The supposed advantage of PFI is that the risk of contracts going wrong is passed from the government to a contractor.
There are two flaws with this. First, many contracts fail to transfer this risk: in other words cost over-runs are still borne by the government. In that case PFI can best be called an expensive con-trick by contractors on the government.
The second flaw is that in the rare cases when the risk is actually transferred from the government to the contractor, as has happened in the case of Carillion, limited liability lets the contractor fail and pass the risk on to stakeholders throughout society. In that case PFI can best be called an expensive con-trick by contractors on society.
I have long argued there is an alternative. It is, of course, a National Investment Bank funded by People's QE (which I originally called Green QE).
It really is time for Labour to say so. After all, it's what helped Corbyn get the leadership, so why won't he talk about it now?
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I wasn’t impressed by Corbyn’s rather stilted delivery of an anodyne announcement he tweeted yesterday.
It would have been better delivered by someone who appeared to understand what he was talking about.
Virtually every economic and social problem where there is a monetary shortfall can, in theory, be solved by printing money.. that’s what makes the concept so freightening as where do you stop? The advocates argue that their is no evidence productivity will diminish, the currency will weaken and that any inflation can be controlled by taxation. All sounds too good to be true?? Do we have a current example of a country embracing MMT and successfully adopting People’s QE?…(I do not mean US, UK, Jap, Swiss etc which have used QE to suppress long term interest rates and/or manage the currency).
But you ignore the fact we do print money
Daily the private sector is pumping out debt
It’s a very good question, where does that stop?
And a better question is why they need to spend so much toi persuade people to take on tat debt (the process is called advertising) when there is so much unmet real need
When does money printing stop? It never will is the answer
The question is when is there full and productive employment that meets real? That’s what you should be asking
Instead you are asking zombie questions
See Aditya Chakrabortty for explanation on the term zombie
I suspect DC may be a plant… no matter, sample answers, usefully, are here http://anotherangryvoice.blogspot.co.uk/2017/11/id-like-to-hear-example-of-country.html
Indeed. This sounds a good policy but How can labour make progress when they cannot convey ideas with confidence, when Corbyn talks many people only hear promotion of class division. I’m not for personality politics and Corbyn has heart but doesn’t inspire confidence in middle voters.
In fairness, Corbyn talks class division because the existing system has created it
He is emphatically not doing that
Richard you have ducked the question. Do we have a current example of a country embracing MMT and successfully adopting People’s QE?
I understand the process of money creation through the banking system and the private sector. Private sector debt is a separate issue.
I pointed out that the question was the wrong one
The answer though is that of course we do
You listed them
They just don’t realise at as yet
As nor do you
Richard, maybe we nee to drop the term QE from the equation – I understand why you use it to establish the contrast in the public mind with the QE connected with bank reserve augmentation) and just call it Government spending.
We should be explaining to the public that there is no real inflation risk due to the massive amount of private debt ( over 2 trillion) which means there isn’t enough money around to service the debts and loosen the ball and chain on the economy. As you have pointed out before, billions can be spent with little inflation risk.
Capital controls ( as used in the Malaysia Asian crisis in the 90’s) and distinguishing between speculative flows and useful inward investment can help mitigate foreign exchange abuse and ‘hot money.’
the word ‘Government’, I believe, is rooted in the reek word ‘Kubernairtes’ which means the ‘captain of a ship’. Abba Lerner (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.172.4805&rep=rep1&type=pdf) used the ‘steering wheel’ analogy-at present we have politicians who think ‘ we don’t need a helmsman on this ship -just let’s see where the waves take us and we’ll watch from dry land where it’s safe.’
Working on the idea
“…..the word ‘Government’, I believe, is rooted in the reek word ‘Kubernairtes’ which means the ‘captain of a ship’. Abba Lerner…”
Curious how quite separate lines of thinking converge. I conjured the the analogy of a ‘leviathan’ corporation being captained by a commercial whaler captain – Ahab perhaps. 🙂
(What could possibly go wrong ? 🙂
Switzerland bought back a bit of its national debt to weaken the Swiss Franc in response to QE in the Euro. They didn’t print to fund public services.
The BofE has bought in Corporate loans and gilts to suppress long term interest rates, they haven’t printed to fund public services.
It absolutely isn’t the same and it is nonsense to suggest differently.
The truth is no country has adopted a peoples QE in recent years with the exception of Venezuela (i accept under conditions where it was bound to fail). It would be an experiment.
If Switzerland bought back debt that was created by paying for public se4rvices its QE paid for public services that will never now be paid for with tax
Simple fact
Deal with it
How does people’s QE or a national investment bank remove the risk of public sector project cost overruns, which is what ultimately led Carillion to fail?
It doesn’t
But it does not pretend that it does
The existing system does
That’s one of its many failings
Right, so the existing system can lead to cost overruns and such like, but you are using this as justification for People’s QE and a NIB will somehow whilst at the same time saying that such things won’t stop the same problems.
We all know that government of any hue have a terrible track record for cost overruns and other failures on projects they run, but you seem to be saying that the government should do more and take over more from the private sector, and that the inevitable cost overruns and wasted money simply don’t matter?
No system prevents cost over runs when people chang their minds and get things wrong
That’s not money wasted
That’s just bad budgeting
And all sectors do that
Get real
You just reveal your ignorance
Ed says:
January 17 2018 at 5:32 pm
“Right, so the existing system can lead to cost overruns and such like,…..[etc. etc.]…”
You have to look at what causes the cost overruns. Cynically you might say that the contractor who gets a juicy government contract gets it because they know that the government is going to go for cheapest, and they also know they once it’s up and running they can’t afford to cancel midway.
The words ‘short’ and ‘curly’ spring to mind.
