Phillip Inman noted in The Observer yesterday that:
Rachel Reeves wants to increase spending on the UK's crumbling infrastructure should Labour win at the polls. Her commitments have become less ambitious as pressure mounts from mainstream economists and those in high finance worried about current debt levels escalating.
He concluded:
Labour voters need to accept that the weight of mainstream economic opinion, and a recent history of squandering what money there is limits Reeves's room for manoeuvre.
I disagree with Phillip. He ignores three things.
First, governments do not borrow; they take deposits. They are savings institutions, not borrowers.
Second, there are sources of deposit other than the City. As I repeatedly explain, ISAs and pensions could provide the required funding.
Third, in the meantime, the government could just borrow from its central bank to do the right thing for the country.
The constraints that Phillip thinks exist simply are not real. But Reeves and the markets want us to think they are. That is the real problem that we face.
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Hi, just a note on Mastodon your link points to a different article published in 2009.
Agree with your post though. Keep it up maybe a political party will notice?
Weird….sorry
It keeps coming back to the Keynes point “anything we CAN do we can AFFORD to do”.
It is about resource – human, physical, environmental – constraints……. NOT money.
However, to pretend we “can have it all” is disingenuous; if we want better health, education and other public services we need to divert people and resources differently. Better public services will leave us all with fewer resources to deploy on other things and, as yet, the public have consistently refused to vote for this.
At its heart is 40 years of the cult of individualism (heralded by Thatcher). The idea that you should “please yourself” was attractive but that “pleasing yourself” was “the right thing to do” was irresistible.
Unfortunately, it has led us here. Voters need to choose better public services and fewer trinkets… but neither major party is putting that choice before us.
I still hold on to the (possibly forlorn) hope that Labour will, once in power, deliver this shift; I accept that this looks increasingly unlikely.
Much to agree with
But suppose that instead of investing vast amounts in sham structures and the procedures reacted to them (think of all that utterly unnecessary accounting) the focus was in the service? What could we do then? That is the answer we need.
YES.
The idea that the market can meet all human needs was and is thoughtless utopian thinking little different than utopian communism where the state was believe capable of meeting all needs. As Abby Innes makes clear in her book “Late Soviet Britain” what this country needs is a good dollop of “Critical Realism” to replace the “dribble” present in UK economic thinking from the 70’s to the current day!
“First, governments do not borrow; they take deposits. They are savings institutions, not borrowers.”
I like this line as it succinctly reframes “public borrowing” more towards what it really is.
If we are to win this debate and educate and inform people this is what is needed
we need new words and phrases that enlighten people as to what is really happening with government spending and people saving at the macro level
in short we need a vocabulary to “reframe” the public concept of government finances
Agreed
There really is so much “dribble” in the world that people believe in stemming from the silly mantra “market good/state bad” pushed by the rich. The classic example of course is believing you can have stable market capitalism without the state also creating money from thin air like the licenced banks to remedy the financial disasters created by the latter like the relatively recent 2008 GFC. Even worse you have so many of the public and politicians accepting the central banker Alan Greenspan’s mea culpa that he never thought the private banks would jeopardise their financial existence by taking such risks. The history of the development of money very obviously was centred around the mitigation of such risk by giving the state key controlling powers. The led to the creation of the United States’s Federal Reserve Bank. How could Greenspan put a silly mantra before keeping the reason for the central bank’s creation uppermost in his mind?
“The Monetary Structure of Economic Activity: A Constitutional Analysis” Christine Desan 2023.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4585801
I didn’t even bother reading Phillip Inman’s article because I knew it would contain a lot of “dribble”. What’s a progressive newspaper doing printed such nonsense? What a sad state of affairs the world is in when such a huge “monetary system knowledge black hole” exists!
The telling point is that City money runs away whenever there is a crisis. The greatest illustration for that was the biggest Bond issue ever (in relative historical terms) in the UK; 3% War Loan, 1914. As the BoE famously confessed only two or three years ago. The 3% War Loan bond issue failed. Capital had deserted Britain in a crisis. Only a few people ever knew. It was covered up, a triumph was officially declared: The Chief Cashier of the BoE was entered as a major funder of War Loan. The War was fought, Britain used its industrial power, and the money was found; but not from the City. Capital hates risk and loves monopoly – as long as it is private. Until the technology changes; then it runs away.
As soon as a major private sector bank run starts the other banks are strongly inclined to become catatonic and minimise their creation of money from thin air for loan purposes. In steps the state to unfreeze the catatonic condition yet we continue to get “dribble” from the mainstream media and voters that refuses to recognise the implications of this state financial “healthcare” intervention. All of this is of course accompanied by the inverted George Orwell “Animal Farm” mantra “market good/state bad”! Meanwhile the British continue to tell themselves they’re smart people! Those days have long since gone!
“Labour voters need to accept that the weight of mainstream”…neoliberal… “economic opinion,” – there – sorted.
The same economist mafiosi that got the UK into the neoliberal situation it is in – & want it to remain in that situation.
