I wrote this on Twitter last night:
It would cost around £50 billion to save people from the hunger, the cold, the poverty and the despair they are now facing. That money is available tonight. It would take a few keystrokes on a Bank of England keyboard to create it, instantly. So why won't the government do it?
I followed it with a quick thread as an afterthought, the tweet having originally been intended to stand alone.
This morning the idea still seems as relevant as it did last night, so I am returning to it as an alternative to the horrors of war in Ukraine, about which I can do nothing, because on this issue there are solutions I can propose.
As I showed in a Twitter thread recently, the impact of energy price inflation (driven almost entirely by financial speculation, or exploitation) is going to be extremely harsh. When domestic fuel, road fuel and other inflation are taken into account and having allowed for pay or benefit rises a household on around the minimum wage will see a cost of living increase of maybe £3,000 a year in my estimation, or around 14% of likely available income.
For a household on median pay, the cost of living increase will be more, because they are more likely to have a car and bigger energy bills. The cost will exceed £3,000. In proportion to available after-tax income, it may be 11%.
For those in the top decile the increase in costs is bigger in absolute terms again, but much smaller relatively, and there is more than enough slack to cover that cost, albeit not without it being noticed.
At least half of UK households are then facing increases in costs of maybe £3,000 a year by October this year, and have literally no way in most cases of meeting these bills given that neither pay nor benefits are increasing, these households have no savings of any consequence on average, and in saying this I am assuming that all spending on anything but core essentials is already eliminated.
Roughly 15 million households need £3,000 a year to survive this crisis in that case. That's £50 billion, near enough. I do not pretend that my estimate is more precise than that. But for the sake of illustration, it does not need to be: as an illustration of scale that is good enough.
What I know is that this money is available. With a few taps on a keyboard the Bank of England can create this money. It can either give it directly to the government by letting it run a deficit in the Ways and Means Account, which is entirely possible, or there could be a further quantitative easing operation. Because of the distributional impacts, I prefer the former and not the latter, but if there was a wealth tax at the same time, quantitative easing would work. The essential point is that there is no scarcity of money in the UK to tackle this issue, which is being entirely created by a shortage of money and quite literally nothing else.
In other words, solving this problem of poverty is at this moment that is entirely within the ability of this government to solve. There need be no poverty crisis in the UK. Using the power of the government to create money this problem can be solved.
And what we know is that money creation from 2009 to 2021 did not deliver inflation. Inflation has been created by Brexit, the failure to plan the reopening from Covid lockdowns, war and financial market exploitation. But it has not been caused by money creation. This is the latest Office for Budget Responsibility inflation forecast:
If money creation was going to create inflation it would have happened a long time before 2021: it did not.
So, money creation now will not create or add to inflation risk.
But what it will do is save the economy from recession. Given that many if not most households in the UK will not be able to meet their energy costs soon, or will only do so by cutting out all their discretionary spending, there is a massive economic recession coming our way in the UK unless something is done to help these families now. The leisure sector will be hammered. Unemployment will rise. Banks will suffer massive bad debts as mortgages and commercial loans fail. It is all too easy to see how this could escalate. Multipliers work for an economy going down as well as for an economy going up.
£50 billion to support households now would end this fear of poverty.
It would help curtail inflation.
It would keep people in jobs.
It would prevent a recession.
It would also prevent a collapse in government income.
And it could prevent a recession.
And all that could be achieved by simply creating the money required to support struggling households.
So why aren't we going to do just that? What is it that is stopping the government taking people out of misery, despair, poverty, hunger and cold?
Why is it that the government wants to fuel anxiety, depression and the real risk of resulting physical as well as mental illness that this will lead to?
What appeals to them about creating a recession?
Why is that they want to fail us?
And all for the sake of putting some keystrokes into a keyboard?
I really wish I knew, because to me it is incomprehensible that they are acting as they are.
As much as it is incomprehensible that the Opposition is not arguing for my alternative.
When will we have politicians who understand money and its power to change the world that they alone can use?
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You have a typo. You say £50 million instead of £50 billion.
Changed, thanks
Sorry, typo alert; “Roughly 15 million households need £3,000 a year to survive this crisis in that case. That’s £50 million, near enough.”
Should be £50 billion.
Changed now
Ideology, ideology. I was at a business leaders meeting over the weekend and the majority view was that “inflation must not be allowed to get estabished”. I and others railed against this, but the cruel (vicious to my mind) response was “no pain, no gain”. None present were going to feel much of the pain, and would likely gain.
Thanks
Para 8, £50 billion, not £50 million!
