Ritchie on we gotta get outa this place

It’s just wonderful how Ritchie fails to connect his own ideas, isn’t it? On the latest Rogoff and Reinhardt paper he suggests the following:

So, of the Rienhart and Rogoff options to solving this, which include ‘debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression’ which do we choose?

As long term readers of this blog will know, I have always been relaxed about more inflation. Inflation was the basis of the baby-boomers wealth as their property debts were written off by inflation that meant they never had to really repay their mortgages. If inflation now adjusts the resulting imbalance in favour of the next generation bay boomers can hardly complain. I think it inevitable. I said so in my paper on pensions, entitled ‘Making Pensions Work‘.

OK, higher inflation. Could be a good idea, could be a bad one. But it is an idea. Certainly it would reduce the debt burden which is what is being talked about.

In addition, in Making Pensions Work I argued that pension funds should be required to invest at least 25% of all new funds the receive in assets directly related to creating employment as a condition of obtaining tax relief. Hypothecated government debt for the creation of infrastructure is the obvious way to achieve that goal. I remain of the view that this is entirely reasonable.

Eh? Note that the thing being talked about is how to reduce the debt burden. So Ritchie is arguing that to reduce the debt burden everyone’s pension should be, by law, forced into purchasing newly issued debt? This reduces the debt burden how?

And then we come to the truly delicious bit. Which is that Ritchie believes that people must invest in debt because stocks don’t return enough. Having only a 3 or 4% (including dividends) return. So he’s arguing that people must be forced to invest in bonds at the same time that he is urging higher inflation?

Doesn’t he know what inflation does to the return on bonds? And note, this isn’t just the nicking the money off the rich bastards stuff. He’s actually insisting that everyone’s pensions must be invested in bonds which are bound to lose money as a result of his higher inflation.

Doesn’t he ever think to link up his various ideas?

32 thoughts on “Ritchie on we gotta get outa this place”

  1. Richie is relaxed about high inflation because his paymasters, and hence him, are immune from it. It would also generate lots of “pensioner poverty” which he could exploit and blame Capitalism for.

    And no, he does not, cannot join his ideas together.

  2. The people who benefit most from high inflation are the 30/40 something middle aged in professional jobs who have massive mortgages (which get wiped out via inflation) and yet have marketplace clout to secure above inflation wage rises.

    The people it hurts most are those on fixed incomes, the old, those on benefits and those on low pay who can’t secure inflation proof pay increases.

    It is beyond belief that someone from the Left like Ritchie espouses higher inflation. Though oddly he is often complaining about a cost of living crisis.

  3. He has also ridiculed Rogoff and Reinhardt as “debt fetishists”.
    He is also still backing the Green New Deal and all forms of increased government ‘investment’.
    But he is now very worried about the ‘debt overhang’.


  4. When I mentioned a year ago to Ritchie that higher inflation hurt the poorest most and helped bankers afford even bigger houses he said this was “neoliberal nonsense”.

    Oddly Danny Blanchflower on the Left is also a supporter of higher inflation.

  5. The whole point of QE is “financial repression”: forcing owners of fixed income securities such as government bonds to take a capital hit and force them to buy riskier equities, in the hope (according to the QE protagonists) that this will boost stock markets, and revive our “animal spirits”.

    It is arguable that the big rally in equities we saw last year – now starting to show some strains – was created to some extent by QE. Holders of government bonds, such as in the G8 countries, have suffered a capital loss (it is not quite the same with emerging market sovereign debt).

    Murphy must surely be aware of this. If you look at the Barclays’ gilt-equity study that is issued annually, there is stark evidence that for much of the past 100 years or so, gilts, when adjusted for inflation, have been a shit investment, and that century was marked by inflation, in some cases severe, as in the 70s.

  6. it does seem one could paste the entirety of this post in the comments on Tim’s concerns about Bitcoin. The dangers of digital currency are worse?

  7. I’m not convinced by all this “inflation hits the poor and the old disproportionately.” The poor have no wealth to be inflated away. At least some benefits are index linked. State old age pensions are index linked.
    If you have a meaningful “fixed” income (government bonds?) are you poor?

    I’ll accept wealthy pensioners may suffer.

  8. As I keep pointing out, Ritchie doesn’t make his statements with economic aims in mind, but political ones. It’s pretty widely accepted that Hitler was able to gain power thanks to Germany’s economic woes at the time. Does anyone really believe it’s a coincidence that Ritchie keeps trying to recreate those conditions?

