Robert Peston has replied to my response to his commentary on Corbynomics, saying (and I do not have much choice but to quote in full):
The guru of Corbynomics, Richard Murphy, has responded to my blog on Jeremy Corbyn's "quantitative easing for people".
He clarifies that the debt to be acquired by the Bank of England would be issued by a new state-owned investment bank, whose role would be to finance housing, transport, and so on.
But I am not sure the existence of this new public-sector bank significantly helps his cause.
Because there would be widespread concerns that the Bank of England would be indirectly financing white elephants via this investment bank - and would, as I mentioned earlier, be throwing good money after bad.
Or to put it another way, quantitative easing for people makes good economic sense only if you believe that a state investment bank would make viable investments that the private sector refuses to make.
Robert has ignored all my commentary on bond markets and the paranoia of the confidence fairy and instead completely misses the point.
First, rather oddly, he assumes that the bondholders of a new state owned investment bank will bear all its risk. That's a pretty odd assumption: the state would very clearly do so as the equity holder. Robert's economic logic is just wrong on this point.
Rather more importantly, Robert then assumes there is nothing for the state to invest in that the private sector could not do better. So, for example, although there is a chronic shortage of social housing he does not think the state should provide it. Nor, apparently should the state find the building of schools, or hospitals, or roads, or transport systems, or co-fund new technology, or invest in a sustainable future despite the fact that there is not the slightest evidence that the private sector is willing to do any of these things right now although there is pressing need for them. All these things are apparently just 'bad money'.
Which begs the question, what is good money?
But also suggests that Robert's objection is deeply political, given that he has noted some of these needs.
That, or his good sense has gone AWOL.
I rather hope it hasn't.
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“only if you believe that a state investment bank would make viable investments that the private sector refuses to make”
That is bizarre.
It’s not just bizarre. It’s neoliberal. And it serves to divert the mind from critical analysis and related action to staring uncomprehendingly at the accomplished and supposedly immutable social facts of the economy.
Is he using ‘investment’ in a much narrower sense than Richard? He seems to be thinking in terms of investment in companies and implying that if the market doesn’t like them, they must be basketcases. But when Richard talks about investment it is (at least partly) social: schools and hospitals. Peston seems to regard that not as investment but spending. This seems a bit anti-state: government spends but businesses invest.
Maybe it’s time we stopped using the phrase ‘government spending’ altogether!
I think it’s partly to do with a too narrow definition of investment. Some of the returns on these kinds of investment are indirect, and wouldn’t be captured by a private-sector investor making the same investment. E.g. people with PQE jobs would pay more taxes and claim less in social security benefits, benefitting government finances; and they’d spend more money, both benefitting other private-sector businesses, and increasing the taxes those other businesses pay, which benefits government finances again.
But it also appears that the private sector isn’t interested in long-term, low-but-reliable-return investments. For instance, the direct return on building social housing (i.e. rent) could more than cover the cost of borrowing for some private-sector companies; but they’re only interested in higher or quicker returns. Though the profit is higher for the government, thanks to its lower cost of borrowing (and higher again by using PQE, which effectively eliminates the cost of borrowing). The government also profits indirectly from more social housing, from a reduced housing benefit bill, as fewer HB claimants will be in the (higher rent) private rented sector.
I’m afraid that Robert remains trapped in a world-view in which the private sector is always right, and so if the public sector wants to do it differently, it must be wrong. And so he can’t see that the economics of investment are in some ways different in the public sector.
Not to mention the broader point that the return on PQE investments will not only be of financial benefit to the public sector. They will also improve the finances, and lives, of people who have decent jobs, energy-efficient homes, and live in a more equal society.
“Because there would be widespread concerns that the Bank of England would be indirectly financing white elephants via this investment bank — and would, as I mentioned earlier, be throwing good money after bad”
£375 billion of financing for rogue “white elephant” banks is OK though!
His prejudices are showing.
Bravo. Peston has been an unfiltered neoliberal mouthpiece for many years now. Why anyone pays him any attention is mystifying.
Excellent response! It will be interesting to see if Mr. Peston continues the discussion.We need to make macro-economics work for the 99% not just the 1%. These types of discssuion might be the most important development resulting from the Jeremy Corbyn surge.
BTW there’s a small typo in the first sentence- should be “and I do not have much choice but to quote in full”
Thanks
Corrected
Obviously somebody upstairs has had a quite word in his shell-like and explained the “facts of life” to him. Assessing PQE in an objective, non-partisan manner could be career-threatening, if not career-ending.
Is it the case that currency traders will demolish the £GB if they see any move to change the neo-liberal project?
