I pretty much make it a matter of policy to ignore whatever Tom Worstall has to say. He is a fellow of the Adam Smith Institute (which probably says all you need to know about him) who has over the last decade or so written a very great deal about me. It is fair to say very little of that output has been complimentary. To get some flavour of the man, and his curious obsessions, it may be worth reading this.
I have, however, decided to break my usual rule. That is because he has written a response to the post by Charles Adams and David Laws regarding money and financing of the NHS first posted on Progressive Pulse and then again here.
The core of their argument is that:
The unquestioned assertion that a highly developed currency-issuing nation cannot afford high quality healthcare is based upon a set of inter-related and almost universally-held false assumptions:
- Money is in limited supply (as there is no ‘magic money tree')
- Taxes fund government spending.
- Private banks lend out pre-existing savings.
- NHS spending is a burden on the economy rather than a boost to the economy.
To this Worstall responded on CapX, saying:
There is ... one rather large error underpinning both of these ideas. [A] doctor and a physicist tell us that Modern Monetary Theory means we can have as much of the National Health Service that we wish. For money is no object: there's simply no shortage of it.
So far, so good. It is indeed true that there need never be a shortage of money. But Worstall continues, saying:
The underlying error is that economics isn't the study of money. Sure, monetary economics is interesting enough, but that's not the core of the subject. Instead, we note that there are unlimited human desires but only scarce resources with which to sate them. Changing the amount of money in circulation doesn't change the number of those wants, however, nor the resources we have with which to satisfy them. It only changes the counting we're doing as we do so.
Before you throw your hands up in horror I should note that Worstall does reveal here his deep knowledge of, and unfaltering belief in, neoclassical economics. What he is saying is wholly orthodox economic teaching, taught day in and day out in universities across the world. It is quite literally the case that in general equilibrium based macro economic thinking, which dominates the thinking and teaching on this subject the world over, that money is effectively ignored. As too, incidentally, is taxation.
What instead matters according to that theory is the matching of supply and demand, as Worstall says. That this happens in the real world through a medium of exchange does not matter to macroeconomics, apparently. And the fact that some of that medium of exchange is also redistributed via taxation prior to supply and demand being matched matters only to the extent that doing so is an aberration that alters outcomes in ways that are considered sub-optimal.
This is because, as Worstall makes clear, in this dominant type of macroeconomic thinking money is not considered a part of the economy as such: it is simply seen as a facilitator of it. And in that process of facilitation it is treated as an exogenous variable i.e. ones that does not impact on the working of the model, or its outcomes.
And this is Tim Worstall's fundamental error. Even the most cursory glance at the real world would assure him and his fellow neoclassical believers that money is not an exogenous variable in the economy that is neutral as to impact. It is instead an endogenous one: i.e. it is a part of the economy, and has direct impact on what demands exist and how they are met. Tax, of course, plays the same role, but that is unsurprising since tax and money are the flip side of each other.
Failure to appreciate this permits Worstall to make some pretty wild, and glaringly false claims. For example he says this
Because it's the resources which are scarce. Take health care, for example. There's the labour needed to do it, the buildings to do it in, the implements with which we do it and so on. But at any point in time there's only a given amount of each of those things. Increasing the money supply doesn't increase the amount of any of them.
Of course, the economy is not a zero-sum game, it is always possible to train up or import more labour; we can build more hospitals, make more medical equipment. But more money doesn't increase the resources from which we can do all of those things.
Three thoughts follow. First, there is the most extraordinary suggestion implicit in this that the availability of money demand within the economy does not change behaviour. Or to put it another way, that if more money is dedicated (whether by tax or not does not matter) to healthcare demand then there will be no reaction to this monetary stimulus in the real economy and nothing will happen as a result: no new health care will follow. What Worstall is saying here is that demand cannot apparently alter supply in the real world.
Second, what he's also saying is that if there is underemployment in an economy working at less than full capacity (both of which are true in the UK at present because we suffer massive disguised unemployment in the form of under-employment) then adding to the money supply cannot stimulate a greater supply of goods and services to the economy. This is glaringly obviously untrue. He also ignores the positive multiplier effects of such spending in that situation, although they are now widely documented.
Third, he says:
In order to have more medical care from our scarce resources, we must have less of other things. Less because those things we were devoting to making something else are now being directed to delivering more health care.
In other words he totally contradicts his own claim that we do not live in a zero-sum world by saying that this is in fact just what we do live in. He justifies this by saying:
It is possible to get all Kenyesian about this and say when in recession we can boost output of all things — and maybe there's some truth to that. But that's not what our simplistic money tree peeps are saying. Instead, they are insisting that because we can print more money then there's no shortage of the resources we need to do whatever we want. Which is, of course, complete tosh.
