Err, no

Thorstein Veblen was a cranky economist of Norwegian descent who coined the phrase “conspicuous consumption” and theorized that certain products could defy the economic laws of gravity by stoking more demand with superhigh prices.

A Veblen Good is where the high price makes it more desirable. A Giffen Good is where a higher price increases effective demand.

iPhones are not Giffen Goods.

What, actually, does “Beloved” mean?

Why is beloved Joe Biden trying to squash a progressive debate?
Everybody loves Uncle Joe! But he wants to shut down the debate on Universal Basic Income with stern Dad politics

I think with respect to Joe Biden, that “beloved” means yes, sure, he’s an idiot but he’s our idiot, OK?

A slimmer and less articulate version of John Prescott perhaps.

Ritchie on GERS

As I predicted in the link, above, there was remarkable unity amongst those giving evidence. It was agreed that GERS now misses the point and further investment in it makes little sense. The consensus was that developing a system that assumes, in effect, that an independent Scotland which does not exist would continue to function as if it were still a part of the UK is a complete waste of time. Apart from some rather pointed questions on GERS from Jackie Baillie MSP (who seems to be a GERS enthusiast) to me, which did not take us very far because, as I pointed out, I could not give her precise answers to questions that GERS data would not permit to be answered in the way she demanded, the entire focus of discussion was on what to do to move on to delivering better data.

We have video of this event!

Perhaps we could remind Richard J Murphy of something?

It is known, after all, that this issue was discussed by the auditors of all banks in 2008. This was revealed in parliamentary interrogation of them some years ago when it was also hinted that assurances on bail outs were, in effect given, and were relied upon. But that was not enough in the case of HBOS and it was not referred to in the accounts.

In that case questions as to whether there was an unspecified standard in play here, or whether the standards were simply inadequate, or whether the FRC feels it can simply ignore obvious attention to an obvious failure referred to it by a parliamentary committee are all in play because what is beyond any reasonable doubt is that there was an audit failure.

In that case I sincerely hope that this issue returns to parliament. Auditing deserves to be in crisis over this issue. The Treasury Committee needs to bring that crisis specifically into the open, and add the role of the supine FRC into its remit. Then this failure may be subject to appropriate review. Right now it is not.

OK. So, let us ponder what an audit is and what it is supposed to do:

Why do auditors seem to make such a poor job of spotting fraud? One factor, says Richard Murphy, a partner at accountant Murphy Deeks Nolan, is a massive expectation gap about what auditing can and can’t do. Despite unshakeable general assumptions to the contrary, he says, auditing (like accounting in general) is a subjective, not objective, discipline representing an opinion, not a certainty.

‘Put five accountants in a room with the raw figures,’ says Murphy, ‘and they’ll come up with five different profit figures, all legitimate. Accountants and companies understand that, but regulators, users of accounts and governments want it to be black and white.’

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The basic function of an audit as currently practised is to confirm that reported transactions actually took place, not to root out dishonesty. Current thinking in corporate governance puts increasing responsibility for the latter on a company’s directors.

‘Deep down, every auditor knows he is on a hiding to nothing,’ says Murphy. ‘Every time he signs off a “true and fair view”, he knows that another view could be perfectly possible.’

And just possibly someone signing off on an audit in February 2008 is not supposed to know that the financial markets are going to go kablooie in October 2008. Just a thought, eh?

I would, of course, hope That Richard J Murphy will be asked to give evidence to any such Treasury Committee investigation. And be asked about his stated views on the value and purpose of audits.

The Senior Lecturer misses the point

With Corbyn’s “People’s QE”, the Bank of England would print money via digital ledger entries, similar to traditional QE, to either directly buy HM Treasury’s debt issuance, or directly transfer money to Treasury to pay for government expenditure. (Adam Posen, who served on the Monetary Policy Committee of the Bank of England, once suggested something similar.)

Ben Bernanke’s essay on Milton Friedman’s “Helicopter Money” proposal explained how the Fed would print money to pay for increases in Federal expenditure, tax cuts, or purchases of private assets.

