It is possible for the UK to survive the economic crisis caused by coronavirus. However, that requires a plan and right now the government has not got one. This is a plan that would work, although I accept that some refinements will, of course, be required.
1) Cancel all tax payments due to government. There is no time for finessing who should, and should not, have a tax payment holiday;
2) Cancel all mandatory payments into pension funds: right now they are of the lowest concern;
3) Pass legislation putting a freeze on the required repayment of all bank loans, mortgages, leases, credit card obligations and similar liabilities. At the same time guarantee funding to banks to ensure their survival, but on the condition that they are nationalised immediately without compensation: every single bank is now, in any case, effectively insolvent;
4) Cancel all rent obligations for the foreseeable future and let landlords claim benefits of the same type as the self-employed;
5) Nationalise all the utilities (electricity, gas, water) and cancel all their charges for the time being. In this one case the government should make good the lost revenues, but they will now be under state ownership;
6) Introduce food rationing, in the first instance by limiting the amount that any consumer can buy, and thereafter in an organised fashion through the use of store loyalty cards, including by extending these to those locations that do not use them at present;
7) Guarantee the payment of 50% of regular net wages to all employees of a company (the percentage reflecting the fact that rents, mortgages and utilities are no longer due), and authorise all companies to make these payments and make a claim from the government for the cost. If settling the obligation threatens the financial liquidity of the company (with significant penalties to be considered in due course for false claims) then a grant funding arrangement should be created to keep basic systems going;
8) Set up a universal basic income equivalent to the national minimum wage for all self-employed people and landlords: penalties for those making false or multiple claims will be required;
9) Guarantee the payment of all pensions since the liquidity of many pension funds must now be in doubt;
10) Put price controls in place to prevent racketeering: I explained how here;
11) Create a programme of quantitative easing to create the money required to deliver this programme. There is no limit to the amount of money the government can create in this way and it will not cause any economic harm to do so when the alternative is catastrophe. I explain this here.
The legislation to deliver this is simple. Most is simple authorisation to stop payments.
The rest is guarantees to make payments.
Some is nationalisation, without compensation: so be it.
Running PAYE in reverse will cover the support to employers: HMRC could do this.
The requirements imposed on retailers are not technically difficult.
We know how to do QE.
The penalty programme is simply a threat right now.
Most, then, could be done very rapidly indeed. Almost nothing else of the scale required could be delivered in any other way that I can think of.
And if owners of banks and utilities object the argument can wait: the simple fact is that their equity is realistically worthless now, the stock market has just not appreciated that as yet. It will.
And when this has been done new commissions are required, with emergency powers, on:
1) Recreating the economy after the demise of financial capitalism;
2) The future of land ownership;
3) The future of work;
4) The new social safety net, including for pensions, that we are going to need, which is linked to the future of tax;
5) Surviving the climate crisis that is to come;
6) Rebuilding our state so that it represents us all;
7) Preparing everyone for the world we're going to live in by rethinking education;
8) How to remake communities.
And I mean, these are needed now: we cannot wait because nothing is ever going to be the same again. The equivalent of the thinking that created the post-war consensus is now required to create the post coronavirus consensus: I mean it when I say that not only will nothing ever be the same again, but nor should it be.
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Thanks, a great article really well laid out.
A genuine question I had was in respect of how do you ensure that the money pumped in by the government stays liquid and is not banked as savings (despite the low rates) or paid out as dividends? Or do you consider that this would be comparatively immaterial?
Note I am planning to pump in enough for consumption …..
Richard you said nothing about the poor, ie people on benefits esa, DLA, universal credit etc. If money is not needed for utility payments do you advocate reducing their benefits accordingly- and no universal income for them as well? What about part time workers, the homeless, and the sick ? Just a clarification please!
I’m suggesting they get all the benefits noted and none fo the reductions right now…
And those sick should be paid full pay pro rata as proposed here
A bold plan, Richard. But cannot see how a Tory government would implement even a fraction of it. We saw yesterday, when leadership was required, Sunak was talk about loans “on favourable terms”. What a joke, but sadly signals the frame in which they think.
