Sunday 14 June 2015

MMT and The Problem with Government Bonds

Proponents of MMT are fond of arguing that the amount of government debt, i.e. the amount government bonds, that a government creates is not a problem. I have to take issue with this idea. The problem is that the interest on government bonds is paid by taxpayers in general, whereas the recipients of the interest are exclusively the bond holders. The greater the government debt, the greater the flow of money from the taxpayer in general to bondholders. This is clearly unfair to tax-paying-non-bond-holders... like me.

A possible counter argument is that the people that purchased government bonds are investing in the government and therefore the rest of us should be grateful for this service, and be happy to repay them with interest payments. The problem with this argument is that the money was not really investment at all. True investment is where you spend money on something that makes future production more efficient, like buying new machinery for a factory. But most of the money received from bond sales is simply spent on running costs, like wages. That's not investment at all.

35 comments:

  1. There's a difference between saying that interest on bonds doesn't create a *solvency problem* for the government and saying that the government *should* pay interest on its bonds, or indeed issue them at all.

    I can't think of a single MMT proponent who doesn't say that the government should not only NOT pay interest on bonds, it shouldn't issue them at all. Government deficits, they say, should just be held as reserve balances.

    Warren Mosler proposes to 'cease all issuance of Treasury securities' (see Proposals for the Treasury): http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html

    Bill Mitchell argues for a zero interest rate: http://bilbo.economicoutlook.net/blog/?p=1961

    On a comment on that blog, Scott Fullwiler agrees with Mitchell, and points out that Eric Tymoigne, Randy Wray, and Warren Mosler do also.

    So what on earth are you talking about?

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    1. Wow, what you say about governments not issuing bonds at all, sounds so different from the MMT stuff I've seen/read. I don't claim to be an authority on MMT, but the message I repeatedly get loud and clear is "we don't care how many billions worth of government bonds are out there, its not a problem"... this jars with the idea that MMTers would prefer to have no gov. bonds at all.

      Also, on wikipedia it says: "According to MMT the issuing of government bonds is best understood as an operation to offset government spending rather than a requirement to finance it."... this also gives no indication that MMTers would prefer to have no gov. bonds at all.

      If MMTers would generally prefer to have no gov. bonds, then that's good. I see no need for them either... but I think its something that should be made clearer, I'm feeling like I have been misdirected.

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    2. I suspect you may have misunderstood. The payment of interest is not a problem to a sovereign government. Whether that welfare payment (and it is a welfare payment) should be made to that group of people is a political matter for government to determine - one that requires careful consideration given that a great deal of government bonds back private pensions in payment.

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    3. I don't know why you haven't come across the MMT policy of eliminating bonds before. The links I posted are pretty explicit. Mosler also promotes the policy in his Soft Currency Economics II.

      Neil Wilson says here, explicitly: 'Gilts, of course, would cease to be issued under any rational government.' http://www.3spoken.co.uk/2013/05/making-banks-work.html

      For what it's worth, even my humble self has promoted the policy. See number 4 on this list: https://originofspecious.wordpress.com/2015/04/06/the-uk-election-and-some-mmt-policies/

      The government doesn't need to issue bonds to run deficits - that's what the bit of Wikipedia you quote is saying. And the government can make payments to whomever it likes. The point of getting rid of gilt-interest is that, as you point out, it's a pretty indiscriminate way of deciding who should get paid what.

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    4. Ok, I see that interest on government bonds has much in common with interest on reserves... but they're both bad. They're both a flow of money from taxpayers in general, to an arbitrary subset of the population that happen to save using government bonds, or keeping money in the bank. Neil, you say its a political matter, well that may be true, but it seems to be a *bad* political choice to pay interest.

      axdoulas said: "So the MMT line is that when there is a desire in the private sector to accumulate financial assets which outruns the ability of the private sector to increase liabilities long-term, the only way to avoid a future crash is for the government to supply the savings desires of the private sector"... so that sounds to me that perhaps MMTers might *prefer* that the government pay no interest in general, but they will reluctantly put up with it, because they see it as the only way to provide a non-bubble-prone savings mechanism.

      Have I got the gist of it now?

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    5. It's not 'bad' per se. It's just a choice to pay welfare to owners of bonds - which in general happen to be private pensioners.

      A whole set of Gilts - the indexed linked gilts - are specifically designed to provide an income stream that can pay pensions.

