Part nationalising Tata won’t cost the taxpayer

So says Richard Murphy:

The government announced yesterday that they are willing to take a stake of 25% in Tata Steel and make loans of hundreds of millions of pounds. Almost inevitably Radio 4 was discussing this use of ‘taxpayers money’ by 5pm.

So let’s be clear, this argument that RA payer’s money us being used is nonsense. The money that the UK government will use for this purpose will be raised via bonds. We can be sure of that: the UK government is running a deficit. Any extra spending will be bond funded and will not be paid for by taxpayers.

What is more taxpayers will never repay those bonds: the national debt has net increased for more than 320 years and despite George Osborne’s claim that he will run a surplus, and so repay bonds, by 2020 there is not a hope of that happening.

And even bonds need not be involved: the Bank of England, or a related National Investment Bank (which I have long argued for) could simply loan this money to the new operation and the Bank of England could create the necessary funding out of thin air, just as all other bank loans are always created in this way.

In fact even the interest on the loans will not be a cost if the new Tata can’t afford to pay it: since we will run a deficit for the foreseeable future then that will also be covered by borrowing – and people have always queued to lend the givernment money.

In other words the Tata investment is in fact not a cost, it is an exercise to liberate potential in the economy by creating new credit. That does not mean I am saying we should be indifferent to the costs and benefits of funding the Tata steel operations into the future: doing so by way of credit creation only makes sense if this is the best way to liberate the capacity the UK economy. There are choices to be made about how credit is used.

But, I stress, this credit is not created at cost to taxpayers and it’s about time the nonsense that suggests it is comes to an end.

Radio 4, please note.

So we’ve finally discovered the magic money tree, have we?

Hmm. The cost of servicing that national debt, of paying the interest upon it, is currently some £43 billion, 3% of GDP, or perhaps 8% of all tax revenues.

That is, of all that cash that you fork over to HMRC 8% of it is going to maintain the previous uses of that magic money tree. Not quite so magic, is it?

And of course this all entirely misses the real point. Which is that the Murphaloon thinks that money is the actual resource here. Which it isn’t of course: it’s a claim over a resource, no more. The actual cost to us all of whatever happens at Tata or Port Talbot is nothing at all to do with where the money comes from. It’s the opportunity cost of expending our real resources (coal, labour, limestone etc) to make steel rather than their alternative uses. And the very fact that the plant makes losses shows us that those alternative uses of those things have higher value. If those alternative uses didn’t have value then Port Talbot wouldn’t be making a loss.

But then that’s economics and this is the Murphmonster so…..

35 thoughts on “Part nationalising Tata won’t cost the taxpayer”

  1. Bloke in North Dorset

    “and people have always queued to lend the givernment money.”

    And if he ever gets his sticky hands on Governement power that queue will quickly become one of people rushing to get their money out.

  2. What I always wonder in this connection is why it is necessary to pay taxes at all? Surely the Government or Bank of England can just “create the necessary funding out of thin air, just as all other bank loans are always created in this way”?

    But of course, that would rather destroy the Joy of Tax…

  3. @agn Of course,the funding can be created out of thin air for this and a lot else.There is a purpose for tax in preventing inflation, especially land prices which being inelastic in supply just go up with more money about (demand).
    What the Willingly Conned masses who have put up with the banks creating money for centuries might care to remember is the nationalisation of Rolls Royce in 1971 which saved that company. The aircraft engine section was only denationalised nearly twenty years later by Thicky Thatcher and the Simple Folk who had been gulled by a Monetarist Cult which chimed with their knuckle scraping ignorance of the fact that commercial banks create the nation’s money when they make loans.

  4. It would be perfectly possible to operate as agn describes if the natural tendency of government wasn’t to spend more and more.

    If there was an arrangement where the government always printed currency equal to say 30% of GDP a year, and took no money in tax, and everyone understood this was how it would work, then the economy would continue to function.

    Obviously the result would be huge inflation, but compensated by a total lack of taxation – it would alter where the real burden of taxation fell (basically transferring it to taxing savings rather than employment), but that isn’t (at least theoretically) a problem that breaks the concept.

    Of course taxing savings means no-one wants to have any, so they spend all their money ASAP – which in turn should make the economy grow like a rocket.

    The problem that would break the concept totally (as usual) is politicians – they would keep tinkering, so 30% would become 35% which would become 50%… and then the next stop is Zimbabwe.

