It isn’t just like household debt!

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1. “There seems to be a disconnect within the BBC,”

   The disconnect is everywhere. I particularly enjoy Lord Hague’s constant mentioning of MMT in his ill informed opinion pieces. He must be getting his MMT from Lord King.

   Apparently the latest reason we must ‘pay down the debt’ is because a quarter of it is indexed linked. Yes, and mostly owned by UK pension funds and insurance companies who are required to hold them for regulatory reasons. Hence why every one issued last year was sold at a negative redemption yield.

   If it’s a problem don’t issue them. Just offer Granny Bonds from National Savings to individuals and their trustees.

   I had a quick flick through the Red Book yesterday (as you do). I’m no expert on reading tables like C1, but it looked to me that over the next five years we’re going to have next to no output gap despite over 4% unemployment and there’s going to be a productivity miracle that will allow a doubling of the corporation tax take in two years time.

   But perhaps I just don’t understand how marvellous the OBR. After all, as they like to tell us, their forecasts are not quite as wide of the mark as HM Treasury used to be. Therefore their forecasts are still valuable.

2. For insights into the EU’s economic and political machinations, read Adults in the Room by Yanis Varoufakis. The economics are nonsense – the politics are everything.

3. I cannot understand the fascination with the Institute of Fiscal Studies. They really haven’t a clue.

4. That bbc clip is promising,the ball is starting to drop.

   It would be refreshing for politics in the public sphere to be coherent and reflect the framework we have.

5. “Our edX MOOC – Modern Monetary Theory: Economics for the 21st Century – started yesterday (March 3, 2021) and will run for the next four weeks with new material being added each Wednesday as the weeks progress.”
   Highly recommended after joining the first session. Is there a link to a ‘recording’ for those interested who missed the first session (and for those who find the timing difficult)? Also is there a link to the recent ‘Helsinki’ series for undregraduates?

6. Dear Michael Galvin (at 2021/03/05 at 12:53 am)

   Thanks for your comment and query.

   But you have not fully grasped how the edX MOOC system works.

   When you say that your joined the ‘first session’ and thought people would miss the ‘first session’ that is not ca correct construction.

   The MOOC will run over 4-weeks. Each new week will unveil the new learning material.

   The material for Week 1 was released last Wednesday (March 3, 2021) at 11:00 Sydney time. It will remain continuously available (24/7) to all participants until the end of the four week period. Then next Wednesday (March 10, 2021 at 11:00 Sydney time), the material for Week 2 will become available, and so on as each week passes.

   So no-one will miss out if they enrol.

   As to my Helsinki lectures which have just been completed, we are editing them at present and once the MOOC is over (getting that organised and operational has been very time consuming) I will post links to the lectures.

   Thanks again, as usual, for your on-going interest.

   best wishes
   bill

7. My apologies Bill for pre-empting your music section. Here in sort-of lockdown Britain, I’m one of those who is actually staying home in order to hasten the end of the health crisis (also it’s cost me FT employment) so pointers to what day of the week have become more important. I do of course take an interest in commentary on the world outside Blighty including on the economy up above, which I would be living and working a lot closer to if the UK hadn’t made itself a rampant covid pariah state.

8. The BBC (and a bunch of other people) are still blowing it by referring to bond sales as “borrowing.” When a bond is sold (I’m speaking from a US-centric point of view) a US Government liability created out of thin air by the Treasury is swapped for a different US Government liability created out of thin air by the Federal Reserve. In what sense is that borrowing? It is entirely analogous to what happens when you move money from a checking account to a savings account. That is to say, swapping one bank liability created out of thin air for a different bank liability created out of thin air (your checking account balance and your savings account balance are both just ledger entries backed by the full faith and credit of the bank). Nobody considers that borrowing, why then is a bond sale considered borrowing?

9. Its one thing to be mercenaries of the rich.

   It is another thing entirely to get things WRONG. Examples are the money multiplier and government “borrowing.” Neither happens.

10. @Neil Wilson
    Disconnect at the BBC: the disconnect is indeed everywhere. We see it here in Canada where the bank financed think-tank CD Howe Institute was grinding on about how every dollar of the debt has to paid back soon while the economists at the Royal Bank of Canada (the largest commercial bank in the country) said there was no hurry to reduce spending.
    The needs of the pandemic have caused the disconnect. Once it is over the neo-liberal austerity/privatisation consensus will begin warning of the need to repay the debt and “tighten our belts”. All the media, big finance think-tanks, and most political parties will repeat it relentlessly. Functional Finance was part of mainstream discussion after World War II but was eventually submerged by bastard Keynesianism and later, worse, by neo-liberalism.
    Hence the importance of MMTed to get as many people as possible to understand what the potential of our economies truly is and why.

