tag:blogger.com,1999:blog-2277215496195926573.post1617163330508836601..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Flawed ideas on peoples’ QE. Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2277215496195926573.post-40728081306775458852015-08-12T01:44:48.374-07:002015-08-12T01:44:48.374-07:00Roger,
QE for the people has nothing to do with a...Roger,<br /><br />QE for the people has nothing to do with and is totally different from creating money by having the central bank buy government debt (i.e. traditional QE). Arguably the latter does not constitute money creation at all since government debt (as pointed out by Marin Wolf) is a sort of money – in the broadest sense of the word money. Moreover, that operation has no effect whatever on what MMTers call “private sector net financial assets” (PSNFA). Reason is that if I someone sells £X of debt to the CB, they lose that, and gain £X in cash.<br /><br />PQE in contrast DOES INVOLVE an increase in PSNFA: when the CB / government machine creates £Y and spends it, the private sector is up to the tune of £Y.<br /><br />Re your claim that “that the decision makers … need to know how much to print”, yes: quite right. The decision as to how much to print under PM’s system is taken by some sort of committee of economists.<br /><br />Re your phrase “remains to be spent” that is essentially meaningless. Reason is that money in the hands of a money issuer is meaningless: the BoE can create a trillion, trillion, trillion pounds in the next few seconds by a simple book keeping entry. That’s irrelevant. It’s the SPENDING of money that has the effect (as David Hume pointed out in his essay “Of Money” 200 or so years ago).<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-63731571250368791602015-08-12T01:33:58.749-07:002015-08-12T01:33:58.749-07:00Hi KK,
Re your point No.1, basically you’re sayin...Hi KK,<br /><br />Re your point No.1, basically you’re saying that the BoE does what government tells it to do. Quite right: ultimate power is always in the hands of politicians. But government has given the BoE the job of “maintaining price stability” (to quote you) and the tools to do that, i.e. BoE has been given control of interest rates. Put another way, government / politicians have given the BoE the right to overrule the effect of a budget deficit if the BoE thinks the effect of a budget deficit is too inflationary. <br /><br />Re your point No.2, I agree that the powers given to BoE are not desperately effective, but they seem to have been just sufficiently effective to date: witness the fact that inflation has been well under control over the last fifteen years or so. Inflation was a bit above the 2% target between roughly three and six years ago, but the BoE thought that was mainly cost push rather than demand pull, and so they didn’t do much about it (quite rightly).<br /><br />Put another way, you are right in that the Chancellor could go wild with the budget deficit, and the BoE might not be able to contain the resulting inflation. But that would make a nonsense of government’s instruction to the BoE to contain inflation.<br /><br />Re your claim that giving the BoE the right to determine the size of a stimulus package as per PM’s system would constitute a big increase in the BoE’s powers, that’s clearly not the case IN THAT or TO THE EXTENT THAT the BoE already has those powers. And it already does have those powers IN THAT it is able to control inflation.<br /><br />In contrast, if we had a Chancellor who was in the habit of implementing ludicrously large deficits and didn’t give a hoot about the inflationary consequences, and the BoE were then given the job of controlling inflation, then that WOULD CONSTITUTE an extension of BoE powers.<br /><br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-82151869218420181962015-08-11T19:25:22.760-07:002015-08-11T19:25:22.760-07:00You assert, yet again, that:
"central banks a...You assert, yet again, that:<br />"central banks already have the final say in the size of any stimulus package: that is, they have to power to counteract any fiscal stimulus which the CB believes to be deficient or excessive. CBs do that by adjusting interest rates, QE, etc."<br /><br />This is wildly incorrect (and inconsistent with Ralphanomics) because:<br /><br />1. In May 1997 the Government granted the Bank of England operational independence allowing it to set domestic interest rates.<br />However, the Government still determines fiscal policy (expenditure and taxation) and the Government sets the inflation target within which the Bank must operate when implementing monetary policy . <br />The Bank of England Act 1998 formally sets out the role and constitution of the BoE Monetary Policy Committee.<br />"In relation to monetary policy, the objectives of the Bank of England shall be –<br />(a) to maintain price stability (ie continued low inflation), and<br />(b) subject to that, to support the economic policy of the Government, including its objectives for growth and employment."<br />Thus the BoE does not decide the budget deficit or target inflation rate. These are set by the Government.<br />The main role of the MPC is merely to set the base rate of interest in support of Government economic policy.<br /><br />2. Ralphanomics correctly argues that "adjusting interest rates, QE, etc." has little effect on aggregate demand.<br />In this post (last para) and in previous posts you say "there are two weaknesses with interest rate adjustments. First there is decent empirical evidence that they are not very effective...“Firms invest when they can make money, not when interest rates are low”.<br />And in earlier posts you have agreed with the general view that QE has had little effect on demand.<br />If interest rates and QE are largely ineffective, it follows that a CB does NOT have the "power to counteract any fiscal stimulus", contrary to your repeated assertions that it does.<br /><br />Positive Money's proposes that the magnitude of the budget deficit should be decided by a new unelected committee of "experts" at the BoE.<br />Plainly, as pointed out by critics of PM, this would be a MAJOR INCREASE in the powers of the BoE, with a corresponding reduction in the powers of government ministers who are democratically accountable to Parliament.KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-88164286717790814502015-08-11T16:39:08.231-07:002015-08-11T16:39:08.231-07:00It seems to me that the decision makers who decide...It seems to me that the decision makers who decide how much money the government <b> should print </b> need to know <b> how much to print </b> , how much remains to be spent, and who/which people will get the new money.<br /><br />So which economic axiom is correct: <br /><br />1. New money is created when money is traded for government debt, thereby increasing the amount of government debt and the money supply.<br /><br />2. Money is only destroyed when government collects taxes and pays down debt, or banks retire loans.<br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-31939532778341123622015-08-11T09:07:00.059-07:002015-08-11T09:07:00.059-07:00There is no sharp dividing line between money and ...There is no sharp dividing line between money and non-money. But basically under full reserve the creation of money by private banks is banned. So the only money is central bank created money, i.e. bank reserves and physical cash.<br /><br />Re your claim that government debt equals money, that’s not correct. It’s true, as Martin Wolf pointed out in the FT recently, that there’s sharp dividing line between base money and national debt. But one can at least draw arbitrary lines. And anyway, the real problems (asset price bubbles etc) derive from privately created money, not publically created money.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-82061026026899616922015-08-11T08:22:20.334-07:002015-08-11T08:22:20.334-07:00How do you propose to measure how much money has b...How do you propose to measure how much money has been "printed and spent"?<br /><br />It seems to me that the accumulated government debt is a good measure of how much money has been created and spent.<br /><br />Because banks are also allowed to create money, the total amount of bank debt would be added to the amount of government debt (to measure the total amount of fiat money created and spent). (Of course we would eliminate government debt held by banks to prevent double counting.)<br /><br />Remembering that money, once created, will exist until the debt is paid, we see that government bonds (and bank debt instruments) must be money in a condition of suspended animation. <br /><br />Bank reserves must be a measure of money not yet placed into suspended animation.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.com