Sunday:
Milipot calls Kettle black.
Last time I got any diaries written, Mr Simon expressed some concern I was being a bit HARSH on Hard Labour by judging them based on what they WERE not what they ARE.
But you know, until they actually start professing some NEW positions (and opportunistic tactical opposition REALLY doesn't count) then I don't think it unfair to judge them by what they WERE on the uncontroversial grounds that IT'S WHAT THEY STILL ARE.
Despite Mr Milipede soft-peddling some of the ANTI-CIVIL RIGHTS policies, they have barely moved from their HIGHLY RIGHT-WING stance on law and immigration.
And under Mr Balls, their economic position is UNCHANGED from the Darling plan (a plan which would have CUT DEEPER than the Coalition's – the main difference being that Darling intended to CUT THE HEALTH SERVICE. The Conservatory pledge of real-terms increases in health spending, which we've agreed to be bound by, means that EVERY OTHER DEPARTMENT bears a HEAVIER share of the cuts, allowing Labour to perpetuate the MYTH that they would have cut less. But it IS still a myth.)
Mr Bully Balls might SHOUT about a "plan for jobs and growth" at every given opportunity, but this is, again, a TACTICAL response to the length of time economic recovery is taking and how that prolongs the painful austerity measures, with no recognition that the outcome under Labour would have been virtually indistinguishable.
Worse, it amounts to no more than a REHEAT and REPEAT of Mr Darling's "borrow more for a temporary VAT cut" tactic of 2009, which resulted in (at best) a dead cat bounce of the economy (and is arguably as much the cause of the "double dip" as anything that the Coalition, Europe, America or Ming the Merciless of Mongo has done since). Like injecting adrenaline into a heart-attack victim, you can get them to jump up and run around, but you're ignoring the MASSIVE DAMAGE to their system that you are EXACERBATING by simulating recovery ARTIFICIALLY.
That isn't a stimulus as Mr John Keynes would have understood it (because you DON'T end up with any infrastructure or educational advantage at the end), and it is completely false to suggest, as Mr Balls continues to do, that Keynesian economics would support continuing to borrow to support a CURRENT ACCOUNT deficit until the rest of the world fixes the economy for us.
Showing posts with label Bully Balls. Show all posts
Showing posts with label Bully Balls. Show all posts
Wednesday, June 20, 2012
Wednesday, February 29, 2012
Day 4062: A Negative Outlook
Valentine's Day
I know I'm always on about Mr Bully Balls shooting his mouth off, but this month he really took the biscuit. AGAIN.
When the credit rating agency Moody's put Great Britain on a WARNING that we might be downgraded from our Triple-A risk rating if Master Gideon doesn't stick tight to his austerity programme, the Shadow Chancer took to the airwaves to announce this was a sign that Master Gideon should, er, abandon his austerity plan.
Basically, Moody's said "take one step closer to Mr Balls' position and we shoot you". Which Mr Balls took as an endorsement. And did any of the interviewers ask him about this blatant contradiction? GET A CLUE!
Moody's
Balls
I know I'm always on about Mr Bully Balls shooting his mouth off, but this month he really took the biscuit. AGAIN.
When the credit rating agency Moody's put Great Britain on a WARNING that we might be downgraded from our Triple-A risk rating if Master Gideon doesn't stick tight to his austerity programme, the Shadow Chancer took to the airwaves to announce this was a sign that Master Gideon should, er, abandon his austerity plan.
Basically, Moody's said "take one step closer to Mr Balls' position and we shoot you". Which Mr Balls took as an endorsement. And did any of the interviewers ask him about this blatant contradiction? GET A CLUE!
Moody's
Balls
Tuesday, November 22, 2011
Day 3977: If Mr Balls walks like a duck and talks like a duck, does that make him a QUACK?
Monday:
Any sceptical journalist on the subject of ALTERNATIVE MEDICINE will tell you that there are some people who will EXPLOIT anyone who is ill and/or in pain, and tell them:
"the medicine you are using is not working; if only you were using this ancient Chinese/African/Indian herbal mixture/shamanic bangle/magic pointing stick then you would be better."
The sceptical audience tend to refer to this disparagingly as "woo"; and refer to its practitioners as QUACKS.
And yet, this is EXACTLY the same technique that Shadow Chancer Mr Bully Balls is using to describe the economy and his own "alternative remedies".
If you are diagnosed with CANCER, then you will probably be offered CHEMOTHERAPY or RADIOTHERAPY or a bit of both. These are VERY HORRID. Chemo is basically taking poison. The poison kills more of the cancer cells than your ordinary cells. But it's still poison. Radiotherapy is basically being blasted with radiation. It's targeted on the cancer so it kills more of the cancer than of the rest of you, but it's still killing bits of you. And then we get onto the CHOPPING BITS OUT OF YOU options.
If that's what conventional medicine is offering, you can understand why some victims might want to try an ALTERNATIVE.
But when the alternative is to NOT take the treatment (and instead place fruit slices on your Chakra points or something), then YOU DIE.
I'm really, really not overdramatizing this.
A cancer is an ORDINARY, HEALTHY part of the body that goes WRONG and starts growing out of control.
The Western economies, all of us, have various stages of something like cancer of the public sector.
(Look, it's an ANALOGY, not a proper comparison: NO public sector worker is "wrong" the way a cancer cell is wrong. They're just people, trying to get along, make a little money. Just like working in the private sector. The fault lies more with a SYSTEM that created too many jobs it couldn't afford.)
A strong, healthy public sector is a VITAL part of our country, but if it starts to grow uncontrollably then it becomes a danger to us all. Of course there is a danger of cutting too much, of cutting good and "healthy" bits out. And we need to be CAREFUL, so careful, because of that.
But if we ignore the problem and let it grow out of control then we end up going down the road through France to Spain and Italy and then Greece.
And the Greek economy looks very like it is actually going to DIE.
(And look, it's another analogy; there isn't an ACTUAL road that goes to from France to Spain to Italy. Not without using a car ferry from Gibraltar anyway.)
Let me try a DIFFERENT medical analogy. The Great British economy took one heck of a whack in 2008. Mr Dr Vince "the Power" Cable describes this as a MASSIVE HEART ATTACK. And you don't expect to go back to running marathons straight away after that. You need a period of RECOVERY.
The same is true of the ENTIRE WORLD economy.
There's no point placing BLAME here. We've all done that before. It's all too horribly complicated anyway, and by now we've all decided we know the story. But we cannot avoid the fact: it happened.
After an APOCALYPSE-class catastrophe like the Credit Crunch, NOTHING will fix the economy any time soon. I'm sorry, that's just the way it is. It will take time, and not months but years maybe even DECADES.
ANYONE who says otherwise is talking ALTERNATIVE MEDICINE
Any "growth" that we saw in 2010 was AT BEST a DEAD CAT-MONSTER BOUNCE (even a dead cat-monster will bounce if you throw it at the ground hard enough, and the 2008 crash was about as hard as it's possible to throw). At WORST it was an ILLUSION fuelled by a Quantum of Easing to the tune of BILLIONS of pounds and PAID FOR by a 25% fall in the value of Sterling and the more than 5% inflation rate we are having to live with now.
Handily we have EXPERIMENTAL EVIDENCE for what happens to recovery plans after a massive crash.
In Americaland, President Barry O borrowed a whole load more money (mainly because the crazy wing of the Reploutcrats wouldn't let him raise taxes) and invested it in a stimulus package. In Great Britain the Liberal Democrats agreed to let Master Gideon SLIGHTLY accelerate the cuts that Alistair Dalek had planned.
And as you can see… both economies are still EQUALLY SHAFTED.
There are really only two plans on the table: borrow as LITTLE as you can (the Coalition plan); borrow MORE than you need and invest it in the hope that that leads to growth that gets you enough extra income to cover the extra borrowing (Barry O's plan).
The EVIDENCE appears to be that NEITHER plan is very successful in the short term. The only difference being Barry O owes a LOT more money at the end.
So when Mr Balls says that the current stagnation is the fault of the Coalition's cuts then I'm sorry but, like the quacks who try to push alternative cures on the gullible, he is IGNORING the EVIDENCE.
(Or at least he's ignoring HALF the evidence: look, look, he cries, the Coalition plan hasn't worked instantly! We must do my plan for tax cuts and spending! No, no! Do not look at the Americaland stimulus package of tax cuts and spending that, er, hasn't worked instantly either!)
The economic situation is not getting any better. And Hard Labour keep repeating the same mantra that the economy is reaching a "turning point", that it's time for a "plan B" or that "when the facts change, they change their minds" (as if!).
But what, REALLY, has changed?
The problem is more the LACK of change, rather than anything else.
Now Hard Labour have invented a new stick to hit us with: they are tossing around the accusation that the Coalition are going to borrow "more than Labour would have done".
That's NONSENSE. The Coalition are only going to borrow more than Labour SAID they would have done. That's not the same.
Remember, Mr Alistair Dalek ALSO said that Britain under Labour would grow at 3½%, have 2% inflation and ½% interest rates. Do you think that that is what would REALLY have happened? Let me ask another question: do you think Mr Alistair Dalek ever got an economic forecast right when he was Chancellor of the Exchequer?
And it's funny, isn't it how Mr Balls never quotes Mr Dalek saying he would make cuts in 2011 "Deeper than Thatcher's."
(Almost as hilarious as last week's Any Questionables on the Radio, where Diane Abbot-and-Portillo immediately GROANS THEATRICALLY "oh, the old cliché" as soon as someone suggests that the financial problems may have ever so slightly started when Mr Frown was Prime Monster, but raises not a PEEP at the suggestion that all the greedy bankers can be traced back to… "oh the EVEN HOARIER old cliché" …Queen Maggie. I think this is called HISTORICAL IRONY.)
Hard Labour's claim that they would spend more and borrow less depends on them having succeeded, in the teeth of a global recession, and against every precedent they set while in power, in pulling huge levels of growth out of their fluffy behinds.
And if you believe THAT then you're clearly the target market for Lynx deodorant and Rapture cults.
