Saturday, 27 February 2021

Charlatans, poseurs, frauds and time-wasters just love the word “sustainable”.

The word sustainable is essentially meaningless. Of course the phrase “environmentally sustainable” means something, and it’s an important phrase. That is, we certainly need to do far more to combat climate change and other pollution related problems. But the word sustainable is nearly always used ON ITS OWN, and in circumstances where it is far from obvious what any environmental implications might be. I.e. the word is normally used to pad and/or do a bit  of virtue signalling.  

But the fact that the word is as good as meaningless does not stop hundreds of academics and similar repeating the word ad nausiam. Another reason they repeat it over and over is because it’s FASHIONABLE.

In contrast, there are blogs authored by high quality academics (I’d cite for example Simon Wren-Lewis and Frances Coppola) who scarcely ever use the word.

Fashion fools a large majority of the population. If it was fashionable to march up and down the street, one arm raised at fourty five degrees, and chanting “Sieg Heil”, then about 95% of the population would be happy to do just that. As Edmund Burke said, “Custom reconciles us to everything.”

So who ever said anything should be “unsustainable”?

One absurd aspect of the word is that no one in their right minds advocates anything that is UNSUSTAINABLE in the sense that it is likely to collapse in pile of rubble shortly after being set up or constructed. For example does anyone advocate the construction of traditional brick built houses that collapse after three years?

Does anyone advocate the manufacture of cars with no rust proofing?

Shock horror: we’re surrounded by “unsustainable” stuff.

And  finally I have some utterly DISASTROUS news for the zombies who keep repeating the word sustaionable: we’re surrounded by things that are not sustainable. Human beings are not sustainable in that they die approximately eighty years after being born. Cars only last about fifteen years. Houses last roughly a hundred years on average.


If you want to spot an academic, journalist or economics think tank wonk who has no worthwhile ideas, but is desperate to make it look like he or she is doing something, just see if the individual concerned uses the word sustainable in the title of their work or in the introductory paragraph.

Friday, 26 February 2021

The latest bit of woke nonsense from Positive Money.


Positive Money was founded by Ben Dyson around ten years ago with a view to promoting full reserve banking (aka “Sovereign money”, aka “100% reserves”, aka “narrow banking”). And that’s what PM did for at least the first five years of its existence.

Unfortunately it now spends much of its time pushing a number of bizarre woke ideas like the one pictured above which appeared recently on Instagram.

There are several flaws in the idea that colonialism is responsible for climate change. For example Britain was the first big time polluter in terms of CO2 emissions and that stemmed from coal mining. And clearly a proportion of that coal was used to power ships which helped bolster the British empire. Unfortunately though the British empire PRECEDED coal powered ships by a good hundred or two hundred years. I.e. prior to coal powered ships there were (gasps of amazement) sail powered ships!

Looks like the connection between colonialism and pollution is a bit tenuous, but it gets worse, and for the following reasons.
Had Britain had no colonies at all, why would that have made much difference to the amount of coal mined in Britain? Much of that coal was used for power generation WITHIN Britain and to power railways WITHIN Britain and for the production of steel used WITHIN Britain!

As for Positive Money’s idea that capitalism is responsible for pollution, is the suggestion supposed to be that non-capitalist economies (e.g. Russia between 1917 and the collapse of communism in the 1980s) don’t consume coal and crude oil?

Moreover, the fact that a significant proportion of the coal mined in Britain was exported direct to colonies and used to power factories which exported products to those colonies still doesn’t prove a connection between colonialism and pollution. The reason is as follows.

A colony is a country which the colonising country dominates through the use of FORCE. In  contrast to that, there are countries which any given country, including a coloniser, can trade with WITHOUT the use force.

Now to take the example of Britain and the railways which Britain built in one of its colonies, India, suppose Britain HAD NOT colonised India, but had nevertheless, after inventing railways, gone along to India and said: “How about we build a railway system for you for several billion pounds (at 2021 prices) which will bring you enormous economic benefits.”

