I have now done some analysis on all the answers to the question I raised last weekend on the economic, and other, myths that need to be tackled on a persistent basis.
What I have tried to do is group them. My suggested groups are as follows:
Banking myths
- Full reserve banking
- Banks create 97% of money
- There is a fixed quantity of money that we might have
- Banks are intermediaries
- Money is inherently valuable
- Money has asset backing
The household analogy (the myth needing to be tackled most of all)
- The government is like a household
Modern monetary theory myths
- There is no magic money tree
- MMT is indifferent to inflation
- Tax can't contain inflation
- We need unemployed people to control inflation
The party political myth
- The Conservatives borrow less than Labour
Borrowing and tax and spend myths
- Governments borrow
- Taxes and bonds raise money for the government
- Taxes pay for spending
- The government cannot run an overdraft with the Bank of England
- The debt has got to be repaid
- Our grandchildren will have to pay for this
- We have to repay the national debt
- Deficit = debt
- We have to balance the budget
- Government debt is bad
- Governments can't print money
- We need more taxes
- We must live within our means
- We have maxed out the credit card
- We can run out of money
- We're in hock to the bond markets
- The government has to pay interest on debt that it owes itself
- QE debt will be resold to the market
- We'll go bust if the government borrows
- We can't borrow all the money that we need
- Debt is growing proportion of national GDP
- We can't afford the interest on the national debt
Tax and spend myths
- Governments spend taxpayers money
- We tax and spend
- There is taxpayers money
The inflation myth
- We're going to be like the Weimar Republic
The austerity myths
- Austerity was necessary
- Tax increases are bad for the economy
- Austerity stimulates growth
- The state crowds out the private sector
- The hard choice is we cannot afford to save jobs
- We can't afford to be green
- The benefits system is funded by taxpayers
- Privatisation was necessary
- The state cannot be trusted with our pensions
- We can't afford …. The NHS / pensions / social care / education / benefits etc
Governance myths
- The central bank is independent
- The OBR is independent
- The Institute for Fiscal Studies is an objective commentator
Economic myths
- Increasing interest rates controls inflation
- Markets allocate money efficiently
- There is no multiplier
- The quantity theory of money is true
- Economics is rational
- Externalities do not matter
- There is an invisible hand
- Wages reflect a person's worth
- GDP measures wealth
- Migrants take our jobs
- The private sector is more efficient than the state sector
- Red tape is killing business
- The market always knows best
- The state is inefficient
- There is perfect information
- There is no asymmetry of information
- There are no monopolies
- There are no monopsonies
- No one is a price maker
- Equality does not matter, growth does
Green myths
- There is no climate crisis
- We have to grow
- Growth isn't green
Rich myths
- The rich pay for public services
- The top 1% pay 25% of all taxes
- The rich will leave the country
- Tax cuts for the wealthy stimulate growth
- CEOs need high pay
Abuse myths
- Benefit fraud is rampant
- Tax avoidance is the big issue in tax abuse
- Tax havens are crippling our tax system
Pay myths
- Low paid workers are not deserving
- UBI is unaffordable
- Income inequality is a good thing
- The wage rate and unemployment are related
The Scottish myths
- GERS is a fair reflection of Scotland's income
- Scotland can't survive as an independent country
The development myths
- Capitalism has lifted millions out of poverty
- Outsourcing benefits those now on $3 a day
So, thoughts, yet again?
Suggestions for more, better groupings and where to start are welcome.
In the meantime, I am moving on to addressing some of these.
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Where possible I’d try to frame things around a game of Monopoly. It is an example that most can understand and will elevate the mental model people naturally formulate as a reference point above that of household economics.
Perhaps add the “Trickle Down” myth, which is different to “Capitalism has lifted millions out of poverty”?
The Scottish Myths: Only one for the current fiscal mess – I’m sure we could add *a few*, but I think that’s a whole other ball game. 😉
Quite a list!
But having concise rebuttals to all of these would be an excellent resource. I love your idea of having answers to each in different lengths suitable for tweets, radio segments and in-depth analysis.
Many of the individual myths in this list trace back to the same underlying issue, but it would still be great to have short snippet answers that address each specifically to avoid the accusation of trying to change the topic. To save you some work: presumably that means you could have a few long-form, referenced, more broad-ranging articles (stems), leading to more intermediate-length opinions for radio etc. (branches), each associated with several short and specific statements for social media (leaves). Perhaps you could have one long-form article for each of your headings in the list?
Among your governance myths you could add the idea that the central bank should be independent, which is a separate issue to whether it is in practice.
Many more could be added to the development myths, which gets into Hans Rosling/Gapminder territory. You’d need to see how much this is in scope for what you want to do.
