Sunday, 31 May 2020

Dear oh dear: Richard Murphy tries to explain what money is.

To his credit, Richard Murphy has now got the basics of MMT. But a recent three minute Sound Cloud talk / recording on the subject of what money is, is a bit of a joke. (See also his transcript of the talk below the Sound Cloud ikon.)

He starts by claiming money is a promise to pay. Well certainly commercial bank issued money is a promise to pay: it’s a promise to pay central bank issued money. Witness the fact that if you go to an ATM and demand £X or $X, the bank makes good on its promise, and gives you £X or $X worth of central bank issued notes.

But what about central bank money itself, sometimes known as “base money”? Well around 1.20 minutes into the recording, Murphy points out that if you turn up at the Bank of England and demand that the BoE makes good on its “promise to pay”, you’ll get nothing.

So central bank issued money is clearly not a “promise to pay”!!!!

Around 2.00 He then says that money derives its value from the fact that government accepts base money, and only base money, in payment of tax (which is correct) So money does not derive its value from the fact that it is a  promise to pay!!! It derives its value (as MMTers have long pointed out) from the fact that the private sector needs to get hold of base money in order to pay taxes.

Murphy then finishes (according to his own transcript of his “lecture”) by saying the following (in green italics).

"So what is money? Money is a promise. It’s a promise to pay.

And the promise to pay that really matters is the one that the government makes. Which gets its value because we all have to pay tax in some way or other. And the government promises to take the money it makes - the pound - in payment of that tax.

Which is how they give their promise value".

Now hang on: when government accepts its own money in payment of tax, it is not making a payment. Quite the reverse in fact: it’s some taxpayer who is paying government! Certainly I’ve always got the impression when paying a tax that it’s me paying the tax, not government paying me. How about you?

Do we conclude that Richard Murphy, professor of political economy, was drunk when making that recording, or what?

Stop press (4th June 2020).  Someone called “Simon” has left a comment on Richard Murphy’s blog drawing attention to my above less than entirely flattering points about Murphy, and Richard Murphy is very upset. So I’ll run thru Simon and Richard Murphy’s points in chronological order.

First, Simon says my above article is “disrespectful”. No apologies offered. I certainly am “disrespectful” about people who call themselves “professors” and who, it turns out, don’t know what they are talking about.

You should see some of the language I’ve used about Kenneth Rogoff, the Harvard professor, who has arguably been the World’s most influential exponent of austerity over the last ten years. My language doesn’t bear repeating in polite company.

Then Murphy says “I find your views distasteful and have no desire to give them a platform.”  So do we take it that when “Professor Murphy” is teaching students economics, he tells them that a way of dealing with ideas they don’t agree with is to simply say “I find your views distasteful?”

Next, he makes the bizarre and totally nonsensical claim that I think I am the creator of MMT. I asked him for evidence to back that claim and his answer was that “I recall you claiming many times that you had the true insight into monetary economics well before MMT.”

Well perhaps I did! But that’s not the same as me claiming to have founded MMT, is it? Doubtless hundreds of other people round the World claimed to have “true insight into monetary economics” before MMT, but I wouldn’t accuse them on that basis of having claimed to have founded MMT!!

When you’ve stopped laughing, get ready for the next Murphy blunder.

He then says in respect of the latter “founded MMT” point, “If I am wrong, so be it, but it’s not an issue worth discussing.”

Er – well in that case, why’s he discussing the matter? Doh!

When you’ve stopped laughing, get ready for the next Murphy blunder.

He then says “And I am still not engaging because of past experience of the utter folly of doing so.” Well that’s a good all purpose insult. Does “Professor Murphy” teach his students to use the latter “utter folly” argument when in a tight corner?

I’m tempted to use that insult myself, but I don’t really want to sink the Professor Murphy’s level.

He then says he has banned me from his blog. I’ve actually been banned for several years: indeed, I was surprised my above mentioned comment was allowed at all.

