Where has the money gone?

ronib

Who provides and pays for your 'medical adviser? Who provided training for them?

Farzanah ‘well being’ is a fluffy concept. An efficient, well run government in theory could raise ‘well being’ across the population without specific policies aimed at wellbeing. Although bottom line is that my wellbeing is my concern shared with my medical adviser- government can butt out.

Good post, Farzanah 👏

I sometimes wonder what on earth people think is the purpose of government.

I have said over and over again that MMT is not a prescription for how money should be used by a government. It is an empirically based account of how money is created by a government with a sovereign currency, an account that has empirically proved that taxation doesn't fund spending. It proves that taxation arises from spending. If anyone can provide an empirically based rebuttal of this I would be happy to see it. Just repeating the commonly held notion that taxation funds spending doesn't prove anything. What would prove it is well researched evidence that this is actually so.

What governments do with the money they can create at will is nothing to do with MMT. It is a political choice.

A moving article today on sky news by Rachel Venables about the inadequate UK treatment and research on brain tumours which quotes a Cardiff pharma company's chief scientific officer as saying approval for drug trials takes 6 months here but only 30 days in the US (hence they are conducting trials there) and that the 'consequences of Brexit' makes the UK an unattractive place to conduct such trials. The article says many Brits seek treatment abroad at great cost as the NHS doesn't deliver.

ronin Has any government ‘cared’ about well-being. Didn’t think it was part of its remit.
I can’t believe you think that?
Surely the wellbeing of it citizens should be a central part of government’s remit, even if the present government doesn’t appear to think so.

When a Government ignores the wellbeing of its citizens in its pursuit of an idealistic neoliberal economic policy there can be negative outcomes resulting in gross economic inequality. This is bad for the whole population.

Poverty increases, life expectancy falls, mental and physical health declines, the prison population rises, and so on. (Read the work of Pickett and Wilkinson on outcomes of inequality)

Just look around at what is happening in the U.K. today.

Katie59

The problem with HS2 is that it is likely to cost £100 billion
part of that is wages and investment income, taxation on that is going to be small compared with the original cost. The payback, if any is going to be extremely long term and very likely overtaken by inflation, justification cannot be based on taxation of earnings.

You don't actually read what I am saying, do you, Katie59?.

Taxation on earnings is not the only form of taxation. The government not only gets an immediate return via income tax and NIC (which is basically just another tax) but it also gets a return via VAT and corporate taxation. Corporate taxation may be a rather more long return, in that it is collected annually but income tax, NIC and VAT are collected on a far more short term basis.

In the meantime, before it returns to the government the money is circulating in the economy, enabling more economic (and taxable) activity.

And what about my point about investment in government bonds? Where do you think the the money that is involved in the initial purchase from the treasury ending up? (same question applies to national savings accounts and Premium Bonds)

MOnica can tell me I'm wrong as many times as she likes, but she doesn't offer any critique on my analysis of how money circulates in the economy and returns to the government that issues it. This is not MMT 'theory'. This is a factual account of what happens to the money that the government spends on infrastructure and public services.

The problem with HS2 is that it is likely to cost £100 billion
part of that is wages and investment income, taxation on that is going to be small compared with the original cost. The payback, if any is going to be extremely long term and very likely overtaken by inflation, justification cannot be based on taxation of earnings.

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'm just wondering why we are even pondering this question. We are being governed by the most cynical, self-serving, mendacious group of people that I have ever had the misfortune of being 'governed' by in my 72 years. The money has gone to the rich and powerful - the rest of us can - ahem - take a run and jump. Sadly I'm beginning to doubt that the Labour party will offer anything better

MaizieD I thought your reply was pretty good until the last paragraph. Has any government ‘cared’ about wellbeing? Didn’t think it was part of its remit.

Also how can it be claimed that this government is ideologically opposed to spending when it hasn’t stopped?

Katie59

ronib

MaizieD where does HS2 sit in your argument re public services and infrastructure?

HS2 is a public infrastructure project, there is a great deal of doubt that it will result in any growth or benefit. Would the money be better spent in other areas.

There might be doubt that HS2 will bring future benefit to economic growth, but at present some of the money the government has put into it is providing jobs, both directly and indirectly, and therefore is entering the domestic economy as workers spend their wages. Not only that, but money will be going to the suppliers of all the materials and machinery being used for the construction, to the contractors carrying out the work etc. etc. etc. It is not being poured into a big black hole. It is circulating in the economy and sustaining people and businesses.

