Yves here. Another point to add to Richard Murphy’s discussion of the illogical way economists think about savings: their lack of interest in how savers think about risk also leads to bizarre ideas about negative interest rates. One of the big reasons for promoting negative interest rates was the belief that consumers would spend more when negative interest rates deprived them of safe interest income because they’d preserve their lifestyles. In fact, most savers wind up saving even more because their interest income has fallen and they don’t want to deplete their capital. And on top of that, negative interest rates signal deflation, which means their dollars will be worth more in the future than now.
Yves here. Richard Murphy is writing from a UK vantage, where the lockdowns have been harder and longer-lived than in the US, stimulus has been less lavish, but the UK is also further along in getting citizens vaccinated (although the US ranks better on the proportion fully vaccinated, at 26%, versus 19% for the UK):
Another factor in the UK’s favor is as far as I can tell, vaccine hesitancy and anti-vax sentiment is lower than the US, so they don’t appear to be approaching vaccination stall speed, as we are here. So in the UK, it might be true that managing the reopening id the trickier problem now than managing Covid, particularly with Brexit and poor conditions in Europe as additional headwinds (both their Covid surges and their insufficient support spending). But the proximity to Europe also increases the odds of yet another contagion landing, particularly one that can do a decent job of escaping the vaccines (a variant of concern in India has two mutations on the spike prot
Yves here. While I wish I had some Easter programming, a mini tutorial will do. It would have been helpful for Richard Murphy to have also deployed the usual bookkeeping T accounts, since some find those visuals to clarify the money flows, but I trust this explanation of (fiat issuer) government bonds held by central banks works on a stand-alone basis.
By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK