Tag Archives: mmt

EU inequality

OK I’m breaking my self-imposed law within a few hours.

Ben says EU good

Ben says EU good





I usually have utmost respect for Ben Goldacre and don’t want to get into trolling territory on twitter but this is a simplistic statement. The first statement is true. The second is highly debatable if you stratify by age.

It is well known (see Bill Mitchell amongst a wealth of others, many of whom could not be seen as “outsiders” but are well within the mainstream) that unemployment in southern EU countries is appalling amongst the young. 50% or so. People with PhDs living at home with parents and, if they’re lucky, doing some barista work. All courtesy of the banking rules that force them to “live within their means – like a household”. All a nonsense paradigm of course if you understand how money is created and destroyed. But the results are in and have been in for many years now. There is, of course, a strong affinity with the EU, given the benefits of the past. However, recent ECB policy means the young can’t afford a home, and get bare-bones healthcare.

wiki and stuff

I have spent almost a day doing work on wikipedia articles.

I did some tidying up and editing of the BWS article, and I made substantive edits to the choice modelling one. In terms of the latter, I have tried not to fall foul of the NPOV crime – “neutral point of view”. I know that there are bunch of diehards out there in favour of the term “conjoint analysis”. The guy who is perhaps the top environmental economist, one of the top three choice modellers/marketers and I wrote an article explaining why it really is wrong to call what we do “conjoint analysis” – that is a particular academic technique/model, much as the maxdiff one is.

However, I do recognise that this is a battle we won’t win: too much industry is using those terms. Thus I acknowledged why “choice-based conjoint analysis” is used and attempted to give a full and frank justification for this. Of course I also gave our counter-argument, which relies on the academic case for DCEs and BWS!

Anyway I hope the two articles help newbies. I might edit the conjoint analysis one – I wouldn’t attempt to down play the enormous contributions by people like Green etc but I would make clear that the move towards choice-based techniques should lead the reader to another page. I would hope that that would not be poking a wasps’ nest!

In other news ,the efficient design paper is close to online publication – have amended the proofs – yay! We have also submitted the childrens’ health paper to a journal – will see how that goes…..it will be one of my last academic contributions to the field.


Finally I saw a piece by a former colleague in Australia which summarised a study to elicit Australians’ preferences for spending a given federal budget. It’s a shame this study was done – I fought tooth and nail with a former Director not to do it as it would embarrass the centre. Asking people what policy goal they would (1) most and (2) least like to receive spending (a Case 1 BWS study) was flawed for the following reasons:

(1) The Federal budget surplus/deficit is an ENDOGENOUS variable, NOT an exogenous one. The automatic stabilisers (unemployment and other safety net benefits) kick in when the economy goes down and the deficit increases naturally…or maybe the extra demand by people who would otherwise starve brings the economy UP. That’s the point – there is no “amount” the federal govt has to spend.

(2) The whole exercise is framed incorrectly. There is not a “pot of money” collected in taxes that the government has to spend. This confuses the household with the sovereign government. It is a nonsense to think that a sovereign government can “save” in a currency it creates with the press of a button (F5 F5 F5 F5). Plus think back to the beginning in a world without currency. Did the government tax to spend? No of course it didn’t. There was no money in circulation. It SPENT so money could enable trade and then the government could TAX in order to achieve its aims, ensure a demand for the currency etc.


A government spends by crediting accounts of the relevant beneficiaries – there is no money backing this. If the govt wants to issue bonds to “cover” the deficit it can do, but there is NO LINK with the deficit – indeed Australia provided the most recent example of this. Under the Howard government the government made a surplus, ergo it should have stopped issuing bonds (IOUs for overspending). It did this. What happened? The financial sector went apeshit and demanded it keep issuing them since they were running out of risk-free assets and assets upon which to price risk on other assets. It really was a wizard of Oz moment where the man behind the curtain was revealed.

