Skip to content

Ragging on Ritchie

Right now, in London

LHTD: Jeremy, my congratulations on such a stunning win!

Jezza: Thank you, thank you, I will repay the faith put in me.

LHTD: We are one world now, you’re saying what I believe

Jezza: Yes, yes, indeed I have been. Your, umm, ideas, on tax were very useful, and that PQE stuff, they swallowed it hook line and sinker.

LHTD: Could we have a little chat about what might be my position for actually bringing it all about?

Jezza: What? You mean you actually believe all this tosh?

LHTD: But, I’m to run the Office of Tax Responsibility aren’t I? Or something grander? Shadow Chancellor?

Jezza: Richard, won’t your charitable donors miss you?

LHTD: But, but, the peerage!

Jezza: Goodbye Richard…..

(I hear on the grapevine that Richie has actually been predicting a peerage and Shadow Cabinet membership within weeks. Sadly, could actually happen.)

Make room! Make room!

The Telegraph understands a dozen members of the current shadow cabinet will reject any offer Mr Corbyn makes unless he ditches policies that were central in his campaign.
They are Tristram Hunt, Chris Leslie, Emma Reynolds, Vernon Coaker, Michael Dugher, Shabana Mahmood, Mary Creagh, Yvette Cooper, Chuka Umunna, Lucy Powell, Liz Kendall and a twelfth who asked not to be named.

Need to clear twelve out to make room for Ritchie’s ego, eh?

Ritchie gets a tongue bath from The G

Perhaps they’ve realised that Corbyn’s going to win?

Richard Murphy is a chartered accountant and tax expert from a rural market town in Norfolk. He is also the brains behind Corbynomics, the radical policy platform that has electrified Labour’s leadership campaign – and he is happy for you to know it.

Last Sunday, Murphy, who has forged a reputation over more than a decade as a pugnacious and effective campaigner against tax evasion, took to a podium to harangue a rapt street crowd in the centre of Cambridge about the iniquities of the country’s financial system.

As rather a large number of people around here have pointed out, if only he were a tax expert. You know, someone who understood how the tax system currently works even?

“How is it that the UK’s top bosses are paid 183 times more than the average worker in this country? This is because right now we let those bosses do what they like with our public companies,” he argued.

And isn’t that a glorious piece of mendaciousness? Conflating “public” as in ours and owned by the public, and “public” as in publicly listed?

But the former Southampton University economics graduate is also something of a polymath. He has written a series of books, held a variety of academic titles and was a founder director of a company that once held the European licence for the game Trivial Pursuit.

Polymath? Normally indicates someone who has mastered a number of disciplines, doesn’t it? Rather than not mastering any?

And there could be much more to come. It seems likely that Murphy will become a full-time adviser to Corbyn and some even speculate he could be a future chancellor, an idea even he is keen to dismiss.

Murphy said : “It will be up to Jeremy if he is elected leader to decide what if any role he would like me to play. And I would only give my response after discussions with my wife and family. Any job would clearly involve enormous change for my work life.”

Well, of course. Because the moment he takes any formal role whatsoever he’s going to lose his charitable grants. So, hold out for Baron Murphy of Downham Market at a minimum……and it’s even possible that he’s self-aware enough to know that any position he did get would last only months as a result of his own inability to work with others. So, perhaps be a little hesitant about burning bridges.

An enthusiastic user of Twitter and other social media, Murphy is known for expressing his strong opinions without fear or favour. The media, trade unions and NGOs have responded by beating a path to his door wanting comment particularly on the highly politicised debate about corporate tax dodging.

Opinions for hire rather….

If international investors took fright, driving up the cost of serving the UK’s £1.5trn in government debt, he would simply order Threadneedle Street to start creating money and buying up gilts. “We could sit out the bond markets for as long as we wished. We would simply restart QE.”

That’s going rather further than he has before. Entire monetisation of the national debt. Like that’s not going to cause inflation, eh? Roaring, spiraling inflation.

He insists there would be no sterling crisis if Corbyn were swept to power in 2020: another deep-seated dread of Labour politicians who fear the wrath of the City. “The sterling crisis would pass very quickly, because everything reverts to the mean, and the mean would be ‘what are the fundamental trading levels for sterling?’” says Murphy.

He insists the pound’s status as a safe haven for investors would soon trump any market panic about handing over the purse strings to the Corbynistas.

Umm, if he’s going to monetise the national debt then sterling won’t be a safe haven. And what in buggery does he mean “revert to the mean”? The Bolivar Fuerte should be worth lots because of all that oil, right?

