I am, if I can be quite candid, quite angry to read this in the Guardian:
Labour MP Simon Danczuk has become the latest person to question foreign aid at a time when money is needed for floods at home. The UK is one of the few rich nations to meet the UN target of spending 0.7% of gross national income (GNI) on aid every year.
“Why do we spend money in Bangladesh when it needs spending in Great Britain? What we need to do is to sort out the problems which are occurring here and not focus so much on developing countries. That has to be our priority,” said the MP for Rochdale on BBC Radio Manchester.
I am aware that Danczuk is a Labour MP, but which party he is a member of really does not come into this. The economic illiteracy that underpins the crassness and even callousness of his comment is what angers me.
The economic illiteracy that I refer to is Danczuk's obvious belief that we have a choice of either doing overseas development aid or flood relief. What this implies is that he thinks we are living in an economy where we are either at our full economic capacity and, therefore, to do more requires something else be stopped or, alternatively, he thinks there is a finite amount of money in the UK and that nothing can be done to change that meaning that we can either spend it on flood relief or on overseas development, but both are not possible.
Danczuk is completely wrong in all aspects of this analysis. Glaringly obviously this is an economy that is not operating at full capacity. We still have large numbers of people who are unemployed. We have 5 million people who are self-employed, many of whom would much rather have an employment paying at the proper rate for regular hours. And, we know that there are millions of people who are working part-time who would like to work full-time. In that case to suggest that in any way we are working at our full economic capacity is absurd: it is very obvious that we do have the resources to undertake all necessary flood defence works, and we can at the same time fund overseas aid.
So let's look at the money issue instead. Danczuk is presuming that there is, somehow, a shortage of money available to the government. When the UK has its own currency to suggest that there is a shortage of money is absurd as suggesting that there are a shortage of miles, or a shortage of kilograms. We can have as much money as we need to do a job: we proved that with a £375 billion quantitative easing programme from 2009 to 2012. What is more, at present there is no persistent or long-term inflationary risk from creating that money until full employment is reached, and as I've just noted, there is no chance we will reach that point some time to come. But, even if we did create inflation at that point, firstly that is our goal: the Bank of England's Monetary Policy Committee has been tasked with creating 2% inflation year, and has been failing to do so for some time. Secondly, it is entirely possible to take inflationary pressure out of the economy by increasing taxes. In other words, any risk that does exist is minuscule, to some extent desirable, and anyway totally manageable.
So, for Danczuk to suggest that because of a constraint on the amount of money that is available in the economy we cannot afford to do both flood relief and overseas aid is just completely incorrect. It is factually wrong. It promotes a myth, originally attributed to Liam Byrne that a government can run out of money. That was a joke, even if it was a very bad joke. Danczuk should know that. He clearly does not.
So, based on total misinformation and ignorance he blames the development budget of this country for the hardship of people in Lancashire and Yorkshire. That is, I suggest, a deliberate attempt to create tension that is, in my opinion, callous.
Danczuk needs to do three things. First he needs to learn some economics. Second, he needs to shut up until he has. Third, he needs to apologise when he realises how wrong he is.
I do not expect any of these things to happen.
PS: I have explained how to fund this work here.
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‘It is difficult to get a man to understand something, when his salary depends on his not understanding it.’ – Upton Sinclair
That is so true Mr Shigemitsu. The idea that we can reduce our aid budget is laughable. We need to have a strong voice in the world. Reducing aid would diminish our role as we would be shirking our responsibility to provide a %age of our GDP for helping countries in need. We always find money when it comes to bombing or incursion into conflict. Simon Danczuk should know that our position on the UN security council depends on us playing our part. We GAVE the banks plenty, we can afford our foreign aid budget!
I like that.
The blog at Zelo Street has all anyone needs to know about this particular chancer.
Unfortunately Simon Danzuk is not the only member of the Labour party who thinks that a Labour government would be limited in what it could achieve if it doesn’t want to be deficit denying. Until it learns that deficits are neither good nor bad they are merely the arithmetic outcome of government taxes and spending there is little hope of achieving a good society one which is judged by how it’s citizens are able to live not by a valueless accounting entity
I do not even begin to understsnd where you are coming from.
You apoear to be following the diktat of Nixon who abolished the gold pstandard in the seventies in favour if fiat money .
It is akin to an italisn sfogluata machine i e put in dough , turn the handle and out comes petfectly formed tsgluatelle.
OK for pastawhich is consumed and then abluted but not for money which continues in circulation and has no back up value and whose perceived value decreases with each tranche of monetary sfoglita produced .
