When you’ve got friends like this – Part 7 – aka we need Plan C

The UK Observer Editorial yesterday (October 30, 2011) – The economy: we need Plan B and we need it now – was focuses on a so-called Plan B that has surfaced as the progressive democratic alternative to the now failed Plan A which the British government has been ideologically ramming down the throats of its citizens since it was elected in May 2010. Plan B was put together by the UK Compass Organisation and apparently (in the words of that organisation) represents where “where is the left on the economy”. My reaction is that if that is what goes for “left” these days then what do we call “right”. If this is what goes for progressive economic analysis then what happened to progressive. Today’s blog thus continues my theme – When you’ve got friends like this – and constitutes Part 7 of that sequence. The main thing I find problematic about these “progressive agendas” seem to be falling for the myth that the financial markets are now the de facto governments of our nations which becomes a self-reinforcing perspective and will only deepen the malaise facing the world. The essence is if Plan A has failed and Plan B is as outlined by Compass then the world desperately needs Plan C.

The Compass Organisation promotes itself as providing “direction for the democratic left” but my feeling is that the way in which it characterises macroeconomics and, specifically, the way the monetary system operates, will only serve to retard the progress of the construction of a credible and enduring left economic policy position.

I am not attacking the ideals or the motivation of the Compass Organisation. I suspect that there is a high degree of overlap with my own ideals and motivations. But when organisations step into the economic debate and present what are incorrect logical or conceptual arguments which are in no way different to the essential underpinnings of the stereotypical neo-liberal myths then I think they do the progressive side of the argument a disservice – no matter how well-intentioned the authors may be.

That is the basis of my series – When you’ve got friends like this. These self-styled progressive left agendas are based on faulty understandings of the way the monetary system operates and deny the opportunities that a sovereign government has to advance well-being.

Progressives today seem to be falling for the myth that the financial markets are now the de facto governments of our nations. It becomes a self-reinforcing perspective and will only deepen the malaise facing the world.

The Observer Editorial is similarly mislead and chooses to rehearse the Plan B in an uncritical manner. Again this serves to reinforce the arguments that progressive will have to refute in order to create an educated space to develop the alternative policy framework which appeals broadly to the intuition of the voting public. At present that public is so consumed by neo-liberal constructs that a mass education campaign is required to debrief the voters. The motivation for my blog is to provide a little bit of progress towards that goal.

I was a speaker at an “alternative” conference in Sydney on Saturday. I see these functions also in terms of my role as an educator. In this case, the participants were broadly well intentioned with solid democratic values and a penchant to redress societal ills and advance equity and inclusion.

But a strong shared sentiment among this group (which I detect among the Occupy movements around the world) is that they are demanding governments to balance budgets, the banks to be prevented from issuing credit and the economy to be returned to a gold standard with fixed exchange rates. That would be the more moderate “progressive” desire.

The more vocal “progressives” want local currencies to spring up and run parallel with national currencies and to “share the unemployment” by cutting the wages and hours of work of those currently employed and introducing income guarantees.

My talk on Saturday was that if they pursued these policy agendas they would deny the economy the capacity to deliver progress towards their aspirations and goals and would be playing right into the hands of the power elites.

I argued that progressives have to come to terms with the fact that currency-issuing government sector has to be at the apex of the monetary system if they want to achieved goals such as full employment and equity (recognising broadly defined concepts of productive employment).

The challenge is to ensure the citizens control the government they elect not the financial and corporate elites. The elite capture of our governments is the problem not the existence of government as a monopoly issuer of our currency.

On the “sharing unemployment” point there was a strong sentiment expressed by this group (and I have heard it regularly at like functions) that people should work part-time and re-connect with higher order values. I am happy that people can find contentment by adopting a low material standard of living and reduce their reliance on paid work for their sense of being and welfare.

But to impose that choice on everyone is draconian and that is why I advocate there being enough work made available to satisfy the preferences of the workforce. By adopting notions such as “sharing unemployment” we essentially acknowledge the neo-liberal constraints that politicians have voluntarily imposed on themselves by which they deliberately choose to suppress aggregate demand and thus run the economy lean of working hours.

Why would we want to accept that artificial constraint which plays into the hands of the power elites who desire some surplus labour to keep wage demands under control. This is one of the reasons the distribution of national income has swung dramatically away from wages towards profits over the last two decades in many advanced nations.

The real income that has been redistributed to profits away from wages has provided the wherewithal for the spectacularly obscene executive salaries that have emerged over this time and the “casino chips” for the financial sector to play with at our collective expense.

The reality is that only a small minority will adopt the ascetic lifestyle and “sharing the unemployment” would only inhibit the happiness of the majority. Full employment is the best way to rebalance the labour market towards a more equitable collective bargaining environment.

My view is that we have to eliminate unemployment not share it.

So that was background. I read the Compass Plan B report after I had returned from the workshop in Sydney and just thought – not more of the same.

First, on points of agreement. It is clear that Plan A is not working for Britain. It has sabotaged the emerging recovery and on many fronts – unemployment, consumer and investor confidence, real wages, household income, real GDP growth, manufacturing activity, housing etc – it is failing. The most important economic indicators are all suggesting the British economy is heading backwards and will continue to languish for some years to come.

Eventually it will recover – but from a level that is both dire and unnecessary. A government cannot argue that its austerity strategy has been successful when growth eventually emerges if along the way it has left a trail of damage. I realise this is the sort of nonsense that is now being used to justify the Irish austerity plan. Ireland will grow again – but from what base?

Plan A has to be rescinded immediately. It is as the Compass Organisation says:

… an act of economic sado-masochism …

If I had have included the full quotation where they made that judgement you would begin to see the problem immediately.

They talk about the need to get the “structural deficit” down in Britain and use terms like leaving “the public finances in a worse state than ever by 2015″. So an uninformed but intelligent reader would be perfectly within their rights to conclude from this that budget deficits are bad and larger deficits are worse.

Modern Monetary Theory (MMT) tells us that there is no meaning to terms like “deteriorating public finances”.

First, the movement in the budget balance does not send a clear signal about the discretionary choices of government. That is because of the operation of the automatic stabilisers which lead to budget deficits rising as tax revenues collapse and welfare payments rise during a downturn in economic activity. So in this case a rising budget deficit will signal undesirable economic developments – rising unemployment and falling economic activity.

But the budget deficit might also rise as a result of the government expanding their discretionary spending to support the desire to save in the private sector. In this case employment growth might be strong, unemployment low and the economy close to capacity. That situation would signal a virtuous conjunction of events.

So the ambiguity is clear – and should disabuse us from focusing on the budget outcome per se. It is the real economy that is of importance and that should always be the focus of our attention.