      In other words that portion of Gilt interest is a state pension in disguise.

      And it is not a flow of money *from* taxpayers. It is a flow of *new money* from government directly. Whether any more tax gets paid depends upon how that new money gets spent and saved through the system.

      For example if the government pays interest on a bond and the recipient simply saves it in a bank then no taxpayers are inconvenienced at all. They just get another bond.

      Yet if the bond holder spends the interest then somebody will get more income than they otherwise would have and that will lead to more spending and more taxation - dynamically expanding the economy. So you get a split of taxation and more bond issues.

      Interest is just the wages of right holders (those who hold bonds) in the same way that the state pension is the wages of right holders (those holding sufficient National Insurance credits).

      Now you can politically debate whether private bondholders are getting more real resources made for them than National Insurance Credit holders and whether that is fair. That is a political distributional debate.

      But operationally the function is the same. The government gives people money, who spend some of it and save some of it. The spending portion dynamically expands the economy to the extent that there are real resources free to absorb the spending. People then earn more in monetary terms and can therefore pay more tax to stop the overspending of the economy.

      Taxpayers fund nothing. The money taken from them is deleted in aggregate. But the only reason they are paying tax is because they are earning more than they otherwise would in the first place - because of prior government spending.

      Bonds or reserve deficits are there to allow people to save when there is insufficient private borrowing to absorb that saving. In other words when the private sector is saving to excess.

      It resolves the co-incidence of wants problem between private borrowing and private saving.

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    6. Not quite - not in my view anyway.

      The way for the government to supply the savings desires of the private sector is to get money into the economy *somehow*. Paying interest is one way of doing it, but not the most effective. And it's not the reason governments and CBs choose to pay interest. They do it to control the lending rate.

      Rather than controlling the lending rate, most MMT people think the government should prevent asset bubbles by controlling *what banks can lend for*. Since banks depend on a credit line from the CB, they have to accept whatever lending restrictions the CB places upon them, or they risk losing their credit line (see Neil's piece that I linked above).

      As for how the government should supply the savings desires of the private sector, that's where to job guarantee comes in. If the government agrees to hire everyone willing to work at a living wage, funding this through its deficit, it pumps money into the economy which can then be saved.

      Crucially, the size of its deficit will then automatically expand and contract in proportion to the level of private-sector employment, guaranteeing zero unemployment AND preventing inflation (if prices rise, businesses will hire the now comparatively cheap labour out of the government's guarantee programme and thus check the increase in prices).

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    7. (Sorry, technically interest payments aren't there *only* to control the lending rate. Neil is right to point out another one of their functions - they fund a state pension through the back door. But the main point is that they're not necessary for preventing asset bubbles, and I doubt they're sufficient either. For that you have to control the quality of loans, not the price of money.)

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    8. "They do it to control the lending rate."

      They do it to *try* to control the lending rate. But both the quantity of lending induced, its final price and its distribution is uncertain.

      I often describe it as trying to steer a car by shifting your weight distribution around, rather than using the perfectly good steering wheel (direct government spending via the auto stabilisers) in front of you.

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    9. Correction accepted. The 'to' was a 'to' of intention rather than result.

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    10. To: axdouglas

      Re: "MMT people think the government should prevent asset bubbles by controlling *what banks can lend for*."

      We are in full agreement here, I've preached that myself for years, (its not a headline message that I got from my brief exposure to MMT, but I'll believe you if you tell me its standard MMT). Presumably you think lending in order to purchase non-productive assets should be suppressed. BTW, I consider shares on the secondary market to be (mostly) non-productive.

      I should mention that I am in favour of an additional secondary mechanism for suppressing asset bubbles involving allowing interest rates to when the demand for loans is high.. but maybe that's another story.

      Re: "As for how the government should supply the savings desires of the private sector... snip... it pumps money into the economy which can then be saved."

      Having money available to be saved is not at all the same thing as "supplying savings desires". Perhaps even the opposite. If I was hoping to save by putting aside a pile of cash under the mattress, I would hope that in the future there would be *less* money available in the economy, not more. Storing money without gaining interest, as a form of savings, only works if you have an entirely fixed or falling money supply.

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    11. Re: "And it is not a flow of money *from* taxpayers. It is a flow of *new money* from government directly"..

      I know the arguments on this, but its just one way of looking at it. Once you are comfortable with the idea that a government can act a "source or sink" of money, then there is no harm in considering government spending as being predominantly* funded by the taxpayer. There is no difference in the economic consequences.