Here's the difference: the Coalition borrowing is going UP to pay for the so-called AUTOMATIC STABILISERS, including the increase in benefits payments because there is higher unemployment and capital spending on infrastructure.
This is a CYCLICAL DEFICIT (the very-KEYNESIAN rise in borrowing when there is a fall in tax revenue to smooth the economic cycle – in fact, exactly what Hard Labour were SAYING we should be doing for most of the last year. A clue: we were).
When (when!) growth returns, there will be more jobs so more tax income and lower benefits and so the situation naturally reverses and we repay this borrowing.
This is the COMPLETE OPPOSITE of Labour borrowing to cover CURRENT spending i.e. paying for public sector jobs. THAT is a STRUCTURAL deficit, one that does NOT reverse when the economy gets better (as we saw when Mr Balls was spending more than the country earned at the HEIGHT of the BOOM!).
Let's look at the MATHS.
Unemployment is going UP because people in the PUBLIC sector are losing their jobs. The Coalition hoped this wouldn't happen because more jobs would be created in the private sector. That hasn't worked. That's a FAILURE on the government's part. The private sector IS taking on more workers, but not AS MANY as are losing jobs in the public sector.
(There is also a BIG problem for YOUNG people, because OLD people are working LONGER, and so not leaving GAPS in the workforce for young people to move into. And companies are reluctant to create NEW jobs for a great many people who have been failed by an education system that Labour geared to getting the TOP HALF into universities while under-investing in apprenticeships meant ABANDONING the rest. But that's a whole other demographic thing.)
The WORST argument against reducing the public sector is that "the government loses the taxes that they would have paid".
I've said this before but no one seems to be listening: this is Baron Munchausen logic.
Think about it. If the government employed EVERYBODY, could it raise enough tax to pay for us all? Only by taxing everybody at 100% of their salary.
Yes, making that public servant unemployed costs the exchequer lost tax and extra benefits. But not nearly so much as they SAVE in reduced wages.
In fact, if unemployment is rising but private sector employment remains under control then the public sector wage bill must be falling and the only reason the government can be borrowing more is because tax revenues remain depressed.
All things being equal you would EXPECT that – we've CUT income and corporate taxes and people have chosen to SAVE rather than SPEND which reduces spending taxes (VAT, duties and the like). The idea was to stimulate growth and take a smaller share of a bigger pie. But the pie DIDN'T get any bigger so obviously LESS TAX.
So where the Labour Party is RIGHT is in saying that we need GROWTH in order to get the country out of the economic doldrums.
Where they are DEAD WRONG is in thinking that there is anything that the government can DO about this that the Coalition aren't doing already! Lower taxes, doing that; increase capital spending, doing that; invest in education for young people, doing that; the list goes on. Could we do MORE of those things? Well, maybe, but it always comes down to where does the money come from and does it, in the end, actually work?
Growth, real growth, will come when people stop being more afraid than they are confident that there is money to be made. All we can do is try to spend wisely preparing for that in the meantime.
So when Mr Balls (or Mr Milipede, if anyone remembers him) says that they have some TONIC that will CURE the economy, just remember that it's probably SNAKE OIL. Or a MAGIC POINTING STICK. Or WOO.
Because Mr Balls' brand of prescription isn't MAGIC; it's just a NASTY TRICK.
.
Any sceptical journalist on the subject of ALTERNATIVE MEDICINE will tell you that there are some people who will EXPLOIT anyone who is ill and/or in pain, and tell them:
"the medicine you are using is not working; if only you were using this ancient Chinese/African/Indian herbal mixture/shamanic bangle/magic pointing stick then you would be better."
The sceptical audience tend to refer to this disparagingly as "woo"; and refer to its practitioners as QUACKS.
And yet, this is EXACTLY the same technique that Shadow Chancer Mr Bully Balls is using to describe the economy and his own "alternative remedies".
If you are diagnosed with CANCER, then you will probably be offered CHEMOTHERAPY or RADIOTHERAPY or a bit of both. These are VERY HORRID. Chemo is basically taking poison. The poison kills more of the cancer cells than your ordinary cells. But it's still poison. Radiotherapy is basically being blasted with radiation. It's targeted on the cancer so it kills more of the cancer than of the rest of you, but it's still killing bits of you. And then we get onto the CHOPPING BITS OUT OF YOU options.
If that's what conventional medicine is offering, you can understand why some victims might want to try an ALTERNATIVE.
But when the alternative is to NOT take the treatment (and instead place fruit slices on your Chakra points or something), then YOU DIE.
I'm really, really not overdramatizing this.
A cancer is an ORDINARY, HEALTHY part of the body that goes WRONG and starts growing out of control.
The Western economies, all of us, have various stages of something like cancer of the public sector.
(Look, it's an ANALOGY, not a proper comparison: NO public sector worker is "wrong" the way a cancer cell is wrong. They're just people, trying to get along, make a little money. Just like working in the private sector. The fault lies more with a SYSTEM that created too many jobs it couldn't afford.)
A strong, healthy public sector is a VITAL part of our country, but if it starts to grow uncontrollably then it becomes a danger to us all. Of course there is a danger of cutting too much, of cutting good and "healthy" bits out. And we need to be CAREFUL, so careful, because of that.
But if we ignore the problem and let it grow out of control then we end up going down the road through France to Spain and Italy and then Greece.
And the Greek economy looks very like it is actually going to DIE.
(And look, it's another analogy; there isn't an ACTUAL road that goes to from France to Spain to Italy. Not without using a car ferry from Gibraltar anyway.)
Let me try a DIFFERENT medical analogy. The Great British economy took one heck of a whack in 2008. Mr Dr Vince "the Power" Cable describes this as a MASSIVE HEART ATTACK. And you don't expect to go back to running marathons straight away after that. You need a period of RECOVERY.
The same is true of the ENTIRE WORLD economy.
There's no point placing BLAME here. We've all done that before. It's all too horribly complicated anyway, and by now we've all decided we know the story. But we cannot avoid the fact: it happened.
After an APOCALYPSE-class catastrophe like the Credit Crunch, NOTHING will fix the economy any time soon. I'm sorry, that's just the way it is. It will take time, and not months but years maybe even DECADES.
ANYONE who says otherwise is talking ALTERNATIVE MEDICINE
Any "growth" that we saw in 2010 was AT BEST a DEAD CAT-MONSTER BOUNCE (even a dead cat-monster will bounce if you throw it at the ground hard enough, and the 2008 crash was about as hard as it's possible to throw). At WORST it was an ILLUSION fuelled by a Quantum of Easing to the tune of BILLIONS of pounds and PAID FOR by a 25% fall in the value of Sterling and the more than 5% inflation rate we are having to live with now.
Handily we have EXPERIMENTAL EVIDENCE for what happens to recovery plans after a massive crash.
In Americaland, President Barry O borrowed a whole load more money (mainly because the crazy wing of the Reploutcrats wouldn't let him raise taxes) and invested it in a stimulus package. In Great Britain the Liberal Democrats agreed to let Master Gideon SLIGHTLY accelerate the cuts that Alistair Dalek had planned.
And as you can see… both economies are still EQUALLY SHAFTED.
There are really only two plans on the table: borrow as LITTLE as you can (the Coalition plan); borrow MORE than you need and invest it in the hope that that leads to growth that gets you enough extra income to cover the extra borrowing (Barry O's plan).
The EVIDENCE appears to be that NEITHER plan is very successful in the short term. The only difference being Barry O owes a LOT more money at the end.
So when Mr Balls says that the current stagnation is the fault of the Coalition's cuts then I'm sorry but, like the quacks who try to push alternative cures on the gullible, he is IGNORING the EVIDENCE.
(Or at least he's ignoring HALF the evidence: look, look, he cries, the Coalition plan hasn't worked instantly! We must do my plan for tax cuts and spending! No, no! Do not look at the Americaland stimulus package of tax cuts and spending that, er, hasn't worked instantly either!)
The economic situation is not getting any better. And Hard Labour keep repeating the same mantra that the economy is reaching a "turning point", that it's time for a "plan B" or that "when the facts change, they change their minds" (as if!).
But what, REALLY, has changed?
The problem is more the LACK of change, rather than anything else.
Now Hard Labour have invented a new stick to hit us with: they are tossing around the accusation that the Coalition are going to borrow "more than Labour would have done".
That's NONSENSE. The Coalition are only going to borrow more than Labour SAID they would have done. That's not the same.
Remember, Mr Alistair Dalek ALSO said that Britain under Labour would grow at 3½%, have 2% inflation and ½% interest rates. Do you think that that is what would REALLY have happened? Let me ask another question: do you think Mr Alistair Dalek ever got an economic forecast right when he was Chancellor of the Exchequer?
And it's funny, isn't it how Mr Balls never quotes Mr Dalek saying he would make cuts in 2011 "Deeper than Thatcher's."
(Almost as hilarious as last week's Any Questionables on the Radio, where Diane Abbot-and-Portillo immediately GROANS THEATRICALLY "oh, the old cliché" as soon as someone suggests that the financial problems may have ever so slightly started when Mr Frown was Prime Monster, but raises not a PEEP at the suggestion that all the greedy bankers can be traced back to… "oh the EVEN HOARIER old cliché" …Queen Maggie. I think this is called HISTORICAL IRONY.)
Hard Labour's claim that they would spend more and borrow less depends on them having succeeded, in the teeth of a global recession, and against every precedent they set while in power, in pulling huge levels of growth out of their fluffy behinds.
And if you believe THAT then you're clearly the target market for Lynx deodorant and Rapture cults.
Here's the difference: the Coalition borrowing is going UP to pay for the so-called AUTOMATIC STABILISERS, including the increase in benefits payments because there is higher unemployment and capital spending on infrastructure.
This is a CYCLICAL DEFICIT (the very-KEYNESIAN rise in borrowing when there is a fall in tax revenue to smooth the economic cycle – in fact, exactly what Hard Labour were SAYING we should be doing for most of the last year. A clue: we were).
