This tweet was put by Channel 4 yesterday:
What does @EdBalls think about Labour's ‘Green New Deal' policy?
‘If it looks like climate change is the exception, the thing where we're allowed to borrow with debt rising, that will be a big problem for Labour' #AndrewNeilShow@AFNeil pic.twitter.com/r7191fVGeE
— Channel 4 (@Channel4) November 27, 2022
In the video (which is live in the link) Ed Balls says that Labour must above all else reduce debt as a proportion of GDP and that if it does not do so before the election he seems to think that it is unelectable.
Balls said this in the context of a discussion on the Green New Deal. His clear implication is that borrowing to tackle climate change has to be within this constraint. He seems to think that balancing the books is more important than saving the planet.
Ignore the fact that he is doing the job of George Osborne, sitting beside him. Remember instead that he is married to Yvette Cooper and that what he is saying is probably Labour thinking.
And then worry for our future when thinking as bad as this is apparently what Labour has to offer as an alternative to the corruption of the Tories.
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Silver lining: At least on a dead planet there won’t be any national debt to worry about.
True
Richard
It has been widely reported that Qatar has spent over USD$ 300bn over the last 10-12 years in order to host and facilitate the FIFA world cup.
https://www.bloomberg.com/opinion/articles/2022-11-20/2022-fifa-world-cup-begins-in-qatar-after-years-of-controversy?leadSource=uverify%20wall
Therefore, pls can you shed some light on how the Qatari govt (should) account for and reports this expenditure in its books and how this needs to be analysed from an economic perspective.
Is it fair to say that the expenditure by Qatar on the world cup, can only be modelled and looked through using a MMT lens? If so, do you think there is a case that the funding of the world cup by Qatar can (should) be used as a case study to prove the fundamentals and core aspects of MMT ? Could this be extended to show how other countries in the region are doing the same – KSA Vision 2030?
I quote from your blog to emphasise the point further;
‘In an MMT aware economy the reality that this function is as follows is recognised:
Spend
Tax
Take deposits, or
Maintain overdraft with central bank
Note that there is no borrowing as such in an MMT aware economy. The government is a deposit taker in the sense that it provides savings facilities, but does not do so to fund its activities, because the spending has already occurred. If it does not take deposits (by providing gilt savings facilities, for example) but does run a deficit it can simply run an overdraft with its central bank instead, which QE can be used to disguise, albeit rather ineffectively.
I admit I have no idea how Qatar has funded this activity and so cannot comment
I will not have time to investigate either
Sorry
Qatar has a fixed exchange rate regime (versus USD). Given that policy, it is unlikely that money creation is being used to finance the World Cup. It will have experienced strong net inflows due to gas sales at high prices and also has a wealth fund (about USD 450bn). Although MMT correctly describes ANY monetary system it does not offer any more policy freedom if you choose to peg your currency to the USD.
Thanks
Are they going to count the QE as part of the National Debt?
If they don’t, as it money owed by the Govt to itself, then what would the ratio be?
In the mid 200s before the GFC is was a bit under 50% I think.
Labour counts QE as debt
I’m finding that many so-called “centrists” have a relaxed (“intensely relaxed” may be?) view about the climate crisis.
There are several high profile US commentators in this group – David Shor, Nate Silver, Matthew Yglesias. Mainstream/Establishment/Corporate Democrats.
A key influencer seems to be Oxford academic, William MacAskill.
Here’s are some critiques of MacAskill’s climate positioning:
Rupert Read: https://www.abc.net.au/religion/rupert-read-the-dangers-of-longtermism/13977152
Emile Torres: https://thebulletin.org/2022/11/what-longtermism-gets-wrong-about-climate-change/#post-heading
I’m curious about the connections to the UK Labour party.
Thanks
I will try to read the links when energy is greater
It is clear that the Labour leadership does not understand the gravity of the climate heating crisis. Rachel Reeves has said that capital projects such as a massive insulation proramme in a “Green industrial policy” can be financed by borrowing and not by current taxation but obviously they are being got at by the media and getting cold feet. The problem with Labour is its leadership, many rank-and-file members do understand the gravity of the situation like Clive Lewis and many others. I received a local Labour leaflet recently and not one word or mention of the climate or any other environmental concerns for that matter was mentioned. It beggars belief!!!!!!!
She thinks private borrowing will pay for this, I think
I will be meeting with elements of the European Commission later this week. The discussion will cover two elements (relevant to Ball’s and his erm talking balls.)
