UK National Debt

[Super Bigote]

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.

Yes, that is the crowding out effect. A nurse can't work at an NHS hospital and at the same time work in a private hospital or manage a branch of McDonalds. This isn't so much of an issue now because of mass unemployment but it starts to become an issue as full employment approaches and there isn't enough resource to go round. The government has to pay more to entice a nurse from the private sector and inflation is the result. Inflation isn't good.

So the choices are:
1) Don't employ the nurse and forego her services with the NHS
2) Curtail the private health system by burdening it with extra taxation causing nurses to be released
3) Stopping the private health system from trading in certain areas causing nurses to be released
4) Entice more people to become nurses by training them and improving conditions so that they prefer that job to managing a MacDonalds branch.
5) Increase general taxation which will create unemployment and entice the newly unemployed to train as nurses.
6)Other stuff I haven't thought about off the the top of my head.

In other words, there are plenty of choices available, and none of them are constrained by the fairy tale Magic Money Tree. The issue to face up to is do you want that nurse to be working for the NHS, private health or McDonalds? This is the sort of choice which should be presented to the electorate.

The better provisioned the government sector is, the worse provisioned the private sector is, and vice versa. In a democracy we should be able to choose how we want that split to be. We do not have that choice now because 'there is no money available' or as KS234 says 'TINA'.

 

[Super Bigote]

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.

For instance, your local council:

It will cost £200,000 to fix the pot-holes this year but we will only have to pay out £130,000 if sued so we will not fix them. Meanwhile, £90,000 damage is done to cars and a motorcyclist is killed. The profit motive clearly does not serve public interest in this case.

Similarly for hospitals where accountants are balancing pay-outs against the cost-saving of providing an incompetent service. No account is taken of the social cost of people having their treatment delayed, messed up or dying unnecessarily.

 

[Le Baron]

For instance, your local council:

It will cost £200,000 to fix the pot-holes this year but we will only have to pay out £130,000 if sued so we will not fix them. Meanwhile, £90,000 damage is done to cars and a motorcyclist is killed. The profit motive clearly does not serve public interest in this case.

Similarly for hospitals where accountants are balancing pay-outs against the cost-saving of providing an incompetent service. No account is taken of the social cost of people having their treatment delayed, messed up or dying unnecessarily.

Absolument mon cher collègue! And this clear example is why I kicked against the claim made by Mr Hook in the other thread about economists not being concerned with the people element. That mentality isn't coming from MMT, the exact opposite in fact. We are neither the ideologues nor the technocrats.

 

[Sloop John B]

I have to admit that initially having thought that the barmy brigade had arrived that on a full re-reading of this whole thread I can see a well thought out economic argument or philosophy. I don’t know enough to be fully sure it isn’t just someone with 5% more knowledge than me bamboozling me but I’m now open to the fact that there is undeniably some logic at play.


.sjb

 

[Le Baron]

Yes, that is the crowding out effect. A nurse can't work at an NHS hospital and at the same time work in a private hospital or manage a branch of McDonalds. This isn't so much of an issue now because of mass unemployment but it starts to become an issue as full employment approaches and there isn't enough resource to go round. The government has to pay more to entice a nurse from the private sector and inflation is the result. Inflation isn't good.

On a rare occasion I will differ from you. I think 'crowding out' only applies to a financial concept (which is in any case false) involving the notion of government and the private sector competing for limited savings - and by extension the 'borrowing' view. The issue of procuring resources for the direct public purpose is to me not an encroachment upon the private sector, but a policy decision by government not to purchase this particular service in that way. The private sector doesn't have a 'natural right' claim upon how resources/services will be created/distributed, they only fulfil a need if it is vacant. Or what business calls 'a gap in the market'. So notions of 'crowding out' in this sense are to me unfounded.

Whether it is right or wrong as policy is another discussion.

