The Fight for the NHS/MMT economics

[stevec67]

Yes, but the real point is that it is an ideological choice to run down the NHS, not economic necessity. The sad thing is that Labour is making the same ideological choices.

Obviously it's an ideological choice. It happened in the 90s, Labour built it back up 1997 on, now it's happening again in spades. I'm not convinced that Labour share the same ideology.
The "we can't afford it" mantra is one that I hear constantly at work. Of course departmental heads have restricted budgets, so I hear it constantly. However if I can persuade the real decision makers that for want of £250k now we risk losing a line into Tesco that's worth £300k a year, then miraculously the money appears. The same goes for the billions that we are giving to Ukraine. We can't afford to pay nurses, but suddenly there's a massive burning platform on the edge of Europe and we'll throw billioons at it. We need to afford that.
The conservatives are running this country like a corner shop. They always have. They are supported by people who believe that economics works like a household budget. I don't know what we need to do to change this. They should teach politics and economics in schools. Oh, hang on. They do.

 

[ks.234]

Obviously it's an ideological choice. It happened in the 90s, Labour built it back up 1997 on, now it's happening again in spades. I'm not convinced that Labour share the same ideology.
The "we can't afford it" mantra is one that I hear constantly at work. Of course departmental heads have restricted budgets, so I hear it constantly. However if I can persuade the real decision makers that for want of £250k now we risk losing a line into Tesco that's worth £300k a year, then miraculously the money appears. The same goes for the billions that we are giving to Ukraine. We can't afford to pay nurses, but suddenly there's a massive burning platform on the edge of Europe and we'll throw billioons at it. We need to afford that.
The conservatives are running this country like a corner shop. They always have. They are supported by people who believe that economics works like a household budget. I don't know what we need to do to change this. They should teach politics and economics in schools. Oh, hang on. They do.

To be fair, it started in the 70’s, and while the likes of Friedman had been agitating since the 50’s, it was Callaghan who turned monetarist first in the U.K.

The “we can’t afford it” mantra might have relevance to currency users like individuals and business, but it is a nonsense coming from the currency issuer.

Yes, the Tories are running the country like a corner shop, but government is nothing like a corner shop.

Like you I don’t know how to change things, but I am starting to feel that the answer is somehow psychological. Why does the “corner shop” analogy have such a grip over understanding to the extent that even when shown to be false, some people still manage to circle back to monetarist assumptions? Monetarism seems to be a sort of comfort blanket.

 

[stevec67]

To be fair, it started in the 70’s, and while the likes of Friedman had been agitating since the 50’s, it was Callaghan who turned monetarist first in the U.K.

The “we can’t afford it” mantra might have relevance to currency users like individuals and business, but it is a nonsense coming from the currency issuer.

Yes, the Tories are running the country like a corner shop, but government is nothing like a corner shop.

Like you I don’t know how to change things, but I am starting to feel that the answer is somehow psychological. Why does the “corner shop” analogy have such a grip over understanding to the extent that even when shown to be false, some people still manage to circle back to monetarist assumptions. Monetarism seems to be a sort of comfort blanket.

Monetarism is easy to understand. We all know how a corner shop works. That's why people go back to it. Small investors love housing. Because they understand it. Or think that they do. However they don't, I watched an economist explain how UK housing was at the mercy of a number of complex global economic forces that no bugger understands this side of the LSE. But Joe Bloggs with his £100k that he's just got from his mum's will, he's buying a house to let, because you know where are with housing, don't you? You never lose money on a house do you? People always got to have somewhere to live, haven't they?
Actual economics, with its nasty tendency for money to go round the system twice and get taxed twice, is a bit more difficult.

 

[ks.234]

Monetarism is easy to understand. We all know how a corner shop works. That's why people go back to it. Small investors love housing. Because they understand it. Or think that they do. However they don't, I watched an economist explain how UK housing was at the mercy of a number of complex global economic forces that no bugger understands this side of the LSE. But Joe Bloggs with his £100k that he's just got from his mum's will, he's buying a house to let, because you know where are with housing, don't you? You never lose money on a house do you? People always got to have somewhere to live, haven't they?
Actual economics, with its nasty tendency for money to go round the system twice and get taxed twice, is a bit more difficult.

Yes it does get complicated, but many people are reluctant to grasp the easy, demonstrable truth that tax does not fund spending. What happens after that gets more complicated, but that basic understanding, which only requires a little common sense (and the humility to admit we’ve hoodwinked all our voting lives) to understand, makes the “we can’t afford it” mantra a lie.

We can afford to improve the NHS and much more besides.

