I was a signatory to this letter in The Times today:
SUNAK'S RESPONSE
Sir, As economists, academics and directors of research organisations, we are writing to insist that the government goes significantly further in its economic response to the Covid-19 crisis. We welcome the support for the employed, but the self-employed have been left out in the cold. They must be supported immediately: existing institutions such as HMRC should be used to deploy funds to this group.
Further, the chancellor's job retention scheme must mandate against any layoffs with immediate effect. There is a risk that many firms will let staff go in the days ahead. In order to receive wage subsidies firms must keep all staff on payroll.
Finally, the universal credit system will be unable to cope with all of the newly unemployed or underemployed. All means-testing must be removed to speed up the claims process.
Economic collapses become increasingly difficult to arrest if they are allowed to continue unabated. There is a real risk that this recession could turn into a depression. The government must move decisively to get cash into the hands of households and firms before the economic dominoes start to fall.
Jo Michell
Associate Professor in Economics, UWE Bristol
Rob Calvert Jump
Research Fellow in Political Economy, Greenwich University
Diane Elson
Emeritus Professor , University of Essex
Danielle Guizzo
Senior Lecturer in Economics, UWE Bristol
Miatta Fahnbulleh
Chief Executive of the New Economics Foundation
Mary-Ann Stephenson
Director, Women's Budget Group
Prem Sikka
Emeritus Professor of Accounting, University of Essex
Sunil Mitra Kumar
Lecturer in Economics, King's College London
Jonathan Portes
Professor of Economics and Public Policy, King College London
Daniela Gabor
Professor of Economics and Macrofinance, UWE Bristol
Fran Boait
Executive Director, Positive Money
Jane Lethbridge
Principal Lecturer, Department of International Business and Economics, Faculty of Business, University of Greenwich
Nick Srnicek
Lecturer in Digital Economy, King's College London
Mat Lawrence
Director of the Common Wealth think tank
Rob Palmer
Director of Tax Justice UK
Neil Lawson
Director of Compass
Joe Guinan
Vice President, The Democracy Collaborative
Laurie Macfarlane
Fellow, UCL Institute for Innovation and Public Purpose
Jackie Jones
Former Professor of Feminist Legal Studies Former MEP
Sarah Jayne-Clifton
Director of the Jubilee Debt Campaign
Michael Jacobs
Professor of Political Economy, University of Sheffield
Ania Plomien
Assistant Professor, Gender Studies, LSE
David Adler
Fellow, European University Institute
Neil McInroy
Chief Executive, Centre for Local Economic Strategies
Will Stronge
Director of Autonomy
James Meadway
Associate fellow at IPPR
Rebecca Tunstall
Professor Emerita of Housing Policy, Centre for Housing Policy, University of York
Juvaria Jafri
Lecturer in International Political Economy, City, University of London
Bruno Bonizzi
Senior Lecturer in Finance, University of Hertfordshire Business School
Andy Denis
Fellow Emeritus in Economics, City, University of London
Anna Laycock
CEO, Finance Innovation Lab
Guglielmo Forges Davanzati
University of Salento
Steve Keen
Distinguished Research Fellow, Institute for Strategy, Resilience and Security, University College London
Constantinos Alexiou
Professor of Macroeconomics and Policy, Cranfield University
Simon Wren-Lewis
Professor of Economic Policy, University of Oxford
Jonathan Perraton
Senior Lecturer in Economics
Sophia Kühnlenz
Lecturer in Economics, Manchester Metropolitan University
Frank van Lerven
New Economics Foundation
Jan Toporowski
SOAS University of London
Cem Oyvat
University of Greenwich
Neville R Norman
Universities of Melbourne and Cambrdge
Pedro Mendes Loureiro
University of Cambridge
Mark Setterfield
JNew School for Social Research
Ewa Karwowski
University of Hertfordshire
Mary V. Wrenn
U. of the West of England
Carolina Alves
University of Cambridge
Ozlem Onaran
Prof of Economics, University of Greenwich
Ingrid Harvold Kvangraven
University of York
Engelbert Stockhammer
