It takes some ability to write what I suspect will prove to be the fatuous economics comment of the year as early as May, but I suspect John Kay has achieved it.
Writing in the FT on Scottish independence he seeks to dismiss the currency issue, saying:
This time, the currency question is sensibly dealt with by noting that there is no need for an independent Scotland to do anything at all. The world has moved on from the days when money was distinguished by the head of the sovereign – or perhaps has gone back to the days when gold was a medium of exchange that knew no boundaries. Currency is no longer tied to nationality.
I confess I reeled a little when reading that. John Kay has written some decent things: I have bought books by him. I don't always agree with them, but by and large his opinion is informed.
This comment is not informed. It is just wrong. I would love to know which currency Kay thinks is not linked to a sovereign state. He could try Bitcoin, but most would laugh at that, as they would at gold. And please don't suggest the Euro: Germany might laugh if you did.
And this is no laughing matter. What Kay is effectively saying is that a financial commodity can exist independent of the underlying quality that gives it value. I would remind you of the last time that happened. Markets thought sub-prime debt had value independent of the quality of the mortgages that underpinned them. They were wrong. We paid an enormous price for that mistake.
So too is Kay wrong on currency. There is no currency that exists independently of the fact that a sovereign state will accept it in settlement of tax owing. The looser the connection, the weaker the currency, by and large. It is literally this fact that gives money its value in use: nothing else does because nothing else requires that it be used in exchange in a location.
This is why gold and bitcoin will always be commodities now, and not money.
And this is why Scotland needs its own currency. No state can have control of its macroeconomy, monetary policy, taxes and so fiscal policy without its own currency. This is the European nightmare. This is the nightmare Scotland has to avoid.
And Kay is an impediment to achieving this. Kay is a member of the first minister's standing council on Scotland and Europe. That's worrying. Not least when he concludes, saying:
The report falls short of presenting an economic case for independence. But it demonstrates that if other arguments led to a second, successful independence referendum, economic issues would not prevent a “yes” vote, and describes a possible more prosperous route ahead.
He's wrong again: the currency issue would most definitely do that.
The Scottish First Minister needs some new advisers, I suggest.
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As a member of the SNP and an advocate of MMT, I was very disappointed with the economics described in the Sustainable Growth Commission report, for all the reasons you outlined in your May 25th blog.
However, if I regard the document as a political tool to convert soft ‘No’ voters to the independence cause (which is apparently the authors remit), and note that it is not SNP policy, I feel much better about it and my blood pressure reduces.
However, I can’t figure out why it is so packed full of ordoliberal reasoning and graphs for an audience of whom I would guess over 99% don’t know the difference between a government deficit and a government debt, let alone why they would need to be limited?
I take the GSC at face value
They mean what they say
And they go it wrong
“The Scottish First Minister needs some new advisers, I suggest.”
I’m beginning to fear she might have been kidnapped by bodysnatching swamp critters and replaced by a facsimile.
[…] separate from the economy as a whole. I've already noted similar traits from The Economist and John Kay in the last few days. And it is as if he, like they, thinks, quite erroneously, that money can have […]
Some penetrating perceptions in this article. In reference to fraudulent mortgage bonds which many large banks were fined very large sums for engaging in:-
http://washingtonsblog.com/2016/04/goldman-wells-fargo-finally-admit-committed-fraud.html
I find the following article by Steve Waldman helps tease out the motive for attracting crooks:-
https://www.interfluidity.com/v2/6174.html
“People desperately covet assets that are divorced from the risks of the domestic real economy. And that is precisely what “net financial assets” are.”
and
“All this terminology – private sector surplus, net financial assets, etc. – is associated with heterodox, lefty MMT, but it maps very nicely to discussion of “safe asset shortages” in the mainstream financial press or Gary Gorton’s schtick on the importance of “informationally insensitive” assets.”