  9. I reckon Ritchie is about a year younger than me and I’m surprised he doesn’t remember the problems that inflation caused. Yes, some benefited but there was far worse misery for others.

    On this day when the Cabinet papers of 1984 have just been released I’d point him to the equivalent for 1977-1982, which you can be listened to here.

    By 1978 Labour’s attempts to tackle inflation through a prices and wages policy were bringing the Government to a stand still as they were trying to manage even small company’s wage bargaining. There’s one discussion in ’78 where some Labour Ministers accepted that the only solution was the one that was eventually used by Thatcher.

    There was the constant battle between the Government and the big Unions who weren’t prepared to play ball which led to the Winter of Discontent.

    If Ritchie is going to grab the inflation Tiger by the tail he’s better be ready for a very rough ride and a mauling when he has to get off.

  10. Surreptitious Evil

    He’s actually insisting that everyone’s pensions must be invested in bonds which are bound to lose money as a result of his higher inflation.

    And, linking to another one of his demands, you won’t even get tax relief on pension savings. Hence pension savings fall to the legally mandated minimum. Well done, LHTD – you’ve done even better than Gordon at screwing the future generations.

  11. “I’ll accept wealthy pensioners may suffer.”

    Bollocks frankly. The State basic pension is what £110/week. Lets take a single person getting that, plus they have private income from investments (or savings) of another £110/week. So total income £220/week. Hardly Rockefeller. So lets say inflation hits 10% PA. After one year their pension gets uprated by 10% to £121/week. But their other income is fixed so stays at £110. Total income year two is £231/week, but in order to stay level they needed £242. They’ve lost £11/week. And so on and so forth. After 5 years of that they’re £67/week down in spending power.

    Inflation hits everyone with savings, and disproportionately hits those with the least savings.

  12. Jim, if you’ve a pensioner with £110 per week of investment income, you ain’t poor. I wish old people had lots of money like you, but they don’t.

  13. So Much For Subtlety

    What Ritchie does not point out about that inflation that so benefited the Baby Boomers is that it wiped out the savings of the generation that fought World War Two. Specifically, anyone stupidly patriotic enough to have bought a war bond got, roughly, nothing for them. It was as if they gave their money to the government. Or more accurately that the governments of the day stole it.

    So Ritchie is defending thieving from the so called Greatest Generation, who I tend to think earned their money, in favour of the Baby Boomers – easily the most destructive and over-indulged generation in Western history.

  14. @ Luke
    Yes, but the “Living Wage” demanded by Murphy’s pals is £306 per week (£352 in London) so anyone on £220 per week is deemed “poor”.
    £110/week fixed income (not equity) means about £100-150k in capital, A non-index-linked annuity of £110/week would cost less than £100k, so not what I should call poor but capital less than one year’s income for the Murphy household is not really “lots of money”.

  15. The best solution to debt is growth.

    The worst thing for growth is government interference with business. Ritchie proposes more government interference.

  16. Hmm. I rather think Murphy imagines that raiding pension funds for large amounts of infrastructure investment will result in what R&R describe as the rarest way of reducing government debt, namely growth. The idea seems to be that the infrastructure investment would be self-financing and would moreover generate sufficient economic growth to reduce historic debt too. It’s quite a gamble.

  17. Luke, if that you are asserting that having an income from pension investments means you also have the capital sum that created them, then you’re either very stupid, or mendacious.

  18. @john77
    That is a remarkable position Luke’s taking there.
    £110 pw earned by utilising employer’s capital = poor (subtext exploited)
    £110 pw earned by utilising own capital = not poor (subtext wealthy, as it seems to be a binary definition)
    Note there’s no implication work has not been done. The current employed income would be for current work. The investment income, past work – savings.
    So the implication in Luke’s position is that anyone who has ever earned in excess of their basic needs is forever branded “not-poor”.

  19. @Jim: “Inflation hits everyone with savings, and disproportionately hits those with the least savings.”
    Indeed, and makes more people dependent on RM’s ‘Courageous State’.

  20. A lot of verbiage and argument about the ‘ideas’ of a very successful con-man. He is much, much more clever than you lot think. He earns a good living, a very good living indeed, out of his unlinked ideas and weapons-grade cock-end thinking.

    It would immoral of Ritchie to leave his sucker employers with their money. Study his methods carefully, then go out and get your own contracts with unions, government bodies and agencies and other foolish creatures.

