Having long campaigned on LDV for Universal Basic Income, it was heartening to see UBI adopted as party policy at Conference. The challenge now is to transform Conference vote into a credible manifesto commitment, and a persuasive electable UBI policy.
Recent LDV articles have advocated UBI on various grounds, including Leyla Moran on precarity, Paul Hindley and Daniel Duggan on social justice, Anton Georgiou on inequality, and Jane Dodds on empowerment. Others including Malcolm Berwick-Gooding have asked how UBI can be funded. Chris Northwood and George Kendall have proposed income tax, and Darren Martin a transaction micro-tax.
The web site The Case for Basic Income seeks to set out the main arguments for UBI. These are
- social justice, addressing inequality, including gender inequality
- welfare system efficiency and effectiveness, avoiding intrusive means-testing
- economic necessity, acknowledging work reduction through automation, avoiding economic crisis and austerity
- human flourishing, enabling wider choice of lifestyle
- environmental responsibility, creating income other than by employment and more output
These are powerful, appealing, and convincing arguments, which we should fully deploy.
We also have to respond to the two main counter-arguments. Many claim that UBI presents a work disincentive. But in fact, it is current welfare benefits which erect a disincentive to work by being withdrawn £ for £ if a recipient finds work, creating an enormous marginal rate of tax, and hence the infamous ‘unemployment trap’. UBI avoids this as it is retained in full if someone starts to work.
So the main challenge is affordability. The claim is that UBI is either too small to be meaningful, or too large to be affordable. Revenue-neutral schemes which fund UBI by increasing taxation and reducing other benefits do indeed produce little overall change. Proposals for wealth tax funding face the administrative challenge of taxing a wide range of assets continuously, a proposed land tax misses the most profitable Internet companies who use little to no land, and eco-taxes should be designed to reduce pollution and so become self-cancelling.
Hence the proposal for ‘sovereign money’. Financial orthodoxy has traditionally raised money as government debt. By 2018 this reached £1.87tn, or 85% of GDP, a figure which is rising drastically through necessary Covid-19 spending. In addition, 2018 household debt stood at £1.2tn, or 61% of GDP. This makes total debt equal to 146% of GDP. In Japan, government debt alone is now 234% of GDP. These figures are in one sense meaningless, since multiples of GDP will never be repaid. But more importantly, these levels of debt constrain social expenditure, including constraining the affordability of UBI. We need to radically redefine and re-engineer this debt-ridden economy. In a new paradigm, UBI replaces the household debt necessarily incurred by low income households to supplement declining income from employment. Sovereign money replaces government deficit and accumulated debt, and removes the need for austerity policy.
These are the radical definitions needed to advocate a substantial affordable UBI. They are set out more fully in Stephanie Kelton’s new book ‘The Deficit Myth’, and in my own book ‘Basic Income and Sovereign Money’.
For those interested, these will be debated at a forthcoming Bristol Festival of Ideas on line conference ‘Is it time for UBI’. All welcome.
* Geoff Crocker is a professional economist writing on technology at http://www.philosophyoftechnology.com and on basic income at www.ubi.org. His recent book ‘Basic Income and Sovereign Money – the alternative to economic crisis and austerity policy’ was recommended by Martin Wolf in the FT 2020 summer reading list.
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241 Comments
Mr Crocker You give a mention to the issue of disinventives and affordability.
What is your response to the charge that it reinforces inequality rather than reducing it ……. by giving a similar amount to a billionaire as it does to someone on the minimum wage ?
Various LDV articles have indeed advocate UBI on various grounds but I don’t remember any of them being warmly welcomed by many of the readers.
UBI is benefit. The current benefit system has room for improvement, but at least it does not give money to the wealthy who don’t need it.
David Raw: Even as one very sceptical of UBI can see your comment as lacking much sense. For a billionaire UBI is a drop in the ocean and has no significant effect on inequality. Moreover I imagine the tax regime would wipe out the UBI benefit.
I see more problems at the lower end where UBI would reverse the previous policy of taking lower income earners out of taxation. I see problems with a low tax threshold, including a practical incentive to fail to disclose relatively small sources of income. I could see many people theoretically becoming tax dodgers largely because they are not equipped to deal with tax returns.
I shall be more impressed by the ‘Sovereign Money’ stuff once its proponents find the end of their rainbow. It makes me wonder whether these proponents intentionally aim to undermine the notion of UBI.
@ Martin So you think that asking a question amounts to, ‘Lacking much sense’.
Thank you, Martin. You might have done better to wait and see if we get an answer.
David Raw:
It is the specific question, however given the author’s particular economics, I suppose you have a point – I could not be so sure what answer he might give. However in more general terms UBI could hardly exacerbate inequality in that way, but it might create unintended inequalities elsewhere.
What do you make of the OP’s ‘Sovereign Debt’ claims? I think this is a far greater risk for amplifying inequality where owners of property and material wealth prosper in comparison to others with no or less resilient assets.
David Raw – I have an open source paper on inequality and UBI at http://www.paecon.net/PAEReview/issue92/Crocker92.pdf. I agree it’s not straightforward, but neither is it the only case for UBI.
Thank you for an interesting article!
Stephanie Kelton’s “The Deficit Myth” is indeed very well worth reading as are “The Production of Money” by Ann Pettifor and the writings of Warren Mosler.
If, as it seems, the currency issuer (HMG for us), not the taxpayer, finances government expenditure, perhaps the financing of UBI needs to be considered “at arms length” from taxation?
Might the bail-out of the bankers be a recent, relevant example of this?
Did tax-payers bail out the bankers some 12 years ago?
Perhaps a differentiation of taxation reasons/purposes/consequences might be appropriate?
Stephanie K. lists four:
* To get the government’s money used (Provisioning?)
* Inflation management
* Wealth distribution management
* Behaviour influencing/management
Stephanie K. writes that sovereign money is public money and so should be more broadly shared and not concentrated for the few. Has she made a valid point?
Might her discussion of the minimal-if-any cost of a National Job Guarantee Scheme to eliminate unemployment and build an efficient national economy also be relevant?
Oh no!
A perfect storm. A combination of ‘The Couch Potatoes’ Handout’ paid for by Kelton’s “Everyone can have as much money as they like! Debt and deficits are mere figments of the imagination!”
The British people have far more common sense.
BTW the taxpayers did not bail out the banks. They bailed out our life savings and pensions that were inside.
In some ways this is helpful -instead of raising the money from taxes the author proposes simply to print it. what could possibly go wrong ?
@ Steve, @ Geoff Crocker and Others,
It’s important to emphasise that whilst Stephanie Kelton, and other MMT economists, understand that the Govt can just create money in a computer ( much less expensive than printing it) , even to fund a UBI, they also understand that they probably shouldn’t unless there is spare capacity in the economy.
As Stephanie says “a UBI is a poor substitute for a guaranteed job”. Jobs create something! Including spare capacity. A UBI doesn’t.
https://twitter.com/stephaniekelton/status/822081407635877888?lang=en
MMT has possibly been too successful in getting its message across that Govt budgets don’t have to balance. They don’t but that doesn’t mean that Govt can create money as they please for hare-brained schemes like the UBI.
“The claim is that UBI is either too small to be meaningful, or too large to be affordable”.
That’s because it is!
Neither Stephanie Kelton nor I say that money creation should be unlimited, but that it should be constrained by full potential output, and/or an inflation constraint, and not by a false measure of government financial balance which is only an intermediate variable in the economic system. Money is virtual and can be created by printing or electronic keystrokes which it is at the moment. UBI creates demand and funds necessary demand. I argue that UBI is superior to Job Guarantee in a context where automation is displacing employment, evidenced by long term stagnation in aggregate real wages.
The “giving money to billionaires” argument simply isn’t valid. Any sensible implementation of UBI would involve changes to the tax system to recover it from the well off.
And UBI would incentivise work. The current system disincentivises work, particularly short term or casual jobs, by withdrawing benefits (along with the administrative hassle of declaring it).
@ Geoff Crocker Thank you for providing a link to your paper, Mr. Crocker.
I note you write : “UBI is effective since it has an automatic 100% take up rate, compared to current welfare benefits, especially those targeted to elderly people which have low take up rates”.
Two questions
1. Can you confirm for me the annual amount (per person) to be universally paid out to each individual from UBI should it be introduced now ?
2. Assuming your automatic 100% take up rate, can you confirm that someone on the national minimum wage of £8.72 per hour will receive the same flat rate amount as the top ten individuals shown below on the Sunday Times Rich List ?
The top 10 richest people in the UK according to the Sunday Times Rich List, May 2020 :
1. Sir James Dyson and family, household goods and technology, wealth £16.2billion
2. Sri and Gopi Hinduja and family, industry and finance, £16billion
3. David and Simon Reuben, property and internet, £16billion
4. Sir Leonard Blavatnik, investment, music and media, £15.78billion
5. Sir Jim Ratcliffe, Ineos chemical giant, £12.15billion
6. Kirsten and Jorn Rausing, inheritance and investment, £12.1billion
7. Alisher Usmanov, mining and investment, £11.68billion
8. Guy, George and Galen Jr Weston and family, retail, £10.53billion
9. Charlene de Carvalho-Heineken and Michel de Carvalho, inheritance, brewing and banking, £10.3billion
10. The Duke of Westminster and the Grosvenor family, property, £10.29billion
Thank you too Mr Raw 🙂 I would initially scope the aggregate amount of UBI to replace new household debt ie £100-150bn and then watch economic indicators to adjust it. Yes even rich people would receive it but they’d be taxed on it.
@ Geoff Crocker,
“I argue that UBI is superior to Job Guarantee”
You may well think that. But having cited Stephanie Kelton in your OP you should make it clear she has it the other way around. As do all leading MMT economists.
There are many arguments against the UBI. It doesn’t have the desired countercyclical nature of the JG, for example, so it can’t act as an automatic stabiliser. Then there is the potentially inflationary effect caused not only by the cost of the UBI but the loss of productive capacity too.
It’s clearly insufficient to say the extra Govt spending needs only to be finite in nature. It also needs to be limited to the extent that it doesn’t cause higher than desirable inflation.
@ Nick Baird,
“And UBI would incentivise work. The current system disincentivises work, particularly short term or casual jobs, by withdrawing benefits (along with the administrative hassle of declaring it).”
You’ve presented no evidence for this assertion. Another more likely scenario is that it spreads the disincentive more evenly. At present there is a tax free threshold of £12.5 k so there is very incentive to earn that amount for most workers.
If this threshold was reduced to say £4k and the next tax band went up to say 30% what would happen then? This is where we need some figures for what is being suggested. Would this fund a UBI of £5k?
So there is only the same incentive to now earn 32% of the previous amount tax free. So why not work 32% as much legally and make up some more in the black economy?
@ Geoff Crocker I’m afraid you didn’t answer my question.
To be more explicit, what do you envisage will be the equal annual amount per individual person that will be paid out to the Duke of Westminster…. and to John Smith a care worker employed in a Care Home to look after the elderly ?
Peter Martin, an OP is limited in space. All these points are discussed in my book and on the http://www.ubi.org web site. I’ve argued UBI at MMT conferences so am well aware of the debate. As I’ve pointed out, Stephanie Kelton is the opening plenary speaker at our Festival of Ideas UBI conference. She has expressed an open mind towards UBI in correspondence, so we’ll debate the alternatives creatively. It’s true that the Finnish pilot showed no great labour market effect, but this is by no means the only argument for UBI.
And to David Raw, I haven’t set myself up to be able to answer all questions. There are many unknowns which we need to debate, resolve, and specify more exactly.
@ Geoff Crocker,
It’s not difficult to go through your 5 main points and offer more sensible alternatives. For example, if automation means there’s less need for human labour why not share out the work so we have all have fewer hours in the working week and longer holidays?
Lib Dems are fond of superficially quoting Beveridge without actually reading what he has to say in any depth. What do you make of this?
(Ch8, p 20, “Full Employment in a Free Society”, “The Purpose of Employment”)
“Idleness is not the same as Want, but a separate evil, which men do not escape by having an income. They must also have the chance of rendering useful service and of feeling that they are doing so.”
The Job Guarantee addresses this issue in addition to the all the points you’ve raised in a way that isn’t socially divisive. A UBI initially creates a class of the institutionally recognised unemployed who will inevitably become the unemployable. As Beveridge pointed out many years ago, in the passage I quoted above, there is more to social inclusiveness than just having an income. Especially if it is a far from adequate income.
Oh funny money is the answer again. Great.
Hey, how about we fund everything else with funny money too, and abolish all taxes. That would be really popular.
If you thought MMT was pie in the sky, this is pie on the moon.
It’s somewhat odd to be in the middle for a change. On the one side I see the usual crowd which includes Joe Otten, Simon McGrath and Innocent Bystander who clearly don’t understand the nature of what economists like Stephanie Kelton are saying.
On the other side I see Geoff Crocker, Nick Baird and many others who have supported a UBI who also don’t understand MMT, but they think they do. They’ve latched on to the idea of “free money” . So we see sentences like:
“Sovereign money replaces government deficit and accumulated debt, and removes the need for austerity policy.”
Sorry but it doesn’t.
Austerity is a perfectly respectable economic policy. The mistake made by the Coalition was to use it in the wrong way. It should only be used to cool down an overheating economy and to lower the inflation rate. It doesn’t necessarily do anything for the Government’s deficit. If Govt cuts its spending it cuts its income too. It will always cool down the economy though which is partially why we have very low inflation. As a counter to that Govt’s often lower interest rates to warm it up again. They can’t do that now very easily! Better not to try by making them negative!
Hello. Geoff.
What is the amount of basic income you have in mind?
Advocates of sovereign money advocate citizen’s dividends.
However, that amount is small.
In the view of sovereign money, citizens’ dividends are assumed to be in line with economic growth.
Reference
https://internationalmoneyreform.org/news/2018/06/value-of-money-and-making-monetary-reform-apolitical-through-citizens-dividend/
“It should be noted that the amount of new money needed each year to keep a stable inflation rate is much less than the yearly state budget.”
“The amount of new money needed in a completely transformed system can be expected to follow the GDP growth plus the targeted inflation rate. This is normally less than a tenth of the state budget.”
https://internationalmoneyreform.org/wp-content/uploads/2019/09/Concrete-design-proposals-for-the-monetary-authority-in-a-sovereign-money-system.pdf
“The sole distribution of newly created money as a variable citizen dividend e.g. to all adult citizens (with the right to vote) within the currency area also seems like quite an interesting instrument.”
“However, it should be borne in mind that this would by no means be enough to finance a basic income, but that the distributions per citizen would rather remain in the range of 10-20€/month in the Euro-area.”
And MMT denies basic income in terms of inflation.
For example, Pavlina Tcherneva points out:
” If the [basic income] program is implemented as an ‘add-on,’ rather than a replacement for existing government programs, spending on UBI could be as high as 20–35% of GDP annually. UBI would be an enormous fiscal impulse by any measure. The worry is not that it would compromise the government’s budget, but that the expenditure represents vast purchasing power and command over real resources, equivalent to a fifth or more of the US economy. Would the economy produce the needed additional output to satisfy this new demand? If not, how would the resulting real resources be distributed and priced, in order to soak up the additional purchasing power? If output does not adjust sufficiently, the program would prove to be inflationary.”
What do you think of these opinions?
David Raw, the reason Universal Basic Income needs to be truly universal, is to ensure that no-one is ever left with no income at all.
At the moment, people face delays before they can receive benefit, or their benefits can be “sanctioned”, leaving them with nothing. Someone on a “zero hours contract” may have a reasonable income some of the time, but then without warning there may be weeks when “zero hours” means literally zero hours and zero income.
People who are self employed may also experience a sudden drop in income, due to many factors outside their control.
A universal basic income means people in these situations would still have some basic income.
Yes, making it universal would mean that millionaires would receive it too. But does this really matter? Do you object to the state pension, on the grounds that millionaires receive it?
Yawn, so all the LibDems can come up with to fund UBI is to turn the UK into the Kingdom of Funny Money by redefining debt in a way that will further ruin the value of Sterling, causing price rises in imported goods thus making all the easy money of UBI almost worthless. Clever Trevor. These scams play into the hands of the right wing and make it unlikely progressive parties will gain power, so actually take the country further away from being a progressive paradise.
Peter Martin, I note your view that my points are easily dismissed. Actually, I’ve never quoted Beveridge whom I note you understand better than others. But careful data analysis which is presented in my book, and in papers on the http://www.ubi.org web site, demonstrates clearly that real wages have flat-lined for decades, that aggregate working hours have reduced, that we face in-work poverty, that labour income is no longer sufficient to meet consumer expenditure following a long-term trend from 1948, ie that work and wage no longer suffice to support lifestyle. This is in line with an expectation that automation will inevitably reduce the labour content of output. The thesis is the subject of a research project The Economics of Basic Income at IPR Bath.
Job Guarantee is a dubious policy when jobs simply can’t be guaranteed due to automation. JG is workfare. Defining a JG scheme is very challenging – are people to be offered work in their area of expertise, at their level of seniority and remuneration, within some distance of their home, and is such work to be itself precarious to align with economic cycles? The critique of JG set out by Maciej Szlinder in The Palgrave International Handbook of Basic Income (p222) is difficult to counter. It is true that increased leisure poses a challenge in terms of a change of how we perceive ourselves and manage our lives, but there are more creative solutions to life than the 8-4 factory or 9-5 office regime imposed on us at the moment. On the whole, we’ve dealt with increased free time very well over the last century.
Your second post claims that I don’t understand MMT, which you presumably do. No-one is calling for ‘free money’ but for a redefinition of how money is created. There are differences in the proposals from Stephanie Kelton, Joseph Huber and myself which are fully explored in my book and on the web site. The proposal certainly is that sovereign money replaces debt-bearing deficit funding. It’s a perfectly reasonable proposal, since the current non-repayment of huge unrepayable government debt renders it essentially sovereign money anyway, apart from the £39bn interest paid annually by the taxpayer to the financial sector for it. Austerity was not applied to counter an over-heated economy, but purely because the government financial balance was in deficit. We can afford proper and adequate social care without generating inflation.
Joe Otten, I’m not sure your post deserves a reply but here goes. Sovereign money is no more ‘funny money’ than current money. It’s just a change in how the money creation process is defined. Whether you like it or not, money is virtual, even more so now that it’s largely electronic. Neither MMT nor sovereign money propose to eliminate all taxes as you claim, but sees tax as the instrument to moderate aggregate demand, rather than as the source of raising revenue.
Kyunkyun, in my proposal, UBI would replace the reliance on household debt to meet consumer expenditure. It would also replace general, though not condition-specific, means-tested benefits since avoiding expensive intrusion is one of its main advantages. It would enter into the gamut of sources of income managed within current regimes of Keynesian demand management. Pavlina Tcherneva’s attempt to dismiss UBI by treating it as a simple total add-on to current income and demand is inaccurate. As I’ve mentioned earlier, within the MMT school, Stephanie Kelton is more open to the UBI proposal and will be debating it at the forthcoming October 12-13 conference.
@ Catherine Jane Crosland,
Only millionaires who have made NI contributions receive the State pension. If anyone pays into a pension scheme, whether it be public or private, it is only right they should receive a payout too. The Beveridge plan for welfare was initially contributions based. No contributions would mean no welfare but that principle has since been much diluted.
It doesn’t follow that we need to give everyone something so that no-one ends up with nothing. The Lib Dems create a problem for themselves by denying that contributions matter. If the system was more contributions oriented, as Beveridge envisaged, there would be no, or much less, stigma attached to receiving a payout. If we’ve paid in, we should be paid out when we need it.
The main contribution we all make during our working lives is to get up in the morning to keep the economy functioning. If we didn’t do that the trains and buses wouldn’t run, the schools and factories would open, and there wouldn’t even be any electricity or gas to boil a kettle to get us going with that first cup of tea or coffee.
So the important thing is to keep people working. If those on ZHC jobs don’t get enough hours they can make them up on JG jobs. That would put an end to ZHC’s probably. Employers wouldn’t be able to have employees at their beck and call. If anyone is too sick to work they still get paid but we can call it sick pay. Those who don’t need the money don’t have to do the work, ie make a contribution, if they don’t need to.
This doesn’t mean that anyone who loses their job will have to accept a JG job to survive. They will still receive unemployment benefit. The length of time will depend on contributions made. More contributions will mean more benefits. It will be the same a choosing an insurance policy. We can pay more , or less, for higher or lower cover.
http://pavlina-tcherneva.net/job-guarantee-faq/
Thank you Geoff.
Doesn’t the household have assets as well as debt?
Household debt and household assets.
Isn’t it necessary to consider both of these?
@ Geoff Crocker,
If you understood MMT you wouldn’t be saying that the JG was workfare.
No MMT economist would say that, including Stephanie Kelton, who you do seem to respect. It’s designed to be a living wage for those who need it and to be a buffer against inflation. It sets a floor for terms and conditions which all other employers have to match.
Pavlina Tcherbeva covers the rationale in the link I provided above. See #18.
Warren Mosler explains it all very well in this article.
http://moslereconomics.com/2011/09/19/the-umkc-buckaroo-a-curreny-model-for-world-prosperity/
Kyunkyun, yes households have assets too. But housing equity is being used to secure consumption expenditure which should be funded from revenue sources of income. Unsecured borrowing by low income households at sky high payday lender interest rates is very worrying. My main point however is that there is a demonstrable requirement for unearned income in the economy, and that of the main sources of unearned income, ie pensions, benefits, dividends, and borrowing, UBI is preferable to increased household debt, which in turn generates economic crisis when it inevitably becomes unrepayable.
Peter Martin, thanks for confirming my lack of understanding of MMT. MMT proponents of course do not see JG as workfare, but it is a valid critique which I and others are free to advance, including to Stephanie – it’s the nature of debate.
@ Geoff Cocker,
“The proposal certainly is that sovereign money replaces debt-bearing deficit funding.”
