Here are the private debt ratios from the Q2 2015 data are as follows:
Relative deleveraging is ongoing, but the trend is for corporates to deleverage and households to slowly ramp up debt. Total debt is still hovering around the £6.5tn mark where it has been for a year now.
Will this turn into a house of (credit) cards?
Source: Office of National Statistics. Private sector debt based on tables NLBC, NKZA, NNQC, NNRE, NNXM, NNWK, NLSY, NLUA, NJCS and NJBQ (Lending and securities per sector, not seasonally adjusted) scaled by BKTL (Gross domestic product at market prices, not seasonally adjusted). Data and calculations are available online
174 comments:
Neil, the graphs in this blog post and in 'UK Sectoral Balances - Q2 2015' are not visible.
Working fine here. Can you get to Google?
Dosen't work on mobile for whatever reason. You need to click on "view web version."
Again it is fine here on my iPhone.
Which is a bit odd given that it is a Google docs script.
I've changed the script call parameters. Hopefully that improves matters.
Graph goes a bit to the right on Android (you have to go right into the grey space.)
It could just be bad internet connection.
All fine with Firefox on Windows 8.1
http://www.independent.co.uk/news/uk/politics/eu-referendum-fears-grow-that-european-union-will-impose-tough-conditions-on-uk-after-brexit-a6678461.html
FEAR
Ah, so the EU will "impose tough conditions on the UK."
Well sorry we aren't Greece and you can't make us an offer we can't refuse.
Next the EU will threaten to shoot a puppy if we leave!
Hehe read this Neil. Merkel on protecting external borders!
http://mobile.reuters.com/article/idUSKCN0RX0A020151003
Oh the irony!
Neil, how do I respond to this:
"Why does it need to debit bank accounts?
The state can just print and pay its staff etc with newly created money.
See, you are getting closer. You get inflation. You get inflation because shop keepers refuse to accept the devalued money. So for lots of people inflation is bad. ie. Those who are creditors with fixed rate debts.
ie. Fixed rate debts can be devalued by inflation.
For inflation linked debt, it can't. Doesn't work.
But 90% of the state's debts are inflation linked. ie. Pensions.
So it won't work. All that will happen is that the state will end up with more debts that it can't pay."
??
It's completely confused. I don't even know where the thought process is starting with that one.
If shopkeeper's "won't accept the devalued money" how are they going to pay their business rates, and income tax bills - or their loans to the banks? None of those will accept tomatoes. So they would prefer to go to jail?
The state creates money all the time to pay all its requirements, and the people accept it because they have to pay debts and taxes in the money the state issues. If they don't then they are bankrupted.
The spending *causes* production to come about,
The state then taxes back that which is required to *prevent* inflation from taking hold. That along with effective competition - which rewards the competitor that volume expands at the current price with increased market share over the one that tries to raise their prices - and people saving keeps the system stable.
Guy on link I showed to Consolidated Accounts:
"I have. It doesn't conform to FRS102, the latest accounting standards.
In the past the reason for excluding pensions were they were obligations, not debt.
Unfortunately for the ONS, FRS102 now states pension obligations are on the books.
They do not apply FRS102.
Now the ONS have published the number that would have been in debt column in 2010.
It was 5,010 bn.
So at some point soon, if they decide to account according to UK GAAP and FRS 102, the debt number is going to leap.
No reality changes, its just that you can look inside the box and see what's going on."
Which is odd - as I showed him the accounts when he said stupid things about QE.
Then he starts talking about pension debts.
Original comment:
"Not confused.
QE [The current set up] created 375 bn of new money. See the BoE accounts."
Then I point to BoE Consolidated Accounts.
??
Neil, chance to make money or not?http://mikenormaneconomics.blogspot.co.uk/2015/10/default-is-coming-heres-why-you-must.html?m=1
I don't reckon it will actually happen. We will see.
"MMT says that QE is an asset swap and effectively eliminates any Gilts purchased. The accounts agree in para 7.50 (pp 62)
As at 31 March 2011, there were some £1,059 billion of gilts outstanding but the WGA shows a
smaller figure of £746 billion (Figure 10). The WGA is not intended to include as liabilities gilts held as
assets by entities in the WGA, such as the Bank of England Asset Purchase Facility Fund as part of
Quantitative Easing (paragraphs 7.53 to 7.54).
============
So I'd agree with the above.
Now apply the same to state pensions and civil service pensions.
Oh shit. Can't do that. Nothing offsets the debt. It's naked."
I do wish people would realise that you can't actually save up for pensions. You can't put bread away for 40 years.
Pensions are a current production issue. All Pensions simply take the pension savings of current workers (a good deal of which are now compulsory) add in the government bung from Gilts and any dividends, then hand that out to pensioners.
It's a simple private tax collection arrangement.
Public sector pensions are the same. Government hands out money to pensioners who spend it. The taxes that generates plus the savings of those that choose not to spend cover it. Taxation is set to make space for those pensioners.
Capitalisation of pension liabilities is utterly irrelevant to an entity that issues money. It cannot run out!
https://johnnyvoid.wordpress.com/2015/10/05/how-george-osbornes-minimum-wage-rise-will-mean-brutal-benefit-cuts-for-the-self-employed/
:o
Looks like bad news for self-employed people!
Yates rambles on about the "natural rate":
" Woodford explains the title of his textbook ‘interest and prices’, in particular, the virtual absence of money, in his opening salvos, by pointing out that central bank control over interest rates, and thereby over the whole economy, does not depend on this ‘pleasure’ being of a certain magnitude. In fact, the simple version of the model he studies is one in which this pleasure is conjectured to be infinitely small. Monetary policy’s leverage here depends on money’s role as a unit of account.
Looked at this way, the tendency for the economy to get stuck in a liquidity trap in response to shocks to the natural rate of interest (for example) should not depend on the liquidity convenience (pleasure!) we get from money.
Another way we can interpret JP’s question, though is this.
Suppose that a shock to the natural rate comes along, requiring an extended period of interest rates at the zero bound [and perhaps other stimulus too], to return inflation slowly to target. But then on top of that there is some monetary innovation lowering the liquidity services to money. [Apple Pay?!] What would happen then? Looked at through this model, nothing at all. Because the fact that interest rates are already at zero shows that these liquidity service benefits have already long been exhausted.
Here I have assumed that the monetary reform does not change the asymptote of these liquidity service benefits as real balances get very very large. All that happens is that the monetary reform changes the profile of those marginal service benefits at finite values of real balances.
What if the reform that happens mid-way through responding to the natural rate shock did change the asymptote, however? For example, what if the reform involved abolishing higher denomination notes, which increases the costs of managing cash? I’m not absolutely sure here, without actually doing this properly, but I hazard this guess. Nothing happens, much, if central banks hold interest rates where they are, except that they have to allow real balances to decline via a reduction in nominal money quantities. The reform, however, will create an opportunity for the central bank to lower rates if it wants to, in case the old floor to rates [previously zero, now lowered] implied an amount of stimulus that was less than optimal."
Bleh bleh bleh
Over at Stum and Mumb:
"Although $100 adds $100 to the wealth of an individual, that does not imply that all the money in an economy *adds* anything to the wealth of that economy."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/10/inflation-in-lake-wobegone.html
Nick Rowe on inflation.
n identical firms, not one of which says "let's keep our prices the same and run an overtime shift".
No export licence for that sort of rambling to the real world of variable orders and eight hour days.
Neil, the TV License dosen't fund the BBC does it, or is it like local govt?
http://www.theguardian.com/politics/2015/oct/09/would-brexit-damage-british-universities-science-and-research
The Guardian does push polling.
Rowe replies:
"They have to pay extra for overtime, so marginal cost rises. So no."
A capitalist system without any fixed capital or fixed costs. How entertaining it must be to be such a believer in such pure marginalism.
As I said, no export licence to the real world for this sort of rambling.
The TV licence is collected by the BBC but paid directly into the Consolidated Fund. It's just a tax.
The BBC is funded by HM Treasury: "The Secretary of State shall pay to the BBC out of money provided by Parliament sums
equal to the whole of the net Licence Revenue or such lesser sums as the Secretary of
State may, with the consent of the Treasury, determine."
http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/about/how_we_govern/agreement.pdf
Para 75(1)
So the licence fee is a simple hypothecated tax.
Cheers.
"As I said, no export licence to the real world for this sort of rambling."
Yeah. I've wasted too much time on this. It is impossible to convince them. They are mad. Much better to focus on explaining money to ordinary people.
"you can add fixed costs in if you like. It makes no difference to the conclusion. (In fact, I was implicitly assuming those fixed costs do exist, because I am implicitly assuming monopolistic competition, not perfect competition.) It's the shape of the *marginal* cost curve that matters for pricing, not the *average total cost* curve.
Plus, we are doing macro not micro, so we are talking about *all* firms increasing output, not just *one individual* firm. So even if every individual firm has a horizontal MC curve, if *all firms* expand output and employment together they will be bidding up wages in the competition to hire labour away from each other, so each firm will find its MC curve will *shift up*, when *all firms* expand together. Avoid the fallacy of composition.
So lose the snark, and start learning some basic micro and macro economics."
We're not talking about *all* firms expanding output. We're talking about *some* firms expanding output and *some* firms trying to push prices. The firms with the output expansion will stop the price push, forcing them to increase output and productivity as well (but by then they are on the back foot and will shrink instead).
Obviously in Nick Rowe's world of 'monopolistic competition' all racing cars from all those different teams cross the finish line at *precisely* the same time. Nobody can work hard. Nobody can work smarter. Nobody makes a mistake. There is no learning on the job. There is no spare capacity. No time. No administered prices. No improved methods.
In other words no actual competition and therefore no capitalism.
And of course by inference no export licence to the real world.
https://medium.com/@adamjlent/corbynism-is-an-intellectual-con-trick-3c08d76cafcb?utm_content=buffer08319&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
You Corbynists you!
Neil,
I notice that student loans are increasingly being favoured by all parties. I also notice that support for people with variable rate mortgages in distress will also become a loan.
