Ritchie wants pensioners to lose money on the Green New Deal

Since incentives are already provided by the government, simple rule changes could encourage savers towards Green New Deal bonds. For example, if an interest rate of 1.5 per cent or more was paid on such bonds with a government guarantee being provided, then the £70bn that goes into Isas each year could be directed towards the Green New Deal.

1.5% interest rate.

The current inflation rate is 1.7%.

Ritchie wants people to lose money on their pension investments.

Goddamit, don’t these people think?

What is currently taught?

Economics textbooks across the world, some of them first published in the 1960s, continue to teach students a model of the monetary system in which commercial banks act as intermediaries, that only move existing money around the system, like lubricant in a machine. Many economics courses rely on the models in these textbooks, without recognising the empirical evidence that undermines them. This gives an unbalanced view of the way the monetary system functions and of the role of banks in the economy.

How is money created?

As research from the Bank of England, Bundesbank and numerous academics has shown, banks are not intermediaries channelling pre-existing funds from savers to borrowers. Commercial banks create the vast majority of money in circulation. Unlike other financial institutions, they create money when they extend loans to borrowers. In the process of extending a loan, banks do not move pre-existing funds from any other account but newly ‘invent’ the money by crediting the borrower’s account. Therefore, banks’ lending is constrained by borrowers’ demand, profitability considerations and financial regulations, not by pre-existing funds (i.e people’s savings) nor by central bank reserves. This reality is in line with the credit creation or endogenous money theory, which is absent from most current economics textbooks and teaching.

Banks create credit, or wide money, they do not create money, or base money. M4 that is, not M0.

But apart from that here’s an A level revision text:

How Modern Commercial Banks Create Credit

Banks create credit by extending loans to businesses and households – pure and simple!
They do not need to attract deposits from savers to do this
When a bank makes a loan, for example to someone taking out a mortgage to buy a house, or a business taking out a loan to finance their expansion it credits their bank account with a bank deposit of the size of the loan/mortgage.
At that moment, new money is created!

“Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.”

If it’s in the A level syllabus then I think we can assume that it is being taught, no?

Lordy be

It is the UK’s only really effective tax on wealth itself. Wealth inequality is increasing rapidly in the UK. Around the world it is seen as a major issue. Organisations such as the International Monetary Fund[iv], World Bank[v] and Organisation for Economic Cooperation and Development[vi], none of which are seen as hotbeds of socialism, suggest that taxes are required to address this issue and create more equal societies.

More equal societies tend to be more socially and politically harmonious than unequal ones.

They also tend to be more prosperous and see more economic growth as those with lower wealth (and incomes) spend more of what they have, and so turn a given level of income into greater economic activity than do unequal ones.

The wealth effect works the other way around. When our wealth increases we spend more of our incomes as we need to save less to smooth income over our lifetimes. This is why falling asset prices are correlated with falls in consumer spending – the savings rate rises.

Spudda really ought to try getting the signs right in his economic musings.

Snippa and reality

There’s the usual silliness of course:

The latter are my focus. I concentrate on comments in the Guardian. They note Ben Zaranko, a research economist at the Institute for Fiscal Studies saying:

Both parties’ plans would represent a sharp change in policy, and Labour’s plans are especially ambitious. The key challenge for a government seeking to deliver investment on this scale – particularly in a short timeframe – will be finding worthwhile and viable projects in which to invest.

At which point I took a sharp intake of breath. First, that’s because the IFS has said in the past that, quite bizarrely, “they don’t do macro” and it has to be said that is true: they don’t, and it shows. So they are not out there looking for projects. And nor do they understand this issue. But there again, it’s also obvious that whatever macro that they do know is deeply conventional, which is apparent from their next comment…..


Macro would be the effect upon the whole economy – inflation, GDP growth, employment etc – of that increase in govt borrowing and spending. Whether there is actually a project worth spending the cash upon is micro.

But of course there’s also reality that has to be contended with.

