Ragging on Ritchie

There is, of course, a problem with that attitude. Unless business goes green then there is no chance of net-zero carbon targets being met. But business won’t go green until it is a bottom line, profit and loss issue. And it will not become a bottom-line issue until climate change is forced onto a businesses’ balance sheet and into its profit and loss account.

The Corporate Accountability Network, which I direct, has come up with the only proposal there currently is to make this happen. What we propose is that the full potential cost of a corporation meeting its net-zero carbon goals is reflected as an up-front provision for those costs within its accounting system, and so in its financial reporting.

It’s not just blithering stupidity it’s also bollocks.

The answer is a carbon tax. Which is one – one – of the reasons all economists recommend a carbon tax.

So, the carbon tax is a Pigou Tax. It corrects market prices to reflect third party osts. That is, third party costs are now reflected in market prices.

ac counts are drawn up at market prices. A carbon tax means all company accounts now include climate change.

Done, dusted and finished. Which is why all economists recommend a carbon tax of course. That’s why Stern, Nordhaus, Quiggin, The IPCC, Tol and everyone else recommend a carbon tax. So that the costs of carbon are now in market prices. Are in everyone’s incentives, accounts and decision making processes.

The problem is already solved. Meaning both that the Corporate Accountability Network isn’t the first group to suggest a solution and also that we don;t need the one Snippa is proposing.

I am ashamed of England tonight. I am pleased that Scotland and Northern Ireland held out against Brexit. I could never blame the Welsh. Brexit is an English initiative. The exceptionalism that underpins it is England’s alone. And that is why it is of a England that I am ashamed.

The shame is multifold. Of the arrogance that we are a nation, better than others.

That’s good, that means we don’t have to be.

I am shocked even though in one way this does not impact me. I have had an Irish passport for decades. I am one of the lucky ones. So are my close family. We can all still enjoy freedom of movement. But I am still bereft. England has been my home.

If England’s not a nation better than the others then why has he stayed here all these decades?

It has to be said that I am aware that GIMMS do not much like me. I was an adviser when it started but I criticised Bill Mitchell, for good reason. Now they say I am not an MMT economist and advise anyone who will listen not to read this blog as I do not promote MMT.

Taxes eliminate not a single tonne of carbon. Regulation backed. by reporting can do that – hence what I propose. So, tell me, how do you think people can stop buying carbon driven products unless business is forced to change. And please do recall – most demand is created by advertising. Take that into account please.

Quite so. Our demand for domestic comforts and transport – the two major emitting sectors of the economy – is entirely and solely drive by advertising, isn’t it? I’d never desire food not central heating without it.

James. I never said any number should be discounted, I said provide in full. I dd not allow for discounting because in the case of climate costs increase over time and do not fall. Discounting pretends otherwise. Hence why full provision is required.

Seriously, an accountant who doesn’t understand discounting this badly? Dear God.

2021 may well see the greatest destruction of private capital worth in the UK in its history

We’ve entirely killed off any worries about wealth inequality then.

It takes only a little understanding of the human condition, and what follows on from it about the business condition, to realise that most of the time most of us survive by a thread. The stresses of life seem to be pretty big for many. Whether they really are is irrelevant: perception is what matters here. That is what is actually real, because perceptions relate to how we see the world. And, if most of us, most of the time see the world as stressful then that is what it is.

How do we cope? Through the use of routine. We eliminate as many decisions as we can during days that demand we take more decisions than we might wish for by simply reducing the rest to the level of repetitive action to which little thought need be given. And that’s fine.

Indeed so. This is known as “rational ignorance”. We do not need to, nor do we, calculate every detail of every action every time. We find what works well enough – and we may well calculate pretty hard to find that out – and then satisfact.

OK.

But that then explodes the case against consumer rationality. The very case against that Snippa is so adamant must be true, that consumers are not rational. We rationally worry about the details when we must. Such things as rational expectations, rational calculation, are therefore valid assumptions.

Snippa therefore wants to believe in rational ignorance and yet not in rational consumers.

