A vision for the future.

MaizieD

icanhandthemback

So, has any country done this successfully?

Has any country done what, successfully?

Created the money and spent it in the way you were talking about, MaizieD.

"Glorianny".

I didn't presume to see the organisation of London hospitals as anything other than a step on way. Those writing the history of the NHS include this.

We were discussing the fact that government cannot and does not change things instantly. The NHS was simply an example.

All the stones thrown at Starmer only help his opponents. The general assumption is that this government will hang on until the last minute. This in the hope that things will get better. That means the election may not be until January 2025.

Until the election announced, Starmer can do nothing other than oppose. Once it has been announced he can start telling us what has been decided in the way of policies. Even if we get a non-Tory government, we can't guess its makeup and he will not know what is possible until we do. And politics is the art of the possible.

icanhandthemback

MaizieD

icanhandthemback

So, has any country done this successfully?

Has any country done what, successfully?

Created the money and spent it in the way you were talking about, MaizieD.

Well it was done when the bank were in crisis.
The National Audit Office (NAO) estimated that total guarantees added up to over £1 trillion at peak support
en.wikipedia.org/wiki/2008_United_Kingdom_bank_rescue_package#:~:text=At%20its%20peak%2C%20the%20cash,been%20recouped%20over%20the%20years.
Imagine what £1 trillion would do in housing provision.

I'm not sure going for an unproven monetary policy would win more votes than it losses Maisie. In fact it could loose the election.

However, they would not stop a move to more Keynesian theories if they talk about "fixing the roof while the sun is shining" and "save in the good times to spend in the bad". Such comments would be comfortable for centrists, small "c" Conservatives and fiscally consevative left wingers.

They need those votes.

I think the key issue for any financial model is whether the institutions, influencers, media and voters have faith in it. Something unproven scares the horses. You only have to look back at what Liz Truss wanted to do to see the impact of getting it profoundly wrong. Something which looks prefect in theory may be the opposite when you try to implement it, because what is perfect model for some isn’t for others.

If we look at money available to the population of 45million post WW2 and available to the current UK population of some 66 million it is clear that the supply of physical money has expanded hugely and that isn't because it's been 'earned' by trade with other countries.

Money creation in full view.

I am waiting for an alternative explanation from all those who don't believe it.

Modern monetary theory MMT is a controversial economic theory and is roundly condemned by both Keynesians and Friedmanites. The notion that a government can continue to print money without adverse consequences like hyperinflation is dangerous, wishful thinking. Weimar printed enough that people used wheelbarrows to carry it around and the consequence was Hitler.

I think that it would be very useful and interesting to explore MMT and its critiques more in depth. Tbh.

I have studied the three main ones - classical, Keynesianism and Marxist theories, but that was back in the mists of time and I have never really looked at MMT in any depth, although I’m not sure it would count as another main economic theory as I don’t think that is has anything to say about how whole economies work, but I am happy to be put right on this one.

So giving this a bit of thought.

MMT is a theory that describes how governments create money to fund public services.

At first glance it seems to me to potentially be an off-shoot of Keynesian economics, which advocates government spending in particular economic circumstances, however, I suspect it goes further than Keynesian economists would advocate?

Grantanow

Modern monetary theory MMT is a controversial economic theory and is roundly condemned by both Keynesians and Friedmanites. The notion that a government can continue to print money without adverse consequences like hyperinflation is dangerous, wishful thinking. Weimar printed enough that people used wheelbarrows to carry it around and the consequence was Hitler.

It's not about 'printing money without adverse consequences'.

Governments 'print money' (though I wish people would stop using that silly expression because only a tiny proportion of our money is in physical form) all the time.

How do I know this?

a) Because some academics and economists have bothered to find out exactly how money gets into the economy

and

b) Because the Bank of England tells me that that's what they do..

I have posted the link to their explanation often enough but I doubt that many have bothered to read it. It's much easier to google some random critical quotes, usually written by people who don't have much understanding of MMT themselves.

For those excellent googlers I recommend looking for the Bank of England Quarterly Bulletin 2014 (1st quarter I think) and read the article on Money Creation in the Modern Economy.