If you understood MMT you also wouldn’t be saying this. ‘Sovereign money’ is just a IOU of government which doesn’t pay any interest. But it’s still a debt. At present Govt can issue “sovereign money” IOUs and 0% interest or gilt based IOUs at -0.06% interest. That’s right it’s negative! (as of 2nd Oct)
So it’s actually more expensive to issue sovereign money than issue conventional debt. But even if it wasn’t it wouldn’t make any difference because the Govt is a currency issuer. It can set long term and short term interest rates to suit itself. If it wants 10% it can have 10%.
The confusion arises because of what we conventionally consider debt. We don’t consider issued money to be debt for historical reasons connected with the gold standard. There was, in theory, supposed to be enough gold to cover the issue of paper. But there isn’t any longer any metallic connection, so it should all be counted as debt.
Peter Martin, you’re simply rehearsing the current orthodox system, which insists on double-entry accounting at the core of money creation. I and others (though not the mainstream MMT school who also insist on double-entry accounting) are challenging this orthodoxy. Money can be created by sovereign states without equating it to incurred debt. The UK government could for example place £1,000 electronically into all personal bank accounts without any countervailing action. As I point out, the worldwide non-repayment and increasing accumulation of national debt makes this almost the case anyway. Cash, although only 3% of money creation, is currently issued without incurring debt. This could and should be the same for other money creation too.
@Peter Martin – “You’ve presented no evidence for this assertion”
Universal Credit is withdrawn at a rate of 63 pence per pound earned. That’s has the effect of being “taxed” at a rate of 63% before you get anywhere near the tax free threshold, and before you incur any other costs e.g. transport to get to work.
That doesn’t much matter if you are in full time employment and earning over the tax free threshold. But if you are in a situation where all you can find is short term and/or part-time work at minimum wage that has a relatively big effect.
If the introduction of UBI was accompanied by taking the tax free threshold down to zero and increasing the basic rate of tax to e.g 30%, you would still keep 70% of what you earned, on top of the UBI itself. So ANY work, no matter how temporary or part-time, will always be worth doing.
@ kyunkyun,
Yes we should, as individuals, probably look at our own personal finances in the same way as a business. ie We tot up our assets and liabilities on a balance sheet.
The problem arises, in a macroeconomic sense, when the value of all of our assets (which is mainly the land and houses we own) is very much dependent on the liabilities we have incurred to own them. Here I’m in agreement with Geoff Crocker (sorry for mispelling your name previously, Geoff!) We’ve created a bubble economy which is far too reliant on private debt. If the bubble bursts many will end up with more liabilites than assets. Our balance sheets won’t balance except with the inclusion of a large negative number! The Govt will be scared stiff about this possibility.
Governments have been increasingly reluctant to take on debt. But if the UK as whole has a current account deficit, someone in the UK has to be doing the borrowing. So if not the Government, it has to be the rest of us. That’s why interest rates are ultra low. To discourage saving and encourage borrowing.
Seizing a rare moment of agreement with Peter Martin, it’s a common point to all MMT and sovereign money advocates that it’s a category error to apply household and firm balanced budget requirement to the macroeconomy and to government spending. This is the major error in financial orthodoxy.
Nothing in this discussion persuades me that UBI would not have the consequence of increasing inequality with owners of property and material wealth prospering disproportionately in comparison to others without assets or with less resilient assets.
@ Nick,
This time last year there were around 2 million people on UC. The figure has more than doubled due to the Covid problem. But 2 million or so would be a more normal figure. The UK work force is about 32 million so we are talking about 6% or so that normally receive UC. There is a strong requirement that UC claimants look for work or face sanctions including loss of the benefit.
There won’t be many who make the sort of calculation you describe but there will be some. It really doesn’t make any sense to make people look for jobs when there aren’t any. It makes much more sense to offer them something if they can’t find anything. This is a much more socially responsible policy and gets us away from sanctions and all the rest of the harshness that I know Lib Dems don’t like any more than I do.
There will be some who will refuse to take up a living wage job. “Job” doesn’t mean working on a chain gang. JG jobs will include a high proportion of education and retraining too. The objective will be to create a more highly skilled workforce that isn’t dependent on the JG. But why would they want to do that? Possibly it’s because they have an illicit, even criminally obtained, other source of income. Criminals do exist. They aren’t all in jail! And you’re suggesting we pay them a UBI too?
Of course at the moment a JG is problematic. It could be temporarily necessary to define a job as simply to isolate and do some private study and retraining from home.
Martin, I agree that the impact of UBI on inequality cannot be taken for granted. Some specific UBI schemes actually increase some aspects of inequality, eg child poverty. I address the generality of UBI and inequality in my open source paper at http://www.paecon.net/PAEReview/issue92/Crocker92.pdf.
Nevertheless we can show that UBI will tend to reduce inequality. Taking a starting position where one person has an income of Y, whilst a richer person earns a multiple of Y which we can call mY. The simple definition of inequality is then the multiple m. If we now add UBI to each person, the first person receives Y+UBI and the second person receives mY+UBI. We can easily show that the new multiple, ie the new measure of inequality m’ which equals (mY+UBI)/(Y+UBI) is < m, because multiplying this out, (mY+UBI)< mY+mUBI ie UBI1 which it’s bound to be. Hence UBI does reduce inequality.
Sorry,correcting a typo (shouldn’t do this live on a mobile)
Nevertheless, we can show that UBI will tend to reduce inequality. Taking a starting position where one person has an income of Y, whilst a richer person earns a multiple of Y which we can call mY. The simple definition of inequality is then the multiple m. If we now add UBI to each person, the first person receives Y+UBI and the second person receives mY+UBI.
We can easily show that the new multiple, m’ which equals (mY+UBI)/(Y+UBI) is < m, ie inequality has decreased, because multiplying this out, we get (mY+UBI)< mY+mUBI ie UBI1, which it’s bound to be. Hence UBI does reduce inequality.
@ Martin Good to have your support, Martin. I guessed you’d come round in the end.
@ Catherine Jane Crossland As Peter Martin points out, “Only millionaires who have made NI contributions receive the State pension”. It’s a good job Trump isn’t a UK taxpayer…………
@ Joe Otten Unusually, I find myself in the same lobby as your good self on this occasion, Joseph, but with regret I found your initial response to Mr Crocker shall we say, a tad un worthy, and superc…ious.
In my view, speaking as Chair of a Food Bank, the issue of poverty and inequality was made infinitely worse by the support given to so called ‘welfare reform’ and the introduction of Universal Credit as supported by your friend the former Member for Hallam and his friends.
A prediction : The Liberal Democrats will be taken to the cleaners by all forms of the media and their opponents if they stick to the UBI policy, so don’t say you haven’t been warned..
A massive more generous reform of UC and PIP is required taking out the punitive features in its administration.
@ Geoff Crocker Do you think :
“We can easily show that the new multiple, m’ which equals (mY+UBI)/(Y+UBI) is < m, ie inequality has decreased, because multiplying this out, we get (mY+UBI)< mY+mUBI ie UBI1, which it’s bound to be. Hence UBI does reduce inequality."
………..would play well as a soundbite for Ed Davey or on a Focus leaflet ?
How would a UBI not increase output? By increasing consumption it would cause a rise in aggregate demand resulting in more growth.
Not to mention much faith in a UBIs fiscal sustainability is the product of the growth it can produce.
This anti-growth mentality fundementally ignores our landstanding political economy, whereby political conflict is reduced by increasing the size of economic output. It is how we were able to have large reductions in economic inequality in 1910-1980 and the high rates of social mobility in the 1950-1980. Take that away and the economy and political life ends up as a zero sum game, a situation that has bred violence.
Well David, soundbites are exactly that – but they need fact checking and sometimes the proof is mildly complex but necessary.
William Francis, the growth debate has to be had. If we are to constrain growth, then we have to get income to people and UBI would do that.
At bottom, are we discussing, most interestingly, the distribution and creation of money and the social and economic effects and possibilities of such?
If so, does this indicate that it would be more efficient if current economics ceased to separate the “economy” from society and think, feel and act using socio-economic frames?
Might it help the many if “economics” used accessible vocabulary and language structures/genres?
Might inequality also be reduced indirectly as well as directly?
Might inequality, with its inevitable consequences of avoidable personal and social suffering and economic inefficiency be reduced by:
*Bringing offshore capitalism onshore
*”Democratising”/”socialising” the creation, management and pricings of credit?
David Raw, you say that “the Liberal Democrats will be taken to the cleaners by all forms of the media and their opponents if they stick to the UBI policy”. But I don’t remember ever hearing the Green Party attacked or ridiculed by the media for having a policy of UBI
Following my last comment, it seems that the Green Party policy is that every adult would receive at least £ 89 per week, and there would be extra payments for people who face barriers to finding work, for example disabled people and single parents
@ Geoff Crocker,
Putting aside the algebra for a moment, all you’re saying is that if the BoE creates a lot of money and shares it out equally then wealth inequality falls.
So suppose, to take an extreme example, we all get BoE cheques for a trillion pounds. But, just previously, say everything had been nationalised at its current value. So the richest person in the UK would be worth £1016 billion. The poorest would be worth £1000 billion. That’s definitely making us all more equal!
If that’s what you want then go for it. But there is an obvious snag. It doesn’t square too well all that Lib Dem election talk about fiscal responsibility.
@ William Francis
“How would a UBI not increase output?”
Maybe you should be asking how a UBI wouldn’t increase inflation! If it’s a small UBI it won’t make much difference. But the bigger it is the more inflationary it will become.
@ Catherine Jane Crosland I was aware of that, Catherine, but you’ll find the Scottish Green Party (with more seats at Holyrood than the Lib Dems) have a more pragmatic approach of wishing to trial UBI rather than going straight in at the deep; end. Here are some links
‘Scotland can lead the world with Universal Basic Income pilot …greens.scot › news › scotland-can-lead-the-world-with-…
11 Jun 2020 – Scotland would grab the world’s attention by undertaking a three-year pilot of a Universal Basic Income, the Scottish Greens have said’.
Coronavirus Crisis: time for Basic Income in Scotland …greens.scot › blog › coronavirus-crisis-time-for-basic-in…
22 Apr 2020 – Scotland would grab the world’s attention by undertaking a three-year pilot of a Universal Basic Income, the Scottish Greens have said.
There is also a paper on their web site comparing six different formats of UNI. Lib Dems should do some homework first.
Well Peter you’re forced to take refuge in misrepresentation. My simple example was about income, not wealth, since UBI is income. I showed unequivocally that UBI reduces inequality. I’ve also shown that it would be managed in the same current regime of fiscally responsible Keynesian demand management and would not be inflationary.
@ Geoff,
Wealth is just the sum of all previous incomes so the principle is the same.
There’s always going to be a problem of inflation if incomes are separated from the productive process. As a Lib Dem you should be aware of what Adam Smith had to say:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages”
This is not to say that butchers, brewers and bakers don’t take pride in their work but Smith is saying they wouldn’t do what we need them to do to anywhere near the same extent if they didn’t have their own self interest at heart. So the principle of a UBI essentially undermines how the system is designed to operate.
So, a small UBI will be possible but if you make it large enough to “take everyone out of poverty” you’ve really short circuited the system and it will cease to function.
It’s best to wait for some other country it out first and see how they go. Then we can learn for free. A UBI can’t be trialled. It has to be done feet first otherwise it’s not universal. Also every needs to be convinced that it is permanent otherwise they won’t behave as they otherwise would. They’ll just treat a temporary UBI as a windfall and won’t change their behaviour as they might if they know the payments will be continuous.
Might it be the case that such active and well researched interest in U. B. I. demonstrates that “The Market” is not self-regulating?
If this is so, might it be the case that our current “market”, or economy, is actually regulated, perhaps “invisibly”, and that its outcomes, which include great wealth for some and poverty and starvation for others, are tolerated and/or purposed by those with the power to achieve and behave differently?
Might we then consider the purposes, actions and restraints of action of this second “invisible hand” which may be intentional and/or unwitting?
Besides considering external ways of managing our current inequalities and their consequences, might we also consider “internalities” which could be managed more efficiently and equitably?
Peter, wealth is not just the accumulation of prior income, but also the holding of assets, including natural resources. It derives from ownership more than from work. It has different sources compared to income, ie inheritance, is more concentrated in distribution, is more difficult administratively to tax. My worked example addressed income inequality, not wealth inequality which you incorrectly used for your critique.
Thank you for recommending awareness of Adam Smith. Many of us would challenge his view that all economic activity is driven by self interest. But the point is that the production matrix is changing, due to technology and automation. Income per unit of output is declining. In a totally automated economy with a machine plugged into earth to produce all output, there would be no labour income. Goods and services would be distributed by vouchers, ie by UBI and sovereign money. We’re clearly yet at that ultimate position, but there are substantial elements of this phenomenon in our contemporary high-tech economies, which is why we need UBI to fund consumer demand and sovereign money to fund the system.
You are right that a macroeconomic implementation of UBI is required, rather than piecemeal non-universal pilots. UK should lead the way.
Geoff Crocker, I understand I think the points in your paper that workers’ wages have declined inexorably while capital income has increased in recent years, and that in general wages are likely to remain inadequate with the increasing use of sophisticated technology further reducing employment possibilities. Here indeed is a situation requiring remedial action, and I was glad to read of it.
I want to see a system change to ensure that every adult of working age in this country does receive by right a minimum guaranteed income, to ensure that they reach at least the accepted poverty level. But I do not see a UBI achieving this, or indeed aimed at it. I believe our first aim as a party should be to work to lift the 14 million people in this country who already live in poverty out of it, and to ensure that the numbers do not grow, as I am afraid they are already doing this autumn.
Therefore I spoke against the UBI motion at the virtual Conference. I think it is the wrong approach, and if ever implemented liable to produce a kind of underclass of disadvantaged people whom Government will happily then ignore. There is a great deal of ignoring of complexity in the proposal. It is targeted at individuals. But individuals are in households, and have families. What about supporting the children? What about housing needs? What about payments when people fall sick and can’t work temporarily? No, I am sure that David Raw is right and that increased targeted welfare payments are what is required now. I suppose Universal Credit should then probably be rejigged to be the universal guaranteed income that is needed, free from debt, part of this ‘sovereign wealth’ idea that you promote, which is new to me.
I think Peter Martin makes some very good points, above, and that Steve Trevethan’s deeper thinking should be heeded . (I liked your recent article, Steve, though too occupied with Conference to be able to join in the discussion of it.)
@ Geoff,
You’re right that there is a bit more to wealth than the accumulation of previous income. But nevertheless wealth does matter as much as income. Wealth creates an income. Owning a house, for example, means you don’t have to pay rent. So in this future society of yours where the machines have taken all our jobs and we don’t have anything to do we will have to address inequalities in both.
Many on the so-called progressive centre-left are stuck in a ‘robots are coming for our jobs’ narrative, which always somehow morphs into a resignation that there will never be enough jobs for all those who desire them. Ergo we need a basic income to keep people eating. Apparently, human creativity will then spring forth to replace the despair of unemployment because the UBI will allow people to engage their inner entrepreneurial spirit. We’ll see businesses popping up all over the place, and the creation of great works of art and music !
Sorry but I’m not convinced. Especially as when the supposedly progressive centre left aren’t talking about a UBI, and robots taking our livelihoods, they are usually telling us all how it was such a mistake to leave the EU. We’ll no longer have a viable agricultural sector because there will be no EU workers to pick the apples and pack the lettuces etc. Old people won’t have anyone to get them out of bed in the mornings in their nursing homes because EU workers will have all gone home.
The genuine left should never concede that any worker is surplus to requirements, or that we swap the demand that everyone should have both the right to work and an obligation to contribute what we can to society. This creates the wealth which should then be shared in an equitable fashion. Beveridge was right in saying that idleness, or what we would term underemployment or unemployment, is a separate evil which will not be cured by simply giving everyone an income.
Katharine, targeted welfare benefits are indeed a valid alternative to UBI. This is the current system, reasonably defended by welfare advocates. The problem is that they are extremely intrusive into people’s personal lives, have harsh conditionality and penalties, are very expensive to administer and in some cases have low take up rates. They create unemployment and poverty traps. Specific benefits for housing, disability, illness are not excluded by UBI.
Peter, I’m not saying that robots are about to take all our jobs. It’s a common ruse to raise this spectre, point out that it’s not happening, and therefore suppose the argument is dismissed. But creeping automation is reducing the labour content of output and hence the need to work and/or the remuneration for work. And yes, I do have more confidence in human creativity than you have. We can adjust to a lifestyle with more options to decide how we each wish to live rather than having the factory or office system forced on us. We already have made this adjustment as working hours/week have reduced over the last century. Many people who retire are very creatively occupied and enjoying their life. Work and employment are not the only means to a satisfied life. Wage is increasingly insufficient for income.
Brexit is a separate point, but will prove to be an unmitigated disaster, both economically and politically, but that’s for another article.
Geoff, thank you for answering me, but I don’t agree. Our party already wants to abolish sanctions, and it wouldn’t be too great a step, I suggest, for Universal Credit to be replaced with a Guaranteed Minimum Income. (Perhaps it could be called a Gimme!) As to intrusiveness, the point I made about UBI being an over-simplification is the answer to that, and extra benefits such as sickness and housing payments would still require checking by the benefits staff. And as to expense of administration, that would be little compared with the enormous cost of a UBI.
I think the idea that people with such a payout would relax and be creative at any age is perhaps a nice fancy of middle-class highly educated people. I agree with Peter, if I read you right, that satisfaction and personal self-regard, as well as the respect of others, may be important gains from having a paid job in the estimation of many people.
@ Geoff,
You’re saying:
“……….automation is displacing employment, evidenced by long term stagnation in aggregate real wages.”
“……creeping automation is reducing the labour content of output and hence the need to work and/or the remuneration for work.”
But you don’t like the phrase:
” ….robots are coming for our jobs ”
I don’t know about you, but in our household we have such items as an automatic washing machine, an automatically controlled central heating system, timers on the oven, we use the internet and computers to do our banking and some shopping. Previous generations would have used mangles, dolly tubs, open fire grates that needed cleaning out daily, they’d have to wait their turn in a queue to obtain money from a bank or send cheques in the post etc. So, clearly automation isn’t a bad thing.
In a sensibly ordered society it’s not a threat. We can use it to produce the same amount of goods and services in a shorter time or more goods and services in the same time.
But, if you have come to the conclusion that increased automation inevitably must leads to a “stagnation in aggregate real wages” and the only solution is to hand out a yet-to-be-explained-in-detail UBI to those who have suffered from a “displacing (of their) employment” , you must be going wrong somewhere!
How about using your understanding of MMT to argue that wages have fallen because Govt has been preoccupied with an outdated neoliberally inclined economic theory which has created the conditions we now see in the labour market. The main thrust of any progressive thinking shouldn’t be to argue for a UBI, or even a JG, but a condition of full employment. There’s no reason to swallow the line that automation makes this impossible. The obvious counter to the neoliberals, if they persist, is that they should then accept that the standard working week should be reduced to 30 hours.
That will shut them up!
Katharine, why do you think that UBI would “produce a kind of underclass of disadvantaged people who the government will then happily ignore”?
I don’t think many people would choose to live on UBI indefinitely rather than looking for work. UBI is “basic” income – just enough for essentials. Someone with just UBI would have little or no money to spend on luxuries. Most people would still look for work, although perhaps some people would choose to work fewer hours.
The government could still provide support for people looking for work, through advisors at jobcentres or elsewhere. This support might actually be more successful when the element of fear was removed. In the current situation, a jobseeker knows that jobcentre staff have the power to remove their only source of income. Clearly this is not conducive to a relaxed, friendly relationship. But with UBI, jobcentres would have nothing to do with the benefits system, and would be solely about providing careers guidance, and support for people having difficulty in finding work
I’m not sure where the idea that we’re going to jump into a national launch of UBI comes from. The conference motion was about progressing the idea of it, with the intention of it becoming reality at some point in the future. There’s a lot of work to be done on the details, which should include trials, and especially in communicating what is a radical concept to a wider audience, some of whom struggle to see beyond ‘free money for doing nothing’.
IMO, the idea that it is bad for the poor because the wealthy will get it too, is a red herring. If those wealthy people aren’t paying way, way more in tax to help fund the system, then the problem is that they aren’t being taxed properly. And the introduction of UBI gives us the opportunity to review the tax system as a whole. I agree with whoever it was that reminded us that it could introduce a lot of problems if we try to reduce it to zero, so I think we should assume we don’t reduce it below £5000, but that’s something we can discuss following some proper modelling.
One of the strongest arguments in favour of the concept of UBI is to think of it as the whole community benefiting from our collectively inherited wealth. In short, if you are OK with children being supported by and inheriting from wealthy parents (either above or below the inheritance tax threshold), then you should be OK with every citizen being supported by and inheriting from our collective wealth – much of which was accumulated thanks to our shared resources or from the work of the ancestors of the less wealthy in society who were not paid properly at the time.
Fiona is right – equal universal inheritance of infrastructure and technology is a fundamental justification for UBI.
I also agree with Katharine and Peter that work is important and valuable to self-fulfillment as well as for income. It’s just that the data shows clearly that aggregate working hours have reduced hugely over several decades from a time when we all worked 70-100 hours/week, and that they are set to decline further. No-one is arguing for a return to Victorian working hours, so it shows that we can all cope with and even value greater leisure or creative self determined activity, regardless of class or educational achievement. We then need the means to get income to people other than through work and wage, ie UBI.
Peter is right to say that political power has also affected the wage share. In my work, available on the http://www.ubi.org web site, I show that earned income has declined against consumer expenditure in every year from 1948 to 2016, becoming less than consumer expenditure from 1995, including through long years of high trade union and therefore high labour bargaining power. It does look as though the Thatcher period saw a reduction in the wage share due to loss of trade union power, but in all other years, another factor must have been causing the wage reduction, ie technological automation. We can’t let people become impoverished through this and must supplement labour income with UBI to achieve social justice.
@Geoff
Peter Martin in his post at 4th Oct ’20 – 5:48am said
“How about using your understanding of MMT to argue that wages have fallen because Govt has been preoccupied with an outdated neoliberally inclined economic theory which has created the conditions we now see in the labour market. The main thrust of any progressive thinking shouldn’t be to argue for a UBI, or even a JG, but a condition of full employment.”