In both cases we know that much of these loans will never be repaid.
If the government do not take these unpaid loans onto their books and just write them off, then effectively they are planning to "print money". Do we know if this is the case or not?
Kind Regards
http://www.theguardian.com/politics/2015/oct/11/david-cameron-capture-centre-ground
The Guardian is really doing a love in for the Tories now.
They have another article a Hatchet Job on Tom Watson.
Establishment through and through.
The Tory plan:
A fall in house prices is politically "impossible": it means losing elections for the next 15 years, it means having to bailout the whole overt and shadow banking system, it means the end of the regime of ever bigger better leverage.
Just a temporary dip like in 2008 was catastrophic for both Labour and the City.
Therefore there will be a lasting fall in house prices only when that is the least bad option. That is when a cataclysm happens, not a mere catastrophe or just a recession.
The effect will be something like the South East becoming like the North East, because the property speculation industry is to the South East what steel and shipbuilding was to the North East.
Which I think is the tory plan, because their plan is transparently for London as a a bigger Dubai, and the rest of the country as a reserve for grouse and cheap labour. It is nostaglia for the 50s, the 1750s though.
The Guardian is doing it's usual. It's a liberal newspaper.
Gee, I don't even know where to start to reply on this one:
"doing it through tax cuts can induce fewer distortions but still more than with monetary tools because it distorts real after tax interest rates and the transparency in the intertemporal negotiations that they imply. It short-circuits savings as it affects proper time allocation of aggregate investment maturity structure.
I often use a simplified agrarian economy as an example:
Say you had an isolated farming village where people wanted to save to be able to eat in the winter. Because there is some spoilage, crops stored for the winter are only worth 90% of the initial investment required to produce them, that is they have a real return of -10%.
In the fall, people in this village should invest into excess production to have something to eat in the winter, even if, the real returns on these investments are -10%.
Instead, this village could mandates its government to create a currency that always keeps 98% of its real value (2% inflation) even when private market stores of value can’t retain this much. The government would put money into circulation by buying part of farmer’s crop during the summer (politicians have to eat).
In this situation, most farmers would produce enough food for the summer, sell some of their crop and keep their money to be able to buy something to eat in the winter. They would not produce a crop to store for the winter since it would only return real -10% on their initial investment and their central bank promised to keep money at at least -2%.
However, when comes winter, most farmers would have cash but few would have anything to sell because they wouldn't have reinvested their cash in the production of a crop to be stored!
This is a problem stemming from insufficient demand for new capital creation (the food stockpile).
It’s going to be difficult for the central bank to control inflation in such conditions because there will be too few goods for the amount of money people will want to spend.
This dire situation could have been prevented if the central bank had kept money devaluating sufficiently and interest rates low enough (in this extreme case, inflation above 10%). Farmers would not have kept their savings as excess idle cash but would have reinvested them into an extra crop for the winter and have continued to trade during the winter.
Note that there are parallels with farmers saving for the winter and a baby boom saving in preparation for retiring and stopping to work. What I essentially described is an extreme version of a combination "savings glut" and "secular stagnation".
The MMT solution would be for government to borrow and spend in the summer to keep people working longer. Maybe they give tax breaks that makes everyone feel richer and puts people's apparent savings above what they think they need to buy food later during the winder.
This gets people to spend on additional leisure. It puts them at full employment, but not necessarily push them towards building a stockpile of food for the winter because the extra money in their account makes them collectively think they will already be able to buy it from someone else.
Comes winter, they still starve!
What MMTers forget is that it is crucial what kind of capital gets created and what is the time maturity of these investment. Do we want to incentivize a stockpile of food for the winter or additional short term spending?
MMT solutions usually disregard the important intertemporal negotiations implicit in transparent after tax real interest rates and turn economic activity that should be going towards long maturity, long lasting projects into short term projects that leave society with insufficient capacity to consume later."
The old 'simplified agrarian economy' rubbish again.
It's so stylised and full of assumptions as to be utterly useless. That is not how people actually behave.
Farmers produce crops because they are farmers, not investment gurus! The farmer will farm crops because they have the expectation that they will sell the goods. People save to excess because they are frightened of the future or for status reasons, not because of interest rates.
The fairly obvious solution to this 'dilemma' is for the state to purchase the crop as a buffer stock and stabilise the price over the seasons. That extra demand generates the extra production necessary, and ensures that nobody starves in winter.
In MMT we call the buffer stock the Job Guarantee.
So rather than stabilising the system indirectly under the mistaken belief that people respond to 'investment incentives' rationally on interest rates, you stabilise the system directly by buffer stocking the production.
All it takes is somebody not to respond to interest rates as it says in the textbook and the village starves. Under the buffer stock system the village *never* starves.
That's the benefit of direct vs. indirect management of an economy.
http://www.telegraph.co.uk/news/politics/conservative/11924411/Theres-no-alternative-to-our-tax-credit-cuts.html
The Chancellor displays his amazing knowledge on economic matters.
IIRC, Bill Mitchell said he conceived of the JG in terms of a buffer stock based on the agricultural buffers the Aussie government used, e.g., to stabilize the wool price.
"I do not understand why the 'move order' should matter."
On Neil Wilson TIARA link I sent.
http://www.washingtonpost.com/news/in-theory/wp/2015/10/01/selling-out-civil-society/
Basic Income Sucks :)
Don't really know why you are bothering to engage SWL Random. SWL's whole post is really what Neil says technocrats know better the anyone else.
SWL needs to get out into the real world and understand how business works as he doesn't have a clue.
Here is Cameron's response to Denis Healey's death aged 98, about the 'IMF crisis' of 1976:
"Denis Healey told his party hard truths about Britain having to live within her means."
http://www.solidarityeconomy.net/2015/10/11/high-design-get-your-fresh-veggies-from-farmerless-farms/
Supercool. Much better than importing workers from abroad :)
http://www.theguardian.com/politics/2015/oct/12/shadow-chancellor-u-turn-on-fiscal-responsibility-vote-john-mcdonnell-labour-budget-surplus
John McDonnell makes a u turn - in the right direction. Best news since the election of Corbyn.
http://mainlymacro.blogspot.co.uk/2015/10/when-economists-play-political-games.html?m=1
God, Wren Lewis an asshole.
He's boasting about how he is advising Corbyn (stupid policy.)
And you can't criticise him because that's "political games."
http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/10/fiscal-offset-of-silly-qe.html
It's "primarily for Brits" I have to share it ;)
Frances has a new post up, on bank reform
"Stop proposing new bank reforms. We've heard it all before. Get capital buffers up to 20%, then leave banks alone. Particularly, stop attacking investment banks. They have a job to do."
Yes. How dare us plebs try to fight the City.
Tony Yates -
"the reputational costs Jeremy mentions are not to be sniffed at. These seem to have served us reasonably well in the case of the legislation isolating the Bank of England’s monetary policy decisions from political interference."
Yes. Screw us plebs.
It's all politics now - and largely always is.
I asked Richard this:
Replace "Gilt issuance" with "Tax Avoidance."
Why is one right and one wrong?
Why is it unrealistic?
McDonnell talks about redundant workers in Redcar, Osborne talks about people sleeping off a life on benefits.
Priorities UK.
http://www.theguardian.com/business/2015/oct/15/financial-accountability-regime-will-not-be-fully-operational-until-2018
Brilliant. Not.
Comment on the Guardian:
"How much from the state do "working families" need on top of their child benefit? There are young fit people at work that will not do a minute over 20 hrs per week because of state top ups for their kids. Hopefully this will root some of them out and make them do a weeks works instead of bragging about the x box games they will play when they get home. When I say I am doing 40 hrs they look at me as if I am insane. Before anybody says that they "cannot" get extra hours management are always asking people to work more hours. Why would they when the state top ups equal the full time mug sitting next to them? It is bank call centre work not digging roads or anything remotely strenuous."
Imagine suggesting Basic Income to this person.
Hey Neil apparently (comment on billy blog):
"one of Corbyns friends was in attendance at the talk in London in August at the School of Hygiene (Kelvin Hopkins). I am sure there is an interest in MMT, but this may need pushing by others."
Know this person? On Twitter?
Wren Lewis-
"The point about investment is very simple. If you are going to do it sometime anyway, and you have some choice over timing, its best to do it when its cheaper.
I think your concern is more about paying off the overall level of debt. Here Osborne is right - you do it while the sun shines. But that translates into macroeconomics as when monetary policy is able to respond to any downturn. With rates still at 0.5% we are not there yet."
Insane.
Random,
No, if you are going to pay off national debt, the only time you may need to (by shrinking deficits) is if there is a risk of inflation.
http://www.bondeconomics.com/2015/10/the-non-falsifiability-of-natural-rate.html?m=1
http://www.cnn.com/2015/10/18/politics/bernie-sanders-payroll-tax-hike-family-leave/index.html
"Progressives" still obsessed with The Holy Power of Taxation, calling for regressive tax hikes now.
If this is the case it would be better to vote for the right wing!
Neil, could you write a short comment on this blog about MMT. I have sent a link to your 2010 MMT primer:
http://justnotsaid.blogspot.co.uk/2015/09/if-government-were-person.html?m=1
Cheers.
Libertarians and Anarchists have roughly the same blind spots. Socialised control being one of them.
The challenge of liberalism is reconciling the freedom of a particular individual with the freedom of all individuals in a functional system ("society").
This is about the elements of a system, subsystems, and the system as a whole.
There are various ways of configuring such a system, some stable, some unstable, some liberal and some illiberal, and some functional in the long run and some not.
This is what the discussion of liberal social and political theory is about. There are different views based on different assumptions.
Neil and Tom,
I've been thinking about another contradiction.
Isn't there that theory that if wages becomes shit enough, then business will hire and "flexible" labour markets lead to full employment.
And then there is another theory that workers are unemployed because they want to live a "life of leisure."
But if wages are really really shit, then workers will want to live a "life of leisure" (according to the theory, whereas in real life people choose any shit job with low pay.)
So...
