A person named Jo asked yesterday what the BBC should say in response to the DUP being offered £1 billion more for Northern Ireland if it was not to question the source of the funds. Specifically they said:
I have a question.
I understand what Richard is talking about, and I have a basic understanding of MMT.
What I'm wondering is: how ought the BBC to talk about austerity, the DUP deal, etc.? Instead of asking, “Where will the money come from?” what should they be asking? “Why aren't you worried about inflation?”? Should they be talking about the proportion of the national debt that is owned by UK as opposed to foreign creditors? Or what?
My response was as follows:
Good question! I like it and it has not been asked before.
The answer is that the BBC should be asking at least five questions. The first is can Northern Ireland really spend the money in the time that has been made available? Does it have the people with the right skills to do so, and if not why is the promise being made? In other words, they should be checking the economic fundamentals of the deal, not the cash that pays for it.
Second, they should be asking if this is the best spend for Northermn Ireland.
Third, instead of throwing their hands up in horror at the cost for the rest of the economy they should be asking why if this money could be usefully spent in Northern Ireland it could not also be spent elsewhere.
Fourth, if it could also be spent elsewhere because the resources to do so exist there as well they should be asking why it is not being done.
And, fifth, if there is doubt as to whether the resources really exist because full employment is being reached they should ask if taxes are high enough to stop inflation being the alternative.
Those are real economic questions about right use of resources, whether the decision is appropriate within the capacity of the economy and what risks it creates. But to say ‘where does the cash come from?' Is absurd, because the answer to that is always the same: the Bank of England creates it.
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I guess the two points – “the time that has been made available” and “if taxes are high enough to stop inflation being the alternative” – are linked. Presumably also dependent on how much is to be spent on infrastructure, since the recovery of the spend through tax will take much longer in that case?
However, I’m not clear what time has been made available to spend the bung?
The rate of recovery from infrastructure is higher: remember people are paid when infrastructure is built and then you get tax on the growth as well
Yes, although there may be significant delay in starting big infrastructure projects, especially if they don’t have the skills as you suggested.
I’m still interested in “what time has been made available to spend the bung”.
What did you have in mind for that?
Simply, will it actually happen?
Hello Richard
I would like to hear your answer to Jo’s final question. It would imply that there is a distinction between domestic (good?) and foreign (not so good?) creditors. Can you comment on the relevance/importance of that distinction. It’s one of the questions that keeps popping into my head as I read “Joy of Tax” (about 2/3 of the way through now).
Thanks very much
James
The proportion of national debt owed outside the UK is inconsequential if the debt is owed in sterling because those outside the UK are obliged in that case to accept sterling in payment so there is no foreign exchange risk
Does that answer the question?
I hope you enjoy The Joy of Tax
Thanks, it does and I guess it’s obvious really. But when trying to explain all this to people it’s hard to counter the fear engendered by statements like “we owe China xxx billion” (or whatever). A lot of people simply aren’t ready to hear that it doesn’t matter.
It would only matter if it was in their currency
When it is in ours then the problem is all their’s
Oh, and yes, I am enjoying the book a lot. There’s a couple of basic things that I am finding confusing, but I’ll persevere and see if the answers come later before asking for clarification!
Please do if needed
Although they mature this October, and hopefully won’t be rolled over, George Osborne, in his infinite ignorance, decided to issue £3bn of 3 yr Renminbi Bonds in Oct 2014. F*** knows why.
https://www.gov.uk/government/news/britain-issues-western-worlds-first-sovereign-rmb-bond-largest-ever-rmb-bond-by-non-chinese-issuer
Never again….
What do you think of this Richard?
http://www.jnani.org/money/
PM has a lot wrong about money
But let’s be clear, the fact that loans create money is now recognised by the BoE who say economists who argue otherwise are wrong
And on this the BoE is right
It seems the ECB also now openly agree; “Commercial banks can also create so-called “inside” money, i.e. bank deposits — this happens every time they issue a new loan. The difference between outside and inside money is that the former is an asset for the economy as a whole, but it is nobody’s liability. Inside money, on the other hand, is named this way because it is backed by private credit: if all the claims held by banks on private debtors were to be settled, the inside money created would be reversed to zero. So, it is one form of currency that is created — and can be reversed — within the private economy.” https://www.ecb.europa.eu/explainers/tell-me-more/html/what_is_money.en.html
PM responded to Mike King’s arguments here:
http://positivemoney.org/2015/10/posmonwrong-mike-kings-campaign-against-positive-money/
Dear Richard
If you didn’t catch the Today programme after 8.00 am today, I suggest you listen to the pieces on austerity, banking and even the new musical at the Donmar about Kids & Co. The first of these was a remarkable, uncritical defence of Tory economic policy featuring plausible sounding extracts of speeches from George Osborne and Phillip Hamond. This purported to be an explanation of a public move against austerity, but contained no critique of neo-liberalism, no account of how harmful austerity had been, just a whiff of an idea that people were getting a bit fed up of it. Then Oliver Letwyn, of all people, giving an authoritative explanation, in strict neo-liberal economic terms, of how any slight easing of austerity measures, such as a little on social care for the elderly, would have to be paid for by increased taxes. No representation of any counter argument at all!
