Third, the banking sector has, post 2008, needed government bonds as a mechanism to secure overnight deposits.

Not my specialty, but I thought they plonked reserves overnight with the Bank of England now. Is this Ritchie still getting the Repo market wrong?

Try picking the logic out of this

First of all, why is Labour maintaining an independent central bank? This feature, which is an absolute mark of right-wing neoliberal thinking, and which is a legacy of the Gordon Brown / Ed Balls era from which I would have thought John McDonnell was keen to disassociate himself, has three incredibly unfortunate consequences in that it removes economic policy from democratic control, puts bankers in charge, and makes monetary policy the focus of attention when fiscal policy has to be the future direction of all economic policy. The time for economic policy to come back solely under the control of elected politicians within the Treasury has arrived: it is deeply disappointing to see that Labour has not embraced this idea.

Monetary policy isn’t effective therefore government must, democratically, control monetary policy.

Monetary policy isn’t effective therefore we cannot have an independent central bank controlling monetary policy.

Only fiscal policy is effective therefore government must control monetary policy otherwise they’d not be able to use the fiscal policy they already control.

The true logic is that The Tater desires control of monetary policy because he knows a) that it works and b) an independent central bank would use it to offset fiscal policy.

If only Ritchie understood Friedman

Or even money itself:

The UK is expected to have GDP of £2,054 bn this year (table 4.1 here).

In current cash terms that is expected to grow to £2,116 bn the following year. That is a nominal increase of 3%. 1.5% of that is real growth. The rest is forecast by the Office for Budget Responsibility to be the result of inflation.

In April this year M4, which is the broad measure of UK money supply, was £2,356 billion. That M4 is greater then GDP is normal. It had risen by £45 billion over the previous year.

I make the point for a reason. That reason is to note that we need new money creation each year. Money can only be created in two ways. Banks can lend it. Or the government can create it by running deficits.

Right now the government is aiming for and achieving a current fiscal balance: it is balancing its books on day to day spending. It is borrowing for investment, but not to cover current spending.

The aim of Chancellors for almost a decade now has been to reduce borrowing to zero: in other words, to withdraw from new money creation.

That means the private sector has to go increasingly into debt to fund the creation of the new money the economy needs. The risk of a private debt crisis is increasing as a consequence.

That a growing economy requires more money is quite right. Milton Friedman said so thus it is true. And wouldn’t the Senior Lecturer be pissed to know that he’s following in St Milt’s footsteps?

However, as ever, the Great Tuber is missing some basic education in the subject under discussion. There is the interaction between base money and wide. That V in MV = PQ thing. We know very well that V is significantly depressed. That’s why the vast slugs of QE cash creation have only limited deflation, not caused galloping inflation. Which, as a matter of mathematical necessity, they would have done if V hadn’t fallen.

And as V recovers – which is just the same thing as saying the economy does and thus we raise interest rates again to temper that V – then we need less of that government created money to increase the wider money supply, don’t we?

What glorious logic

The NHS is a efficient as it gets, except on health outcomes, and we just don’t spend enough to get them

Some of us might think that health outcomes is the measure of efficiency.

When you hear the right wing say the NHS is inefficient, it isn’t. Nobody does it better with the resources they have got. To claim otherwise is to talk nonsense.

But then what do we right wingers know? Output as a measure of efficiency? Pah! Fie to your neoliberal measurements, candidly.

About which we are told:

As a commentator, using the name Calgacus, said in a comment on the blog yesterday:

Revenue is a pretty good word to use for taxation. What is bad is the idea that it provides income for the state. Revenue comes from re + venir; means to come BACK. It encapsulates the idea that taxation returns unto Caesar what originally came from Caesar, the correct spend first, tax later order.

Or, in other words, it is MMT compliant.

A search for “revenue etymology” provides that little chart. Plus this:

noun: revenue; plural noun: revenues
income, especially when of an organization and of a substantial nature.
“traders have lost £10,000 in revenue since the traffic scheme was implemented”
synonyms: income, takings, receipts, proceeds, earnings; More
antonyms: outgoings, expenditure
a state’s annual income from which public expenses are met.
“his priority was to raise government revenue and to lower expenditure”
the department of the civil service collecting state revenue.
noun: the revenue
“when the revenue makes a demand for tax, that demand is implicitly backed by the powers of the state”


early 15c., “income from property or possessions,” from Middle French revenue, in Old French, “a return,” noun use of fem. past participle of revenir “come back” (10c.), from Latin revenire “return, come back,” from re- “back” (see re-) + venire “to come,”

A return from property or assets. Which is indeed MMT compliant I guess, given Ritchie’s insistence on Musso’s nothing outside the state. He’s insisting that everything does belong to the state, the rest of us just being farmed to produce a return.

