UK National Debt

[Le Baron]

Whatever the interest rate is doesn't reduce the amount of money available for public services. When the government is the currency issuer there is no limit upon how much it can issue.

Yes and what's mind-boggling is that people call this 'borrowing' but also think the paltry interest payments are somehow more than this 'borrowed' money! As if the government would be stupid enough to 'borrow' less than what they pay for it. So first of all they're supposedly borrowing all this money, then somehow the interest payments drain it all away again into penury.

It's incoherent stuff.

 

[Le Baron]

Within limits. There is no free lunch.

https://www.bloomberg.com/opinion/a...ontinues-to-surge-what-would-mmt-followers-do

You see that his first observations are about money supply control? Quantity theory of money stuff., it's obsolete as an idea.

He is rehearsing stuff he has read after the fact and pretending he knew it decades ago - a now classic tactic by everyone who was caught on the hop - and you can see it with the terminology he uses. This man is a fraud. He also claims:

Yet mainstream economists also concern themselves with the sustainability of government finances. MMTers mock such talk — but they’re mistaken for two reasons. The first is that the risk of inflation is itself a constraint on unbounded government spending. The other is that one of the main purposes of a central bank — indeed, it is part of the U.S. Federal Reserve’s mandate — is to control inflation. MMTers ignore this fact, then fail to reckon with the implications.

Which means he's read the bullet points and not understood. No-one in MMT says that - at all! What he goes on to say is muddled and relies upon his old view of 'setting interest rates to fight inflation' which is gibberish. He doesn't mention taxation once in that sense of the mechanism. Instead he posits it as something to be 'raised' for affordability. Also says nothing about full-employment or resource space.

The man is clueless. Sorry, but he is. And I wish people would stop desperately scouting about for half-hearted mainstream economists who have skimmed articles on MMT and think they know what they are talking about. They barely understand Keynes and that was nearly 100 years ago.

 

[ks.234]

Are you sure about this? I know that Italy, for instance, issues bonds in currencies other than Euro.

Also, are you saying that the following is not true:

A country has a National Debt of, say, 100% of GDP. Therefore, if the average interest rate on the extant bonds is 2.5%, it will cost that country each year the equivalent of 2.5% of the GDP. If, in that same country, state spending accounts for 50% of the GDP, the state will have to spend 5% of what it spends in servicing that debt.
If interest rates required to sell new bonds on the market rise to 5%, the state will have to issue new bonds at 5% to replace old bonds as they are redeemed, and to pay interest of the new bonds as they replace the old ones. So, when all the old bonds costing 2.5% have "died of old age," and have been replaced by bonds that pay 5% interest, servicing the debt will double in cost to 10% of state spending. Therefore, there will be less money available to pay salaries of state employees, build and maintain schools and hospitals, pay state pensions, etc.

AIUI the bottom line is that government issues money to spend. Whatever happens after that has various purposes, some of them archaic some of them assumed, some of them absurd, some of them ever true, but, in reality, whatever happens to currency after the government spends it into the economy, it does not feed back into further spending. It does not feed back into the system. Government controls the input tap at the top of the system, it can say that there is a drain pipe at the bottom that feeds back into the top and government must slow down the input otherwise there will be an overflow, but that return pipe is not necessary, it has no purpose other than to divert flow from the inlet tap off to one side

You can either fund public services from the unnecessary return pipe which is obviously constrained by what’s left over after it has gone through the system, or, you can fund public services direct from the inlet tap.

It all comes down to whether you believe that what goes into the economy belongs to everyone, or that everyone has to make do with what comes out of the bottom.

It all comes down to whether you believe in ‘one nation’ conservatism, ‘greater good’ liberalism, and ‘the many not the few’ socialism, or….something yet to be explained properly

 

[raysablade]

Whatever the interest rate is doesn't reduce the amount of money available for public services. When the government is the currency issuer there is no limit upon how much it can issue.

I suspect that there is. Would a state where every adult has a public sector job that pays £5k a week for 2 days work be viable?

At a less extreme level there will surely come a point where high levels of public sector employment and relatively high wages in that sector impact private sector activity and profitability.

 

[ks.234]

Within limits. There is no free lunch.

https://www.bloomberg.com/opinion/a...ontinues-to-surge-what-would-mmt-followers-do

Sorry Sean, but that article is deeply flawed. It makes an assumption, then looks for evidence to fit that assumption. Yet if the assumption is wrong, so will be the conclusions. Isn’t there a computer acronym for the sort of thing, something along the lines of ‘crap in, crap out’?