11. The Conservative party might be Keynesian in its spending but this has been followed in the recent budget with a rising of taxes. Rising income tax liabilities in a country that is just getting out of the pandemic is as old wrongheaded economics as it gets.

12. ‘But you have not fully grasped how the edX MOOC system works.’
    Many thanks Bill for making clear what I’m sure was already clear to everyone else! Meanwhile Ive decided to commit to memory the recurring (in this blog) ‘sectoral balance’ ‘equations’ using ‘Macroeconomics’ (the signed copy I bought at the launch).

13. The BBC (and a bunch of other people) are still blowing it by referring to bond sales as “borrowing.”

    The problem is they are correct. “Borrowing” simply means “take and use with the intention of returning it”. And in that very narrow sense the BBC is accurate. And I’ve had that from the BBC’s complaint department when I raised it with them. They justify it on the grounds that they are simplifying the process for the reader.

    When a bond is sold, the reserves are taken and ‘used’ (ie deleted) When the bond is redeemed the reserves are given back (ie recreated).

    However the BBC did say this:

    “I note that in your email to us you were concerned that there might be an implication that the government could run out of money. I don’t believe we stated that or even implied it in the article which also looked at debt and the deficit, and the prospects of a double dip recession. We would not want to alarm readers and indeed you have explained in your email why that would not happen.”

    So if anybody ever hears the BBC suggest that cards are filling up or whatever, please raise a complaint immediately and remind them that they have accepted that can never happen, having had it explained to them.

    If you have reason to complain keep it polite, short and to the point. That applies the most political pressure. Don’t give them an excuse to dismiss you as a wing nut.

14. Neil, one could argue that the Treasury is borrowing reserves from the Fed, although it would be equally valid to say that the Fed is borrowing bonds from the Treasury. We generally don’t refer to that kind of swap as borrowing, just as we don’t refer to a currency exchange as borrowing.

    The reason I object to the characterization of this swap as borrowing is that by using that term, commentators (intentionally or not) imply the possibility of default and future interest rate dangers and burdening of future generations that don’t exist.

15. Hi Bill

    am enjoying your Blog and the MMT Course which is what brought me to your Blog.

    Re “Regular readers will know that while I think the EU should be broken up I have always held that it should be reconstituted as intergovernmental agreements (which democratic states can withdraw from any time they are not working for their citizens).

    What purpose would that achieve? Well there are some issues that require scale and impact across currency borders. The pandemic is one of them. We all need to work together to get rid of the virus threat.”

    I would add to that the need for common environmental standards across Europe.

    When the UK was part of the EU it eventually had to clean up its dirty beaches and water treatment — but only after being fined and highlighted.

    So many climate initiatives also may need a common approach.

    As a remainer, I was pleased to see some of your reasoned arguments for leaving, which from our side of the Globe have been very thin and usually based around self interest and political expediency.

    the only adequate reasons I had heard up to then, were that it was a protected Zone that disadvantaged in Trade terms, many developing nations such as Africa , and a farmer friend who said he voted “Leave” because he was mindful of Schumacher and “Small is beautiful” — that things tend to get unwieldy the bigger they get.

    I have been revisiting J K Galbraith this morning and his work The Age of Uncertainty, whose BBC program in 1977 first really interested me in Economics (although I had been studying it for 2 years prior)

    I read with interest from the Wiki page:

    “Galbraith fully acknowledged the successes of the market system in economics but associated it with instability, inefficiency and social inequity. He advocated government policies and interventions to remedy these perceived faults.[1] In his book Economics and the Public Purpose (1973) he proposed the extension of the planning system used in the industrial core of the economy to the wider market economy. He argued for a new socialism, with more steeply progressive taxes, public housing, medical care and transportation, public support of the arts and the conversion of some corporations and military contractors into public corporations.[2]