    I’m not saying this any of the ^^^^ is a good idea even if you could trust politicians – more that it’s not as inherently broken as you might imagine!

  5. the Bank of England, or a related National Investment Bank (which I have long argued for) could simply loan this money to the new operation and the Bank of England could create the necessary funding out of thin air, just as all other bank loans are always created in this way.

    Now what hasn’t anyone thought of this before? I’m sure the French would be all over this if it were true. Maybe they’re simply not as clever as Murph.

  6. This seems to be a variant of the popular fallacy “well, it hasn’t caused any major problems up until now, so we can carry on doing it more”.

    Which is, one of the main reasons the Space Shuttle Challenger blew up ……

  7. @DBCReed “What the Willingly Conned masses who have put up with the banks creating money for centuries might care to remember is the nationalisation of Rolls Royce in 1971 which saved that company. The aircraft engine section was only denationalised nearly twenty years later by Thicky Thatcher and the Simple Folk who had been gulled by a Monetarist Cult”

    Is this a parody account ?

  8. “Can’t remember who first called him it, but he really is the David Icke of tax”

    Naaa…. Icke believes what he is saying (I think)

    Murphy doesn’t, nor do people like Watson and so on. They just know their voters are really dumb, they’re telling fibs to buy votes/money/influence whatever.

    Though actually even the thickest Labour voter does sort of grasp that you can’t borrow indefinitely, or print money indefintely (why would anyone buy bonds you aren’t paying back ?) without some sort of consequence.

  9. I’m told by friends that steel is different because it is a strategic necessity. Could somebody on its blog enlightened e on the strategy please, it must have escaped my attention.

  10. Bloke in North Dorset

    TimN,

    “Maybe they’re simply not as clever as Murph.”

    Murphy knows everything, even how to make a pencil, he just hasn’t got round to debunking Leonard E. Read, yet.

  11. I wonder if it would be cheaper just to offer the steel workers a deal for us to continue paying their salaries for the next 4 years but they’re free to go look for another job at the same time? That’d keep money pumping into the local economy.

    My guess is it’ll all go bust eventually anyway so we’ll lose whatever we pay for our 25% stake and all the loans too.

  12. “Governments could create the necessary funding out of thin air”

    Isn’t that how the Spanish Empire worked? The government just dug their money out of the silver mines in South America instead of rasing taxes. Somebody will have to remind me how well that went.

  13. Bloke in ND

    ‘I,pencil’ is WAY too sophisticated for Murphy – he could no doubt point to Marina Mazzacuto and say’ The state creates everything!’

  14. Ironman

    The only vaguely coherent defence of Steel as a strategic asset harked back to World War Two and envisaged an unknown force blockading the Islands which would force us to rely on our own resources. It’s such an unlikely scenario I don’t even give it credence, not least because given how much the current regime is running down defences, and the fact the Corbynite opposition will actually contract out the defence of the realm why would an invader need to resort to a blockade?

  15. DBCReed

    I have read the bulletin you have described at length and surely you can’t be daft enough to assume that this implies money can be created without consequences – if it was so simple why haven’t other governments done it – are they all in hoc to the bankers and their conspiratorial allies? Or do you share in common with Murphy an invincible attachment to wilful ignorance as a contribution to the debate (one which apparently overrides all other considerations, at least in his mind)

  16. @Ironman:” I’m told by friends that steel is different because it is a strategic necessity. Could somebody on its blog enlightened e on the strategy please, it must have escaped my attention.”

    Ask your friends where all that strategic iron ore comes from. Clue: heres a map.
    https://en.wikipedia.org/wiki/File:World-Iron-Map2.png

    Given that it is cheaper to ship steel than the iron ore needed to make the same weight of steel, how long would that strategy last?

  17. I sneeze in three

    “We” have exactly the total amount of money “we” need. The problem of course is who has it.

  18. Interesting argument by the retired accountant there. Of course, if increasing the national debt (and concomitant increased interest payments) carries no cost to the fisc (or tax payers), then neither do all those phantom billions in tax evasion that so agitate that same august personage, even if they were real and as large as he says. So he can chill out about that subject too.

    That conclusion, of course, assumes intellectual seriousness and consistency, which may be unwarranted.

  19. @Ironman, re strategic necessity of steel: I think the people advocating nationalising Tata on some level suspect that their policies will lead to a Mad Max-style wasteland. They want a decent supply of steel for armourplating and spikes.

