Over the last week there have been two proposed changes to the obligations of the Bank of England. First of all, John McDonnell received a report suggesting that the Bank of England should keep its current structure, but have an additional obligation to promote productivity within the UK economy. Then, without prior warning or consultation, Philip Hammond and Mark Carney reached agreement on a new structure for the management of the Bank of England which grants the Bank independence whilst giving it, at the same time, the authority to intervene within the economy at unprecedented levels. In my opinion, both proposals are deeply unsatisfactory. In that case it is time to stand back and ask how UK economic policy should be managed, with what objectives. Given that I think that any policy on this issue should be widely understood, I will try to avoid technicalities.
The objectives of economic policy
There will always be quite appropriate political argument about the objectives of economic policy. However, few would dispute but most political parties hold many objectives in common including:
- Full employment;
- Growth;
- Environmental sustainability;
- Low inflation;
- Low trade imbalances.
There are, of course, inherent conflicts between these objectives. Many would argue that growth and environmental sustainability are incompatible, whilst others would argue that there is a trade-off between full employment and low inflation. Redistribution will also be a priority for others. These conflicts are precisely why detailed interpretation of the objectives of economic policy is necessary: if everything was glaringly obvious economic management would not be required.
Others would also argue that there should be objectives stating that the government should balance its books and taxation should be kept low. I do not agree. To suggest that these are objectives of economic policy is to confuse strategic goals with the instruments that the government has available to it to deliver them.
The instruments that the government can use to deliver economic policy
There are remarkably few instruments available to the government to influence economic policy within a democracy. Beyond political persuasion, they are:
- Tax system design;
- Targeted tax yield;
- Specific spending objectives;
- Total government spending;
- International capital controls;
- The base level of interest;
- Banking regulation, including on lending.
Each of these could be explained in greater detail but in essence they are all the weapons there are in the armoury. And when it comes down to it, they all come down to one thing, which is controlling the amount of money flowing in the economy.
Money flows and their regualtion
As Charles Adams explained on the Progressive Pulse blog, there are only two ways in which money can be created within the UK economy. The first is that commercial banks can lend that money into existence. Private debt is created as a result, and the borrower then has the obligation to make repayment of the loan that they have taken, plus interest and charges, which provide a bank with its profit. As the money in question is repaid it is destroyed in the sense that the promises to make payment that created it, and which identify the existence of money, have been fulfilled.
Secondly, money can be created by the government injecting it into the economy. This money, which is created on its behalf by its own bank, which is the Bank of England, is then cancelled by way of taxation. This is how the government fulfils its promise to pay: it accepts the money it creates in settlement of tax liabilities.
It is my suggestion that the only mechanisms that the government has available to it to control the economy come down to controlling these two flows of money.
So, for example, control of the interest-rate and banking regulation on lending are primarily intended to control the flow of private funds into the economy by regulating the total volume of private debt, which is the source of bank created money.
In combination, the difference between total government revenue in total government spending regulates the amount of money that the government injects into, or withdraws, from the economy.
And capital controls, if they exist or are used, are intended to regulate the flow of funds into an out of the country in its own currency.
Why regulating money flows is important
Regulating the flow of money is important. If there is too little money in an economy a number of unfortunate consequences arise. First, a lack of credit will restrict the level of trade, and so growth, with resulting unemployment. Second, the same lack of credit will reduce investment, with the same overall consequence. Third, this may well result in deflation, which is at least as economically unattractive as excessive inflation as a result of the instability that it creates. Fourth, the economy will work at less than full capacity and essential services will not be supplied. Fifth, in real terms, the repayment of debt becomes more onerous.
Too much money also creates problems. An excess of available credit creates booms in private debt, some of which often proves to be of poor quality as a consequence, and banking crashes can result as happened in 2008. If excess credit is created so too can excess demand be stimulated. This can then result in inflation, the control of which is hard to achieve. The excess of private demand can also mean that there is a shortage of available resources for the delivery of essential services. The economy becomes unbalanced. Those owed money realise less than they expected in this situation: lending becomes more expensive as a result. The consequence is a 'boom and bust' scenario. If this is not synchronised with activity in other economies then capital and trade imbalances result.