This list can grow
I’m going to start around this lot now…
I like the way you have segmented this – well done.
Picking up from where I left this, who is the counter party the Government has to promise with – the BoE or the private sector or both? And why the counter party?
Is MMT/DMF funding fiat money? Or is the word ‘fiat’ redundant in this context?
It may worth linking the segments where possible (where one affects the other). Finally, it might be worthwhile writing as if you are creating a text book for Year 10-12 students – an account about money that will set the record straight and be read in all schools in the future imbuing that generation with a sense of expectation and hope for all time.
And BTW – make sure you get some rest!!
The counterparty is whoever spending is with – who gets the government’s pound spent into the economy
MMT is fiat money
DMF is too
The text book idea is not bad…
I’ll post the first soon – tell me what you think
Sorry Richard – I sought to have my questions answered in this work – not today – forgive me.
Rest!
And yes, I’d be happy to help along with anyone else. It’s the least I can do.
I’m not doing that rest thing at all well this week
Wow!!!
Well…..I think that about covers it!!!!!!!
Where to start though??
I think the basic myths doing the rounds about the new money the government are creating to prop up the economy are the ones that urgently need challenging.
1. Tax and bonds fund government spending.
2. Household finances analogy.
3. “Debt” and “borrowing”.
The other stuff on the list is all valid, but is more detailed.
Just challenging the BBC economics editor’s video from earlier in the week, would be a start.
A video of her statements and then your responses edited togey would be good. Using the actual BBC footage.
Starting soon…
Wow, that’s pretty comprehensive Richard. I think you should focus on starting now, as otherwise you’ll get bogged down with worrying about what was missed. Let others drop in suggestions with the work produced now. You’ve done the basic framework to work from. My personal choice of first focus is the dismissing of the household analogy.
Well done. I’ll be watching with anticipation.
The biggest myth is that the state doesn’t need to be able to create money (reserves) to ensure a stable payments settlement system which also includes being able to bailout the finance sector when it engages in fraud. Indeed it doesn’t even appear to most voters consciousnesses as a myth since they have no understanding of the economic and monetary history that forced the compromise they simply accept that somehow the monetary system the UK has turned up. For many as long as money turns up in their bank account usually for most as payment for their job the mechanics of the country’s monetary system are of no great interest.
Clearly to have a fail-safe system government must have money of its own something Margaret Thatcher couldn’t envision when she said it didn’t and there is only tax payers’ money! She wasn’t the first ignoramus of course. The Bank of England does a great job of turning this important aspect of the UK’s historical development into non-history!
So there’s work to do
The point about how most people think is really important, so it would be useful to illustrate what actually happens in numerical terms – what proportions of the employed get paid directly and indirectly through government spending, and the amounts of payment involved; indirectly meaning via private firms that are paid by the government. And likewise for social security payments.
Of course, as you know, we also have a useful counter to this “money turns up in their bank account usually for most as payment for their job”, in the shape of furloughing.
I noticed that
– “The party political myth: The Conservatives borrow less than Labour”
is immediately contradicted by the next point:
– “Borrowing and tax and spend myths: Governments borrow”
If I understand correctly, money is destroyed at the very moment it is “borrowed” by the government. That isn’t what most people understand by the word “borrow”.
When economists or journalists use the word “borrow” in this context, are they deliberately trying to mislead people?
Like the BBC economics expert who said we had 3 choices
— More tax
— More cuts
— More borrowing
Isn’t there another word or phrase that is more appropriate?
If we can ban the word “borrow” in this context (starting with ourselves), surely that would be 50% of our job done.
Apologies if I’ve got this all wrong, but I’m not an economist.
It’s an issue I plan to address
You could start with Thatcher’s “Greatest Hits”, which some have already mentioned. Household, taxpayers’ money, we can run out of money (“socialism [means] you run out of other people’s money”), “live within your means”
My first reaction to this list was to feel daunted on your behalf. But I guess l, since you are an information processing guy, it’s just what you do.
I think everything on this list is worth explaining in order to illuminate people’s understanding of the economic mechanisms behind society. I suppose it would be worth highlighting whatever would make it clearest to the greatest number of people that money is not the determinant of what the government can do.
I don’t think I have the intellectual capacity or knowledge to distill the essence of that from your list.
I am familiar with most of the points but one I believe is included – growth is inevitably harmful to the ecology. As a fan of the case for degrowth, I’m looking forward to seeing that debunked 😀
Wow, that is a long list. I await with interest, and look forward to reading, the first batch.
I noted the ‘our grandchildren will have to pay for this’ with a knowing nod – I have heard that several times recently.
Craig
“Why does Argentina have so much debt in foreign currency, and why can’t they just finance themselves/ what’s stopping us from ending up like them?”
OK…..
