The IMF says it is worried about the world having a low-growth, high-debt future when, in reality, we need low growth to manage climate change and high levels of government money creation to fund the services that will be the basis of future prosperity. They've got their whole logic wrong.
This is the audio version:
This is the transcript:
The managing director of the International Monetary Fund said recently that we face a low growth, high debt future. and that she is really worried about that.
I'm not sure I share her concern. I think she really doesn't understand the way that the world is going to inevitably change. Let me explain.
We cannot keep growing on this finite planet. As a matter of fact, it is impossible for us to keep growing in the way that we have been because there aren't sufficient resources to let us do so. Let's face that reality.
That doesn't mean to say that there isn't more that we can do for each other.
It doesn't mean to say that we're all going to collapse into some form of old-style subsistence farming economy.
It doesn't mean to say that we're not going to recognize the way that we live now in the future, because I think there will be large elements of the way that we live now which will exist in the future.
But I am saying we can't keep growing in the way that we are now, which is utterly dependent upon the greater consumption of material goods, because that is technically not possible, because we know it is going to lead to basically the collapse of the environment in which we live, in a way that might even make human life unsustainable.
So why is the managing director of the IMF so worried about low growth when in fact, low growth is the route to our survival? I genuinely don't know.
I'm also worried about why she thinks that high debt is a problem. Because the debt that she is talking about is not private debt - although she should most definitely be worried about the scale of that, because it is much more worrying than anything to do with government debt. No, the debt she is talking about is that government debt. And she is concerned that that apparently is still growing. And again, I am not.
This also requires explanation. Why am I not worried about government debt growing? Because government debt, as the IMF and others like to call it, is our money supply. This money supply is being created because the government needs to do more things in an economy that is not going to grow in the way we used to in the past.
Instead of consuming more material items, we are going to do more for each other. We are going to care more. We're going to educate more. We are going to entertain more. All of those things consume relatively small amounts of carbon. They are, therefore, sustainable.
And all of those things are provided best by government because they are for communal benefit and everybody needs to have access. But what that means is in proportion to each other the government sector is going to grow in relation to the private sector over time to come.
Now, that means two things. First of all, the amount of tax that is going to be paid is going to go up because that is the necessary corollary of the government spending more money into the economy, which is going to be necessary if we are going to substitute these communal style services that will contribute to our well-being for those material things that are destroying our well being.
So, we will pay more tax, but we will also almost invariably have more debt as the IMF calls it, because our money supply will need to grow because the government will need to literally be fueling the increase in the output. of economic activity that we actually need to continue to recognize that we have economic lives worth living.
And that debt is not, in fact, debt because it is the money supply. And it can't be debt because the only way it can be repaid is by creating more money, which would then be redeposited with the government, which means that it's technically not repayable unless the government wishes to make that payment, which it doesn't.
And this money is therefore, as I've said before, and I will no doubt say again, actually what we would call in accounting terms equity.
Now, debt on a balance sheet. is a credit balance. And so is equity on a balance sheet, a credit balance. And you will find that is true on every commercial set of accounts you look at, because if a company has, for example, borrowed from a bank, the liability owing back to that bank is shown as a debt. It's a credit, even though it's called a debt. This is confusing. That's the way accountancy works.
But also on that balance sheet, you will see something called shareholder's funds. Now that is share capital, plus it is the retained reserves of the entity. And what I'm arguing is that the money that the government creates to put into circulation within the economy behaves in accounting and economic terms like that share capital plus retained profits do in a commercial organisation.
We as a community have invested into our economy to provide productive resources to produce well-being.
So why is the IMF worried about increasing the equity, which is the foundation for our future prosperity, when that foundation cannot be further growth because further growth is going to harm the cause of tackling climate change? I wish I knew.
But what the managing director of the IMF said when she said she was concerned about low growth and high debt was quite straightforwardly wrong. That is our future. That is the basis on which we can be prosperous. That is what we have to achieve if we are going to manage climate change. And that is what we desire if we are going to have well-being from now on.
But what we have to do is recognise that this debt is not due to anyone. It is simply money that the government has created, which may or may not be matched by funds which people have deposited with the government, but that doesn't matter. It's still equity. And that equity is the basis of our future well-being.
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There is only one kind of growth which is sustainable, which is to do more with less. All progress needs to be measured against that objective.