Second, and in that context, the Compass Organisation displays no understanding of the concept of a “structural deficit” other than it is what is left after you take the cyclical (automatic stabiliser) component out of it.

The section of the Report (Section starting Page 11 – “Cyclical or structural deficit?”) could have been written by a moderate mainstream macroeconomist. It recognises that “public finances are affected by the business cycle” as noted above and that the “structural deficit is the size of deficit that the UK would be running if the economy was operating at full employment”.

All economists will agree on that no matter what their ideological or theoretical position is.

Please read my blogs – Structural deficits and automatic stabilisers and Structural deficits – the great con job! – for more discussion on this point.

But then we read:

… before the Great Recession of 2008, the UK economy was running a small structural deficit of around 1% (excluding investment spending, which is vital for generating future growth potential). In retrospect this was unwise, as was the preposterous claim that ‘boom and bust’ economics had been abolished, and the UK would have weathered the Great Recession better if the public finances had been running a small structural surplus.

So you can see the Compass Organisation is trying to distance themselves from the mainstream by rejecting the “Great Moderation” rhetoric (the “business cycle is dead” rubbish) that was an increasingly popular view among economists in the decade before the crisis and which justified the claim that the only reasonable role left for government was to dispense with fiscal policy tinkering and, instead accelerate microeconomic reforms such as more deregulation of labour and financial markets.

Please read my blog – The Great Moderation myth – for more discussion on this point.

But then consider the view that “a small structural deficit … was unwise” and that a “small structural surplus” would have allowed the UK to weather “the Great Recession better”.

Recall that the UK was running current account deficits throughout this period, which means the external sector was draining demand. Additionally, the private domestic sector was increasing its levels of indebtedness significantly over this period as the speculation of housing prices dominated the economy.

The UK economy also did not achieve full employment during this period. The collapse in the British economy was not due to the small budget deficits (whether they were structural or not is debatable).

The collapse occurred because the private credit bubble burst and households and firms began the long journey that will be necessary to restore the health of their balance sheets.

Given the economy was not at full capacity at the time the bubble burst the deficit can hardly be seen to have been pushing aggregate demand too fast. The problem was that private demand was being driven by credit growth and less by real wages growth. That was always going to be an unsustainable growth path.

Had the government been restraining the growth process via structural surpluses (that is, imparting fiscal drag on spending) then the crisis would have been deeper more quickly once the private domestic sector started to constrain their spending.

This also puts the proposition that a prior budget surplus would have allowed the economy to weather the crisis more easily. That is absolutely false. It would have made the crisis worse.

A sovereign government such as exists in Britain has no revenue constraints because it issues the currency. It can always respond to the need for increased public spending whether it has been running prior deficits or surpluses. Prior surpluses do not increase its capacity to spend in the future.

That proposition is a basic neo-liberal myth which is based on the erroneous government budget constraint that is the centrepiece of mainstream textbook chapters on fiscal policy.

It gets worse though.

The Compass Report says:

The UK is not ‘on the verge of bankruptcy’ as George Osborne and other adherents of Plan A have claimed.

That is exactly correct. George Osborne and David Cameron lied to the British people when they said that. Repeatedly lied. The justification for the fiscal austerity (Plan A) which the British government has sadistically imposed on the economy has as much credibility as the lying stories about WMD that were used to justify the invasion of Iraq. The UK were also party to that disgraceful abrogation of democracy (in the nations that invaded!).

So what is the problem? Here is the logic the Compass Report uses to justify that correct assessment:

First, any business would accept that running a debt to pay for investment spending, which can produce returns later, is totally acceptable – indeed it would be bad economic policy not to invest in such circumstances. Similarly, deficit-financed government investment spending delivers returns to the economy later on … Second, the vast majority of the current public finances deficit and the increase in the national debt has been caused by the severe economic recession of 2008–2009 … and was therefore largely unavoidable.

Comparing a sovereign currency-issuing government with a financially-constrained private corporation which has to “use” the issued currency indicates a lack of understanding of the difference between “issuer” and “user”.

The government budget constraint literature is based on this miscontrual – it claims that the government budget is just like a household budget only larger. Neo-liberals claim that governments, like households, thus have to live within their means.

When British Prime Minister David Cameron said that the government deficit is just like credit-card debt and that Britain was facing bankruptcy, he was invoking the false neo-liberal analogy between national budgets and household budgets. This analogy resonates strongly with voters because it attempts to relate the more amorphous finances of a government with our daily household finances.

We know that we cannot run up our household debt forever and that we have to tighten our belts when our credit cards are maxed out. We can borrow to enhance current spending, but eventually we have to sacrifice spending to pay the debts back. We intuitively understand that we cannot indefinitely live beyond our means.

Neo-liberals draw an analogy between the two, because they know we will judge government deficits as reckless.

But the government is not a big household. It can consistently spend more than its revenue because it creates the currency. Whereas households have to save (spend less than they earn) to spend more in the future, governments can purchase whatever they like whenever there are goods and services for sale in the currency they issue.

Budget surpluses provide no greater capacity to governments to meet future needs, nor do budget deficits erode that capacity. Governments always have the capacity to spend in their own currencies.

The Compass Report in this regard would leave an uninformed reader indifferent between their narrative and the standard neo-liberal explanation of debt.

The reality is that a sovereign nation like Britain can never become bankrupt for financial reasons – that is, an inability to service their public liabilities. A crazed government might for political reasons choose to default but that would be unrelated to their underlying capacity to always be able to spend.

There is no solvency risk entailed in rising budget deficits and accompanying public debt buildup for Britain. That is the message the progressive agenda should be hammering home as part of a re-education process.

Not that it is okay to borrow sometimes because just like a private company it is normal to pursue a rate of return.

It would also be okay to borrow and burn the funds if the government wanted to! I don’t advocate that but there would be no solvency risk in doing so. Public education has to provide valid information.

The Compass Report is not the slightest bit progressive in its narrative or construction.

Another claim is that the current British government deficit equivalent to about 10 per cent of GDP is “structural” because:

… the recession was so deep that it permanently destroyed productive capacity, particularly in the financial services sector, which had contributed large amounts of tax revenue in the run-up to the crisis, and then required huge bailouts during the crisis itself – amounting to over 100% of annual GDP in 2009 according to calculations by the IMF.

The collapse in tax revenue was cyclical. In the next paragraph they somewhat confuse the reader by referring to a Cambridge academic who said that “a careful reading of the evidence suggests that at least some of the so-called structural deficit is actually a particularly acute cyclical deficit – the economy is operating well below full employment and full capacity utilisation, largely because spending cuts in the UK and elsewhere in the global economy have reduced demand”.

