I have two slots on the Today Programme on Radio 4 this morning, both recorded late last week.
I have just listened to the first, where I defend People's Quantitative Easing. John Cridland of the CBI responded in a live interview afterwards. The live interview I was told I might join in with when recording was cancelled.
Cridland said he wants more investment but he wants it funded by 'real money' i.e. gilt borrowing. One of the great achievements of Corbynomics is, already, the near unanimous response it has given rise to from people like John Cridland that now is the time for more investment using government borrowing. In itself that is a massive change of sentiment.
But John Cridland really revealed the bankruptcy of his own thinking in making his comments. 'Real money' clearly means money borrowed from banks as far as he is concerned. What he utterly ignored is the fact that every single penny lent by banks is created out of thin air, just like the funds I propose be used for People's Quantitative Easing.
And he really compounded his error, going on to say something like (I cannot replay this as yet) “We all know household finances and government finances are the same”. And he then implied all must live within the same maxed out credit card logic as a result: I do not recall the precise wording.
No they are not!!! Households cannot print money. Government's can. The difference is absolutely fundamental.
Does this really pass for serious economic comment? And why did Simon Jack not challenge this? In his interview with me, in a part that will not, I suspect, be broadcast he tried to make the same point that there was something wrong with PQE money and I made him agree that all money is created in exactly the same way - as he acknowledged was the case, although he persisted in saying PQE funds were somehow different despite that fact. But despite knowing Cridland was wrong he made no comment. In contrast I felt his approach to me was little short of bare knuckle fighting when I had at least expected boxing gloves to be used.
A sign of times to come, I suspect.
And a sign that what we're really facing is a wall of either ignorance or misinformation in response to talking the plain economic truth.
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Ignorance, misinformation, and entrenched ideology.
That is the point I keep making. When anybody suggests they are against PQE I ask them if they are similarly against credit cards and personal loans.
When anybody says that the government is borrowing too much I ask them if they are worried that the banks are borrowing too much – since an awful lot of people seem to be in ‘credit’ with them.
And if not, why not – since they are the same thing.
I also ask people to imagine they owned an entire bank, and then get them to understand if they borrow from their own bank any interest they pay they get back as the bank dividend. Therefore the net cost is zero. I then ask what would possess them to borrow from anywhere else if that was the case.
Excellently put, Neil- why can’t we advertise this on in flashing neon lights in Picadilly Circus (paid for by PQE).
One argument that might be useful, and any senior central bank employee should be able to back this up, is that government’s don’t borrow bank money. Reserves (banks’ currency accounts with government) come from one place only and that is from previous government spending. It is the reserves accounts that are debited when taxes are paid or government bonds are issued just as it is the reserves accounts that are credited when government spends. And reserves are always a positive quantity in the banking system. Cridland’s argument is therefore non-sensical.
Now if he had said that under QE no new financial assets were created and under PQE that will not be the case his argument, still wrong, may have had more traction.
Should be no new ‘net’ financial assets were created.
I’ve just heard one of the interviews in the car on the way to work this morning I think?
I can’t help but think that the interviewer (who kept interrupting you BTW) seemed so unconvinced that he then side-tracked what was a discussion on PQE to one that ended up talking about the supposed independence of the B of E – a related point but not the central thesis of the interview.
I have to say that when ever I start to talk about this issue, people just don’t get it. They equate household or company (micro) economics to running a country (macro economics) to such an extent that its as if someone has actually told them that the sky is green and they have bought it wholesale – despite the sky being manifestly blue.
It is very frustrating.
Very frustrating indeed
I agree!
“… its as if someone has actually told them that the sky is green and they have bought it wholesale — despite the sky being manifestly blue.”
This is the way the ‘establishment’ have operated in this country since the Tony Blair days – about a whole load of things, in addition to matters of finance and economics! Very ably backed up and supported by the mass media – sadly BBC included.
SO frustrating. But maybe people are beginning to see the light …
More indication of the level of dumbed- downess the BBC has sunk to. Not even attempting to question Cridlands assumptions AFTER an interview with you!
