He’s just lovely when he gets angry

I pretty much make it a matter of policy to ignore whatever Tom Worstall has to say.

Tom? It’s not even good publicity, is it?

So far, so good. It is indeed true that there need never be a shortage of money. But Worstall continues, saying:

The underlying error is that economics isn’t the study of money. Sure, monetary economics is interesting enough, but that’s not the core of the subject. Instead, we note that there are unlimited human desires but only scarce resources with which to sate them. Changing the amount of money in circulation doesn’t change the number of those wants, however, nor the resources we have with which to satisfy them. It only changes the counting we’re doing as we do so.

Before you throw your hands up in horror I should note that Worstall does reveal here his deep knowledge of, and unfaltering belief in, neoclassical economics. What he is saying is wholly orthodox economic teaching, taught day in and day out in universities across the world. It is quite literally the case that in general equilibrium based macro economic thinking, which dominates the thinking and teaching on this subject the world over, that money is effectively ignored. As too, incidentally, is taxation.

The study of an individual market is partial equilibrium, not general. Further, general equilibrium is microeconomics, not macro. Even, money is not ignored, it was there in Walras’ first model and has continued, in general, to be there since.

Failure to appreciate this permits Worstall to make some pretty wild, and glaringly false claims. For example he says this

Because it’s the resources which are scarce. Take health care, for example. There’s the labour needed to do it, the buildings to do it in, the implements with which we do it and so on. But at any point in time there’s only a given amount of each of those things. Increasing the money supply doesn’t increase the amount of any of them.

Of course, the economy is not a zero-sum game, it is always possible to train up or import more labour; we can build more hospitals, make more medical equipment. But more money doesn’t increase the resources from which we can do all of those things.

Three thoughts follow. First, there is the most extraordinary suggestion implicit in this that the availability of money demand within the economy does not change behaviour. Or to put it another way, that if more money is dedicated (whether by tax or not does not matter) to healthcare demand then there will be no reaction to this monetary stimulus in the real economy and nothing will happen as a result: no new health care will follow. What Worstall is saying here is that demand cannot apparently alter supply in the real world.

Well, no, I don’t. Instead I talk about total resources being, at any point in time, fixed, meaning that if we wish to divert more resources to health care hen w will, inevitably, have less of something else. We can indeed increase total resources over time. That’s not what he says I say at all.

Second, what he’s also saying is that if there is underemployment in an economy working at less than full capacity (both of which are true in the UK at present because we suffer massive disguised unemployment in the form of under-employment) then adding to the money supply cannot stimulate a greater supply of goods and services to the economy. This is glaringly obviously untrue. He also ignores the positive multiplier effects of such spending in that situation, although they are now widely documented.

I also don’t say that. What in fact I do say is:

It is possible to get all Kenyesian about this and say when in recession we can boost output of all things – and maybe there’s some truth to that. But that’s not what our simplistic money tree peeps are saying. Instead, they are insisting that because we can print more money then there’s no shortage of the resources we need to do whatever we want. Which is, of course, complete tosh.

When we’re at full employment, about where we are, when GDP is about at potential, roughly where we are, then the only method by which we can have more of something is by having less of something else. Or, of course, by increasing the efficiency through which we produce things from our scarce resources over time. Neither of these options is waved away, aided nor hindered by printing more money.

I don’t even claim this:

Which is a pretty big claim, because what he is actually suggesting is that using money as a mechanism to direct resources towards investment has no impact on outcomes in the real world, when that is very obviously untrue.

Instead, all I’m saying is that increasing the amount of money does not increase the amount of scarce resources.

In which case he needs to explain why he is so obsessed with preserving the right of money to hide in tax havens, and why he is so obsessed with preserving existing monetary wealth distributions, and why he is so opposed to progressive taxation that might redistribute this money that he says has no impact on the well being of those who own it.

I’m not, I’m not and I’m not.

Except that he hints at the answer to all these three questions in one telling paragraph where he says:

Money’s just the way we count who controls those resources, it’s not a measure of what we can put to work at all. Thus printing more money doesn’t alter the fact that we must still choose which activities we’re to devote what resources to, there is no get-out clause here.

But this is not true. Because if in the process of printing money we change who controls resources we really do change outcomes.

But that’s not my point Senior Lecturer, is it? Rather, that the scarce resources are still scarce whoever directs their use. Thus, use of more resources to do one thing means fewer to do some other.

So in fact what Worstall has written indicates three things. The first is the bankruptcy of conventional macroeconomic thinking to which he, and the greater part of the academic community, subscribe.

General equilibrium still isn’t macroeconomics.

Actually what’s true is we can’t do everything, but that changing the way we control money by letting government print more of it to achieve social goals can very fundamentally change our constrained reality.

Shrug. Sure. Who gets to spend the money will indeed change what it gets spent upon. And? That still doesn’t mean that doubling the number of pound coins increases the scarce resources we can devote to the health service.

As an example of failed reasoning Worstall takes some beating. Buy don;’t expect me to engage with him again: once a decade is enough when faced with folly of this level.

Wonder if he’d listen to someone he trusts as they explain his errors?

27 thoughts on “He’s just lovely when he gets angry”

  1. “Worstall does reveal here his deep knowledge of, and unfaltering belief in, neoclassical economics”

    Or, as some people term it, “reality”

  2. The money shot is this quote:

    “Because if in the process of printing money we change who controls resources we really do change outcomes.”

    As always with the Left its all about power, and nothing else.