The final and last laugh is that Murphy has recently got very concerned about “fascism”: always a favourite word among lefties, as George Orwell pointed out. But wait: one of the defining characteristics of fascism is opposition to free speech, and Murphy has, as pointed out above, just curtailed free speech on his blog. Notice the irony / self-contradiction / hypocrisy?

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”.

Thursday, 14 May 2020

Covid has blown Rogoff’s fiscal rule out of the water, while MMT’s remains totally unfazed.

Kenneth Rogoff is a Harvard economics prof. Over the last ten years he has been one of the world’s leading advocates of austerity. In particular his big idea has been that debt/GDP ratios should be limited to 90%. Apart from the technical flaws in his research which others have highlighted, his 90% idea has been blown out of the water by the massive deficits being used to counteract the effects of Covid. I.e. limiting the debt and deficit just at the moment would be absurd.

Incidentally, as MMTers have long tried to explain, government debt and base money are much the same thing. That is, a tranche of government debt is simply base money lodged with government for a period of time on which government pays interest. As Warren Mosler (founder of MMT) put it, government debt is essentially a term account at a bank called “government”.

Thus the important quantity here is not, strictly speaking GOVERNMENT DEBT: it’s government debt plus the stock of base money, which is sometimes referred to by MMTers as “Private Sector Net Financial Assets” (PSNFA). But I’ll use the more traditional and inaccurate phrase “government debt” or just “debt” below. 

As for what the optimum amount of deficit and debt is, the MMT view is simply that it needs to be whatever brings full employment (or something as near full employment as is possible in a Covid scenario), while keeping to the inflation target. The actual AMOUNT of debt that results from that policy is wholly irrelevant.

Indeed that is very much what Simon Wren-Lewis (former Oxford economics prof) claims. As he put it in the first sentence of a recent article, “Do you want to know why fiscal rules should never involve targets for the debt/GDP ratio, or debt interest, or any stock measure, and why public investment should not be part of a fiscal rule?”

Of course the debt-phobes worry about what happens if, given a relatively high debt, government’s creditors start demanding a higher rate of interest. Well I’ve been thru this all before on this blog a dozen times, but I’ll run thru it again.

First, a rise in the interest demanded by creditors, i.e. debt holders, does not result in any significant immediate rise in the interest paid by government because (certainly in the case of the UK): the average term of government debt is several years (about ten years in the case of the UK).

Second, as regards debt due to mature this week or this month, creditors can simply be paid off and told to get lost. Of course the resulting increased stock of cash in the hands of the private sector could stoke inflation (though the increase in the stock of cash in private sector hands as a result of QE did not appear to stoke inflation). At any rate if it does look like stoking inflation, that inflation can be reined in simply by raising taxes and/or cutting public spending.

Note that has no effect WHATEVER on aggregate demand, and hence no effect on living standards. All that happens is that demand is held down to the level where it does not cause excess inflation: the level which maximises GDP.

And if the latter “reining in” exercise does not do the trick, interest rates can always be temporarily raised, though as suggested above, they need to be cut back to near zero as soon as possible.

To summarise, the “MMT/SW-L” fiscal rule works just fine in a Covid scenario, just as much as it does in a more normal scenario. And people who think up rules or equations which work in in a variety of different circumstances, i.e which are of very GENERAL application, like E=MC2, often earn Nobel prizes.


Game set and match to MMT / SW-L. As for Rogoff, why on Earth anyone still listens to him is a mystery.

Wednesday, 13 May 2020

The crazy “Job Retention” or “furlough” scheme.

About 95% of the human race have no interest in the basic purpose or logic behind government schemes (or any other scheme) as long as such schemes appear to be well intentioned in some sort of way.

The latter 95% figure applies as much the intelligentsia as it  does to street sweepers, labourers, plumbers and so on. That is, while members of the intelligentsia have been to university and have been taught how to churn out nicely crafted English, it’s very debatable as to whether they are any more able to think their way out of a paper bag than street sweepers, plumbers and so on.