The same is true of most of the remaining decisions, of course. We reduce them to the point where heuristics can handle most of the required choices. That leaves our energy for what is difficult.

See?

For all its many faults, and I acknowledge them, the EU provides a better trading environment for the UK then any alternative. If only a tiny part of the Brexit energy had been directed into its improvement and reform so much could have been achieved.

Cameron went naked into that negotiating chamber. And said, C’mon, give me something. Anything. Just a teensie bit I can take home and wave as a note promising peace in our time.

He was offered nowt.

We were going to achieve a lot by arguing for reform were we?

So, clearly, that’s not the right solution for Snippa, is it?

And this issue is vital: if we’re to have a sustainable future we must have accounting that integrates green issues within it.

Fair enough. So, accounts are at market prices. If market prices reflect the green issues then accounts will reflect green issues. We thus desire to adjust market prices to reflect green issues.

This is Pigou taxation. Sure, we want market prices to reflect full costs anyway, we agree that certain third party costs aren’t currently incorporated into prices. So, adjust to make markets reflect those costs. The solution – as every economist on the planet is screaming – is thus a carbon tax.

Snippa doesn’t support this. Presumably because a known and effective solution doesn’t provide research grants for Snippa.

I will; shortly be publishing a post on ways you can support the demand that the International Financial Reporting Standard change its approach to this issue. We need sustainability reporting, of course. But we must have that integrated within the financial statements of a company. Nothing less will do.

We already have the correct way to do this – Pigou taxation.

Andy Haldane at the Bank of England is saying that savings made in the last year could all flood into the market in 2021 and start a ‘roaring 20s’ boom.

I gather the Resolution Foundation (cut from similar cloth to Haldane) think much the same.

I beg to differ.

Pent up demand in 1919 did not lead to sustained growth. The 20s did not roar in the UK.

The “Roaring Twenties” is normally taken to refer to the American economy, not the British.

Then there’s the actual claim about those savings:

As I noted earlier today, the government deficit is matched by a massive rise in household saving this year. But it is assumed that by the end of 2022 households will hardly be saving at all.

How likely is that? Look at household behaviour after 2009 as an indication: savings remained high, and much higher than is now being forecast for 2022 onwards, until 2016. Given all the uncertainties that now exist, I suspect a 4% ratio likely, at least, for a long time to come. That is much higher than forecast, and means spending in the economy will be much lower than the OBR predicts.

That’s Snippa’s. This is Bailey’s:

Excess savings of about £100bn built up by UK households during Covid-19 lockdowns are now being spent and could speed up Britain’s economic recovery, according to the Bank of England’s chief economist.

Andy Haldane told the Daily Mail there was “huge pent-up demand”, and that a big spending spree could help the economy bounce back more quickly than forecasters expected.

He said the UK savings ratio, which measures how much of disposal incomes is set aside, rose to 29% between April and June, compared with 6.8% in the same period last year.

So, yes, we would expect those savings to be run down, to produce a boost in spending.

The St Louis Fed is one of the state central banks of the USA, serving the state of Missouri.

Sigh.

The Federal Reserve Bank of St. Louis is one of 12 regional Reserve Banks that, along with the Board of Governors in Washington, D.C., make up the United States’ central bank. Missouri is the only state to have two main Federal Reserve Banks (Kansas City also has a bank).[1] Located in downtown St. Louis, the St. Louis Fed is the headquarters of the Eighth Federal Reserve District, which includes the state of Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, the eastern half of Missouri and West Tennessee.

The US doesn’t have state central banks. It has regional reserve banks which are part of the federal system.

Sigh.

To the economics data geek this central bank is invaluable. Its web site is an absolute treasure trove of data, especially when it comes to reliable statistics presented in usable formats.

On the other hand, yes, FRED is pretty cool.

Oh, and as to the little paper that he’s found? Anyone give me an over and under on his picking up this point?

Similarly, a government that exercises its power to monetize debt is likely to experience a jump in the price level.

