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?