Both of these proposals could infringe on central banks’ hard-won monetary policy independence by turning them into on-demand cash machines for fiscal authorities, although both have the support of at least some central bankers. It would be difficult for monetary authorities to terminate debt-financed fiscal expansion after it was set in motion: social pressure would make an exit politically difficult, for opponents to debt monetization would be labeled as “opponents to making QE fair again”.

People’s QE, of which I was the originator, is alive and well and apparently has the support of some central bankers. Let them step forward please: we need them.

Note how he skips over the problem of reversibility, the very thing which dooms Peoples’ QE as against normal QE.

And, of course, if it’s the same as Friedman’s Helicopter Money then Ritchie didn’t invent it, did he?

Giggle

The decision to increase the minimum wage in Seattle may be leading to less hygienic restaurants in the city, according to a working paper from a group of economists.

A trio of professors at Ball State, Villanova, and Indiana University Purdue University Indianapolis (IUPUI) tracked the change in health code violations reported in Washington state’s King County, where Seattle is located, since the city raised the minimum wage.

The researchers told NPR on Wednesday that because different parts of King County raised the minimum wage at different times, they were able to track the violations in Seattle as the minimum wage changed in each area. Seattle’s minimum went from about $8 an hour in 2010 to about $13-$15 an hour this year.

“We find an increase in real minimum wage by $0.10 increased total hygiene violation scores by 11.45 percent,” the professors wrote.

So people economise on the employment of more costly labour, do they?

Heavens To Betsy, who would have thought it?

This seems reasonable enough to me

The Treasury Select Committee has questioned a decision by the UK audit watchdog to clear KPMG over its work with HBOS just before its rescue, with chairman Nicky Morgan demanding a full explanation as to why the auditor has been allowed to get off scot-free.

So, why?

KPMG audited HBOS’s accounts in 2007 under the assumption that market conditions would not worsen and the bank could fund itself, the FRC wrote in its conclusion. However just over six months after the accounts were published Lehman Brothers filed for bankruptcy, causing turmoil in global financial markets, and HBOS was taken over by Lloyds.

“The extreme funding conditions which arose in October 2008 were not anticipated,” the watchdog said, adding that market conditions when the accounts were published in February 2008 did not make the auditor’s assessment of HBOS seem unreasonable.

As the Senior Lecturer keeps insisting, financial markets cannot deal with uncertainty. An audit isn’t really the place to predict implosion of the interbank market, is it? Not that the Senior Lecturer will go onto say that of course…..

Monbiot does have a way with evidence, doesn’t he?

The EU decision to replace petrol engines with diesel, though driven by German car manufacturers, predates her premiership. It was a classic European fudge, a means of averting systemic change while creating an impression of action, based on the claim (which now turns out to be false) that diesel engines produce less carbon dioxide than petrol.

Wait, what? Diesel produces more CO2 than petrol? What aberration of physics is this? All is explained in the report George references:

The main argument of the car industry to continue with diesel is its lower CO2 emissions. But the report analyses
evidence and concludes an average diesel car produces over 3 tonnes more CO2 than petrol over its lifetime.
This is due to:
● higher mileage (4% more due to cheaper diesel fuel, or rebound effect)
● More intensive refinery processes for diesel fuel
● heavier engines
● High GHG emissions of biodiesel substitutes when ILUC emissions are factored in.

This analysis does NOT take into account all of the additional km s diesels are driven.
New direct injection gasoline engines are now significantly more efficient closing the gap with diesel. The average
CO2 emissions of new diesel cars (119g/km) are only a few grams/km lower than an average (often less powerful)
petrol car (123g/km). If the Euro 2,000 cost premium of diesel over petrol car is taken into account gasoline cars
already outstrip their diesel counterparts. For example hybrid systems are now no more expensive than diesels (and
cheaper in some markets) but average 89g/km. In the medium term the opportunities to lower CO2 emissions from
cars are primarily from gasoline and electric solutions. To 2050 electric is the most cost effective technology. Since
diesel is not better for the climate than petrol there is no justification for its preferential treatment.

Because the Greenies insist that diesel have biodiesel in it, and biodiesel is higher emission than fossil fuel, therefore diesel has higher emissions. Plus, either people who have cheaper fuel drive more or, people who drive more choose the option with cheaper fuel.