Well India would presumably have said, “We’re up for that”.

The moral is that the fact that historical examples of colonialism involved extra pollution, does not prove that absent that colonialism, things would have been much different: in particular, the total amount of pollution could easily have been much the same.  


Wednesday, 24 February 2021

The Tony Blair Institute proposes a fiscal rule.


That’s in a work published yesterday and entitled “Fiscal Rules, OK?

There’s a good summary of the failures of various fiscal rules between 1997 and the present on pages 6 to 11 of this work.  

The fiscal rule proposed in this work, as one of its authors admitted during the associated webinar yesterday, is complicated. By comparison, my preferred rule (which I think is pretty much MMT compliant) is ultra simple. It simply consists of: “The deficit should be whatever keeps unemployment as low as is consistent with hitting the inflation target, while interest on the debt is held at or near zero”. And that in turn is in effect close to the Simon Wren-Lewis / Jonathan Portes rule which says that stimulus should be implemented via interest rate cuts except where interest on the debt is near zero, in which case fiscal stimulus should be implemented.

The Tony Blair Institute (TBI) rule consists of four elements. The heading for the first is “1. A Long-term Government Debt Objective and Implied Deficit Ceiling.” And that involves declaring what the ideal debt / GDP ratio to aim for in ten or twenty years is.

Well there’s a big problem with a long term debt / GDP ratio objective, which is that the size of the debt itself influences demand, and it is plain impossible to say years in advance what sort of assistance from deficits and debts the economy will need in ten or twenty years time. I’ll expand on that.

Government debt is essentially money that private sector entitites have deposited at a bank called “government”: i.e. that debt is an asset as viewed by the private sector. Thus the higher the debt, all else equal, the more the private sector will tend to spend. Plus of course, the deficit itself stimulates demand.

But if say there’s an increased desire to save or hoard money in ten years time, the appropriate debt will be higher than absent that desire to save or hoard! Or if consumer and/or business confidence is much higher in ten years time than it is now, then all else equal, a LOWER debt would be suitable. Conclusion: aiming for a specific amount of debt in ten or twenty years time is a questionable objective.

The truth is that government does not have much choice about the size of the debt and the stock of zero interst yielding base money (and the sum of those two is sometimes referred to by MMTers as “Private Sector Net Financial Assets (PSNFA)). For example if PSNFA is lower than the stock of PSNFA that the private sector wants to hold, then the private sector will save in order to acquire its desired stock and we get Keynsian “paradox of thrift” unemployment.


The second element.

The second element of the TBI fiscal rule is headed: “2. A Real-Time Affordability Test.” And the first paragraph under that heading reads, “The deficit limit would then be adjusted to reflect the affordability of additional borrowing. The adjustment would be calculated based on the difference between the real interest rate on government debt and the long-run growth rate, such that the government’s scope to borrow is expanded when borrowing is cheaper and reduced when it is more burdensome.

The flaw in that idea is that it assumes governments and central banks have no control over interest on the debt. As MMTers have explained over and over, interest on the debt is what MMTers often call a “policy variable”: i.e. governments can pay any rate of interest they want. To illustrate, if a governments wants to pay nothing at all, it can: it just needs to implement stimulus by creating and spending zero interest yielding base money into the economy in whatever amount is needed to bring full employment, and not offer to pay any interest to anyone.


The third element.

This consists of a so called “escape clause” similar to the Wren-Lewis / Portes idea, namely that fiscal stimulus kicks in where interest rates are near zero and stimulus is definitely needed. Well doesn’t that rather clash with the “aim for a specific debt / GDP ratio in ten or twenty years time” objective? If fiscal stimulus continues to prove necessary, then the debt is simply going to rise and rise, perhaps to somewhere near Japanese levels.


I favour the ultra simple MMT type rule.

Monday, 22 February 2021

A fine display of economic illiteracy by the Resolution Foundation.