Good job you’ve decided to concentrate on the blog, that’s quite a list! If you can tackle it all then it will be a brilliant resource for everyone with an interest in economics and the forms you have chosen make it accessible for everyone.
Sorry to add to the list, but there is one of my priorities which is missing from the list. You’ve probably wrapped it up in several different areas such as Economic myths and Austerity myths, but my wording though sparse was chosen carefully “Economic imperatives are not political decisions”. Maybe if its in PSR’s suggested text book form, you can explain in the introduction that all economics results from political choices.
From Margaret Thatcher’s TINA on tackling inflation to Cameron/Osborne’s austerity, neo-libs have tried to present their choices as economic imperatives and that TINA when there is always an alternative. I think this is up there with “household economics” and money creation as being a basic myth from which everything else follows.
Sorry, somehow missed my last para which was to present the 3 I mentioned as “Basic Myths”.
Noted
On “We’re going to be like the Weimar Republic” … you could add Zimbabwe, Venezuela, the 1970s. Because we are not printing money to buy foreign currency to pay punitive reparations, because we don’t have (quite such a) kleptocratic government running the economy into the ground, because our economy does not depend on exporting one major commodity priced in a foreign currency which swings around in price, because we are not dealing with an oil price shock (although economy still significantly depends on importing a major commodity priced in a foreign currency which swings around in price, and we’d struggle again if oil prices doubled or tripled in a short period).
Quite so…
The money saving expert website have funded a course run by the Open University called Academoney, a “financial education course “. Unfortunately session 2 called budgeting and taxation has the following paragraph: “Income tax is the largest source of tax revenue — contributing nearly a third of the government’s tax receipts. This income is then used to pay for government spending, on things like the police, the NHS and the civil service.
Income tax is a form of progressive tax. This means that the proportion of income paid in income tax rises as earnings rise. For example in 2019/20 someone earning £25,000 would pay 10% of their earnings in income tax. Someone earning £100,000 would pay 27.5% of their earnings in income tax.
In setting income tax rates, the government does need to take into account the impact on the incentive to work. High rates of income tax can deter people from taking on extra work or seeking jobs with greater responsibilities paying higher incomes. People making such decisions will often focus on what extra net income they get — the money in their pocket each month. High tax rates mean they’ll only see small increases, and may mean they’re less likely to do the additional work.
At the end of this session, you will find a link to MoneySavingExpert’s income tax calculator to help you check if you are paying the right amount of tax.”
Good grief!
Indeed…
This is correct for many higher rate tax payers who are just over the threshold.
AVC’s to pensions are frequently used to get below the threshold, as are cycle to work schemes and other legal means of reducing liability.
One thing to think about, especially when newspapers had a higher circulation than they do now, the newspapers found in most staff rooms and workplace canteens up and down the country was not The FT or The Guardian, but The Sun, Mail and Daily Star of all papers.
I remember when Tax Credits (WFTC wasn’t it?) was first rolled out, a number of people reduced the overtime they were working just so they could get the maximum amount.
This is one of many reasons why I cannot see UBI working, depending on the level it is set at, most people earning below it will simply quit work.
There are already a number of self employed people near me who are legally allowed to work during lockdown, who have decided to claim from the government scheme.
You will probably dismiss all this as anecdotal, but these are the people and lives that surveys and data miss.
You hear it by working with and being alongside folk.
I know that such things happen
I have and do live in the real world
But first, this implies you do not understand a UBI
And second, just because some people do such things does no0t mean most do
I don’t always trust what I’m told by the ‘man down the pub’ I admit
And for good reason
These were not “men down the pub”
These were/are work colleagues known very well over many years.
If you are saying my understanding of UBI is incorrect, then explain how it would work in those circumstances and what, if any rules there would be.
It is not the majority of readers of this insightful and we’ll reasoned blog you need to convince.
It is those that I have previously mentioned who need convincing.
I think I’ve already answered the point
Looking forward to seeing the answers Richard.
The question I hear continuously
” Is where will we get the money from ?”
Usually followed by
“we are all going to have to pay for this”.
The implication usually is austerity,recession etc are the inevitable consequences.
Let me assure you, they’re not
One myth you won’t like
The main way that Government-printed money is cancelled out is via tax
This is wrong, because new money is being printed as fast as money is cancelled
The main way that money disappears back into thin air is through bankruptcies and financial crises – mechanisms that need much more study
Otherwise excellent
Sorry – but that’s wrong
That’s money lost
Not cancelled
Richard
Cancelled or lost, the money is no longer there.
But understanding the other process by which money disappears is critical.
We probably agree that bank lending amplifies the mispricing of assets.
But does money only disappear when mispricing goes too far and leads to bankruptcy or a financial crisis?
