Nurse! @richardjmurphy needs his pills again!

Gillian Tett and Paul Mason sem to suggest there are three solutions to our economic crisis in their discussion in the Guardian today. They are inflation. to write off the debt; default which writes off the debt, or forgiveness that is in effect consensual default.

Serious economics types discussing matters seriously. Excellent. Then the Murphmeister:

I’d add a fourth option, which is, of course, collecting tax that is due which has much the same effect as when during the post war period growth and debt repayment were managed in no small part by collective saving in government bonds.

Now let us leave aside all that stuff about how what he thinks tax which is due is tax which isn\’t and so on. Let\’s just look at this through the Keynesian prism shall we? You know, the economist that Ritchie sees himself as the intellectual heir to.

So, we\’re in a slump and the correct reaction to a slump is fiscal expansion. Yes?

Good, now, fiscal expansion means that the gap between what the government spends and what it collects in taxes must grow. We want to see a larger, negative number here. We want the deficit to rise, yes?

I\’m not paying games here, am I? This is a reasonable pencil sketch of exactly what Ritchie says we must be doing?

Excellent, so, going and collecting more taxes is contra-indicated, isn\’t it? Collecting more taxes (whether they are due under current law but not paid or whether we raise rates to make more due) would be known as fiscal contraction: exactly the opposite of what Ritchie himself says we should do.

However, it does get worse: this is the retired accountant from Wandsworth we are talking about after all:

A fifth option would, of course, be redirecting £80bn of pension saving a year in the UK into such bonds, in no small part (which would also give a higher rate of return and substantially lower investment cost for pensioners than they have enjoyed for a decade or more).

Great. Let\’s put it all in 30 year gilts. Currently paying 3%. Umm, what\’s RPI? 5.6% isn\’t it?

Ah, so, I should save for my pension by putting £100 into gilts so that if current conditions continue then in 30 years time I have £45.37 should I?

Hmm, not quite the right calculation but it gives an idea of cumulative losses to inflation at least.

But wait! It really does get worse!

The risk of war as a result of the current chaos and a resultant increase in far right nationalist protectionism built around dogmatic pursuit for ideological reasons of the extreme austerity of the sort Osborne proposes is very real:

So we have to beware nationalist protectionism. OK, so, how should we beware nationalist protectionism?

In the face of that it is the duty of politicians to be courageous. They have to now tackle feral finance. They have to push through measures that constrain out of control markets. They have to take radical action to claim control over some capital made in the course of creating the current chaos as a price of containing it, whether that be by wealth taxation, direction on pension fund investment, the introduction of capital controls

Yes! capital controls! We should fight nationalist protectionism by having nationalist protectionism!

So, to fight these perilous times of excessive austerity, bad investment returns and nationalist autarky we should have more austerity, worse investment returns and nationalist autarky.

Nurse, better get the big bottle of pills for Mr. Murphy.

Ritchie Tweets in response:

So wrong, as usual. Collecting tax from rich and spending is would be fiscal expansion and / or deficit reduction at same time

Nurse, better make that the large bottle of large pills.

And more!

Capital controls are not protectionism – they\’re ensuring the state has the right to spend as it wishes as per electoral mandate

Pills to 11 Nursey

25 comments on “Nurse! @richardjmurphy needs his pills again!

  1. I agree with you most of the time about Richard Murphy but doesn’t he have a point on collecting taxes.

    Greeks have (I think) something like E200bn in Swiss bank accounts. Let’s assume that most of this hasn’t been taxed in the legal way.

    In what way is transferring, say, E100bn of this back from the gnomes of Zurich to the Athens tax man and hence Greek government going to result in fiscal contraction in Greece ?

    It might have a (minor) impact on Swiss bank balance sheets but I doubt the Greeks will be much impacted by that.

  2. shinsei – basically you are suggesting that Greece get a grip on their citizens who are evading tax. That is sensible but probably not what the Murph-meister has in mind.

  3. If I were a Greek I would also attempt to avoid tax. Giving a government that is so clearly incapable of not wasting money more money doesn’t sound like a good idea for anyone except the government and the ones the money is wasted on (aka public “servants” and unions)

  4. I thought they were talking about the UK?

    Regardless, does it matter how much money you give to these governments? It seems pretty clear to me they’ll squander whatever they can obtain.

  5. The money in those Swiss bank accounts isn’t actually sitting in the vault. It’s out on loan. There’s the problem, you see. Everything in the economy is connected to everything else. There isn’t a magic pool of idle money to dip into.

  6. ” …[Keynes] the economist that Ritchie sees himself as the intellectual heir to”: now you’re just being sarcastic. Cruel, cruel boy.

  7. “…during the post war period growth and debt repayment were managed in no small part by collective saving in government bonds”

    Huh? How can government debt be repaid by investing in more government debt?

    Much of the debt disappeared through inflation. So the savers lost out. Again.

  8. We-ell – once again I have to scrape up my limited knowledge of macroeconomics (and Keynes). Wouldn’t rich people’s marginal propensities to consume and to save be relevant here? If the rich simply sit on their assets, having the government take some of them away and convert them into spending would be an expansion of demand, would it not?

  9. @11
    Refer to @6 above. They’re not sitting on the assets. The assets are out in the real world as the loans that finance businesses. Tax the assets away & the capital investment business is crying out for disappears.

  10. ‘Richard Murphy (53) is a chartered accountant and economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”.’
    I quote direct from his website I could not have made it up…

  11. Keynes is widely misunderstood mainly as governments, money printing advocates & statists cherry pick the bits that suit their agenda. I should really read his work but one of Mises’ books (The Theory of Money and Credit) was enough for me this decade lol

  12. “direction on pension fund investment”

    I can’t imagine where the government might direct them to invest the money…

  13. How do you become a chartered economist?

    Tim adds: I don’t that economists have a chartered institution so I don’t think you can.

  14. “The money in those Swiss bank accounts isn’t actually sitting in the vault. It’s out on loan. There’s the problem, you see. Everything in the economy is connected to everything else. There isn’t a magic pool of idle money to dip into.”

    Out on loan to Swiss companies and people. Highly unlikely to be loaned to any company doing business in Greece ?

    I doubt Switzerland would miss the investment much whereas Greece would benefit markedly.

  15. Swiss yields are not particularly attractive. Now their are some foreign government bonds yielding 7%+…………..

  16. Swiss yields are not particularly attractive. Now there are some foreign government bonds yielding 7%+…………..

  17. Single Acts of Tyranny

    I bet you can……but actually, RM doesn’t necessarily have gilts in mind. His paper on pension reform recommends pension investment in, among other things, local government bonds (muni-style, presumably) to fund urban regeneration, and green technologies. He has suggested that 25% of pension contributions should be redirected to these.

  18. In fact the economic path demanded of Greece and others in the Eurozone is the direct opposite of Keynsian fiscal expansion – and it includes substantial tax rises and action to collect taxes currently being evaded. Presumably RM would be in favour of this. Would he also approve of the resulting additional tax take (assuming it is achieved) being entirely spent on servicing debts, which is where it would inevitably go? There’s spending, and then there’s spending…..

  19. Unfortunately Murphy doesn’t understand what Keynes actually said. What few realise is that Keynes renounced his policies and follows a few months before he died stating that while the policies may have worked during the war they did little in the emerging economic landscape.

    As for Murph wishing he was Keynes intellectual heir it is a laughing matter. Murph does not make it in all seriousness 1% up the ladder of Keynes. The two can not be mentioned in the same book, let alone the same page. Murph is not an economist in my opinion, he is a self promoting prat.

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