When (when!) growth returns, there will be more jobs so more tax income and lower benefits and so the situation naturally reverses and we repay this borrowing.
This is the COMPLETE OPPOSITE of Labour borrowing to cover CURRENT spending i.e. paying for public sector jobs. THAT is a STRUCTURAL deficit, one that does NOT reverse when the economy gets better (as we saw when Mr Balls was spending more than the country earned at the HEIGHT of the BOOM!).
Let's look at the MATHS.
Unemployment is going UP because people in the PUBLIC sector are losing their jobs. The Coalition hoped this wouldn't happen because more jobs would be created in the private sector. That hasn't worked. That's a FAILURE on the government's part. The private sector IS taking on more workers, but not AS MANY as are losing jobs in the public sector.
(There is also a BIG problem for YOUNG people, because OLD people are working LONGER, and so not leaving GAPS in the workforce for young people to move into. And companies are reluctant to create NEW jobs for a great many people who have been failed by an education system that Labour geared to getting the TOP HALF into universities while under-investing in apprenticeships meant ABANDONING the rest. But that's a whole other demographic thing.)
The WORST argument against reducing the public sector is that "the government loses the taxes that they would have paid".
I've said this before but no one seems to be listening: this is Baron Munchausen logic.
Think about it. If the government employed EVERYBODY, could it raise enough tax to pay for us all? Only by taxing everybody at 100% of their salary.
Yes, making that public servant unemployed costs the exchequer lost tax and extra benefits. But not nearly so much as they SAVE in reduced wages.
In fact, if unemployment is rising but private sector employment remains under control then the public sector wage bill must be falling and the only reason the government can be borrowing more is because tax revenues remain depressed.
All things being equal you would EXPECT that – we've CUT income and corporate taxes and people have chosen to SAVE rather than SPEND which reduces spending taxes (VAT, duties and the like). The idea was to stimulate growth and take a smaller share of a bigger pie. But the pie DIDN'T get any bigger so obviously LESS TAX.
So where the Labour Party is RIGHT is in saying that we need GROWTH in order to get the country out of the economic doldrums.
Where they are DEAD WRONG is in thinking that there is anything that the government can DO about this that the Coalition aren't doing already! Lower taxes, doing that; increase capital spending, doing that; invest in education for young people, doing that; the list goes on. Could we do MORE of those things? Well, maybe, but it always comes down to where does the money come from and does it, in the end, actually work?
Growth, real growth, will come when people stop being more afraid than they are confident that there is money to be made. All we can do is try to spend wisely preparing for that in the meantime.
So when Mr Balls (or Mr Milipede, if anyone remembers him) says that they have some TONIC that will CURE the economy, just remember that it's probably SNAKE OIL. Or a MAGIC POINTING STICK. Or WOO.
Because Mr Balls' brand of prescription isn't MAGIC; it's just a NASTY TRICK.
.
Tuesday, September 27, 2011
Day 3921: Nu(Lab)Speak: What does Profligate Mean aka More Balls
Monday:
The GENIUS of Mr Bully Balls is to hold two completely contradictory views simultaneously without EXPLODING.
For example:
On the one fluffy foot, the (Hard Labour) Government CANNOT be blamed for the MASSIVE ECONOMIC IMPLOSION of 2008 because they were at the MERCY of worldwide economic conditions, the poor helpless little ducks.
On the OTHER fluffy foot, the (Coalition) Government are ENTIRELY to blame for their powerful, cruel, ideological policies causing the stagnation in growth and employment in 2011 because that CAN'T be anything to do with the meltdown of the Euro and the chaos in Americaland, can it?
Today, Mr Balls has made a speech to the Hard Labour conference setting out a plan to rescue the economy from the troublehe got us into that is entirely the Coalition's fault, except for the bits caused by bankers. Lehman Brothers didn't collapse because Hard Labour built too many hospitals you know, oh no, it was just a coincidence that when they went bust we didn't have any money left and had to borrow massively to save a couple of banks of our own.
Oh and Labour didn't "build" hospitals: they RENTED them on the never-never from PFI firms that will OWN THE PROPERTY at the end of the contracts. IDIOTS.
Mr Balls has FIVE NEW policies for the economy. To a certain value of "new". To a certain value of "five" for that matter.
His policies are:
Now as far as I can make out, that's FOUR policies, with "cut VAT" included TWICE.
Why am I thinking of that bit in Star Trek where Gul B'Stard has Captain Picard strapped to the torture-matic and is making him say: "There are FIVE policies!"?
And, you know, "cut VAT" (i.e. Mr Alistair Dalek tried last time and it didn't work but what the hell, we've got two slightly different flavours of VAT cut!) is an idea that Bully Balls has been banging on about for QUITE SOME TIME.
As is "repeat the bonus tax" (i.e. take VENGEANCE on the VILE BANKER!).
Now, I don't want to ASSUME anything but it does not seem LIKELY that Mr Balls has suddenly become an arch MONETARIST and so is not intending to LOWER the tax burden, so I must guess he means to do the bonus tax ON TOP OF the bank levy.
And just the other day Mr Potato Ed was talking to Andy Marrmite about "tax cuts for financial services companies", which turns out to mean the Corporation Tax cut for ALL companies (which, oddly enough is supposed to attract companies to move to Great Britain and hence stimulate GROWTH).
So Mr Ed and his almost-exactly-the-same-as-the-Coalition tuition fees policy wants to fund a cut in university costs FOR THE RICH by creating a differential Corporation Tax rate for banks.
Which is quite a LOT of extra taxes to heap on top of the banking sector. And yes, I know they've been VERY naughty, but still…
Look, I do think that we became OVER-DEPENDENT on financial services during the years that can only be described as "the Hard Labour government", but I am still a BIT dubious about policies that seem designed to drive THIRTY PERCENT of the country's economy into the SEA!
It's not exactly a solid GROWTH strategy, is it?
We need a MIXED economy which includes a SOUND banking sector, ideally with more and smaller banks – more because more competition is good for the consumer, and smaller because smaller is easier to bail out if they fail!
The bank levy is FAIR because we are charging the banks for the guarantee that we will bail them out. But PUNITIVE tax rates on both the banks as corporations AND the bankers who work in them will sooner or later see them relocate their businesses and, from a deficit-cutting point of view, their all-important tax revenues.
So, having redefined the word "five" (to mean "four") and the word "new" (to mean "same old same old") let's cut to something with more than one SYLLABLE and see what we can do about "profligate".
Mr Balls denies that Hard Labour were "profligate".
Well, let's see. You WERE spending more money than you raised in tax during the biggest longest boom in post-war history. Some might say that that was a touch EXCESSIVE. Maybe they might even hazard UNWISE. But was it "profligate"?
Well, the wiktionary gives me the definition:
"Inclined to waste resources or behave extravagantly."
So I suppose it depends on whether you think that Hard Labour ever WASTED any resources.
Was, say, invading a Middle Eastern country on the basis of a lie a "waste of resources" or was that a useful and productive endeavour that in no way wasted hundreds of our young people's lives?
Was it, to pick an example for which Mr Balls was personally responsible, "extravagant" to promise to rebuild every school in the country – whether they needed it or not? Whether we could AFFORD it or not?
Was it a waste of resources to commission a vast, pointless, endlessly unfinished IT project for the NHS?
Was "Blairforce One" an extravagance at all?
Did Mr Frown make the best use of resources when he flogged off the country's gold reserve at an historic low in the gold price?
Are you COMPLETELY sure that the Olympics aren't a MASSIVE VANITY PROJECT?
I could go on…
…and I shall!
The response to the foot and mouth outbreak, slaughtering pretty much every cow in the country, was that the best possible use of resources?
Surrendering the British rebate to the European Union, did we get all that we possibly could in exchange for that?
The Jubilee line extension, do you feel that all the extra payments to contractors have successfully avoided endless closures for repairs?
That, ahem, big tent in Greenwich for 2000 A.D.
Clearly it is POSSIBLE to argue that Hard Labour may have OVERSPENT by an few teensy BILLIONS and TRILLIONS, but only on things that were NECESSARY and IMPORTANT. Like the wallpaper in the Lord Chancellor's rooms. Or repaying Mr Bernie Ecclestone.
Clearly it is POSSIBLE… but only if you are BARKING MAD.
So, we must conclude that in Mr Balls' dictionary "profligate" means something like "spending wisely and with prudence", so he can deny ever being "profligate" and it be perfectly true. .
The GENIUS of Mr Bully Balls is to hold two completely contradictory views simultaneously without EXPLODING.
For example:
On the one fluffy foot, the (Hard Labour) Government CANNOT be blamed for the MASSIVE ECONOMIC IMPLOSION of 2008 because they were at the MERCY of worldwide economic conditions, the poor helpless little ducks.
On the OTHER fluffy foot, the (Coalition) Government are ENTIRELY to blame for their powerful, cruel, ideological policies causing the stagnation in growth and employment in 2011 because that CAN'T be anything to do with the meltdown of the Euro and the chaos in Americaland, can it?
Today, Mr Balls has made a speech to the Hard Labour conference setting out a plan to rescue the economy from the trouble
Oh and Labour didn't "build" hospitals: they RENTED them on the never-never from PFI firms that will OWN THE PROPERTY at the end of the contracts. IDIOTS.
Mr Balls has FIVE NEW policies for the economy. To a certain value of "new". To a certain value of "five" for that matter.
His policies are:
1. Repeat
Hard Labour's bank bonus tax which does not raise as much money as the
Coalition's bank levy
2. Bring
forward capital spending like what the Coalition are already doing (CaptainClegg announced this a week ago)
3. Cut
VAT
4. Cut
VAT
5. Give
businesses a National Insurance holiday like the one the Coalition are doing
but a bit different. Ish.
Now as far as I can make out, that's FOUR policies, with "cut VAT" included TWICE.
Why am I thinking of that bit in Star Trek where Gul B'Stard has Captain Picard strapped to the torture-matic and is making him say: "There are FIVE policies!"?
