The Lemon Fool

NeilW wrote:

JamesMuenchen wrote:Can you explain how furlough achieves that?

If the furlough scheme money wasn't there to be spent, what would happen to sales and output? And consequently to current productivity?

Current productivity is lower if you are paying workers to sit at home doing nothing. Furlough does not "boost productivity" or "standard of living" as you claimed.

Spending is not output, as the GDP deflator shows quite clearly at the mo.

JamesMuenchen wrote:

NeilW wrote:

JamesMuenchen wrote:Can you explain how furlough achieves that?

If the furlough scheme money wasn't there to be spent, what would happen to sales and output? And consequently to current productivity?

Current productivity is lower if you are paying workers to sit at home doing nothing. Furlough does not "boost productivity" or "standard of living" as you claimed.

Spending is not output, as the GDP deflator shows quite clearly at the mo.

You either pay people to stay at home to do nothing, or you don't pay people to stay at home to do nothing. If you do the latter there is less spending which increases the number of people not paid (since they will lose their jobs as there is no work), which decreases productivity further. The current process is less negative.

Spending is output. Nobody makes output if people aren't spending to buy it. That just leads to increased inventories, which is exactly the wrong sort of "investment".

And when things recover, the people are still employed which means they can get back to work faster.

johnhemming wrote:The agreement of a contract creates and asset and a liability and in that sense yes you are creating something. However, that is not part of the M0 money supply (which is what we are talking about).

So if it is not part of the M0 supply, how is it that M0 going to to abroad - given I've shown that it is not required for FX to happen? Trade happened. Stuff was delivered and debts were settled. It doesn't matter if that is done in pound notes, tally sticks or via electronic trickery. What matters is that it happened and both sides got what they wanted.

A policy of export led growth leads to forced savings in foreign denominations for as long as that policy remains the political goal. That's what 'confidence' boils down to. And that prevents currency shifts of magnitude in the counterparty net importers which "export led growth" relies upon to operate.

NeilW wrote:

JamesMuenchen wrote:

NeilW wrote:
If the furlough scheme money wasn't there to be spent, what would happen to sales and output? And consequently to current productivity?

Current productivity is lower if you are paying workers to sit at home doing nothing. Furlough does not "boost productivity" or "standard of living" as you claimed.

Spending is not output, as the GDP deflator shows quite clearly at the mo.

You either pay people to stay at home to do nothing, or you don't pay people to stay at home to do nothing. If you do the latter there is less spending which increases the number of people not paid (since they will lose their jobs as there is no work), which decreases productivity further. The current process is less negative.

Spending is output. Nobody makes output if people aren't spending to buy it. That just leads to increased inventories, which is exactly the wrong sort of "investment".

And when things recover, the people are still employed which means they can get back to work faster.

No.

Spending can be used as a proxy for output, but spending is higher. Hence the GDP deflator. This is inflation -- money is losing value.

Especially when you are paying people to sit at home idle.

If you give money to people who trade nothing of value in return, you simply devalue the money. This means people who do drag themselves out of bed to go and create tradeable value will demand more money for it. This is inflation -- money is losing value.

This is why the furlough scheme must be temporary and not the permanent full employment sponsored by the government that you preach and are trying to equate it to.

This is basic stuff and doesn't encourage further investment of time in reading your work.

NeilW wrote:So if it is not part of the M0 supply, how is it that M0 going to to abroad - given I've shown that it is not required for FX to happen?

Executing a contract can happen without engaging with the clearing system, but settlement into a UK bank balance cannot.

You have not in any way explained how this occurs entirely independently of the overall narrow money supply. Because GBP is fungible confidence in the currency as a whole is key to setting the prices as which traders will do FX deals.

Here's an MMT explainer from the site NeilW linked to earlier.
https://gimms.org.uk/wp-content/uploads ... per-UK.pdf

This one is only 7 pages long.

