Uk News Is Modern Monetary Theory the answer to all our debt? I'm not sure United Kingdom news
PremierLeague-News.Com - Breaking Sport Transfer News ! This is Geek Week, my newsletter about whatever nerdy things have happened to catch my eye over the past seven days. Here’s me, musing about something I don’t fully understand in an attempt to get my head around it: I imagine that’s how most editions will be. If you’d like to get this direct to your inbox, every single week, you can sign up here. An embarrassing admission: I’m reading Economics for Dummies.I quite like the Dummies series. I read Chess for Dummies a year or so ago and found that it both 1) reassured me that I knew most of the very basics and 2) pointed me towards one or two things that I had no idea about. And for a while, in the ongoing series between me and an old school friend on the Chess app, I had the upper hand, for no other reason really than that I now knew what a “fiancetto” was and did it every game.(It’s moving your king’s knight’s pawn forward one square, so you can sneak the bishop out behind it and form a little defensive structure with the knight diagonally in front of it and your castled king behind it. It’s quite neat because it sets up a little trap – quite often in midgame you can move your knight to attack something and in doing so it reveals the bishop behind it, spearing across the table at your opponent’s rook.)Then he got wise to that and I’ve lost the last six games in a row or something. But for a while, it was unstoppable.This isn’t a piece about chessAnyway, that’s not really the point. The point is Economics for Dummies is also reassuring in that I know most of the real basic stuff (the equivalents of “the horsey-shaped pieces move in a sort of L-shape”), but it’s also teaching me things that I ought to know.One thing that should have been obvious but I hadn’t quite fully conceptualised was that printing money is equivalent to taxation. Imagine you’re the Government (says Economics for Dummies). You want to buy a cool truck. Someone has a cool truck that you want, but they want £20,000 for it.You could give them £20,000 out of your tax takings, or you could borrow £20,000 from another country or from private citizens or banks. Or, you could just print £20,000 off in the Royal Mint and hand it to them!The trouble is that when you print money, it doesn’t create any value. The economy is worth however much it’s worth – there are however many people making however many things and earning however much they earn. If you print more money, it just means there’s more money to pay for the same amount of stuff, so each thing or service will cost slightly more. That’s what inflation is. So printing money is a stealthy tax. By paying for the truck with newly printed money, you are taking £20,000’s worth of value into the Government’s possession, without handing anything over. You’re just slightly devaluing all the money in everyone’s possession, to the tune of £20,000 spread around the population. (This is why, when people say “there’s no magic money tree”, they’re kind of wrong – there absolutely is a magic money tree, or rather completely non-magic money central bank. But there’s no magic value tree. You can make more money easily, but making more important valuable stuff that people want is harder.)The magic money treeAnyway. It reminded me of something else that I was half-aware of: “Modern Monetary Theory”, or MMT. It’s this economic theory that some people get very excited about (especially on the left – the US Congresswoman Alexandria Ocasio-Cortez has backed it) and others think is basically snake-oil. It says (in short) that governments can spend more than they think they can without worrying about going into debt, because printing money is OK. I spent ages a few weeks ago trying to understand another cultish economic theory, Georgism, about how we should tax land, and I wanted to have another go with MMT.(Apparently the “magic money tree”/Modern Monetary Theory acronym coincidence is just a coincidence, by the way.)I should say, vibes-wise, I liked Georgism going into it, whereas I don’t like MMT. But then I don’t understand it, so maybe I’ll like it when I’ve finished. Here goes.As I understand it, MMT argues that we don’t need to worry about whether the Government goes into debt, because it can just print money. In fact (as I understand it, from asking some economist buddies), they say that there is in fact no such thing as taxation, if you look at it from the right angle. Moving money from a citizen’s bank account into the Government bank account isn’t (MMT says) moving anything real. It’s just saying “we want to spend this much money, but there’s only so much stuff to spend the money on, so we’re just going to say that you can’t spend the money. So we’ll credit some money to our bank account and delete some from yours.” Printing money is the same as taxation except that it doesn’t take the money out of the other person’s bank account. When you tax, you delete the money.When the Government goes into debt or prints money, it’s putting money into the economy; when it taxes, it’s taking money back out. So what the Treasury or whatever needs to worry about is not how much debt the Government is in, any more than it needs to worry particularly about how much money is out in the economy. In fact, how much debt it’s in is just part of how much money there is – you don’t need to think of them as separate figures.And what that means is that the limiting factor on Government spending isn’t “how much can we raise in tax” or “how much debt are we in and how much are the interest payments,” but “how much inflation is there?”If inflation is low, you can go into more debt and you can print more money and you can spend, and not worry about it. If inflation is high, you need to take money out of the economy (which we call taxation) to stop it. Novel and not true, or true and not novel?I’ve probably oversimplified beyond the point of usefulness here. But speaking to economist friends they say, basically: so far, this is just a slightly cockeyed way of describing normal economic theory. Mainstream economics acknowledges that debt and money-printing are in an analytic sense equivalent. The difference is that MMT theorists say not just it is analytically possible to talk about them in the same way but governments should treat both tools as doing the same thing. (And, as a corollary to it, that governments can therefore afford to go into much more debt than they usually think they can, and spend much more than they usually think they can.)Meanwhile, says an economist I know, “mainstream macroeconomics takes the view that you should more or less, outside of very extreme situations, treat the two as being separate and go to great lengths to ensure they remain that way.