In fairness, they (the neoliberal economists) are paid by the money men to maintain the neoliberal status quo & the article aims to manage/control thinking.
Thus the article tells you a great deal about Inman & what passes for his thinking & where his alliegances lie.
The narrative that if the Government ‘spend too much’ or the ‘deficit is too high’, then the bond markets will refuse to lend or demand high interest rates which would limit what the state can do. It is one widely believed and constantly promoted by the Right wing press and commentators.
We did see something of that during the euro crisis over a decade ago. But that is not the same situation as the eurozone countries don’t control the currency.
It is a bluff. If the bluff were called and was successful, we could have a better economy and society. However, the vested interests might well decide to wreck the ship of state inflicting chaos on us to try to discredit any change.
( Some of them try to comment here ) It would require courageous politicians who know what they are doing and can communicate it, to win the fight.
Over a decade ago you wrote the Courageous State. You were right then and are right now.
Thanks
Following on from Clives point about ‘having it all’ what about looking at ‘efficiency’ how much more could we have if we used our resources, eg labour more effectively?
It was a weird article. I thought he was about to come to a different conclusion.
Having spent 4 depressing columns telling us how all the ‘experts’ (BoE, Debt Management Office & former Treasury official quoted) are against more borrowing his antepenultimate paragraph tells us that France, Spain, Italy, US & Japan have ‘borrowed’ a higher percentage of GDP. His penultimate paragraph notes that it’s what is done with the money that counts. Seemed encouraging. I ‘thought’ he was going to end by saying that Reeves should have the courage to do the same….
I sometimes wonder if he is actually an economist…
OTOH, Simon Wren Lewis, whose blog I dip into, has been pushing ‘borrowing for investment’ and ‘don’t worry about the deficit’ for quite some time.
Like Mr Parry, I’m clinging to what looks more and more like a forlorn hope. 🙁
On this Simon has long been spot on
14 years of Tory neoliberal, neoclassical economics policy, should demonstrate that these policy have failed. Any government that want to continual them is disillusioned, or has been bought (private healthcare companies have “donated” nearly a £million to Labour, more to the Tories).
Arguably we can point the finger at Margaret Thatcher and her misleading statement “there is no such thing as public money”. This was either a gross misunderstanding, or a ploy to funnel money from the public sector to the private sector. A look at government policy favouring bankers over food bank suggests this is likely.
In many ways, Britain’s post World War II years were revolution. Britain was broke, yet it managed to create a welfare state, the NHS, and build 4.5 million homes. In the 50s, you could get a fixed-rate 30 year mortgage at 3.5%, and house prices were about 3-4 times salaries.
Technological improvements since then, including economies of scale, suggest we should be getting more for less cost. The exact opposite has happened. Train journeys can cost more than a taxi ride, infrastructure is falling to pieces, public services are at breaking point.
Everyone I know who has read something about Modern Money Theory understands this.
✅The government debt is not a debt that needs repaying (it’s the wealth of the nation)
✅Taxes do not fund government spending, Parliament does
✅A government job guarantee ensures the economy is working efficiently.
“Britain’s post World War II years were revolution. Britain was broke, yet it managed to create a welfare state, the NHS, and build 4.5 million homes.”
The 1945 Labour Government got both a huge US dollar loan & also Marshall Aid. Instead of investing these billions in UK Industrial Modernisation & replacing worn-out infrastructure the dollars was spent on imports of materials to enable house building, foodstuffs & supporting the reserves to enable the ‘Sterling Zone’ finances to continue operating.
https://www.bbc.co.uk/history/british/modern/marshall_01.shtml
So, new times, new issues and once a gain we have a ‘project fear’ approach this time being used in supposedly progressive news paper.
There’s no mention of this blog, nor Steve Keen, Stephanie Kelton or bugger all else. No mention of where all that money came from for bailing out the private banking sector in 2008 onwards. Or how the bombing of Houthis is being paid for.
And that is in a ‘progressive newspaper’. Steve Keen last appeared in a George Monbiot article many years back and why I read Steve Keens ‘Debunking Economics’ but that’s about it.
You’d think the Observer would encourage us to read and find out for ourselves.
And the Guardian group wonder why I will not pay to read their rag and why I have a subscription to Byline Times instead?
Well, there you go Katherine Viner and Paul Webster – reads it and weep.
Useless.
“Labour voters need to accept that the weight of mainstream economic opinion, and a recent history of squandering what money there is limits Reeves’s room for manoeuvre.”
Wrong for all the reasons discussed above and for the blindingly obvious reason that Labour has not been in power for 14 years to “squander” any money. What “recent” history does he mean?
Sidelined by a home accident just before the festive break I had time (too much maybe) to reflect & ended up with a profound feeling of deja-vu.
Is the discussion material, in which most of us are engaged & largely in agreement, any different to 10 years ago, 5 years ago, 1 year ago, 1 month ago? In following this blog, however rewarding it undoubtedly is, are we not simply in a preaching-to-the-converted mode, living in a sort of bubble of self-affirmation? My point is that the chattering classes of politicians, bankers, quite a lot of economists, plus the written & broadcast media are definitively NOT engaged in such discussion, clinging steadfastly to the status quo.