So what is it – structural or cyclical? But moreover, why concentrate on the headline figure? We know that a budget deficit of 10 per cent of GDP at present is inadequate because of that ” the economy is operating well below full employment and full capacity utilisation”.

Why not just concentrate on that rather than making the deficit outcome the topic of the conversation. As an educational construct, the focus on the structural-cyclical issue is misleading.

It gets worse.

Under the section entitled Interest rates, austerity and the ‘bond vigilantes’, the Compass Report correctly criticises the current British government for claiming that:

… the deficit has to be reduced as a matter of urgency … otherwise we will face action by the ‘bond vigilantes’ in the market for the UK’s sovereign debt.

The Report then proceeds to discuss Eurozone issue and claim that imposing “savage austerity measures – involving huge spending cuts and tax increases in an attempt to eliminate the structural fiscal deficit – has actually made the interest rate problem worse”.

Yes they have but what has that got to do with Britain which operates within a totally different monetary system where the national government issues the currency in use (rather than use a “foreign currency” as the member EMU nations are forced to do) and has no intrinsic dependence on the international bond markets?

When an analysis conflates two very different monetary systems – which provide very different opportunities and impose very different constraints on governments within them – you can conclude that these differences are not well understood.

Mainstream economists continually make this error. The US, Australia, Japan, Britain and most other nations (even South Sudan) do not operate like the EMU nations.

Please read my blog – Who is in charge? – for more discussion on this point.

Which makes a mockery of the Compass Report’s attempts to be “reasonable” when they say:

This is certainly not to say that deficits can be ignored completely ad infinitum, or allowed to explode upwards uncontrollably … While the UK has not (yet) been in any danger of attention from the ‘bond vigilantes’, this is largely because as a country with our own currency we have been able to undertake a substantial devaluation to keep our exports competitive – which is not an option open to Eurozone members. But over the next few years it is much more likely that extreme austerity will result in a sovereign debt crisis for the UK than that such a crisis will be caused by high levels of public debt.

It is true that the British economy has a flexible exchange that can respond to trade imbalances in a way that the EMU nations individually cannot. But the depreciation of the pound is not the reason the bond markets cannot get enough of British government debt.

The reason lies in their observation – that Britain is “a country with our own currency”. That is the reason. There is no solvency risk because the British government issues its own currency.

That is where the public education emphasis should lie.

Which then makes the last claim that Britain will face a greater “sovereign debt crisis” under austerity than otherwise to be total nonsense. The capacity to issue their own currency does not necessarily stop the private bond markets from taking negative positions on the government’s debt. It usually will mean that the bond markets will desire as much of that government’s debt as they can get (other things equal).

But what it ultimately means is that the government (consolidated treasury and central bank) always have the capacity to deal the private bond markets out of the equation should they become problematic.

In the EMU, no single member state can do that. Only the ECB has that capacity and is currently demonstrating it every day. The British government can always control yields should it wish to and can, if it chooses, not issue debt at all and still spend.

So unless the government mismanages the situation (by denying its own capacities) then there can never be a sovereign debt crisis in Britain like there is currently in the EMU. Clearly the ECB is demonstrating – not that any of the Euro elites care to talk about it in this way – there is no real sovereign debt crisis in the EMU either. There is a solvency crisis which the ECB could resolve categorically any time it chose.

The fact that the EMU economies are being subjected to vicious austerity measures is a political choice not an economy inevitability. Sure, private spending collapsed. But government spending should have replaced it and the ECB could have funded that fiscal expansion without problems.

They have only started funding the deficits when the inherent solvency risks of the Eurozone monetary system became acute. No such risks exist for Britain and the Compass Report is playing into the hands of the neo-liberals for claiming otherwise.

I am running out of time today so I will only consider their Plan B – their so-called “left” alternative – briefly. There are many things I agree with but among the logical inferences there are also some “howlers”.

We agree that labour and financial market deregulation under the neo-liberal policy regimes was excessive and contributed to the crisis in an intrinsic way. Their inference that the collapse of the Bretton Woods system was tied up with the financial deregulation is unfortunate.

The return to flexible exchange rates allowed governments to use fiscal and monetary policy to maximise domestic outcomes (public purpose) with external constraints. It did not necessitate the excessive financial market deregulation that followed. The two developments are not logically connected at all.

Further, while progressives think that fixing exchange rates will somehow reduce damaging speculation the opposite is the case. The correct approach to the inherent speculative attacks on a currency are to regulate and/or ban financial transactions that do not contribute to real gains in the economy. So the problem is not the flexible exchange rates (which free domestic policy instruments) but the lack of financial market regulation.

The Compass Report, however, falls prey to the fixed exchange rate argument:

One function of global governance would be to establish a more stable international exchange rate regime and a mechanism that prevents excessive current account imbalances.

Please read my blogs – Gold standard and fixed exchange rates – myths that still prevail and An international currency? Hopefully not! – for more discussion on this point.

The other short-run policy suggestion under Plan B that is worth noting is their concept of “Green quantitative easing” (from Page 19). They say that:

But using QE to give banks a further £75 billion in the hope that this time they will lend enough to business will be a hugely unproductive missed opportunity. QE should instead have been used to increase economic activity and hence jobs and business opportunities. Without that the policy fails to address the real problem, which for many businesses is increasingly a shortage of sales and not a shortage of capital.

We recommend instead using a large scale package of QE to finance a Green New Deal to make all UK buildings energy efficient. This would help kick start the economy by training a ‘carbon army’ to implement a multi-billion pound, carefully costed programme to fit energy efficiency and appropriate renewable genera- tion equipment to all UK buildings, thus gener- ating tens of thousands of jobs where people live. The savings from household and business fuel bills would be recycled into the UK economy, providing a further badly needed stimulus.

I am lucky I have a full head of hair!

Please read my blog – Quantitative easing 101 – for more discussion on this point.

Then you might like to read the following blog – Building bank reserves will not expand credit.

QE merely buys bonds held in the private sector so as to keep the yields in the maturity segment of those bonds down. The hope was that the lower interest rates would stimulate borrowing.

The central bank purchased bonds and credited bank reserves accordingly. Even the most primitive understanding of the way the banking system operates tells us that banks do not lend reserves – they are used to provide integrity to the payments system.

Further, the restrained bank lending has nothing to do with the banks not having enough liquidity. That is the neo-liberal myth that you will find in chapters on money demand and supply in their textbooks.

Banks can create liquidity at the stroke of a pen. Their lending is never reserve-constrained. Please read my blog – Lending is capital- not reserve-constrained – for more discussion on this point.

Banks will lend to credit-worthy customers whether they be “green” or whatever. If there are viable “green projects” and entrepreneurs who can make an adequate business case around those projects then banks will extend credit.