That way lues the Weinar Republic, Zimbabwe et al.
Utter nonsense
All I offered was sound economic theory
Why not go and read The Joy of Tax?
”That way lues the Weinar Republic, Zimbabwe et al”
No – or at least – not necessarily!
”hyperinflation examples such as 1920s Germany and modern-day Zimbabwe do not support the claim that deficits cause inflation. In both cases, there were major reductions in the supply capacity of the economy prior to the inflation episode.” (Bill Mitchell)
http://bilbo.economicoutlook.net/blog/?p=32361
and see also:
http://bilbo.economicoutlook.net/blog/?p=3773
These are just two examples of economic thinking (our host, Richard, and many others provide plenty more, if you care to look around) that rightly challenge the failing politico-economic orthodoxy.
John, I believe it is incumbent on all of us who believe in the possibility of progressive change, both those who are economists and those who are not, to closely examine and question received wisdom, especially that which seems designed to severely limit options for such change, such as the fear of hyperinflation that you express. Rather than buying into it, and hence being part of the problem, we ought to challenge the MSM and the neoliberal groupthink that dominates politics today with its promotion of fear around appearing ‘fiscally irresponsible’.
With respect, John Cruddes, what you have posted provides a classic example of why millions of people like myself have switched off from bothering with, never mind voting for, what passes for the Labour Party these days.
There is no attempt to engage, to evaluate, to debate, and, yes, to consider that you, yes you John, may have something to learn. Like many who have reached a certain level in a hierarchy you think you know it all and that you don’t have to engage, except in cases where those who have not got a position in a hierarchy agree with self proclaimed experts like yourself in order to proclaim that only those like you have got it right. The only examples you deem to give as a sop to some form of argument (and a weak one at that), Zimbabwe and the Weimer Republic, ignore context and betray a severe lack of understanding.
If you want to be serious about doing the business you need to properly engage rather than take this all too typical gang mentality of only bothering with those who subscribe to your view of how the world works. Dismissing everyone else as having nowhere else to go has not worked and will never work. Deal with it or get used to failure because sticking with this neo liberal approach of the Progress sect in the Labour Party is leading you all up a cul de sac with a cliff edge of oblivion at the end of it. You lot are supposed to offer an alternative not a operate within the confines of a failed and failing framework/paradigm.
Its called leadership John, and you and your colleagues might want to practice it sometime because more and more people are getting pissed off with the no nothing managerialism masquerading as as a so called alternative currently on offer.
I do not think the person posting is the real Jon Cruddas
I will stop such postings again
Perhaps Danczuk would also like to tell us all how Osborne’s lunacy in tactically denying the HMRC the staff it needs to claw back over £20 billion in corporate tax evasion and under taxing the privileged rich at the expense of the under priveleged poor is also justifiable. Why on earth this man doesn’t just admit he is a Tory is beyond me. If it quacks like a Tory, acts like a Tory, it probably is a Tory, why pretend to be a Labour MP?
This man is more interested in his own life style than his constituents?
He refused to fly an overseas mission because he would have to fly economy.
The mission had to be cancelled.
ignorant and self serving… like so many in the HofP… of all parties…
To be clear – is he expected to learn ‘proper’ economics (as fairly universally agreed) or your ‘economics’ (given that you repeatedly tell us that conventional economics is wrong??
Phil
Very few economists would recognise any merit in what Danczuk said
Phil, going on what you have written it would seem reasonable to suggest that there may be some confusion here.
The use of the term ‘proper economics’ implies that we are dealing with a science based subject with the same scientific validity as physics, chemistry, biology etc which provides us with a set of irrefutable laws of nature which are unchallengeable. This is a common misconception of what economics is.
There is no such thing as ‘proper economics’ in the same way as there is ‘proper physics’ or ‘proper biology’ or ‘proper quantum mechanics.’ This is because economics is not a science, never has been, never will be. There are, therefore, no irrefutable laws of economics which are unchallengeable. The fact that economics is taught in this way, as though it is now the end of history and we have cracked everything, does not make it so.
What is currently taught as economics, in terms of a scientific truth, is merely at best a paradigm. Moreover, it is a paradigm which is little other than snake oil. A paradigm which has been demonstrated to have failed miserably even on its own terms because, far from being scientific, it is a convenient political tool used to justify a particular set of arrangements which suit those who peddle it, in much the same way as a three card monte set does.
