Where has the money gone?

I’m still reading with interest, but no time to post sensible comments🙂

Just to say I do agree with maizie that it is a description of government use of fiat currencies.

What I’m trying to understand is those economists who promulgate this - where do they stand in relation to the mainstream theories? I would guess that it developed from Keynesianism, but I am happy to be corrected in this.

I’m off now for the day.

MaizieD

We have to find a way of increasing the income from taxation if we want to maintain the welfare state we have, we cannot keep borrowing/creating money because it is not producing the growth needed^

It's not producing growth because it is not being directed where it could stimulate growth.

Far, far more than 'the odd billion' has been hived off by corruption; or directed to the wealthy who don't spend any more in the domestic economy or invest in new businesses but use the money to create more wealth for themselves by speculating in the financial markets.

The wealthy do not pay enough tax, because they are legally using the tax regulations we have, that’s not corruption. The way inherited wealth can be passed to families really does need an overhaul.

We have to find a way of increasing the income from taxation if we want to maintain the welfare state we have, we cannot keep borrowing/creating money because it is not producing the growth needed^

It's not producing growth because it is not being directed where it could stimulate growth.

Far, far more than 'the odd billion' has been hived off by corruption; or directed to the wealthy who don't spend any more in the domestic economy or invest in new businesses but use the money to create more wealth for themselves by speculating in the financial markets.

M0nica

MaizieD I do understand the principles of MMt. I have critiqued it on numerous previous threads. Further up this thread I refered to examples of its use in Venezuela, Zimbabwe and post WW1 Germany, and the effects of its use, with caution, in Quantative Easing in this country.

None of these examples have been outstanding successes. hence my comments about clinging to ideas and ignoring signs that they are not all they are made ut to be.

Why do you take absolutely no notice at all of what I write, MOnica?

MMT IS A DESCRIPTION OF HOW A COUNTRY WITH A SOVEREIGN CURRENCY IS FUNDED

IT IS NOT PRESCRIPTIVE, IT IS DESCRIPTIVE.

The fact that you refuse to address what I say, refuse to provide any meaningful critique of a key research paper and continually trot out Zimbabwe etc. as if they are killer blows when in fact they were very specific and context dependent examples of misuse of a power which all countries with a sovereign currency exercise all the time with no ill effect is deeply frustrating.

You aren't refuting anything, just tilting at a straw man of your own making.

Sure the odd £billion has been hived off by corruption of one sort or another but does not account for the £10s of billions we are adding to the deficit every year. It’s the ever increasing social protection spending, NHS, benefits, tax credits and all the rest we take for granted.

We have to find a way of increasing the income from taxation if we want to maintain the welfare state we have, we cannot keep borrowing/creating money because it is not producing the growth needed

The BoE can arrange as much money as it needs to and banks can lend as much new money as borrowers can afford but MMT hasn’t been working for the UK for at least 20 yrs.

Witzend

I can’t remember the details, but recently I read a piece about what the writer evidently thought is a hugely bloated civil service* with masses of CSs on £100k plus salaries, and presumably pensions to match.

*Especially when compared to its efficiency, was the tone of the piece. It was in the Times or the Sunday Times, can’t remember though.

So that’d be at least one drop in the squillion quid ocean.

From my perspective and experience the piece you read was very much ill informed. Not least every damm government in the last 25 years not only talks about but does reduce the cost of government ie makes civil servants redundant. Hence there are not enough civil servants in the immigration service, department of works and pensions, hmrc, and on and on. The civil service salary has not been competitive to the private sector for decades. The pension used to be attractive but that has diminished and university talent does not see it as a good job as once it was. Fact check articles you read because the media is circumspect on the accuracy side of information.
If masses of civil servants receive £100k plus salaries I never met any during my time working in department of Education, mod (navy) and DWP and I was an assistant director. Incidentally myself and my team regularly worked over our paid 37 hpw doing more like 50hpw.

... to their mates/families and to themselves in shares etc.

CORRUPT - and we need shot of them URGENTLY!

They are deliberately dwindling the coffers, so that whoever does get in will have a massive fight on their hands, and the Tories will obviously use it against them in the hope that they may get back in. This will take decades to sort, not just 4 years ...

MaizieD I do understand the principles of MMt. I have critiqued it on numerous previous threads. Further up this thread I refered to examples of its use in Venezuela, Zimbabwe and post WW1 Germany, and the effects of its use, with caution, in Quantative Easing in this country.