I agree – Geoff please do that.
Irrespective of automation issues (I have some of the automation technology Peter Martin mentions but not all of it) there is still much work which needs to be done – and by humans rather than machines. Personally I would rather pay humans to do it rather than some gargantuan corporation which owns the technology.
But Geoff – please do the explaining in plain English rather than economese – assume you are trying to convince ordinary human beings who know nothing about economics beyond the struggle they have to put food on the table and a roof over their head.
I don’t UBI will sell on the doorstep. The arguments are technical and abstract, and it doesn’t sound plausible – rather like the 2019 Labour manifesto. It’s not the only argument against it or even the best one, but it’s one that political parties can’t afford to ignore.
If we want to to distinctive in financial matters in a way that would have instant leverage and controversy we could propose:
1. Merge income tax and national insurance.
2. Abolish stamp duty and introduce CGT to all housing.
3. Impose VAT uniformly and raise the income tax threshold.
I welcome the UBI adoption. Clearly if this is going into a manifesto it will be attacked/dismissed on the basis of affordability . We must commission credible, independent research to establish the true cost of any commitments we make and be very clear on the circumstances that would make its introduction possible/not possible. There is no room for a further ‘broken promise’. If that were to happen on this commitment it would be on a scale way above the student fees debacle. Politics is easy to forget when doing a good and right thing. Let’s not make that mistake.
Thanks to Katharine Pindar!
Nonconformist, in that case you’d probably prefer the way my friend and colleague Guy Standing puts the case for UBI in his various books. But at some point it also needs more substantial economic justification, hence the research project at IPR Bath, https://www.bath.ac.uk/projects/the-economics-of-basic-income/
Nonconformistradical, plus it’s really up to you and Peter to put the case for ‘the condition of full employment’. You can’t expect me to put your case. Sadly, or just in fact, due to automation, I don’t think it can any longer be attained and so am advocating UBI to sustain people’s income. Current surveys show satisfaction at work is low, even to the extent of talk of ‘bullshit jobs’ and in-work poverty. So work is fine, but isn’t necessarily the only or total solution to income and well-being.
@ Geoff,
“I don’t think it (full employment) can any longer be attained”
It’s been pretty close to it in the SE of England for as long as I can remember. In the 70’s when I was a student it was easy enough to get a reasonably well paid temporary job there, but when I looked for work in the North of England, from where I originate, it was much harder and the wages were much lower. The problem for govt was that a general stimulus created an overheating, and inflation, in the South before a thaw had set in in the other more peripheral areas of the UK. So if it’s possible in SE England it’s possible anywhere. It’s not that the people of the UK are any more or less hard working in different areas. It just needs Govt to apply its stimulus in a more targetted way.
It’s the same story the EU. A general stimulus of the monetary variety is not going to be selective enough to address regional variations. Extra spending in the wealthy areas will probably create too much inflation whereas the same spending in the peripheral regions will be much more effective in utilising the available and underused capacity. In the other words both the UK and the EU should concentrate on providing jobs where people are living rather than where they aren’t. .
This induces unnecessary migrations and creates problems of depopulation in some regions but the opposite problem in the wealthier areas.
@ Katharine @ Catherine Jane Crosland,
Introducing a UBI is also an acceptance that full employment, or as close to it as we can reasonably achieve, is no longer possible. Geoff says exactly this. Once we go down that road we are writing off a whole class of people as being surplus to requirements. This is what will create the underclass. Some would say we already have it.
We need to do everything possible to prevent this happening rather than rolling over by accepting very neoliberally inclined arguments. If Geoff understands MMT he should realise they are false arguments. Automation could be used to enable the working week to four days. Or give everyone six weeks minimum holidays. It really makes no sense for 80% of the workforce to carry on working as normal and have remaining 20% permanently unemployed.
Unless perhaps you want to create a sense of fear in the 80% and use that as a disciplinary force.
“I welcome the UBI adoption. Clearly if this is going into a manifesto it will be attacked/dismissed on the basis of affordability”. Errrrr, no. Not quite. I don’t think so.
As someone who has participated in eighteen general elections, three Holyrood elections, countless local elections, and worn out a few pairs of shoes and doorsteps, I think it will be laughed out of court by people saying “why are you giving the same amount to top rate taxpayers and the billionaires and such as Dyson and the Duke of Westminster”.
It’s unlikely they’ll work it out on their ipads that : “(mY+UBI)/(Y+UBI) is < m, ie inequality has decreased, because multiplying this out, we get (mY+UBI)< mY+mUBI ie UBI1, which it’s bound to be".
As Lloyd George said many years ago in the famous Limehouse speech, "“A fully equipped Duke costs as much to keep up as two dreadnoughts, and Dukes are just as great a terror, and they last longer.”
In 2020, Dukes (and Philip Green) still don't elicit much sympathy from most of the rest of us and I don't want my taxes to give them a further dividend.
I’ve not seen any plan for UBI where it will go to tax exiles, so Mr Dyson will have to survive without it.
Simply reminding the cynical public that the very wealthy will be paying far more in tax than any UBI income is not too complex for most of the public, or too tricky to describe on the doorstep.
That’s not to say it’ll be an easy sell. Sadly, IMO, more people at doorstops will be worried about free money for the poor people who will spend it on fabs, booze and flat-screen tvs than they will about the super-rich. See also attitudes towards inheritance tax.
But assuming we’ve got another four years before the next manifesto is being finalised, we’ve got time to do research into not just what sort of scheme we propose, but we have between now and then to work beyond party politics to introduce the wide public to the concept and to persuade them of its viability. Depending on how far we get with that between now and publishing the next manifesto will inform how much emphasis we put on the policy, and what it is we’d be proposing in the following five years.
It’s a bit like our policy on regulating cannabis. There will be some on the door step, with some help from the media, who think this means we are in favour of teenagers getting stoned, don’t care about those developing mental health problems or drug driving. Just because some people will misunderstand our policy doesn’t mean it’s not the right thing to do or worth pursuing.
@ Fiona I think you’ll find Sir James Dyson is a UK tax payer on a personal level so he would get it.
It was his business HQ and most of his manufacturing capacity that was shipped out to Singapore where he can take advantage of cheap labour with different ’employment rights’..
Peter, OK I’ll modify my statement so say that full satisfactory employment providing adequate aggregate labour income for sustaining consumer expenditure is no longer possible. Extensive data presented in my work demonstrates that this has been unequivocally the case since 1995. Your claim that I don’t understand MMT is just too patronising – none of my posts question your knowledge base so I’d be glad if you’d desist from doing this.
You go on to admit that automation will reduce working hours – the question is how great this reduction will be and how it should/can be allocated inter-personally. UBI aims to avoid the creation of an income underclass.
Equally David, you can mock my simple algebraic proof that UBI reduces inequality which I was asked to demonstrate by another contributor. Of course, no-one is going to present algebra on the doorstep. You will be surprised by the high level of popular support for UBI revealed in recent surveys.
Geoff, in-work poverty is already a fact of life for many British families. As you have shown yourself, earned income has steadily declined compared with consumer expenditure since the late 40s. and has been less than consumer expenditure since 1995. People in insecure employment, on zero-hours contracts and the minimum wage, fall in and out of poverty, and the tremendous growth in food-bank usage by people usually working at least part-time shows in practice what the statistics can prove.
What we are all wanting is to ensure that every individual of working age in this country can come to be assured of a guaranteed minimum income. Everyone who wants a job should be provided with one, but we can’t ensure that all the jobs will be lasting and pay enough, or that individuals are always able to stay in them. It seems to me that a UBI is a blunderbuss of a supposed solution, when what is needed specifically is a top-up for people of working age when their income, earned or unearned, falls short. That answer is almost glaring at us when we look at the Chancellor’s present and planned provisions in this health crisis. But what may be a lasting way forward is to make Universal Credit into a guaranteed minimum income which can’t be reduced or earned.
Fiona, I don’t think it is feasible to have test pilots of UBI, for the simple reason that usage of it (as someone has already said above) would be quite different in a test situation from the situation if it really were rolled out nationally. Which I can’t see the nation accepting as both practical and desirable.
Catherine, I entirely agree with Peter’s reply at 12.49 today, answering both you and Geoff.
Voters will reject UBI as another daft idea of the Left.
Katharine, I don’t have any philosophical or moral objection to guaranteed minimum income (or targeted welfare benefits) as one means to achieve greater social justice, except that operationally it retains conditionality (available and looking for work etc) and intrusive expensive means testing, and these usually lead to harsh demeaning regimes and/or low take up rates. Hence my preference for UBI. I agree with you about the limitations of pilots which are neither universal nor unconditional. We need to roll out a starter national macroeconomic UBI and learn by managing it. I’ve already replied to Peter’s 12.49 post setting out my reasons for disagreement with him.
@ Geoff,
I suspect that you do actually understand MMT but that you don’t really agree with it. Which is of course fair enough if you make that clear, explain what your objections are and why you differ.
However, you’ve dipped into it, with reference to Stephanie Kelton’s book, to try to come up with a way of making a UBI look ‘affordable’ in a way I can’t imagine she or any other MMT economist would approve of.
You’ve mentioned Guy Standing with some approval and, again, it’s fair enough to agree with him if you choose, but Bill Mitchell has made it quite clear in his blog that he is definitely not in tune with MMT opinion.
http://bilbo.economicoutlook.net/blog/?p=42340
Geoff Crocker,
Thank you for the mention and providing a link to my February 2018 article, however my first name is Michael not Malcolm.
This article does not set out at what level a Basic Income should be introduced, how much it would cost and how it would be financed. You talk of the government creating money to fund a UBI but don’t say how much this should be either in year one or any other year.
A realistic manifesto commitment would be to introduce a Basic Income of £48.08 a week, for everyone when they turn 18 and to abolish their right to an Income Tax Personal Allowance. If we assume there are about 800,000 people turning 18 each year, the maximum this could cost is £2 billion (£2500 x 800,000). The maximum cost assumes than no one in the year after then turn 18 pays income tax. If they are earning the 18 to 20 minimum wage (of £6.45 an hour) and work only 37 hours a week then they would pay £46.39 a week income tax.
By the time they are 21, if they are in work the amount they pay extra in tax compared to those who don’t have a Basic Income will equal the amount of Basic Income.
We could then focus our main welfare spending on ending sanctions, providing a work allowance of at least £50 a week for single people and couples (and a second-earner work allowance), restoring all the other benefits cuts made since 2010 and increasing the working-age benefit above inflation towards being enough to meet a household’s basic needs (according to the Social Metrics Commission this is £157 for single people and £271 for a couple).
Peter, your continued judgment of my knowledge base is not the point. I make no assumption about yours – I simply respond to your argument. MMT has many advocates and is multi-faceted. I have set out an analysis in my book and in various papers on the web site http://www.ubi.org. Randall Wray, Bill Mitchell and Stephanie Kelton have nuanced differences in their interpretation. Wray and Mitchell are totally opposed to UBI. Stephanie in private correspondence is far more inclusive in her perspective and more open to UBI either alongside, or as an alternative, to JG. An LDV article is of too limited length to work through a response to Bill Mitchell’s very long critique of Guy Standing’s report for John McDonnell to which I made a small contribution. I agree with MMT that a sovereign state can issue money, and this is the big point. I disagree with MMT that money derives its value from its acceptance as tax payment – in my view it derives its value from its acceptance to buy goods and services, a view Wray simply derides without argument. I also disagree with MMT that money is quintessentially debt and that double-entry accounting requires government money to be matched by assumption of debt. MMT says this doesn’t matter because government debt is matched by surpluses in the overseas and private sectors of the economy – an identity due to Wynne Godley and Francis Cripps. My worry about this line of argument is that MMT then treats the Godley identity as an explanatory equation. Maybe you can see why an LDV post is not the place to critique MMT. It will undoubtedly annoy commentators who want no ‘econese’. Meanwhile Joseph Huber defines sovereign money as the replacement of all commercial bank issued money, because he considers their profligacy the cause of the 2007 crisis and wants to return seigniorage to the state. I propose debt-free sovereign money as the state’s privilege but without banning commercial bank money creation by corporate and personal loans. I hope this clarifies my position, but I suggest any further discussion on the detail of MMT is private to my address [email protected]
Michael, apologies for my error in your name. I’ve responded earlier in this thread regarding the scope of the macroeconomic allocation I’d have in mind for an initial UBI – in the range of £100-150bn, ie about 5% of GDP and then manage it as a component of aggregate demand in the normal way.
@ Geoff,
You are of course entitled to your POV but why include Stephanie Kelton as an implied ally, and by further implication MMT itself, when you clearly disagree with just about everything? Everyone knows that a sovereign state can issue money. That’s never been in question!
Your annoying inclusion of SK’s book as a reference, without a single quote from it, allowed “Innocent Bystander” to come out with a typical piece of nonsense before I entered the argument. “The Deficit Myth”, as written by Stephanie, is an attempt to explain why the Govt nearly always gets back in taxes less than it spends. This shouldn’t be used as a reason to raise taxes and/or cut spending unless there is an inflation problem. It’s not a justification for the Govt to create lots of new spending money for itself on dubious projects like a UBI.
Geoff,
Does your 5-7.5% figure depend on the current situation of the Coronavirus crisis? If there was no Coronavirus don’t you think that an increase in aggregate demand of £100 billion would be inflationary considering the UK’s historical rates of economic growth?
Even if the £100 billion was divided between those of working age this would only provide about £44.72 a week. Would you expect to increase it in the second year?
Do you think the party is likely to support such a large increase in money within the next four years? If not, do you think £20 billion might be a more realistic figure to get the party to agree to?
Katharine, UBI does not mean that the government regards unemployment as acceptable. The government should still aim to ensure that everyone who wants a job can find one. UBI just recognises that most people will have times during their lives when they will be temporarily without work, or need to take a break from work for a time, and a universal basic income is the best way of ensuring that no-one is ever left entirely without income, and no-one can be forced to work at times when it would be detrimental to their physical or mental health to do so.
I would rather adopt a policy of increasing contribution based benefits instead of UBI.
Many people made unemployed in recent months are surprised at how little their past NI contributions affect their social security entitlement and are also excluded by savings and capital limits:
https://www.google.com/amp/s/amp.theguardian.com/world/2020/sep/30/hundreds-of-thousands-who-lost-jobs-in-pandemic-denied-universal-credit
@David – the point is that whether or not Dyson gets it is a red herring in a serious discussion of whether or not the rich or poor benefit the most, because you don’t need to be a maths whizz to get that rich people will be paying far, far more in tax, and people will think that as with pensions, he’s earned it.
IMO, far more people will be concerned about those they think have not earned it. Yes, some of those will try to appear progressive by complaining about Dyson, and I fully expect that the likes of the Mail and Express will feed their readers that line, so I do see it being mentioned ‘at the doorstep’, but I don’t think it’s a serious problem for anyone who is open to discussion.
Pilots may not be able to mimic the full experience, but that doesn’t mean they won’t provide valuable information and be an important part of the process of getting people used to what many will think of as a radical approach.
Might it help if we were to consider this matter by stylising the sets of recipients, some possible action and possible macro socio-economic factors?
Sets of Recipients
Those who have no employment whilst seeking such
Those who have no employment whilst not seeking such
Those who are unable to work
Those who are employed and receive insufficient income
Possible Actions
Reduce excessive “Internal” costs such as housing, medicines, excessive/rentier financial costs, optional wars etc
Introduce Nationally/Sovereign money financed and locally organised guaranteed “employment with status” scheme
Introduce U.B.I
Carry on as now with some mods
?
Macro socio-economic (or economo-social) factors might include:
Inflation rates
Employment rates
Social and mental health
Financial costs/benefits actual and perceived
Public acceptability
Peter, it’s ridiculous to say that I can’t mention a book without quoting from it. You’ll find fuller reviews of the MMT literature on the books tab at the web site http://www.ubi.org/8/UBI-Books, including those by Wray, Kelton, Fullbrook, and Epstein. I don’t claim Stephanie as an ‘ally’, but she is a major contributor and correspondent in the developing theory of MMT/sovereign money. She engages with the UBI argument politely and with an open mind, which is more than can be said for Randall Wray who has regrettably set up hostility between various groups of opinion on monetary theory. This is why we’ve invited Stephanie to open our UBI conference next week. You’ll be able to hear her directly at http://www.ideasfestival.co.uk/events/stephanie-kelton/.
But you’re totally wrong in saying that ‘Everyone knows that a sovereign state can issue money. That’s never been in question!’. On the contrary most governments follow the orthodox view that i) their expenditure must be reckoned against revenue as deficit which has to be covered by new money, ii) they can only raise such money by borrowing on the bond market, largely from pension funds and insurance companies. This is how £435bn of QE was raised, and regrettably how the current government proposes to raise £645bn of Covid funding. It currently costs the UK economy £39bn annually in interest payments on a non-repayable debt, a massive transfer from the taxpayer to the financial sector. It is this major issue of theory and practice which the majority of MMT and sovereign money advocates oppose. There is then disagreement on further definitions, ie whether sovereign money should be debt-free, whether UBI or JG is the best approach to social justice, but these are best resolved by courteous intellectual debate. How sovereign money is spent is a separate question as to how it is raised, and US MMT advocates expenditure on Universal Medicare, Green New Deal, etc as well as JG.
@ Fiona I’m sorry, Fiona, we’ll have to agree to differ.
Giving Dyson etc UBI is the equivalent of a tax rebate in terms of cash in his pocket. It’s an extension of the Coalition when Lib Dems agreed to cut the top rate of tax when applying cuts to welfare benefits for those at the opposite end of the financial spectrum.
Some Lib Dems seem to be looking for a magic cure Holy Grail to rescue them from the party’s present self inflicted dire situation. In my judgement without rigorous trial and a top taper cap UBI won’t be it. At the very least do some doorstep opinion sampling to test the public mood. It’s like washing a car the Rolls Royce with a hosepipe when there’s a forest fire of poverty on the doorstep.
LLG, for all his faults and excesses would have understood that. He’s now probably
dancing like a whirling dervish in his grave. Dust down a copy of the National Insurance Act, United Kingdom, 1911 and have a look.
Michael, I set my initial bid for UBI at this level because I tried to offset the need for household debt to supplement inadequate income. ONS data shows that from 2016 to 2018, total household debt rose by £45bn, £32bn being property debt and £13bn unsecured debt, £7bn of which was student debt and £6bn as HP. But it’s not clear how much of property debt was used for general consumption rather than to buy/build housing. ONS confirm that debt is a growing problem for low income households. This methodology would justify your proposal for an initial £20bn annual UBI funding. However, household debt has been far higher in other periods (£164bn in 2004 triggering the crisis), hence my higher proposal. It would then be necessary to constrain new household debt by tighter loan-to-value and loan-to-income ratios to avoid simply doubling this component of income and causing inflation as you point out. Ultimately it is as difficult for UBI advocates to specify exact figures as it is for the official opposition to set tax rates without access to Treasury data and staff resources. I’d compromise at some starter figure and then refine it each year from an analysis of consumer income and expenditure, inflation, debt etc.
@ Geoff,
I’m sure you’ll have heard objections to the idea of Govt creating money along the lines that this is what happened in Zimbabwe and the Weimar Republic. So that’s why I say that everyone does know that Sovereign Govts can do this even though they argue they shouldn’t .
The MMT position is that interest rates should be set at zero so that removes the difference being bond issue and sovereign money issue. What is then issued, to cover Govt spending, has to be determined by the likely impact the spending has on the level of inflation. I’m agnostic on the idea personally. I’d say that 2% should be OK if inflation is also targetted to be 2%. But I would say the Govt should make up their minds about what they should be and stop fiddling around with them. The MMT suggestion was ridiculed at first but now interest rates are heading into negative territory it all looks much more reasonable to conventional opinion.
Everyone likes Stephanie. She is very personable. I’ve tried to get her over to give a talk at the Labour conference but she’s always been booked up. We’ve had Bill Mitchell a couple of times. Whereas with some of the other big names there can a tendency to be less diplomatic and state their opinions more forcibly. Nevertheless when you say things like:
“These are the radical definitions needed to advocate a substantial affordable UBI. They are set out more fully in Stephanie Kelton’s new book….”
You really give as example and shouldn’t hide behind what you claim she said in private. She probably wouldn’t use the term “affordable” anyway. It’s the potential effect on inflation and levels of production that is important.
Peter, The old red herrings of Weimar and Zimbabwe? Groan. 🙁
I’m not hiding behind anything specific which Stephanie has said in private correspondence. I’m just saying that she is open minded to the UBI proposal. Since you clearly know her so well, you can ask her yourself. Meanwhile, you claim to be able to speak on behalf of ‘everyone’ 🙂
Catharine Jane Crosland,
The government no longer aims ‘to ensure that everyone who wants a job can find one’. They want a level of unemployment which keeps inflation in the region of 2%. I don’t even think that most of the members of Federal Policy Committee and Federal Conference Committee believe that government should ‘aim to ensure that everyone who wants a job can find one’.
What level of UBI do you think would meet a person’s needs so they can refuse a job offer, and what evidence do you have this is the correct level?
Macro,
The £6,000 of disregard for savings and the maximum of £16,000 has been the same for years. I don’t recall when these were last increased. They were at this level in 2010 and I believe in 2005 as well.
David Raw,
I think the question of giving an amount of money to those with high incomes can be overcome by knowing at what level of income a person is no better off and/or worse off. In a discussion of a Compass scheme I pointed out that a single person earning more than £12,500 would be worse off. If a UBI was set at the Income Tax Personal Allowance level and this allowance is abolished then anyone earning more than £12,500 would be no better off.
Geoff Crocker,
It seems your answer to my question (would you increase UBI in the second year?) is that you don’t know. This makes setting out how much we want a UBI to be after five years of a government with us in it impossible. We wouldn’t be able to make a firm commitment on the UBI level in our manifesto.
You give figures for a two year period therefore we should consider half of each figure as the annual amount – £22.5 billion, very close to my £20 billion figure. An increase in spending of £100 billion is an increase of £77.5 billion assuming you could stop people borrowing all of the £22.5 billion. If there was no forecast economic growth then I would expect economic growth to increase to close to 3% and inflation to increase by over 0.875%. If there was forecast economic growth inflation can be expected to increase by this percentage as well.
