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The three forms of inflation…

Published by Anonymous (not verified) on Sun, 01/08/2021 - 8:43pm in

Dr. Johnson’s Dictionary of the English Language (1755) defined “inflation” as “the state of being swelled with wind, flatulence.” Yet now: Inflation. People fear it, policymakers dread it, pundits pronounce upon it. It was high throughout the West in the 1960s, higher in the 1970s, and hyper in the aftermath of World War I. Inflation... Read more

The inside of an Ocado warehouse might be more important than that space race…

Published by Anonymous (not verified) on Sat, 31/07/2021 - 6:22am in

Following the fire at Ocado’s Erith warehouse (the second fire that they have had) which was this time caused by three picking ‘robots’ colliding, whereas the first, in their Andover warehouse seems to have been caused by an electrical fault. Their Andover location was completely destroyed in spite of having sprinklers (although the friend of... Read more

The world cannot afford the attitude of companies like Shell

Published by Anonymous (not verified) on Fri, 30/07/2021 - 4:53pm in

We are living in interesting times. I mentioned yesterday that sentiment on and the understanding of money might be improving, for the better. That’s the good news, maybe. There is much that is not. Take this from the Guardian, for example:

Royal Dutch Shell has no plans to change its strategy despite a landmark Netherlands court ruling calling for the company to make a 45% cut to its carbon emissions by the end of the decade, according to the oil giant’s chief executive.

Ben van Beurden denied the company would need to change its plans to meet the tougher court-ordered climate targets on Thursday, as he revealed a multibillion-dollar shareholder windfall for investors and better-than-expected quarterly profits.

The court victory in the Netherlands is binding on Shell, but they intend to appeal it. They are doing so despite around 30% of their shareholders thinking that the company is wrong on this issue and that it should comply. But the rest presumably smell the money that the Covid recovery in commodity prices is offering and will live with Shell’s literal contempt for the court.

Shell is not alone in its disdain for the requirements of climate change, of course. Channel 4 News documented the risk from new exploitation of North Sea oil reserves last night. That this is planned by non-UK owned companies sets up the risk of legal action if the UK seeks to constrain it, not that there is much sign of this as yet.

So what is my concern? It is that what might be called the ‘greenwash consensus’ that has resulted in large companies in sectors like the extractive industries appearing to comply with climate targets to date breaking down, and sooner than I anticipated.

There was always a risk that when push came to shove a climate versus profit conflict would break out. This was never likely to be a smooth path. Now that the science is determined, and the evidence is unambiguous, raw differences of view on economic priorities were always bound to come to the fore. I think that is what is happening now. The claim that tackling climate change hits profit will be what drives the argument against anything being done about it.

It will be said that profit drives all value in society.

It will also be said that profit drives all taxes.

It will therefore be said that without the profit that ignoring climate change brings tackling climate change would not be possible anyway.

And in the apparently logical progression of those three (all incorrect) claims the absurdity of the narrative that will be promoted is exposed.

However, exposure of illogicality is not sufficient reason for things not to happen. Look at Trump, Johnson, and the rise of the far-right. They share not an iota of reason between them, but they remain popular. So there has not just to be logic, but bottom line fact to win this argument.

This is where sustainable cost accounting comes in. The trouble with all existing climate reporting standards is that they consider the scale of the emissions a company creates, but then refuse to quantify the cost that will be incurred to eliminate that pollution. So they tell us that a company is polluting, but beyond warm words (that 'greenwash', again) they do not tell us how and at what cost those emissions will be eliminated, as they must be. In so doing they keep the cost of climate change off the balance sheet so that companies like Shell can continue to pay out massive dividends when the reality is that as a company they might well be carbon insolvent of their cost of eliminating their emissions and those of the users of their products were to be taken into consideration in their accounts.

What sustainable cost accounting makes clear is that it is climate change, and not tackling it, that hits profits. That is why, I suspect, it is quite so frightening.

I am under no illusion that the fight for having the costs of climate change on the balance sheet is going to be an easy one, but quiet progress is being made. The idea is being noticed, precisely because it does take the cost of climate change back to the companies who would abuse this planet and says to them that this is their problem that they have to solve.  Quiet progress means that things are not moving nearly as fast as I would like. But at least they are moving. The world cannot afford the attitude of companies like Shell.