  20. @VP Don’t go reading things : the present state of everybody being conned about the creation of money is very fragile and you mustn’t start HAVING DOUBTS .The bulletin which you have got round to reading (very belatedly) I assume to be the BoE ” Money creation in the Modern Economy. I have to tell you that the Bank of England is run by Communists and sex fiends who want to worry you that the commercial banks just invent money and charge interest on it .How can that be possible? They probably believe the Earth is not flat as well.

  21. DBCReed

    I read it at the time and have reread it on several occasions trying to understand how you can go from ‘Commercial banks create money’ to ‘therefore all the state has to do is use the same methods and we have a limitless source of money to squander as we see fit’ – I also enjoy the analogy with a ‘Flat Earther’ – perhaps Murphy (who I know has one of his stool pigeons check in here periodically) will start saying his opponents believe the Earth is flat….

  22. DBCR

    I know you don’t want people reading alternative narratives – for Murphy and his ilke ignorance is power – reading those alternative narratives lessens his control.

  23. DBCR

    In addition surely all the above could be solved by an LVT which will cure cancer and solve the riddle of ‘life , the universe and everything’

  24. “…he really is the David Icke of tax.”

    And the Florence Foster Jenkins of economics.

    More generally…I prefer “Murphatollah” to “Murphaloon”: he’s more bad than mad.

  25. @VP I have to warn you that your soul is in danger. Even thinking “all we have to do is use the same method of creating money as the commercial banks and we have a limitless source of money” is the first step on the primrose path. You will end up like the Guardian Economics geezer Larry Elliott who is so abandoned to economic depravity that he writes in ” ..helicopter money is coming”(18.iv 16) “As the Deutsche research makes clear the most basic variant of helicopter money involves a central bank creating money so that it can be spent on tax cuts or higher public spending.” He then spreads alarm to all right-thinking folk by saying that governments around the world are gearing up for it. Hold the line;keep the faith.This is a time of testing.The Banks are ready to do what they do best.

  26. I didn’t see this level of media interest when all the spinning mills were forced to close due to ‘dumping’ from Turkey, and I certainly didn’t see nationalisation on the cards when all the chip shops were closing due to competition from ‘imported’ McDonalds franchises.

    We have no iron ore in the UK any more and we have no coal power plants near the mills. Virgin steel manufacture make no sense whatsoever – particularly in an EU context when there are plenty of steel mills across the EU that are much nearer the source of the ore and power. Saving steel mills in Wales when there are plenty more in Holland and Italy is a bit daft. It’s like saying that english manufacturers have to use steel from an english plant.

    Not that you can dye much wool in the UK any more. But then people that worked in that industry were often female, or of Pakistani/Indian descent. So they didn’t matter.

    To say that the Murphy’s industrial policy is a tad hypocritical is an understatement.

    Even more funny is that there excess steel capacity across the world. So somebody is going to lose their jobs somewhere. It’s rather interesting that the whole EU/’international solidarity’ thing goes *right out the window* once job losses are on the cards.

    It’s also interesting that Murphy hasn’t set up a charity and asked for public donations to keep the steel mills open. Is that because it would show up that the rest of the population doesn’t want to reduce their spending power to prop up obsolete industrial heritage?

  27. “and people have always queued to lend the givernment money.”

    Why would they do that if its never paid back?

    “create the necessary funding out of thin air, just as all other bank loans are always created in this way”

    so why borrow?

    Mans a fruitloop

  28. Out of interest, does anyone know why SSI were “allowed” to go bust and shut down Redcar steelworks last year with barely a whinge from anyone, but Port Talbot closing would bring near the end of the age etc etc?

    I’d have though both cases were very similar apart from the fact Redcar is in England not Wales?

  29. @VP Don’t you see? If somebody as conventionally educated as Larry Elliott sees nothing alarming in governments starting up the monetary helicopters WHICH EVEN MURPHY IS IFFY ABOUT then our belief system in the banks’ creation of money is being brazenly disrespected? And which side are you on, when it comes down to it? You don’t want to be associated with the likes of Martin Wolf of the FT who has questioned all we hold dear by proclaiming “Strip banks of the money to create money”.He is just a late-onset hippy.
    (Tell you the truth: I don’t read all that Murphy writes.Not sufficiently au fait with LVT for my taste)

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