People who have pursued a career in medicine, law, teaching, accountancy, engineering, science, technology, computing etc., have always been expected, as an inherent part of their work, TO KEEP UP & KEEP PACE WITH DEVELOPMENTS & CHANGES. Failure to do so is anathema to chances of continued employment & success. I am therefore amazed & perplexed that these “chattering classes” referred to do not appear to subscribe to that maxim, & in a secretive, cabal-like fashion, adhere to the status quo, when it is very clear that as a result, the world they influence, control & govern is quite literally up the proverbial creek without a paddle.
So, what can we collectively to do about this situation in which there is no partcipation at all via those people in discussing the whole subject of banking practice & the cycle of money creation (introduction into circulation) & destruction (removal from circulation)?
The last few days have seen some welcome progress.
The BBC has been cornered into a long-overdue recantation of how bank lending works, the detail of which you cited in your blog over the last week or so, including the “battle with the BBC link”. Ironically this is almost 10 years to the day since the BoE 2014 Q1 Bulletin confirming explicitly what even amateurs like me already knew.
I was pleasantly surprised to learn that the person who elicited this response from the BBC was David Laws, who co-authored (with Prof Charles Adams, Durham University Physics) the Progressive Pulse article “Is world-leading NHS healthcare an affordable proposition?” cited by you occasionally. David is now a Consultant Anaesthetist in Sunderland. I talked to him some 6/7(?) years ago when I visited the picket line at Newcastle’s Royal Victoria Infirmary (an earlier junior doctors’ strike) to spread the good word about the shambles of banking practice & government money creation. I met him occasionally since & have had sporadic e-mail contact over the years.
Given his success with the BBC, I e-mailed him to the effect that having made the BBC sit up & take notice, he might consider turning his attention to the other side of the coin so to speak i.e. the real nature & source of government spending/taxation etc… I myself sent a submission to the BBC (appended below & necessarily confined to a maximum of 2000 characters). It got a polite, non-commital, but nevertheless non-disputatious response. As a result I did not feel that I coud justify a “complaint”. I also sent a longer personalised version to Jamie Driscoll & received a good response from his team. Dr Julia Grace Patterson is next on my expermental list….
I also copied in about 10 others who are in the same frame of mind & added “…in addition to David Laws (if he is amenable to this suggestion) how about all of you doing an on-line submission to the BBC similar to mine? The more people who do it, the better chance we might have to get the message across.”
My suggestion/request is simple: in addition to the concession on banking, & given your recent & welcome denunciation of QE as a “sham”, would any of your readers/followers be prepared to write in a similar vein to mine (& NB no-one has to use my wording + perhaps I should have mentioned MMT?) to the BBC FOR STARTERS – there are many other broadcast & media outlets & political entities to have a go at. It also beats the hell out of petitions to government which receive little other than lip-service.
My theory is that if sufficient people do it, surely the recipient (initially the BBC) would have to sit up & take notice, particularly if we can get a large number of people to do it. Something has to be done to get the media & politicians at least TALKING about this whole subject of the cycle of money creation, taxation, & what one of your readers brilliantly described as “the ludicrous narrative of National Debt”.
Until they do start such discussion, I fear that we will be perpetually in a “plus ca change” situation.
This however is your site Richard, and as such, you would have to be comfortable with what some folks might consider to be a “mob ‘anded” approach – ergo, over to you.
BBC submission:
BBC views on government spending & taxation issues enshrine a completely inaccurate description about how it all really works. There is no awareness of money creation (its introduction INTO circulation via government spending & licensed lending via banks) & destruction (subsequent removal over time FROM circulation via national taxation & loan repayment).
Politicians, Bank of England & all media (inc BBC) perpetuate the completely wrong idea that money for public spending & investment can only be sourced from a limited pot of money based on taxation, always in short supply + has to be borrowed + the absurd claim of “we have no money left”. Nothing could be further from the truth.
And in that one paragraph lies the root cause of decades of under-investment in public infrastructure & services + “Austerity” policy that clearly does not work & definitively CANNOT work. It is reflected in the parliamentary mantras of “where’s the money to come from” + “you are the party of tax & spend” etc. It leads to the ludicrous narrative of National Debt & the asinine concept of “Taxpayers’ Money”. It has also trashed our economy, compounded by the demolition wrecking ball of Brexit.
May I suggest that your researchers/staff should become acquainted with the work of Professor Richard Murphy, co-founder of the “Green New Deal”, author of “The Joy of Tax” (a book of compelling & relevant content) & take a look at his “Funding the Future” site & blog? He is far from unique in this economics field but his work is a good place to start. Here are just 3 examples of his videos (< 10 mins each) which you can easily find on U-tube
How Governments Create Money + There Is No Such Thing As Taxpayers' Money + What Part Of The National Debt Would You Want To Repay?
From JM Keynes: Anything we can actually do, we can afford
& JK Galbraith: The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it.
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