So telling people “there is a budget of X million/billion dollars, what are your priorities?” is a misguided question. People will automatically get their own ideas about what is affordable with that budget of x, and indeed think in terms that there IS a finite budget. There is not. Now OF COURSE the govt can’t spend indefinitely, it’ll cause inflation when all unused factors of production become used. But we are nowhere near that point, as OECD/IMF figures show.

You should tell people “imagine there is no limit to spending; tell me your priorities” with a list of probabe spending for each. You may find that suddenly people choose things they assumed were unaffordable before.

So sorry I4C, you did a dud study. I did try to head this off before, but you have fallen for the fallacy of composition – this goes wayyyyy back oto Keynes. You can’t use microeconomics to solve macroeconomic problems. It’s a different discipline and NOT one us micro people should dabble in.


EDIT I have been informed that the budget was not divvied up in the DCE, which is good, and potentially makes the study correct. I just hope it, in the pre-amble, told respondents that the government budget is not constrained in any way, except when the entire economy is ful employed and there is no “slack in the system” – a situation we haven’t been in since the 1970s!

Slightly off topic mmt but dces too

This post is DCE related but perhaps not a traditional choice modelling one – nor a personal one. It concerns modern monetary theory (MMT) – an explanation for how money is created and circulated and as such (in my humble opinion) should not be called a theory at all. It is fact. Verified by countless central bankers and (google it) the God of (North American at least) economics textbooks for decades, Samuelson.

In short, the government deficit/surplus is identically equal to the private sector surplus/deficit. It’s the way national income accounting (and note the word ACCOUNTING) devised by Kuznets and Keynes works. Things MUST balance: it is (for you mathematicians) an IDENTITY RELATIONSHIP. (The current account balance introduces a minor complication to the private sector balance but unless you are a huge mega powerhouse of exports ad infinitum then it can be ignored for ease of exposition.)

So, and often due to the government stabilisers (unemployment benefit etc) which depend on the strength of the economy, the government has LITTLE OR NO CONTROL over the final government deficit/surplus – witness the humungous failures that the UK’s own Chancellor has achieved in eliminating that “nasty” deficit during the past 5 years.

So, let’s say we present a given amount of spending to the public and ask for their relative preferences for some (I assume costed) outcomes. But even if uncosted, what follows remains true. It is blatantly obvious that the public still regards a government with sovereign money creating capacity to be like a household – thanks to the media – which is PATENTLY FALSE (see Samuelson etc again). This is why people in the UK, US and Australia keep, when asked, keep worrying about “affordability, given the deficit”. Nonsense! So we know that most people, when presented with a priority-setting task, probably bring incorrect assumptions to the task – “priority x could not be afforded” or “pay little attention to the lower ranked priorities as they are impossible anyway”.

See the problem? (Apart from the obvious one that the budget amount is an ENDOGENOUS variable)

If people don’t understand that ALL the priorities are possible, to the extent that REAL resources (people, skills, capital) are available, then we risk a “garbage in garbage out” scenario. If people think purely in terms of money they are AUTOMATICALLY thinking in the wrong paradigm. The “constraints” they MUST be told about are things like “our ability to retrain primary school teachers as carers” (given an aging population) etc. NOT MONEY – unless you are a currency USER like Greece. On the contrary UK/Aus/USA are currency ISSUERS.

The idea of putting forward an amount of money to divvy up is (to paraphrase the MMT gurus) is as nonsensical as saying “only 150 runs can be scored in a cricket match and it is up to you to assign them to the players”


how to rationalise your twitter followers

(1) Describe modern monetary theory
(2) Watch the unfollows
(3) Speed of unfollowing is directly proportional to how much they read of your post. (Morons read the first line and unfollow).


People uninterested in evidence based policy or the identity relationship in mathematics automatically delete themselves from your followers! Brilliant!

This should be used as a test to see whether a person agrees with 1+1=2 🙂

My taxes fund healthcare, right? Wrong

Your taxes fund health care, right? Wrong.

