Mary Mellor says UBI should be funded out of new publically created money.

 

 

In a "Brave New Europe" article entitled “UBI: Public Money for a Public Purpose”, Mary Mellor argues that UBI (Universal Basic Income) should be funded out of new publically created money (henceforth “base money”), rather than out of tax on the rich.

In fact she goes much further than that. She says “….basic income and other democratically identified public and social initiatives should be funded by new public money which should then be retrieved by taxation.”

Well assuming the gap between issuing the new public money and retrieving it via tax is relatively short, then that comes to the same thing as the more traditional way of funding public spending, namely collecting the tax first and then spending the relevant money. To take the extreme case, what’s the difference between government collecting £X in tax and spending it a week later, and on the other hand, spending that money first, and then retrieving it via tax a week later? No difference!

Bankers have got politicians and economists suckered.

 

 A central bank can create and distribute whatever amount of money an economy needs. Plus that form of money is TOTALLY safe. But those running PRIVATE banks have convinced politicians and economists that the bulk of the money supply should be issued by those PRIVATE banks and should come about as a result of those banks making loans: that type of money is created when private banks grant loans. That means that in order to ensure the safety of households’ stock of money, politicians have to devote billions of pounds taxpayers’ money to bailing out money lenders, when those money lenders c*ck it  up. 

The naivety of politicians and economists, and sheer brass nerve of money lenders are jaw dropping.
 

 

Richard Murphy makes a video.

This video made by Richard Murphy earlier this year is OK except that near the start he claims that because Bank of England £10 notes say that the bank “promises to pay the bearer the sum of £10” that therefor such notes really are a promise to pay.

 

Now there’s a slight problem there, namely what exactly is the BoE promising to pay? The reality is that if you turn up at the BoE and ask them make good on their promise, you’ll be told to shove off.

That “promise to pay” sentence on BoE notes is actually just a left over from the days when banks (including the BoE) really did have to make good on their promise: they had to supply anyone who wanted it with real gold in exchange for those paper “promises to pay”. But those days are long gone.

So in what sense are BoE notes a promise to pay? Well you could say they are a promise to pay in the sense that they are a totally vacuous promise to pay, but presumably that’s not what Richard Murphy has in mind.

As to what he DOES HAVE IN MIND, hopefully all will be revealed at some stage.

John Weeks’s flawed criticisms of MMT.

 

Hot on the heels of Richard Murphy’s expulsion from the Progressive Economy Forum for backing MMT, I thought I’d see what PEF have against MMT. The answer seems to be not a vast amount. Though there is an article by John Weeks entitled “Fiscal Deficit and Public Debt too Large?”.

In the article, Weeks criticises MMT, though he doesn’t actually refer to it by name, which is odd.

But it’s pretty obvious he’s referring to MMT to judge by this passage: “This question begins with the recent arguments that if governments have control of national currencies — sometimes called sovereign currencies — they can fund their expenditures through money creation.  This view derives from the argument that taxes do not directly fund spending.” Now if that’s not a reference to MMT, I don’t know what is. He really ought to have clarified things there. But never mind. Moving on…..

His basic criticism is the not entirely invalid point that MMT is fine for large countries, but not so good for small ones. However, his article does have weaknesses. 

He says, “funding expenditure via money creation…. the ability to do so requires that the currency be safe from speculation against the exchange rate.  That requires either that the national currency serve as an international medium of exchange (reserve currency) or that the government possesses substantial foreign exchange reserves.”

Well the first flaw in that argument is that the fact of a currency being an “international medium of exchange” will not necessarily protect it from speculative attacks if speculators think the relevant government is incompetent or has got something wrong. The UK pound is an “international medium of exchange” but that didn’t stop speculators forcing it out of the European Exchange Rate Mechanism in 1992.

Conversely, it does not make sense from speculators’ point of view to attack a currency simply because it is not an international medium of exchange, as long as the relevant government (unlike the UK government in 1992) isn't doing anything silly.

 

A virus strikes.

So let’s take a not unrealistic scenario: say economies Worldwide are hit by a virus which we’ll call “Covid-19”. That would mean that every country would need to implement some stimulus. Now as long as a small country whose currency is not an international medium of exchange implements stimulus via money printing, and makes it clear it has no intention of letting its “printing to GDP” ratio exceed that of other countries, why would speculators attack the relevant currency? Darned if I know, particularly if the country concerned has a record of behaving in a prudent manner.  

Or take another not unrealistic scenario as follows. Citizens in the latter small country go into savings mode: the opposite of “irrational exuberance” if you like. The effect of that would be that the value of its currency on forex markets would drift upwards because of the reduced demand for imports, plus unemployment would rise to an unnecessarily large extent.

If the government and central bank of the country had their wits about them, they’d implement enough stimulus to return employment to its previous level. And if they did that via money printing, and again made it clear they intended doing no more printing than was needed to bring their economy back to full employment, then the value of their currency on forex markets would simply return to its previous level, all else equal. Again: no good reason for speculators to attack.

In short, I suggest that a small country whose currency is not an internationally accepted medium of exchange would be able to use MMT as long as it behaves responsibly.

 

Low interest rates.

Another argument put by Weeks is the thoroughly feeble idea that existing low rates of interest are not “sustainable” because “If interest rates remained permanently low, that would require a substantial restructuring of pension funds and private portfolios in general.” Well actually that’s one huge non-problem and for the following reasons.