We do not need QE for that to happen. To think otherwise is to totally misconstrue the way the banking system operates.

If the British government is keen to fund green projects and “improved transport infrastructure and the building of homes on brownfield sites” then it doesn’t need to engage in QE. It could simply credit bank accounts upon HM Treasury’s instructions to the Bank of England and let the deficit increase accordingly.

Conclusion

Overall, I agree with many of the policy proposals put forth in the Compass Report although I cannot understand why they do not propose widespread public sector job creation. I also disagree with several of their policy proposals.

Many of them are very “private enterprise” biased whereas for a green economy I consider the balance between public and private has to shift strongly to the public using more resources over time – providing sophisticated non-carbon services etc.

This blog has thus concentrated on the negatives and I have only highlighted some of the negatives. There are many. But I realise that this approach does not give you much idea of where the agreement lies. You can read the whole Report and make up your own mind. I didn’t have enough time today to write anymore.

But the principle issue is that the economic argument is clothed in the same erroneous monetary constructs that neo-liberals use to attack government. As an educational device the Report – therefore – becomes part of the problem!

That is enough for today!

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    32 Responses to When you’ve got friends like this – Part 7 – aka we need Plan C

    1. Neil Wilson says:

      Will Hutton’s column’s yesterday on this point definitely fall into the ‘friends like these’ category.

      http://www.guardian.co.uk/commentisfree/2011/oct/29/planb-economic-crisis-britain

      Apparently it would work. “For example there is a case for suspending the Bank of England’s inflation target and replacing it with a target for the growth of money GDP – say 5% a year, to be reviewed regularly “. Nothing about enhancing the automatic stabilisers so that 4.8 million people who want work have jobs and an income.

      The worse one is the defence of the Euro project which is just desperate: http://www.guardian.co.uk/commentisfree/2011/oct/30/will-hutton-eurosceptics-euro-reform

      Sadly I think the guy has lost sight of what is important.

    2. PG says:

      “The challenge is to ensure the citizens control the government they elect not the financial and corporate elites. The elite capture of our governments is the problem not the existence of government as a monopoly issuer of our currency.”

      Right. A MMT based currency management will not work for a long time without citizens control of the government.

      The elite capture of the government extended to the capture of citizens minds. People are holding socially suicidal ideas.

    3. Adam (ak) says:

      Dear Bill,

      I still think that they have deliberately chosen a misleading term “QE” to outline a proposal of selling fresh Treasury bonds indirectly to BoE and spending the proceeds by the Treasury to “finance a Green New Deal “. Of course this is not what the original QE was meant to achieve (to replace bonds already held by the private sector / banks with the reserves). In my opinion they want the Government to spend money without offsetting the operation by the “true” bonds issuance (selling gilts to the private sector).

      They would not propose crediting target accounts by the Treasury without any offsetting operations (leading to a direct overdraft of the Treasury at BoE) because this would violate the existing regulations (no matter how stupid they are, they do exist).

      The original proposal and a bit more clear explanation is in link_www.financeforthefuture.com/GreenQuEasing.pdf , the Green New Deal proposal is based on that document. I know that there are at least 2 layers of deliberate obfuscation but this is what they really meant (this looks like “very creative accounting” but done in good faith):

      “Quantitative easing is, when all is said and done, the Bank of England granting the Treasury an overdraft.

      There is, however, a problem in the Bank of England doing that: under the European Union’s Maastricht Treaty it is illegal for the Bank of England to lend money to the Treasury, even when the government wants to do it. So the truth is that quantitative easing simply disguises what is actually going on in a rather complicated fashion.

      That fashion works like this. First, the Bank of England has been issuing bonds to High Street and investment banks, which they buy. These bonds are called gilts in the technical language of the markets, and that term will be used in this report. Those bonds pay for the government’s debt. But because the Bank of England does not want to take money away from the banks for reasons
      explained below, the Bank of England then buys back gilts from those same High Street and investment banks that have bought the gilts issued by the Treasury.”

    4. PZ says:

      Adam, selling bonds and spending proceeds? Governments creates money as they spend. They mark up deposits at receiving banks, and to honour double-entry bookkeeping system, they mark up bank’s reserves by same amount. For some odd reason economists insist on calling reserves government debt. ‘All money must be somebody’s debt’, says MMT dogma.

    5. PZ says:

      And who is this government who supposedly goes into debt to it’s subordinates? It writes constitution, defines property rights, makes private contracts valid, runs police force and courts to enforce laws. It is the very basis of social organization. It even defines monetarty unit, and all ownership rights to that monery unit, and all institutions consisting monetary system. Can such an entity be said to be indebted, even in accounting sense, to its subordinates?

      Since government does not need public’s money, but the public does need goverment’s money, who is indebted to whom? Who goes into debt when government deficit spends? It makes more sense to me to argue that public is borrowing money from the government that they need to make tax payments in the future.

    6. last_name_left says:

      “Budget surpluses provide no greater capacity to governments to meet future needs, nor do budget deficits erode that capacity. Governments always have the capacity to spend in their own currencies.”
      —–

      It’s surely going to take an enormous amount of work to change British public opinion on this, if it’s possible at all. I know from experience that when it’s said the reaction is ridicule and complete dismissal. So, I’m pessimistic anything much can change – although facts and ‘truth’ seem to have a remarkable way of working into consciousness eventually, whether people like it or not. Iraq for example, perhaps?

      Two asides –

      1) I am very cynical about the OWS movement. In the USA support includes David Duke (national-socialism) and even Ron Paul’s Miseian crowd, with no apparent contradiction or argument – because OWS don’t actually stand for anything concrete. IF OWS were to make specific demands they would break into the usual factions we see at elections. The London Occupy St Paul’s (!) crew issued a list of demands – reform of CityofLondon council (population 10,000) was top of their list, followed by reform of CoL police force and abolition of the Royal Mayor! Parochial and trivial imo. Nobody outside London is the least concerned about those things, and I’ve never heard Londoners mention them. It’s become a stand-off with the church, with most debate apparently focusing on how the church is ‘hypocritical’ and – shock! – part of the Establishment. Disastrous state of affairs imo.