That seems to have been a last line of defence for some time now. It isn’t usually stated quite like that, of course, but I’m just trying to get to the core.
Peston seems to be saying that currency traders will attack the BoE if it engages, even at arms’ length, in the kind of social investment that the US used during the New Deal. So we cannot have a Keynesian multiplier, being left instead with a discredited trickle-down (which doesn’t).
I’m posing a question, not making an ideological statement, so it would be great to get some substantive responses on this one!
Best wishes to all!
Paul
That does seem to be what Robert thinks
Ok, that’s what Robert thinks; is it true, though?
Paul
Paul
we aren’t part of the Euro.
If, & I appreciate this remains unlikely, Britain were to elect Corbyn, he could require the Bank of England to print the necessary money. No-one could object. I’m genuinely not sure where you see a problem.
It is, of course, the case that a Corbyn presidency & a loose hand on the BoE would cause Sterling to plunge. Since that would help our exporters & cause difficulty to our importers I can’t imagine JC would complain over-much.
Of course, if Sterling halved in value it would affect a lot of people, anyone who’d invested in the UK would find their investments had shrunk over-night. Many Russian oligarchs, Nigerian swindlers & Middle-Eastern tyrants would end up much less wealthy than before. I don’t suppose JC would car too much about that either
Currency traders cannot “demolish the £GB”, nor any other floating exchange rate currency for that matter. Those who peddle this myth think it’s still 1992 – when £ sterling was pegged to other currencies via the European Exchange Rate Mechanism (ERM).
Prof. Bill Mitchell, “Modern monetary theory in an open economy”
http://bilbo.economicoutlook.net/blog/?p=5402
If they are not backed by large enough currency reserves, speculators certainly can attack a country’s currency. The pound was attacked in 1976. That is why the Wilson government of the day felt they had to go to the IMF.
Capital controls would likely stave off these type of attacks. Certainly if there was the extremely unlikely event of a Corbyn premiership (unfortunately) capital controls may well be necessary to defend the economy.
@Stevo
“The pound was attacked in 1976”
Arguably not true, the worry was we would be due to balance of payments issues and we would be forced to defend the fx rate, early in floating fx system we have now so no one really sure what the result would be. It is something we don’t do nowadays.
(Reply to Stevo!!)
The IMF loan was due to the pound’s peg to the dollar. The fx rate of sterling was being driven down by financial speculators, betting that the peg would be broken, which would have been bad (though not catastrophic) for the UK government, hence why the IMF loan was made in dollars. The government could have issued more sterling and used them to buy dollars, but this would have driven the value of sterling even lower (which is what the financial speculators had expected). Instead, by borrowing in dollars, the government was able to maintain the peg, but were forced to implement neoliberal policies by the IMF (who even then, had been captured by neoclassical revisionists like Freidman), such as abandoning Full Employment in favour of NAIRU.
Stevo!! @ August 12 2015 at 11:28 pm
You’re wrong, we’re in a different world from the one you are thinking of…
http://www.3spoken.co.uk/2013/03/uk-borrowed-foreign-currency-from-imf.html
“If they are not backed by large enough currency reserves, speculators certainly can attack a country’s currency.”
Where are they going to get the Sterling from to deliver in two days from the date the contracts are signed?
There are no market makers in FX and if you have a non-interventionist central bank then there are no patsies in the market to push around.
It’s always important to remember that in FX you have to settle – and very quickly. Which means you have to get the actual currency from somebody who has it and doesn’t want it and give it to somebody else.
The policy trick is to keep the banks out of it. No central bank intervention and particularly no bank lending for speculation. Let the casino addicts play with their own equity.
“@Stevo
“The pound was attacked in 1976″
Arguably not true, the worry was we would be due to balance of payments issues and we would be forced to defend the fx rate, early in floating fx system we have now so no one really sure what the result would be. It is something we don’t do nowadays.
I eg to differ! Certainly, if you are protected by plenty of currency reserves or, as China does, with lots of US debt, then there shouldn’t be a problem.
However, many countries simply went bust simply by just allowing their currencies to float. This happened to many countries when the USSR fell. Speculators attacked many countries in Asia too.
Because of of the high pound, the UK currency was vulnerable to attack. A currency raid simply sucks money out of the country. It was argued that this attack was engineered in response to the then Labour government’s commitment to leave the EU and plans to pull out of NATO.
Though there was absolutely no need to do so (north sea oil was due to come on stream) the Labour government accepted an IMF loan, with hadthe pre-conditions of cutting wages and government spending.
It was the beginning of neoliberal economics in this country.