This is not the same as saying that diesel emits more than petrol.

Oh, and, other technologies are now becoming more efficient. Which is great, but presumably they’ll suffer from the same rebound effects etc?

But this could be the least of the environmental disasters she has engineered. For this lethal concession to German car companies was predated by an even worse one, in 2007. In that case, her blunt refusal – supported by the usual diplomatic bullying – to accept proposed improvements in engine standards forced the European commission to find another means of reducing greenhouse gases. It chose, disastrously, to replace fossil fuel with biofuels, a switch Merkel has vociferously defended.

Merkel and the European commission ignored repeated warnings that the likely consequences would include malnutrition and massive environmental destruction, as land was converted from forests or food crops to fuel production.

As I recall that was egged on by every environmental organisation on the planet. It was only very late in the process, even afterwards, that the likes of FoE and Greenpeace woke up to the idiocy they were insisting upon.

Is this the worst? It is hard to rank such crimes against the biosphere, but perhaps the most embarrassing is Germany’s shocking failure, despite investing hundreds of billions of euros, to decarbonise its electricity system. While greenhouse gas emissions in other European nations have fallen sharply, in Germany they have plateaued.

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The reason is, once more, Merkel’s surrender to industrial lobbyists. Her office has repeatedly blocked the environment ministry’s efforts to set a deadline for an end to coal power.

Well, no, not really, It was the idiot decision to rule out nukes at the same time….again egged on by every environmental organisation on the planet. George himself being an honourable exception I seem to recall.

Sadly, Danny Finkelstein gets it wrong

Clearly and obviously wrong as he’s taking Robert Reich as a serious analyst of the economy. Paul Krugman dispensed with that error over 25 years ago.

The general idea that the rules make the market is true to some extent. What gets missed here is that if the rules end up banning some part of the market then it doesn’t disappear, it just goes off to where there are no legal rules. The drug and prostitution markets are clear enough evidence of that. Thus the argument is not true in that wider extent – the market is, the rules don’t in fact define it, they define only the legal part of it.

Which is, in large extent, Reich’s basic error, to believe that by tweaking the rules we can change the underlying market. We can’t – we can only change the legal and visible part of it and even then only at the margin.

At which point the two specific examples Finkelstein uses:

“We Conservatives said that if a minimum wage was introduced, it would cause increased unemployment but it didn’t. Why?” and “How is it that chief executives are earning amounts that are surely in excess of those necessary to do their jobs?” And if these questions seem intriguing but wonkishly irrelevant to a government in immediate distress, I’d like to explain why they aren’t.

On the minimum wage, from 2005:

Tony Blair today announced plans to cut the jobs and hours of low-paid workers.
He’s going to raise the minimum wage, from £4.85 an hour to £5.05 in October. This as the Low Pay Commission recommends in its report today; it also recommends a rise to £5.35 in 2006.
The first rule of economics, of course, says that if you raise the price of something, you’ll reduce demand. And this means shorter hours and job losses for some of the low paid.
The Low Pay Commission pretends this won’t happen. Its chairman Adair Turner says: “Our analysis suggests that previous upratings [to the minimum wage] have largely been absorbed without adverse effects.”
Can I give Mr Turner some advice? Try reading your own report matey.
In particular, appendix 3, which starts on page 213 of this pdf. It contains a survey of employers who were affected by the rise in the minimum wage in 2003. It shows that: 37 per cent of them cut staffing levels, whilst only 4 per cent raised them; 31 per cent cut basic hours worked whilst 3 per cent raised them; 28 per cent cut overtime hours; 81 per cent said their profits fell; and 63 per cent said they raised prices.

This, of course, is exactly what basic economics would predict. It corroborates this research, which shows that where the minimum wage bites hard – for example in care homes – it does reduce labour demand.

We can still go on and argue about whether this is a good idea and all the rest but what we cannot do is try to insist that the minimum wage has no effect upon employment. That basic contention that it doesn’t is simply an untruth.