Those who subscribe and cling to the notion of Capitalism being the only way to organise a society might best be looking to serious capitalist economists like Stiglitz and Krugman rather than sticking with the nonsense of Friedman and the Chicago school. The currently taught neo liberalism has no future. Even the students are pissed off being taught this voodooism as though it were scientific truth.
Your last point is very true
tu quoque, Dogg
First he needs to learn some economics. Second, he needs to shut up until he has. Third, he needs to apologise when he realises how wrong he is.
You are afraid of criticism, so you’ll delete this. However, I think you need to take you own advice. You never apologise when you are shown to be wrong.
I am happy to post that
Because it is factually inaccurate
Can you post links to examples of where you apologised when shown to be wrong?
Littered through the history of this blog
More repetitions of moronic memes that perpetuate illiteracy and myths-but it is also up to the Labour Party to counter this garbage with clarity that will shut these morons up. This is again proof that we have 90% of MP’s without a clue how the monetary system works-imagine 90% of drivers without a knowledge of the Highway Code (or a Highway Code from 1694!)-yet we tolerate it in Government.
Danczuc strikes me as another neo-liberal thug and his comment is worthy of UKIP at its worst – his constituency has been affected by flooding and he lowers himself to stir the xenophobic pot rather than lambaste the Tories for failed fiscal understanding.
Good article – trouble is that most of our MPs are economic illiterate that’s why we’re in the mess we are.
Not sure how this sentence was meant to read…
We have 5 million people who are self-employed, many of whom would much rather have anBoth Arent paying at the proper rate for regular hours.
Employment – and somehow it went very wrong
WHY has Danczuk not been suspended from the labour party, not only does he insult the Leader, he insults members, brings the party into disrepute, it really is time he was held to account for his behaviour as an MP gloating on social media whilst he is on the gravy train of the Media.. what a sad reflection he is of a labour politician parton he does not reflect REAL labour politicians is nothing more than a self serving arrogant man.
The Labour Party is lead by a Corbyn who has voted against his own party hundreds of times. I heard it said that David Cameron had vote with the Labour Whip more often that Corbyn but I don’t know that this is true. Anyway it’s impossible to impose discipline in a party when the leader has failed to follow party policy on so many occasions and over such a long period. To do so would be flagrant hypocrisy.
I don’t particularly agree with Danczuk but Richard Murphy’s analysis is wrong in almost every respect. His view of economics is extremely eccentric and his rabid attack on Danczuk for his apparent lack of knowledge is beyond silly. Woe betide the British Economy and currency if Richard Murphy or any fool that follows this tosh gets near the Treasury and Bank of England.
If I’m wrong so often I wonder how I got to be a professor of political economy?
“I heard it said that David Cameron had vote with the Labour Whip more often that Corbyn – ”
That’s easily done when you can’t get a cigarette paper between the two parties and the country has become a One Party State – happy with that ClarkeP?
“We have 5 million people who are self-employed, many of whom would much rather have anBoth Arent paying at the proper rate for regular hours.”
I beg your pardon and you criticise others.
So in haste I made a typo
Oh dear
Not as many typos a John Cruddas did.
Looking forward to seeing you do a WTF post, Pils, to masterpieces of English dictation such as
“It is akin to an italisn sfogluata machine i e put in dough , turn the handle and out comes petfectly formed tsgluatelle.”
or
“You apoear to be following the diktat of Nixon who abolished the gold pstandard in the seventies in favour if fiat money .”
Purely as an exercise in objectivity mind.
You mentioned again that it is possible to take inflationary pressure out of the economy by increasing taxes. How would that work? I understand that taxes takes money out of the economy by transferring that money to the government. However the government does not destroy that money, it spends that money transferring it back to the economy. Taxation does not reduce the amount of money in the economy and would have no effect on inflation.
Another question occurs to me, if a government can obtain all the money it needs by effectively printing that money, why tax?
Please read The Joy of Tax where I address all such issues
I can’t re-write the book here
Governments don’t tax to spend, since they must spend before they can tax, in our current monetary system, tax primarily ensures demand for the currency.
Either way, the increase in tax revenue does not have to be translated into an increase in government spending, resulting in a lower deficit, or potentially a surplus.
It can pay down government debt for example? That scary deficit thing?
@ Mark V
If you consider the case of a government starting a new currency from scratch you’ll easily see that it has to spend the currency into existence. It can’t just impose taxes in the new currency because at that point no-one has any.
So logically Govt spending has to come before govt taxation. Also it isn’t possible for govt to collect more in taxes than it has spent in the first instance. So it has to be in deficit.