1. The utter failure of governments to develop balance sheets. Apparently gov economics pre WW1 focused on what “stocks were held” a sort of a balance sheet and then moved to flow-based accounting post WW1. The view is that we need to move back to a balance sheet approach that covers more than simple material assets but national resources as well.
2. Has the limited liability company reached its end point: given that “limited liability” confers on directors certain responsibilities that in the case of the on-going climate disaster it is clear they have failed to discharge.
An economist will talk through these two points – which I have rather badly summarised.
Relevant to the Balls nonsense was the Herald (yesterday) waving its arms about the total failure of the Scottish gov regarding the development of a national energy company
https://www.heraldscotland.com/news/homenews/23152165.wales-set-public-energy-firm-scots-gov-blows-plan/
& oh dear although the Scots thought they could not do it, the Welsh showed that they could.
https://gov.wales/wales-announces-publicly-owned-renewable-energy-developer
This becomes relevant to Balls and his nonsense when considered in terms of a national balance sheet. Let’s say a Welsh gov company builds a wind farm. It could fund the farm via a loan from any number of banks. The farm will deliver an income stream which within half the lifetime of the farm will payback the loan. The gov now has a performing asset on its books. This approach has been repeated many times by the likes of Vattenfall (prop: Swedish gov) and Orsted (prop: Danish gov). It’s funny how they (the two govs) don’t see a problem with this approach & yet the tories and Liebore do. Norway offers a variation on the above with its Soverign wealth fund – tucking money away for a rainy day. BTW: a small part of the money paid by UK serfs for a kWh of electricity – goes to Swedish and Danish citizens – helping their countries maintain their high standards of living.
Would the debt of a Welsh gov owned company become classed of gov debt? Is this relevant if the debt is attached to a performing asset? I notice that these questions are never posed by the likes of Balls or indeed Liebore. One concludes that a combo of blinkers and ideology means that it would never occur to them to do so or even imagine that a gov owned energy company would be a “good thing”. Which in turn begs the question why anybody with half a brain would ever vote for such imbeciles – or even listen to what they have to say.
I wholeheartedly support a balance sheet approach
The Whole of Government Accounts supposedly do this and are then ignored
Your example, of geared borrowing for public purpose is akin to PFI, except with the gains going to the state
It is remarkable. As a nation and a species, we face an existential threat, yet these people are arguing about what we can do to reduce the ratio of angels dancing on each pinhead. As if the notional numbers of the debt to GDP ratio, or market perception, matter more than lives and the environment.
Of course we have to invest resources to try to create a sustainable way for people to live. Because the opposite is literally, you know, *un*sustainable. What kind of planet do they think we’ll be living on in 30 to 80 years, if we carry on as we are?
A month ago, the UN Secretary-General said ‘Without urgent action, the world is headed for climate catastrophe’.
Those who think this does not matter … are deluding themselves, or worse!
For decades, eminent climate scientists have been saying the same sort of thing with increasing frequency.
It is not that bankers and the entire fossil fuel investment community are exceptionally bad – or even that the rest of us who (at least sometimes) take advantage of plastics and other oil-derived products – are much better. We are not horrendously wicked … but there is unconscionable greed, recklessness and callousness. THIS MUST BE CONFRONTED. We will need to forgive ourselves and one another.
Beyond that, most of us – including supposed authorities – have been stupid. We have lacked the courage and commitment to shout loud enough that – WE MUST DRIVE FOR ZERO CARBON IMMEDIATELY.
From midnight tonight, we could have:
* a national speed limit of 50 mph (as in the OPEC crisis of 1973) … with all signed limits to be cut by 10 mph: 50 becomes 40, 40 becomes 30, 30 becomes 20.
* Energy rationing to be introduced asap (Petrol rationing took only 2 weeks in September 1939).
* No fossil-fuel powered racing ever again (No limits on using muscles, oars or sails).
* Abolition of standing charges for water, electricity and gas (maybe for electronic communications as well.) Affordable rates for minimum necessary usage – then exponentially rising charges.
* No tax allowance for any advertising or marketing costs.
* Stringent restrictions on advertising
* No outdoor lights except for safety and security (UK 1940, Ukraine 2022 because of fear of explosive missiles)
* A programme of relocalisation of shops, schools, clinics, government and more. Live in the town where we work (Most people until about 1950)
* Facilitation of walking, cycling and frequent, reliable (but not necessarily fast) public transport.
* Heavy taxation of second (or more) homes and for larger than necessary homes.
* A licensing or other system to prevent press barons (tyrants? criminals? idiots?) from continuing to advocate policies resulting in the ruining of the biosphere.