The aim is then to deliver enough cash to the economy to stimulate sufficient economic activity to create full employment at relatively stable prices, with steady but sustainable growth which reflects the underlying need for fundamental change in the economy to a low carbon base, with credit being made available at affordable prices to those who can repay it, and with government making good any shortfall in the money creation process that this results in by running a necessary deficit to ensure that the combined demand for new money created by growth and inflation are met.
How to achieve the goal of appropriate new money creation
There is no one way to achieve this goal of new money creation: there are too many variables in the equation for that to be true. Equally, the government is able to influence most of those variables, simultaneously. What this means is that economic policy has to be based upon a combination of monetary policy, which has the aim of regulating the money flows in the private banking and commercial and domestic borrowing sectors, and fiscal policy, which has the objective of delivering sufficient new government money into the economy to assist the overall achievement of economic goals whilst delivering the public services that the government has been mandated to supply. There is no case for saying that one is obviously superior to the other: both create money flows and both, therefore, have equal significance if the overall objective of economic policy is to be achieved.
It is also the case that if both policies are to be effective, and both have the eventual same goal of controlling new money flows, then they must be controlled together: it is impossible to achieve the overall goal if each is subject to separate supervision. That also makes it easier to recognise that there are occasions when one policy may be of more use than another.
For example, in a booming, private sector growth led and credit fuelled economy then it is almost certainly the case that the government will want to prioritise monetary policy to control the economy. It is likely that it will be appropriate to restrict the availability of new credit to constrain inflation. At the same time, it is at least possible that a government may wish to run a surplus because the tax available to it will exceed its capacity to spend within the physical constraints of the economy in such a situation. Those policies, in combination, control the availability of new money supply to the economy, to constrain growth to the point that it is sustainable. But it is not just one of these actions that will be required; both will need to be considered simultaneously.
In contrast, when there is a shortage of demand in the economy, bank lending is relatively low, and investment is likewise below the capacity that the economy could sustain, then interest rates might be so low that any change in them is virtually ineffective in creating new demand. This has been the overall situation since 2008. In that case monetary policy is likely to have very little impact, and so fiscal policy has to take priority, with the government running a deficit to create the new money that is required to stimulate the economy to increase demand to create full employment and bring the overall level of economic activity back to a sustainable capacity, whilst at the same time running an economic policy that delivers the process of change towards environmental sustainability that is an essential feature of modern economic life.
The control of money creation is not, then, a job for a central bank in isolation, or a Treasury in isolation if it only has control of fiscal policy, but is instead a policy that has to be coordinated from one central authority. Given the essential political nature of the activity being undertaken, this must be under democratic control. And that means a Treasury must be in control.
What is the role of Central Banks in that case?
If the central bank cannot undertake economic policy, because it is not under democratic control, the question has to be asked as to what role it might have in a truly integrated modern economic policy that appreciates that the control of new money creation, from wherever it might come, is at the core of economic management. There are still three essential functions for it. The first is to act as the government's banker, creating for it the opportunity to inject or withdraw money from the economy, overall. Second, it can act as the regulator of commercial banks, and is ideally suited to this task. Third, it can advise on interest-rate policy, but not have the final say on the issue.
And what is the role of a Treasury?
In a modern economy where the proper nature of money is understood and the government has objectives of the type that I noted at the start of this post, then the Treasury has to be in control of economic policy. This means that it must control interest rates as well as be fully aware locations of its own fiscal policy. Coordination of economic policies is impossible in any other situation.
In that case it has also to make clear what its economic objective is. This would require interpretation of the five possible economic goals I have noted. So, for example, the tolerable level of unemployment should be stated. An inflation target should be set. A target for carbon reduction has to be established. Trade imbalances have to be tackled, either through a tacit exchange-rate policy or through a policy of productivity improvement, since this is the main driver of imbalances in the sector. The result is a growth target. And to make that target meaningful it should be expressed in a way that people understand: I would suggest that it be stated as a change to median income because this then implies that consideration of the distributional aspects of any policy is a fundamental element within their design.