So why does Govt need to raise taxes? Primarily, to stop us spending it, and to create a demand for the currency giving it a value and helping prevent inflation.
Alternatively retrace the many blogs Richard has written over the last 4 months and you will find your answers. Richard may be impatient with fools but he writes in a way that is simple to assimilate and for those of us retentively challenged, easily referenced. You can find the back issues under the A-Z listing right hand side. That should whet your appetite for his book The Joy Of Tax which puts it in one tome and it’s fun to check back on his postings to see if you can catch him out. (I thought I had on several occasions only to find the explanation there, because economics is a science, the laws hold true as do the divergences.) Try using algorithms as a way of demonstrating how the science works, it proved to me that Capitalism adopted as an ideology, self destructs eventually.
Thanks Susan
And I admit, I do not suffer fools gladly
But I am happy with genuine enquiries
Occasionally I get the line wrong, I admit
I am fallible
Much as Richard’s blog is very good, as I’m sure are his books, be wary of thinking of economics as a science or you will find yourself having to rethink a lot of your beliefs when the world behaves in a different way to any economists predictions. Even science is the result of thousands of years of human trial and error to calculate certainty from almost universal uncertainty.
Economics is a social construct created by complex human minds to help understand, explain, predict and ultimately control human behaviour for a particular purpose. In much the same way that religion tries to create social order out of the inevitable chaos of life, so does economics.
The danger with both religion and economics is when people lose sight of the moral lessons in both and start to believe any particular doctrine over another without being able to continue to question everything about it. Many will not agree, but religion and economics do not really exist, they are only constructs in our minds (and everyone will think a slightly different version of it).
There is no absolute right or wrong in economics, there is undoubtedly better or worse – but that will always be in the eyes of the beholder. Which is why multiple perspectives and freedom of speech (without inciting violence or hatred) is always a good thing in my humble opinion.
Yuval Harari’s excellent book Sapiens is a good read for an insight into the many things we humans have done over the millennia do to create perceived artificiality out of the inevitable reality that is our universe.
http://www.ynharari.com/
I agree Keith
On religion too
Which is, as you say, a human construct around faith
I am no longer a Simon Danczuk admirer, but he is saying what I suspect the majority of the electorate would say. The austerity programme with its cuts have achieved nothing but we are indeed always told there’s no money. Not for the NHS, ( where problems will only be solved by greater privatisation.). Some countries do need our cash aid, but the needy of the UK should be prioritised before we send cash to countries where corruption reigns.
Those some majority would also say they don’t want people to come here
Maybe the best way to create the balance they want is to provide aid
Think about it
I hope it was clear I was being ironic when I said the problems of the NHS will only be solved by privatisation.
I wish the rest had been ironic too
The NHS does need some decentralisation. but not privatisation. At the end of the day, its absurd when starved of money, we could actually provide a profit to private shareholders.
If we can’t provide overseas aid and welfare, how come we can afford corporate welfare?
We can. Because it is a choice.
A couple of ecomomic concepts which are fundamental but which you assume don’t exist unless the ecomomy is at full capacity: opportunity costs and there is no such thing as a free lunch. In fact, by denying these concepts you essentially deny economics itself.
The only opportunity cost is inaction
And whoever said this was free? It’s not free: it’s better than that by paying a massive return
So there is literally no opportunity cost to the government spending more money on something? You appear to be confusing return and cost. Which seems odd from some who is both an accountant and an economist. Yes, something may generate a return, but that doesn’t mean there isn’t a cost to doing it. If there wasn’t the activity would cost £0. Can’t you see that if you employ engineers, labourers, concrete and countless other materials, lorries, administrators etc to build more flood defences then those resources cannot be used for something else at the same time? People talk in terms of money being limited, but this is just a proxy for the fact that resources cannot be used for an infinite number of projects at the same time and thus there must always be hard choices. And therefore there is never not an opportunity cost in terms of other activities. This is why economics exists, to explain and consider this reality.
I make it vey clear the5re is an opportunity cost when there is full employment
Until then there is waste
And can’t you see that if there was demand there would be more engineers etc?
Are you fixated with static state economies?