Politicians, pundits, economists and oil executives, don’t like the implications, but the truth must be faced: the consequences of ‘economic growth’ in wealthy countries include:
The unrelenting trend of exponential increases in carbon dioxide in the atmosphere. For centuries the level was about 280 parts per million (ppm). It started to increase with the industrial revolution. By 1972, (Club of Rome ‘Limits to Growth’ report) it was 323 ppm, already a terrifying increase of 15%. Now, 50 years on, it is 418 ppm which is 49% more than the concentration at which we know the Earth’s climate was sustainable.
We know some of the consequences: deadly starvation in Africa, floods in Pakistan, rising sea levels which are overwhelming island communities – but from which there is no escape for ANY coastal community. There is no longer enough food being produced … even a temporary salt-water flood does irreparable harm to farmland. Worse, the climate will become unpredictably chaotic when the Arctic is more or less ice-free one summer within the next two or three decades.
To enjoy life, we need to head for carbon zero – immediately.
DOING NOTHING is suicidal – genocidal. To slow the damage and give our children a half-decent chance, we need collective action. We must tell one another – and everyone in authority that we care.
We must THINK, TALK & WRITE about the climate with anybody who will listen. For starters we need to travel less and eat less meat. See https://www.theguardian.com/commentisfree/2022/nov/24/green-technology-precision-fermentation-farming)
Thank you
Your passion is needed
One problem I can see in your list. Who decides what a larger than necessary house is? My gran used to be a head in a village school and lived in the school house. When she retired she and my mum lost their home.
When my mum and dad married, she persuaded them that they ought to buy a big house so that if they lost their jobs they could at least take in lodgers. They bought a 7 bedroomed house, and all the time I was at school we had lodgers, nurses, doctors, cleaners, students, German, Nigerian, Jamaican, Polish. I’d have had a much poorer upbringing, both financially and culturally, if they had not been allowed to have a big house.
By the way, isn’t it Ed Miliband who is in charge of climate change theory in the labour party? What does he say?
We don’t hear a lot from Ed
https://leftfootforward.org/2022/11/must-watch-ed-miliband-eviscerates-grant-shapps-and-tory-dinosaurs-over-their-flip-flopping-on-onshore-wind-farms/
Joe a great list of sensible measures. Two things it didn’t include was a total rethink on materials used and Building Standards and construction methods. It is easy to build homes that use very little energy and should include air change systems for good health. The other point is the insanity of flushing toilets. All organic waste aka human and kitchen waste should be composted to provide a constant supply of rich organic material to enrich farm land, save billions, avoid totally, polluted rivers and the sea.
I’m sure you must realise that these measures will never come about because they would destroy the financial interests of too many powerful people and industries. In the not too distant future your comments could easily be called – the terrorist threat. Orwell was way ahead of his time.
These people don’t seem to understand that addressing the climate crisis is largely an investment problem. We are required by physics, chemistry and biology to invest enormous effort to fundamentally re-engineer the energy system that powers the economy, our food production system, and our end-use of energy for consumption purposes – this last one including insulating our homes and installing thermodynamically efficient heating (heat pumps). If we don’t, then physics, chemistry and biology, aka planetary systems, will destroy our current civilisation.
This mandatory investment is not in order to create the means of production for new/more consumption goods and services for ourselves, but to so that future generations have the possibility to lead lives at something like the standard of living we have. It’s generational investment – smaller past examples aimed at improving living standards would include the development of railways in the 19th century, the construction of the US Interstate highway system in the 20th century. This kind of generational investment absolutely warrants rising debt to GDP – rather than the mantra that this is putting a burden on future generations, it is actually aiming to lift the incalculable burden that will fall on future generations if we don’t do it.
The main point is we don’t have a choice but to make huge investment. There are many alternative paths which can be argued about, but the idea that we can sit by and do nothing significant to address global heating is just absurd. It’s already imposing significant costs on us (flooding, lower food production, wildfires, …), choosing to do nothing is choosing to invest huge amounts in defending against these threats. The question is how to aim investment to address these requirements, be they system change we engineer or system change forced upon us, not whether to invest.
This very likely means that the percentage of GDP devoted to investment will need to increase significantly, which means consumption will need to decrease. Which is probably why politicians don’t want to talk about it, But as you Richard and others have pointed out, the investment can bring great opportunities to simultaneously address many social problems, the politicians should be countering with those additional benefits. They just don’t seem to have serious analysts working for them.