Even if he does not get a call from a triumphant Corbyn, Murphy says he will happily carry on with the more low-profile tax blogging, the university work and the dog walking. It’s not hard to feel he would prefer the call – and the limelight.

No shit Sherlock.

Can you imagine the ego if he does get ermine?

Yeah, but, yeah, but

None of these facts hold true in the case of public services. The possibility of failure cannot be comprehended in those services. To even consider adopting that mentality is wrong. It was wrong when train operators walked away from their franchises and hospital contracts. It will be wrong in every other circumstance where it might arise and the alternative option of state supply has been removed by the abandonment of appropriate skills to provide the services within the state sector.

But what if state provision does fail? Like, say, Islington child care services did?

It’s no good saying “we cannot let State services fail” when we have any number of cases we can point to and say “State services failed there”.

Is it?

So here’s a question

Ritchie’s grants.

Two of them I think?

Calculated on the basis that he should have an income equivalent to a Professor? And both grants, umm, granted.

So, now he gets a job as 0.2 of a Professor. Which means he gets paid 0.2 of a Professor by City University.

Does he now give 0.2 of his grants back. And if not why not?

So the newly minted accounting Professor cannot do sums then

When will the CBI learn Henry Ford’s lesson that paying people enough so that they can afford to buy the products business wants to sell is the most basic pre-condition of success?

Sigh.

So it wasn’t $5 a day and it was done actually to reduce total labour costs by reducing labour turnover. And as a final nail in the coffin of the argument that it was done so that the workers could afford the cars, there’s this.

Car production in the year before the pay rise was 170,000, in the year of it 202,000. As we can see above the total labour establishment was only 14,000 anyway. Even if all of his workers bought a car every year it wasn’t going to make any but a marginal difference to the sales of the firm.

We can go further too. As we’ve seen the rise in the daily wage was from $2.25 to $5 (including the bonuses etc). Say 240 working days in the year and 14,000 workers and we get a rise in the pay bill of $9 1/4 million over the year. A Model T cost between $550 and $450 (depends on which year we’re talking about). 14,000 cars sold at that price gives us $7 3/4 million to $6 1/4 million in income to the company.

It should be obvious that paying the workforce an extra $9 million so that they can then buy $7 million’s worth of company production just isn’t a way to increase your profits. It’s a great way to increase your losses though.

A company cannot increase its profits by paying its workforce more so that they then buy the company’s products. That is known as trying to lift yourself up by your bootlaces.

Man’s a useful addition to the Professoriate, eh?

Ritchie really is a card, isn’t he?

And yet investment is low. And that is because the yield on speculation and not investment is high. So there is, after all a misallocation of capital. But this fault lies not with the low interest rate but with the nature of markets, the appetite for risk that they reveal (which is very low in the long term: if anything, anywhere reveals commitment phobia it is capital markets) and the tax system we operate.

Right, so, it turns out that people don’t like long term risk. We thus have markets where people can shed risk if that’s what they want to do. That the stock market is liquid means, for example, that if I get a bit worried about Glencore then I can get out of Glencore. This makes me more willing to invest in Glencore in the first place of course: I know that I can shed my risk.

Ritchie’s basic contention is to acknowledge that distaste for risk. And then to insist that everyone should be investing in 30 year bonds which won’t have a liquid secondary market. So that investors cannot shed their risk. And that this is going to make them happier to invest because investors don’t like long term risk.

Err, yeah.

If you were going to teach this…..

Economics of the real world
This module centres on techniques of ‘investigative economics’ that are becoming central in economic commentary and analysis, and develops them in team projects. Students are encouraged to develop, through team-work, critical views and analyses of real-life economic data and phenomena, focusing on questions such as:

How is commonly cited economic data gathered or constructed (e.g., GNP/GDP, poverty indices, inflation and unemployment indices, transparency indices)?
How does legal context shape economic or business behaviour?
How does political regulation shape the behaviour of business and in turn, how do business elites shape policy environment?
The aims of the module are two-fold: (1) to help students develop and apply critical skills of an independent researcher and (2) to facilitate the development of their team-working skills and use of new method of working with data. Topics will Include: Concepts and Methods of Investigative Economics; The Politics of Economic data Construction; The Political Economy of Regulation; Law and Economics.

Who would you get to teach it?

And can anyone actually imagine the Murph interacting with students?

Snigger

I am really impressed with your analysis. In the past intellectuals like you would have been given your own TV series to explain these concepts. Sadly the neo-liberal takeover of broadcasting means that this does not happen now. Hopefully that will change when Jeremy Corbyn is in power.

Sirsly? That’s after moderation?