Having lived as long as I have, I have direct experience with this. It began post WW II with a general liberalization in the US when it became normal for women to work. Previously, married women could not work. My mother married a bit late and had achieved a managerial position, only over other women, of course. As soon as she got married, she was told that she could not longer work, even though she wanted to. WWII changed that. This meant a large increase in household income and purchasing power. This led to extension of revolving credit to working people, whereas previously only very well-off people were "banked."
Then came the introduction of credit cards. This really changed everything as credit standards were loosened in the competitive rush for market share. Ordinary folks began loading up with debt not only mortgages and vehicle payments but also consumer goods, especially durables. But then ordinary consumption began to be put on the card, too.
At this point, any rise in unemployment or wage reduction would result in debt deflation, and that is what started to happen. Now this is even a greater issue as firms compete to extract as many rents as possible, internet and phone rents have become a standard part of the monthly nut, for instance.
This makes the economy very fragile. Flexible wages and volatile employment are both poison to such a system, and that is the system now in place. Even marginally tightening credit or raising interest rates affects it. There's no longer much play in the system to allow flexibility. The US at least is maxing out.
http://www.telegraph.co.uk/finance/economics/11949701/AEP-Eurozone-crosses-Rubicon-as-Portugals-anti-euro-Left-banned-from-power.html
They've gone totally Texas.
Portugal left wing anti euro coalition wins majority, President blocks it cos they are "anti Europe."
Greece on steroids.
Bob
Tim Fenton has piece dubunking AEP's claimshttp://zelo-street.blogspot.co.uk/2015/10/telegraph-portugal-claim-busted.html?m=1
Must admit I shared the AEP piece and was up in arms...should have checked myself.
BoE on Immigration
http://www.niesr.ac.uk/blog/bank-englands-eu-analysis-free-movement-and-immigration#.ViosQCtWcXg
AEP may have overstated his case, but Fenton doesn't mention this, which is really what the kerfuffle is about:
"In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,”
“This is the worst moment for a radical change to the foundations of our democracy".
"After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,”
No Leftists need apply.
Keeper quote
"the demand for a proper free market economy without cronyism or special favours is as unachievably utopian as the wildest leftist fantasy.
I say this because of the first premise of free market economics - that incentives matter. Politicians want money, business wants influence and favours. Both sides therefore have powerful incentives to trade - to give us cronyism."
Should shut up libertarian "anti cronyism, against campaign finance restrictions, pro capitalism" idiots.
Tom, I disagree. I wish I hadn't shared that article now.
That is just their political system, it was there before eurozone. Eurozone or No Eurozone. The President has the power to appoint the Prime Minister. Yes, he may be biased, so what? That's a flaw.
So it has nothing to do with the Eurozone, despite the pro-euro President.
We don't have this in the UK as the Queen acts reasonable.
Yep that's the point Bob, AEP turned an internal Portuguese issue into an attack on the EU. The EU certainly needs attacking on it's lack of democracy but that attack has to be on a solid foundation. Making stuff up as AEP did isn't helpful.
"Making stuff up isn't helpful"
The pro-EU campaign do this all the time.
It fooled us. And in particular AEP is writing for a very conservative audience. You know, EUSSR and all.
I just don't think it was aimed at us.
A vote out of the EU is a vote out of the EU. Dosen't matter where it is from.
For example AEP "believes" in monetarism. And this is written in Torygraph.
Tom, Tim Fenton mostly debunks the right wing's attacks on the left, haven't seen anything by him that he is particulary an EU supporter.
From what I have seen on my twitter tl the Portuguese left are surprised by the article...Tim's sources are the Portuguese left.
The amount of energy needed to refute bullshit is an order of magnitude bigger than to produce it.
Andy, the most famous example:
"In May 1940 the Tory party decided against suing for peace with Germany and opted instead to fight on at any cost against hopeless odds."
"The pro EU campaign do this all the time"
Quite right they certainly do, and why it's easy to slaughter their arguments. If you have a lousy foundation then you open yourself up to getting shredded.
Aye AEP has called himself a market monetarist for years and has called for NGDP targetting although not convinced AEP really knows what it is but hey it sounds serious(myself and Neil have been commenting on the DT for ages...Although I don't now since it went behind a paywall a couple of years ago and the UKIP crowd spoiled it).
Note: some of the middle and upper classes detest the EU because of its immigration policy: it prevents the UK from opening immigration from really poor countries for really cheap hired help without any rights, instead of forcing the UK to hire only help from relatively expensive Bulgaria and Romania who also have to be given rights.
The model for them is the immigration and residence policies of places like Qatar or Saudi Arabia, with none of those EU-mandate coddling rules.
Kinda like my POV although I expect we will lose. Neoliberalism is ripping the face off the planet but hey there is Strictly come dancing on TV right.
Another guy called Andy (think the Andy who comments on Murphy's blog) put a comment on MNE a few years ago and one thing he said I will always remember "is there hope? Well I for one will never again worship at the alter of Neoliberalism" same for me.
Is there a 'Left Out' campaign as part of the EU referendum?
Or is the progressive left so doped up on One World idealism they're quite happy to throw 5% of the population to the dogs?
There is a @TheLeftForLeave twitter account if that's any help.
The official campaigns are picked by the Electoral Commission are x party things so won't be any official left out campaign.
Going to come down to individual choice. I won't be campaigning on our 'official' position which is stay in but reform it but Jenny Jones broke ranks which was no surprise after he piece in the Ecologist. Lucas is still sayong yes though but I don't she is as entirely convincing as she usually is. Rest of our leadership hasn't said much at all, although Molly Scott Cato launched an attack due to the AEP piece and she's an MEP! Odd really for us as shouldn't be that big a deal as we are a worldwide party (only the Chinese Communist Party are bigger) so have our own institutions.
Blair says its the fault of faulty intelligence, we had no idea, really
http://www.theguardian.com/uk-news/2015/oct/25/tony-blair-sorry-iraq-war-mistakes-admits-conflict-role-in-rise-of-isis
What's this "we" stuff Tony?
https://mobile.twitter.com/davidgraeber/status/658061739397926912
Don't they know musicians are or can be in JG.
http://www.independent.co.uk/news/uk/home-news/adopting-passivhaus-building-standards-could-allow-people-to-heat-their-homes-using-power-emitted-by-a6707656.html
Indy catches on :)
What are opinions on the Lords vote?
HoL were on dodgy ground really AFAICS & probably made a decent decision politically.
And on another point what would have been the affexct to GDP if had gone through? I estimated hit would be 2.4 million + ish locally and that's surbuban London so low by other areas.
I think the HoL was perfectly entitled to do what it did given what was said at the election. The govt tried to slip this through as an SI when the Finance Bill was in report and third reading (with 45 technical amendments at Report stage!).
The HoL could have stopped the SI in its tracks and the govt had the mechanism to push it through anyway - primary as a Finance Bill.
The more conciliatory line from Osborne this evening is to be welcomed. Trying to play the 'constitutional' card is just sour grapes.
I'm not sure what the GDP impact would be. Depends on the multiplier effect.
"the govt had the mechanism to push it through anyway - primary as a Finance Bill. "
Right. This whole thing is complete BS and a pit of lies.
Similar with the US "debt ceiling" IF the President threatens Coin Seigniorage.
Comment pretty much sums up New Labour:
"Most election in the UK since the 1930s (and practically all since 1979) have been won or lost on whether property prices were going up in the South. That G Radice has called the "Southern discomfort" issue from a political viewpoint and C Crouch "fiscal keynesianism" from an economic one.
Both New Labour and the Conservatives have accordingly "triangulated": the core Labour base (low income workers and tenants, mostly in the North) are a minority, as are the core Conservative base (speculators on leverage and property owners, mostly in the South); thus both have been pandering to the southern middle classes to build an alliance between their core base and them for a parliamentary majority.
But the alliance between southern middle-classes and Conservatives has been run mainly for the benefit of the Conservative core base, while the alliance between them and New Labour has been run mainly for the benefit of the southern middle classes. It appears that the New Labour elites think that their core base is not that of Labour, but those southern middle-classes.
The Corbyn story seems to me that at the core Labour voters have therefore tired to elect as leaders New Labour figures that then run the country in the interest of those southern middle-classes, with the tiniest help for their core voters, and then only because of G Brown's determination. If the Conservatives get into government, the City and also the southern middle-classes get taken care of; if New Labour wins, the southern middle-classes get taken care of, and also the City but only in small part the Labour core base.
Why should they vote for various flavours of triangulators given that when they get elected their main policies are so similar to those of the Conservatives? In particular as to making it really expensive for Northern workers to move South to find jobs, because the core populist policy of New Labour and Conservatives are the same, bigger work-free tax-free capital gains for the southern middle-classes..."
New Labour weren't just shills, they were CHEAP shills too.
Latest news.
"George Osborne is prepared to dig deep into the Treasury’s coffers to resolve a standoff with the House of Lords over his proposed cuts to tax credits.
As a growing number of ministers warn in private that the government has been damaged by its apparent insensitivity to low-paid workers, the chancellor embarked on the first stages of a change of tack.
A senior government source said the chancellor had given himself “wriggle room” in his original deficit reduction plan that will give him the space to divert substantial resources to “lessening” the impact of the tax credit cuts."
What?? Dig deep into "Treasury coffers"? Are they talk about HM Treasury's cash buffer?
What do they mean Neil?
Treasury coffers are infinite. Everybody knows that, but they pretend that it is something else.
About 90% of whatever Treasury spends comes back as taxation with the rest adding to savings - and therefore by accounting identity the deficit.
So if you spend £4bn naked then it will only add about £400m to the deficit - which is well within natural variation.
What they say and what actually happens are two different things. The narrative coming out is pure politics.
http://www.theguardian.com/commentisfree/2015/oct/28/2008-crash-government-economic-growth-budgetary-surplus
MMT in comment is free!! :D
Hardly surprising as it wasn't all Graeber's own work, he had help from a friend of his. Other articles in the G by DG also mention MMT (if you look them up you will find who helped him).
