The government announced yesterday that they are willing to take a stake of 25% in Tata Steel and make loans of hundreds of millions of pounds. Almost inevitably Radio 4 was discussing this use of 'taxpayers money' by 5pm.
So let's be clear, this argument that RA payer's money us being used is nonsense. The money that the UK government will use for this purpose will be raised via bonds. We can be sure of that: the UK government is running a deficit. Any extra spending will be bond funded and will not be paid for by taxpayers.
What is more taxpayers will never repay those bonds: the national debt has net increased for more than 320 years and despite George Osborne's claim that he will run a surplus, and so repay bonds, by 2020 there is not a hope of that happening.
And even bonds need not be involved: the Bank of England, or a related National Investment Bank (which I have long argued for) could simply loan this money to the new operation and the Bank of England could create the necessary funding out of thin air, just as all other bank loans are always created in this way.
In fact even the interest on the loans will not be a cost if the new Tata can't afford to pay it: since we will run a deficit for the foreseeable future then that will also be covered by borrowing - and people have always queued to lend the givernment money.
In other words the Tata investment is in fact not a cost, it is an exercise to liberate potential in the economy by creating new credit. That does not mean I am saying we should be indifferent to the costs and benefits of funding the Tata steel operations into the future: doing so by way of credit creation only makes sense if this is the best way to liberate the capacity the UK economy. There are choices to be made about how credit is used.
But, I stress, this credit is not created at cost to taxpayers and it's about time the nonsense that suggests it is comes to an end.
Radio 4, please note.
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this credit is not created at cost to taxpayers
Whereas, of course, the cost of paying benefit to 15,000 redundant steelworkers would come out of the pocket of the taxpayer? But they’re only labour, not capital, so they don’t count
Richard, perhaps the next time you appear on Radio 4 you could drop these points into the conversation.
It’s heresy for now, but the more often that the truth about sovereign money creation appears in mainstream media, the more the message will drip through until it can no longer be ridiculed, and the disingenuous “government as household” narrative can be discredtied as the rubbish that it is.
It will take years to bust the ‘household’ myth as the crappy MSM repeat it in Pavlovian fashion. We know money comes from nowhere because that’s what Banks do and that’s what Government does except it makes the accounting look like its bonds that pay for it.
here’s Kalecki on the way bonds work and don’t really ‘finance’ anything:
‘
‘” it is best, I think, to imagine for a moment that the government pays its suppliers in government securities. The suppliers will, in general, not retain these securities but put them into circulation while buying other goods and services, and so on, until finally these securities will reach persons or firms which retain them as interest-yielding assets. In any period of time the total increase in government securities in the possession (transitory or final) of persons and firms will be equal to the goods and services sold to the government. Thus what the economy lends to the government are goods and services whose production is ‘financed’ by government securities. In reality the government pays for the services, not in securities, but in cash, but it simultaneously issues securities and so drains the cash off; and this is equivalent to the imaginary process described above. ‘
Great insight there!
Yes, Bill Mitchell says the same thing – “government spends simply by crediting a private sector bank account at the central bank. Operationally, this process is independent of any prior revenue, including taxing and borrowing. Nor does the account crediting in any way reduce or otherwise diminish any government asset or government’s ability to further spend…..net government spending is required to meet the private desire to save……..
When the government issues debt, all that happens is that the banks reserves are reduced by the bond sales. This does not reduce the deposits created by the net public spending.
….So net worth is not altered. What is changed is the composition of the asset portfolio held in the non-government sector”.
So both bonds and electronic cash are private wealth created by government, which borrows money it has previously created.
I totally agree with you and fellow posters here.
They had someone on the news last night from the Adam Shite Institute – another young recruit deluded by unproven neo-lib theory – banging on about this.
My worry with the mooted management buy out is how much borrowing such a structure might arise and the effects of the repayments on the viability of the remaining business.
To cast these workers into the jaws of the financial sector would be immoral in my view.
The Business Secretary Sajid Javid – what is he there for if not to protect British sovereign business interests which also means workers who are voters?
Is Javid’s job just to walk around looking like
…Yul Brynner?
As in “Westworld”, gunbelt-and-all?
The gun toting android from Westworld except he’s firing blanks!
or a ‘shyster in a £1000 suit’?
” … the national debt has net increased for more than 320 years ….”
What an amazing fact!
On which basis, there is no need for any taxation if the government can print call the money it needs.
Yes there is
Tax cancels the money spending creates
It’s really very obvious
What about the opportunity cost of all the resources used to maintain Tata? Is your contention that only otherwise unemployable resources are required?
Read what I said
But please also explain what the cost is when as an economy we are so far below capacity?
But if there has to be taxation to cancel the money that spending creates, then surely extra spending (e.g. on Port Talbot) has to be mopped up by extra taxation? Or at least a proportion of it has to. So doesn’t that mean that such extra spending will cost the taxpayer after all?
I’m not sniping here – just trying to understand your view.
Port Talbot is investment via credit
A different beast
And anyway, you may have noticed we have no inflation so we need more spending
More transactions will always mean more taxation, as each transaction will incur tax.
But more transactions is a good thing.
My analogy for Andrew Chitty is that the economy is swings and roundabouts forever in perpetual motion. The Tata steel sales = money into the exchequer, the management salaries = taxes to the exchequer, the wages of the workers = paye, again = taxes to the exchequer, money spent with those wages = economic spend and VAT = money to the exchequer, the sales from the workers spending = economic spend. Government bonds are investment based lending which will be repaid by services in exchange. Whereas, the non existence of Tata steel would be 40,000 workers/economic spend/taxes to the exchequer would cease to exist and instead JSA, Child tax credits, HB and all manner of welfare benefits would increase massively, no money to the exchequer only government spend increase. The former scenario works better, the second, not at all in any one’s favour.
Richard, is this not a representation of one aspect of PQE, however unrepresentative it is – but it is an investment in the 15,000 jobs at Tata and the other 25% involved with Tata directly/indirectly and the hopeful return this will bring? Although not quite a shovel ready that you have advocated, it is still a move in that direction is it not?
If done properly this could be PQE – yes!
Worth a watch – Panorama – Is Steel Worth Saving?
http://www.bbc.co.uk/iplayer/episode/b0795xhv/panorama-is-steel-worth-saving
Depressing perspectives from the right
Mark Littlewood looked somewhat uncomfortable spouting his free market mantra in a Port Talbot working mens club. It looked like he was more concerned about getting out alive!
I can think of a few more mouthy right wingers who should be thrown into the lion’s den more often to shake them out of their comfort zones.