Except of course that's not what we are saying. We are getting all Keynesian about this and are saying we can spend until we do get full employment at living wage conditions and with appropriate levels of productivity, at which point we'd definitely say stop the spending. Unless, that is, people demanded more of it through the ballot box, when our response would be (Nordic style) to tax more and continue the spend, not to increase the overall level of income in society any more, because I agree that would not then be possible, but to instead to reallocate that spend to social purposes that society wanted and markets could not deliver.
Worstall, of course, does not want to embrace this possibility. He also, slightly bizarrely, says the UK is at full capacity and employment as an economy now (because false assumptions are, throughout the essential premises of his arguments). To which he adds the claim:
Of course, by increasing the efficiency through which we produce things from our scarce resources over time. [But this] option is [not] waved away, aided nor hindered by printing more money.
Which is a pretty big claim, because what he is actually suggesting is that using money as a mechanism to direct resources towards investment has no impact on outcomes in the real world, when that is very obviously untrue.
But he really does not think this is the case because he says:
So the Magic Money Tree and folk versions of Modern Monetary Theory fail. The limitations to the things we can buy ourselves are not about the quantity of money, they're about the resources we have available to meet our desires, nothing else.
In which case he needs to explain why he is so obsessed with preserving the right of money to hide in tax havens, and why he is so obsessed with preserving existing monetary wealth distributions, and why he is so opposed to progressive taxation that might redistribute this money that he says has no impact on the well being of those who own it. Except that he hints at the answer to all these three questions in one telling paragraph where he says:
Money's just the way we count who controls those resources, it's not a measure of what we can put to work at all. Thus printing more money doesn't alter the fact that we must still choose which activities we're to devote what resources to, there is no get-out clause here.
But this is not true. Because if in the process of printing money we change who controls resources we really do change outcomes. That's because the spending preferences of those with lower incomes are different to those with higher incomes. And the spending preferences indicated through the ballot box are different again, and money printing quite definitely facilitates those preferences, even if Worstall has spent much of life ranting about the unfair imposition of this democratic choice on the owners of monetary wealth, which he would not have done unless he knew that it really is true that things do change as a consequence of government money printing and the related activity of taxation.
So in fact what Worstall has written indicates three things. The first is the bankruptcy of conventional macroeconomic thinking to which he, and the greater part of the academic community, subscribe. The second is the falsehood in his own arguments, which can only be sustained by either false or unrealistic assumptions. And the third is that this conclusion of his is wrong:
Another way of putting it is that both the Magic Money Tree and Modern Monetary Theory are useless as actual economic theories. For they don't change our reality at all. We can't have everything, so we've got to choose what it is we really want.
Actually what's true is we can't do everything, but that changing the way we control money by letting government print more of it to achieve social goals can very fundamentally change our constrained reality. But, then, he knows that already, because if he didn't he would not have bothered writing at all.
As an example of failed reasoning Worstall takes some beating. Buy don;'t expect me to engage with him again: once a decade is enough when faced with folly of this level.
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I expect that what Mr Worstall is really worried about is that the UK government will spend more on the NHS and this will deprive his friends of the fat profits that a disintegrated and privatised medical system on the US model would provide them with.
It’s great to see that the only two healthcare models worth noting are those of the USA and the UK
‘Worst (of) All’ is what he should be called – and aptly so.
This deliberate blindness as to the role of money in economics is one of Steve Keen’s criticisms of neo-lib thinking in his book ‘Debunking Economics’. Money is portrayed as inert and static. And I note Worst (of) All says nothing about what happens in the market asset universe as money (debt/credit) often fuels asset price rises.
Money and the economy are surely interdependent things – they affect each other. To deny this is the same as saying that the earth is flat or that the moon is made of cheese.
And this statement is totally self-contradictory. Having undermined the effect of money, he then says this:
‘Money’s just the way we count who controls those resources, it’s not a measure of what we can put to work at all. Thus printing more money doesn’t alter the fact that we must still choose which activities we’re to devote what resources to, there is no get-out clause here’.
What he is actually saying to me here is that money is a measurement of POWER. So it IS something after all. And whoever has the most of it determines how it is spent, which then informs what ‘we’ (society) can have. According to Worst (of) All, ‘we’ have to accept this – that those with the most money have the power and the ultimate say I who gets what – mostly them. So Worst (of) All cannot believe in democracy (and poor old Adam Smith did). He obviously believes in the feudal system.
As Michael Moore says in his film Capitalism: A Love Story: ‘Capitalism is a system of taking and giving – mostly taking’.
And we know why. Because those with financial power worship money accrual because it is de facto the accrual of power.
Are you suggesting that if we print more money we all get richer? Because it really does sound like you are.
We might, yes
But not by printing the money but from what it makes possible
Samuel
It is not just the printing of money – I mean look at orthodox QE and where that ended up. It’s about HOW that printed money is distributed and allocated by those who bloody print it – the Bank of England – under instruction from a Government who knows what it needs to do. Richard for example ahs spoken about Green and People’s QE.
And why not also look at targeted allocation of interest rates – use different rates for different uses – higher rates for more risk, lower rates for ordinary people etc.
All of this takes imagination. The Tories and too many in Labour lack this trait.
Samuel,
It is proven to work admirably . If you ‘print’ lots of money and circulate it at the top end of the economic heap those people get substantially richer. That is the one thing that QE proves beyond peradventure. (Not that it needed to be proved again)
Now if one were to apply the same principle and ‘print’ money and introduce it into the bottom of the economy does it require some great feat of imagination to see that it would have a similar effect ?
Furthermore, if it started at the bottom of the economy it would all end up at the top PDQ; because that is the direction of financial gravity. The difference between QE and ‘Peoples QE is that in the case of People’s QE the people at the top of the pile would actually have to engage in productive economic activity to get hold of their share.
It really isn’t rocket science.
But it took someone to point it out
http://www.financeforthefuture.com/GreenQuEasing.pdf
AND to keep hammering the point home , I’m afraid, Richard, because most people either don’t believe it or choose to ignore what seemed to me screamingly obvious even before I knew of your existence or your work.
I’m not in any way diminishing what you do and have done, but I reckon you are just stating the ‘bleedin’ obvious’.
You however have the discipline that comes from knowledge of the subject that makes it possible for you to make a well argued case. I just look on astounded at the stupidity of the powers that be and get cross and depressed about it.
Your work is very inspiring and I’m seeing a lot of traction for the renaissance of sanity in a number of small ways.
I make no claim beyond it being the bleedin’ obvious
But don’t doubt that’s a big one to those who do not want to see
The simple couter-argument is that if money were not an issue, then the public sphere, including the NHS, would not be suffering the deprivations that it is, due to austerity-inspired cuts in public spending that have been imposed since 2010. They would be thriving in spite of financial cuts, because the real resources still exist.
It’s a known fact that junior doctors and teachers are notoriously enthusiastic to endure fiendishly hard working conditions for less and less money, and are queuing up in huge numbers for those jobs, rather than leaving the professions in droves. Not!!!
Don’t fret, Richard, Tim Worstall is conspicuously just another incurious propagandist for the status quo, obediently preaching his worn-out and irrelevant neo-liberal dogma to the other beneficiaries of the system.
“The crisis”, says Gramsci, “consists precisely in the fact that the old is dying and the new cannot be born”, whilst Max Planck explains why: “A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.”
Bill Mitchell recently suggested in Brighton that it will probably take another 20 years before MMT begins to be taken seriously by the establishment, for precisely those reasons.
Worstall and his ilk are a dying breed, and deep down, they probably know it – which is why they are so threatened by change.
Never give up!!
I won’t
As an expansion of the point above, if money is not the problem then why is it all the political class ever seem to talk about (in the sense of not having enough of it, there being no magic money tree etc.) e.g.
We don’t have enough money for the NHS (the original point at issue)? But we do have enough staff (although due to a previous shortage of money to pay for training we have to nick some of them from other countries). There isn’t a shortage of medical supplies that can be bought either (as far as I am aware).
We don’t have enough money to pay poor people benefits. What is the resource constraint here? We certainly seem to have enough poor people that need the benefits and there is no serious suggestion that giving them money would create a food shortage.
There are many examples where a shortage of money has caused the destruction of pre-existing assets, e.g. the harrier jets that used to fly from the navy’s carriers before the incompetent duo of Cameron and Osborne took charge. Or the sure-start centers that represented a social asset that has been deliberately destroyed.
For sure there is both a shortage of money and a problem that too much of the money that there is is being hoarded on company balance sheets or chasing assets for the wealthy (both due to a lack of proper taxation).
Neil,
It is fatuous to try and rationalise what is going on as if it were an economic conundrum.
The economics is very straightforward but the issue is one of political will.