And the UK's so called “Job Retention” scheme (i.e. furloughing) is a nice example of a scheme that looks well intentioned, but which on closer examination turns out to be nonsense. I actually drew attention to the nonsense some time ago on this blog in that I praised an article by Guy Standing published on March 26th which took the p*ss out of furloughing. (Title of his article: "The Job Retention Scheme makes no sense....").

Since the so called “think tank” the Resolution Foundation has published a fair number of articles on furloughing, I thought I’d run through some of their articles in search for some sort of justification for furloughing. Their articles contain plenty of banal hot air, for the example the point that furloughing (i.e. having government pay about 80% of the wage of those who have lost jobs because of Covid) helps those employees.

They also make the banal point that the scheme adds to the deficit, which of course helps maintain employment among those who are not forced out of their jobs because of Covid.

However, the Resolution Foundation do no seem to have worked out that as regards the latter deficit point, it is the INCREASED DEFICIT that is doing the work, not the Job Retention scheme as such. That is, exactly the same job boosting effect could be produced by a temporary boost to the state pension, a temporary boost to unemployment benefit for ALL THE unemployed,  increasing public spending on any number of other items, or cutting taxes.   

Thus the basic question for advocates of furloughing to answer (unbeknown to the intelligentsia) is: why offer what is essentially very generous levels of unemployment benefit to those thrown out of work by Corvid, while those thrown out of work for other reasons just get the standard unemployment benefit (now called “Job Seekers Allowance” in the UK)?

For starters, the latter is a blatant form of inequality. Thus you’d expect the self-appointed “progressives” working for think  tanks to object to that inequality. But not a bit of it: to repeat, those who work for think tanks are no more able to think than  anyone else.

As for the popular idea that furloughing helps employees keep their jobs, it doesn’t in that there is no obligation on employers to offer furloughed employees their jobs back at the end of the furlough period.

And then there’s the claim that furloughing helps employers!! How exactly? If an employer lets an employee go other than for Covid related reasons, the employer is of course relieved of having to support the employee because the state than provides unemployment benefit for the employee.

But under the Job Retention scheme it’s exactly the same! That is, the employer is relieved of having to support the employee – with the difference that the employee may get a more generous level of benefits. But that’s nothing to do with the employer.

Another fatuous claim made for furloughing is that it makes it easier for employers to maintain their workforces: that is, a generous level of what is in effect unemployment benefit will obviously induced those concerned to abstain from looking for other work and will induce them to wait till their old employer can re-hire them.

But what exactly would be wrong with someone thrown out of work by Covid getting themselves another job? That would cut unemployment and boost GDP. And if the job was a relatively low paid and/or temporary job, what of it? That would just mean that as soon as the relevant person’s old job reappeared, they’d quit the low paid job and return to their original employer!

Indeed – and try not to die of laughter – the UK government is specifically seeking furloughed employees to take up temporary posts in the civil service!!  You couldn’t make it up.  Not even Sir Humphrey Appleby or Jim Hacker could have thought of this sort of self-contradictory nonsense!

In addition to the latter self-contradiction, the basic idea behind furloughing also runs counter to the whole idea behind the Job Guarantee, namely that (as JG advocates rightly claim) it is actually desirable for those thrown out of work to get temporary and relatively unproductive jobs, pending the appearance of something better.

And finally, and as distinct from where the best available alternative job for someone thrown out of work is a temporary and relatively unproductive job, there will be cases where being thrown out of work can induce those concerned to engage in a job search which results in their finding a BETTER job than the one they’ve been thrown out of. And what exactly is wrong with a move to the latter and better job?

After all, every other employee in the country ALWAYS HAS BEEN on the look-out for a better paid and more suitable job than the one they currently hold! The more suited employees are to the jobs, the higher is GDP and the happier the employee will be nine times out of ten.

Friday, 8 May 2020

Very simple economies illustrate the merits of full reserve banking.

If you can show that an idea works in a very simple economy, that clearly supports the idea. In the case of the fractional versus full reserve banking argument, considering how best to run a very simple economy indicates that full reserve rather than fractional reserve makes sense and for the following reasons.

