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The Fight for the NHS/MMT economics

Money, whether gold (rarity), clay tablets (trust) or paper(trust/convenience) depends of some sort of system that ascribes value and can be redeemed anywhere and anytime in the current system. The MMT does turn things on its head and therefore requires trust across currencies and this it doesn’t have for reasons that may be to do with elites or some such. But until it does it has no chance of saving the NHS ( mentioned once apart from the title in this long discussion)
Thanks for bringing it up.
 
MUTTY1 said:
Money, whether gold (rarity), clay tablets (trust) or paper(trust/convenience) depends of some sort of system that ascribes value and can be redeemed anywhere and anytime in the current system. The MMT does turn things on its head and therefore requires trust across currencies and this it doesn’t have for reasons that may be to do with elites or some such. But until it does it has no chance of saving the NHS ( mentioned once apart from the title in this long discussion)
Thanks for bringing it up.
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Tax is the mechanism that instils demand for the currency. The government gives you some £’s then demands that you pay some tax in £’s. It is that fact that you have to pay tax in £’s that creates the need we have to acquire the £’s in the first place.

The government doesn’t need trust to fund the NHS, it just need the political will.

The government is not financially constrained from funding the NHS, it does t want to spend on the NHS because it is ideologically opposed to spend money downwards on public services.
 
I've been avoiding all political threads for my own wellbeing, but saw this and couldn't believe what I was reading. Obviously it's America, but I think you can see the parallels between our left/right-wing parties, and the obvious dishonesty of the right-wing (as circled in red).

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Here's the actual page I took it from - https://www.diffen.com/difference/Democrat_vs_Republican
 
ks.234 said:
Sorry, not sure how that doesn’t work. How do historic examples of failed empires mean the the basic MMT observation of the fact that money is spent in existence doesn’t work?


No, the more scarce that money becomes, the more economic chaos you cause.


If you imagine a monopoly game more like real life where there is a higher table with wine and nibbles and one or two well heeled gentlemen sitting on comfy chairs and a lot of lower tables representing all the public service, then this what happens, the banker does bung extra money to the higher table at several points during the game. And what’s more the banker says he has to put extra tax on the lower tables to be able to do so.



No. MMT is the cure for deeply flawed system we have.
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Money being spent into existence (as opposed to having to be first collected from tax) is a straw man. No serious explanation of money creation and government funding disputes that anyway. Kelton just uses this "revelation" as a powerful counter to the political objections to social spending: "but how can we pay for it".

The bit that I'm saying doesn't work is debt monetisation, where the central bank directly creates money against government debt(spending). It ends with loss of price stability and sometimes even the currency itself, evidenced by history. I'm not sure Kelton is really suggesting this funding model, but that's the impression folks tend to come away with.
 
Heckyman said:
The bit that I'm saying doesn't work is debt monetisation, where the central bank directly creates money against government debt(spending). It ends with loss of price stability and sometimes even the currency itself, evidenced by history. I'm not sure Kelton is really suggesting this funding model, but that's the impression folks tend to come away with.
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I don’t think she is at all. My reading is she is just looking at history and with much analysis suggesting that the most significant parameters to monitor and attempt to control are inflation and employment.

The key thing to understand is the most absurdly failed right-wing economic extremists such as Thatcher, Osborne, Reagan, Trump etc *do not reduce the deficit*. They just don’t. The only thing they do is to *say* reducing the deficit is important, but they never ever do it. The next thing to look at is when did things feel prosperous, when was private sector growth good, when was employment high and inflation low and check the deficit at those times. To focus on “balancing the books” like the economically illiterate Osborne tried a) absolutely strangles the private sector as well as state spending, and b) doesn’t reduce the deficit. It is a long-proven failure and MMT suggests it is so because it is a focus on the wrong metrics. Also analyse what happened when Clinton did actually clear the deficit and started running a surplus. It was the opposite of what the ‘household economics’ religion suggests; businesses began to fail and a lot of foreign investment was required as the US economy started to collapse.

There are multiple variables in an economy and the more I look at this the more clear it appears that the political right are either a bunch of utter crooks, or at best are attempting to control something they don’t understand using entirely the wrong parameters (likely the former). What the left would do with MMT worries me hugely too. Politically I’m worlds away from unionised mass labour etc, and unlike Stephanie Kelton I believe there will never be anything close to full employment due to automation, and I see UBI, job-sharing, vastly reduced working hours etc as the only real solution to the modern world (outside those of us who survive via self-employment in artisan/niche areas). I’m obviously not an economist, but this MMT analysis appears to be far more grounded in logic than the existing orthodoxy. I’m absolutely not suggesting future politicians will use it wisely, I’d certainly expect Labour etc to screw anything up, but the basic concept looks pretty solid and rational to my eyes.

Again it is only suggesting altering the control mechanisms: instead of an abstracted “book that needs to be balanced (and never is)” it suggests the key metrics to influence are inflation and employment. It is actually quite simple and seems to align very well with historical periods of plenty.
 
Heckyman said:
Money being spent into existence (as opposed to having to be first collected from tax) is a straw man. No serious explanation of money creation and government funding disputes that anyway. Kelton just uses this "revelation" as a powerful counter to the political objections to social spending: "but how can we pay for it".

