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[00:00:30] We stick to our plan with a budget for long-term growth, it delivers more investment,
[00:00:36] more jobs, better public services and lower taxes but dynamism in an economy doesn't come from
[00:00:44] ministers in Whitehall, it comes from the grit and determination of people who take risks,
[00:00:50] work hard and innovate, not government policies but people power. It is to unleash people power
[00:00:58] that we today put this country back on the path to lower taxes.
[00:01:03] Is the Debunking Economics podcast with Steve Keen and Phil Dobbie?
[00:01:08] Well it looks like it's back to austerity for the UK because that's worked so well in the past,
[00:01:15] less government spending, less tax for some but actually not enough to compensate for the tax
[00:01:21] rises that already happened and the bracket creep which is still happening, the fiscal drag is
[00:01:26] called the and he is the fiscal drag queen. One BBC journalist who I'll
[00:01:31] imagine is really called Jeremy Hunt, although he sort of puts into mind a picture that just
[00:01:36] won't go away now. So is the UK budget 2024 the same old mistakes and what would a Steve
[00:01:42] Keen plan for the UK look like? Well look at that this week on the Debunking Economics podcast.
[00:01:52] Well a 2% cut in national insurance payments will create the equivalent of 100,000 new
[00:01:57] full-time workers improvements in IT will reduce the NHS waiting list without really costing
[00:02:03] much more Britain's balance of trade will somehow improve the public sector will become 5% more
[00:02:09] efficient, 5% of what I'm not really quite sure. That was a lot of what smiling Jeremy Hunt
[00:02:15] was promising when he delivered the budget speech in the UK to Parliament. All these miracles
[00:02:20] while staying within the fiscal goals that the UK imposes on itself. It used to have to follow
[00:02:26] the EU's fiscal goals and it so loves the EU, it is sticking with precisely those same rules. So
[00:02:32] Steve, on all of that, well this is a fantasy budget clearly. How much can a government spend?
[00:02:40] I mean even if we know that as we talked about last week there's an unending appetite for bonds.
[00:02:46] Is there a formula in your mind about how much a government should borrow or spend over its income?
[00:02:52] Let's not use that term borrowing. Yeah borrowing borrowing is just the wrong term.
[00:02:56] It's like reading through the voucher document. Everything is about reducing the debt. The whole
[00:03:00] thing was if you were a family who's it. What was it? Was it was in Macauber from Dickensons writing
[00:03:07] the income 94 shillings expenditure 93 and 11 bliss income 94 expenditure 24 expenditure 24
[00:03:19] and 5 disaster and that orientation just reads the whole way through the budget so we'll talk
[00:03:26] about that in more detail. Even actually never do actually deliver this surplus that they're
[00:03:31] looking for but how I'm not quite sure we call it we don't call it debt but anyway the difference
[00:03:35] seems spending over income. Is that what I would have and that is fairly straightforward? It's
[00:03:41] it's I'd want the deficit to be roughly equal to the rate of economic growth then again
[00:03:47] that I've got to put this in context of global warming but we'll get back to that later.
[00:03:52] In rate of economic growth divided by the velocity of money because when you look at
[00:03:57] when you look at what the role one of the fundamental roles the government has is to
[00:04:01] provide the money supply. We live in a mixed-fee and credit economy it's called
[00:04:05] Fee It for a reason because the government can create money by Fee It which is what it does
[00:04:11] when it runs a budget deficit and you would want that money to be sufficient to maintain
[00:04:15] the level of economic activity and monetary terms taking place in the economy at the time.
[00:04:20] So if you're going to grow by a hundred billion dollars of GDP and you mean your money supply
[00:04:27] terms are for twice every year that's totally wrong. Which is the cost of one.
[00:04:32] I mean we're this just saying we're creating 50. Let's just say one so yeah.
[00:04:37] Well that that that confuses people because it sort of says in people you just go straight from
[00:04:42] the stock of money to the turnover of money. Okay what does that say? It was two you're going to
[00:04:47] grow by a hundred billion then you got to create 50 billion of credit, Fee It money if all the money
[00:04:53] growth is in the Fee It money and then you might make that smaller if there was credit growth for
[00:04:58] actually sensible things rather than Ponzi schemes and share by arts and nonsense like that.
[00:05:04] But the fundamental thing is the rate of growth divided by the velocity of circulation of money
[00:05:09] that'd be my target for an economy which was in a tranquil stage of growth or
[00:05:15] that's the rule. Okay so you want the target should not be the usual obsession that
[00:05:22] the Tories have and unfortunately Labor has picked up the same disease that your expender
[00:05:28] should equal your income as the government, your expender should be greater than your income
[00:05:32] as the government. And that is what then enables that what creates Fee It money for the rest of
[00:05:37] the economy to function on. If you don't provide that it's like telling a car you know you should drive
[00:05:42] your car further and faster with less petrol. Yeah exactly so if you don't, so if you don't
[00:05:46] pump that money into the economy then you are just ultimately you are just going to slow GDP
[00:05:50] because there's not the money for the people to spend. So and in fact you can actually see
[00:05:55] this data just to pardon me, something in me but the Fred database does a nice job on this front
[00:06:01] and we economists have given up measuring their money supply because they've never understood
[00:06:05] it properly, they've stuffed up and never behaved the way they thought it would. It's because
[00:06:09] they've got a fallacious idea of how money is created from both the private sector side and
[00:06:13] the government side. But if you take a look at M3, and this is a Fred database, the United States
[00:06:20] Fred database makes it very easy to access this information. It's got a very monetary aggregates
[00:06:27] in their components, broad money in components, M3 for the United Kingdom, that's what it's called.
