Thread: Economics: Keynes? Corbyn? Voodoo? Help! Board: Oblivion / Ship of Fools.
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Posted by anteater (# 11435) on
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I am currently scrambling my brain cell reading a book (which I highly recommend) called The Joy of Tax by Richard Murphy. His ideas are said by many to be the inspiration for Corbynomics, but I think they may be bog-standard keynesianism. Apparently he's fallen out with Corbyn. He says that he believes most of our ideas about economics have to be stood on their head. I could discuss a lot, including what I think is a very optimistic view of Person (we all love tax really), and a lot of illuminating ideas which could happily be adopted by any Tory. However.
The two statements that really got my attention are:
".. There need never be any shortage of money in any economy. All the money we ever need to make things happen can be created out of thin air at the time it is required to make our economy work". (p.247) [I assume this is not true if you are in the eurozone - this is not addressed].
" . . government debt is something else that has been misunderstood by conventional economists. That's because government debt is not something we have to repay" (p.252)
To many, including me, this sounds too good to be true, and feeds the usual prejudice against left-economics that they are profligate. But Murphy does not appear to be a fool, and I doubt Keynes was either.
Really you need to read the book, unless this is bog-standard Keynesian economics which you know already. I can here the cries of: What you didn't know that? Shit, the moon's not made of creamcheese either!
My questions:
1. If it is right that government debt is not to be repaid, why all the fuss about interest payments on our debt? Or is this all predicated on the government being able to ensure that its bonds are bought by the Bank of England (aka Itself). How would they do that?
2. Isn't the end result rampant inflation? This is of course mentioned but not much more than mentioned, and I see this as a weakness. Nobody (not even me) doubts that we can print money, after all QE is happening. But in another excellent book ("Signals" by Pippa Malmgren) it is argued that QE is designed to create inflation (seen generally as a Good Thing In Moderation like Booze) and whilst it has failed to do so in the UK/USA, it has spectacularly succeeded where is was not intended, to stoke up huge price inflation in developing countries, to an extent which is highly morally dubious.
As an aside, supposing a lot of Murpy-omics is Corbynomics, I still think that getting this message across will be difficult, because it is counter-intuitive. So is Quantum Mechanics but I don't deny it. I just wouldn't like to be the political party whose election depending on making QM sound like common sense.
Can anyone elucidate? Are there Keynesians on the Ship?
[ 24. August 2016, 14:36: Message edited by: anteater ]
Posted by quetzalcoatl (# 16740) on
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Congratulations on reading this stuff, it gives me a head-ache.
I thought the idea was that in a booming economy government debt is reduced, hence it is claimed, for example, that Clinton (Bill) paid off chunks of US debt. Of course, this is disputed by right-wing economists.
People like Murphy seem to argue that austerity a la Osborne, makes it difficult to pay off debt, as tax receipts decline, the economy flattens, and you can get into a spiral of decline.
I find it interesting that in the 1970s, Keynesian economics began to be seen negatively, and this led to increased marketisation, i.e. neo-liberalism. Labour itself helped in this, see Callaghan and Healey.
Posted by anteater (# 11435) on
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quetzlcoatl:
quote:
People like Murphy seem to argue that austerity a la Osborne, makes it difficult to pay off debt, as tax receipts decline, the economy flattens, and you can get into a spiral of decline.
Well that's one of the strongest parts of the book, and his vision is certainly one that is extremely attractive if it can be achieved.
One reviewer said it was a heavy read, but it's not really. I got it out of my library.
Posted by quetzalcoatl (# 16740) on
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"The boom, not the slump, is the right time for austerity at the Treasury." Keynes.
Posted by quetzalcoatl (# 16740) on
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There is another interesting argument that Osborne actually saw that austerity was choking the economy, and began to relax it, and even applied 'fiscal stimulus', the dreaded F word. However, this was done covertly, without being advertised.
I suppose the point here is that austerity for the Tories is an ideological drive.
Posted by Enoch (# 14322) on
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Anteater, I'm no economist, but many years ago I came to the view that yes, it is all too good to be true.
