Ragging on Ritchie

Did we expect him to get macroeconomics right?

In that case, first note that the ‘Treasury view’ that the primary object of government is to balance the books does still, very clearly, persist.

Nope. That’s not even what the Treasury View is. Rather, that any borrowing to spend by government has a 100% crowding out effect. Sure, the Treasury View is incorrect but it’s still not what Snippa claims it is. It’s saying that there’s no point to deficit spending, not that balance is inherently desirable.

So, we are back to the mantra that the job is the government is to keep the bond markets happy.

Well, if you want to borrow from said bond markets it seems like a fairly sensible idea.

Second, we now have quantitative easing. £635 billion government bonds are now owned by the government. They will never be reissued to the market, as the Bank of England has now tacitly admitted. This is then new money, created without the involvement of the markets. We now know we can do that.

Third, we know inflation does not occur as a result if we are not at full employment. We currently have 10 million unemployed people.

Ah, no. Depends what you mean by “full employment” really. One useful definition being the rate at which inflation doesn’t start to rise. Nairu that is. Which is a bit circular but that’s the meaning we should have here. And what Nairu is depends upon the structure of the labour market being considered. Back in the 1980s it might have been 5 or 7%. More recently it has been perhaps 3 or 2%. What it will be in the future depends on what the labour market structure is going to be. See the work of Richard Layard on this.

And when we do get to Nairu then those QE bonds are going to be reissued to the market, aren’t they?

Fifth, we know as a result that the power of bond traders is broken, whether that be on rates, or deficits, or any other issue: since we now know that we are not in any way dependent upon them because if at any point they get uppity the government can simply begin another quantitative easing programme, the chance of a sovereign debt crisis is zero. And that is most especially true when every government is in the same situation.

The definition of uppity being used here is “No, I’d rather not buy that, thank you”.

Sixth, we know there is a massive demand for sovereign debt – including that of the UK. That is despite exceptionally low interest rates. There is not the slightest sign that there is any change in this situation, but if stock markets fell (as is likely) that demand would only increase.

Not really, no. Look up a bit. You’ll see that the Bank of England owns £635 billion of that government debt. You know, debt that the market doesn’t want and won’t take at current prices? If this were not so then why has the BoE bought it?

And sixth, explain that the government is not constrained by a lack of money, because it can make all that is required and that none of inflation, a sovereign debt crisis or a crash will happen.

Would you prefer our green and pleasant land to become Venezuela or Zimbabwe, Comrade?

But balanced budgets, tax increases and cuts are the surest way to economic and social disaster that can be imagined, and would repeat the 1930s all over again.

And that’s where Spud really falls over. For in the UK – the US experience was different – the 1930s were rather good in macroeconomic terms. Spending was cut, taxes rose, the deficit turned into a surplus. At the same time the country came off the gold standard, the exchange rate dropped 25%. The depression, such as it was in the UK, was over in 18 months or so.

Expansionary austerity works, d’ye see? It is possible to have an overall expansionary policy stance even while having a contractionary fiscal one – it’s just necessary to have monetary policy being very expansionary so as to produce that overall balance.

Those who don’t know their history can’t repeat it, can they?

Stump thinking

But there is debt we do need to worry about.

There is the massive pile of corporate debt that has been very largely created to fund share buy backs and excessive dividend payments to drive share prices ever higher over the last decade, which has now left large numbers of companies deeply vulnerable to corporate failure, but made David’s job so much easier during that period. That debt is an absolute scandal.

This from the man who insists that the Green New Deal should not be funded by equity but only by debt in hte form of bonds.

Ah, not knowing what a wiki is

Peter May, whose work underpins the Progressive Pulse blog, and I were talking yesterday about the need to bring together a whole host of posts on this site, Progressive Pulse and other sites in a place where they could be more easily found under topic themes.

This reminded that three or so years ago I was keen to build a wiki for this site but it did not happen, I have no doubt for very good reason (like a lack of time). However, the software was created and it occurred to me that it could be very easily adapted for this purpose.

What’s the defining detail of a wiki? The wisdom of the crowds, that the general public out here gets to edit.

What’s the one thing that Ely Sagacity isn’t going to survive? The wisdom of the crowds…..

Be hellishly fun to see the re-edits though…..