[00:06:32] I don't, I could try reading out the actual abbreviation. MAB, MAB, MMM301, GBM, 18,
[00:06:40] 18, 189, yes that's pretty easy to remember. Just google it, you'll find yourself in the Fred database.
[00:06:46] What you see is that the rate at the level of the rate of growth of the money
[00:06:49] is apart at the moment and the UK is minus 5%. That's the way to go through the money supply.
[00:06:54] So the money supply is going negative. So we go, and I'll, I'll, you know, with the
[00:06:58] bullet, you have to talk over the real versus normal stuff at some point. But fundamentally there's
[00:07:03] no economy has ever grown while it's had a shrinking money supply. Yeah. And what we've got to know
[00:07:07] is a shrinking money supply and the government is talking about reducing its contribution to
[00:07:12] the growth of the money supply and says let's go grow at the same time. So do you know what that
[00:07:16] concept is? You've just described, and you know, we've talked about this in the past and you know,
[00:07:20] you're breaking down to a public conversation to make it easy. You can't grow if there's not enough
[00:07:25] money. You can't spend any more than you earn, you can't earn any more if your company can't
[00:07:30] pay you more. The, you know, the money has to be circulating, it has to come from somewhere.
[00:07:34] And if the government is pulling money out of the economy because it's trying to control
[00:07:39] spending, then that money is not, it's not coming to you. So the economy slows down. So the idea
[00:07:46] that there's a formula that even, you know, institutions like the Institute of Physical Studies,
[00:07:50] if they could see the sense in all of this, as you describe that it's the velocity of money
[00:07:56] multiplied by the, you know, related to the GDP that you currently have, that becomes, you know,
[00:08:02] the fiscal rule that you apply which is, you know, might be three or five percent growth
[00:08:08] depending on your velocity, velocity, money and what the GDP is. But I mean, that sounds like a
[00:08:13] very credible rule. And yet, you know, the government's been obviously is very much
[00:08:18] on getting public sector borrowing down to zero. It rose, and the thing is they never achieve it.
[00:08:24] So I wonder what, you know, what are you describing? Almost happening by default. So rose to 15% of GDP
[00:08:28] during the pandemic, of course. And now it's about 4%, even by 2028-29. It's down to 1%,
[00:08:37] you know, based on their forecast, their fantasy forecast. And maybe they plan to read zero after that.
[00:08:42] I don't know, but you know, we know we'll never get there. But they're not even expecting to get
[00:08:47] that. So here they are. So even though we say it's a false hope, it's the wrong thing to aim for.
[00:08:52] Here they are saying, but that's what we are aiming for. But by the way, we can't even get there
[00:08:57] anyway. And thank God for that because from what you're saying, if they do get there, then they're
[00:09:02] just going to shrink the economy. But can you go the other way then? Can you say, well, okay,
[00:09:06] we want GDP to go on? Simple way. We'll just create more, we'll just put momentum into the economy.
[00:09:11] That's going to find a home. If you do too much of that, if you go too far above that,
[00:09:15] that ratio that you're talking about, and then presumably the repercussion for that would be inflation,
[00:09:20] wouldn't it? Well, it's actually what I'm wearing more about is the implications on the trade
[00:09:24] deficit because again, likely, you know, the government is focusing on its deficit, but it's not
[00:09:30] the only deficit in the economy. You've got the government deficit, you've got the private sector
[00:09:37] deficit, and you have the trade deficit. And the sum of the whole three has to equal zero because
[00:09:45] you know what falls out of one rises in the other. So if you have a government which is trying to
[00:09:51] run a surplus, that means it's the terminology gets confusing, which a trade deficit is different,
[00:09:58] is not the same thing as the government surplus. But the government by trying to reduce its
[00:10:06] deficit has to increase the deficit of the other two sides. And the only compensating one is,
[00:10:12] and this is what it's confusing to a better trade deficit. If you export more than you import,
[00:10:16] much more, then you can counter the government running a type of tight budget. And that's what you can
[00:10:22] see in the performance of the Nordic countries and a fair bit of the European Union.
[00:10:27] You might be well, would have been created by the government, isn't that being created by the imports?
[00:10:30] Exports. Exports. Exports. Exports. Exports. Exports. I mean, it's the Portuguese.
[00:10:34] Yeah. Now what the UK has of course is massive net imports. It's imports are at the order of
[00:10:39] 90 billion, you know, it's quite a substantial fraction of a continuous trade deficit,
[00:10:47] a balance of payments deficit. And that means you've got to be either you know, issuing bonds which
[00:10:53] are paid in a foreign currency or selling local assets to enable that to continue. So the government by
[00:10:59] trying to reduce its deficit is actually putting pressure on the private sector which either has to
[00:11:06] borrow money from the banks or spend less, unless you have a compensating increase in exports
[00:11:13] which is not happening, you're going to have a lower level of GDP. And this inability to think
[00:11:19] in a systemic sense is what just budget reeks of it because it's all the way through just like
[00:11:26] the thing that I expect farmers government to do when it takes over which is treat the government
[00:11:30] like a house. Yeah, no, it's absolutely no difference to us forever. So when we look at countries
[00:11:34] that have got high levels of exports and in all ways a great example isn't it because here's
[00:11:38] a country that you know, it's still got debt but it's old debt from before, you know, it started
[00:11:43] making money from North Sea oil now obviously it's getting a lot of money from hydro and alternative
[00:11:47] energy sources. You know, and they they do still borrow money but actually the main reason that
[00:11:54] they borrow money is they borrow money because they can get it at a good rate and then they can pass
[00:11:59] that on so they can offer lower rates to consumers into businesses so taking advantage of their
[00:12:04] situation and that had taken advantage of the situation that they are basically a net exporter.