I see no mention of the unemployed here. A UBI is supposed to be ‘universal’, not subject to caveats which direct it only to preferred parties.
All benefits will be paid…
For those 25 and over, job seekers allowance is about £75 a week. With circumstances as they are, no matter how diligent in their efforts, people seeking work are not going to be able to find it. So your plan is for the unemployed, who are going to remain so long-term, through no fault of their own, to try and eke out an existence on this amount?
A basic income ….
This sounds very reasonable (and it was explained very well so, thank you). But, will this current government do this?
Craig
Heaven knows
I’ve followed this blog for over ten years.
This is the first time I’ve been stirred into commenting.
Just one question for you on timing: I’d suggest the chances of our government intervening on this scale are close to zero right now. Therefore, how do you see this playing out? Perhaps our economy unraveling further and events forcing the government to implement some of your actions (but over a longer timeframe)?
Or does inertia now equal the implosion of our economy. Will events run away from our government too fast for them to turn around their non-interventionist ideological approach to markets.
Hope you are on the mend.
Unless we take action very quickly (days, a week or two) then I foresee 1930s style recession, or worse
Radical, revolutionary, if only we had the leadership to implement it, or even some of it. Ian Blackford, SNP Westminster Leader, has urged Johnson to bring in “emergency universal income” (The National)
My point is, if any of the above list comes about, there are those among us who do not need such support, like a UBI. Should they refuse it, give it away, or park with the banks?
I am involved in discussion on UBI…
Graham.
That’s up to you. Child benefit is universal but people don’t have to claim it if they feel they don’t need it.
Claim UBI and give it to someone who needs it, if you are feeling charitable.
Thanks, Vinnie. I agree. If UBI is implemented I think that those of us who don’t need it should claim and donate. Otherwise that money will do no work for those who might need it.
I agree with it all Richard.
The banks have to be nationalised this time. They can’t be bailed out again. They are private business for Christ sake and they have the privileged position of making money out of thin air!!!!
Will it happen? I think that the shit will really have to hit the fan before a Tory government does it. Turkey’s don’t vote for Xmas.
You are talking about dismantling the very systems that give the world’s elites their power and wealth.
Tsar Nicholas was happy to take his country over the cliff edge rather than give up his grip on power.
How to get the public to see what needs to happen. I sent my sister a copy of the blog. She didn’t understand a lot of what you were advocating.
PS. Good effort for a sick man. Keep taking the Lemsip.
Thanks for the article. Not much to disagree with. Went into Tesco today and pleased to see that food bank donation was full when I was adding to it. When checking out I bought a box of chocolates, gave it to the manager for the staff to share. Suggest we all do this as I have heard of them getting a lot of grief the last few days. Hope you are feeling better soon.
let landlords claim benefits of the same type as the self-employed
As a former Professor in Political Economy and currently visiting Professor, can you explain that one in more detail? The reason I ask is that I think that landlords can already claim benefits of the same type as any other low income member of the public with net assets < 16k, regardless of whether they are self-employed or not self-employed.
So, you have answered the question
And for the record, currently a professor of international political economy
What I was asking for was more detail, not the same amount of detail, not less detail.
I don’t get why you are calling for landlords to have rights they already have as UK resident members of the public. It makes no sense. It’s like calling for people to be able to walk on two legs, which is highly unfortunate if you don’t have that number of legs, but hardly a thing to be calling for. You appear to take the view that government is usually better than not-government, but that the current iteration of the UK government is always and in every way schit and is an outlier in this respect, but also that something that already is guaranteed by this government needs to have you getting out of your bed with its damp sheets to write blog posts advocating for it and spending time missing the point and belittling your commentariat.
With the greatest of respect, when did you have your charm bypass?
Careful Richard the ethics suporting your proposals sound very close to those of Socialism some may say bordering on Communism. Not market exchange but each according to their needs.