There’s a one hour webinar type production by the Resolution Foundation put out last November on the large public debt resulting from Covid and what to do about it. It's entitled "Paying for Covid" The main speakers were former UK finance minister Phillip Hammond and Helen Miller of the Institue for Fiscal Studies (IFS).

The production is a total and complete farce. Both Hammond an Miller are convinced that tax rises will be needed to “pay for” the debt. That completely ignores the possibility that the private sector will be willing to hold a larger stock of debt at a near zero rate of interest than in previous decades. Indeed that willingness to hold a large stock is already staring us in the face.

That of course is not to say that the increased “willingness to hold” will be so large that no consolidation will be required at all. The important point here is that it is clearly impossible to predict what that “willingness” will be in a year or two’s time, thus any predictions as to how much consolidation will be needed are a total farce.

But RE folk appear to be totally unaware , first, that the latter willingness may be sufficiently large to make consolidation wholly unnecessary. Second, they seem totally unaware that even if some consolidation (aka tax rises) are needed, the extent of those tax increases is wholly unpredicatable.
And if government does consolidate, i.e. withdraw money from the private sector when the private sector actually wants to retain that stock, then the private sector will just respond by saving in order to acquire its desired stock, which in turn will lead to Keynsian “paradox of thrift” unemployment.

The IFS, incidentally has a reputation for having zero grasp of macro-economics, thus Helen Miller’s support for the above RF nonsense is no big surprise, e.g. see here and here.

The above production by the RF is advertised as being a summary of a much longer (150 page) work of theirs. They are not totally clear in the above webinar production on which of their many works is referred to, but it looks very much like this one, entitled “Unhealthy Finances”.

The abstract of the latter work is certainly very much along the same lines as the webinar production, i.e. it is riddled with obsolete ideas and phrases like “fiscal space” which I demolised ten years ago on this blog, and which Bill Mitchell (co-founder of MMT) also demolished long ago.

Sunday, 21 February 2021

MMT vindicated.

Brian Romanchuk makes the point that MMT is becoming more widely accepted in that the debate on the debt does not (as it use to) concentrate on what the maximum safe size of the debt is or whether the bond vigilantes will scupper a country if the debt gets too large. Instead, the debate is about how big the debt and deficit can get without sparking off excess inflation.

And the latter has for many years been one of the basic points made by MMT: i.e. that there is no maximum possible size for the debt as a proportion of GDP. Rather, the only important question is how large the debt and deficit can be before excess inflation kicks in.

But there’s another way in which the debate has shifted onto MMT ground, which is closely related to the above point. It’s to do with the MMT point that government and central bank have no option but to meet the private sector’s so called “savings desires”. Savings desires is MMT speak for the amount of government and central bank liability that the private sector wants to hold: that liability being government debt and base money (aka “reserves”).

I.e. if the private sector wants a bigger stock of base money, and the state does not provide it, then the private sector will save with a view to attaining its desired stock, and the result will be Keynes’s so called “paradox of thrift unemployment”.

Over the last ten years or so there has been a never ending, desperate and ultimately futile attempt by the Tory Party in the UK to cut the deficit and debt. Unfortunately they’ve been hit in the face by brute reality: the reality that the state just has to meet the private sectors “savings desires”, as shown in the image below.

Friday, 19 February 2021

Larry Elliot of the Guardian needs to study MMT.

Larry Elliot tries to put in a good word for the recently announced Starmer bonds. That’s in a Guardian article entitled “Keir Starmer’s recovery bonds….”

Elliot’s justificaton for the bonds is that “The thinking behind them is that only a fraction of the excess savings built up during the pandemic will be spent so the rest could be doing something more useful than sitting in bank accounts.” 

The flaw in that argument is that the fact of some group of people hoarding money and doing nothing with it does not stop government and central bank creating any amount of money they want and spending it, provided (as pointed out by MMT) the amount printed and spent is not so much as to cause excess inflation. 

Moreover, as Elliot rightly says, if the above “hoarders” are to the induced to lend to government, then the rate of interest will need to be above that currently offered on government bonds. But that will tend to raise interest rates generally. I don’t see mortgagors being too thrilled at the rate of interest they have to pay on their mortgages being raised.

