Print money and create inflation?

kennyboy66_2

Considering Roger Bootle was asking for interest rate increases to cool the housing bomm as far back as 2004 (so much for no media warnings!) he has more credibility than most.

Perhaps the inflation nutters should read him.

Generali

Sir_Humphrey wrote: »

The "analysis" is completely idiotic. The money being put into the system is to help avoid deflation.

Cutting government spending is also idiotic in a recession. This is really basic stuff. Thankfully, economists and decision makers seem to have finally dusted off their Keynes. As Bootle says in the Telegraph today,



http://www.telegraph.co.uk/finance/comment/rogerbootle/3185317/This-is-no-time-to-worry-about-moral-imperatives.html

Well there are 2 sides to that coin. You have the fact that counter-cyclical spending can (and usually should) replace private spending in a recession. Against that you need to set crowding out - the idea (empirically verified) that borrowing for Government spending reduces the funds available for private sector investment*.

One of the problems that the British economy faces right now is that its biggest driver over the past 20 years (finance) is in serious decline and private sector investment in other areas is needed to replace that part of the economy. If the Government keeps running these massive deficits then the money just won't be there for private sector investment that is needed to get the country's economy moving again.

My feeling is that exactly the last thing that this country needs is more Government spending. My feeling also is that is exactly what it is going to get as I think the UK is going to get a pretty big lurch to the left, especially if Labour win the next election and all the more so if they have to share power with the Lib Dems or Nationalists.

People love the idea that the Government can ride to their rescue in difficult times. There is often a big backlash against it when voters realise that they can't.





*Link

tomstickland

kennyboy66 wrote: »

What do I reckon?

Complete rubbish.

Can you provide some more detail? Anyone can call something "rubbish".

Sir_Humphrey

Generali wrote: »

Well there are 2 sides to that coin. You have the fact that counter-cyclical spending can (and usually should) replace private spending in a recession. Against that you need to set crowding out - the idea (empirically verified) that borrowing for Government spending reduces the funds available for private sector investment*.

*snip*

My feeling is that exactly the last thing that this country needs is more Government spending. My feeling also is that is exactly what it is going to get as I think the UK is going to get a pretty big lurch to the left, especially if Labour win the next election and all the more so if they have to share power with the Lib Dems or Nationalists.

The crowding out argument depends on all sorts of assumptions that have been shown to be highly dubious at best in the current crisis. These assumptions relate to the rationality of the private sector and also uncertainty (as opposed to risk). There may be very small amount of crowding out, but this would be more than offset by the accelerator effect of government spending. Well directed spending on infrastructure can be used to make structural changes to the economy (eg better transport/communications infrastructure) that should enable the economy to grow faster with lower inflation in the future (in other words a better non-inlfationary growth potential).

Even if you accept crowding out, the effects are minimised in a situation of high unemployment and deep recession which is where we are heading as a country.

I find it amazing that people still think that the market can recover by itself when it has shown itself to be highly unstable, unsustainable and pro-cyclical. The tired neoliberal supply-side economics has been falsified (for instance does anyone now think that general gluts are impossible?)

EDIT: If it was not for government intervention, we would now not have a functioning bank system. I think a period of silence from the laissez faire disciples may now be in order.

Generali

Sir_Humphrey wrote: »

The crowding out argument depends on all sorts of assumptions that have been shown to be highly dubious at best in the current crisis. These assumptions relate to the rationality of the private sector and also uncertainty (as opposed to risk). There may be very small amount of crowding out, but this would be more than offset by the accelerator effect of government spending. Well directed spending on infrastructure can be used to make structural changes to the economy (eg better transport/communications infrastructure) that should enable the economy to grow faster with lower inflation in the future (in other words a better non-inlfationary growth potential).

Crowding out has been shown empirically. Put simply, there are limited funds available to be borrowed, if the Government takes them to spend then the private sector can;t use them.

Do you really believe that poor infrastructure is a big contributor to inflation in this country? I'd like to see some sort of study showing that as it seems a ridiculous idea.

Finance and housing have been the main private sector drivers of growth in this country over the past 10 years. They seem unlikely to be driving growth over the next 10 years. The choice seems to me that either the Government can take an increasing share of a shrinking pot until it can take no more as there isn't any more or we can try to get some employment going that is going to make profits to allow more investment and employment.

At some point we have to realise that the Government employing a bunch of nurses or railway engineers is very nice but unless someone is actually producing a profit from somewhere that can be taxed there is going to be nothing to pay these people with.

Frankly, none of this is my problem but I do like this country quite a lot and its problems are not going to be solved with massive nationalisations and the Government trying to prop things up and do cosy deals. We tried that in the 70s and averaged 1% GDP growth over the decade.

Sir_Humphrey wrote: »

Even if you accept crowding out, the effects are minimised in a situation of high unemployment and deep recession which is where we are heading as a country.

I find it amazing that people still think that the market can recover by itself when it has shown itself to be highly unstable, unsustainable and pro-cyclical. The tired neoliberal supply-side economics has been falsified (for instance does anyone now think that general gluts are impossible?)

EDIT: If it was not for government intervention, we would now not have a functioning bank system. I think a period of silence from the laissez faire disciples may now be in order.

Crowding out exists and is a demonstrable fact. Government spending more and more isn't going to solve a thing.

Sir_Humphrey

Generali wrote: »

Crowding out has been shown empirically. Put simply, there are limited funds available to be borrowed, if the Government takes them to spend then the private sector can;t use them..

Could you cite your sources please.

Generali wrote: »

Do you really believe that poor infrastructure is a big contributor to inflation in this country? I'd like to see some sort of study showing that as it seems a ridiculous idea. ..