Of course, it is Labour thinking
The narrative re government spending and debt Is based on a flawed framework that extends beyond individuals – no point picking on Ball IMO- and parties. What Balls is reminded us is that the next election will also be fought on the basis of this same, flawed narrative. There is evidence of this every day, on every media channel, and from nearly every source.
The correct understanding is held by a tiny majority who are not aligned to any party per se. They include you and me, but I am afraid that we will remain for the time being as annoyed voyeurs on the sidelines of the main debate. Sad but true.
I like joe burlington’s ideas but there is a vanishingly small chance either conservative or Labour governments implementing such a comprehensive agenda. However, a start could be made by abolishing standing charges on gas and electricity which hit the poorest hard. Secondly, give each household a ration of FREE gas and electricity followed by, as he says, exponentially rising prices. To satisfy book balancing politicians and those concerned by “giving gifts to those who have no need”, this could be paid for by increasing upper rates of tax. The system can then be fine tuned using census information to increase rations to larger households. The cost to the treasury could be reduced by altering the system that prices electricity according to the cost of the last supplier( normally the most expensive) to the grid.
I agree with James, it would be easy to change current energy price structures in a cost neutral way which favoured low users over high and encouraged individuals to be energy-efficient.
But also there needs to be investment leading to energy savings (I thought it used to be Labour policy that borrowing for investment was OK, just not borrowing for current account; has something changed?) For those of us in most of the country there needs to be investment in decent public transport in advance of penalising car users – the comparator is London where tubes every few minutes means they are the best option. And in maximising the already available carbon-free energy production like onshore wind.
The other thing is government investing to drive technology. The current favourable economics of wind turbines wouldn’t have happened without the government-funded incentives early on. It is clear that energy storage technology will be crucial in any low carbon future, the government shouldn’t be waiting for that technology to appear but incentivise it by investing – recognising that what starts expensive can then get much cheaper. And in alternative renewable resources like tidal turbines. Plus, although they are not the perfect energy sources ultimately needed, any realistic route to zero or minimal carbon will need interim supplies from nuclear and gas with carbon scrubbers – invest in modular reactors and scrubbing technology.
It is sometimes difficult to work out whether Labour have any policies whatsoever other than being “not-Conservative”. You do have to assume Ed Balls has the inside line via his wife, and while I understand that demonstrating basic competence is crucial after the Truss/Kwarteng debacle there really need to be some positive ideas.
Much to agree with
Labour is allowing borrowing for investment but the effective price is current austerity, which is disastrous
It seems labour are committed to the ideology that gdp will save the climate.
Sunak’s first fiscal rule in December 2021 was that underlying public sector net debt excluding the impact of the Bank of England must, as a percentage of GDP, be falling.
Presumably Ed Balls would agree with that rule.
But I would like clarification what that means.
So assume that all accounts are zero at the start of period 1.
Assume in period 1 government spends £100 more than it raises in tax revenue.
Assume £70 are being spent to finance current expenditures and £30 on capital expenditures.
Assume the capital expenditure is all spent in period 1.
Assume DMO issues £100 in bonds.
Assume £100 is bought by private sector.
Then is Net Borrowing is £100?
But what is PSND at the end of period 1?
Is it £100 or is it £70 since we need to exclude the capital expenditure?
This is precisely the sort of uncertainty that the Labour rule faces
Balls seems to be saying the investment criteria must be within the overall rule meaning surpluses on current spending
Do Sunak and Hunt’s rules use PSND which exclude capital spending?
Net debt (PSND)
Public sector net debt (often incorrectly referred to as national debt) is the total outstanding amount the government has borrowed (excluding capital expenditure). Net debt considers liquid assets whereas gross debt does not. Net debt is often expressed as a percentage of gross domestic product (GDP). Public sector holdings of debt within the public sector consolidate (are cancelled out). The public sector net cash requirement is, approximately, the flows equivalent of PSND.
https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/methodologies/publicsectorfinancesglossary
Answer is, I do not know – and am lacking the energy to check today
I began a few weeks ago to write to Rachel Reeves’ office with copy to my local MP. I received a fairly positive reply from him, but date only auto-acknowledgements from her office. My last two messages to her were as follows:
(1) [concluding paragraph only] “So, what is your answer to all of this? Surely it cannot be to keep on repeating the same tried & failed fiscal & monetary routines, with austerity & spending cuts, even if you’re dressing this up as “borrowing to invest” etc….if this the case, I repeat that you are walking into a carefully laid trap, not for the first time….