As to those high wages, we also have evidence that they work:

This hypothesis is verified by results showing that US firms substantially cut down on the scale of assets and workforce to increase return on assets following leadership changes, whereas Japanese firms tend to work on reducing liabilities. Despite excelling in technologies, organisational management, and human resource management, Japanese firms seem to have lower earning power because CEOs, who are responsible for corporate management, do not prioritise profit maximisation. Such tendency leads to a loss of shareholders’ equity and inefficient usage of firm resources, causing a major negative macroeconomic impact.

US CEOs are, famously, paid rather more and rather differently than Japanese.

The essential assertions that Reich makes to bolster his case simply are not true. Which really isn’t a good logical base upon which to build a political or economic system. Finkelstein should know better quite frankly. For as Krugman has indeed pointed out Reich really doesn’t grok economics in the slightest.

Ain’t this a bio?

ABOUT THE AUTHOR
Jon Bloomfield is an Honorary Research Fellow at
the University of Birmingham and a policy
specialist on Europe. For ten years he was Head of
Birmingham City Council’s European Division;
then responsible for European affairs at the West
Midlands Regional Development Agency.
Currently, he advises Europe’s largest climate
change programme. Previously he was on the
Editorial board of Marxism Today and a supporter
of Charter 77.

Having done nothing useful all his life he’d like to pontificate……

Basically, four broad options are available to
the country: the hard Right’s favourite of the
UK as a lightly-regulated, offshore tax haven
to Europe with a renewed, subordinate
relationship with the United States; reversing
the referendum decision now, as argued by
some; a go-it-alone ‘Keynesianism/socialism
in one country’, favoured by the nationalist
Left; or a new cooperation arrangement
between the UK and the European Union,
colloquially referred to as ‘soft Brexit’. This
article examines those options and argues from
a Left-wing perspective the case for the latter.

Rilly? I’ve spent my life having meetings about the EU. Lord forbid that spending a life having meetings about the EU should stop being a well paid profession.

So, the Nazi punched out in Seattle. Someone’s going to jail, right?

Anti-Fascists Used Twitter To Find A Neo-Nazi Walking Around Seattle And Beat Him Up

So, idiot wandering around Seattle wearing swastika armband, mouthing off at people. Twitter antifa vigilantes track him down on the street then celebrate as he’s punched out.

The person using the @teethnclaws account asked not to be identified, citing concerns over his personal safety. He said he wasn’t aware of who actually threw the punch, but credits anti-fascist Twitter networks for making it happen.

“I would say that we successfully identified, tracked and coordinated to neutralize a clear and present danger to Seattle. Whether we coordinated the actual punch or not,” he said, “I, for one, applaud the anonymous hero.”

@teethnclaws described himself as an active anti-fascist fighter for the last 20 years and said that the punch in Seattle was the coordinated effort of “horizontal organizing between concerned neighbors.” He said nobody knows who threw the punch and that he wouldn’t help anyone find out.

“When anti-fascists, casual or organized, have their identity broadcast they are put in extreme danger,” he said.

So, pretty clear case of assault (dunno, do the Americans use GBH, ABH?) and conspiracy to perhaps.

Someone is going to jail for this, right? Like, at least, the person who threw the punch? Because it’s not clever, sensible nor even polite to wander around Seattle mouthing off while wearing a swastika armband. But it is also legally going about ones’ personal business and as such merits the full protection of the law. Because that’s how the law works – or at least should do.

And if a jury wants to nullify then that’s up to a jury but the case should still be brought.

Entirely fascinating claim here

While working-class white folks made up Trump’s signature demographic, it was a surge of whites with college degrees that helped him flip notably blue states like Pennsylvania. These college-educated white people, a new survey from the nonpartisan PRRI found, lack empathy on issues of poverty that place them in stark contrast with the blue-collar voters who have been identified as Trump’s base.
White college-educated Americans are far less likely to say poverty is a critical issue — only 37 percent, compared to 47 percent of white non-college-educated Americans and a majority of Hispanic and black Americans (at 52 and 69 percent, respectively). According to PRRI, white college-educated Americans are also less likely than non-college whites to say that children living in poverty is a critical issue to them (49 percent compared to 60 percent). Only 36 percent of college-educated whites say lack of well-paying jobs is a major problem facing communities.
The empathy gap of college-educated whites only widens in regions where Trump excelled electorally, like the Southwest and the Southeast. White college-educated residents of those regions are far less concerned than those without a college degree about the lack of equal opportunity in education. Nearly half of white college-educated respondents (46 percent) told PRRI that it is not a major problem if not everyone has an equal chance in life — a view shared by only 36 percent of those without a college education.

