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Ritchie really doesn’t get monetary economics, does he?

I am bemused how PQE funding of, say £50 billion a year over a few years, could give rise to inflation when, apparently the economy can absorb £1.1 trillion of new money created by bank lending over the same period.

PQE increases M0. Bank lending increases M4.

M0 is around £72 billion these days (absent QE). M4 around £2.2 trillion or so.

Maybe Ritchie needs to have a shufti at one of those textbooks he so disdains?

This simply makes no sense at all. PQE created money has no more, and because interest need not be paid, may well have much less inflationary effect than privately created money and yet the focus is being given to PQE funds. I cannot see why.

Go look it up Dear Boy, go look it up.

37 thoughts on “Ritchie really doesn’t get monetary economics, does he?”

  1. Money is a red herring here.
    The argument that PQE is potentially inflationary is simply that it would increase aggregate demand and employment, and hence reduce spare capacity. In this sense, PQE would be inflationary to the extent that it works – inflation is a feature, not a bug.
    The intelligent counter-arguments to the idea that QE is inflationary would be, variously:
    1. There’s enough spare capacity in the economy to absorb the extra demand.
    2. There are deflationary pressures overseas – eg the stagnant euro area – that’ll hold down UK inflation.
    3. So what if inflation does rise a little? There’s a reasonable argument that slightly higher inflation and interest rates would be a good thing; they’d get us away from the ZLB and so allow interest rates to fall in the event of the next downturn.

  2. QE increases M0 and M4
    increase in Bank lending increases only M4
    untill the point BoE desides more M0 is needed to stop interbank interest rates going.

  3. Is monetary economics worth “getting”? it seems to consist of definitions – and you can’t learn anything about the world from mere identities – or empirical assertions the truth of which is doubtful.

  4. @ SJW

    M0 growth is usually controlled by interest rates. Removing this control by simply printing money through PQE is likely to have an inflationary effect directly (through more M0), through secondary effects (as M0 gets multiplied up into M4) and indirectly (as people lose faith in the currency as the government now has control of monetary policy, and is likely to abuse PQE every time it needs to spend).

    PQE or money printing has always ended badly as it removes any impairment on the government in terms of fiscal responsibility.

    Unfortunately, Ritchie thinks that printing money can be used to buy new assets – with no side effects. Any fiat currency is only worth as much as people assign it’s store of value. Simply printing cash does not create any new value, it just increases the supply of money. Which is inherently inflationary. Just check Zimbabwe, Argentina, Venezuala or further back Hungary, Singapore and the Weimar republic.

  5. It’s the multiple types of “M” that gets him, isn’t it? To a (retired) accountant money is cash is money.

    I suspect the fact that currency is a substitute for value in other forms also doesn’t help. It’s just numbers on a spreadsheet as far as he can see.

    And- in his defence- numbers are so easily and casually used (and abused) nowadays, it’s easy for the dim to lose perspective and forget it’s the stuff those numbers represent that is important.

  6. “Unfortunately, Ritchie thinks that printing money can be used to buy new assets – with no side effects. ”

    As discussed n times already, he doesn’t get second-order effects. It’s why everything has to be a neoliberal conspiracy (made up of first order effects) cos any second order effect, let alone a negative one, is beyond his horizon – it’s hidden in the space between two of the tunnels in his Flash Gordon stump.

    As I said before, playing chess must not be his strong point…

  7. Bloke in North Dorset


    Maybe £50bn a year for “a few years” may be a good thing as you point out. The problem is, can we trust a Corbyn government egged on by Murphy and the like to stop after 3 or 4 years or even limit it to £50bn a year? I think not.

  8. As per usual most people miss the point. The whole QE thing was not particularly “new money”.

    All that happened was the BoE/HM Treasury bought back longer-term gilts and paid for them with short term deposits.

    That’s like you paying off a mortgage with a credit card. Your total debts don’t go up or down. (ignoring the interest bit).

    So in the grander scheme of things, the amount of interest paid by the government went down but it locked in gains for existing long term gilt holders and the banks were laughing all the way to themselves.

    PQE might or might not be a good idea, but it is something quite different.