JamesMuenchen wrote:Here's an MMT explainer from the site NeilW linked to earlier.
https://gimms.org.uk/wp-content/uploads ... per-UK.pdf

This one is only 7 pages long.

Thanks. I will try reading this. At about page 19 of the original paper my eyes starting glazing over and by that stage even I could still understand what they were talking about.

Dod

and here is a short article in the FT (not behind a paywall), explaining why MMT is a delusion

https://www.ft.com/content/bcb523c3-744 ... b8f13be8f3

I liked the comment: "Still, imagine for a moment that governments embrace MMT. Imagine too, as MMT proponents suggest, that control of the printing press is taken away from unelected central bankers and given to “accountable” elected fiscal representatives. Would we be any better off? Far from it. Giving elected representatives the keys to the printing press is the equivalent of giving a gambling addict the keys to the casino."

In fact the central banks are printing the deficit. The FT article says

After all, one of its central claims is that budget deficits are, from a financing perspective, an irrelevance. So long as increased government borrowing doesn’t lead to inflation — and, at the moment, there really isn’t much of it around — we can all afford to relax.

The big problem, of course, is that if the government gets to rely on a printed deficit when inflation ticks up (as it will) they have to go cold turkey immediately.

What the government want is to keep the interest rates on government debt low whilst they sort out wherever we end up after the massively expensive process of hibernating a large part of the economy.

The one good aspect of this is that other countries have a similar problem. If only the UK was doing this there would be more attention on it.

johnhemming wrote:The one good aspect of this is that other countries have a similar problem. If only the UK was doing this there would be more attention on it.

And if the BoE were not acting as an arm of the Treasury, soaking up the new issues instead of being independent as it is supposed to be, £ would already be falling.

V8

88V8 wrote:

johnhemming wrote:The one good aspect of this is that other countries have a similar problem. If only the UK was doing this there would be more attention on it.

And if the BoE were not acting as an arm of the Treasury, soaking up the new issues instead of being independent as it is supposed to be, £ would already be falling.

V8

Buying Gilts as part of monetary policy doesn't mean it isn't independent.

dealtn wrote:Buying Gilts as part of monetary policy doesn't mean it isn't independent.

This eternally comes into the question of what "independence" means.

Oddly enough I stood in I think the 1997 General Election when independence of the Bank of England was a Lib Dem policy in the manifesto, but was not AFAICR in the Labour Manifesto. It was, however, implemented by the Labour government. I remember one constituent asking me about it having read the manifesto (not a thing a lot of people do).

The MPC
https://www.legislation.gov.uk/ukpga/1998/11/section/13

Is partially ex officio bank officials (I assume appointed by the Treasury through ministerial order) and partially appointed by the treasury.

The governor is a civil service post announced by the treasury and I would assume essentially appointed by government.

Hence the MPC is independent, but subject I presume to the power of hire and fire by the government.

There could be greater independence if the Governor was appointed like the information commissioner by parliament or through links to the judicial estate of the constitution.

Judges, for example, can only be fired through a motion through the commons which is exceedingly rare. (I think the 1701 Scotland Act confirmed this).

If this goes badly wrong there may be pressure for more independence, but I think Rishi Sunak understands the potential problems even if Boris Johnson does not. Sajid Javid is also quite competent in this area.

johnhemming wrote:This eternally comes into the question of what "independence" means.

It means "depoliticised". The general approach is that the world should be run be technocrats according to the tenets of neoliberalism, rather than subject to change by democratic vote in a manner than benefits the actual people of a nation.

This is the old battle between "The Church" and "The Ruled". The belief in the unchanging divine where natural rules are handed down by a higher power (the EU being the modern embodiment of this concept - it was the Catholic church in Henry VIII times), vs the belief in democracy and rule by the people (which is the traditional Anglo-Saxon approach we have inherited in England where the monarch/PM rules by common consent, and is changed when they don't).

Brexit is a reassertion of the Anglo-Saxon approach. A split with the Church. The Central bank "uber alles" belief is part of the dogma of the Technocratic Church of neoliberalism.