So, the educated portion of the country, those people who might, just, be expected to know which way is up, think poverty in the US is not a problem.

This is a problem because?

So, the Bank of England is quite clear in its response

Dear Mr Worthington

Thank you for your further email of 15 September. Professor Murphy is entitled to his own view, but we at the Bank think differently about QE.

The reason for that, is because at some point in the future, the Bank will sell its government bond holdings back to private investors. And those bonds will then have to be repaid by the government as and when they mature – just as they would for any borrower.

I hope that you can see that this approach is rather different to simply printing money and giving it the government. That is not a policy which the Bank has undertaken and is not what we think of as QE.

Your question regarding the return of interest payments to the government is a very reasonable one. As the owner of government bonds, the Bank accumulates interest repayments paid by the government. We return those monies to the Treasury.

So, there is a portion of the stock of outstanding government bonds that the government effectively no longer pays interest on. You might think of it as a 0% loan. But it is still a loan. Again, I hope you can see that this is different to printing money and giving it to the government.

Regarding whether taxation is necessarily required to finance government spending, the answer is no, it is not. Along with raising money via taxation, governments can borrow money and they can create money outright.

Regarding money creation, we tend to think that while monetary policy (in general) might boost spending for a time, eventually it will push up on prices, and inflation, which brings ‘real’ spending power back to where it would have been without that stimulus.

I hope that answers your question.

Kind regards

At which the Sage of Ely tells us:

First there is the quite extraordinary claim that the Bank will sell its bonds back to private investors. This has not happened yet. Mark Carney gave no hint that it might yesterday but was looking at the long term. And in other places where QE has been used this has not yet happened, although in fairness the US says it might try doing so, which might be useful to prove just why this is such a bad idea when new debt creation for public benefit is so much more useful. And when the only direction of travel so far has been literally trillions of pounds, euros, dollars or yen (it does not matter which currency you use) going into QE purchases and precisely none going the other way, to rely in this argument is, I would suggest, pretty desperate. To imply that all debt will be sold back is worse than that; it is right now an utterly implausible claim.

So, every central bank says it will be sold back (although a little twist, it’s far more likely to be not rolling over maturing debt, which has the same effect. Treasury must now issue new bonds to public to pay off those maturing bonds).

This is extraordinary and unthinkable because…..well, because the Senior Lecturer says so seems to be the argument there.

Adair Turner has argued that in practice it should be recognised that this debt has been monetised. I agree with him. In view of what Mark Carney said yesterday I think deep down he would also agree. There is no chance that all this debt will actually be resold to the public. To claim that it will be as if it is a fact in the way the BoE does here is wholly inappropriate. They have a duty to talk about the world as it is, and not about a fantasy that clearly does not exist.

We actually expect the Federal Reserve to announce its schedule for doing this tomorrow. This might be something of a shock to Snippa but there we are.

Second it’s curious that the BoE wants to pretend both that this debt exists and that there is no special relationship regarding it with the government when so obviously the interest waiver proves that this is not true. What that waiver proves is not that there is still the same debt as they claim, when that debt was characterised by the interest payment, but that the debt in question no longer exists because its terms have been waived. The original debt obligation has been cancelled in other words, whatever the BoE claim. That is the reality that needs to be faced. The question is what has replaced it. I return to that below.

Well, no, not really. They even point out that a loan at 0% interest is still a loan that needs to be repaid. They actually flat out say this. If I lend you £10 until tomorrow without charging interest you still owe me £10 tomorrow, no?

Third, there’s the oddity that it is claimed that these debts will be redeemed in due course. Technically, of course, some redemptions have already happened. And QE debt has been rolled over despite that technical redemption: new gilts were used to replace those redeemed. Again, reality has been suspended and the BoE needs to admit it.

No, everyone’s been very clear about this. As QE debt matures the Treasury repays it, the BoE uses that money to buy more debt to maintain the QE stock. There is no mystery here at all.