For those confused by this, and who wonder what they do with this ‘money’, please remember what money is: it is simply a debt.

OK. That means all that new money created by QE is a debt then, doesn’t it?

Richard Murphy says:
December 4 2020 at 9:54 am
Crypto currency is fundamentally dangerous as it is utterly untraceable

No thank you

Crypto works on a public ledger. It’s all there, every transaction ever, in every wallet.

Crypto is anonymous but wholly, entirely and completely traceable.

Spudda, the grand exponent of Modern Monetary Theory, doesn’t in fact understand money. The PAC report on more cash floating around:

But now the Public Accounts Committee has noticed that money is disappearing in the UK. As they have observed in a report issued this morning, no one knows where UK notes and coin are and what they are being used for

And?

The shadow economy remains a real threat to the UK’s ability to deliver fiscal stability. It undermines honest businesses. It creates cultures of mistrust. It harms social cohesion. All of those are big issues. The Bank of England needs to take them seriously.

As if to prove there are credible politicians in the U.K., the Public Accounts Committee has done good work here. I welcome it’s findings and recommendations. The Bank of England must be required to act.

And you’d think that one of the leading economic thinkers of our day – and Master of MMT – would actually understand money. As someone who never did become a professor at a British university might be able to point out:

So, to basic economics. The price of money has changed. You know that, right? You now know more than the people who aim to account the country, the PAC.

Interest rates – the price of money – have fallen. Back 15 years you could get 5% by exchanging cash for bonds, or savings accounts and the like. So, incentives matter. People would, when they had some spare cash, pop it into some interest bearing investment or hidey hole. Now interest rates are nothing. Lend to the government and they might actually be charging you. Cash now pays a better interest rate – nothing is better than minus – than many of those former hidey holes and absolutely no homes for cash equivalent savings make it worth the while bothering.

So, the hidey hole is now the back of the sofa.

This is just obvious. Change the price of cash as against near cash equivalents and the demand for cash and near cash equivalents changes. Anyone who doesn’t get this shouldn’t be allowed anywhere near the public finances let alone the PAC.

Why is it that the Tre Professore is so damned ignorant?

So, what if interest rates rise?

That £800 billion on deposit from the banks at the Bank of England will now need to pay more than 0.1%. So, how do we stop that being necessary?

Just issue perpetuals, or 100 year bonds, to the bank ins exchange for their £800 billion. Job done.

There is a certain amount of glee with which he tells us that inflation will mean that £800 billion in a century is irrelevant. Which does sit oddly with his insistence that everyone should invest in bonds for their pensions.

It also sits oddly with his insistence that rational expectations is rubbish. Because the reason that one third of gilts are inflation linked is because they did that inflating out of debt to investors before and some of them at least have learned from this. They are, rationally, not willing to lend to government, long term, without inflation protection, as a result of their expectations.

But now think through this. The banks don’t own those reserves in the central bank account. Well, they perhaps do in one sense but not in the important one. These are deposits by customers of the banks that the banks are then parking there.

As a check on this – and I don’t know the answer – what is the capital base of the UK banking system? £800 billion? Would surprise the hell out of me if it were. So, it’s not actually “shareholder” money in the BoE. It’s depositor. And those depositors might like it back at some time. If it’s in a perpetual bond the banks cannot sell then they’re bust when everyone asks for it back.

So, perhaps bankrupting the banking system might not be a good idea.

OK, so perhaps they can sell them? Perpetuals at 0.1%.

Hmm. So, what happens then? Well, think what QE is. We invent money down in the basement of the BoE and go buy bonds with it. This increases the money supply and reduces the number of bonds floating around thereby reducing interest rates/increasing bonds prices/reducing yields.

The money so created ends up in the BoE in these reserve accounts.

Spud tells us that we need not, should not, cannot, reverse QE because this would destroy money.

So, instead, we’re going to change the new money created, now in the reserve accounts, for bonds which the banks will sell to the market. Which increases the number of bonds on the market, increases interest rates, lowers bond prices and raises bond yields. Oh, and what does the BoE do with the money that it now has instead of those bonds it’s just given to the banks? It destroys it of course.