Gi’ssa job!

That is the view of Tax Research UK director Richard Murphy, who says a thorough review of the governance of HMRC is required and that it is “absurd” that HMRC’s board is made up of representatives from the large business community and its advisers “who between them represent about 700 tax payers when there are 31m income tax payers in the UK.” He continues: “It is also absurd that parliament has almost no resources available to it to scrutinise HMRC. Margaret Hodge may have done well, but it was despite the NAO and not because of it – indeed, the NAO fought long and hard to deny information on HMRC to the PAC. That is wholly unacceptable and must change, which is why I suggest there should be an Office for Tax Responsibility reporting straight to the PAC that can properly audit HMRC and tax policy.”

Murphy adds that any review should look at the resourcing of HMRC and should have representation from beyond big business and the tax profession. If government cannot be persuaded to implement a review, employers’ groups, professional bodies and trade unions should work together, he says.

He accepts that funding would be an issue, but says a relatively limited number of people producing a report on a timely basis could have a significant impact on taxation in the UK during the next 10 to 20 years.

Err, yes….

We now know that $6.5 trillion of quantitative easing has not only failed to create inflation, but has actually led us to a point where there is no inflation at all.

QE has stopped deflation. Which is both rather the point and proof that QE is inflationary.

Allow me to correct that Ritchie

I was asked recently what I thought the difference between economics and political economy was.

I explained that in my opinion when an economist stands in front of a car they think:

How can we make this thing work with the tools that we have got?

A political economist standing in the same position thinks something quite different. They ask four questions. The first is:

Do we need a means of transport?

Then they ask:

Is this the best means of transport available to us?

After which they muse on:

How can we improve on that best option?

Befoe finally considering:

What new tools might we need to achieve these goals?

Economists and political economists are very different indeed in that case.

In the case of the specific political economist that we are talking about the difference is that the economist understands economics an the political economist doesn’t.

Seriously wondrous

And then there’s the fact that in practice this additional cost will not be paid: it will be borrowed. Instead of running a deficit of £69 billion we could run a deficit of £71.5 billion (that’s and increase of £5 billion spent less £2.5 billion tax back).

That has an interest cost. The current price of 15 year borrowing is about 2.5% for the UK government. And that’s about the average borrowing period right now. So the annual cost of this is £62.5 million.

That’s £5,681 per life saved. You could argue that should be priced over 15 years: that (very crudely indeed, and to overstate things) would be £85,000.

But then you have to consider four other matters. The first is that government debt has never been repaid, on average. It rolls forever. So we’re very unlikely to ever repay the sum borrowed to pay to save these lives. People have always wanted to but UK government debt and there is no reason to think that will ever change. So, we’ll actually never pay the £227,000 per person whose life is saved: it will simply sit on the government balance sheet for ever. So we can ignore that.

So if we issue debt which we pay interest on in perpetuity we should only consider the cost of the interest for the first 15 years?

So our chartered accountant cannot do net present value calculations?

The second is that if we could create real inflation, as is the government’s plan, then whilst it is true that nominal interest rates would rise the real cost would fall: we’re actually paying too much for borrowing right now because we do not have inflation. Until recently when inflation was taken into account there was almost no real interest cost to government borrowing because the interest paid was close to the fall in the real value of the debt because of inflation. With PQE in play creating the inflation we need this could happen again: real interest costs could fall dramatically. Mark Carney says 1% is the most likely.

Nor, apparently, adjust for inflation? Given that real borrowing costs are currently below 1%, and Carney is suggesting they will rise to that number?

Err, yes, as we’ve been saying all along

First, the PQE financing mechanism cannot be inflationary. All the financing mechanism does is buy bonds issued by a National Investment Bank. In effect this is little different from QE: it would be splitting hairs to pretend otherwise. And as the authors noted say, this does not cause inflation. But since PQE is cheaper than bonds ti remains worthwhile.

So, secondly, it is instead the fiscal impact of the PQE that matters i.e. the fact that it will be used to fund real investment in real assets creating real jobs for real people in every constituency in the UK that is its significance and which makes it different from QE, which simply creates financial asset bubbles.

Printing money to spend into the real economy is inflationary.

That’s rather what we’ve all been saying all along, isn’t it?

Ritchie and fiscal history

James g says:
September 5 2015 at 6:14 pm
The US massively reduced government spending after WW2 and ran a large surplus for a few years.

Richard Murphy says:
September 5 2015 at 6:31 pm
We spent a great deal and reduced debt

That’s the advantage of spending a lot – it produces surpluses

UK Total government spending:

1945 £7 billion
1946 £6.5 billion
1947 £5.3 billion
1948 £4.7 billion
1949 £4.6 billion
1950 £4.8 billion

Figures are not inflation adjusted.

