Monday, 25 May 2020

A 500 word explanation as to why banks’ artificial privileges should be withdrawn.

1. Depositing money at a bank with a view to earning interest amounts to asking the bank to lend on your money, so that the bank itself can earn interest and pass some of it on to you. If the interest the bank earns is only enough to help cut the cost of running your account (i.e. no actual interest is credited to your account) you are still effectively asking or expecting the bank to lend on your money.

2. In doing that, you have entered into a commercial transaction, just as much as if you deposit money with a firm of stock-brokers or a unit trust or a mutual fund or a private pension scheme with a view to their lending on or investing your money.

3. But there is an obvious anomaly there, namely that those who have a bank lend on their money are protected by taxpayer backed deposit insurance and billion dollar bailouts if things go wrong at a bank, yet there is no such protection in the case of all the other above mentioned forms of lending. Indeed there are yet more forms of lending where no taxpayer funded protection is available: peer to peer lending and trade credit - (that’s where one firm supplies goods to another and gives the latter a longish period of grace before paying).

4. That is a blatant anomaly. It amounts to giving banks a privileged status, or what amounts to a subsidy for banks.

5. One obvious way of putting banks on a level playing field with respect to other lenders would be to offer the same privileges to all other types of lender. But there is no obvious reason why all forms of lending should be subsidised.

6. A better solution is to abolish taxpayer funded protection for banks, while retaining totally safe bank accounts for those who want them, where relevant money is simply deposited with government or the central bank, with depositors getting little or no interest. And there is no reason for that service to be provided for free: i.e. depositors should have to pay for relevant costs.

7. Indeed, the latter sort of accounts already exist, first in that anyone is free to stock up on state issued money (e.g. £10 notes or $100 bills) and store them in a safe deposit box or under their mattress. Plus in several countries there are state run savings banks (e.g. “National Savings and Investments” in the UK) where depositor’s money is simply deposited with government.

8. The latter sort of savings banks do not quite fit the bill in that most money deposited is loaned to government, which government then spends. But never mind: those savings banks are near to what is required. 

9. And what do you know? The above sort of arrangement where the only sort of totally safe bank accounts are run by the state, while those who want their money loaned out (i.e. who are into commerce) are on their own, is what is known as “full reserve” banking or “Sovereign Money”. 


There is an expanded version of the above argument here.  Plus I have submitted a version of the latter (about 20% longer) to this conference due to take place in September.

Saturday, 23 May 2020

Simon Wren-Lewis’s strange argument for unskilled immigration.

Simon Wren-Lewis is a former Oxford economics prof. I normally agree with him: in particular I fully agree with his very MMT compatible claim at the start of a recent article that “….fiscal rules should never involve targets for the debt/GDP ratio, or debt interest, or any stock measure….”. (Title of his article: “Fiscal rules: a primer for the budget”.

However, his argument for low skilled immigrants in this article, entitled “Low paid jobs for British born workers” is debatable, to put it politely.

His basic argument is actually very simple and can perfectly well be put in about thirty words (rather than the ONE THOUSAND words he actually employs). The argument is as follows.

Letting just SKILLED immigrants into the UK would tend to push skilled Brits out of skilled jobs, and into UNSKILLED jobs, thus it would tend to cut the pay of native Brits.

So the SW-L “solution” to that problem is to let in unskilled immigrants as well. But the only net effect of that is to increase the population of one of the most densely populated countries in the World. SW-L clearly hasn’t thought of that slight flaw in his argument.

Of course, expanding the population is not TOTALLY WITHOUT advantages: e.g. there are so called “economies of agglomeration”, that is, a bigger population in any given area makes it economic to set up businesses there which might not otherwise exist, thus the VARIETY of businesses rises. But is that actually what the British population (or indeed the population of any other country) wants?

Well it would seem not! That is, whenever more housing is proposed for a given area, the residents of that area almost invariably put up VERY STRONG objections, despite the fact that more housing would make it economic to set up for example a bigger variety of shops than currently exist in the area concerned.

So why does an Oxford academic put an argument which has a very obvious flaw in it? Well anyone with a grain of insight knows the answer or at least part of the answer to that. It’s the fact that universities nowadays, far from being institutions which allow open debate and enquiry, have now become havens of censorship, bigotry and group think.

In particular, academics are very reluctant to express anti immigrant or right of centre views: it would risk damaging their careers, and/or make them social pariahs.

Friday, 22 May 2020

Ann Pettifor’s absurd ideas on MMT.

I watched my first “Webinar” recently (which was about MMT). Never again, thankyou.

While speeches at Webinars could potentially be high quality and worth listening to, the quality at this one, which I watched before nearly dying of boredom and giving up, was not up to much.