      If group X is given a bunch of money, even if it came from outer space, then it makes everyone outside group X poorer - its as if it was being paid for by everyone outside group X.

      * i.e. government spending is only approximately equal to the tax take, and need not be exactly the same. I have no problem with the idea of a government printing money to make up a (not too large) shortfall (so long as it is part of a well thought through purpose, like causing some desired inflation).

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    12. To Neil: Re: "Bonds or reserve deficits are there to allow people to save when there is insufficient private borrowing to absorb that saving. In other words when the private sector is saving to excess."

      The private sector is almost certainly in a continuous state of saving to excess due to our dramatically increased average retirement duration. It seems improbable that there are enough reasonable true productive investments available to absorb the current need for savings.

      I too think that government should supply a "savings" mechanism for retirement, both to avoid bubbles as well as to make retirement more predictable. But my plan would involve everyone, so that it did not correspond to such an arbitrary redistribution as the bonds/reserves mechanism. See http://mickanomics.blogspot.co.uk/2009/03/pensions-casino-alternative.html

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    13. "There is no difference in the economic consequences."

      Yes there is. You are taking a static view. The economy is dynamic.

      Viewing spending coming first when linearising the cycle is important, because it means there is no precursor. You just spend and you base your decision entirely upon the real capacity of the economy to support that spending.

      Viewing it any other way imposes an implicit *financial* restriction - often without even looking at the real situation. The desires and wants of the unemployed are therefore never valued because nobody ever puts the opportunity costs in monetary terms.

      Viewpoints matter.

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    14. "f group X is given a bunch of money, even if it came from outer space, then it makes everyone outside group X poorer"

      It makes everybody richer.

      Because if they save it they feel richer and nobody else is poorer. And if they spend it they cause real activity that wouldn't otherwise have happened due to lack of spending. That amortises fixed costs across greater production increasing productivity efficiency.

      So giving people money, particularly if you do it in the right way, *lowers* the cost to everybody. Which means everybody gets more stuff for their existing earnings, and those in the spending chain get more earnings and profits.

      Economies are dynamic. Both the real and financial circuits expand and contract independently of each other to fulfil everybody's goals and desires.

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    15. "It seems improbable that there are enough reasonable true productive investments available to absorb the current need for savings."

      Very important to realise that MMT net-excess savings are *financial* savings in a bank or in cash.

      They are *not* share investments or anything else like that. All that happens there is those tokens change hands at ever greater value until you reach a portfolio indifference level. Eventually somebody is left holding the cash and won't bid up the tokens any further.

      That's the basis by which QE generates a wealth effect. It causes a portfolio reconfiguration to a higher value by removing investments from the available pool.

      People then feel wealthier in aggregate and start spending a little more from their income.

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    16. Re: "Viewpoints matter."... sorry but your explanation makes no sense to me whatsoever.

      Consider an agent based computer model with agents of type A and B. You could get the computer to perform all the spending actions of group A, then all the spending actions of group B, then repeat like so:

      A B
      A B
      A B

      etc. Alternatively you could do B then A like so:

      B A
      B A
      B A

      The overall behaviour of the simulation would be identical.

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    17. Re: "It makes everybody richer." - this has to be nonsense. Is that answer independent of the amount of money? Is that answer independent of the initial economic circumstances?

      "And if they spend it they cause real activity that wouldn't otherwise have happened due to lack of spending." - the "activity" that it causes (in the first step) is the transferral of goods owned by non-X to X.

      If the money going to group X was a continuous flow (rather than a one-off) then this would correspond to a continuous flow of real goods and services from non-X to X.

      Would you rather be in group X or non-X?

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    18. Intra day the government spends from its buffer and unlimited overdraft into the economy That increases the amount of reserves in the economy during the day. It then collects taxes during the day and settles up with bond issues, bond lending on a night.

      Think breathing in (expansion) before breathing out (contraction).

      The cumulative effect of that dynamic extra little impulse is important. That is the dynamic effect over the static analysis you are conducting.

      This is why we say spending causes taxation. It is why we say loans cause deposits - because there is a short time when the system is expanded before the second half kicks in.

      You can't look at the average. You have to look at the impulse pattern over time. It's all about integrating time into the flow calculations. You can't do that by looking at the balance sheet position.