The logic, and not the policies, is bankrupt. There is unemployment. There is a Green New Deal to do. And retrofitting double glazing could start any time soon, and is not hard to gear up. Nor is insulation.

But most of the double glazing and insulation has already been done (pages 29 to 31).

And what sodding unemployment?

Slightly sad

For some reason* the FT subscription barrier won’t let me through to see any further comments on Spudda’s letter yesterday. Anyone want to let us know if anyone else added anything?

*Probably because I don’t have a subscription to it…..

Snippa in the FT

Add your comments as you see fit:

The peril here is that we don’t in fact want each and every supplier, company and producer to be climate or emissions neutral. We desire the system as a whole to be which is a rather different concept.

The making of virgin steel (ie, not recycling using an arc furnace, but making from iron ore in a blast) requires the use of coke. The making of cement is the very process of driving CO2 off the source mineral. There are certain processes which simply cannot be made carbon neutral.

On the other side there are things like planting forests – climate positive or emissions negative, your choice of phrase. – or iron fertilisation of the Southern Ocean, or sucking the CO2 out of the air or, or …..and so on. None of which will ever make economic sense unless there is some method of transferring funds from those who must emit to those who can negative emit. We simply must have that offsetting if any of the clever schemes to have those negative emission are ever to happen.

Thus the base insistence that everyone must be carbon neutral, in fine detail, is incorrect in itself. That’s not what we want to happen at all.

Thus, obviously enough, the scheme fails, doesn’t it?

Had to happen of course

Snippa’s now in opposition to every economist:

At its core the reason why I dislike both those notions is that they miss the point of the climate crisis. What they presuppose is that we can price our way out of an emissions crisis that we now know threatens the future of life on earth. And the simple fact is that we can’t do that. There is no way we can be priced out of this issue. We can only solve the emissions crisis by stopping emissions. And taxing them won’t do that, any more than taxing tobacco has ever stopped smoking. Other measures – like bans – have been needed to make progress on that goal. That is even more the case for carbon.

The core claim there is that prices don’t change consumer behaviour.


Second, this assumption presumes that we, as consumers, know as much about the products that we buy as those who sell them do. It is presumed, therefore, by the proponents of carbon taxes and carbon trading that we can make rational, informed decisions on this issue after tax is added to a price.

Sigh, the change in price is the information.

The ideas behind both carbon taxes and carbon pricing are, then, wrong. But carbon tax is also wrong in practice. First, that’s because there is no one who denies that these would be regressive, because all consumption taxes are and this would have to be a consumption tax. Second, that’s because this would mean that any carbon tax would have to be matched by redistribution through other tax and benefits mechanisms, largely neutering its impact and making the whole thing a folly.

The actual proposal has always been to do that very redistribution. The most common one being to raise the personal allowance for NICs (or other worker paid social security contributions the name depending upon the country).

Carbon taxes also shift the whole blame for carbon consumption from the manufacturers, who willfully create the carbon outputs, to consumers, who are offered few or no alternatives to polluting products.

In addition, carbon taxes, by shifting the blame to consumers, put no responsibility for innovation or change on manufacturers. The result is that they will still sell polluting products, knowing they will still be bought.

The price changes, demand changes. So does the opportunity for new suppliers to produce now lower cost alternatives. Is there no beginning to this man’s ignorance of market processes?

Of all the ways to tackle climate change these ideas are, then, just about the worst way to go.

Gonna be interesting when this meets an actual economist, isn’t it?

Jeez, why doesn’t he go read the stern Review? Which explains it all rather nicely.

Oil companies aren’t valued by their reserves


And it matters because this is oil, and we all know that the world’s oil reserves cannot be burned or, quite literally, there is no future for life on earth. And yet this flotation assumes we can: the value is in the reserves.


