The FT has an article out this morning that has this title:
I read it, more in hope than expectation. It did not take long for those hopes to be dashed. They were when I read this:
The national debt that piled up during the Covid-19 crisis will have to be repaid, as Rishi Sunak made clear in this week's Budget.
If it's any comfort it is that the rest of the article is so bad - basically asking pensioners on incomes of more than. £100,000 a year to make voluntary tax contributions.
There are, of course, two fundamental errors implicit in this commentator's thinking.
First, there is absolutely no reason at all that the sums that supposedly increased the national debt during the course of the Covid crisis need to be repaid. As should be well known to somebody commenting in the FT, almost no supposed taxpayer funds were involved in the process of paying for that crisis. It was, instead, entirely funded by the Bank of England through the quantitative easing programme. Quite who the author does, then, think needs to be repaid is an interesting question which the article does not address. If QE were to be repaid what he would discover is that this repayment would necessarily reduce the financial stability of our banking system. I genuinely wonder why he might be keen on that?
There is, however, also implicit in this article the deeply patronising idea that the state is dependent upon the contributions that the wealthy might make to it by way of taxation. This is simply not true, for two reasons.
The first is that the underlying assumption is that the state has no money of its own, and is therefore dependent upon any that can be provided to it by outside sources. This is, of course, the exact opposite of the truth. In fact, all money has, necessarily, to be created by the state and any money that might be paid in tax was always, in the first instance, created by the state that demands that tax payment be made. This author has then, quite literally, got all his logic the wrong way round. The state is not, as he so very obviously thinks, anything like a household or business because it can always create money, and they cannot.
Second, and at least as important, what he does not seem to appreciate is that money does not actually represent value. It might record value, but it does not represent it. Value is, as was recognised by the classical economists, created by human endeavour. The consequence is that, as Keynes put it, we can afford to do whatever is possible within our economy. In other words, we can always work to the limits of full employment and money is never a constraint because the state can always afford to inject the required money into the economy to achieve that goal. Tax is then a mechanism to prevent inflation, whilst simultaneously restricting the scope of inequality, repricing market failure and directing economic activity through fiscal policy.
In that case it is disappointing to see the FT publish such gibberish.
Worse, I would have hoped that the FT was particularly aware that philanthropy by the rich usually comes with strings attached. I rather suspect that this would be the case in the situation that the author of this article envisages and we can definitely do without that.
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Great blog. There’s a key point you make which is always omitted when journalists, as above, say that “the money will need to be repaid”, and that is – who is the money to be repaid to? That is never mentioned, and it’s a point that needs making, as no one seems to notice it’s absence, the intended recipient remains nameless. It’s almost as if what’s being written is political not factual. I’m glad you keep making the point.
There need not have been any debt. They have known for decDes a pandemic was likely, if they didn’t consider the cost thats incompetence, England voted Brexit if the Tories didn’t anticipate the financial consequences , they should never have led the voters down that route. Pleading poverty now and passing the buck on to the population is criminal!
Thank, Richard.
It really is ridiculous that a paper like the FT should print nonsense like that.
It’s rather in the much in the same vein as an interview it ran with my local MP before the Labour Conference, when, mentioning an elderly constituent telling her to take care not to spend too much of her “taxpayer’s money” our MP’s reported response was just as bad!
The digital subscription I took out in Lockdown One stays at that level.
A short letter to the FT would seem indicated.
Submitted already
1% chance of getting in…
Well said Richard. Two glaringly obvious points that always get ignored:
(a) Government spending is much more like investment. When the Government spends £1 billion, it will always get at least some of it back as tax. If it spends wisely (=makes good investments) it should get all of it back, and even make a profit on its investment.
(b) What about private debt? Banks create Government-backed money to make idiotic loans without anyone even raising an eyebrow. Surely this is a far larger problem?
You are right
Completely agree. The term “government spending” should be replaced with “government investment” which is a better reflection of what the money is used for
Richard
thank you again
you wrote that money does not actually represent value, it might record value. Value is created by human endeavour
that’s another piece in my understanding of MMT
Yet again more market led debasement and denial of the Stat’s capacity to sort these things out.
I can’t remember the FT asking wealthy pensioners to contribute to bailing our greedy banks in 2008.
All part of the false narrative they continue to try to manufacture day in, day out to destroy any idea that Government is for the people.
What I found fascinating and of course that was in Gold Standard days was that at the end of WW1 a number if the ‘Super Rich’ voluntarily handed over massive amounts of money to The Treasury to help defray the cost of the war.
Little sign of that these days
Remember this was utterly different – governments could not create money at will
This feels like a parody. The government cuts taxes for the wealthy because it’s supposedly good for the economy and then the wealthy talk to the government about how irresponsible it is and how they can solve its debt problems.
“In that case it is disappointing to see the FT publish such gibberish.”
I’m not even surprised. This sort of low grade “noise” is aimed at keeping Uk serfs ill informed/butressing the idea that the state has no money.
The article is “maintenance” – of the status quo. I’d bet a good bottle of wine that the writer does not even believe this trash.
This is a thought experiment so even though the premise isn’t true for me please bare with me. It might be true of some one somewhere.
Suppose I’m a spectacularly wealthy pensioner who can afford to give the BoJo led UK government an amount of money equal to 1/500th of the UK national income.
The question is: should I actually do this out of the goodness of my heart believing that transfer to the government is better for the country than not doing so. Or should I personally hire people to work out where those funds would be better directed than parsing them through this Tory government and instead offload those funds for the benefit of the recipients that way which would be outside of political oversight from this Con government.
If you thought the state needed to deliver more why would you not engage to demand higher taxes?
So important that you wrote this. Getting one’s head around the premier financial newspaper publishing not simply drivel, but barefaced lies is quite hard. I always end up debating whether these people are liars or simply monumentally ignorant, the latter being a possibility as a consequence of their economic education, which is globally enveloped in the monetarist blanket. But then I ask whether even this can justify baldly stating that the covid debts must be repaid!
Thank you so much for clarifying that all money has, necessarily, to be created by the state and money does not actually represent value. I am not an accountant, but having recently been recommended to your blog, I am finding it a very helpful view on our current politico-economic issues.
Always learning fascinating (and infuriating about this government) things from this blog richard. No wonder that poor social protection spending plus unprogressive tax and poor labour rights put the uk 21st of 48 in oecd and 6th of 7 in g7 in our commitment to reducing inequality index (inequalityindex.org). It has fallen from 14th in 2018 as the social protection cuts really bite and will fall further in next years edition. One of lowest pensions in whole oecd as % of prior earnings.