[00:12:10] But something said that they're in a favorable position so that's a problem for countries like
[00:12:15] the UK isn't it? Yeah, it's an it's an decision to go into the directives services exports which
[00:12:21] is made by Maggie Thatcher back under her rule and as a regard you know, it services of the growth
[00:12:27] prospect of the future, manufacturing of a line we're going to become a services powerhouse
[00:12:32] it never works because fundamentally what services were is selling debt to other people and not
[00:12:37] government debt here but private debt. So when you take a look at the what happened around that time
[00:12:43] private debt in the UK used to run it about 60% of GDP and from 1980 on it rose from
[00:12:52] about 58% looking at a charter obviously to 184% and over that period of time government debt was
[00:12:59] declining and the government's congratulating itself for it then the turn right occurred and guess
[00:13:04] which year 2007 the beginning of the financial crisis government debt then exploded from
[00:13:10] about 44% of GDP to 140% a lot of the peak being reached during the the pandemic but that the reason
[00:13:20] that the government debt fell was rising private debt again they've got to think in a systemic
[00:13:25] sense and now the reason that though the government debt is rising is private sector debt reached its
[00:13:30] peak and and and you know a Ponzi scheme collapsed fundamentally a global Ponzi scheme and now I've got
[00:13:38] very weak private so private money creation and so the government's forced into the gap whether it
[00:13:44] wants to or not so we have a you know again it's the failure of thinking in a systemic way
[00:13:51] and then imposing non-systemic systems thinking on the system by trying to reduce your
[00:13:57] debt you're reducing your money creation you're forcing the private sector to do more with less
[00:14:02] which sounds rather malice and fails yeah well it's all about doing more with less which obviously
[00:14:09] is a very conservative way isn't it's like yeah let's make all money with their parts of the
[00:14:14] poor for sure absolutely so they want to do more with more when you talk about the rematch so this
[00:14:20] systemic thinking this systematic way of looking at it then if you are a country like the UK where
[00:14:25] you don't have high net exports you know you've got a trade deficit then the only way as you say
[00:14:34] to get extra money pumped into the economy is coming from the government and is there a problem
[00:14:38] with saying that if everyone's saying you know Norway and the UK both say look we'd like 4% growth next
[00:14:43] year Norway says well that's fine because we sell a lot so we're going to we're going to hit that
[00:14:48] target without the government spending very much and the UK says well we don't sell anything overseas
[00:14:54] these days so what we'll do instead is we'll get the government to spend to create that
[00:14:59] extra money into the economy it's the UK disadvantaged in any way from that situation
[00:15:04] it's just a vantage route we're starting from the trade deficit situation I know that this puts
[00:15:08] me completely out of step with an MMT argument here and this is one time I'm happy to be out of
[00:15:12] step with an MMT because they argue that exports for a cost and imports are a benefit
[00:15:18] that's the level one they use so I think that's contradicts their arguments about the creation of
[00:15:22] money overall it's but it emphasizes the physical rather than the monetary side of things
[00:15:31] and when you have a government if you are continuously in a trade deficit and you are not
[00:15:37] the reserve currency for the planet then at some point you're going to be forced into devaluations
[00:15:43] or asset sales and so on so you have to be careful your government money creation doesn't
[00:15:49] supply it doesn't spark a huge level of imports and that's what I see is the constraint
[00:15:56] not the government did it so what it does you're the critical balance you can't control as much
[00:16:01] as you can the others which is the trade no that's the situation so if you've got yeah I tell you
[00:16:05] point so if you're not making anything and the governments as well okay that's easy you will
[00:16:09] compensate for all of that because we'll create all the money that would have come from exports
[00:16:14] people many people's bank accounts they go well we don't make any money we've got to buy
[00:16:17] everything from overseas so the CCC starts buying back yeah so you want to do as much as you
[00:16:22] can to make sure that it's been on domestic goods and again this is one of Keynes' arguments too
[00:16:27] that a major reason for wanting to design the bank or for international trade was to reduce the
[00:16:34] size of trade deficits then we had Milton Friedman's magical money arguments which were totally
[00:16:41] fallacious. Milton Friedman did at least argue you know that we've got to take into account the amount
[00:16:48] of money yeah he understood how money is created completely and that the whole idea helicopter money
[00:16:54] argument effect of he says the central bank creates the money by dropping it into the economy
[00:16:59] the way the government creates money is by spending more than it gets back in taxation it does not
[00:17:04] borrow this is the most frustrating thing about reading this bloody document it doesn't borrow
[00:17:09] it sells bonds yeah equivalent to the deficit is run and the funds that are used to buy those bonds
[00:17:14] by banks in the first instance which is when the bill bonds are first sold that money those
[00:17:19] those funds are the balancing item on the banks the the the ledger of the private banking sector
