It takes some pretty perverse logic to produce a headline like this:
The FT does, however, manage it this morning. Merryn Somerset Webb, who is the editor of Money Week, argues:
The desperate attempt to avoid deflation via quantitative easing and record-low interest rates has had horrible side effects, and this observation is hardly controversial. The rich have become much richer; corporate wealth has become more concentrated; soaring house prices have created intergenerational strife; low yields have made all but the super-rich paranoid that they will be entirely unable to finance their futures. Most markets have ended up overvalued (this will really matter one day), while pension fund deficits and a constant sense of crisis have discouraged capital investment – and have possibly held down wages in the UK.
Following which she argues that:
The Monetary Policy Committee could dig out a list of excuses not to raise rates despite the last GDP growth numbers being rather better than expected. Raising rates will do harm at some point (asset prices will fall and the indebted will suffer). But not reversing is beginning to look like it could do more harm. Unless, of course, you are a billionaire.
What flows between her headline and the two noted observations does not seem to matter greatly because whilst it is clear that Someset Webb does get the fact that QE creates significant negative social consequences, as I long ago predicted, the essence of her argument is that these can be resolved by increasing interest rates.
In other words, the argument is that increasing the pressure on those who borrow (i.e. by and large those without capital or wealth) by requiring that they pay more to those who lend (i.e. those who have wealth) will somehow reduce social pressure in society and restore well being to the majority and send a lesson on greed to the world's billionaires even though their incomes will be increased as a result, inequality will rise, more who are clinging to solvency by their finger tips will go bust, house foreclosures will increase, and the pressure on social safety nets will increase considerably.
As a lesson in perverse logic this takes some beating. Call it callously incorrect if you like. I think that's about the best term I can come up with.
And in case you want to really know what to do the answer is
a) Introduce a wealth tax
b) Increase top income tax rates
c) Increase the supply of social housing
d) Challenge the legal status of offshore trusts and require at source tax withholding from all payments made to them
e) Increase large company corporation tax rates
f) Create an alternative minimum corporation tax requiring at least 15% payment per annum in a group basis
g) Increase capital gains rates
h) Require that land banks be used or be sequestered at undeveloped value
i) Reform banking to provide people focussed local banking services
j) Provide incentives to save in such banks not available to larger institutions
k) Introduce or extend financial transaction taxes
l) Introduce land taxation
m) Fund a universal basic income.
I could go on but my point is clear: we do not need an interest rate rise to benefit billionaires.
And nor do we need to unwind QE to suck money out of the economy to no productive gain.
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Thanks for reading this for me. I refuse to read her column as I detest hard right commentators who’ve had any social empathy surgically excised. Where’s my pitchfork?
Richard I go with you on most of this but Income Tax and Corporation Tax are now optional for the wealthy – and have been for some time. Given that Universal Basic income is inevitable can these taxes not be replaced with a Universal Transaction Tax? Possibly with two rates; [1] All Goods, Commodities, Services incl. Commissions and Wages [2] Financial Investments – Pensions, Stocks and Shares, Bonds, Derivatives.
We have been here before
a) These taxes are not as optional as many like to claim – although are open to manipulation by the extremely wealthy
b) Whilst I firmly believe in universal transaction taxes they do not replace progressive income and capital taxes. They could replace NIC alone
Billionaires become billionaires not by following the market but by making and moving it.
I thought you said we should be doing more QE, and that there were no negative consequences?
Then you clearly have not been reading what I have been saying
I’ve seen you sa y repeatedly that QE should be extended, and that 50bn a year of “people’s QE” would be fine with no negative consequences.
Are you now saying that QE, including people’s QE would have negative consequences? If so, what would they be?
Or are you saying that regular QE has consequences and people’s QE doesn’t?
You rely have comprehended nothing
If you think QE and People’s QE work in the same way you have a lot of reading to do, I suggest
I do not need to rewrite it all for you
I have been reading what you are saying. But you seem to think that one form of QE has negative consequences and the other (yours, funnily enough), doesn’t. I get the feeling that your thinking is hardly joined up – in your article above you say (about normal QE):
“QE creates significant negative social consequences, as I long ago predicted”
but then also say:
“And nor do we need to unwind QE to suck money out of the economy to no productive gain.”