Tuesday, 16 February 2021

Positive Money’s latest publication, “The Tragedy of Growth”.

Positive Money, the economics think that that used to concentrate on advocating full reserve banking, is now publishing a lot of stuff which is doubtful quality. The first para of the conclusion of their latest publication “The Tragedy of Growth” says, “This report has shown that continuous GDP growth consistently fails to deliver enhanced life satisfaction, alleviation of poverty, or environmental protection.”

So who ever said that growth or the free market DOES give us “environmental protection”? No one.!! As every introductory economics text book has explained for decades, the free market does not deal well with externalities. For example factories which spew contaminants into nearby rivers normally won’t stop untill the law forces them to stop.

As for the “alleviation of poverty” anyone with half a brain worked out at least a century ago, that the free market, left to its own devices, pays market price for everything and everyone. And the free maket price for people who have physical or mental problems is around zero. So in a totally free market, they’d starve, unless supported by friends or family. And that truism obviously applies regardless of how much growth we have. 

Also, this publication fails to make an important point which is of relevance here, namely that growth in the form of increased productivity to the tune of X% is still desirable as long as that is matched by an X% reduction in the working week. The net environmental effect of that would be zero, all else equal. At least I didn’t spot that point being made. 

The net effect of the latter “X%” point would be that everyone would enjoy the same standard of living but would not need to work so many hours a week to maintain that standard of living.  

Sunday, 14 February 2021

Dan Awrey backs full reserve banking.

Dan Awrey is a law professor at Cornell and has just published a paper entitled “Unbundling, Banking, Money and Payments”.

This paper is long (about 25,000 words) and very detailed: it has 300 references. I basically agree with it, but what is odd about this paper is that it essentially re-invents the wheel.

That is, the basic proposal is that everyone should have access to a bank account which is 100% backed by money at the central bank. But that’s what Irving Fisher proposed in the 1930s and what Milton Friedman advocated in his book “A Program for Monetary Stability” published in 1960 (see in particular Ch3 under the heading “Banking Reform”). Plus there are a good sixty other economists who back that idea: see here. (Awrey’s basic proposals start half way down his p51).

But Fisher is not mentioned in Awrey’s work, nor is Friedman’s advocacy of the “100%” idea. Nor did I spot any other above mentioned sixty, though quite possibly I missed one or two.

There are of course different ways of giving everyone the right to a “100% backed” account. One way is so called “Central Bank Digital Currency” where anyone can quite literally open an account at the central bank. Another possibility is to let any institution (not just existing banks) offer accounts which are 100% backed by money that those institutions have at the central bank. Awrey backs that option and Positive Money has advocated that option since its foundation about ten years ago. But again, like all other advocates of that system from years or decades ago, Positive Money is not mentioned by Awrey.

But clearly anything written by a law professor will have plenty of detail on the law that currently governs banks and on what changes to the law are needed to implement full reserve / 100% reserve.

Awrey seems to claim (though, to my mind, he is not very clear on this) that IN ADDITON to 100% accounts, banks should be allowed to continue their present practice of accepting deposits which are supposed to be totally safe, while at the same time, lending out money. See his para starting “Perhaps more than….” (p52). That is precisly what has led to hundreds of bank failures thru history: it involves banks having liabilties which are FIXED in value, and assets which can crash in value (when it turns out that a bank has made silly loans). Certainly Milton Friedman and Positive Money’s proposals do not allow the latter practice.

In contrast, I see nothing wrong (as I explained here) with a bank or other institution accepting savers’ money while lending out money and saying that the institution will TRY TO repay savers $X for every $X deposited. But there must be no ABSOLUTE GUARANTEE that saver / depositors will not lose money.  

Thursday, 11 February 2021

Alliance for Just Money.


Alliance for Just Money is a US based organisation which promotes bank and monetary reform. I stumbled across it a month or two ago and am delighted to have done so because it’s proposals are pretty similar to those of Positive Money, which I’ve supported for about ten years. I don’t know what took me so long, i.e why I didn’t stumble across AFJM earlier.