[00:17:27] the asset side their reserves rise the reserves rise equivalent to the increase in the size of private
[00:17:34] sector bank balances because when the government spends more than it takes back in taxation
[00:17:40] it's injecting money into private deposit accounts that is balanced as said by reserves rising
[00:17:45] reserves didn't use to earn interest and can't be traded when the government offers bonds for sale
[00:17:51] it's actually an asset swap it's not a not a borrowing at all so that the whole that's what drives me
[00:17:57] crazy about reading this and everybody in MMC world as well finds it just ludicrous to see this
[00:18:04] you know in partial analysis which treats the government as if it's a household and it with households
[00:18:10] by definition can't create money unless they're running a counterfeiting scheme the government
[00:18:15] is supposed to do that it's what a fee at currency issue it does well this is yeah and there's a
[00:18:20] tail in here which really demonstrates that table 1.1 changes in borrowing since November 2023
[00:18:27] and it's got the line saying okay this is the change in debt interest spending which was
[00:18:32] since November 23 so it's got the debt interest for this year is minus 11.5 this is in billions of
[00:18:40] pounds for this coming year minus 16.2 billion 2025 to 26 minus 14.7 billion and so on
[00:18:51] so all of that you know it means that there's you know the net position of the government is
[00:18:56] so what do you do well you obviously have to cut spending so welfare spending next year
[00:19:02] to help compensate for that increase in interest spending welfare spending is down by 1.4 billion
[00:19:09] the year after it's 4.6 billion the year after that is 3.3 billion 2.6 billion the year after that
[00:19:15] so you know here we are with the country on his knees national health service you know
[00:19:20] waiting lists huge people you know people going to food banks the response to all of that is because
[00:19:26] we've got all this extra debt interest we've got to spend because you know we're passing money onto
[00:19:31] the next generation we need to cut on that welfare spending and that's just totally wrong because
[00:19:35] it's just saying that debt interest spending is actually an injection of cash into the into the
[00:19:41] economy yeah yeah it's on the balance sheet really it's completely wrong headed thinking so
[00:19:47] that's what's so frustrating about reading it but on the other side in terms of what you
[00:19:52] if you want to impose a limits on government money creation it's it's just the first of all
[00:19:58] avoiding avoiding inflation which is one the element that MMT always acknowledges but well they
[00:20:03] don't acknowledge and this is what my point of reference you don't want the government boosts
[00:20:08] to a cause the increase in imports because that is what ultimately weakens a national economy
[00:20:14] uh yeah and all the arguments in the classical make about comparative advantage and how you
[00:20:20] best to specialise which is what pretty much stood by specialising in services 40 years ago under
[00:20:26] that share is not born up by the empirical data when you look at it when I'm when I when I
[00:20:30] what I what I'd be using as a guide to saying what the industrial policy should be for the UK
[00:20:35] which is something that the budget has some impact on it would be the Atlas of Economic Complexity
[00:20:41] that Harvard University maintains it that's a sheer data analysis unfortunate restricted
[00:20:46] just to imports and exports as the data source rather than total production because they use
[00:20:51] what's called the SITC database of of trade classified by different product groups but you take
[00:20:56] a look at that and and and that fundamentally concludes that the more complex an economy is
[00:21:03] the more that it's capable of producing its needs the more resilient it is the more it grows
[00:21:10] and again I've got to come back and put the caveat on growth with global warming but the
[00:21:14] itself's efficiency that's actually just a growth yeah and you're easier to get that complexity
[00:21:20] if you've got a big population so 65 million people it's easier for the UK to do that than for
[00:21:25] Australia to do it for example yeah and then that's one reason why the UK is up at the you know
[00:21:30] it's in the it was number four in terms of the measure of economic complexity the Atlas puts out
[00:21:34] as now number eight in fell as well as twelve during so but it did strenters you don't want to be
[00:21:40] losing that high position if you have an economy which can produce the vast majority of what it
[00:21:44] needs and that's what gives you the rating of complexity uh and that means a capability to produce
[00:21:50] anything so demand rises you can absorb that domestically rather than demand rising you end up
[00:21:56] importing yeah and cancels either in designing the bank or was to avoid that situation of excessive
[00:22:01] trade deficits and part of Milton Friedman's nonsense was that when we deregulate and uh
[00:22:07] the private financial sector and we float all currencies as well getting away from fixed exchange rates
[00:22:12] price adjustments exchange rates adjustments will take care of all the imbalances and let me
[00:22:17] no trade deficits and no trade surfaces well can I say bullshit on this program yeah we often do
[00:22:23] I do I do what has happened of course we've got countries running you know 10% of GDP's
[00:22:28] surpluses and others running you know five and six percent of GDP deficits um it isn't there's no way
[00:22:35] that price adjustments have taken care of that so you've got the same dilemma can try to address
[00:22:41] and that's one of the dangers so that you don't want uh a boost government spending to cause