And of course DG makes the Chartalist case in "debt" pg 46 on.
http://www.bbc.co.uk/news/uk-politics-34658755
WTF?
Nick Rowe:
"" Government deficit spending, not interest rate policy, was the key to avoiding a great depression the last time around."
I'm crap at remember history, but I thought the economic historians had debunked that one? Christina Romer?? Also, I remember seeing some pretty convincing Scott Sumner graphs showing the US recovery coincided very closely with Roosevelt raising the price of gold, which is monetary policy."
These people are very good at denying reality.
N.Rowe:
Bob: "If a Corbyn government is elected it would be the Bank of England's job, under the current arrangements, to ensure there was space in the economy to handle whatever spending the government decided to undertake. It can do that, theoretically, by assessing the output gap and adjusting interest rates accordingly."
Funny you say that. Because that is exactly how the Bank of Canada currently sees its job (though it would not use those words). You are simply repeating what I am saying above about monetary offset, using different language.
(It's sort of ironic, by the way, that just before he moved to the UK, Governor Carney was listening to overtures that he become the leader of the Liberal part of Canada. (You know, the ones who just got elected, and have gotten a lot of people excited about their "keynesian" policy.) Some of us thought that a bit "problematic", as they say nowadays.)
http://www.forbes.com/sites/stevekeen/2015/10/28/the-unnatural-rate-of-interest-ultra-wonkish/
The natural rate of interest is BS! Excellent work by Steve Keen.
N.Rowe seems interested in the JG idea but still can't really get it:
"Assume the JG is in place at $20 per hour. Hold it fixed at $20. Start in an equilibrium where many workers accept the workfare. Now assume that monetary and/or fiscal policy loosens, more and more. Prices and wages rise. Fewer and fewer workers accept the JG jobs, because the real value of that $20 wage falls and falls. Eventually, some workers choose to be unemployed rather than accept the crappy $20 per hour jobs. Eventually, no unemployed workers accept the really crappy $20 per hour jobs. Because it's like working for $1 per hour, in today's money.
JG is a really neat idea for theorists to think about. I like it that economists think of policies like that. But it falls apart once you recognise heterogeneity of jobs and workers.
Might it work a bit, on a small scale, as a partial replacement or supplement for UI and welfare? Maybe. But it's not the magic cure for unemployment and price level indeterminacy.
BTW, check out Morgan Warstler's variant of the JG."
http://www.alternet.org/economy/bill-gates-private-sector-inept
Bill Gates as the "funding layer"?
He can't get it because he's stuck in equilibrium and has no idea how the real world works.
The simple mistake in his thesis is to make monetary and fiscal policy too loose and make prices and wages rise. That violates the principle of functional finance and would never happen in an MMT situation. It doesn't happen in the current situation either.
It is, in effect, a straw man.
The JG is an auto-stabiliser - both on the spending side, and by solving the job match problem (individuals on the JG always match a job - since one is created if it doesn't previously exist).
Rowe is essentially saying auto-stabilisers don't work. Yet the evidence on the ground is that they work very well indeed.
So he's wrong. Completely wrong.
"check out Morgan Warstler's variant of the JG."
Ha ha ha.
The only way to fix this recurrent issue in capitalism once and for all is to abolish the wage system.
Check out David Ellerman.
http://www.taxresearch.org.uk/Blog/2015/10/29/a-basic-income-for-everyone-would-solve-osbornes-tax-credit-problem/#comment-area
Murphy still dosen't get it.
It's interesting that people who say deficit spending is untenable because 'politics' then start talking about BI - the most politically untenable idea of them all. They should be forced to watch Channel 5 'benefits' programmes until the problems sink in.
Osbourne has been tweeting about exports:
"Great to be meeting @UKTI_NW Export Champions in Knutsford to find out what more we can do to support UK exporters of all sizes"
"Export led" stimulus likely?? Perhaps it will replace some of the loss from tax credit cuts. That's basically what they have done with "foreign aid."
It's also basically what they tried to do in 2010 and 2011.
Question:does foreign aid always increases the current account or can it, sometimes decrease it? If it always increases due to the saving, it would be stimulative but show an increase in current account deficit.
Anti-commie crusader after accusing me of being a Red:
"You are trying to say that every proposal should be presumed good unless the exact details of what's going to go wrong can be enumerated in advance. That sounds ridiculous to me.
Your background presumption is that capitalism is "nasty" and that socialism is somehow "nice" in comparison. I'm unwilling to allow the proponents of socialism to conveniently throw the murders of history down the forgettery. Socialism (in a whole range of forms) has been tried by various people at various times and it fails with great consistency. Where it does not collapse completely, it stagnates into grinding poverty like North Korea which must be one of the most high inequality nations on Earth. You have the Dear Leader so fat he can barely walk, while the people marching along behind you are like stick men. If there's anything that deserves the tag "nasty" then without a doubt socialism/communism/Marxism would deserve that.
In terms of the specifics of your proposal, I've already explained my best guess about what's going to happen. The rewards will end up going to a vested class of administrators who run those supposed "job creation" programs. They cannot logically create additional supply in the labour force while also creating higher wages because supply and demand don't work that way. As a consequence, they create keep-busy jobs that produce vastly less than they cost, in effect slurping people out of the real labour market and putting those people under the control of the (now very powerful) program administrators. Eventually those programs get bigger, not smaller, and you gradually eat away at productive capacity, then just keep printing that money in the belief of Keynesian demand creation. To some extent that's already happening in Australia, you can check the stats but something like half of all government spending goes into some type of welfare program and it keeps getting bigger. We have tried all sorts of schemes, including "Work for the Dole" which is not much different to your job guarantee, and none of them have produced great results."
"The rewards will end up going to a vested class of administrators who run those supposed "job creation" programs."
As opposed to the vested class of capitalists who run the current supposed "job creation" programs.
All of which currently oversupplies luxury fripperies to the wealthy while failing to supply sufficient needs to the less well off. Hence homelessness, poverty, unemployment, lack of business investment and poor productivity. All while constantly creating financial bubbles that blow up the world for decades, and generating pointless 'make-work' jobs in the pension, PR, advertising and marketing industries.
It's all the same really.
It's very simple. Creating jobs and matching people to them runs out of matching capacity very quickly - particularly as productivity improves with robotic technology. Increasingly the private sector needs brain surgeons and most people are simply not capable of being brain surgeons.
Eventually you have to take the people as they are and create jobs for them. Because they need something to do with their time.
You have to have a mixed system. The nuclear engine of capitalism has to be contained in an appropriate containment vessel to stop it creating damage to the environment.
Nowhere has tried the Job Guarantee, because no system has ever tried to create specific jobs for the people that need them. All other systems have been designed as punishments rather than social care to deal with the reality of capitalism that it is systematically incapable of employment everyone.
"Nowhere has tried the Job Guarantee, because no system has ever tried to create specific jobs for the people that need them. All other systems have been designed as punishments rather than social care to deal with the reality of capitalism that it is systematically incapable of employment everyone."
B Bernanke seems to disagree, while complaining about "fiscal dominance":
www.ft.com/intl/cms/s/0/0c07ba88-7822-11e5-a95a-27d368e1ddf7.html
"If people are unhappy with the effects of low interest rates, they should pressure Congress to do more on the fiscal side, and so have a less unbalanced monetary-fiscal policy mix. This is the fourth or fifth argument against quantitative easing after all the other ones have been proven to be wrong. And this is certainly not an argument for the Fed to do nothing and let unemployment stay at 10 per cent."
Wooo! The Fed has magically reduced unemployment from 10 percent. Fiscal policy? Good for nothing!
Does Murphy claim to have read the literature regarding JG and refuted it better than calling it "a digging holes policy" which appears to be nothing more than the usual rant caused by spinal reflexes?
Murphy is a beliefs man who preaches with religious conviction. Most economist types are like that when you dig deep enough. They believe in certain things and curve fit their data to fit their beliefs.
Essentially they are all politicians pushing a line and persuade in the same way politicians do - by spinning a line.
The JG gives people who want something to do something to do, which we then call a 'job'. It's the only idea that prevents the destructive effects of boredom and isolation, as well as neutralising resentment.
However it still requires a certain amount of social change. For example the job of looking after children in society is created the instant that a child is born. We apparently have no trouble with the state paying people to look after other people's children, but we have huge problems with paying people to look after their own. Yet the job is essentially the same in both cases.
That dilemma becomes even more stark when you have a state run Job Guarantee. Is it really rational to pay a third party to look after the children so that you can pay the parent to work in a created job? It is clearly cheaper to pay people to look after their own children if that is what they want.
Bob one for you, great interview with Saul http://www.salon.com/2015/11/05/chris_hedges_neoliberalism_isnt_long_for_this_world_partner/?utm_source=facebook&utm_medium=socialflow
"I don't know, I find it a bit embarrassing the way MMT bloggers feel the need to trash UBI and go to bat for 'team Job Guarantee'. At best it seems a bit lazy, and at worst it looks cynical/self-serving to see well-employed academics shitting on UBI and pushing for a JG. Both programs are worth fighting for, and have their unique merits. If you want to push for JG, great, do it on your own without hijacking UBI hype.
As far as I'm aware, everyone from MMT also happens to think that almost no country is currently running a large enough deficit, and agrees without a second's hesitation that the US should get rid of the payroll tax 'to put ~$300-500 back in every worker's pocket per month'. A modest UBI is a good idea.
A nation can be less barbaric, once it already has a running economy & demanded currency, by taxing income (at progressive rates even) instead of using a head/hut tax. Similarly they can be even less barbaric and more civilized by adding a basic income for all citizens on top of the progressive rate tax, once the productive economy is already well-established."
"A modest UBI is a good idea."
A modest UBI isn't a UBI. It's tax credits on steroids. And we can see in the UK what political turmoil the existing tax credits regime is causing. Imagine extending that to everybody.
As I've said before UBI people need to be strapped to a sofa and force fed a diet of Channel 5 'benefits' programmes until they get what the problem is.
