I have noted that Labour politicians are being asked the question, time after time, ‘Have you costed the circuit breaker?'
The question does, of course, refer to Keir Starmer's advocacy of a two to three-week lockdown to break coronavirus transmission rates. This is seen as an inevitability now, but the government has ducked it, so far. Labour has taken the opportunity to show a first real sign of leadership by Keir Starmer. And then that question comes in.
So let me answer the question in the only way that I could, if it was asked with me. My response would be that of course I have not, because it would be impossible to do so. The complexities are beyond anyone. But the judgement about whether this policy remains relevant, and whether the cost that it will result in is worthwhile, is one that can still be made. That is possible because the alternative can also be appraised. And, in this case, it is very clear that the alternative is to lay, followed by many more deaths, followed by NHS chaos, followed by what, in all likelihood, would be a much longer lockdown, resulting in increased cost. As a consequence, if cost is the issue, although it cannot be precisely appraised, it is possible to work out that a lockdown now is the best possible option.
I do wish that a Labour politician would say this, patiently, and clearly, looking straight into a camera. The claim that lack of precision in costing invalidates a decision has to be rebutted.
There is, though, more to this than that. what has to also be said is that sometimes there are things that have to be done, irrespective of cost. We as a society have to maintain the safety of those we live with, and that means protecting the NHS. That may well be overwhelming. That it is under-resourced is an issue to discuss, but maybe on another day. What matters now is that people are cared for, including those people who work for the NHS, who are also vulnerable, which far too many people forget.
And a wise politician would then also point out that this question does also make no sense when, so far this year, taxpayers have not been asked to make any additional contribution to the cost the government has incurred to tackle coronavirus. Nor, come to that, will they ever be asked for that contribution with regard to this year. And that is because, so far this year, the entire cost of the coronavirus crisis has been covered by quantitative easing (QE). In other words, newly created money has been used to pay for the cost of the coronavirus crisis. This money creation will never be reversed. The net consequence of it is that our banks and building societies are significantly more solvent than they might otherwise be, and that is a good thing in the face of a potential financial crisis. And, importantly, if this money had not been created by the government in this, or another way (and there are other ways, which may be better) then we would have faced a substantial shortfall in the cash circulating in the economy because people and companies have, quite reasonably, been saving during the course of the crisis, and that would have meant that there was a much worse economic crisis to come then there might otherwise be.
What is more, given that this situation will continue, it's quite reasonable to think that more QE will be undertaken and as a consequence whatever the cost of this lockdown might be it is very likely that it too will be covered by new money creation in due course and the cost is, then, covered by the government itself.
Do I expect to hear that explanation? I am afraid not. But I wish I did.
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Its 1939……how much is a war going to cost? Oh, dear, it will cost far too much so we had better just surrender.
🙂
The British said “exactly” that to the Americans, they refused to pay for more weapons in WW2. and the Americans knew it. It left them in a bind, either they said tough to the brits, who in turn probably threatened to end the war with germans and japan, living the Americans to fight them on their own. Hence lend-lease was born.
Addendum not living but leaving…
Darren, by early 1941, the UK had run out of foreign currency acceptable to the Americans. Our government forced the sale of overseas assets (lots of bargains for Americans and other non-combatants to pick up) and transferred some bases to the USA.
The Roosevelt administration knew we were fighting a war which was in US interests as well. They extended US Navy convoy protection half way across the Atlantic (and the USS Rueben James was sunk by the Germans).
The Lend Lease worked both ways. We transferred research in atomic fission, radar and jet engine technology free of charge.
We had to take the deal to continue the war and the US had to give it, but they did so on advantageous terms.
Japan did not enter the war until 7th December 1941
I think a simple response would be “How much would it cost *not* to lockdown?”
Much better answer.
Throw it right back at them (and preferably keep it short and sweet).
What got my goat yesterday was the article by The Guardian’s economic correspondent Richard Partington on this subject when he started his article by saying the following:-
“The government will head into the next election with a black hole in the public finances almost three times bigger than when Boris Johnson came to power, a leading thinktank has warned.”
https://www.theguardian.com/business/2020/oct/13/uk-financial-black-hole-to-be-three-times-higher-than-2019-by-next-election
Why can he get away with using this emotive language or even contemplate using it when the very essence of human being’s use of money is that it’s an IOU where the so called “black hole” is not only being constantly “created” but also “filled in” with the proviso that some allowance has to be made for temporarily setting some of it aside for savings purpose delaying the “filling in?” In other words why does Partington think such emotive language will resonant with his readers? The only answer has to be he’s part of a tribe that’s lost the capacity to reason under the drip, drip onslaught of Libertarian/Neoliberal ideology, that’s the sorry state of the UK.
