Snippa’s got himself into a tangle here

It’s rather fun to see him not grasping his own points about MMT. Fun in that sense of someone trying to hit the nail and getting thumb:

The government should run a permanent spending surplus, the Liberal Democrats have said in a bid to position themselves as the toughest party on public finances.

Laying out the party’s economic pitch in a speech in Leeds, deputy leader Ed Davey insisted the Conservatives and Labour were offering “fantasies” which would wreck the public finances.

Sir Ed said that if they got into government, the Lib Dems would run a 1 per cent surplus on current spending – meaning that day-to-day costs of public services would be lower than the amount raised in taxes. He claimed a “Remain bonus” would help shore up state finances.

Borrowing would only be allowed to pay for capital investment projects judged by an independent watchdog to generate more money for the taxpayer than their initial cost.

OK, that’s Ed Davey’s claim about what the Lib Dems would do which is, apparently, horribly neoliberal:

First, it means that the government will perpetually reduce the UK’s money supply, because government spending creates that supply.

Umm, why? I anyone aware of any MMT injunction that says that it’s only current spending which increases that money supply? Does investment not do so as well?

For example, “investing” in better schools by raising teacher pay. Does this increase the money supply or not? And there’s not much in Keynesian thinking which says that the stimulatory effect of investment is lower than current spending. Almost the opposite in fact.

That guarantees either vulnerability to commercial banks, who will have to lend more to make good this deficit and so make the economy more unstable at a time when we know private debt is already dangerously high, or it means there will be credit squeezes.

Which is that getting the balls tangled in the mangle. Because if banks do create credit – they do – then we’re not reliant upon government spending for our money supply, are we? Or, if we want pendantry, then we’re relying upon government only for the narrow, base, money supply. M0, not M4. But if that’s true then a reduction in government spending doesn’t reduce the money supply, does it?

Second, it means that the government will run perpetual austerity.

No, that depends upon how much investment they’re going to do, doesn’t it? Government borrowing for investment is indeed expansionary, not contractionary.

Third, this means that what the LibDems are saying is that in the event of another crash resulting in reduced government revenue, as happened in 2008, they will cut all spending to balance the books,

Not necessarily, they might go and announce a massively expansionary investment program. Like, say, the Green New Deal.

Fourth, it means that spending policies – like the Green New Deal – would have to pass commercial viability tests, no doubt enforced by an unaccountable ‘great and good’ drawn from the ranks of commerce because politicians like the LibDems clearly do not have any confidence in their own judgement (which begs the question as to why we should when they don’t?), when such a criteria would clearly not be fit for this purpose.

How dare you ask whether my plan to piss everyone’s money up against the wall is worth it!

And it shows not the slightest understanding of economics, the role of government in society or the nature of money and its relationship to tax.

That’s about Ed or Snippa?

8 comments on “Snippa’s got himself into a tangle here

  1. Tim: When you use MMT, the antecedent is not obvious. Pls say Modern Money Theory or Magic Money Tree. So we will know.

    Or am I the only one who doesn’t know?

  2. We know Murphy’s talking to his publisher about a new book. As he cites MMT so often these days (having been the originator of the theory), wonder if it will feature in this book?

  3. @BraveFart

    Which publisher I wonder. I don’t think the same publisher has been able to work with him more than once.

  4. Sir Ed said that if they got into government, the Lib Dems would run a 1 per cent surplus on current spending – meaning that day-to-day costs of public services would be lower than the amount raised in taxes.

    If the Lib Dems ever mention the word ‘austerity’ again, are we allowed to punch them in the face?

  5. I trust the Lib Dems, more on the economy than the Conservative Party. The Trumpian economic plans of the Conservatives will fail. In Scotland, Manchester and Cornwall, people will steer clear of Trumpeconomics of increasing debt for future generations. –

  6. Pls say Modern Money Theory or Magic Money Tree. So we will know.

    To a good first approximation, they’re the same thing.

  7. “Trumpian economic plans”

    What is this beast you speak of?

    BTW, the U.S. economy has picked up sharply under Trump.

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