He’s really buying this MMT stuff, isn’t he?

As I have already noted today, government deficits are both the foundation of private wealth and money itself. To suggest otherwise is factually incorrect.

So, Norway’s outstanding government debt fell from 55% of GDP to 30% from 2005 to today (or so).

Does Norway have less private wealth now than then? Less money? Umm, no.

So the original contention is bollocks then, isn’t it?

21 thoughts on “He’s really buying this MMT stuff, isn’t he?”

  1. Hmm. He’s forgotten about the external balance. For Norway, because of its massive current account surplus, external income is the principal source of wealth. Trouble is, because we don’t (yet) trade with Mars, not all countries can rely on external income like that.

  2. I was in HK a little while ago. No food, no sanitation, just a primitive people living hand to mouth existences, plagued by illnesses that could be easily treated in a developed country.

    Sorry, I meant Norfolk. I was in Norfolk. Hong Kong was utterly brilliant. It was Norfolk that was shit.

  3. “To suggest otherwise is factually incorrect.”

    This is the bit I like. He always comes out with statements like this. You could list n countries where his statement is demonstrably false and yet he will still insist you are “factually incorrect”.

  4. @John Square

    +1 🙂

    @Rob

    A while back Murphy claimed the UK was the only country where domicile mattered as a tax concept. I pointed out Ireland did as well. That was being pedantic. So I mentioned NZ, Australia, South Africa, Belgium, France Switzerland and some states in the US where at least a form of domicile mattered for some aspects of taxation. Apparently I was wasting his time in pointing this out and it ‘was my last post’.

    Amazingly a few weeks later he made the same claim. In only the UK was domicile a tax issue.

    Not only pig ignorant but an outright liar to further his ends.

  5. Jack C:”I thought the foundation of wealth was production.”

    It is. Not always of material goods–software is only glancingly material but still valuable.

    Hot air does not qualify as production whatever political, bureaucratic buffoons or–as in Ritchies case–shirts stuffed with empty vacuum– might fantasise.

  6. I think his suggestion on how to teach schoolkids the reality of money is just brilliant. Especially since that fat kid started running a black market tuck shop, with freebies on offer to anyone who will help his dad out on Saturday morning and a decent disco to go to at the youth club. Slack-jawed moron of a teacher will be the one learning about money…and what happens when your currency tanks.

  7. Government surpluses destroy private wealth, as a matter of fact

    …government deficits are both the foundation of private wealth and money itself. To suggest otherwise is factually incorrect.

    So production (as per Jack C) in the private sector rather than in the public sector somehow reduces wealth? As in making or providing something useful rather than drafting “a diversity procedures manual”…

    “He’s really buying this MMT stuff, isn’t he?”

    Or is it simply influenced – as he has always been very clear about the political priority in terms of his blog / writing – by the notion that inflation (from MMT) may be beneficial as a form of redistribution (the Bozo thread)?

  8. I’d have thought it was obvious that the “government debt is a private asset” point is based on the “all else equal” assumption. I.e. if government debt rises by £X then private paper assets rise by £X ALL ELSE EQUAL. And that’s the point which Frances (correctly) makes above, unless I’ve got her wrong.

  9. Ralph

    “government debt is a private asset”

    Purely by itself, yes, no problem.

    But don’t the MMT crowd suggest that the savings / asset in fact represents an investment in something? ie something good, as in the more of it we all have the better for us all?

    And if on the the other side of the equation (the government balance sheet), instead of “Dr Really useful income generating assets for the future” and “Cr – Loan”, what we actually have is “Dr Expense / money pissed away on sod all” and “Cr The same loan”, then we might not want to be increasing this private sector saving in the same way that we might if we thought there was real wealth / future value (returns over future generations) behind it.

    Apologies, I know that’s very simplistic as an illustration.

    If this was a private sector company, rather than the state, would I lend to that company if it had a crap business model, or would I rather lend to a company with a good product that was going to make profits to service my interest.

    The fact that the government (unlike the company) can simply print more money to repay interest (and / or the savings) fills me with no confidence, because of the obvious potential inflationary effects if the money is being pissed away.

    I would instead rather move my savings into a company with a better business model, even a different currency if necessary?