Ahmed’s piece on banking was a little less blatant, but still based on the ‘prudent economics’ idea.
I really fear for the BBC, an institution I love, because it’s news treatment now consistently feels to me to be failing its purpose.
Thank you for your daily blog, which I very much value.
Yours sincerely,
Jim Lowe
Sent from my iPad
Deeply depressing
I admit I was tuned elsewhere : I am in Brussels
@Jim Lowe, the BBC no longer deserves our ‘love’.
Apart from the general, ubiquitous and patronising dumbing down, the particular neo-liberal bias in the newsroom, whether regarding foreign affairs or domestic economics, is insidious and sets itself firmly against the interests of the vast majority of its viewers and listeners – who also have to fund the damn thing.
Its pretense of impartiality is dangerous; considering the source is vital for interpreting agendas behind news reporting; at least with Sky, or the Mail, you know where the propaganda is coming from. Believing that what you’re being fed by the BBC is unbiased when it clearly isn’t is bad for democracy.
The BBC needs to be cleaned out at the highest level, especially in its News Department, or go the way of Pravda – which would be no more that it deserves.
I have to say that every report I’ve ever seen from Ahmed has been so free of insight or critical thought that he seems to do little more than repeat whichever trope has been fed to him, usually by the government or financial sector.
I must admit that I don’t recall whether this was always the case with his predecessors or not but his reports do seem peculiarly content free.
@Mr Shigemitsu Totally agree with your views there. I despair of many cafes/pubs showing BBC news as if it was somehow a unbiased observer. Remember we have to pay for this!
Jim, I too heard the Today programme this morning and was just as annoyed. One statement they played by Hammond I just can’t get out of my head – that our children will have to pay off the national debt (or words to that effect). If the BBC repeats these distortions without questioning them how will anything change? I do recall though that they were fixated back in the days of monetarism with reporting on the rise and or fall of M1, M2, M3, M4 or whatever without ever explaining or questioning whether it meant something or not. I’m afraid on economics they just regurgitate what they are fed by whoever they think are the grown-ups.
They do however seem to be making a better job of reporting on the tower block safety issue. I know that Richard initially got some stick for blogging on this issue as possibly being outside his field, but clearly economics and politics are heavily involved in how we got where we are. I wonder if anyone has seen the question raised as to whether similar effects might appear in other areas of regulation, such as structural safety, electrical safety, air traffic, flooding, etc., etc., all the way up to nuclear? Budget cuts, outsourcing, privatisation, de-skilling to reduce costs, loss of morale in the staff at the work-face. Railtrack and Hatfield seem a long time ago, the NHS is I suppose ongoing, but what next?
Good questions
Thanks
Pessimist. I also heard Hammond’s “our children will have to pay off our debt. not fair on them”.
I am not sure what the best response is.
1) I have used (not being sure of the life of bonds) paying off at the 1997 prices. Inflation has reduced its real value.
2 using history to illustrate the period 1945 which saw the national debt fall from 250% to 100% of GDP.
3 the extra spending creates growth including taxes, which pays it back.
I suspect 3 is the best but am always ready to learn.
The bizarre thing is that the deficit creates new money
What he is saying is future generations would have to destroy that money
Why would they want to do that?
Interesting/depressing to note Jim that one of our commentators/satirists (Jonathan Pie?…Frankie Boyle??) last week lumped the BBC in with The Mail and The Sun when ridiculing Joe Public’s sources of news/opinion.
I think that (as with much else it seems) it goes back to Thatcher and demands for ‘balance’. The proper response by the Beeb/its DG at that point ought to have been to point out that it had a brief (since 1920 something) ‘to educate, inform and entertain’ and it would carry on with it thank you very much’.
It’s three years since Dr David Halpin felt moved to write ‘The illusion of democracy provided by the House of Commons and the Cabinet depends greatly on the all pervading influence of the BBC.’ All very sad.