And, you know, "cut VAT" (i.e. Mr Alistair Dalek tried last time and it didn't work but what the hell, we've got two slightly different flavours of VAT cut!) is an idea that Bully Balls has been banging on about for QUITE SOME TIME.
As is "repeat the bonus tax" (i.e. take VENGEANCE on the VILE BANKER!).
Now, I don't want to ASSUME anything but it does not seem LIKELY that Mr Balls has suddenly become an arch MONETARIST and so is not intending to LOWER the tax burden, so I must guess he means to do the bonus tax ON TOP OF the bank levy.
And just the other day Mr Potato Ed was talking to Andy Marrmite about "tax cuts for financial services companies", which turns out to mean the Corporation Tax cut for ALL companies (which, oddly enough is supposed to attract companies to move to Great Britain and hence stimulate GROWTH).
So Mr Ed and his almost-exactly-the-same-as-the-Coalition tuition fees policy wants to fund a cut in university costs FOR THE RICH by creating a differential Corporation Tax rate for banks.
Which is quite a LOT of extra taxes to heap on top of the banking sector. And yes, I know they've been VERY naughty, but still…
Look, I do think that we became OVER-DEPENDENT on financial services during the years that can only be described as "the Hard Labour government", but I am still a BIT dubious about policies that seem designed to drive THIRTY PERCENT of the country's economy into the SEA!
It's not exactly a solid GROWTH strategy, is it?
We need a MIXED economy which includes a SOUND banking sector, ideally with more and smaller banks – more because more competition is good for the consumer, and smaller because smaller is easier to bail out if they fail!
The bank levy is FAIR because we are charging the banks for the guarantee that we will bail them out. But PUNITIVE tax rates on both the banks as corporations AND the bankers who work in them will sooner or later see them relocate their businesses and, from a deficit-cutting point of view, their all-important tax revenues.
So, having redefined the word "five" (to mean "four") and the word "new" (to mean "same old same old") let's cut to something with more than one SYLLABLE and see what we can do about "profligate".
Mr Balls denies that Hard Labour were "profligate".
Well, let's see. You WERE spending more money than you raised in tax during the biggest longest boom in post-war history. Some might say that that was a touch EXCESSIVE. Maybe they might even hazard UNWISE. But was it "profligate"?
Well, the wiktionary gives me the definition:
"Inclined to waste resources or behave extravagantly."
So I suppose it depends on whether you think that Hard Labour ever WASTED any resources.
Was, say, invading a Middle Eastern country on the basis of a lie a "waste of resources" or was that a useful and productive endeavour that in no way wasted hundreds of our young people's lives?
Was it, to pick an example for which Mr Balls was personally responsible, "extravagant" to promise to rebuild every school in the country – whether they needed it or not? Whether we could AFFORD it or not?
Was it a waste of resources to commission a vast, pointless, endlessly unfinished IT project for the NHS?
Was "Blairforce One" an extravagance at all?
Did Mr Frown make the best use of resources when he flogged off the country's gold reserve at an historic low in the gold price?
Are you COMPLETELY sure that the Olympics aren't a MASSIVE VANITY PROJECT?
I could go on…
…and I shall!
The response to the foot and mouth outbreak, slaughtering pretty much every cow in the country, was that the best possible use of resources?
Surrendering the British rebate to the European Union, did we get all that we possibly could in exchange for that?
The Jubilee line extension, do you feel that all the extra payments to contractors have successfully avoided endless closures for repairs?
That, ahem, big tent in Greenwich for 2000 A.D.
Clearly it is POSSIBLE to argue that Hard Labour may have OVERSPENT by an few teensy BILLIONS and TRILLIONS, but only on things that were NECESSARY and IMPORTANT. Like the wallpaper in the Lord Chancellor's rooms. Or repaying Mr Bernie Ecclestone.
Clearly it is POSSIBLE… but only if you are BARKING MAD.
So, we must conclude that in Mr Balls' dictionary "profligate" means something like "spending wisely and with prudence", so he can deny ever being "profligate" and it be perfectly true. .
Friday, June 17, 2011
Day 3819: If Mr Balls Wants a Tax Cut So Bad… Why Doesn't He Propose Cutting LABOUR'S NI Rise?
Thursday:
When Mr Bully Balls, Labour's master of monetary mayhem, performs a complete U-TURN from "spend more!" to "tax less!" the real question is: why don't people just LAUGH?
But, okay, let's look at tax changes this year:
The Conservatories COST you £390(*1) a year by putting up your VAT.
The Liberal Democrats GAVE you up to £200(*2) with a rise in your Income Tax Allowance.
and
Hard Labour COST you £188(*3) by putting your National Insurance up. Oh yes they did. Mr Alistair Dalek did it a year in advance.
So who's REALLY "putting money back in your pocket"?
Look, just SUPPOSE that we had twelve billion quid to burn, and that completely reversing all the pain of narrowing the deficit we've done so far wouldn't panic the markets, terminate our triple-A credit rating and kick interest rates through the stratosphere…
Would the BEST way, if you want to boost spending by "putting money back in people's pockets", would the BEST way REALLY to be cutting a sales tax that – particularly in a time of high inflation – may or may not be passed on to the customer, rather than, say, a DIRECT tax cut.
LIKE THE ONE WE DID!
The IDEA of a short-term VAT cut to stimulate the economy is supposed to work like this: first, things cost less, so people buy more, which means more production in the economy for the same amount of money going around, which means more jobs and so eventually more money going around; second, and according to the IFS possibly more important, the KNOWLEDGE that prices NEXT YEAR are going to go back up again encourages people to spend money NOW rather than saving it till next year.
The only REAL problem with this theory is… it DIDN'T WORK.
(And even supposing that it HAD worked, then it's not a trick that you can KEEP doing, is it – if you encouraged people to spend more in 2009 because the VAT rate was going back up in 2010… and then encouraged people to spend more in 2010 because the VAT rate was going up AGAIN in 2011 – which it did – then how are they supposed to have any spending LEFT to "bring forward" in 2011 for when the VAT goes back up yet again in 2012?)
But studies showed that when Mr Dalek cut the VAT rate back in 2008 that most people DIDN'T bring their spending forwards.
Add to that the evidence that, after INITIALLY cutting prices, retailers put them back up on the sly and that it actually COSTS businesses a whole lot of money if you make them change all their pricing at the drop of a hat (it may not seem like much but changing all those price tags and reprinting all those price lists and altering all your advertising… it does add up), then you have to ask, HOW is this "stimulus" supposed to stimulate ANYTHING?
…Actually, what I suspect is that Mr Balls announcement is a pretty CYNICAL attempt to provide a STIMULUS for media coverage of the Labour Party.
Hard Labour had had a fairly DODGY week: the "Balls Papers" were pretty much the SMOKING GUN that revealed that Hard Labour KNEW that they were spending too much – but carried on spending anyway; Mr Potato Ed Millipede's leadership was called into question after a year of doing nothing; and Mr DAVID Millipede's "leader's speech" was leaked to the press by persons unknown (aka Mr David Millipede) furthering rumours of a poisonous fraternal rift. Or, since this is the party of Lord Blairimort and Mr Frown, ANOTHER poisonous fraternal rift.
The REAL cause of Hard Labour's apparently-sudden crack-up is the dawning realisation in the media that they are in fact IRRELEVANT. Any SERIOUS debate about policy is between the Conservatories and the Liberal Democrats. Hard Labour have NOTHING to say!
Apparently Mr Potato Ed has been complaining that no one pays attention to his speeches. Well, in if he wants people to LISTEN, he ought to have SOMETHING to SAY.
(Take this DRIVEL about Labour "being seen to be the party of bankers and scroungers"… when he talked about the SQUEEZED MIDDLE who'd have guessed that he meant to blame the recession on the rich AND the poor!)
So Mr Bully Balls, a NINJA of the black arts of spin, was after a quick headline-grabbing stunt to hastily re-establish the cover-up and make it LOOK like they are contributing to the national conversation. When the truth is, for the moment at least, they are full of sound and fury. And signify NOTHING.
*1: according to Mr Potato Ed's claim that average families would be £7.50 a week worse off
*2: a £1000 increase in the personal allowance is worth £200 a year to a taxpayer on the basic 20% rate
*3: based on average earnings of £26,000, a 1% rise in National Insurance costs you £188
NB: NOT comparing like with like – Mr Millipede was taking about HOUSEHOLDS; the other figures are based on INDIVIDUALS. Adjust your thinking accordingly.
.
When Mr Bully Balls, Labour's master of monetary mayhem, performs a complete U-TURN from "spend more!" to "tax less!" the real question is: why don't people just LAUGH?
But, okay, let's look at tax changes this year:
The Conservatories COST you £390(*1) a year by putting up your VAT.
The Liberal Democrats GAVE you up to £200(*2) with a rise in your Income Tax Allowance.
and
Hard Labour COST you £188(*3) by putting your National Insurance up. Oh yes they did. Mr Alistair Dalek did it a year in advance.
So who's REALLY "putting money back in your pocket"?
Look, just SUPPOSE that we had twelve billion quid to burn, and that completely reversing all the pain of narrowing the deficit we've done so far wouldn't panic the markets, terminate our triple-A credit rating and kick interest rates through the stratosphere…
Would the BEST way, if you want to boost spending by "putting money back in people's pockets", would the BEST way REALLY to be cutting a sales tax that – particularly in a time of high inflation – may or may not be passed on to the customer, rather than, say, a DIRECT tax cut.
LIKE THE ONE WE DID!
The IDEA of a short-term VAT cut to stimulate the economy is supposed to work like this: first, things cost less, so people buy more, which means more production in the economy for the same amount of money going around, which means more jobs and so eventually more money going around; second, and according to the IFS possibly more important, the KNOWLEDGE that prices NEXT YEAR are going to go back up again encourages people to spend money NOW rather than saving it till next year.
The only REAL problem with this theory is… it DIDN'T WORK.