    And those staff employed by the state could just as easily be employed by the private sector. Does that change by itself, and the fact that we are therefore saving less with the government, mean that we as a nation have less wealth / value. I can’t see how?

    Apologies if this is too rushed / simplified, I should probably take more time to think through / elaborate.

  10. Ralph,

    Also, re inflation, I refuse to believe that politicians engaging in PQE (in an MMT model) will control infliation.

    This is simple politics – see Murph on Tim’s Bozo thread here (I quote back to something Murph said):

    https://www.timworstall.com/2015/09/27/bozo-the-economist/

    And if you know your savings are going to be inflated away, then no, more savings with these people is not a good thing. Better perhaps to shift any savings into a different currency?

  11. Anybody else see this from Robert Peston, writing about Corbyn’s economic advisory team:

    The composition of the panel probably also tells us that the ultra formulation of “quantitative easing for people not banks” – till now seen as the quintessence of Corbynomics – is dead.

    Or to put it another way, this group of economists would not sign up to a policy of the Bank of England providing cheap loans to a new state investment bank on a permanent continuous basis – for fear that the anti-inflationary credentials of the Bank of England would be destroyed.

  12. “Better perhaps to shift any savings into a different currency?”

    Hence capital controls along the lines of Argentina or Venezuela, both of which also happen to be into deficit monetization.

  13. Anon

    Just give me 24 hours notice!

    Seriously, that’s it though, isn’t it? The second one tries to go down this kind of route, then it’s game over – and before you even start?

    Hence, PST’s reference to Peston – they can smell the coffee…

  14. Bloke in North Dorset

    Anon,

    Exactly, that’s why I, and I’m sure many more, will be looking very closely at the polls in 2019 and discussing my savings and investments with my IFA. If there’s even a sniff of a
    Labour Govt led by Corbyn or a similar minded successor capital flight will be massive.

  15. PF,

    No need to apologise. We’re dealing with very abstract and elusive ideas here. My answers to your points are thus (and I’m not 100% sure I’m right).

    Government debt is an asset for the private sector in the same sense as a £10 notes are. Obviously both are inherently worthless, but they are generally held to be of value, ergo they are of value.

    Why is antique furniture of value? Only because it’s generally held to be of value. As to whether government has “pissed away” the money at its disposal doesn’t matter too much far as I can see, unless the pissing goes to absurd extremes as under Robert Mugabe. The important point is that the private sector has to get hold of government issued money so as to pay taxes. So government issued money is in demand.

    MMTers like me advocate that the state should create and spend into the private sector whatever amount of state issued money (and/or debt) induces the private sector to spend at a rate that brings full employment, while not creating and spending so much as to bring excess inflation.

    As to whether there is any big difference between government debt and money, Martin Wolf rightly pointed out that debt at low rates of interest is essentially the same thing as money (state issued money or “base” money that is).

    As to whether politicians if given control of the printing press will act in a totally irresponsible way, basically politicians had access to the printing press before Gordon Brown gave the BoE independence in 1997. But between WWII and 1997 we didn’t have permanent hyperinflation. Also Bill Mitchell the Australian economist produced evidence that there is no relationship between the independence of central banks and inflation. But having said that, I still prefer an independent central bank to a Treasury controlled one.

  16. Ralph,

    Interesting and I’ll do my best! Others who spend more time focusing on these issues might make a better fist of it!

    Government debt is an asset for the private sector in the same sense as a £10 notes are. Obviously both are inherently worthless, but they are generally held to be of value, ergo they are of value.

    I don’t agree, but actually it may not be relevant to the point. IOU’s are not worthless. If you follow here regularly, you will recall NiV and his various points on “money” / “lending and borrowing” – ie, we take on IOU’s ultimately for the value of labour we will perform. So yes, they must be of value, otherwise for the lender money they would fail any test as a store of value.

    Why is antique furniture of value? Only because it’s generally held to be of value. As to whether government has “pissed away” the money at its disposal doesn’t matter too much far as I can see, unless the pissing goes to absurd extremes as under Robert Mugabe.

    Indeed, and the biggest ponzi scheme in the UK is not “money just gets created”, but the fall in value of housing which would crystallize if one was to de-restrict the rules around planning permission.

    My point here is more to do with the efficiency of the money that is spent by the state.

