The Fight for the NHS/MMT economics

[Heckyman]

The question is this, are we in a period of inflation, as described in economic terms as a period of ‘continuous inflation’ or are we seeing a period of structural adjustment?

That's the million dollar question! If I had to bet, I would go with Russell Napier's thesis.

Mr. Napier, it’s been a year since your inflation call. Today, we do see higher headline inflation. Do you take that as proof that you were right?

Yes, but we need to distinguish here. My call is based on money, on the growth rate of broad money, to be precise. My argument rests on the observation of a deep, structural shift taking place. What we see today in terms of published inflation is partially based on supply shortages. These will ultimately be solved.

https://themarket.ch/interview/russell-napier-we-are-entering-a-time-of-financial-repression-ld.4628

 

[matthewr]

We seem to be going around in circles again. I don’t understand how you can say the ‘Keynesianism *is* MMT’ and then say that MMT is dangerous but Keynesianism is not.

Imagine if I had a theory called Modern Gun Theory which was Keynesianism but in addition made gun ownership legal. And then I kept saying "But MGT is Keynesianism? I don't understand what the problem is? " and "MGT explains how modern money works! MGT proves that an economy that prints its own currency cannot go bankrupt!"

Again, all the MMT says on interest rates is that they’re regressive

I don't think that is true. They argue that interest rates are a bad way for using monetary policy for affecting aggregate demand and think we should use deficit spending instead. Keynesians agree with this when we are stuck at the zero bound, but also believe that interest rates are an effective tool when the economy is operating normally. This is why they think MMT abandons the use of interest rates as a stabilisation mechanism.

If both Keynesianism and MMT agree that there is unused fiscal space that can be used up to but not beyond the point of inflation, what’s the argument? MMT clearly says that inflation is a limit to spending, as are all the other limits you mention

Because Keynesians have models for (amongst other things) understanding how much extra spending is possible safely (both simple pedagogical models and maths based models) and no such modelling exists for MMT. Which begs the question, How will MMT know?

What is interesting though is how Krugman is used as a stick to beat MMT by both monetarists and Keynesianism alike, despite the fact that a number of MMT supporters have taken on the criticisms head on and answered them.

But they haven't taken them on. The whole point of the Krugman Kelton back and forth was that Krugman claimed the questions never get answered in a straightforward way and Kelton answered them in a way Krugman claimed confirmed his point.

Of course you can choose to believe Kelton (and two other economists) over Krugman (and 100s of other economists) but I find the case unconvincing.

 

[Tim Jones]

I think the BBC is a reasonably good example of this - it was a byword for profligacy back in the day, and I'm not sure that any thrift measures now applied are hitting all the right areas.

But it doesn't follow that the same can or should be said for the NHS, or any other public service. A lot of the 'inefficiencies' in the NHS are not a result of profligacy, but are a result of a lack of joined-up thinking and externalities. So 'bed-blocking' is not an NHS problem, but a problem with community social care, for example. There may be unnecessary tiers of NHS management, I don't know, but I do know that a fair amount of NHS 'management' time is taken up dealing with 'stuff' that isn't of the NHS' own making.

Ponty sort-of has a point. In the midst of the huge Blair increases, our "productivity" (it was a pretty crappy HES-based measure, but it looked bad all the same) went through the floor. But a lot of that was taken up in deliberate pay rises, especially for nurses. That isn't to say, in an economic context where I defer to others, that his broader point that the value of everything decreases the more there is of money is necessarily correct. I think that's why some of this new economics is interesting.

You also have points. We've been into an efficiency tunnel, where there was almost no performance information or management (say, in the late 70s), but have come out of the other side of it with so much of both that we're almost screwing ourselves. And there was the purchaser/provider split, earned autonomy, etc. There is very little evidence for any of it; because there really wasn't a counterfactual.

One thing that I absolutely can't be bothered to get into again (because I've been around it here, in depth, four or five times) is the privatisation accusation. It's bollocks.

 

[ks.234]

One thing that I absolutely can't be bothered to get into again (because I've been around it here, in depth, four or five times) is the privatisation accusation. It's bollocks.