On the subject of monetary systems the SNP and the Labour Party need to get their heads round why several political parties in Italy are investigating the idea of implementing a parallel currency system the Italians are calling “Minibots” and how it works:-
a href=”https://gefira.org/en/2017/10/14/italys-parallel-fiscal-currency-all-you-need-to-know/
Of course, though they may not be aware of it, the Italians are taking a page out of Hitler’s Germany play book:-
http://www.nakedcapitalism.com/2013/12/philip-pilkington-hjalmar-schacht-mefo-bills-restoration-german-economy-1933-1939.html
Sorry for not putting up earlier – I was reading the links – which were well worth it
Thanks
Apologies. Link to Italian parallel currency “Minibot” idea is as follows:-
https://gefira.org/en/2017/10/14/italys-parallel-fiscal-currency-all-you-need-to-know/
This reference to “Minibots” reminds me a little of Henry Dunning MacLeod’s (1821-1902) argument that it was the creation of cheques in London that ended the monopoly of the Bank of England, and the issue of private bank banknotes (outside Scotland).
It is also a reminder that people will find novel ways round most economic obstacles: however hard lawyers try to convince themselves their wisdom can cover every eventuality in a statute – this is because lawyers are typically bereft of imagination; it may be thought of as the general application of the ‘law of unintended consequences’, which even applies to Central Banks…….
Agreed!
John S Warren says:
“It is also a reminder that people will find novel ways round most economic obstacles: ”
Quite so, John.
If the elite hogs all the money the plebs will have to use something else. Push comes to shove we revert to barter.
These ‘minibots’ are in effect a national scale LETS scheme. If the ECB wants control the money supply it needs to press the Eurozone ministers to ensure that it gets spread about amongst the people who would use it.
The irony of the minibot proposal is that it could prove to be the saviour of the Euro, because sure as god made little apples if the Euro doesn’t start working properly it is going to break.
Italy is in a corner. And doesn’t, perhaps have much to lose from where it stands currently…… (some of the social economic stats are appalling) and Italy is a substantially more influential Euro player than Greece.
I don’t agree: these are not LETS
These are a parallel currency
And the threat is to the euro
“I don’t agree: these are not LETS. These are a parallel currency”
Well they might not be quite the same, but surely a parallel currency is what a LETS generates?
“And the threat is to the euro”
Frankly the Euro is threatened either way isn’t it. If Italy can stagger on with its minibots it may stave off the necessity for default. An Italian default is certainly a threat to the Euro and the global financial system aswell.
The minbot idea is supposed to allow the Italian economy to function in the short term (according to the paper I read). It isn’t proposed as a permanent alternative currency.
How well is the Eurozone/ Troika Greek bailout working ?
Maybe minibots are a bad idea, which won’t work very well, but at least they show a degree of thought.
Eurozone/ECB is still in QE mode reacting to the crisis that occurred ten years ago. And it’s still not really working, is it? Not much sign of sentience coming from there.
LETS is not a currency: try paying tax with it
“LETS is not a currency: try paying tax with it”
You can pay local government (council) tax with the Bristol pound, according to their website.
But that is not a LETS scheme as such.
And it is 1 : 1 convertible to the £
“But that is not a LETS scheme as such.”
“And it is 1 : 1 convertible to the £”.
Can you literally redeem for cash ? (Harumph…Back to the website.) Or are we talking pegging?
At the risk of being tedious; what is it if it’s not a LETS scheme ? (as such)
And…….minibots aren’t a LETS scheme (as such) either (though the 1:1 convertibility, or not, may be significant)
“No state can have control of its macroeconomy, monetary policy, taxes and so fiscal policy without its own currency”
To that we can add no control of its sovereign debt nor its exchange rates and so balance of trade.
That too, is the Eurozone nightmare.
I knew little of John Kay before reading this post and on first impression conclude that he has come up with one of the dumbest things I have ever read.
He has an eminent record as an economist
“He has an eminent record as an economist”
Didn’t they something similar about Milton Friedman ?
🙂
That makes it even weirder than it already is.
and what about offshore USD lending?
And? What about it?