I watched Channel 4's Dispatches on who pays for Covid last night, largely in despair.
Partly that was at the choice of the hard-right economics commentator Liam Halligan as the presenter. I had the misfortune to share a platform with him once. Mainly, though, it was with the message.
That message was, correctly, that we cannot have tax increases now. We cannot. The evidence provided and the logic given was scant though.
The obsession was, instead, with increased debt. Alistair Darling was rolled out to say that even if QE was used ‘we will have to pay for this one day'. But how, and why, was not addressed.
So let me provide some data that I have been preparing for a talk I am giving on this issue on Thursday evening (which is open to attend). Amongst the data I will use are these two charts. The first shows UK reported debt and QE, and the net sum of the two:
The second restates this data as a percentage of GDP:
It is the green line in the second chart that matters. What is clear is that since 2011 debt has been stable. The latest slightest upturn is only because GDP fell. Put quite simply, QE has taken the strain.
That does not mean all is right in the world. QE has massively increased wealth inequality in the UK. That is why action is needed to tackle that, but the point is debt is not out of control.
Unless, that is, you do two wrong things. One of those wrong things is to treat gilts owned by the government as debt, which very clearly they are not. If a person owes themselves a debt, and the interest charge on that debt is effectively cancelled, and they have never once taken a step to reverse the ownership of that debt, all of which conditions hold true in the UK with regard to gilts repurchased by the government using QE and show no signs of ever being reversed, then clearly the accounting substance of the matter is that the debt in question is cancelled. So, the green line in both charts holds true.
And the second error is to presume that the money created by the Bank of England to buy these debts is itself debt. It isn't. There are two reasons for saying so. The first is that banknotes are not in the national debt - and I will publish my explanation of this soon - and that since notes and the central bank reserve accounts which represent the new money created by the Bank of England for quantitative easing are both described by it as 'base money' - then that QE created money cannot also be included in the national debt. This is why the ONS keeps the gilts in its calculation instead, to suit the government's political agenda, whilst wilfully misstating the debt as a result.
So, there is no debt to obsess about. There is only the money that has already been used to pay for Covid. And try as I might I can't think why we want to pay for Covid twice, or come to that, why we would want to cancel the money that the banking system seems to require to maintain solvency right now (or more would not have been required in March 2020).
So, Liam Haligam asked the wrong question, based on a lack of knowledge and came up as a consequence with an obsession with inflation of which there appears to be very small risk.
I will be asking the right question on Thursday night.
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Thank you for the report.
I didn’t dare watch it – how could Channel 4 allow something like that to be put out I do not know. Half an hour of lies.
And there are still cuts to Council funding happening right now and elsewhere.
Pilgrim, you were wise not to watch it otherwise you might have finished up shouting at the telly, as I did. When the subject of “borrowing” comes up, no effort is ever made to clarify what is meant by “borrowing”, and nobody ever asks the obvious question of “who is lending the money that the UK Gov is borrowing and where did they get it from?” It was 30 minutes of annoyance and 30 minutes I won’t get back again.
Thank you Ken.
‘Shouting at the telly’ – hmmmm, yes, been there, done that.
Excellent piece by James Foley for “Source” (Common Weal) today.
http://c0mmonw3al.activehosted.com/index.php?action=social&chash=3871bd64012152bfb53fdf04b401193f.823&s=1ea5351bef6e60caad7b105e387a6030
I must say I was looking forward to this C4 Dispatches programme, I thought it would be really interesting and that they would bring up some new factors that were not known before. Disappointed is an understatement. Although they did refer to the “Magic Money Tree” as some sort of joke, they couldn’t get away from the fact that the Treasury/BOE can raise as much money as they want within the constraints of inflation. I agree Alistair Darling said absolutely nothing and hinted at tax rises in the future. They even admitted that there would have to be 10 years if tax increases of £40bn per year if they think that “paying it back” the £400bn estimate of extra C19 spending that would be required as important.
You say “banknotes are not in the national debt “. You previously said “There is no such thing as a ‘national debt’. There are notes and coins, National Savings and Investments accounts and the bonds that pension funds, life assurance companies, banks and overseas governments like to save in.” and “so-called government borrowing includes notes and coin” so this looks like a change in position?
https://www.taxresearch.org.uk/Blog/2020/06/12/mythbuster-the-national-debt/
I have two questions about unwinding QE
Imagine a scenario where a Labour opposition made the case that the government was using QE to cover its deficit and so we won’t have to pay for this spending later, and this QE will never have to be repaid. Would there be a danger that the Tory government and/or Bank of England might in response choose to pay back some QE even if this hurt the economy in order to “prove” that Labour was wrong and the neoliberals are correct and the debt really should include all QE? Remember the overwhelming attacks on Corbyn from left and right when he proposed PQE.