First, let’s assume the ruler or government of the economy decides to set up a form of money. That assumption ties up with the historical reality, namely that at least half the time, money has come into existence in different civilisations and societies throughout history, as a result of a ruler deciding to set up a form of money, rather than as a result of market forces. The ruler’s motive for doing that is often that money helps the ruler collect tax.

Second, let’s assume the government or ruler issues enough money to bring about full employment, but not so much that excess inflation ensues.

Third, we’ll assume that people in the hypothetical economy lend money to and borrow from each other. Plus we’ll assume that some people act as intermediaries between lenders and borrowers, i.e. those people effectively become banks.

Next, the question arises as to whether, in the event of a bank failing, government ought to bail it out, or whether depositors (i.e. those who have loaned to others via the bank) should carry the loss.

Well when anyone lends DIRECT to another person, and the second cannot repay the money, the lender carries the loss. That applies in the real twenty first century world and there is no obvious reason that shouldn’t apply in our hypothetical economy.

So why should people who lend to others via a bank be any different? Well I’m darned if I know. Do you?

Put another way, a bank is simply a middle-man between lenders and borrowers. What’s so amazingly virtuous or beneficial about middle-men that they deserve government support?

In contrast to those who want to lend to others via a bank and thus earn interest, there are those who deposit money at a bank PURELY for safe-keeping, and to enable them to transfer money to others, sometimes a considerable geographical distance away. Banks in the real world do that electronically, e.g. via debit and credit cards nowadays. But let’s assume banks do something similar in the simple hypothetical economy.

It could of course be argued that a bank is a purely commercial operation, and that if anyone entrusts their money to a bank, if only for the purposes of safe-keeping the money and transferring it as requested by depositors, that depositors should carry the loss there as well.

However, I think most would agree that having a totally safe method of storing and transferring money is a basic human right: certainly there is a difference between depositing money at a bank with a view to having the bank lend on the money, which is a blatantly commercial activity, and second, depositing money just for safe-keeping and transfer purposes.

So the conclusion is that taxpayers in our hypothetical economy should certainly not bail out those who are into COMMERCE:  those who want their money loaned on by a bank are into commerce just as much as if they get a mutual fund, unit trust, private pension scheme or stockbroker to lend on or invest their money.  As for those who just want their bank to safe-keep their money and transfer it as requested, they probably have a right to that service / facility, and government should organised such a “safe-keeping and transfer” system, perhaps with some of the relevant work being sub-contracted to commercial banks. (But that’s not to suggest that service should be provided for free: i.e. it would be legitimate to charge depositors for that service.)

And what do you know. That’s full reserve banking!

Monday, 4 May 2020

Are most human beings zombies?

I have a friend who says he often puts comments on a widely read economics blog. The blog owner is vehemently opposed to a particular economics think tank and throws hissy fits at any mention of the name of the think tank.

Yet my friend says his comments regularly support THE IDEAS promoted by the think tank without actually mentioning the NAME OF the think tank. But that elicits no response from the owner of the blog. (I won’t mention the name of the blog or think tank for obvious reasons).

This is identical to an experience I have for a long time had with supporters of Modern Monetary Theory (MMT), which is that they go beserk at the mention of NAIRU, but are not the least bothered by the mention of the BASIC IDEA behind the acronym NAIRU, which is simply that there is a relationship between inflation and unemployment (in the broadest sense of the acronym NAIRU).

Incidentally I have long supported MMT, while recognising that many if not most of its supporters, like the supporters of other movements, can’t do much more than “mantra repetition.”

This all suggests that most of the human race are happy to join some movement or ideology because they think it’s fashionable, without having any real clue as to what the IDEAS that underpin the ideology are. Their aim is simply to join a crowd which is chanting a particular mantra.

And that’s probably the motive for joining a religion and attending a religious buildings where people chant the same words and phrases over and over and over and over. Much the same goes for political movements, whether it’s Hitler’s followers chanting “Sieg Heil” or whatever.
A very similar phenomenon is observable with lefties who are mesmerised by long, important sounding, multi-syllabic words: e.g. xenophobia, multi-culturalism, Islamo-phobia, sustainable, etc which they repeat over and over.  Not of course that the political right is any less into mantra repetition than the political left.

