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.

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