Firstly other people need to see you doing something useful if you want to be fed and housed by them and secondly a great number of people, likely the vast majority, need something to do with their time *and* need that providing. Otherwise they end up in a state of loneliness or worse a state of personal self-destruction. There is a reason the military never struggles to recruit.
The JG fills the income needs, the social needs and the reciprocation needs of those in society. The UBI is like providing clean drinking water and leaving food and housing to the 'free market'. Forget about agri policy and housing policy - it will all magically arise.
It's surprising to discover that UBI people are free marketeers at heart.
"An interesting feature of the overdraft economy is that it clearly shows that money and high powered money are endogenous variables, which cannot be under the control of the central bank."
Nailed it. "High powered money" is not what the mainstream think it is though. It enters the economy through govt spending and exits via tax. Because the banks surely must leverage off govt created money. What would you describe high powered money as?
"It's surprising to discover that UBI people are free marketeers at heart."
Really? The "free market" people come out with this:
http://www.adamsmith.org/research/reports/free-market-welfare-the-case-for-a-negative-income-tax/
OK, here is the reply (I also suggested a Citzen's income funded by Land value Tax/"hut tax" but even that is seen as too coercive??)
Firstly other people need to see you doing something useful if you want to be fed and housed by them and secondly a great number of people, likely the vast majority, need something to do with their time and need that providing. Otherwise they end up in a state of loneliness or worse a state of personal self-destruction. There is a reason the military never struggles to recruit.
Yeah I've seen this argument from you guys. It just seems so disingenuous. You will support JG against its critics who claim it's just make-work, by saying 'you really must have no imagination if you think there's nothing to do and JG will just be digging ditches make-work.'
Then you turn around and say that UBI is bad because people will just sit on the couch and go stir-crazy / depressed / self-destructive. Really, you must have no imagination to think that people who get UBI and opt out of remunerated work will just sit on the couch eating cheetos and not do anything interesting/useful for society.
And the claim that the UBI problem is political, that it would never be popular and would be gutted -- well if that's true then you shouldn't need to crap on UBI or try to derail its popularity. Instead we see that UBI is far more popular in the current consciousness than other 'outside the box' measures. Don't let the perfect be the enemy of the good.
A modest UBI isn't a UBI. It's tax credits on steroids.
Call it whatever you want. It's universal income, because in a civilized society the state can "afford" to say 'we value every citizen's worth as a human being'. Just like it already says 'we value the handicapped & elderly and their right to exist'. Some people want it to be a comfortable wage level, others don't push that far.
As to "hut tax" how is it "barbaric"?
Well part of that has to do with what authority is levying the tax. But basically, the government saying "do this work that we want done to earn $X per time period, or we burn your house down". Taxing with progressive tax rates is a much nicer system, but it only works once people already demand the currency and are in a monetary-production economy. Similarly UBI works after you already have a churning monetary economy. If you do get strong demand- and/or supply-side- inflation from too many people giving up productive work, then you have to abandon UBI and go back to less 'nice' style of system. Similarly if not enough people were doing productive work for society to function with income taxes, you might have to go back to head taxes to force them to work more like a command-economy.
It's surprising to discover that UBI people are free marketeers at heart.
Here you're just getting into your personal politics. There's nothing wrong with the free market pulling some weight, and that's probably why UBI is diversely popular & better understood than JG (pluralism). Are you against Kelton's whole spiel "capitalism runs on sales; the job of the government is to balance the economy, to step in when the private sector fails and prop it up"?
Original comment
"gus "A modest UBI is a good idea."
A modest UBI isn't a UBI. It's tax credits on steroids. And we can see in the UK what political turmoil the existing tax credits regime is causing. Imagine extending that to everybody.
As I've said before UBI people need to be strapped to a sofa and force fed a diet of Channel 5 'benefits' programmes until they get what the problem is.
Firstly other people need to see you doing something useful if you want to be fed and housed by them and secondly a great number of people, likely the vast majority, need something to do with their time and need that providing. Otherwise they end up in a state of loneliness or worse a state of personal self-destruction. There is a reason the military never struggles to recruit.
The JG fills the income needs, the social needs and the reciprocation needs of those in society. The UBI is like providing clean drinking water and leaving food and housing to the 'free market'. Forget about agri policy and housing policy - it will all magically arise.
It's surprising to discover that UBI people are free marketeers at heart.
As to "hut tax" how is it "barbaric"? I would introduce "land (location) value tax" and hand out as Basic Income. What's barbaric is that we are still in a feudal society."
As I said, they believe in a free market in social provision. Everybody will magically find something to do. (despite evidence from the current crop of income recipients that they don't: http://www.newstatesman.com/politics/health/2015/09/britain-facing-crisis-loneliness-among-old). Nobody will resent them doing it and agitate to have their income removed (despite all the 'shirker' programmes on the TV and the election of a Tory government promising to crack down on such people, and the removal of child benefit from the wealthy because 'they don't need it'). No Income guarantee has ever stayed in place. No unemployment benefit system survives over time. And that's because it is seen as 'something for nothing' and is removed.
The JG creates things to do for people that struggle to find jobs. That's the key USP of the system. It solves the matching problem by *creating* a job for the individual that is good for the individual and good for society - Remploy on steroids. Effectively it is part of the social care provision that recognises that having something useful to do that gives back to society is what everybody needs and that many people are simply not self-starters.
You have to fill the social need currently provided by jobs if you are to let the private sector go free and start replacing their jobs with machinery - which is what needs to happen if we're to push productivity forward. And the 'free market' won't provide that any more than it does housing, or food, or clean rivers.
The problem the UBI people have is they can't stand the idea that other people in society have a say in what you can and can't do. And they can't stand the idea that a very great number of people need *and like* to be told what to do. That's why they can't understand people joining the military.
Essentially the UBI people are in the idea for themselves. *They* want to be paid for doing nothing and they want to be able to swan around doing what ever they feel like regardless of everybody else.
Unsurprisingly society doesn't work like that, and eventually people get fed up with that sort of behaviour and clamp down on it.
There is no support for a universal income without reciprocation. When you ask the proper question: "Are you happy to work 40 hours a week on your socially necessary job, while paying a tax rate of over 50% on a much reduced salary while other people stay in bed all day" the answer is unsurprisingly: "no".
The idea that UBI 'helps the poor' is just the excuse they use to get what they want themselves - a free ride from everybody else.
"What would you describe high powered money as?"
The liquid liability (zero maturity) of the monetary authority = liquid net financial assets of the owners/users of this liability.
The rest of the net financial assets of nongovernment are the less liquid (non-zero maturity) of the fiscal authority.
The difference between the zero maturity and non-zero maturity liabilities is the term and interest. They are interchangeable without affecting the total liabilities.
These authorities could be the same but in contemporary times the monetary authority is the CB and the fiscal authority is the Treasury.
Final settlement (after netting) takes place in the liquid liabilities of the monetary authority.
PeterC has just popped this link up about UBI. It's a pretty good critique.
The government creates unemployment, therefore it owes you a job.
The more efficient a system becomes, the more fragile @NicholasTaleb
Does Taleb know about MMT? His work is interesting but out of padagrim?
There is a standard tradeoff between efficiency and resilience in any complex flow network.
It's been the basis of Bernard Lietaer's stuff for several years
The last article by Scott Ferguson you hammered Neil as too wordy! Nice piece this though. Rohan, Tim & Stav went over it.
"There is a standard tradeoff between efficiency and resilience in any complex flow network. "
Engineers and managers know this and miscalculate it at their peril.
Economists and policy makers, not so much. They worship at the feet of the idol of "efficiency."
http://www.telegraph.co.uk/finance/economics/11979631/Brexit-vote-would-trigger-a-run-on-the-pound-warns-Bank-of-America.html
More on the evils of Brexit.
https://notesbrokensociety.wordpress.com/2015/11/05/the-university-walk-and-the-abandonment-of-childhood/
About as loony as the eleven plus exam. WTF?
"Essentially the UBI people are in the idea for themselves. *They* want to be paid for doing nothing and they want to be able to swan around doing what ever they feel like regardless of everybody else."
Yes when have your social life in place it's easy to surf around on a prawn sandwich.
For those unemployed pushed around with their cap in their hand the UBI is understandably more attractive than the bully-system they're in now but as you say no solution at all for the so important social factors.
Also an UBI doesn't provide the prospect to redefine what a paid job can be as a JG does, which (at least here) UBI advocates say is part of the UBI goal. They dream of changing peoples way of thinking but do not provide the tools for that change to happen.
We came fairly close to a JG together with generous unemployment benefit system up to the 1990 here in Sweden. Back then it was easy to earn enough points through a different government programs which to earn the unemployment benefits if you didn't have any. Of course it wasn't optimal by any means but still way better than everything else after that.
Even though it was easy to be a slacker there wasn't any big number of people choosing that path. And the tiny minority who did take that path was not seen as outcasts as much as todays pushed around unemployed are.
That experience tells me that when someone who wants a sensible paid job also easily can get one it also makes people in general more tolerant against those who still won't or can't fit into that scheme mainly because it isn't seen as a big problem for society as a whole.
A very good comment and an important point. When people have their life sorted the way they want it they are more likely to look kindly on others.
In reply to basic income being selfish:
"isn't the idea of morality to treat others as we would want to be treated? In this sense UBI is a projection of what I myself want, upscaled to a national level. But I don't see this as a bad thing. If everyone were treated as I want to be treated here, everyone is better off."
"I see a universal basic income as following Kant's categorical imperative:
Act only according to that maxim whereby you can, at the same time, will that it should become a universal law.
"Thus basic income is categorical in that it doesn't only apply for me, but for everyone."
Everybody had a job in communist Romania and yet they were still freezing in their homes and had to ration food."
Is Cullen Roche talking crap or not?
http://www.pragcap.com/you-cant-handle-the-truth-2/
"One reason for the high level of leverage in the UK banking system is a poorly understood business practice known as rehypothecation. Hypothecation is another word for lending against some underlying collateral and is an every day event in the banking world. Rehypothecation is a somewhat more complex lending practice and presents a much bigger risk to financial stability. It typically occurs in the world of prime brokerage which is the department within banks that services hedge funds and other customers who wish to use leverage in their portfolios and/or short stocks.
