This is what the national debt looks like:
All of our money is ultimately based on the government's promise to pay.
So you think George Osborne is right to reduce the national debt?
Why?
Do you want to destroy our money?
And how do you think the economy will do without it?
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Bitcoin? Local currencies created on the basis of real economic activity?
I questionw wehther Bitcoin is a currency in any meaningul sense
Just as gold is not
The fact that gold has been used as a money representation for so long is a real pain when you are trying to have a discussion re the differences between money, wealth and commodities.
Anything can be a currency, as long people will take it in payment. All currencies are basically commodities, even if they are FIAT like the Pound. Also if they have widely excepted physical value and a level of rarity of supply. The volume of Gold increases by about 1-2% a year, if it is worth mining at the current price. Only about a quarter of that will be “money” gold, the rest will be ornamental in some form.
The thing is, you have to consider who is the final redeemer of the “money” form that you hold? The UK Treasury will always honour Pounds as the “tax credits” that they actually are. It is the monopoly issuer of Pounds Sterling tax credits; but, only for use in its currency area.
Who is the final redeemer of Bitcoins, or Dutch Tulip Bulbs or Gold come to that? All fiat currencies are “tax driven” nowadays in economies that are basically fully “monetised” in the tax driven currency. Mind you, the Treasury would prefer to do away with notes and coins.
So don’t be surprised when Osborne soon starts promoting the cashless society.
Sorry – but this is just wrong
Currency is not physical
And it has no asset backing
Or scarcity in supply
It is based on the value of the promise
And the legal construct of what is acceptable as a means for paying tax
All other cncepts are meaningless
And notes in thi context may be physical but are just a physical manifestation of IOUs. Their physical attributes are irrelavant if the promise inherent in them is worthless
Per Minsky, there is no such thing as a currency which will only reflect real output. There will always be movement toward speculative activity.
I beg to differ with Minsky on this, since his assumption was clearly that currency is centrally issued by an intermediary. I believe that it is possible to base currency directly – ‘Peer to Asset’ – on the use value over time (utility) of productive assets. eg
1/ Currency based on Land(location) Use
(a) Introduce a land/location use levy.
(b) Issue credits returnable in payment for (say) £1’s worth of the levy (or $1’s worth or €1’s worth – the unit of account is whatever works).
(c) Pay everyone a Land Dividend of (say) £1 land use levy credits
Outcomes:
(i) a net transfer from those with above average use of land/location to those with below average use;
(ii) a currency which is by definition local and which is not susceptible to speculative activity because the value of the credit will never exceed £1.00 (or $1 or €1).
2/ Currency based on Energy Use
(a) Introduce levies on renewable energy production and on carbon fuel use.
(b) Increase carbon fuel prices to levels pre-dating oil price crash.
(c) Distribute energy dividends of credits returnable in payment for energy use eg 10 kWh energy equivalent or 1 MMbtu energy equivalent.
Outcomes:
(i) Incentivise energy savings;
(ii) Pool of funds for project ‘energy loans’ which are interest-free, but with a return in energy, and which will be invested in renewable energy (MegaWatt) and energy efficiency (NegaWatt) projects.
(iii) Currency which is generally acceptable, but which is based on abundant free resources (ie MegaWatts of renewable energy and NegaWatts of energy efficiency).
(iv) speculative activity is irrelevant because the value of an energy unit is absolute and invariable. ie all other currencies may vary by reference to it, but energy cost is the only objective cost.
The only problem is with this and PM that you ignore the fact that credit is money
And I seriosuly doubt anything else can be
Chris,
Energy is a commodity and any commodity can be subject to speculation. Minsky argued the laws are irrelevant: in a monetized capitalist (or profit seeking) economy, human psychology invariably leads to dismantling of the statutes and regulations keeping undesirable activity in check.
Indeed. Thats it in a nutshell. Every progressive politician should learn those lines off by heart and get the message out there.