To make a speech or the written word worthwhile, it has to be very carefully prepared. In contrast, the speeches at this Webinar were very much off the cuff.

I’ll concentrate on Ann Pettifor’s speech, though I’m not saying her speech was necessarily the worst, as (to repeat) I gave up listening after an hour (i.e. after her speech).

I’ll deal with her points in chronological order. The numbers before each point refer the approximate number of minutes and seconds after the start of her speech. Anyway, she started with a trite jibe at Modern Monetary Theory, which was to say MMT is “neither modern, nor a theory”.

Well as regards “not modern”, the answer to that is that MMTers are more than happy to acknowledge their debt to Keynes, Abba Lerner and other economists from long ago. Keynes said in the early 1930s that one way out of a recession is for the state to create and spend money. MMT says the same. Ann Pettifor actually cites John Law as someone who was clued up about money long ago, rather than Keynes or Lerner. But never mind: that doesn’t detract from my point that MMTers are happy to acknowledge their debt to economists who lived long ago. Indeed, Abba Lerner has featured at the top of this pro-MMT blog for the last ten years!

Now if there were no need to re-emphasise Keynes’s or Lerner's ideas, then Ann Pettifor would have an argument. But the reality is that large swaths of the economics profession, particularly after the 2007 bank crisis, reverted to what might be called “pre-Keynsian / “Treasury View” / household budget” thinking. Thus MMT has been quite right to re-emphasis Keynes’s insights, while of course adding a few ideas over and above those put by Keynes.


1.30. She then complains that MMT does not explain interest, by which she means the forces that determine the rate of interest in the economy as a whole rather than the rate on government debt, which central banks can manipulate.

The flaw in that argument, and this is a mistake she makes over and over, is that MMT (gasps of amazement) does not claim to explain absolutely everything about twenty first century economies!! MMT concentrates on a relatively narrow set of problems / issues, which roughly speaking are the relationships between unemployment, inflation, government debts, central banks and deficits, plus of course there’s the Job Guarantee.

There has certainly been a big fall in the rate of interest over the last twenty years world-wide, and certainly that needs to be explained. Contrary to Ann Pettifor’s claims, the fact that MMTers do not devote much effort to trying to explain it is no weakness at all in MMT.

If Ann Pettifor went into a hospital that concentrated on brain surgery, doubtless she’d criticise it for ignoring cancer, broken bones, mumps and jaundice.

2.15. Next, she claims high interest rates are undesirable and that MMT ignores this great insight of hers. Actually most MMTers advocate a permanent or more or less permanent zero rate of interest on government debt, which will tend to keep interest rates in general down! Doh!

She’s out by 180 degrees there.

Deficits and government debts.

4.10. Then she says MMT pays too much attention to the deficit and debt, and not enough attention to the “real” economy. Well that’s just another example of the mistake referred to above. I.e. MMT does not claim to address every economic problem and issue!!

4.30. Next, she says that the deficit is a “reflection of the weakness” of a real economy. Well you don’t say! I think we’ve all worked out that deficits become necessary in recessions, i.e. when “real economies” falter.

MMT advocates deficits without limits?

5.00. Then she makes a very common straw man criticism of MMT, namely that MMTers claim deficits can rise without limit or “almost exponentially” to use her actual words.

Actually MMTers have repeated till they’re blue in the face that inflation places a limit to the size of the deficit. Maybe some MMTers have not made it sufficiently clear (for the benefit of simple souls like Ann Pettifor) that they are aware that excessive deficits can lead to inflation. In future, and speaking as an MMT supporter, I’ll admit to possibly being guilty there, and promise in future to spell out everything  using mono-syllabic words and very short sentences for the benefit of Ann Pettifor and other simple souls.

The household fallacy.

5.30. Next, she claims that MMT “plays into” the household fallacy, i.e. the idea that government accounts can be compared to the accounts of a household.
Well that’s the direct opposite of the truth! MMTers have over and over and over and over again attacked the household fallacy. Moreover, expressing concern about the household fallacy is to criticise a particular set of ideas on the relationship between – wait for it - between inflation, unemployment, debts, deficits etc. Does that phrase ring a bell? It’s exactly what Ann Pettifor criticises MMT for concentrating on!!

I.e. she says one minute that getting the relationship between inflation, unemployment, deficits etc is unimportant compared to the “real economy”, then two minutes later she says it’s important to get the latter relationship right (which of course it is). Does she know whether she’s coming or going?

Incidentally this is nowhere near the first time Ann Pettifor has attacked a set of idea without having the faintest idea what the set of ideas actually consists of. She attacked Positive Money’s ideas here, without having the faintest idea what Positive Money’s ideas actually are.