It is one of the largest companies in the world by revenue, and according to accounts seen by Bloomberg News, the most profitable company in the world.[7] Saudi Aramco has both the world’s second-largest proven crude oil reserves, at more than 270 billion barrels (4.3×1010 m3),[8] and second-largest daily oil production.[9]

Saudi officials have backed an official figure of $2 trillion for Saudi Aramco’s value. The company’s financial data were leaked in April 2018, and according to Bloomberg’s analysts the company could be valued at $1.2 trillion, a significantly lower sum.[10]

If we take the Saudi number that values each barrel of reserve at $7.50. Current Brent is around $62.00.

So, we’re not valuing Aramco at the value of reserves, are we?

On Wednesday, 12 June 2019, Aramco has reported its net income at $111.1 billion in 2018 compared to $75.9 billion in 2017, this with total revenues at $355.9 billion in 2018.[15] By first half of 2019, Aramco reported a net income of $46.9 billion.[16]

Hmm. $50 billion in profits for a half year. So, mebbe $100 billion for a full. That’s a 5% return on $2 trillion valuation, isn’t it?

You know, we might be valuing Aramco on the profits it makes, not reserves.

Gosh, you mean the professor emeritus of practice in international political economy at Islington Technical College knows fuck all? We are surprised.

Never was there a more obvious conflict between the failing logic of the market and future we need.

We might perhaps worry more about the gap between knowledge and commentary……

Well, yes, we can get the cash, but

However, there are significant costs implied by the scheme. Labour calculates that delivering essential upgrades to the UK’s entire housing stock will cost about £250bn, or an average of £9,300 per house. The party pledged to provide £60bn of direct public subsidy for the programme, with the rest paid for “through energy savings”.

OK. No, take their numbers. Let’s not worry about examining them.

So, on that basis an answer as to how the whole sum will be funded is required.

The fact is that, me apart, I can see now one who has n answer to this. Naomi Klein is miles off target in her latest book. Ann Pettifor cogently argues it is by borrowing in her latest book. But no one says who will buy those bonds. I have, here. Changing the rules of ISAs and pension funds could provide all the cash needed to fund the Green New Deal. The issue is so vital I will be returning to it, again and again, I suspect. We have to get this right.

OK, fair enough.

Now the tough bit. For we’ve not got a mechanism here by which the pensions investors get the savings from the energy bills. How does that work?

My flat is lent money to insulate. This reduces energy bills. Great. Money goes back to those pensions investors. Both interest and, at some point, the capital sum because people do consume their capital as they spend their pensions.

So, what’s the mechanism by which those lower energy bills pay the pensioners?

The owner of the flat pays some portion of the lower energy bill to the pensioner? The energy company charges the same amount and diverts some to the pensioner? The taxpayer pays the interest and capital back?

How does this work?

For extra points, once we’ve built that system that does the paying back then why do we need the compulsion of making pensions invest in it?

This is the problems with Spudda’s wand waving. He says “bonds”. OK, But who pays them back out of what revenue stream?

Dear Lordy be

Can’t the man even do basic logic?

This is excellent news for a number of obvious reasons. First, there’s little evidence fracking really works in the UK. Second, it would have caused considerable harm to communities. Third, we do not need more carbon burnt. Fourth, the secondary pollution risks from fracking, and most especially to water courses, are very high. For these and other direct reasons the change of mind is good news.

There is another reason to also think it good news. This is from the financial and policy perspective. The evidence is that just because a process does not work does not prevent funds pouring into it in pursuit of promised yields that will never materialise. This may already be true in the case of much US fracking. I am certain it would have been true in the UK. And there would have been a reason for that. The carbon lobby could use fracking as an argument that ‘of course we need investment in new energy sources, but not in alternative and sustainable energy because fracking can meet our needs’. As a result it was a massive, and I suggest, deliberate distraction that worked well with a government that had no love for anything green.

If something doesn’t make a profit then people stop investing in it, don’t they? So, if fracking doesn’t make a profit then we don’t need top ban it, do we?

That is, the very fact it is being banned shows that it is thought to be profitable…..

Perhaps we can translate this?

Being a full time academic had its plus sides, but the rigidity of the expectation, and the lack of willingness on the part of academia to consider anything that looks like innovation,

My best guess at an accurate translation is “People who knew what they were talking about disagreed with me”.