[00:22:46] the increase in imports and weaken your economy on the trade on the trade balance balance
[00:22:50] supplements right I've been really just faced a risk with that because this strategy well it's not
[00:22:54] a strategy is it there's no there's no way trying to feed you mentioned the idea of an industrial
[00:22:59] strategy there's absolutely no mention of strategy in this document at all we're a bit late taking a
[00:23:03] break but I want to talk about that when we come back see you deep in your economics podcast
[00:23:06] me and Steve back in a moment
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[00:24:11] this is the debunking economics podcast with Steve Keane and Phil Dobby
[00:24:22] so we've talked about state high pool in the balance of trade is because this year imports
[00:24:28] by 14.6% exports only up 9% in the UK so the situation is getting worse but next year according to
[00:24:37] the forecasts and miraculously of course this helps the figures in the budget a miraculous turn
[00:24:43] around imports will be down 0.4% will be actually buying less in the UK from overseas and exports
[00:24:51] will be up half a percent and exports just increase after that amazing whilst imports don't
[00:24:58] increase by anywhere near as much so we've got this fantastic turnaround which is great isn't it
[00:25:04] because this is exactly what Britain needs to do you know for the reasons that we've been talking
[00:25:08] about if it can get money coming from overseas it doesn't need to have the government create
[00:25:12] quite so much it's got a it's got a healthier future it's got a growing economy and we can all
[00:25:18] look forward to that are there anything that isn't mentioned obviously is just the small point of
[00:25:23] you know are we going to do that yeah this is table 1.2 for those who are wondering on the document
[00:25:30] and like it's quite crazy when you compare the actual numbers you know 9% increase in exports
[00:25:36] in 2022 and 14.6% imports and then the next year it's minus 0.5 and minus 1.4
[00:25:45] yeah um and then you just say that the one the one the one's happening wonder how he's doing
[00:25:48] they must have a plan he just forgot to mention it and yet this is some Tories I've
[00:25:53] seen they've got a large amounts of money they could probably sell the Tories for a large amount
[00:25:56] on the open market yeah maybe that's it maybe maybe maybe it's going to be so much for the next
[00:26:00] election choice Johnson speaking second that's actually going to be coming economy yeah yeah yeah
[00:26:05] but I mean that's from what you know from what you've been describing this is pretty fundamental
[00:26:08] and yet it's sort of glossed over well it's the thickness of the fantasy figures I mean
[00:26:14] I mean it was a yogi barrier said it's very hard to make predictions especially about the future
[00:26:19] so I have a certain sympathy with this but the numbers you just look at them and think hey what's
[00:26:23] going what's going on here so they've got consumer price inflation 2022 as 9.1% 7.3%
[00:26:31] for 2023 which is pretty much Asian then it's 2.2 1.5 1.6 1.9 2.0 out of 2028
[00:26:38] and this is just the fantasy numbers of a neoclassical economic model turning up because they basically
[00:26:44] see the center of gravity of inflation being 2% so it adjusts towards that and all the other
[00:26:49] numbers most likely are driven by those expectations about inflation which are put into this by
[00:26:55] the economist running the treasury it's a fantasy document which should really be submitting it as a
[00:26:59] script to Hollywood yeah exactly no they wouldn't buy they wouldn't buy they go now we've seen this one
[00:27:04] before but we've still got last year's script and the one before exactly yeah no one believes
[00:27:11] it anymore so but yeah that inflation number is not going to come down from what we've been saying
[00:27:15] so if you don't see that balance of trade improving by that miraculous amount and so the government
[00:27:19] is having to pump in more to try and keep the country afloat then that's not going to help
[00:27:25] bring down inflation at all from what you're saying because it's going to be the one thing it's
[00:27:28] going to do it's going to weaken the pound first time yeah and then again it's the incredibly
[00:27:34] partial view of the system and this is again you know system dynamics as well as modern monetary
[00:27:40] theory says you've got to look at all the various integrated sector components of a system
[00:27:46] and the the rule for you know the position for the monetary system is that some of all
[00:27:52] equities are zero you increase your increase in financial if your financial liability is
[00:27:57] increased and my financial assets increase and they precisely cancel each other out so if the
[00:28:03] government is trying to reduce its financial liabilities it's going to reduce the financial assets
[00:28:10] with the private sector and then it's selling the private sector to spend more which will only happen
[00:28:15] at the private sector things are well I've got to follow the government budget here in fact the
[00:28:21] government they like to just spend less which means your GDP is going to fall not in Chris
[00:28:25] well it can't spend more the money's not there I mean I can't spend yeah yeah I mean if you can
[00:28:29] you can spend you can spend more but but you're going to just spend more rapidly out of the existing
[00:28:34] money supply and when you take a look what's been happening at its own yeah largely I think in
[00:28:38] response to the increase in private debt which has been caused by the succession with reducing
[00:28:43] government debt people are more worried about you know you when you borrow money from a private bank