My last two posts in this three-part series on health care priorities focused on the ethics of the population valuing disabilities. Essentially, a representative sample of the population decides issues such as whether depression or pain is worse to live with. It doesn’t matter if this sample contains people who have experienced the disabilities or not or whether they are knowledgeable or not.

There are several reasons put forward by health economists to justify this, but the core one is that the population funds health care (via taxation) and it’s their values that matter. I drew attention to the emerging evidence that whilst this may be an admirable democratic aim, its outcomes may be dreadfully flawed since many people have no idea what various disabilities are like to live with.

A senior health economist who was instrumental in introducing this approach to health care commented to me on twitter at the weekend. He said that taking population values was no different to allowing UKIP votes. For those unfamiliar with British politics, UKIP is an extreme right-wing party full of homophobes and racists that advocates British withdrawal from the EU. His implication is that democracy is paramount, even when it means including the views of a bunch of insane idiots. However, he has used a straw man argument.

(1) I never said we should definitely throw out population values, merely that they should be debated. How many people in the population outside the health economics community are even aware that this is how priorities are set?
(2) The link between the tax-paying voting public and health funding is spurious, as I am about to explain.

So, in this final post, I will take issue with this core assumption – that our taxes fund health care. It might get a bit “wonkish” and less approachable than my last two postings, but I shall do my best to explain it – I myself have spent a long time getting my head around this and appreciate comments and criticisms. The answers to such criticisms will no doubt be available on the blogs of the experts in the field, and criticism will encourage me to seek them out and plug the holes in my own understanding (and on this posting).

First, let me make one thing quite clear. What I am about to discuss is relevant only to countries that issue their own currency, for example Sweden and the UK. All the countries in the Euro area do NOT issue their own currency, they essentially use a “foreign” currency issued by the European Central Bank. They have become currency users, not currency issuers. It is not too wide of the mark to say those countries do have a national credit card and must balance their books (subject to growth). Sweden and the UK do not.

A second thing to make clear concerns hyperinflation, a boogeyman that raises its head whenever this topic is discussed in the media or well-known blogs.

Historically, hyperinflation has NOT generally been caused by “governments simply deciding to spend willy nilly” and “just turning on the printing presses”. Major hyperinflations – think Weimar Germany, Zimbabwe – have been caused by either huge and unpayable debts denominated in foreign currencies or a huge collapse in productive capacity. Governments in such circumstances have actually played catchup in terms of inflation, their currency issuing behaviour has been largely an effect and not a cause of hyperinflation.

OK, now, I hope, I can proceed without cries of “we will become the next Greece” or “we will become the next Zimbabwe”.

To understand how (public) health care is really funded, it is necessary to understand how government gets the money for all the services it provides or funds. To get you thinking about this I would like you to consider a not-very-noble episode in the history of the country I am from originally, the UK: the period in question is the conquest of various parts of Africa.

The British colonial occupiers faced populations who certainly had “economies” but these economies did not use British Pounds (and in many cases didn’t use money at all). The British wanted these native Africans to buy British goods, and be integrated into the wider Imperial economy. The problem was the Africans had no British pounds and didn’t produce goods that Imperial markets wanted (which didn’t bother the African people in the least).

How could the colonial Brits tax the Africans in order to provide the infrastructure that would allow Africa to produce for imperial markets?

Answer: they couldn’t.

How could the colonial Brits force the Africans to use British pounds so they could buy things from the rest of the empire?
Answer: they couldn’t
(at least, not without shooting a lot of them, which decreased both the productive capacity and the market, not to mention being genocidal).

The British authorities had to (1) inject money (British Pounds, or something directly convertible into them) into the local economies and (2) force people to use it. How did they do it?