    Look at the state as a plc balance sheet. Do you want to lend money to an organisation (be that the state or a plc) that has debt levels that exceed useful “assets” (value generating future revenue). Consider “types of expenditure” (P&L) versus “assets” and hence say “diversity procedure manuals” (sorry!) versus “schools – investment in training kids for our future” and “roads and other assets” etc.

    If its assets have no real value and do not generate future revenue, then the only way the state can pay you back (simplistically) is by taxing you (or someone else) and then paying you back (!), or printing it (with the inflationary effect).

    Hence we really do need government to spend wisely and to keep its debts under control. Think about what the left always (rightly) say about the good reasons for the state: schools, roads, hospitals, etc. Ie it is good because there is “value” there. That’s the point – the ability to create future revenue generation, otherwise debts escalate to well in excess of assets, interest exceeds all notions of future revenue generation, and the state’s balance sheet becomes increasingly untenable without taxing (more, of our productive efforts) / printing money, or otherwise debasing the currency and creating inflation, to get rid of the value of the debt / wipe out our savings.

    Hence, if the state does not spend well, this would completely contradict the MMT notion (if I understand it correctly) that private sector assets in the government are a good thing?

    It’s too easy for the MMT brigade to assume that all state expenditure is “useful”. It isn’t, and that’s before we get to politics and the various belief systems that inform our different assessments as to what is useful and generates value.

    Hence, I fail to see why, even under MMT, there is not a desire to keep private sector investment in the public sector – ie public sector debt – under control? If assets are 10, surely better that debt is 5 rather than 15. Ie, we “want” value for money, ie lower debt (and lower private sector investment in the public sector?) for whatever it is that the state has produced.

    The important point is that the private sector has to get hold of government issued money so as to pay taxes. So government issued money is in demand.

    Yes, sure, but I’m not sure how that has anything to do with putting one’s savings into the National Investment Bank (flip side of the debt, if I recall the NIB name correctly?). Or have I misunderstood? It can be invested / lent into the private sector, swapped out into foreign temporarily, and much more. Is not the more important issue here that unless there is a commercial demand to save with the NIB, it will (detrimentally) have to raise interest rates (a cost to the bank) to attract savings?

    MMTers like me advocate that the state should create and spend into the private sector whatever amount of state issued money (and/or debt) induces the private sector to spend at a rate that brings full employment, while not creating and spending so much as to bring excess inflation.

    The private sector (funded by the public sector) can squander as well as anyone when someone else is both mismanaging the budget and paying the bill (cost plus, and all sorts of tricks)..:)

    I understand (to some extent) the theory. The problem for me is politics. Refer back to the Bozo thread. Some of our best friends on the left really do believe that inflation is a good form of redistribution. Ie, those who have borrowings need their debts inflated away. Of course, they ignore that wealthy (and clever) people can leverage tangible assets with debt, so that in fact they get richer through inflation, whereas a poorer person with some small savings can get screwed by the same process.

    I’ve read your comment again – maybe “excess” (inflation) is the key word there? One can advocate, as you do, and in good faith – I do not personally believe that will happen in practice?

    As to whether politicians if given control of the printing press will act in a totally irresponsible way, basically politicians had access to the printing press before Gordon Brown gave the BoE independence in 1997. But between WWII and 1997 we didn’t have permanent hyperinflation. Also Bill Mitchell the Australian economist produced evidence that there is no relationship between the independence of central banks and inflation. But having said that, I still prefer an independent central bank to a Treasury controlled one.

    I understand that. Correct me if I am wrong but I don’t think any government in the UK has tried to practise MMT before (in any form)?

    We did have significant inflation in the 70’s, and which was very painful for all concerned to get rid off once it got hold?

    Let’s forget left and right. I don’t trust that a concept that relies on raising taxation (and let’s not forget: raising taxes loses politicians elections!) for the ‘sole’ purpose of controlling inflation – under MMT, because otherwise there is no need as more debt (private sector investing in the state) apparently makes us wealthier – will work. I fully accept that your mileage may vary?

    Again, my apologies if I haven’t given the words sufficient thought, but it’s late and if I leave this ’til tomorrow from here it simply won’t happen.. It’s an interesting subject to read and understand further, but sometimes time has its own agenda.

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