 

[lawrence001]

Monetarism is easy to understand. We all know how a corner shop works. That's why people go back to it. Small investors love housing. Because they understand it. Or think that they do. However they don't, I watched an economist explain how UK housing was at the mercy of a number of complex global economic forces that no bugger understands this side of the LSE. But Joe Bloggs with his £100k that he's just got from his mum's will, he's buying a house to let, because you know where are with housing, don't you? You never lose money on a house do you? People always got to have somewhere to live, haven't they?
Actual economics, with its nasty tendency for money to go round the system twice and get taxed twice, is a bit more difficult.

Is your argument that an economic theory is better if it's easier to understand? I find MMT harder to understand than Monetarism.

Small investors will still want to invest money to have a comfortable retirement and leave a legacy for their children, will this be any different if the govt follows an MMT policy?

I'm not sure what you mean about money going around the system twice and getting taxed twice. Obviously I pay income tax when I earn money and VAT when I pay, but that's not money going around twice that's me earning it (in) and spending it (out) so a single cycle.

I would understand your meaning if you were talking about physical notes going around the economy. But as you don't like the phrase "money printing" and consider money to be numbers on a computer that are created and cancelled at will, the concept of that money "going around twice" is meaningless. It's just a bit of data deleted from one place and recreated somewhere else.

 

[mandryka]

Obviously it's an ideological choice. It happened in the 90s, Labour built it back up 1997 on, now it's happening again in spades. I'm not convinced that Labour share the same ideology.
The "we can't afford it" mantra is one that I hear constantly at work. Of course departmental heads have restricted budgets, so I hear it constantly. However if I can persuade the real decision makers that for want of £250k now we risk losing a line into Tesco that's worth £300k a year, then miraculously the money appears. The same goes for the billions that we are giving to Ukraine. We can't afford to pay nurses, but suddenly there's a massive burning platform on the edge of Europe and we'll throw billioons at it. We need to afford that.
The conservatives are running this country like a corner shop. They always have. They are supported by people who believe that economics works like a household budget. I don't know what we need to do to change this. They should teach politics and economics in schools. Oh, hang on. They do.

What I don’t understand is this: what are the unwanted consequences of increased government spending on public goods and services? What things, if any, have to be counterbalanced against the advantages of better health and law enforcement and education?

If the government spends more on health - more pay for nurses is your example, but it could be anything - there’s likely to be more money in British people’s pockets, because people get that money in return for their work. Does anything undesirable follow?

 

[stevec67]

Is your argument that an economic theory is better if it's easier to understand? I find MMT harder to understand than Monetarism.

No, or course not. A theory is better if it works. I don't understand relativity, because I'm not Einstein. It doesn't make it wrong.

Small investors will still want to invest money to have a comfortable retirement and leave a legacy for their children, will this be any different if the govt follows an MMT policy?

Of course not. You and I will still have a pension fund, companies will still borrow money and offer returns.

m not sure what you mean about money going around the system twice and getting taxed twice. Obviously I pay income tax when I earn money and VAT when I pay, but that's not money going around twice that's me earning it (in) and spending it (out) so a single cycle.

it's because there is more than one cycle. Money gets taxed twice because it goes round twice. If I'm not earning money and the car goes sick I either mend it myself for free or I stop using it. No tax. If I'm working I have to pay a mechanic. He's getting paid so instead of being at home and making his own lunch he goes to the butty shop. The butty shop owner takes on an apprentice to get the work done. The apprentice gets paid so gets a car for work. The car needs a repair, you can see where this is going. Suddenly we have a hive of financial activity based around one industrial estate and multiple money cycles. Close a factory and you close about 5 ancillary jobs for every one direct labour.

I would understand your meaning if you were talking about physical notes going around the economy. But as you don't like the phrase "money printing" and consider money to be numbers on a computer that are created and cancelled at will, the concept of that money "going around twice" is meaningless. It's just a bit of data deleted from one place and recreated somewhere else.

I haven't said anything about money printing. However you are right that nobody has to hold physical money for it to work. Obviously. In fact electronic transactions are easier to trace and, yes, to tax.

 

[stevec67]

What I don’t understand is this: what are the unwanted consequences of increased government spending on public goods and services? What things, if any, have to be counterbalanced against the advantages of better health and law enforcement and education?

If the government spends more on health - more pay for nurses is your example, but it could be anything - there’s likely to be more money in British people’s pockets, because people get that money in return for their work. Does anything undesirable follow?

Good question, and I don't know. My example above is a pretty simple Keynesian model. Give people more money and they will go out and spend it. Downside I don't know. Maybe if they have money they don't go to work.

 

[mandryka]

Well prima facie if people have more money to spend, they can afford to buy more things. If supply cannot satisfy that increased demand, then prices will probably increase.