Professor of International Political Economy, King's College London
Deborah Dean
Associate Professor in Industrial Relations, Warwick Business School
Emanuele Lobina
Principal Lecturer, PSIRU, University of Greenwich Business Faculty
Ulrich Volz
Reader in Economics, SOAS University of London
Andrew Fischer
Associate Professor, Erasmus University Rotterdam
Dany Lang
Associate Professor, University Sorbonne Paris Nord
Ania Plomien
Assistant Professor, Gender Studies, LSE
Janet Veitch
Chair, UK Women's Budget Group
Karl Petrick
Associate Professor of Economics, Western New England University
Nina Eichacker
Assistant Professor of Economics, University of Rhode Island
Yannis Dafermos
Lecturer in Economics, SOAS University of London
Duncan Lindo
Vrije Universiteit Brussel
Leslie Huckfield
Lecturer, Glasgow Caledonian University
France Coppola
Economist and author
Radhika Desai
Professor, University of Manitoba
Imko Meyenburg
Senior Lecturer, Anglia Ruskin University
Tony Yates
Resolution Foundation and Fathom Consulting
Richard Murphy
Professor of Practice in International Political Economy at City, University of London
Thomas Palley
Economist, Washington, DC
Andrew Cumbers
Professor of Regional Political Economy University of Glasgow
Howard Reed
Landman Economics
Trevor Evans
Professor of Economics, Berlin School of Economics and Law
Prof Pritam Singh
Visiting Scholar, Wolfson College, Oxford
Dr Jerome De Henau
Senior Lecturer in Economics, Open University
Dan O'Neill
Associate Professor in Ecological Economics, University of Leeds
Giorgos Gouzoulis
Research Fellow, University College London
Maria Nikolaidi
Senior Lecturer in Economics, University of Greenwich
Emanuele Citera
PhD Student, Economics Department, The New School for Social Research
Sara Gorgoni
Associate Professor in Economics, University of Greenwich
Natalya Naqvi
Assistant Professor in International Political Economy, London School of Economics
Jamie Morgan
Professor, Leeds Beckett University
Adotey Bing-Pappoe
Senior Lecturer, Economics, University of Greenwich
Alfredo Saad Filho
Professor of Political Economy and International Development, King's College London
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In truth, thus far, he’s done nothing. Not one of the schemes he has announced is up and running, and it could be weeks before they are. All feels like a very deliberate attempt to defer action, in the hope all this just magically goes away, and they can return to what they consider ‘normal’.
Good luck.
But what does this ‘boy’ Sunak really know about the lives of others that he has so much power over?
Hmmmm…. but what does Dominic say ?
Richard
Your recent contributions on appropriate economic responses to Covid-19 (et al) have been excellent.
At some stage, for whatever reason, the growth mania and the concomitant damage to our life support systems had to reach a crisis point. This is it.
The manifest failures of the private sector (and a government suborned by it) suggest that radical reform has a real opportunity. The mixed economy might survive, but should only do so if intelligently regulated by new and wholly democratic, transparent and accountable political structures in England (here in Cymru, we’ll do our own thing, thanks).
Dear Richard,
I was hoping you might have a response to the below:
https://positivemoney.org/how-money-works/advanced/what-about-the-national-debt/
Positive money are the group behind the book Where does money come from – by Josh Ryan Collins.
In summary, their claims are basically the reverse of everything MMT says.
They say when governments borrow it does not create new money.
“In most cases the process of government borrowing does not create any new money. While most individuals and businesses accept bank deposits in payment, the UK government does not; they require that the purchasers of new bonds ‘settle’ the transaction by transferring central bank reserves (see The Three Types of Money) into a government-owned account at the Bank of England. This means that new money is not created in the process of government borrowing.”
