Delusional Richard Murphy claims Krugman is a fan of his!

Richard Murphy is an accountant from East Anglia in the UK who at the moment seems to be the main economic advisor to Jeremy Corbyn, the new leader of the Labour Party. Tim Worstall has been taking the p*ss out of Murphy for a long time, but Murphy’s latest delusion of grandeur is that Krugman has adopted Murphy’s so called “Peoples’ QE”.

That claim is actually a very simple sleight of hand: but simple sleights of hand fool 90% of the people 90% of the time, so you can’t blame Murphy for trying it. Reasons are thus.

PQE as advocated by Murphy for the last year or so has consisted of the idea that we should have government print money and spend it on infrastructure and/or green stuff, like wind farms. If you want to confirm that, Google “Peoples’ QE”: you’ll find plenty of articles where PQE is understood by the author to consist of just that, i.e. printing money and spending it exclusively or primarily on infrastructure and/or green stuff.

Now as I’ve explained ad nausiam, there’s nothing wrong with the “print and spend” element of PQE. Indeed Keynes advocated that in the early 1930s, as did Milton Friedman about fifteen years later. What’s wrong with PQE (for the umpteenth time) is as follows.

“Print and spend” is a form of STIMULUS. But in some years, little or no stimulus is needed. Thus if P&S money is concentrated on any one area, like infrastructure, there will be a BIG CONTRACTION in that form of spending in years when little or no stimulus is needed.

Now starting to build a road for example, and then bringing the project to a halt before completion just because little stimulus for the economy as a whole is needed, does not make very much sense.

Conclusion so far: stimulus spending should be fairly widely distributed. As for infrastructure, it may well be that we need more of that, but that should be funded in the normal way, i.e. mainly via tax and/or government borrowing (with a bit of stimulus money thrown in if it happens to be a year when stimulus is called for).
Put another way, what’s wrong with PQE (as Simon Wren-Lewis pointed out on his blog) is trying to combine two policies which in themselves are perfectly acceptable, but which (contrary to the claims of Richard Murph) are not actually natural bedfellows.

Now it seems from the comments after this article of Murphy’s that he has very recently been converted to the latter “widely distributed” point. That is, he seems to have cut the “infrastructure” bit out of PQE (though it’s far from 100% clear what he is saying).

If you’re interested, search for this phrase of Murphy’s: “The work proposed has always been broadly based”.


Conclusion.
 
Far from adopting PQE (along with its nonsensical infrastructure element), all Krugman is doing is saying that “print and spend on goods and services” (as advocated half a century ago by Keynes and Milton Friedman) is not a bad idea.

Who owns money deposited at banks?

Bit of a minor semantic argument this, but Positive Money claimed yesterday that banks “own” the money that their customers deposit. And Richard Werner claimed likewise.

My counter argument was to ask where the law is that allows banks to refuse to return depositors’ money or refuse to honor cheques even when there is money in relevant accounts.

I’m claiming that banks only BORROW money from depositors, and they have approximately the same rights over that money as anyone who borrows anything from anyone else. For example, assuming the money goes into an instant access account, the bank has a very definite obligation to return the money to the depositor on demand, or honor a cheque drawn on the bank by the customer assuming there are funds in the depositor’s account.

Richard Werner answered by saying there are laws (unspecified) which mean the bank does not actually have an obligation to return the money on demand, but admits that the bank’s reputation would be trashed if it failed to return money on demand.

So I’m resting my case. Ownership means having total and complete control over something. But, banks (whatever the law may say) are in fact under an obligation to return money to depositors on demand and to honor cheques. And if you are IN POSSESSION of X while being under an obligation to return X to whoever you got X from on demand, then you do not have total and complete control of X. Ergo banks BORROW money from depositors. Banks to not “own” the money deposited with them. 

And now having stuck my neck out, I shall wait to see if it gets chopped off..:-)

Krugman is catching up with Positive Money and the NEF.

Krugman suggests that printing money and spending it on “stuff” is better than traditional QE, i.e. spending it on buying government debt or other assets held by the private sector. As he puts it:

“What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff. That is, run budget deficits paid for with the printing press.”

Just to be accurate (and perhaps pedantic) there’s no reason to confine spending to “stuff”: that is, where SERVICES rather than GOODS seem good value for money, there’s no reason not to buy services. Indeed, the total spent on services in the US is about 50% more than what’s spent on goods, so if services are left out that significantly restricts the amount that can be spent.

Anyway, printing and spending on goods and services is what Positive Money and the New Economics Foundation have long advocated.

Next, Krugman misses out the question as to whether to boost PRIVATE spending or PUBLIC sector spending. That decision, as PM&NEF rightly point out is a POLITICAL decision and should be left to politicians.

That point is a big problem in the US because when it comes to spending decisions, members of Congress spend about a year squabbling before coming to a decision. But that won’t be a problem in several other countries.

Next, Krugman makes the common assumption that “print and spend” should be confined to when the central bank’s freedom to effect more stimulus is limited by low or zero interest rates. That assumption is debatable and is disputed by PM&NEF.

One reason is that it’s hard to see the logic in adjusting JUST ONE form of spending when there is a GENERAL lack of spending / demand. That is, an interest rate change affects just households and firms with variable rate loans and not those with fixed rate loans or no loans at all.