      2) On your point about full employment versus sharing employment: I’ve always advocating sharing work, with the proviso that it needs to pay more, not a strict pro rata reduction along with any reduction in hours. Your point is interesting and made me reconsider. However, when you say you are for full employment and that unemployment sharing is a hostage to neo-liberal ideas, couldn’t we argue that your position actually suggests we should abolish weekends off? Or would you say only that people should be allowed to work 24/7 if they wish to? Personally I am drawn to the unemployment sharing aspect because I don’t see unemployment as a bad thing, but instead rather a damn good thing; I’d like a lot more free-time when in full-time work and I believe most other people would too, so long as income isn’t reduced pro rata. And rather than share out the unemployment/time-off in present fashion sharing it more equitably is…more equitable. ;) It seems highly unjust that some (many) people are 100% unemployed. Realistically I don’t see how work/unemployment sharing is likely to put a break on aggregate economic activity – we’d have to be approaching capacity for that to happen, surely, and I just can’t imagine that happening. And if it did, we can progressively readjust the terms of the deal, no? Just a thought.

    7. larry says:

      The BoE is under investigation about the way it handled the financial crisis, led by a Tory minister. Aim supposedly is to make the bank’s deliberations more transparent. May also render it more subject to government control.

    8. gastro george says:

      @last_man_left

      Isn’t the point the difference between voluntary under-employment and involuntary unemployment.

    9. Keith Newman says:

      For last-name-left:

      The reduction of working time is an issue that includes many many facets. The labour movement and social reformers were very active in the 19th and early 20th centuries fighting for the 8-hour day, for instance. The depression of the 1930s gave short work-time a bad name in many circles because it amounted to sharing unemployment on a massive scale. The solution then, as it is today, was to have full employment then let individuals choose based on their personal circumstances and tastes.

      My union conducted hundreds of interviews with workers regarding working-time and the results were somewhat surprising and often contradictory. For example about half of people with children wanted to work more to meet their family-related financial obligations whereas the other half wanted to work less to spend more time with their children! And so on.

      To me personal choice should be allowed to prevail under certain restrictions. I do think there should be limits on working hours hours for health and safety reasons and in order to share good jobs (in the absence of full employment with good jobs). But that is only one issue. Others include length of working life (e.g. early retirement), short hours at the end of a person’s career, and the ability to take long periods of self-financed time off. Perhaps a person would prefer to work hard for 4 years then have a year off to spend with family and friends, but with the guarantee of having their job back. I have done this and found it very rewarding. All kinds of attractive arrangements are possible and should be made available to workers in a structured, thoughtful way.

      In a nutshell I believe that we should aim for full employment, meaning that any one who wants a job can have one, but then make it easy for people to work shorter weekly hours, take long periods of time off, retire early, etc. If less consumption were a social goal then shorter working time could be one element but stringent control of consumerist propaganda, mainly advertising, would also be required. Excessive consumerism is a very effective enforcer of work discipline and the desire for excessive work-time.

      On a related topic you may find interesting a seminal piece from the 1960s written by E.P. Thompson regarding time discipline. The reference follows but access costs money unfortunately. Perhaps it is available free somewhere. It’s a true classic. http://past.oxfordjournals.org/content/38/1/56.citation

    10. larry says:

      @KeithNewman

      The pdf for the Thompson article in Past & Present is: http://homes.chass.utoronto.ca/~salaff/Thompson.pdf

    11. Keith Newman says:

      @Larry,
      Thanks for the free link. Unfortunately it didn’t work when I tried it…

    12. Coises says:

      As a slogan (I’m an American — we love slogans!) “Share the unemployment” certainly leaves a lot to be desired. ;-) I wonder, though, if there isn’t a good idea hiding in there somewhere.

      It does seem to me that the primary order of business must be what Mr. Mitchell has noted in several posts: that the wage share of income needs to rise. My intuition is that this isn’t just a “fairness” issue, but a fundamental instability in a free-market capitalist system, one that must be addressed by something outside that system (e.g., government) to produce a sustainable economy. However, I don’t even come close to having the knowledge of economics to prove that in any meaningful way, so it remains a “hunch” on my part.

      Given that — or, at least, some solution to the aggregate demand shortfall — it seems to me (again, the U.S. is my reference point, so it might be different elsewhere) that it is very difficult for workers to optimize the amount of work they do. Most Americans I see are either unemployed, clearly underemployed, or else they are constrained by the requirements of keeping their jobs to over-work. We “take our jobs home with us”; advances in technology like the Internet and cell phones have done more to keep us “always on” than to make it easier to get our jobs done and get on with our lives. (A quarter-century ago, I observed that word processors didn’t seem to allow secretaries to work fewer hours, they just increased the demand for pieces of paper with words on them.) At least here, most “full-time” jobs are expected to be the centerpiece of a person’s life, in deference to which everything else is squeezed in. For some people, fortunate enough to find work that is truly a life’s calling, that makes sense; for most, it does not.

      So I wonder if we don’t need another “revolution” like the one that brought the 40-hour work-week (which has been slipping for a long time now) to recognize that as productivity increases, standards of living increase, but the amount of work each person needs to do should also be decreasing; and that, perhaps more through workplace norms than through law, the current system is not at all a free market for wage earners, as most have little choice but “all or nothing” in how much of their time and effort to sell.

      This prevents the “labor market” from seeking an appropriate balance without inducing unemployment. It also necessitates ridiculous wastes of human and material resources in projects (i.e., advertising) to unnaturally boost aggregate demand for market goods just to keep even the people who do have jobs employed. Not trying to go all green-touchy-feely on you here, but given more flexible working opportunities and less bombardment with “you are what you consume” messages, I suspect we would (in the aggregate) willingly work less, buy less, beat up the environment less, and be a lot less stressed.

    13. Adam (ak) says:

      PZ,

      “selling bonds and spending proceeds? Governments creates money as they spend. They mark up deposits at receiving banks, and to honour double-entry bookkeeping system, they mark up bank’s reserves by same amount.”

      I do not question this. But the way this would be accounted at the central bank (BoE) would be unbalanced reserves of the commercial bank which has been marked up (a liability of BoE). But BoE also has to obey the double entry bookkeeping rules. So a corresponding asset must be accounted for at the BoE. That asset would be a Treasury overdraft.

      But UK is a member of the EU and signed up to the Maastricht Treaty which explicitly bans overdraft facilities:

      “Treaty establishing the European Community (Amsterdam consolidated version)

      Article 101

      1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as ‘national central banks`) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.”

      (source_eur-lex.europa.eu)

      It is obvious that from the macroeconomic point of view the following is the same:
      1. spending GBP1bln directly by the Government without any offsetting (resulting in the banned overdraft)
      2. flogging gilts worth GBP1bln on the market by the Treasury and then immediately purchasing GBP1bln of gilts by BoE and simultaneously spending an extra GBP1bln (still acceptable as I am not sure whether the UK has to obey any hard limit on budget deficit or the nominal size of the Government debt)

      Look I am a software engineer not a philosopher and what I am really interested in are changes in the numbers in the databases not in scholastics whether a chicken or egg comes first. I agree that from the macroeconomic point of view what really matters is the spending. This injects demand to the economy and allows for the purchase of goods and services. The net effect of spending is exactly the same in both cases.