 

[Enfield boy]

Ponty sort-of has a point. In the midst of the huge Blair increases, our "productivity" (it was a pretty crappy HES-based measure, but it looked bad all the same) went through the floor. But a lot of that was taken up in deliberate pay rises, especially for nurses. That isn't to say, in an economic context where I defer to others, that his broader point that the value of everything decreases the more there is of money is necessarily correct. I think that's why some of this new economics is interesting.

You also have points. We've been into an efficiency tunnel, where there was almost no performance information or management (say, in the late 70s), but have come out of the other side of it with so much of both that we're almost screwing ourselves. And there was the purchaser/provider split, earned autonomy, etc. There is very little evidence for any of it; because there really wasn't a counterfactual.

One thing that I absolutely can't be bothered to get into again (because I've been around it here, in depth, four or five times) is the privatisation accusation. It's bollocks.

You're absolutely right, privatisation is bollrocks
https://inews.co.uk/news/legacy-pfi-contracts-wasteful-shocking-exclusive-investigation-350832

 

[laughingboy]

The whole point of the Krugman Kelton back and forth was that Krugman claimed the questions never get answered in a straightforward way and Kelton answered them in a way Krugman claimed confirmed his point.

Of course you can choose to believe Kelton (and two other economists) over Krugman (and 100s of other economists) but I find the case unconvincing.

There's an interesting article by Jo Michell (UWE Bristol) on Krugman-Kelton that suggests that most of the problem with the debate was that neither understood fully what the other was arguing (Here).

 

[laughingboy]

They argue that interest rates are a bad way for using monetary policy for affecting aggregate demand and think we should use deficit spending instead. Keynesians agree with this when we are stuck at the zero bound, but also believe that interest rates are an effective tool when the economy is operating normally. This is why they think MMT abandons the use of interest rates as a stabilisation mechanism.

At the risk of going off at a tangent, this comment reminded me of an interesting article in the New Statesman about Gary Stevenson, former working-class City trader. He seems to be arguing, from neither a Keynesian or MMT viewpoint, that wealth inequality is such in Western economies that any increase in interest rates (which would reward 'savers/the already rich') is untenable. The propensity to hoard assets is almost unlimited, and leads to a kind of feudalism. He is advocating wealth taxation to rebalance the system first.

 

[IanW]

Because Keynesians have models for (amongst other things) understanding how much extra spending is possible safely (both simple pedagogical models and maths based models) and no such modelling exists for MMT. Which begs the question, How will MMT know?

This remains a core concern for me. Whilst economics cannot be modelled like the physical systems that I am used to modelling, the principle remains, if a system is very difficult or too complicated to model, then it is not well enough understood. If that is the case then just implementing it is very likely to result in unintended and unwanted outcomes.

But the concept of MMT remains alluring and hopefully with it being more mainstream now, more debate and modelling will help frame a system that a brave government could implement.

 

[ks.234]

Imagine if I had a theory called Modern Gun Theory which was Keynesianism but in addition made gun ownership legal. And then I kept saying "But MGT is Keynesianism? I don't understand what the problem is? " and "MGT explains how modern money works! MGT proves that an economy that prints its own currency cannot go bankrupt!"



I don't think that is true. They argue that interest rates are a bad way for using monetary policy for affecting aggregate demand and think we should use deficit spending instead. Keynesians agree with this when we are stuck at the zero bound, but also believe that interest rates are an effective tool when the economy is operating normally. This is why they think MMT abandons the use of interest rates as a stabilisation mechanism.





Because Keynesians have models for (amongst other things) understanding how much extra spending is possible safely (both simple pedagogical models and maths based models) and no such modelling exists for MMT. Which begs the question, How will MMT know?



But they haven't taken them on. The whole point of the Krugman Kelton back and forth was that Krugman claimed the questions never get answered in a straightforward way and Kelton answered them in a way Krugman claimed confirmed his point.

Of course you can choose to believe Kelton (and two other economists) over Krugman (and 100s of other economists) but I find the case unconvincing.

We seem to be going backwards and forwards over the same ground, perhaps because we’re talking about different things. We seem to be getting bogged down in economic theories and forgetting the main point, the central point, that government spending is not dependant on tax. Until we have an economic understanding that tax is not the centre of the universe, arguing about various academic niceties it putting the cart before the horse.