Anyway, one of AFJM’s proposals I particularly like (also advocated by Postive Money for a long time and recently given the thumbs up by  Ben Bernanke) is the idea that the amount of new money the central bank should create should be determined by a central bank committee (or some other independent committee of economists) while the ACTUAL WAY that new money is used is a decision which should stay with politicians. I.e. the decision as to whether stimulus money is spent on more education or health or used to cut taxes is clearly a POLITICAL decision.

Unfortunately the latter very simple idea which is about as beautiful in its simplicity as Einstein’s E=MC2 equation is EXTREMELY DIFFICULT to get into the heads of most economists. But as you probably know, a significant proportion of economists are more interested in near incomprehensible, jargon ridden nonsense than in worthwhile original ideas.

As to exactly where AFJM says it supports the latter simple idea, see item No.1 under the heading “Three Critical Reforms” on their “The Just Money Solution” page.

Wednesday, 10 February 2021

Adam Smith Institute tries to criticise MMT.



That’s in an ASI article by Tim Worstall entitled “This is going to be the most lovely test of Modern Monetary Theory”.

Tim’s basic criticism of MMT is that Joe Biden’s plans for more stimulus than Trump envisaged could result in excess inflation, which allegedly shows that MMT’s “print and spend” policy is flawed.

Well the first problem there is that given excess inflation, the Fed has the power to negate any excess fiscal stimulus with an interest rate hike.

Of course, if a country adopts MMT in toto, i.e. implements stimulus JUST VIA “print and spend” with interest rate hikes being ruled out, and the decision on how much to print is left with politicians, there is a danger politicians will “do a Mugabe” and print too much. And that is Tim Worstall’s basic point.

Well it’s pretty stark staring obvious that politicians, if left to their own devices are liable to do too much “print and spend”!!  The solution to that problem, (as Ben Dyson (founder of Positive Money) explained in his book “Modernising Money” ten years ago) is not to let politicians take the latter decision! Doh! (Incidentally, Ben Benanke gave his blessing to that sort of Positive Money system)

I.e. under a Ben Dyson regime, the central bank (or some other independent committee of economists) decides the AMOUNT OF print and spend, while the decision as to exactly what to spend the extra money on (or whether to implement tax cuts) stays with politicians.

To put that another way, if Biden type stimulus does prove excessive, that does not indicate a weakness in MMT: it indicates a weakness in letting politicians rather than central banks have the ultimate say in how big a stimulus package should be. 


Endnote: Positive Money.   Ben Dyson and Positive Money certainly advocated the above split of responsibilities as between politicians and central bank for the first five or so years of Positive Money’s existence. Plus you’ll find the above “split” idea advocated in numerous PM publications other than “Modernising Money”. However Positive Money has recently been taken over by a collection of people who advocate a strange assortment of woke ideas, like trying to tell Brits they should all feel more guilty about slavery. Possibly Brits SHOULD FEEL more guilty about slavery, but that sort of thing is not really what PM was set up for. Thus I am not entirely clear what Positive Money’s CURRENT policy is on the “split” point.  

Wednesday, 3 February 2021

Steve Keen’s debt jubilee.


The main explanation for support of the debt jubilee is the negative emotional overtones of the word “debt”: bit like the way in which Germans have an aversion to debt largely because the word debt in German (schuld) also means “guilt”.

In contrast to emotion, Steve Keen in the second chapter of a forthcoming book of his does actually provide some REASONS for a debt jubilee, the main one being that variations in the amount of private sector debt cause gyrations in aggregate demand: i.e. they tend to exacerbate booms and busts. Thus his solution for the latter problem is a more stringent control of the amount of private sector debt.

However, the latter gyrations in demand could easily be dealt with if governments and central banks got their act together and implemented the right amount of stimulus at the right time. And that, at least in theory, is a vastly simpler solution to the problem than trying to control how much mortgage each household is allowed and how much every firm is allowed to borrow.

