UK Politics: Rwanda Rehash

[The Anti-Targ]

Austerity is invariably what you get when you don't understand the basic truths informing MMT and you believe the fallacy that taxes pay for govt spending.

[Mentat]

8 hours ago, The Anti-Targ said:

Austerity is invariably what you get when you don't understand the basic truths informing MMT and you believe the fallacy that taxes pay for govt spending.

While I've never been an advocate for austerity, I've always believed taxes do indeed pay for government spending. I work in Spanish local government, and yearly budgeting is a big part of my role. Most of our budget comes from local taxes and central government contribution to our budget (which is allocated to us from and in proportion to government tax revenue in our area). If taxes don't pay for government spending, what does? Debt?

[Heartofice]

3 minutes ago, Mentat said:

Debt

https://www.statista.com/statistics/282841/debt-as-gdp-uk/
 

“Public sector net debt amounted to 96.6 percent of gross domestic product in the United Kingdom during the 2021/22 financial year, the highest it has been since the early 1960s. After the end of the Second World War, government debt in the UK gradually fell, before a sharp increase is visible in the late 2000s at the time of the global financial crisis.”

 

[Mentat]

30 minutes ago, Heartofice said:

https://www.statista.com/statistics/282841/debt-as-gdp-uk/
 

“Public sector net debt amounted to 96.6 percent of gross domestic product in the United Kingdom during the 2021/22 financial year, the highest it has been since the early 1960s. After the end of the Second World War, government debt in the UK gradually fell, before a sharp increase is visible in the late 2000s at the time of the global financial crisis.”

 

Okay, but that graph, if I understand it correctly, is showing total Debt vs anual GDP, rather than how much of the anual budget was financed through debt.

According to the House of Commons Library, in the 2022/2023 financial year, the UK spent 1.155 billion pounds, of which 1.018 were financed through revenue (taxes) and 137 through debt.

 

[Liffguard]

5 hours ago, Mentat said:

While I've never been an advocate for austerity, I've always believed taxes do indeed pay for government spending. I work in Spanish local government, and yearly budgeting is a big part of my role. Most of our budget comes from local taxes and central government contribution to our budget (which is allocated to us from and in proportion to government tax revenue in our area). If taxes don't pay for government spending, what does? Debt?

I'm not going to wade in on MMT one way or another. But there is nevertheless still a key difference between local governments, which can't issue their own currency, and national governments, which can. National governments with a sovereign currency can't ever run out of money (unless they choose to for political reasons). That doesn't mean their spending is unconstrained, just that tax revenue isn't the constraint.

Edited December 9, 2023 by Liffguard

[Rippounet]

Seeing taxes as the source of government income is just a way to "balance the books," manage the money supply, and thus preserve the trust in the value of money. It's fairly easy to imagine a few alternatives.

As to the question, "If taxes don't pay for government spending, what does?" that's an interesting one, because the actual answer is: mainly water, food, and energy. In the final analysis, the physiocrats were essentially correct, and Smith's ideas, though well-intentioned, truly fucked up our understanding of what the economy is.

[Spockydog]

Fucking Farage is going to win I'm a Celebrity....

State of this country. 

[Mentat]

23 minutes ago, Liffguard said:

But there is nevertheless still a key difference between local governments, which can't issue their own currency, and national governments, which can. National governments with a sovereign currency can't ever run out of money (unless they choose to for political reasons). That doesn't mean their spending is unconstrained, just that tax revenue isn't the constraint.

Sure, national governments can issue both currency and/or debt in order to spend more money than their revenue and either devalue their currency or run on a deficit (and they can do the reverse, if they want to increase the relative value of their currency or if they have available liquidity to pay off debt), but that's not really the same as saying taxes don't pay for government spending.

11 minutes ago, Rippounet said:

As to the question, "If taxes don't pay for government spending, what does?" that's an interesting one, because the actual answer is: mainly water, food, and energy. In the final analysis, the physiocrats were essentially correct, and Smith's ideas, though well-intentioned, truly fucked up our understanding of what the economy is.

Can you explain this one to me? Other than through taxes levied on the consumers/producers of water, food and energy, how do these pay for government spending?