The resulting policy statement will, of course, be more complex than the setting of an inflation rate target, but this was always simplistic and in itself gave rise to indifference to key factors within the economy which created instability in their own right. If a broader-based target had been in existence the probability of a crash in 2008 would have been reduced.
Economic policy is not simple. There is nothing to be gained by pretending that it is. On the other hand, if the ultimate goal of economic policy was to be something that the vast majority of people felt to be in their own best interests, which would be the case if median pay was chosen for the growth target, then political coherence could be achieved around a new economic narrative that put people, real economic activity, redistribution, sustainability and appropriate growth at the heart of our economy with banking, finance and the control of the money supply seen as instruments to help deliver this, rather than as priorities in their own right.
This, I suggest, is where debate on this issue should be heading. We should stop debating the minutiae of who does what at the Bank of England and look at the bigger picture. This is what I have sought to do with the post.
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It’s bizarre the Labour Party’s concept of managing and directing the economy is like building a car and deliberately leaving out some of the controls to handle that car. I suspect these proposals that McDonnell has announced have not been debated within the party in any meaningful way much like Corbyn’s Brexit policy. The Labour Party leadership still has the same old attitude of treating the membership and most of its MP’s like mushrooms to be kept in the dark despite Corbyn’s rhetoric to the contrary. Still a Stalinist socialist mentality! The party will not gain the necessary widespread support amongst voters to effect necessary change in the UK by continuing this elitism.
No, the proposals from McDonnell weren’t debated within the party and they are not McDonnell’s proposals they are those of his consultants at GFC Economics (a curious name) headed by Graham Turner.
I have read most of the articles that have come out of that as well large sections of Turner’s report and it is quite clear that these proposals aren’t even firm proposals. McDonnell has written about them briefly and vaguely but he hasn’t committed to them.
Upon scrutiny it appears that some of the report’s ideas have his notional or in-principle support in the broader sense but that’s about it. I suspect that he doesn’t fully understand them and Corbyn has had little or nothing to say on the subject.
The report and subsequent discussion represents nothing more than that. McDonnell is clearly flying a kite (to borrow an old phrase).
That is why I previously raised the idea of an open letter to Turner and McDonnell and why I have commented in detail in this blog, the Guardian and Bloomberg. Kite flyers are looking to solicit a response and in this case it is a good idea to provide one.
If the precedent of Prem Sikka’s report on tax is followed Turner’s report will die a death
I can only hope so
Turner’s emphasis on promoting productive investment and demoting speculation is worthy to some degree but that’s about it. Then again I suppose the smarter souls in Labour already knew that and it should probably go without saying at this point in history.
Marco I take my cue from the Guardian report which states the following:-
“Revealing the findings from a review of the UK financial system, the shadow chancellor, John McDonnell, will on Wednesday make the case for a fundamental transformation that could include a revamp of the Bank’s remit in order to help drive economic growth.”
Here is what John McDonnell said in his Wednesday 20th June speech:-
“Along with other detailed proposals, including the creation of a dedicated applied scientific research fund and a Strategic Investment Board to oversee investment, the authors’ aim is guided by the belief — entirely correct, in my view — that almost a decade after the global financial crisis caused the worst recession in living memory, the time for a fundamental transformation of our financial system is long overdue.”
Again presumably his speech was sanctioned by Jeremy Corbyn. My beef remains since when has John McDonnell been given “maverick” credentials to fly such an important kite and by whom?
Re GFC Economics [..] headed by Graham Turner.
I don’t have personal background insight/experience of this group, but my instinct from looking at their public marketing pitch is this is not a blue skies outfit, but rather a bunch of smart arses who are good at reading the runes and guessing which way the wind is blowing.
These guys don’t make the weather they are just (possibly skilful) sail trimmers. If this is the standard of advisory body John McDonnell is referring to I conclude he is a lost cause.
The inclusion of ‘independent’ in the GFC title or description is of about as much relevance as when they might say the are ‘passionate’ about their work.
On balance I wouldn’t touch them with yours. (To coin a phrase.)