I am still confused, to this date, about what the truth is. What i dont get is the total lack of consistency among heterodox economists on this issue. Josh Ryan Collins took part in one of Marianna MAzucattos lectures in her inaugral Institute for innovation and public purpose classes.
Her first lecture had Stephanie Kelton on talking about MMT – and in the next lecture , Josh Ryan collins talking about Property and land economics – but what he thinks (via Positive money) is in direct contrast to what Kelton thinks.
Can you blame people who criticise MMT? Please, could you respond at least, to the link above and what Positive Money say?
thank you
I’d love to
But I am afraid I have a day job and it is very pressing right now
What exactly is the day job you get paid for?
See my disclosures on this blog
They are up to date
Still struggling to see a day job
Your problem
Not mine
I think inconsistency among the heterodox is to be expected. Any theologian would tell you that!
Moschum, says: “Can you blame people who criticise MMT?” – For what?
Nothing in your comment necessitates or implies any criticism of MMT.
The “Positive Money” crowd are not Heterodox economists in the normal sense, they are an entirely separate, essentially conservative cult and no one in the MMT sphere is responsible for, or accountable to, the Positive Money advocates.
To cut past all the blather and keep a long story “short” (?):
1. Regarding this: “They (Positive Money) say when governments borrow it does not create new money”.
Yes they say that and so does every one else. MMT does NOT say that govt. borrowing creates new money. I don’t know where you got that idea from.
MMT recognises the idea of ENDOGENOUS MONEY – the notion that private banks create money when they issue loans. The Bank of England now officially recognises this idea as well. See here:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
MMT also recognises that the government does NOT NEED to borrow money in bond markets. As the sovereign issuer of currency it can simply create money and spend that money into existence. So MMT doesn’t say that the government creates money when it borrows. It says that the govt. creates money when it spends!
Some of that money is then taxed back (to control inflation among other things) or borrowed back (to influence interest rates among other things). But the important thing to note there is that money that govt. spending creates money – AND – that money had to already be in existence before it could be borrowed or taxed.
Now get this – the money that government creates through spending and the credit money (endogenous money) that banks create through lending, are two separate sources of money creation. That’s OK. Both sources can co-exist as they already do.
As for the Positive Money advocates they are an entirely different mob whose whole outlook is based on a different premise. I’m not going to explain what they are all about. They can do that for themselves. But if you look at their big initiatives such as the Swiss Sovereign Money Referendum of 2018 what you see revealed there is an attempted revival of Milton Freidman’s failed “Monetarism” concept from the 1980’s but taken to a greater extremes.
In the late 1980’s central banks ditched the original Monetarist idea and switched to a variation on the same idea known as inflation targeting (or interest rate targeting). That is the monetary policy system we still have today, and with official intererst rates at near zero levels for over 10 years now, it seems that it has also too has run out of room and failed.
The Positive Money advocates have effectively recognised that for Monetarism to “work”(?) it would need to adopt another of Friedman’s ideas (one that was never put into practice) known as “Full Reserve” or “100%” banking.
That basically means that banks would be be restricted to lending no more than they have in deposits and the the result would most likely be a very austere, highly repressed, high interest rate economy. The problem of asset price bubbles and financial instability would probably be solved but solved at an unacceptable cost.
So there you go. Now you can see what R. Murphy meant about his day job. Anythting else that you need you can read up on and keep it simple to begin with. Like this:
https://www.afr.com/wealth/personal-finance/why-you-need-to-know-about-modern-monetary-theory-20200127-p53v13
https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained
If any Positive Money types see this reply they’ll probably get annoyed. But stuff ’em who cares. Anyone is free to check up on anything that I’ve said about them and they’ll soon enough find that it is true.
Thanks
You’ve not answered anything.
1. Regarding this: “They (Positive Money) say when governments borrow it does not create new money”.
Yes they say that and so does every one else. MMT does NOT say that govt. borrowing creates new money. I don’t know where you got that idea from.”
I know. I know all this. I am well aware of the bank of england paper. That paper does not suggest or state that GOVERNMENT creates money when it spends. All it does is say that new money is created when loans are made, and that money is destroyed when loans are repaid. Thats it.
