Summary
In a recent BBC Radio 4 interview, Rupert Harrison, former senior advisor to George Osborne and a Conservative candidate, claimed that allowing Rachel Reeves to borrow an additional £10 billion annually for infrastructure could be disastrous. This is utter nonsense.
I heard an interview with Rupert Harrison on the World at One on BBC Radio 4 yesterday which really made my heart sink.
For those who are not aware of who Rupert Harrison is, he acted as senior advisor to George Osborne from 2006 to 2015, having various job titles, including in the Treasury for five years as a consequence, and he also stood for the Tories in the last election, but thankfully did not make it to the House of Commons. He does, however, seems to think himself well versed in economics ideas when, in fact, he is completely unaware of the nonsense he is talking.
How do I know this? That is because his suggestion was that if Rachel Reeves were to change the UK's fiscal rules so that she might borrow another £10 billion or so a year this would be disastrous.
His explanation for this claim was that if the funding in question were, for example, to be invested in infrastructure, such as a bridge, then if a crisis of the sought that we had in 2020, when Covid hit, were to happen the the bridge in question could not be turned into liquid assets and as a consequence, the country would not have the funds available to it to pay for that new crisis. Investment should not, therefore take place.
I had to say that even his interviewer sounded mildly bemused at this suggestion. It does make me wonder how people like Harrison (who I should add was head boy at Eton and who has a PhD in economics, and is now a senior adviser to Blackrock, the biggest investment manager in the world) think money is created.
Do they ever ask themselves where it comes from?
Do they, in addition, think about what it is?
And, even if they conclude that it is all created within the private sector of the economy (as I suspect they do), do they ever then wonder how it is the private banking sector operates, under what license, and how they, too, end up with funds under their management?
Or do they never get anything like this far and they, instead, simply have an unquestioning, naive, and totally false belief that it is businesses that ‘make money' and that we are totally dependent upon their profit making ability as a consequence for our money supply?
But, in that case, do they never wonder why none of our notes, at least in England and Wales, have the names of private companies printed upon, which you would expect if money was created by these private companies? Why do they also think that we give the job of regulating the money supply to the Bank of England if they have no role in creating the money in question?
What also do people like this think happened in 2020, or in 2009, come to that? Where do they think that the money to deal with the Covid crisis and 2008 financial crises come from, and why do they think that it might be impossible to repeat that process now if, as would be the case once again, the private banking system would be quite unable to meet the demand for money within the economy if such crises occurred again?
Does he really think that the government did not create new money out of thin air on both occasions? And how did he not know that it did so after five years at the Treasury from 2010 to 2015?
And why does he think it could not do so again?
Alternatively, is it actually the case that he is so desperate to undermine the role of the government in our economy that he is claiming that the government must metaphorically, or even actually – given how hard it is to work out what he is saying – now stuff money down the back of a sofa to provide for the proverbial rainy day?
I would like to credit Rupert Harrison with some intelligence. If so, I can only presume that he is peddling a conspiracy theory of this sort with the intention of restricting the role of the government in the economy so that we as a country are deprived of the resources that we need to survive. That conspiracy might be sinister, but at least I could credit him with some intelligence for creating it.
The alternative is that so crass are his comments, and so inexplicable is his lack of understanding of the economy, money and the role of government in both issues, that he is, to provide the kindest possible interpretation, economically illiterate when it comes to money. And, yes, I do know he has an economics PhD.
The UK government can never run out of money. It can always make more if it requires it in the case of an emergency, or on any other occasion if it so wishes, if it thinks it macroeconomically prudent to do so.
To pretend, as a consequence, that what Rupert Harrison said makes any sense is quite literally impossible.
And nor could it ever be the case that the UK government would be forced to sell infrastructure to pay for the next equivalent of the Covid crisis, whenever it might come. It would, instead, simply create the money that was necessary to get through that crisis, and that would be the end of the matter.
So, are the comments made by Rupert Harrison macroeconomically and politically malevolent to prevent this country enjoying the investment it needs and can afford, or is he simply unaware of how money really works? That is the question.