Richard
Your blog demonstrates the interrelationship between economics and politics, and whilst economically households are not the same as the state, the right wing narrative that borrowing is wrong and linking this to households needs to be refuted. Arguing on the economics may be right, but doesnt change the received wisdom. Perhaps those on the left should do so – along the following lines.
‘You and your partner are lucky enough and work hard enough to earn £60,000 pa. You think that borrowing and buying a house is what you want to do for your family’s long term wealth. A bank will lend you, say £200,000 to do so. You can afford those repayments, and whilst overall it is a big debt, servicing it is within your means. So would it be fair to say you would be very comfortable with a debt of say £48,000? (The 80% of GDP comparator). And how would you feel if £12,000 of this was owed to the bank of Mum and Dad (eg the Bank of England through QE). Borrowing for long term investment is neither wrong, nor uncomfortable at these levels.
We can extend this analogy to talk about extending borrowing when state income reduced post 2008.
Yes, it is not economically correct but this is about the narrative not the economics
You came across well, Richard. I have been following your posts for only a few weeks, and your explanation of ” Corbynomics ” has been very educational for someone with no background in the subject whatsoever. You may take comfort from the thought that although you were treated to the usual bullying from the Today programme, I was shouting at John Cridland that he is wrong to state that a country is the same as a household, and must not borrow beyond its means. Shameful that he went unchallenged, and that you were not included in that part of the discussion.
Your message is getting out there, and you should be proud.
Thank you
Frightening listening to cridlands ignorance
Here we are re-escalating private debt and he’ll wonder once again how we had another private debt crisis
Indeed
What concerns me is that I’m nor sure it is ignorance. Cridland is no fool; rather, he is a (very highly paid) mouthpiece for a large institution in whose interests the current system most assuredly works. He’s going to do everything available to him to say that the current system is the only way, and that anything that might challenge this method is “just wrong”/”absurd”/”not sensible”/”pie in the sky” etc etc ad nauseam.
I don’t know who has replaced the ghastly Angela Knight as the spokesperson for the British Bankers’ Association, but you can expect more of the same from them.
Just follow the money – banks have the entire world economy by the balls basically because they control the money supply (or rather, because governments don’t fire with fire using their own money creating powers). Jefferson famously said “show me who controls a country’s money supply and I care not who makes its laws”.
What PQE (and any similar initiatives) represent is a sign that, actually, a few governments might actually start using their powers, thereby giving banks much less scope to use the global economy as their plaything. Not before time.
You are right – it is not ignorance. Tell a lie often enough and people might believe it true. Here is a recent related call to arms for Neoconservative dark arts assassins to focus on Jeremy Corbyn.
http://blogs.spectator.co.uk/coffeehouse/2015/08/stripping-the-bark-from-jeremy-corbyn-will-be-the-easiest-campaign-in-modern-political-history/
In this Spectator article, the author anticipates ‘stripping of the bark’ from Jeremy Corbyn using the analogy of Michael Dukakis’s treatment in the U.S. Presidential elections. The piece discusses how an unjust and overtly racist campaign unfairly linked Dukakis to a murder following a prisoner’s release. This campaign put Bush into power.
Most tellingly, the Spectator comments: ‘Of course it was ugly and of course it was merciless and sometimes it was unfair too. But that didn’t matter…. All his bark was stripped’. Cynically, the account contained this aside:’ …but, by god, they [the campaign managers] were effective.’
The Spectator then suggests ways Jeremy Corbyn’s bark might be stripped. No ‘ignorance’ on display here; just the eager anticipation of coordinated lies taking their toll on the democratic process.
Just suppose they are wrong?
I ask the question seriously
The difference in interview style between the two interviews is very telling. BBC is a busted flush.
Not “The BBC”, but BBC News & Current Affairs. Don’t tar the whole organisation with the same brush.
“As we all know…”–with all the imperiously smug self-assurance of someone who knows that they won’t be challenged on their nonsense. Shameful.
“Households cannot print money. Government’s can”
Should be: “Governments can” (no apostrophe)
I think you are probably wrong on the apostrophe.
