This is the shortest thread I could have written to summarise the crisis that we face this winter. It is just one tweet long:
The problem UK households, public services and businesses face is a shortage of money. The government can create the money needed to get us through this winter. If it does, we survive it. If it doesn't we won't. That's the one decision that will make or break Truss, and us all.
— Richard Murphy (@RichardJMurphy) September 2, 2022
What will she do? Who knows?
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BBC R4 Today discussion (Helen Lewis) – ‘Truss will be faced by demands for money for energy, health, schools etc , .but….there isn’t any money..’.. Why can’t BBC at least hint that there are economists who say there is…?
I do not know
Well if it helps I have made a formal complaint to the BBC last week regarding its inability to present alternatives to the government line on money.
Not only are there economists who say there is money available but as far as I know there are no actual economists saying there isn’t.
I honestly don’t know where the BBC got this line from. Certainly not by asking anyone who understands the situation.
To most people it’s just “common sense” that the state can run out of money. It’s actually quite difficult to dislodge “common sense” as it is often impervious to evidence or reason. The BBC have not progressed beyond this “common sense” view. Do they know any better or can’t they be bothered to find out? Either option is quite depressing.
But “common sense” can be a very bad guide to reality. In the nineteenth century it was a widely held “common sense” view, even among some scientists and engineers, that it was impossible for a heavier-than-air machine to fly. Apparently they hadn’t noticed that bats, birds and many insects had accomplished the impossible feat for millions of years.
My feeling is that “common sense” notions only change when people are exposed to experiences that change their lives in some way. Today everyone knows an airplane can fly and no one gives the idea a second thought.
Similarly if people see that money creation can change their lives for the better and that the world does not fall apart as a result then it will eventually be accepted as one of the instruments the state can use to manage the economy. One thing that worries me is that the arcane mechanism of QE disguises what is going on I would much rather it was simply called “money creation” and the QE was recognised as the way the state has decided to do it.
@Bernard the difficulty is in the last 15 years people have had two graphic demonstrations that money is not a constraint (QE to address the GFC and the economic effects of Covid), but in both cases the narrative has continued to be that QE is borrowing (from investors, the next generation, or someone), so the “it has to be paid back” common sense prevails. We don’t encourage systems thinking..
Conservative Parties the world over exist to pander to the roughly third of the population that wants to inflict misery on others. The conceit, exposed now by multiple emergencies, is that the measures right wing governments take against others – the poor, vulnerable, foreigners (especially) – will never affect “me”.
Unfortunately, such rhetoric backed by an over weaning partisan press and shadily funded think tanks absolutely does not eliminate the risks we all face and that have crystallised in the last 15 years in the Global Financial Crisis, the Pandemic and now the energy crunch. In fact, the self regarding indolence of those governments since the 80s has been nothing short of negligent, leaving supporting services at breaking point and millions of people just dangling in the face of a hurricane of worsening crises.
A lot of chatter yesterday at the loss by the GOP of the Alaskan seat in the House of Representatives following electoral reform there. Here we must ensure that Labour does not again flunk the opportunity to make voting proportional if they get elected in 2024 (as is likely). We must never again allow a delusional radicalised right to hog power on a minority vote and reap destruction they way it has since 2015.
The BBC!!
Arghhh!!!
Don’t get me started (you’ve heard it all before Zzzzzzzzzzzzzzzzzzz).
Most of my childhood was spent in rural Buckinghamshire. The 70s were a struggle for many but there were key differences. The lowest paid were the farm workers, these had housing provided by whoever owned the farm. The local dairy had a number of houses for their delivery people. The caretaker at the middle school lived in a bungalow next to the school provided by the the education people. Elsewhere, in what was a relatively wealthy area, housing was well mixed with quite a lot of council housing. There were also many fewer ‘norms’ which put so much pressure on people (I am not criticising norms/progress) like foreign holidays, mobile phones, Sky etc etc. For goodness sake the new Call of Duty game costs £85. I moved to one of the Grammar schools and spent some time just getting used to the different circumstances. No threadbare classrooms or under-equipped chemistry labs. For a school known primarily for it’s academic success the wood working and separate metal working facilities had enough lathes to keep sharing to a minimum. The stores room even had a dedicated person.
The point being that even then the young leaders-to-be were insulated from the realities of cutbacks and recession. The school, apparently, did so well through good housekeeping rather than a skewed funding system and very rich governors.
This time might be different, so much wealth depending on rent collection, when that stops who knows. Equally possible, depressingly, we may just see the very wealthy strengthening their grip.