Spring cleaning my Bookmarks, I found this one in a roundabout way. It should be compulsory reading, every morning, for policy makers and neo-liberals. Try and link to it, every day, on whatever web sites you visit; including “Mumsnet”.
http://think-left.org/tag/warren-mosler/
Read and play the whole page; BUT, particularly read the “Warren Mosler has a neat routine … ” section. If you remember nothing else, remember this bit:- “It is the non-government sector deciding to save more than it invests that generates the government deficit’ (Neil Wilson at 3spoken).”
There is one problem with Mosler’s idea
We pay tax voluntarily
The idea that force is required is only to deal with those who deviate from the norm – as is the case with all punishment for behaviour that voluntary action deems deviant in society
I pay tax voluntarily because I am too scared not to pay it voluntarily!!! The only people I know who “pay [some] tax voluntarily”, are the corporate accountants that work out plc Corporation Tax. 😉
Sorry – but I do not believe you
Do you only comply with any law because of the fear of breaking it?
I very, very much doubt it
Why do ISAs get any trade if people aren’t trying to avoid paying tax?
Why do pensions get any trade if people aren’t trying to avoid paying tax?
Neither are tax avoidance
They are encouraged savings schemes
Tax is compulsory because we would not pay it unless there was a law saying we had to (unless you are Starbucks and are responding to public pressure). The fact is the great majority of people comply with the law either because they believe it is fair or because of the threat of force if they don’t.
I am suggesting the former much more significant than the latter
Unfair tax e.g. the poll tax is overturned
Fair Tax is complied with by most by choice
The government debt may fall, but the debt of the ordinary citizen in the UK will rise by a large sum. That is the economics of Osborne’s policy. Money too will become more scarce for ordinary folk.
But perhaps that is the aim: transfer public debt to personal debt. I think it’s stupid, but that doesn’t stop it being the aim.
There’s no ‘perhaps’ about it!
Which is an excellent reason for creating local alternatives.
Nothing beats paying tax in terms on value for money. We ought to be taught this truth at school. We would still need a law to enforce that tax be paid, because people are people, but most would not view it as a punishment being bestowed on them.
The more I look at Ozzynomics, the more I am convinced that someone gave him a book for a present in his schooldays: Ricardian equivalence for dummies.
Oh, come on, Osborne has never read an economics book in his life.
I didn’t say he had read it Carol!
But I suspect many people attribute Ozzys-nomics to him being stupid. I would prefer people examine the case for malice being behind his policies.
Now, I consider that being genuinely malicious, and being chancellor, requires rather more intelligence than the average idiot can muster: Fortunately, Ozzy has a legion of persons to call upon for advice:
http://www.independent.co.uk/news/uk/politics/george-osborne-chancellor-has-four-times-the-usual-number-of-special-advisers-a6716306.html
And if you want you can look at his party for malice…bearing in mind the allegations luridly explained in the “free” press…although I understand that some of the allegations were a bit much for the “free” press to reproduce.
Under the current system, money is debt. Pay down the debt and the money disappears. Money only comes into existence when a loan is issued and a debt is created. Under the current system. It doesn’t have to be like that. Hence Positive Money’s proposal for Sovereign Money Creation:
http://positivemoney.org/publications/
And that will not work
That’s the slight problem with the PM proposal
Positive Money basically forgets the vertical component of a fiscal currency economy that has been monetised. It could work in a more primitive barter economy with multiple “units of exchange”.
Richard, with regard to MMT calling a currency a “commodity”. Like Gold; Platinum; Crude Oil; Wheat and EU Carbon Credits, I can buy and sell futures contracts in our fiat currency. I can go “short” or “long” in it. I can leverage it as credit if I am a bank. I can store it (save it) in its physical paper form under my mattress.
If it looks, swims and quacks like a Duck etc etc.
Except it is not a commodity
I suggest you read the ‘who we are’ page on the PM site. They don’t hide that their ideas originated with the BNP.
That is complete nonsense
Because the BNP used the idea does not mean PM originated in the BNP
I may not always agree with PM but that is ridiculous
It is an illusion.
http://www.3spoken.co.uk/2014/11/the-sovereign-money-illusion.html
I think it is, yet again, a linguistic issue,’when is a debt not a debt?’
If we called it national Credit.