Well done Senior Lecturer, well done

Papers are filled with talk of the Theresa May’s NHS Brexit dividend this morning.

Thankfully, it appears that no one buys the story. Not one serious media outlet believes there is a Brexit dividend. The UK will still be paying the EU after Brexit. And because Brexit will shrink the economy there will be less tax paid.

But because the economy will be smaller the NHS will cost less money. Baumol’s Cost Disease, recall? Wages are set by the economy as a whole? Thus in a poorer country wages will be lower for all. Including those in the NHS.


I patiently explained that there are three ways in which government spending impacts the economy. First, I said that the government could simply create the money in question. I pointed out that over the last decade the government has created £435 billion to, in effect, bail out our banks. That is more than £40 billion of new money a year and there has been no inflation as a result: any inflation we have had is because of changes in oil prices or because we have left the EU.

QE wasn’t to save the banks. It was, as the BoE has repeatedly explained, to lower long term interest rates. Which it has done. And no inflation? Looked at asset prices recently?

Alternatively, we can let more people save with the government. That, after all, is all that government bond issues are: they are the creation of new savings accounts managed by the government for people who want to save with it. And, as I explained, as more and more people come to retirement age, more and more of them want more and more government debt to underpin their pension payments and as a consequence the demand for government savings accounts is growing exponentially. So, I argue, why not let them have what they want, especially when it has the benefit of having almost no net interest cost and providing funding for the NHS at the same time?

That low interest cost possibly having something to do with QE?

A gap in the logic here

The chart below from our Healthy Finances report shows why we’re having [a] row [about NHS funding]. If the government doesn’t announce quite a bit more cash for the NHS, average annual spending growth is on course to be lower this decade than at any other time in the NHS’s history. Real terms per capita spending is set to grow by an average of just 0.4 per cent a year between 2010-11 and 2019-20, down from an average of 5.9 per cent a year in the preceding decade.

As the chart makes clear, that’s the lowest spending increase since the 50s. No wonder the NHS is in crisis. And no wonder some of us say that’s entirely by choice.

The desired spending increase is well above economic growth or any likely level of economic growth. Thus the desired level of spending increases must, ineluctably, mean that the NHS swallow an ever greater portion of the economy. At which point does this stop?

Alternatively, what’s the problem with trying to make the NHS more efficient rather than just increasing the level of inputs?

The bit that’s getting missed – tax evasion makes people richer

The action of these suppliers has been criminal.

Amazon’s failure to address it until compelled to do so has been negligent.

But HMRC and the Treasury’s failure to act for so long when this was known has been incomprehensible. Billions of tax revenue has been lost and an untold number of UK based businesses have been harmed.

Tax evasion is not a victimless crime.

It also has benefits.

No, really, Consumers have, by the evasion of these taxes, had cheaper goods. Now, we can insist that this isn’t enough to make up for the other damages. We can, equally, insist that it is. But we do actually have to acknowledge that there’s a good part as well as a bad here.

Britons not paying VAT on imports has made those Britons richer by the amount of VAT they’ve not had to pay. Again, you can think that not worth it but it is still true.

What does this even mean?

The evidence of a downturn in commuting appears very clear. Whilst one-off rail journeys continue to rise, which is welcome given they are better environmental alternative to cars, commuter traffic is falling. And this is equally welcome: there is no joy in commuting. IT is liberating many of us (me included for much of the year) from the need to be physically present at work.

This, however, has important ramifications. Almost all businesses assume ever-rising demand for their product, and rail franchises have almost universally been granted on the basis that this is the case for rail travel. If it is not true then many of those franchises will fail.

That does not mean we no longer need railways. Or that the railway industry has failed: it will not have done so. All that will be proven is that private rail operators have limited commercial aptitude, and the model within which they work has little commercial merit.

The alternative is, of course, state ownership. Labour has to do very little, I suspect, to promote this now. Over the next few years rail franchise operators will be queueing up to hand back the keys to their trains.

The internet therefore state ownership of railways? Whut?

Ritchie’s Evidence

Two things stand out from his evidence to Parliament:

Work on this submission has been supported by funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 727145.

Yup, he’s taking money from foreigners to influence our law. Nice, eh?

Explanatory note re terms used in this submission

In this report tax evasion is defined as an act involving dishonesty that results in less tax being paid than was legally due. As example, income, gains or transactions are not declared as required by law or they are deliberately incorrectly declared so that less tax appears to be due than is actually the case.