Why MMT rejects the loanable funds theory

Published by Anonymous (not verified) on Thu, 29/07/2021 - 7:00pm in



Government deficits always lead to a dollar-for-dollar increase in the supply of net financial assets held in the nongovernment bucket. That’s not a theory. That’s not an opinion. It’s just the cold hard reality of stock-flow consistent accounting. So fiscal deficits — even with government borrowing — can’t leave behind a smaller supply of dollar […]

Not all pounds are born equal, and it is time that we appreciated that

Published by Anonymous (not verified) on Thu, 29/07/2021 - 5:31pm in

Something strange is happening in discussion about money, debt, interest and monetary policy. I would almost say that there are signs that the debate is growing up, based on my reading of a number of articles this week.

Gillan Tett in the FT frames this. As she notes, in August we will mark the  50th anniversary of the USA coming off the gold standard. It's an event that had seismic consequences, and it is still remarkably little understood. Fundamentally, it changed the view of the state. Instead of the state relying on a third party - gold - to give the money it issued value it said that its promise alone was good enough to achieve that goal. It simultaneously claimed that it was capable of being trusted to manage the resulting responsibility to manage the money supply, the value of money, and its availability in the interests of all. Those were big claims. Although Tett thinks they might change again in the next fifty years - and she clearly sees crypto as the source of that threat - I cannot agree. I do not see the state retreating from this monetary claim for sovereignty, which now underlines a great deal of its basis for the claim that it has the ability to govern.

But in that case, as Brendan Greeley argued in the FT, the state really does have a duty to understand money better than it does. His argument is relatively straightforward. First, he says that there is a great deal of money in the world, much of which has little apparent use as it is simply conglomerating in massive cash piles. This is a point the IMF also made recently when they noted the adverse consequences of this for monetary policy. Second, he acknowledges that much of this money is bank made (albeit under licence from the state), saying:

That, of course, is a modern money understanding of the way banking works. It's also now indisputable.

Third, and critically, he then notes that Fed-created money is different, In particular, he is referring to the central reserves created by the quantitative easing (QE) process. The central bank reserve accounts that are created as a result of this are held by the clearing banks with the Fed (in the UK with the Bank of England, in an identical process). But what he, correctly, notes is that this Fed-created money - and there are now trillions of dollars of it and in the UK in excess of £800 billion of it - might be denominated in dollars (or sterling) but they are simply not the same thing as bank-created money. That's not least because there is literally nothing that the banks can do with this money except pass it between themselves as a means of payment which ensures bank solvency in the event of another crisis. They can't redeem this cash, offload it, or destroy it unlike other money, so to call it money like all other balances makes no sense.

Simon Wren-Lewis has made the same point, but does so in the context of interest rate policy, where he argues that there is absolutely no reason why the Bank of England, Fed or any other central bank need pay base rate on these central bank reserve accounts that central banks have themselves created and given to clearing banks. His argument is one that I have used a number of times here before now, which is that in practice  whatever happens to base rates interest rates on these central bank reserve accounts can stay fixed at 0.1% or even be 0% if the Bank wanted, and there is nothing the clearing banks can do about it.

Simon links to an article by Irish economist Karl Whelan when doing so. Karl makes the point that:

I’ve always been uncomfortable with the labelling of central bank reserves as liabilities. Yes, in recent years, central banks have chosen to pay interest on them but they get to choose that interest rate and it can be zero if they want it to be. These are not debts that look like a normal person’s debts.

That is correct, and it needs to be appreciated by government and central banks (in fairness, the Bank of Japan and ECB do seem to get this point: it is the UK and USA that do not). These reserves are simply not debt.

What this means for interest rate policy is an issue I will look at in another blog. The IMF already think world cash balances basically destroy the effectiveness of that policy. I agree with Sim0n Wren-Lewis and Karl Whelan that central bank reserves are neither debt nor money as such. And I agree with Brendan Greeley that there is a cash mountain floating around the world unproductively that the corporate sector, that is in possession of a large part of it, has literally no idea what to do with.

What does this all mean? It means that we are living in a world where not all pounds, dollars, euros, yen or whatever are equal. How they came into being makes a big difference to what they are and what interest rate should be used on them, and whether they should be considered as debt, or not. This is a theme of a paper I will be issuing very soon. But what that also means is that if this power to create and manage money is to be properly used - and it is essential that it is - then this has to be understood and I do not think that is the case. I know that because the world's central banks still think they can change a single interest rate and that this will result in a transmission effect flowing through the economy to change the way in which people think and behave. But that is not true.

The IMF have noted that the world's largest companies are exempt from this because they have their own cash hoards.

Dan Davies in the Guardian has noted that the transmission mechanism with regard to housing is creating considerable distortions in society that may not be sustainable.

Gertjan Vlieghe in his retirement speech from the Bank of England monetary policy committee has noted that there are so many feedback loops from the financial economy around demographics, debt and income distribution now that raising interest rates may be nigh on impossible and poses a fascinating range of questions as a consequence.