A bit philosophical, but that's ultimately it. Top down vs bottom up. An ancient battle.

NeilW

NeilW wrote:

johnhemming wrote:This eternally comes into the question of what "independence" means.

It means "depoliticised". The general approach is that the world should be run be technocrats according to the tenets of neoliberalism, rather than subject to change by democratic vote in a manner than benefits the actual people of a nation.

The problem being that the preceding system wasn't so much "subject to change by democratic vote in a manner than benefits the actual people of a nation" but rather used by the government of the day to bribe the electorate before an upcoming election even if the changes imposed would have a longer term harmful effect on the economy.

NeilW wrote:The general approach is that the world should be run be technocrats according to the tenets of neoliberalism,

I think the idea of "sound money" is not something that is unique to neoliberalism. Similarly the temptation of states to reduce the value of money for short term political benefits will remain.

https://en.wikipedia.org/wiki/The_Great_Debasement

an early example of MMT wrote:The Great Debasement (1544–1551) was a currency debasement policy introduced in 1544 England under the order of Henry VIII which saw the amount of precious metal in gold and silver coins reduced and in some cases replaced entirely with cheaper base metals such as copper. Overspending by Henry VIII to pay for his lavish lifestyle and to fund foreign wars with France and Scotland are cited as reasons for the policy's introduction. The main aim of the policy was to increase revenue for the Crown at the cost of taxpayers through savings in currency production with less bullion being required to mint new coins. During debasement gold standards dropped from the previous standard of 23 carat to as low as 20 carat while silver was reduced from 92.5% sterling silver to just 25%. Revoked in 1551 by Edward VI, the policy's economic effects continued for many years until 1560 when all debased currency was removed from circulation.

Debasement of the currency goes back a lot further than that. Coin clipping was rife in the Roman Empire and probably long before that.

ursaminortaur wrote:The problem being that the preceding system wasn't so much "subject to change by democratic vote in a manner than benefits the actual people of a nation" but rather used by the government of the day to bribe the electorate before an upcoming election even if the changes imposed would have a longer term harmful effect on the economy.

In democracy you can't bribe the electorate, since by definition they have a wiser aggregate view than any subgroup.

So stating that belief means a preference for rule by a subgroup that is disadvantaged by the electorate's decisions rather than by the majority of the electorate.

And that's what we're seeing as the Professional Managerial Class try to justify why they should be able to ignore the votes of bus drivers and school cleaners.

johnhemming wrote:I think the idea of "sound money" is not something that is unique to neoliberalism.

The belief that metal is money is a long standing tradition. It's also completely incorrect and historically flawed. The ledger view is far more realistic.

NeilW wrote:In democracy you can't bribe the electorate, since by definition they have a wiser aggregate view than any subgroup.

I wonder if there are any other people who don't think the electorate are open to persuasion by promised tax cuts and/or additional government spending.

NeilW wrote:So stating that belief means a preference for rule by a subgroup that is disadvantaged by the electorate's decisions rather than by the majority of the electorate.

And that's what we're seeing as the Professional Managerial Class try to justify why they should be able to ignore the votes of bus drivers and school cleaners.

It happens to be that people who invest in equity tend not to suffer that much from increases in inflation. The people that suffer are those on fixed incomes paid in the national currency or who depend on money from the government. Wealthier people can normally protect themselves.

NeilW wrote:

ursaminortaur wrote:The problem being that the preceding system wasn't so much "subject to change by democratic vote in a manner than benefits the actual people of a nation" but rather used by the government of the day to bribe the electorate before an upcoming election even if the changes imposed would have a longer term harmful effect on the economy.

In democracy you can't bribe the electorate, since by definition they have a wiser aggregate view than any subgroup.

Of course politicians can try to bribe the electorate that is why most democracies have explicit rules against candidates in elections buying votes which is obviously the most blatant way of bribing the electorate.