Secondly, “governments borrowing money creates new money” is not my words – Its the words of Richard Murphy, in a previous blog post:
https://www.taxresearch.org.uk/Blog/2018/04/28/the-government-does-not-spend-taxpayers-money-that-clears-the-governments-debt-to-the-bank-of-england/
“We know that is true: as I noted a couple of days ago, whenever the government spends it does not use your taxes. Instead it tells the Bank of England to make payments for it. In effect, it borrows. That is why we’ve had a UK government debt since 1694. Literally, the Bank of England creates the money the government spends, which is a process that doesn’t involve a printing press. All the Bank does is some double entry bookkeeping. It debits the government’s loan account with the amount to be spent, and it credits the government’s current account. And the government then spends the money, just as anyone can when they have a current account in credit. And then what HMRC do is pay whatever they collect into the Treasury loan account at the Bank of England to help clear it. The leftover balance in that loan account is then cleared by the issue of bonds (or gilts) or quantitative easing funding.”
So what is the truth? Are Governments borrowing from the Bank of England? Or Creating new money when government decides to spend anything? Or is this just symantics?
As for all your other write up – its standard MMT stuff which i know everything about, i even have the bloody textbook, which i haven’t got round to reading yet but I’m well aware of the principles of MMT having watched all the lectures from the big MMT players – which i hinted at in my original post, that was clearly missed.
What i and many people are after, and what i find exasperating, as that when we ask for a clear step by step transactional account of what actually occurs, we get no answer back.
Now, the idea that tax revenue funds government spending makes no sense to me because you end up in circular logic, if you follow the money trail. So the idea that government creates money when it spends, then taxes some of it back, makes far more sense to me.
But we need to form a consensus around the mechanisms involved, and which parties are involved. Admittedly Richards blog post from 28th April 2018 is the best example iv’e found yet, but its a blog post! We need something more.
Go here next
https://ftalphaville.ft.com/2013/12/12/1721592/guest-post-the-helicopter-can-drop-money-gather-bonds-or-just-fly-away-3/
But you have aleady answered your question – the BoE advances money to the government and when tax is collected it’s repaid and destroyed
That’s it
What is so hard to understand? Ignore how it’s wrapped – it is no more than that
Moschum,
If you are not an deliberately annoying distraction then you do a reasonably good impersonation of someone that is.
1. When you originally posted that mistaken (or confused) suggestion that “MMT says” government “borrows” new money into existence you mentioned nothing about about R. Murphy’s blog post from 2018. And you know full well that anyone would have normally have taken you to mean govt. borrowing in the form of gilts. Come to think of it, the quote you offered from the Positive Money author, Josh Ryan Collins specifically refers to “new bonds” (gilts).
To then turn around and say you’re referring to something else entirely (your misunderstood of quote from R. Murphy in 2018) is just pointlessly messing us around, intentionally or otherwise.
2. No the bloody Bank of England does not explain MMT’s take on government spending but it does explain Endogenous Money. That’s what I said it did and I put it there because in your original comment you came across as someone that might have confused the idea that private borrowing (from banks) creates new money with the idea of govt. debt (gilts).
3. You also confused Positive Money advocates with heterodox economists and suggested that MMT was somehow at fault because it wasn’t “consistent” with the retro, conservative, ultra-orthodox stuff that comes out of the Positive Money crew. Well, most of us are quite glad that those two positions are not consistent as no one would normally expect them to be.
Clearly, you didn’t “already know” everything about that or you wouldn’t have tried to draw parallel between these opposing schools of thought.
4. Speaking of which, you claim to already “know all of this” yet ask questions that seem to suggest that you don’t. One needs to to avoid rigid expectations and have a fairly fluid approach to studying this subject as that makes it easier to reconcile any misunderstandings that might occur.