(And even supposing that it HAD worked, then it's not a trick that you can KEEP doing, is it – if you encouraged people to spend more in 2009 because the VAT rate was going back up in 2010… and then encouraged people to spend more in 2010 because the VAT rate was going up AGAIN in 2011 – which it did – then how are they supposed to have any spending LEFT to "bring forward" in 2011 for when the VAT goes back up yet again in 2012?)
But studies showed that when Mr Dalek cut the VAT rate back in 2008 that most people DIDN'T bring their spending forwards.
Add to that the evidence that, after INITIALLY cutting prices, retailers put them back up on the sly and that it actually COSTS businesses a whole lot of money if you make them change all their pricing at the drop of a hat (it may not seem like much but changing all those price tags and reprinting all those price lists and altering all your advertising… it does add up), then you have to ask, HOW is this "stimulus" supposed to stimulate ANYTHING?
…Actually, what I suspect is that Mr Balls announcement is a pretty CYNICAL attempt to provide a STIMULUS for media coverage of the Labour Party.
Hard Labour had had a fairly DODGY week: the "Balls Papers" were pretty much the SMOKING GUN that revealed that Hard Labour KNEW that they were spending too much – but carried on spending anyway; Mr Potato Ed Millipede's leadership was called into question after a year of doing nothing; and Mr DAVID Millipede's "leader's speech" was leaked to the press by persons unknown (aka Mr David Millipede) furthering rumours of a poisonous fraternal rift. Or, since this is the party of Lord Blairimort and Mr Frown, ANOTHER poisonous fraternal rift.
The REAL cause of Hard Labour's apparently-sudden crack-up is the dawning realisation in the media that they are in fact IRRELEVANT. Any SERIOUS debate about policy is between the Conservatories and the Liberal Democrats. Hard Labour have NOTHING to say!
Apparently Mr Potato Ed has been complaining that no one pays attention to his speeches. Well, in if he wants people to LISTEN, he ought to have SOMETHING to SAY.
(Take this DRIVEL about Labour "being seen to be the party of bankers and scroungers"… when he talked about the SQUEEZED MIDDLE who'd have guessed that he meant to blame the recession on the rich AND the poor!)
So Mr Bully Balls, a NINJA of the black arts of spin, was after a quick headline-grabbing stunt to hastily re-establish the cover-up and make it LOOK like they are contributing to the national conversation. When the truth is, for the moment at least, they are full of sound and fury. And signify NOTHING.
Workings
*1: according to Mr Potato Ed's claim that average families would be £7.50 a week worse off
*2: a £1000 increase in the personal allowance is worth £200 a year to a taxpayer on the basic 20% rate
*3: based on average earnings of £26,000, a 1% rise in National Insurance costs you £188
NB: NOT comparing like with like – Mr Millipede was taking about HOUSEHOLDS; the other figures are based on INDIVIDUALS. Adjust your thinking accordingly.
.
Tuesday, March 29, 2011
Day 3739: Money
Monday:
I suppose we all like to THINK that we could take a one pound coin to the Bank of England and swap it for one pound coin's worth of gold. But if you take your pound coin to the Bank of England, all they will give you in exchange is… ANOTHER pound coin.
Of course, a moment's thought will explain why. If Great Britain, a trillion pounds in debt, were, like a dragon at Gringotts, sitting on a great big hoard of gold, wouldn't we, um, sell it to pay off the debt?
Oh wait, Mr Frown already did that.
There is a theory that money exists just because the Government SAYS that it does.
This is what is known as "Modern Monetary Theory" or "MMT", and I have recently been reading a small tome (pdf) by one of its proponents, a Mr Warren Mosler.
It's a bit like discovering a SITH HOLOCRON.
You can see how the ideas of the "other side" are put together – there is a LOT in there that clearly informs the what I call "thinking" of Mr Bully Balls, for example – but you can't quite help but feel oddly REPULSED because there's clearly SOMETHING not quite right, even if you can't put your fluffy foot on what it is!
(And I thought that MMT was a kind of TANK for BATTLE DROIDS in STAR WARS, but it turns out that's an "MTT" or "Multi-Troop Transport". Though as it happens, the Wackypedia disambiguation for "MMT" offers up both "Modern Monetary Theory" AND "Magical Mystery Tour". You can make your own jokes up, really.)
Now you SHOULD bear in mind that Mr Mosler is a RESPECTED and WORLD-RENOWN economist with YEARS of study and thought behind his works. Also he's a candidate for the US Senate. And I am a stuffed elephant. Admittedly an AWARD-WINNING stuffed elephant, but even so.
And what he has to say READS very PLAUSIBLY.
But my rule of thumb is if it sounds too good to be true it almost certainly IS too good to be true. And this doesn't half sound like the MAGIC MONEY TREE.
Money does NOT grow on trees. Unless you are the survivors of the Golgafrinchian "B Ark" that crash-landed on prehistoric Earth in Mr Douglas Adams' "Hitchhikers' Guide to the Galaxy". They adopted the LEAF as their currency and all became instant millionaires. Although there was a small problem with inflation. As we will see, this is a not untypical outcome of creating money from nothing.
Anyway, I'm going to try to explain some of the things in his theory and why I think they must be wrong. But you may prefer to read him in his own words and decide for yourself.
In this theory, since money exists because the government says it does, then taxation is just the government saying that some of the money – your money – does NOT exist any more. Similarly, government spending is just the government creating new money, as and when it needs it. And there is NO CONNECTION between the two.
Thus the government can never go bankrupt. Do you see the attraction for Hard Labour?
When the government taxes you, claims Mr Mosler, all it does is change the numbers on your bank account. When the government spends, all it does is change the numbers on the bank account of whoever it is paying.
Mr Mosler likens this to the scoreboard in a football game. (I suspect he means an AMERICAN football game, but it still counts.) When one team scores, the ground staff change the numbers on the scoreboard. They don't need to have a supply of "goals" beforehand; they just "create" the score at the point when it is needed.
This leads to the BACKWARDS-SEEMING notion that the government does NOT raise taxes in order to have money which it can spend, but instead SPENDS so that people will have money which it then collects again in taxes.
Oh dear; Daddy says his head has just turned inside out!
let me try and give you Mr Mosler's explanation:
The government demands tax from people (under threat of punishment) and only accepts payment in its own special tokens (what we call "the currency" which is "pounds and pence" to you and me or "dollars" to Mr Mosler).
This means that people have to OBTAIN currency, which they can only get from the people who create the currency, i.e. the government themselves.
Which, in turn, means that people EITHER have to work for the government directly OR produce something which they can trade with government employees in order to get the required tokens to settle their tax bill.
So, the government "creates" all the money and "puts it into the economy" (spot the Bully Balls phrase). Private business just "re-circulates" the money inside the economy like a big tumble-drier full of notes. And then the government destroys some of the money by taxation.
The illogical logical consequence of this is that if you want to GROW the economy… the government should almost always run a deficit.
(Further counter-factual arguments that follow include: "running a trade deficit is good because imports are a real benefit and exports are a real cost(!)"; and "leaving our debts for our kids is fine – they'll still enjoy all the benefits of the goods they produce because they can't send those goods back via time travel to settle our debts now(!)" – to which I have to reply: "no, but they CAN send them to CHINA to settle the debt. You IDIOT.")
Now, this is all rather like that optical illusion of those monks walking up the endless stairway. It LOOKS like it makes sense, but surely there's something WRONG somewhere.
And I think that, actually, it has the same PROBLEM as the monks' stairwell: it's a system with NO INPUT. Or, as Daddy Alex puts it: a perpetual stagnation machine!
Suppose EVERYONE goes to work for the government. The government can create the money to pay everyone and everyone can pay their taxes, and what happens? Everyone starves to death.
Look, let's just step back a second and ask the IMPORTANT question: what IS this thing called "the economy" anyway?
Well, it seems to me that "the economy" is basically a machine for turning WORK into GOODIES.
Most people have some basic needs: food, shelter, James Bond DVDs and so on.
At the most basic level: you COULD go out and fix all of these things for yourself: you could catch your own food; you could build your own shelter; you could make your own cine-camera and film yourself performing your own James Bond script… or is that just me?
This is called a SUBSISTENCE economy, or TOO MUCH EFFORT.
A step up from that is that YOU could go and gather food while YOUR FRIEND could stay behind and build shelter. This is a (slightly) more efficient use of both your time. AND it is the most basic form of ECONOMY: you put in your labour getting food and get out BOTH food AND shelter; your mate puts in labour building shelter and gets out BOTH shelter AND food.
You've both turned your work into more goodies.
It should be pretty obvious how you extend this to a BARTER economy: you and your friend might have EXTRA food left over – suppose you're especially good at gathering apples, you might have more apples than you need or want. So you can take off with some of your EXTRA apples and see if you can't find someone with something they might be willing to SWAP. Perhaps you find someone who's really good at growing potatoes.
So now, you've put in your work gathering apples and you've got apples AND shelter AND potatoes.
BARTER allows for more complicated economies to develop. If you aren't spending all your time gathering your own food and finding your own shelter then you can SPECIALISE: for example you can become an expert in making TOOLS. The tools themselves might not feed or shelter you, but they enable someone else to be BETTER at getting food or making shelter. So you make them a tool, and they use it to increase the stuff they get from their labour, and in return give some of the excess back to you.
[Even today, this is why trade is GOOD – and why exports are NOT a cost; you've converted your labour into goodies which you swap for other goodies and everyone benefits.]
So you can see how this is a BETTER sort of economy, but it's still a bit CUMBERSOME. Carrying, say, a flock of sheep around with you to exchange for stuff is a bit of a chore, not to mention fiddling with the small change.
Eventually, it occurred to people that carrying around small chunks of VALUABLE stuff – mainly lumps of gold – was more convenient.
Now, a chap called King Croesus of Lydia came up with the idea of making regular sized lumps of gold so that you could easily count out different amounts depending on how much things were worth. And he decided to have his face stamped onto each one – well, he was king, after all. This was the invention of COINS, and also why we still talk about being "as rich as Croesus" – because for a while at least he did literally own all of the money in the world.
