Debtonation » Blog Archive » Ignorance of money helps bankers and politicians escape.
Ann Pettifor (a Green New Deal colleague) says (rightly) that:
most assume that credit = savings, and that only by mobilising savings or surpluses (generated by production of one sort or another) is it possible for banks or financial institutions to lend money to finance economic activity. In other words, that money (deposits/savings/credit) exists only as the result of economic activity; and those deposits/savings/credit then create economic activity.
On the contrary: it is bank money/credit that creates economic activity - and only then are deposits, surpluses and savings generated. And not the other way around.
Precisely.
And this is why we can spend our way out of recession. Indeed it is why we must spend our way out of recession. Any other option costs more, increase debt, and causes more hardship.
Why is that so hard for people to undertsand? Keynes did - and he called it a paradox that what works for individuals is completely unsuitable for states - and yet the mindset of the grocer prevails in government.
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“and yet the mindset of the grocer prevails in government.”
Such is the legacy of the grocer’s daughter.
Glad someone picked up the nuance!
It might be easier to understand Keynes if one recalls that he argued (in the simplest version) that savings growth depends on national income growth. An injection of investment will raise Nat Y until Investment and Savings are brought once more into equilibrium.
This view, while counter-intuitive, is correct. Many people in the 1920s believed that only by accumulating savings to finance investment could the economy grow. Thatcher’s ‘handbag economics’ revived this misconception, totally ignoring the ‘paradox of thrift’. What Britain needs now is not more savings, but more investment—and the latter can only come from the public sector. The resulting growth would help restore confidence and ‘crowd in’ private investment. But financial market opinion is set by people whose economics is largely derived from Thatcher’s bankers, and so the City’s insistence on balancing the fiscal books is deeply counter-productive.
Still, it’s not the City types that suffer—it’s ordinary people with low incomes, poor job security and a miserly pension.
George (in didactic mode)
George
I entirely agree
Richard