No
Let’s call it pragmatism
A sometimes necessary political creed when used properly and not as an excuse for abuse
Thanks for clearing that up Richard. For a moment you had me worried. I was beginning to think you were a lot more ill than Covid-19 mandated. You have put my mind at rest by pointing out your proposals have nothing to do with socialism/communism they are purely pragmatic. I am glad to see you are on the road to full recovery. Not entirely sure how organizing society so that all would have the necessities of life (health, education, housing, food, social care) would in anyway be abusive, but I guess the City would be able to point me in the right direction.
🙂
I like the ideas you have expressed, but I guess my main question is how the rest of the World would view sterling if we did this, We absolutely need to buy things (especially food) from other countries, but surely this approach would put the credit worthiness of sterling in question?
The world loves countries with thriving markets and that’s exactly what this would deliver
And the whole world will be doing this….
Which countries do you expect to bring in policies like this first? Unfortunately I see absolutely no chance that the UK will be pioneers. The only chance will be if the likes of Germany, France do this first and it is clearly successful
I suspect most will get to this in weeks
Richard. Excellent article and in essence I agree with what you are suggesting. To survive this we are going to have to nationalise the UK economy. Anything less will fail with the attendant consequences. The mythical market cannot solve this problem and anybody who thinks it can or will is delusional. Keep up the good work.
All that’s missing is a 5 year plan…
The Tories will have one very soon
I like your plan but you have missed the elephant, in the immediate steps:
– buy all debt from banks
– issue them govt bonds in payment
– in respect of accounts appoint them all agents of the BoE, I.e. Remove private money, replace with central bank money
– replace QE with dutch auctions of govt funding of different periods, for different purposes, to asset managers e.g. Offer £10bn for venture capital (10yrs) / trade finance (6m) / infrastructure (50 yrs) / whatever. If it is allotted at a clearing rate above the target rate, auction another £10bn. The money is available to the manager on PE terms, with a hurdle rate set by the auction and a 20% profit share above this. Who needs banks to allocate capital (they are shit at it!)?
There then follows a final step in the long-term programme:
– a land tax, to tax away the price of land (removes the windfall that mortgagors received and removes land rents). I think you were hinting at this
I was not hinting at land tax as a major element of reform, but as part of it, certainly
The rest I will come back on
Only one of the steps is original (the replacement of banks as capital allocators by a set of sub-markets in the management of long-term government investment funds, where the managers must have skin in the game and only make a profit share after repayment of govt).
The other steps about acquiring UK bank debt books for bonds are pure Chicago Plan.
I
missed articulating one point though. Once HMG owns the national mortgage book, it should exercise forbearance for a while but, when legislative time allows, simultaneously release it and institute a land value tax. The land value tax is the key thing. It expropriates the value of land – an annual levy of say 6% of the assessed land value would immediately reduce the price anybody would pay to the rent stream from the activities on it, not the land itself. Releasing the mortgages on the land to the amount of the land value then leaves a mortgagee with 100% equity in the land (devalued at with no chance of capital growth) and ownership with some residual mortgage of the buildings / use value of the land. Owners who had no mortgage are left in a similar position, with a devalued land asset and ownership of the income from the buildings / use.
The final step is to prohibit the use of land as a security. The result is a financial system that has government money, not bank-created money; a payment mechanism run by banks but not at counterparty risk; the allocation of capital run by asset managers on a profit share and the link between land and the rest of the economy is broken, so that the fruits of growth, productivity etc are not ultimately captured by the landed class.
I am a landlord, but the current system parasitises the economy. A universal reduction in land wealth would be a good thing overall and neutral individually, if applied equally.
On which topic:,
Financial (non land) wealth needs addressing with a wealth tax. My proposal here is to target the ultra rich as follows:
– set a high minimum, say £1m, which is untaxed. Why shouldn’t everybody aspire to be a millionaire?
– introduce a tax rate which is log2(W/£1m)
– for those who are not logarithmic thinkers, log2(n) means find the power of 2 that equals n. So the annual rate for a billionaire would be log2 of (£1bn/£1m) = log10 (1,000). This is ~10 (2^10=1,024), so a billionaire would pay 10% per annum on their wealth.
– it would introduce a handicapping into the “keeping score” between the superwealthy. If you cannot make 10% on your billion, you will see it shrink to the amount that it CAN grow b (at least, in your management).