I also think that very few people are Keynesians because they are genuinely persuaded by the economics. I think most of them adopt Keynesian economics because they'd like to do all the expensive things they could do if it were true. So they are Keynesian because they'd like to believe it were true.
So I also think that the two quotations from Murphy are wishful thinking.
In answer to your two final questions,
1. There are three options.
i. government debt does have eventually to be repaid, or
ii. the taxpayer has to go on paying interest on it for ever, or
iii. government engineers rampant inflation which destroys the value of the debt, so writing it off, which is profoundly and fundamentally dishonest.
2. All too often the end result is rampant inflation either because politicians are too incompetent to know how to avoid it, or more frequently are tempted by fiscal dishonesty as their 'get the public finances out of jail free' card.
Having said that, there is a sound financial case for governments to borrow to fund sound capital projects when interest rates are low. There is never a sound financial case to create capital borrowing to fund either unsound capital products or income expenditure.
I would also add, that in my experience, the funding of most PFI projects is deeply unsound. Almost invariably, they work out as cheaper funded by conventional borrowing repayable over the same period.
Posted by HCH (# 14313) on
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As I understand it, the notion that government debt does not have to be repaid depends on the assumption of a growing economy. We owe X dollars now, but by 20 years from now, our economy will have grown to such an extent that X dollars will be insignificant. (This is actual growth, not inflation of the currency.) The idea is that the growth rate of public debt should not exceed the growth rate of GNP.
One problem with this is that an economy can also contract (perhaps due to natural disasters), and another is the assumption that there is always unlimited room for expansion.
Posted by quetzalcoatl (# 16740) on
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Obama's policies of fiscal stimulus are interesting here, as I think he has compared it to the New Deal. But right-wing economists argue that this had a negative effect on the US economy, as Obama's stimulus package has. On the other hand, the Republicans have tried to weaken the package, haven't they? 'Keynesian fairy dust' is one vivid image by them.
Posted by chris stiles (# 12641) on
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quote:
Originally posted by Enoch:
economics. I think most of them adopt Keynesian economics because they'd like to do all the expensive things they could do if it were true. So they are Keynesian because they'd like to believe it were true.
Though dismissing Keynesianism purely because of the biases of some of those that adopt it falls into exactly the same category of intellectual relativism.
quote:
i. government debt does have eventually to be repaid, or
ii. the taxpayer has to go on paying interest on it for ever, or
Ignoring Keynesian thinking for a moment, the current economic situation in all its variations require there to be some level of government debt. Absent a massive upheaval we are not talking about situation i. ever. (see http://www.coppolacomment.com/2013/01/government-debt-isnt-what-you-think-it.html )
Secondly it is a mathematical reality that it is possible to keep debt stable as a percentage of GDP, whilst borrowing more or less forever. Yes, as HCH points out that could be seen as being optimistic - but on the other hand it's just the aggregate of a set of individual decisions to borrow for a particular length of time, which are equally optimistic - and which we accept at present.
Keynesian thought doesn't mandate eternal deficits of course - even of the sort described above.
With regard to your point iii, this is normally true only at the point where the government has in reality lost control of monetary sovereignty (either directly by borrowing in a foreign currency, or by employing some sort of peg) or because they are actually trying to solve a problem with private borrowing.
I agree with you when it comes to capital spending on infrastructure projects, and the value proposition of most PFI arrangements. The issue is normally that the thing being provided via PFI is non-optional, and so therefore the cost of possible failure to provide always ends up being bourne by the government.
[corrected URL for Coppola link]
[ 25. August 2016, 08:34: Message edited by: Alan Cresswell ]
Posted by Dafyd (# 5549) on
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Presumably if the government borrows money from a creditor, that creditor has to get their money back (either as interest or as principal). The question is presumably not whether the government has to pay back individual creditors as to whether or not it has to clear the books overall?
Posted by anteater (# 11435) on
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HCH: quote:
As I understand it, the notion that government debt does not have to be repaid depends on the assumption of a growing economy.