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Or does he solely see the world through the prism of the asset stripper?
It sounds as if Harrison has been solely at the parasite end of the Blackrock business and believes everything must be monetised. Everything to be owned by his cabal and rented back. Every state asset to be in the hands of the rentiers.
If that is the case, and this individual has the ear of Reeves, then expect there to be a faster sell off of any residual assets as she is as economically illiterate as Harrison.
I always wonder what bs these people would have been spouting in 1945 to 47.
Harold McMillian (love him or hate him) clearly understood asset stripping and what it would do to the UK.
From Wikipedia: “Macmillan is widely supposed to have likened Thatcher’s policy of privatisation to ‘selling the family silver’. His precise quote, at a dinner of the Tory Reform Group at the Royal Overseas League on 8 November 1985, was on the subject of the sale of assets commonplace among individuals or states when they encountered financial difficulties: ‘First of all the Georgian silver goes. And then all that nice furniture that used to be in the salon. Then the Canalettos go.’ Profitable parts of the steel industry and the railways had been privatised, along with British Telecom: ‘They were like two Rembrandts still left.”
The situation with the private water companies is like damaging a Canaletto through years of neglect then expecting the art gallery that sold it you to buy back the damaged painting at purchase price plus inflation cost.
Rupert Harrison seems to me to be a complete loser when it comes to economics. I would definitely NOT buy a used care second-hand from this man.
“I would definitely NOT buy a used care second-hand from this man.”
Should be: “I would definitely NOT buy a used second-hand car from this man.”
But Tricky Dicky wasn’t just an unreliable second hand car dealer with 5 o’clock shadow, or the RH man of McCarthy, or a frequent user of expletives (deleted) and a Watergate criminal. He did have his good points, and gave us Fiat Currency!
Look, I’m not trying to be ‘superior’ here or anything right, but this is not about ‘incompetence’ or ‘inability’.
This is the new (actual) project fear – it is lying at scale to achieve the objectives of securing the income stream for capital.
This is not incompetence: there is a mens rea element here I’m telling you. It’s deliberate and pre-meditated.
This is corruption folks. This is where the uncollected taxes of the rich end up – in the pockets of those you vote for. Game over for democracy.
Whether it is soviet communist or capitalist – it is the same principle of lies for the same ends – to sustain a system that everyone knows does not work anymore but benefits a few who ensure that the lie gets funded and supported in the media well enough to continue in the face of counter-knowledge, no matter how well researched.
To call these liars incompetent is to give them too much credit, believe you me.
Out here in the real world, frustration is growing and there are people who are wondering who is going to make the first move. Something is growing, an expectation that will not be fed by fascism and which many will be ready to follow – and greed does not seem to realise this yet.
If you are one of those liars looking in – make the most of it is all I can say, because your days are numbered. Be sure of that.
Yes. These individuals are knowingly waging a class war. One in which they are choosing to ruin innocent others lives, destroy livelihoods and grab state public assets in order to recreate a system in which they will once again hold economic and political power. Thatcher was merely their useful idiot. She believed in social mobility for her class and could not see how so many men and women who witnessed their families suffering the dispossession of their wealth and displacement of their social positions in the postwar socialist revolution would seek revenge. Their motives fitted seamlessly with her personal ambition. She was an ideal easily manipulated ‘class warrior’ weapon of destruction of burgeoning UK social democracy. Similar to committed Russian communists post 1989 who went on to become global oligarchs and have since bought their way into their Russian Revolution era enemy state governments of the US and UK in order to destroy them from within. This unfolding social US/UK dystopia is a whirlwind made of various groups revenge politics initiated by dirty deeds done to families and countries decades past and their multifarious criminal chancer hangers on.
Yup, maybe that’s Blackrock’s ultimate objective – to strip the Earth so that’s all that’s left. A black rock.