  21. The R&R claim that we should invest in what they call “high return” public investments is bollox. Worthwhile public sector investments should be made REGARDLESS of whether we’re in a recession or not.

    As to their constant use of the word “overhang” after the word “debt”, that’s just scare tactics / psychological tactics.

    Next, R&R clearly don’t understand the difference between the debts of EZ countries, and countries that issue their own currencies.

    If you’re seriously stupid, you too can become a professor of economics at Harvard, like Rogoff, or director of research at the IMF (like Rogoff).

    Personally I agree with Prof. Bill Mitchell who has long argued that the IMF is so useless that it should be closed down. E.g. see:


  22. Ritchie’s pension bollocks is what R&R call ‘financial repression’, which I think is an excellent term for it – carries just the right note of Soviet state bullying.

    On a similar point, I read an IMF document pointed to by Guido recently:


    He pointed out a specific suggestion for a one-off captial levy, aka wholesale government asset theft, but reading the whole doc, the mindset demonstrated within the IMF is appalling. They seek ways of maximising tax take without, supposedly, unduly harming the population and the economy. There appears to be no consideration of whether governments really need all this tax – that just seems to be a given – maximise the tax take because what government spends it on is ipso facto ‘a good thing’.

  23. @ bis
    I think that you misunderstand Luke.
    If you or I have saved up £100k from surplus income we are not poor because we *have got* £100k, with the option of spending it. “Poor” means a shortage of money to spend compared with how the speaker defines the individual’s/household’s “needs”.
    [For the avoidance of doubt, some “needs” are absolute but others are in the eye of the beholder as when my wife looks at me and tells me that I need to replace this or that comfortable garment: I believe this happens in other households as well]

  24. Mmm…sort of. Here it’s when she needs to replace garments. (None of which I’d be inclined to put under the heading “comfortable”. For wearer or beholder.) I’ve never heard the slightest interest in my wardrobe.

  25. Jim, BIS, john 77,

    My point is that AFAIK, most elderly people don’t have large fixed annuities or rely on their savings to any great extent. Most rely on the state old age pension and various benefits. I believe the average pension pot is less than £30k. People with, say, good employer pensions are a minority.

    I’m not making any moral point. Just saying that most elderly people rely for most of their needs on the (index linked) state pension.

  26. @ Luke
    I largely agree with you but …
    Actually a lot of retired people, I think a majority, have occupational pensions that do/did/were intended to provide a decent living. The majority of workers in the 1960s/early 70s had occupational pensions. The problem was the worse-than halving of the value of money under Wilson/Healey/Callaghan which (together with the restoration of utility prices to 100% of costs after the 1979 election) wrecked the value of any pension which wasn’t inflation-linked. Any private sector employee now retired (apart from footballers) was working pre-1979. In 1970 I worked in the Pensions department of an insurance company which guaranteed payment of pensions, which were fixed in money terms – the only sound method – to workers in small companies in return for premiums paid by their employers (and, sometimes, also by the workers themselves): we did not dream that the value of these pensions would be smashed into dust by an evil government.
    PS for ignoramuses , index-linked gilts were invented after 1979, partly as a response to Healey’s hyper-inflation and partly to disincentivise Treasury civil servants from repeating it.

  27. John 77,
    At the risk of violently agreeing, what about women? Surely they are a a majority of pensioners, but generally don’t have nice company pensions?

  28. @ Luke
    When I die my wife will get an index-linked pension equal to half of my occupational pension; when my father died, my mother got an index-linked pension equal to 52.5% of his; my mother-in-law has a decent widow’s pension from the civil service and a tiny one based on her own work because that was fixed in money terms forty years ago; all the pensions my former employer sold either had a widow’s pension or, more often, an option to convert, on fair terms a single-life pension to a joint-life one (only restriction being that it didn’t go up when the husband died).
    So the reason for the poverty of elderly widows is more often due to the destruction of the value of pensions which were adequate in 1974 money than about them not having any pension at all. Yes there were guys who chose the maximum pension for themselves rather than provide for their widow, but they were vastly outnumbered by the guys with non-indexed pensions.

  29. John 77,

    No anecdata there?

    Seriously you’re an IFA of some sort I think. What about the people who *aren’t* your customers? Ie most people? Can you get your head round the idea that most people have no significant money?

    What proportion of pensioners rely for more than 80% of their income on fixed income savings? Not your customers, but pensioners as a whole.

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