Fourth, there is the curious issue of whether there is a new loan or not at zero interest rate. That’s open to question for reasons already noted. What there undoubtedly is is a debt. And on this issue the BoE really should read its own bank notes. Money is a debt paying zero interest. That is one of its major characteristics. So the BoE is in this case party to a zero interest rate loan that it claims is not money because it claims it is a loan, when all money is a loan because all money is in reality debt that is ultimately underpinned by the government on the basis of its ability to raise future taxation revenue, which is what also underpins the value in this relationship. Far from the existence of this loan proving there is no money created in in this relationship I think it precisely proves it does create money, in precisely the usually accepted form that money has. The BoE has, I think really shot itself in the foot here.

But everyone agrees that the BoE has been creating money. That’s why the measures of the money supply have been shooting up. All of that QE is in the M0 and M1 measures of the narrow money supply. They’re flat out insisting that they’ve been creating money, that’s what QE is! Here is the narrow money supply (slightly different from M0 but not very).

Monthly average of
amounts outstanding
(on Wednesdays) of
Bank of England
Banking Department
sterling reserves
balance liabilities
(in sterling
millions) not
seasonally adjusted
LPMBL22
[a]
31 May 06 24408
30 Jun 06 22089
31 Jul 06 20009
31 Aug 06 19374
30 Sep 06 18651
31 Oct 06 18725
30 Nov 06 17698
31 Dec 06 20205
31 Jan 07 18765
28 Feb 07 17671
31 Mar 07 17687
30 Apr 07 18148
31 May 07 17543
30 Jun 07 17940
31 Jul 07 22280
31 Aug 07 18339
30 Sep 07 24661
31 Oct 07 22706
30 Nov 07 23258
31 Dec 07 23868
31 Jan 08 23779
29 Feb 08 22801
31 Mar 08 25688
30 Apr 08 26647
31 May 08 27511
30 Jun 08 28319
31 Jul 08 27942
31 Aug 08 28696
30 Sep 08 36309
31 Oct 08 48367
30 Nov 08 45621
31 Dec 08 43098
31 Jan 09 40425
28 Feb 09 39467
31 Mar 09 40758
30 Apr 09 71314
31 May 09 98689
30 Jun 09 125383
31 Jul 09 152083
31 Aug 09 142932
30 Sep 09 137382
31 Oct 09 143626
30 Nov 09 148830
31 Dec 09 145830
31 Jan 10 153796
28 Feb 10 156405
31 Mar 10 152275
30 Apr 10 151883
31 May 10 150950
30 Jun 10 149737
31 Jul 10 150051
31 Aug 10 150370
30 Sep 10 144380
31 Oct 10 143153
30 Nov 10 143494
31 Dec 10 139953
31 Jan 11 139245
28 Feb 11 138500
31 Mar 11 135420
30 Apr 11 132537
31 May 11 131523
30 Jun 11 128903
31 Jul 11 127196
31 Aug 11 127632
30 Sep 11 124730
31 Oct 11 131759
30 Nov 11 151509
31 Dec 11 163905
31 Jan 12 173512
29 Feb 12 189319
31 Mar 12 202273
30 Apr 12 218099
31 May 12 230390
30 Jun 12 228207
31 Jul 12 235349
31 Aug 12 251655
30 Sep 12 262294
31 Oct 12 274873
30 Nov 12 281259
31 Dec 12 275684
31 Jan 13 274377
28 Feb 13 277302
31 Mar 13 278693
30 Apr 13 285130
31 May 13 288784
30 Jun 13 289740
31 Jul 13 293575
31 Aug 13 296482
30 Sep 13 295104
31 Oct 13 299561
30 Nov 13 302225
31 Dec 13 298828
31 Jan 14 300032
28 Feb 14 304469
31 Mar 14 300341
30 Apr 14 301449
31 May 14 304891
30 Jun 14 304105
31 Jul 14 303621
31 Aug 14 303570
30 Sep 14 292432
31 Oct 14 299984
30 Nov 14 304391
31 Dec 14 300587
31 Jan 15 303573
28 Feb 15 306701
31 Mar 15 305112
30 Apr 15 308012
31 May 15 315381
30 Jun 15 315525
31 Jul 15 316355
31 Aug 15 317491
30 Sep 15 308627
31 Oct 15 315244
30 Nov 15 315332
31 Dec 15 305858
31 Jan 16 313494
29 Feb 16 315819
31 Mar 16 314101
30 Apr 16 318432
31 May 16 317832
30 Jun 16 316133
31 Jul 16 318926
31 Aug 16 325692
30 Sep 16 320935
31 Oct 16 336625
30 Nov 16 352619
31 Dec 16 367544
31 Jan 17 380671
28 Feb 17 399476
31 Mar 17 415059
30 Apr 17 431208
31 May 17 437395
30 Jun 17 439982
31 Jul 17 446961
31 Aug 17 447672