And I’ll leave the last word to William Hazlitt, who said “Defoe says that there were a hundred thousand country fellows in his time ready to fight to the death against popery, without knowing whether popery was a man or a horse.”

Sunday, 3 May 2020

Stephanie Kelton on the post Corvid debt.


Stephenie Kelton (leading MMTer) claims the build up of government debt as a result of Corvid related handouts will be no problem. See this Financial Times article entitled “Can governments afford the debts….”. That over-simplifies the issue.

As MMTers have been at pains to point out (and the point certainly needs making) government debt is a private sector asset. Indeed as Warren Mosler (founder of MMT) said, there is lilttle difference between debt and base money: the only difference is that debt is base money that has been locked up for a period and on which interest is paid. I.e. government debt is essentially a term account at a bank called “government”.

Now a build up of private sector financial assets will lead to a rise in private sector spending all else equal. Ergo after the Corvid crisis, it is perfectly possible we will see excess demand and inflation, with the result that governments and central banks will have to rein in that demand via increased taxes or interest rate rises.

On the other hand it’s possible that consumer and business confidence is severely hit by the crisis, in which case that “hit” could nullify the above mentioned excess demand. It’s hard to predict.

BTW....If you find yourself confronted by a pay-wall at the above link, try Googling the article. That worked for me!!

Saturday, 2 May 2020

Richard Murphy’s grossly incompetent criticisms of Positive Money.

Murphy in this article (entitled “Why Positive Money is wrong”) lists six objections to the basic idea which PM has always advocated, i.e. full reserve banking (aka “Sovereign Money”). To call Murphy’s article “inane drivel” would be far too flattering, as I show in the paragraphs below. 

His first objection is as follows (I’ve put all quotes from his article in green italics):

“First, I object to any unelected committee taking control of our economic policy. I object to the current sham of central bank independence and I object to alternatives to it. We elect governments to run economic policy and not unelected 'wise people' whose status may well be challengeable and most of whom will be slaves to some long-dead economist.”

Well first, it is totally absurd to suggest PM claims an “unelected committee” should “take control of our economic policy”.  PM literature is very clear that the unelected committee (which could be a central bank committee, e.g. the Bank of England Monetary Policy Committee) decides just one item: the total amount of stimulus to be implemented over the next few months.

PM very specifically states that that committee does not decide the nature of that stimulus: e.g. whether it should come in the form of tax cuts or increased public spending. Nor does it decide the exact nature of those tax cuts or the type of public spending to be increased. In short, it is pure nonsense to suggest, as Murphy does, that PM claims the latter committee should decide all aspects of economic policy.

Next, as regards the “sham of central bank independence” anyone with half a brain has tumbled to the fact that there are all shades of grey between a genuinely independent central bank and a central bank which has no independence at all.

But that lack of total independence possessed by central banks does not mean there is no discussion to be had on exactly what decisions are best left to a central bank, and what decisions are best taken by politicians. The fact that universities, the army, navy, airforce, state schools, state owned hospitals (I could go on) are not totally independent  of central  government does not mean there is no discussion to be had on what decisions should be left to those state owned and funded institutions.

Incidentally Ann Pettifor, whose ignorance matches that of Murphy’s on the above topics, makes much the same mistakes that Murphy does. 


Murphy’s second objection is as follows.

“Second, I object to inflation being at the core of money policy. Of course it is vital, but most especially to the interests of those with wealth. The object of money creation should be to ensure that there is enough to create full employment and rising median wages. Since the only inflation that money creation policy can control will not happen until there is full employment making inflation the target is to get every priority wrong in that case, and to put the interests of capital over those of labour. And that's not what any progressive should be doing, in my opinion.”

Well the answer to that is that inflation is already very much at the core of money policy. As every ten year old probably knows, when inflation rises about the 2% target, the normal expectation is that the central bank will raise interest rates so as to counter that inflation. Thus the above “inflation” point is not a specific PM point!!!!

