I used to teach a module with this title at City, University of Lindon. The students seemed to really enjoy it because in it we used data and theory but then looked at the mess that is the real world, where nothing is ever as clear as any economist would like and talked about how to make decisions despite all the problems that this creates.
This is my approach to economics. Theory gets you so far, and then you have to talk about what is possible.
It seems that this upsets some people but in this video I explain why this approach is, for me, the only sensible route any political economist can go down if they want to deliver real-world solutions
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Excellent.
Until a few days ago no potential governing party offered any route to deliver the investment that this country needs. All we got were publicity stunts/double counting to “big-up” the paltry sums that were going to be spent at some unknown point in the future – all constrained by the question “who pays?”. Now there is a proposal that could deliver and that is significant.
Of course, we know (from MMT) that government could invest without taxing or borrowing (while we have so much slack in the economy)….. but despite our best efforts this has been ignored/rejected by mainstream politicians. Now, they may eventually “see the light” but in the meantime I think the Recovery Bond is a great idea.
As you say, a real solution for a real, messy world.
Thanks
Hi Richard, the other thing I would plead to people who actually have spare money to save/invest is to find a local business, whose ideas you like, who are doing something positive for people and planet and give them your money and support and help them, nurture them and take an interest in your investment. Go local, go good-doer, go green with your spare cash.
I do that….
Fully agree but there are risks to consider.
Can you afford to lose the money? Also, if you do lend, will it wreck your relationship with the other person if the enterprise all goes wrong?
Interestingly, even if the lender is relaxed about the loss, the borrower might feel dreadful and this can damage the relationship, too.
David Cameron now wading in on a green shaping of the recovery.
https://www.theguardian.com/politics/2021/feb/24/be-muscular-and-drive-green-recovery-cameron-tells-johnson
He says we have to be “muscular” about it. and that Tories do occasionally “overrule the free market”. He obviously sees this as one of those occasions. We have an opportunity to really do something different now.
The government could invest without tax or borrowing as Clive says but there is a governance cost to doing it that way. Money shapes social and political relations and social and political relations shape money – it is a dialectical “dance”. So if we rely wholly on central government created money to do all the heavy lifting directly we will create a top down centralised polity. That’s what we have already and it stands in complete tension with democratic governance – it is the basis of our crisis of democracy. So using hypothecated bonds is a design feature of de-centralised money and, therefore the basis of de-centralised democracy – subsidiarity. So it is not the solution that I favour – and I suspect not Richard’s either. De-centralised money begets de-centralised poliitcal power, de-centralised political power begets de-centralised money. A dance anyone?
On the invitation for “another theory” – well I already suggested one – the establishment of a National Pension & Investment Fund (NPIF) – firstly this is the means to collectivise investment risk, relieving companies from the burdens of funding DB scheme “deficits” to free up their capital to develop the business, and relieving citziens who are in DC pension schemes of the investment risk they are not equipped to bear as individuals.
Secondly, this enables pension fund management to escape the cage of “fiduciary duty” which drives short term investment behaviour and fuels financial asset speculation. Tax incentives do not solve this enormous problem, although they could work as an interim “fix”.
Thirdly, the formation of an NPIF starts with publicly funded pension funds – public sector schemes such as Local Authority pension funds. These funds get their money from the public purse as the pension contributions of both employer and employee come from public spending. This means that these funds have a duty not only to their beneficiaries but also to the general public whose money funds them in the first place. Government has the legitimate power to set the framework within which these funds make their investment decisions. Tax incentives don’t touch these issues.
If the NPIF is then designed to provide an earnings related pension to ALL citizens (which is what a DB pension is) then the NPIF becomes one great big magnet sucking in funds from useless DC schemes and from DB schemes which employers would love to be rid of because of the endless demands for funding “deficits”.
Finally creating an NPIF also provides the opportunity to dump once and for all the nonsensical “fund valuation” process – a method of pension fund balance sheet accounting which always finds there is a “deficit” even when pension fund contributions income exceeds current liabilities (payment of pension benefits and admin costs).
The whole edifice of our pension system is a giant ponzi scheme shovelling billions into speculative financial markets. It has to end. I would appreciate some engagement with my NPIF proposals….I provided a link in a comment the other day.
Jim Osborne’s comment about a National Pensions and Investment Fund is interesting. I read his previous comment the other day, which had some response from Richard.
I would like to know if Richard intends having Jim do a guest post on this, or do some work on it himself, or leave it as it is?
I think it’s an excellent idea.
Thanks.
I am happy for a guest post from Jim
Definitely worth exploring. The Central Provident Fund in Singapore is worth a look at. It represents a decent starting point although it might need some significant tweaks to meet “local conditions” here in the UK.
I am more than happy to take up the opportunity of a guest post. Shall I email you a text Richard?
Please
Agree, your proposals are not rocket science and are a no-brainer for most people to understand. The problem in the real world is to get those people supposedly in charge of the real world to understand the feasibility and beneficial outcome of launching a national investment bank. It looks like the obsession with the stock market (despite the uselessness of this for productive investment) is so ingrained in the mainstream economic and media thinking that your and Starmer’s proposals will be kicked into the long grass unless enough campaigning can change public opinion on a massive scale.
I am hoping to work on this….