If you believe that opportunity costs only exist when there is full employment of all factors of production then you must assume everything is literally homogeneous and perfectly and immediately substitutable. Ie. an unemployed gardener can immediately be employed as a structural engineer. In which case he would be called an unemployed engineer. Clearly this isn’t the case in the real world. Although an unemployed gardener could (maybe) become an engineer, this would take some years of training and use of other heterogeneous and scarce factors of production to achieve. Scarcity always exists. Even if the only issue is time to retrain, then this generates opportunity costs because in the short run choices must be made whilst waiting for that engineer to be trained. Indeed, economics only exists because transformative processes take time. If any factors of production could immediately be transformed into anything we wanted there would be no such thing as scarcity and no such thing as economics.
So you take an idea that has no known cost (the price of something that will never be done) to firstly explain why something desirable firstly should not be done to now suggest it could not be done
You do realise how absurd this is, don’t you?
I’m not convinced that static state economics quite covers where JamesG’s comments are coming from.
As with a great many of James’s comments a lot of inconvenient facts are ignored in order to make the reality fir the theory. Which is why I think we are dealing not with a technician but a particular type of scientific thinking known as reductionism.
For example the question as to why we do not have a sufficient number of trained engineers is not even considered. Its inconvenient and therefore ignored.
There was a time, not too long ago, when we did have a sufficient supply of trained engineers etc who were available when older engineers retired. It was built into the planning systems across the board from utilities such as water, gas, electric, and telecoms through to the armed forces, local authorities and national government. Even private firms in the post war mixed economy trained a set supply of engineers etc every year to plan into the system for future retirement of previous engineers, who would take those trainees and ground them in the white hot reality of the world to gain the necessary experience. those in turn did the same for the following cohorts of trainees.
But in the name of a philistine and reductionist notion of “efficiency” to please the money men in the City, we got rid of too many engineers etc and opted for a just in time approach to these things in order to “save a bit of money”. Which has turned out to be a false economy. To hark back to Aessop, we have gone for the grasshopper option and stepped on the ant. The result of which being not just a shortage of engineers etc but also a total absence of experience.
Experience engineering management of water being a case in point. Walking near moorland on the Pennines yesterday we went up a country road the surface of which used to be a nightmare until it was resurfaced about 4 months ago using a specific central government funding scheme. One of two culverts taking water off the moorland has naturally blocked up with silt and vegetation debris, flooding the new surface on one side and running down the slope of the road. This is a common site and occurrence because we no longer employ sufficient engineers etc, as we once did, to deal with this.
The new road surfaces will crumble and deteriorate resulting in a waste of money because certain people in decision making positions, bravely supported by the JamesG’s of this world, don’t deem maintenance as economic and, having got rid of the engineers and the experience on the basis of this pseudo scientific voodoo economics their logic also dictates that it would be not just uneconomic to train and employ sufficient engineers etc to properly maintain such infrastructure it would also represent an unspecified lost opportunity cost somewhere else.
Perhap, JamesG, in addition to properly addressing the points made by Bill Lawrence last week which, it is noted, you have singularly failed to do, you might also furnish us with some worthwhile examples of what other opportunity costs might be lost if we spent some money on protecting people from flooding and adequately maintaining our flood defences and managing our water infrastructure, among other infrastructure, in a joined up way.
What other “opportunity costs” would you suggest instead of this James? A Vulcan bomber perhaps? A few Trident missiles? A shiny new mass surveillance system?
I remember the old training boards paid for by industry levies
I proposed their revival in The Courageous State
You misrepresent what I am saying. I am not saying the government should not spend money on something. I am merely saying you are wrong to claim the opportunity cost is zero. Are you seriously contending that every resource used to achieve flood defences would otherwise not be used elsewhere on something else? This is what opportunity cost means That the requirements for resources happen to directly map to only resources that have no current or future demand? This is preposterous and you must surely be the only economist in the world who would think this.
Of course there is some reason for thinking about opportunity cost
But the vast majority of the time we have no idea what the alternatives are and what the cost / benefit is
So it’s a great theory but has very little value in practice for that reason
Knowing that makes me a better economist than most
Dave Hansell, let’s say we spent £100m on flood defences. The opportunity cost of this could be not building George Osborne a gold plated bathroom. Obviously, doing the former is infinitely wiser than the latter. But it doesn’t stop the latter being the opportunity cost of the former. Or we could give the £100m in foreign aid, perhaps building sanitation infrastructure, saving, what, a few thousand lives in Africa? That would be another opportunity cost. Or we could give everyone a tax cut to allow them to buy consumerist tat. It doesn’t matter, it’s still an opportunity cost. Unless you and Richard have some authority to change the meaning of the term opportunity cost away from the generally accepted meaning?
But this is meaningless when there is no either / or
We can do both so what is the opportunity cost, as you would have it?