What is money?

Murphy’s third objection to PM reads as follows.

“Third, this policy fails to understand what money is. Money is, in the modern world, simply a promise to pay. It comes into existence when that promise is made. It ceases to exist when it is fulfilled. So, governments create money when they promise to pay when spending, and fulfil that promise when accepting the money that they create as payment for tax. And bank borrowers create money when promising to make payment of loans, and do so then they repay them. Conversely, banks promise to pay in the future when accepting net deposits: they say they will recreate the money when returning it. But in each case there is no physical thing called money. There is just a promise. That's all. But Positive Money do not appreciate that. They are saying there is something called 'central bank money' and that a stock of this can be created and distributed for use to banks. This is simply untrue: unless there is a promise to pay there is no money and you cannot distribute promises that do not exist between parties that are unaware that they might make them. The Positive Money idea is not possible unless the fourth objection applies.”

Well now, there’s a slight problem with Murphy’s definition of money, namely that it bears no resemblance to the definition found economics text books and dictionary of economics. The normal text book or dictionary definition is something along the lines of “anything widely accepted in payment for goods and services or in settlement of a debt”. Certainly my Oxford Dictionary of Economics says nothing about Murphy’s “promise to pay”.

But on the subject of “promises to pay” it is certainly true that commercial bank created money is a promise to pay central bank money: witness the fact that if your account is in credit at your commercial bank, you can go to an ATM and withdraw £10 notes, $100 bills etc, which are of course issued by central banks. 

But in what sense is central bank money a “promise to pay”? It’s true that £10 notes say “I promise to pay the bearer on demand the sum of £10”. (“I” presumably being the governor of the Bank of England).

But that promise to pay is simply a leftover of the days (well over a hundred years ago) when banks had to supply £X of gold to any customer who wanted gold in exchange for £X worth a paper notes. That promise is a complete farce nowadays.

So what is this “promise to pay” that Murphy refers to in relation to central bank issued money?  He says “So, governments create money when they promise to pay when spending, and fulfil that promise when accepting the money that they create as payment for tax.”

So apparently when government orders tanks for the army or a new stretch of motorway, it gives the supplier of those items some government / central bank created money, but that according to Murphy does not constitute payment!!!  Well assuming (for the sake of illustration) the payment took the form of wads of £10 notes, suppliers of the above items would very definitely regard that as payment.

Indeed, central bank money (whether in digital or physical form) is what is known as “legal tender”: that is, the relevant creditor cannot by law refuse to be paid with that form of money, and cannot by law claim, after payment has been made, that payment has has not been made!!

Thus Murphy’s claim that when government “spends” government / central bank created money, that payment has not been made is pure unadulterated nonsense. (Incidentally Ann Pettifor is under a similar if not identical illusion: she claims central bank issued money, e.g. £10 notes, is not a form of money unless recipients of that money supply the central bank with collateral.)

Moreover, what’s “payment of tax” ‘got to do with it? Any particular tranche of government / central bank created money may of course subsequently be used to pay tax. But equally it may not: witness the fact that the stock of government created money in the hands of the private sector has risen by unprecedented and astronomic amounts in reaction to the 2007/8 bank crises, and more recently in reaction to the Corvid virus crisis.

Next, Murphy says Positive Money claims “….there is something called 'central bank money' and that a stock of this can be created and distributed for use to banks. This is simply untrue.”

Whaaat? Far as I know about 99% of economists accept that there is such a thing as a “helicopter drop”: i.e. it is perfectly possible for government and/or central bank to create money at will (base money to be exact) and distribute it as they please.

If Murphy thinks those 99% of economists are all wrong, perhaps he could go into a few details on exactly why.

Rationing money.

Murphy’s fourth objection is that Positive Money proposes “rationing” the amount of money. Well shock horror: I have news, which is that the supply of money always has been rationed. Or do you really want a system where the supply of money is almost completely unrationed as per Weimar Germany or Robert Mugabe’s Zimbabwe?


Well that’s about it. I can’t be bothered with any more of Murphy’s nonsense.