Of course it helped that his kingdom of Lydia – in modern day Turkey – was sat on a great big deposit of gold to make coins out of. Well, electrum, actually, which is a naturally occurring alloy or what we call gold mixed with silver, though HE called it gold, and so invented debasing the currency at the same time that he invented a currency to debase!
Unfortunately for King Croesus, Lydia was also slap-bang in between Greece and Persia and – with all that gold – a very tasty target for invasion; Croesus made the SLIGHT strategic error of pre-emptively attacking the vast Persian Empire who promptly obliterated him. Still, they quite liked this "coins" notion.
So, once the idea had caught on, money in those Ye Olden Dayes was worth its weight in gold mainly because, Croesus electrum aside, it WAS gold. Or silver. Or copper. Or sometimes shiny shells. Or even leather belts. I'm drifting…
This was called COMMODITY money, because the money itself was an exchangeable commodity or what experts call "useful stuff". The economy was now basically "BARTER PLUS": that is, LIKE barter but with a sort of agreed exchange rate based on the value of the stuff you made your coins from.
This was quite a lot of FUSS, though. The coins were HEAVY and cumbersome and even if people DIDN'T try to cheat you by mixing their gold with silver (or some copper or tin or lead or whatever), it wasn't always easy to be sure you were getting the weight of gold you thought you were. Different kings issued coins in different weights so they ought to be worth less or more than each other, but some traders were a bit crafty about that too.
So, to get around all this, someone came up with the idea of PAPER money. And as most people probably know, it was the CHINESE who thought of it first.
There is a famous episode of Doctor Who where Mighty Kublai Khan gives Dr Woo some of his new paper money. And this was worth real stuff: these notes were basically written I.O.U's, which could be exchanged for the stated amount of gold, silver or silk and wily old Kublai was as good as his (printed) word when it came to his money.
Unfortunately, his descendents were less trustworthy: running short of resources, they just PRINTED extra currency and carried on spending, resulting in nasty case of HYPERINFLATION – a situation that brought down their dynasty and that the subsequent Ming Dynasty only got out of by abolishing the currency all together!
Nevertheless, Kublai Khan's cash was an early example of what we call FIAT MONEY. Now, that's NOT currency that you can exchange for a small Italian car. It is money where the VALUE does not depend on what it is MADE of, but on the PROMISE that it is worth what it says it is worth. Fiat comes from the Latin for "let it be" as in "let it be worth THIS".
Ultimately – or at least as ultimately as the 21st Century – this evolves into our system where we don't even need the paper, and the promises are recorded as electronic scores inside banking machines.
Now, I think I can see how this FIAT system LOOKS like it's the government just wishing money into existence with a "let it be"; even more, I can see how the electronic recording of money makes it LOOK even more like Mr Mosler's football scoreboard.
But I think that those resemblances are SUPERFICIAL.
You can't ACTUALLY exchange your goals on the scoreboard for anything else.
Or, on a deeper level, the rewards of the players ARE determined (in the long run) by those numbers of goals scored, so in a way they DO exchange goals for exchangeable currency… BUT, that currency is paid for from the receipts that the club got at the gates (and from television rights) so in a way the ground staff DO have a supply of "goals" before they put the scores up on the board. Money goes in – the money is "turned into goals" for which the players labour – and then the scores are turned back into money which goes out again. There's just not a simple linear relationship between these flows.
Money is essentially a DEBT: it represents the VALUE that we are OWED for the labour and resources that we have put in (or maybe that someone else, our Daddies perhaps, put in and then gifted to us); and/or it represents the VALUE of goodies we expect to get OUT in return. And that is why we are able to swap money for goodies. Or for that matter vice versa if, for example, you produce James Bond DVDs and want my pocket money.
Suppose *I* choose to create a currency. It WOULDN'T have any VALUE because no one else would BELIEVE in it.
I could call it the CURRANT. It'll be a decimal currency: ten currants equals one BUN. Actually, currants are delicious and nutritious and that's in danger of being a COMMODITY CURRENCY that MIGHT have actual value. I'm drifting again…
Mr Mosler suggests another example of a family where the parents issue the children with coupons for doing chores under the rule that the children have to pay a "tax" of ten coupons or face punishment. But again, that's another system without input. Not to mention sadistic! The parents obviously have to go out to work to support themselves and their kids, even if they just go hunter-gathering. So that's NOT like a government "creating" currency. The kids get food protection, shelter "for free" from their parents. Probably not James Bond DVDs from THESE parents, though, the swine! Again, that's not ANYTHING like the way that real governments or real economies work.
"But," says Dr Freud, "literally infantilizing everyone EXCEPT ze government – zat IZ, how you say, revealing."
No government just sits down and CREATES an entire currency from scratch just by issuing it. Even when introducing a NEW currency – like when the Euro arrived in 1 January 1999 (yes, the single currency is two years older than ME!); or when pounds and pence replaced pounds shillings and pence on 15 February 1971 (yes, our "grand historic traditional pound" is two weeks YOUNGER than Daddy Richard!) – the new currency is swapped for old currency. So in theory (if not always in practice) the VALUE – or if you prefer the DEBT for LABOUR put in – gets carried forwards intact.
So if governments DON'T create all the money, where DOES the money come from?
Well, there's a bit of a CHICKEN and EGG thing going on: because there IS money in circulation, we BELIEVE people (governments or banks) when they gives us more money.
Look, there is more money IN CIRCULATION than is just the spending of the government.
If I was a farmer with a corn field, I could EAT some of my corn, TRADE some of my corn and KEEP some to PLANT next year. I don't need ANY input of "money" government.
Suppose that the person that I want to trade my corn with DOES want to pay me with money. Must they have got that money from the government? No, they could BORROW it from a bank. The BANK (not the government) creates the money. It also creates a DEBT that will have to be paid off with some WORK sooner or later. I ACCEPT the money because I BELIEVE the bank's promise to back up the money with assets, that is that the bank will get hold of the promised labour or goodies for me either directly from my trader or indirectly from someone else who has created a similar debt.
So we've added some VALUE to the economy (my corn) and added MONEY to the economy (as a debt my trader – or someone – will have to repay, backed up by the bank's promise to make them) and the government had nothing to do with it.
In fact there is a case for saying that the value of money is not created by the government but by the fact that the banks will accept it in settlement of debts. Or ultimately that any of US will accept it in settlement of debts.
And thus, the level of money in circulation has built up over time.
The labour put in by our parents and grand-parents and great-grand-parents and so on has built up some assets that endure. Even if the VALUE of those assets is concentrated into the hands of a very small number of people (starting with the government, formerly the King), the DEBT for that Labour (i.e. the MONEY) has been spread about rather thinly.
Since the first introduction of Fiat Money, what has tended to happen is that currencies have swung between being hard guarantees of convertibility into assets to open ended government promises depending mainly on how much money the government needs in circulation compared to how much people TRUST the government.
For example, after World War Part Two, and particularly remembering the inter-war inflation in Germany, trust in governments was very LOW so governments had to stick to the Gold Standard, essentially promising that they would always swap actual gold for currency if asked.
At the start of the Nineteen Seventies, President Tricky Dickey Nixon BROKE the Gold Standard and said US Dollars would no longer be a straight swap for gold.
He did this because too many people (mainly the Swiss) kept asking him for the metal stuff and it's just a bit AWKWARD for governments to have to hold a great deal of gold in reserve, on the off chance someone happens to ask for it. Just ask Mr Frown. Ahem. It doesn't earn you any interest, just sitting there glittering, and its value can fall relative to other investments (although recently it has performed better as people see it as a long term safe store of value because it's basically indestructible, unlike – as 2008 reminded us – the stock market).
More importantly, gold is in short supply which tends to limit the amount of money backed by gold that any (or even all) government can issue.
And governments have MORE assets than just their gold. Foreign currency reserves; debts; chunks of land. And one way of looking at assets is that they are basically something that you can convert into money later, whether that is gold or land that you can sell or a debt that you will get repaid. So from that point of view, FUTURE TAX REVENUES are "something that you can convert into money later" so sometimes governments look at their future tax revenues as ASSETS too. They issue money as a DEBT, a promise of goodies or labour, and they get the goodies or the labour to clear that debt IN THE FUTURE.
When it came to breaking the Gold Standard, it was a bit dodgy for a while, but basically people ACCEPTED that America had a basically strong economy and would be good for paying the debts. And the perceived value of the Dollar stayed good.
So governments CAN "create" money, but only in the same way that banks can "create" money i.e. because HISTORY means that they have assets and because we BELIEVE them when they promise they will swap the money for a share of those assets.
The government's ability to create money relies on our COLLUSION; money is created by our BELIEF that the debt will be settled, not by the government's say-so.
And we have already seen what happens when people DON'T believe their government when it creates money by its say-so: you get hyperinflation. It brought down the Yuan Dynasty in ancient China. It brought down the Weimar Republic in pre-war Germany. And today you can see the enormous strains being placed on the Euro because the governments of Greece, Ireland and now Portugal have lost credibility.
Money has been described (by Iain M Banks fictional ultra-smug post-scarcity society "The Culture" and/or their dragged-up Doctor Who cousins "The People") as an only-slightly-better-than-the-most-inefficient method of rationing in a society with limited resources. And the hardly-any-less-smug* Federation of Star Trek also claim to have abolished money. To which I say, yes, but you're FICTIONAL.
We have to live in a world where resources ARE limited. And that applies to governments too. So even if a government COULD create infinite MONEY, there is a strictly FINITE amount of resources it could obtain with that cash. So there is a FINITE VALUE to that money.
And, as Mr Dougie Adams would tell you, any finite number divided by infinity is as near to nothing as makes no difference: which is why printing money makes it worthless.
Daddy suggests that when Space Commander Sisko goes to the bar and says "give me a drink", Mr Quark says, "that will be one slip of latinum," rather than "your word and a shower of your imaginary Federation pixie dust? That'll do nicely…"
Obviously, that's NONSENSE. Space Commander Sisko would BULLY Mr Quark into giving him a drink or else the LIGHT and AIR gets TURNED OFF.
