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March 14, 2019


Andrew J Dodds


And if the private sector borrows a lot – as it did after the 2008 crash – government will be a net borrower.

Should probably be

And if the private sector saves a lot – as it did after the 2008 crash – government will be a net borrower.

Christopher Herbert

Standard MMT scholarship has accurately predicted this, and many other observations that neoliberals regularly get wrong. Time to cashier the lot.

Luis Enrique

(a minor nit, this is a bit confusing: "save a constant fraction" and "everybody’s efforts to save more" the latter would imply trying to save a higher fraction, I think)

And Christopher H, I want to say MMT does not have a monopoly on looking at account identities, but I hesitate because I am not 100% sure the BoE and the OBR and others ensure their forecasts respect them. I would like to think they do. Anyone know for sure?

Robert Mitchell

Private sector net financial assets increase far more than government debt. Treasury implicitly guaranteed mortgage-backed securities, but the Fed created new money to cover the insurance guarantees by buying MBS. Government debt was not involved. MMT gets this wrong: private sector profits increase without the government having to run deficits, because the Fed creates new debt-free money to backstop previously-created private sector new net financial assets.


Well this is a bit confusing.

If the government can’t control its own borrowing, how can we criticise it for over or underspending? It is constrained by private sector activity which it can neither control nor predict.

If government borrows less for, say, capital investment, this is offset by an increase in private borrowing. Why should the Left care whether it’s the government giving more money to a Carillion or the working poor going to a Wonga?

I think this lets ministers off the hook. No such thing as austerity, it’s just a consequence of an increase in private spending.


One could easily argue that it's actually confidence in the future that drives rising household borrowing, not falling living standards. Your chart illustrates this as saving was HIGHEST in 2010 just after the GFC when everyone was skint and scared about their jobs. So Hammond could argue that Tory 'prudence' has led to confidence, which has led to more household borrowing, which has led to a lower PSBR in a virtuous circle.


A couple remarks:
0/ Reading it as a mainstream Public Finance enthusiast, I read "lower G and gvt borrowing not accompanied by a decrease in output" --- your quote: 'This supported aggregate demand and hence employment and wages – which allowed tax revenues to hold up as spending was squeezed.' --- and I think... Mission accomplished?
1/ Macro and time horizons: are we all comfortable with an AD-centric story and paradox of thrift at a TEN year horizon?
2/ Funny property of private savings offsetting government dissavings. You could call it ricardian!
3/ The government does control expenditure and that is what it should focus on. Debt is a secondary concern.


Government should focus on quality of life over the long term for most citizens. That could not have led to the austerity policies actually adopted since 2008.


This tells us that governments can borrow less if and only if somebody else borrows more or saves less. This is in fact trivially true. Every pound borrowed is a pound lent.

Oh my: banks can lend pounds that they have not saved, so "saves less" is quite wrong.

«One person’s net borrowing can therefore fall if and only if somebody else’s net lending falls.»

And that "net lending" is right as long as it is not taken as meaning the same as "net saving".

«My chart shows the point for the four main sectors of the economy.»

Looking at those "ex-post" accounting identities for the largely arbitrarily defined "sectors" of the national accounts is basically useless by itself. Often it is more productive to look, when available, at central bank "flow of funds".

Anyhow G Hammond is right that the tory policies of the past decade have produced higher tax receipts and lower deficits, because while a government deficit is very hard to reduce with an austerity policy, the past 10 years have not been austerity.

The main tory policy has been redistribution from poorer to richer via rigged markets. That redistribution has boosted the incomes and wealth of the richer citizens, and with it government tax receipt, and the other tory policy has been to cut government spending on poorer citizens, and both policies have helped cut the deficit.

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