There is money available to do what politicians (on the government benches at the time) regard as priority activity. Pretending to be fixing the deficit is a very expensive and entirely pointless exercise. Austerity is political choice based on a very dubious and divisive political agenda which makes no rational economic sense.
Trying to make sense of it in terms of economics will merely give you a headache.
I read his article yesterday and the things that jumped out at me as being totally absurd were the suggestions about “UK full-employment” and “working at capacity”.
What has happened is that ways have been found to extract profit from labour by paying incredibly low rates of pay (e.g. the gig economy). If we truly had full employment/were working at capacity then surely there would be fast-rising wages as employers started to compete for scarce labour?
Quite so
But Tim has never let evidence get in his way
Richard, if it was just Tim who was spouting bollox it really wouldn’t matter a toss.
What is frightening is that he’s telling his readership what the major players on the global political stage purport to believe.
I still can’t be sure whether these people, Political leaders, Central Bankers etc. are stupid or just plain devious.
Tim is just another meretricious voice writing propaganda (which he may or may not understand) which supports the orthodox consensus. He can write, he has an audience and Forbes (apparently) pay him to support their economic worldview.
It should be a requirement that members of the Adam Smith Institute had read and could answer questions on the Smith’s writing. I suspect many of them haven’t and couldn’t and are actually dragging an enlightenment thinker through the mire of incomprehension. And trashing his reputation.
Adam Smith might not have been entirely right in his conclusions, but he was sincere in his intention to understand the behaviour of an economy.
Tim doesn’t give for what he writes as long as he gets paid for it. He’s a neoliberal whore. Second-oldest profession in the world.
I was Forbes first ever paid UK blogger
Well, actually they pay almost nothing
And to be candid, I could not be bothered, wanting to keep the material on one place
Yes, Neil that is the salient point in this case. Clearly.
Richard
MMT is clear that although a sovereign currency issuing government is not financially constrained (it can create as much money as it wants) it is resource constrained so Tim Worstall is correct. If the government wishes to employ more doctors and nurses it has to find them from the existing stock of labour or train those entering the labour market. Both of these options will involve the government in supplying more money to the public sector. Where MMT helps our understanding is by pointing out that taxes do not fund government spending so this need not lead to an increase in tax contrary to what Worstall states or to an increase in government borrowing. An increase in taxes would only be required if there was an inflationary risk which is unlikely since if the doctors and nurses were not employed by the NHS they would likely be receiving similar salaries in the private sector. MMT also shows us that whether or not the government wishes to increase borrowing does not have anything to do with funding it’s spending.
Graham
I acknowledge capacity constraints, of course. I always have and I always will. But you to have misread the argument and buy into Worstall’s zero sum framework. That does not exist. First money can redirect resources. Second it can and does bring into play those not previously used. This is not just about redirections. Worstall is wrong and I regret you are too in the current economic environment of this country.
1. Show me evidence of a genuine labour shortage in the medical sector or any other relevant shortage in that sector.
2. Having done that, which I doubt you will, show me evidence of irreconcilable or inevitable shortage, one that cannot possibly be resolved without diverting resources from elsewhere.
Indeed. We have surely seen the piles of graduates disappearing into the maw of financialisation, whereas redirecting resources (and doing other things) could encourage them to study medicine and other socially useful activities.
I mentioned Standing referred to experiments in giving very poor people in “3rd World” countries, money, with few if any, constraints and they didn’t drop down from alcoholism or smoked themselves to death, but commenced life-improving activities which they could not undertake previously due to lack of money.
It would seem money does make a difference contra Worstall.
It is frustrating to see that supposedly well-educated people cannot grasp the facts surrounding money creation and its value to society.
If we look at the creation of a new company as an example, in the early years it will require funding from somewhere, perhaps from bank loans, which as we know will simply be bank computer entries, or perhaps venture capitalists, or family assets, in order to acquire premises, machinery, stock, pay wages etc until sales generate enough income to support these activities. Even well established plcs are fueled with a constant supply of shareholders’ funds.
In 1948 it was decided that the NHS would be set up with government funds and its services have steadily expanded with increasing population, new technology and greater life expectancy. It was not difficult to see that this would happen. It is a case of looking at the funding of the NHS as an investment in our society’s well-being and productivity, not as an ever-increasing cost which some of the wealthier members seem to resent.