Hi Schofield,
Re this: “since when has John McDonnell been given “maverick” credentials to fly such an important kite and by whom?”
I don’t honestly know but my educated guess would be that the “whom” is Corbyn, Momentum and Labour (in that order) and the “when” dates back before the 2017 GE and before the ‘Chicken Coup’. McDonnell would have stated his terms (what he wanted in return for his unwavering support of the leader). Corbyn accepted them first and the party eventually followed (in effect) after the GE.
Somewhere early on among all the deals that were being done Corbynomics disappeared which is a bit of a shame really. I do suspect that we may see it again though, in one form or another.
I think I can safely say John killed Corbynomics
I won’t say more
Thanks for this Richard.
I wonder if the following make sense to be added? These may well be lower order policies and instruments already tacitly captured in your lists above but seem worth mentioning in this discussion…
Objectives of economic policy:
– Achieve a level of inequality that optimally balances social stability with aspiration/motivation to work.
– Ensure all natural monopolies are controlled democratically such that no rents develop in the economy and no individuals can become so rich that they can distort policy in their favour.
– Avoiding market failures and externalities by ensuring everything that matters to us is appropriately monetized. In particular we need to go beyond carbon reduction targets and carbon pricing and figure out how to target the preservation (and reinstatement) of essential ecosystems that we’re currently killing off. As important is the need to properly incentives and enable parents to raise the next generation and look after the previous generation in their old age. Far too much unpaid work of high value goess on today. Without these unpaid and uncared for parents and ecosystems our whole civilization will fall apart. Because parents’ and ecosystems’ efforts are not monetized the wealthy get to run off with more than their fair share of real resources while parents and ecosystems have to contribute an unsustainable amount.
Instruments of economic policy:
– Savings incentives/disincentives: Along with rents excessive incentives to save and the means to do so risk-free create huge leaks in the money system. These leaks expand as the supply of money increases so the only way to enable all your other instruments to opperate effectively is to ensure the leaks are kept to a minimum size relative to the whole money supply.
– Legal limits on political lobbying. As we see in America limitless lobbying creates a positive feedback loop where rich people get richer via lobbying ad infinitum. This breaks the political system by removing democratic control. You can’t have any instruments of economic control if you cease to be the entity in control of the economy!
– Education: Without the electorate at least understanding the basics of how our modern money system operates the political system is broken by removing democratic contfol….
Maybe those three are not so much instruments of economic policy but safeguards of continuing and effective democratic control of the economy?
Adam
I like them but I was trying to be as high level as possible and I think most of these are more operational
I agree though that I could have mentioned inequality and distribution more
Really really good Richard. Now how to get the sensible solutions adopted?
I assure you, I am trying
This is the sort of discussion which really needs to happen. And not just here.
It’s as Stephanie (Ms Kelton) says, you decide what you want to do then go about financing it. You don’t look at how much you think you ‘can afford’ and then twiddle your thumbs until there’ some money in the economy. (Like ….where’s that going to come from?)
I get this all the time from various mental pygmies (are we allowed to say pygmy these days or is it considered racist ?) who bleat on about how an independent Scotland can’t possibly survive because we are on life support from a generous Westminster government.
We need to create a cogent vision (or visions) of what we are trying to achieve. Then get on with it.
The same applies in spades for rUK which seems to have decided to take it as read that the UK is going down the tubes and if you can’t get a job in financial services you might aswell lie down and die now.
Grrrrr !
Nicely put but a long distance to travel given that the Treasury is fully staffed with fiscal conservatives. The debate has to start and the Labour Party has to start it. I suggest they retire the ‘for the many not the few’ and get down to the real issues. Do you know whether McDonnel, Corbyn or the eminence grise, Seumus Milne, read this blog? I would suggest you print it off and send it by registered post to each of them. It encapsulates economic policy in a way that they can surely understand. Maybe you should also send it to the rest of the PLP, Andrew Rawnsley, Polly Toynbee and Rafael Behr as well because they all suffer from the ‘how are you going to pay for it?’ Syndrome as well.
I might just do that….