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.”So to some extent it feels like a word game: you’re still limited by how much you can tax from the economy, because that limits the amount you’re able to control inflation, and how much you can control inflation limits how much you can spend.MMTers, as it happens, say that the amount you can spend (and borrow and so on) is much greater than mainstream macroeconomics believes. But as far as I can tell, that’s not an inevitable fact that falls out of their different analysis of how money works. It’s an empirical claim about what happens when banks print money or governments go into debt: they say they’re less inflationary than most economists think, and therefore the Government can spend more. But that would be true (or false) whether or not we say “Government debt and money-printing are the same thing.”So to the extent that MMT-ists are saying something inarguably true (money-printing and debt are analytically equivalent, tax controls inflation) they’re saying something that’s not very novel or exciting. To the extent that they’re saying something novel or exciting (governments can spend lots more money and not worry about going into debt or it causing loads of inflation) it’s possible that they’re saying something untrue.I’m not confident in that. Maybe MMTers actually have solved the problem of Government spending. But from my very vague understanding of it, I think it’s more likely that they’ve just said “If we call taxation something different, we can spend more money,” and I’m really not convinced that’s true.If you want to read more, I got most of my understanding from this 2019 Dylan Matthews piece in Vox, which is very in-depth; these two more sceptical Matt Bruenig pieces; and the Investopedia entry on MMT. And asking a bunch of people who know more than I do, but I can’t put their numbers on here, so that’ll have to do. Anyway, if I’ve completely misunderstood it, email in!Self-promotion cornerI think we’ve entered the endemic phase of Covid, which is my unnecessarily science-y way of saying I think we’re back to normal lives permanently now – Covid will be a drag on the NHS for years to come, but we won’t have any more restrictions, because even when there’s a big wave of cases it doesn’t lead to much in the way of hospitalisations and deaths. But when I say that sort of thing, people say “But what about the immunocompromised?”It’s a fair question: there are hundreds of thousands of people in the UK who are unable to return to normal life because Covid is so prevalent and they can’t form a good immune response. But I’ve always felt, rather callously, that it’s unfair to ask the entire population to undergo restrictions to offer imperfect protection to a small minority.Turns out there’s another alternative, though, which is to use a pretty good drug which protects the immunocompromised effectively, and which the MHRA approved way back in March, but which the government hasn’t for some reason procured! Anyway, here’s me on that. God, I love a technical fix for a complex societal problem. (I have this suspicion that, even if the drug works and is given out, people will still use the immunocompromised as a reason to call for restrictions, because a decent subset of people have made careers of calling for restrictions and aren’t going to let little things like “people not dying much any more” stop them.)Reader feedback!God, they’re flooding in now. Two in two weeks! On the subject of heatwaves, Jim Bowen – presumably not him off Bullseye, since he’s dead; sorry Jim if you get that all the time – wonders about the advice to put on sun cream in the heat:I found myself wondering about advice given out this week on how to stay safe in the heat – advice that frequently included the warning to be sure to apply sun cream. I think it is well established that sun cream protects your skin from being damaged by the sun’s ultraviolet rays. I also assume that, all other things being equal, one’s exposure to ultraviolet rays is not influenced by air temperature.Jim wonders whether a more sensible advice might be to say “If you’re going to lie in the sun tomorrow, wear sun cream,” regardless of whether it’s 25°C or 40°C.That makes sense to me, although I have zero insight (and I do wonder about how much the UV levels vary on sunny days). But by happy coincidence I read this fascinating piece about sun cream this week, wondering whether we’ve been over-conditioned to put it on all the time. I can’t vouch for it and certainly don’t want to suggest that it’s good medical advice, but I found it really interesting, so have a look.No Geek Week next weekSorry, I’m off again. My first overseas summer holiday in three years, in my defence, and with school-age kids we need to cram it all into the most expensive six weeks of the year. Is Greece as nice as it was in 1995, when I last went? I guess I’ll find out. One more holiday this summer and I’m done.Nerdy blogpost of the week: If This Is One of The Sexiest Things You’ve Ever Seen, You May Be a NarcissistMy guilty secret is that I can’t stand The Last Psychiatrist.If you’re unaware of TLP, he was/is an anonymous practising psychiatrist who kept a blog for several years before being doxxed and giving it up. It was to the nerdy online blogosphere roughly what the Pixies were to Seattle grunge, or that thing people say about the Velvet Underground: they didn’t sell many records but everyone who bought one went on to start a band.(Almost a decade after giving up he came back with a book, Sadly, P*rn (sorry for the bowdlerish asterisk but I don’t want to get spamfiltered), which spawned an enormous number of baffled book reviews from fans. I love the many reviews and have no intention of reading the book.)His central thesis is something like We are all narcissists who only care about how we are perceived; we do not have desires of our own other than to appear to have the right desires. Yes, even sex. Oh, and if I tell you that outright you’ll just ignore me so I have to trick you into believing it. But I can’t stand him. I just feel like he’s really misanthropic and sad and doesn’t like himself and projects all his own failings onto others. The trouble is, TLP fans would say that the fact I can’t stand him is because he’s telling me things I don’t like and am therefore defending myself against his truths. A comment from Reddit on the subject:Does anyone else get a really strong feeling of dread and self-loathing from reading his writing, as if he laid bare your soul and declared that you were a worthless imposter leading a meaningless existence of self-imposed delusion? I mean, the guy is brilliant and I love his blog, but every time I read it I go into full-on emotional crisis mode within about 30 minutes, often less. And I never quite know how to recover.So maybe I’m not supposed to like him. (I don’t particularly like the Pixies, either, but I like Pearl Jam and Soundgarden; maybe I’m just not cool enough to like the breakthrough stuff and have to wait until it’s filtered into something more mainstream.)Anyway, I’ve picked one of his blog posts from a list of the best TLP posts, pretty much at random. Go and have a read and see if you (like half the internet) think he’s laying bare your very soul, or if you (like me) think he’s a bit of a douchebag.Contact meWhat did I get right (or wrong)? Is there something I’ve missed? Email me at email@example.com or tweet me @tomchivers and I’ll respond in a future edition of the newsletter.
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