Yes it is worrying that people, who in theory should know better, peddle such rubbish. Is it that they, despite having qualifications, still don’t understand the issue or as seems more likely, they let their political beliefs take over? I am coming to the conclusion that a lot of people who do have quite good qualifications on paper, are seemingly unable to actually use the skills which they ostensibly have to evaluate economic issues properly. A total lack of critical analysis pervades a significant section of the ‘educated’ classes.
This is at the same time that ‘The Times’ has been reporting, and enlarging on persistent rumours that the Chancellor is going to make an accounting adjustment to the Fiscal Rules (note that: an accounting adjustment, by an economist – this is a duck far, far from water!), and Lo! She is going to find a mere £50Bn from under the sofa cushions (magically unnoticed), in order to spend capital on infrastructure. It’s a miracle! And the City will gobble most of it up in PPIs, LDIs, CDS’s or whatever new, fashionable derivative will dazzle the ‘marks’ (the economists); so that if £50Bn is invested by the public, the City will invest £5bn, and be rewarded by £30BN in dividends and rents from the £50Bn over the next twenty years.We know this, because that is how it is done. You can bank on that. It’s the City.
This is Theatre of the Absurd.
And no, they may have found £50Bn for infrastructure; but there isn’t £1.5Bn for pensioners. Who do you think Labour is working for?
Malevolent, or ignorant?
I listened, I say, “malign”.
The lady from The Times was also hopeless.
Things I spotted:
“Like a household budget..”
“Like a company budget..”
A list of how gov’t finances it’s activities that left out money creation.
Assumptions about the perils of high national debt:GDP ratios that ignored history.
The mantra “Liz Truss etc”.
A v dodgy description of QE that even economically unqualified little old me could spot as inadequate.
He even threw in gold reserves to obfuscate.
But most amusing was his reference to the illiquidity of bridges. I couldn’t help thinking of some historical bridge selling stories – London Bridge to Arizona? Boris’s “Garden Bridge”? https://www.mylondon.news/news/nostalgia/ive-bridge-sell-you-conman-22497002
Definitely, malign.
The wiki article refers to a BBC radio 4 profile of Rupert Harrison in 2014. Interesting listening, and he is clearly intelligent, privileged and nice. Most comments were complimentary, but Danny Blanchflower put his record into perspective.
At that time the commentators were touting him as a future Tory leader, and speculating on whether he would stand for Parliament at the next election, but it was only in 2024 that he eventually stood and lost.
It’s only 14 minutes long.
https://www.bbc.co.uk/sounds/play/b03xzsnz
The question of were money comes may be rather less important to the the neo-liberal minded economist or financier that the question of who controls money. And generally it suit them that most people don’t know there own minds when it comes to that question.
Indeed if you find a way to drop the ‘where does money come from’ question into a discussion you see people begin to answer then will experience some cognitive dissonance on realising they are carrying around some ungrounded assumptions. Children are usually nearer the mark with ‘it’s printed by the Bank of England ‘.
Might some use their qualifications as a metaphorical passport to positions of influence to promote whatever and whoever, rather than as a basis for greater knowledge and/or societal benefit?
I have seen a clip showing Ben Bernanke replying to a question by a Congressman when Bernanke was head of the Fed. The Congressman asked where the money comes from. Bernanke replied: We create it out of thin air. The guy’s jaw dropped.
Not for nothing are PhDs referred to as Piled Higher and Deeper! When he has spent his entire career embedded in and reliant on that belief system he is not going to change now. His comment on infrastructure not being able to be turned into liquid assets tells you why private sector finance and financialised businesses have failed utterly to build the infrastructure we need.
Earlier this year I was in a small group meeting with a Dep Gov of the BofE who told us how the banks needed deposits to be able to lend. Still spouting year 1 undergrad nonsense and ignoring what the BofE has said. That 2014 paper.
It’s long been a personal theory that the City does not like lending to business where that finance might be committed possibly for years. They would much rather keep that capital and use it for trading and speculation. Or lend on property where they can grab the asset back. And of course if those markets crash they expect to be bailed out as they are too important to be allowed to fail. Heads we win, tails you lose.
