Where has the money gone?

Farzanah

I’d start with the banks. Look at the high interest rates and the profits they have made this year for example.

It always comes back to the banks 😡

It seems the unevidenced experiment of Austerity between 2010 and 2019 caused total economic damage to the U.K. (also some other European countries)

I saw on the Public Economy Forum, using figures from the OBR, if growth in public spending prior to 2010 had been maintained, government debt would have been reduced. Instead real wages and job security were undermined, and we are now left with ravaged health and public services.

Austerity set the stage for Brexit, then Covid caught us unprepared and then the War in Ukraine

We are left with the legacy of a divided country where the well off become richer and the others, poorer. Ideology over evidence yet again.

I think a weakness in the UK is that we don't plan and prepare. The government had been warned before the Covid outbreak that if a pandemic arrived we would not have adequate protection. So what to do? Continue NOT to prepare. Then when the pandemic became a reality panic set in and vast amounts of money was wasted.

Greta

I think a weakness in the UK is that we don't plan and prepare. The government had been warned before the Covid outbreak that if a pandemic arrived we would not have adequate protection. So what to do? Continue NOT to prepare. Then when the pandemic became a reality panic set in and vast amounts of money was wasted.

As far as the covid debacle is concerned the weakness was that the government was told of our weakness in pandemic preparation. At least two pandemic exercises had been carried out in the previous decade but the government just ignored the recommendations of the exercise reports.

The government ignored the recommendations with regard to preparing for a pandemic MaisieD because it didn’t fit the Austerity agenda.

As Richard Murphy mentioned today, the U.K. is not short of money, it is wealth distribution that is the problem, and the real crisis we face in this country is inequality.

Inequality maintains the status quo, and I doubt even a change of government will make a difference.

WW2:
'What’s the opposite to creates?'

I think it's just evaporated (somehow) into shareholders' accounts.

The opposite of money creation by the state (the only agency that can legally create our currency) is destruction of money. Which the state does by taxing it back.

Banks create money for loans under licence from the state. Loan money is cancelled/destroyed when the loan is repaid.

Much of the money the state creates is cancelled by taxation, but money that is saved, by investing in shares & bonds, or deposited in banks/building societies, or in state savings vehicles, NSI & Premium Bonds, doesn't get taxed until it's spent.

But my real question is, if the state has put all that money into the economy, but has very little to show for it in terms of improvement to infrastructure, and has actually declining public services, where has the money gone?

Why hasn't it benefitted people and services that are in need of it?

What I don't understand is why the Conservative govts since 2010 have been so keen on austerity. I get that it's a major part of their ideology but why would they want to see most of the population getting poorer. How does it help them.

I understand divide and rule, as is happening now with the migrants/refugees. I think by now that most of us know that they could have continued to fund the asylum processes but that they've chosen to spend that money on projects designed to inflame numbers of the population.

What I don't understand is why?

We should ask the government to explain. Democracy demands it.

Greta

We should ask the government to explain. Democracy demands it.

Unfortunately we've at least a year before we can do that.

F.

Dinahmo

What I don't understand is why the Conservative govts since 2010 have been so keen on austerity. I get that it's a major part of their ideology but why would they want to see most of the population getting poorer. How does it help them.

I understand divide and rule, as is happening now with the migrants/refugees. I think by now that most of us know that they could have continued to fund the asylum processes but that they've chosen to spend that money on projects designed to inflame numbers of the population.

What I don't understand is why?

It's very easy to understand because it is based on everyone accepting the premise that a country is like a household or a company and has only a finite amount of money, which has to spent 'wisely'. Not only that, but households should never get deeply into debt.

The theory behind austerity is that when a government spends some of this finite amount of money on public services it deprives (crowds out) the private sector of money to create new businesses, and thus new jobs, to 'grow' the economy.

The public sector also diminishes the pool of labour available to the private sector, and so cuts their opportunities to produce more goods and services to sell at a profit.

In addition, public sector spending distorts the workings of the markets because there is no competition in the provision of public sector goods and services. It also leads to inefficiency in the public sector because there is no incentive in the public sector to produce goods and services at the most cost effective rate.

So, by cutting public sector spending it will free up money for entrepreneurs to enter the market and create jobs.

If you combine this theory with privatisation of the public sector you achieve a market economy in which competition drives down costs and prices and the market will supply all that the consumer needs.

I think I've got that right. Willing to be corrected.

Needless to say I don't support this economic theory.