I'd also suggest that they find some decent academic articles about the cause of hyperinflation in the Weimar Republic (and Zimbabwe and Venezuela and anywhere else that gets trotted out with depressing regularity) and then explain how the social and political conditions in the UK are the same as those obtaining in those countries.

I don't think MMT is relevant Maisie.

This is an unknown, untried form of Economics. It is currently only backed by a small minority of economists. I can't see why you would think a political party would put it forward at this point in time.

The one thing labour always gets slammed for is that they are presumed not to be good with the economy. It isn't true. The party which b**g**s up the economy and makes so many people worse off has been the Conservative Party.

However, they can talk the talk, and they have the printed press on their side. Now, with fewer and fewer younger people reading the printed press, it is no surprise that fewer younger people are voting Conservative. They are also not voting Conservative as they get older. What has this party left them to conserve? Hopefully, this method of deception will eventually disappear. As we know from Gransnet, the truth is often not what people care about. They want to be told their opinions and prejudices are right.

Because of the lies and obfuscations, the Labour Party have to make it clear that they are fiscally prudent. They are. If you read the truth instead of Tory propaganda, they generally leave the economy in a better shape. The Conservative Party get into power on the back of lies. They then spend that money very unwisely, often to lower taxes for the people who least need it. The country suffers once again. Eventually, we vote for a non-conservative government. And the whole cycle begins again.

Just imagine. You're not one of the elite, but you've worked hard and saved well. Along comes this "really nice chap", who went to a "very good school" who tells you he knows all about money. You believe he must know because he has plenty of his own.

He tells you he can invest that money in a way that will put you in a position to own your own home, retire very comfortably and help your children. But he goes off, mishandles your money, and spreads what's left about his "chums". Each time he does this, you blame the boring accountant who sets you on the path to sorting it out and helping all those he has conned back to a better life. But every time this happens you go back to the guy who conned you and repeat the process. Please tell me why, oh why, anyone would do that. Because that is exactly what Conservative voters do.

I don't think MMT is relevant Maisie.

Well, I do, DAR, because if you can understand what MMT tells you, which is how money is issued by a government into the economy and that it is description of how money issuance actually works, then you can ignore the 'how are you going to fund it?' question which kills parties at General Election time if they don't conform to the 'taxation funds spending' myth, you can make better judgements of parties' spending plans. Asking, who are these plans going to benefit? and, are they plans which will benefit the whole economy and the people within it?

This is an unknown, untried form of Economics. It is currently only backed by a small minority of economists. I can't see why you would think a political party would put it forward at this point in time.

It's not aa 'form of economics', it's a description of what happens. As I have said, countries have done this for years and years. I note that no-one is responding with any different theory of how the supply of money in the country has expanded along with the growing population...

Political parties don't dare put anything except the taxation funds spending myth forward because voters believe it, compare the national economy with their own household economy, and vote accordingly. Not on the actual policies but on their perceived cost.

The large amounts of money raised, as I described, by QE and for covid are examples of government money creation in action. The government bonds, to the tune, by now, of some £800 billion, which were 'purchased' by the Bank of England, on the instructions of the government, were purchased with money created by the BoE for that purpose. As the BoE belongs to the state and the state can't owe itself money any pretence that it is costing us anything is nonsense. The interest that the BoE pays to itself (the nominal holder of the bonds) on behalf of the Treasury (i.e the govt.) is an accounting fiction.

I agree with your analysis that voters are hoodwinked by political parties, but if they know that they're being hoodwinked they are in a better position to judge the value to them, and the country, of the policies which parties propose.

I reiterate that the essence of MMT is that it is descriptive. The reason that many think it is also prescriptive of left wing ideas is that most of its proponents tend to be left wing. But, as we saw with the covid money, the right wing is just as able to use it to further their own policies, channelling created money to mostly enrich their supporters and donors.

P.S The £800billion of BoE created money has not caused our domestic inflation.

So in your view it is not an economic theory developed from Keynesian economics, but simply a description of what to happens to government debt?