Chart 3: The Composition of Debt in Selected Countries
Rehypothecation occurs when collateral posted by a client of the prime broker is re-used as collateral by the prime broker itself for leveraging its own book. It is perfectly legal; however, in the United States it is regulated activity under Rule 15c3-3 and is capped at 140% of the client’s debit balance. An example best illustrates how it works.
Assume a customer of the prime broker has pledged $100 million in securities against a debit balance of $50 million, resulting in net equity of $50 million. The prime broker can now rehypothecate up to 140% of the client’s debit balance or $70 million. In other words, the prime broker can borrow $70 million against collateral that has already been used by the customer to secure the original loan and it doesn’t stop there. Successive rounds of rehypothecation are permitted; however, if you think this is a bad practice, it is about to get a great deal worse.
In the UK, unlike the US, there is no cap on rehypothecation. No prize for guessing the game the global investment banks have been up to. By moving the majority of their prime brokerage activities from New York to London, it has been possible for investment banks to dramatically scale up of what is an enormously profitable business activity during good times but what has the potential to create havoc when markets go haywire.
Other than the multiple layers of leverage, which is bad enough in itself, a key problem associated with this business practice is the lack of segregation of client assets which many prime broker clients only came to realise when Lehman Brothers went bust. Clients of Lehman Brothers International Europe Ltd (also known as LBIE – the UK subsidiary of the US parent) found that their assets were not segregated when it was too late. So did clients of MF Global.
(continued)
"Following the demise of Lehman, prime brokerage clients began to read the fine print of the collateral agreements and many hedge funds now refuse to grant their prime brokers unlimited access to their assets. Chart 4 shows the decline in rehypothecation which has occurred following the Lehman crisis, but it remains a widespread practice which has the potential to cause massive problems at a time when you need stability more than anything.
Chart 4: Collateral Received at U.S. Banks Approved for Rehypothecation
Let me repeat: There is nothing illegal about this business practice. However, more than three years after the messy bankruptcy of LBIE, hundreds of people remain involved in sorting out the chaos left behind by its prime brokerage unit. It is astonishing that no regulator or government has shown any interest in changing the rules, following what happened to clients of LBIE. Maybe they can’t handle the truth.
Now to something altogether different. Here in the UK we have not been short of assurances from our government[1] that QE is good for us and for the economy. Companies will benefit from lower borrowing costs and savers will benefit from rising asset prices, or so they say. This is, however, an over-simplified account of what truly happens. Only the largest companies can access capital markets with small and mid-sized enterprises having to rely instead on bank finance the cost of which has not come down. In many instances, the opposite is the case.
But that is not the biggest problem. In the UK, most pension schemes are defined benefit (DB) plans (as opposed to defined contribution plans). In a DB scheme, liabilities are calculated by discounting all future payments back to present value, using the long bond yield as the discount factor. When bond yields drop, unless the pension fund has hedged this risk, the present value of future liabilities will rise."
"The bad news is that the corporate sector in the UK has not been fully hedging this risk. By one estimate, UK corporates are £90 billion worse off as a result of the latest round of QE which has driven UK bond yields down to new lows. With unfunded pension liabilities in the UK already at around £300 billion before this latest bout of QE (approximately 30% of total pension liabilities), such a further shortfall is an unmitigated disaster (see here for details).
For individuals, the outlook is equally dire. Savers have seen their interest income plunge and the millions of baby boomers who will retire over the next 15 years will see the income from their annuity schemes being decimated as a result of lower interest rates.
If the government really wanted to support economic growth as it says it does, it wouldn’t penalise the corporate sector to this extent. It would be buying gilts with short and medium term duration instead. It would possibly also be buying corporate bonds – in particular those issued by our troubled banks. And if the government really wanted to help the pensioners, it would issue longevity linked gilts instead of the 100-year
gilts (Ros Altmann’s idea – not mine) which has been the talk of town recently as such bonds would help the pricing of annuities.
But the government will do nothing of the above. It will in all likelihood continue to pursue a policy of negative real bond yields at the long end of the curve, whatever the cost to the private sector. For the government such a strategy is a win-win. It can finance its debt extraordinarily cheaply and the negative real yields will allow it to accelerate the pay-back of its debt. For the rest of us, it is default by stealth."
Sadly, this is only a small part of the problem. Britain’s pension model dates back to 1948. Some changes have been made to the model but the state pension age remains the same[1] despite the fact that life expectancies for both men and women have improved by some 10 years over the interim period. If you build a DB model on the assumption that, on average, your members will live 8-10 years beyond the day of retirement, and they instead live for another 20 years, you will by definition end up with a major problem.
In an attempt to address the future funding problem created by the improvement in life expectancies, the then labour government passed the Pensions Act 2007 which stipulates that the state pension age will be increased to 66 between 2024 and 2026, to 67 between 2034 and 2036 and to 68 between 2044 and 2046. As we say where I come from – this is akin to wetting your pants to stay warm!
The problem in a nutshell is that there is absolute no appetite in government for addressing this problem. What goes on is effectively a government endorsed Ponzi scheme where today’s retirees steal from future generations. If I were 30 years old today, I would demandthat the government change the pension system rather than go on the barricades to prevent change.
Whereas the newish British government has shown little or no appetite for dealing decisively with the pensions crisis, it has said and done all the right things in order to protect its coveted AAA rating. I am just not convinced that it really matters. First of all, government debt is not the main issue in the UK; it is private sector debt which remains the problem. Given the combination of low interest rates and long average maturities of the debt outstanding, the UK government can quite comfortably support current debt levels."
Argument against MMT:
"Also formal state debt, not just "currency", has political and psychological effects, it gives debt owners a stake in the fiscal health of the government, in a way that currency issuance does not, even if they are mostly equivalent. Especially when denominated in a "hard" foreign currency of course... But that is a difficult topic."
The bit they're missing is that they forget that rights come with obligations. In this case others want to see you doing something *before* you get paid and if they don't they will agitate to make you conform.
This idea that because you are paying everybody it's ok is naive in the extreme. The philosophy behind that refuses to accept that others have a view of you and in a society that actually matters. Hence why wealthy people in the UK no longer receive child benefit - and nobody is really pushing to reinstate it.
"Everybody had a job in communist Romania and yet they were still freezing in their homes and had to ration food."
Interesting. A UBI merchant acknowledging that the quality of the production system matters if you want a decent society. How are you going to bring that about when you've pensioned off half the workers, and the other half are on lower salaries and paying massively higher tax - because you crippled the spend side auto-stabiliser.
Don't tell me - the free market will provide.
The only 'pensions crisis' is amongst those who can't get it into their heads that a private pension system is essentially impossible.
All this begging for government assets and income is a 'bail out'. If the private sector can't insure the risk amongst themselves, then why are they in the game taking a cut?
Pensions are a current production issue and always will be. Therefore the only solution that works is a state earnings related pension scheme. Anything else is, operationally, just a privatised and less equitable version of that.
" it gives debt owners a stake in the fiscal health of the government,"
Possibly the most meaningless phrase I've ever heard.
Issuing debt is about trying to subjugate government to corporate interests. It is about making sure the private sector has first call over resources. I say that is the wrong philosophy and that government should 'contain' the private sector to stop it blowing things up. So it uses resources first for the required public good, then it lets the private sector work with what is left, and then anything the private sector chooses not to use is engaged by government for the 'nice to have' public good.
I wouldn't say it's a meaningless phrase I would suggest it's a frightning phrase. It sounds to me that it would mean financial interests putting pressure on Government for their own ends.
"Genuine answer - we do not really know. The general feeling is that current debt to GDP ratios are too high, but no one has a good idea of what the optimum level might be."
"I think the relevant question is why you would want to reduce debt (to GDP) levels rapidly (as in fiscal charter) rather than more gradually. Arguments for doing rapid adjustment very weak."
???
The general feeling?
Which 'debt' are they talking about as well.
My tea leaves are telling me it is time for another brew.
Govt "debt"
BTW:
T.Hickey has put up link on the text of TPP:
https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/TPP-Full-Text
One of the Basic Income people linked me to this:
http://www.city-journal.org/html/9_2_oh_to_be.html
No poverty in the UK (in 1999) apparently because people have TVs. It is "redefined"??
You can always tell when people have never had to live in poverty. The biggest problem with poverty is how to fill the hours.
http://www.firstpost.com/business/economy/why-television-is-more-important-than-food-557010.html
http://www.ars-baltica.net/news/news/article/estonia-employs-five-writers-and-five-artists.html
Estonia does something good (for once.)
Interesting post from Brian
"There can be institutional factors in play. If unions seeking cost-of-living adjustments are an important part of the labour force, wages should have a lagged relationship to the consumer price index. However, this effect dissipates as the rate of unionisation declines."
"The chancellor has asked most parts of the government to come up with savings of between 25% and 40% by the end of the current parliament. A number of departments, including health and overseas aid, have had their budgets protected.
In a speech in London, Mr Osborne warned that if the government does not control spending and reduce levels of national debt there is a risk of loss of confidence in the economy.
"I know some ask: why do we need this surplus?" he said. "I'll tell you why: to protect working people.
"A surplus will make our country more resilient, safe and secure. It means that next time we have the money to help us through the tough times when the storms come. Let me put it another way: if our country doesn't bring the deficit down, the deficit could bring our country down.
"That's why, for the economic security of every family in Britain, the worst thing we could do now as a country is lose our nerve."
He's crazy. Hopefully he won't actually go through with this and do a 2012 u turn.
http://www.theguardian.com/politics/2015/nov/09/george-osborne-skews-spending-towards-health-and-elderly-people
More propaganda from the assholes at the Guardian. Look over there young people. Those evil elderly people are stealing your money! Resent them and cut the state pension! How the hell is the budget "skewed" towards health the NHS is not being protected.