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    19. "If the money going to group X was a continuous flow (rather than a one-off) then this would correspond to a continuous flow of real goods and services from non-X to X."

      You've forgotten about the multiplier effect. Once X has spent with non-X then non-X can re-spend that money elsewhere.

      Money doesn't stop at its first use.

      So there is a continuous flow of goods and services in the opposite direction to the multiplied flow of new money - all of which increase the intensity at which the productive equipment is used lowering prices across the board and potentially creating new productive equipment and therefore greater capacity in the future (which following Kalecki will require more government injection to utilise fully).

      So if X is the unemployed, or the retired and non-X are the food producers, or the housing providers then the unemployed/retired get fed and housed and those supplying the services are rewarded with money that they can then use to purchase other goods and services from the rest of the economy.

      Or somebody along the chain can save it in their rainy day fund.

      This is not a zero sum game. You are getting a dynamic expansion here. Everybody wins because more stuff is produced and there is more turnover in the economy.

      And you can continue doing that until you start to run out of supply side capacity.

      What MMT says is that if you inject at the low end - which tends to spend money completely and buy things that are easily mass produced - then you get a lot more turnover before you run out of supply side capacity.

      In other words rather than 'trickle down' - rich to poor - the economy will perform much better with 'bubble up' - poor to rich.

      And that's one of the arguments as to why interest payments are ineffective. Why pay the wealthy when you get more bang/buck by paying the poor?

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  2. 'Having money available to be saved is not at all the same thing as "supplying savings desires".'

    The point is that the government's deficit just *is* the net savings of the private sector: it's everything that's been spent and hasn't been taxed back.

    The very fact that the government runs sustained deficits without driving runaway inflation shows that people desire to hold money. If they didn't, they'd spend it and drive up prices.

    If the government stops supplying those savings by spending more than it taxes, then people have no choice but to extract savings from each other. For some to earn more than they spend, others must spend more than they earn. The latter end up with unsustainable debts. Then comes the crash.

    If the government wants to prevent debt bubbles and financial crashes, it should run a permanent deficit the same size as the desired savings rate. We can approximate that rate by noticing how large a deficit the government can sustain without driving inflation.

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    1. I don't understand.

      A "savings" mechanism has three phases:
      1. Instigation, where you purchase your savings conduit or put money under the mattress, or strike a mutual agreement with a third party.. or whatever.
      2. You wait some time, perhaps even decades.
      3. You "cash in" or collect your savings and translate them into goods and services. Hoping that its equal or more than whatever goods and services you had to supply to implement stage 1.

      I don't understand how I perform stages 1, 2 and 3, to satisfy my savings desire, based on your description.

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    2. And that savings mechanism is being operated by thousands and millions of entities asynchronously at all the different stages every day. Alongside an equivalent process where millions entities are borrowing and paying back loans every day.

      It's the dynamic aggregation of people saving and dissaving and borrowing and disborrowing in a growing population that generate and aggregate tendency towards excess financial savings.

      If you go from a micro process to a macro process you have to be aware of the dynamic aggregation function that gets you there and how that alters things.

      You can save when you choose because your bank will borrow from you, or you can hold a receipt for an indeterminate time for prior central bank borrowing (which is what cash is).

      Unless those aggregate borrowing functions exist in the monetary economy then you simply can't save financially. You have to store your wealth in bottles of wine, etc.

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    3. Neil: It sounds to me like you are (in a very roundabout kind of way) saying that the government is simply allowing the private sector to have money which they can store in the bank... but then unless the government is paying interest on that money, then it is not really supplying a proper savings mechanism. It is simply supplying a way for you to store your money in a bank, which, so long as there is some > zero inflation, will just loose value. I'm not getting my "savings desires" supplied by the government at all.

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    4. Mick,

      You're trying to fit the world to your assumptions - the economist's disease.

      The fact is that people hold some of their money, even at a negative real interest rate. You're assuming that they hold money only if it's guaranteed to retain its purchasing power. This might fit your ideal of rationality; it's not what people do.

      And is it so irrational? Maybe the negative interest rate matches the opportunity cost of trying to figure out where to invest your money. Maybe it appropriately prices the risk of every other possible investment. Maybe - this is something I'm working on - holding money has some purely symbolic value; it's nice to know that you *could* spend it, even if you don't think you ever will.

      If you insist that holding a currency regardless of its interest rate isn't 'saving', then fine. We need a new word to describe what people desire to do (and what only the government can allow them, in the aggregate, to do). Call it 'shmaving'.