  3. I read these ‘Ragging On Ritchie’ pieces and the disbelief I endure is well, unbelievable. The absence of logic. The contradictions. The general ignorance. And you tell me he lectures on economics? (shakes head).

  4. “Wonder if he’d listen to someone he trusts as they explain his errors?”

    Anyone who explained his errors to him would not be trusted by him.

  5. I’d guess, by his “once in a decade choice” to “engage” with TW, there’s been a lot of deleted comments arriving at the Blog of Fools tearing great holes in his pet economics.

  6. What he is saying is wholly orthodox economic teaching, taught day in and day out in universities across the world.

    You know, there might just be a really good reason what he is saying is taught day in and day out in universities across the world.

  7. The Unused Testicle

    I may have discovered the secret of Ritchieology.

    Don’t define anything.

    We have an infinite amount of money. Banks don’t need to receive deposits, they can just create money. Ignore the fact that you can have a run on a bank that stops it trading. Just ignore that fact. And don’t define a bank.

    Why would rich people hide something of which there is an infinite supply? Can’t they buy a bank, or create one, and have access to infinite amounts of money? After all, what is a bank? (don’t ask that question!)

    And it’s not immoral for rich people to do this. Because governments do not need to tax in order to spend. They can tax after the event. But if you don’t need tax to spend, when do you need to tax? Later, obviously, (but don’t define the mechanism) but how long is the gap? A minute, a week, a year, a millennium? A time that is within Ritchie’s scope to see into the future?

    It boils down to the stance that “I am God and I can do everything”. Which is why McDonnell got rid of him. There’s only room for one god in the Labour Party.

  8. The Unused Testicle

    Don’t forget, an infinite amount of money can buy an infinite amount of resources!

    If Bill and George and Mark decided to buy all the annual gold production, Ritchie, with his vast, er, richies, would still be able to buy some!

    Just don’t ask from where…

  9. I am curious Tim – did we ever get to the bottom of who was behind the poorly phrased hatchet job on you penned anonymously (they went to the trouble of setting up a blog with that sole entry which suggest you have really ruffled some feathers amongst the likes of Murphy)? How telling he clings to that even three years on, after the Fair tax Mark, Progressive pulse, and all the other ‘successful’ initiatives.

    As for the article itself, I think you’d get substantially more sense out of the Zimbabwean economics minister. I know City University is not Harvard but FFS, don’t their students deserve better than this oaf??

  10. I think we need a cartoon strip featuring Tom Worstall, the heinous nemesis of superhero Pilchard Murphy.

  11. Ref Tom

    It’s so he can pretend he was talking about someone else if you sue for libel.

    He’s learned from the Ashcroft fuckup

  12. What he is saying is wholly orthodox engineering teaching, taught day in and day out in universities across the world.

    Would you fly on an aeroplane designed by someone who meant the above statement as a criticism?

  13. Has that idiot ever heard of monopoly? He could experiment his theory by having a bank which can give unlimited amount of money. Lets see if there are more hotels then…

  14. I’ll repeat my question of some years ago:

    “Has anyone ever seen Tim Worstall and Richard Murphy in the same place at the same time?”

    No? Then I repeat my long-ago conclusion drawn from that
    (universal) negative answer:

    Tim and Richard are the same person. Murphy is the clever
    creation of Worstall: a creation of such grotesque cuntishness
    as to actually enjoy the fascination (and attention) of nearly the entire reading audience. There’s only one way to describe Worstall’s “invention”: sheer brilliance and versatile enough to constitute in the neighborhood of 35% of daily output!

  15. It’s like the experience of Dawkins faced with the Creationists explaining to him how evolution by natural selection is the equivalent to a tornado blowing through a junk-yard and assembling a Boeing 747.

    Ritchie is an economic Creationist.

  16. “Has anyone ever seen Tim Worstall and Richard Murphy in the same place at the same time?”

    Or that episode of Star Trek where there was some sort of transporter malfunction and “bad” Kirk ended up in the “good” Kirk universe. Snippa is the anti-matter version. Of anything.

  17. Because it’s the resources which are scarce. Take health care, for example. There’s the labour needed to do it, the buildings to do it in, the implements with which we do it and so on. But at any point in time there’s only a given amount of each of those things. Increasing the money supply doesn’t increase the amount of any of them.

    Of course, the economy is not a zero-sum game, it is always possible to train up or import more labour; we can build more hospitals, make more medical equipment. But more money doesn’t increase the resources from which we can do all of those things.

    Which Gollum Brown demonstrated in real world by hosing billions of taxpayers money at (1) The NHS and (2) Schools

    Result: no extra skilled resources available – medical staff & teachers; thus pay increases for all and

    1. NHS hires hundreds of thousands of managers & administrators

    2. Schools create a new job – teaching assistants – to do a job never before considered necessary

    Do we owe Gollum thanks for proving a “neo-liberal” economic theory is true?

  18. Pcar, It is not that teaching assistants have now suddenly become necessary, but that the market has responded to the artificial (and unnecessary) restriction of supply of teachers by insisting they are “qualified”.

  19. Ooh, @Pcar

    That’s good. Do PCSO’s also fit into “didn’t need them until we realised we could afford them” category? Can we put Diversity jobs and all of HR in there too?

  20. Dear Mr Worstall

    “Because if in the process of printing money we change who controls resources we really do change outcomes.”

    Yep, forgers can relate to that.

    Of course when the Bank of England forges the money, it is indistinguishable from the real thing, which shows that the only difference between government and organised crime is that one is illegal.

    http://www.legislation.gov.uk/ukpga/1981/45

    DP

Leave a Reply

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