The bit that I'm saying doesn't work is debt monetisation, where the central bank directly creates money against government debt(spending). It ends with loss of price stability and sometimes even the currency itself, evidenced by history. I'm not sure Kelton is really suggesting this funding model, but that's the impression folks tend to come away with.
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Sorry, but some of your assertions are just not true. You talk about Money being spent into existence, that Spending before Tax and Borrowing (STAB) is a ‘straw man’ as opposed to having first to collect from tax (TABS) which is presumably not a straw man. I’m not sure what you mean by straw man in this instance, but your assertion that there is no serious explanation of STAB is wrong. If Stephanie Kelton and all the other professors of economics are not serious enough, then the Bank of England itself makes clear that money is created at a keystroke not from a store of tax £’s. When describing the injection of money into the economy via QE after 2008, the BoE says,

“One way in which the Bank could carry out the [£1 billion] purchase [of bonds] would be to print £1 billion of banknotes and swap these directly with the pension fund. But transacting in such large quantities of banknotes is impractical. These sorts of transactions are therefore carried out using electronic forms of money. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy”​

In your second paragraph you say that the government debt is spending. If you mean the deficit rather than debt then government debt is the accounting exercise whereby the government sells IOUs in the form of bonds and securities, its not where the spending is created. If you mean that government spending always leads to inflation as asserted by Thatcher, that again is just not true. We have had long periods, after WWII for example, when the principle of full employment was maintained and inflation controlled so as not to be a problem. We have had inflation in the past, but that has not necessarily been to do with government spending, for example inflation in the 70’s was caused by rising oil prices not by government spending. We have had inflation, but there is not a necessary link to government spending

If you’re referring to Weimar after WWI, then, printing money was a symptom of inflation, not a cause. After the war Germany had massive reparations to pay, we took German production capacity away from them by taking over the Ruhr meaning they could not raise dollars from exports because they nothing to export. This made Germany dependant on imports, the price of which rose. Germany had to print money to meet the cost of imports. Printing money was a necessary consequence of inflation, not a cause.

In short, we cut Germany’s legs off, then asked it to stand on it’s own two feet and we were shocked when it collapsed in a heap. Germany didn’t collapse because of the weight of printed money in it’s pockets, it collapsed because we crippled it.
 
ks.234 said:
Sorry, but some of your assertions are just not true. You talk about Money being spent into existence, that Spending before Tax and Borrowing (STAB) is a ‘straw man’ as opposed to having first to collect from tax (TABS) which is presumably not a straw man. I’m not sure what you mean by straw man in this instance, but your assertion that there is no serious explanation of STAB is wrong.
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Sorry, I meant the exact opposite of what you thought I meant. STAB is of course basically true, there is broad consensus. It's nothing new.

My point was that the only person saying loudly that "the government has to collect our taxes before they can spend the money", is Kelton -- for the rhetorical purposes of setting up the "myth" which she then goes on to "debunk" in her book.

(EDIT: I do get that politicians on the right do tend to encourage that public perception, but this is supposed to be an economist talking about economics. Ultimately, I am not sure that the idea she puts into the public domain "you can have public services without actually paying for them" is any less ill conceived than the "deficit myth" she is attempting to replace.)
 
On the second point, I'm saying that central banks creating money directly for government spending ("the government can print as much money as it likes, it can never run out of dollars") leads to devaluation of the currency because the supply of money outgrows the growth of real goods and services and people eventually lose faith in the currency as a store of value.

The current account deficit is neither here nor there, what matters is the overall debt (to GDP) and whether it's sustainable. What this sustainable level is, is very much up for debate. As Japan have shown, a country can hobble along with more public debt than anyone had thought possible. However, that is not the same as saying that astronomical debt is desirable, or can continue to spiral off to infinity because the central bank can always step in without consequences. No free lunch.
 
Heckyman said:
Sorry, I meant the exact opposite of what you thought I meant. STAB is of course basically true, there is broad consensus. It's nothing new.
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My point was that the only person saying loudly that "the government has to collect our taxes before they can spend the money", is Kelton -- for the rhetorical purposes of setting up the "myth" which she then goes on to "debunk" in her book.
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Sorry, if I misunderstood you in your first paragraph, but again I don’t understand how you can an say that there is a broad consensus saying STAB is true and then go onto say Kelton is the only person debunking TABS.

The myth that Tax and Borrowing is the source of government spending is not one created by Kelton, it has been all pervasive since Thatcher and has been supported by every Prime Minister and Chancellor ever since. May’s ‘magic money tree’ was a restatement of TABS, every headline asking ‘who pays’ is a restatement of the idea that the taxpayer has to pay for spending and Sunak’s increase in NI to pay for care is that idea writ into policy.

MMT is a way to debunk these myths, it’s not creating them.
 
ks.234 said:
Sorry, if I misunderstood you in your first paragraph, but again I don’t understand how you can an say that there is a broad consensus saying STAB is true and then go onto say Kelton is the only person debunking TABS.

