The 'killer' question that any journalists thinks that they can ask a politician who is proposing any new initiative is 'how are you going to pay for it?' The assumption is that government lives in a zero-sum and financially constrained world where if they are to propose some new action then something else has to be foregone to pay for it, or a specific new tax has to be found to fund the project.
The trouble is that most politicians share the journalists view: they also think that they are constrained.
We end up in a world of impoverished ideas, and impoverished people.
But this constraint rarely exists. The video explains why. We can pay for things, simply by doing them. Creating wealth pays for itself.
And on the subject of videos, because the channel is growing quite quickly YouTube has now let it embed links and have subtitling applied so these features are going to be added very soon.
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Another excellent video thanks Richard – the short format and variety of nuances on subjects are really useful for sharing (I can’t guarantee anyone watches mind you!). I would like some cartoons to the side of you – the backdrop you have is like a blank canvas crying out to be coloured in – stills are fine. Maybe once the channel is more advanced you could employ a cartoonist! It would help stimulate the economy.
Agreed
This is a learning process
But you also have to appreciate this is very low budget and quick stuff
These are all single take, unscripted videos, with up to ten made in a couple of hines or so. They could be prettier. But better they exist is the logic right now
Och yes, I realise that. I meant to say before about your ‘one take’ presentations – that really is an impressive feat; to be able to stay on subject, clearly follow through with the thread of thought, no hemming and hawing. I am insanely jealous to tell the truth, to have such clarity of thought and the ability to ‘think on your feet’ with so little stutter is a fabulous skill to have. And very useful for low-budget videos! Get the kids to draw you some pictures 😀
Noted
And re the one take – don’t know where that came from
Practice, I guess
Yes But what happens if the government prints too much paper money Fiat currency and there is still no inflation and therefore it does not have to increase the tax rate proportionately to cater for that contingency.
My question therefore: what happens if the exchange rate tanks?
how will we pay for our imports — by printing more money?
Admittedly our exports will be more competitive but it is a given fact that we export far less than we import these days especially in part finished or manufactured goods. So what happens if there is a run on the pound?
Are we to perchance rely on the services sector to bail us out?
That solution is by no means a guarantee given I suggest.
Exchange rates do not collapse because of money creation
Exchange rates reflect real terms of trade
They move because the real terms of trade change and not because of domestic money supply
So, in reality the exchange rate is 3 sheep = 1 cow (or the like) and that does not change but domestic money does
Somewhat outside the UK has no care how we value sheep or cows. They want the cow or sheep and will swap for it at a prevailing floating rate – but we will not get more or less of what they have to offer because our domestic price changes
So, what you’re fretting about makes no sense
Would exchange rates collapse if investors decided they didn’t like the debt/GDP ratio, had
“no confidence” in the government and took their capital elsewhere?
No
Foreign holdings of UK debt are about £400bn
If that debt was sold by them it would still be sterling debt
And it would not change due dates
But importantly, trade with the UK would then be harder for the countries in question
Now, of they no longer wished to trade that is another issue altogether – and the real issue
But presuming they do want to trade they want UK reserves and that makes it exceptionally unlikely they will miffed their money from one of the safest assets on earth that they want / need to hold
So debt is not the threat
Brexit is
As has already been proven
The question is why have all governments for decades insist they don,t have a money tree and these things need to be paid for,and that tax is required to pay for government expenditure and the fallacy of balancing the books? when its patently a nonsense.
I’d assume because many are simply unaware of how money works while others have it in their interest to maintain a wildly unequal and artificial status quo – would we ever have heard of Boris, or Cummings, or Cameron or Osborne were it not for their unfair advantages over the rest of us sustained by the deliberate rationing of the currency and through that, opportunity?
You’ve made me feel distinctly less ignorant through your blog – which may be dangerous ill-found confidence on my part – but thank you.
When you mention the rare occasions inflation gets out of hand, it’s difficult not to think of post WWI Germany and Zimbabwe. I think I might now have an idea of the answers, but, were you post a line or two, it would be much appreciated. Or a nod to an earlier post.
I should do a video on these
I will record one on Friday
But think failed states, corruption and debts in foreign currencies
I know that Bill Mitchell is “persona non grata” around here, but I’d like to mention that his “Economic Outlook” blog deals extensively with Zimbabwe, Wiemar , Venezuela, hyperinflation, etc. etc. Just use his search facility.
Your best video yet, I reckon.
The answer to the TV journalist ‘s question:”How are you going to pay for it?” should always be: “With money.” The journalist is almost certain to say: “And where will that money come from?” thus giving any MMT-wise person an open goal to shoot into.
Indeed….
Have some simple talking points been developed along those lines?
Q: “How are you going to pay for it?”
A: “With money.”
Q: “And where will that money come from?”
A: “The same place as all the other money. You do you know where that money comes from, don’t you? No? Let me explain …”
Q: “But what about Weimar Germany, Zimbabwe, Venezuela, etc.?”