Even the news of Donald Trump’s claim that Regeneron is a miracle cure for coronavirus when examined from a financial perspective reveals it unlikely to have been developed if government hadn’t financed the bulk of the research:-
“In October 2017, Regeneron made a deal with the US-government Biomedical Advanced Research and Development Authority that the government would fund 80% of the costs for Regeneron to develop and manufacture antibody treatments, including now their Coronavirus disease 2019 treatments, and Regeneron would retain the right to set prices and control production. This deal was criticized in the New York Times. Such deals are not unusual for routine drug development in the American pharmaceutical market.”
https://en.wikipedia.org/wiki/Regeneron_Pharmaceuticals
Some Non-Libertarian/Neoliberal “black hole” money creation and filling in going on there but even this washes over the heads of the effectively brain-dead British voters when it comes to understanding the financing of anything. Why for example is the practice of allowing private banks to create bank loans not seen as a “bad” thing because as soon as a member of the public writes their signature on the loan document a black hole’s been created?
Why isn’t the Labour Party taking up the challenge of the “government black hole” instead of allowing itself to be dragged around yet again by Libertarian/Neoliberal ideology? What worth is any political party that doesn’t do this after decades of the population experiencing the negative effects of the ideology, even being a driver of Brexit because of the effect of years of austerity cuts!
That annoyed me too…
Helen,
Dean Baker is also onto this issue of pharma and licensing ,pointing out the big drug companies in the USA are having their cake and eating it, getting paid for research and the getting patent protection once they discover a cure ,all based on public money
https://rwer.wordpress.com/2020/10/11/waiting-for-a-vaccine-killing-for-inequality/
Most of the UK’s big pharma companies are also technically insolvent at group level…but not at parent company level, I stress, and so can legally trade
This is nothing more than the difference between news and opinion in the media. It was filed under ‘news’ on the website. I wasn’t at the IFS event, so I’m assuming Richard Partington faithfully reported what Paul Johnson et al said there. One may not like what they said, but that’s what he said.
Quite correct.
Have you costed the lockdown ?
No, but neither has anyone costed not having a lockdown now, and we all know that putting things off invariably makes them more expensive in a financial as well as the calamitous human cost.
Lets all shut down for 2 weeks and cut everyone a cheque for £800
It’s also very interesting that QE appears to be the acceptable face of monetizing government debt, since it lend a lie to the Maastricht treaty’s prohibition on the central banks funding government spending.
It is very simple. The cost of the alternative (in human and eventually in economic terms) will be worse. And it doesn’t matter if this is something that (as the scientists tell us) needs to be done. Indeed, it is probably already too late, yet again. We have already locked in another doubling of deaths, possibly worse.
I don’t understand why don’t stand for parliament and reason your arguments on a meaningful platform instead of a blog. Fair enough it earns a few pennies for you but achieves diddly squat
Because whoever hears the voice of a backbencher?
Many years ago the late Michael Meacher told me to keep doing this – it was much more importamnt
FPTP
Last night C4 News, Kathy Newman asked Angela Rayner about ‘destroying the economy’ versus the fact the Covid was only responsible for so many deaths. I was incensed with such questioning to be honest and once again I nearly dove into the tele.
Rayner did not do too badly – even when Newman kept asking if Labour had costed the circuit breaker. But Rayner could have been more frank and straight to the point about the lack of financial support available to workers and councils (although she got there in the end – almost). There is still something lily-livered about Labour in all of this.
Before Rayner, Newman had been talking to a medical expert who has said quite plainly in my view that the economic harm was not being done by the virus, or the lockdown (and he felt that schools should be closing again) but by the polices that the Government had been following – i.e. not helping people enough with the financial hit of the lock down as well as the over-centralised nature of track and trace (or as we should call ‘trick and unleash’?).
As Jim says above, no one worries about the cost of a war if it has to be fought. I can’t remember there being much hand wringing when we were bailing out banks in 2008 just so we could out hands on our money anyway. This is a time of plague and much good work to be done and yet…………………….the Government response is more akin to the sort you get before the Enlightenment.
