I did a pre-record interview for Times Radio last night, which went out sometime after 10 o'clock, but I admit I did not listen to it then.
I was in discussion with Deven Ghelani of an organisation called Policy in Practice, which says it is a social policy software and analytics company that provides advice to councils, government, housing, providers, and community organisations on the impact of social policy.
The discussion focused on the increasing number of people making claims for out of work benefits in the UK, largely related to their inability to work. There has been a recent significant rise in this number, although as Deven rightly pointed out, this might well be because the Office for National Statistics has essentiallyy lost control of its data on the number of people who are unemployed in the UK meaning that any figure that they provide is, at present, open to doubt.
That said, I was asked to take part not because I am an expert in benefits (which I do not claim to be, although Deven does, and is), but because I am interested in how to solve this problem.
I made three very obvious points, I thought. One was that we need to spend more on the NHS because if people cannot work because they are sick then that, very obviously, means that we need to provide more healthcare.
Second, I suggested that as a consequence, the government would save money because people would increasingly return to work and, therefore, pay tax rather than claim as many benefits.
Third, I made it clear as a consequence that if we did this, then we would, through multiplier effects (which I tried to explain in the limited time available), all be better off because this would generate growth, which all political parties say as their goal. I also made it clear, by explaining the component elements of GDP, that the government, through additional spending, is the only agency capable of delivering growth at present.
I admit that I was then depressed to hear Deven Ghelani say that there was no way that the government could borrow more money at present to fund such a programme because Liz Truss had proved that unfunded spending commitments of any sort were not acceptable to financial markets and therefore could not be delivered. I found it troubling to hear such a status quo-supporting attitude, which was also deeply economically misplaced, from a person who claimed to be an expert in social policy, and I said so.
As I explained, what crashed Truss's budget was not anything that Kwasi Kwarteng said, although very little of what he did actually propose made any economic sense. Truss was brought down by the simultaneous launch of the Bank of England's quantitative tightening program, which was what actually crashed markets the weekend after that budget.
I also pointed out the fact that governments could always create the money to deliver policy, referencing 2008 and 2020, and that to do so when there was significant unemployment – which was exactly the problem that we were discussing – could not result in inflation, precisely because unused resources needed to be given gainful opportunity to work.
The response from Deven Gheleni was first to be rude about my unexpected support for Liz Truss (which was a comment not remotely linked to what I had said) and secondly to suggest that there was no such thing as a magic money tree. At that point, whilst remaining respectful, I made it clear that I was quite annoyed at such a comment being made in what was supposedly meant to be an informed debate because I was not talking about anything worthy of that description, but what I was actually doing was t describe the way in which the economy really works, about which it seemed Ghalani was in denial.
He had the decency to accept the flippancy of his comment, but appeared persistent on the cost of government borrowing, which I then pointed out was entirely within the government's own control, not least when it comes to the making of the payment of interest on central bank reserve account balances, which payments will total around £40 billion this year, which have no legal requirement to be paid at all. He appeared quite unaware of this.
The interview concluded with Deven Ghelani suggesting that if there was to be spending, it had to be on the NHS, improved benefits and social investment and not on tax cuts. At that point, I could, of course, agree with him. But it is very depressing to appear alongside a social policy expert who is so unaware of macroeconomics that they think that the government is constrained in its actions by the need to borrow from financial markets, when that is not true, and that interest rates are outside the control of government when nothing could be further from the truth.
I suspect that what Deven Ghelani and his organisation do is of real micro-economic benefit to those who use its service. I am not knocking that. But I do wish he would learn some of the fundamentals of macroeconomics because what he has to say would be so much more useful if that were the case.
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Perhaps you should offer to lead a seminar for Deven Ghelani and his colleagues?
He can call
The household budget analogy is very deeply engrained in most people, as it has a kind of common sense logic. And most people I know are too busy dealing with life’s vicissitudes to ponder these issues deeply, let alone change their minds about them.
However, that someone who is in the business of public policy making, and has a voice in the media, should be so ill-informed and closed minded, is unacceptable. Well done for challenging him, I hope he goes home and has a rethink.