Yes, the government can clearly do both. When you have £750 billion to spend you can do any two things you want. The government could start a Mars space mission, build flood defences and fund 1% foreign aid. But, it can’t do everything it may be called upon to do. And so anything additional, ceteris parabis, is additional cost.
But as I have pointed out, that is a condition holding true at a point of full employment
We are not there
Therefore your argument is not true
And I have explained to you why and how the belief that opportunity costs only exist at full employment is an erroneous belief. I have explained that it cannot be true unless all factors of production are homogeneous and perfectly substitutable. You have offered no counter argument because my logic is irrefutable. Yours is a limitation of aggregated macro economic thinking. You assume homogeneity and substitutability when you consider the existence of unemployed resources. But real life shows us that unemployed gardeners are not engineers. A stock of idle lumber cannot be used to make concrete etc etc etc. So to say opportunity costs only exist at the point of full employment is empirically wrong. It only holds true in an aggregated model of the economy which ignores factor homogeneity and time.
I assume none of those things
I just do not assume a static economy at full employment
And you do
And if I look at the real world I note my assumptions reflect reality, rather well
I most certainly do not accept a static economy. I recognise that factors of production can, and indeed are, substituted and transformed over time to other uses. And, where transformation is necessary, it is the time element that generates the opportunity costs. If in month of January 2016 you have a total of only 90 engineers working on 90 projects but identify 10 additional projects, then working on those 10 new projects in the month of January will necessitate cutting back on 10 of the original projects. Having 10 unemployed gardeners does not help you in January 2016 to meet your expanded demand.
You are now just wasting my time
Its one hell of an assumption to model into a system unemployed gardeners but no unemployed or underemployed engineers. This is the problem with reductionist thinking, it only includes variables into its models which give the desired result. Like much of current status quo economic modelling it assumes what it aims to deduce and hey presto look, the model “works.”
Your argument does not stand up JamesG because the assumptions you make do not reflect reality. Choosing to ignore the current context of existing unemployed and underemployed engineers does not mean that there are lost opportunity costs in utilising resources for infrastructure like flood defences or land/water management (as per Monbiot’s recently quoted article from 2014) because the existence of such spare capacity (just because we do not employ the numbers we used to does not mean none exist any more, but the window of opportunity is shrinking) actually means that you have got it the wrong way around.
The fact that money is being diverted elsewhere, from offensive level armaments, rentier profits, corporate subsidies etc has resulted in under utilisation of resources, including human resources, to the extent that there is an under utilisation leading to spare capacity whilst there is shed loads of money accumulating in fewer hands (trickle up – which is really a flood) sloshing around and not doing anything useful.
Meanwhile, the costs of the flooding, repair, insurance, lost business, fall in profits and taxes from small, ie non corporate, businesses involved because of this will dwarf the so called savings which were made from cuts to flood defences.
And this, incidently, also impacts in other sectors. The floods in Leeds, for example, have affected telephone and communications links to hospitals in South Yorkshire with obvious economic impacts which need no explaining.
You really need to model your arguments on real world criteria rather than pick and choose only what suits your agenda. As it is you keep falling into this pattern of misconstruing arguments which utilise variables and criteria which you choose to ignore. I’m sure Bill Lawrence is not the only individual frequenting this site who is waiting with bated breath for an explanation of why his point and his argument was “flawed.”
Of course, its not difficult to see why. It was only flawed because you chose to ignore the higher level features of Bill’s argument and model in favour of focusing in on lower level details in order to fit them into a reductionist model of your own. You could not see the wood for the trees and sadly continue to do so.
Dave Hansell. I am not making any assumptions other than that completing a complex project is likely to require resources which are in demand for competing projects. This seems perfectly reasonable. More so than assuming every resource required is currently laying idle and hence there is no opportunity cost to using it.
I’m afraid I can’t remember what Bill Lawrences point is. You must remember than when Richard loses patience with commentators, the ability to respond to points becomes limited by his moderation.
So there would be a bidding process
And the market would adjust to suit demand
Whoopee: that’s what they’re meant to do
Now, the issue is?
No such thing as a ‘free lunch@?%$£!!! You must be joking! The present economy is the free-lunch economy par-excellence!
1) Housing bubble
2) Low interest rates that increase gains to capital
3) Land banking
4) Share buy-backs
5) Sell off of public assets.
What no free lunch. Some of us can remember Fred Goodwin dining at the Ritz (free lunch?), before going to the Treasury for the first bail out.