All I can say is ‘thank you’ for this – it is very good.
Thanks Richard for this excellent recommendation and rationale. As with others, I really hope it is read, learned and inwardly digested by as many people as possible who are in a position to use & disseminate the advice constructively. I’m guessing your blog has a wide ‘unacknowledged’ readership in political circles of all persuasions. I certainly hope so. An information multiplier!
As to whether anyone will act on the recommendations is, I regret to say, quite another matter. The prevailing Westminster mind-set of both parties is firmly rooted in the past. And even if a front-bencher is persuaded otherwise there’s absolutely no chance they’d dare put their head above the parapet. Realpolitik & media mediocrity together largely control the political agenda. So to expect radical top-down change any time soon is unrealistically optimistic.
My own view is that the changes needed to shift from reactive to proactive policy-making – i.e. maximising the potential offered by the ‘new (real) economics’ to achieve democratic social objectives – will only happen either through long-term attrition (via blogs such as yours and other heterodox thinkers ) or by a crisis severe enough to discredit totally the current orthodoxy, allowing no room for further fudge.
Unfortunately, until the status quo is overturned, both these scenarios will perpetuate the continuing regressive impact on most people’s quality of life and the environment. Tragically, here in the UK at least, there is absolutely no sign of any political leadership capable of being an effective catalyst for change. Maybe it will come ‘out of left field’ in more senses than one.
Thanks
I have shared it with some influential players
As The Pilgrim says, thank you very much for this much needed summary of where we need to go and how.
Unfortunately, those who should read it most will either not read it at all, give up after the first paragraph, or will only read it if it was in soundbites. Whatever it is ‘they’ will still have a very strong opinion of what is right, albeit vrry badly informed.
Although this is the prevailing dilemma, I thought I did see some light at the end of the tunnel when reading the comments on Andrew Rawnley’s recent Guardian piece. Quite a few of them were waving the flag for MMT. Perhaps people who understand are gradually becoming more numerous, and saying so.
Things are dire when Aditya Chakrabortty, badged as the Guardian’s senior economics commentator, gives a plug for a charity supposed to be providing economics education to the masses and this charity is still declaring the following:-
“Banks hold your cash for you, in the form of deposits. But they don’t just keep all the money in a vault. They give it out to other people in the form of loans. This means that at any given time, only a small fraction of your money is actually sitting in a bank vault.”
https://www.ecnmy.org/learn/your-money/thinking-about-money/who-creates-money/
https://www.theguardian.com/commentisfree/2018/jun/20/ordinary-people-learn-economics-manchester-classes
This is appalling given the reference so many times to the BoE’s 2014 First Quarterly Bulletin explanations in the Guardian’s comments section which clearly states the clearing banks do not lend out deposits but create loans from nothing:-
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf
The BoE’s explanation has no doubt been influenced by the research of Richard Werner:-
https://ac.els-cdn.com/S1057521914001070/1-s2.0-S1057521914001070-main.pdf?_tid=b327be8f-5364-4eee-b085-41c09deb405a&acdnat=1530027775_29e0941d28a28cbc4cec871ff9b805f2
Clearly a counter charity is needed that presents a coherent model of the UK’s monetary systems!
That is, I agree, dire……
Here’s the monetary illiterate shadow chancellor John McDonnell completely oblivious to the BoE’s money creation explanation of 2014:-
“….the UK is behind other economies in the use of new technology and has the lowest rate of industrial robot usage of any OECD country.This is hardly surprising when Britain currently takes deposits from manufacturing and technology industries, and lends them to the real estate sector.”
https://labourlist.org/2018/04/a-new-start-for-labour-and-the-finance-sector-mcdonnells-full-speech-in-the-city/
The UK I would suggest will continue to lag behind other countries in economic development with so many economic and monetary system illiterate politicians in Westminster like John McDonnell and his boss Jeremy Corbyn who presumably sanctioned his speech. Politics in the UK appears to have become a pastime for rank amateurs who fancy strutting about on a public stage without doing any homework!