Now, does that look to you like the BoE is denying that QE has created money? No, me neither.

But it is the fifth claim which is fascinating. To reiterate, the Bank says:

Regarding whether taxation is necessarily required to finance government spending, the answer is no, it is not. Along with raising money via taxation, governments can borrow money and they can create money outright.
Incredibly importantly, the Bank admit that tax is not necessary for government spending. This is the admission of something I have long argued and proves that we do not have tax and spend in the UK (or elsewhere) but instead have spend and tax. The spend comes first and how to pay for it comes second. Borrowing is an alternative.

No, we all agree that spending can be financed by monetising it. We just don’t think it’s a very good idea. Henry VIII proved that one some time ago.

But what is most interesting is the admission right at the end of this paragraph, that the government can create money outright. This is, of course, a fact. The so-called ‘Bradbury pounds’ issued in World War I were Treasury created money that by-passed the Bank of England entirely and were completely accepted as currency (and why not; after all they too were backed by the promise of future tax revenue?). And the Bank is admitting here is that this is possible now. I suspect they had little choice but do so. After all, on their balance sheet they are holding £435 billion of government (or Treasury) promises to pay with no interest due on them. Or you might call it, Treasury created money as the residual balance sheet component of QE, in which the Bank have been an active and knowing participant. This is government created money used to cancel a liability – for the gilts that the BoE nominally holds but on which no interest is paid. Of course the BoE has to agree that the government can create money.

No one has ever denied that the government, or the BoE, can create money. As our narrow money numbers show. We’re all entirely clear and out in the open here. QE is the BoE inventing money. We’ve all been saying so too.

And that is precisely why it then goes into a vigorous defence of why it should not do so, saying:

Regarding money creation, we tend to think that while monetary policy (in general) might boost spending for a time, eventually it will push up on prices, and inflation, which brings ‘real’ spending power back to where it would have been without that stimulus.
This is farcical. £435 billion has failed to do deliver this outcome. Around the world trillions has failed to deliver much inflation. And when Brexit inflation falls out of the system (as it will if negotiations go well) then the need for more stimulus to create inflation in the UK will arise again, and with it demand for more QE. So the bogey of inflation can be ignored.

The farce is in Ritchie’s claim. We’ve increased narrow money from £20 odd billion to £450 odd billion. And this is never, even once the velocity of circulation returns to something like normal, going to create inflation? To put it very mildly indeed I think you’d have difficulty in getting any actual economist on the planet to sign up to that idea.

In that case what’s left in the statement? Well, it’s a simple admission that monetary policy – the whole raisin d’etre of the BoE – does not work. In other words, the whole farce of Bank of England independence has been a waste of time. What was always needed was, and is, fiscal policy. Or People’s QE, I would suggest.

Or, as we might put it, Richard J Murphy’s plans are correct simply because Richard J Murphy has entirely misunderstood absolutely everything that everyone else is saying.

The reality is that the BoE has just made the most extraordinary series of admissions. They will require further thinking and comment. But as I now need to head for Holyrood I leave others to start that process.

Aren’t Scotland the lucky ones.

We’ve clearly and obviously solved all the real problems then

Footage has emerged of United fans singing the song about Lukaku, who signed from Everton in a £90 million deal in July, during the club’s 3-0 win at home to Basle in the Champions League last week. It is understood that United fans repeated the chant on Sunday at Old Trafford when their team beat Everton 4-0 in the Premier League.