Typing too early!
Changed
Why is it we have the most useless Opposition ever that does not articulate this?
Is Starmer an establishment plant to destroy the Labour Party?
in a word – yes! That Starmer is one of the rarified group of Britons who are members of the Trilateral Commission “tells you everything you need to know”. Yes, most politicians from across the political spectrum are either careerists or coopted or both. But Starmer is in another category altogether. He is nothing to do with the Labour Party at all. His role has been to destroy it – and that’s the only area in which his competences lie.
I am not a big fan of Starmer, but this is silly, to be at my politest
He would have fitted quite comfortably into most Labour governments we have had so your claims make no sense
Tories believe that whatever help is given to those that struggle must be coming from their pocket and they don’t like that – whatever good it might do and however little it might hurt them. Sad.
Now, most Tories fail to understand money creation etc. so see this as a “zero sum game” but even those that do understand money still oppose because they fear that at some point the money added will be drained through taxation – and that will almost certainly be redistributive.
Your anger is justified but make no mistake, it is selfishness that drives the policy with ignorance playing a strong supporting role.
They fail to understand “trickle UP”….. trickle up of well-being. Support those that are struggling and make their lives better and all all our lives become better!
“So, money creation now will not create or add to inflation risk.”
Err.. I know you are trying to protect your narrative but not even your most ardent follower will believe that deep down… Inflation is never caused by one factor it is a combination of factors and increasing the money supply is one of them.
In extremis, yes
But there is nothing remotely extreme about this case, as I demonstrate
You took the quote out of context, deliberately, which simply shows you up for the troll you are
Sadly I think the answer to why the government is intent on attacking the poor is that they despise the poor. It is part of their new (from 2010) ideology. George Osborne (Nick Clegg reported) attacked the poorest because cutting welfare would boost conservative popularity. The anti-poor ‘bedroom tax’ is still in force. Measures to limit the voting power of opposition voters (ID cards etc) are on-going, as are plans to stop the judiciary ‘interfering’ with anti-democratic government actions like the illegal proroguing of Parliament. The blatant lie of ‘having to pay for’ the £12billion to the NHS whilst apparently not having to pay for the £400billion Covid bill or the £100billion HS2 bill is scandalous but it seems no-one bats an eyelid. Lies in Parliament, lies to the media all seem to be accepted with a shrug, as is the tanking of the economy by the Tories who bask in the myth of financial rectitude. Of course a crooked government will take advantage of a population who demonstrate such woefully misguided trust!
The simple reason, I think, is ideology. The Tory party, and, to be honest, the other parties, all want to perpetuate this myth of the economy being run the same as a household. They’re obsessed with the “no magic money tree” ethos.
They don’t want the general public to know that all their ills could be solved with, as you said, a few taps on a keyboard. Because if they did that it would mean that decades of lies would be exposed and the public would, I hope, never stand for that.
They would say, “just think what could have been done over the last 50 odd years if the Government of the day had just pressed some keys” That would then do away, for good, the idea of having to tax people to ” pay off the debt”.
All the massive problems which have beset our country could have been solved, and we would all be in a lot healthier position than we are now.
Of course, had every Government had some sensible ideas such as stockpiling oil revenue, or storing gas, it would have also made a difference, but, again, short term gain is more their style.
I do hope that the Scots manage to secure their independence and whoever ends up in charge can use more sensible ideas to make sure their citizens are not left to starve or freeze to death to save a few pounds to line a millionaire’s pockets.
Using logic if the government is like a household then a household must be like the government. The government print notes and mints coins so I demand the right to print legal notes and coins.
Try it
In a world of glib one-liners and easily repeated, memorable sound-bites as a substitute for policy (e.g., Boris Johnson’s 15th March ‘Kleptocracy Unit’ that nobody can find – as time passes even now, giving opportunity for the currently sanctioned oligarchs to move their assets unhindered; who knows? – is a paradigm of the usable, convenient, throwaway nature of the Conservative method): but I really like the idea of ‘Trickle UP’; that is usable to bypass the guff and make sure measures aimed at those in most need actually receive them. The easiest way to overcome the Conservative self-serving guff is to use their own glibness against them.
During the Spring Statement debate Sunak insisted the only way to help people was to make sure they could use their own money. In the Treasury Committee he defended his lack of help for the unemployed or disabled; those who fell through the many gaps in his direct help for people suffering the price crisis, by talking about around £1Bn of help that was not being paid to the sufferers to use for themselves; but paid to local authorities; another layer of judgement and scrutiny before anyone sees any help, or can use the money, and clearly not ‘theirs’; if they ever see any at all. This is how guff works.