– the purpose is to break up concentrations of wealth. Splitting your billion between 10 children would give them each £100m and a wealth tax rate of log2(100) ~ 7%.
– the quid pro quo would be to abolish all other taxes except land tax. Income should be allowed to circulate. If you save it, it becomes wealth and is taxed that way. Gains are also taxed.
– the profits of capital are therefore preferentially consumed rather than accumulated and non-income generating assets are penalised (art, gold)
Might we live in the land of the plausible right now?
And suggesting I am Chicago School is not a way to make friends, I suggest
I would also add that anyone who thinks land taxes can replace all other taxes has always and forever completely lost the plot
I am all for radical reform, but that which is based on reality
Lots of good ideas there. Can’t disagree. I won’t hold my breath though. The Tories just don’t think like this so they won’t do it and TBH the majority of the Labour PLP don’t think like this either so it is outside their mindset too. There might be some who will grasp it but a lot of the PLP are as wedded to classical economic orthodoxy as any Tory.
I do wonder how this will be managed in the Euro Zone. If the members use monetary policy to try to counter the crisis they will bump up against the Fiscal Compact and the TSCG pretty quickly. I would be expected the normal rules will be ignored as this is an exceptional circumstance but will it create a pressure inside the Euro zone such that it ultimately becomes untenable?
The eurozone is already showing that flexibility
Note the changes in debt buying rules
Not Chicago School, the Chicago Plan. Yes, it was born on unhallowed ground but Jesus was born in a stable.
The Chicago Plan was Irving Fisher’s serious plan to do the steps above to buy out the US mortgage stock and move to full reserve banking during the Great Depression. Even a stopped clock is right twice a day. Frustratingly I cannot find the original paper but here is a link to the topic.
https://en.m.wikipedia.org/wiki/Chicago_plan
And I don’t advocate a land tax alone but a land and wealth tax in tandem. There is no need for an income tax, they are naturally regressive and, as you modify them to be progressive, they tend towards a wealth tax (but fail to address capital gains, necessitating a gains tax, when the two can be replaced with a wealth tax).
Oh God, you’re a full reserve banking person too
That is lunacy
You will not get on here again
I’m a paid up fan of MMT.
Is that incompatible with full reserve banking? Why would you permit the banking system to create private money? This is genuine question – I’m not an economist – why not just do it at CB level?
In the IMF analysis of the Chicago Plan, they note it requires the government, having created a full reserve banking system, to take a further step and use its equity created through seniorage to buy out the existing debt stock.
MMT and full reserve banking are utterl incompatible
Positive Money do full reserve banking and it is economic madness: the surest way to create gold standard style crashes known to human kind
Thank you for taking the time to reply so far especially while ill and trying to save the economy.
I’ve done some digging around in Bill Mitchell’s writings and it looks like there is no operational incompatibility between MMT and full reserve banking or the Chicago Plan. It is an institutional choice and even an aesthetic choice.
http://bilbo.economicoutlook.net/blog/?p=7299
I think the problem is that full reserve banking is usually associated with other non-MMT positions, e.g. Murray Rothbard’s ravings.
I have to say I disagree
Bonds play a key role in MMT to permit the setting of interest rates
So I think Bill is wrong
But I’m not the only one to disagree with Bill
Leading MMT figures do as well
What you describe is pretty much what you’d expect in a wartime economy.
And that is the situation we find ourselves in, even if the current government are probably incapable of recognising it, and are certainly mentally incapable of doing what is needed. It flies in the the face of everything they have been taught and believe in.
If we don’t have a war mentality now we’re in deep trouble
I am not an economist at all, but over the years of reading your blog I have not read anything by anyone that comes closest to a rational, ethical, and compassionate way of creating an economically sound society. With the challenges ahead this sounds like a plan!
May someone in the current government read and have enough influence to persuade them to implement.
Hope you are not too ill still.
Thanks
And I’m recovering….even if not as fast as I want…
…Also, thank you to others contributing comments here, as it so broadens my understanding of the implementation of such strategies.
Keep well, everyone!