Really, Snippa Spud hasn’t got it

Those reports assume that the state is limited by its capacity to tax and borrow
​This completely ignores the fact that the state need do neither. It need not tax to spend. And it need not borrow. It can instead create all the money it needs at the stroke of a computer keyboard. The government asks the Bank of England, which it owns, for a loan and technically it can provide it in unlimited amount. We know this is true. £435 billion of quantitative easing proves it.
We do tax though. That is to prevent new money causing inflation.
And we do issue debt. Partly that’s because EU law, which is a slave to defunct dogma, demands it. Partly it’s because a century ago when we were on the gold standard we had to borrow and no one in the Treasury has noticed the world has changed as yet. And partly it’s because the banking, pension and savings systems needs to be underpinned by a safe place to save – which is government debt. But it’s just a convention and remember that right now the real rate of return on government debt is negative.
So in fact money is no obstacle to social care. We can have as much money as we want and need. And we only need to tax enough to stop inflation. And both are subject to the real constraint, which is having enough available people. If we have them we can afford to look after the elderly. If we haven’t we can’t. But the IFS ignore this economic reality, and even real need, and show their neoclassical economic roots by thinking money is the issue. They also show their neoliberal roots by implying that we can only look after the elderly if private wealth creates the means to pay through tax, which implies they think there is no value in itself in looking after the elderly or those needing social care.
But this is nonsense: the act of creating the money to create the employment to provide the care will also create the means to pay the tax to balance the equation, and if interest gets to be too much, don’t worry: QE wipes out debt and interest. If you doubt me, rest assured that not a penny of interest is now paid on the £435 billion of its own debt the government repurchased.
So, we can afford social care.
And we can afford to pay people to provide it.
All we can’t afford are bankrupt economists who produce nonsense because they don’t understand money or tax, even if the do call themselves the Institute for Fiscal Studies.

We’re not allowed to monetise spending without a Hard Brexit.

36 comments on “Really, Snippa Spud hasn’t got it

  1. So the government can magic up money through QE, which won’t be inflationary so long as we also collect more tax.

    So what’s the difference between that and raising taxes to pay for spending?

  2. “If you doubt me, rest assured that not a penny of interest is now paid on the £435 billion of its own debt the government repurchased.”

    Except that it is. Didn’t Osborne treat it as a government receipt?

  3. We can have as much money as we want and need.

    Indeed, but you can’t have as much value as you want and need.

  4. “They also show their neoliberal roots by implying that we can only look after the elderly if private wealth creates the means to pay through tax, which implies they think there is no value in itself in looking after the elderly or those needing social care.”

    He’s lost me there.There is no value in caring for the elderly. In the same way’s there’s no value in eating a Big Mac. It’s consumption. The destruction of value.

    And he certainly destroys the meaning of : “the banking, pension and savings systems needs to be underpinned by a safe place to save – which is government debt.” Ass’ole got his ideas put into practice,Venezuela here we come. Last thing you’d want to be holding’s govt debt.

  5. Sometimes it’s not possible to do experiments with social or economic policies.

    Except socialism. And every single time socialism has been tried as an economic policy it has;”been proved beyond doubt to be a political, social and economic system that results on every occasion it is applied in an accumulation of power and wealth to a self-appointed political elite, the repression of dissent by social ostracism and criminal laws aimed at thoughts rather than acts, the stifling of industrial innovation, systemic corruption in all public bodies, a consequent systemic inability for the poor to make themselves richer and the bankruptcy of the State.”
    Courtesy of
    http://thefatbigot.blogspot.co.uk/
    who puts it rather well.

  6. ‘no one in the Treasury has noticed the world has changed as yet. ‘
    Isn’t it wonderful that Spud is cleverer than the whole treasury.

  7. The poor chap really has come down with it quite badly.

    BiS/Rob – Indeed.

    And we do issue debt .. And partly it’s because the banking, pension and savings systems needs to be underpinned by a safe place to save

    and if interest gets to be too much, don’t worry: QE wipes out debt and interest

    If he can’t see the obvious consequence of that, it’s embarrassing. From the creator of Corbynomics, and which over 12 million gullible souls just voted for.

    I’m with others of you on this. Whatever the current post-election polls now pretend – if there was a second election at some stage, and with proper scrutiny, I am confident there would be a sudden realisation / marked increase in turnout from those (otherwise normal and sane) who simply didn’t believe (because of the earlier dodgy polls) that Corbyn was even on the radar.

  8. At a time of historically-low interest rates, Greek 10-year bonds are trading at around 6%.

    Since government debt is safe debt, why doesn’t Spudda put his life savings into an apparently safe 6% return?