Of course, we don't know how much is going abroad to sustain the businesses of foreign suppliers and we don't know how much is sitting doing nothing in the accounts of profiteering companies and overpaid CEOs and company executives (because the already well off tend not to spend their surplus money into the domestic economy). But every single penny of the money the government is investing in HS2 is being paid to someone and much of it will be benefiting the economy.

Of course, a great deal of that money will be coming back to the state by way of taxation and very likely the wealthier recipients may invest some of their surplus in gilts, which also returns some of the money to the government.

And, the expenditure will show up in our GDP and growth figures.

So, however much the project might be considered as a great white elephant, however much of a loss it might make once it is in operation, the money currently being put into it is benefiting our economy. Money doesn't make moral judgements or judgements of utility or cost effectiveness; it's a completely neutral instrument.

What is frustrating is knowing that more money could be spent elsewhere with the same immediate benefit to the economy and arguably better long term outcomes for the economy but the idea that the country has a finite quantity of money constrains it.

And, of course, we have a government which cares nothing for the wellbeing of our citizens and which is ideologically opposed to state spending because it is in the grip of neoclassical economic dogma.

Katie59 HS2 was encouraged by the EU as part of an integrated railway system. Oh well …..

M0nica

MaizieD it doesn't matter whether someone is an orthodox or unorthodox economist when they are the disciples of some over reaching economic theory, it is not that they dont see trouble arising, it is that they won't see the trouble arising and will not believe the evidence even when it is affecting their own lives because it contradicts their pet theory.

You quote Keynes admiringly. Well, Keynes was known for changing his mind and once when challenged on this his response was “When the facts change, I change my mind. What do you do, sir?”

This is why I am wary of anyone who nails their colours to the mast of any one economic theory and pursues it single mindedly. That is an absolute gurantee that they are heading for a fall.

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.

ronib

MaizieD where does HS2 sit in your argument re public services and infrastructure?

HS2 is a public infrastructure project, there is a great deal of doubt that it will result in any growth or benefit. Would the money be better spent in other areas.

MaizieD where does HS2 sit in your argument re public services and infrastructure?

MaizieD it doesn't matter whether someone is an orthodox or unorthodox economist when they are the disciples of some over reaching economic theory, it is not that they dont see trouble arising, it is that they won't see the trouble arising and will not believe the evidence even when it is affecting their own lives because it contradicts their pet theory.

You quote Keynes admiringly. Well, Keynes was known for changing his mind and once when challenged on this his response was “When the facts change, I change my mind. What do you do, sir?”

This is why I am wary of anyone who nails their colours to the mast of any one economic theory and pursues it single mindedly. That is an absolute gurantee that they are heading for a fall.

Actually, I apologise, Katie59

The conversation was originally a question about what have the tories done with all the money that has rapidly increased the 'national debt' in the 13 years they have been in power, yet there's been little spent on infrastructure or public services.

Which is odd because I thought that that was one of the main functions of the state, to provide infrastructure and public services.

Katie59

I’m surprised nobody has mentioned the Financial Services Authority that were supposed to be regulating the Banks, the didn’t, they just sat on their fat backsides, enjoying expense account lunches and watched it happen, as did Gordon Brown.

I think we have a parallel now Ofwat is supposed to be regulating the water industry, but isn’t.

Nobody has mentioned the FSA because the conversation isn't really about the GFC, even though posters are desperately trying to make it so. But we've all discussed it before, quite recently.

The conversation is trying to be about economic theory and how it relates to real economic events.

Well, who reported all that lot?

I’m surprised nobody has mentioned the Financial Services Authority that were supposed to be regulating the Banks, the didn’t, they just sat on their fat backsides, enjoying expense account lunches and watched it happen, as did Gordon Brown.

I think we have a parallel now Ofwat is supposed to be regulating the water industry, but isn’t.

Message deleted by Gransnet for repeating a deleted post.

When you take out a loan you have to choose the deal you think is best for you, only time will tell if it’s the right decision you might be lucky you might not.
One thing for sure the bank knows more about the future prospects than you do, so hedging your bets with part fixed part variable will be safest.

Dinahmo

Maizie My hat goes off to you.You have put so much effort and research into this topic and IMO you way ahead of everyone else.

Thank you, Dinahmo.

I find it really interesting. I didn't believe MMT when I first learned of it, though I've always thought that Keynes, whose economic insights have informed MMT in many ways, made far more sense than the economic 'theory' that drove austerity.

So I've tried to read widely and, I hope, critically, over the past few years.

Message deleted by Gransnet for repeating a deleted post.