Actual, you know, ignorance

We really shouldn’t allow people like this anywhere near the formulation of public policy:

Deaths are down. That’s good.

But the fall is most heavily in hospital (22%). At home it is 12% and in care homes 19%.

The NHS is being protected but people are dying elsewhere instead.

And that does not look like a healthcare policy to me.

The entire, stated, aim all along has been to flatten the curve. We’ve a new infectious disease spreading amongst the population. A disease where the death rate can be ameliorated by good, intensive, health care. Well, we think so at least. So, we have a limit on how much good, intensive, health care we can provide. Thus we want to spread incidences of the disease ridden who require that good, intensive, care over time.

That’s the entire justification for the lockdown. To spread the burden on intensive care units. To save the NHS that is. This is working. And this is described as not being a healthcare policy?

Oh Aye?

Thank you for holding this conference. It is important.

Thank you, too, for asking me to speak.

When I wrote the first version of what we now know of as country-by-country reporting in 2003 I could not have imagined a day like this would happen.

Snippa and local tax offices

As we know the Sage has spent a decade bemoaning the closing of local tax offices. That he’s been paid by the taxman’s union to say so is only an aside. But there’s good reason to get rid of such local offices:

Oliver Stanley was the most unpopular man in Weymouth when the Labour chancellor James Callaghan announced a swathe of new taxes after the 1964 general election. Overnight, the tax inspector found himself a pariah in the Dorset town. “We taxed everyone and everything that moved,” he recalled. “The grocer was enormously helpful to my wife, he kept bringing her groceries. Other people looked the other way when I passed.”

When the local tax inspector starts picking over the carcasses of those being taxed then the local tax inspector risks becoming something suitable for the crows to pick over.

Or, as we might put it, The Curajus State can only exist if those exacting to pay for it are not locally known.

When Stanley was awarded an honorary fellowship at Liverpool John Moores University in 2011, Professor Frank Sanderson said: “His view was that if people were attacked by confiscatory tax rates, they should be able to defend themselves.”

Exactly what the Sage insists should not be allowed of course.


It is important to note that HM Revenue & Customs like to suggest that tax paid on pensions can be offset against the current cost of pension tax relief, but doing so breaches all the rules of accounting. The tax paid on pensions enjoyed in the current year relates to the tax reliefs given in earlier years, and not those of the current year. As such they cannot be offset. Items must relate to the same year to be offset.

Eh? Windmills are grossly polluting. For there are emissions in the production of a windmill. That the windmill saves emissions in years 2 through 15 cannot be offset because that breaches all the rules of accounting. Items must belong to the same year to be offset.

Government spending creates costs now. But this cannot be offset against the tax revenues collected in the future, to do so would breach all the rules of accounting.

Either Ritchie’s just killed off the multiplier or he’s too stupid to realise he’s done so.


And bank lending is now the only way we now have to create all the money that we need to make the economy work.

So government doesn’t have to create the money we need? It is not necessary to run a budget deficit in order to create money therefore?

Doesn’t that rather……oh, sorry, forgot, stump thinking.

If you say so

But without tax their promise is meaningless

And there has to be enough tax to create that meaning

Which is why in low tax states other currencies are often in use

Err, yes. Which is why the euro is used in the US so much more than the dollar is in France.

Nope. Wrong.

But what you would find if you turned up at the Bank of England and met the cashier and asked for your £20 was that they’d just give you another £20 note.

So there has to be something else that makes this promise valuable.

And there is. The value in the promise is that it is the government – which has owned the Bank of England since 1946 – that is really making it.

That’s important because the government has the ability to make good on the promise it is making.

There is one simple reason for that. It’s because many of us, most of the time, are in debt to the government. We owe it tax. And the only thing they’ll accept in payment is the money that they happen to make – the pound in your electronic bank account.

Wrong on three entirely different levels. As we know the BoE only makes about 3% of the “money” floating around. The vast majority is created by banks in the form of credit. And yes, you can pay HMRC with credit as produced by the banking system.

Secondly, It is not necessary to pay tax with UK money of any type. HMRC will entirely happily take euros from you, a form of money which the UK government does not produce. It is also possible to pay in artworks and so on. Even old notebooks – I’m told that a substantial part of the inheritance tax due on Tony Benn’s estate was paid in the form of his old papers.