Though that DOES raise an interesting point: Mr Quark IS charging his customers for drinks, and for time in his only-to-be-used-for-wholesome-and-morally-uplifting-entertainment holosuites. So is he getting his power for replication and holograms for free from the station? If he is, do the Federation MIND him profiteering off their back? Even when THEY are the ones being charged for DRINKS? And if not, what do the "we don't use money" Federation DO with the rent they charge him?
Mind you, the Federation clearly have both technology ("replicators") that can make literally anything from thin air, or rather energy AND apparently inexhaustible supplies of cheap energy** to power them with. Under their "Prime Directive" they refuse to share this technology with their neighbours. So they have a society with limitless resources surrounded by (relatively) poor neighbours and no immigration problem… which makes you wonder what just what KIND of a society it might be.
You would need to put E=mc2 of energy IN, but you could annihilate the anti-matter with an identical mass of matter to get 2xE=2 mc2 or twice as much energy OUT.
Even allowing for a bit lost to inefficiency, that would be almost limitless free energy so long as you can keep your reactors topped up with matter in the form of any handy planets, stars, or annoying neighbouring civilisations who bug you about sharing the technology…
.
I suppose we all like to THINK that we could take a one pound coin to the Bank of England and swap it for one pound coin's worth of gold. But if you take your pound coin to the Bank of England, all they will give you in exchange is… ANOTHER pound coin.
Of course, a moment's thought will explain why. If Great Britain, a trillion pounds in debt, were, like a dragon at Gringotts, sitting on a great big hoard of gold, wouldn't we, um, sell it to pay off the debt?
Oh wait, Mr Frown already did that.
There is a theory that money exists just because the Government SAYS that it does.
This is what is known as "Modern Monetary Theory" or "MMT", and I have recently been reading a small tome (pdf) by one of its proponents, a Mr Warren Mosler.
It's a bit like discovering a SITH HOLOCRON.
You can see how the ideas of the "other side" are put together – there is a LOT in there that clearly informs the what I call "thinking" of Mr Bully Balls, for example – but you can't quite help but feel oddly REPULSED because there's clearly SOMETHING not quite right, even if you can't put your fluffy foot on what it is!
(And I thought that MMT was a kind of TANK for BATTLE DROIDS in STAR WARS, but it turns out that's an "MTT" or "Multi-Troop Transport". Though as it happens, the Wackypedia disambiguation for "MMT" offers up both "Modern Monetary Theory" AND "Magical Mystery Tour". You can make your own jokes up, really.)
Now you SHOULD bear in mind that Mr Mosler is a RESPECTED and WORLD-RENOWN economist with YEARS of study and thought behind his works. Also he's a candidate for the US Senate. And I am a stuffed elephant. Admittedly an AWARD-WINNING stuffed elephant, but even so.
And what he has to say READS very PLAUSIBLY.
But my rule of thumb is if it sounds too good to be true it almost certainly IS too good to be true. And this doesn't half sound like the MAGIC MONEY TREE.
Money does NOT grow on trees. Unless you are the survivors of the Golgafrinchian "B Ark" that crash-landed on prehistoric Earth in Mr Douglas Adams' "Hitchhikers' Guide to the Galaxy". They adopted the LEAF as their currency and all became instant millionaires. Although there was a small problem with inflation. As we will see, this is a not untypical outcome of creating money from nothing.
Anyway, I'm going to try to explain some of the things in his theory and why I think they must be wrong. But you may prefer to read him in his own words and decide for yourself.
In this theory, since money exists because the government says it does, then taxation is just the government saying that some of the money – your money – does NOT exist any more. Similarly, government spending is just the government creating new money, as and when it needs it. And there is NO CONNECTION between the two.
Thus the government can never go bankrupt. Do you see the attraction for Hard Labour?
When the government taxes you, claims Mr Mosler, all it does is change the numbers on your bank account. When the government spends, all it does is change the numbers on the bank account of whoever it is paying.
Mr Mosler likens this to the scoreboard in a football game. (I suspect he means an AMERICAN football game, but it still counts.) When one team scores, the ground staff change the numbers on the scoreboard. They don't need to have a supply of "goals" beforehand; they just "create" the score at the point when it is needed.
This leads to the BACKWARDS-SEEMING notion that the government does NOT raise taxes in order to have money which it can spend, but instead SPENDS so that people will have money which it then collects again in taxes.
Oh dear; Daddy says his head has just turned inside out!
let me try and give you Mr Mosler's explanation:
The government demands tax from people (under threat of punishment) and only accepts payment in its own special tokens (what we call "the currency" which is "pounds and pence" to you and me or "dollars" to Mr Mosler).
This means that people have to OBTAIN currency, which they can only get from the people who create the currency, i.e. the government themselves.
Which, in turn, means that people EITHER have to work for the government directly OR produce something which they can trade with government employees in order to get the required tokens to settle their tax bill.
So, the government "creates" all the money and "puts it into the economy" (spot the Bully Balls phrase). Private business just "re-circulates" the money inside the economy like a big tumble-drier full of notes. And then the government destroys some of the money by taxation.
The illogical logical consequence of this is that if you want to GROW the economy… the government should almost always run a deficit.
(Further counter-factual arguments that follow include: "running a trade deficit is good because imports are a real benefit and exports are a real cost(!)"; and "leaving our debts for our kids is fine – they'll still enjoy all the benefits of the goods they produce because they can't send those goods back via time travel to settle our debts now(!)" – to which I have to reply: "no, but they CAN send them to CHINA to settle the debt. You IDIOT.")
Now, this is all rather like that optical illusion of those monks walking up the endless stairway. It LOOKS like it makes sense, but surely there's something WRONG somewhere.
And I think that, actually, it has the same PROBLEM as the monks' stairwell: it's a system with NO INPUT. Or, as Daddy Alex puts it: a perpetual stagnation machine!
Suppose EVERYONE goes to work for the government. The government can create the money to pay everyone and everyone can pay their taxes, and what happens? Everyone starves to death.
Look, let's just step back a second and ask the IMPORTANT question: what IS this thing called "the economy" anyway?
Well, it seems to me that "the economy" is basically a machine for turning WORK into GOODIES.
Most people have some basic needs: food, shelter, James Bond DVDs and so on.
At the most basic level: you COULD go out and fix all of these things for yourself: you could catch your own food; you could build your own shelter; you could make your own cine-camera and film yourself performing your own James Bond script… or is that just me?
This is called a SUBSISTENCE economy, or TOO MUCH EFFORT.
A step up from that is that YOU could go and gather food while YOUR FRIEND could stay behind and build shelter. This is a (slightly) more efficient use of both your time. AND it is the most basic form of ECONOMY: you put in your labour getting food and get out BOTH food AND shelter; your mate puts in labour building shelter and gets out BOTH shelter AND food.
You've both turned your work into more goodies.
It should be pretty obvious how you extend this to a BARTER economy: you and your friend might have EXTRA food left over – suppose you're especially good at gathering apples, you might have more apples than you need or want. So you can take off with some of your EXTRA apples and see if you can't find someone with something they might be willing to SWAP. Perhaps you find someone who's really good at growing potatoes.
So now, you've put in your work gathering apples and you've got apples AND shelter AND potatoes.
BARTER allows for more complicated economies to develop. If you aren't spending all your time gathering your own food and finding your own shelter then you can SPECIALISE: for example you can become an expert in making TOOLS. The tools themselves might not feed or shelter you, but they enable someone else to be BETTER at getting food or making shelter. So you make them a tool, and they use it to increase the stuff they get from their labour, and in return give some of the excess back to you.
[Even today, this is why trade is GOOD – and why exports are NOT a cost; you've converted your labour into goodies which you swap for other goodies and everyone benefits.]
So you can see how this is a BETTER sort of economy, but it's still a bit CUMBERSOME. Carrying, say, a flock of sheep around with you to exchange for stuff is a bit of a chore, not to mention fiddling with the small change.
Eventually, it occurred to people that carrying around small chunks of VALUABLE stuff – mainly lumps of gold – was more convenient.
Now, a chap called King Croesus of Lydia came up with the idea of making regular sized lumps of gold so that you could easily count out different amounts depending on how much things were worth. And he decided to have his face stamped onto each one – well, he was king, after all. This was the invention of COINS, and also why we still talk about being "as rich as Croesus" – because for a while at least he did literally own all of the money in the world.
Of course it helped that his kingdom of Lydia – in modern day Turkey – was sat on a great big deposit of gold to make coins out of. Well, electrum, actually, which is a naturally occurring alloy or what we call gold mixed with silver, though HE called it gold, and so invented debasing the currency at the same time that he invented a currency to debase!
Unfortunately for King Croesus, Lydia was also slap-bang in between Greece and Persia and – with all that gold – a very tasty target for invasion; Croesus made the SLIGHT strategic error of pre-emptively attacking the vast Persian Empire who promptly obliterated him. Still, they quite liked this "coins" notion.
So, once the idea had caught on, money in those Ye Olden Dayes was worth its weight in gold mainly because, Croesus electrum aside, it WAS gold. Or silver. Or copper. Or sometimes shiny shells. Or even leather belts. I'm drifting…
This was called COMMODITY money, because the money itself was an exchangeable commodity or what experts call "useful stuff". The economy was now basically "BARTER PLUS": that is, LIKE barter but with a sort of agreed exchange rate based on the value of the stuff you made your coins from.
This was quite a lot of FUSS, though. The coins were HEAVY and cumbersome and even if people DIDN'T try to cheat you by mixing their gold with silver (or some copper or tin or lead or whatever), it wasn't always easy to be sure you were getting the weight of gold you thought you were. Different kings issued coins in different weights so they ought to be worth less or more than each other, but some traders were a bit crafty about that too.
So, to get around all this, someone came up with the idea of PAPER money. And as most people probably know, it was the CHINESE who thought of it first.
There is a famous episode of Doctor Who where Mighty Kublai Khan gives Dr Woo some of his new paper money. And this was worth real stuff: these notes were basically written I.O.U's, which could be exchanged for the stated amount of gold, silver or silk and wily old Kublai was as good as his (printed) word when it came to his money.