None of these examples have been outstanding successes. hence my comments about clinging to ideas and ignoring signs that they are not all they are made ut to be.

Where has thc money gone?

It's obvious

Into the coffers of Tory Party donors and Tory supporting criminals like Michelle Mone/

M0nica

MaizieD I have read your post again and it doesn't change my opinion.

I am in complete agreement with cc

How can you have an opinion of something that you don't appear to understand?

I have explained time and time again that MMT is not in any way a theory of how an economy should be run. It doesn't prescribe any thing at all. Its proponents may suggest ways in which this knowledge can this can be used, but other people are free to use it in whatever way they want.

It is a description of how governments with a sovereign currency are funded It says that taxation doesn't fund spending but, to the contrary, government spending precedes taxation. Goodness knows, I've linked you to the research paper often enough. I'm perfectly happy for you to give me an evidence based critique of that.

What I am not happy about is being told I'm wrong, misguided, naive etc etc. when my critics clearly don't understand the fundamental element of MMT.

MaizieD I have read your post again and it doesn't change my opinion.

I am in complete agreement with cc

Katie59

The disadvantage of opting out of VAT is they you can’t reclaim VAT on repairs and other overheads, most tenants larger than one man bands are registered so just claim it all back then add VAT to their invoices.

Back to basics. I have a client who owns a commercial building. His rental (and only business) income is over the VAT registration threshold but he does not have to register for VAT and therefore does not charge his clients VAT on their rents. But, if it was beneficial to him (ie he had major refurbishment plans) he could opt to register. He could then claim VAT on those costs and would charge his clients VAT.

I am talking about commercial landlords in this instance and not their tenants. The tenants must register if their turnover exceeds the VAT threshold and obviously they can claim back the VAT. Tenants cannot opt out from VAT registration unless their turnover drops to below the threshold.

Of course VAT registered tenants, who are renting their business premises can claim back the input tax on their expenses including that on premises repairs. The chances are they are not being charged VAT on the rent because of problems that can arise down the line for the landlord.

This whole discussion started because I disagreed with your comment that rent is not subject to VAT and I am afraid that you have been introducing red herrings.

The disadvantage of opting out of VAT is they you can’t reclaim VAT on repairs and other overheads, most tenants larger than one man bands are registered so just claim it all back then add VAT to their invoices.

Katie59

Dinahmo

Katie59 some rents are subject to VAT - for example on holiday lets, provided of course that the threshold is let. Also commercial landlords can opt to charge VAT on rent. It's a complicated subject.

Residential let’s do not usually carry VAT, as you say holiday let’s may or may not. Commercial let’s usually carry VAT but that would be reclaimed by all but the smallest businesses.

I am of course aware that residential lets are exempt from VAT.

The lessee would be claiming the input tax against their output tax but the lessor would be paying over their output tax, less their input tax. Most commercial landlords opt out of VAT registration.

The VAT registered businesses are merely collecting tax on behalf of the govt. Ultimately it is the end user - ie Jo public who pays the VAT.

Yes profits are taxed down the line but for a great many years they have fallen short of government spending so the government has had to borrow/create more and more to fill the gap.
Even maintaining the social protection level in real terms has not been possible

M0nica

Katie59
*MMT and Keynes are just economic theories, both are partly relevant but need to be regulated and are subject to confidence of investors. Before the 2008 crash almost everyone was following the “herd” in the blind belief that the boom would last for ever, easy credit with banks willing to lend at very low rates against poor collateral.^

When confidence was lost and the “herd” changed direction as investors scrambled to sell investments, it started with US sub prime and spread when others realized assets were over valued.

But this happened because we had a series of governments of both parties fixated on on one political theory being the panacea to all economic ills and who wantonly and wilfully refused to see what was happenong to the economy when it was becoming unstable because that meant admitting that their economic theory was not working.

If we had had a more pragmatic and less dogma fixated government, action would have been taken from around the year 2000, to cool the economy and make borrowing more difficult and expensive and, at least mitigate the effect of the 2008 world financial crisis on the UK.

This is where MaizieD is so wrong, wrong, wrong. She has nailed herself to the MMT mast and believes that this economic theory is the answer to the world's financial and social ills, and just like all the equally single minded blinkered economists who nailed themselves to the 'Neo-liberal' mast. and then refused to see the evidence that showed trouble ahead, because it contradicted their theory.