And, to reach the Tre Professori thirdly, if it is that we can pay tax in it which means money maintains its value then why do we have inflation? For government always is willing to take its money as our tax payments. But sometimes money loses its value all the same. Thus it cannot be the government’s willingness to take it which is the sole determinant of value.

Oh, and as a corollary to that, some monies – say Bitcoin, or dollars in Russia – cannot be used to pay taxes and yet they have value.

It ain’t all in the state, nothing outside the state, you know?

As to what does give money it’s value it’s the belief in the willingness of the next person down the line to ascribe value to that money. That’s all.




I am really interested to hear. If this is to be done I want to do it in a way that works.

He doesn’t actually mean that in the slightest. For the above critique won’t appear there, will it?


Some questions just have easy answers, don’t they?

Question of to the day: what to call an economics that embraces MMT?

Although we might explain this a little bit to make it a less easy answer.

The nuts and bolts of the heart of MMT are correct. Governments make money, governments can make more money. Thus the money is not the limitation to what a government can spend.

This also doesn’t make any difference. For money is only a proxy for what we’re interested in, which is scarce resources. Making more money doesn’t change the resources we have available to us – therefore it doesn’t actually solve our important problem.

If you want to say that at times more money does solve problems then that’s fine. For it’s also correct. We’d rather not have deflation, QE stopped that, QE was making more money. But that’s straight monetarism, that’s not MMT (we can and do derive it from Friedman and the money equation for example, and that just ain’t MMT).

Moving on to the Sage’s musings:

So, what is economics that we need, which will have to embrace MMT and the Green New Deal, which I believe can together provide the required tools and policy framework?

Two ideas come to mind. One is enoughness. The idea that we can have enough may be something that we are learning right now.

That’s called “satisficing” and is hardly new nor does it emanate from Ely, not even a whiff of spudness about it.

But I think I prefer balanced economics, which then becomes BE and BEing.

I am, of course aware that this can be suggested to be very ‘touchy-feely’. But that’s far from what it is. It’s hard nosed fact that we do need to balance the way that we live and to recognise that there is virtue in enough now if we are to have any hope of surviving the climate crisis that is to come.

That’s known as prioritising and ain’t new either.

Well, yes, obviously

My aim has always been for a cappuccino economy: one where state and private sectors both flourish because each is allowed to do what it does best. We’re a long way from being there right now.

Who could – despite the tortured analogy – disagree?

For example, why do we currently use the state to do what the state is manifestly incompetent at doing? We should, if we are to use each at what it does best, be using the private sector rather more, no? Even, markets where they work better – say, the provision of health care?

Or is that not to quite grasp what the Spudda is suggesting?

What the heck does he do in Tesco?

I have been thinking about the story of Neil Ferguson, the Imperial College epidemiologist who became known as Prof Lockdown.

I feel sorry for Ferguson. I doubt he wanted to be in the public eye. The attention this pandemic has given him had already required that he rather publicly admit to what he thought to be an error in his work, which he corrected because he thought it in the public interest to do so.

Now he’s been caught out taking about as much risk as I do every time I go to Tesco and been pilloried for it.


Tre Professori on banking

Yesterday we were told that all banks are about to go bust and that thus they must all be nationalised.

Today the Bank of England, who actually know about such things, tells us that:

The Bank’s financial policy committee, which assesses risks to the financial system, carried out analysis of what would happen to banks and building societies if GDP fell by 30 per cent in the second quarter compared to the final three months of 2019 and by 14 per cent this year. Lenders would suffer from about £80 billion in losses, but that would be well below the £120 billion of losses they demonstrated that they could withstand under the Bank’s 2019 stress test of the sector.

Who to believe, eh, who to believe?


And on the pedestal these words appear:
‘My name is Ritchie, economist of economists:
Look on my works, ye Mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands of Norfolk stretch far away.



To be precise, landlords have not really been asked to make any sacrifices to date: their interests and income streams appear to have survived almost unscathed to date.

Those of us who actually read the newspapers seem to recall that the property companies are collecting what is it, 50% of the rent roll due?

And thereafter rents should be reduced, drastically, and by law, and right across the board. Eighty per cent cuts may be appropriate. It may be more.

Because price fixing always works so well, doesn’t it?

as I think appropriate, there should be long-term statutorily enforced rent holidays and then mandatory rent reductions I would match that with a right to bank loan holidays, and a right to a statutory reduction in loan liabilities so that the sum secured on a property cannot exceed its market value, whatever that might be in the future.