Johnson uses war rhetoric to take on Covid without the backing it up financially.
And what is worse to me is that with so many politicians convinced that taxation pays for Government spending, you’d think they’d be committed to protecting the income streams from workers and companies that are taxed to protect the income stream to the Government anyway!!
But no – they just don’t make sense. They are happy for people and companies who would be paying the tax they falsely believe pays for Government spending to go under without the right amount of help and then (wait for it!) put tax increases on a smaller economy when Covid is eventually defeated (as well as austerity)!!!
I mean WTF? It’s insanity – plain and simple. It’s becoming almost intolerable now, this amount of stupidity. It really is. My God – if we are still around in 200-300 year’s time, what will they be writing about this time?
I did actually get the idea for the blog from that interview
And Cathy Newman does subscribe to my twitter feed – I am one of only a few hundred people she does follow
She subscribes!!!!?
So how can she ask such inane questions?
She may not read
If you ever get the chance it might be helpful if you could do a blog explaining your statement that “This money creation will never be reversed”. When you say the debt and deficit aren’t really as big as reported because we shouldn’t count QE an argument against you is that you are wrong because like all government debt it will have to be paid back eventually and so the debt and deficit really are as a big as the conventional view says they are. The BoE still talks about reversing QE, e.g. here
https://uk.reuters.com/article/us-britain-boe-hauser/bank-of-england-expects-balance-sheet-to-halve-when-qe-reversed-idUKKCN1UC0UV
I know you have mentioned in various fairly recent blogs that QE will never be reversed and have given some reasoning, and have done some full blogs on this a few years ago back when PQE was getting a lot of attention, but a lot has changed since then, including the US undoing some of their QE, so it might be helpful to do an updated blog on this topic, including the main arguments for Quantitative Tightening, that it will be needed to increase interest rates and decrease inflation etc, and covering the effects of the US QT (apologies if you have done a full blog on this fairly recently and I missed it).
I think this is important because it is a key argument against QE being an application of MMT, that QE will have to be reversed. I think when the US did Quantitative Tightening it actually did a lot of harm to your position because it means we can no longer say no country has ever reversed QE and no country ever will, and now one country has done it it means people can say it shows everyone will do it eventually. The best we have now is that we can say Japan has been doing QE for 20 years and never reversed it.
Just a suggestion, I now how busy you are and so you might not be able to cover this.
Simon
I have been in long, and involved, correspondence with the ONS, also involving the OBR and Treasury of late. I am told I will receive y next reply to that correspondence tomorrow but that they expect the debate to continue between us.
I have not published anything from that exchange as yet, because I want to make sure I fully understand their position.
When I do publish I suspect it to be pretty full in its analysis. In general I would like to wait until then.
I would also add that in general my point is a very simple one to make: when we will be adding at least another £500 billion to what is described as the national debt over the next few years, according to the IFS and the OBR then I see no capacity existing, at all, for any form of QE reversal. Even the US reversal was of very small amount. The simple fact is that in that case, and using a substance over form accounting argument, which I think appropriate, and which should also be used in my opinion, these balances have been monetised. If they have been they are never going to be reversed. No, I suggest, are they in the national debt in that case. But this is an issue on which I will elaborate in due course.
@ Simon C
Why would you want Inactive Reserves (which is what the government’s monopoly issue of gilts is) to be issued again but this time by the BoE which has used its monopoly power to create Active Reserves to monetise the gilts thereby putting money in the government’s BoE spending account? The BoE could if the rules were changed omit this elaborate procedure and directly use its monopoly power to create Active Reserves and put them in the government’s spending account as when called up to do so. This would then leave the government to separately create Inactive Reserves (gilts) to satisfy the private sectors desire for saving. However, given MMT rightfully argues government and the central bank should be viewed as one entity does it actually whether the government or the central bank issues savings instruments like gilts? Which should also bear in mind the government can control bank rate through the BoE paying interest on clearing bank reserves.
You correctly split these so-called reserves
But reserve accoutn9ing is also not liability accounting….
Simon C,
We have a central bank that says one thing but does the opposite. It is creating money, which is plain to see. They created £435bn from 2009-11 with no sign of reversing it prior to 2020. They have now extended that by another £310 bn and as Richard keeps pointing out there is a most definite likelihood that we will be seeing a lot more soon.