6.00. Here, she says the "biggest problem" with MMT is that it considers just money and financial matters "on top of" the existing system, i.e. it does not consider the merits or otherwise of the existing system. Well that’s just repetition: she made the same point above, and the answer to the latter point is the same: MMT does not consider, and does not claim to consider every conceivable economic problem or issue.


 The Green New Deal.

37.00  Another defect in MMT is apparently that it is inferior to the Green New Deal in that the GND deals with a very serious worldwide problem, namely global warming and other environmental  problems.

Well the answer to that is that most MMTers are perfectly well aware of the problem that global warning etc poses. Doubtless many of them support the GND. Certainly I do. But that has nothing to do with the relationships between inflation, unemployment, debts, deficits etc that MMT concentrates on!

That is, if there were no global warming or other environmental problems, or, going the other way, if environmental problems are actually much worse than we think they are, attempts by MMTers to get the latter relationships between deficits, inflation etc right would be equally relevant.

Treasuries around the world do not consider environmental issues, except in as far as they are expected to deal with environment related spending if told to do so by their political masters. Does that mean the work that Treasuries do is no good?

Of course, the touchy, feely, brainless section of the environment lobby will be impressed by Ann Pettifor’s concern for the environment, and will fall for her false logic, namely that all considerations other than the environment, MMT in particular should therefore be pretty much ignored.

Well that’s about it. Do you blame me for almost dying or boredom and giving up listening at that stage?

P.S. Added on 26th May.  There's a video of this event now available here:

Thursday, 21 May 2020

Exam question: explain in 300 words why fractional reserve banking is legalised fraud.



Since banks first appeared (probably thousands of years ago) private / commercial banks have accepted deposits and loaned on depositors’ money while telling depositors, or at least suggesting to them that their money is safe. It quite clearly ISN'T because loaned out money is NEVER safe. Indeed, when any non-bank does that (e.g. a unit trust, mutual fund or private pension scheme) that activity is classified as illegal / fraudulent.

Of course since the arrival of state support for private banks (consisting e.g. of billion dollar bailouts for banks in trouble, and a very recent development relative to the total time banks have been going) the above dodgy practice is rendered safe. But the fact of the state passing a law saying that a fraudulent or unsafe activity is not fraudulent does not unfortunately stop it being basically fraudulent. Passing a law saying that house burglary is OK, with taxpayers reimbursing those burgled, would not make house burglary acceptable.

As for the idea that private banks create the money they lend out rather than lend on depositors’ money, that is only partially true, as explained in the opening sentences of a Bank of England article, entitled “Money Creation in the Modern Economy”. That is, a private bank simply CANNOT lend out limitless amounts of money without having a roughly equal amount of money coming in from depositors, bond-holders etc. (else the bank will run out of reserves, and have to borrow reserves from the central bank or other commercial banks, which is not a good position to be in for any length of time). As the second sentence of the article says, “banks do not act simply as intermediaries, lending out deposits that savers place with them…”.  In other words private banks DO INTERMEDIATE between lender / depositors and borrowers (as suggested in the above paragraphs), but in addition, they do a bit of “creating money out of thin air” each year. If they didn’t, the money supply would never increase (ignoring state created, i.e. base money).

Tuesday, 19 May 2020

Female economist (quite rightly) shows off her tits.


To see the tits wobbling, see here.

What really counts in economics is appearances, not substance. That is, what counts is rhetoric, fanfare, enthusiasm, showmanship, panache and in the case of female economists, legs, tits and so on. Also, fake sincerity is a winner. As the American politician said, “The important thing in politics is sincerity: if you can fake that, you’ve got it made.”

Why did MMT suddenly spring into prominence about year ago? Well it had little to do with the actual reasoning or logic set out by MMTers – after all, that’s been much the same for the last ten years at least.  It was because MMT managed to get celebrity endorsement  - from Alexandria Ocasio-Cortez to be exact.

As Lars Syll said here, most economists are not interested in reality.

In ancient Greece, they taught their youngsters rhetoric, not reason. Quite right. No one is interested in boring stuff like reason, logic, the facts and so on.

Here is the so called “economist” Mariana Mazzucato in full evangelical / Billy Graham mode. Wave your arms around and put on the appearance of being excited about what you’re saying, and you’ll have your audience entranced. The fact that your books are complete bullshit matters not one iota.


How did Hitler captivate Germans? By shouting and screaming: making it look as though he was emotionally involved in what he was saying. If he’d run for power in Britain, the British would have been equally captivated. 

Sunday, 17 May 2020

Useless article by Megan Green in Prospect Magazine.

I’m new to Prospect Magazine, the magazine which claims to set out “the big ideas that are shaping our world”. I’m not impressed by the first two or three articles which got my attention.

The first is entitled “Can “helicopter money” save the global economy?” and is followed by a sub heading which reads “The time may come for such a programme but it is not today.” The article is by Megan Green.