[00:28:47] you do have to pay it back you can't print your own you do face all the risk constraints that the
[00:28:53] budget mythically thinks the government faces and therefore there's less free money around for you
[00:28:57] which was what effectively government money is because yeah it's money that you know spending
[00:29:02] exceeds taxation in the aggregate people see bank accounts increase with no increase in their liabilities
[00:29:09] so for individuals that actually is like debt free money and if there's less of that you've got
[00:29:13] to take on more debt based money and you get caught in a bloody Ponzi scheme yeah and so again it is
[00:29:20] it is highly unlikely people are going to spend more rapidly when the government's creating less money
[00:29:26] yeah they're more likely to spend more slowly so what I'm just not not spending up a GDP goes down
[00:29:32] because they haven't got the confidence in the economy certainly so with the way of course that
[00:29:36] the government can solve all of this problem although it doesn't make any difference actually
[00:29:40] through you know the system you're describing is that they save money by being more productive
[00:29:45] if they do that of course then the problem is that they are not spending as much so there's not
[00:29:48] as much money in the economy but the public service productivity is currently estimated by the
[00:29:54] office for national statistics to be 5.9% below pre-pandemic levels the OBI is suggesting that raising
[00:30:01] public sector productivity by 5% you'll tell me 5% of what because I'm not quite sure what that is
[00:30:07] that's the percentage would be the equivalent of 20 billion pounds in extra funding I mean
[00:30:14] so two things it's not 20 billion pounds in extra funding because that money doesn't exist
[00:30:20] a suspend you know theoretically save but it's not money that's going into the economy
[00:30:24] so no one wins from that and what is that 5% of this will not experience with the Australian public
[00:30:30] service when I've worked for them very briefly I think in the 1980s it's a long time ago
[00:30:36] but this was a trick that was down to reduce the deficit every order
[00:30:41] it literally reduced the deficit you'd have what they call an efficiency target and you presume
[00:30:45] a 5% increase in efficiency every year which meant effectively a 5% cut in budgets every year
[00:30:52] and what did there's no efficiency rise coming out of that is just people not doing things
[00:30:57] I'll give my favorite example of that but when this is my university Kingston
[00:31:02] I had no secretarial staff that was you know when I look at back at my predecessors 40 years ago
[00:31:08] they had quite a bit of secretarial support no secretarial support I had to go to the
[00:31:12] Deans Office to sign a set of forms though because the Deans staff did all that work
[00:31:16] and then there was a reorganization to move the Deans staff to the to the vice chancellor's staff
[00:31:22] so the Deans lost the staff I'd lost my staff already and I started getting his email saying please
[00:31:28] fill out this the expenditure levels provide the expenditure codes and send this document back
[00:31:37] to us what expenditure codes it turned out one of the bureaucrats and the Deans office used to
[00:31:42] against every every spending item record what that item was in terms of the budget allocations
[00:31:50] and suddenly and then she was probably paid about 30,000 25,000 30,000 pounds you get to do it
[00:31:55] suddenly megan 88,000 pounds a year that became my responsibility I said pigs are us I sent it
[00:32:01] back to them but what the efficiency actually means not doing stuff and then passing the cost
[00:32:07] that under somebody else or providing a poorer service yeah so we can we've been experiencing so we
[00:32:11] can exactly we've had efficiency in the NHS service haven't we but having more people die
[00:32:16] because yeah I'm doing stuff I'll have to say right or turn over they looked after my brother
[00:32:20] this weekend I'm immensely grateful I do you you you can't not the NHS when you see the
[00:32:24] action that's the one thing it might have problems at the edges but when he gets to doing the
[00:32:27] important stuff they're still there but they are going to make the NHS more digitally enabled
[00:32:33] and it's going to become the most productive health care system in the world Jeremy
[00:32:36] hand says so there's a there's a big step up let's just go again no actual apart from they're
[00:32:40] going to use digital technology they're going to use AI artificial intelligence because that's
[00:32:44] the that's the world savior to so many things isn't it so yeah until that one sorted out
[00:32:50] and then the big promise a tax cut for national insurance now people outside the UK
[00:32:57] won't quite understand if you you pay national insurance if you work you pay tax based on your
[00:33:02] income and then if you're working you also pay national insurance on your income as well
[00:33:08] that's being reduced so in an additional 2% reduction they say the OBR the office of budget
[00:33:14] responsibility expect that as a result the total hours worked will increase by the equivalent of
[00:33:21] 100,000 full-time workers by 2028 to 29 of which the majority is a further increase in hours
[00:33:29] worked by those already in work so that implies that the average worker is regulating how much they
[00:33:36] work by how much they're taxed and if you reduce reduce their tax by 2% that's going to make all
[00:33:42] that difference and they're going to great so much work so much extra that is going to be the
[00:33:47] equivalent of 100,000 full-time workers none of that sounds plausible at all does it?
