This post is by Peter May and is cross posted from Progressive Pulse, where it appeared yesterday, with permission:
I thought it worth flagging up these two, short well-written pieces from Australia on how politicians should be answering the question “how are we going to pay for it?”
The only improvement I'd suggest is that ‘the politician' fails to point out that the private banks create new money whenever they lend — yet somehow this goes unmentioned so the implication seems to be that this never creates any inflation. Hence, when the government creates new money we are always going to end up like Zimbabwe or Venezuela but never, ever when the private banks do it. Pehaps the thinking is that this would be too much for one interview session — but if your'e going to change thinking I'd argue you've got to do the job properly.
And then there is how the politician should be explaining taxation:
Here I think the politician should mention that when fiat money is created it is always created out of nothing. That's what fiat money is. The alternative is specie money — which is, in effect, back to the gold standard. Surely the interviewer isn't proposing that?
These small reservations aside, I think the articles are worth bookmarking. They are both simply put and thus widely enlightening.
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Posted on FB tagging some innocent (won’t say ignorant) FB friends. Thanks.
Yes, it’s great that we have the Murphys et al to go into the more detailed arguments for a change in the thinking about money, spending and taxation. But we also need those points expressed in the more concise, easily-digestible way these two articles do. You can comfortably imagine yourself using such phraseology to folk over a pint or a coffee. I’m going to pass them on to my political pals to use.
Incidentally, why not think up some phrases of our own to counter the emotive ones of “the opposition” eg when they say “free market” hit back with “loaded dice market”. (Spot the retired tabloid journalist.)
Keep writing them
Do me a nice box – ‘they say’ and ‘we say’
“free market”, as in “free lunch”. Neither really exists.
Thank you Richard – as you say, well written and succinct.
I was banging my head against the wall in a ‘discussion’ on the Graun on the issue of the creation of money, with my opponent insisting that the vast majority (90%+) is created by the private banks’ lending (your suggested improvement/by-water that the original piece might usefully have explored) through their (famously cautious!) risk assessments. Can you help/point me in the right direction on that point?
This is a bogus Positive Money number
It assumes all electronic money is created by banks and only cash by the government
That ignores that the government owns a Bank – the BoE – and the fact that the BoE regulates all the banks in what they do
So in effect all electronic money is created under government licence
Will this corrected thinking be incorporated into economics, business studies, financial services and banking exams in the future, I wonder? A cynical thinker may well reach the conclusion that the current misinformation is presented to keep the little person in his/her place!
Some of us are trying….
It can be hard work
“A cynical thinker may well reach the conclusion that the current misinformation is presented to keep the little person in his/her place!”
No need to be a ‘cynical thinker’ about the truth. All top-down ‘ideology’ (political, economic, religious, educational, etc.) is designed to repress the free-will of individuals in order to keep them subservient and dependent. It’s the only way any power hierarchy can retain its authority. Smart ‘rulers’ dish out just enough goodies, e.g freedoms, money (credit) & stuff, to keep the peasants alive but needy. Was it ever thus …. back thru’ the annals of time. The sophisticated development of consumer marketing over the last 100 years has made it so much easier for them to capture the hearts and minds of populations without having to resort to force – tho’ it’s still a weapon in their armoury (viz. the militarisation of the American police). People just need to wake up!
Will try to spread this wide.
This needs to be spread to the Today programme, Question Time, BBC News, ITN, Channel 4 news (actually the latter might be getting it)…it’s infuriating how often they propagate (even if inadvertently) the same old rubbish. I do not understand why they persist?
The public are smart enough to grasp the basics of this concept. It really is not difficult. What’s more, the more minds that are attuned to the reality of government spending and tax will mean it gradually becomes harder to peddle nonsense, and pave the way for some intelligent, balanced and constructive debate on how best to implement government spending and tax reform.
Is that too much to hope for?
Richard,
Interesting ideas from down under!
It seems to me though that the way for intelligent and well informed politicians to answer the question “How are we going to pay for it?” , is not to get bogged down in questions of money creation, but instead to focus on what it means to pay for something.
When we allocate some of our finite resources to create one thing, it always and everywhere, for individuals, households, companies and governments, means that we have to forego something else that we could have had, to the same degree of resource use. When the government decides ( prudently and rationally) to build a bridge here, it cedes the possibility of building a bridge there. This remains true regardless of the number of pictures of the queen there are in circulation, or how many electrons are attached to a bank account.
Then the issue becomes for the politician, “What resources do we have that are under-utilised? Engineers, bricklayers, welders? These are the finite and valuable resources, and we can’t fiat them into existence”.
When there is underemployment that is not true
Q. “How are we going to pay for it?”
A. QE. But for businesses not the banks.
(Or is that too simplistic?)
I’d amend it to QE for the rest of us rather than for business (QE was originally supposed to ease the path for banks to lend more to business!) – so it could be for the NHS or education or even to reduce private debt.
I explored a similar idea a while ago by suggesting QE for the NHS http://www.progressivepulse.org/money/make-mine-quantitative-easing-please.
Progressive Pulse is always a good read with some very interesting and thought provoking posts. Sean Danaher’s take on things (especially Brexit) from an Irish perspective is essential reading.
Australia is an interesting example. They have a public enquiry (Royal Commission) which is exposing misdeeds of the banks.
However they also have a lot of wasteful public spending and a political class which has allowed a historically epic credit bubble to inflate Australian household debt to record levels. When this ends up with the public sector, suchan approach as to government debt won’t look so flash – just as it was in the 1990s.
Richard Dimbleby’s son : “How are you going to pay for it?”
Politician: “I’m not going to pay for it, you are.”
Which is as wrong as it gets….