      Now, *if* people don't wish to shmave at the interest rate the government sets, then they don't. Then the government just doesn't run a deficit. Every £ it spends has to come back to it in taxes; since it doesn't get shmaved, there's nowhere else for it to go after all the cycles of spending.

      Don't confuse empirical issues with semantic ones. That way lie red herrings and cross purposes. https://originofspecious.wordpress.com/2015/04/27/economics-and-semantics/

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    5. I agree that perhaps we have a language / communication issue about the word "savings". So I will set out some terms for clarity.

      First of all my definition of the word "savings":

      Savings are any mechanism by which you attempt to translate a period of producing more than you consume during one part in your life into a supply of goods and services at a later time.

      We could define the "efficiency" of a saving process as the amount of goods and services you can get out at the end, divided by the amount that was put in at the beginning. So for example, if the savings mechanism chosen was "putting my spare money in the bank and getting no interest", and the savings duration was 10 years and the total inflation over that ten years was 100%, then the efficiency of that savings process would be 50%

      An important additional concept is "expected efficiency" which is simply what people *expect* the efficiency of their chosen savings mechanism to be at the start. Expected efficiency is of course in the eye of the beholder, and any given savings mechanism may have a high expected efficiency for one person and a low expected efficiency for another.

      Generally speaking there will be an array of savings mechanisms available to people, each with different expected efficiencies.

      Now to the question of whether the government would really be "satisfying people's savings desires" if they simply enabled people so put money aside collecting no interest... now if you want to be strictly literal, then (I concede) you could insist that the answer was yes... but I will argue in a moment that, in the context of our wider discussion, the more reasonable answer is more no than yes.

      Before I continue, I should like to make an, admittedly imprecise, distinction between what I'll call type A: "casual small scale saving without thought" and type B: "significant long term saving with thought". What I mean by this, is the difference between "I don't have much money in the bank and I can't be bothered with the aggro and/or research of finding a high efficiency saving alternative" and "I want to save significant amounts for the long term, its worth my while finding an efficient savings mechanism".

      In the context of our earlier discussion, we were talking about the government supplying alternatives to shares / non-gov. bonds / purchasing land or gold etc etc... all clearly "type B" savings mechanisms. It is my contention that if the government offered the opportunity to store money in a bank and receive no interest, then it would not satisfy anyone's "type B" savings desire because (almost) nobody would select it over the other choices. It is my contention that it is only by offering interest that the government would genuinely be satisfying peoples type B savings desires.

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    6. Thanks - that is very clear.

      So now the question is whether government ought to provide 'Type B' savings instruments for people. That's a matter for political debate.

      On one hand, as you point out, the government's interest payments to people holding those instruments are a form of welfare that may be regarded as socially unfair: they change the distribution of purchasing power in favour of savers in those instruments.

      On the other hand, if the government doesn't provide any safe savings instrument, people might chase returns by overinvesting in shares and assets, driving bubbles.

      Personally, I don't see much likelihood to the latter possibility. QE1, 2, and 3 in the UK didn't drive investment at anything like the levels some people expected (http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb120402.pdf).

      Again, I think the way to manage overinvestment is to control what banks can lend for. Keep them to a narrow role, out of speculative markets, focused on capital development projects, and with very strict underwriting standards for residential lending.

      Then you can run a zero interest rate policy and phase out government bonds altogether. People can chase returns by investing, but the kinds of investments available to them will be safe, socially useful, productive ones.

      And if people want Type A saving, they can just hold currency. Their decision to do so will determine the government's deficit position, as it does now. All the government needs to do is not freak out about its deficits, recognising that they simply reflect the desire of the private sector to Type A save.

      And this will be a lot easier, politically, when the 'government debt' is no longer held in Treasury securities, which have the misleading appearance of 'money owed' rather than of balances held in savings accounts.

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    7. It's an empirical fact in both Switzerland and Denmark that people are holding savings at or below the zero interest mark.

      They are paying the banks to be liquid, and that is often the case with current accounts - where you constantly pay fees to be liquid.

      So that would suggest that a mental model with a positive real return on any level of savings is not the correct one. Entities are rationally holding vast quantities of deposits that are costing them to hold in real terms and often in nominal terms.