"In contrast, spending per capita on older people will rise by about 19% over the same period. By the end of this decade, spending on the state pension will account for more than half of all welfare spending. This is despite the big shift in welfare spending towards pensioners being cushioned to some extent by significant increases in the state pension age since 2010, culminating in a rise to 66 for men and women in 2020.
Continued demographic changes post-2020 are likely to exacerbate the shift in welfare spending towards elderly people."
So how the Guardian stop these "demographic changes." Please pray tell without sounding like a Nazi.
The main problem is property ownership.
"Maybe this should not come as a surprise after more than a decade watching those who own assets – mostly the over 55s – ringfence their booty from anyone planning to tax it or allow the market to diminish its value.
Baby boomers had successfully lobbied in the early noughties to protect their final salary pension payouts, even when it was obvious they were becoming unaffordable. It was never fair that one generation could secure its own pensions knowing everyone else would be left with a pittance in old age – as companies rushed to ditch their final salary-linked schemes – but we did not know it would also mean people sacrificing wage rises."
http://www.theguardian.com/business/2015/sep/14/uk-pension-fund-shortfalls-blocking-pay-rises
No the reason pay has not risen is that wages have not kept up with productivity you liars!
Let's take 2 groups being shown preferential treatment by the Tories.
1) Pensioners
2) Farmers.
If you look at this you will see that government spend on pensions dwarfs all other benefits combined.
http://www.theguardian.com/news/datablog/2013/jan/08/uk-benefit-welfare-spending
Farmers and landowners, including some of the wealthiest people in the country receive huge state handouts, sometimes £millions, for simply being incredibly wealthy and owning lots of land.
For over the years, the farm business operating off the country estate part-owned by Duncan Smith's son – with the minister's wife as a trustee – has received well over a million pounds in taxpayer subsidies. Swanbourne Home Farms, run in partnership between the minister's in-laws, Baron and Baroness Cottesloe, brother-in-law Thomas, and cousin Richard Brooks, has been given €1,517,535 over a 10-year period in funding from the EU. It has also been the recipient of grants understood to be worth tens of thousands of pounds from Natural England. Described by the EU as "income support" for farmers, these common agricultural policy payments were established by the 1957 treaty of Rome to ensure "fair standard of living for the agricultural community".
http://www.theguardian.com/politics/2013/may/30/hugh-muir-diary-iain-duncan-smith
In other words both of these groups of often quite wealthy people, who by no coincidence tend to vote Conservative, receive huge state handouts, which are protected by this government.
See George Monbiot's speech here in how he points out how the Conservatives opposed EU plans to cap farm subsidies at something like a quarter of a million.
http://www.monbiot.com/2015/11/06/loved-to-death-2/
"The natural rate hypothesis is a model. It's essentially an equilibrium model, like Smith's supply and demand. it has in fact become widely accepted because, like supply and demand, it makes both theoretical sense and because it comports with reality better than any alternative (for which there is essentially nothing).
Brad Delong in the linked post, by the way, explains why contemporary economists by and large have come to view Keynes' "half a scissor blade" view as incomplete.
The thing to notice is that you, Kervick, have no deep understanding of these issues at all. You can point to someone like Tyler Cowen as a argument from authority, but he's no authority. He's an ideologue with an axe to grind, who eeglexively argues against whatever liberal economists say, even if such arguments take him into wingnut world.
And because his supposed authority supports your Michael Kinsey style desire to be a contrarian, you act like his view is a credible view, even though you have zero understanding of the actual merits of the arguments.
And meanwhile, the natural rate hypothesis remains the dominant and widely accepted model for how the economy works among people who actually know stuff.
This reminds me of other instances of denialism. People deny anthropogenic cllimate change exists, or that HIV causes AIDS, or that humane evolved from apes ... Because they can cite some expert who not picks the foundational model, and they see that as sufficient to justify their denial, despite having no deep understanding of their own. That's you in this case Kervick. Why do you even bother wasting your time with this stuff?"
Hilarious stuff from a Paul Krugman fan. Haha.
http://t.co/JTOHzTWaHO
John T Harvey book.
https://www.reddit.com/r/mmt_economics/comments/3sem1w/what_would_falsify_mmt/
What would falsify MMT, Neil?
I replied there.
http://www.colorado.edu/economics/courses/econ2020/section10/section10-main.html
This is a weird mix of money multiplier and MMT?
http://www.mirror.co.uk/news/uk-news/tory-cuts-rob-46000-oaps-6822924
Tories scrap wheels on meals. Don't think they are going to introduce a Job Guarantee Neil.
"You can always tell when people have never had to live in poverty. The biggest problem with poverty is how to fill the hours.
http://www.firstpost.com/business/economy/why-television-is-more-important-than-food-557010.html"
Right.
http://www.independent.co.uk/news/uk/politics/tory-minister-tracey-crouch-says-families-hit-by-tax-credit-cuts-should-stop-spending-money-on-tv-a6732176.html
"The minister says helping families cut back their spending was the kindest approach"
Idiot. If they cut spending then the govt gets less in tax. The deficit re-appears! They would have to fund via savings run-down or borrowing to reduce the govt deficit.
These people are so out of touch it is insane.
"Fourth, the reason why they think it's problematic that "published accounting valuations" are not stable is not because, say, all risk models are, thereby, based on epistemic mirages, but, rather, what needs to be prevented is that "the general public" starts the doubt the integrity of published valuations. That is to say, the public needs to stay in the dark about the truth about these numbers (because if the public loses confidence we risk more extensive crises). If keeping the shoddiness of accounting secret from the public serves the public's genuine good, one may call this a a species of Platonic noble lies. But other terms also spring to mind."
http://digressionsnimpressions.typepad.com/digressionsimpressions/2015/11/when-the-financial-insiders-tell-you-the-accounting-numbers-are-ahhh-made-out-of-thin-air.html
Neil
http://www.pragcap.com/modern-monetary-theory-mmt-critique/
Cullen Roche has five points in criticism of MMT (and a paper.) Any thoughts? He disputes "taxes drive money" and claims the government is not highest in the pyramid of money, bank credit is. He also says:
"MYTH: MMT says that unemployment is caused by the deficit being too small.
REALITY: Unemployment is caused by a lack of private investment.
MMTers claim that small deficits cause unemployment. Warren Mosler, MMT’s founder says:
“Involuntary unemployment is evidence that the desired H(nfa) of the private sector exceeds theactual H(nfa) allowed by government fiscal policy.
To be blunt, involuntary unemployment exists because the federal budget deficit is too small.”
This cannot be correct though. Keynes would roll in his grave if he knew what modern day descendants of his were doing to his views! As Keynes described in the General Theory:
[Unemployment is] “due to the refusal or inability of a unit of labor … to accept a reward corresponding to the value of the product attributable to its marginal productivity,”
In essence, unemployment results from a lack of private investment and the refusal of capitalists to reduce wages to the extent that laborers will accept the wage rate. This makes sense given that capitalists are natural profit hoarders and risk managers. Capitalists will rarely spend enough into the economy to provide for full employment because the profit motive is too strong. One could actually argue that the idea of “full employment” is at odds with the natural profit seeking goal of capitalism."
I agree Mosler etc is wrong with focus on the deficit and not topline spending. I disagree with the "reduce wages to the extent labourers will accept the wage rate" as we know this to be false through evidence. Plus, full employment through JG adds to aggregate demand and profits, so I am unsure as to what Cullen is on about here.
Cullen says:
"This is related to the MMT view that the government “spends first” and “taxes second”. They have even gone so far as to claim:
“it would be impossible to collect dollars from the private sector unless they had first been spent into existence by the public sector”
Of course, this point is demonstrably false. I can borrow from a bank and the government can collect taxes without ever having spent a dollar into existence. The government doesn’t need to spend a single dime in order for it to collect a tax on inside bank money.
Further, MMT misconstrues the role of Central Bank reserves in this idea. They argue that taxes are not actually paid in bank deposits, but are paid in Central Bank reserves because the Treasury settles tax payments in its account at the Federal Reserve. As mentioned above, this point misconstrues the purpose of the Reserve system. The only reason the Reserve system exists is because of private bank inside money. So, if there were just one private bank in our financial system there would be no need for a Federal Reserve System. Hence, there would be no reserves. And the Treasury would settle its payments in bank inside money at this one bank. If reserves did not exist due to the large private network of private banks then the US Treasury would be exposed as a mere user and redistributor of inside money. In fact, the existence of the Fed does not change this fact since all government spending is merely a series of debits and credits that settle through the interbank system, but are ultimately initiated and finished in the private inside bank money system."
"I agree Mosler etc is wrong with focus on the deficit and not top line spending"
I don't think so. Mosler is saying that the deficit is too small. At that point the private sector investment and saving processes have completed and left involuntary unemployment. So either the government is taxing too much, or spending too little to soak up the excess.
This is again down to the three stage stylised view of the economy: The public sector takes the resources it needs for the *required* public good. The private sector works with what is left, and anything the private sector cannot use is then used by the public sector of the *nice to have* public good. It's the last bit that the 'deficit is too small' references - resources the private sector *cannot or will not use*.
" I can borrow from a bank and the government can collect taxes without ever having spent a dollar into existence."
You can't. You have to repo the bank assets with the Federal Reserves to pay into the Treasury account. And that is a sale of assets to the state.
The problem here is forgetting that the Federal Reserve *is* part of the government in the MMT construction (the consolidated central bank and Treasury). So if there were one 'private bank' it would be owned and run by the government - to maintain the monopoly over the currency. Otherwise the private bank is the government as the ECB has shown.
Only the government (including the Federal Reserve) can cause the creation/destruction of asset/liability pairs and the expansion of the balance sheet in a private bank whether the private bank wants them or not - simply by forcing a credit/debit to a bank account in the system.
Cullen has little to add here. He's desperate to try and prove that a system without a government can work. And of course it can as the ECB has shown. And then that bank becomes the federal government and everybody else just a state.