  9. Rob

    I am thinking of the governmental debt of Zimbabwe – wonder how much that is worth? Or indeed Argentina. In one sense I am laughing out loud. With the coming Corbynite government having made fools of us all it will be amusing to see his ‘gissa job’ pleas getting more earnest. By all accounts Mcdonnell cannot stand to be in the same room as him (Different kinds of evil maybe?) so he is really in the wilderness now!!

  10. Argentine 10-year bonds trading at about 3.7% today and climbing…

    UK trading mostly under 1%.

  11. And we do issue debt .. And partly it’s because the banking, pension and savings systems needs to be underpinned by a safe place to save
    and if interest gets to be too much, don’t worry: QE wipes out debt and interest

    If he can’t see the obvious consequence of that, it’s embarrassing.

    Good spot. A safe investment the State can wipe out whenever it wants.

  12. He’ll probably say that the difference with Greece is that they have no independent currency they can borrow in, so that’s different because reasons.

    Well, yes, it is different, in that the Greeks cannot cause massive inflation because they don’t have their own currency. So they can’t make it *really* bad.

  13. “So in fact money is no obstacle to social care. We can have as much money as we want and need.”

    Ergo, the entire science of Economics – which, remember, is the study of how we manage resource constraints – is redundant, because there are no restraints: we simply print pieces of paper, and more goods appear – just like that.

    Someone please tell me this is not what he’s saying?

    Because it also sounds awfully like the way the youth vote saw things in the recent election debacle. If they really think like that, we’re even more doomed than I thought.

  14. We can have as much money–either physical or electronic– as we like.

    But money is not wealth.

    We need a system that produces as much goods and services as we like efficiently.

    Human desires are infinite so this is next to impossible but free markets are the nearest by the width of the Universe.

  15. If tax is to take money out of the system to prevent inflation, if rich corporations or individuals squirrels theirs away in a tax haven, hasn’t this then helped solve the problem?

    What would be the point of chasing them, closing the tax havens down etc.?

  16. @Peter MacFarlane: “Someone please tell me this is not what he’s saying?”

    I don’t see any other way of parsing it. Normally at some point you’d be forced to say, “but surely he can’t be that stupid?” Then you remember you’re talking about Murphy and realise that yes, yes he can be that stupid (and malign, too, for Murphy is the counterexample to Hanlon’s Razor).

  17. This appeared on my Facebook page “liked” by a left leaning friend. I was not polite about it.

  18. for years he’s been banging on about the tax gap as if it’s a matter of life or death and that the rich are stealing from the poor. He now says it doesn’t matter – just fire up the presses.

    The man’s a poltroon.

  19. The youth vote were duped into thinking there was a shot at ending austerity. On the other hand the adult vote were duped into not telling the youth we hadn’t had any ( austerity ).
    For once you say there hasn’t been austerity, then you have to tell the youth that government spending per head from 2010-2015 is the record for any Parliament and then you have to mention where it went – on pensions, bus passes, public sector redundancy packages, house price rises ( thank you CPRE ) to people who didn’t earn it, de facto handouts to owners of property and actual handouts to owners of agricultural land, people holding PFI contracts signed under Blair/Brown, consultants to help you spend that foreign aid budget, strike prices, renewable heat incentives and wood chip burners, doctors salaries, the list goes on. On aggregate it has been a party for anyone on the government teat.
    But nobody dared told the youth there has been a money spunking festival which they missed out on. They were told we’ve had austerity and that there was a chance to end it. So their Labour votes are entirely the fault of the adults.
    Imv, of course.

  20. @Bongo
    Don’t go saying the last few governments have been buying votes by arranging house price rises to give older people guaranteed unearned untaxed capital gains. Or that the money going into the housing market has been created out of nothing by the commercial banks.

  21. This is amusing reading:

    http://www.globalpolicyjournal.com/blog/02/08/2016/interview-–-richard-murphy

    “…If you don’t learn from experience and change your mind I don’t think you actually achieve much in life.”

    Given your own experience studying economics, how are you approaching your teaching of International Political Economy?

    “My course ‘economics of the real world’ is quite challenging. The focus of the course is to apply some micro and macro-economic, international relations, and international political economy theory, and the history of economic thought. I have said, here is theory and now we are going to add a real world question with it so it is useful for the outside world. I have introduced them to some reports and data and then put them in teams to write a report, which looks very like an academic paper, but also considers the policy implications. The students are divided into teams – and I was surprised to see that most of these ended up being single gender.