 

[ks.234]

I have to admit that initially having thought that the barmy brigade had arrived that on a full re-reading of this whole thread I can see a well thought out economic argument or philosophy. I don’t know enough to be fully sure it isn’t just someone with 5% more knowledge than me bamboozling me but I’m now open to the fact that there is undeniably some logic at play.


.sjb

Yes, agree, my initial reaction was that a lot of this stuff was too counterintuitive to be true. But then I also felt bamboozled by talk that it was my responsibility as a taxpayer to pay it off. Why is this my debt? Personally I found it useful to look back to see where the national debt came from in the first place, and it came from William III’s debt to finance wars (if we had to raise money for wars directly from taxation before we invaded anywhere, would wars still be popular) and that debt became ‘national’ when the Bank of England was created to buy it.

For me, getting my head around the fact that the BoE bought debt was tricky. Why would anyone ‘buy’ debt? Why would I take over someone else’s debt and pay for the privilege?

Understanding how a debt can be turned into an asset is the difficult part. And this is where government backed bonds and securities enter the picture. Our national debt, is someone else’s opportunity.

 

[crimsondonkey]

Interesting the discussion has started to include 'crowding out' as about two pages ago I was thinking about the present government's consistent underfunding of the NHS and social care (ie flat cash 'uplifts' when medical sector cost pressure is about 3-4% pa) and logically what they hope to gain from this. My impression is they want to reduce the size of the state provided health spending so that they can 'crowd in' money and resources from the private sector, which will then provide profits and dividends for their families and their mates.

 

[raysablade]

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.

On the last point.

If you want to understand what any entity is for, don't look at its mission or values statements, that's largely window dressing, look at its management accounts. Across the public sector you will see a top down focus on; unit costs, control totals and monthly forecasts, all feeding a 3 year spending review process led by the Treasury. Tens of thousands of people are managing and monitoring this stuff.

A fraction of that number, if any at all, will be looking at social and citizen impacts. Where they do it is with imprecise and largely subjective measurement systems and tools. Until you can design and build a system that effectively predicts net social benefit across government activity, allocates resources with benefit maximisation in mind and then objectively measures success or failure in delivering it, it won't be fit for purpose. Expecting the people and structures in current system to collaborate on and engineer a replacement along these lines is unrealistic, it requires a fundamental change in the machinery and purpose of government before you even start.

Strange as it may seem; Dominic Cummings, his misfits and a weak cabinet, might have been your best hope. However I think that, even with a consensus on the need to smash things and start again, it would be too difficult to build the models needed to sustain a budget system you are imagining.

 

[ks.234]

On a rare occasion I will differ from you. I think 'crowding out' only applies to a financial concept (which is in any case false) involving the notion of government and the private sector competing for limited savings - and by extension the 'borrowing' view. The issue of procuring resources for the direct public purpose is to me not an encroachment upon the private sector, but a policy decision by government not to purchase this particular service in that way. The private sector doesn't have a 'natural right' claim upon how resources/services will be created/distributed, they only fulfil a need if it is vacant. Or what business calls 'a gap in the market'. So notions of 'crowding out' in this sense are to me unfounded.

Whether it is right or wrong as policy is another discussion.

Still not sure I’ve got the crowding out thing properly, but going back to the @Super Bigote response about spending on nurses and any consequent inflation, isn’t it that spending on nurses will not cause inflation because there is a need to improve the NHS and the need for more and better paid nurse to resource that need? Only when there is government spending beyond that need and resources, will there be inflation?

Have I got that right?

 

[Le Baron]

Until you can design and build a system that effectively predicts net social benefit across government activity, allocates resources with benefit maximisation in mind and then objectively measures success or failure in delivering it, it won't be fit for purpose. Expecting the people and structures in current system to collaborate on and engineer a replacement along these lines is unrealistic, it requires a fundamental change in the machinery and purpose of government before you even start.

Clearly this is untrue. Since an entirely different notion of economic management,with entirely opposing views, principles, theory, was introduced and implemented in the late 70s after decades. Using the same structures and people.