Now the BoE likes to pretend that this is all reasonable and it will be reversed….at some point. Well fine, so let us just do it now, we can worry about reversing it as and when the economy looks more sustainable. Right now though it is not going to happen ,but the central bankers are also in the PR game and “forward guidance “has become a ruling philosophy. Besides they don’t want to frighten the horses about money creation, people tend to get very wobbly at the thought.
Far as I see it though is this is all so much hot air. They can say what they like ,there will be no reversal of QE for a very long time.
Much more to come on this soon….
It’s everything, not just economics. Labour are frightened of upsetting anyone and the Tory criminals use bullying tactics such as the unattributed tweets doing the rounds last night propagated by their sleepers in the media (https://www.thenational.scot/news/18793001.four-identical-senior-govt-source-tweets-show-wrong-uk-media/).
Biden had it right calling Trump the worst President ever. Starmer should be doing the same with Johnson and his band of criminally negligent third rate mediocrities, calling them out for their culpable failure – we could have done it like NZ, another island, and be back to near “normal” by now – and tackle the bullying language head-on, just as they should be tackling the economic case head-on as explained above.
It makes me very angry to see the way Johnson & co get a free pass for all their failures, lest Labour be called “unpatriotic”. Labour are now part of the problem, they are becoming collaborators in the climate of complacency, incompetence, lying and what looks like corruption – over Covid and Brexit.
I cannot understand how it is that so many people in England are content with Johnson and the way he is guiding the country towards twin cliff-edges.
Saving the economy for all and individual saving for a rainy day both have one thing in common where does the money come from to do them. A question the majority of British voters refuse to make any serious inquiry about. This makes the UK a child nation!
Well I was quite happy lending my money (proceeds of a house sale until I buy another) to the Government via national savings at the grand interest rate of 1.16%. As that is now being reduced to 0.01% I am moving it as fast as I can to other places.
Part of the problem is that many journalists, and most Labour MPs for that matter, have given up (or been instructed to give up) trying to insist that debate is based on reason and evidence rather than repeated unsupported assertion. Neo-liberal economics purports to be a scientific model of the economy but is now so detached from any attempt to account for evidence and experimental results that it is simply ideology, but where apart from in blogs like this are its crass assumptions being challenged.
QE dilutes the value of savings, and debt and is therefore redistributive. It also allows the state to redistribute resources from private control for public purposes. With current levels of inequality it is a good thing and would be better still if the money created was invested more directly into public provision. Most of the QE since 2010 has simply been used to reflate asset values for the wealthy while the public have suffered increasing austerity. This has reversed most of the redistributive effect.
QE is heavily redistributive upwards now
Green QE would reverse that process
can anyone explain, given the MMT framework, whether Debt to GDP ratios have any meaning whatsoever?
Lets say the government ends up running really high deficits over the next few years to sustain some kind of Y, given that C, I and X-M will all be reducing. So debt to GDP could potentially be 200%. 250%.
Does that have any significance or meaning at all, or is it just simply putting 2 elements of macroeconomic data together to create an arbitrary ratio?
i ask because Aaron over at Novara was once again bleating on about debt to GDP ratios saying 150, 200% was unsustainable and not possible (to which i immediately thought about Japan)……….. his cohort Michael Walker asked him ‘why’ and he didn’t have any real answer to that question, other than ‘historically unprecedented’ and ‘would require a huge burden to pay it back’.
As I mentioned to Simon C, I am doing a lot of work on this issue and expect a big report on it soonish….
I would like to wait until then
But Aaron is talking nonsense because he does not (like 99.99% of those who comment, including the IFS) seem to know what is in the national debt, and not (maybe) do the ONS either. come to that
By my recollection, when interviewed on the Today programme by Nick Robinson this morning and asked the precise question ‘How much will a circuit breaker cost?’ Rachel Reeves did answer by saying that not having a circuit breaker would cost more.
Right answer
I too am intensely annoyed by Labour not highlighting the obvious personal, social and economic costs of not having this two week shutdown.
I’m also immensely annoyed at the Conservative party not being pressed on the personal, social and economic costs of not shutting down.
But shutting down would be fairly pointless (in my estimation) if the opportunity isn’t taken to ensure Track & Trace is up to the job.
The last is vital, as was noted in The Lancet today
Absolutely!
Incredibly bad article from a so called Democratic Larry Summers, if this is how the left wing of the USA we’re in deep trouble.
https://www.belfercenter.org/publication/lefts-embrace-modern-monetary-theory-recipe-disaster
Article is from last year.