This doesn't seem to be Richard Murphy's thesis. It's more that government "debt" is owed to itself. I.e. not debt at all. I don't want to quote too much for copyright reasons, though maybe I'll persuade a few to buy the book, but:
" . . the fact is that most of the value of UK government debt issued from 2009 to 2012 was effectively cancelled by the Bank of England simply creating money out of thin air to buy back a broadly similar amount of government debt in the financial markets".
He believes that the usual figures released for UK Gov debt are therefore highly misleading.
Sadly the link given by Chris Styles to a post by Coppola (who is a v. good blogger) is unobtainable to me at least, as I would like her view.
So Government debt is simply money creation. He he admits it must at some time be withdrawn, to avoid stoking inflation and this is the prime role of taxation.
So instead of "tax and spend" he believes in "spend and tax". I don't say it can never work, but it's riskier that Murphy seems to realise.
So you could inject £100bn into projects which arguably (!) are needed and that could stimulate the economy enabling you, once this has happened to get back more tax (from new job entrants and if necessary raising tax levels) and it could work.
But it could fail. Having worked on the ill-thought-out NPfIT project, I reserve the right to be skeptical about large initiative driven by a desire to "do something" than hard necessity.
Posted by hatless (# 3365) on
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A thought experiment: if everyone in the world carried on working next year and cut back on their spending enough to save three months income, would we be better off or worse off?
I would have thought that we would be very much worse off. The saved money is just notes or digital records. Only stuff, food, services and goods makes us better off, and with less spending due to all the saving, trade would be greatly depressed. And at the end of the year when we come to spend our savings none of us is any richer because we are all richer, and there is less stuff to buy. Price rises and shortages will more than wipe out our savings.
So what about the opposite?
Posted by Dafyd (# 5549) on
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And just as we're discussing this, the Guardian publishes this article. Helpful?
Posted by Enoch (# 14322) on
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quote:
Originally posted by anteater:
This doesn't seem to be Richard Murphy's thesis. It's more that government "debt" is owed to itself. I.e. not debt at all. I don't want to quote too much for copyright reasons, though maybe I'll persuade a few to buy the book, but:
" . . the fact is that most of the value of UK government debt issued from 2009 to 2012 was effectively cancelled by the Bank of England simply creating money out of thin air to buy back a broadly similar amount of government debt in the financial markets".
He believes that the usual figures released for UK Gov debt are therefore highly misleading.
Sadly the link given by Chris Styles to a post by Coppola (who is a v. good blogger) is unobtainable to me at least, as I would like her view.
So Government debt is simply money creation. He he admits it must at some time be withdrawn, to avoid stoking inflation and this is the prime role of taxation.
So instead of "tax and spend" he believes in "spend and tax". I don't say it can never work, but it's riskier that Murphy seems to realise.
So you could inject £100bn into projects which arguably (!) are needed and that could stimulate the economy enabling you, once this has happened to get back more tax (from new job entrants and if necessary raising tax levels) and it could work.
But it could fail. Having worked on the ill-thought-out NPfIT project, I reserve the right to be skeptical about large initiative driven by a desire to "do something" than hard necessity.
Murphy is completely wrong there.
1. Debt is not 'effective cancelled' by creating illusionary money to repay it with. That is inflationary. It's doing a version of what I classed as iii earlier and hoping no one will notice.
AND
2. The 'prime role' of taxation is to fund government. It is only a subsidiary, though very important, point that taxation should be levied in ways that are fair, and economically beneficial rather than destructive.
I can't get to the Coppola blog either, and so have been unable to respond on that.
Posted by Alan Cresswell (# 31) on
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There was a small error in the URL for the Coppola blog. I've now corrected it, and you should be able to access it now.
Alan
SoF Admin
Posted by chris stiles (# 12641) on
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quote:
Originally posted by anteater:
Sadly the link given by Chris Styles to a post by Coppola (who is a v. good blogger) is unobtainable to me at least, as I would like her view.
