeb who understand the utter nonsense that is being peddled.
Maybe not
MMT beginner here with two basic , perhaps naive, questions. 1. Does anyone have any idea how much additional govmt spending is possible in the UK before hitting the “inflation trigger barrier” ? Would it indeed “fund” the NHS?2. Is the MMT ” dividend” just a one off? By which I mean: so we increase govt spending this year by £x to fund lots of good things like the NHS, higher education etc until we hit the inflation barrier. Great. But what do we do next year when we have more good things we want to spend on, with a permanent committment. We cant spend more without triggering inflation. Are we not back to square one ie we have to either raise taxes or cut spending on something else?
No one knows for certain, of course: let’s not pretend forecasting is that precise
But we have a massively underperforming economy and £20bn is 1% of GDP
There is more slack that that
Jeffrey Lucas says:
“MMT beginner here with two basic , perhaps naive, questions…..”
Don’t beat yourself up about the ‘naivity’ of your questions. You are at least asking the questions not pretending to be offering a rational demolition.
Yes, we can fund the NHS and a lot more besides as long as what the money is spent on is overall, productive for the economy. (Money injected by the bank bailouts and QE was not into the productive economy so will only be a temporary fix. Huge asset bubbles have been created and they will inevitably burst. Latter end of 2019 is widely predicted as crunch time. It’s likely to be at least as chaotic as 2008)
And no MMT not a one off. It’s an on-going process of creating a balanced economy. The cash input is variable in accordance with the requirements of society and it’s ability to harness the underlying resources. It describes how money works in the economy it doesn’t specify what it should be spent on. That’s down to politicians and ultimately relies on the will (and understanding) of voters to elect politicians who know what they are doing.
The deficit we should worry about in the UK is not financial it’s a deficit of competence and understanding.
Well done Richard. Good job.
It’s about time some of these media outlets started challenging these spending and deficit myths.
It’s such common sense.
MMT addresses the question of real resources. Why can they not see this? How much quality healthcare will £20bn deliver? What price is the Government having to pay to access the real resources needed provide the NHS?
Are private healthcare players clinching the essential skills and real resources? Forcing central Government to compete on price to fulfill its public purpose?
The NHS is never a question of affordability, a currency issuing Government can always pay its bills.
It alone should have command of the available real resources, from our public purse.
By failing to invest in the skills, staff, facilities and know-how today, Government is denying future generations the healthcare they might have received had Government today fretted less about balancing budgets and more about balancing the economy and securing our future prosperity.
I Just watched a lecture by Stefanie Kelton entitled The Public Purse in which she explains MMT very well. I watched the whole one and a half hours of it although it was well past my bed-time. Brilliant and compelling.
I started….to finish later
“I started….to finish later…”
She’s very good, but I don’t think you’ll learn much you don’t already know, except how to look gorgeous giving a lecture. 🙂
I’ve had the privilege of sharing a platform with Stephanie
“His whole preamble had been about ‘ having to pay for the NHS’.”
In the end we as an economy pay for the NHS by putting in the work. That is how we will pay for it. As long as there are doctors and nurses who want to do the job, it would be crazy to prevent them from doing it.
(Btw, there are other areas in the economy like this. For example, I know for a fact that there are many extremely talented and highly educated young academics who want to get a job serving the country by doing teaching and research. It is crazy to force them to work in a call center or restaurant or to make them program back ends for webservers.)
Money is just a catalyst that is needed to keep the economy running. If there is not enough, we should make sure there is.
Of course, the leisure class does not like to hear this, because if the people realise how money works, it will reduce the power of the leisure class over the economy. I wonder how the interviewer would could be made to realise that he was brainwashed to act against his own interests.