Richard,
Two things if i may:
The idea of “sustainable growth” is ultimately a temporary prospect. Its a finite world that we live in and there is nothing sustainable in the prospect of allowing the economy to outgrow the ecosystem that supports it. As such we need to consider transition to a steady-state, (non-growth) future. Some might not think that is an urgent priority but it is inevitable.
Re this: “There are remarkably few instruments available to the government to influence economic policy within a democracy. Beyond political persuasion, they are:
Tax system design;
Targeted tax yield;
Specific spending objectives;
Total government spending;
International capital controls;
The base level of interest;
Banking regulation, including on lending”
There is at least one other and it is very important: Competition Policy. Without a strong and effective competition policy we would find that unnecessarily high inflation will result when demand is raised to full-employment levels.
That will happen because monopolists, oligopolies, cartels and all the other non-competitive rent-seekers will capture the benefit of higher demand through price increases and they will have the market power to do that.
This is critical. Without adequate competition full-employment will become high inflation. I seriously wonder about the tendency of progressive economists to overlook this issue. I suspect that over the past 30-odd years they have become used to demand levels that are below full employment and forgotten about this issue.
In the meantime the market power of monopolists et al. has increased significantly over that same period. Should a sustained rise in demand present an opportunity for them they will take advantage.
Noted
Thanks
Marco Fante says: “The idea of “sustainable growth” is ultimately a temporary prospect. Its a finite world that we live in and there is nothing sustainable in the prospect of allowing the economy to outgrow the ecosystem that supports it. As such we need to consider transition to a steady-state, (non-growth) future. Some might not think that is an urgent priority but it is inevitable.”
Couldn’t agree more. In fact we may have passed the point where even “sustainable growth” is possible, without serious consequences. Unfortunately our leaders still think “infinite” growth is both desirable and achievable, never mind settling for the more modest “sustainable” version.
Naomi Klein in “This changes everything” discusses growth in the context of impending (and happening) climate change and suggests we may need a de-growth strategy but notes that many would seem to prefer “climate chaos” to changes to Capitalism that might affect growth.
More recently, Wilkinson & Pickett’s “The Inner Level” suggest that economic growth should be brought to a halt in rich countries, as it does nothing for personal wellbeing.
We still don’t get it. Unlike the dinosaurs, successful for around 150m years, who could only watch in awe as the fiery mountain approached and could do nothing, even if they understood the impending disaster, we know what is likely to happen, but do too little too late.
If we are to survive as a species any economic model has to take account of climate disruption and finite resources.
I agree re physical resources
But the economy is about much more than that
Should we limit what we can do for each other?
Anthony Patt makes the very pertinent point in his Evonomics article that because of our long standing immersion in free market capitalism we’ve become so habituated we can’t see the wood for the trees. Free market capitalism he argues has become the spanner in the works when it comes to climate change because:-
“The externalities model, the commons model, is about reducing a desirable-but-harmful activity to some optimal equilibrium. Market instruments are the efficient allocation mechanism. But it doesn’t fit a problem where there are no rights to allocate.”
http://evonomics.com/how-changing-my-economic-model-made-me-a-climate-change-optimist/
Richard offers a good and interesting reply to G Hewitt here but his point opens a can of worms.
To explain: I am reminded of a forum debate that I was involved in in the Financial Times.The subject was an article that featured quotes from conservative/ neo-lib economists like Kenneth Rogoff who were complaining that lower per-capita growth figures were misleading because they could not adequately account for all the wonderful gadget advances we had received from Silicon Valley like Google and i-phones. I argued that Rogoff et al. were being a bit unbalanced and that the downside of their miracle of connectivity was a world of smart phone zombies and increased enslavement to electronic devices – that the IT world was extracting as much from us as it was giving in return, arguably more. Another commenter said that, given the choice, he would rather that his son could have affordable housing than a 4G phone or free gaming.
At any rate the argument was about qualitative changes that can’t be adequately measured according to the old metric of GDP growth which is primarily quantitative and physical in its emphasis. Richard is right in saying that the economy is about more than just physical resources, it also about more than technology and, no we should not limit what we can do for each other but a lot of the non-physical things we can do become manifest as qualitative improvements and cannot be measured well in terms of GDP growth or any other single metric.