Second, I was looking at some of your old blogs on QE where you said no QE has been paid back by any country other than the US paying back a tiny amount and that was because of exceptional circumstances. What were the exceptional circumstances to which you were referring that caused the US to unwind some QE?
I have worked hard to find out coins are in the national debt and notes are not, and no, there is no logic to that, at all
So, I have changed my mind on that one based on new evidence
The government cannot ‘pay back’ QE because it’s already paid for it
WHat it can do is resell bonds back into the markets, at risk that this would ramp up interest rates rapidly
There’s a gift to Labour that they will not be making
The US tried to prove it could sell bands back into the market. It pretty quickly found it could not
At some point the BofE may want to raise long term interest rates to stem inflation. Do them QE would be reversed. It is a tool of both monetary as well as fiscal policy.
Where us thus inflation coming from? And how much? And to what level will inflation have to get before a reaction is required?
Like PSR, I refused to watch it, especially as I knew who was presenting it. And, like PSR, I wondered what Channel 4 could have been thinnking. It is outrageous that such bullshit should be promoted at prime time by a supposed reputable news organization. However, I have seen members of the Channel 4 news team reiterate neoliberal nonsense more than once. I have not once seen any explicitly contradict the mainstream narrative, ever.
Channel 4 have form for this sort of thing. In 2007 they broadcast ‘The Great Global Warming Swindle’ featuring, among many others, Nigel Lawson as an expert on climate change.
I saw the title, then heard the blurb, and realised it would not be worth wasting my time with.
Thank you for confirming I was correct.
More proof, if it was needed, that those who understand how a modern monetary system works should stop their internal bickering and arguments about which parts of the prescriptive narrative matter most and focus on ensuring that the actual (mainstream?) debate focuses on the correct questions. Its no good being correct, if no one listens and/or takes notice. Even my favourite European MMT economist was wasting time recently debating the relevance of Godley’s sector balances….bizarre….
The mainstream narrative has yet to move on and, meanwhile, MMT remains largely and unfortunately a relative sideshow/butt of Magic Money Tree jokes. The blame for that is widespread and the risk of Python-esqe parodies increases…
(I didnt see the dispatches broadcast but the idea of Ch4 and L Halligan teaming up is rather amusing)
Remember, he was once the economics corespondent on C4 news
He was indeed.
It’s a shame he seems to want to make his name for himself by peddling such crap.
You know, having teed myself to read ‘MMT and Its Critics’ (I kid you not) but I read Timothy Snyder’s ‘On Tyranny’ only to then decide I needed to read his ‘Road to Unfreedom’ instead.
I tell you what (if you’ve not read it) it’s a tour de force of politic analysis even if you only read the first chapter.
Snyder’s concept of ‘the politics of inevitability’ – contemporary politics in the West, with its TINA thinking that stifles creativity and markets effectively replacing policy just makes so much sense.
And that’s what Halligan is really putting across – the economics of inevitability (it will all have to be paid back).
And of course it leads to what Snyder to then identify ‘eternity politics’, born out of the huge inequalities of inevitability.
Describing the mindset of the ‘eternity’ citizen, Snyder writes (p.22):
‘Those who accept eternity politics do not expect to live longer, happier or more fruitful lives. They accept suffering as a mark of righteousness if they think that guilty others are suffering more. Life is nasty, brutish, and short; the pleasure of life is that it can be made nastier, more brutish and shorter for others’.
Well, there’s you average BREXIT and Red Wall Tory voter voter right there I say. Even Fintan O’Toole has noted the same tendency in his book ‘Heroic Failure’ .
But I still say that that mindset not only has to changed but also understood – otherwise we might just end up just killing each other. The sort of revolution that we do not want.
My son and wife gave birth read On Tyranny and have told me I must
I will add it to the pile…..
You mention that the talk is open to attend, but there doesnt seem to be a link to sign up for it. Have I missed it? Will it be recorded to watch on your youtube channel, or published on this blog?
Click in the link at the top right and you should be able to register
The C4 show, then, was an exercise in maintaining the status quo. Why should we expect anything else? Perhaps regulars here should combine resources to make a documentary of their own offering an alternative and better informed point of view. This is not impossible these days, you can do a lot with a phone camera and a few lights. There are distribution channels out there too now other than the politically obseqious Youtube.