Marco
Thanks
And you’re right – these posters are trying to distract
They’re akin to appeasers in the 1930s
Richard
Thank you for signing this Richard.
Clear, concise.
Even Johnson, if he’s made to read it, might understand it.
This is a good letter – I am glad to see organisations openly criticising government, their responses have been quite inadequate so far. I know you are immensely busy at the moment Richard, but this interview of Professor Allyson Pollock, Director of the Newcastle University Centre for Excellence in Regulatory Science to discuss the latest developments in this coronavirus COVID-19 pandemic, says some very interesting things about how public health and infectious diseases experts are not being properly consulted, and how years of austerity have reduced effectiveness of the response. If you get a chance to listen to any of it please do, things like this help inform economic response (you may already know all this of course!):
https://www.broadcastingscotland.scot/full-scottish-22-03-2020/
The interview itself isn’t very well done, but what the professor herself says is good. I wonder how long before the majority of people realise that the governments they keep voting for are poor at governing and austerity has been an unnecessary con?
Thank you for the previous link on your paper on UBI, I’m still getting through it (it’s kinda tax-heavy 😉 ) and I spent all day yesterday setting up to work from home – not a simple task but at least I can do so, and can still get paid which is the biggest weight off my mind just now.
Allyson is brilliant
I greatly admire her
She’s written a short but devastating post on her blog about the government’s approach
https://www.allysonpollock.com/?p=2901
That’s Allyson for you
She’s brave as well as incredibly good
Making banks waiver bank fees etc might help a little in the short-term.
Richard,
I know that you are time constrained (but nonetheless prolific) and in the all the time that I have corresponded here I have rarely suggested that you put time aside for reading a substantial article and would not do so if it were not exceptional. The last time I did that it was for the the BIS’ “Green Swan” article that you subsequently blogged.
This American piece from the Brookings Institution that I mentioned earlier comes highly recommended because it offers a policy proposal that is intelligent and pertinent to all your recent posts about appropriate government economic response to the Covid-19 crises.
The basic premise of the proposal is that the government should focus most of its aid on entirely on the full support of all “social businesses” (those that rely on the physical gatherings and interaction of groups of people) and do so on the strict basis that all workers are retained for the relevant period of support.
Crucially, it suggests that tax records from the previous month be used to ensure that employment is continued and that the tax department (IRS) who already have strong coercive powers, be used to both administer the scheme and enforce compliance with its requirements.
The idea of using the IRS, as it is explained in the article, is not only suitable for purpose but assists in making the proposed scheme faster and simpler.
Personally, I have a couple of reservations about the article but the essential basis of the idea is very sound in that in that it provides a workable proposal for government assistance that is specifically targeted to where it is most needed and done so in a way that would potentially maximise the gains from the government’s spend as well as minimise social hardship or disruption.
Have a look if you will and see what you think?
“Keep your distance and your income: A policy proposal for COVID-19”
https://www.brookings.edu/blog/up-front/2020/03/19/keep-your-distance-and-your-income-a-policy-proposal-for-covid-19/
Marco
As the article says, this idea is based in Saez and Zucman and their suggestion of the government as buyer of last resort – which I have already discussed and dismissed since it ignores the cost structure of businesses and so I am afraid I am not convinced
Richard
I was afraid that you might get put off by that aspect. It appears to me that (as the article says) it has moved well beyond Saez and Zuchmann and in doing so sufficiently addressed the flaws in that previous idea.
Personally, I like the simplicty and the specific targeting of the Brookings proposal as well as the way that it uses the IRS and its records to address concerns that you had previously raised (re. Saez & Zuchmann) about some businesses that might rort the proposed scheme or fail to support their employees.
Still, you are an accountant and I am not. Nonetheless, in simple pragmatic terms (as opposed to in-principle terms) I can’t see a fundamental problem with this as a ready-to-go proposal, and to the extent that it might have difficulties they may be less problematic than the schemes that are currently being planned or implemented.
But we have better systems here, including VAT data, to provide help if need be
We already know margins as a result, for example