Or do fluctuations in mispricing between assets cause a constant leaking of money out of the system?
I think these are critical questions, but too difficult for an aged biologist to answer.
Muspricing us pricing as far as money is concerned….
Richard,
When I buy a share and lose money, the money is still there, just someone else has it.
But in 2008 or 2020, the money just disappeared. This is so contrary to conventional thinking, that it took me years to figure it out. I thought, the money must be somewhere. Is it in a vault in the Cayman Islands? But I think the empirical evidence is that the money has really vanished.
My argument is that something really important is going on which we need to understand and which is being overlooked.
(I have seen it said that the most important exclamation in science is not “Eureka!”, but “That’s funny???”)
No, no money has disappeared
Value has
But that value was never money
It was just measured in money
A disallowed goal has not disappeared – it was never a goal
Same here
That value was not there
Richard,
But surely when banks create money against “value”, if the value disappears, it is money that disappears?
Banks do not create money against value
They take collateral
The debt survives the failure of the collateral
The inability to pay destroys the money – the promise to pay fails
That is not because the collateral failed per se
“Suggestions for more, better groupings and where to start are welcome”.
This is an excellent list but, to my mind, it would be sensible to START it with:
“Green myths – There is no climate crisis – We have to grow – Growth isn’t green”.
No policy will endure unless we tackle the climate and ecological crises – which must provide the matrix into which all other policies fit.
However uncomfortable or, initially, unpopular to talk or write about, a viable human biosphere is the ‘sine qua non’ of everything else.
We also need to support one another in developing conversations that face the terrifying realities but, at the same time, are sufficiently optimistic and engaging.
I heard an account of a schoolgirl who told her father what she had learned about climate change, fossil fuels and carbon dioxide emissions. He was the CEO of a major supermarket chain. As a direct result of that conversation, he initiated a review of his company’s energy use and made massive savings of energy use … AND money. Where’s the catch? There is the possibility of better lives all round.
Inspiring – but we can’t leave it all to the children.
I posted a comment but it never appeared. In brief, the myth of efficient markets also needs examining.
OK!
Replying to Jim Round: your comment re the self employed claiming SEISS money whilst continuing to work seems to imply that this is morally wrong. But this is what the government have told them they can do and the SEISS money will be included in the self assessment tax return. As a self employed music teacher I’m very grateful for this. It means I can continue to teach in a reduced form via online lessons, which not all pupils are able or want to do, and my shortfall is partly met by SEISS. I’m not earning what I’d expected from teaching and I’ve also lost the rental income I’d normally earn from a small flat I own. I’m grateful that in this one case the government have really helped. So please let your colleagues know this is one nit they don’t need to pick.
Gabrielle.
I agree with you.
I would also add, that all those people who are still isolating at home are still doing a valuable job. They are reducing the spread of Covid 19. What value does one put on a life saved/lost?
Is, staying at home a selfish act? At the moment I would suggest it is a vital act.
I should’ve added to my comment that the people who are claiming from the furlough scheme are legally ALLOWED to work, (gardeners, window cleaners, plumbers for emergency leaks etc..) have decided to NOT do any work at all, just to basically have a break from working, they have no reason to self-isolate.
On the other hand, SOME who are self-employed are wishing that they declared all of their income from the past few years.
There are, of course, decent people out there, but as I keep commenting to Richard, there is a long way to go before the majority of ideas put forward on this blog will be implemented and accepted by a high proportion of the population.
Jim Round.
I think you are wrong in saying “they have no reason to self isolate”.
If people can afford to self isolate, they should. I understand that for lots of people, it is not an option and they need to earn the money.
If the government has given people the means to stay at home, I don’t then see why you think they should be going out to work?
On a technical point. I don’t think people furloughed are allowed to work. Self employed people are though. The two schemes are different. (But I could be wrong)
People on furlough can work but not, to date, for the employer who furloughed them
The whole point of my comments is that a high number of people, if given the option, and a sustainable income, either from the government or another source, would simply give up work.
If I had a sustainable income for life that meant I didn’t have to work, I would certainly do it. There are plenty of books to read, places to visit and personal hobbies I can do to keep me occupied.
As I stated in my previous comments, people don’t tend to state this in surveys (Think Family Fortunes, does anyone actually know one of the 100 people surveyed?)
And again, they are not pub bores, they are work colleagues and friends known very well over the years, work to live, not live to work as the saying goes. They would rather be doing something else rather than working if given the choice.
I am not berating or belittling these people, it is their choice, just pointing out that there are more of them than statistics show.
Jim
I’ve heard you
And I have to say that I really do not believe you
Nor do I think you could do what you want on any UBI there will ever be
You might live
But not much more
And you ignore that many (not all) people actually enjoy going to work, in itself
Richard