 

[Le Baron]

Still not sure I’ve got the crowding out thing properly, but going back to the @Super Bigote response about spending on nurses and any consequent inflation, isn’t it that spending on nurses will not cause inflation because there is a need to improve the NHS and the need for more and better paid nurse to resource that need? Only when there is government spending beyond that need and resources, will there be inflation?

Have I got that right?

I'm stepping carefully because I don't fundamentally disagree with SB (who clearly has a firm grip on things!). To me 'crowding out' is a made-up concept and primarily to do with a view stating that there is competition for financial resources from a limited pool. That the government and private sector compete for 'funding' and that if the government 'borrows' too much it 'crowds out' the private sector by depriving it of funding. As we know the model is fictitious since funding is issued in one direction in both cases: by government for its own use directly; and as received spending and endogenous loans for the private sector. 'Crowding out' in financial terms is fiction. Particularly so because much spending is already directed towards the private sector as agents creating goods and services for public purchase.

In the employment front I don't believe government creating and purchasing resources directly is some kind of 'risky' competition against the private sector. In the NHS the government can either recruit nurses and other staff directly or pay for them through an intermediary or pay some company to train and manage and employ them or whatever. If the government chooses to employ directly in order to manage pay and conditions and other facets, this is not cutting into some 'right' by the private sector, it is employing resources in the best way to suit the public purpose. If it so happens that private operations develop systems that attract nurses to want to work through that intermediary (in terms of pay, conditions, career opportunities) then so be it.

 

[raysablade]

Clearly this is untrue. Since an entirely different notion of economic management,with entirely opposing views, principles, theory, was introduced and implemented in the late 70s after decades. Using the same structures and people.

40+ years of Treasury led, year on year, resource cuts have pared away the public sector functions that could have articulated a wider vision. The Manpower Services Commission for example, with it's labour force management role has entirely disappeared.

The whole ethos of the public sector and government has become efficiency and spending control rather than social change. It's not just a question of reorienting current resources.

 

[Le Baron]

On re-reading SB's post I think now the view is concerning the shifting of what are finite resources in the form of labour. So that moving people to the public purpose shrinks the pool available to such operations mentioned like McDonalds or whatever we might posit. That's true, though to my mind one is more important than the other. And also knock-on effects of full employment and more equitable incomes is more likely to reduce demand for services like healthcare in those areas that take up so much time, personnel and funding, such as alcoholism, drug abuse, mental health services etc. Which means the resources that could be employed might well be employed more effectively. The increase to fuller employment also brings many more people into the employment sphere, so more available for more areas of the economy.

 

[Le Baron]

40+ years of Treasury led, year on year, resource cuts have pared away the public sector functions that could have articulated a wider vision. The Manpower Services Commission for example, with it's labour force management role has entirely disappeared.

The whole ethos of the public sector and government has become efficiency and spending control rather than social change. It's not just a question of reorienting current resources.

I'm perfectly aware of that. Yet it's cynical to assume from the outset that this can't be rebuilt. Re-implementing policy piece by piece (or even wholesale) is not beyond any government, and there are examples occurring even today. All politics is a battle for this.

 

[raysablade]

And also knock-on effects of full employment and more equitable incomes is more likely to reduce demand for services like healthcare in those areas that take up so much time, personnel and funding, such as alcoholism, drug abuse, mental health services etc.

People might also live longer which increases pressure on Social Security costs and adult social care services. I vaguely remember some research that showed that a large part of the rise in sickness and disability benefits from the 70s onwards was down the both the success of the NHS in preventing people from dying, and its failure to completely cure them.

 

[Le Baron]

People might also live longer which increases pressure on Social Security costs and adult social care services. I vaguely remember some research that showed that a large part of the rise in sickness and disability benefits from the 70s onwards was down the both the success of the NHS in preventing people from dying, and its failure to completely cure them.

Your objections are very strange. Social security is not merely a 'cost' it is a benefit and one which government can 'afford'. You seem to be suggesting that it would be overall better if the health service was reduced so that more people can die in a more timely fashion to reduce 'pressure'.