The assumption in the article is that MMT ignores the fact that inflation is a constraint on spending and that Central Banks control interest rates.

It is just not true.

First. MMT absolutely does not ignore inflation. In fact it says the inflation is the only constrain on spending and puts in place a coherent set of proposals to control inflation in a way that might actually work for once.

Second, MMT does not ignore the fact that the central bank sets interest rates, in fact it recognises it absolutely but says that as inflation has a great many causes, (rather than just the one that conventional wisdom dictates), perhaps we should have more than one blunt tool that no longer fits, to fix it.

If we start to look at the crap that coming out, which is self evident, surely we need to take a look at what is going in?

 

[Le Baron]

I suspect that there is. Would a state where every adult has a public sector job that pays £5k a week for 2 days work be viable?

At a less extreme level there will surely come a point where high levels of public sector employment and relatively high wages in that sector impact private sector activity and profitability.

The first suggestion is just absurd. When the statement is: 'there is no theoretical limit', it does not mean 'there is no 'real' limit' In any case if that scenario supplied all the prerequisites for provisioning the economy, then yes it would be viable.

You are positing some imaginary battle between public sector/private sector. The private sector is given the same provision to carry out economic activity for provisioning the economy and its reward is 'saving'. Its only limit is that it is currency constrained in the final instance and if that constraint means they can't successfully reach normal objectives for a functioning economy in line with their desired saving, something is wrong. Either they want to save an excessive amount or government isn't spending properly and there is a blockage in loan extensions. What government spends/issues is what they use to achieve their objectives. If they start to desire more saving above output/employee saving, they are a problem.

 

[ks.234]

Personally I tend to avoid mention of MMT, precisely because the response is along the lines of ‘MMT says……’ and then goes onto to a lot of stuff that MMT most explicitly does not say, in order to draw some sort of conclusion based on false input.

The only thing that MMT ‘says’ is that government issues currency. The pure logic what flows from that is incontrovertible, or at least, I am still waiting for a reasoned challenge to that observation to make it, er, controvertible (is that a word?), and the only policy change it recommends is a Job Guarantee.

That really is it.

(apart from all the other stuff)

What is the problem with either that central observation, or that proposed policy change? Happy to get on to all the other stuff later, but really what is the problem with the central observation that our government issues it’s own currency?

Do you think government spending comes from tax or “borrowing”, or, do you think government spending comes from government spending?

 

[Super Bigote]

Within limits. There is no free lunch.

https://www.bloomberg.com/opinion/a...ontinues-to-surge-what-would-mmt-followers-do

This is a nonsense article written by someone who doesn't understand MMT and has an axe to grind against it. These sorts of articles are all over the internet. Look at this quote:

Yet mainstream economists also concern themselves with the sustainability of government finances. MMTers mock such talk — but they’re mistaken for two reasons. The first is that the risk of inflation is itself a constraint on unbounded government spending. The other is that one of the main purposes of a central bank — indeed, it is part of the U.S. Federal Reserve’s mandate — is to control inflation. MMTers ignore this fact, then fail to reckon with the implications.

Both of those 'mistakes' are just made up. MMT shows how inflation is a constraint on government spending and MMT also accepts the macroeconomic convention that inflation should be kept low and this is one of just three of the key targets.

Obviously there is no point reading further in this article. If you have been following the debates on this forum you will see the idiocy of that author.

MMTers get criticised for being rather vociferous in their opposition to heterodoxy but when bare-faced lies are carried in major publications and then the misinformation is picked up by yourself and anyone else who is trying to get a handle on it, then it can be quite well understood I should think. The neo-liberal enemy is devious and will stop at nothing to fill your head with lies.

 

[Super Bigote]

I suspect that there is. Would a state where every adult has a public sector job that pays £5k a week for 2 days work be viable?

At a less extreme level there will surely come a point where high levels of public sector employment and relatively high wages in that sector impact private sector activity and profitability.

You are missing the point.The government issues currency by a computer entry. The only limit on expenditure is the time that the clerk has to key digits onto the computer, ie it is infinity. Hence whatever the interest rate is that the government, for no benefit to itself, chooses to pay to the bond holders, there is absolutely no impact on its ability to pay for whatever it wants to pay for. That is the point that I was replying to.