It is a contributory factor. If you have a limited supply of transport (eg inadequate number of trains) and the supply is not increased, then the price of the scarce resource increases. It is pretty obvious really.

Generali wrote: »

At some point we have to realise that the Government employing a bunch of nurses or railway engineers is very nice but unless someone is actually producing a profit from somewhere that can be taxed there is going to be nothing to pay these people with.

So you only make a profit if it is a private enterprise? When public bodies make a profit, then the Exchequer takes the funding at 100% reducing the tax burden on the public. And the argument that nurses do not contibute to growth is simply ludicrous. Poor health = unhealthy workforce = lower growth. Again this is really, really obvious.

I have little patience with someone who used to work in the banking sector, a sector as Nicholas Taleb points out the The Black Swan, destroys the wealth it "creates". I think we could do without the "wealth creators" who have caused over $1 trillion of losses to the US economy alone.

Generali

Sir_Humphrey wrote: »

Could you cite your sources please.

Link link link

Sir_Humphrey wrote: »

It is a contributory factor. If you have a limited supply of transport (eg inadequate number of trains) and the supply is not increased, then the price of the scarce resource increases. It is pretty obvious really.

Sources please. Transport infrastructure in this country isn't so bad as to appreciably increase inflation, merely to reduce competitiveness.

Sir_Humphrey wrote: »

So you only make a profit if it is a private enterprise? When public bodies make a profit, then the Exchequer takes the funding at 100% reducing the tax burden on the public. And the argument that nurses do not contibute to growth is simply ludicrous. Poor health = unhealthy workforce = lower growth. Again this is really, really obvious.

Which public bodies make a profit please?

Sir_Humphrey wrote: »

I have little patience with someone who used to work in the banking sector, a sector as Nicholas Taleb points out the The Black Swan, destroys the wealth it "creates". I think we could do without the "wealth creators" who have caused over $1 trillion of losses to the US economy alone.

I'll ignore the ad hominem attack.

I used to work in equities which is an area that provides investment from the private sector for the private sector. Plenty of wealth has been created there.

kennyboy66_2

tomstickland wrote: »

Can you provide some more detail? Anyone can call something "rubbish".

Where do you start.

It mixes up some truths & some drivel and concludes that the greatest current threat is inflation.

Churchill didn't sort out any mess left by Atlee, his 1951 - 55 term was notable for poor foreign policy decisions partly because he was unable to come to terms with the end of an empire.
Thatchers macro-economic "reforms" where nothing short of disasterous when elected, inflation was not controlled (contary to the mythology now) & the UK suffered its worst post war recession. It was only when monetary policy was relaxed & the pound allowed to fall to a more competive level that recovery began.
Reforms such as privatisation, union reform, right to buy, tax simplification are decent legacies. However it takes a special talent to preside under inflation that increased from around 10% to over 20%, have a massive recession but still return to double digit inflation at the end of the 1980's.

I would love to see what evidence there is that the UK government forced banks to lend to people who couldn't afford it.
There is certainly a failure to regulate, however the financial service industry were falling over-themselves in the pursuit of light-touch or self regulation.

Its as much a market failure as the likes of Marconi - driven by management hubris, and the chase of the next deal in the case of RBS.

I will believe that inflation is a threat when wages take off - there is no current sign of this.

The biggest danger is deflation not inflation.

The people in denial are those who would like to return to the gold standard and seem obsessed with FIAT money.

Sir_Humphrey

Generali wrote: »

Link link link.

That would be the link I was looking at to check my facts, which in fact is highly equivocal, and has no description of the empirical analysis carried out. Which empirical studies support crowding out theory in a deep recession?

Generali wrote: »

Sources please. Transport infrastructure in this country isn't so bad as to appreciably increase inflation, merely to reduce competitiveness.

Section 6 of Transport Statistics Great Britain has details of public transport fares. As anyone who uses public transport knows, there have been very steep increases in fares on rail and in particular on buses (the latter outside London at least). It is a well known rail industry tactic (even under BR) to increase fares to price out excess passengers.

Generali wrote: »

Which public bodies make a profit please?

The profitable ones were privatised, or the profits of one profitable section used to cross-subsidise an essential but non-profit making part. Since current policy is to only have loss-making but essential services in the public sector, there are going to be few examples of profitable ones.

Of course, as you are not a Keynesian, you do not appreciate the externalities. For example, I find it difficult that a profit could be extracted from a country road, but the businesses that use it would make a profit which would not appear on the balance sheet for that road. Likewise, if the NHS provides anti-arthritis drugs to someone in their 30s, it counts as a cost to the NHS, but means that person can be more productive. So any sort of balance sheet based calculation of public sector worth is pointless.

Generali wrote: »

I used to work in equities which is an area that provides investment from the private sector for the private sector. Plenty of wealth has been created there.

The ad hominem attack is rude I admit, but the broader point stands. The banks have failed, have been bailed out by the taxpayer. I am not prepared to listen any longer to free marketeers who have the chutzpah to claim the public sector cannot run things and are a drain on the economy, when the banks have done just that with bells on.

kennyboy66_2

Generali wrote: »

Which public bodies make a profit please?

.

British Airways
BP
BAE
British Gas
The electricity companies
The water companies
a host of others.
TSB (quasi public I suppose)

All made profits in the years before they were privatised.
This is not to say that those companies should not have been privatised.

Even the Royal Mail has made a profit in some years (not a great example I know!).

Maybe the correct question is which public bodies deliver a service cheaper than that which could be done by the private sector. Impossible to give an answer really when it comes to health or education.