To achieve the first aim they employed locals to build railways, mine ores, etc and paid them in pounds or a convertible currency – one accepted elsewhere in the world for trade. Where did that money come from? There was no “pot of previously collected taxes”. They just created it. Then, to achieve the second aim they imposed taxes (primarily on people, a type of poll tax) payable in pounds. So government spending came first, and taxation came later. In fact government spending was essential to provide the public with the currency needed to fulfil their obligations to the state in taxes.

So in fact, taxes don’t “fund” public services, public services provide income to people that, after being spent through the economy, allow people to pay their taxes.

When governments provide funding for health care, or other public services, they don’t dip into some pot of money, they just press keys on a computer to create money that is used to pay doctors or whatever. This money is simply magicked up and the fiction of there being some limited amount was laid bare when central banks created billions of dollars to bail out banks in 2008/2009.

In 2009 this rocked the foundations of mainstream economics and to maintain its dominance, enormous emphasis was put on the notion of “paying the money back one day”. Indeed governments usually issue bonds to match their net spending (spending total minus tax receipts. This helps preserve the idea that overspending will have to be paid back one day. But what exactly happens when someone buys a bond from the government or its central bank? The individual gives over money and gets the bond, but what does the central bank do with the money? It destroys it. Physically, if it is a wad of cash, electronically if it is a bank direct payment.

After all, what is the sense of maintaining a stock of money, when you can create money at will? The analogy given by some researchers is the runs accumulated in cricket. There is no “finite stock of runs” that can be distributed – the score can be as low or as high as the cricketers make it.

The link between bonds and government spending is a fiction and was demonstrated to be so in another country I have citizenship of – Australia. In the late 1990s/early 2000s the right-wing government of John Howard began to run budget surpluses. Repeatedly. So it stopped issuing bonds – bonds are IOUs for budget deficits, right? What happened? The financial sector was furious. They lost their main tool for pricing all other risky assets and a primary vehicle used for the process of saving. The government then started issuing bonds again, despite running budget surpluses. If a government really insists on matching its net spending with bond issuance then fine, but let’s not deceive ourselves as to what it is really doing – providing corporate welfare in the form of guaranteed income to savers who are unwilling or unable to inject their savings into productive investments. And there is no limit to how many bonds the government can issue – it can always create more money to pay the interest on them! After all, Japan has been doing this for over 20 years with no inflationary problems. As has been said of the hawks: “they have predicted 20 of the last zero hyperinflations in Japan”.
Anyone who talks about, or repeats, the story of the “nation’s credit card being maxxed out” should immediately be ignored. When they say “if I ran my finances like the government ran theirs I’d be flat broke in no time”, you have the perfect answer: Of course you would! You can’t issue money with a printing press (or these days, pressing F5 repeatedly on a computer) – unless you want to goto jail of course, whilst the government can create money at will!

Now of course just because a government can do this doesn’t mean they should. Clearly there is a limit to how much money should be created – but this limit has nothing to do with any mythical total pot of money, debt ceiling or whatever. It is the inflationary ceiling: if the government injects money beyond the point where everyone who wants a job has a job, then it will bid up prices. So that is a no-brainer. But western economies have not been at full employment since the 1970s. Taxation primarily services two purposes: (1) To provide a “safety valve” to prevent overheating in the economy, and (2) To achieve certain distributional aims (including sin taxes like those on booze and tobacco). The link between taxes and major public services is nebulous at best and totally non-existent at worst – which is why hypothecation is also stupid. Yes, the public arguably has a role in deciding what system is used to value and distribute health care, in the same way that general policies regarding other public services are typically part of political party manifestoes. However, the idea that people have an undisputed right to value impaired health states, due to their status as tax-payers (whether actual or potential) is a nonsense.

These ideas have been developed by Warren Mosler, William Mitchell and others. They form what has come to be known as Modern Monetary Theory (MMT). MMT tries to steer clear of political biases: it describes how the economy works and how money is created. Strictly speaking, you can agree with it and hold either right-wing or left-wing views. MMT can be used to support Reaganite “the deficit doesn’t matter” views or left wing large public sectors. Indeed one of its biggest proponents is a hedge fund manager who made enormous amounts of money by recognising the key tenets of MMT.