David Cameron as much as admitted that the new aircraftless carrier project would have been scrapped if it weren’t cheaper to carry on with it. The government needs to have procurement skills, people employed to scrutinise and write contracts rather than relying on the contractors to behave like gentlemen. If you want people to behave like gentlemen you hire actors because there are none in the commercial or financial field.
If you are going to outsource procurement to the supplier why bother wasting the time ink and paper writing a contract?
I have heard that over 90% of money in circulation is created privately by banks. So what is stopping them from creating massive inflation? They have no need to be responsible to voters for their monetary creation, after all. What’s stopping them?
On the other hand if this figure is right then doubling government money printing will only increase the monetary base by 5% – hardly hyperinflation territory!
These are questions the MMT Q&A will address
They do create inflation Ed -asset inflation and have been doing that with housing for 40 years although it doesn’t get counted in the CPI which was ‘conveniently’ changed.
As Richard and others have pointed out, bank money for unproductive lending tends to create debt deflation ( worse than inflation) but is massive profitable to the banks as they are , in effect ‘renting the currency’ -as prof. Richard Wolff has pointed out, it’s been a ‘bankers heaven’ for the last 35 years.
Ed Seedhouse says:
January 17 2018 at 3:12 pm
“I have heard that over 90% of money in circulation is created privately by banks. So what is stopping them from creating massive inflation? ”
We DO have massive inflation.
Financial authorities are looking for it in the shopping basket of domestic spending, but since they allowed all the money to pile into the top end of the economy (from whence it emphatically does not trickle down) it is only in the top end if the economy where inflation (of asset prices) is manifest.
Apologies.
I’ve more or less repeated Simon’s point, but I hadn’t got that far down the page.
Its funny i explained to you how conventional QE and Peoples QE can morph into the same thing and you said i was talking nonsense..it all depends what course of action is eventually followed.
With QE the chain of events ; 1) Governments borrow from institutions vis a gilt sale. 2) The BofE buy Gilts off the institutions at inflated levels above par to suppress interest rates 3) the Bof E could unwind QE by selling gilts back to the market..assuming it doesnt then either 4) upon maturity the govt is effectively repaying itself via the printing press or 5) at maturity the BofE goes back to open market operations and issues new gilts to institutions and the proceeds from that are used to repay
Upon maturity if the BofE goes for option 4 then both forms of QE become effectively one and the same if they go for option 3 or 5 then it doesnt.
Actually you published an article saying much the same. https://www.worldfinance.com/infrastructure-investment/government-policy/the-pros-and-cons-of-the-peoples-qe
How can you get so much wrong?
Government does not borrow first
It spends first
It does not need to borrow to send so your stage (1) assumption is incorrect
Stage (1) is the government converts its overdraft into marketable debt and sells it
Stage 2 is it buys debt. It does not pay inflated prices: it is an open market operation
Stage 3 has not happened in the vast majority of cases: nor will it, so it’s an absurd claim
Stage 4 is not repayment; it is rollover
Stage 5 I stage 4
And PQE is explained here http://www.taxresearch.org.uk/Blog/2015/03/12/how-green-infrastructure-quantitative-easing-would-work/
I would not have needed to explain the difference if it was the same
Stop writing nonsense or I will simply delete you
I actually admire your self confidence. The problem is too much time spent with your head in a text book and surrounding yourself with those who think one way and not enough experience in the real world of finance lends your self confidence to be very often misplaced.,
Utter nonsense
I have been in practice for 36 years and an academic for two
Get real: I am utterly rooted in the real world
And neoliberal trolls have told me just what you do for 15 years: they have always been wrong
“I have been in practice for 36 years and an academic for two”
There you go Dc, once you’ve extracted foot from mouth you will hopefully realise that flippant conjecture rarely achieves its objective.
“After all, it’s what helped Corbyn get the leadership, so why won’t he talk about it now?”
Fair point.
Now that the NEC better reflects the membership of the party, who will thereby be more involved in decisions on policy, I look forward to having my say, and having material input into the party’s position on many issues. In particular I am hoping the party membership’s 70â„… support for staying in the EU will now become party policy. This is a credible way for the party leadership to come out and take the lead on opposing Brexit.
Whether party members support People’s QE to the same extent, I don’t know, but the issue is certainly better understood on the left, where austerity politics has long been discredited.
Marco Fante says:
“After all, it’s what helped Corbyn get the leadership, so why won’t he talk about it now?”
Because he’s losing confidence?
He’ll be getting a constant barrage of neolib ear ache which like the rest of us he’s had for forty years. And a significant amount of that ear ache is coming from inside his own party.
Because his Party is obsessed with winning the middle class vote (because it worked for Blair) ? And it hasn’t dawned yet that the middle class is coming to meet him. ? All that ‘squeezed middle’ is getting flattened and joining the HOBSKOTTS (Hanging In By the SKin Of Their Teeth)
And at bottom he needs to proclaim an agenda for change rather than an agenda that makes the Party ‘electable’. It’s time to frighten the horses and let the MSM pick the bones out of that.
Andy,
Generally I agree.
Especially this bit: “Because his Party is obsessed with winning the middle class vote (because it worked for Blair) ? And it hasn’t dawned yet that the middle class is coming to meet him. ?
Yes they are. The problem coming out of the GE was that Labour’s massive increase in vote share matched wasn’t by a proportionate increase in the number of seats in the HoC. Of course that doesn’t mean that they should back down at all,. They just need to extend their same strategy of picking up people that don’t normally vote into a wider area. Not to dilute the message but it spread it further afield. Some of those Tory marginals are very marginal, in some cases held by a few hundred votes.
[…] a post at his website on Wednesday, Professor Murphy addressed one argument for PFI: that it passed on the risk of […]