 

[ks.234]

Is your argument that an economic theory is better if it's easier to understand? I find MMT harder to understand than Monetarism.

Small investors will still want to invest money to have a comfortable retirement and leave a legacy for their children, will this be any different if the govt follows an MMT policy?

I'm not sure what you mean about money going around the system twice and getting taxed twice. Obviously I pay income tax when I earn money and VAT when I pay, but that's not money going around twice that's me earning it (in) and spending it (out) so a single cycle.

I would understand your meaning if you were talking about physical notes going around the economy. But as you don't like the phrase "money printing" and consider money to be numbers on a computer that are created and cancelled at will, the concept of that money "going around twice" is meaningless. It's just a bit of data deleted from one place and recreated somewhere else.

MMT is easy to understand at a basic level. There is no point trying to understand the complex stuff if you don’t understand the the founding principle that a government that is a sovereign currency issuer does not tax to fund its spending.

 

[ks.234]

No, or course not. A theory is better if it works. I don't understand relativity, because I'm not Einstein. It doesn't make it wrong.
Of course not. You and I will still have a pension fund, companies will still borrow money and offer returns.

it's because there is more than one cycle. Money gets taxed twice because it goes round twice. If I'm not earning money and the car goes sick I either mend it myself for free or I stop using it. No tax. If I'm working I have to pay a mechanic. He's getting paid so instead of being at home and making his own lunch he goes to the butty shop. The butty shop owner takes on an apprentice to get the work done. The apprentice gets paid so gets a car for work. The car needs a repair, you can see where this is going. Suddenly we have a hive of financial activity based around one industrial estate and multiple money cycles. Close a factory and you close about 5 ancillary jobs for every one direct labour.

I haven't said anything about money printing. However you are right that nobody has to hold physical money for it to work. Obviously. In fact electronic transactions are easier to trace and, yes, to tax.

Wherever never you see words like “printing money”, you also see an agenda.

 

[ks.234]

Good question, and I don't know. My example above is a pretty simple Keynesian model. Give people more money and they will go out and spend it. Downside I don't know. Maybe if they have money they don't go to work.

The answer is in the Friedman quotes above. Monetarism believes that any government spending will be inflationary and in the words of another monetarist thinker, Hayek, is the “slippery slope to totalitarianism”. The downside for monetarists is that any government spending is a sort of evil.

Friedman and Hayek were genuine liberals, but their market based interpretation of freedom ends up in outcomes that contradict that other liberal maxim about the greater good to the greater number. Internal to liberalism is a contradiction between the amorality of the market and morality of human considerations.

The economic crisis of the 30’s exposed market based amorality for what it was and for a while after WW2 we had an economy directed at moral objectives. In the 70’s amorality took back control, and that is where we live today.

There is no rational or necessary downside to turning the economy to moral ends. The fact is that *any* spending *can* be inflationary and *any* economic downturn *can* lead to Nazism. And frankly we’ve had half a century of wildly fluctuating inflation, price instability, 2008, austerity, and a rise in Nazism under an ideology that is supposed to prevent those things. Monetarism is a failure on it’s own terms.

The economy will still have to managed to avoid inflation, and that will be a difficult job much as it is today.

The upside is we could have a decent NHS and an opportunity to tackle climate change with rigour.

And we don’t have to tax the rich to do it.

 

[Joco]

What happens when we decide to improve the infrastructure, Roads, NHS, Manufacturing and so on. I guess we need to pay for these things in other currencies, in the main US Dollars. I get that we can issue GBP to increase wages and pay for new jobs in this country as it’s internal but most raw materials and most built products will come from overseas.
What problem will arise from this side of the equation?

 

[laughingboy]

What happens when we decide to improve the infrastructure, Roads, NHS, Manufacturing and so on. I guess we need to pay for these things in other currencies, in the main US Dollars. I get that we can issue GBP to increase wages and pay for new jobs in this country as it’s internal but most raw materials and most built products will come from overseas.

Most UK imports are paid for in pounds. The amount of pounds required is determined by exchange rates, of course, but the payment is in pounds, just as it is when you buy something from another country.

The overseas bank might charge their customer to convert it to a local currency or it will go to the recipient's Sterling account in the overseas bank, if they have one. Either way, the Sterling ends up overseas.

 

[wulbert]

Interesting piece by John S. Warren, regarding this interview with J. Rees-Mogg on Sky News, via Twitter (sorry).

Mogg appears to be recanting the household budget model and admitting that governments can simply create money and owe it to themselves with Q.E.