The level of debate is dire in the UK today, and if we want real change for a better society,we need serious people, with facts, not dilettantes with fantasies.
Deven Ghelani is wrong, there is a magic money tree.
“Ultimately, then, from an institutional and economic perspective, there is a magic money tree.” — “Why the British state is a magic money tree”, The New Stateman, 26 May 2022, https://www.newstatesman.com/politics/economy/2022/05/why-british-state-is-magic-money-tree
“there are two main money trees: commercial high street banks and the central bank, the Bank of England.” — “The Truth Behind the Magic Money Tree”, Positive Money, 2017. https://positivemoney.org/2017/06/magic-money-tree/
“We argue that there is a magic money tree or trees” — The Magic Money Tree:’ From Modern Monetary Theory to Modern Tax Theory, John Christensen, Tax Justice Network, 5 March 2019, https://taxjustice.net/2019/03/05/the-magic-money-tree-from-modern-monetary-theory-to-modern-tax-theory/
Is there a magic money tree? Yes children, there is. But that’s the wrong question, Ellie Mae O’Hagan, The Guardian, Tue 6 Jun 2017, https://www.theguardian.com/commentisfree/2017/jun/06/magic-money-tree-theresa-may-banks-nurses
It is what the magic money tree gets used for, that does the damage. If the #newmoney were allocated for social purpose then it would make an enormous difference. It is currently allocated with short term profit (private) in mind and gets wasted on creating inflation. Democratic control of who gets #newmoney is needed. The commercial banks making loans to oil companies for Roseacre development, using #newmoney that belongs to the people, without their democratic consent. Nice little private earner on both sides. Nationalise the banks.
Why nationalise the banks and take all their risk?
We need a national conbsumer bank and a Green National Investmwnt Bank, bit not all the rest
If the commercial banks are issuing loans via ‘the people’s #newmoney for projects not approved then who is taking the risk. QE saved the banks, the private banks.
I have answered this question many times
“It is what the magic money tree gets used for, that does the damage. ”
Yes it can, but as you say, social community projects could make a positive difference.
With great power comes great responsibility.
Based on their track record, do I trust the political parties to do the right thing?
After dumping raw sewage into our rivers, allowing schools to crumble, and bailing out the already-rich bankers, probably not.
The devil not only has the best tunes, he has the best metaphors too. As noted above the “magic money tree” metaphor is puerile, invites ridicule and is, therefore, counter productive.
It also takes courage, as well as learning, to go against the flow and accept the fact that the Government can create at will etc. Maybe Deven looks around and asks himself what do the “experts” say: the journos in the Guardian, the FT, the BBC, the IFS, the BOE, all the senior politicians of all parties, most academics? Any alternative is so outlandish, so maverick, so lampooned by serious economists as a “magic money tree” that to actually consider it might nonetheless be true could be career-ending. So just stick with household metaphor, so much more cosy and closer to home.
Depressing.
Devan Ghelani has sided with where the money is.
No doubt he and his org’ will be offered fat fees to keep telling stories that support the self-serving status quo.
Hopefully you will have peeked Deven’s curiosity. I know it would have mine,
: )
… (piqued) …
I stand corrected : )
Well, no one else has stated the obvious so I will – maybe Deven’s curiosity in these matters peaked too early and he just cannot keep up?
I have an Economics degree (UCL 1982) but have since learned what I was taught about money was incorrect. Getting this over, even to intelligent people, and even some of my fellow UCL alumni, is very difficult. The best thing is to give them a copy of Stephanie Kelton’s book. In fact why not send Deven a copy?
I suspect he can afford his own.
I’m sure he can but does he even know it exists?
Kevan,
Which of Stephanie Kelton’s books would you recommend I start with?
The Deficit Myth
Particular fields of expertise make assumptions about the fundamentals of there field which are outside of their concern. As a consequence there are always problems when these fields interact. It might useful to think of government budget constraints when you operate in a quango. However it is a different matter when discussing the political economy and the factors which determine household welfare.