When you’re of a selfish disposition and want to maximise monetising resources for your own needs then of course you’re going to see the state which also monetises resources as a competitor. So you become a spiv telling lies about how the monetary system that does the monetising actually works. Your objective is to propagandise these lies as much as you possibly can and turn as many people as you can mentally into your spiv slaves (people who believe your lies).
As an example I note that Waheed Alli who is currently in the news for giving freebies to Rachel Reeves, Angela Rayner and Keir Starmer appears to have made most of his money as an investment banker. This translates into the following:-
“His business brain is certainly hard at work trying to help the Government save money. Friends say Alli already has his eye on the Treasury, where he would like to turn his attention to paring down the national debt – interestingly, his maiden speech was not, as had been predicted, about the gay age of consent, but in an obscure debate on the Finance Bill.”
https://www.independent.co.uk/arts-entertainment/the-party-boys-1196428.html
https://en.wikipedia.org/wiki/Waheed_Alli,_Baron_Alli#cite_note-The_Independent_(Saturday_06_June_2015)-12
Of course the UK government can expand the money supply. They’ve done it before, they can do it again. They don’t even need the performative participation of the private sector in QE (issuing gilts and then immediately buying them back). But there will be consequences.
To be charitable to Rupert Harrison, perhaps he didn’t mean that it would be actually
Impossible, but rather that the adverse consequences might make it practically impossible. Every action or inaction has consequences and the politicians are charged with weighing up costs, benefits and risks and making a decision. In doing that it would help to have a strong ethical framework and an understanding of social and economic reality, not the neoliberal tropes that have dominated the discussion for the last 40 years.
God help us all.
to answer your question, I think some people get so invested in a paradigm they reach a stage of discounting evidence to the contrary. Especially if their status and reputation depends on it.
It seems to be widespread in society which further reinforces that investment.
But for many the paradigm doesn’t matter if they can gain from it.
“Do they never wonder why none of our notes, at least in England and Wales, have the names of private companies printed upon, which you would expect if money was created by these private companies?
Why do they also think that we give the job of regulating the money supply to the Bank of England if they have no role in creating the money in question?”
I seem to recall that private currencies was one of Friedrich Hayek’s more wizzo ideas.
I suspect Roopie has a soft spot for the auld Austrians.
Even within his own narrow and bizarre world what he said made no sense. Local government already lease back their own assets, even such things as lamp posts. His bridge would make perfect collateral for such a loan, daft though such a transaction would be.
I bounce the occasional query off Rupiedude on Twitter from time to time, no responses as yet. I am beneath the notice of His Imperial Magnificence, I gather, compounding my theory that, like Cameron and Osborne before him, he’s well aware he’s entirely a creation of privilege and accordingly will do all he can to maintain that privilege. I doubt we’ll ever hear anything approximating to economic reality from him. It would be commensurate with handing in his resignation from the upper class.
Jaw-dropping indeed. The ignorance, the plainly unthinking recapitulation of prejudice as fact and the naivety – all quite startling. However, I would suggest that the real issue and question raised by performances such as this is a political/moral pairing.
When does the fool become the knave – and in whose interest is this transformation?
Sounds to me that these and the people are not averse to borrowing but they are opposed to applying funds to certain categories of expenditure. Additionally the banking crisis, the Covid 19 crisis, the manufactured Ukraine crisis (and the concomitant energy, cereals, fertiliser and inflation crises) and the apocalyptic genocidal actions of Israel all point to the need for the ability to respond to the emergence of future risk.
To this end the important thing to do is to ensure that when we do borrow we borrow to cover the emergence of existential risk. I suspect the Labour Party is wedded to such a policy, the upshot of which is to lie about money creation and borrowing for anything other than the identified (mainly) foreign policy and financial mismanagement risks.
When running a charity one has to justify the extent of the reserve balance on accumulated free funds. The government does not apply comparative transparency to its account and therefoe it needs to create a reserve policy bt stealth and dissimulation.