"Challenged on the Government’s well known hostility to borrowing, Rees-Mogg dismissed the whole history of the last twelve years of Austerity, delivered to the largely defenceless population by his Government. Governments, he intones “almost always borrow”. He developed his theme with an extraordinary volte-face from the deeply held Neoliberal orthodoxy his Party and government have stoutly defended throughout their period in power: “Total borrowing, excluding the Quantitative Easing [QE] of £875Bn which is owed by the Government to the Government, if you net that off, we are under 60% of GDP. I think it is a perfectly sustainable level”. Rees-Mogg’s ‘netting off’ is a recognition of the underlying, critical accounting identity involved in QE, that the Bank of England, Treasury and ONS appear very, very reluctant even to discuss in the public arena: if the Government owes itself a debt (i.e., is both the debtor and the creditor), then in establishing its total financial position, on consolidation the debt and credit would automatically cancel each other out.

Rees-Mogg has suddenly embraced a monetary idea his Government has long simply ignored, because it does not fit the ‘household budget’ convention on which the Conservatives have relied to spook the public on debt, and that reliably returns Conservative Governments to office in a haze of confidence in the financial probity of a Party that actually possesses a highly chequered history in real debt management."

John S. Warren, Bella Caledonia, 23rd August 20222.

 

[lawrence001]

Most UK imports are paid for in pounds. The amount of pounds required is determined by exchange rates, of course, but the payment is in pounds, just as it is when you buy something from another country.

The overseas bank might charge their customer to convert it to a local currency or it will go to the recipient's Sterling account in the overseas bank, if they have one. Either way, the Sterling ends up overseas.

This seems to imply that money creation is a free lunch but it isn't, even under MMT.
Sterling money creation, whether or not it's spent in the UK or on imports, has an inflationary impact which requires higher taxation to negate under the MMT framework. So it is paid for by those who are taxed. Not paid for as in the literal transfer of tax monies from taxpayer to govt to the seller of imports (which exponents of MMT don't like to describe the monetary flows as) but in the causal link between higher spending and higher taxation required to control the resulting inflation at full employment levels.

 

[laughingboy]

This seems to imply that money creation is a free lunch but it isn't, even under MMT.
Sterling money creation, whether or not it's spent in the UK or on imports, has an inflationary impact which requires higher taxation to negate under the MMT framework. So it is paid for by those who are taxed. Not paid for as in the literal transfer of tax monies from taxpayer to govt to the seller of imports (which exponents of MMT don't like to describe the monetary flows as) but in the causal link between higher spending and higher taxation required to control the resulting inflation at full employment levels.

The 'free lunch' thing is a real hang-up for people. First, I agree with you to an extent, it is patently obvious that unlimited money creation would lead to inflation. But what you seem to imply is that money creation always leads to inflation, and that's not true under MMT or under Keynes - inflation occurs when demand exceeds the carrying capacity of the economy, or, put simply, when too much money chases too few resources.

So you're mischaracterising MMT, right now, and in a fairly monetarist fashion.

 

[ks.234]

This seems to imply that money creation is a free lunch but it isn't, even under MMT.
Sterling money creation, whether or not it's spent in the UK or on imports, has an inflationary impact which requires higher taxation to negate under the MMT framework.

No.

So it is paid for by those who are taxed.

No

Not paid for as in the literal transfer of tax monies from taxpayer to govt to the seller of imports (which exponents of MMT don't like to describe the monetary flows as) but in the causal link between higher spending and higher taxation required to control the resulting inflation at full employment levels.

No. You really do need to actually read some MMT before you can say what it stands for. Your sentence about MMT requiring tax to spend is just plain wrong as has been pointed out to you several times in the past.

Try this from UCL

https://www.newstatesman.com/economy/2022/05/why-british-state-is-magic-money-tree

 

[laughingboy]

This seems to imply that money creation is a free lunch but it isn't, even under MMT.
Sterling money creation, whether or not it's spent in the UK or on imports, has an inflationary impact which requires higher taxation to negate under the MMT framework. So it is paid for by those who are taxed. Not paid for as in the literal transfer of tax monies from taxpayer to govt to the seller of imports (which exponents of MMT don't like to describe the monetary flows as) but in the causal link between higher spending and higher taxation required to control the resulting inflation at full employment levels.

I am not an economist (not even at secondary school level), but my understanding of what MMT says about external sector risks is best captured by this long, technical blog.

 

[ks.234]

The 'free lunch' thing is a real hang-up for people. First, I agree with you to an extent, it is patently obvious that unlimited money creation would lead to inflation. But what you seem to imply is that money creation always leads to inflation, and that's not true under MMT or under Keynes - inflation occurs when demand exceeds the carrying capacity of the economy, or, put simply, when too much money chases too few resources.

So you're mischaracterising MMT, right now, and in a fairly monetarist fashion.

The real point is that these errors have been pointed out more than once, but Lawrence keeps repeating them regardless. There is a deliberate agenda here.