It’s still using gold standard language and it’s in the interests of the 1% to keep it that way.
perhaps if Keynes were to reincarnate (as himself!) he’s say our language is a ‘barbarous relic’?
Simplicity itself; great post!
Also, here is a fantastic lecture by L.Randall Wray:
https://youtu.be/-KRi9nF8BiA
Hello Richard,
That image seems to be hot linked to a site operated by someone else which means you are using his bandwidth and not yours to provide that image to your readers. Please be considerate in the use of internet resources.
Thanks.
I have to say I cannot see how that is the case
But I have changed the image as a result
Simplicity itself; great post!
Also, here is a great lecture by L.Randall Wray:
https://www.youtube.com/watch?v=-KRi9nF8BiA
Richard,
Ta much for link. Hadn’t spotted that video before. Fascinating intro by Randy about how he, Mosler and few others got together at the via the internet in the early 90’s when the number of ‘modern monetary’ people could be “counted on the fingers of one hand”.
By the way good to see Randy’s “brilliant new book” on Minsky just out too…
https://www.timeshighereducation.com/books/review-why-minsky-matters-l-randall-wray-princeton-university-press
Turn a tenner the other way round, and you will see a picture of Charles Darwin.
What George Osborne is offering might be called a chimpanzee economics. It’s about competition, and survival of the fittest. Successful companies have to outdo their rivals in making a profit, and the bigger the profit, the more popular they are with their shareholders and the more they can invest for their future.
But conservatism should be compassionate (whether it is in practise is a separate question). In his shake-up of benefits, David Cameron promised to help anyone who was unable to help themselves. The problem is, this compassion is not integral to the economic framework, but is seen as an adjunct to mitigate the effects of human weakness. The big chimps will help the little chimps, but each chimp knows their place, and some are more equal than others.
Whether or not the human species is really descended from chimpanzees, I do wonder whether that is where Osborne gets his ideas from.
Evolutionary Psychology appeared on the seen in a big way in the 70’s about the same time as the rise of neoliberalism -I don’t see the two things as unconnected.
Chimps are cousins – we have a common ancestor.
Anyway it’s only Darwinian if you have no money of course. If you’re a banker then there are unlimited funds for corporate welfare sloshing about.
Osborne is all tactics and no strategy. Even though he’s playing chess thinking only one move ahead at a time, that’s enough to make him look rather clever right now when his political opponents are resembling the aforementioned chimps tea party.
1) “All of our money is ultimately based on the government’s promise to pay”
Is that true? Ultimately the bank of England is the lender of last resort, but all it really offers is to exchange one promissory note with another.
“Money” has a number of meanings, eg
a) an accounting token
b) a store of wealth
c) a bill of exchange
d) a promissory note
e) a commodity
f) a means of control
g) a stimulus to economic activity which would otherwise not occur
Putting the QE experiment aside, The “National Debt” is the debt owed by the Government to other sectors of the economy.
How we choose to reduce it or increase it is largely a matter of choice, but I’m yet to find an economist advocating reducing the stimulatory effect of the government choosing to attempt to run a surplus when the economy is far from any inflationary risk.
Whilst the government could monetize much of it’s debt, why bother?
#mintthecoin seemed to quash most of the austerity nonsense in the US.
Why not run a perpetual deficit (as long as the currency hold up against others, and inflation does not become excessive, which would threaten (2) the store of wealth function.
2) “So you think George Osborne is right to reduce the national debt?”
He’s not reducing the national debt.
To do so would mean decreasing the savings of other sectors, certainly households also are already highly indebted, and the corporate sector don’t seem very keen to reduce their surpluses.
In fact, Government spending is back on it’s usual upward trajectory (£760bn 2016 (est) compared with £715bn in 2012).
Question is whether the tax take will balance the increased spending in such deflationary times?
3) I don’t see how the government would necessaily be destroying money even if it did manage to run a small surplus for a year or so at some point in the future.
Surely that would be a function of the banks who created it in the first place? The ideology behind it seems based on “crowding out”, ie the government spending is precluding the private sector making more efficient use of the money created by the banks.
Although evidence to support this ideology utterly eludes me, perhaps others can point me in the right direction?