[00:33:51] No that's fantastic I know exactly where that's coming from because I'd recommend people
[00:33:56] to have a look and just see how mad the thinking is behind mainstream economics to search for a paper
[00:34:02] called some observations on the Great Depression by Edward Prescott now it's a paper published by
[00:34:08] a Federal Reserve branch in America and it might not sound important Prescott was one of the winners
[00:34:13] of the Nobel Prize for economics Nobel Prize which is not a Nobel but we're going to go there
[00:34:18] for inventing that the type of modeling economists now do. Here's some observations on the Great Depression
[00:34:24] explain the Great Depression has been a fall in worker hours done to maximize their utility
[00:34:32] everything is driven in their model by the desire of workers to work and if you can increase
[00:34:37] the desire of workers to work they will they will give you more output if you reduce it you get
[00:34:41] less output it all comes down to how hard workers are willing to work that is in its brain
[00:34:47] dead thinking it truly is but that's what's going on there thinking that by reducing the tax
[00:34:52] ocean level you'll increase your encourage more working and then people will increase the number
[00:34:56] of hours that they work as if workers have control over how many hours they work in the first bloody
[00:35:01] place this is the level of fantasy involved in all this theory. And yeah companies are the same
[00:35:06] yeah and get if they're working for the government the government is actually going to say well we
[00:35:10] want you to work less because we've got this 5% efficiency dividend. We're going to work on a
[00:35:14] meat so it doesn't stack up. The budget reads like a bad work of fantasy because it is a bad
[00:35:21] work of fantasy yeah and it's all based on neo classical economic thinking which argues that
[00:35:26] workers control the amount of time they put into labor and they also own the firms and we
[00:35:31] won't go there molder just gets too bloody ridiculous but fundamentally saying workers working
[00:35:37] well will cause the economy to grow as we're going to encourage workers to work more how do we
[00:35:41] do that and say I'm sorry workers don't control how much they work the bosses set how much
[00:35:46] you work it's the profitability of the bosses and the investment the bosses are making
[00:35:51] that is likely to change the level of output in the economy and you're doing bugger all to affect
[00:35:55] that now you're not even looking at the industry sectors that you might wish to grow in the economy
[00:36:00] or you're not looking at the weaknesses of the British economy that you want to plug in case some
[00:36:05] disasters come your way and we've got you know there'll be climate change disasters coming through
[00:36:10] and this is with the major point that I'm thinking that I'd want to see in a budget looking at
[00:36:14] the structural weaknesses of the economy for the challenges that lie ahead. We'll come
[00:36:19] out today in a second so I mean the giveaway on that line was wasn't it saying that you know
[00:36:23] that most of it is going to come from increased workers from those people already in workers as
[00:36:26] you say they've got no control over if they if they try to argue that it would actually be creating
[00:36:31] new jobs we might have another question about how that might happen but that would be more
[00:36:35] beneficial perhaps even more plausible the other thing is so there's a thing in the UK called
[00:36:40] ISA's individual savings accounts we've talked about this in the past where you can put in
[00:36:46] 20,000 pounds if you've got a spare post cash a post tax you've got 20,000 pounds to spare loads of
[00:36:52] people have got that of course then you can put that into an individual savings account which gets
[00:36:57] invested in shares or wherever you want to invest it in and the money that you make back is free
[00:37:02] of capital gains so big incentive for you to put your spare cash into shares now the problem is
[00:37:10] of course they're putting it into shares in the United States because everyone is I mean a big
[00:37:15] problem for the whole of the world is everyone's investing in the US share market and everyone's
[00:37:19] seeing it dwindle so here's some numbers from Reuters in sterling terms over the last 10 years
[00:37:24] the FTSE 150 have gained between 13 and 17% there's been a 260% increase over time in the S&P
[00:37:35] and over 400% increase in the NASDA even do you know the NICI in Japan's up 140% and Eurostocks
[00:37:41] is up 62% whereas we're 16 or 13 or 17% in the UK so to get over that problem then there's going
[00:37:48] to be an increase in the amount that you can invest in these ISA schemes you can add an extra 5,000
[00:37:54] pounds per year so you're like 25,000 in spare cash but that extra 5,000 has to go into UK share
[00:38:00] so that'll fix that problem that'll get UK investment going. Oh the one thing that's obviously been
[00:38:05] suffering for the last 40 years is asset prices yeah exactly so that's going to solve that problem
[00:38:11] so and the economy is going to be so much better because of it. Yeah I mean
[00:38:17] what I would be looking at this is why I say I'd like to look at industrial development and so on
[00:38:22] is that one of the biggest weaknesses the UK has its food imports it imports 40,
[00:38:26] apparently 46% of the food the British people eat is imported now that's fine when you've got a
[00:38:32] functioning global agricultural system but I think the days of a functioning global agricultural
[00:38:37] system are higher than numbered given the impact of climate change and we're seeing like for example
[00:38:44] you know that India last well actually year and a half ago now I think banned the export of all
[00:38:50] rice except as muddy rice from India because of a collapse in the Indian rice crops. We are
[00:38:58] likely to see serious falls in food production capability out of global warming no idea when
[00:39:05] but this way the forecasts of what the climate of Europe will be like with an extra two and a half
[00:39:13] degrees of warming and we're currently 1.7 we're ridiculously close to hitting those sorts of levels
[00:39:20] is that it's climate would be like the Sahara. Now if you get a Sahara you can forget about food
[00:39:27] exports from Europe and therefore you can forget about food in UK now the UK actually ends up
[00:39:32] being better finally enough on the rainfall front in continental Europe so you've got a
[00:39:38] capacity to continue agriculture in the UK you better start doing it soon and this vaguely
[00:39:46] to think about what the future dangers are that's what a budget should be about and all of it is
[00:39:52] just obsessed with reducing the level of government debt. The rate of reducing the level of
[00:39:56] outstanding government bonds which is a better way to put it rather than building up the country
[00:40:03] or you know improving the situation of the poor in the country and where to have been made
[00:40:09] to the exam site worse by the last 15 years of Tory as austerity in austerity fails because