I’m glad to see the BBC balance issue being raised here. Otherwise known as the “someone said A, someone else said B” syndrome, which does little to educate and inform, as mentioned by Alan Moore. I also suggest that A will more often be perceived as the “winner” because it gets the headline. The bias is likely because the headline can be said 3 times for an important topic – once in the news intro, once in the item, and again in a summary of the main items at the end. Choosing the order of A vs B or B vs A will often be dictated by whichever party makes a press release.
The BBC often brings in one of their own “experts”, or an external “expert”, to discuss A vs B. As mentioned in another post here, the internal “economic expert” appears not to be qualified to judge on economic issues. It seems to me however, that this is a bigger issue with external “economic experts” – the prime case being the IFS as mentioned often by Richard and others. Many other so-called experts, who would perhaps be better described as city gents than economic experts, are used by the BBC (e.g. here’s an economist from Citibank to explain what Mark Carney said about QE).
Clearly this was at a peak during the EU referendum campaign, not just on economic issues, when the country faced one of the most important decisions in a century. The brief to educate should have been much more in evidence as most people clearly knew very little about the EU or the benefits of membership.
The BBC paid lip-service to this with webpages of FAQs, some of which were reasonably well presented and others less so. However, not enough of this was deployed in cross-examination of the Leave (or Remain) side on live television or radio. I did randomly hear a radio broadcast, mid afternoon I think, which corrected misinformation about EU consumer law, including that on straight bananas. This was a detailed analysis of the facts, not part of a debate, and was probably heard by very few.
Sadly, an improved level of education and debate from the BBC might not have changed much in the face of repeated misinformation (A vs Nil) from the printed media.
As a more recent example, you may have noticed that the First Minister of Scotland has just changed the policy of her government on the issue of a second independence referendum. I suggest that reading the press headlines, or indeed listening to the BBC, will not help you to understand what has changed.
Dear Richard
When you hear people talk about the ‘magic money tree’ do you shake your head in disbelief as this seems, to me at least, exactly what the £350bn of QE has been? Namely a ‘magic money tree’.
And secondly do you agree that it’s looking increasingly clear that as the bonds that were purchased with QE mature, they are simply being taken ‘off the books’ meaning that there’s virtually no chance of this ‘magic money’ ever being repaid through the conventional measures?
Regards
JH
QE is £435bn now
And it will never be resold to the market: new deficits will meet demand for debt. QE has been monetised now
At the risk of bigging up Richard on is own blog I think it was he who highlighted that it was John McDonnell who first said ‘There is no magic money tree’ (hence May/the Tories deploying it – ‘cleverly’) and he who pronounced it as ‘unhelpful’. I stand to be corrected.
If John said that it was one of the things we disagreed on
The main one was / is his commitment to balanced budgets
Oh my! I thought Andrew Neil was smart. But he has just spoken about the need for tax rises to fund public spending…
Wrong!
Taxpayers do not fund anything.
Bill Mitchell wrote a very interesting article on exactly this matter a few years ago.
http://bilbo.economicoutlook.net/blog/?p=9281
It supports everything Richard has been saying, and also gives an interesting historical perspective.
Bill and I agree on more than we ever disagree
I’ve heard a lot of people saying recently that the reduced corporation tax rate under Osborne led to higher tax receipts. Does anyone have a quick rebuttal of this on hand as to me it sounds like bullshine.
It is BS
MOst of the increase because of a massive growth of the self employed forming companies to avoid tax….
Prof Mary Mellor has an article “There is a magic money tree…in fact there are two” in TLE as of two days ago.
http://www.thelondoneconomic.com/tle-pick/magic-money-tree-fact-two/26/06/
Here is a fun Magic Money Tree Quizz which helps with the ideas of Money as a coupon or rain cheque rather than substantive wealth in itself. The Quiz makes the point much better than me. http://snack.to/q7t8gi3c
As a follower of this blog, I obviously got 4/4 in the quiz.
If you do the quiz, and follow the link to http://davidmalonegreenpartycandidate.weebly.com/magic-money-quiz-answers-and-contact-form.html, he has a link at the foot of that page to a survey of MPs who mostly have no clue.
There’s a surprise!
Here is the Positive Money Quiz in Automated social media sharing format. See how you get on.
https://goo.gl/Ldnt3B no peaking at the answers mind!
Here is the Positive Money Quiz in Automated social media sharing format. See how you get on.
https://goo.gl/Ldnt3B no peaking at the answers mind!