In her second para, she argues that there is little need for helicopter money because interest rates at an all-time low, thus governments can fund extra spending the usual way: by borrowing. Well the obvious problem there is that extra borrowing, particularly on the very large scale needed to fund Covid related spending, would push up interest rates, which is exactly what is not needed just now!!!

Then she claims that helicopter money may erode central bank independence. That’s in her para which reads as follows - I've put her material in green italics.

“Monetary financing of governments also poses a serious threat to central bank independence. If governments get used to being able to issue debt and sell it to the central bank in order to finance whatever they want, the lines between fiscal and monetary policy will be blurred even more than they already are. Central banks could increasingly come under pressure to run the printing presses for reasons having nothing to do with sound monetary policy.”

Then her next para starts as follows.

“Having central banks distribute helicopter money directly to the private sector is also problematic. Central bankers, who are unelected officials, should not be making decisions about how to distribute money in an economy, creating winners and losers.”

Then her final sentence reads “But now is the right time to consider the theoretical, political and practical challenges of implementing helicopter money, so when a recovery finally does take hold, this mechanism can really help.”

Well Megan Greene clearly doesn’t know this, but Positive Money solved all the problems she refers to above about ten years ago. That is, under Positive Money’s system, technocrats (e.g. some committee like the Monetary Policy Committee at the Bank of England) decide the SIZE of the deficit, while politicians retain control of strictly political matters, like whether the deficit takes the form of tax cuts or public spending increases, and if the latter, whether the money goes to education, health or whatever. And that deals with ALL THE PROBLEMS referred to by Megan Greene above, in particular the “distribution” problem.

As regards “blurring” the distinction between monetary and fiscal policy, why should that be a problem? Under the Positive Money system the distinction between the two is not just “blurred”: monetary and fiscal policy are joined at the hip! And one good reason for doing that is that interest rate adjustments are a very defective method of imparting stimulus. Evidence for that is set out by Positive Money and the New Economics Foundation in this publication.

As for her claim that “Central banks could increasingly come under pressure…”, the answer to that is that central banks are always under pressure from politicians. All we can do is set up a series of rules that clearly distinguish between the responsibilities of central banks and politicians; then if politicians ride roughshod over those rules, then at least we can all see what’s happening, and vote relevant politicians out of office at the next election if we so wish.

Moreover, even though interest rate adjustments are a defective tool, there’d be nothing wrong with central banks RETAINING the right to raise interest rates so that given a serious breakdown in relationships between a central bank and government, the central bank could at least cock a snoop at government by raising interest rates.

Seems Megan Greene isn't quite up to speed on this issue. And as for Prospect Magazine’s attempts to extract money from me and others to read their stuff, they’re joking, aren’t they?

Incidentally, Megan Green will play a prominent role in a webinar in two day’s time (on the 20th May) in which another incompetent, Ann Pettifor, will play a leading role. (See top of the left hand column of this blog if you’re interested in Ann Pettifor’s blunders.)

So I look forward to a truly glorious display of nonsense – or perhaps the latter two will redeem themselves.

P.S. (18th May 2020). That Megan Green is a pro-austerity incompetent perhaps shouldn’t be surprise, given that she hails from Harvard, which itself is a hot-bed of pro austerity incompetents: e.g. Kenneth Rogoff, Carmen Reinhart and Alberto Allesina.


Saturday, 16 May 2020

An odd article on monetary reform.

Mary Mellor (emeritus professor of sociology at Northumbria University) has long campaigned for the abolition of privately created money, e.g. in her two books “The Future of Money” and “Debt or Democracy”.

But a recent article of hers concludes by saying privately created money is OK as long as it is subject to “democratic accountability”.  “Democratic accountability” is the sort of near meaningless sound-bit which will induce about 95% of the population to agree with you, regardless of what you’re saying. But what exactly does the phrase mean? Darned if I know. (Title of her article is "Neoliberalism has tricked us into believing....").

For a start, the activities of private banks are already subject to “democratic accountability” in that democratically elected governments have the power (a power which they already exercise in numerous ways) to tell private banks what they can and can’t do.

Plus the back cover of Mary Mellor’s book “Debt or Democracy” is odd in that it features warm words of approval from four individuals: Ann Pettifor, Ben Dyson (founder of Positive Money), Martin Wolf (chief economics commentator at the Financial Times) and Giorgos Kallis.

The “oddity” is that Ann Pettifor strongly opposes the basic thrust of Mellor’s books, namely that private money creation should be banned (as Giorgos Kallis says). Even odder is that Pettifor has penned articles specifically attacking Dyson and Wolf on the subject of money creation. E.g. see her article entitled “Why I disagree with Positive Money and Martin Wolf”.