The government does not need a reserve: it creates the money and it can reorganise the resources of society if it needs to in an emergency
Sovereign govermment is never like any other other entity
Of course I realise that.
The point I was making was that this is never stated,in fact the constant message is that there is no reserve, that we must either tax or borrow.
Within the context of “the economy as the equivalent of a household budget” and “we are faced with a black hole” the concept of a reserve cannot be admitted since it undermines the message being pumped out.
Nonethess given the risks that are on the horizon a financial response must be considered, hence the need to create a “reserve” by stealth, keeping the borrowing powder dry. At a point in the future the need to borrow will be portrayed as extremely serious and inevitable and because borrowing has been resisted for socially useful purposes it will be then available for foreign wars, epidemics and bank and water bailouts.
This is not my logic it is the logic of those who subscribe to the tax or borrow philosophy.
Agreed
Thanks
[…] Where do neoliberal economists think money comes from? Funding the Future […]
Since he has a PhD, his academic credentials are available to the public. His thesis was on innovation technology and structural reforms. Of course he was also chief advisor on economics to Osbourne and Cameron when they were in opposition. He was also until very recently Jeremy Hunt’s advisor.
He isn’t a neoliberal monetarist. Yet he still speaks like one and lets them do his thinking for him.
But typically R4 WATO just lets his analysis hang there – implying he is ‘the’ expert guru – instead of immediately interviewing a Mazzucato or a Murphy to enlighten the audience that there are other ways of understanding this.
IFS is warning about more ‘borrowing’ https://ifs.org.uk/articles/fiscal-rules-and-investment-upcoming-budget, but why dont they ask themselves how 14 years of austerity have left a situation where there just has to be public investment – and in people and not just assets – otherwise the NHS is wrecked.
IFS sys of itself ‘it does not do macro’
“the bridge in question could not be turned into liquid assets and as a consequence, the country would not have the funds available to it to pay for that new crisis.”
I read that and nearly spat my bacon sandwich out.
I honestly didn’t know whether to laugh out loud or face palm my forehead in complete stunned silence.
I had this vision of war being declared and next mornings newspapers packed full of stories of buildings parks bridges schools and hospitals for sale to pay for the war effort.
This was lunacy on a level that I would equate with something Donald Trump might say.
All the interviewer had to ask was could he name the assets that were liquidised in 2008 and at the time of the pandemic to fund our response.
That’s literally it that one question would have exposed his rank stupidity or duplicitous lying whichever it was,
but that’s the standard of journalism we can expect from the MSM.
*Checks Harrison’s CV, sees the words ‘Oxford’ and ‘PPE’ and really doesn’t need to read any further.*
See also: Reeves, Sunak, Hunt, Dodds, Balls, Cooper, Miliband(s) etc etc etc
It’s kind of ridiculous how these folk from both major parties have so dominated our polity in recent decades yet not one of them appears to have the faintest clue what they are talking about.
Has a single one of them ever been bearded in an interview and asked for any sort of a comment about money creation, or how they think money creation works?
I mean, obviously you wouldn’t expect fellow PPE-ers Preston, Robinson or Davis wouldn’t ask any such questions in their many interviews with these folk over the years (perhaps they don’t accept students with an enquiring mind at Oxford?), but you’d think that one or two journalists somewhere or other wouldn’t be totally bloody useless!
I have to wonder who taught them and awarded them their academic qualifications?
Also, who were their academic compatriots and where did they end up?
Why do BBC interviewers not ask searching questions as a follow-up?
Don’t they all have questions to answer?
I wonder if things have now changed?
Interesting that he used a bridge as an example of illiquidity of infrastructure.
The clever clogs (according to Wiki) is taking the mickey, isn’t he. As in, if you believe what I’m saying, I’ve a bridge to sell you.
I commented in the CiF of the Guardian that the limits of spending are the physical resources.