      The spreads have widened as well which suggests, as MMT has always suggested, that the negative interest rate charge from the central bank are passed on in the lending margin, not the deposit rate.

      http://www.tradingeconomics.com/switzerland/deposit-interest-rate-percent-wb-data.html

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    8. "Money-we-haven't-got-around-to-spending-yet-and-hasn't-been-offset-by-somebody-else's-borrowing" is probably a better description if 'net saving desires' doesn't do it for you.

      Just everybody having £50 in their pocket while they travel from A to B is a ~£3bn deficit.

      Arguably I'm part of the Greek debt problem because I have a €10 note with a Y serial number in the drawer here. :)

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    9. Alex: feels like we are zooming in on the nub of our issues.

      "So now the question is whether government ought to provide 'Type B' savings instruments for people" ... "socially unfair: they change the distribution of purchasing power in favour of savers in those instruments"... I agree that the government should provide type B savings as a pensions mechanism, but it can do so without the bonds malarkey and in a way that doesn't favour one group over another arbitrarily: http://mickanomics.blogspot.co.uk/2009/03/pensions-casino-alternative.html this will drastically reduce our otherwise over-saving culture, leaving less money chasing true productive investments.

      "Keep them to a narrow role, out of speculative markets" - we are in full agreement there.

      "Then you can run a zero interest rate policy and phase out government bonds altogether. People can chase returns by investing, but the kinds of investments available to them will be safe, socially useful, productive ones." we could be in complete agreement, but I'm a bit concerned about the first sentence. When you say "run a zero interest rate policy", I hope you mean simply that the government doesn't pay any interest to anyone ... rather than the government takes actions to steer interbank lending interest rates to zero.

      With regard your last paragraphs, I'm not sooo against them, but I'd prefer to say: The governments should chillax about deficits, because its simply deliberate money printing (not borrowing) in order to generate some pre-planned inflation level.

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    10. I think we disagree on too little now to go on much longer. :)

      'I hope you mean simply that the government doesn't pay any interest to anyone ... rather than the government takes actions to steer interbank lending interest rates to zero.'

      If the government runs a deficit, the interbank lending rate falls to the support rate paid by the central bank. If it runs a sustained surplus, the rate rises to the CB's penalty rate. So the interbank rate stays in the hands of the CB. I see no real reason for the CB to fuss too much over the short-term lending corridor; again, the way to control investment is to do it directly. But the CB can keep doing that if it wants - it's nice for central bankers to continue feeling relevant.

      I'm not opposed to your pension system, but I have a simpler proposal. People aren't asked to save at all; every retiree just gets a state pension at the current living wage. Any other investment they want to make during their working life is up to them: https://originofspecious.wordpress.com/2014/12/02/whats-the-point-of-pension-funds/

      'The government should chillax about deficits, because its simply deliberate money printing (not borrowing) in order to generate some pre-planned inflation level.'

      I think the primary target should be full employment. With a job guarantee you can get that AND have an automatic inflation control, via the buffer stock adjustments in the labour market.

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    11. Basically, we agree on the problems. It's just that my (MMT-influenced) solutions are slightly more radical and shift more emphasis onto fiscal policy as the primary control mechanism.

      I also see full employment as a more central policy target. You seem to be primarily concerned with distributional issues; I also care about making sure that overall production reaches full capacity.

      Still, I think we're on the same side.

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  3. "I'm not getting my "savings desires" supplied by the government at all."

    Then don't. Spend all your money. Yet millions of people do save for a rainy day every day. So you can rely on it as a mechanism.

    It's a subtle illusion that most people can't get beyond - because people have a recent event bias and struggle to plan for the future. But it is an important illusion because until people feel secure in their rainy day fund they won't spend on stuff and create jobs.

    There is no guarantee that your savings in the future will be worth anything at all in real terms.

    For example the obsessive saving for retirement today causes a paradox of thrift effect in the economy. The result is a weakened infrastructure and lower production tomorrow which makes the pension worth less.

    That is a macro effect of a perfectly rational micro action.

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  4. Which of course leads onto the policy point. If you can get people to feel comfortable and secure in the future *without* saving then you solve all the problems in one go.

    Hence the reason for a decent state pension, and solid welfare provision. It's not just the wealth effect that causes extra spending, its the 'social security' effect as well.

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  5. Sorry Neil, but we appear to be misunderstanding each other so badly that I'm not finding our dialog very constructive. So I think I'll save both your time and mine and not attempt to respond. But thank you for your efforts.

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