So you can’t even decide if normal QE is good or bad by the look of it. It’s no wonder you can’t tell us if people’s QE would have negative consequences or not – not that you would as you seem to be proud of the idea that you gave money printing a new name.
Like many who try to comment from a right wing perspective here I can only conclude that you suffer an impairment that means you are unable to appraise more than one issue at a time, or work out the consueqnces of one issue on another
QE was a mistake
That does not mean that unwinding it, which would have quite different consequences, would be the right thing to do
And PQE, which invests in productive economy and stimulates real economic activity, does unsurprisingly have very different consequences to QE which promotes speculation
If you are unable to see that then you are wasting my time
My understanding in simple terms is:
Standard QE as implemented in the UK was all about the BoE printing money to help finance the National debt, executed through Gov bond purchases via the secondary market. It’s effect was to produce asset prices inflation, making the rich richer.
In Green QE the BoE prints money and buys “housing bonds” (money is used to build social housing), “Investment bonds” (money is used to invest in green and other industries), and other productive investments via the National Investment Banks which boost economic activity. Hence it leads to GDP growth, investment to improve productivity which should help wage growth, and make us all richer.
Pretty good summary
Might as well get rid of S&S ISAs as well for higher rate payers if not all payers. Barclays and Hargreaves have over 200 ISA millionaires between them.
I would abolish ISA relief except for very specific funds….
Ah yes like social housing or muni bonds etc?
Yes
I think that Webb has fallen for the old lie that debt is still made out of the hoi pollois’ savings when in fact we know that household savings are at their lowest levels for decades. This also ignores the fact that (1) banks make debt out of thin air and (2) the rich ‘invest’ their money to be used as debt.
It must be a requirement these days to be so badly educated in order to work in the media.
It is possible that this topic needs some further consideration if only just a little.
To begin with: “those who borrow (i.e. by and large those without capital or wealth)”. Is that true? Is it not that the case some of the most highly leveraged folk are speculators with massive wealth?
Also this: “requiring that they pay more to those who lend (i.e. those who have wealth)”. Is it not the case that borrowing expands exponentially as interest rates decline? Overall, households end up paying much more to the banks in absolute terms when interest rates are lower.
Richard, you seem to be of the view that with interest rates, lower is always better, and have said that that you are “with Keynes” on this one. Fair enough, I get that. On the other hand, however, we find that there is an undisputed relationship between low interest rates, asset-price bubbles and housing affordability crises.
I think it may be the case that you could possibly have permanently low rates in a more Keynesian economy but very low interest rates and neoliberalism are not compatible. More specifcally, very low interest rates and “financial de-regulation” are not compatible. If one is to advocate for lower rates generally one might also require some appropriate regulatory proposals.
I hoped to find time to reply
But it’s been a nightmare of a week or so for work
I have failed
[…] You cannot harm billionaires by raising interest rates, whatever the FT might say http://www.taxresearch.org.uk/Blog/2017/10/28/you-cannot-harm-billionaires-by-raising-interest-rates… […]
Hello sir, I appreciate your policy recommendations and agree with many of them, but your arguments here are totally fatuous.
A critical point is missed here – this is that the proportional spread between real rates paid by very creditworthy and less creditworthy borrowers is greater at lower Fed funds rates. Enter margin lending…
It goes like this: people with assets borrow against their assets at low rates, to buy assets with higher rates of return. Then, with increased collateral, they do it again, then again, then again…
Now this is always going to be possible, but the rate at which margin lending helps the already rich to become more rich depends on the spread between the rate they’re paying on the margin loan, and the rate of return of whatever asset they’re buying, say a bundle of home mortgages of people who are less creditworthy. At higher fed funds rates, this spread is proportionally smaller.. as an example, 4% is 4 times 1%, but 8% is only 2 times 4%.
So it is very true that lower rates give the already rich an advantage, because they can still grow their portfolios fairly rapidly using margin lending, while less creditworthy investors cannot utilize margin lending to nearly the same degree.
Also, where you say “…the argument is that increasing the pressure on those who borrow (i.e. by and large those without capital or wealth) by requiring that they pay more to those who lend (i.e. those who have wealth) will somehow reduce social pressure in society and restore well being to the majority and send a lesson on greed to the world’s billionaires even though their incomes will be increased as a result”, you completely ignore the reality that when rates go up, less gets borrowed… if less is borrowed at higher rates, there is no guarantee whatsoever that the incomes of creditors will increase, at least in the medium and long term, which is what matters when we’re talking about the long term direction we’re headed with inequality.
