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The Fight for the NHS/MMT economics

Discussion in 'off topic' started by ks.234, Oct 26, 2021.

  1. ks.234

    ks.234 pfm Member

    yes, do agree, though understanding how MMT a relates to private business, investment and inflation is further along the road of discovery.

    MMT does address these more complex issues but first and foremost we need to realise the simple truth that government spending does not come from income raised from tax, the opposite is true.

    We have a model of the economy that needs turning on it’s head in much the same way as our understanding of the solar system was turned on it’s head half a millennium ago. As turning a model of the universe with the earth at its centre on it’s head had far reaching and complex consequences, so turning an economic model with tax at the centre of spending has far reaching and complex consequence. But just as a failure to have an Einstein like understanding of the workings of the universe does not shake our understanding that the earth is not the centre of the universe, so our failure to understand the quantum workings of the economy does not threaten our understanding of the basis of where our money comes from in the real world.

    First and foremost MMT means that our government can spend our GNP’s up to the limits of available resources. It means we can afford to spend whatever is required to tackle climate change. We can afford to have properly funded public services. We can afford full employment. And we can afford all those things without inflation
     
    PhilofCas likes this.
  2. ks.234

    ks.234 pfm Member

    No, definitely a piggy

    [​IMG]
     
  3. Sue Pertwee-Tyr

    Sue Pertwee-Tyr Well, I can dream, can’t I?

    How are the ‘limits of available resources’ determined? What constitutes these resources? The traditional Tory model seems to assume that tax revenue plus borrowing defines ‘available resources’ and limits to borrowing are set by the market, which punishes profligate over-borrowing. If this is wrong, what replaces it and sets the limits?
     
  4. paulfromcamden

    paulfromcamden Baffled

    Why? And does this mean MMT is only an option for countries that issue currency widely used for international trade?

    Nigeria for example issues it's own sovereign currency (naira).
     
  5. Tony L

    Tony L Administrator

    Yes, a lot of people really do need to grasp that bit as it is just accurate analysis of the current system. It is why the current dumb Tory/Labour ‘household budget’ analogy is so destructive as it is a lie. It doesn’t however mean there is no price to anything, that which is created certainly needs to be funded even if it is offset against future growth etc. To my eyes there is a simplicity to a lot of the writing from the left that only ever sees the state and the public sector. It is just as myopic in its own way as the libertarian extremes of the right. One has to look at the whole picture, and that has to include businesses (small and large), savers, investors, the retired etc. Anything that leads to currency devaluation or inflation is not the answer.
     
  6. Ponty

    Ponty pfm Member

    That’s right. Mr Summers (a professor at and past president of Harvard University. He was treasury secretary from 1999 to 2001 and an economic adviser to President Barack Obama from 2009 through 2010), doesn’t understand it. Yet you (please insert credentials here) do.
     
  7. ks.234

    ks.234 pfm Member

    As you’ve decided to make this personal, I shall point out that I know nothing except what I’ve been teaching myself through recent reading and research. Everything I post here, including the demolition of the learned Mr Summers is freely available on line from far greater minds than mine, who I have already linked to. Besides, even my tiny failed mind can see that the very fact that Summers assumes that MMT is about printing money, when it explicitly isn’t, makes any conclusion he draws from a false premise, a bit, er, suspect.
     
  8. ks.234

    ks.234 pfm Member

    This is another example where we need to turn our thinking upside down. According to MMT, tax is not revenue, tax is not saved up for spending later. Government issues money for what ever purposes it seems necessary, then that money is taxed.

    Borrowing is not by the markets as such, borrowing is a tool to control spending or inflation as required. Quantitive easing is an example of a mechanism used to control the economy at a time of need, though who we borrowed from and where that money ended up are more difficult questions. (Well, difficult for me because I’m not up to that podcast yet!)

    Available resources can be things like people who want to work. We have a shortage of doctors and nurses, so spending money to create those nurses make economic and moral sense.

    Likewise it makes economic, moral, and plain common sense to create the resources to tackle climate change.

    The fundamental point of MMT is that we can afford to spend to create much needed resources, precisely because government money is spent into existence, it is not dependant on saving from tax income.
     
    Sue Pertwee-Tyr likes this.
  9. Sue Pertwee-Tyr

    Sue Pertwee-Tyr Well, I can dream, can’t I?

    With the caveat that I haven't yet started on these podcasts, you seem to be suggesting that if governments spend money to create resources which have 'value' (not yet defined, but social/societal as well as monetary would be indicated) then that's a valid process. So, by extension, problems like inflation or devaluation of currency, or unemployment perhaps, tend to arise when the spending doesn't create 'resources', or not resources with value (which may be a tautology). Sort of like spending as investment, vs spending as waste? I'm also wondering where spending on war (or some aspects of defence, perhaps) fits into this.
     
  10. Ponty

    Ponty pfm Member

    Not personal at all but pointing out you were quick to dismiss Mr Summers. Just curious as to your credentials to be able to suggest that he doesn’t understand what he’s talking about. Ultimately I feel this comes down to political beliefs. The left want to spend into oblivion and the right want to balance the books. Which side of that debate you fall on will generally dictate how you view MMT and which way you vote.
     