It doesn’t seem liberal to increase the amount people need to earn before they can borrow and make getting on the housing-ladder even more difficult. It would make more sense to reduce your £100 billion by the amount you expect people to borrow and the value the economy is expected to grow by. If growth was forecast to be 2% this would reduce the £100 billion down to £37.5 billion. With a level of growth of 2% already expected it might be possible for the economy to grow by more than an extra 1%. With working-age people receiving £16.77 a week in UBI the amount borrowed to spend into the economy might be reduced as well and if these happened inflation would increase by less than 0.875%.
Michael, yes I’ve said in previous posts that I don’t claim to know everything. I’m arguing for the concept of UBI and I have some overall view of its potential scope. Specific schemes do need proposing and testing at macro and micro level, and I think this is best done by a working group to which I’m happy to contribute.
Steve Trevethan at 5th Oct ’20 – 9:12am is making an attempt to understand the problem by listing some possible scenarios we might need to consisder – thank you Steve.
It would be really helpful I think if Geoff Crocker and Peter Martin could take their discussion about MMT etc. elsewhere and instead address how we should deal with those scenarios, whilst ensuring at the same time that the work which needs to be done by human beings in UK does actually get done.
Nonconformistradical I agree – I think that Peter and I have virtually exhausted the MMT debate. I also think that Steve Trevethan’s points deserve a separate article and thread.
@ Geoff,
Comments which include Z and the WR make me groan too. But, the point is that even people like “Innocent Bystander” will know both created lots of “sovereign money” and there were hyperinflations.
So Everyone? OK maybe my 3 year old granddaughter won’t know that but it won’t be long before she does!
I’m not saying a small UBI will do the same but that’s probably what would happen if the more wide eyed of UBI advocates decided they were going to really get serious about paying everyone a UBI of sufficient size to ensure that even those with no other income at all had “enough money to keep them out of poverty.”
Except they won’t after the hyperinflation!
Many thanks to Peter and Geoff for their debate which has brightened this dismal time.
I have much enjoyed it.
My own perspective on MMT is congruent with Terry Pratchett”s on the cosmos.
“It’s turtles all the way down”.
Stephanie is Bernie’s economic advisor which says it all, really, but it will provide entertainment for the rest of us until the fad dies and is replaced by an even more desperate clutching at straws.
Thanks to Nonconformistradical!
Thanks to Geoff Crocker! I’ll have a go at an article and see if it is good enough to submit.
Peter, well I’d hazard a guess (I don’t know in the way you appear to), that the majority of people don’t know that government could avoid taking debt when it issues money. They think that it must raise it on the bond market. This would include the Chancellor of the Exchequer, most people in the Treasury and Bank of England too! So you continue on the worn horn of hyperinflation whilst if you have read Stephanie’s book and my book, you’d know very well that in both cases aggregate demand is managed to avoid excess demand, overheating, or hyperinflation. You groan about mention of Weimar and then proceed to repeat the same mantra. Really groan 🙁
https://www.bbc.co.uk/news/uk-politics-54419352 proves my point 🙁
@ Geoff,
Of course it depends on how large the UBI is going to be. You’ve put it, in your OP, in conventional household neoliberal economic terms with:
“The claim is that UBI is either too small to be meaningful, or too large to be affordable.”
An MMT economist would say “The claim is that UBI is either too small to be meaningful, or too large to be fiscally responsible.” In other words it will cause too much inflation.
How odd is it that an MMTer is arguing against the perils of inflation! Another way to look at it is that if we all pay ourselves £20k pa, or whatever, for not doing very much then there won’t be very much to buy with it. UBI advocates often only consider, as you’ve just done, the demand side without considering the effect on the supply side.
” the majority of people don’t know that government could avoid taking debt when it issues money. They think that it must raise it on the bond market. ”
You’d be surprised what people think. I can only offer anecdotal evidence but many (most?) people think the Govt borrow it from the Americans or the IMF. They don’t equate their ownership of Premium bonds, or any other bonds or savings with Govt borrowing. You economists don’t do anywhere near as well as you should in educating the public. You might just want to get away from your own uni dept and ask some probing questions. Even people who are otherwise highly intelligent often don’t have much idea at all.
@ Geoff (cont)
I used to do some work for a German computer company. There would often be some banter about how us Brits lived on tick and couldn’t manage without our credit cards etc etc. If you follow the German comedian Henning Wehn he incorporates all this in his act. All good fun of course, but if you analyse what they are saying it’s quite clear that they don’t see that if someone is in surplus then someone else has to be in deficit. It’s arithmetically impossible for the rest of the EU to be like Germany. But that’s what they expect of others. If they can manage with the euro why can’t everyone?
But, get back to what what you suggested, and if they do think that, they are right about bonds and cash. Suppose the Government sells the BoE £N worth of gilts. The BoE end up all square. They’ve swapped £N worth of cash for £N worth of gilts. The Govt end up with the £N in cash which they duly spend. But they still have a liability of £N to the BoE.
But the BoE are really a part of government. So let’s put the BoE and the Treasury together. So the Govt now ends up owning its own bonds. Does this mean the Govt’s liability has gone away? No. It’s still there in an accounting sense just as it was before, in an accounting sense. So whether its the issue of bonds or some smoke and mirrors QE operation the issuing of cash is no different from the issuing of bonds apart from the level of interest that goes with the bonds. But if it’s 0% in both cases……..
Marco, I agree with you – better increase contribution-based benefits than try to introduce a UBI, which in any case can’t be rapidly brought in. There must be many people unfortunately surprised to find this year how little the rates of benefit are: – enough, as a friend of mine experiencing them said, to live on for a few weeks but a real problem after that when new expenses (such as school uniforms) become essential. You make a good point and helpful reference about the savings and capital limits to the payouts, and those long-standing amounts should surely be raised.
The UBI proposal, and now our policy, is unfortunately no way to help deal with the now increasing poverty in our country, or promote economic growth, where people have sufficient money to buy goods and enough goods are produced by people in work.
Geoff,
The title of this article is “Basic income – from party policy to electable manifesto commitment”. Did you create the title or was it created by an LDV editor? The title does not give the idea that this article is about arguing for the concept of a UBI; the party has accepted the principle of a UBI. The title suggests this article is about moving from a principle to something we can present in a manifesto to the electorate. Therefore my questions about how your ideas can be turned into a policy we could present are valid. It is very surprising to me that you can’t answer them considering the title of this article. Now we have agreed the principle of a UBI we need to discuss what level we would set for it and how this would be funded.
I am surprised you will not talk about how much inflation would be caused by the introduction of a UBI funded by a £100 billion increase in the monetary supply.
Have you tried converting Ed Davey to your economic thinking where government budgets don’t need to balance and the government can fund extra spending from the money the Bank of England creates? Have you given him a free invitation to your forthcoming October 12-13 conference?
Peter,
I am surprised that you say that MMT would consider increasing the money supply to pay for government spending as increasing the National Debt. The Bank of England holds part of our National Debt I see no reason why it can’t just write it off.
Peter, Your distinction between ‘neoliberal’ and MMI terminology is lost on me. MMT theorists do of course caution against inflation – you’ll find this in both Randall Wray and Stephanie Kelton’s writing and also, if you care to look, in mine. The supply side is not only considered in my analysis – it’s core to making output available with less labour input, therefore creating the need for UBI. I list major institutions and people who believe government money must be raised on the bond market. I don’t agree that economists fail to communicate – Piketty and Kelton have sold vast numbers of their books. You seem to have lost the plot on QE. If you bother to read the BoE explanatory notes which are again set out in my book, you’d know that the sales were largely to insurance companies and pension funds who ‘loaned’ the £435bn of QE.
Michael you are unnecessarily cryptic. I don’t have a fully specified, fully costed, fully operational ‘oven ready’ UBI scheme to roll out. I argue that it should be funded by debt-free sovereign money, and this is conceptually different to other proposals, so I spend some effort to justify this redefinition. You have to remember that a £100bn UBI scheme would substantially replace means-tested benefits since avoiding means-testing is an important rationale for UBI. Sorry you feel I haven’t done all the work I should, but like most people, I have my limits, and others, yourself included, are very welcome to develop schemes further, as you already have to your credit. Colleagues Malcolm Torry, Stewart Lansley, Howard Reed via Compass and others have done the same. I do think this now needs a serious working group process, and ideally needs input from the Treasury and BoE.
I’d be happy to discuss this with Ed Davey. In fact the Basic Income Conversation which I support does exactly that. Everyone has a free invitation to the 12-13 October conference, Ed and you included. I hope to see you there (all on line though). I agree with your comment on Peter’s confused proposal – in fact I think a lot of national debts will be written off.
Michael, there is more detail in a paper I wrote for the Guy Standing report which includes a costing of the CBIT scheme and suggests a way forward to scope UBI funded from sovereign money. It’s at https://www.ubi.org/_data/site/270/pg/31/FundingBasicIncome-contributingpaperRSAmeeting7May2019.pdf
I also think the positive qualitative arguments for UBI need developing further from those presented at conference to those needed in a manifesto to gain electoral support. Hence the justification of the title of my article, if such justification is so greatly needed.
@ Geoff,
You know very well you’re being disingenuous. QE is not the sale of bonds ” to insurance companies and pension funds”. There is a taboo about the sale of bonds directly from a Govt to the central bank. Therefore, as a work around, the Govt pretends to sell its bonds to the private sector. The private sector, knowing how to play the game, then sell them on to the central bank. No doubt for more than they paid, so it’s a nice little risk free earner for them.
@ Michael BG,
It really doesn’t make any difference whether the BoE write off their ownership of bonds. From their POV they can’t run at a loss so they do need to keep the bonds on the books to prevent that. Any yield on the bonds can be returned to the Treasury.
@ Michael BG, @ Geoff
Many in the MMT fraternity argue we shouldn’t use the terms “money supply” and “debt”. From the POV of the currency issuer there are only accounting identities. Is the economy running too hot, with a risk of inflation, or too cold, with the danger of recession with too much unemployment? That’s the important question for macro-economists.
Conventional economic thinking by many economists, including Geoff it would seem, about Govt debt hasn’t changed since Gold standard days. Then debt could reasonably be described as anything that wasn’t backed by Gold reserves. “Sovereign Money” wasn’t considered debt because it was backed by Gold – at least in theory . Except even then the paper was still the liability (debt) and the Gold was the counterbalancing asset. But Gilts weren’t backed by anything tangible so therefore it was debt.
So why do some of them think it’s still like that and it’s less expensive to issue Sovereign money than bonds -even now with negative interest rates? If all Treasury bonds yielded 0%, they would be functionally equivalent to cash. A modern form of what were once called Bradbury pounds.
They really should drag themselves into the 21st century!
PS Some economists are doing better than others on educating the public. The real problem though is that they, for some reason, seem completely incapable of reaching a consensus. If Scientists can largely do that on the way the Universe functions why is it so hard when it’s a much simpler problem of how economies work? If they can’t agree themselves, how can they do other than create confusion?
@ Geoff,
“(The supply side) is core to making output available with less labour input, therefore creating the need for UBI ‘ ???
So you’re saying when workers improve their productivity they can’t expect higher wages, the benefits have to go to their employer in the form of higher profits. And to enable them to keep buying up the stuff they’ve made their wages need to be topped up with a publicly funded UBI?
Who was it who said the UBI was a left wing policy?
Your accusation of deliberate disingenuity on my part is not a point of economics, but an ethical challenge. I object. You should withdraw. My outline of the process is in any case exactly as set out by BoE on their web site, so you should direct your challenge of disingenuity to them. I’ll also check with them.
You are clearly a wholehearted disciple of the MMT movement’s leaders. Your post is so exactly what Randall Wray or Bill Mitchell would write (including in Randall’s case being rude to correspondents), that it would well have been written by either of them. Maybe it was?
You fail to present any data for your claim of BoE repurchases of bonds. Aggregate data suggests that this isn’t the case in the way you claim, since national debt would then not rise in the way it does, and it would be held by the BoE rather than the pension and insurance companies it is held by. I don’t have direct data on these flows myself, but I do have a contact at BoE so I will check out your claim and get back to you if I get a response.
Aligning my views with the gold standard is also invalid – I explicitly reject referring sovereign money creation to either gold reserves, or the sale of government bonds, but solely to output GDP. This is actually close to the position of both Randall Wray and Stephanie Kelton as I read them.
Interest rates may be low at present, but total annual debt repayments still amount to £39bn annually in the UK, and if interest rates rise, this will become a substantial burden on the taxpayer to fund the financial sector. I don’t see the point. Debt-free sovereign money is surely preferable?
Your subsequent post claims that labour should take the value of increased productivity. This can’t be totally the case since some share of the productivity increase needs to fund its source, ie technology development. I’m not at all averse to an increased share to labour. I just think that technology will continue to reduce labour requirement so the only way to ensure all benefit from technology is UBI. Your claim that UBI is right wing is also exactly what Wray says. It’s difficult to maintain this challenge when the most prominent UBI advocate is Guy Standing who I’m sure won’t mind my saying is far left!
@ Geoff,
This is quantitative easing.
https://www.investopedia.com/terms/q/quantitative-easing.asp
So on a narrow definition of the term it is simply an asset swap, as many economists, see for example the Nobel Prize winning economist Fama, would argue.
Google {Fama, QE, Asset Swap)
However you have correctly stated that QE involves the simultaneous sale of Govt bonds to financial institutions. So why is the Govt selling bonds to the institutions at the same time as its own bank is buying them up? This leads us to a wider definition which then leads to accusations of “a money go round” and “money printing”. Not that there is anything wrong with doing this if the correct macroeconomic considerations are properly applied.
So if we take a broader definition both yourself and Fama are correct, albeit with some limitation in the scope of definitions.
Surely this cannot be a matter of any dispute? If we can agree on this I’ll withdraw my accusation of disingenuity.
“national debt would then not rise in the way it does”
National Debt is very much dependent on how you define it. Do you want to include debt owned by the BoE or don’t you? I don’t see it matters much either way.
Different countries have different rules but none of them make much sense. The Americans have decided that coinage shouldn’t count as National Debt. This has led to the suggestion that the Fed /US Federal Treasury simply create 27 x trillion dollar coins. Hey presto! No National Debt. If they created another couple they could have a National Surplus.
Hooray! All our children and grandchildren won’t have to worry about repaying the debts of their profligate forebears! They’ll just need to know how to knock out a few coins!
Google {Trillion Dollar Coin Wiki)
“This is actually close to the position of both Randall Wray and Stephanie Kelton as I read them. ”
A fundamental point often made by MMT economists is that the mainstream hasn’t sufficiently changed its thinking since the removal of gold from the system. Both SK and RW will say the same thing too. Warren Mosler gave me the explanation of why the monetary base was historically not counted as debt. It used to be backed by gold. You might want to check with SK on that when you see her.
“Interest rates may be low at present, but total annual debt repayments still amount to £39bn annually in the UK, and if interest rates rise, this will become a substantial burden on the taxpayer to fund the financial sector. I don’t see the point. Debt-free sovereign money is surely preferable?”
Issuing money is issuing govt IOUs at 0%. QE was designed to bring down interest rates. Further QE won’t make them go negative. So if Govt wants 0% it can have 0% for as long as it likes. But if for any reason it wants higher interest rates it will need to engage in anti-QE. ie sell off some BoE owned bonds to depress their price. So supposedly “sovereign money” is neither here nor there. The argument is predicated on the incorrect assumption that Govt doesn’t have full control over the level of interest rates.
To whom are the annual debt repayments paid/due to be paid?
When?
What are the terms and conditions etc.?
What is the fundament origin of this “debt money”
Are there “money creation cops” and/or debt “repayment cops?”
If so, who?
Peter, no, you should withdraw your disgraceful accusation of disingenuity unconditionally.
@ Geoff,
“the sales were largely to insurance companies and pension funds who ‘loaned’ the £435bn of QE.”
I find it inconceivable that any trained economist can give such a superficial explanation of QE. You’ve not mentioned the central bank at all.
£435 bn may be somewhat out of date. This reference puts the BoE’s bond holdings at £700 bn.
So where has this come from? Has it been lent by ” insurance companies and pension funds” too? If it has it can only be because these financial organisations knew they could buy bonds from the Govt at one price and sell to the BoE at a higher one. Otherwise why would they bother?
https://www.bloomberg.com/news/articles/2020-06-22/boe-s-bailey-says-he-d-shrink-balance-sheet-before-raising-rates
Peter, you appear to proceed by a mixture of ad hominem attack and ridicule which is sadly typical of the MMT community and doesn’t help the cause of monetary reform. I await your withdrawal of your charge of disingenuity.
£435bn was the initial QE programme which has indeed been extended very substantially by more recent Covid funding QE. BoE does purchase bonds in the secondary market and it could be that this amounts to a higher figure than I had realised. I’ll try to get the data together. Or maybe you or Randall or Bill have it at your fingertips, being undoubtedly better trained economists than I.
@ Steve,
The interest is paid to anyone redeeming bonds or anyone depositing money in a govt account. I won £50 on my Premium bonds last month so maybe some of that has come to me! £39 billion sounds a lot but the so-called National Debt is something like £2 trillion. According to my calculation this is 1.95%. I’m not sure how this relates to the general level of interest rates which is less than 1%.
Maybe some long time existing higher interest bonds? Or perhaps the figure is out of date?
Some general points:
1) 2% isn’t unreasonable when the govt has an inflation target of 2%. This is zero in real terms. I’m not fully in agreement with MMT’s 0% policy.
2) Even if all new borrowing was at 0% there still could be an interest bill if Govt doesn’t recall older bonds.
3) Any net costs to Govt need to be viewed as interest on money saved. No-one is going to get rich buying Govt bonds. Is my £50 prize really undeserved?
@ Geoff,
Ok. If you’re saying you genuinely hadn’t realised the BoE owned some £700 bn or so of govt bonds then I’ll withdraw my accusation of being ingenuous.
Modern standards of debate are really quite civilised compared to what went on in Shakespeare’s time.
Here is a list of some choice insults:
https://www.nosweatshakespeare.com/resources/shakespeare-insults/
Peter, your accusation was that I was disingenuous, but I’ll take it that’s what you meant by your withdrawal. Thank you. Strange hobby you have to research insults, but I guess you’ve got a hill to climb to reach the level of your mentor Randall Wray 🙂 It’s always an option to point things out to people courteously – it works really well, so maybe try it some time?
To return to the debate, it’s beginning to look as though BoE holding a large proportion of government debt is pretty close to a definition of sovereign money. I’ll have to think about that, but I’m sure you or Bill know the answer already and can save me the bother.
@ Geoff,
I can’t of course speak for Bill. But I think I’ve already said the Govt has essentially used QE to create the conditions for what advocates of Sovereign Money have always wanted- which is close to zero interest on money used for Govt spending.
If we did a thought experiment of the BoE and the Treasury being merged the £700 bn would largely disappear. They are mainly Treasury IOUs. So the Govt would then have the option of simply creating cash for their spending or they could sell bonds into the market to raise cash in the conventional manner.
They’d only do the latter if they deliberately wanted to push up interest rates.
The fact that the Treasury and the BoE aren’t merged doesn’t really change anything.
Peter, so it’s good to see convergence between proposals for zero-interest or debt-free sovereign money, plus its actual implementation. It’s a QED position which definitively answers critics of sovereign money. Now we need a considered discussion of UBI compared to JG, given that once again, the advocates of each mechanism share similar social objectives.
Geoff Crocker,
Your suggestion of £53.5 billion in your 13th December 2018 paper is better, in terms of not increasing inflation as much. However, I am not convinced that most of this money would actually replace the £53.5 billion of annual new borrowing. It would replace some of it. Are there any figures for how many people are borrowing each year? If so, this would give some idea of how much new borrowing might not be taken out.
(I am thinking about registering for the conference on next Monday and Tuesday.)
I am not convinced that talking about funding a UBI totally from sovereign money even at £20 a week will convince people a UBI is affordable. I do think we should be having a discussion about how much annual government spending we could finance from sovereign money rather than increasing the national debt and what the constrains are.
Unlike you I still believe it is possible for governments to achieve full employment. Last week Peter Martin put up a link to an article by Dirk Ehnts where he says that EU countries will commit to achieving full employment. Therefore he must think it is still achievable.
I don’t see it as a choice between a UBI and a job guarantee. I support both and would like to see a job and training guarantee piloted in north-east England. Any job and training guarantee scheme must be totally voluntary with no sanctions for people who refuse to take one up. However, I would pay an amount above a person’s benefits (as happened with Employment Training in 1980s and 90s) rather than paying the minimum wage.
@ Michael BG,
I think this was the link by Dirk Ehnts
Search { Dirk Ehnts MMT Eurozone }
Yes of course it’s possible to have close to EU full employment. But I’m sceptical. The Germanic attitude to debt and deficits is the fundamental problem. It extends right across the political spectrum. Most of us Brits are used to waving a piece of plastic over a machine to pay our bills. If you go into a German hotel which caters for international visitors it can be like that, but often in local shops and restaurants it’s cash only. The Germans don’t like credit cards! Maybe the Covid precautions will have changed things.
So I can’t see the EU legalising anything that can be termed MMT or even standard Keynesian economics. There is no chance, IMO, of either a EU JG or a UBI anytime soon. Even the Finns seem to have gone cold on the idea.
Michael
You can find ONS data on household at http://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddebtingreatbritain/april2016tomarch2018
Slides 6 and 7 of my presentation at http://www.ubi.org/_data/site/270/pg/30/IPRBathSeminarFebruary2019.pdf
show historic data on household borrowing.
Raw ONS data streams are often tricky to interpret but I’ve always found ONS staff extremely helpful in getting data to the correct specification.