THERE IS NO NEED TO “BORROW” ANYTHING – I will finish by paraphrasing Keynes to the effect that
IF WE HAVE THE PHYSICAL & HUMAN RESOURCES, KNOW-HOW, & CAPABILITY TO DO SOMETHING,
“….WE CAN AFFORD IT….”
(2) I then immediately added a rider as follows (abridged & grammar corrected!):
“I wish to add a short afterthought to my earlier piece. It concerns national taxation in any post-debt scenario. It seems to be widely accepted that public spending introduces large amounts into circulation which may have inflationary consequences i.e too much money chasing too few goods & services.
The obvious conclusion is that in such a post-debt scenario, it would therefore be considered necessary to maintain a tax collection system & some form of the erroneously & so-called “National Debt” system.
Try this for size, however: instead of allowing collected taxation to disappear into BoE as a means of reducing the government’s balance (absolutely NOT necessary), simply clear the balance once the spending has been duly accounted for. This is simply a reversal of the original process of money creation. Then put the collected taxation into a sovereign wealth fund, war chest, call it what you want. Leave to accumulate for 5 – 10 years.
Depending on how & what is measured, this could be anything from £500 to 800 billlon per annum – now as our American cousins would say – you do the math. And then think about what it might be used for?”
The idea itself was based on Norway’s use of North Sea Gas/Oil revenues (via Statoil – state-owned) to create a “Sovereign Wealth Fund” for the long-term benefit of its people. Wanting to test this idea I sent the following email (again abridged & clarified) to friends & acquaintances. I copied it to Richard Murphy but unreasonably forgot his onerous workload or perhaps he simply thinks it is daft. But otherwise the silence from the rest of my list has been deafening!
Current system:
BoE Money creation–transfer to HMTreasury account (A) –public spending–taxation collected–transferred to BoE–money “destruction”—-HMT Acount (A) at BoE balance reduces correspondingly—repeat cycle
Proposed system:
BoE Money creation–transfer to HMT account (A)–public spending–taxation collected–transfer to new HMT Account (B) (= wealth fund)–spending audit check–notify BoE to REDUCE/CLEAR (again correspondingly & a continuous process) HMT Account (A)—repeat cycle
Given that it is almost certain that taxation & the so-called National Debt system (in some form) would continue in a hypothetical post-debt scenario, to reduce money-in-circulation as a means of countering potential inflationary pressures arising from the spending injection into circulation, I see no merit in retaining the current system of “money destruction” simply as a means of reducing the amount in the HMT Account at BoE.
BoE indeed creates money/reserves at will, simply by keyboard entry that increases the numbers in the HMT account (no doubt accompanied by an arcane paperchase): it could just as easily reverse that process.
I understand that this idea is not strictly NECESSARY, but is there any merit in it? Have I missed something? Is it just plain daft?
Believe me I have been wracking & wrecking what little is left of my brains, consumed with self-doubt….there are intelligent people in the distribution list. Input please.
PS I am fully cognizant of the difficulty of getting politicians & the banks/corporations controlling them, on board….
Having just returned from seeing my brother in rural Tipperary, the peat industry seems to be doing well out there. The Irish government wants its people to stop burning peat apparently. They are not going stop with such rapacious capitalism like we’ve got now and sod-all infrastructure.
On my journey there on our very expensive English diesel-powered railways system I saw only one solar farm, hardly any onshore wind farms but loads of what look liked new housing with no solar PV on it at all. Looking at the sea to my right heading to Holyhead, even a conservative 1 metre rise in the sea level means that a lot of what I was looking at faces being under the sea in the future. You get the feeling that the sea is just ‘waiting’ for its moment.
It is also shocking just how much the railway on the Holyhead route has contracted. It’s SO short sighted given the need to cut carbon emissions. The railway has essentially consumed itself – as it has in many locations. All that strategic potential has mostly gone.
Coming back to Holyhead early yesterday morning (after seeing the sun rise out of the Irish Sea as we left Dublin), our imminent arrival back to Blighty was signalled by the ferry passing through what can only have been a thick band of raw sewage.
How apt I thought coming back to a country that had just enabled a self-serving scoundrel responsible for the deaths of thousands of people to come third apparently in a popular TV show?
Thank God the ferry I was on had a better compass – moral and otherwise!
Depressing
I wondered where you’d been
And officially Ireland is now just using up already cut peat as I understand it – but there are several years to worth to go
I’ve just watched Dan Snow’s Locomotion on the history of the railways. It’s worth watching just to see the parallels. The railways were taken into public ownership because the private companies were making such a hash of it. I wish that would happen again.
Agreed