If we have low Govt. debt, them we have less money circulating, meaning that those who can capture more of it will wield greater power over those who can’t. A neoliberal utopia, for the rich – slavery for the poor.
I also note the MSM whining about the interest rates on gilts going up, but I though the Govt. set those (or are these resale prices). Is this really problem, after all Gov’t can cover all its “debts”
Finally, I also heard mention of the £ dropping, Is this something that external actors (the market) can do to influence Govt. policy, and hence a major problem to a Govt. that wants to invest in its infrastructure/economy
I think Clive Parry has answered my question ref gilts, on another post
“CLIVE PARRY says:
November 1 2024 at 8:24 am
Always hard to attribute reasons for market moves. In practice, the market moves and pundits then have to assign a “reason” for the move…. but the truth is markets move for all sorts of reasons and none.
I would just observe that all the measures announced had been long trailed ahead of the speech – there were no substantive surprises. Indeed, there was relief in some quarters that some mooted changes did not happen or only partially.
During the speech itself gilt prices actually rose… until inflation data in Germany and the US was released. It was, in my view, these data that triggered the modest decline in prices across all markets that afternoon. If the move in gilts was larger during this time it is more likely a reflection of a lack of liquidity in gilts as most participants digested the budget rather than traded.”
It would seem that it is a none question, raised only because the News sought to make an issue of it. Of course, people like myself, who do not understand this, then are left with the impression that something of significance has occurred and we should be concerned about it.
Thank you Clive and Richard
Most politicians and policy makers live in the past when it was assumed you could just carry on growing without affecting the planet. Despite more evidence including the disastrous floods in Valencia they carry on as before. The government here do the same – fuel duty frozen and bus fare caps up! Not only does the freeze on fuel duty lead to more traffic and congestion it also is of greater benefit to the top income households who drive more. And why are we still flying?
I flew this week
My fourth and fifth flights this century fir social reasons, four of them linked to funerals
The Malaga flights looked crowded
Paradoxically, the economic activity generated by the Valencia floods shows up as GDP growth.
It would not have happened without the weather event.
Somehow, I don’t think this is what the IMF has identified as growth..,.
A neighbour was run over recently.
Delivery van with bald tyres and no reversing sensors reversing without a banksman in a pedestrian precinct etc
Air Ambulance was scrambled, police and road ambulance tied up for several hours, two weeks in hospital and convalescence, driver is being prosecuted etc etc
All cost a pretty penny and no doubt boosted GDP
Actual value – very negative to everyone but it seems the IMF
Bang on the money yet again – the impossibility of unlimited growth on a finite planet, as current growth (GDP) relies on using up natural irreplaceable resources, seems just plainly obvious doesn’t it. We’re already using 1.5 times the planets resources that is destroying the planet with climate change etc. I feel it is also linked to simple GSCE science, which clearly these imbeciles skipped, regarding the theory of predator and prey in a habitat – I.e., a population of predator can only grow to a certain point where there is enough prey to eat. If the predator population expands too much, the prey population shrinks, which the predator population inevitably follows, until an equilibrium is reached. I see that’s where human civilisation is at – we have likely reached a peak with how we currently live and the current population. Using an analogy, we’re the predator and the earth is the prey.
Also regarding GDP, it has the be one of the biggest scams ever for working class people. It’s crazy how the media etc fantasise over GDP, when GDP per capita would be a far better metric for how normal people’s lives are improving, but the data for that shows that it’s decreasing in this country, so doubt they would want to share that information. GDP is also being artificially inflated by immigration also. It is likely GDP is only barely going up at the moment due to mass immigration that this country is getting. To make clear, I am not commenting on the immigration aspect, I am commenting on how western governments use immigration to artificially inflate GDP.
I’m totally with you about the nature of public/government debt.
But the rise of private debt is very troubling in it itself, and paying that down will eat into resources because of the interest charged – which is the biggest motivation to create it in the first place.
I am heartily sick of this game being played which says that they is ‘no money’ and all that we have is in circulation , yet the money creation in private banks – rentier money – attracts a lot less fuss and slather. If we applied the same ‘logic’ to the loan market – well, there would be no mortgages or car loans for a start.
I find the hypocrisy and double standards amazing – especially when the licenses to print credit are granted by the same government which ‘has no money of its own’!