In contrast, tax avoidance is considered to be an action believed by the taxpayer (or their accountant or lawyer) to be within the scope of tax law but which uses loopholes, allowances and reliefs in ways that the law never intended. This abuse can be within a country. So, for example, it remains unclear whether it not the habit of many contractors within the UK of forming limited companies and paying themselves by way of dividends and not salary to avoid national insurance charges that would otherwise be due on their income is exploitation of a loophole or a scheme of which the government tacitly approves although a steady range of measures to attack it from the government in recent years suggests the latter. Sometimes tax avoidance exploits differences between types of law e.g. exploiting company law to incorporate to reduce or defer a tax bill. And some is exploitation of the differences between different countries legal systems that rarely interact with each other neatly, meaning that myriad opportunities for not paying tax are available. It is these international loopholes that tech companies, for example, have exploited to reduce their effective tax rates to next to nothing whilst still adamantly claiming that they pay all the taxes that are due by them in each country in which they are operating. Technically that is true, but it is also disingenuous because they all know that the structures that they have put in place are intended to reduce those liabilities.

Precisely because the boundaries between tax evasion and tax avoidance are often hard to identify tax justice campaigners now choose to ignore the distinction between the two, suggesting it is not useful. They instead suggest that both should be called tax abuse because the motivation is similar in that both invariably ensures that tax is not paid at the right rate, by the right person, in the right place and at the right time.

I entirely ignore the legality of anything because the law doesn’t say what I think it should.

Pretty good when talking to the people who make the law, eh?

No doubt there’s more there to be found but I’m afraid I have something important to go and do. Arses don’t wipe themselves you know.

No doubt this grates terribly

The regulator hired to investigate the near-collapse of Co-op Bank will be paid £1,500 a day plus expenses, it has emerged.

Mark Zelmer, a former Bank of Canada boss, will probe what led to the Co-op Bank flirting with failure in 2013 when it uncovered a £1.5bn accounting black hole. The lender limped on before eventually being rescued by US hedge funds last year.

The investigator’s pay package was confirmed by the Bank of England today. If he works a normal five-day working week, he stands to earn almost £33,000 a month. He has been given up to a year to complete the investigation, meaning he could be paid around £400,000.

Just look at that paycheque there! That would beat teaching political economy one day a week, wouldn’t it?

But then there would be a certain problem with Ritchie getting the job. He’s the one who complained loudly about the regulator insisting that people who know nothing about banking shouldn’t, perhaps, be running the Co Op Bank, isn’t he? Even, that having unqualified incompetents in charge was an essential part of the democratic revolution necessary in the economy.

Hmm, yes.

The idiocy, the idiocy

This is ridiculous. The world is queueing up to give the government money at the lowest possible interest rates. Every government bond issue is over-subscribed. There is then no shortage of funds to build this hospital with much cheaper funds than those the government is seeking. It is purely dogma in that case that is preventing this hospital being built. But whilst the FT recognises the possibility that the government could fund this project directly, it does not point out that this would, very obviously, be the cheapest option available.

Nor does it point out that if things are so dire but this hospital is really needed then People’s QE could be used to fund it. People’s QE was always intended as a backstop for the time that the market failed. The market has failed here. In that case it is just time to get on and use the viable alternatives to get this hospital built. That is the message that needs to be sent to politicians. The time for fighting around with incredibly expensive market alternatives has come to an end. It is public and not private finance that has to build our infrastructure now.

The problem isn’t in gaining debt finance to finish the hospital. It’s in having an equity investor who will carry the risk of over runs.

You know, the over runs on this particular project which so wondrously contributed to Carillion’s demise? The risks of which are why People’s QE isn’t a solution. Because QE doesn’t produce that equity investor carrying the risk, does it?

Jeebus, how can a damn accountant wibble on about this without getting equity and risk?

If only Murphy knew some economics

He’s off on the MMT tear today and, as ever, his lack of a grounding in the basics of the subject lets him down:

So money has value because the government endows it with that quality. And then, and only then, is the supposed left-wing quality added to this whole issue, because modern monetary theory then notes that when markets do not create full employment (and they usually do not, as Keynes first pointed out 80 years ago) then the government can create its own money to just to indirectly boost economic activity (which is exactly what QE was supposed to do, but was not very good at, to put it kindly), but to do it directly by investing itself.

And modern monetary theory says that this can be done until we reach full employment. Then, and only then, will we have inflation because of money creation (although we could have it for other reasons, such as a Brexit devaluation, but that’s something quite different). Because we have not had effective full employment for a long time (bogus stats on self-employment levels do not indicate full employment really exists) we have also not had this type of inflation for a long time.

The bit he’s missing here is the definition of full employment. The way he’s put it – we only get inflation if we go above full employment – is just another way of stating the NAIRU, non-accelerating inflation rate of unemployment. Which is something that changes. According to the microeconomic structure of the economy.