Oh, right. Well, that’s OK then, isn’t it? Do we think he’s got stock in Intu, the obvious people who will benefit from this?

matched by a similar scheme for owner-occupiers, who I predict will see the value of their houses crash in the near future as it becomes apparent that there is no market for them at anything like recent prices, then they too must have a statutory right to owe no more on a mortgage than can reasonably exceed the market worth of their property.

There he goes, socialising losses again.

Every single bank in this country, and across the world in all likelihood, will be insolvent. No bank will survive without nationalisation.

Gosh! How exciting! Is everyone taking notes here?

Ohm and, of course, all pensions have gone bust., Which is why everyone should have invested the Ritchie way, in real assets.

Except, of course, he’s just said that all real asset values have just collapsed.


Maybe, then, excess deaths have plateaued for the time being. This was what I expected. But there is no sign of a fall as yet. In that case, we can expect 1,700 death a day for a while as yet.

Wasn’t he telling us 5,000 a day? Or 10,000?

It is just astonishing what he doesn’t know, isn’t it?

That confusion, and the fact that almost no one believes that any company will last forever, mean that perpetual bonds are almost unknown now in the commercial world.

Well, we do have something very close, preference shares. Yes, they’re not the same but still, VCs use them all the time.

But this:

They have, however, been issued by governments. The most famous, at least in the case of the United Kingdom, is the 3.5% war bond issued in 1915, which was always problematic. Although this debt was issued as a perpetual, in practice it was redeemed in 2015 at the whim of the UK government.

Consols were first issued in 1751, they were the usual form of government bond too. The 3.5% war loan was in 1914, it was 4.5% on issuance in 1915. It was later changes which dropped the interest rate back down again.


And then this is gorgeous:

But third, and perhaps most importantly, the change in nature of the market for government securities makes perpetual bonds a very attractive proposition for government at present. If it is known, and many governments do have this understanding, that a government will be repurchasing some or all of the bonds that they issue through a quantitative easing programme, then to have perpetual bonds in issue makes their central banking operations significantly easier to manage.

We should issue perpetuals because it makes reversing QE easier. This from the man who has spent a decade telling us that no one will ever reverse QE therefore ………

Oh, and one more thing:

The first, and perhaps most obvious of these, is that current interest rates throughout most major economies are at record lows, and after adjusting for inflation usually represent negative return upon any bond that is currently issued. This, it has to be stressed, has not prevented such issues: the fact that governments alone can issue bonds that are guaranteed not to fail so long as the government in question has its own central-bank creates an appeal to the investors seeking security that very few other investments or deposit-taking mechanisms can supply. The demand for bonds is high when all else looks like it could fail. We are living in such times. That means a government that knows it is likely to borrow in perpetuity(and that is true of almost every government on earth now) can now lock into these low rates knowing that they will, because of the impact inflation, almost certainly also diminish over time.

What interest rate will the government have to pay on a perpetuity? Given that all those who might buy them also know about that inflation trick?

Now just think about this for a moment

A gross injustice is being done to universities, students and all our futures as the government abandons higher education to its fate

So says a man who currently – if only for a few weeks longer – holds three professorial posts within the British university system.

First, this will lead to mass redundancies at universities, and most especially amongst academic staff, many of whom are on temporary contracts.

Well, that could affect him.

Third, the failure of the government to support research when Brexit is also causing untold damage to the sector as a result of the loss of European cooperation cannot be overstated: we will now be in the research wilderness.

At least one of those professori was paid for from EU funding.

And do you know what? Nowhere at all in this discussion of the inequity of this gross injustice is there a single mention of how The Great Tuber is talking his own book.

It is usual in such situations to make at least a joking, or even coy, reference to how self-interest is coinciding with the call to spend other peoples’ tax money on oneself.

But, you know, no.

Kill the bourgeoisie!

Eliminate them as a class!

The solution to this problem is relatively straightforward. A lifetime contribution limit should be introduced. The sum could be discussed, but when £100,000 represents significant savings within the UK at present a cap at this limit would seem appropriate and could be applied from now on, preventing anyone with this sum in ISA accounts from making further contributions in the future.

Can’t allow anyone to become financially independent now, can we? If we did then how could government retain power over them?