  11. Tony L

    Tony L Administrator

    This is an absolute myth that is so easy to disprove. Right-wing governments are always reckless, always end up borrowing huge amounts along with pissing away national assets for their own corrupt self-interest. As an example one can’t view Thatcherism without north sea oil propping up her utter recklessness. It is just the same as the current pack of thieving Tory shits racking borrowing to extraordinary high levels ever whilst sticking £bns of our money in their own back pockets.

    Here’s the Wikipedia entry on UK debt. Bare in mind that Labour are a spectacularly unsuccessful political party due to the UK’s rigged and non-democratic electoral system (that they are too feckless to oppose) so they have only been in power for about 25 years ever IIRC. Worth noting that even when Attlee was creating the core state infrastructure we now take for granted debt was reducing. It is more visible in the USA where the Democrats are a far more competent opposition to right-wing recklessness and criminality than the UK Labour Party.
     
    Sue Pertwee-Tyr likes this.
  12. Ponty

    Ponty pfm Member

    Maybe, but that is the perception people (voters) have, like it or not.
     
    paulfromcamden likes this.
  13. Sue Pertwee-Tyr

    Sue Pertwee-Tyr Well, I can dream, can’t I?

    Are you including yourself in that? Because that's the only way I can read post #30 - that you believe the left 'spend into oblivion' and the right 'balance the books'. So you're deflecting a bit now, I feel.
     
  14. Joe Hutch

    Joe Hutch Mate of the bloke

    The problem is that the 'household budget' concept is easy to grasp and relate to one's own circumstances; this much money comes in, that much money is spent, if the latter exceeds the former, I'll need to borrow more or cut down on spending. I admit to not knowing much about MMT, but it's counterintuitive, and thus it'll be difficult to change people's perceptions, even assuming any politicians are willing to try.
     
  15. paulfromcamden

    paulfromcamden Baffled

    I think @Ponty makes a valid point tbh.

    I honestly have no idea whether MMT is a valid explanation of economics - but good luck convincing an electorate that governments don't need to collect taxes. You'd be laughed out the room.

    That alone suggests to me that it's a non-starter regardless of it's validity or otherwise.
     
  16. Tony L

    Tony L Administrator

    It is just one of many myths/folklore. Another being the widely accepted notion that an employee is paying in to their pension when in reality they are paying for existing pensioners and their children’s and grandchildren’s generation will be paying for theirs when it is their turn. That’s before we even start to consider the fractional reserve banking system and how mortgage debt etc is actually created. No one likes to think that banks don’t actually have their money, but that’s the reality!
     
  17. Sue Pertwee-Tyr

    Sue Pertwee-Tyr Well, I can dream, can’t I?

    I don't think that's what MMT says, though. Caveat: I'm only going off the bits and bobs I've picked up so far, but the argument is not that governments don't need to collect taxes, but rather that the conventional view puts the cart before the horse.
     
  18. paulfromcamden

    paulfromcamden Baffled

    I'm also admittedly only going on bits and bobs and this definition on Investopedia:

    Modern Monetary Theory (MMT) is a heterodox macroeconomic framework that says monetarily sovereign countries like the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.

    Put simply, such governments do not rely on taxes or borrowing for spending since they can print as much as they need and are the monopoly issuers of the currency.


    https://www.investopedia.com/modern-monetary-theory-mmt-4588060

    It's entirely possible some nuance has been missed by the article - though that in itself suggests MMT would be a hard sell to the electorate.
     
  19. Heckyman

    Heckyman pfm Member

    Apart from the fiscal side of the MMT proposition that harks back to the 1930's (Jobs guarantee), I reckon we are already pretty deep into "MMT" implementation i.e. central banks propping up indebted economies with easy money that has not come from taxation. Not because of some radical new economic theory, but because not doing so in the aftermath of the financial crisis and pandemic would have been politically too difficult (and probably the wrong thing to do anyway).

    It's a valid point to criticise popular explanations of taxation such as "1p on NI for the NHS" etc, however I suppose linking taxation to the NHS is the only way to get people to agree to pay more tax, period. 1p to bail out the banks, to invade Iraq, fund universities, even.. nah.
     
  20. ks.234

    ks.234 pfm Member

    Unfortunately all parties subscribe to the household budget model of the economy. Some I fear for the fig leaf it gives to cutting back on public services, but some because to go against the household model would attract hostility, ridicule and incredulity.

    However, there are some misconceptions here. MMT is not necessarily a left wing thing, it also allows for lower tax and using the unemployed as a resource by employing them, both of which appeal right wingers.

    It is true that MMT talks about money creation for public services, but that is only true because when it comes to spending on wars, or high speed vanity projects, finding the money is not a problem. Finding the money is only a problem when it’s for public services.

    The final point about inflation is important. MMT is not about unrestrained spending or printing money. Inflation is posited as a consequence of MMT by its detractors, but it’s a myth based on a misunderstanding. Inflation is a product of government overspending, but spending on resources that we need to tackle climate change or the NHS are necessary and both areas need more manpower and resources, not less, so spending up to the point that those two areas no longer need resources will not cause inflation. Besides, there are other more effective means of controlling inflation than restricting the money supply at a time of need
     

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