Attempts have been made to replace the metric with an index like this for example:
http://www.oecdbetterlifeindex.org/#/11111111111
That artform is still in its infancy.
And it needs development
Thanks for the contribution
While I agree that the economy is much more than GDP, (and GDP is like capitalism creaking under its internal contradictions – see Kate Raworth Doughnut Economics, or David Pilling The Growth Delusion for some interesting analysis) I believe there is another elephant in the room apart from climate change but closely related to it and that is there are billions of very poor people who would like, and are entitled to, the same advantages that Western people enjoy – and their numbers are predicted to increase. My weather station recorded 28C today – things are warming up already!!
G Hewitt says:
” My weather station recorded 28C today — things are warming up already!!”
It’s going to need to keep this up for a while if we’re going to establish a viable Scottish wine industry. 🙂
That’s never been in the Indy reckoning
Stick to the raspberries
Mind you, I suspect they could be used to make a wine
Marco Fante
Your comments about the Rogoff, et al discussion concerning the impact of iphones reminds me of the remark I don’t know the source of:
Along the lines that the massive burgeoning of computers….[.digital tech or whatever was the subject at the moment.]…. was obvious everywhere except in the ….productivity figures [..or whatever.]
The point being as you imply all this tech is a fabulous toy but it doesn’t actually ‘do’ anything. (Except put a lot of people our of work)
From my own experience (very unscientific survey sample of one) when I first acquired a computer it was of absolutely no practical value to me for at least twelve months, and when computers were introduced into my workplace (Amstrads, they were at the time) the disruption to particularly the financial, money handling activities was massive. Bookkeeping had to be adapted to suit the machinery rather than vice versa. massive amounts of time seemed to be squandered to do what had previously been a fairly simple pen and paper accounting exercise.
New technical advances allow us to do all sorts of things, so we do them, whether or not they are of real practical value. Suddenly, in our case,the administrator was able to give very specific detail of what money had been spent on, even though nobody wanted or needed to know that detail.
I have no idea how many Amstrads i bought at one time, but it was a lot!
Andy, FYI:
“You can see the computer age everywhere but in the productivity statistics.”
Robert Solow, 1987
I like it
Marco Fante says:
“You can see the computer age everywhere but in the productivity statistics.”
“Robert Solow, 1987”
Thankyou. I knew somebody would know. I don’t think that’s changed in 30 years. Not in real terms anyway.
Compounded by the fact that productivity stats don’t bother to include the redundant workforce as part of the input. Add that in and we’re probably going backwards.
Marco Fante says:
“The idea of “sustainable growth” is ultimately a temporary prospect. Its a finite world that we live in and there is nothing sustainable in the prospect of allowing the economy to outgrow the ecosystem that supports it. ”
Ultimately true, Marco, but not a particularly useful observation when neither you nor anybody else has the faintest idea where the limits of that ecosystem lie. Not a fucking clue.
We have often thought we were close to the edge, but never have been yet, and we have enormous scope to expand with prudent use of what we have available by way of resources which we have tended to regard as infinite.
We do not do conservation. We have barely touched on recycling. And what is currently called ‘intensive’ farming is absolutely the opposite of what it meant when I was at school. We regard agricultural production in terms of man hour input and have given up on the idea of maximisation in terms of output per acre. This is a financial balancing act weighing labour costs against land prices both of which are almost endlessly flexible and governed by rigged markets.
The ecology issue is so complex it’s beyond our capacity to even consider it seriously until we make the intellectual leap that says economics is about the management of resources.
Currently the bulk of, what we laughingly, call the economics profession doesn’t even understand what money is. Let’s just take one step at a time, eh?
We are not going to stop climate change impacts resultant on what we’ve already done. And we have no chance of addressing those impacts without a basic understanding of the financial mechanisms we have at our disposal to deal with the inevitable consequences.
We’re at least two generations away from seeing a ‘green’ government in Britain. For pity’s sake we can’t even manage or understand the economy of the industrial revolution which is now in its endgame.