‘ve no problem with MMT per se. In fact I agree with it 100%. However, I do have concerns about how it is sometimes presented. Particularly this concerns comments along the lines of “The government can create all the money that we need to prevent poverty……”
Economics is usually perceived to be about money but it’s really about resources. Money and the pricing mechanism is a way of rationing those resources. So, for example, if we have 100 people with 100 loaves we do have enough resources to feed 100 people. However if the richest percentiles can afford more than one loaf it will mean that the poorest will have to do without or perhaps settle for half a loaf.
Creating more money to help the poorest percentiles will only help if the process isn’t generally inflationary, and the extra buying power produces an increase in the supply of loaves. This may or may not be the case and we have to consider if the purchasing power of the rich doesn’t also need to be reduced via the taxation, or some other, rationing process – as it was during wartime.
At the moment we have an available resources problem in the energy sector. The same principle applies. We can’t, at the moment, quickly create more energy by creating more money. It will be possible in the longer term but it won’t have an immediate effect. To help those who can’t afford to buy gas or electricity, right now, we have to reduce the capacity of the rich to buy more than their fair share.
There is almost no scarcity in resources in the UK right now
There will be enough food and energy to keep everyone fed and warm over the next couple of years
There will be no fuel shortage that we know reason for, as yet
So there is no reason for current price hikes, barring exploitation that is
You ignored that bit
@ Richard,
There’s always the exploitation factor when it comes to supplying resources such as oil and gas. OPEC has tried with some measure of success over the years to manipulate the price of oil upwards. Naturally they’d like their prices to be as high as possible. I’m not sure if OPEC are quite so interested in the price of gas but we can expect that to be linked with the oil price.
They’ve not had it all their own way, though. As prices have risen non-OPEC sources have increased their production and pulled the price back down again. The recent hike in oil and gas prices started before the Russian invasion of Ukraine but I can’t help thinking that the two are very closely linked. Even if we didn’t know that an invasion was inevitable many in the know did!
“There will be enough food and energy to keep everyone fed and warm”. That’s true enough. Everyone who can afford to pay the higher prices, that is.
No, it could be true for everyone
I read something last week where someone said the Government will have to pay a lot to service the debt as in the borrowing from the money markets?! Does any of the QE money come from the money markets and is there a debt to be serviced with interest payments?
Please read Money for nothing and my Tweets for free
https://www.taxresearch.org.uk/Blog/2021/04/14/mfnamtff/
Whilst I agree with your sentiments entirely, I do happen to think that ‘demand destruction’ is a distinct possibility (and sooner than we might think) this https://theageofloss.wordpress.com/2022/04/02/from-demand-stimulus-to-demand-destruction/#comments piece is well-worth a quick read.
In my role as a private client financial adviser, I have noted the gradual dawning of the realisation that the cost of ‘self-reliance’ amongst those with ‘money’ is getting more expensive if you are looking for some form of income security and many clients are surprisingly open to financial redistribution.
Noted
Mark Meldon hits the nail squarely on the head.
Letting the NHS fail will mean people spending more of their wealth on private provision.
Rolling back the state expands the private sector to get its hands on this stored wealth to exploit it and also expands rentierism of the mega rich and pension funds.
As Mark says, redistribution to the very top is the only form of redistribution allowed in this Tory neo-lib fantasy land that we live in.
It’s a system that destroys modest family wealth in a society that applauds mega wealth.
Thank goodness the prosperous (like me) are beginning to see the light and would rather more people could buy their home than have their own go up in value. https://www.newstatesman.com/business/2022/04/britain-has-fallen-out-of-love-with-its-housing-market
To be blunt, because they are evil (and incompetent and corrupt) and only concerned about themselves and those who fund them.
The rest of us can do one as far as they are concerned.
Craig
P.S. Sadly, the opposition is going down (or has gone down) the ‘we’re not as nasty’ route rather than ‘we can and will do much, much better’
By not providing the money does it help the rich in any way? I know they’ll have enough anyway and I suppose people can make money over the ghoulish prospect of buying multiple failing businesses. But is that it? I always assume selfishness is the tory motivation.
I’m enjoying your thoughts, thanks
I admit I am not sure I follow your question. Sorry.
I mean somebody must make money out of keeping people poor, i dont understand the logic/mechanism but i think that’s why the Tories are doing it.
Anyway I will read your book,
many thanks
Exploitation is the motivation
Literally, stripping the wealth of others
Yes. Despicable.