      I think that it is really sad that these issues cannot be even openly proposed and debated in Europe without adding 2 layers of obfuscation that is providing a dodgy explanation what QE is and then hiding deficit spending by using the term “Green QE”. I remember that when I lived under communism the only way to bypass the censorship in the media was to use similar techniques. Since the EU membership of the UK is a heavily politically charged subject the authors of the proposal have chosen not to offend Uncle Joe and open up yet another front of ideological debate.

    14. larry says:

      @last_man_left
      The demands of OLSX are not trivial. It is a central component of the incomplete democratization of the UK, along with Charles’ ability to veto legislation that intrudes on what he or his officals think are his interests in the Duchy of Cornwall and elsewhere, and the existence of an unelected House of “lords”, which includes a number of members of the CoE clergy. These are all deplorable. The fact that some of the OLSX demands are local does not count as an argument against them. Londoners haven’t mentioned the issues concerning the City because most of them have not been aware of the special status of the City of London, nor are they aware that the City has a special seat in the Commons across from the Speaker. Nor have hardly any MPs any awareness of the legislative veto available to the Prince of Wales should he wish to exercise it, and he has, many times, recently. The existence of this veto has only become general knowledge, even among MPs, very recently.

    15. Adam (ak) says:

      A referendum has been called in Greece.

      Now, the real struggle is to undo the decades of propaganda and convince people in Greece that rejecting the debt “deal” is not only just but is in their best interests – like in Iceland. As a bonus when they leave the golden jail they will be again allowed to call an overdraft an overdraft.

    16. larry says:

      @KeithNewman

      I’m sorry it didn’t work. It does when I click on it. Don’t know what is going awry.

    17. last_name_left says:

      @ gastro and keith newman

      Yes, voluntary aspect is important, and preferable, but at the same time…..you don’t expect ‘the city’ to volunteer to behave socially, surely? Similarly if people could park anywhere they wanted who could get anywhere in a city, for example?

      I suspect few people will voluntarily reduce working time so someone else can have some hours. But for me the real point should be employment for all – as much as is available (and asked for.) So if we want to provide work to everyone who wants to work, maybe we have to prevent some people from working ‘too much’? At least in the short to medium term. Raising pay rates would help a lot. But even then, usually when people get pay rises they want to work even more, don’t they? I think the real goal is to provide work to everyone who wants it, and whilst prohibiting some people from (max) work isn’t ideal….if that is what it takes in present circumstances to provide it…..then that’s what needs doing? I suspect it hasn’t a chance otherwise, though maybe that’s my lack of imagination.

      They tried it in France, with some unexpected results, IIRC a lot of hostility about it. Anyway, it’s perhaps a diversion from the author’s point – I don’t mean to derail the thread, it’s just a very interesting and intriguing topic. Appreciate responses.

      EP Thompson? I’ll look it up – *actually the free source works fine here, thanks. I have read (at least some) of his English Working Class thing (about 20 years ago, I think. Yikes! Time flies.)

      @Larry – re OWS etc. Yes, of course all that stuff has an import – it wouldn’t be as it is if it didn’t. They don’t form and hold those structures just to go Morris Dancing, I’m sure. But one can pick any relationship of power, and point to it as symptomatic of ‘the problem’. The rhetoric – and the need – is of something far greater, more all-encompassing than these demands. Of course the CoL has undue influence, and all the rest of it. Of course the church is hypocritical and part of the Establishment. This isn’t news? And nobody has been complaining about the CoL police force, nor the Royal Mayor nor elections in that single council with a population of just 10,000. These demands just don’t matter to people – they are not going to resonate and they are not going to address anything much on their own. They aren’t fundamental – they’re a symptom, not the cause. Like the church. I’m really quite angry about this thing over the church. I’m an atheist, so my concern isn’t for the church in any religious sense. Rather, why on earth is it any concern of OWS what the church thinks about it all? And why make that the main issue – because that’s what it has become (at the moment, at least). Maybe it will prove to be a tactical masterstroke, but it looks rather more like farce to me. I know this isn’t a popular view, and people take my criticism as a rejection of all that they imagine OWS stands for. I think that’s a (very) bad assumption. But there we are….

      I don’t think we can thank OWS for discovering the PoW has been offered/exercising veto power on legislation. It wasn’t in OWS demands, whilst abolition of The Royal Mayor was. Come on, that’s self-evidently….. well, it’s even funny that they demand it. Monty Python?

      To hear some of the rhetoric of OWS, anyone who knows me would imagine I support it. Yet I don’t at all – instead I am full of cynicism towards it. So I’m intrigued and even fascinated. I hope I am wrong about it, but as I say, I am full of cynicism about it. I’m concerned it will do more harm than good. I think the leaderless stuff is BS. I think the absence of an agenda is BS too. The concerns seem ad hoc and even bourgeoise. The rhetoric is all well and good, but where’s the real content? There’s a sense amongst them that is a revolution, but they can’t say what it is a revolution *for*. So they’re guilty of what they accuse the establishment of – all mouth and no trousers. And of playing to the media. And of being London-centric.

      And they have failed to get mass support. They do have a lot of support perhaps, but there are only a few people there. And why be at St Paul’s? Because it’s next to the Stock Exchange and they weren’t allowed onto the SX property….. Well, err…..why transfer the whole deal onto the church? Especially after the church gave immediate support and protection in the moments it was needed. It just seems absurd to me and now they’ve got into a spat with the CoE whilst the SX is protected by the police. I think they’re missing the target and failing to give people good and serious reasons to get onboard and to get behind an effective and consequential definite agenda. For example, there’s no definite demands about protection of benefits for the poorest, employment and a public house-building program.

      And whilst they claim for themselves the moral and political authority of ‘the 99%’ they fail to show any appreciation that the 99% voted in such fashion as to elect a Tory party on a program of austerity. Yes, British democracy is imperfect but every form is. The election was only 18 months ago yet apparently the 99% are dissatisfied and, according to some, have been cheated out of what they voted for. Well, sorry, but it was obvious what the Tories were going to do, and people elected them with that in mind. One may think people are stupid to do so – I do. But we have to respect what people want, don’t we? The options at the election ranged from communist to fascist – turnout was up – and the Tories gained the most votes.

      I say Occupy the Voting Booth, not St Paul’s.

      In New York, scene of the main OWS thing…..there was an election in September. The main parties, which OWS corruscate as representing a failed system, garnered 60,000 votes. The socialist candidate got 300. This is the true face of the 99%. In UK the fascist BNP got 560,000 votes (no seats.) The Trade Unionist and Socialist Coalition got 12,000 That’s what the 99% means, not what these people outside the church are saying.