If that is so why the controversy?

MaizieD

P.S The £800billion of BoE created money has not caused our domestic inflation.

Quite right because it was needed to protect the mass health of the population, it can be argued wether it was well spent but all countries were effected and doing similar spending.

Current inflation is mainly due to high energy prices and food shortages plus a little help from Brexit.

Whitewavemark2

So in your view it is not an economic theory developed from Keynesian economics, but simply a description of what to happens to government debt?

No, it's not a description of what happens to government debt.

It's a description of how governments with a sovereign currency issue money into the economy and finance their spending.

Try this, an analysis of UK government accounting and method of payment of public spending:

www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_purpose/files/the_self-financing_state_an_institutional_analysis_of_government_expenditure_revenue_collection_and_debt_issuance_operations_in_the_united_kingdom.pdf

Katie59

MaizieD

P.S The £800billion of BoE created money has not caused our domestic inflation.

Quite right because it was needed to protect the mass health of the population, it can be argued wether it was well spent but all countries were effected and doing similar spending.

Current inflation is mainly due to high energy prices and food shortages plus a little help from Brexit.

I'm happy that someone agrees about this and will not be claiming that 'taxpayers' have to repay the created money...

It could be repaid of the government actually wanted to reduce the national debt, indeed 2 or 3 yrs in the last 50 the debt was actually reduced.

Creating money to pay for Covid is fine, it’s not viewed in the same way if borrowing is made for social enhancements or political advantage. Financial investors are not at all interested in the comfort of the population, they want a secure return on their investment, no more. Speculators on the other hand want volatility to sell futures as Truss found out gets out of control very fast.

Re your first sentence, Katie 59. Who is it going to be repaid to? It wasn't borrowed from anyone. It was created by the BoE.

MaizieD

Re your first sentence, Katie 59. Who is it going to be repaid to? It wasn't borrowed from anyone. It was created by the BoE.

As you explained above money is created by the BoE buying Bonds, those bonds are not perpetual they mature and expire after 10 yrs. This process is continuous expiring bonds are replaced with new ones, if the current needs are static. If Government needs are more then more bonds are issued which happened on a large scale during Covid.

The advantage of QE is that interest is technical and cancels itself out, the amount of QE is accounted for in the same way that purchased bonds are and included in the national debt.

Thanks I’ll look at that after dog walk (plenty of time - rain😧).

I do understand what you are saying regarding the way governments fund their spending, my problem is that I am stuck in Keynesian mode, so the idea that governments spend without apparent consequences is what I find difficult to understand?

But first I must do some more reading.

Just to say quickly before I go. I don’t understand how inflation is dealt with in MMT, nor do I understand why MMT argue that the “natural” inflation rate is zero? What about employment if there is price stability.

See? I’m stuck in Keynesian mode😄

Hopefully I can get to grips with this and other stuff later🙂

Katie59

MaizieD

Re your first sentence, Katie 59. Who is it going to be repaid to? It wasn't borrowed from anyone. It was created by the BoE.

As you explained above money is created by the BoE buying Bonds, those bonds are not perpetual they mature and expire after 10 yrs. This process is continuous expiring bonds are replaced with new ones, if the current needs are static. If Government needs are more then more bonds are issued which happened on a large scale during Covid.

The advantage of QE is that interest is technical and cancels itself out, the amount of QE is accounted for in the same way that purchased bonds are and included in the national debt.

But money isn't created 'by' the BoE buying bonds, it is created by the BoE 'for' buying bonds. Can you see there is a difference?

My original point was why does the BoE have to go through the process of bond purchasing, with its accompanying accounting fictions, when it could just directly pay govt. suppliers?

Why do you want the QE bond purchases funding to be included in the 'national debt' when it isn't 'owed' to anyone?

“My original point was why does the BoE have to go through the process of bond purchasing, with its accompanying accounting fictions, when it could just directly pay govt. suppliers?”

Because it makes the creation transparent, the international markets can see how much is being created and make a judgement about the risk they are taking trading with the UK.

It’s all about confidence