Except it should be to the right of the “s”
“Governments” is the subject. They do not possess the “can” because the can in question is a verb. So there is no apostrophe. It’s all quite straightforward if you’re willing to learn. I suggest you read Oatmeal’s cartoon:
http://theoatmeal.com/comics/apostrophe
Given that the concept has to be reduced to bite sized chunks for educational and communication purposes, I wonder too whether it should be mentioned to the BBC -and others- that, for governments of sovereign currencies, printing money is NOT the same as spending money.
That much is obvious. Even – or especially – in a household.
(It is just unfortunate that economists misuse one as shorthand for the other.)
So if Cridland admits that now is the time for more capital investment using government borrowing, then PQE is about how you borrow – either from yourself (aka the bank of Mum & Dad – very good ananology, Laurence!) for free, or from the banks at a price. What would you – the voter – do?
Philip, I think whenever you go into a public forum and encounter resistance like the radio 4 presenter’s, I think instead of pushing forward, you should simply explain or put it out there that the finances of a government do not work in the same way as a household and whenever that is conflated, one can be dead sure that the following theory is wrong or its real world application is fatal as in the case of the Eurozone. That might help to turn the presenter in your favour rather than the presenter still trying to find a fault with you and then as respite for his doubts turning to people like Cridland.
Besides, Cridland is a spokesperson. He’s probably just echoing the interests of his paymasters. That’s it.
ANyway, I wanted to ask you something about the funding of local governments like states, councils,etc. If the central government has the capacity to borrow(from its own bank, the central bank) at the cheapest rates possible and then spend it, why do local governments tax besides being funded by the central government?
Explained in my new book: builds a relationship with local democracy but the whole process requires very careful management
CBI and IoD always speak in Economics 101 cliches.
Never mind that though, is there any evidence to support Cridland’s claim that the recovery is being driven by business investment? I thought that a lack of investment has been the most noticeable feature of this recovery.
He’s probably right to point out increased household spending but it’s debt financed, as per usual.
He seems to be saying the exact opposite of what’s happening, no?
Yes, we do need investment to spur productivity growth which in turn ought to spur wage growth without inflation, but we just haven’t seen it yet. Credit growth is fuelling the consumer sector, not wage / productivity growth.
We can argue over PQE and how best to achieve investment growth, but I’d be more inclined to investigate whether Cridland’s is even remotely accurate with his analysis of the recovery and outlook – not even considering the market routs.
I’m not sure that I understand this distinction with “real money”. Is he accusing you of running a counterfeit operation? Or may be considering one of his own?
Either way, your riposte to Cridland’s nonsense merely asserts the nature of endogenous money – which is not a theory or a progressive concept, its official.
The Bank of England says so, quite clearly – send him this.
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
Send him that.
When I read the Cridland article I thought that he had either bought the idea that banks lend savers money or that he was trying to get his readers to buy it. Rather like the idea that Stephane Kelton put across – the problem being that “money grows on rich people.”
It is very misleading and dangerous for the public to be ignorant of the fact that Keynes teaches us in his “Treatise on Money, that there is “money proper, and bank money. Bank money existing as a debt. Far from being a real asset, as the MMT economists teach us, bank money is a liability to households and businesses, and if it grows too high causes crises.
Only government money is “real” or “money proper” because it is the only asset to businesses and households. That is why PQE would be a perfect stimulus, especially if it is issued with out private bonds involved, which is how I understand it.
Sandra
I prefer to treat bank deposits, created as a result of government spending as bank money otherwise it can confuse many trying to get a grip on what is going on. The real money, i.e. the currency issued, goes straight to the recipient’s bank’s reserve account at the BOE. The private bank raises a private IOU, the bank deposit, to match the currency asset in its own books.
The funny money is only guaranteed by the government up to the tune of 80k or whatever the financial compensation scheme figure is at the moment. It is in the same boat as bank deposits created by bank lending which of course doesn’t affect reserves when issued.
But the reality is you can’t tell the two apart
Absolutely Sandra!
Exactly. Hence the problem trying to explain to people what is going on.