"So, if there were just one private bank in our financial system there would be no need for a Federal Reserve System. Hence, there would be no reserves. And the Treasury would settle its payments in bank inside money at this one bank"
There isn't just 1 bank so pretty pointless using that analogy...a desert island argument.
On another note this is pretty good https://aguidefortheperplexed.wordpress.com/2015/11/14/the-shift-to-money-manager-capitalism-and-the-role-of-private-debt-2/
What I also find worrying is looking at Cullen's latest posts, how so much of what he is worrying about are solved in the MMT Literature. See for instance:
http://www.pragcap.com/the-multi-temporal-problem-within-capitalisms-victory/
"This is a rather new economic phenomenon and quite a paradox because technology is making our lives betters, but it is also directly leading to income inequality and economic imbalances. More broadly, this is leading to three substantial multi-temporal problems:
The economy can’t create new jobs fast enough to keep up with the pace at which the technolification of everything is destroying jobs. In the long-run there would be an equilibrium here, but in the short-term, this technolification is creating a labor market imbalance.
The financial markets can’t digest this pace of creative destruction efficiently enough which is why we seem to be seeing an exaggerated boom/bust cycle in the stock market even though the economy is actually operating more smoothly (which is partially explained by the fact that researchers don’t know how to properly measure much of this productivity).
Governments are scrambling in their typically inefficient ways to catch up with the rapid pace at which capitalists are lapping them. This explains why governments appear more involved in everything than ever."
Er it is called a Job Guarantee and Effective Demand you moron!
See also:
http://www.pragcap.com/why-no-one-should-support-the-gold-standard/
"There’s a reason why almost no mainstream economists support a return to the gold standard – it is an economic disaster. It was too restrictive and too deflationary. Yes, the current system is far from perfect. It is inherently inflationary and controlled largely by an oligopoly of banks. But it is a market based system with an elastic money supply that expands and contracts with the needs of its users."
No it isn't. The state is top of the pyramid of money. but it is going to be hard to convince someone who thinks the government taxes from the supply of bank deposits created by investment and that "market based" bank credit is key. Also, how the hell is the "current system" "inherently inflationary." Obviously he has never heard of NAIRU, or just pretends the unemployed buffer stock does not exist. We are facing global deflation! This thinking shows how Cullen thinks fiat currency is inherently inflationary as it is not tied down to something. How about tying it to a "buffer stock" of labour that ensures price stability and full employment, the problems mentioned by Cullen! Oh if only there was something that solved it:
https://originofspecious.wordpress.com/2015/06/19/the-job-guarantee-key-to-a-sound-currency-and-successful-foreign-trade/
Perhaps we could bring him back into the (MMT) fold?
"I don't think so. Mosler is saying that the deficit is too small. At that point the private sector investment and saving processes have completed and left involuntary unemployment. So either the government is taxing too much, or spending too little to soak up the excess."
Neil I agree but would not put it like that. Increased spending from govt may well reduce the deficit or leave it the same, even if it is unlikely. I would say there is a lack of spending in the economy. Govt needs to fill the gap. The deficit is a red herring. It need not be mentioned.
The key word is "at that point." When govt spends nothing stays the same and things may well change.
"Cullen has little to add here. He's desperate to try and prove that a system without a government can work. And of course it can as the ECB has shown. And then that bank becomes the federal government and everybody else just a state."
But his latest posts have all been about how do we get jobs (full employment), economy not back by anything "sound" so "inherently inflationary", frequent crises of capitalism. All things solved by MMT.
http://www.pragcap.com/ama/on-a-commodity-backed-currency/
Here is Cullen:
"Ben Graham proposed something like that where a basket of commodities would be fixed to the dollar. When the basket of commodities contracted the govt would buy up commodities and stabilize the price level and when the economy improved the govt would sell commodities and act as a buffer on the upside.
I don’t know how applicable this idea is today. The modern economy isn’t based around manufacturing and metals. So why should the price level be tied to these commodities?
I also don’t understand why people like booms and busts. It’s like saying that the stock market is better with big bubbles and busts. No. Why would anyone want that? The economy has actually operated with much better risk adjusted growth over the last 50 years. While we’re growing more slowly we’re much more stable. This isn’t all bad in my opinion…."
Basket of commodities as a "buffer stock" - this is MMT thinking (well not really but close.) he is nearly there! Needs a little push...
"Mosler is saying that the deficit is too small. At that point the private sector investment and saving processes have completed and left involuntary unemployment. So either the government is taxing too much, or spending too little to soak up the excess."
OK Neil this is going to be difficult to explain.
First, you cannot compare Deficit A to Deficit B in the future, because things have changed in private sector. For example people spend their savings after a change in policy (say pension reform), this means "private sector investment and saving processes" will change. Or even if govt loosens bank lending. So the deficit at B has to target deficit in B, not deficit in A.
But the bigger problem is this ignores the balanced budget multiplier. Govt can cut taxes for rich people and "raise the deficit" and it does little for spending. because of this all spending is not the same.
Spend on very poor may lead to even reduced deficit.
It is all about the spending.
I think we are conceding ground to the neoliberals by even mentioning the deficit.
We need to convince him Labour is better buffer stock than commodities in 2015 (and probably before then.)
I understand balanced budget multiplier stuff has limited effect but it really should be mentioned. Taxing the rich and spending on the poor is really the same as spending on the poor. Seems silly to hang yourself on this stuff.
"Deficit is too small"
So when Cullen says...
"It’s really best to ignore what MMT says about this stuff. Their set of definitions confuse people more than anything else. And as I noted in my most recent piece, their definition of net saving is clearly wrong and misleading.
I prefer to look at each sector on its own and compare the impact on other sectors. A govt deficit can certainly impact the foreign balance. But the key driver of the economy is always the private balance so it doesn’t make a lot of sense to look at the govt or foreign sector and assume they’re driving the private balance. It’s precisely the opposite way most of the time because so much more of the productivity comes from the private balance.
I’m not sure that answers your question, but the short answer is to ignore what MMT says here. They confuse people and their definitions are just wrong."
TBH I agree with Cullen on these points. MMT is being slightly misleading. However look at how desperate he is. Don't look at MMT! Their stuff is wrong, listen to me! What about all the open debate and Stalinist MMTers eh Cullen :)
I can't see how private balance can drive trade balance though. Plus MMT has always said private sector decides govt balance. Its NewKeynesians see e.g your Keen vs Krugman post who think you can push debt on private sector.
Guess I have a foot in both MMT and MR camps.
Productivity comes from private balance though... this is just ideological BS and WTF does this have to do with sectoral balances.
Cullen has been desperately trying to undermine MMT since he fell out with them because they wouldn't submit to his view that the private sector can do everything on its own.
It can't. It's irrational for it to do so. So you need a balancing element that engages the elements the private sector doesn't use (which does cause a feedback loop, but then it is near impossible to describe an asynchronous dynamic process using a serial stream of words on a page. So I have to linearise a little to keep the debate short).
The 'trade balance' is again a mistaken dividing line imv. There are people who are in your currency area and there are people who are in others. It doesn't help the dynamics to separate the two. Country borders are entirely artificial lines on maps.
"It is all about the spending."
It's actually about the amount of transactions induced by the spending, and the amount of paradox of thrift induced by the net saving, all caught together in a dynamic feedback loop circling around several mutually exclusive equilibrium points.
But I digress.
Agreed Neil. But if MMT stops saying stuff like "deficit too small" Cullen has no ammo. He keeps hammering this point on "net saving" to try to undermine MMT.
"It's actually about the amount of transactions induced by the spending, and the amount of paradox of thrift induced by the net saving, all caught together in a dynamic feedback loop circling around several mutually exclusive equilibrium points. "
OK I can see what you mean now about words. Can you show me a diagram? Words suck.
"Cullen has been desperately trying to undermine MMT since he fell out with them because they wouldn't submit to his view that the private sector can do everything on its own. "
Hmm. He won't accept it then, otherwise 4+ years have been a huge waste of time. I think the maximum upgrade we can get for Cullen is to Basic Income Devotee. At least then he will be relatively harmless and make the Job Guarantee seem more reasonable. I'll copy some BS from the Reddit Basic Income site and try to convert him. Hopefully he isn't reading this right now... ;)
Humans are Fickle.
"Cullen has been desperately trying to undermine MMT since he fell out with them because they wouldn't submit to his view that the private sector can do everything on its own. "
Wow, gee he sure does suck at it then. he has probably introduced more people to MMT than converted to MMR.
We'll see how like being manipulated Cullen.
Or maybe I should give them your quote on Origin of Specious, or a link to the A.Douglas article?:
"The problem with a nation silly enough to sustain unnecessary unemployment is that it probably has a central bank that uses the same obsolete tactics as the England Football team.
You need a Job Guarantee, a tight Minsky banking structure and a focus on maintaining the domestic economy to allow a stable currency.
The vulnerability comes from begin able to create currency (by borrowing) to directly settle FX trades. You want people selling short to have to settle with old money, not new."
See how he responds to that? I also think I should tell myself off for ever suggesting BIG and how MMT shows it is infationary and I can't spell correctly. Perhaps Cullen will come to the aid of someone in need, particularly if I tell myself to visit MMT sites :)
"But if MMT stops saying stuff like "deficit too small"
The deficit is too small is a counter to those that say it is too big and needs bringing down. Don't forget that you can improve things by tax cuts as well as extra spending - something Warren in particular is fond of.
So it depends on who you are debating and what the point of contention is. 'Overtaxed' is another phrase Warren uses for example.
Cullen's usual approach it to take something, put it out of context and then attack the strawman with what can only be described as beliefs.
"Can you show me a diagram? Words suck."
Even a diagram is pointless. You need something that moves.
Bring back Cullen into the fold?
Erm why? He has no interest in really understanding because to do so he would have to admit that Capitalism is unstable and that the private sector won't behave how he wants it to.
I have nothing against the guy and quite friendly with a couple of the other MR guys but it has been explained to him time and time again why MMT uses the sector balances how they do and the accounting definition of 'net saving' they are using and more importantly why they use it like they do.
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