Unfortunately, his descendents were less trustworthy: running short of resources, they just PRINTED extra currency and carried on spending, resulting in nasty case of HYPERINFLATION – a situation that brought down their dynasty and that the subsequent Ming Dynasty only got out of by abolishing the currency all together!
Nevertheless, Kublai Khan's cash was an early example of what we call FIAT MONEY. Now, that's NOT currency that you can exchange for a small Italian car. It is money where the VALUE does not depend on what it is MADE of, but on the PROMISE that it is worth what it says it is worth. Fiat comes from the Latin for "let it be" as in "let it be worth THIS".
Ultimately – or at least as ultimately as the 21st Century – this evolves into our system where we don't even need the paper, and the promises are recorded as electronic scores inside banking machines.
Now, I think I can see how this FIAT system LOOKS like it's the government just wishing money into existence with a "let it be"; even more, I can see how the electronic recording of money makes it LOOK even more like Mr Mosler's football scoreboard.
But I think that those resemblances are SUPERFICIAL.
You can't ACTUALLY exchange your goals on the scoreboard for anything else.
Or, on a deeper level, the rewards of the players ARE determined (in the long run) by those numbers of goals scored, so in a way they DO exchange goals for exchangeable currency… BUT, that currency is paid for from the receipts that the club got at the gates (and from television rights) so in a way the ground staff DO have a supply of "goals" before they put the scores up on the board. Money goes in – the money is "turned into goals" for which the players labour – and then the scores are turned back into money which goes out again. There's just not a simple linear relationship between these flows.
Money is essentially a DEBT: it represents the VALUE that we are OWED for the labour and resources that we have put in (or maybe that someone else, our Daddies perhaps, put in and then gifted to us); and/or it represents the VALUE of goodies we expect to get OUT in return. And that is why we are able to swap money for goodies. Or for that matter vice versa if, for example, you produce James Bond DVDs and want my pocket money.
Suppose *I* choose to create a currency. It WOULDN'T have any VALUE because no one else would BELIEVE in it.
I could call it the CURRANT. It'll be a decimal currency: ten currants equals one BUN. Actually, currants are delicious and nutritious and that's in danger of being a COMMODITY CURRENCY that MIGHT have actual value. I'm drifting again…
Mr Mosler suggests another example of a family where the parents issue the children with coupons for doing chores under the rule that the children have to pay a "tax" of ten coupons or face punishment. But again, that's another system without input. Not to mention sadistic! The parents obviously have to go out to work to support themselves and their kids, even if they just go hunter-gathering. So that's NOT like a government "creating" currency. The kids get food protection, shelter "for free" from their parents. Probably not James Bond DVDs from THESE parents, though, the swine! Again, that's not ANYTHING like the way that real governments or real economies work.
"But," says Dr Freud, "literally infantilizing everyone EXCEPT ze government – zat IZ, how you say, revealing."
No government just sits down and CREATES an entire currency from scratch just by issuing it. Even when introducing a NEW currency – like when the Euro arrived in 1 January 1999 (yes, the single currency is two years older than ME!); or when pounds and pence replaced pounds shillings and pence on 15 February 1971 (yes, our "grand historic traditional pound" is two weeks YOUNGER than Daddy Richard!) – the new currency is swapped for old currency. So in theory (if not always in practice) the VALUE – or if you prefer the DEBT for LABOUR put in – gets carried forwards intact.
So if governments DON'T create all the money, where DOES the money come from?
Well, there's a bit of a CHICKEN and EGG thing going on: because there IS money in circulation, we BELIEVE people (governments or banks) when they gives us more money.
Look, there is more money IN CIRCULATION than is just the spending of the government.
If I was a farmer with a corn field, I could EAT some of my corn, TRADE some of my corn and KEEP some to PLANT next year. I don't need ANY input of "money" government.
Suppose that the person that I want to trade my corn with DOES want to pay me with money. Must they have got that money from the government? No, they could BORROW it from a bank. The BANK (not the government) creates the money. It also creates a DEBT that will have to be paid off with some WORK sooner or later. I ACCEPT the money because I BELIEVE the bank's promise to back up the money with assets, that is that the bank will get hold of the promised labour or goodies for me either directly from my trader or indirectly from someone else who has created a similar debt.
So we've added some VALUE to the economy (my corn) and added MONEY to the economy (as a debt my trader – or someone – will have to repay, backed up by the bank's promise to make them) and the government had nothing to do with it.
In fact there is a case for saying that the value of money is not created by the government but by the fact that the banks will accept it in settlement of debts. Or ultimately that any of US will accept it in settlement of debts.
And thus, the level of money in circulation has built up over time.
The labour put in by our parents and grand-parents and great-grand-parents and so on has built up some assets that endure. Even if the VALUE of those assets is concentrated into the hands of a very small number of people (starting with the government, formerly the King), the DEBT for that Labour (i.e. the MONEY) has been spread about rather thinly.
Since the first introduction of Fiat Money, what has tended to happen is that currencies have swung between being hard guarantees of convertibility into assets to open ended government promises depending mainly on how much money the government needs in circulation compared to how much people TRUST the government.
For example, after World War Part Two, and particularly remembering the inter-war inflation in Germany, trust in governments was very LOW so governments had to stick to the Gold Standard, essentially promising that they would always swap actual gold for currency if asked.
At the start of the Nineteen Seventies, President Tricky Dickey Nixon BROKE the Gold Standard and said US Dollars would no longer be a straight swap for gold.
He did this because too many people (mainly the Swiss) kept asking him for the metal stuff and it's just a bit AWKWARD for governments to have to hold a great deal of gold in reserve, on the off chance someone happens to ask for it. Just ask Mr Frown. Ahem. It doesn't earn you any interest, just sitting there glittering, and its value can fall relative to other investments (although recently it has performed better as people see it as a long term safe store of value because it's basically indestructible, unlike – as 2008 reminded us – the stock market).
More importantly, gold is in short supply which tends to limit the amount of money backed by gold that any (or even all) government can issue.
And governments have MORE assets than just their gold. Foreign currency reserves; debts; chunks of land. And one way of looking at assets is that they are basically something that you can convert into money later, whether that is gold or land that you can sell or a debt that you will get repaid. So from that point of view, FUTURE TAX REVENUES are "something that you can convert into money later" so sometimes governments look at their future tax revenues as ASSETS too. They issue money as a DEBT, a promise of goodies or labour, and they get the goodies or the labour to clear that debt IN THE FUTURE.
When it came to breaking the Gold Standard, it was a bit dodgy for a while, but basically people ACCEPTED that America had a basically strong economy and would be good for paying the debts. And the perceived value of the Dollar stayed good.
So governments CAN "create" money, but only in the same way that banks can "create" money i.e. because HISTORY means that they have assets and because we BELIEVE them when they promise they will swap the money for a share of those assets.
The government's ability to create money relies on our COLLUSION; money is created by our BELIEF that the debt will be settled, not by the government's say-so.
And we have already seen what happens when people DON'T believe their government when it creates money by its say-so: you get hyperinflation. It brought down the Yuan Dynasty in ancient China. It brought down the Weimar Republic in pre-war Germany. And today you can see the enormous strains being placed on the Euro because the governments of Greece, Ireland and now Portugal have lost credibility.
Money has been described (by Iain M Banks fictional ultra-smug post-scarcity society "The Culture" and/or their dragged-up Doctor Who cousins "The People") as an only-slightly-better-than-the-most-inefficient method of rationing in a society with limited resources. And the hardly-any-less-smug* Federation of Star Trek also claim to have abolished money. To which I say, yes, but you're FICTIONAL.
We have to live in a world where resources ARE limited. And that applies to governments too. So even if a government COULD create infinite MONEY, there is a strictly FINITE amount of resources it could obtain with that cash. So there is a FINITE VALUE to that money.
And, as Mr Dougie Adams would tell you, any finite number divided by infinity is as near to nothing as makes no difference: which is why printing money makes it worthless.
PS
*Daddy Alex couldn't disagree more! He says the Federation are far MORE smug – and with much less to be smug about! Also, they may CLAIM to have abolished money, but that doesn't stop them trading "gold pressed latinum" with the Ferengi when it suits them.Daddy suggests that when Space Commander Sisko goes to the bar and says "give me a drink", Mr Quark says, "that will be one slip of latinum," rather than "your word and a shower of your imaginary Federation pixie dust? That'll do nicely…"
Obviously, that's NONSENSE. Space Commander Sisko would BULLY Mr Quark into giving him a drink or else the LIGHT and AIR gets TURNED OFF.
Though that DOES raise an interesting point: Mr Quark IS charging his customers for drinks, and for time in his only-to-be-used-for-wholesome-and-morally-uplifting-entertainment holosuites. So is he getting his power for replication and holograms for free from the station? If he is, do the Federation MIND him profiteering off their back? Even when THEY are the ones being charged for DRINKS? And if not, what do the "we don't use money" Federation DO with the rent they charge him?
Mind you, the Federation clearly have both technology ("replicators") that can make literally anything from thin air, or rather energy AND apparently inexhaustible supplies of cheap energy** to power them with. Under their "Prime Directive" they refuse to share this technology with their neighbours. So they have a society with limitless resources surrounded by (relatively) poor neighbours and no immigration problem… which makes you wonder what just what KIND of a society it might be.
PPS
**Daddy reckons that the Federation has some sort of perpetual motion machines, and wonders if it might not be the replicators themselves – and you know he might be sort of right: if the replicators can replicate ANTI-MATTER (and why wouldn't they be able to?) then your onto a winner.You would need to put E=mc2 of energy IN, but you could annihilate the anti-matter with an identical mass of matter to get 2xE=2 mc2 or twice as much energy OUT.
Even allowing for a bit lost to inefficiency, that would be almost limitless free energy so long as you can keep your reactors topped up with matter in the form of any handy planets, stars, or annoying neighbouring civilisations who bug you about sharing the technology…
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