Simon. Free lunch means no one bears the costs. Crony capitalism is not a free lunch because the cronies pass the cost onto someone else. But you make a good point. If printing money is seen as a free lunch, then the powers that be are better able to justify their enrichment from it, aren’t they? That’s why it is important for economists to explain the hidden costs, instead of denying them.
James G-opportunity cost is the loss of alternative’s when one choice is made and is often not calculable unless we’ are near full employment.
I think your are creating an ‘otiose’ argument here for some perverse reason and are really trying to talk about Pareto Efficiency.
Simon. No, I’m talking about opportunity cost. Not pareto efficiency. And this is mainstream economics, not at all obtuse. As I have shown to Richard, it exists before an economy is at full employment. And just because something isn’t calculable that doesn’t mean it should be discounted or ignored. Evonomics is not fundamentally a mathematical discipline. Very few of the most important factors in economics are calculable.
James g
When will you realise that what you call mainstream economics is just pure undiluted fantasy that makes things claimed by most religions look positively mundane by comparison?
Oh, and if economics is not calculable why is that the only version taught at universities?
Richard
Opportunity cost is taught in all economics courses, but as you rightly point out it is not calculable.
Profit maximisation is also widely taught
And it has never yet happened
Richard,
A question regarding the following paragraph 5 extract “We can have as much money as we need to do a job: we proved that with a £375 billion quantitative easing programme from 2009 to 2012. What is more, at present there is no persistent or long-term inflationary risk from creating that money until full employment is reached”
Isn’t QE effectively a flat tax and therefore completely dispproportionate on the poor? I dont see how you compensate for that particularly when we account for those who have fallen outside of the social security net.
Many thanks in advance.
Ian
QE is not a tax at all
It is money printing
How it is used matters of course: it was deeply regressive last time
It need not be, hence People’s Quantitative Easing
It could be a massive force for social and economic change
Anyone, economist or not, who thinks ‘quantative easing’, or printing money as most people know it, is a solution to anything needs their bumps feeling.
Anyone who thinks as you do does not understand the nature of meony
Yes I understand that QE is not technically a tax but it still functions as such by devaluing everybody’s £s as the total number of £s is increased whilst representing the same total value of the nation.
I agree that what is done with the new surplus of £s is all important, however in the immediate term it takes value out of the few £s that the poor have in their hands (more so now in the post British manufacturing era, thanks Maggie, where goods are more likely to come from outside of the country). Even if the surplus is directed to helping the poor, it just seems to me that many of them will be missed by even the best efforts and thus the net effect will be to make some of the poor even poorer.
Don’t you think making the rich and their corporations pay what they are supposed to pay would easily generate significant revenue which may be used for social purposes without penalizing any of the poor?
Your claim is just wrong
After £375 billion of QE in the UK we have near enough zero % inflation
Why base your whole argument on lies?
Lies? OK. I was just asking a question based on some assumptions that’s all. I’m no expert. QE has surely got to have an effect at some point otherwise you could just print money endlessly and make everyone rich without consequence. I’m pretty sure that can’t happen. However I take it from what you are saying that there must be lag in the system, presumably which can be taken advantage of with economic stimulus/social/infracstructure spending which can then generate growth and negate the delayed impact of QE?
We printed £375 billion (one quarter of the national debt, which is now effectively cancelled as a result) and got 0% inflation
Now I am not for a moment suggesting we cancel the rest with QE
But how do you think printing a bit more is going to create the catastrophe you predict when the worldwide as well as UK evidence is it has done no such thing at all
And since we have now been doing it for years – 20 years in japan – what time scale do you want to consider?
And when will you conceded you are just peddling a silly myth if QE remains within any credible boundaries – as I would strongly suggest it should?
why are you talking to me like a dickhead? Thanks for nothing. I recommend an attitude adjustment for 2016 mate.
I am challenging your assumptions
Nothing more
I am quite entitled to do that
Maybe the first thing that Labour should do is give compulsory training in the basics of economics to all new MPs at Westminster. Perhaps they should also promote within that training the kind of economics that benefits the basic needs of ordinary people rather than the kind that suppresses them.
May I ask a simple, non economist, question?
Where is the 300+ billion now? If it was printed, where did it go?
On the proactical side, I have seen, in a number of places where flooding is an issue, the use of a simple slot on the sides of the front door into which fits a steel plate with seals on the sides. This at least stops the flow of water into the hallway, up to the depth of the plate.
