Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Tuesday, 15 March 2016
Wiping out the national debt is easy.
Step 1: Have the central bank print loads of money and buy back all the debt. That is, in effect, do a massive QE operation. Of course doing all that in one year would be disruptive (though not impossible). But doing it over five years wouldn’t be difficult.
Step 2: That amount of money printing would probably be too inflationary, though given the muted effect of QE, it wouldn’t be AS INFLATIONARY as some might claim.
Step 3: Thus some sort of deflationary measure would be needed to counteract the above inflation. Probably the best would be to raise taxes and extinguish the money collected.
Step 4: As long as the above inflationary and deflationary effects exactly cancel each other out, there’d be no effect on aggregate demand or numbers employed.
QED. Problem solved.
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Well I do agree with this ,but I can see the argument from the other side.To write off this debt is tantamount to defaulting on government debt.Ok I know we own that debt but some say it sets a precedent.It has never been done before blah blah,blah.It might just cheapen UK debt in the eyes of the rest of the world.Does that matter?I think not but some Tory types do.
ReplyDeleteThis is just writing off debt that has been already dealt with in my view.In days of old there would have been a correction.But we are no longer the economy we once were,so take this as a devaluation.The rest of the world can make its judgement,c'est la vie.
Hi Vincent,
DeleteI don't agree the above massive QE operation would be the same as default. Certainly no one has said the QE operation of the last 5 years or so is default.
Government debt is just a promise by govt to pay someone £X in Y months / years time. QE just consists of giving them about £X NOW, as an alternative.
Warren Mosler and Milton Friedman advocated the abolition of government debt, which is evidence it's not a totally silly idea.
Yes I agree too,government debt is a misnomer.Governmnets cannot be in debt in the true sense of the word.Government's just redistribute wealth.
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