The board software appended the closing parenthesis to the url, so here it is again: www.coppolacomment.com/2013/01/government-debt-isnt-what-you-think-it.html
Posted by anteater (# 11435) on
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Chris:
Thanks. As I expected (from Coppola) an interesting post.
Murphy's Law (if that is appropriate) ![[Smile]](smile.gif)
is one of those things where I may not be convinced, but I find it hard to see why anyone wouldn't wish it were true.
To be honest, his view of a fair tax system is miles better than what we have. Interestingly he's not a member of Labour but is a Quaker.
Posted by Doc Tor (# 9748) on
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quote:
Originally posted by hatless:
So what about the opposite?
I've long maintained that the bank bailout (roughly £1trn) was a criminal waste of money, because none of that vast sum ever entered the economy - it was simply electronic money created to fill virtual losses on the balance sheet.
It would have been far better - for the banks, for the country, for the people - to use that £1trn to actually cancel debt. Banks would have had a much more positive balance, people would have been servicing less debt, and therefore, the economy would have had more money.
Even now, there's talk of 'helicopter' money. Literally, dropping cash onto households with a time-limit to spend it. And it's still a better idea than buying government bonds.
Posted by Martin60 (# 368) on
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Remarkably idealistic. And OT orthodox of course.
The bailout was de facto nationalization, not a bad thing? Has the taxpayer got its money's worth?
Posted by anteater (# 11435) on
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Chris Styles:
Be honest now - did you get your head around Frances Coppola's post? How long did it take?
At least I can shift the discussion to this post instead of Murphy's much plugged (£4.99 for Kindle - you won't be disappointed!) book.
Occasionally I am faced with what seem mind changing views, with the frustration of not quite understanding them (and I am not usually thought of as thick). Karl Barth springs to mind.
Because based on what you believe about this, either the current UK Government has been stitching us all up like a kipper through mendacious propaganda about DEBT, or The Left (i.e. not the Labour Party) will cheerfully bankrupt the country. So not a trivial issue.
And what puzzles me then, is why moderate labour lefties didn't push this message. And I suppose that I can see their problem since at first glance (and I've done more than one) it just seems like outrageous utopian bullshit. I'll persevere. Maybe reading it backwards helps.
But I'm not sure. ![[Help]](graemlins/help.gif)
Posted by Doc Tor (# 9748) on
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quote:
Originally posted by Martin60:
The bailout was de facto nationalization, not a bad thing? Has the taxpayer got its money's worth?
Emphatically, no.
Posted by Timothy the Obscure (# 292) on
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quote:
Originally posted by hatless:
A thought experiment: if everyone in the world carried on working next year and cut back on their spending enough to save three months income, would we be better off or worse off?
I would have thought that we would be very much worse off. The saved money is just notes or digital records. Only stuff, food, services and goods makes us better off, and with less spending due to all the saving, trade would be greatly depressed. And at the end of the year when we come to spend our savings none of us is any richer because we are all richer, and there is less stuff to buy. Price rises and shortages will more than wipe out our savings.
So what about the opposite?
This points to the "paradox of thrift," which is a factor in the current stagnation and part of the argument against austerity. Since my spending is someone else's income, and vice versa, if everyone cuts back on spending, all become poorer. What happened in 2008 was a crisis of excessive private debt (underwater mortgages, etc.) As people and companies reduced spending to pay off debt, demand dropped off, leading to unemployment and falling incomes, which actually led to more debt as people couldn't make payments and interest accumulated. The need for private debtors to retrench was real, but that's when the government needs to step up and spend to keep demand at a reasonable level so people can earn enough to pay down their debts. Increasing the money supply doesn't lead to inflation as long there is still unused productive capacity to meet the resulting increased demand (of which there is plenty in Europe and America--unlike, say, Zimbabwe, where the productive capacity has been gutted).
Posted by Russ (# 120) on
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The economy is a complex system, and most of the things you can say about it are simplifications - e.g. things that are true "other things being equal".
Normally it would be the case that printing money leads in the short term to more money chasing the same amount of goods leading to price rises, ie inflation.
