Oh For Fuck’s Sake

I am old enough to say with confidence that my life has been fundamentally shaped by the petro-dollar.

As a political economist, social campaigner, tax activist, one time entrepreneur and chartered accountant I know that what economists call the rents earned from oil extraction helped shape the current economy of the UK and that of many other countries represented here today.

The rents don’t come from the extraction of the oil. They come from the existence of the oil.

And yes, this is an important point.

Glencore does not earn a rent by extracting Zambian copper. Zambia earns a rent by Glencore extracting the copper. BP does not earn a rent by extracting N Sea oil. The UK earns a rent by charging BP to be allowed to extract oil that exists in the N Sea.

These understandings are based on a third vital point. This is that we now know that saving – which is what happened to most petro-dollars – is not the basis of wealth or investment. In 2014 the Bank of England admitted this. What they said then was that, in fact, that there can be no savings without lending. That’s because saving can only happen without major economic distortions arising if credit lending, which creates the cash to be deposited, happens first.

Jeez, he’s taking even MMT too far. Even the MMT people don’t get confused between money and investment. And who the hell thinks that most petro-dollars were saved?

Whatever we do with credit, money, banking and the rest investment still requires a deferral of current consumption – that is, that there’s always an opportunity cost. That builder who is putting up that rail line there is not putting up that house over there. The cost of the rail line is, in part, the house that doesn’t get built.

It is this understanding that is fundamental to the new economies we must build.

States with their own sovereign money have the capacity to create credit in a way that no one else can and that credit is the key to this century in the way that oil was to the last.

Peoples’ QE now replaces oil royalties. Err, yes.

And to prevent inflation the money created must be recovered from the economy by either effective and fair taxation or by our now proven ability to turn credit into cash itself through the selective and controlled use of what I have called green and some call people’s quantitative easing.

Whut? PQE turns credit into cash now? And having more cash around reduces inflation?

I mean, but whut?

Actually, we would normally think that turning credit into cash increases inflation. Run that difference between M4 and M0 through the MV = PQ equation and you’ll see what I mean.

Quite amazing, He just went and gave a speech where he said that expanding base money increases inflation less than the equal expansion of the broad money supply. That’s the same statement as telling us all that turning credit into cash will limit inflation.

I know I’ve made jokes about his economic understanding before but this is nonsense, sheer gobbledegook.

The entire worry about PQE, the criticism itself, is that it is more inflationary that an expansion of credit. At which point Ritchie tells us that PQE solves inflation?

21 thoughts on “Oh For Fuck’s Sake”

  1. I own rental property on which I am responsible to pay the mortgage, taxes, insurance, and other maintenance expenses.

    How fortunate for me that my tenants do not extract rents from the property.

  2. Ritchie is stuck with this idea that’s common on the left, and indeed on the right, that you can make people wealthier by printing more money (by some means). Then you do it, and it all ends up in the hands of people who are already wealthy, so you print more money…

  3. I am old enough to remember coal mines and to say with confidence that my life has been fundamentally shaped by the would-be thuggery of the minority of left-wing miltants among miners against anyone opposing their political views (my ability to read numbers comes second).
    Rents extracted from oil production (no, Tim, 99+% of the rents are only extracted from the oil companies when they produce the oil and gas – yeah, Murphy forgot gas which was virtually all of the first stage of North Sea oil & gas) have done little to shape the economy of the UK although the overvaluation of the £sterling as a result of Margaret Thatcher + North Sea Oil significantly damaged UK manufacturing and thereby permanently* increased unemployment levels. Murphy is (unusually for him) less than 100% wrong on this, *but* his next point is utter expletive-deleted. Saving starts with seed-corn which does not involve money and certainly not credit.

    * that would take a page to explain

  4. He gave speeches on this? In public?

    “Good evening. Tonight I will demonstrate that I haven’t got a clue about economics. Candidly.”

  5. Rob

    He is giving speeches on bowel movements where he has considerable expertise I am told…..

  6. “The rents don’t come from the extraction of the oil. They come from the existence of the oil.”

    Probably pendantry, but don’t they come from people wanting to extract the oil? The oil was still there in the 19th century, but the rents were negligible.

  7. good point Richard – economists talk about transfer earnings, which are the returns that are sufficient to keep a resource in its current state. Economic rent is the surplus over transfer earnings. So, when the oil was in the ground, the transfer earnings were negligible and nobody cared about it. Once someone invented a use for the oil and was prepared to pay to extract it, then you have rent

  8. I seem to recall Murph telling Andrew Neil, while going red in the face that:
    1. PQE was not inflationary
    2. The UK needed some inflation
    3. Therefore we needed some PQE

    So PQE was simulataneously inflationary and non-inflationary even in the span of a single thought. He has now extended it to being counter-inflationary.

    It is staggering to think that he is part of the education system of this country.

  9. I sometimes wish somebody would implement Murphy’s policies so they could see it collapse in on itself with shops empty of price-controlled 5p toilet rolls… oh, wait.

  10. The Meissen Bison

    Has the Prof completed an academic year yet?

    If so, the impact of his teaching should be showing itself in the results of his students.

    Where are they published or is a FoI request called for?

  11. Diogenes:

    PQE is not inflationary if you pay for it with tax.

    It is inflationary if you don’t.

    So you can perfectly well say that in theory it doesn’t have to be inflationary at the same time as saying that it will be in practice. You just need to be a bit carefree about distinguishing the two…

  12. Rents extracted from oil production (no, Tim, 99+% of the rents are only extracted from the oil companies when they produce the oil and gas

    Not necessarily, it would depend on the price paid for the block license versus the production royalties. In Norway, the license is free but I don’t think it is in the UK.

  13. I am guessing Murphy has discovered some kind of quantum PQE or QPQE. The thing about QPQE is that we can only know it’s properties when we measure it. Unfortunately as soon as we measure the properties change. Therefore all of Murphy’s statements are indeed true at the moment he utters them.

    While on vacation I came across thought provoking piece about kerosene and whale oil. Previously I had blindly believed the whale oil myth. Now I have something new to learn about.

  14. Bloke in Costa Rica

    “It is staggering to think that he is part of the education system of this country.”

    No he’s not. He’s at City University.

  15. Wow! When I was pulling hose in the North Sea I was a rentier!
    Could’ve sworn I was down on the ship’s manifest as a knuckle dragger.

  16. “No he’s not. He’s at City University”

    ‘Like’

    Cue Sir Humphrey asides about the LSE, “the Universities…both of them”, etc.

  17. Yes, I was wondering why we hadn’t heard much about his first year of teaching (which would probably have finished ages ago).

    I was expecting to see his enthusiastic comments about how the students sat rapturously at his feet drinking in his words of wisdom.

    Don’t tell me they were all neo-liberal plants, paid for by tax avoiders to question his edicts?

  18. I am old enough to say with confidence that my life has been fundamentally shaped by the petro-dollar.

    And my grandparents were old enough to say that their lives were shaped by the availability of food. They were millers.

    And the other grandparents were in the textile trade. Like, selling people clothing.

Leave a Reply

Your email address will not be published. Required fields are marked *