Monetarist household economic model Vs MMT (modern monetary policy)
Posted: Wed Nov 10, 2021 12:02 pm
Quote from elsewhere
"Our current model is based on the Monetarist/Thatcher’s household economic model, that there is ‘no such thing as government money, only taxpayer money”. From this model comes the idea that government spending on things like the NHS has to come from revenues derived from our tax. Such a model is powerful because it appeals to our own experience. After all, where else does the money come from? It makes sense! We all know that we need an income before we can spend. We all know that if we spend more than we earn, we are in trouble. We all know that borrowing has to be paid back from our income.
But none of that is true for a sovereign government like ours. The household model of the economy is a true description of what happens to non government currency users like you and me (and local banks and municipalities etc), but it is not a true description of what happens at the level of the government as the currency issuer.
The currency issuer, that is the central bank enacting the will of government, can issue money to pay for anything it likes in it’s own currency. If government decides to spend £100b on a railway, it just credits the various accounts of those promising to build the railway. That money is created by pressing a few keystrokes on a computer. It does not come from a piggy bank full of tax payer £5 notes.
MMT describes the actual process by which money is created. It is not created from tax savings, it created simply by spending the money into existence.
While this is difficult because it goes against everything we’ve been led to understand for the last Hal’s century or more, it is important to realise that this is not at all controversial. The Bank of England itself says that money is created at a computer. In a 2014 document called Money Creation in the Modern Economy the BoE tells us that when the government spent money on QE, it was a simple matter of crediting the accounts of those selling their Government bonds back to the government. The spending did not come from government savings, it was created into existence.
MMT just turns the existing model of the economy on it’s head in order to describe how the economy really works. Tax is not the centre of the economic world, anymore than the earth is the centre of the universe. Money is just issued into existence by the central bank. Tax is just the way to control inflation and devaluation of the pound"
End quote
So next time you hear some politician saying we can't afford public services then I put it to you that this is a lie. It's that they would rather divert money to the elite - that old trickle down bollox.
"Our current model is based on the Monetarist/Thatcher’s household economic model, that there is ‘no such thing as government money, only taxpayer money”. From this model comes the idea that government spending on things like the NHS has to come from revenues derived from our tax. Such a model is powerful because it appeals to our own experience. After all, where else does the money come from? It makes sense! We all know that we need an income before we can spend. We all know that if we spend more than we earn, we are in trouble. We all know that borrowing has to be paid back from our income.
But none of that is true for a sovereign government like ours. The household model of the economy is a true description of what happens to non government currency users like you and me (and local banks and municipalities etc), but it is not a true description of what happens at the level of the government as the currency issuer.
The currency issuer, that is the central bank enacting the will of government, can issue money to pay for anything it likes in it’s own currency. If government decides to spend £100b on a railway, it just credits the various accounts of those promising to build the railway. That money is created by pressing a few keystrokes on a computer. It does not come from a piggy bank full of tax payer £5 notes.
MMT describes the actual process by which money is created. It is not created from tax savings, it created simply by spending the money into existence.
While this is difficult because it goes against everything we’ve been led to understand for the last Hal’s century or more, it is important to realise that this is not at all controversial. The Bank of England itself says that money is created at a computer. In a 2014 document called Money Creation in the Modern Economy the BoE tells us that when the government spent money on QE, it was a simple matter of crediting the accounts of those selling their Government bonds back to the government. The spending did not come from government savings, it was created into existence.
MMT just turns the existing model of the economy on it’s head in order to describe how the economy really works. Tax is not the centre of the economic world, anymore than the earth is the centre of the universe. Money is just issued into existence by the central bank. Tax is just the way to control inflation and devaluation of the pound"
End quote
So next time you hear some politician saying we can't afford public services then I put it to you that this is a lie. It's that they would rather divert money to the elite - that old trickle down bollox.