Your last is likely
What we face is a shortage of physical resources. Mostly energy but still. The inflation we’ve got shows us that we’ve already got quite enough money floating around.
After all, if money is going down in value, day by day, how can that be the thing that’s in short supply?
When the means to settle bills is it available money is what in short supply
We have ample energy in contrast, but is is overpriced by market manipulation
Neil
What is meant by the phrase “people do not have enough money” is simply this. Many, may be most, households face a winter of not having enough money to pay for basic things like energy, rent and mortgages, some will have insufficient money to pay for enough food. Stop thinking of money in it’s macro-economic sense. There the opposite is true – there is no shortage of money. There, as QE has amply proven, there is no shortage of money.
And that is why we should be angry – The BoE and the Government think that answer to our problems is to take money from those that need it (to pay bills) a give it those that don’t (are wealthy).
This winter is going to bleak for the thousands (millions?) of households that are desperately short of money because of decades of zero (or negative) real wage growth and austerity, and now because of inflation. Unless there is a massive injection of cash to those that are going to be in desperate need of it we are all going to suffer.
That injection of cash must come from higher wages and benefits, subsidised costs (ie of energy) and direct payments to those that need it.
“The problem UK households, public services and businesses face is a shortage of money.”
It looks like that from our individual perspective, but in National terms, the problem is going to be a shortage of energy.
“The government can create the money …… ” </em
Yes it can. But it can't create, or help create, the energy in time for the winter. We need someone, like Norway, or maybe the USA, to take our created pounds and give us lots of gas in return. We don't want them, or whoever ends up holding the pounds, to try spending them in the UK economy just at the moment because there isn't much spare capacity and they'll just add to inflationary pressures. So we'll need them to promise to do nothing with them except buy some extra gilts.
Is this at all likely?
This is not to deny the seriousness of the problem. However, in this instance simply creating more money won't help. The only civilised solution is to share out the available energy as equitably as possible by rationing and there's not much chance of that happening under this Tory government.
There is no shortage of energy in the U.K.
There is market failure
@ Richard,
Yes there is a market failure but there is still a shortage of gas. There’s a shortage of everything which has a price in the market. The higher the price the more acute the shortage is. Copper is more expensive than iron because it is in shorter supply.
The UK supplies approximately 53% of its own gas needs. We may have previously made up the rest of our needs with only a small proportion of Russian gas and more from countries such as the Netherlands and Norway, but other countries will be looking to those countries to supply them instead.
Is there a real shortage of gas?
Where?
NeilW,
“The UK supplies approximately 53% of its own gas needs”.
What is the scale of the issue? First, imported gas is allowed to drive the price of all domestic energy paid by UK consumers, at the international market marginal price. This is a political decision in Britain, and in our predicament it was an extraordinary political choice. The “market” for domestic energy was created by the Conservative Government, and in renewables is completely managed and manipulated by a Government owned company – the LCCC.
Your 47% imported gas seems to be for 2020 (‘UK energy in brief, 2021’ – a Government energy statistics source provides that data for 2020). Imported gas is however, only one part of a much larger production and consumption picture for electricity, gas and other fuels, but it is allowed effectively to determine the price of all the energy bought by UK consumers, however created, at whatever cost (typically much lower for most kinds of electricty production). The EU, at last is looking at splitting the pricing of gas from electricity because it distorts prices so much.
It is very difficult even to identify the real net impact of imported gas on UK total energy costs, or the impact on consumers, so complex and confusing is the strangulated nature of this ‘market’; but it is fair to say that its real effect should be nothing like the severity of the impact that has been allowed to develop by the appalling, fake energy market devised by the Conservative Government to pursue an obsessive neoliliberal ‘free market’ ideology – that bluntly does not work.
Imported gas pricing requires to be blocked off from final consumers by a UK Government managed ‘cordon sanitaire’, and a solution devised that is actually focused on the real nature and scale of the problem. The truth is, our government has been asleep at the wheel, for over a decade. Government has failed, catastrophically to do its basic job. Our problem is that the domestic energy market in the UK is so phoney, so manipulated, so badly conceived the public cannot currently even properly identitfy, either the real scale of the problem or fix confidently on the best solution. The energy ‘market’ must be completely transformed and rebuilt, on realistic lines; without that essential , we are just burning money.
There’s plenty of gas in the ground still, but that is going to take time to develop. Whether we should do that is another question given the climate implications of burning fossil fuels. There’s certainly a shortage of gas coming through the Russian pipelines and that’s causing lots of problems in Europe including for us. We are still part of Europe even though we aren’t in the EU.