 

[Kirk]

Within limits. There is no free lunch.

https://www.bloomberg.com/opinion/a...ontinues-to-surge-what-would-mmt-followers-do

In the US, MMT would effectively shift responsibility for controlling inflation from the Fed to Congress. Congress would be expected to pass well-timed tax increases to see off hyper-inflation. And to zoom down for a second: Majorie Taylor Greene sits in the House. You can see how MMT could start to unravel very, very quickly.

 

[ks.234]

In the US, MMT would effectively shift responsibility for controlling inflation from the Fed to Congress. Congress would be expected to pass well-timed tax increases to see off hyper-inflation. And to zoom down for a second: Majorie Taylor Greene sits in the House. You can see how MMT could start to unravel very, very quickly.

No. The primary tool for controlling inflation is a Job Guarantee

 

[Le Baron]

In the US, MMT would effectively shift responsibility for controlling inflation from the Fed to Congress. Congress would be expected to pass well-timed tax increases to see off hyper-inflation. And to zoom down for a second: Majorie Taylor Greene sits in the House. You can see how MMT could start to unravel very, very quickly.

All econ policy is already formulated within congress and all in tandem with the Federal Reserve. The common notion of them as some independent entity is a mirage. What they do now, exchange rate target shifts, is superficial anyway. It does nothing. Whenever inflationary episodes occur, or what they see as inflationary according to the low water mark, it is government taking the real action. Especially when it reaches crisis point and the CB just becomes the conduit of policy.

Current tax policy, having to be 'passed' as law, is so inelastic as to make it a pretty useless tool as compared to its actual function.

 

[ks.234]

All econ policy is already formulated within congress and all in tandem with the Federal Reserve. The common notion of them as some independent entity is a mirage. What they do now, exchange rate target shifts, is superficial anyway. It does nothing. Whenever inflationary episodes occur, or what they see as inflationary according to the low water mark, it is government taking the real action. Especially when it reaches crisis point and the CB just becomes the conduit of policy.

Current tax policy is, having to be 'passed' as law, is so inelastic as to make it a pretty useless tool as compared to its actual function.

There you go with your damned facts again

 

[raysablade]

You are missing the point. The government issues currency by a computer entry. The only limit on expenditure is the time that the clerk has to key digits onto the computer, i.e it is infinity. Hence whatever the interest rate is that the government, for no benefit to itself, chooses to pay to the bond holders, there is absolutely no impact on its ability to pay for whatever it wants to pay for. That is the point that I was replying to.

I think I understand that point. As has has been shown recently the UK's ability to create currency has no hard limit.

My issue is that whether or not they are notional, budgets do limit the supply of public services and do create a clear basis for both in year control and accountability to parliament. Presenting these budget limits as something akin to a force of nature, rather than a deliberate and arbitrary choice, makes their consequences acceptable.

If you choose to link public service provision more closely to demand would budgetary control cease? My guess is that you still need a stop point, if so where is it? How do you justify its application?

 

[Le Baron]

I think I understand that point. As has has been shown recently the UK's ability to create currency has no hard limit.

They do have a hard limit: real resources. It's a 'soft' limit they don't have.

My issue is that whether or not they are notional, budgets do limit the supply of public services and do create a clear basis for both in year control and accountability to parliament. Presenting these budget limits as something akin to a force of nature, rather than a deliberate and arbitrary choice, makes their consequences acceptable.

If you choose to link public service provision more closely to demand would budgetary control cease? My guess is that you still need a stop point, if so where is it? How do you justify its application?

Budgets being what they are and what they could be is well within the actual 'stop point'. Even full employment as a concept is within the real-world stop point. The fear of overreaching that is falsely posited as regarding where budgets are now as opposed to what they could be.

 

[ks.234]

I think I understand that point. As has has been shown recently the UK's ability to create currency has no hard limit.

My issue is that whether or not they are notional, budgets do limit the supply of public services and do create a clear basis for both in year control and accountability to parliament. Presenting these budget limits as something akin to a force of nature, rather than a deliberate and arbitrary choice, makes their consequences acceptable.

If you choose to link public service provision more closely to demand would budgetary control cease? My guess is that you still need a stop point, if so where is it? How do you justify its application?