GDP went from £10 billion to £13.3 billion over the same years, so the fall as a percentage of GP was even higher than the nominal one.

Net public debt went from £21.4 billion to £25.8 billion.

So, we didn’t spend a lot and we didn’t reduce debt.

Is there no beginning to this man’s knowledge?

Sigh

But, since the Treasury remains committed to quantitative easing the Bank of England has no choice but go back and buy new bonds to replace those that are being replaced. And that is precisely what it will do – to the tune of more than £15 billion.

Now, let’s first of all think what this means. First, it means that the government still has an active quantitative easing programme. That needs to be said because no one else is doing it.

Nobody else is saying what I and everyone else has been saying all along? That the BoE is topping up the stock of QE bonds as some of them mature?

Or is this no one as in no one I know voted for Nixon? That is, no one in Ritchie’s bubble?

Second, what it means is that in effect the £375 billion is not being repaid: it is instead being rolled over. The paranoia about QE that it must be repaid is not happening in practice. When debt comes up for repayment it is simply being replaced. In other words, a lot of nonsense about the need to replace QE in times of growth (which it is claimed we are enjoying) is not being evidenced in practice. In practice we are still going ahead with QE in a supposed time of growth. Some honesty on this point would be very useful.

Yes, everyone agrees that the BoE is topping up the stock of QE bonds as they mature. QE is not being repaid yet. As everyone knows and agrees.

Third, given that People’s Quantitative Easing and quantitative easing are the same in their financial functioning as both buy government issued bonds to be held for an indefinite period by the Bank of England there is no reason why the money to be reinvested next week could not be used for People’s Quantitative Easing.

Err, yes, there is. PQE injects base money into the real economy. QE does not. It’s a rather large difference there.

It really is time for those to object to come up with some real arguments as to why it should not be done.

Because it’s the monetisation of government spending. The same problem we all identified the day you first started talking about it as Green QE 5 years ago.

It’s almost amusing, the manner in which his own ignorance won’t let him understand the points being made. Almost.

Ignorance, a sea of ignorance

All told though the consequence is that not only has no QE been repaid, but the chance it ever will be is remote, in the extreme. Because repaying it would mean that the deficits that have been funded by QE (because that is what it has done) would actually have to be paid for out of higher taxes or by all investment funds being directed to government bonds, and not to create new investment but just to reshape the Bank of England balance sheet. Both actions would have a profound impact on the economy: they would create a massively negative environment in which growth would become a distant memory, there would a shortage of government created money to underpin credit in the economy, and there would most likely be heavy deflation – exactly what QE was meant to prevent. No government of any persuasion is ever going to pursue such a policy: it would be economic suicide.

So let’s be clear about three things:

a) QE has not created inflation, try as people might to suggest it has

b) QE has delivered modest growth, but not universally

c) QE will forever remain on central bank balance sheets, never to be unwound.

The chance that Yvette Cooper is right that People’s Quantitative Easing would have to be repaid is so remote that no-one, anywhere, need ever worry about it. In fact, all they should worry about is that someone in such authority thinks it might be wise to even countenance such a thing. I am deeply baffled as to why she should. The harm from doing so would be enormous.

Sigh, both the BoE and the Fed have already told us how QE will be unwound.

They purchased gilts and Treasuries across a range of maturities. As such, some of the ones they bought have already matured. And so they, when that happened, went out into the markets and purchased more, so as to maintain the stock as some bonds matured. The way they will unwind it is simply to not replace bonds as they mature. They can do this at any level of granularity they like: replace 0% of bonds maturing, replace 99% of them, as circumstances dictate.

Given that governments very rarely do actually retire debt, rather than roll it over, as they don’t make market purchases to replace maturing debt the government will be selling new debt into the markets to replay those maturing at the BoE. And that money will then be cancelled.

There’s nothing secret about any of this. Bot organisations have said publicly that this is how QE will be reversed. So, what’s Ritchie blathering about then?

Tax dodging in the public sector

No doubt the LHTD will be onto this real soon now:

Police forces are giving emergency response cars to senior civilian staff which allows them to avoid paying tax, it has emerged.
Directors of finance, human resources and IT departments have been issued with vehicles with blue lights and sirens as company cars.
Each could avoid paying more than £2,000 a year in ‘taxable benefits’ because HM Revenue and Customs does not impose tax bills on emergency vehicles.

Or is tax dodging in the public sector not quite the same thing?