We have, for example, in the UK economy in the past had inflation when unemployment was higher than it is today. It’s also true that other countries have inflation when unemployment is higher than our own. And places where they still have less inflation when unemployment is less than our own. That is, there’s something about the structure of the economy that changes that definition of full employment. A useful definition of full employment being when we get inflation – the same statement a Murphy’s own we’ll only get inflation at full employment.

What really provides the joy here is that if you went along to him and said, so Friedman’s NAIRU then, or maybe even, so, this Phillips Curve then, he’d not know what you were talking about. As you explained it he’d insist that it was, or they were, entirely wrong. Because. Despite their both being (NAIRU really only says that we can shift the Phillips Curve, not just move along it) exactly what he is saying. Without his having read the libraries of work on the implications of either or both.


The government is now running so small a deficit that it is hardly creating enough money to meet the demand for new money to match inflation.


The reason to create more money is – as Milton Friedman pointed out, not that Ritchie would ever use anything from that source – that a growing economy requires more money. It ain’t inflation, it’s GDP.

Which economics is this then?

And I agree: that might be necessary if Scotland did, as the archly neoliberal thinks appropriate, fix its currency against sterling. Of course in that case Scotland would have no choice but spend all its earnings trying to maintain parity with the pound, crushing economic growth in the process.

But if Scotland had its own currency and let it float, as it would have to, Scotland could concentrate on delivering full employment instead.

Entirely true, an independent Scotland with its own currency could print as much as it likes in order to stimulate the economy. There might be the odd side effect or two of course:

Jimmy says:
June 7 2018 at 11:45 am
Correct me if I’m wrong Richard, but if Scotland had a free floating currency, but a huge budget deficit, would that currency likely lose value quickly?

And if the currency starts losing it’s value quickly that will make us Scots poorer, as inflation goes up and our imports cost more.

Richard Murphy says:
June 7 2018 at 12:32 pm
Do you know it will have a huge budget deficit?


A trade deficit is a threat: but is a budget deficit really a cause when the reality is that these need never be funded with foreign currency borrowing?

In other words I do not agree with your hypothesises

A currency in greater supply does not fall in value. That’s just so neoliberal to insist that it does.


It’s the failure of logic….

But I also say other things too.

Thank heaven for regulation: the driver made a mistake but they were driving at less than the speed limit.

Therefore the regulation is irrelevant, isn’t it, as they were already driving at less than that regulated speed.

And you say thanks for the NHS.

Well, no. For accident victims were helped off the road before we had an NHS. Accident victims are aided in places which don’t have an NHS. You know, everywhere else in the world? Around my way the ambulances (and the firemen) are volunteers. Seems to work just fine. What is meant is thanks we’ve got a health care system, an emergency response system. But that we’ve got the NHS as those doesn’t mean the NHS is the only way to organise those.

And other public services.

Ditto. There are other ways to organise services to the public.

And you note why it is that we live in a community.

And note that it matters.

Indeed we do and it does. Which is why other places do manage to organise such things communally without the use of the State’s power to command and insist.

And that all pay their part in it by paying tax so we can all enjoy the benefit of living in that society which can function because we do.

If we do it communally but not through the State then it’s possible to do it without using tax, isn’t it?

Because, yes I know tax does not pay for public services, but without tax to control the inflation that their supply would otherwise create, much of this would not be possible.

Tax is not necessary to do any of the above things. As plenty of places around the world show by doing them but not using tax to do so.

Now, back to work.

Perhaps, at least we can hope, to work on the idea that just because Britain does something in a particular manner it is not necessary to use that particular manner to do that thing?

Quite, quite, stunning – if only Ritchie knew that he was following Friedman

And that the government has no money of its own when by a stroke of a key it can however much it needs to deliver all the economic activity the economy is capable of sustaining.

We have known that for more than a century. And still we suffer from the myths. It’s time they were laid to rest.

Milton Friedman:

In 1948, in “A Monetary and Fiscal Framework for Economic Stability,”
he proposed that the government run a countercyclical budget policy with
monetization of deficits and demonetization of surpluses with budget balance
over the cycle.

Yes, they are talking about the same thing.


No, really, he’s a bloody professor!

But neoliberalism and austerity have downsides. One is that, as Andy notes, people don’t have enough to spend. And, second, they don’t have enough to save. The deregulation of pensions was exacerbating this. The sole reason for enforcing new pension contribution payments in the UK was, in my opinion, to defeat this trend for the gain of capital markets, again in my opinion. Pension provision has nothing to do with it.

Real disposable household income for the UK is rising still, as it has been – absent the occasional blip to be sure – since forever.