[Rippounet]

8 minutes ago, Mentat said:

Can you explain this one to me? Other than through taxes levied on the consumers/producers of water, food and energy, how do these pay for government spending?

Nothing "pays" for government spending. A fully sovereign government can spend as much as it wants within the limits of its ability to supply essential goods and services to its population while maintaining the trust in this ability.
I'm afraid it's not something that can easily be explained on an internet forum. Mazzucato's Value of Everything was the first step in this realisation for me. NMT touches upon it, but I think it struggles with the question of the money supply. Mazzucato's broader theory is far more illuminating. Galbraith is also interesting.

[Mentat]

10 minutes ago, Rippounet said:

Nothing "pays" for government spending. A fully sovereign government can spend as much as it wants within the limits of its ability to supply essential goods and services to its population while maintaining the trust in this ability.

I mean, technically, but surely the trust in this ability (as pertains to economic actors on a state level, such as other states, international organisations, large multinational corporations and banks, etc) mainly depends on the value of their currency, their ability to borrow at a reasonable rate and their expected revenue.

14 minutes ago, Rippounet said:

I'm afraid it's not something that can easily be explained on an internet forum. Mazzucato's Value of Everything was the first step in this realisation for me. NMT touches upon it, but I think it struggles with the question of the money supply. Mazzucato's broader theory is far more illuminating. Galbraith is also interesting.

Alas, I think you're right. I tried a Google search and came across this from 2021 (the comments are more interesting than the actual tweets), but it sounds like the economics equivalent of quantum physics to me. I'm simply not knowledgeable enough in the field to process it. If it's non-fiction rather than a strictly academic text, I might give Mazzucato a try after I finish 'The Crisis of Democratic Capitalism'.

[kissdbyfire]

They don't know what the word "shame" means.

 

[The Anti-Targ]

14 hours ago, Mentat said:

While I've never been an advocate for austerity, I've always believed taxes do indeed pay for government spending. I work in Spanish local government, and yearly budgeting is a big part of my role. Most of our budget comes from local taxes and central government contribution to our budget (which is allocated to us from and in proportion to government tax revenue in our area). If taxes don't pay for government spending, what does? Debt?

I recommend you learn the fundamentals of MMT. However there is one situation where tax does fund government spending: if the govt is not the sovereign issuer of the fiat currency it is using. Spain is a Euro using country, which means Spain does not have currency sovereignty. Also local/state/provincial govts don't have currency sovereignty, so they must collect revenue in taxes.

Local/state/provincial govts are arms of the national govt (i.e. they exist because national law says they exist and provides the legal means for their establishment and functioning, and even to some extent their method of taxation), which means local/state/provincial govts can draw on money from the national govt for important spending.

This being the UK thread, the UK has currency sovereignty, so it's not like Spain or a local govt. That means tax doesn't pay for national UK govt spending. Since the UK govt has currency sovereignty it is the source of money. When you are the source of money you don't need to collect it in taxes nor borrow it from someone else. But tax is important, because it is necessary to create demand for the pound by virtue of the fact that you can't pay tax in the UK with anything other than the pound. Tax does not directly constrain UK govt spending except that politicians believe that it does. The UK govt chooses to issue debt (in the pound) as bonds to also create demand for the currency, but it mostly serves as passive income for people who already have loads of money.

Inflation is what constrains govt spending. But not all govt spending is inflationary. So even in a period of inflation absolute austerity is not necessary, govts just need to direct spending in a way that is less inflationary than when inflation is within the desired range. Inflation is a very complicated thing and if someone tries to tell you one single thing (like govt spending) is the cause of inflation they're wrong.

If you want to understand a bit more you should watch this

 

 

Edited December 10, 2023 by The Anti-Targ

[Heartofice]

I thought MMT had been debunked.

[Mentat]

15 hours ago, The Anti-Targ said:

If you want to understand a bit more you should watch this

Thank you very much for that, it was extremely informative.

