Wednesday, 15 February 2017

Adair Turner, Positive Money and MMT: great minds think alike.

This is a precis of a talk by Adair Turner in Dublin in April 2016, together with some comments by me (in green italics). Numbers below refer to the approximate times (in minutes after the start) where relevant points are made. Turner’s talk lasts 55 minutes, whereas this article is a 5 minute read.

Needless to say, I offer no guarantee that my summary is fair or accurate: if you want a totally accurate depiction of Turner’s ideas, listen to or read his own material.


* First, Turner says something about the structure of the talk. The talk says a bit about why we are in the mess we are in, then the main part of the talk is devoted the ideas in part five of his recently published book “Between Debt and the Devil”, those ideas being an answer to the question: how do we organise stimulus better? And his answer is budget deficits funded by freshly created base money. (0-3.00)

* Bank lending in the advanced economies to the non-finance sector since the 1950s and 60s has expanded from around 60% of GDP to around 150%, and most of that lending has gone to real estate: essentially boosting the price of land. Plus that fact increases the effect of a well known feedback mechanism: banks lend to fund the purchase of land…that boosts the price of land, which makes land a better form of collateral….which increases the ability of land owners to borrow more, etc. (3-7).

* The debt created by the latter phenomenon, once created does not go away come a recession: it simply moves around, sometimes crossing national borders.(7-13.30)

* The conventional response to recessions is interest rate cuts, and if they don’t do the trick, QE and zero interest rates. But the two latter do not work very well, which has lead some people in high places to conclude that central banks and governments are out of ammunition. (13.30 – 19.30).

* In fact the authorities are never ever out of ammunition: they can simply print money, i.e. go for deficits funded by freshly created base money. And the latter idea has been advocated for decades by for example Milton Friedman, Bernanke and Henry Simons (in the 1930s). Plus the idea was successfully put into effect by the Japanese finance minister, Takahashi in the early 1930s, and very much earlier (as pointed out by Adam Smith) by one English colony on the North American continent, namely Pennsylvania.

Turner might also have mentioned Keynes. Indeed it is a measure of the ignorance of those in high places in the present century that an idea which is 80 years old (Simons, Keynes and Takahashi) is apparently new to said people in high places! Incidentally, Turner actually mentions Takahashi and Pennsylvania in a later part of the talk, but I mentioned them here because of their relevance. (19.30 – 32.30).

* Forward guidance and negative interest rates are defective tools. (32.30 – 34.00).

* The effect of money financed deficits is made more complicated by fractional reserve banks. In Friedman’s exposition of money financed deficits he simply assumed such banks did not exist.

Indeed Friedman positively argued against the existence of such banks, i.e. he argued for full reserve banking or “100% reserves” as he called it.

* Fractional reserve banks tend to amplify the effect of a money financed deficit, but that can be controlled, if need be, by raising the reserve requirements of commercial banks. (34.00 – 38.00).

* The obvious problem with money printing, namely that if politicians get near the printing press problems may arise,  can be controlled by having some sort of independent committee of economists, e.g. a central bank committee, decide how much money to print each month or year. (38.00 – 44.00).

Positive Money, the New Economics Foundation and Prof Richard Werner advocated that idea in their 2011 submission to the UK’s Independent Commission on Banking.

Also, the evidence seems to be that where politicians DO HAVE access to the printing press (i.e. where central banks are not independent) politicians do not abuse that power too badly, though Weimar and Mugabe are the obvious exceptions to that rule.

*The situation in Japan has become a joke, though there shouldn’t be any serious consequences from the joke. The joke is that the Japanese government keeps pretending (much like the UK government in recent years) that it will dispose of the deficit and turn that into a balanced budget or a surplus. However the reality is that it never will. What will happen is that Japanese debt will effectively be monetised.  (44.00 – 49.00).

In contrast, the situation in the EU is much more serious. Japan is racially and culturally homogeneous, whereas the EU faces large immigration flows from a culturally different areas. Plus money financed deficits are much easier to implement in the Japanese situation than in the EU where there are several different countries, liable to squabble with each other over who gets how much of the new money. (44.00 – end).


  1. It was probably the "retards" bit that did it.I take your point here though, but if you want folk to read what you write I would say tone it down a tad.But maybe you weren't bothered so much about being removed rather than getting something off your chest ;)

    Generally the standard of journos has gone down since most of the dead tree press cannot afford a proper reporting team because of competition from the internet.Or they have retreated behind paywalls(a rather lemming like behaviour to be honest).I rarely read newsapers anymore for that reason.

    1. It wasn't me that used the word retard actually: that was someone else entirely. But point taken: my language is often less than diplomatic, to put it mildly. Also twitter's "punishments" are normally temporary, far as I can see. I was excluded for a few hours.

  2. I note that the BoE has also said it will reverse its QE when the time arrives.You do wonder at which point that coems about,I mean there are no shelf lifes on these things.5 years? ,10 years?,100 years?Economic cycles used to come and go, so they are kind of used to 5 possibly 10 year recoveries,Japan has broken that trend,and we are likely to follow.

    Pity AT was not in favour of all this while he was in office.

    1. Coincidentally David Andolfatto (vice president of the St Louis Fed) did a blog post on that topic in the last 24 hours. I left a couple of comments (taking care not to use the word “retard”, ho ho). See:

      As I said there, the question as to whether to unwind QE is really the question as to whether the state’s liabilities should take the form of interest yielding debt or non-interest yielding debt (i.e. base money). Milton Friedman and Warren Mosler argued for disposing of the interest yielding stuff. On that basis, QE should be continued. Though there is something to be said for debt which yields a very low rate, as per Japan, sort of. But this is too complicated an issue to deal with properly here.

      There’s a comment or two on Andolfatto’s site by someone who calls himself JKH. I’ve forgotten his name, but he used to teach at the Manchester Business School, and may still do so.

    2. I spoke to the BOE and I asked them when they'd sterilise QE and they *laughed in my face*.

      They have no intention of ever selling back the securities they have purchased and if you think about you can see immediately why... it would crater the stock market whose value is inflated to high heaven by QE.

  3. Also like the cut of JKH's jib,though he does dance around the subject a tad for my simple brain.

    1. Yes he is too verbose. When I see a long comment by him my heart sinks. Sometimes I tackle it and sometimes I give it a miss.


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