My 2018 paper wasn’t proposing a £53.5bn UBI scheme, but merely pointing out that this would be the cost of every £1,000 UBI paid to the adult UK population. Malcolm Torry’s CBIT scheme would cost £164bn which Malcolm proposes to fund from reduced personal tax allowance, a 3% tax rate increase, and equalising NIC at 12%. I’m not against this, but I think it’s a difficult sell politically, and by being revenue neutral, with marginal numbers of winners and losers, doesn’t achieve anything except reduced intrusion. The rest of my paper explored alternative UBI funding mechanisms of wealth tax, land tax, pollution tax, reduced household debt, and sovereign money.
Stewart Lansley’s 2019 Compass UBI scheme has a gross cost of £300bn funded by a £118bn reduction in existing welfare benefits, and a £180bn tax increase. Stewart then adds a further £28bn to the UBI scheme. Both Malcolm and Stewart are keen to achieve revenue neutrality so as to remain within financial orthodoxy and not generate government spending deficit. By pointing out the apparent empirical inevitability of deficit in high-tech economies, and by arguing for a heterodox theory of money, I have been seeking to avoid this false deficit constraint. I think this is consistent with Stephanie Kelton’s ‘deficit myth’ argument. Stephanie targets increased US expenditure on JG, Medicare for All, Green New Deal etc. She doesn’t present a fully costed macroeconomic budget in her book, so I don’t see how this can be expected from my LDV post which you find so limited. I also offer a wider set of arguments for UBI than were advanced at conference, and which I think will be useful in a public campaign.
Michael
I know Dirk Ehnts – he invited me to speak at an MMT conference he organised in Berlin. As usual there was much antagonism and derision to a UBI proposal. I’m not at all against a full employment solution. My worry is that it may not be possible. My own specialism has not been bond markets, but industry sector economics and the impact of technology. There’s a free download of my book on this at http://www.philosophyoftechnology.com .The extent of long-term productivity increase is astonishing. A car engine plant in Termoli produces 2,300 engine blocks a day with 2 people present. If you, Peter and Dirk are right that long term high wage full employment is achievable, then that’s great. But all the indicators of stagnant real wages, in work poverty, low job satisfaction, all suggest otherwise. We do need to consider the possibility of inevitable further decline in work, and develop the UBI strategy to provide the income people need.
Peter is right that the German economy prefers cash payments, but this will change. The German huge trade surplus uniquely allows them to avoid deficit as a surrogate to sovereign money, but by definition the rest of the world cannot be net exporters.
UBI and sovereign money are not out of the question politically. In fact I claim they are inevitable, because their current surrogates of household debt and government deficit are unsustainable.
I hope you make the UBI conference next week.
Here as promised is the BoE data on QE showing that my figure of £435bn pre-Covid is correct, and that the total with recent Covid funding has reached £745bn.
https://www.bankofengland.co.uk/monetary-policy/quantitative-easing
On this page, BoE also exemplifies its bond purchases to be from a pension fund. The rules should change to allow direct purchase.
@ Geoff,
I agree that direct purchase from the Treasury to the Central Bank should be allowed. The FT is reporting that this is starting to happen:
https://www.ft.com/content/664c575b-0f54-44e5-ab78-2fd30ef213cb
It clearly doesn’t make any sense to use pension funds as a ‘middleman’ as a work around. They won’t be doing it for free.
On the face of it, there does seem cause for concern if factories are highly automated. On the other hand this argument has been around for a long time. When PCs first started to appear in offices and homes 25 years ago there was much talk of the leisured society. Bank tellers had already been displaced by ATMs. My father, for example, had taken early retirement because his metalworking skills were being displaced by computerised milling machines. And the paperless office too. Remember that one? Yet employment is now at a record level, 76.6% according to ONS, and we’re using more paper than ever!
https://www.bbc.co.uk/news/business-52364811
So, often, predictions don’t turn out to be quite right. And the figures show that we shouldn’t give up on the idea of full employment. Which doesn’t, incidentally have to mean everyone works 40 hours per week for 50 weeks of the year.
The problem for us is to ensure that these jobs are worthwhile jobs and that wages are sufficient for both a viable lifestyle and to enable everyone to be able to afford to purchase what we all produce. Even it’s just a few people doing the production. The capitalists know that this is a problem. They don’t want to pay higher wages but they do want to be able to sell their production. That’s why many on the right are pushing for a UBI.
You say “we need a considered discussion of UBI compared to JG”. But are Lib Dems doing that? Was there any mention of a JG at your last conference?
Hello Geoff.
You said as follows.
https://bit.ly/33FlI4A
“Yes even rich people would receive it but they’d be taxed on it.”
What does this mean?
Does this mean something like this?
“Rich people can also receive basic income, but on the other hand, rich people have to pay more taxes.”
Peter, yes, I also saw this FT piece. My contacts at BoE are proving coy on the question of direct purchase. I tend to doubt that the pension/insurance company indirect route is deliberate complicity, since it’s too obviously open to abuse. Maybe the system is catching up to the inevitability of sovereign money, so BoE is purchasing bonds initially in the secondary market. Crisis and now Covid presented an urgent necessity to do this, but it may now lead to change in practice to direct purchase via change to regulation if that’s necessary. Hopefully, full sovereign money may not be far behind.
It’s a common claim that Keynes was wrong in his ‘Economic Possibilities for our Grandchildren’ (but see commentary by a range of economists from Stiglitz to Solow on this in Lorenzo Pecchi’s book at http://www.amazon.co.uk/dp/0262162490/?tag=libdemvoice-21 ), and that technology-led unemployment hasn’t happened because we have high employment. But this is too simplistic as your further comments show. It fails to address deeper weaknesses in employment, ie low pay, in-work poverty, a highly earnings-bifurcated employment profile, the demonstration in my graph that labour earnings have consistently fallen against consumer expenditure all the way from 1948-2016, the expectation from a fully automated thought experiment that the whole of GDP will be UBI and sovereign money, pervasive low job satisfaction survey results, ‘bullshit jobs’ etc. I’m sure you’re aware of Daniel Susskind, Carl Frey and Peter Sloman’s work on employment – their books are all reviewed on the http://www.ubi.org site. The expected quantitative decline in employment is morphing into a qualitative decline. I’d agree to policies to reverse this if I thought it were possible, but I think there’s an underlying unavoidable cause. You admit that it may lead to ‘just a few people doing the production’. In which case we need UBI as we all agree that ultimately everyone needs income. UBI should at least be Plan B for JG advocates in case as I suspect JG can’t be made to work.
Peter, I’m not responsible for Lib Dem conferences but debating JG is fine by me. Maybe you should join the Lib Dem party and advocate JG at conference? Or promote it as policy in your own Labour party? I’m not sure whether Labour is as open-minded as LDV in allowing free comment and debate from non-members in any of its organs, but if it is then I’ll happily argue for UBI there.
@ Geoff,
I’m not sure what you mean by ‘deliberate complicity’. If there is a rule against direct purchase, the obvious work around is to involve third parties. So they purchase the bonds from the Treasury at one price knowing they can sell on to the BoE at another. Would it be possible for you to find out what the margin might be and what this charade has cost in total?
The ECB will be playing the same game. They’ll be in the market for bonds issued by Greece, Italy and others but without wanting to purchase directly from the National Govts. The intervention of the ECB in the market as a buyer will lift their price and so reduce the effective interest rates paid by the deficit countries. This is all very nice of the ECB to help them out in this way, but it will come at a cost!
I also agree with your previous point about German surpluses. I’ve said the same thing myself. It’s the underlying reason I supported Leave. Nothing to do with being ‘anti European’. The German treatment of Greece in 2015 clinched it for me. Large German surpluses creates large debts for others, including us, but if those debts aren’t allowed by Treaty obligation then there are fundamental contradictions in the economic structure which can only mean one thing. It won’t end well.
https://www.ft.com/content/e257ed96-6b2c-11e4-be68-00144feabdc0
The ONS say that 76.6% of people aged 16 to 64 (why not 66?) were in paid work. Unemployment is approx 4%. So what are the other 22% doing? Some will be students but I’d say we would have around 15% who aren’t working and aren’t looking for work for whatever reason.
So if they are capable of working but are lucky enough to be able to manage perfectly well without it, why do they need a UBI?
Peter, I don’t see much difference between ‘deliberate complicity’ and ‘charade’. I agree it would be enlightening to know i) an audit trail of the dates of bunches of initial and secondary purchases ii) the margin between them. As I said, BoE are keeping mum on this, so you may be onto something. Maybe you can submit a FoI request?
For Europe, I’d want to see a Eurozone UBI. Germany needs to allow income for Greeks to buy German exports, so the argument is one of moral principle and pragmatic. I don’t accept the anti-Euro position of MMT that this can’t be done with some change in fiscal structure. And ultimately a global UBI, but we have to proceed stepwise, hence a UK UBI for now.
Your question about ONS employment data is also valid, but sorry, I don’t know the answer, which I admit is rather lacking for a ‘trained economist’ who apparently should know everything about the economy 😊.
UBI is defined to be unconditional and is therefore universal. Receipt is not based on need. Prying into the lives of the 15% of people who choose not to work is what UBI seeks to avoid – it’s their free choice made for their own reasons.
Should I be worried about our increasing tendency to agree? 😊
“Should I be worried about our increasing tendency to agree?”
I had a similar experience with a “Positive Money” advocate on FB just last year. What started off as a heated disagreement about the nature of Govt debt cooled down after a time as we both realised we had the similar end goals. He was with you that “sovereign money” wasn’t debt. I was saying it should be on the basis of the sectoral balances but that liability was a better term.
Many would say this was just a technicality. I’m a Physicist/Engineer in what used to be my day job so I like technicalities and the maths that goes with it!
@ Geoff,
“Prying into the lives of the 15% of people who choose not to work is what UBI seeks to avoid ….”
Possibly some of those 15% are put off by the harsh nature of the welfare system. They may choose to not claim benefits, even though they are entitled, and may not show up in the system. But whatever the number it would be useful to know what it is for costing purposes.
The JG has the same advantage. Anyone could choose to take it up regardless of their personal circumstances. There would be no means test or intrusive questioning. One of my personal interests is the ability of people with such conditions as Down’s syndrome to obtain employment. If they are up against able bodied competition in the jobs market they’ll always lose out. But many would like jobs and need to be given the opportunity to make a positive contribution.
Another advantage of the JG is that it wouldn’t have as much impact on taxation rates. So it can be meaningfully trialled in areas of high unemployment and rolled out from there, and learning as we go along.
https://www.bbc.co.uk/news/blogs-ouch-32613957
@Peter Martin. People not in paid work but not unemployed include:
Those married to or “living as man and wife” with someone who is in paid employment. These will include a significant number who choose not to work mainly because they are bringing up young children. It will also include many who can’t find a job. Overall single earner households are typically much poorer than either dual income households or single people in work and are not much above single unemployed.
People who are between jobs. The delay in starting benefits puts many in this category. Those that change jobs regularly (e.g. contractors) don’t generally bother trying.
Long term ill or disabled.
The first two are among those I want to see UBI benefitting. The third should be considered separately and should definitely not be in your 15%
@ Peter Davies,
Point 1) You could reintroduce what used to be known as the married man’s allowance. It would, of course, have to be brought up to date to include same sex couples and the possibility, even likelihood, that a woman is the sole earner.
There could be an increased child benefit and/or a tax allowance for children.
All a lot less convoluted than having a UBI
2) Anyone who has lost their job through no fault of their own should receive unemployment benefit for a generous period of time. No intrusive questioning etc. This is how Beveridge envisaged the system should work.
3) Long term sick or disabled. I’d put them on a JG, call it sick pay and leave it at that. But you could call it a benefit if you prefer. There would be extra benefits to cover social care if needed. The carers could be recruited under the JG scheme.
I can’t see that such a broad brush approach as a UBI is the best way to tackle any of these issues.
Peter (Martin), one minute you say UBI is convoluted, the next that it’s too much of a broad brush. Nothing could be simpler than UBI. Nothing could be more convoluted than the current benefits system, or the extra variations you are now proposing. I share your concern for people with Downs syndrome. I have described the utterly demeaning treatment my adult son, who has Williams syndrome, was subjected to in the PIP application process. It’s all part of the current harsh regime. Universal credit anything but that, seeking to push people into work mindlessly.
You do need to address the problems with JG. This is not the funding of it, but the definition and management of any scheme in the detail you require of me for a UBI scheme. Will JG offer work related to someone’s skill, with matching remuneration, near where they live? Will it be permanent, or precarious as many MMT advocates describe it, with JG offered in a downswing and withdrawn when the economy rebounds? Will adequate family income depend on accepting a JG offer? If so, it’s workfare? And above all, will future high-tech production matrices generate the need of or use for JG work? It’s JG, like means-tested benefits, which is convoluted, UBI which is straightforward, which provides income for people with dignity, as they deserve.
@ Geoff,
I take your point that I could have chosen a better word than convoluted. Maybe ‘random’. But even the term broad brush is something of an understatement. It’s more like throwing a whole tin of paint and hoping for the best.
I’m not a political party proposing an electable manifesto commitment. The argument for a JG hasn’t been given anywhere the same level of attention as for a UBI. Pavlina T and others have lots of good ideas but just what might be acceptable to the electorate can only be ascertained by asking them.
Proponents of a JG aren’t like the Khmer Rouge. We aren’t going to force redundant college lecturers out into the potato fields. What happens to them now? I would expect anything might be an improvement.
It strikes me that you (Lib Dems) are only concerned with how total production is shared out. Not that you’re particularly socialist and want a widescale redistribution. It’s more that you want it shared out in just such a way as no-one goes hungry at the bottom of the scale. But from a socialist perspective it seems quite reasonable to address the issue of what our responsibilities are.
Not that there is anything particularly new in the concept. In any pre capitalist society there’s an expectation that all members should do their bit – if they can. In the Bible, we have:
“……we gave you this command: if someone won’t work, he shouldn’t eat!”
2 Thessalonians 3:10
@ Geoff,
But, before you accuse me of taking our policy from the Bible, it’s just an example of what most people used to think and, except for the Lib Dems, probably still do. This is why Tory governments can get away with cutting welfare benefits to the bone. Most voters want to help those who genuinely need help but they aren’t at all sympathetic to the notion of handing out cash unconditionally and with no questions asked.
The advantage of the JG is that no-one can then say that unemployment is voluntary and a chosen lifestyle.
@Peter Martin Even if you think it’s less complicated to constantly monitor who someone is sleeping with so you can cut off their benefits and give the money to their partner instead, you are missing the point. None of those three groups or several others are not people who have made a lifestyle decision to avoid work and stay poor. Your 15% is complete nonsense.
Peter (Martin), you’re meandering. Plenty of advocates have argued the case for JG, including Randall Wray, very vehemently so. It’s just that no-one has satisfactorily countered the logical arguments against it which I set out above and which you don’t address. You need to at least say whether JG would offer people work, or require it of them, like St Paul and the Khmer Rouge, which is a fascinating juxtaposition.
Fully specified UBI schemes have been set out and their detailed effects modelled accurately using EUROMOD software at IPR Bath and by Malcolm Torry. JG advocates can do the same.
You’re always speculating about what other people, me, Lib Dems, or ‘most people’ in general are concerned about. There has been longstanding support for welfare policies since their post-war introduction although I accept that this might have reduced since the Thatcher era. Keynes proved unequivocally that involuntary unemployment can arise. I actually want sovereign money to fund government expenditure as well as UBI. This will reverse austerity cuts and create re-employment. You don’t know that voters reject UBI – surveys have shown considerable voter support.
Geoff, you have sneered at ‘anything but’ Universal Credit, and deplored the harshness and conditionality of its application. But we as a party were in favour of the general concept when it was first introduced, and as a party we have tried to demand alleviation of its bad features, such as the five-week initial wait for it, the undoubtedly cruel sanctions which have left people in real deprivation, and the loans which recipients have no real means of repaying.
All such features were highlighted by the UN Rapporteur of Extreme Poverty, Philip Alston, after his visit here in November 2018, when he called out the government’s handling of it as indifferent and even callous.
But UC does not need to be handled like that. It could be as it should have been, a guaranteed minimum income support for people between or without jobs, given without reference to their savings, not reduced as they find bits of jobs to resume, an altogether much larger weekly payment, and accompanied as earlier benefits were with hardship grants, not loans, when additional costs occur. Much more sensitive and caring handling of Universal Credit was recommended by Philip Alston, as part of a new understanding of the needful social contract between government and people, and it is a great pity that our party did not follow up his recommendations in all their breadth. It is not too late to demand reform of the extent and usage of Universal Credit, and it is what would be most useful in the immediate future.
Katharine, as a person, I don’t sneer and I’m not sneering at UC. I am however highly critical of it. It has of course been implemented in a careless incompetent style without respect or regard for its potential recipients. But it’s based on the view that people should get to work, and all its policies, procedures and harsh conditionalities are driven by this assumption. My view is that this is a false assumption, that, as the data shows, less not more work is required in a high tech economy, and that UBI is a far preferable policy than UC for all the reasons I have given in my post and throughout this thread.
Peter Martin,
As I wrote in that thread (https://www.libdemvoice.org/on-blood-letting-covid-economics-and-goldilocks-65908.html#comments), I am not convinced that the EU will pursue full employment in the future. I think that they will return to limiting deficits to 3% of GDP and will force austerity on some EU countries when what they will need will be an economic stimulus.
Geoff,
The ONS data does not give the answers to my question regarding how many people increased their debt between 2016 and 2018. It just states 100,000 extra households had property debt and 300,000 extra households had financial debt. Later they give other figures for the increase in the number of households with hire purchase debt – 708,000; and with student loans – 231,000. I think it is possible to calculate the percentages of total households without debt as just under 45% and without financial debt – just over 57%. Therefore the amount of any UBI which could reduce the amount borrowed is between 45 and 57 percent. The amount borrowed cannot be reduced by the total cost of a UBI because about 43% of households have no debt.
I agree with you that we need people and especially politicians and the media to understand deficits are not necessary a bad thing and governments should run deficits if they are needed to run the economy to produce better outcomes for people. Indeed I think there should be more support for ‘people’s quantitative easing’.
I haven’t asked you to produce a budget. I have asked you to engage in a debate on the effects of your proposals are likely to have in the real economy. I don’t think the points I have made are unreasonable for you to engage with. I would expect these points to be made by others.
Geoff,
You may think that sovereign money or ‘people’s quantitative easing’ are inevitable, but on Monday you posted a link to Rishis Sunak’s speech to the Tory online conference where he still talks of ‘balancing the books’ and people on TV news programmes still talk of the need to pay back what the government borrows.
No UK government has pursued economic policies to achieve full employment since 1980 and I am not aware of any other country achieving full employment since the 1970s. I think it is the lack of this policy aim which has led to the decline in real wages. In the UK the unemployment rate was 3.8% at the end of last year. Wales, the South East, and the South West had an unemployment rate of 3% in January 2020, while in Northern Ireland it was 2.3%. If it was possible to have full employment in Northern Ireland it should be possible to have it in all UK regions.
You say there are lots of problems with a Job Guarantee, however I advocate a JG pilot in the north east, which would be totally voluntary. It would pay £50 a week plus travelling expenses on top of a person’s benefits. If a job it would be tailored to an individual skills to keep their existing skills up to date, if training it would be in an area where there are jobs and the individual must want to work in this area after the training. The initial length would be one year and could be extended or terminated early if the individual get a ‘real’ job.
Katharine,
In our 2019 manifesto we promised to:
End the two-child limit for benefits;
End the benefit cap;
Increase work allowances and introduce a second earner work allowance (I would also restore the work allowance for single people and couples without children and increase them to £50 a week);
Increase Local Housing Allowance in line with average rents (I would also restore it to the 50th percentile);
Abolish the bedroom tax;
End the sanctions regime;
Reverse the cuts to Employment and Support Allowance;
End Work Capability Assessments; and
Reinstate the Independent Living Fund.
I hope we can extend this list to include reversing all the cuts to benefits made since 2010, and a commitment to at least increase benefits each year in line with inflation or the increase in average earnings whichever is higher, with the aim to increase benefit levels to the amounts that the Social Metrics Commission say people need to meet their basic needs of £157 a week for a single person and £271 for a couple.
@ Geoff,
“You need to at least say whether JG would offer people work, or require it of them….”
The JG should initially be in addition to what we have at present. Presently there is a requirement that payment of JSA does require a willingness to work which I’d waive in the initial stages of the JG and during any trial period. In the longer term as the idea of the JG becomes, hopefully, more widely accepted that could change. I’d start at the younger end of the age scale with any work requirement. Work doesn’t have to mean working on a chain gang. Especially for younger people a large degree of training can be involved. It can be used to finance apprenticeship schemes.
It could be a way of financing university students. There’d be 30 weeks spent at university. 10 weeks doing community work. That still leaves 12 weeks for holidays.
What’s your problem with society imposing some requirement on its citizens? There has been some talk on LDV of a social contract. But its an odd sort of contract that doesn’t have a two way requirement. This doesn’t mean a JG will be compulsory. If you don’t need the money there will be no need to do the job.
For anyone who has a particular problem with this, Govt could offer the option of extra NI contributions when in work, in exchange for longer periods of support when out of it. It would be like choosing insurance cover. Workers could choose the level of cover that suited them.
Michael/Peter
My book, and many of the papers on the http://www.ubi.org web site, do engage the issue of UBI within the macroeconomy. Like any opposition party without access to Treasury data, models and staff, I can only scope potential budgets. It’s a little odd that you feel you can have expectations of further work I should do? You’ll find a more academic paper at http://www.degruyter.com/view/journals/bis/10/1/article-p91.xml . I’ve never provided a link to any Tory party conference speech. You still don’t answer the problems with JG which I’ve set out above. Neither does Peter in his very vague specification of a JG proposal.
Peter seeks to justify requirements being imposed on citizens by society. This is a major philosophical issue generally (no-one was born agreeing to social conditions), but contradicts a fundamental argument for UBI that everyone was born with certain birthrights, including access to the inherited infrastructure and technology which generate current production. UBI makes this right a reality to everyone and not just to those born into privilege.
@ MichaelBG,
“Rishis Sunak’s speech to the Tory online conference where he still talks of ‘balancing the books’ and people on TV news programmes still talk of the need to pay back what the government borrows.”