I'm not sure I'm 100% convinced by everything (even if an effect of taxation might be to increase currency demand and moderate inflation, surely this is not how it's thought of in terms of policy... even if the treasury or the federal reserve might be able to issue currency, the state as a purveyor of public goods and services is mainly made out of lower level administrations or departments that can't), and as the video itself explains this might not be aplicable to a good amount of countries... but it challenged my conceptions and taught me some important stuff I didn't know, so again, thank you. Also some good follow-up reading recommendations. I'll add     Stephanie Kelton's book to my (far too large) reading list.

[mormont]

At least come up with something original, Michelle. Or believable.

https://www.bbc.co.uk/news/uk-scotland-scotland-politics-67674683
 

Quote

Michelle Mone says she "regrets" not being more transparent about her links with a company that had UK government contracts during the pandemic.

PPE Medpro is being sued by the UK government for £122m plus costs for "breach of contract and unjust enrichment".

It is also being investigated by the National Crime Agency (NCA).

 

Quote

The Conservative peer has admitted making an "error" in her responses to press inquires, and has said that that she regrets not initially telling the media of her involvement with the company.

She says she initially denied involvement due to legal advice.

Note the weasel use of the word 'error', implying that this self-serving lie wasn't done on purpose but was some sort of momentary lapse of concentration, and the 'blame it on the lawyers' defence. Could it get weaker? It can.

Quote

Baroness Mone says she "may indirectly benefit" from PPE Medpro profits via her husband, who was chairman of the consortium that bid for contracts. But she added that she had not personally made money from supplying PPE during the pandemic.

I didn't make a penny, it all went to... my husband, which is exactly what you're being prosecuted for, in fact.

Gove's in there lying as well, of course. Shame he won't wind up in the dock for this too.

Edited December 10, 2023 by mormont

[The Anti-Targ]

4 hours ago, Mentat said:

Thank you very much for that, it was extremely informative.

I'm not sure I'm 100% convinced by everything (even if an effect of taxation might be to increase currency demand and moderate inflation, surely this is not how it's thought of in terms of policy... even if the treasury or the federal reserve might be able to issue currency, the state as a purveyor of public goods and services is mainly made out of lower level administrations or departments that can't), and as the video itself explains this might not be aplicable to a good amount of countries... but it challenged my conceptions and taught me some important stuff I didn't know, so again, thank you. Also some good follow-up reading recommendations. I'll add     Stephanie Kelton's book to my (far too large) reading list.

The core facts underpinning MMT are not debatable by anyone with a decent understanding of macroeconomics. What is up for debate is how to use those facts to inform govt policy and spending. Every debunk of MMT I've seen / heard argues about the policy application of MMT not the core facts. 1Dime is very much a socialist / communist in his ideology, which means he approaches the ways the MMT concepts should be used for public good in a very different way to someone with a capitalist free-market ideology. But MMT is ideology agnostic, though understanding these truths should tend anyone towards accepting a higher rate of public spending given the previously believed constraints on public spending (tax pays for govt spending) are now understood to be falsehoods.

Every attempt to debunk MMT centres around how a govt might apply the framework to the detriment of the economy (i.e. wild spending sprees, largess to political friends and other rank corruptions) not the framework itself. But no one who is serious about these things suggests govts don't still need to be disciplined in how they spend. They do say a govt can fully fund healthcare and education without needing to have a pound for pound balancing between tax collected and health/education expenditure.

[Heartofice]

12 hours ago, The Anti-Targ said:

The core facts underpinning MMT are not debatable by anyone with a decent understanding of macroeconomics.

Is that true? I thought there were some core disagreements over even the basics, such as what money is and what causes inflation. That seems like quite a big deal. 

[kissdbyfire]

 

[BigFatCoward]

Rishi says eat out to help out was fine. I'm reassured 

[The Anti-Targ]

11 hours ago, Heartofice said:

Is that true? I thought there were some core disagreements over even the basics, such as what money is and what causes inflation. That seems like quite a big deal. 

The causes of inflation are hardly basic. They are complex and multi-faceted and can never be pinned on one single thing. Anyone with a reasonable understanding or macroeconomics will agree with that.

If all opinions on money were regarded as equally valid you might be correct, but if you ask people who have studied these things and talk to governors / chairs of reserve banks they will tell you the same thing about what money is today in countries like the UK. The fact that ordinary people (and esp most politicians) don't understand doesn't mean there are valid differences of opinion.