I hoped to find time to give a detailed reply and I have failed
You’ll have to trust me: at so very many levels I think you are wrong
Sometime back in 2006 I once thought Somerset Web was a reasonably sensible person. Now I think she’s living in cloud cuckoo land with the unicorns. What incredible drivel her piece is for all of the reasons you have highlighted Richard. My immediate thought was that the only people who will be harmed by raising interest rates are the majority of people who have been forced to built up the £1.7 trillion of national debt to be able to fund their every-day living expenses, in order that Osborne and Hammond could reduce the deficit. The necessity of deficit reduction is another scurrilous fiction that you have highlighted.
I thank you for your continued work in pointing out the deceits of our govenment and economic system.
We live in a time of lions being led by asses.
Thanks
Ditto, Claire. Back then she wrote a column about LVT. I seem to remember having an exchange with her about how she’d cottoned on and told that she had met someone I used to know who told her all about it. So I took some interest then on what she had to say. As you say, it’s all just drivel now.
I was musing on this this morning Claire as I put out the washing.
Since 2010 the Tories have got to be the worst Government we have had in the modern era. They have learnt nothing from Thatcher’s mistakes in the early 80’s and have gone much further. They – when you think about it – are nothing but free market extremists who have actually caused harm by enforcing the holding back and removal of state financial help (thus causing suicides) for the vulnerable, got rid of really useful jobs in the public sector for no good reason whilst presiding over the further handing over of common wheal assets to the already rich.
I have to say that I cannot think of one redeeming feature for any of them. I am not comfortable saying stuff like this because I am at heart a rationalist. And in saying what I have said I realise that I am in the throes of dehumanising them – a common thing we see when a country is about to go to war with another.
But you see, they will not listen to anyone outside of their limited power structure. May is reported as listening to her financial backers that ‘no deal is better than a bad deal’. For example, the Government has printed money for financial sector QE and for the DUP and instead of just printing money for BREXIT and getting it over with, argues over it instead to an impasse and then calls the EU ‘intransigent’.
Reading the papers today, opinions about BREXIT do not seem to have moved. My opinion is that too many people blame Europe for the downturn in economic performance and the immigration problem. Yet it is this bunch of Tories at home using our much vaunted sovereignty who are hurting the people of this country by not printing enough of our own currency or misallocating it if they do.
And the immigration crisis is actually an EMMIGRATION crisis created by countries like America and Russia and others (not the EU) whose raw material ambitions and interference has caused huge instability so that people feel quite rightly that they must move to somewhere safer. And if you had children – why wouldn’t you want to get away from danger?
And yet the main BREXIT proponents in the Tory party just sidestep these facts day in/ day out. And too many folk lap it up.
If Eric Hobsbawm were to write a short history of this period – I wonder what he would have called it?
‘The Age of Mendacious Cruelty’ perhaps?
The trouble hardly any of them of any party – nor MEPs, nor Commissioners – have a blooming clue how the monetary system works. The vast majority of politicians, journalists, bankers, economists, accountants are utterly in the dark. A prominent banker recently told a prominent solicitor friend of mine that less than 100 people really understood our monetary system. Steve Keen [modern clued up economist, head of Kingston University] recently said that most economic text books that are still being taught should be relegated to the top shelf beside Winnie the Pooh!
He’s right
But Steve gets it
As do more than 100 people
But many fewer than are required
Richard
I’ve to give a talk on wednesday to our local [social] investment club on our monetary system! Been researching it for 10 years since RBS defaulted on us on £1.3m funding. By 2012 I thought the only solution to private and public debt was 2 decades inflation at 6-7% then I found out how money is/was created. Trouble is central bankers still haven’t learnt – or are in denial [vested interests?] – and are still trying to create inflation with misguided ideas.
Good luck
Richard,
My comment above (October 28 2017 at 10:05 pm) seems to be stuck in an unmoderated chronological limbo between comments that precede it and those that have been written afterwards.
Which is unusual. Its your blog of course, you can do what you want with it but I just thought that I would bring that to your attention in case there was an oversight.
I was trying to find time to respond
And I still am
OK. Thanks.