I think the central point is that the current economic model is built on the principle that whatever the government spends out, needs to be balanced, to some degree or other, by what comes in. This might be valid in the days when the value of the currency was pegged to a measure of gold or silver, or valued by connection to another currency like the dollar, but as we left the gold standard, and because our currency is not pegged to another currency, what our government issues is not constrained by either income or external values.

The stop point you mention is inflation, which is when, for example, there is so much government investment in the NHS, that there are too many nurses floating around. We’re a long way from that point at the moment!

 

[Super Bigote]

I think I understand that point. As has has been shown recently the UK's ability to create currency has no hard limit.

My issue is that whether or not they are notional, budgets do limit the supply of public services and do create a clear basis for both in year control and accountability to parliament. Presenting these budget limits as something akin to a force of nature, rather than a deliberate and arbitrary choice, makes their consequences acceptable.

If you choose to link public service provision more closely to demand would budgetary control cease? My guess is that you still need a stop point, if so where is it? How do you justify its application?

Great question!

Once the monetary constraint has gone then the government has to face resource constraint. It can only employ so many people, train so many nurses, quarry so much building materials for new schools etc etc. So it is the job of the government to allocate the scarce resources to the NHS, Education etc etc whilst also leaving resources to enable the non-government sector to function too. So no, the government cannot just provide according to demand because in that case looking at the health system alone it would be likely that the demand would take pretty much the whole countries resources! Everyone wants the best available treatment for themselves and their family when they are ill or hurt. So what the government has to do is take a view about how much resources should be devoted to the NHS, to social housing, welfare etc. This is a political decision and can be made within either a right wing or left wing framework. Once that has been done, it is then that the budgetary control kicks in. The budgets are to ensure that the expenditure in each service, department etc results in the desired amount of resources being used.

Taking it a step further, and stretching the scope of MMT, though not inconsistent with it, I do say that within that budgetary framework assessing the performance of a nationalised industry or service on the basis of a return on capital, like with the capitalist model, is flawed. Resources employed by the government should be taking account of net social benefit, not just the financial result.

I like your question because it helps to illustrate how this will work in practice.

 

[Le Baron]

The stop point you mention is inflation, which is when, for example, there is so much government investment in the NHS, that there are too many nurses floating around. We’re a long way from that point at the moment!

I think perhaps more that there's: investment beyond the capacity to even hire nurses because they no longer exist. Though if they are required it's a good time to shift expenditure towards training and employing some.

There are some limits. It would be impossible to shift all investment to say health, there is a resource limit and we're nowhere near it, but it has to capture a broad public purpose. And other areas can do a lot to reduce expenditure in e.g. health by having people gainfully employed and happier, rather than falling into depression and needing health services.

edit: I was writing along the same lines as Super B at the same time!

We are consistent theoretically!

 

[ks.234]

Great question!

Once the monetary constraint has gone then the government has to face resource constraint. It can only employ so many people, train so many nurses, quarry so much building materials for new schools etc etc. So it is the job of the government to allocate the scarce resources to the NHS, Education etc etc whilst also leaving resources to enable the non-government sector to function too. So no, the government cannot just provide according to demand because in that case looking at the health system alone it would be likely that the demand would take pretty much the whole countries resources! Everyone wants the best available treatment for themselves and their family when they are ill or hurt. So what the government has to do is take a view about how much resources should be devoted to the NHS, to social housing, welfare etc. This is a political decision and can be made within either a right wing or left wing framework. Once that has been done, it is then that the budgetary control kicks in. The budgets are to ensure that the expenditure in each service, department etc results in the desired amount of resources being used.

Taking it a step further, and stretching the scope of MMT, though not inconsistent with it, I do say that within that budgetary framework assessing the performance of a nationalised industry or service on the basis of a return on capital, like with the capitalist model, is flawed. Resources employed by the government should be taking account of net social benefit, not just the financial result.

I like your question because it helps to illustrate how this will work in practice.

Thank you. That helped enormously

 

[Le Baron]

Taking it a step further, and stretching the scope of MMT, though not inconsistent with it, I do say that within that budgetary framework assessing the performance of a nationalised industry or service on the basis of a return on capital, like with the capitalist model, is flawed. Resources employed by the government should be taking account of net social benefit, not just the financial result.

This certainly needs to be reiterated. The wrong notion that government must 'make a profit' on its activities as in the private sector currency user sector, is strongly held.