Ah, white elephants – like the marvellous and expensive new office block that Fred the Shred had built for himself at Gogarburn while he wouldn’t spend a penny on bringing his bank’s IT up to scratch. Result: NatWest and RBS banking breaks down three times in the last five years, to the severe inconvenience of milions of customers.
Wouldn’t have happened in the public sector…
Mr Peston’s using the term “white elephants” about any investment is just playground label-sticking, and unworthy of him.
Steven
No it isn’t, but in a way far worse. like many economic commentators, RP, simply cannot, ever, accept
1 The private sector may not be the most efficient way of delivering a product &
2 There may be products or services which people need which the private sector can’t supply
RP’s utter allegiance to “free market capitalism” doesn’t strike me as, necessarily, unworthy, but it does indicate why he shouldn’t, ever, pontificate about Labour.
If the labour Party starts to believe that what is needed can be supplied by the market then, simply, it isn’t the Labour party any more.
The private sector is not the most efficient way of delivering public services as has been proven by Hitchinbrooke, Yarl’s Wood and other services delivered by the likes of G4S, Serko, Cirle etc. By the nature of private companies they expect to run for profit, not to prvide good service.
Richard you need to get 300 Whips behind you to get your message across. This government has done so many deals with big business to oil their media machine, it’s hard to win when you play by the rules.
What Robert Preston also fails to do is spell out what is to be considered a “white elephant” and who exactly it is who is covered by the statement ” widespread concern.”
One is left with the impression, in the absence of a proper definition, that what RP really means by this is anything which involves any long term investment in anything and anyone outside of the 1%, who are probably what he means when he uses the term “widespread concern.”
There has been concern in this household about Mr Preston for some time. It is not just his good sense which appears to have gone AWOL. His recent change of hair style and dress sense suggests he may well have a teenage daughter with more influence over him than he should allow.
That was a marvellous deconstruction of Robert Peston’s analysis in your last post, Richard!
What has happened to Peston’s good sense? Could I suggest, at the risk of oversimplification, that it is a variant of the mistaken idea that there exists a pot of money from which everyone can draw, i.e. ignoring the fact that money is always being created and destroyed? In this case, Robert thinks the pot of money exists within the private sector, and that this must be the ultimate source of all funds. Whether he is being political or simply mistaken, I cannot tell.
The motive behind this belief is to do with the theory of knowledge, and I draw again from Bernard Lonergan in doing so. There are two types of knowledge, the first, an animalistic one, based on extroversion to a concrete reality of which we know by ‘taking a look’, and confirmed by successful response. The second type of knowledge is based on understanding and judgement. Human knowledge is a compound of the two, because we have an instinctive, animal-like awareness of the world, which surfaces in the fight-or-flight reaction to an external threat, or in situations of stress. But we properly speak of human knowing when we speak in terms of the human mind, the thoughts it thinks, the judgements it makes, the decisions it takes. Using these processes properly is the key to settling all intellectual debate.
When these two types of knowledge are mixed up, as they are in all of us to some extent, it can lead to all manner of confusion. So the idea that there is a pot of money ‘out there’ conflicts with the modern notion of finance which seems to exist in a world of its own. People like Robert Peston are probably aware of this tension, but to get things straight is no simple matter, because unless the confusion is ironed out at the start, the inconsistency will continue to manifest itself in other ways.
To illustrate, Peston has made an attempt to analyse the reality behind Corbynomics, applying his mind in doing so, with an admirable degree of success, as Richard has noted. However, he has not broken completely free from an extroversion to reality which he thinks is ‘out there’, and this manifests itself when he turns to his instinctive survival mechanism. “Robert thinks it may be dangerous to upset bankers,” says Richard. Precisely, because they are the ones he believes are holders of the capital which is ‘out there’, and on which we depend. Logic does not have a part to play in this, it is an instinctive process based on the survival value of what he thinks he knows. We all need money to live, and when he perceives the possibility of it being undermined, he rushes to defend it. Mistakes in his analysis are inevitable, because the underlying cognitional myth involves an attempt to juxtapose two different types of knowledge.
His response to Richard above is another example of him evading the issues and missing the point. He thought he had done a good job in his original analysis, and to a certain extent, he had. But the point he cannot cede is exactly the one which Richard attacks. His response, fight or flight, is to clarify the issue around which he thinks the argument revolves, which is once more to defend the necessary and immutable, the sources of money on which we depend. The result is still more fables and incoherence, as he even brings in the white elephants to the rescue.