[00:40:17] holy this is the other thing I find quite crazy about it. The actual definition of GDP includes
[00:40:24] net government spending you get into consumption plus investment plus exports minus imports plus
[00:40:29] government spending minus taxation. So GDP is part of GDP if you try to reduce GDP to
[00:40:35] G minus C in GDP to reduce your debt level you're reducing both the numerator and the denominator
[00:40:43] and therefore the ratio can rise if the impact of the the current government spending on GDP is
[00:40:49] greater than its impact on reducing your debt level and that will occur so this obsession is
[00:40:55] just totally counterproductive. Yeah it's funny isn't it the answer is there you only need to understand
[00:40:59] one economic formula the simplest of them which is GDP and see oh yeah government spending's in
[00:41:06] there if we reduce that then maybe we're not going to achieve the GDP targets that we want I mean
[00:41:10] that's because you're reducing you're reducing you're trying to reduce the ratio you know
[00:41:15] and and and he wanted you to why you can grow GDP to reduce the ratio but you're directly
[00:41:20] reducing GDP by this action as well so it's a crapshoot and most of the time the crapshoot is going
[00:41:26] to lose because of the rate of which money turns over and at the level of private debt. So there's
[00:41:31] yeah so there's no strategy in all of this that's I mean that's the take out isn't it so if he came
[00:41:36] and satan he thought and he had that very smug look on his face now you're right Kia Stama
[00:41:42] in the opposition are not going to do anything different they still want to stick by these fiscal
[00:41:46] rules they still want to get borrowing down but sounds I mean that good but at least they have
[00:41:50] said well we know we want to spend money on it on some sort of green strategy which which makes
[00:41:56] sense so what is that kind of entail and food security could well or should well be a big chunk
[00:42:00] of that but also investment in renewables which is all obviously job creation stuff and the money
[00:42:06] to pay for that has to come from them from the government the chunk of it has to come from the
[00:42:10] government and we have to get our exports up as well so we have to be within that deal we have
[00:42:15] to be doing something which Europe wants and so you know that's a strategy isn't it and you can
[00:42:22] so your point is you can fund that strategy so long as you don't get out of kilter with your
[00:42:27] growth in GDP in terms of in terms of what the government spending is because then that's where
[00:42:32] you start again and you're trying to make that worse yeah so you want to make sure that you're
[00:42:36] at the direct very direct way to improve the food production capabilities of the UK and
[00:42:43] and that's I think it's going to be critical at some point if you need to decide not to export
[00:42:47] rice you don't want to mirror current Russia and Ukraine deciding not to export wheat and then
[00:42:52] suddenly whether you get your wheat supplies you know where do you make your buns you don't
[00:42:58] and you don't want to be in that situation but it's quite likely to apply to any country with huge
[00:43:03] vulnerability and the UK has almost top of the list on that sense in terms of the extent to which
[00:43:07] it imports the food that it is rather than producing it domestically right so you keep on talking
[00:43:13] about climate change and I'm glad you do and I keep on talking about Europe the other part of
[00:43:17] the strategy if you're going to have this I mean Europe needs to change but Britain's got to
[00:43:23] get closer ties with Europe as well hasn't it's going to have it has to export more to the people
[00:43:30] just across the English channel rather than on the other side of the world so that needs to be fixed
[00:43:34] up as well with something else which the Labour Party is too scared to talk about
[00:43:39] well yeah so anything else you throw into your into your budget then Steve we've you know
[00:43:43] we know how much can be spent a one one final question on that does this become a point do you
[00:43:48] just assume debt is where it is now so anything else you know if you say well okay from this point on
[00:43:55] and government can spend more than it brings in provided we have this ratio of exports and
[00:44:01] provided with you know it's in relation to GDP growth do you ignore the existing level of debt
[00:44:10] yeah we do they got this is another guy does the existing level of bonds created bonds
[00:44:14] government yeah it's not it's not debt in any sense of the word unless you're borrowing
[00:44:18] and if another currency you're sharing UK sharing bonds in American dollars or euro that
[00:44:23] it that's definitely there because you can't create either of those so yeah it's it is it is
[00:44:29] it's just a ridiculous obsession which is a large part of why the UK has gone backwards for the
[00:44:34] last 25 30 years it's in terms of its competitive power and the general wealth of its population
[00:44:41] and if you know you need someone to decide this just hasn't worked let's change direction
[00:44:47] but need the labor and all liberal a day and all its conservatives seeing capable of doing that
[00:44:51] yeah we need someone else Steve to do it and not quite sure who because there's nobody on the
[00:44:56] political scene in the UK but this is not just a British phenomenon is it happening all over the world
[00:45:01] all right I'm out George Galloway accent yeah no actually don't think we should have George Galloway
[00:45:06] as prime minister I think that might be quite divisive for the world but I mean actually in America
[00:45:09] they are you know when they got the advantage obviously even though they you know their balance of
[00:45:14] trade is it's pretty sick it doesn't really matter too much because the trading the US don't
[00:45:19] is so huge yeah but I mean they are spending obviously a great deal more than they are bringing
[00:45:24] in taxation and it seems to have been working for them the economy has been burning relatively okay
[00:45:29] yeah so this is showing it's not a negative okay yeah and you know the leveling Japan's
[00:45:37] government it's about 300% of GDP all this the huge levels because they haven't addressed
[00:45:42] the level of private debt which is outstanding that's what's actually causing most of the problems
[00:45:46] but nonetheless you can sustain a ridiculous level if you have a trade surplus and the
[00:45:51] American UK can't because it hasn't yeah and Japan is suffering a lot with have some have
[00:45:55] the knots as well and we didn't even talk about that which is obviously a significant part of all
[00:45:59] of this as well is that because obviously you use taxation not for revenue generation use it for
[00:46:07] wealth distribution and no talk about that at all in that budget either really in fact you know
[00:46:14] lots of benefits for the wealthy I mean I think so which of course you know because they
[00:46:19] the very Tory what's left of them all righty we'll catch you again next week thanks Steve
[00:46:25] I can't wait but the debunking economics podcast
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