For those who remain unconvinced, and who believe modern monetary theory is just another fringe, crackpot theory, I offer a final defence, from someone so mainstream he wrote what was the definitive textbook in economics for around 40 years.

“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires….”

So, Samuelson admits that there is no budgetary limit on public spending in countries that control their currencies. The fiction that is there (in the form of a religious doctrine) is necessary in order that us “irresponsible citizens” will not vote for parties that advocate huge spending increases. Democracy, in other words, is not to be trusted. Nice to know macroeconomists are so willing to lie, and so dismissive of the public, eh?

Returning to the original premise, what does this mean for health care in countries like Sweden and the UK? Well, it means that to the extent that real (not financial) resources – people, drugs, etc – are available, the government could expand funding tomorrow with no inflationary implications and with enormous health and employment benefits. Clearly, new doctors cannot be produced tomorrow, it takes years of training, but putting unemployed and underemployed to work in caring duties would take enormous strain off health and social services in the meantime.

And what about economic evaluation, the field I began work in almost 20 years ago? Indeed even though I no longer work in “traditional” economic evaluation, my work in choice modelling still implicitly or explicitly assumes there are difficult choices to be made. Am I being a hypocrite? Perhaps. Although I justify my work with the thought that I can’t change the system by myself and even in an “ideal” economy where everyone was employed, there would still be difficult choices to be made at the margin, given the enormous resource implications of some aspects of medicine. So my work aims to do what we should all be doing – minimising distress and directing resources to where they are most needed in society.

MMT merely means we have set the bar incorrectly – but there are people out there who are far more qualified than I to fight that fight. However, I shall keep reading and learning. I used to wonder why I never “got” macroeconomics at Cambridge. I got firsts sometimes in other subjects, but never, ever, macro. There was something that just didn’t click with me. Now I know it wasn’t my fault, the subject matter was, well, a steaming pile of crap. To be fair on the Cambridge lecturers, one of them, the late Wynne Godley (who lectured me before he had his epiphany) later went on to “see the light” and reject the establishment view. He also predicted the current Euroland crisis many many years before it happened. I now work in a field that is largely judged by predictive ability. MMT has passed that test – repeatedly – and with flying colours, and not for the “a stopped clock is correct twice a day” reason: it has given circumstances and explanations for when the economy would fall over. So I would say the onus is on mainstream economics to do some explaining.

Werner Brouwer made a point on Twitter that if you move to patient valuation you run into the problem of adaptation effects. For instance paraplegics tend to rate their health as barely worse than healthy people (because most of the time they simply don’t think about their paraplegia). Given the traditional valuation methods used by health economists, this is a good point. However, I and colleagues showed how to quantify these effects when you use two different type of choice experiment data. In fact, if I can get another PhD student, I have an excellent dataset where we deliberately sampled people in low quality of life states to see what they valued. A quick and dirty analysis showed that people adapt differentially to different dimensions of quality of life.

Is it ethical that uninformed members of the public decide just how bad your disability is?

Cross posted from The Ethics Blog

Last time I raised the possibility of changing child health policy because teenagers are more likely than adults to view mental health impairments as being the worst type of disability. However, today I consider adults only in order to address a more fundamental issue.

Imagine you had an uncommon, but not rare, incurable disease that caused you to suffer from both “moderate” pain and “moderate” depression and neither had responded to existing treatments. If policy makers decided there were only enough funds to try to help one of these symptoms, who decides which should get priority?

In most of Europe, perhaps surprisingly, it would not be you the patient, nor even the wider patient group suffering from this condition. It is the general population. Why? The most often quoted reason will be familiar to those who know the history of the USA: “no taxation without representation”. Tax-payers supposedly fund most health care and their views should decide where this money is most needed. If they consider pain to be worse than depression, then health services should prioritise treatment for pain.