What else did Dr Malthus tell you the last time you chatted with him?

 

[raysablade]

Your objections are very strange. Social security is not merely a 'cost' it is a benefit and one which government can 'afford'. You seem to be suggesting that it would be overall better if the health service was reduced so that more people can die in a more timely fashion to reduce 'pressure'.

What else did Dr Malthus tell you the last time you chatted with him?

I’m not objecting longer lives, certainly not at my age. Just pointing out their impact on apportionment of limited resources. As a general rule I suspect that impact is a net drain resources available to government.

 

[Klassik]

People might also live longer which increases pressure on Social Security costs and adult social care services. I vaguely remember some research that showed that a large part of the rise in sickness and disability benefits from the 70s onwards was down the both the success of the NHS in preventing people from dying, and its failure to completely cure them.

Your objections are very strange. Social security is not merely a 'cost' it is a benefit and one which government can 'afford'. You seem to be suggesting that it would be overall better if the health service was reduced so that more people can die in a more timely fashion to reduce 'pressure'.

What else did Dr Malthus tell you the last time you chatted with him?

raysablade's point might well make for a chapter in the next edition of those 'Freakonomics' abominations, but as @Le Baron points out, it's a rather useless point as funding for social care and the NHS is not a problem in the UK. In fact, if one really wants to get creative with full employment, policies could be made that family members who take care their elders can get employment credit and subsidization for doing so which helps those who do give up their time to help their elders and it also lessens the need for social care workers (though certainly that should be a funded profession as well).

Back to the original point, raysablade's post reminds Klassik of something experienced by one of Klassik's good friends from way back. Said friend was studying economics at an elite US university and one of his professors was a paid expert witness for the tobacco industry back in the early days of the tobacco lawsuits here in the US where the tobacco industry finally started to lose cases. The economics professor made the argument that those who smoke are good for the society because they work productive lives and then die relatively quick deaths from incurable cancer right at retirement age. Fortunately, given the way tobacco lawsuits were going at the time, it seems the court/jury was probably not moved by such 'expert' testimony, but it does show the perverse nature of economics in academia. It's no mystery how blarney such as monetarism swept academia.

 

[Le Baron]

I’m not objecting longer lives, certainly not at my age. Just pointing out their impact on apportionment of limited resources. As a general rule I suspect that impact is a net drain resources available to government.

Whilst resources have a natural limit our sorts of economies are nowhere near it. They run on artificial and rather low constraints. So when some crowboggart politicians come on TV and say 'the NHS is outstripping capacity' they're really talking about whatever cap they've placed on what they think should be apportioned to that service. As Super Bigote said it would be absurd to shift all resources to one service, though we considered: 1) the question of real need; and 2) the knock-on effects reducing unnecessary health service consultations. This is a position that should appeal to all stripes for varying reasons. A person living a longer and also healthier life, surrounded by people who aren't in penury may well be much less of a resource user.

 

[raysablade]

Whilst resources have a natural limit our sorts of economies are nowhere near it. They run on artificial and rather low constraints. So when some crowboggart politicians come on TV and say 'the NHS is outstripping capacity' they're really talking about whatever cap they've placed on what they think should be apportioned to that service. As Super Bigote said it would be absurd to shift all resources to one service, though we considered: 1) the question of real need; and 2) the knock-on effects reducing unnecessary health service consultations. This is a position that should appeal to all stripes for varying reasons. A person living a longer and also healthier life, surrounded by people who aren't in penury may well be much less of a resource user.

The Guardian used to map public spending in a way that I felt helped to further understanding and contextualise debate. It is a shame that they seem to have stopped.

If you look at a relatively recent map for 2011 it is clear that benefits and services for the elderly were two of the biggest heads then and they have grown as a proportion since. I'm not arguing that this is a bad thing but i think it should be acknowledged that the increasing proportion and longevity of elderly people within the population drives a net reduction in resources available for other government activity.