That makes as much sense as doing helicopter drops, but only on households where at least one person is bald, or one person is a Buddhist, or is a football fan.

Bailing in bonds is messy.

The Financial Times Lexicon says:

“Bail-in regimes have unnerved bondholders because they are not traditional bankruptcies, which have strict rules and a court-supervised process that mean creditors are ranked in order of repayment precedence, and those in each group must be treated equally. Bondholders and many bank executives warn that such moves could have negative consequences for the wider economy.”

So how about this for a simpler and clearer alternative.

When a bank is unable to repay bondholders on maturity of their bonds, the bank must cease granting loans. That means there will be a net inflow of money to the bank because loans will continue to be repaid while no money flows out in the form of new loans. The bank will repay bondholders as and when it can from that inflow of funds.

If it becomes clear that loans yet to be repaid will not be enough to repay bondholders in full, the bank must be wound up.

The Overton Window and so called extremism.

Phil Burton-Cartledge, the sociologist, makes the point that the BBC is incapable of any sort of rational analysis of unusual / odd / original / extremist views. That is, the BBC is biased towards the centre-ground: as Phil points out, rather than analyse the views of the far left or far right, the BBC does what Phil calls “hatchet jobs” on them.

What Phil’s article fails to mention, is that that phenomenon has been going on since the world began. That is, the Overton Window has existed ever since the world began. 

The Overton Window is a name given to the fact that in every society, only a very limited range of views are acceptable. And the reaction of respectable centre ground folk to anything outside that narrow range is to shout, scream, stamp their feet, arrest or insult anyone expressing unusual views and so on. Of course the screaming and stamping of feet, insults and so on are expressed in polite pseudo-sophisticated language in articles in respectable newspapers and similar arenas, but screaming and stamping of feet are what those articles boil down to.

A classic example is the hundreds of articles in the left of centre press that have appeared over the last five or ten years which label anyone wanting a significant reduction in immigration as “racist” or “xenophobe”. Those two insults / criticisms are fine of they’re substantiated. But they never are.

And wanting a reduction in immigration is not even right outside the Overton Window: it’s only outside the political left’s Overton Window. 

So in fairness to the BBC, they are nowhere near the first bunch people to suffer from the Overton Window syndrome.

If you’d suggested in Ancient Egypt that building pyramids was a waste of time, you’d have been strung up from the nearest lamp-post or the Egyptian equivalent of a lamp-post, whatever that was. And if you’d suggested in ancient Rome that there was something wrong with having lions eat Christians, you’d have been in big trouble.

Actually there WAS a priest who campaigned in ancient Rome against the “lions eating Christians” carry on: he had his head chopped off for his troubles.

Deluded peoples’ quantitative easing.

The world’s leading authority on peoples’ QE, or should I say “Deluded Peoples’ QE” (DPQE), has now descended to near incoherence. I’m referring of course to Richard Murphy. 

In the comments after this blog post of his, he claims that DPQE, far from ever having been aimed almost exclusively at infrastructure, always aimed to direct money at a wide variety of types of spending. (If you’re interested, search for the phrase “The work proposed has always been broadly based”.)

Well that’s news to me and numerous others. If you do quick bit of Googling you’ll find numerous articles by leading economists under the impression that the deluded people advocating DPQE have always advertised it as being aimed primarily or exclusively at infrastructure. 


DPQE can fund a million homes for migrants?

The other bit of amazing news from the high priest of DPQE is that DPQE can fund a million homes for the flood of immigrants / refugees currently entering Europe.

 What – build a million homes just like that?

There’s just one teensy problem there which is that the UK is ALREADY SHORT of construction skills at the CURRENT rate of house building which is in the low hundred thousands a year. (150,000 in 2014 according to this source.)

Of course additional bricklayers, site supervisors etc can be trained, but that takes years (about ten years if you want a decent building site supervisor with several years’ experience). And of course relevant skills can be imported. But we already have freedom of movement in Europe, as Murphy presumably knows – or perhaps he doesn’t. And the UK’s shortage of construction skills exists DESPITE that freedom of movement. So you won’t get a huge additional number of skilled people from that quarter.

I’m all for increasing the number of houses we build. There’s no big problem in doing that. But it’s plain impossible to quadruple the rate of construction in two or three years.  

BBC trotts out the old nonsense about immigrants solving the dependency problem.

See here.

I'm sick the back teeth (as are others) of pointing out that young immigrants are not a long term solution to the dependency problem. (That’s the fact that the population is aging, thus the pensioner to “people of working age” ratio is rising.) Reason is stark staring obvious: young immigrants themselves eventually grow old.

And anyone who doesn't understand that needs to take an IQ enhancing pill.

In fact several studies have been done into exactly what happens if a country relies on young immigrants to keep it’s dependency ratio constant: the result is a catastrophic rise in the population – something like the population doubling every thirty years or so.

Moreover, with the spread of 21st century medical knowledge, drugs etc to less developed countries, those countries will also have a dependency problem in about twenty years time.

And to add insult to injury, it’s very questionable as to how serious the dependency problem really is. That is, increases in output per head comfortably exceed the rate at which the dependency ratio is deteriorating. Thus while that deterioration obviously means a decline in living standards ALL ELSE EQUAL, the reality is that “all else” is not “equal”. 

That is, the deteriorating dependency ratio hinders the rise in living standards A BIT. But it does not stymie it anywhere near totally and completely.