That money has largely fuelled house and share price inflation
That is why QE as we have had it has not worked
People’s Quantitative Easing would direct money to real job creation and so growth in wages, output and well being
So, if I understand you, the money went into banks? They didn’t invest it in job creation, why?
Because they prefer to lend for asset bubble creation
If all you say is true, why do we bother with austerity cuts at all?
Because some politicians want to shrink the size of the state believing it will deliver a tiny proportion of society significant personal gains
Simon Danczuk has no economic understanding, nor any particular economic policy opinion: he merely speaks whatever words are calculated to gain advancement in the party, approval in the press, and focus-group predictions of a better voting share.
If there is anything damning in all this, it is that Danczuk’s calculation of advantage is probably correct on all three counts.
Dancuk is one of the so called “moderates” so he has become a right wing motormouth and will at some stage put himself up as the stalking horse candidate. His behaviour is specifically designed to embarrass the party and he wants that confrontation so that he can have his moment of “martyrdom”. Part of me believes the best way is to ignore the little twerp and the others who a few days back were claiming Corbyn had also ruined their Xmas. No responsibility there then!
I believe there is a place for Blairites in the party – we need an alternative view within another party. I was in the Labour Party in the 1980s and left because people were more interested in the right on causes such as Nicaragua rather than understanding and winning the economic arguments which made us unelectable (I rejoined about 2 years ago) back then.
Why the Blairites have to accept they are not fit to run the party now is:
*Their agenda has lost the last 2 elections
*No one during the last election had the backbone to fight the lie that Labour had caused the crash based on the idiot Liam Byrne’s “bad joke”.
*Labour (all sides of the party bear some responsibility here I suspect) did not understand what was happening in Scotland.
*The vote to support (changed to abstain although i’d have preferred oppose) the Tories welfare cuts by three of the four candidates lost the Blairite camp the vote. We are here to represent the working classes. I acknowledge we need to be economically credible but the arguments offered here were appalling and Burnham, Kendall and Cooper paid the price.
*The leadership election (and the rules must be changed as Corbyn only just got on the ballot paper) showed that the membership has moved on. Keep on making the Blairite argument in a dignified way and the members might start listening but shrill “persecuted moderates” such as Dancuk really don’t have any credibility.
Sorry just realised this is not really economics but I just wanted to get that off my chest!
You’re welcome
Simon Danczuk’s arguments are nonsense even under conventional economics. Even if you did not want to increase the deficit, he assumes that we must make a single choice between foreign aid and flood defences, as if this is the only spending or revenue decision which government controls. Of course there are other budgets that could be cut, and/or taxes that could be increased or not cut. Anyway, the amount of money saved by cutting flood defences is a false economy, since surely the costs of the floods outweigh it.
“since surely the costs of the floods outweigh it.”
Estimated at 5 billion at present by KPMG with thousands of bankruptcies expected due to under/no insurance-perhaps having reliable flood defences would have reduced the premiums.
Mind you, all that money going to the insurance sector is right up the Tories’ street.
Not to mention the likelihood of those unnecessary (prevention being better, more effective and efficient, than cure) costs being counted as positive inputs into increased GDP figures further down the timeline during 2016.
Excellent point Dave
Nothing like money wasted clearing up an avoidable mess to boost GDP
Good point Dave…..at the margins, war is the ultimate GDP saviour. We need the ‘moral war’ mentality (as Pascal put it) without the weaponised version -fat chance of that with present set of politicians.
Just an aside here – have you listened to Steve Keen on PQE?
In spirit and understanding of the mechanics of the creation of the money it seems right, but I thought in terms of distribution he made it sound more like helicopter money than investment in jobs and housing. Though would this be a wrong approach, or would it help alongside the investment?
https://www.youtube.com/watch?v=-f0ndVNbDO8
Steve and I disagree on this one
I think he should use another name
He is not describing PQE
Such comments from Danczuk and others are another indictment of the effect that two party politics has on the messages and policies that those two main parties and their local MP’s/candidates try to poach from each other and the minor parties in order to win votes and get elected.
In their desperation to get into power they will say almost anything if it wins them a few extra votes in their local constituencies without alienating their loyal supporters.
Instead of having more (and smaller) political parties that clearly stand for what they believe in and always say what they think, you get this blurred mush of verbal diarrhoea which leaves most people so completely confused and disconnected that they no longer pay attention to the policies the main parties claim to espouse and just vote according to some vague sense of class loyalty and self interest.
I’m sure you don’t read the Sun Richard but Mr Dancuk does seem to have some unfavourable coverage there this morning.