I should emphasise that it is only one theory among several. It just happens to be the one which the US and the UK governments subscribed to in the 1980s and has been dominant ever since.

Can anyone else see the big flaw in it?

(and, it's nothing to do with money creation/borrowing)

DaisyAnneReturns

F.

Very cryptic, DAR

Thanks for the explanation Maizie

It didn't work though did it?

Dinahmo

Thanks for the explanation Maizie

It didn't work though did it?

Of course it didn''t.

Can you see the flaw (s) in the theory?

MaizieD

DaisyAnneReturns

F.

Very cryptic, DAR

It's for follow! I use it all the time on Facebook when someone asks a good question. I was going out and it takes me back to were I had read up to.

I agree with Farzanah that the problem is growth of inequality, but not with her nod to Murphy that the U.K. is not short of money.

Obviously, we are still a rich country. However, we are not as rich as we once were. This must mean that somehow wealth has actually "gone".

Taking money out of the economy means it is not traceable by that economy and that the original economy has no lien on it.

This can be explained by the vastly increased wealth now in the hands of a few who can afford to offshore it and, in effect, take it out of the economy.

This can be explained by the vastly increased wealth now in the hands of a few who can afford to offshore it and, in effect, take it out of the economy.

I agree with you that that is what has ultimately happened to the money that the state has spent into the economy. But how has it managed to bypass what the state was supposedly spending it on; infrastructure and public services?

I;m not sure by what measure we were supposed to be a 'rich' country.

Murphy is absolutely correct that the UK can always pay its bills because it cannot run out of money. That is what he says, not that the UK is 'not short of money'. There is a difference.

P.S, Dar. do you have a critique of my explanation of the theory behind 'austerity'?

If I haven't got it wrong, do you have a critique of the theory itself?

Where has the money gone?

Recently, paying for Covid protection for the population, some well spent, some wasted, plus Brexit deficit due to weak sterling.

Previous to that, for social improvements, QE after the 2008 crash, pay for income tax cuts

“Murphy is absolutely correct that the UK can always pay its bills because it cannot run out of money. That is what he says, not that the UK is 'not short of money'. There is a difference.”

In theory the BoE can create as much money as it wants to, in practice it can’t and won’t because the value of sterling will fall and inflation will increase. The reality is that nobody is going to invest in Sterling at say 5% if they think the value is going to fall by 5% or any other interest pairings.

It’s not just Sunak’s problem it will be Starmers problem if he wins the next election.

In theory the BoE can create as much money as it wants to, in practice it can’t and won’t because the value of sterling will fall and inflation will increase.

That is absolute nonsense, Katie59. It does it all the time and commercial banks do it daily under licence from the BoE. Every single new bank loan, be it a mortgage or a business loan, is newly created money.

Inflation stayed stable over the period 2008 - 2021 when the BoE had created some £900 billion of new money via QE. I don't understand why people keep ignoring this inconvenient little fact and trot out the 'causes inflation' mantra.

Sterling has been going up and down because the economy is not doing well, it dropped with the Brexit vote and has never really recovered. In fact, some £60 billion was created by the BoE to bolster the pound just after the vote to leave the EU. They'd hardly have done that if they thought it was going to devalue it further..

And you're getting sterling and gilts confused again.

I have opinions Maisie, like you. They are based on the thin knowledge of economics that I have gained over the years. I wouldn't dream of "critiquing" your views. However, some of what is said doesn't agree with what I already understand.

Much of what Murphy says is Keynesian. I'm happy with that; I don't have a problem with it.

You say Murphy is absolutely correct that the UK can always pay its bills because it cannot run out of money. But we know, from experience and what the majority of economists say, that we can devalue money by overprinting it. That way can destroy an economy. I disagree with this part of MMT. I am not arguing with you. However wrong I believe this to be, you are entitled to your views. My small learning and experience, does not lead me to the same conclusion that your learning and experience leads you to.

“Sterling has been going up and down because the economy is not doing well, it dropped with the Brexit vote and has never really recovered. In fact, some £60 billion was created by the BoE to bolster the pound just after the vote to leave the EU. They'd hardly have done that if they thought it was going to devalue it further..”

They created £60bn to prevent sterling falling further , the currency had just lost 30% of its value they had bills to pay in dollars and Euros.

Banks make loans with new money, in theory yes, but it is regulated by the BoE base rate and the reserves banks have to hold

Modern Monetary Theory is just a theory it is subject to the confidence of investors and currency changes. From 2008 to 16 sterling halved in value which you conveniently ignore