But in a situation where all agents are simultaneously trying to reduce their levels of debt, then in theory giving everyone a small amount of money might lead to debt reduction all around, and a restoration of demand to normal levels without causing significant inflation.
But you have first to explain how everybody can be simultaneously in debt. Normally if one agent has a debt, the agent that they have borrowed from has the opposite of a debt - a credit. If I've borrowed €10K from the bank, in the traditional model there are maybe 10 people who each have €1K on deposit in the bank who are in effect lending me the money. And to the extent that I'm feeling under pressure - curtailing my spending in the expectation of having to pay them back, they're feeling flush - spending confidently because they know they have a cushion against the unexpected.
Posted by Timothy the Obscure (# 292) on
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As in the case in which stagnating wages (which have been deliberately held down to increase short term corporate profits) are compensated for by easy credit (inflated housing prices as collateral) to pump up demand, and the real estate bubble bursts (yes, it's more complex than that, but still...) and the holders of all that debt suddenly find that it's worthless and the CDOs are just paper--the creditors are no longer creditors.
Posted by Ricardus (# 8757) on
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Someone Once Told Me that all money originates from a bank in the form of debt, and since banks expect to be paid interest on their loans, therefore the total debt in the world will always exceed the total amount of money.
So if the bank lends me £1,000 and expects £1,500 back, the loan is impossible to repay if there is only £1,000 of money in the world, and so that extra £500 must ultimately come from money loaned to someone else, and so on ad infinitum.
I don't know how much of this is true though ...
Posted by Russ (# 120) on
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quote:
Originally posted by Timothy the Obscure:
the holders of all that debt suddenly find that it's worthless and the CDOs are just paper--the creditors are no longer creditors.
There are "bad debts", yes. One obvious example is if someone dies at a point in time where their debts exceed their assets. But that means that there is someone who is owed money - a creditor- without a corresponding live debtor.
I'm asking the opposite question - how can there be a debtor - someone who owes money - without there being a creditor - an agent to whom the money is owed ? How can there be a society where every agent has debts owing that exceed the debts owed to them ?
There can be a society where everyone owns assets that aren't worth what was paid for them. But that's not the same thing.
What am I missing here ?
Posted by Ricardus (# 8757) on
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If I am in default on a loan, but haven't actually declared bankruptcy, it's likely I still owe the debt but the creditor would not be able to claim it as an asset, the most obvious consequence being that they would only get pennies in the pound for it if they sold it on but the buyer would still be able to send me threatening letters for the full amount.
Posted by Enoch (# 14322) on
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quote:
Originally posted by chris stiles:
quote:
Originally posted by anteater:
Sadly the link given by Chris Styles to a post by Coppola (who is a v. good blogger) is unobtainable to me at least, as I would like her view.
The board software appended the closing parenthesis to the url, so here it is again: www.coppolacomment.com/2013/01/government-debt-isnt-what-you-think-it.html
Many thanks. I've read it now. Interesting, but I think she's completely wrong.
What she says only makes any sort of sense in a controlled and almost completely closed economy like the old Soviet Russia. Apart from that sort of situation, the stability of the sort of monetary and financial environment that she calls a fiat money system is neither dependent on government fiat nor maintained by it. What maintains it, is confidence. When that collapses, the currency collapses with it.
A perception that a government is managing its debt with competence is a major contributor to maintaining that confidence. A perception that a government is not managing competently, doesn't care or is prepared to let its currency or economy slide for political, ideological or sociological reasons feeds the sort of collapse everyone fears.
Posted by Martin60 (# 368) on
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quote:
Originally posted by Ricardus:
Someone Once Told Me that all money originates from a bank in the form of debt, and since banks expect to be paid interest on their loans, therefore the total debt in the world will always exceed the total amount of money.
So if the bank lends me £1,000 and expects £1,500 back, the loan is impossible to repay if there is only £1,000 of money in the world, and so that extra £500 must ultimately come from money loaned to someone else, and so on ad infinitum.
I don't know how much of this is true though ...
Where did the bank get the £1000 from? Who lends the additional £500? You or the bank?
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