By all means keep banging the eco drum, but don’t expect we can march to its rhythm. It isn’t going to happen in your lifetime. Certainly not in mine.
[…] Cross-posted from Tax Research UK […]
“Others would also argue that there should be objectives stating that the government should balance its books and taxation should be kept low. I do not agree. To suggest that these are objectives of economic policy is to confuse strategic goals with the instruments that the government has available to it to deliver them.”
Couldn’t agree more with this as a starting point.
Politics is not, and should not, be about ‘bean-counting’.
Especially given the present crop of geniuses we have at our disposal don’t seem able to count to ‘five’. (Which everybody else already knows is a bean, two beans, a bean and a half and half a bean. Don’t need to pay people to figure that out)
[…] wrote my blog on the objectives of economic policy and the role of the Bank of England within it yesterday for a reason. It contributed to a debate I […]
Whilst I agree with virtually all of the content in this post, there are 3 closely related flaws. Firstly, it does not address inequality, high levels of which are known to be economically damaging. A set of economic objectives should include a target for inequality.
And secondly, using median pay as a measure of success does not create suitable incentives because the people with the most economic influence are largely beneficiaries of high levels of inequality and are therefore effectively insulated from the impact of changes in median pay. Thirdly,unregulated capitalism does not behave well because it is inherently selfish. But governments can legislate to incentivise behaviour they want and deter behaviour they do not want, and this is an economic control missing from your list.
I have mentioned inequality in the post
Maybe I should have stated it more overtly but I think it implicit throughout it
I admit I do not follow your second point
And the third is operational, I would suggest
John Riley says:
“Thirdly,unregulated capitalism does not behave well because it is inherently selfish. But governments can legislate to incentivise behaviour they want and deter behaviour they do not want, and this is an economic control missing from your list.”
What utter cock, John. What do you think “The instruments that the government can use to deliver economic policy” section refers to ?
Try reading the piece again and this time look at the words, and what they might imply (or even say); I reckon they give quite good hints as to the meaning. and cover your queries reasonably comprehensively.
I also find your point No2 a bit odd. If you feel you have a cogent point would you be prepared to elucidate, because I don’t get it.
Apologies if I have missed this in the comments above or any previous debates on this site but what if full employment was a given rather than an objective.
By utilising the massive and now significantly under-resourced public sector to provide temporary job roles and/or apprentice training opportunities at Living Wage levels for those looking for more permanent employment. When signing onto the scheme people could declare availability, skills etc. and be given a range of potential options. Government could also share apprenticeship costs for a period with private sector employers or public contractors who meet employment rights and fair tax criteria and are in industries which are considered priority for economic growth.
Fiscal policy could maybe focus on the % employment driving GDP and the % of tax required in relation to GDP to sustain public service?
Just a thought as I am not an economist but I do find the economic focus on predicting monetary policy to be rather like physicists trying to understand the fourth dimension.
This is MMT’s Job Guarantee
Colin Cooper,
To your question, Richard offers the explanation that “This is MMT’s Job Guarantee”
I find this a somewhat odd reply, because you might infer if you haven’t been following discussions that there is some inherent link between MMT and the job guarantee.
There isn’t. Albeit the two things would work well in tandem they are quite separate propositions.
MMT tells you how (fiat) currency works. Job Guarantee is one possible policy prescription as to how you might harness that knowledge beneficially.
If you don’t understand that, either throw your hands in the air and give up, or scroll down the right hand of the site and catch up with some of the archive pieces.
Some of it is pretty simple and some of it is contentious – not everyone here, for example, thinks Job Guarantee is the way to go, but there’s not much dispute about the veracity of MMT, except from irritating nobheads from the finance industry who have a vested interest in pretending it is a fantasy; until such time as their industry and thus employment prospects are about to vanish like dew in the morning, in which case they expect it to bail them out. (Again)
Be assured, that if you wish to pursue this theme, it is not comparable in complexity with figuring out the implications of a multi-dimensional universe. It’s potentially rather more useful, and entertaining too, unless you have some unusual autistic condition which renders arcane physics fascinating.
Enjoy.
You are right
I will be more careful