Thus, many European countries have conducted nationally representative surveys to quantify their general public’s views on various health states. Unfortunately Swedish population values were only published last year, almost two decades after the first European country published theirs. Although late, these Swedish population values raise a disturbing issue.

Suppose the general population is wrong?

Why might this be? Many people surveyed are, and always have been, basically healthy. How do they know whether depression is better or worse than pain? In fact, these people tend to say pain would be worse, whilst patients who have experienced both say the opposite.

The Swedish general population study was large and relatively well equipped to investigate how people in ill health value disability. And, indeed, they do value it differently than the average healthy Swedish person.

So is it ethical to disenfranchise patients in order that all citizens, informed or not, have a say?

Why not use the views of patients instead?

Well actually the stated policy in Sweden is that the health values ideally should come from the individuals affected by the health intervention (patients). So Sweden now has the information required to follow its own health policy aims. Perhaps it’s time politicians were asked if it is ethical to prioritise pain over mental health, just because various general populations thought this is so.

As a final thought, I return to the issue of “what funds healthcare”? You may be surprised to learn that the “general taxation” answer is wrong here too. But that strays beyond health care and ethics and into the dark heart of economics, which I will therefore discuss elsewhere next week!

the latest Apple nonsense in the Grauniad

Ugh. The Guardian seems to be trying for multiple gold medals in the “talking sh!t” olympics. We know its staff are all obnoxious North London Apple-philes and that pro-Apple nonsense is a given. But they’ve managed to get digital payment nonsense in here too: though partly helped by idiot commenters who think that because they understand a bitcoin algorithm they’re better than the rest of us.

Helloooooooooo – I understand the accounting/identity relationship in mathematics, which is all I need for Modern Monetary Theory.

You are talking sh!t. Go away. Read some economic history for what happens when sovereign nations are held hostage to monetary supplies that don’t suit their needs – or how’s about you go to a slum in Athens?

The piece is here. My comment is copied below.

(1) Unless *all* retailers accept contactless payment then you aren’t going to be carrying around fewer items. Here in Australia PayWave etc have been in use for years but it is noticeable how slow it is for stores to upgrade. Hence you can’t leave any non-contactless forms of payment at home.

(2) As has already been pointed out – this isn’t a way to force bitcoin etc onto us. Currencies have value because they are what are acceptable by the sovereign government to pay your taxes. If you try to pay the government with bitcoin you will find yourself in jail. Only stupid governments (e.g. those in Euroland) relinquish their power over the currency. I think 2015 will see a big change but not the one the author foresees – it will be the exit of at least one country from EMU (Greece first, then a big country leading to the end of EMU) and the realisation that governments should never, ever, give up their currencies.

Budget nonsense from the mainstream

One topic The Conversation repeatedly has a blind spot on….how money in the national economy works.

Cut welfare to older Australians to balance the budget: report

As soon as you read “to balance the budget” (i.e. in the title) you know this article isn’t worth reading. The national economy is NOT a household. Balancing the budget is totally irrelevant when you create dollars out of nothing. The only constraint is inflation and whether there are enough REAL resources to keep the baby boomers in the manner to which they have become accustomed to.

Why don’t they invite one of the modern monetary theorists to write a piece explaining why the budget balance is:

(a) mostly endogenous due to the automatic stabilisers (as has been shown all over the world since the GFC hit)

(b) irrelevant

This is particularly ridiculous since the last Coalition government (of John Howard) got a surplus and so “didn’t need to issue bonds”. What happened? The financial sector went apeshit due to their lack of a risk-free asset on which to price everything else. It showed the “bonds financing the budget” paradigm for what it was – nonsense. Bonds don’t finance government deficits, full stop.

Taxation doesn’t permit government spending, government spending allows taxation. The budget deficit is the private sector surplus. It’s an identity relationship folks. If you disagree with it you’re disagreeing with 2+2=4. It’s true by definition.