This was a reply with a comment about one Richard Murphy
The reason critics of MMT ignore the part where “the real limit to spending is the necessary physical resources” is that its proponents don’t seem to take that seriously as a limit to spending. In particular, we’ve just had a massive global cost of living crisis very much caused by the world hitting the limits of the available supply of physical resources, with natural gas supply running flat out for a while due to factories catching up on missed production during the pandemic, raw material stockpiles in warehouses depleting at a rapid and unsustainable rate, etc. Despite this, MMT proponents didn’t argue that actually, governments couldn’t just spend more money and we’d have to all be poorer. The slightly more honest ones like Richard Murphy came up with different arguments why actually, the government could still afford everything. The less honest ones kept up the whole MMT charade that they could just print money and they were lying about not being able to afford things.
another reply was ‘currencies are traded on international markets and as soon a county started printing to directly finance spending its currency would be dumped.
Harrison is not alone.
I am not quite sure I get the flow of that……
me neither but both had a number of upticks. Shows I think that some will stick to what they learnt when they were young.
I’m constantly now trying to explain to friends and family that money spent on, say a bridge does, not mean notes and coins buried in the foundations never to be seen again but that money still ‘exists’ however it has now been passed on to the workers and suppliers etc. who will then spend it with other groups of people who can supply the things they want and need, and so on. The Government is of course taking a cut out of each transaction as tax to eventually cancel out the money they created in the first place. It’s made so much more difficult with people like Harrison, who ‘ought’ to understand it far better than me telling the same people the exact opposite. There must be something wrong with the way we teach economics that people who think this way end up in positions of influence? Or am I the idiot as my friends seem to think.
Excellent points
Steve Keen has been making the point that one of the fundamental errors is that of the “market for loanable funds” promoted in economics courses, and invented by Gregory Mankiw. I’m not an economist (i.e. I’ve never taken any courses, but perhaps that’s a blessing!), but the whole of Mankiw’s idea is intuitively bonkers. He claims that there’s a limited amount of money available for investment, and that govt and corporate bonds are in competition to attract it. Thus govt investment saps money from private investment, and conversely reducing govt “borrowing” frees up money for the private sector. It’s palpable nonsense, but Reeves appears to have bought it, which explains what she’s mistakenly trying to do. Steve is posting a series of articles “We can’t afford Rachael Reeves” on both Substack & Patreon. Very thorough analysis, as always, and recommended.
Steve is right
The loanable funds idea has been around a lot longer than Mankiw: his main guilt is believing it and propagating it via his ubiquitous textbooks, with a relatively easy to follow (but totally wrong!) explanation. The idea started way back with Wicksell and the Stockholm school, then taken up and made explicit by Ohlin and others; and (the worst part?) incorporated into a “Keynesian” synthesis using Hicks’ ISLM model (1937).
But the fundamental error is to assume constant quantity of money and simply move it according to liquidity preference; totally ignoring endogenous money creation (per BoE 2014 paper; and others before then) i.e. bank loans awarded on credit worthiness of borrowers, not available savings received.
I’ll confess I was duped by the nest system and nice graphs of said textbooks (not just Mankiw’s) until I saw the idea wither and perish under the sunlight of reality: endogenous money.
Hicks has a great deal to answer for
It was Samuelson who lost me more decades ago than I wish to admit (his n+1 edition textbook, where n= forever); and how money multiplies by not multiplying. I decided they must all be quite mad.
Agreed
And then Mervyn King was on BBC Radio 4 Broadcasting House saying the usual tripe about Government borrowing and the need to bring down the ratio of debt to income. And then the worst was Paddy O’Connell saying things like ‘the need to balance the books’! Geezo, the sheer ignorance of these two!!!
Pilgrim Slight Return has hit the nail firmly on the head. It is indeed not lack of intelligence or intellect on Harrison’s part or in Neoliberal thinking generally, but that it is all underpinned by deliberate, perverse, & devious lies to promote self-interest.
Where do Neo-Liberals think (their) money comes from? I think the answer is pretty clear. Us
I am a follower of Richard and read the deficit myth as I try to understand the world I live in, but on this case I think where does money come from as a booked helped me the most. Great article a usual