So if MMT economic theories took over and our economic management was driven by another all encompassing theory, Maizie and her mates, when the evidence that showed their theory was not working well appeared, would refuse to see the evidence or act on it and the world would once again face economic collapse. This is what happens every time.

Economic theories need to be studied, they contribute to our understanding of how economies work and the mechanisms lying below the surface, but as soon as some one thinks they have found the one eluctable economic theory that will ensure that we head for an economic paradise, you know they have started down the slippery slope to economic disaster.

If MaizieD is representative of the MMT school of economics, then as sure as night follows day, should their theories become dominant, we will be sliding into economic disaster. Not because their theories are wrong - what is Quantitive Easing, if not MMT in action? It will be economic disaster because there is no one economic theory that of itself will bring us to the heavenly uplands of permanent prosperity.

Economic theories are tools in a tool case, a set of theories that can assist us manage the economy. Tieing yourself to one is like saying, get rid of all the tools in your tool box all you need is a screwdriver, which is fine until you want to cut a piece of wood or hammer a nail in.

I agree, there are economic tools you can use but they only work perfectly if all the traditional economic assumptions are fulfilled. In the real world there are so many interacting factors that the individual basic tools cannot be used to make realistic estimates or calculations.
This simplistic use of economic tools takes my back to my A level Economics in the 60's. As someone who has now studied economics and finance at university, and with a husband who used economic modelling professionally in his work, I know that their worth is limited.

Dinahmo

cc sometimes growing through aquisition is to remove one company from competition. It seems to happen with hi tech games companies for example.

Yes, my husband worked in an engineering field where it was common, but mainly to take over the order book of the competition. Once these orders had been completed many of the companies didn't do well. Many people were made redundant and much of the work went to companies abroad.
A major reason for acquisitions and mergers has been shown to be the increase in salaries and bonuses for management, not improvements for the companies in the longer term and certainly not for the employees.

Dinahmo

Katie59 some rents are subject to VAT - for example on holiday lets, provided of course that the threshold is let. Also commercial landlords can opt to charge VAT on rent. It's a complicated subject.

Residential let’s do not usually carry VAT, as you say holiday let’s may or may not. Commercial let’s usually carry VAT but that would be reclaimed by all but the smallest businesses.

M0nica

MaizieD I did not say you were wrong in principle, MMT has its contribution to make to both economic theory and practice.

it is your belief that MMT is the answer to all our ills that is wrong

You're still not listening, MOnica. Please read my post at 10.45 again.

Katie59

Monica I do realize that VAT is part of taxation but you are overstating how much of earnings are going to be subject to VAT.

Rent or Mortgage, Food including take away, children’s clothes, childcare and anything spent overseas are not subject to VAT and those are a very large part of earnings.
You’re giving prominence to earnings by workers as justification for spending without any product is misplaced. In the case of HS2 the railway is the product but is highly doubtful ever to give a return

I think you're getting me and MOnica confused

The things you list may not be subject to VAT, but the money doesn't stop at the place where they were purchased. It goes on wages, profits, stock replenishment etc. Where it will be subject to taxation, it's just further down the line of the circulation of money. Wherever it lands up it will still, sooner or later, be subject to taxation. The only time it isn't is if it is saved in some way, though even then, apart from tax free ISAs, the income from interest on savings will be taxed.

I'm not giving any prominence to worker's earnings. Can you not think past workers? What about the tax on purchase of plant and materials? What about the corporation tax on the contractors' businesses? What about the surplus money invested in government bonds? Where do you think that money goes?

Katie59 some rents are subject to VAT - for example on holiday lets, provided of course that the threshold is let. Also commercial landlords can opt to charge VAT on rent. It's a complicated subject.

Monica I do realize that VAT is part of taxation but you are overstating how much of earnings are going to be subject to VAT.

Rent or Mortgage, Food including take away, children’s clothes, childcare and anything spent overseas are not subject to VAT and those are a very large part of earnings.
You’re giving prominence to earnings by workers as justification for spending without any product is misplaced. In the case of HS2 the railway is the product but is highly doubtful ever to give a return

MaizieD I did not say you were wrong in principle, MMT has its contribution to make to both economic theory and practice.

it is your belief that MMT is the answer to all our ills that is wrong

What, you go to India to get your medical advice?

MaizieD good question. Probably the Indian government…as we know the medical profession is happy to play musical chairs!