      Oh, I’ll shutup! :D

    18. joseph berg says:

      I have read many of Bill’s blogs where he emphasizes that reserves do not constrain lending nor can they be lent out — never a kind word for (excess) reserves. PZ says they serve ” … to honour the double entry bookkeping system …”. In today’s blog Bill postulates ” …. if a bank sells bonds to the CB ..and thereby increases its reserves …. “. Why would a bank sell bonds in exchange for the opportunity to ‘honor the the double entry bookeeping system”?
      For an elementary student of MMT (me) the significance of (excess ) reserves is unclear. Would somebody please help.

    19. joseph berg says:

      PZ says reserves (…. honour the double entry bookkeeping system ….). Do excess reserves have any other function in MMT ? (I have read many of Bill’s blogs, and what reserves are not — is made quite clear ).
      Would someone please help with my question.

    20. Fed Up says:

      “But a strong shared sentiment among this group (which I detect among the Occupy movements around the world) is that they are demanding governments to balance budgets, the banks to be prevented from issuing credit and the economy to be returned to a gold standard with fixed exchange rates. That would be the more moderate “progressive” desire.”

      balance gov’t budget (OK, no gov’t debt)

      no credit/debt from banks or bank-likes (OK, no private debt)

      gold standard (no, make the amount of medium of exchange equal to what is needed for the economy)

    21. Fed Up says:

      “But to impose that choice on everyone is draconian and that is why I advocate there being enough work made available to satisfy the preferences of the workforce. By adopting notions such as “sharing unemployment” we essentially acknowledge the neo-liberal constraints that politicians have voluntarily imposed on themselves by which they deliberately choose to suppress aggregate demand and thus run the economy lean of working hours.

      Why would we want to accept that artificial constraint which plays into the hands of the power elites who desire some surplus labour to keep wage demands under control. This is one of the reasons the distribution of national income has swung dramatically away from wages towards profits over the last two decades in many advanced nations.”

      It seems to me you are playing into the hands of the power elites by assuming whatever real AS is that is what real GDP should be.

    22. Min says:

      “The more vocal “progressives” want local currencies to spring up and run parallel with national currencies and to “share the unemployment” by cutting the wages and hours of work of those currently employed and introducing income guarantees.”

      First, I think that “share the unemployment” mischaracterizes the positions of those who advocate shorter work weeks or longer vacations or sabbaticals or early retirement or job sharing, etc. I say positions because I do not think that there is a single one. The Germans apparently have something that could be called sharing unemployment, and it seems to be working better than how things work — or do not work — in the U. S. A. (I do not know about other countries.) People work longer hours in the U. S. than in most other countries, I hear. We might be better off with a shorter work week. I do not think that it can be fairly characterized as an ascetic viewpoint, either. OC, there are those who embrace Voluntary Simplicity, and so on.

      IIUC, Native Americans around the year 1500 worked for about 15 hrs. per week. In modern terms they may have been poor, lacking iPhones and microwave ovens, but theirs was not generally an ascetic life. In fact, colonial children who had been abducted by Indians often preferred to remain with the tribe rather than return to civilization. In those and other hunter/gatherer societies, non-work time is not necessarily unproductive or wasted. It may be devoted to arts, crafts, sports and other community activities that enrich the lives of the participants. In modern civilization people want rather more than the necessities of life, but do we have to work more than, say, 30 hrs. per week to have them? Especially in this era of machines, robots, and computers? There is nothing sacred about the rat race.

      At the dawn of the Industrial Revolution, some thinkers, including, I understand, Benjamin Franklin, imagined a future of general prosperity produced by labor saving devices. To a certain extent, we have such a prosperous future in the developed world, but we still have grinding poverty in the midst of plenty. The prosperity is not very general. Why did that vision only partly materialize?

      One reason, perhaps, is that the so-called labor saving devices do not, as a rule, save labor. Instead, they make the laborer more productive. It is said that the average American owns the equivalent, in appliances, of 200 slaves. (That seems incredible, but I think they are including the ones on stationary bicycles producing electricity. ;)) Maybe so, but in terms of work that is misleading. The cotton gin did not end slavery by replacing slaves with machines. In fact, it prolonged slavery by making it more productive. Has not something similar occurred with the working class? If a machine replaces a slave, the slave is emancipated. If a machine replaces a worker, the worker is fired. The threat, and the reality, of unemployment tends to keep workers’ wages low and thus allow the owners of the machines, aka capitalists, to reap the lion’s share of increased productivity. Apologists for slavery called industrial workers slaves without masters. How much have things changed? In one of their hoaxes, the Yes Men had European business people drooling at the mouth over a proposal advertised as “better than slavery.”

      Now, it need not be that way, nor has it always been that way. But that is how things seem to have been trending in the developed world for decades. If we want general prosperity, plutocracy is not the answer.

      Another reason, which I will not belabor, is the “inheritance” of socio-economic class. In terms of the popular American myth, the playing field is far from level. If your parents did not own the means of production, you probably won’t either.

      Now, guaranteed incomes and minimum wages may not be the best answers to increasing inequality amidst increasing prosperity for those who already have much, but they do address the problem.

      As for local currencies, if the central gov’t will not increase the money supply or will only give money to those who hoard it, what to do? Should we simply close schools, lay off policemen, and cut pay to firemen? Not the best, perhaps, but faute de mieux.

      Such policies need not play into the hands of the power elite. That is one virtue of being small. You can have communities where the local people are able to seize power for themselves. That may come at a cost, one that a country as a whole may resist paying. I find it interesting that the Occupy Wall Street movement is morphing into Occupy Your City movement. Some of these cities are going to change, in ways that the country as a whole could not.

    23. Min says:

      One additional point about local currencies. During the Great Depression, they worked. People could see their value. In our current crisis, where the lack of money in circulation is the key problem, local currencies could demonstrate, by their success, the principles of MMT, and show, by contrast, the absurdities of the mainstream views and the calls for austerity and shared sacrifice.

    24. Fed Up says:

      Min said: “The threat, and the reality, of unemployment tends to keep workers’ wages low and thus allow the owners of the machines, aka capitalists, to reap the lion’s share of increased productivity.”

      But does that require the workers to go into debt or have the gov’t go into debt for them?

    25. Min says:

      “But does that require the workers to go into debt or have the gov’t go into debt for them?”

      Well, what I know is this. During both periods of increasing inequality, the one leading up to the Great Depression, and the one leading up to our current crisis (the Not So Great Depression), the Middle Class went into debt. Whether we chalk that up to imprudence or to necessity or to some other cause is another question. From the standpoint of conventional morality, it was imprudent to take on more debt that you could afford. From a systemic point of view, it was necessary for the middle class to take on debt in order to keep the economy working. Gov’t spending could have alleviated that necessity, no?