If I can use my own metaphor, it’s a bit like arguing about the nature of sub atomic particles in quantum mechanics before the principle that the earth goes around the sun has been established. We need to over-turn the idea that the earth is the centre of the universe, that is, we need a real world understanding of planetary movements, before Newton, Einstein, and Nils Bohr are even possible.

Likewise, until we have a proper understanding of where money comes from in the real world, we cannot have a proper economy based on reality.

So if MMT and Keynesianism agree that government spending is not dependant on an income like a household is, what’s the problem? That central point has to be established and accepted by mainstream reporters before arguments over finer points like the nature of sub atomic particles can have any meaning or relevance. If MMT and Keynesianism agree on the fundamental truth of where money comes from, what’s the problem? There really should not be a problem on that fundamental truth.

The danger of the Keynesian argument with MMT is that it will serve to undermine a proper understanding of how the economy works at a basic level, and we will, to continue the metaphor, remain in a medieval understanding of the universe that is plain wrong

All other arguments are academic in every sense of the word.

You insist that MMT says that a country that prints its own money cannot go bankrupt. I say MMT does not say that.

You insist MMT abandons interest rate, I say it does not.

We can go round and around on those arguments, but if we agree on the fundamental argument that Thatcher’s ‘there is no government money, there is only taxpayer money’ is a lie, I don’t see the point, until that truth is more widely understood.

Getting that truth out there has to come first

 

[Sue Pertwee-Tyr]

Ponty sort-of has a point. In the midst of the huge Blair increases, our "productivity" (it was a pretty crappy HES-based measure, but it looked bad all the same) went through the floor. But a lot of that was taken up in deliberate pay rises, especially for nurses. That isn't to say, in an economic context where I defer to others, that his broader point that the value of everything decreases the more there is of money is necessarily correct. I think that's why some of this new economics is interesting.

You also have points. We've been into an efficiency tunnel, where there was almost no performance information or management (say, in the late 70s), but have come out of the other side of it with so much of both that we're almost screwing ourselves. And there was the purchaser/provider split, earned autonomy, etc. There is very little evidence for any of it; because there really wasn't a counterfactual.

There is an irony in that Ponty (and others) complain about inefficiencies, implicitly from unnecessary tiers of management, and it seems the NHS has become so mired in measurement and metrics that it requires tiers of management to deal with the information.

 

[Heckyman]

At the risk of going off at a tangent, this comment reminded me of an interesting article in the New Statesman about Gary Stevenson, former working-class City trader. He seems to be arguing, from neither a Keynesian or MMT viewpoint, that wealth inequality is such in Western economies that any increase in interest rates (which would reward 'savers/the already rich') is untenable. The propensity to hoard assets is almost unlimited, and leads to a kind of feudalism. He is advocating wealth taxation to rebalance the system first.

Higher interest rates don't reward the rich, they are not saving in bank accounts. Low interest rates reward the rich by boosting asset prices. This keeps the poor poor since in this environment asset prices rise faster than wages / savings (and they have to take on cheap debt just to stay afloat).

 

[Heckyman]

Getting that truth out there has to come first

I should say what should come first is to determine what a safe level of combined private and public debt might be. Not easy because you only get to see the limits retrospectively, in the aftermath of a collapse.

The very title of the book "The Deficit Myth" suggests to laymen (and politicians) that there aren't any limits and that they have been "lied to"...this is "the issue".

 

[ks.234]

I should say what should come first is to determine what a safe level of combined private and public debt might be. Not easy because you only get to see the limits retrospectively, in the aftermath of a collapse.

The very title of the book "The Deficit Myth" tends to suggest to laymen (and politicians) that there aren't any limits and that they have been "lied to"...this is "the issue".

No, have to disagree. First of all, what is private debt and public debt? What do they mean? What is a safe level? Getting straight into economic arguments over terminology is not the place to start. Demonstrating that tax does not fund government spending is a simple truth that needs to be widely understood before consequent, all be they important, questions like the meaning of debt to different sectors can be understood and addressed.