Because, you know, if it sends it out again it just ends up in the reserve accounts again in the name of the banks.

That is, giving the banks saleable bonds instead of reserves is reversing QE. Exactly the thing that Snippa tells us need not be, should never be, done.

Oh. And if those bonds can be sold then they are part of the national debt and need to be counted as such. So Spud’s caterwauling about the size of the national debt is also wrong.

As to why he doesn’t already grasp these aspects of his plan it’s because he doesn’t grasp the subject he’s trying to talk about. But then there’s nothing new there, is there?

Giving the banks bonds for the QE money sitting in BoE reserve accounts is reversing QE. And it’s the man insisting we must never reverse QE who suggests giving the banks bonds.

BTW, this man teaches economics at a British university. Sigh.

That is because I do not accept the premises of rational expectations theory,

Hmm.

So why are some one third of gilts index linked then?

To be clear, when interest rates cannot be used to control inflation, as is the case in almost every developed country now (and many others as well) because official interest rates are at, or near zero, tax is the only tool available for this task.

Interest rates are at near zero as a method of controlling inflation twatto. You know, to stop inflation being too low? And if we find that inflation rises then we can, of course, raise interest rates to control it the other way around, to reduce it.

Seriously, why does he think interest rates are at zero if it’s not to control inflation?

And that, of course, is populist politics in a nutshell. Ignore the evidence. Dismiss the experts. Create a grievance. Hype it in the media. Find someone to blame. Ramp up the rhetoric. Repeat as often as necessary. Glow in the aftermath of rebellion. Never accept responsibility. Move on.

Everyone else who has done MMT hasn’t done real MMT – Venezuela, Zimbabwe etc. Everyone but me is wrong about MMT and that Friedman bloke, hunh, what did he know? It’s the Bastard Tories’ fault that we can’t have everything. Write lots of pieces about this and spout the nonsense on radio. It’s all the Bastard Tories’ fault we can;t have sugar and spice. Repeat as often as necessary. Glow in the aftermath of rebellion. Move on.

And never, of course, come back to explain why things didn’t work out. Just as he hasn’t over that previous Jihad about tax avoidance.

So, yes, I think we can safely say our Snippa is a populist. By his own definition. The defence would be that he’s monumentally unaware of his own behaviour…..

This event is tomorrow. It was going to be a discussion but due to illness of other participants, it’s now a Q&A with me on MMT.

Even the prospect of working with Snippa leads to illness….

“We must act today because the cost of doing so tomorrow will be greater than it is now, and the scale of the issue we will face will have increased.” This is the view of Professor Richard Murphy FCA.

Stick within his own assumptions here.

OK, so, more emissions make climate change worse. We would like to reduce emissions early then. As the Stern Review – and all economics on the subject – points out, there are costs to reducing emissions. Nordhaus even gained the Nobel for exploring this.

Now, imagine – no, just imagine – that the costs of reducing emissions decline over time even as the costs of not reducing emissions rise over time. That makes life complicated for we have to look for that sweet spot, that optimal moment to reduce emissions, or perhaps the optimal rate at which to do so.

Just to invent numbers, the cost of not reducing emissions in 2020 is 100, of delaying until 2030 is 150. But the cost of reducing emissions in 2020 is 100 and in 2030 it’s 50. Or 10. Or 90.

The 50/10/90 difference changes the optimal moment or amount of emissions reduction.

So, our question is whether our imagine about emissions reductions costing less over time is true. Which, of course, it is. Try replacing oil with solar at 1980 prices. Try again at 2020 prices. This even before we get to the Nordhaus point about the capital cycle.

Murphy’s claim – at best – needs a lot more calculation and support than he’s offering. At worst it’s simply wrong.

Political economy recognises that all power persists so long as its narrative can be supported by society. And political economy presumes that those with alternative narratives have power simply because of their ability to tell those other stories.

MMT is an alternative narrative.

Even, just making stuff up. Explains a lot.