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.
 

Conclusion.

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.

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.  


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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.
 

Conclusion.

I favour the ultra simple MMT type rule.
 

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.

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.

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.
 

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.