    He was the most read social scientist of his era. Galbraith’s association with the U.S. Democratic Party and his criticism of fellow economists, who promoted individualistic free-market economics that he perceived as a false social reality, occasioned strong responses.[3] He was of the opinion that “Wealth is the relentless enemy of understanding”.[4]”

    end of quote–

    I remembered what my Father and I both appreciated was that the free market was not sufficient for our Society and remembered there was, at that time terrible industrial unrest and large unemployment – which prompted my going to Italy eventually = only to return 2 years later to Thatcher and her economic madness under the thinking of keith joseph and milton friedman!

    here is another wiki quote

    “The leader of the British Conservative Party, Margaret Thatcher, and Keith Joseph objected to the screening of the series by the BBC as they perceived it too biased for a state-run TV station. Milton Friedman was brought over from Chicago to lecture against Galbraith’s economic viewpoints with Nicholas Kaldor opposing him.[8] The Daily Telegraph and The Spectator, publications associated with the Conservative political party, dismissed the series whilst the Financial Times and New York Times viewed it positively.[9] Milton Friedman presented his own response to Galbraith in his series Free to Choose.[3]”

    end of quote-

    It seems there have always been vested interests at work, and my only concern is with us – the UK leaving the UK, we are now at the hands of much more incompetence and chicanery, then we were when we were under EU jurisdiction, especially with our own opt outs and currency.

    we are also having to endure the results of a cobbled, very hard ‘Leave” that could have been better graduated especially as our Economies suffer the Pandemic.

    the persistent conundrum of still having a part of our UK remain in the EU as is the case with Ireland is exposing the flaws of such a hard departure , where some sort of barriers to trade and commune now are seen, a result of trying to avoid a hard border within, has provoked discontent, where previously there was none.

    It is and was a badly timed exit, costly in both monetary and admin terms and a rushed solution to such a complicated situation was never going to bring about fairness and proper scrutiny, without being gradually introduced over many many years.

    The cliff edge is now claiming victims.

    But Vaccines yes are being rolled out thankfully and will hopefully permeate the globe too and maybe herald a new better united nations responses to all illnesses and famine and poverty wherever it may be, but then again I am ever the optimist.

    best wishes to you and your readers.

    keep safe sane and smiling

16. @bill asked how as a remainer how do I feel about the UK vaccinating at a rate of knots while the EU program is in disarray?

    With pretty much the worst response to the pandemic and a fatality rate to go with it, driven by an appalling lack of competency in making timely decisions, the one thing the UK got right was procuring vaccines very early on in the pandemic. But mind you, the Johnson Government are pretty keen at spaffing huge amounts of money if it means enriching their chums, I give you £22bn on a near useless test and trace system, as well as an an eye watering proposal to spaff 100bn on a “moonshot” testing program. Luckily adults were in charge of procuring and administering vaccines.

    Whether we were in the EU or not, the UK could still have procured it’s own vaccines, just as Denmark and Austria is now doing, and in fact we had the option to join, but I can’t remember if Johnson lost the email, or just told the EU to piss off…

    The EU’s procurement program has been beset by shortfall’s in supply, which apparently is not unusual, because of poor vaccine yields, which I uunderstand has possibly happened in the EU’s case. The EU has not been winning any friends, after trying to pressurise the UK arm of Astra Zeneca into diverting supplies promised to the UK to the EU, and now holding up a shipment to Australia.

    Meanwhile, the EU, US, Australia… and the UK… are opposed to WTO amendments which would enable less wealthy nations to increase vaccine supply… sounds to me like there is a good dose of hubris and hypocrisy all round.

17. Why don’t countries make their own vaccines. It is not secret knowledge how to do it.

    Last time I checked all western countries have about the same tech level and access to piblic journals.

18. @Tom Y.

    “Why don’t countries make their own vaccines?”

    They are. Australia for instance will make 50 million doses, manufactured by CSL under licence from Astra Zenaca.

    The issue is lead time to test and approve a vaccine. The UK was I believe the first nation to approve a vaccine (Pfizer) and that was only in December.

    9 months is an astonishingly short time to produce, test and approve a vaccine. If you didn’t start your vaccine trials at the start of the pandemic, then you are best seeking a licencing deal like Australia.

19. Thanks Mark.

20. “But mind you, the Johnson Government are pretty keen at spaffing huge amounts of money if it means enriching their chums”

    What MMT tells us though is *that doesn’t really matter*. In fact when the ‘chums’ spend the money lots of people get employed and have a job. The Royal Estates being the main case in point.

    Both the private sector and the public sector work by spraying large amounts of money at all sorts of crazy ideas. Up to 90% of private funded projects fail. Why do we not get similarly upset at the general uselessness and mates pocket lining of private sector funding?