Noted
For readers of diminished attention span who can’t spend 5.5 minutes watching your excellent video, here is a much simpler accout for children: http://outsidethebubble.net/2020/07/21/learn-to-love-the-deficit/
Thanks
In the case of Weimar hyper-inflation nobody really knows if it was deliberately triggered by the Germans to reduce the value of reparations, a consequence of France’s invasion of the Ruhr, speculation or excessive reparations. Jurgen Tampke’s book “A Perfidious Distortion of History,” for example, argues the First World War stopped before Germany’s industrial or production capacity was damaged and the reparation amounts were affordable but an imperialist elite in Germany were hell bent on imperialist aggression because they thought the other imperialist powers particularly Britain and France were preventing Germany’s growth. Tampke argues Keynes failed to understand this. Certainly, Zachary Carter argues in his book “The Price of Peace” Keynes remained a proud British imperialist and never figured out in loan negotiations with the Americans that they disliked British imperialism (after all they’d fought a war against it) and wanted to spread their revolutionary concept of democracy in one country around the world using force if necessary.
I am not sure I buy that
Incapacity to earn foreign currency and a shortage if manufactured goods as too many had to be exported began this process
The resulting imbalances drow up domestic prices
i am not defending Keynes – he didn’t really defend himself on this issue
You need to read Jurgen Tampke’s book to get the flavour of how strong German imperialism was and remained so after the armistice. Also of interest is that Hjalmar Schacht understood the concept of parallel currencies and introduced the rentenmark in 1923 to rectify the hyper-inflation. He also introduced the MEFO certificates parallel currency under Hitler to help disguise German rearmament from the Allies.
https://en.wikipedia.org/wiki/Hjalmar_Schacht
Obviously this should be of some interest to MMT supporters because it reveals a state’s monopoly position to establish a country’s dominate “unit of account.”
Having said all this there is I think no conclusive evidence about the causes of Weimar hyper-inflation at least none that I’ve come across yet.
Albrecht Ritschl (LSE) is interesting on this. This is an extract from his conclusions, from a paper in 2012:
“This chapter has placed this policy in the context of Germany’s mounting foreign debt crisis during 1929-1931. German fiscal policy adhered to orthodox recipes, not so much out of misguided ideology but in an attempt to avoid defaulting on reparations. Transition from the earlier Dawes plan with its lax payment conditions to the much stricter Young Plan had marked a sudden regime change in fiscal policy. From mid-1929 to late 1933, balancing the budget was the paramount fiscal priority.
Success of this policy was mixed. Whilst it reached the limited goal of averting outright default on reparations, it ultimately failed in its attempt to keep current on Germany’s commercial foreign debt. There is general agreement that this course of action contributed to political radicalisation. Political pressure to pay by creditors abroad and to default by voters at home put the government in the precarious position of an agent with two principals having diametrically opposed interests. The effects on the legitimacy of the Weimar Republic in the eyes of the population were detrimental.”
The problem is complex, and multi-faceted (which is a banal observation, but relevant), and the interplay of all the factors in an almost unique situation are difficult to disentangle, because they rarely occur and are rarely documented. I am struck by a compelling phrase “an agent with two principals having diametrically opposed interests”; a very powerful observation. Perhaps the most obvious point of all is not made; Germany had lost a World War, a circumstance that is itself exceptional and likely to have serious psychological effects on the population, with major social and political implications for the respect in which German institutions were held. Ritschl does refer to the Gold Standard, which should not be forgotten. It seems reasonable to consider that what all this shows is that the participants on all sides did not really know what they were doing, and were not weighed down by impartiality or wisdom in making their choices. The obvious contrast is with 1945 and the Marshall Plan.
Thanks
It’s always seemed to me that Hitler understood money much better than we do now.
Which is how just six years after the demise of the ‘no money ‘ Weimar republic he was invading Poland…
Excellent video explanation by the way!
Ok tax doesn’t pay for it.. but at some point tax will go up (To mitigate inflation) because of the level of government expenditure.
You call it “making room”.. to the man in the street who will have less disposable income through higher taxes…it will feel and sound like tax pays for govt spending
If people vote for governments that promise more spending that’s what people want
And it may reduce disposable income but it improves life
“ If people vote for governments that promise more spending that’s what people want..And it may reduce disposable income but it improves life”
Indeed… but the link is there between tax and Govt expenditure, and the relationship is inverse. So you bang on about “tax doesn’t pay for govt spending” but we know at some point tax will go up because of Govt spending.
Actually, we don’t
It may
That’s what we can say
But your claim is false
I have a little question. I understand that UK as a currency issuer, can create as many £££s as it wants. I assume that is the case for other currency issuers (USA, Japan, Russia, China, etc). What about countries in the EU? Can France, Spain, Germany create money, or is that done by the ECB? If it is the ECB, how do EU countries deal with spending?
They are in effect agreeing ho to do this now with common funds to be out in place
It’s tortuous, but they’re getting there
Richard,
I like your videos. Keep them coming. I’m tired of listening to constant exhortations that we are facing a pile of S**t. I know we are, what I want to read about is solutions, your videos make a contribution in this regard and they are appreciated, as are many of your posts on this blog.
Is there no way grab the publics’ attention on these issues. Sunak will inevitably steer a course back to public expenditure cuts to “pay for COVID support”. I really can’t abide the thought that austerity will rear its ugly head when it is so patently not the cure we need.
Should we start a class action on behalf of citizens who have suffered needlessly from previous cost cutting – by Osborne etc – when this was unnecessary?
Ask Jo Maugham…..he’s the man for this….
Great Richard, and I heard every word!
I think we can also have subtitles now
As the channel expands we can turn on more features
There are now 35 videos made and plans for the next 30 are in hand
We’ve only released 15, I think
Richard