  9. If there is an unlimited supply of labour willing to accept no more from work than they get on the dole and a likewise unlimited supply of natural resources and every worker expends no resources in travelling to work in his clogs, then no-one has to pay for the investment.
    In any other circumstances, someone has to forego something that he/she wants in order for labour and resources to be diverted to the investment.
    Money is merely a means of exchange.
    What Murphy wants to is to effectively clip the coinage and so purloin some of the assets of all those who have claims on the government via banknotes to hand to his pets and/or paymasters.

  10. That doesn’t follow

    QE creates new deposits as the bond seller now has a deposit that did not exist before.

  11. Mo must be something to do with Islamic banking which must be good and much better than evil western banking, right?

  12. “Murphy asks who this Mo guy is that Worstall is always talking about.”

    I guess M4 must be Worstall bragging about his BMW

  13. Imagine for a moment that LHTD is correct.

    Is there a limit to the number of Nobel Prizes an individual can win in any given year?

    Economics would obviously be his, and Peace should be as well. Also Physics, as he’ll have changed the shape of the universe. I’m sure there are others.

  14. Does one need to “get” monetary economics?

    Q: Has this printing money and spending it lark been tried before anywhere?
    A: Yes
    Q: Did it work as Jezza/Richie say it will here?
    A: No.

  15. I am reeling from the sheer stupidity of the posts in TRUK today – it’s as though he has suffered complete mental breakdown and there is noone there to call an ambulance or the men in white coats. The Post on the FT’s Alphaville blog is so inept it surely has to be a spoof – there is noone surely, beyond a small coterie of idiots (the ‘big four’ and suchlike who is able to swallow this crap?

    On another post – I particularly liked his refusal to answer the example of Venezuela – let’s just disregard anything which doesn’t fit in his world view – what an utter numpty…./.

  16. Howard Reed has weighed in on Frederick’s FT question over at TRUK. I would have thought that Murphy was overegging – even now he is saying that the “we” means that the FT is behind him. Why would Reed support such an exaggerated claim ?

  17. So in his most recent post he says that the FT is supportive of his money tree.

    Two posts previously he was denouncing the FT for being hysterical for their opposition to his money tree.

    Any guesses what his position will be tomorrow?

  18. Tim Worstall thinks Ritchie doesn’t get it.

    Mark Wadsworth thinks Tim Worstall misses the point.

    I like both of the above bloggers.

    If Richard Murphy is an actual idiot with zero understanding of economics then why focus on him all the time? Don’t you have more useful things to blog about? If you hang around with dogs you get fleas etc, etc. Don’t your readers deserve more?

  19. “why focus on him all the time? ”

    You may have noticed that he is advising* a leadership candidate for the main opposition party. People are taking him seriously. Is everyone supposed to stand aside and let him go unchallenged?

    *except for the purposes of his funding he’s made clear he’s not advising him. Although he appears to be.

  20. an actual economist speaks:

    Richard Murphy, tax expert but Corbyn-named brains of People's QE is annoyed no journos have called. No one calls me abt black holes either— George Magnus (@georgemagnus1) August 6, 2015


  21. ‘timworstall’

    Nice original spoof – perhaps you are one of the other critical commenters here. The reason we focus on Murphy is that because his ideas are simplistic and superficially appealing they permeate through into the mainstream.

    The Hard Left maintain iron control of the state education system and any attempts at reform face huge opposition from classroom staff, most of whom are well to the left of centre and primarily preoccupied with inculcating in their young the understanding that you vote Labour or Green to increase state power. With such an unthinking audience at their disposal, the theories of Murphy carry great impact even though they have cause incalculable ruin to any country that has experimented with them and have indirectly led to the deaths of over 100 million across history – I think such a person needs to be exposed as the witless imbecile they so clearly are. Some, including perhaps the most prolific critic on these pages ‘Lawrence from Guernsey’ feel it is overkill – strange noone has ever said that to Murphy himself – I for one would welcome a week’s respite.

  22. @GlenDorran

    Yes, for funding purposes (the grant he is going to get from Friends Provident) he can’t be a sole trader. So the grant is going to an LLP consisting of members being Murphy and his wife. His wife does nothing I can see and is entitled to just 1% of profits. There are no employees. TRUK LLP is in substance Richard Murphy and nothing and no-one else. It’s the sort of form and substance thing Murphy gets irate about when it’s used for tax planning but apparently it’s OK when getting money off of charities.