Tim Worstall is still clinging on to the fantasy that the private sector always optimises the use of real resources despite John Maynard Keynes argument that it very rarely does except at peak boom times and this fantasy doesn’t even address the issue of the provision of collective or public goods and services which also require real resources. Often those public goods and services are necessary because the private sector is unable to equitably provide them or unfairly exploits natural monopolies or quasi-monopolies.
http://forskning.ruc.dk/site/files/32689384/Jespersen_Keynes_lecture.pdf
I try to address the resources question here.
http://www.progressivepulse.org/economics/the-scarcity-myth/
I agree there is a choice. It seems odd to me that any one would not choose health but as Bill H says above if your goal is rent extraction then the health sector is better than gold.
The desperate pay
And charlatans exploit that
Spot on Charles
Resources are emphatically not finite.
Only imagination is finite.
Hmmmmm…..
Not entirely true
It bloody is entirely true, Richard.
There is NO finite limit on resources.
Period
Unless you have found a way of defying physics I have to disagree with you
Not defying physics. Richard going with it.
Matter is neither created nor destroyed.
Resources are infinitely recyclable.
But there is entropy
The second law of thermodynamics is real
https://www.youtube.com/watch?v=VnbiVw_1FNs
I got this when I was still in my cot.
Enjoy.
Very un PC
But if read in its time (and I was around at the time) funny
The recent (latest?) BBC Panorama on monetisation of the sick by private medical practice in the UK was quite a shocker and a must see. V disappointing but, realistically, perhaps unsurprising.
Richard,
I can well see why your time is wasted in ‘discussion’ with Timmy.
You really DO have better things to do with your time.
I can see why Richard has made an exception to his rule of not engaging with Worstall. He does so with an element of glee. Worstall’s assertion that the UK economy is experiencing “full employment” or “working at capacity” is not only wrong as Neil has suggested above, it is absurd to the point of being embarrassing.
Considering the assertion in purely orthodox terms, it appears that every relevant basic indicator suggests that the economy is operating below capacity.
Yes, we have a sudden presence of cost-push inflation due to Brexit and a lower pound but underlying inflation is low and has been for a very long time, the same could be said for interest rates, unemployment is ever present, under-employment has become chronic:
https://www.businessinsider.com.au/ons-underemployment-double-unemployment-rate-2017-9?r=UK&IR=T and wage growth is not strong.
Worstall’s theme about scarcity relies on a false assertion regarding capacity and full-employment and that theme is is largely misplaced and irrelevant. It should also be said that in orthodox economics the concept of ‘scarcity’ isn’t necessarily literal and it largely relies on the the theoretical assumption of ‘infinite wants’ which, quite often, does not apply in reality.
It certainly does not apply to the NHS. In order to have infinite wants for for basic health care the UK would need to be mostly populated by the seriously disabled or relentless hypochondriacs. Thankfully, that is not the case.
Richard, you quote Worstall as saying « Because it’s the resources which are scarce. Take health care, for example. There’s the labour needed to do it, the buildings to do it in, the implements with which we do it and so on. But at any point in time there’s only a given amount of each of those things. Increasing the money supply doesn’t increase the amount of any of them.
Of course, the economy is not a zero-sum game, it is always possible to train up or import more labour; we can build more hospitals, make more medical equipment. But more money doesn’t increase the resources from which we can do all of those things. »
But this is fundamentally the wrong way round in our current circumstances. It isn’t more real resources that are needed right now – it’s saving what we’ve got. The insufficiency of funds means that existing, perfectly decent hospitals are being closed. It means that doctors who are trained and in work are leaving to practice elsewhere – in the private sector or abroad, or are leaving the profession altogether. It means that young people who are willing and able to be nurses are not signing up for training because there is no bursary to help them through. For those that don’t know nurse training involves a lot of on the job actual work. If trainees have to pay their fees they are, in effect, borrowing money in order to contribute both their time and their money (debt) to the NHS. So much for the role of money in the economy not affecting those models…. It also means not being able to buy the equipment and the consumables or medicines which are there, in abundant supply. And people are dying as a result of the lack of money to keep this going.
If the money is provided this will not necessitate at the moment the creation of additional buildings, staff or goods that will divert essential resources from elsewhere, creating the market distortions which make the classical economists wring their hands, tell us off or cry into their G&T. Although, bizarrely, the money is there to encourage the private sector to build new hospitals and clinics to replace the old ones which are closing. And to pay the lesser qualified staff who are gradually replacing our highly qualified ones. The new hospital building owners will enjoy substantial commercial rents. The old ones were often owned outright by GPs or the public sector NHS.
There was a comment about why it’s only ever the UK vs US models of healthcare that are talked about. Here’s why (If you don’t mind the link, Richard). Publicmatters.org.uk/2017/06/24/the-americanisation-of-the-nhs-happening-right-here-right-now/