We should be doing everything possible to reduce energy consumption. I’ve read about German public servants having to wash their hands in cold water, and thermostats on heating to be set to no higher than 18C but I haven’t seen any similar reports from the UK. This should apply to our politicians in Westminster first of all! Other measures could include a 50 m.ph. speed limit on our roads and public appeals to limit heating in homes even if the occupants can afford the high bills.
The situation is similar to the oil crises of the 70s. We solved that problem over a number of years by reducing our level of oil usage, at least per capita, rather than simply creating more money to pay the higher prices. That wouldn’t have worked then either.
We should nationalise our energy sector incidentally and develop policies to ensure national energy security but that wouldn’t happen in time for the winter even if we had a genuinely socialist government in charge tomorrow. The solution to both the energy and climate problems has to include a sharp reduction in energy derived from fossil fuels. This will happen in time but the process this first winter will be painful to many.
Odd how in 1939 etc we could do things now impossible apparently
Re has supplies – there is no price mechanism that can guarantee supply to this who need it now
NeilW,
“The situation is similar to the oil crises of the 70s.” That is an ominous prophecy. It proved catastrophic for whole areas of the industrial UK in the 1980s; not modernisation, but destruction for the monetisation of economic atctivity, that was reduced to pure parasitic rentierism.
The oil crisis (not Labour – a mere slow-witted scapegoat), provided the turmoil that introduced Thatcher, and the witless, unsophisticted, casually brutal assault on communities with no resilience to withstand the neoliberal indifference to community or personal suffering; and allowed the appalling disaster that was Hayekian economic ideology that ended, as was inevitable, in the 2007 financial crash (never adequately fixed to this day); the folly of twelve years of austerity through a cynical and incompetent interpretation of the nature of ‘national debt’; and the disaster of quite farcical, fake ‘markets’ created in utilities, that obviously cannot conceivably be made to fit a dysfunctional neoliberal model: including energy, rail and water.
“Is there a real shortage of gas?
Where?”
At the German end of Nord Stream 1.
Under Sustainable Cost Accounting wouldn’t every gas explorer, wholesaler and supplier be insolvent and have to close down anyway?
SCA does not require a carbon insolvent company to close
Read it
Much of what is going on seems to correlate to what you suggested would happen if the BoE started withdrawing the QE funds.
I realise some is externally driven factors and therefore outwith the realm of ‘normal’ economics.
But is QE reduction actually happening?
Yes, it is
David Byrne says:
Listening to Helen Lewis and her interview with Paul Krugman (The Spark, 2020) discussing his political/economics best seller: Arguing with Zombies, Krugman ably predicts indirectly the priorities and direction of the new incumbent at 10 Downing Street.
There will be no deviation from the unrelenting extreme right wing policies of the past 12 years-enrich the 1% and soak the rest. If the new PM fails to toe the line, the unrepresentative 150,000 Tory party members will ensure that the tenure is short-lived.
An early General Election is needed.
Completely agree. I’ll try to read Richard’s ‘How to Survive’ 2023 this weekend, if I can stomacj being even more enraged, disgusted and depressed by the state the UK (let alone the world as a whole) is now in thanks to right wing politicians, and their enablers.
As we’re heading for a crisis that will only be made far worse by the Truss and her crazy hard right ideologues in the IEA, Adam Smith Institute and the other Tufton Street unelected fanatics, we do indded need to dee the tories removal from power ASAP.
I would think anything is justified now in getting rid of them. As they won’t (unless any tory MPs who do actually give a damn about the country they profess to love so much (HA!)) be brought down and forced into an election by a vote of confidence, how else to do it? A general strike? The army intervening if large parts of society cease to function through the tories small state lunacy? They’d be justified ,in doing so.
Personally, I regard the tories as traitors to the UK and its benighted citizens.
A flawed understanding of money creation is not unique to the Tories or even the U.K.
The economic and political debate globally is still based on the idea that borrowing and taxation fund government spending. It is only a very small minority who understand and even argue that this is not the case. But they are singing from a very, very distant sideline.
The next election will be fought on the basis of the same flawed ideas and arguments with Labour doing their best to avoid being “seen” to be questioning the flawed orthodoxy. The so-called interview heavyweights will ask specifically about funding plans etc and heaven help any politician who does not have an answer.
There is a long, long way to go before people understand and, more importantly, vote on the basis of a correct understanding of how money creation works.
As I see it there are those whose excessive wealth depends on the majority not understanding how money works and there are those who work for them whose career similarly depends on this. How many of them understand it themselves? I suspect many do and merely tout neoliberal economic ideas as a smoke screen to justify their wealth accumulation.
