Or even money itself:
The UK is expected to have GDP of £2,054 bn this year (table 4.1 here).
In current cash terms that is expected to grow to £2,116 bn the following year. That is a nominal increase of 3%. 1.5% of that is real growth. The rest is forecast by the Office for Budget Responsibility to be the result of inflation.
In April this year M4, which is the broad measure of UK money supply, was £2,356 billion. That M4 is greater then GDP is normal. It had risen by £45 billion over the previous year.
I make the point for a reason. That reason is to note that we need new money creation each year. Money can only be created in two ways. Banks can lend it. Or the government can create it by running deficits.
Right now the government is aiming for and achieving a current fiscal balance: it is balancing its books on day to day spending. It is borrowing for investment, but not to cover current spending.
The aim of Chancellors for almost a decade now has been to reduce borrowing to zero: in other words, to withdraw from new money creation.
That means the private sector has to go increasingly into debt to fund the creation of the new money the economy needs. The risk of a private debt crisis is increasing as a consequence.
That a growing economy requires more money is quite right. Milton Friedman said so thus it is true. And wouldn’t the Senior Lecturer be pissed to know that he’s following in St Milt’s footsteps?
However, as ever, the Great Tuber is missing some basic education in the subject under discussion. There is the interaction between base money and wide. That V in MV = PQ thing. We know very well that V is significantly depressed. That’s why the vast slugs of QE cash creation have only limited deflation, not caused galloping inflation. Which, as a matter of mathematical necessity, they would have done if V hadn’t fallen.
And as V recovers – which is just the same thing as saying the economy does and thus we raise interest rates again to temper that V – then we need less of that government created money to increase the wider money supply, don’t we?