Rishi Sunak does strike me as being one of the more competent of the Tory leadership. As a politician he’s probably not, especially when at a Tory conference, going to do anything other than promise to ‘restore the health of the public finances’ , or however he wants to put it.
We have a situation where the government has created £700+ bn and it’s out in the economy, including the international economy, somewhere. Its going to come back as taxes sooner or later. The economy could become quite buoyant when it starts to get spent and respent. There could even be an inflation risk. But, assuming that’s kept in check, we could have a situation where the economy is zipping along quite nicely without the need for much deficit spending. Rishi Sunak could well have been born under a lucky star.
@ Peter Davies,
I don’t know where you get the idea that I’m in favour of ‘monitoring who people sleep with’. Maye you are confusing me with someone else?
It’s often struck me as unfair that the business community can put their partners on the books as employees of the company whereas those who work as employees can’t. So another possibility would be to have transferrable personal tax allowances. No bedroom snooping would be at all necessary!
Rishi Sunak doesn’t have much competition on the criterion of competence in the current Tory leadership 🙁
@ Geoff,
The previous couple of generations of my own family have been called up for military service and their ‘Job Guarantee’ involved killing people. Fortunately that’s not something my generation has ever had to do. But other types of jobs were always relatively plentiful. There’s nothing new about requiring everyone to make a contribution – if they are fit and healthy enough to make it.
We’ve all inherited the benefits of the efforts of previous generations. They might have built the railway network but the trains don’t drive and maintain themselves. Hospitals don’t run on their own. We all have to keep making a contribution.
The I-didn’t-ask-to-be-born argument is best left to young children.
@ Geoff,
Some JG questions answered.
“Will JG offer work related to someone’s skill, with matching remuneration, near where they live? ”
If someone has marketable skills they won’t need a JG. But if their old skills are no longer required in a changing economy the emphasis of any JG will be retraining. We aren’t suggesting we open up new coal mines to give displaced miners something to do.
Will it be permanent, or precarious as many MMT advocates describe it, with JG offered in a downswing and withdrawn when the economy rebounds?
JG will be there regardless but there will be less uptake if the economy is doing well.
Will adequate family income depend on accepting a JG offer?
It’s not workfare. The emphasis of any JG program will be to equip workers with new skills and get them off the JG. That’s where their adequate future income will come from. You can’t learn how to lay bricks just in a classroom. The best way to do that is work on a building site helping out as you can. Having said that there will be time spent in classrooms too.
Peter, we clearly have very different views on the contract between the individual and society. Your attempt to trivialise this as an argument for ‘young children’ doesn’t wash. In your coercive world, people will be forced into re-training despite automation reducing work requirement across industry sectors, JG will have to be withdrawn if the economy rebounds (as Stephanie Kelton spells out in her book), whilst you have no answer as to how family income will be sustained other than teaching people to lay bricks. I think most people will prefer a UBI which they deserve and need.
@ Geoff,
You perhaps don’t appreciate the difference between a particular example and the generality. There’ll be a whole list of options for retraining. I’m sure you really do know that. So who’s trivialising now? What’s the word used when someone pretends to know much less than they do?
The JG won’t have to be withdrawn unless the economy is running so close to full capacity that it’s not needed any longer. This is what happened in the USA with their Works Progress Administration. If that does happen it will be a good thing!
https://en.wikipedia.org/wiki/Works_Progress_Administration.
Look, if automation reduces the need for workers why can’t we share out what work there is and have shorter working weeks and longer holidays? You might want to try having a go at answering a question yourself!
Peter, no I’m serious. I challenge that the generality of employment will be available from your example. MMT advocates do propose counter-cyclical allocation of JG funding. You remain in caustic mode, but I’ve answered lots of your questions. Shorter working weeks, longer holidays, and job shares have long been the trend. My data proves unequivocally that labour income has reduced and household debt increased. We need UBI. Your turn to answer questions as to how JG can possibly work realistically without deteriorating into a harsh workfare regime.
@ Geoff,
“My data proves unequivocally that labour income has reduced and household debt increased.”
OK. But why? The neoliberal idea has long been to squeeze wages and boost profits. The problem arises that the workers, that’s Mr and Ms Average in Lib Dem terms, can no longer afford to buy up what they have produced. So the short term fix has been to encourage the rise in household debt to boost demand and keep the economy ticking over. The result is clear for all to see. We’ve priced the younger generation off the property ladder and we’ve created a bubble in the housing market.
It means we need a return to sensible demand management and a return to full employment. We don’t need a UBI. That’s just another neolib quick fix to try to keep profit margins up.
Geoff – You say (comment 4/10 @ 10:48pm), “I also disagree with MMT that money is quintessentially debt and that double-entry accounting requires government money to be matched by assumption of debt” and make much the same points in an earlier comment (3/10 @ 9:24am).
For the sovereign money point consider a £10 note. It says explicitly “I promise to pay the bearer on demand the sum of ten pounds”. In other words, it IS debt, specifically a bearer bond – that is a certificate of debt payable to the person who has the note. When the UK was on the gold standard they could be exchanged at the Bank of England for gold. Now I believe that even if you find a discontinued version down the back of the sofa you can still change it – but if it’s very old, you may have to travel in person to the bank of England where a cashier will honour the debt by swopping it for a current £10 note.
Notes are, of course issued in denominations convenient for circulating in the community as opposed to trading by the City but sovereign money can equally be created electronically more easily and cheaply but that is just a different form-factor.
As for double entry accounting, it is simply a record-keeping convention and certainly does NOT ‘require’ or constrain in any way what is recorded. I am not an accountant so others may correct me, but I think the issue of a £10 note by government would initially be recorded in double entry as:
* Govt liability: £10 (new debt)
* Govt asset: £10 (new asset – cash in hand)
As the money is spent the ‘cash’ side of that turns into something else – a new school for instance.
So, in general, much of the government’s accumulated deficit equates to its capital investment in roads, schools, hospitals, and the rest plus working capital for the economy as a whole. To the extent that deficit spending is used to subsidise revenue spending (as an alternative to taxation) it will, if continued across the business cycle, eventually cause inflation somewhere in the system – but it’s not a simple linkage.
In practice, governments have preferred to grow debt to keep taxes down but have dodged responsibility by arranging that the debt is effectively privatised in the form of consumer loans, mortgages, student loans etc.
That’s crushing ordinary people and steadily tanking the economy because of their reduced spending power.
@ Peter Martin The bedroom snooping comes from the need to determine who is or is not a partner. The current definition for the purposes for benefit purposes is married or “living together as man or wife” If they conclude that that is what you are doing, they will remove about 20% of joint benefits (both on JSA) 25-100% UC or up to 100% (one partner working). If you want to replace that with a married man’s allowance then you need to do it on the same basis. The complexity of administering this through PAYE is enormous especially if couples break up, come together, die or change roles during a tax year.
Peter, I almost agree with your first point. The two causes commonly advanced for reduced labour income are increased automation and reduced union bargaining power. Our research project at IPR Bath is testing these in extensive data analysis. They are not exclusive, since automation is likely to reduce labour bargaining power by reducing labour demand. My 1948-2016 data shows constant reduction in earnings against income, but more so during the Thatcher period, which suggests trade union power reduction was a contributing factor for a period but another factor, ie automation was driving the long-term trend.
We certainly need Keynesian demand management. We would opt for full high-quality employment if it’s available, but the worry is that it’s not. So we do need UBI. It’s not to keep profits up, it’s to provide people with income. Throwing insults like ‘neoliberal’ around doesn’t add to your point. I advocate UBI and I’m not a neo-liberal – I was blacklisted from World Bank projects in Moscow in the 1990s for objecting to their imposition of neo-liberal policies, which as Gorbachev and I accurately predicted would cut the former Soviet GDP by 40% and lead to a huge increase in male mortality. Neo-liberalism has this, and the ensuing social and political disaster in Russia, to answer for.
Gordon, whatever a £10 has written on it is irrelevant. You can only change it for another £10 note. There is in my view no reason why the current £645bn of Covid funding has to be raised on the bond market and thus bear debt, rather than simply being electronically credited to people’s bank accounts. The total national debt will never be repaid, so it’s not really debt, except that it attracts an interest payment. Now, as Peter has pointed out, that the BoE holds £745bn of total debt, even this interest becomes irrelevant, since it’s within government bodies. You are right that double entry accounting is applied at the point of money issue. It just doesn’t have to be. Double entry accounting for money creation is a category error, as is the insistence of balanced budgets at macroeconomic level.
@ Geoff,
I’d say you’re only considering a debt which bears interest as real debt. But debt doesn’t have to bear interest. It can be interest free or 0% rated. If I’m slow paying an invoice I may not be charged interest but I do have an outstanding debt.
Going back to the time that gilts bore 5%, or whatever, then you’d say that was debt and it made more sense to issue what you term Sovereign Money which was interest free. Maybe. But the MMT explanation of why Government “borrowed” money was always that it was the regulation of interest rates in the market. They aren’t fully controlled by the market. Short term rates are set by the monetary committee of the BoE. They are, I think 0.1%. Long term rates are not set quite so precisely but they are controlled by the intervention of the BoE in the bond market. So far it has been mainly as a buyer which has pulled down the rate to just about 0%.
So, the BoE and Govt have got together to do what many have wanted and have all Govt debt set at close to 0%.
The correct way to understand fiat money is that it’s an asset to the holder and a liability or a debt to the issuer.
Geoff,
I can accept that some proponents of a UBI aren’t neoliberal themselves per se. But they are mistaken in wanting to advocate a neoliberally inclined policy
A bit like wanting to support a very ordoliberally/neoliberally inclined EU!
I’m not the only one saying this!
https://www.theguardian.com/commentisfree/2017/jun/23/universal-basic-income-ubi-welfare-state
Peter, the correct way to understand money is not that it’s a debt to the issuer. It’s just oil to the machine of the real economy. It’s virtual not real. It has no inherent value, only the value society ascribes it by accepting it in payment for goods and services. I know MMT disagrees with these points, but it’s on these points that I disagree with MMT. But it’s more important that we all agree on the main point ie that a sovereign state can issue money and that it does not have to rely purely on commercial banks to do so as debt, and it does not have to obey a zero deficit constraint.
It’s a common trope that neo-liberals and right wingers support UBI so therefore UBI is neoliberal. It’s totally faulty logic. I was at one conference when a MMT supporter made a talk from showing a picture of Richard Branson and saying this was her reason for not supporting UBI, ie that Branson supports it. The same for people who reject UBI because Zuckerman supports it. The arguments for UBI are made in my post, on the http://www.ubi.org web site and by my many colleagues – we are not arguing for UBI simply because Branson et al support it.
@ Geoff,
Warren Mosler explains why fiat money has a value as follows:
Imagine setting up a new colony in Africa in the 19 century. The colonial power wants the people living there to work for them in a variety of ways. Maybe on farms, as soldiers, civil servants or whatever. So the colonialists issue a fiat currency called the Crown and demand payment of taxes in that currency. There is a tax on huts and boats. If the tax isn’t forthcoming, the soldiers confiscate or burn the huts and the boats.
Of course, the only way to obtain the Crowns is to do the work wanted done by the colonialists. The Crown then acquires a value and is used for general trading purposes throughout the colony.
It doesn’t make sense to pay out a UBI having done this. But it does make much more sense to ensure that there is full employment in the colony because this is the purpose of creating the currency in the first place.
OK so we don’t have our huts and boats burnt if we don’t pay our taxes, but we can go to jail. I realise that some Lib Dems won’t like this explanation of the power of a sovereign state but there isn’t a better one.
Peter, I do know this is what Warren Mosler and other MMT advocates like Randall Wray say. I just have the temerity to disagree with them. We’re not living in a 19th century colonial settlement. We’re living in a 21st century complex technological money economy. The difference matters, as Keynes eloquently pointed out. I take it you are familiar with Keynes’s demonstration of the possibility of involuntary unemployment in this system. We are now facing at least a high risk, if not a near certainty, of a reduction in available work, about which you are entirely insouciant, even though it is driving large groups of people into poverty.
I maintain that the currency has its value in its acceptance as a means of payment for goods and services, not primarily due to its acceptance by the state to pay tax. Wray dismisses this view with no argument, just with scorn (see page 47 of his book ‘Modern Money Theory’, reviewed at http://www.ubi.org/63/) . My challenge to MMT on this point is that the value of the currency would be eroded far more radically were it no longer accepted to buy goods and services, than if it were no longer accepted to pay tax. People might even accept the latter entirely favourably. We are not thankfully living in your coercive state. We need UBI, and you have failed to advance any convincing argument against it, however many times you post.
@ Geoff,
The Lib Dem problem, or part or it, is a reluctance to admit that we’re living in a coercive state. You think that Bob will accept Amy’s money because he knows he can spend it at Chris’s shop. And so on down an infinite alphabet. But this only works because the alphabet is finite. Zoe knows she can use it to pay her taxes. So it would be impossible to have a situation where you couldn’t use your ££ to pay your taxes but you could use them to settle your grocery bill. The £ is just a tax voucher. If the Government issued pieces of paper with say “£10 tax voucher” printed on them they’d be functionally equivalent to £10 notes. Or the Govt could do it virtually in a computer.
There’s no need to do that now because the Govt owns the BoE. But when they didn’t this was the basis of the so-called Bradbury Pound issued by the Treasury during WW1. No gold backing. Just a promise that the Government would accept them as payment.
There have been a few suggestions that the Greeks and Italians night do something like this to circumvent euro rules. But I’m sure the PTB in the EU would know very well what they were getting up to.
@ Geoff,
There’s nothing in the Mosler explanation which suggests that there can’t be involuntary unemployment. Once the colonialists have issued their tax bills they have to be prepared to make sure that there is enough paid work available by spending enough Crowns into the economy. They don’t want to create unnecessary resentment by demanding the impossible and then sending in the troops to burn huts down.
Of course there’s going to be the danger that if they try to run the economy too hot there will be a significant inflation problem before there is full employment. So they would be better off not doing that and being an employer of last resort to mop up the last difficult 2 or 3 % of the unemployment problem. ie Offer a JG to those who need it.
Peter, you repeat the MMT school mantra that money derives value from its role in paying tax. What the government prints on a £10 is totally irrelevant, whether they print a meaningless ‘promise to pay’ or a ‘tax voucher’ statement. Its real value derives from its social acceptance to buy goods and services, however much Randall Wray may scoff at this reality. In any case, coinage and notes only represent 3% of the current money base. The rest is electronic money, increasingly circulating by electronic transactions. There’s nothing printed on this electronic money. It’s just available to spend. Interestingly the recent shift from cash to contactless payments has in fact increased the tax take, as the transactions are now captured electronically in traders’ accounts.
But MMT is wrong on this point – tax does not confer value to money. Take taxation away, or don’t pay it, or if in government, don’t accept money to pay tax. Money would still retain its value as the accepted means of exchange.
Pumping money into an economy to create jobs which the high-tech production matrix doesn’t need is pointless. We may well reach a stage where full high-wage employment with high productivity would produce far more output than we need, or the ecology could sustain. In this scenario, people need income, ie UBI. They would presumably also want worthwhile activity, but there’s ample demonstration that people find this other than through a job regime. You should run a job satisfaction survey before you insist on JG as best policy.
@ Geoff,
The evidence isn’t helpful to your case. When the Confederacy collapsed after the American civil war Confederate dollars became worthless. After WW2 Reichsmarks only had some value because the occupying powers propped up what remained of the German financial system. Even so there was a huge potential inflation problem which could only be solved by scrapping the old currency and replacing it with the DM.
When East Germany folded in 1989 (?) the Ostmark was only worth something under the limitations set by the unified German Govt. The Russians Govt was ultra selective in what Rouble payments it would accept. The roubles it rejected became worthless. If Govt doesn’t exist or, for some reason, chooses not to accept its currency of issue then it has no value.
Geoff, thank you for continuing to engage with all of us promptly and patiently, which is often not the case with authors. I agree that Universal Credit was used harshly by the Government because they maintained that the only way out of poverty was through work, so people of working age unless sick or disabled must be forced to find paid work. You have shown how the rates of pay for work have declined, and cannot be expected to rise much. I do believe there should be a back-up Job Guarantee scheme where people are paid the minimum wage. But it is likely that the hours of available work will decline, as is already happening (and is surely quite desirable, allowing people to have more time for their families and their leisure pursuits), so the minimum wage for the hours worked will not give people a sufficient income.
You will say, yes, there is another case where UBI will be needed! And the underlying assumption must be, I suppose, that nobody shall be forced to work. People can be idle, that is use their time freely, if they want to. Yes, I want that too. Yet it remains the case that there is much self-worth as well as esteem from other people tied up with people seen to be having a job, and our society does not believe in general in people getting something for nothing. So although I do want as Beveridge did for everyone to have enough to live on whatever their circumstances, I continue to think that UBI is too broad-brush an approach, too expensive because it may well require a rise of two or three per cent in general taxation which will not be generally thought acceptable, and too opposed to what very many people regard as fair and sensible.
Yes, let us strive to ensure that everyone has a guaranteed minimum income, and I think people can be persuaded to accept that. But a drastic reform to Universal Credit, to ensure that people in and out of paid work are given that income as of right when not working, is one major way to achieve that, and more likely to be fulfilled eventually than a UBI.
Katharine
Your objection to UBI seems to be threefold
1 You write ‘our society does not believe in general in people getting something for nothing’. I accept that UBI has work to do in establishing a philosophical point here about human ontology. As Guy Standing points out, people are born with a universal right to nature (sun, rain, land, sea, sky etc) much of which is providential (by which I mean pre-existent, rather than in a religious sense), and to inherited infrastructure and technology. This resource partially generates the goods and services we consume, and so that part should be distributed universally in a UBI, and not only to a privileged class as at present.
2 You say UBI is ‘too expensive because it may well require a rise of two or three per cent in general taxation’. Certainly, the CBIT UBI scheme proposed by my colleague Malcolm Torry does exactly this. I share your concern that it won’t prove politically acceptable. But it’s the assumption that any UBI scheme needs to be revenue neutral, which drives this tax hike requirement. It’s why, along with Stephanie Kelton, I argue that the deficit constraint is artificial, and funding should be via sovereign money constrained by potential full output GDP.
3 You claim that a reformed Universal Credit is ‘more likely to be fulfilled eventually than a UBI’. Given that UC already exists, you may well regrettably be right about this. But the counter claim is that in funding 67% of the wages of firms closed by Covid restrictions, we do now have the essentials of a UBI pilot. The fact that this is funded by sovereign money through the £745bn BoE holding of government ‘debt’ (but only debt to itself so not really debt), means that UBI funded by sovereign money has now arrived 😊
@ Geoff Croker,
“……means that UBI funded by sovereign money has now arrived”
Sadly and Unfortunately (for you), it hasn’t.
For a start the present Govt is unlikely to introduce a UBI.
The creation of what you call £745bn of debt free sovereign money, and I would term near interest free BOE financed debt or liability, can’t be taken as a precedent that we can always do this.
Just because we don’t have an inflation problem, at the moment, when no one is spending very much, doesn’t mean we won’t have one in the future when the Covid problem abates. Unless you have a working crystal ball that is!
Peter, the discerning reader will have realised that my last comment was tongue-in-cheek. But it’s not without potential substance and promise for UBI and sovereign money. We’ll see. In the meantime, JG certainly hasn’t arrived, probably can’t, and unfortunately won’t, which is why we need and will have UBI.
Katharine,
“I do want as Beveridge did for everyone to have enough to live on whatever their circumstances”
I’m not sure you’re right about Beveridge. He once added the conditionality for public support for those who not only would not work but couldn’t work “…. complete and permanent loss of all citizen rights – including not only the franchise but civil freedom and fatherhood.”
His later book “Full Employment in a Free Society” doesn’t contain anything quite so bad, so may have moved away from that sort of nonsense, but the overall tone is very sexist. He was probably progressive by the standards of his time but he wouldn’t fit in well with current Lib Dem Party. The best you could say was that he was concerned to help those who were prepared to help themselves but if they weren’t that was just too bad.
What’s your opinion of Beveridge, Geoff?
@ Geoff,
“I accept that UBI has work to do in establishing a philosophical point here about human ontology”
So how would you go about doing that?
I don’t know if you’ve ever shared a flat with others in your student days. It’s quite a long time in my case but when people didn’t pull their weight, left the kitchen in mess etc or let everyone down by not doing what they were tasked to do, harsh words would often be spoken. These were usually fairly basic and didn’t include ‘philosophical’ or ‘ontology’.
It’s the same in the workplace. The best way to get yourself fired is to rub up everyone the wrong way by not making the necessary effort in your job. There will unlikely be any support from your fellow workers and without that the unions won’t want to get involved either. Honest mistakes are generally more readily tolerated.
I haven’t noticed any particular correlation between political opinion and greater or lesser tolerance in this respect. Even Lib Dems don’t argue that we all have “universal right to …. to inherited infrastructure and technology”. At least I’ve never come across any!
Thank you, Geoff – your first point reminded me of our good Liberal song, ‘God gave the land to the people’! Of course resources should be shared more equally, and I want to see land-value taxation to increase government revenue, while taking your point that the government largesse could be paid out without incurring debt, and without thinking in any case that the growth in the national debt must be repaid. I agree too with your last point, having written myself earlier to the effect that the Chancellor’s payouts already set us well on the way to general acceptance that the government needs to ensure everyone has a minimum income. A happy thought, that, indeed, as you express it!
How we can ensure that everyone WILL receive a guaranteed minimum income (and I think I am going to call it a GIMME and enjoy that too!) is the problem we are all trying to solve, and certainly I am still trying to think it out. But what really worries me is that Tories do not change their spots, and so I can’t see them actually trying to solve the problem of millions of our fellow citizens living in poverty. And what I would like our party to insist on is that that should be our first objective, part of a new Social Contract between government and people.
Peter, I understand William Beveridge was not an easy character, and Labour politicians didn’t like all his work in the government of the Second World War. But just listen to him on YouTube, the clip where he talks to Pathe News. He says he wants all citizens and families to have all the cash benefits needed for security for the sake of one insurance stamp, that nobody is to fall below a certain standard, and that there should be a maximum of individual freedom and responsibility consistent with the abolition of want . That satisfies this modern Liberal, at least!