Given that there was a time when there was no money at all, it really ought to amaze people that there can be such people as billionaires. If you ask the average person where they think a billionaire got all his/her money — it’s usually a ‘he’ so I’ll use that pronoun — they will say he worked for it or he stole it or exploited his employees or engaged in dodgy financial deals etc.. But you can’t work for or steal etc. something that does not exist so the money must have been created at some point.
The paradox of the situation is that the notion that there is only a certain amount of money and the government can run out of it is spread on behalf of those who act as if there is no limit to how much money they could personally possess, who want a small state but are quite content to manipulate the state’s institution of money for their own enrichment, and who are reluctant to pay tax when it is taxation that gives value to that money.
Can the beneficiaries of the economic ignorance of the majority of the population be that ignorant themselves?
Interesting perspective
It’s a lot simpler than that Bernard and it’s not about individual ignorance. This is how economics continues to be taught in schools and universities. Don’t blame the individuals if they don’t get it, blame those who set the texts and curriculum. This is also why it’s not a party political issues either, the same mistakes will be made by Tories, Labour, LibDems, SNP, Plaid etc…
We are a million miles away from a world were people understand and make policy on the basis of a correct understanding of modern money
Fiona
It’s both education and the individual.
I put forward that there is an individual element in the unquestioning attitudes towards the lies told about MMT, tax and money creation.
And that element is informed by how well the individual is doing in that system.
I think those doing less well are more likely to question it (or be encouraged to identifying the problem as lying elsewhere); those doing well are less likely to. It’s about not biting the hand that feeds you.
Look at the Oxford PPE and how many Universities have copied its format? Yet it and the other spin-offs seem to be taken seriously as good degrees to take you into employment and also political leadership.
If the PPE is perceived to be a ‘gold standard’ of some sort of education then those taking it will surely be less likely to question it? It seems to have worked for Cameron and countless others.
Both Fiona’s and Bernard’s comments are worthy of some exploration.
Fiona
I’ve spent a lot of time with middle class people who look down their noses at the ignorance displayed by working class people over a BREXIT but whom are resistant to exploring money creation. My brother in law who has sold properties to make his millions tells me that I must vote to get the Tories out and everything will be OK.
My answer is that voting Labour won’t change much of anything. I told him what I know about the Central Bank Reserve Account and how it works and contrasted that with austerity and the pittance being given to households with the CoLC. I suggested that his equally comfortable barrister brother reads and gives his legal opinion of the 1866 Treasury and Audit Act. All I get is silence and the brush off. The same from my rather well off Father in Law too. It has led to arguments at the table!
Why? Well, maybe it’s because being comfortable means that such people are less likely to question the system. Another less palatable reason might be that these people look at me and my 14 year old Mondeo, my median income and ex-council house and don’t see what they view as success? So if I’m not successful in their eyes – what the hell do I know? Why should they listen to me?
It points to a rather jaundiced view of on what grounds do certain people take you seriously? If is is based on perceptions of wealth, net worth and assets as an indicator of capability – well….then as distasteful as it seems, Thatcher has truly won hasn’t she, especially with the middle classes.
The tragedy is that never mind the much maligned working class ignorance – that of the middle classes is even more morally dubious. Yet this is the class with its education, wealth and access to the professions where a lot of the potential answers actually lie. That to me is tragedy.
Bernard
I think that what you are describing is the good old ‘king of the castle’ routine. To some people it does not matter how little of something there is, it is their desire to have as much as possible of it to themselves that matters.
It’s also called greed. These self same people will then sit there moaning about the state of the country. And again, I see tax avoidance mentalities and a mis-understanding about tax among the already very comfortable middle class. They’d rather pay fees to offshore bankers than pay tax! And when you look at the fees you just see it as a big rip off. But because tax has such a bad rap – well the fees are worth it apparently and expression of the anti-tax sentiment.
In other words, some of the middle class will pay anything – as long as its not called tax!!
It’s frankly bizarre. And phenomena like this exist in our own allegedly intelligent, well informed, well educated middle classes.
But it also reflects just how well advanced the reductionist ideas of Neo-liberalism are in our society. That is the only excuse and the biggest one.
Coming from a working class background, and now a professional person myself I see both sides but I feel quite strongly based on evidence that the wilful ignorance of the classes more likely to find themselves in the driving seat of this country is perhaps the most damaging of all. They are more likely to vote but seem less likely to question. And of course, if you are comfortable – well, you’re less likely to question aren’t you? You’re more accepting of how things are.