  23. @Van_Patten

    I’m not an economist but I’m trying to understand…

    From what I’ve read the idea of central banks / governments handing out money directly to people — people’s QE / helicopter drops, whatever form it takes — has been around for decades. See Milton Friedman, JM Keynes, Ben Bernanke, Simon Wren-Lewis, Adair Turner, Mark Blyth, Eric Lonergan, Martin Wolf, Matthew Klein at FT Alphaville, Simon Jenkins, Chris Dillow…

    Of course the idea needs examination. But, as Klein says:

    “If Jeremy Corbyn becomes leader of the UK Labour Party, one positive consequence will be the ensuing discussion of the monetary policy transmission mechanism.”

    In response to Klein’s statement, “We don’t understand the negativity”, Tim Worstall comments (at the FT Alphaville article):

    “Well, it comes from this: ‘Richard Murphy’; This is his idea, he dreamed it all up on his lonesome.”

    This is just not true, and adds nothing to understanding. Worstall is too obsessed with Murphy.

  24. What you describe in the first part is “helicopter money”. Which has indeed been well discussed over the years.

    What Murphy is talking about is monetary financing of government expenditure, rather a different thing. And something that has been well discussed and well rejected over the decades. Except Murphy is cloaking this in the rhetoric of QE (which is the new bit) and not getting why he’s wrong.

  25. @Tim Worstall

    Thanks for the clarification — that is really helpful. What is it that makes:

    1) creating money and putting it into people’s bank accounts so that they can spend (largely in the private sector I assume) an idea that has been worth discussing since the time of Keynes / Friedman onwards;

    2) creating money and putting it into a government’s bank accounts so that it can spend (largely in the private sector I assume) an idea of a “witless imbecile” according to Van_Patten?

    Matthew Klein’s FT Alphaville article sees potential in both ideas:

    “Our preferred approach would be direct deposits into household accounts offered at the central bank. It’s simple and doesn’t require any political debate about how best to spend the newly created money.

    But Corbyn’s plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy.”

    Klein sees a plan that could work. Van_Patten sees a plan devised by a “witless imbecile”. Why the difference?

  26. Keynes/Friedman are talking about how to stop deflation.

    Ritchie is burbling about how to print money for the things he thinks government should build. And he’s deliberately masking that second in the language of the first.

    We’re not in deflation: thus the helicopter money idea has no merit.

    And Ritchie’s idea of monetising government expenditure is exactly what Zimbabwe did, Weimar Germany did, Venezuela is doing…..

  27. @ Simon Reynolds

    I’m pretty sure neither plan would work, but the essential difference between the two is this:

    1. more likely to be a once off measure (1000 per person) which contains it’s effects. Secondary effect is likely to spur demand. No direct on government balance sheet.

    2. unlikely to be a once off, and will push inflation higher. government balance sheet expands and government eventually falls into an insolvency spiral.

  28. @Simon Reynolds

    I think Tim has nailed it for me. Helicopter Money is to counter potential deflation by giving private market participants money to spend. More familiar with it from the late Milton Friedman but I believe Keynes did advocate it as well. ‘People’s QE’ is more akin to the currency debasement practised by Robert Mugabe of Zimbabwe or Nicholas Maduro in Venezuela. Indeed Murphy himself points out that the primary difference between for him is that Helicopter Money will merely lead to consumers frittering away on imports, whilst only People’s QE can be used by the state to direct the money in the necessary fashion that would be of the greatest benefit to civil society.

    The problem I have with him (amongst others) is that he has no idea of second order consequences – to wit (and I have asked him and his grand vizier Howard Reed about this) he does not realize that his desire (for example) to see People’s QE build houses would rely largely on imported Labour (most of the construction industry workforce is not English) and a lot of imported materials (for starters) – in addition I wondered what agency would oversee this – would it be another of the interminable quangoes peopled by bureaucrats or an entirely new government department? My comments, raised as legitimate queries were dismissed, arrogantly, as pedantry, and I was labelled a ‘troll’ (not sure Neoliberal was in the lexicon then) – which is the standard Murphy approach to disagreement. It’s a method I employed myself when I was 10 – from a man in his sixth decade I’d expect a little better – hence the ‘witless imbecile’ moniker..

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