Peter
My comment about humanity wasn’t about tolerance, but simply a question of whether to be human is more about to have, to do, or just to be. It’s expressed in W.H Davies poem http://www.goodreads.com/quotes/686915-what-is-this-life-if-full-of-care-we-have. Possessions and work are important but don’t ultimately define us. Your claim that ‘Even Lib Dems don’t argue that we all have “universal right to …. to inherited infrastructure and technology”. At least I’ve never come across any!’ is obviously empirically incorrect – I am one such person. We don’t have to work for all we have eg the air we breathe. The infrastructure and technology, both inherited and developing allow for a less work-centric lifestyle. You may not want to take this option, but others can. UBI enables this human choice and flourishing as an alternative to the present office/factory straightjacket, which you seem to prefer. I only got into this because Katharine made the reasonable point that we will need to rethink our work/life balance if automation reduces the work requirement.
I haven’t studied Beveridge in the detail you have, so don’t have a considered opinion.
Katharine
I’m not in favour of land taxes because the most profitable companies eg Microsoft, Amazon, Facebook, Netflix, Google etc actually use very little land and would contribute very little of their huge profits via a land tax. My colleague Stewart Lansley has worked out a mechanism whereby everyone can be listed and included to receive a UBI payment.
@ Geoff,
You still haven’t told me how you are going to go about “establishing a philosophical point here about human ontology”
Most voters will want to help those who they consider to be deserving cases but they’ll want conditions attached to that help. To get your policy accepted, you’ll need votes. I could be wrong but I’m not sure that reading poetry on the doorstep to waverers and doubters is going to do much good.
Whether you are actually a Lib Dem I’ve actually “come across” is a moot point. We haven’t actually met. You might argue one position from an intellectual perspective but I suspect that in practice you’d be like anyone else. You’d be more helping, for example, to those you thought needed help and would appreciate your efforts. You wouldn’t hand out assistance unconditionally and universally.
@ Geoff,
In case you’re thinking I’m sneering at your choice of poetry I’d just like to say this is not the case. But I’d question whether it supports your claim we all have to accept institutionalised unemployment which is the motivation for a UBI.
Its much more a reason to share out the available work to give us all more free time. All you can say about this is that “Shorter working weeks, longer holidays, and job shares have long been the trend.”
How about giving it an extra push? Campaign for a 30 hour week. 45 week year. The problem of falling wages can then be addressed to enable the workers to be able to purchase what they have produced in those 30 hours and 45 weeks.
Peter
So, argument weak, resort to ridicule ☹ I have offered thoughts on the nature of being human, specifically how this might inform a work-centric view. It’s just that you don’t get it. You have no data to judge whether I or anyone else might have concern for others, regardless of some smug judgment of their merit. No-one is talking about ‘institutionalised unemployment’ imposed on people. We’re talking about possible technological futures, and trying to adjust for them. It’s not the only argument for UBI. It’s unfair to ask for thoughts on human ontology regarding work, and then to deride a response which includes some poetry, because you judge it will be of no interest ‘on the doorstep’. Another contributor to this thread did the same when after asking me to demonstrate that UBI addresses inequality, because the answer necessarily included some very simple algebra. You might both be surprised that the level of intelligence and interest amongst the general public is higher than you realise.
Peter
If you want to campaign for a 30 hour week and a 45 week year, you are very welcome to do so. You can’t expect me to do it for you. I’m campaigning for UBI.
Geoff, good to hear about Stewart Lansley’s work, and let’s hope it becomes known and is influential in taxing the international monsters. But of course, land-value taxation is a solution proposed just for this country, to prevent profiteering from land by the big landowners and building firms, and bring down the cost of land for building the many new houses which are sorely needed. As you will know, house-price inflation, and high-cost new housing, is one of the main reasons why rates of pay for work aren’t sufficient to keep people out of poverty, despite low mortgage interest rate and housing benefit for renters.
@ Geoff,
Sharing out the available work in the manner I suggested doesn’t equate to a “work-centric view”. A 30 hour week 45 week year would mean we all would work 15.4% of the time. So for every 1 hour we work we have more than 5 hours free to do something else.
You seem to be suggesting, with your algebraic exercise, that reduced income inequality is a good thing. So why wouldn’t reduced inequality in the number of hours worked also be a good thing?
Katharine, I can see the benefit of huge land taxes to persuade holders of unused land including brownfield sites which have been held for many years to sell and therefore reduce land prices, but I think the only ultimate solution to general UK land prices is to zone more land for housing in the planning process.
By ‘work-centric’ I was referring to the qualitative view that work is essential to people’s identity which you and others have expressed in this thread, not to the quantity of work each person undertakes. You might be interested in James Suzman’s new book on this.
Work can’t simply be allocated – demand has to come from the production technologies deployed. These are demanding less work in general, and a very bifurcated employment of super-skill and low-skill work. We could follow Gandhi and insist on homespun labour-intensive technologies, but that will keep everyone on low incomes compared to high-tech employment. In a globally competitive world, resisting modern technology will prove difficult. We are more likely to be able to moderate its outcomes by providing income to all via UBI, than we are likely to be able to re-engineer the ever-evolving production technology.
@Geoff,
Most would regard their occupation as important to their identity even if they weren’t prepared to go as far as to say it was essential. If you look up Beveridge, he saying it’s the latter.
Having said that it doesn’t mean we are all workaholics. We enjoy time off work in a way we possibly wouldn’t if we were unemployed.
On the one hand, you claim that ” No-one is talking about ‘institutionalised unemployment’ imposed on people.” on the other you are claiming a UBI is necessary because the capitalist system is incapable of reducing working hours to tailor the length of the working week to accommodate a reduction in human effort which will be the likely consequence of increased automation.
Anyone who understands the system will tell you why capitalists don’t want to reduce the length of the working week. They would rather have a pool of unemployed living on a pittance of a UBI so show their workforce who’s in charge. They want to use the threat of unemployment as disciplinary measure.
The Polish economist Michael Kalecki explained the “problem” of full employment as follows:
“it would cause social and political changes which would give a new impetus to the opposition of the business leaders. The ‘sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. . . . ‘Discipline in the factories’ and ‘political stability’ are more appreciated than profits by business leaders. Their class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the ‘normal’ capitalist system.”
Peter
You’re back into unsubstantiated claims of what ‘most’ people and ‘anyone’ says. You need a survey to establish what most people feel. Recent surveys record substantial job dissatisfaction. Neither the capitalist system, nor a proactive socialist government, can redefine the employment implications of evolving deployed technology. If we want the benefits of advanced technology, we have to deal with its consequences, ie with wider choice of lifestyle and UBI. Your profile of wicked capitalists wanting to oppress their workforce is a wildly inaccurate anachronistic caricature, which I doubt that even the TUC would accept. Again, you need some data to support your claim. Since Kalecki, employment legislation has improved massively to protect against arbitrary or unfair dismissal. Where are these industrialists who consider that ‘lasting full employment is unsound’? Keynes believed the business community wanted full higher wage employment to generate demand, and as usual, he a was right. Plus, most people are actually quite decent, a claim I recognise I need to substantiate, but which my own wide industry experience validates.
@ Geoff,
You will, of course, be familiar with the NAIRU. I’d have it as the NAIRUU. The Non Accelerating Inflation Rate of Unemployment and Underemployment. The official mainstream theory that we can’t have full employment isn’t anything to do with robots taking jobs. That’s just for the gullible. It’s connected with keeping the workers in line and to keep their wages down.
https://en.wikipedia.org/wiki/NAIRU
So the answer to your question of ‘where are these industrialists’? (And politicians and bankers and economists). Is that they include everyone who goes along with mainstream theory. It’s naturally not something they are keen to discuss on TV though.
Peter
You’re grasping at straws. It’s perfectly reasonable to ask whether some rate of unemployment is inevitable in a free economy due to job change etc. That’s what Friedman et al addressed. It’s nothing to do with any paranoid conspiracy theory against workers. I’ve worked with a very wide range of industrialists across global cultures, and none of them have any desire to oppress staff in their companies. On the contrary, they want to see them prosper.
Friedman et al are asking whether there is a level of employment beyond which inflation rises, which is a perfectly valid question, and one with which you challenge UBI. I’m neither mainstream nor gullible, thanks.
Did you log on to Stephanie Kelton this evening at http://www.ideasfestival.co.uk/events/stephanie-kelton/? She was excellent on sovereign money. You’d have liked her defence of JG against UBI too, which of course I disagree with, but it shows how open-minded we in the UBI movement are 😊. You can learn more about UBI at tomorrow’s conference at http://www.ideasfestival.co.uk/events/is-it-time-for-universal-basic-income/
@ Geoff,
You perhaps should take off your Lib Dem issue rose tinted spectacles now and again. There’s always going to be different class interests involved between the owners of capital and those who work for the owners. I tend to think we have a mixture of better capitalists and much worse ones. We can make deals with the former. Naturally the owners want to bring out the best in their workers and they aren’t going to do that by being openly hostile. That’s why the deal can be done but we still need to recognise the reality of the situation.
You wouldn’t take every utterance by a Tory politician at face value. They say the same about wanting every family in the UK to not be in a condition of poverty. Some of them sound like they really mean it but do we fully believe them?
The post war Keynesian consensus broke down in the 70s. The election of the Thatcher govt saw the start of a new ruling class consensus on how the economy should be run. The election of a Labour govt in 1997 didn’t do anything to change that. But that experiment has now run its course. It was always dependent on encouraging everyone but Govt to borrow ever growing amounts by ever lowering interest rates. This was always going to reach the end of the line when they’d pushed them down to 0% and this is where we are now.
We need both some fresh thinking and a return to some older thinking. We don’t concede, as you seem to want to, that full employment is just not possible. That’s defeatism with no rational justification. The point of the JG is to challenge the notion that there is a trade off between inflation and everyone having a job. I expect Stephanie has already explained that.
Peter
I’ve explained perfectly clearly what the logic is for the concern that employment, but more importantly aggregate wage, will reduce with automation. Moreover, empirical data shows this to be inexorably the case. I don’t ‘want to’ concede that full high wage employment is not possible – I just advance a logic which suggests it’s not, and I seek to propose responsible policy to respond. Huge debt has been the inevitable result as the only way to maintain adequate income. For many reasons, which I’ve also given, JG can never work. Interestingly, in yesterday’s keynote session, Stephanie gave an excellent presentation for sovereign money, but didn’t mention JG – it only arose in a question right at the end. As you say we need fresh thinking, which you then dismiss. UBI is the right answer. Log on to http://www.ideasfestival.co.uk/events/is-it-time-for-universal-basic-income/ today.
@ Geoff Croker,
“… importantly aggregate wage, will reduce with automation. Moreover, empirical data shows this to be inexorably the case”
You might want to have another look at your data. If you’ve somehow come to the conclusion that using a variety of techniques, automation being just one of them, to produce more in less time actually makes us worse off then you must be going wrong somewhere.
Humans are naturally inventive and learn from experience. Even without automation we’ll learn as we go along and do things more efficiently. That’s always happened and is largely the reason why GDP has risen over the last couple of centuries. It’s why we have a better material standard of living now than we did in the 19th century.
Peter
Yes, it is a paradox that automation can make us worse off, but this will be the case if we don’t engage other mechanisms to get income to people other than wage. UBI is an inventive strategy, but you don’t want to go there. Also paradoxically, you now seem very appreciative of the historic results of a free market economy.
@ Geoff,
The biggest jumps in productivity , arguably, occurred when the market was less free than it normally is. ie During wartime. But, however free it might or might not be, however the balance is between socialism and capitalism, if we are producing more goods and services we should be better off.
The problem for the capitalists is that they have to pay their workers enough to be able to also be good customers and buy up everything they’ve made. On the other hand they don’t want to pay too much so that their profit margins suffer. They’ve managed to have the best of both worlds in recent decades by the simple wheeze of encouraging everyone to top up their purchasing power through personal borrowing. That’s why wages aren’t keeping up. They don’t have to if we are all borrowing to fuel aggregate demand.
Now that’s much more difficult to do than it was. So they are looking at other ways to both have their cake and eat it. A UBI is one of them.
Peter
You claim that wage depression is caused by employer/employee conflict. I claim it results from technology. Nobody supports the pervasive debt in the economy. We need to replace government debt with sovereign money and household debt with UBI. Meanwhile you propose no workable solution to either debts, other than JG which will not work for reasons given above. You should be listening in at https://www.crowdcast.io/e/universal-basic-income/4
Geoff Crocker,
Sorry about the delay in replying.
The academic paper you provided a link to doesn’t deal with my points. In it you argue against Piketty’s model and his three equations (laws of economics). Therefore you should be aware that other people are going to question your theory.
Are you really saying that no-one has ever pointed out to you that:
£100 billion is 5% of the UK economy;
£150 billion is 7.5%;
The UK economy has not grown by more than 3% for a sustained period of time and 3% should be seen as the optimum level of economic growth to be aimed for each year;
Increasing government spending by more than 3% is likely to cause inflation;
The annual figure for borrowing between 2016 and 2018 is £22.5 billion;
Only about half of households in the UK have any debt;
And therefore with economic growth forecast to be 1.4% a UBI of £100 billion funded completely by sovereign money would cause inflation and would not replace all of the amount borrowed by households in a year, because about half of the UBI will go to household who would not have borrowed anyway?
I wrote, “but on Monday you posted a link to Rishis Sunak’s speech to the Tory online conference where he still talks of ‘balancing the books’”
At 4.57 pm on 5th October you posted, “https://www.bbc.co.uk/news/uk-politics-54419352 proves my point :(” The title is “Rishi Sunk vows to ‘balance books’ despite pandemic” Do you deny making this post to a link to a BBC News article on Rishi Sunak’s speech to the Tory online conference?
@ Geoff,
” Meanwhile you propose no workable solution to either debts……”
Any solution has to involve a correct understanding of the problem. In principle the government could introduce QE on such a scale that all what we called Govt debt was replaced by what you call Sovereign Money. So all my Premium Bonds would have to be replaced by ££. Would it mean that the Govt was in a better position?
If the American Govt issued 27 x trillion dollar coins, they would be debt free according to you. Would they be in a better position?
I’ve just Googled UK household debt to be £60k on average. And a UBI will bring us all back into the black? I don’t think so!
Debts are a part of the workings of finance. We shouldn’t be scared about money we owe to ourselves. All the supposedly wonder economies are in debt. Germany is in debt ($3 trillion) Singapore is in debt ($400 billion) Do we owe all this money to the extra-terrestrials? There is no need for anyone to worry that we have to keep our extra galactic creditors happy. They are not going to send in the bailiffs and repossess our planet. If I am ever proved wrong about that, they will not be at all interested by the digits in our computers , or the printed pieces of paper we call money. It will the resources of our planet which might interest them and I would expect they, unlike many of us Earthlings, would be smart enough to appreciate the difference between money and resources.
They should also be smart enough to know that all money is created by crediting and debiting accounts, and that money functions as a unit of account, medium of exchange, store of value, and record of debt. Every debt has a corresponding credit denominated in the unit of account of that jurisdiction, so that all debt as someone’s liability is someone else’s asset, which nets to zero. Since money is not only someone’s debt (a payable) but also someone else’s credit (a receivable), it is just as true to say that the world owns over 75 trillion in financial assets, expressed in USD, as it is to say that the world owes 75 trillion in financial liabilities.
If there were no credit-debt relationships, that is, if all financial liabilities were extinguished, then there would be no money, and exchange of goods and services would be reduced to barter.
Michael
Yes, you are welcome to question my theory as I question Piketty, but you don’t do that. Instead you continue to claim that my UBI proposal is inflationary. Your tone remains unhelpfully cryptic. I am not proposing an actual scheme despite your continually pressing me to do so. I am as you say, like Piketty, advancing a theory. I am of course fully aware that any scheme needs to be non-inflationary and all UBI and indeed MMT advocates are aware of this simple point. You are correct that I had referred to Sunak’s speech – I’d forgotten this and had thought the implication was that I approved of Tory policy, but I apologise for my error on this point.
Peter
Like your MMT mentors, you are insouciant about debt in the economy. MMT relies on the ‘Godley identity’ to reach this conclusion. I’ve pointed out that this treats Wynne Godley’s identity as a behavioural equation. Debt artificially and wrongly constrains expenditure which real resources make possible. Try telling low income households forced into payday lenders loan rates that debt doesn’t matter. Nearly all economics commentators criticise our debt-ridden system. We need a new paradigm.
Geoff,
You still don’t get it. No-one, not me, not any other advocate of MMT I know, would suggest that personal debt doesn’t matter. I’ve only ever taken out loans for house purchase and once for a business start up. All successfully repaid. Payday enders and loan sharks are bad news which everyone would do well to avoid.
But the currency issuer is not a household! I’m sure you must teach your students that. They have to be in debt in an accounting sense otherwise they haven’t issued anything!
Say the Greek Govenmenet issued the New Drachma. They’d spend, say, 100 billion ND into the economy and they get 80 billion back in taxes in year1.
So the Government would have a net position of -20 billion ND. Everyone else would be +20 billion ND. Souppose they then sell 5 billion of ND bonds. Their net position is now -15 billion in cash. -5 billion in bonds. Everyone else is +15 billion cash +5 billion bonds.
Is this any different? Maybe if the interest rate are non zero to a significant extent but if they are actually zero there is no difference at all.
It’s just a matter of very simple arithmetic.
@ Michael,
Rishi Sunak is playing to the gallery. There’s no need to be too worried about him.
This time next year the economic recovery will, hopefully, be well underway. The £700 bn that he’s recently spent into the economy will start to come back as taxes. There won’t be much of a Govt deficit.
Rishi Sunak will put it all down to his personal insistence of the importance of ‘sound economics’ and claim he’s the man to trust with the stewardship of the countries finances. He’ll have one eye on the next rung up the ladder.
At least that’ll be his plan. I can’t see why it won’t work but of course there is always the unforeseen.
Peter
No, using your discourteous terminology, it’s you who doesn’t ‘get it’. Firstly, I don’t teach, don’t have students, and don’t welcome your patronising tone. Thank you for enlightening us with your example of ‘simple arithmetic’ that -20bn+20bn=0.
You are right however that the currency issuer is not a household. But you draw exactly the wrong conclusion from that, and insist with these simplistic examples, with which Dirk Ehnts also fills his book on MMT, that the currency issuer has to observe simple double-entry accounting principles and record money creation as debt.
My argument is that, just as applying a household balanced budget constraint to a government is a category error, a point that all MMT advocates I’ve read would agree on, so it’s equally a category error to apply double entry accounting to money creation. Of course, this is largely the case at the moment simply because the majority of money creation is by commercial banks who create money as personal and corporate loans. But it does not have to be the case with the currency issuer, who can simply issue money (MMT agrees), without recording it as debt (MMT disagrees). 3% of the money supply, ie coinage is issued without any corresponding debt. Your resort, with fellow MMTers, to the present fact of close to zero interest rates, almost proves my point, ie that MMT relies on a zero interest rate proposition whereas it could better rely on a zero debt proposition. Your earlier excellent point that BoE now holds £745bn of government debt, ie a position where the state is in debt only to itself, also supports my proposal. BoE should be allowed either to directly purchase bonds, or to create the same money and channel it into government social expenditure, reversing austerity, and UBI. Under your MMT proposal, if interest rates were to rise, the present £39bn/year unnecessarily paid by the taxpayer to the financial sector would multiply.
UBI funded by debt-free sovereign money remains the most credible paradigm for economic policy in high-tech economies.
@ Geoff,
“….the currency issuer has to observe simple double-entry accounting principles and record money creation as debt.”
This, in the absence of any gold backing, is what I would say. But, you obviously disagree.
Do you have an academic reference to support your case?
Peter
I do indeed disagree and I don’t have or need an academic reference to support my case. I regularly present my argument to academic conferences and to university economics departments. So far none have responded with any objection. I’ll let you know if they do.
@ Geoff,
“Thank you for enlightening us with your example of ‘simple arithmetic’ that -20bn+20bn=0.”
You’re welcome.
How would your arithmetic work out? 0 + 20bn = 0 ?
Peter
Your equation doesn’t apply because money created does not have to be counted as debt. As I’ve already pointed out, coinage isn’t.
@ Geoff,
What’s the theoretical basis of not counting the coinage? I previously provided a link to the trillion dollar coin idea that surfaced in the USA sometime ago.
We could do the same and have trillion pound coins. They wouldn’t be released but kept on the books of the Treasury as an offset to any other Govt debt. All you are really suggesting is that we simply don’t count Govt debt and hey presto it goes away!
You’re losing whatever intellectual rigour Economics might have. You’re throwing out Godley’s sectoral balance approach to understanding the way they interact – for example.
It’s a sad indictment of the subject that Economists can’t build any kind of consensus at all. They can’t even agree what money is. It would be like Chemists not being able to agree what atoms and molecules were!
Peter
There is no need for a theoretical basis for not counting money created as coinage as debt. It’s simply current practice. It works OK. Similarly, there is nothing practical to prevent the UK government issuing £1,000 to everyone’s bank account without accounting for this as debt (assuming everyone had an electronic bank account etc). This is indisputable fact. It could definitely be done. Whether you think this should be done is another question of best economic policy. As you yourself point out, BoE holding of £745bn of government debt virtually means this amount of money creation is currently debt free. In your usual style you accuse me of losing intellectual rigour, whereas my arguments have been set out with careful intellectual rigour in my book and elsewhere, and have been subject to peer review by way of university presentations. I do indeed question the use made of Wynne Godley’s financial balances identity in MMT theory. My challenge is that it is used as a behavioural equation rather than an identity, and that a change in one balance will not directly shift the same value to another balance, but that’s getting rather intellectually rigorous. Wynne was always extremely polite in his discourse, certainly in the correspondence I had with him. He is a great loss to post-Keynesian economics. You might be interested in Alan Shipman’s new biography of Wynne which has just been released by Springer at http://www.palgrave.com/gp/book/9783030122881. It’s not an indictment at all of economics that there is always debate within the subject, including about the nature of money. On the contrary, it is its intellectual strength. Keynes debated against the neo-classicists for example on the nature and significance of wage in the system, of whether price signals are effective, or whether blockages occur. Physicists do the same about particles.