    The difference is that the private sector has ‘the market’ to pare back those that don’t work and bankruptcy to clear up the debris. The public sector gets no such free pass. They apparently have to spend accurately and correctly all the time – which is impossible.

    We need to start giving public funding the same sort of ‘free pass’ as private funding. A few people sit down and make decisions, most of which will turn out to be wrong. They spray money at crazy ideas, and 1 in 10 of them might work. 1 in a 100 will revolutionise the way we live and increase our standard of living massively. The rest just ends up in the circulation and returns back as taxation in due course anyway.

    We’ve seen from the EU approach what penny pinching in a time of crisis means. Piles of dead bodies. I’d suggest a few Tory cronies obtaining a few more electronic impulses than they otherwise would have is a price well worth paying to save the extra lives.

21. Hi Neil,

    Johnson spaffing money at chums, is not about the sum mattering, in fact the sums involved very clearly show how Government’s with fiat currencies are not financially constrained.

    It’s about the poor decision making involved. Spaffing money in this case did not save lives it cost them, but it has netted the favoured companies in the private sector an impressive amount of revenue.

    The UK already has a network of highly skilled contact tracers, but they work in the public sector, and they were completely bypassed to set up a failed call centre model, which suited private sector contractors. This system was judged back in September to be only marginally effective. Public sector contact tracing achieves around 95% success rates, compared to the 60ish per cent from the call center system. The higher figures published for contact tracing, include the public sector contact tracing, which also costs a fraction of the private call center system.

    In a pandemic, if you spaff people die. You don’t have the luxury of crazy ideas. Opportunity cost matters, you have limited resources, you have only so many people skilled at contact tracing. You can’t buy new ones, you have to deploy the ones you have as effectively as you can.

    If you cling to your ideologies, people die. So we have a government who was willing to spaff 100bn on a moonshot, judged to be largely ineffective and potentially counter productive, while properly funding people so they could afford to self isolate was a step too far.

22. The problem with spaffing money on your chums is that it corrodes trust in the social contract.

23. “The problem with spaffing money on your chums is that it corrodes trust in the social contract.”

    The problem with trying to do anything different is that you end up with layers of bureaucratic inefficiency while lots of people get employed checking things aren’t being spent on chums, or assessing endless tenders or applications from half-a-dozen different entities using increasingly complex blinding mechanisms. And all those layers of bureaucrats and tender writers end up becoming the chums of the other lot.

    Not only is there is loss of money on checking and failed tenders (which just end up being charged to the next project), but the process is very, very slow. And in this situation that would mean people die.

    You waste money on chums no matter which way you go. It’s just a question of which chums get the money.

    It’s rather more difficult to avoid ‘waste’ than simplistic slogans would suggest.

24. @Creigh Gordon

    Yes I agree with you. Neil’s answer talks about the issues with competitive tendering, rather than dealing with trust in general.

    According to a recent survey a majority of people believe that the Government’s procurement was corrupt.

25. Cont.

    This belief is somewhat unsurprising, when considering long held views about Tory cronyism. Matt Hancock setting up a secret VIP system to fast track bids, civil service leaks questioning the legitimacy of the VIP system, the presence of stories such as Matt Hancock’s local pub landlord getting a contract, and other stories where private equity companies got contracts to supply PPE, while companies who had actual factories to make PPE were ignored.

    Unfortunately spaffing money at companies wasn’t particularly successful either, especially from a PR perspective, with over promising and under delivering.

    But then the spaffing would have been largely unnecessary if the UK had a supply system which was adequate. The NHS supply chain is delivered in a 4 layered system, by 11 separate companies, one of which was Unipart. The UK government only stopped NHS supply chain from running down stocks in February.

    Much of the early chaos was not down to the NHS lacking supply, it was down to logistics. Unipart was running a just in time model, and during peak demand would cancel or downgrade orders.

    Apparently this privatised model was meant to deliver 2.4Bn in savings, but instead exposed front line staff to unnecessary and unacceptable risks.

    The problem is when you are lining your mates up for the job, they are probably not the best people to do it, which is why Government’s have rules about such things.

26. “Up to 90% of private funded projects fail”

    i know that 90 percent of startups fail.

27. our labor party seems to be making the same mistake as their uk comrads,

    trying to use debt and deficits argument against the morrison government.

    as you say , they should really be taking the high ground in all of this