Similarly national interest is a useful assumption when discussing international relations between states. But it is another thing to say national interest is why governments choose a particular policy. The assumptions stop making sense.
I remember back in the late 80’s/early 90’s loads of claimants being transferred over from Unemployment Benefit to Invalidity Benefit (Or whatever it was called in those days)
Now I simply say this as an observation, I am not casting judgement as I didnt know the people involved but most of them seemed fine and having been given an offer that was too good to refuse took it.
My current experience suggests that there are lots of people with potentially treatable conditions but there isnt anything done to help them. This has not only an economic impact but a personal one with people suffering from perfectly treatable conditions.
There has been talk about the NHS charging local authorities if they have patients who cant be discharged because of lack of social care so why isn’t there some sort of charge from the DWP for people who are unable to work but not being offered treatment?
That transfer back then was to disguise the massive scale of unemployment created by Thatcher
I went to a talk on long covid on Monday. There is a research project in Scotland called EAVE 11
https://publichealthscotland.scot/our-areas-of-work/health-protection/infectious-diseases/covid-19/covid-19-data-and-intelligence/covid-19-eave-ii-study/overview/
Among other things they are looking at how well vaccines and treatments work. The good news is the vaccines work, and reduce the likelihood of getting long covid; the bad news is, if you have got it, there is very little effective treatment as yet and a lot of people have got it.
My father was one of those who was “put on the sick” as he would have called it. He had had cancer, although recovering well, but his job was about to go – Thatcher – and it was his doctor who suggested that he may as well retire, at 60, after doing a skilled manual job which he may not have had the strength to continue doing.
The problem is this.
Not everyone reads your blog.
Why should they?
This looks very like trolling to me.
Since you feel depressed today, a little anecdote to cheer you?
I have a Sociology student who lacks knowledge but is thirsty to learn as she sees it applies to the world she experiences. We have been doing some basic economics when getting to grips with privatisation, and I have used some of your YouTube videos in those lessons.
She has taken to heart the fact that most media stuff is false (especially the taxpayer myth) and she told her father that , when he was ranting about his taxes paying for stuff. His response was not to berate his daughter but to watch your videos! He now states that he’s been lied to all his life.
Thank you.
Appreciated.
Note that ill-informed pundits increasingly use the term “unfunded spending” instead of govt ‘deficits’. It’d be easy to show that the supposed terrible consequences of “unfunded spending” have not followed govt deficits.
A very interesteing account, in which I learned:
1. a great deal about what somebody, in a position of some responsibility should know (but does not)
2. that this person lacks curiosity about the political economy,
3. that he is credulous – accepting memes such as “the magic money tree”.
I am neither surprised nor dissapointed in this outcome – it shows that neo-liberal economic “grooming” has been very very successful.
Oh & never enough time is given to the discussion of the important points raised by Richard, such as .. the £40bn paid to banks to hold money GIVEN to them by the BoE. Economically the UK is one large lunatic asylum.
One thing many people seem unaware of, but is an actual benefit of Brexit and is the reason I don’t support rejoining (though I initially opposed leaving) is that the Government is no longer legally prohibited from directly issuing bonds to the Bank of England.
Base money creation (as QE does) can now be done free of financial markets.
I think more than anything, this is an important tool now in the hands of Government that has not been touched, because QE means money for the rich, while pure base money creation means government spending.
To be candid, we got around this when in the EU so it is not enough to persaude me.
That’s certainly a fair position to take.
At the very least it’s important to note this is a tool that the government currently has and is not employing as a political choice.
From the FT..
The Big Read.
The hard Budget choices facing a cash-strapped UK.
Paywalled..
https://www.ft.com/content/da59ba85-ecd2-4c9a-81f5-4b72966b5b5d
Is that a lie FT.
Isn’t it amazing how those who trot out ‘there’s no Magic Money Tree’ phrase see no need to say where they think money DOES come from?
It’s a bit like a parent telling a child who wants to know where babies come from that they’re not delivered by storks, as if that was an answer!