The myth that Tax and Borrowing is the source of government spending is not one created by Kelton, it has been all pervasive since Thatcher and has been supported by every Prime Minister and Chancellor ever since. May’s ‘magic money tree’ was a restatement of TABS, every headline asking ‘who pays’ is a restatement of the idea that the taxpayer has to pay for spending and Sunak’s increase in NI to pay for care is that idea writ into policy.

MMT is a way to debunk these myths, it’s not creating them.
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Yes, I understand ... I added an edit to my above post.

The disconnect is that between politics and economics, between the perception of the person in the street and what the Bank of England explain about how money is created and governments financed.

Sadly the person in the street learns everything they know about economics from the right wing media...they really should teach kids about money in schools
 
... ultimately, you still need tax rises or increased borrowing at some point to "pay for" increased public spending, unless you think it's no problem that the debt (and interest on that debt) continues to increase forever (which is not to say there shouldn’t be a debt at all—as per a household—just that there is an optimal range which the debt should fall in).

Money is mostly created by private banks as a result of the public demand for loans. One could argue that there could be a better way to regulate or reform the entire financial system in the interests of greater equality, but that's a whole new topic!
 
Heckyman said:
The current account deficit is neither here nor there, what matters is the overall debt (to GDP) and whether it's sustainable. What this sustainable level is, is very much up for debate. As Japan have shown, a country can hobble along with more public debt than anyone had thought possible. However, that is not the same as saying that the debt can continue to spiral off to infinity because the central bank can always step in without consequences. No free lunch.
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Again to my eyes MMT isn’t a free lunch at all. It is largely an analysis of the current system and the change it suggests is to reprioritise the mechanisms by which an economy can be nudged.

The way I look at it no government outside of fascist or communist dictatorships are actually in control of their economies. These are organic entities that do their own thing to a very large degree. All they can do is monitor and gently nudge things as the stuff that matters is private sector growth, innovation, inflation, jobs etc. The area where things have gone so wrong is hard-right Reaganomics/Thatcherism etc absolutely strangling the state and working on the false premise that tax cuts for the ultra-wealthy trickles down. It doesn’t. MMT is suggesting that the key parameters to monitor are inflation and employment, and to my eyes that makes sense.

PS I am not seeing anything in MMT that worries me as a stereotypical middle-class home owner, saver who runs their own business. I’d maybe be worried if some of Labour’s more extreme trade union fringe-nutters got control of MMT to inflate their own wages etc, but that’s a whole other thing. I would far prefer to see inflation and employment being the key metrics rather than watch Tory chancellor after Tory chancellor strangle growth and kill businesses.
 
I’m far more worried about the USA, politics there is full of extremists on both sides. Whatever they do with their dollar, the rest of the world has to deal with.

Because of the actions it had to take following the financial crisis and then Covid, the Fed has found itself much more “in control” of the US economy than it ever had been previously. Huge potential for its actions to become highly politicised…
 
Heckyman said:
... ultimately, you still need tax rises or increased borrowing at some point to "pay for" increased public spending, unless you think it's no problem that the debt (and interest on that debt) continues to increase forever (which is not to say there shouldn’t be a debt at all—as per a household—just that there is an optimal range which the debt should fall in).
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MMT doesn't really claim that there is a free lunch, in my view. Instead it claims that it's worth considering that the cost of the lunch could be much cheaper.

I'll try to explain by way of analogy. MMT says that the economy is like a household where there are depressed teenagers lounging about. The teenagers represent the unemployed and the underemployed. At the same time, the house needs loads of work, the youngest child needs babysitting, Grandma needs looking after, etc. One day, the parents hit on an idea: to write IOUs for work done. To stay in the house, the teenagers need 20 IOUs a month.

What happens? The house gets painted, cleaned, maintained and improved. Granny and the youngest child gets looked after. And lots of this gets done for no cost (or negligible cost), because it uses resources that were under-used. To this extent, MMT says that there are some almost-free lunches to be had - employing unused resources just has to be better than leaving them idle.

Is everything an almost-free lunch? No - the household doesn't have all the resources it needs. The household needs to buy the paint to paint the house, etc. So, the parents need to understand what is 'free' and what creates obligations that need paying for. This is - in an imperfect analogy - the central message of MMT. It doesn't say that all obligations created by fiscal spending are free - it says that governments are not fiscally constrained. The constraints are elsewhere - inflation and real resources. So, returning to your post above, of course you need tax rises at some point to create the fiscal space for government spending. That's consistent with MMT as I understand it. It's just that MMT talks about tax rises to control inflation. Either way, it amounts to much the same thing.

The absolute size of the deficit in any period, though, and debt-to-GDP ratios maybe don't tell you much, as long as - crucially - the government is directing its resources responsibly.
 
Heckyman said:
I’m far more worried about the USA, politics there is full of extremists on both sides. Whatever they do with their dollar, the rest of the world has to deal with.
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I’m not seeing anything on the Democrat side that is worrying, though the fundamentally corrupt white-supremacist religious anti-democracy militia the Republican party is just terrifying. America is maybe another Trump term away from descending into real fascism IMO. That would obviously have a huge impact globally.
 
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