    26. Adam (ak) says:

      joseph berg,

      “Bank reserves are banks’ holdings of deposits in accounts with their central bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal funds), plus currency that is physically held in the bank’s vault (vault cash).” (wikipedia)

      Please have a look at http://bilbo.economicoutlook.net/blog/?p=14620

    27. last_name_left says:

      @ Lin – yes, the Luddites and Wreckers? I’m not sure if it was Engels but I remember some evidence claiming there was a sentiment amongst some workers in industrial revolution that they were better off as serfs: at least they had housing and guaranteed work.

      I’m sure I too have seen research suggesting primitive societies spent about 3 hrs per day on ‘production’. It’d suit me! ;)

      The great promise of a mechanised world is surely betrayed because ownership is so limited and all the benefits have accrued to the owners, the workers pay the price in redundancy and thereby become an economic burden….’the scroungers’. If we imagine everything were automated there would be no-one to buy the production as most everyone would be unemployed. I think that clearly shows the problem. The obvious solution is shared/social ownership.

    28. CharlesJ says:

      adam (ak)
      I raised this point about the Maastricht treaty some time ago, and someone replied to me by saying that the UK is excluded from this arrangement as the treaty simply “notes” that it is not the normal practise in the UK – nothing legally enforcable – perhaps you could check if this is true.

    29. Gavin S says:

      Note to the baffled – the demands by the OWS guys for reform of the City of London Corporation are more dynamite than you realise. You should check out the New Statesman article “The tax haven in the heart of Britain” (http://www.newstatesman.com/economy/2011/02/london-corporation-city):

      “There is an institution with a murky history and remarkable powers that acts like a political and financial island within our island nation state. Welcome to the Square Mile and the City of London Corporation… ”
       
      The City of London Corporation is the beating heart of a vast web of secretive offshore tax havens in the British colonial possessions used for all kinds of nefarious financial practices outside of parliamentary oversight. The “square mile” is not under the authority of the elected mayor of London, and its “elected” council is mostly appointed by Goldman Sachs, JP Morgan and the other big investment banks. It is the only British “local authority” to be a corporation with its own police force.
       
      In short, it is the British Wall Street. It is the biggest lobby in our country. It is the heart of the beast.

    30. Fed Up says:

      Min said: “Well, what I know is this. During both periods of increasing inequality, the one leading up to the Great Depression, and the one leading up to our current crisis (the Not So Great Depression), the Middle Class went into debt.”

      I believe you need to add that did not produce price inflation or was used to prevent price deflation.

      “From the standpoint of conventional morality, it was imprudent to take on more debt that you could afford.”

      I believe that would depend on assumptions about the debt and what happens when reality crushes assumptions.

      “From a systemic point of view, it was necessary for the middle class to take on debt in order to keep the economy working.”

      By working, do you mean keep real GDP growing and prevent price deflation?

      Gov’t spending could have alleviated that necessity, no?”

      That depends. If gov’t spending is with debt then …

      savings of the rich = dissavings of the gov’t (preferably with debt) plus dissavings of the lower and middle class (preferably with debt)

      The savings of the rich keep piling up.

      If it is gov’t spending with no bond attached, I don’t believe that is the best way to get more medium of exchange into circulation.

    31. Fed Up says:

      joseph berg said: “I have read many of Bill’s blogs where he emphasizes that reserves do not constrain lending nor can they be lent out — never a kind word for (excess) reserves.”

      Loans create (demand) deposits. The loan gets a capital requirement. The (demand deposit) gets a central bank reserve requirement. The price (interest rate) of central bank reserves could constrain lending by affecting the profitability of the loan (the spread). The price of capital and creditworthiness of the borrower also need to be considered. Central bank reserves can be “lent out” in the fed funds market.

      “Why would a bank sell bonds in exchange for the opportunity to ‘honor the the double entry bookeeping system”?”

      The central bank might overpay for the bond.

      “For an elementary student of MMT (me) the significance of (excess ) reserves is unclear. Would somebody please help.”

      One way to look at it is the debt creation process:

      Loans create (demand) deposits. The loan gets a capital requirement. The (demand deposit) gets a central bank reserve requirement. If there is a positive reserve requirement and is enforced, then more debt would mean more central bank reserves are needed to meet the central bank reserve requirement. If there are excess central bank reserves, then the bank does not have to worry about the fed funds rate rising until the central bank excess reserves are converted to central bank required reserves. That is basically the message of the fed; please produce more debt that performs. I don’t consider that a good message.

    32. last_name_left says:

      I don’t think Shaxson’s view on the CoL (Treasure Island et al) live up to its billing by OWS etc. Even Monbiot got in on it, and it’s the weakest article I have seen Monbiot ever write.

      It’s a tax haven and free of some regulation? But Canary Wharf is just down the road and outside the CoL jurisdiction.

      Of course powerful wealthy interests have influence and no doubt reforming the CoL structure would be worthwhile. But is it the motherlode of all that’s wrong with British/International capital? I don’t think Shaxson successfully makes the argument. Not at all.

      Not to say reform isn’t “a good thing”, but this CoL thing smacks of someone in OLSX having taken over the policy group and sent it off on their own personal hobby-horse – stimulated by a recent read of Shaxson’s Treasure Island, no doubt.

      The fact the Rembrancer sits with the Speaker…..so what? Nobody has shown that there’s anything especially malign about it: no specific examples have been offered SFAIK. So the appeal seems to be one of ‘conspiracy’ rather than hard fact and argument.

      And isn’t it a little bizarre that such “a dark secret” as the CoL which “everyone should know about” (but doesn’t) is top of the list of a supposedly popular reform movement (OLSX), one which is supposedly leaderless? Well how on earth did this “secret” of the CoL make it to the top of the agenda? Reform of the Lord Mayor and the CoL police are such obscure issues nationally and honestly, nobody cares about it at all. So how did it top the list of ‘democratic demands’ formulated by OLSX? This is a clear example of something that really concerns me about OWS generally – the lack of structure and a manifesto means it is open to misdirection and the winds of daily events.

      I mean, assuming CoL were reformed? What changes? 30,000 residents get more of a say in the local authority election; maybe tax revenues will rise (or fall?); the CoL police will become part of the Met; the Royal Mayor disappears. ie conditions become identical to those of Canary Wharf, or any other area of UK. Government policy wouldn’t change, financial regulation would be unchanged, tax system would remain untouched, etc. Reform would be something, but it doesn’t really address much, does it? At least nobody has proven the case otherwise.

      Just my opinion FWIW.

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