The money that funds interest payments to savers does not come from thin air: it comes, in the case of interest on government debt, from taxpayers. But taxpayers and “people saving for pensions” are the same lot of people! Thus if interest rates fall, taxpayers pay less tax, so they can allocate the relevant increased income (net of tax) to saving a bit more for their pension. Problem solved!

As to interest on PRIVATE sector bonds, much the same applies. To illustrate, if a corporation can fund itself more cheaply because of a fall in interest it needs to pay on its bonds, that leaves money in the pockets of those buying its products and/or it means more money for its shareholders, which they can devote to saving more for their pension!

 

Conclusion.

I’m not bowled over by John Weeks’s criticisms of MMT.

 

 

 

Positive Money goes all woke.

 

This is the third instalment of a series of articles of theirs on the transatlantic slave trade of two to three hundred years ago.

Now why are they going on about that slavery episode – a crime which now cannot be rectified – while ignoring the 30 million or so slaves in the World right now, a crime which COULD potentially be rectified or at least ameliorated? Well you’d need to be politically naïve not to be able work that out.

Reason is that it’s fashionable in PC leftie circles to trash your own country, culture and race. So for white wokes, criticising whites for imposing slavery on various people, while ignoring the slavery imposed by people with brown faces is just the ticket. Plus for “people of colour”, the latter tendency of wokes to bash “people of whiteness” is a God-send: it enables them to engage in a bit of blatantly racist white bashing.

Moreover the article tries to claim that debts owed by developing countries to former colonial countries are an extension of that colonialism. Well there’s a slight problem there, namely that an increasing number of developing countries are heavily in debt to China, which is not a former colonial power. Thus if other developing countries had not incurred debts for silly reasons to former colonial countries, to what extend would they have gone running to China for loads of lovely money to fritter away?

That’s not a question that the author of the Positive Money article addresses: after all, it doesn’t fit the woke PC narrative does it?

Covid shows that MMT is in the E=MC2 league.

 

Science attaches importance to ideas and equations in proportion to their simplicity and how much they explain. For example Einstein’s theory explains stuff about the orbit and planets round the Sun, plus stuff about why time runs slower for clocks on satellites orbiting the Earth than for clocks which are stationary on the surface of the Earth, and stuff about the behaviour of atoms and similar elementary particles. That’s some achievement.

Likewise, the basic rules of MMT do not need changing or adjusting or adding to in anyway so as to deal with Covid.

That is, the basic rule is that the deficit should be the maximum that is compatible with minimising unemployment while not exceeding the inflation target and not resulting in an excessive rise in interest rates.

Of course Covid has proved a bonanza for windbags with allegedly original ideas as to how to deal with Covid. But arguable that’s all a waste of time.

For example, take furloughing. That has the obvious benefit that it preserves jobs and helps some firms avoid bankruptcy. On the other hand there’s much to be said for abandoning furlough and simply sticking to the basic MMT rule set out just above.

A problem with furlough is that it tends to preserve the economy in aspic. That is, there are some big changes coming our way like an express train: first there is Brexit. Second there is global warming. And third there are quite possibly some PERMANENT changes to work practices stemming from Covid: i.e. more people working from home even if the virus is totally defeated.

That being the case, there is much to be said for letting firms which can’t make it thru Covid unassisted go the wall. After all the assets of such firms won’t vanish into thin air, nor will the skills possessed by those working for them. And that lack of assistance releases assets, skilled labour etc which can be used by firms engaged in the above mentioned new forms of employment.  

As for the UK’s “Eat out to help out” scheme, which was supposed to encourage people to go out to restaurants when Covid had allegedly been beaten in the middle of 2020, what that scheme actually did was to increase social mixing, which helped exacerbate the virus problem.

The BBC’s Dharshini David tries to enlighten us on how to pay for the debt caused by Covid.

That’s in this presentation by her for the BBC. 

She trotts out the usual nonsense that comes from people who think government debt can be treated the same way as a household debt. I.e. she falls for the popular myth that government debt has to be repaid in the same way as a household debt is repaid.

The first flaw in that argument (as I’ve explained a dozen times on this blog) is that government debt does not necessarily need to be repaid in the normal sense of the phrase “repay a debt”. For example the UK’s debt/GDP ratio fell from around 250% in 1945 to around 50% in 1995 without any debt repayment at all!!!

What happened was that inflation eat away at the real value of the debt, plus there was real economic growth. Hey presto: the debt/GDP ratio fell.

But of course it’s possible the post Covid debt gives rise to a need to pay an excessive amount by way of interest on that debt, or (given that the debt is an ASSET as viewed by the private sector), spending and demand get excessive.

That problem can of course be cured by raised taxes or public spending cuts. But that does not, repeat not cut living standards. All it does is to keep demand down to the level that is compatible with minimising unemployment while hitting the inflation target.

But the latter is not the message you get from Dharshini David. The message you get is that we need to raise taxes and hand over money to some mysterious creditor in the same way as a household, after it has taken out a mortgage, repays the bank it got the mortgage from. And that repayment process clearly DOES CUT the household’s standard of living relative to a scenario where it got an interest only mortgage and made no repayment of capital.