    “Curiously, many students had to go back and rewrite their research question as it was hard to find the data. This raised the question – what does this say about the theory? The theory suggests we have perfect information, so what do you do when you haven’t got it?

    “Really the whole focus is making students deal with the idea of uncertainty – in data, in theory, in how to draw conclusions, to interpret and use new techniques and to make them realise that this nice model that most economists use is actually nothing like the real world that you will encounter.”

    What is the most important advice you could give to young scholars of international affairs and economics?

    “Keep an open mind. Make sure it is yours.”

  22. If he gets anywhere near power buy a wheelbarrow and a couple of suitcases to carry your money in. You can marvel about how much money you have as you hand over a ten million pound note in exchange for a loaf of bread.

  23. @DBCReed. No. Every government buys votes. I am contemptuous of big government and want powers from minimum wages to prostitution and planning devolving to local governments, but they are acting on form by vote buying. I’m saying the blame lies with the adults ( me included ) who should know better and to tell the youth that there has been no austerity, explain why and who has benefited.

  24. Reedy:House prices only matter if you are selling–or buying. Since I intend to die where I am any rises in the value of my home are entirely theoretical.

    Just like your IQ.

    If various political fuckwits are arsing about with boosting house prices they need not bother on my account. It won’t get them my vote.

  25. @DBC Reed.

    I’m planning on equity release as soon as I can.

    Then spending it while I can still enjoy it. When I feel myself packing up I’ll swap what’s left for a annuity that dies when I do. So by the time I am old and decrepit I’ll have little money and no capital so what’s by then left of the state can mop up the incontinent mess I leave behind.

    Fuck the younger generation if their “idealism” consists of wanting free everything and me to pay for it.

  26. Can anyone explain how this spend and tax before inflation is supposed to work? I’ve thought long and hard and can’t see how you can get the cash in to the economy to generate growth and then tax it before inflation kicks in.

  27. BiND

    Can anyone explain how this spend and tax before inflation is supposed to work? I’ve thought long and hard and can’t see how you can get the cash in to the economy to generate growth and then tax it before inflation kicks in.

    No? And it also assumes that they even have the will to tax it properly?

    Given that politicians win elections and achieve power by promising toys and free stuff to as many people as possible? Which is a massive disincentive to tax, as that loses you votes?

    If there is no longer any pretence that there must always be a loan for a deposit (ie a counter party), then the currency is essentially finished, in that – given the way of politicians – why would any sane person trust it (or save in it). At least no more than one has to; ie convert your “other currency” to £ to pay your tax bill, when it’s due, and that’s it.

    And, by counter party, one that has to generate real “value” to clear their debt. If they don’t have to perform that, then what does your deposit actually represent.

    I get what happened with QE – a once in a era event, to prevent a possible melt-down / change behaviour, and which must simply reverse at “an appropriate time”. And credibility insists that it must be seen that way?

    But once you start using printing as a routine mechanism for “spend and tax”, in the way that the Murf suggests (ie rather than every deposit / loan having a counter party, by definition as at present, including government debt), then I can’t see how it isn’t a case of game over?

    I don’t believe that that is Richard’s concern, in that sense. It’s all just politics to him – as he has freely admitted before.

  28. If all that stuff the poor and needy – and of course students – need so much can be granted simply by tapping the magic money tree with a wand, then Richard’s justification for taxing the rich disappears.
    Which makes hin an easy target whenever he ventures off his blog and thus no use the John McDonnell at all.

  29. If there is no longer any pretence that there must always be a loan for a deposit

    Clumsily, “pretence” of course is the wrong word. Outside of QE, there always *is* a counter party.

  30. I have, um, a friend, who reads this blog daily but sometimes gets lost in the economic theory. My friend is not a stupid person and knows his way a round a balance sheet and a commodity based business, but would like to know if there is a decent, simple, apolitical economics primer (with actual facts in it rather than opinions) that he can read and perhaps catch up a little bit. Any recommendations? For my friend, I mean, obvs…

  31. If “looking after the elderly is depicted as a profitless burden – when will you all tell the young that this is your plan for them.
    Alternatively when will gas chambers a ‘fair’ and ‘reasonable’ solution.

  32. tried asking snippa why the dup was so obnoxious in his view – got the flannel that he’s not a member of the labour party. This is sophistry – i attended one of his meetings some years ago, organised by labour party held in one of their buildings. He told us he didn’t join the labour party so he could claim to be totally unbiased (nudge/wink no what i mean) he’s still busy shaking the magic money tree. The mans a hypocrit and a poltroon.

Leave a Reply

Name and email are required. Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.