Well, no, not really

You’ve not addressed it:

Richard Murphy says:
October 20 2019 at 10:56 am
He also chose badly

And what this shows is that markets are not able to support such activity

Hence the need for an active state backed investment bank issuing its own bonds

I think you’ll find I have addressed this issue

Because you’ve not worked out how to make sure the state doesn’t make bad investments. After all, the idea that John McDonnell knows how to invest for our pensions is pretty much of a stretch, isn’t it…..

Price fixing always works so well, doesn’t it?

It’s called a Green New Deal, of course.

Start insulating houses in these places. Create jobs.

Build the infrastructure for the growing home holiday market we are going to have to have whilst we’re at it. That’s improved public transport. And facilities.

And at the same time regulate this debt: better fix the price that can be paid.

And we’re going to do really, really, well when politicians get to pay for things by increasing the base money supply and can only control the resultant inflation by raising taxes.

Those holding bonds with a fixed rate of interest are going to do really, really, well under that set of incentives, aren’t they?

How does this work then?

The choice is now between the NHS and US health care.

What portion of EU law means we must have the NHS and not US style health care?

Worker rights or US-style employment arrangements.

All EU derived workers’ rights – many of which we overperform on anyway – are already transposed into British law.

Care for the environment or no future at all.

The EU is the only fount of care for the environment?

Concern for the whole country or the interest of tiny minority, some of whom control too many of our newspapers.

The interests of that plurality that voted to leave?

One person had a good day. Keir Starmer shone out from the Labour benches. He was reasoned, considerate, fair to all sides of the House, and tore to shreds the Tory claims – which, despite his invitation that they do so, they did not defend. You could just say it was a lawyer’s speech. It was more than that. It was excellent politics. I admit that for the first time I am persuaded that he is the leader Labour now needs.

Gimmie Vermine!

BTW, has he told the SNP he’s agin Scots independence yet?

This parliament has to build on that. And he has to be completely defeated – by the people of this country as a whole – to ensure that he and those he represents never again get the chance to ruin the four countries within our Union. I am sincerely hoping they are up to the task.

Does Snippa even realise it yet?


And do you really think piles of cash will stop that climate crisis? Really? How? Please tell, because 97%+ of the world’s climate scientists disagree with you. Are you one of them?

If piles of cash won’t stop climate change then why’s he sop insistent on spending everything everyone has to prevent climate change?

The Green New Deal is rather the argument that cash will solve the problem, isn’t it?

Seriously stupid

The essence of sustainable cost accounting is simple. It would require that every large business prepare a plan to show how it would manage the consequences of climate change. That plan would have to state how it might become net carbon-neutral by a specified date, both within its own business and within its supply chain.

We don’t actually want each part of the system to become carbon neutral.

The desire is that the system as a whole becomes carbon neutral.

Think slightly differently about the wider sustainability idea. Say, the use of metals – as the Club of Rome did.

So, do we want washing machine makers to be recycling steel so that washing machine manufacturing is using a closed loop?

Nope, we don’t. We’re overjoyed that there is a system to recycle the steel in washing machines of course. Meaning that the wider world of steel use is at least getting closer to being a closed loop system.

But we’d be mad to insist that each and every player in the system had to recycle their own steel. For the division and specialisation of labour is a real thing.

So too with this narrower idea of carbon neutrality. Division and specialisation. An airline doesn’t need to be growing algal jet fuel, or planting trees, or iron fertilising the ocean. Nor retrofitting gas boilers to equal the plane’s emissions.

We want reductions and reversals of emissions to be made where they’re easiest, by those who are best equipped to do them.

Standard, basic, economics. In fact, that damn pin factory again. The divisions and specialisation of labour means we don’t want to try to force every business and or organisation to be carbon neutral. Even as we desire the system as a whole to be so, we still don’t want that from each component.

And as ever if you can’t even understand Adam Smith then you’re not going to have much useful to say about economics.