Govenments have reserved for themselves the right to make money. Now they really have done just that. But in the process they have, it seems, lost control over the ability of cash to be destructive, and they have lost control of interest rates in the way that they at least once thought they had.

It is welcome that this need for deeper understanding to regain control  is being appreciated now. It is to be hoped that central banks get the message.

Running away is not the answer

Published by Anonymous (not verified) on Thu, 29/07/2021 - 3:54pm in

I noted this report in the Guardian:

New Zealand, Iceland, the UK, Tasmania and Ireland are the places best suited to survive a global collapse of society, according to a study.

The researchers said human civilisation was “in a perilous state” due to the highly interconnected and energy-intensive society that had developed and the environmental damage this had caused.

A collapse could arise from shocks, such as a severe financial crisis, the impacts of the climate crisis, destruction of nature, an even worse pandemic than Covid-19 or a combination of these, the scientists said.

I did so in the context of a question I asked on Twitter yesterday:

I was expecting climate change to be the predominant answer to that question. For some it was, but the largest number, by far, suggested our biggest problem was our leader, putting the threat he creates in various ways, but all making clear that the way he is undermining the democracy that we live in is the greatest challenge that we face.

I am not pretending for a moment that a couple of hundred replies is scientific. But, I also think them illuminating. The message was that we cannot run away from the climate crisis, a financial crisis, or anything much else come to that if the politics that enables them all is predominant and destroying society from within, and that is what is happening.

The premise that we can run away is, then, wrong.

The places to which these scientists say we can run have no solution to the political-economic problems that we actually face.

Unless we face down the threat to society that comes from the far-right nowhere is going to be exempt, least of all the UK.

It's folly to pretend otherwise and time to end giving space to the idea that it is possible to do so.

State money, ‘collateral’ and getting things done

Published by Anonymous (not verified) on Thu, 29/07/2021 - 7:55am in

I have just watched a lecture by Ann Pettifor which she gave last year at the Institute of International Economic Affairs in Dublin. I regret that, in spite of my best endeavours, I cannot refind the actual link but I’m not sure it matters as I wrote down much of what she said, and that... Read more

Nationalisation is possible, when it’s in defence of nukes

Published by Anonymous (not verified) on Thu, 29/07/2021 - 12:24am in

The FT has reported that:

Sheffield Forgemasters, one of Britain’s oldest steelmakers, is to be acquired by the UK’s Ministry of Defence for £2.5m as the government firms up its control of vital aspects of the country’s nuclear industry supply chain.

As they also note:

The deal paves the way for up to £400m of investment over the next 10 years by the MoD to replace equipment and infrastructure at the steelmaker, which has been struggling financially for years.

That the company was unable to make such an investment is not surprising. The most recently filed group balance sheet shows serious short term financial stress:

That figure for net current liabilities is not pretty.

But. there are serious questions to ask here. First, never let it be said again that strategically important companies cannot be nationalised in the public interest.

Not let it be said that the government cannot decide who should be winners and losers in our economy.

And come to that, never let it be said that investment to secure important government goals is not possible, because it very clearly is.

In other words, let it now be said, loud and clear, that nationalisation is definitely on the agenda, at least when it suits the government.

But in that case, also ask what this government is really about, because it is not the promotion of the standard Tory agenda. Instead, this company was acquired to preserve nuclear capacity. So what we learn is that the forces of oppression can be supported by the state, but maybe not much else can be.

What does that say?

Microfoundational incoherence

Published by Anonymous (not verified) on Wed, 28/07/2021 - 11:53pm in



Defenders of microfoundations and its rational expectations equipped representative agent’s intertemporal optimization often argue as if sticking with simple representative agent macroeconomic models doesn’t impart a bias to the analysis. Yours truly unequivocally rejects that unsubstantiated view, and has given the reasons why here. These defenders often also maintain that there are no methodologically coherent […]

Tax justice and tax transparency in 2021

Published by Anonymous (not verified) on Wed, 28/07/2021 - 8:32pm in

In its eighteen or so years in existence, the tax justice movement has always campaigned for tax transparency. So, it has delivered country-by-country reporting for tax, and led the calls for that data to be made public. And it has tackled the opacity of tax havens.

But, building on those successes is essential and tax transparency is a much bigger issue than this focus on multinational corporations and tax havens suggests. It is very much a domestic tax issue as well, permeating the whole way the tax system works and how it delivers fair outcomes. In 2021 I suggest it's time tax justice thinks more widely on tax transparency and in this video I explain why.

For more thinking on this issue see

The other four videos in this series are here, here, here and here.