@ Geoff,
Look, whatever the other drawbacks/deficiencies of Godley’s sectoral balances at least they add up arithmetically. -3+1+2=0
The importance of the trillion dollar/pound coin argument is not that actually should actually bother to mint them. Sure, you could do that and put them on display for all to see to try to claim that you’d abolished debt but it would just make you look ridiculous.
Anyway, that’s all you are doing by wanting to not bother to count issued money as debt.
Physicists may have some disagreements when it comes to interpreting the latest and more esoteric theories, but at least they have got off first base. Everyone agrees on the nature of electric current and what Ohms law is! Maxwell’s equations too which would indicate they have probably got up to many more bases without serious disagreement.
@ Geoff,
PS. Just noticed you’d said:
“As you yourself point out, BoE holding of £745bn of government debt virtually means this amount of money creation is currently debt free.”
No I didn’t. It’s interest free but not debt or liability free if you apply the correct accounting procedures.
You’re confusing the payment of interest with the occurrence of liability. The currency issuer always has a liability for its issued currency unless it chooses for some reason to renege on its obligation.
Peter
I’m surprised that you see physics as a settled matter, particularly given the uncertainties about Newtonian and quantum worlds, string theory etc. Any respectable science will be exploring intellectual boundaries, and economics is no different.
I do of course understand Godley’s identity, which he probably owed to Francis Cripps. It is indeed simple fact. I just claim that it is misinterpreted within MMT. I also understand the formal liabilities and accounting procedures in BoE holding government debt. I’m just pointing out that it’s only an internalised liability, and therefore like Godley’s formula, is a zero sum game. Strange that MMT can happily balance surpluses in the wide macroeconomy to sum to zero, but not internally between government agencies!
@ Geoff,
Again, I didn’t say that Physics was “a settled matter”. Do you have a similar conversation going on with someone else? Maybe you’re confusing me with them!
So the way I’d put it, was that the relatively new stuff was a matter a some discussion and even argument, but there is always a strong pressure to try to reach some sort of consensus. So we don’t, in Physics, end up in completely different schools of thought.
You can leave aside MMT’s interpretation of the sectoral balances if you like. But there is really nothing remarkably different about them. If we start from the National Accounting Identities:
We have GDP = C + I + G + (X – M)
GDP = C + S + T
or maybe you don’t agree with them either?
We can work out the sectoral balance equation
(G – T) + (X – M)+ (I – S) = 0
The point is that G is government spending. It really doesn’t matter whether it is spending from coins or what you term sovereign money or any other source. It all has to be included.
Peter
You really are very cryptic. You did refer to the established nature of Ohm’s law and Maxwell’s equations. There are different schools of thought in physics. There must be wherever anything isn’t entirely settled. For example, is there an irreducible stochastic element in nature or not, viz David Bohm ‘Causality and Chance in Modern Physics’. So it is in economics. As Robert Skidelsky, the preeminent biographer of Keynes writes in his new book, ‘What’s wrong with economics?’, ‘After centuries of debate, there is still no agreed theory of money’ (p12). Read Tom Palley if you want a deeper critique of MMT from a very well qualified Keynesian economist.
As I said, I am very familiar with the derivation of Godley’s identity and with the entry level equation to macroeconomics you kindly set out. You will find an example of the regular BoE report on the identity in my book, which I rather think you haven’t yet read. We are talking about money. It is a virtual entity, especially when largely digital. It can be proliferated ad infinitum at almost no cost. It shouldn’t be, because as long as it refers to priced goods and services, then the price level has to be maintained. Such a simple equation cannot of course replace a complex econometric model which will seek to determine how any fiscal stimulus will work through consumption, production, employment, investment, tax take, government spend, imports, exports, currency rate of exchange, interest rate etc. Such a model will produce an equilibrium obeying the Godley identity, but it will be a new equilibrium. Like all identities, the Godley identity does not explain, cause, or dynamically calculate anything.
The issue we are discussing is whether sovereign money needs to be accounted as debt or not. MMT says it does, but then advances the zero overnight interest rate argument, or refers to current low interest rates, or to the high BoE holding of UK government debt all to suggest it’s OK because it’s almost as if it wasn’t accounted as debt. So why not simply not account it as debt in the first place.
PS It’s also worth pointing out that the difference between the almost zero cost of producing money, and its value in use, is its seigniorage. Joseph Huber in his book ‘Sovereign Money’ makes a very good case for returning seigniorage to the state. I recommend you read Joseph’s book.
@ Geoff,
Seigniorage is an outmoded term and refers to the time when a metalic coin only contained a percentage of the metal value shown on the coin. It had to be like that otherwise a small rise in the value of the metal would have meant the coins would have likely been melted down for profit.
A paper note, or its digital equivalent, is almost 100% seigniorage, if you insist on hanging on to the term. and it has been like that for a long time. So the “seigniorage” goes to the state anyway except if the State decides to pay interest on borrowed money.
The question you are avoiding is about whether the Govt should do that. ie Pay interest on borrowed money. The answer has to be: Maybe. That’s not in line with MMT BTW. They say interest rates should always be set at 0%. I would say that any government should have the democratic right to set interest rates to what they want them to be. At the moment they want close 0% which is fair enough.
Interest rates aren’t set by the market, so there’s no reason to say that money should just be issued without proper accounting procedures being applied. Having zero interest is what we have at the moment. But not zero liability.
You’re not accepting of the obvious difference between zero interest and zero liability.
@ Geoff,
David Bohm doesn’t build bridges or design aeroplanes. The Physics behind those is well established. Sure Bridges can collapse and aeroplanes can crash. It may be something mundane like a metal fatigue but it’s more likely to be a human error. Crashes are not going to be connected with any fundamental philosophical problems to do with quantum mechanical causality. Introducing this is just obfuscation.
Scientists and engineers usually do know what they are doing. If they design a bridge it will be unlikely to collapse if it’s properly maintained. Unlike the financial structure known as the eurozone! How that ever got it’s tick of approval would have to be a mystery.
Peter
Well seigniorage can become a complex debate. Joseph Huber identifies an interest based ‘quasi-seigniorage’ accruing to commercial banks by virtue of their ability to create money (p83-86). Joseph wants to return all money creation and thus this ‘quasi seigniorage’ to the state (p160,176). I don’t agree with him on this point since the state lacks the resource and expertise to replace all commercial bank money creation, and this is why the Swiss National Bank opposed the sovereign money referendum in Switzerland. However, I can see that commercial banks might be required to pay the state an amount estimated to equal this ‘quasi-seigniorage’ for this privilege. What do you think of this proposal? Or maybe Bill can get back with a quick answer? My suggestion was and remains that you read Joseph’s book rather than coming back with quick fire answers.
Thank for yet another of your personal compliments noting that I fail to accept the obvious. I don’t think it aids intellectual debate, but it’s very typical of MMT advocates. Different variables can approximate each other in certain conditions, like VAT exemption and zero-rated VAT. Zero interest on debt and zero debt liability on sovereign money creation also approximate each other when debt is not redeemed. Base interest rates aren’t set by the market, but governments have little room for manoeuvre within the global set of base rates which have to respond to hot money flows of the market with consequent effects on the exchange rate etc.
I’m not avoiding any question as you claim. In fact, I have been assiduous in seeking to answer all your questions and respond to your points. I have made it very clear that my proposal is for debt-free sovereign money to be issued by the state. I have pointed out that this is already the case with coinage, and I have also claimed as an example that the government could credit all individual bank accounts with £1000 of debt free credit.
BTW, I wonder how many readers are continuing to follow our discussion. What’s your estimate?
Peter
Your comment about Bohm is fatuous. My point was that there is uncertainty in physics as well as in economics. You however, have certainty in both subjects. The question as to how Newtonian mechanics guarantee bridge structures in a quantum world of particle position uncertainty is fascinating. The best resolution I found was by Professor Sir Michael Berry at Bristol physics department. His paper showed that under certain asymptotic conditions, quantum theory approaches a Newtonian solution.
MMT waste their effort in criticising the Euro. A federal authority can still issue debt free sovereign money with appropriate fiscal structures. The ECB issued Euro 2.4tn in QE prior to any Covid funding. I’ll inspire you to further criticism my telling you that I believe UK should be in the EU, in the Eurozone, and in Schengen 😊
@ Geoff,
Quantum mechanics has always produced mathematical output which has created philosophical difficulties. Shrodinger was one of the first to point out with his cat thought experiment. Naturally there are attempts to resolve these which lead to some disagreements.
But these are far removed from our everyday lives. On a slightly more mundane, but perhaps more useful, level when meteorologists failed to forecast that famous hurricane they accepted they needed to do better in the future. When economists failed to predict the 2008 GFC they just went quiet for a while but carried on as normal, as soon as they thought it was safe to do so.
Maybe in some parallel universe it isn’t like that at all, and economists are actually embarrassed when they get it all wrong. Maybe the Lib Dems are the the natural party of Govt! Perhaps the UK is still a member of a very successful EU. Maybe my football team is doing much better than it? I hope so!
@ Geoff,
“Zero interest on debt and zero debt liability on sovereign money creation also approximate each other when debt is not redeemed”
No they don’t.
If you want to express the non redemption of debt, ie a default, in interest terms it would have to involve an abrupt switch to a highly negative rate of interest for just sufficient length of time to cancel out the principal.
During WW2 the Japanese issued Yen in China which were overstamped by the military Govt there. After the conflict the Japanese refused to accept them, ie accept the debt, and they became worthless. You can say that issued money is debt free, if you like, but the only way to really make it so is to default and so Govt can expunge its liability. In which case it becomes worthless to anyone else.
Geoff Crocker,
I am glad you have apologised for your error with regard to your posting a link to Rishi Sunak’s speech.
I am surprised that you find any of my comments cryptic. I have a very direct style and possibly it is this that makes you resistant to engaging with my points. Have you realised that I actually think funding some of the government expenditure with sovereign money is a good idea? And this is why I wish to explore what the constrains are.
You made some interesting comments at 12.29 pm on 10th October. I am not convinced that your point one will be achieved quickly. As Katharine (and Peter Martin) say, people don’t like the idea of people receiving something for nothing. This is why replacing the Income Tax Personal Allowance might be an acceptable way of introducing a UBI, and I suppose the unfunded part can be funded by the issuing of more money.
You write that the issue of sovereign money is “constrained by potential full output GDP”. I agree with this. This is why I challenge you that increasing the money supply by £100 billion before the Coronavirus crisis would have increased it by more than output could be increased by within a year. And it is this restraint, how much “output GDP” or UK production can be increased within a year which is the real constraint, not how much can be produced in the distant future.
I still would like you to engage with my issue of how much could the government have created in sovereign money for this year if there had been no coronavirus. Do you accept that UK growth rates have averaged less than 3% between 1993 and 2007? Do you accept that there is a limit to how much the UK economy can grow in a year? Do you have an idea of how much the UK economy can grow year-on-year?
Peter Martin,
I hope you are correct about Rishi Sunak, but I doubt it. If there is no vaccine for coronavirus next year there will be no economic recovery. We will be having lockdowns when the schools have holidays to control the spread of the virus. If Rishi Sunak doesn’t restore the furlough scheme the economic effects will take years to recover from. Another year of coronavirus could result in our economy declining by a quarter (and this might be optimistic), with millions more people trying to live on Universal Credit and aggregate demand falling off a cliff. Without the government stimulating the economy and not trying to pay off what it has borrowed it could get even worse.
Of course it is possible that Boris Johnson will tell Sunak that he has to restore the March furlough scheme and we could see light at the end of the coronavirus crisis. But the bigger the decline in the economy and the rise in unemployment the longer it will take for unemployment to be reduced.
Peter
It depends whether we’re talking about new or existing debt.
Michael, well pompous as well as cryptic as in ‘I am glad you have apologised for your error with regard to your posting a link to Rishi Sunak’s speech.’
We nevertheless appear to agree on a proposal for UBI funded by sovereign money, and the appropriate constraints. You continue to press me for a quantitative answer as to what level of sovereign money funded UBI would be non-inflationary this year. As you correctly note, I am reluctant to specify this quantitative value. The reason is set out in my reply to Peter Martin at 428 on 15th October which you will no doubt have noted, ie that a proper response requires a full econometric modelling exercise. The accounting methodology which you use is similar to that used by Howard Reed to evaluate various UBI schemes, and I have discussed my reservation with Howard that this is too simplistic. It depends of course on how any proposed scheme is funded. If it is fully funded by additional taxation and reduction in other benefits then it will have no inflationary effect. My hunch would be to implement a revenue-neutral scheme similar to Howard and Stewart’s Compass scheme and then to raise this incrementally each year with debt-free sovereign money funding, monitoring inflation as Stephanie Kelton proposes, to fine tune UBI alongside all the other economic variables in government control.
@ Geoff,
It doesn’t make any difference whether the debt is new or old. Old debt can simply be rolled over to create new debt as the Government chooses. So it’s all new debt – effectively.
I had to smile when the Government made a big thing of “paying off” the “final installments” of WW1 debt recently. Did they really? How about they called in bonds which were paying out 3% and replaced them with bonds paying out something closer to 0%?
Even if they’d just created the cash, at will, it would have simply been a swap of one type of IOU for another.
Peter
As you say it makes no difference if the debt is going to be rolled on. I was simply guarding against comparing debt-free sovereign money with debt from money creation which was being redeemed. Otherwise, given no redemption and/or roll over, zero %interest x debt = zero debt for revenue finance, hence my claim of approximation.
Glad to see you smile sometimes 😊, and of course on this point, I agree with you. My main response to MMT is that we indeed agree the main huge task of shifting financial orthodoxy from the ‘deficit myth’, that we should not spend all our energy disagreeing internally on the finer points.
Geoff,
Perhaps you have moved closer to my position with your talk of incremental sovereign money funding at a level which should not increase inflation and takes account of other economic variables.
I agree with you that shifting financial orthodoxy from the ‘deficit myth’ is a huge task. This is why I think discussing the constraints is so important.
This is why I am concerned with how practical the funding of part of the government’s expenditure by sovereign money would be. And this includes addressing what constraints need to be considered when setting the amount of new sovereign money injected into the economy. Therefore if we ignore the idea that UBI can replace all of household borrowing, we should be able to discuss the constraints. With this is mind can you answer the following questions? Do you accept that there is a limit to how much the UK economy can grow in a year? Do you have an idea of how much the UK economy can grow year-on-year?
Michael
I haven’t moved closer to your position. I’ve simply explained my position more clearly, including clarifying any unintended contradictions you may have identified. Asking whether there is a constraint to how much the UK economy can grow each year is rather facile, or merely empty rhetoric. Without access to a comprehensive econometric model, I am unable to answer your question of how much growth the UK economy actually can achieve.
Geoff,
I note your faith in models. This shouldn’t come as any surprise to me because of things you have written earlier in the comments. If you used a comprehensive econometric model to obtain your answer to my question then it wouldn’t really be your view, but the view of the people who created the comprehensive econometric model. Any such model is only as good as the information used and the relationships set out in the model.
Even without stating a view on what the UK economy can grow year-on-year, you could state if you believe there is such a limitation. Do you believe there is such a limit? Can you agree with me that annual economic growth is a constraint for the amount of sovereign money that should be created each year?
Michael
Yet more empty rhetoric ☹. I don’t have ‘faith’ in models. But I also think that econometrics, which was a core part of my own economics studies, makes a valid contribution in testing hypotheses more exactly than logic expressed only in words. Here’s a link you might find helpful http://www.xaprb.com/blog/writing-kindly/.
Geoff,
I came across this equation:
d Unemployment = b0 + b1 Growth
(the letters should be Greek but I don’t know how to change the font in the comments).
Where d Unemployment is the change in unemployment rate, where b0 is 0.83 and b1 is -1.77.
If growth is 1% then it calculates the change in unemployment as:
0.83 – 1.77 * 1
In this case a deduction of 0.94%
If growth is zero then unemployment is increased by 0.83%.
If this were included in the model you were using then I would not have confidence that it represented a good model for the UK economy. This is because I think that if growth is less than 1% the rate of unemployment increases more than this equation calculates.
With coronavirus and the increased discussion of models and modelling we all should be aware that any model is only as good as the information used to create it. Do you agree? Have you ever come across any econometric models where you would reject their predictions because you felt their modelling was not good enough?
Michael
Without knowing how the equation you quote is derived, I’m unable to comment. I have in mind full econometric models such as that used by OBR https://obr.uk/forecasts-in-depth/obr-macroeconomic-model/ and Cambridge http://www.ulster.ac.uk/__data/assets/pdf_file/0020/181505/WP-472-Paper-final.pdf
Models comprise data and equations and of course both need to be reliable. Back-forecasting and other tests are normally applied to validate any model.
Peter
You seem to have gone rather quiet. Either you have a double or this is you https://crawford.anu.edu.au/people/visitors/peter-martin ? If so it appears from your speaker profile at Wall Media, https://wallmedia.com.au/peter-martin/, that you are more supportive of UBI than you claim in this thread? The profile states
Peter Martin speaking topics:
1. What if the right to an income was as basic as the right to vote? The case of a universal basic income for every adult Australian, no questions asked. Overseas trials find it lowers stress hormones in blood, cuts spending on alcohol and tobacco, and boosts incomes years after the trials are over. It would be expensive, but as paid work become more scarce we might have no choice. First we would need to confront our assumptions about the nature and value of work.
I’d certainly be interested in hearing your talk on UBI, but perhaps it’s behind a paywall? Promoting UBI in Oz whilst critiquing it in UK publications strikes me as rather ‘disingenuous’?
Perhaps there would be interest in a debating seminar at Crawford School on UBI, similar to the Festival of Ideas conference we organised here in Bristol last week to which Stephanie kindly contributed the opening plenary? If so, I’d be happy to contribute a paper on UBI funded by sovereign money.
@ Geoff,
There has been a Peter Martin who’s played Test cricket for England. There is one who is an Economics editor for the Melbourne Age. There was even one who flew a plane under Tower Bridge some years ago. All different people I’m afraid!
I made a point on UBI funding on a later thread which you might care to comment on. This is that according to the law of sectoral balances the governments deficit is exactly equal to what everyone else ie the Domestic Private Sector and the Overseas Sector wants to save. Just issuing supposedly “debt free Sovereign money” doesn’t get around the potential problem that you’d have if they didn’t want to save anything.
If trade were exactly balanced and the net savings domestically were zero then you’d have to finance your UBI through the taxation system.
Peter
It’s a reasonable question as to whether you are the author of the piece on UBI I refer to. I’ve already answered your question on sectoral balances.
PS I notice that the other Peter Martin, (definitely not me !) , has offered to write a paper on UBI and “funded by sovereign money”.
Sounds like a good idea. Can I write one too? What’s the going rate?
@ Geoff,
Re. your comment of 3.23pm: I take that to mean that you don’t have an answer so you’re going to claim you’ve already provided it.
Peter
You’ve misunderstood again. I was the one offering a paper on UBI and sovereign money to the Peter Martin at Crawford School, on the possibility that this was you. If not, despite the convergence of your opinions with your namesake, then my offer falls. As for earnings, I’ve never been paid for any publication, and earn zero royalties on my book, so you can buy and read it without worrying about transferring any sum from your balance to mine.
You still haven’t understood my critique of the use of Godley identity as if it were an equation. You are applying a comparative static analysis by stating that if some amount were added to or subtracted from one of the three balances, then it would be added/substracted in the same amount to the other two. In fact, government issue of £1000 to each citizen funded by debt-free sovereign money would need to be worked through an econometric model of all the normal functions (consumption, production, investment, government spend, export/import etc) to determine its outcome, or allow this outcome to be discovered in reality. This outcome would of course obey the identity, but at different values. For more, read my book.
@ Geoff,
There’s a fair bit of nonsense talked about identities and equations. So what’s an identity? It’s something that’s always true and can’t be solved. It doesn’t tell us anything we don’t already know.
For example: Sin(A+B) = SinACosB + CosASinB
That’s always true for any value of A and B
An equation is, for example, A + B + C = 0
Or if we subtract one form the other: ΔA + ΔB + ΔC=0
The Goldley rationship is just this equation.
ΔGS + ΔPDS + ΔFS = 0
So if the govt gives £10k to the Private Domestic Sector we know that the first term goes down by £10k and the second goes up by £10k. I can’t see why anyone has a problem with this.
Peter
Well you’ve so far made 79 posts to my article. I’ve tried to answer each time as fully as possible. You now want to discuss the difference between equations and identities in mathematics. I don’t think this is the place for such technical detail. I have sought to explain my challenge to you and the MMT school in general in treating an identity as an equation. OK, you don’t agree. You are now saying that government money creation will have to be financed through the taxation system. This contradicts MMT philosophy which sees sovereign state money creation without it needing taxation funding. Tax then acts as a tool of demand management, not as a source of revenue funding. I agree with MMT on this.
We need to curtail this process which you clearly see as infinite. We could do this either by your writing an article summarising your own positive views, or by corresponding privately (I’m at [email protected] ), probably with some group review process, or by agreeing a grand finale to this thread where you could summarise your objections and I could post a final response?
@ Geoff,
If you “don’t think this is the place to discuss …equations and identities in mathematics” why did you say I “haven’t understood (your) critique of the use of Godley identity as if it were an equation.”
That’s ‘cos it is an equation and not an identity in mathematical terms! If you start something you should be able to justify it or correct yourself later.
There is no contradiction with MMT. MMT doesn’t say the Govt should always aim to be in deficit. If the private domestic sector is desaving and the overseas sector is running a deficit (ie buying from us more than it is selling) the government sector will not be running a deficit.
It could be possible that the Government is determined to run a deficit at the same time as the other two sectors are keen to do the same. Something will have to give and someone will have to win out but it isn’t a great way to run an economy. The Government should generally try to accommodate the wishes of the other two sectors and at the same time try to prevent inflation.
Peter
No, I’ve made my point with supporting argument. You’ve made yours. We don’t agree. End of story.