The song, to the tune of the Stone Roses’ Made of Stone, makes reference to the size of the striker’s penis. Kick It Out said that the song should be banned because it reinforced the stereotype that black men are better endowed than others.

Within the lifetime of near every reader here black football players in the UK used to be greeted with chimp noises and the throwing of bananas. Today they’re singing a – congratulatory I assume – song about how one of them has a big dick. This might not be quite how the bien pensants think it should be but I find it very difficult indeed to think that this isn’t an advance to a point where the problem is solved.

Guardian economics…..

Putting the direct costs of the pay cap to public services aside, there is also the so-called multiplier effect to consider. This means when you give someone a pay rise, there are larger positive implications for the economy because it can stimulate further rounds of spending. For example, if there is a £2bn increase in wages for NHS workers and they spend just half of this in shops, then shopkeepers will also receive income.

In turn, this increase in income will mean shopkeepers are more likely to employ more people and increase salaries themselves. The treasury would then not just receive more taxes from higher wages among NHS staff, but also the VAT on extra goods sold, and on higher income taxes from jobs created elsewhere.

The multiplier effect is thought to be higher for those on low-middle incomes, as they are much more likely to spend it than save it or put it in a tax haven. According to a Unison study based on International Monetary Fund figures, every 1% increase in public sector pay would generate between £710m and £820m for the government in increased income tax. Of course, there are debates about just how big these multiplier effects are – but we must stop thinking about a pay rise as purely negative for the public purse. We all know that our public service workers are worth every penny – but these pennies go well beyond their pay packets.

It’s not economics unless you consider opportunity costs. That money has come from someone. Might be tax, might be borrowing, but those who had it would have also spent some portion of it into the economy. Even if we say that borrowing means it is obviously only coming from savings if those savings weren’t put into gilts then it would have been invested elsewhere instead.

What we actually want to know is what is the effect after this? This is known as the marginal propensity to spend (or save, the inverse). If we take tax off low paid people and give it to low paid people then the net effect is nothing. Because whatever the marginal propensity to spend of the poor is, it’ll be the same or those who lose money as those who gain it. If we take money off the rich then there will be a change. But that change is not the amount of money itself. It’s the difference between what the rich would have spent and the poor do spend. A useful rule ot thumb here is some 15%. Upper middle classes might save 15% of any marginal income, the poor 0%, that’s the amount that spending rises by.

Do also note that this only applies to tax funded increases in such wages. If it’s from what is already being saved well, those savings would have been used to invest in some other thing if not borrowed by government.

The argument is true but it’s a very, very, weak one, with nothing like the power attributed to it.

Dear God, did Polly just say this?

Only consumer debt keeps the economy growing. For reasons beyond comprehension, the Bank of England chooses this cliff-edge moment to announce it will raise interest rates, due to rising inflation. The Bank was set a 2% inflation target, devised in days when high employment triggered wage inflation. No such luck: despite record employment, wages are falling behind prices, with too many low-paid jobs. Price rises are due to the Brexit fall in the pound, inflating imports as the trade balance worsens. Raising interest rates now is leech-doctor medicine, upending indebted households and cutting national consumption.

Raising interest rates is the solution to inflation. We’ve got inflation but we must not raise interest rates?

Sigh.

OK, so the inflation is due to the fall in the £. What does raising sterling interest rates do? Raise the value of the £. What does raising interests do then? Reduces inflation.

Sigh.

Note no comments allowed over there…..

Poor old AC Grayling, well behind the curve

We need to make democracy work in the fight to save the planet
AC Grayling
For centuries, humans have championed the democratic political system. But can it facilitate the radical change needed to stop the potentially annihilating effects of climate change?

And everyone’s got to be re-educated into saving the planet and so on.

What’s completely missing is what we’ve also heard this morning. Assume that you do buy the whole story. We’ve still already turned the corner.

To put it into a bit of jargon. The entire IPCC structure tells us that, using the older SRES, we need to get the economy off the A1FI track and onto the A1T track. Once we’ve done that we’re done, we’ve solved our problem. As best we can see what with the spreaqd of renewables, the drop in solar price, fracking for gas and all that, w are on the A1T, not A1FI. Therefore, we’re done.

It is actually accurate to state that we’ve already solved climate change.