The reason governments and central banks failed to implement the right amount of stimulus at the right time in the aftermath of the 2007/8 bank crisis was that they were overly influenced by a large number of economic illiterates in high places who advocated limits to the amount of stimulus. The latter illiterates / idiots included a clutch of economists at Harvard: Kenneth Rogoff, Carmen Reinhart and Alberto Alesina. Plus the IMF and OECD had no idea whether they were coming or going on this issue: Google IMF, OECD and “Billyblog” for a selection of articles by Bill Mitchell on IMF and OECD incompetence.


Implementing the right amount of stimulus at the right time strikes me as a much simpler solution to the problem than trying to control the amount of debt incurred by households and firms.

Monday, 1 February 2021

Pro austerity article by Ruchir Sharma in the Financial Times.

The article is entitled “Dear Joe Biden, deficits still matter”, and it’s a nice example of the fact that very often no knowledge of economics is needed to demolish articles by pseudo sophisticates in broadsheet newspapers – so called “professional economists” in particular. All you need is grasp of logic and some common sense.

Sharma’s first mistake is to argue (4th para) that because stimulatory measures in recent years have increased inequality, therefor increased inequality is necessarily a feature of stimulus. False logic: clearly QE (given that it poured money into the pockets of those holding government debt, i.e. the rich) increases inequality. But stimulus could equally well be implemented by boosting social security payments and thus benefitting the LESS WELL OFF.

Put another way, there is, fantastic as this it seem, a well known alternative to featherbedding Wall Street. It’s an alternative which every bricklayer, plumber and street sweeper is well aware of, though whether the pseudo sophisticates who write of the Financial Times are aware of it is more doubtful: it’s to help Main Street!  Doh!

Sharma’s next illogical claim is that “Average voters are justifiably befuddled by the claim that governments can borrow without limit or any consequences.” So because the “average voter” (who hasn’t got past Chapter one of an introductory economics text book) thinks something ergo some weight should be given to the average voter’s views?  Perhaps Sharma also thinks we should consult the “average voter” on which Covid vaccine is best.

Of course there is an apparent clash between my above claim that common sense is sometimes all you need to demolish arguments by “professional economists” and the latter claim that specialist knowledge is sometimes needed. Well the answer to that apparent clash lies with the word “sometimes”: that is, sometimes common sense alone will do, and sometimes it won’t.



Next, Sharma claims (para starting “The incoming administration….”) that rising government debt “drags productivity lower”. Really? Where’s the evidence? Sharma doesn’t provide any!  

Next, he claims that an OECD study shows that a significant proportion of stimulus money has supported zombie firms and that that has held back economic growth (para starting “But recent studies…..”). Unfortunately that OECD study says nothing in its abstract, nor in the introduction in the main text, nor in the conclusion about the latter "stimulus supports zombies" point. .

But on the subject of zombie firms it’s pretty stark staring obvious that any form of demand, whether government / central bank implemented stimulus or plain simple household spending will support a number of zombie and non-zombie firms. The crucial question is whether stimulus spending has a bigger “zombie supporting” effect than more normal forms of demand like household spending. Well given that a significant proportion of stimulus is designed to boost household spending, it’s not immediately obvious why there should be any difference there!

Of course there are SPECIFIC TYPES of stimulus spending that CAN have a “pro zombie” bias. One example is the furlough schemes several countries have implemented in reaction to Covid. The latter schemes will tend to preserve EXISTING types of employment rather than encourage the new forms of employment which are likely to arise post Covid: e.g. more working from home and more online shopping. But that does not mean that stimulus spending is INHERENTLY pro zombie.


Given that the Financial Times did a big “mea culpa” about a week before Sharma’s article admitting that the “limit the deficit and debt” policy it had pushed since the 2007/8 bank crisis was wrong, you’d think the FT would take a bit more care to avoid publishing articles by “limit the deficit and debt” enthusiasts who obviously haven’t a clue.