This leads to a second point. Both Richard and Robert are applying argument and analysis. The difference is that argument and analysis from the extroverted, animal kind of knowledge leads to a fixation with the necessary and immutable (and to many people neoliberalism is one such thing). From the human point of view, argument and analysis is about intelligence and reasonableness, and it is to the extent that we operate both intelligently and reasonably that it is successful. I am not competent to judge on everything which Richard Murphy writes on his blog, but much of what I see is him applying intelligence and reasonableness when his opponents do not.
Being reasonable means assenting to the truth when the evidence unequivocally supports it, i.e. there is no way it could plausibly be false. If there were such things as necessary truths, then it would be unreasonable not to accept them. But there are also such things as conditional truths, i.e. statements which would be true IF certain other conditions were met. If the conditions were true, it would again be unreasonable not to accept the implication of those conditions as true. This leads to what Lonergan terms the ‘virtually unconditioned’ statement, that is, not a statement which has no conditions whatsoever, but a statement whose conditions are fulfilled. Such a statement cannot plausibly be held to be false.
The point of labouring this out is that, on a subconscious or even conscious level, we use this kind of meta-analysis all the time. If we want to know anything at all, we frame the question, we inquire about the terms, we draw up a hypothesis, we marshall and weigh the evidence for whether the conditions are fulfilled, and if they are, we conclude to the truth of our assertion. (These processes, and many others, operate subconsciously and often simultaneously). Is it raining? I can look outside or put my hand out of the window. Did it rain yesterday? I can check the rain gauge or look up the online records. Will it rain tomorrow? It is not possible to make a certain prediction about that, but we can weigh up the factors and speak of the probability that it will. Reasonable assent to the statements can only occur if the evidence is present and adequate in each case. An assertion in the absence of reasonable evidence is guesswork. An assertion in the face of conflicting evidence is folly.
When it comes to the question, is PQE a viable option for the economy, there are two approaches. If there is a fixation on the necessary and immutable, from an animal-like extroversion to the world, then what is true is must be consistent with the necessary and immutable. For Peston, this means PQE must be compatible with the neoliberal structures he assumes must be in place. The alternative, applying intelligence and reasonableness, is to hold that PQE is a viable alternative only on the fulfilment of certain economic conditions. That is, it is not a universal panacea, but if the conditions are right, e.g. low interest rates, then it can be successfully introduced at net benefit to society. Whether or not the conditions are fulfilled is a further economic question, and human judgement must be exercised in ascertaining whether this is the case, just as Richard has done.
Perhaps it is unfair on Robert Peston to attribute his unforced errors to a base animal instinct, i.e. that his sense has gone AWOL. It is good to think the best of people. An alternative reading would be to focus on his admission of doubt and uncertainty:
“But I am not sure the existence …..
“Because there would be widespread concerns …
“Or to put it another way, quantitative easing for people makes good economic sense only if you believe …”
This is appealing to the survival instincts in each of us in an intelligent way. If we put aside reason and listen to our own extroverted instincts, we may agree with him. But if we are to engage intelligently and reasonably with the problem, then we must listen carefully to what Richard Murphy has to say, and then make our own judgement on the matter. If Robert’s concerns remain valid, then we should remain as we are. But if Richard puts forward the case with convincing evidence, and shows that the economic conditions are right, then not only would it be the right thing to do, but it would be total folly to ignore it.
Thank you
I appreciated your analysis
As usual the deeply Neo-liberal bias inherent in Robert Peston’s thinking causes him to ignore much of what might be regarded by more objective minds as the truth.
Investment in Council house building, far from being a white elephant, offers Local Authorities a long term revenue stream that (in addition to funding more building) also funds the provision of vital services such as social care and education. (There would, of course, be a need for corollary adjustment to the right to buy to ensure that the current situation of subsidies to those looking to build ‘buy to let’ portfolios does not continue).
It is common sense that this is not an answer to the housing crisis. It is the only answer.
As long as housing provision is left to the private sector the current parlous situation will remain. Private construction companies benefit massively from the prevailing conditions which allow them to manipulate Government planning policy in the name of addressing the crisis, whilst, at the same time profiting massively from the grossly inflated prices that property now commands as a result.
The idea that Government is incapable of prudent investment is an oft-repeated mantra of Neo-liberal economics that has been allowed to sink into the psyche of the Nation. But as Ha-Joon Chang points out in his book ’23 Things they don’t tell you about capitalism’ it is an assertion that does not bear up to empirical scrutiny, as witnessed by the colossal growth of post-war South Korea, whose success was wholly based on a public/private partnership, with central Government planners very much in the driving seat.
But then, why let the truth get in the way of the propaganda, Mr Peston..?
As I understand it, Peston lost his wife recently and maybe the poor man is so overcome with grief that he has lost his ‘edge’.
Than goodness Paul Mason has still got his act together.