For a start government debt does not mean the same thing for a currency issuer like the U.K. as it does for a currency user. The false household explanation that they are the same thing needs to be tackled first and foremost.

I know you don’t like Kelton, but her book neither says nor suggests that there is no limits, it merely states that the The Deficit is not what the household explanation suggests, and that the monetarist household explanation of The Deficit needs to be turned upside down.

The fact of the matter is that when Thatcher told us that there was ‘no such thing as government money, there is only taxpayer money’, we were being told a lie.

 

[Jim Audiomisc]

Ponty sort-of has a point. In the midst of the huge Blair increases, our "productivity" (it was a pretty crappy HES-based measure, but it looked bad all the same) went through the floor.

In a way that sums up the problem with much economic thinking. The reality is that we make up terms like 'GDP' and 'Productivity' which are then assessed in shakey or misleading ways. The result being that politicians and economists cherry-pick via the *way* they find magic numbers to wave about that 'prove' what they believe. A Method that gives a result they don't like then is labelled, 'must be wrong'.

I suspect for many, the first general writer whose explanations made even partial sense was Galbraith... and he was duly hated for it by many other economists.

The reality is simple enough. Money is a belief system which people have to feel is somehow concrete. You take money as a 'payment' because you have faith that at a later time it will be enable you to get what seems to you a fair amount of something else you want in exchange for the bits of coloured paper. Inflation is when people start to lose faith. So the priests need to keep people believing by convincing them all is well.

 

[laughingboy]

Higher interest rates don't reward the rich, they are not saving in bank accounts. Low interest rates reward the rich by boosting asset prices. This keeps the poor poor since in this environment asset prices rise faster than wages / savings (and they have to take on cheap debt just to stay afloat).

You're right. I got his argument backwards: he's saying that it benefits the rich for interest rates to stay low, as it allows them to control assets. Therefore, he asserts, as long as rates stay low there won't be a recovery, because there is no incentive to invest in productive capacity.

 

[Heckyman]

I know you don’t like Kelton, but her book neither says nor suggests that there is no limits, it merely states that the The Deficit is not what the household explanation suggests, and that the monetarist household explanation of The Deficit needs to be turned upside down.

Monetarism wouldn't even work under current circumstances. No-one, right or left, is calling for Austrian-style creative destruction. MMT/NK/fiscal stimulus/whatever-you-want-to-call-it is the only way to keep the lights on these days.

 

[Heckyman]

But, the corollary is that there won't be a recovery, because there is no incentive to invest in productive capacity.

We might have forced investment.

I saw news of such just this morning, a report of plans to nudge private pension investors towards government-approved investments. Of course they will say it's for protection of the investor or to encourage green investing, but the likely practical effect in the future is that people will be forced to buy bonds at below market rates.

 

[ks.234]

Monetarism wouldn't even work under current circumstances. No-one, right or left, is calling for Austrian-style creative destruction. MMT/NK/fiscal stimulus/whatever-you-want-to-call-it is the only way to keep the lights on these days.

Yes, but monetarism is in power. While no one is calling for destruction to happen, neither is anyone pointing at the destructiveness of monetarism and calling it out for what it is. Day after day someone is taking up the ‘you have to tax to spend’ lie. Day after day it goes unchallenged

 

[Heckyman]

Day after day someone is taking up the ‘you have to tax to spend’ lie.

It may be a lie in the technical sense, but ultimately there's still some limit to deficit spending as you've admitted above. Even if we can't know what that limit is.

Does the limit increase just because you account for it differently or explain it differently? I have no idea but you seem to think it does.

 

[ks.234]

It may be a lie in the technical sense, but ultimately there's still some limit to deficit spending as you've admitted above. Even if we can't know what that limit is.

Does the limit increase just because you account for it differently or explain it differently? I have no idea but you seem to think it does.

How does a limit to spending mean that you do have to tax to spend??

The limit is inflation, there is no accounting necessary to explain it, inflation happens when there is overspending, that is, spending beyond available resources ?!? But again, what has that got to do with the ‘you have to tax to spend’ narrative? Are you saying that ‘you have to tax to spend’ is a true statement?