Where has the money gone?

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

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.

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

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.

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.

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.

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.

Good post, Farzanah 👏

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

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.

ronib

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

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

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

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

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

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.

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?

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.

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.

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.

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.

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

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.

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

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.

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

I am in complete agreement with cc