PREVIEW： Brokenomics ｜ The communist budget alternative
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Summary
In this episode of Brokernomics, I'm joined by Professor Richard J. Murphy to discuss the Labour Budget, and his alternative to Rachel Reeves' proposed spending plan for 2020/2021. We discuss what he would have proposed, and why he thinks it would have been a much better budget.
Transcript
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and welcome to Brokernomics. It is the Christmas season. Lots of you will shortly be going into
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debt to buy your loved ones overpriced tat from China. And I thought that at the end of this
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dismal year, the first year of the Labour government, who have been so much worse than
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even our low expectations, we would cheer ourselves up with a bit of fun. Now, whenever I need a bit
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of fun, what I do is I go to the channel of Richard J. Murphy, and he did a video in which
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he laid out an alternative budget that he would have given in the place of Rachel Reeves' ones,
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because apparently Rachel Reeves was not sufficiently communist and was not taxing enough.
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So we're going to hear from an actual sort of, well, he doesn't describe himself as a communist,
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but I mean, he is. And we're going to listen to what he says. Now, I don't want anyone to get the
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impression that I am not a fan, a genuine fan of Richard J. Murphy. I think this guy is absolutely
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brilliant. He honestly does cheer me up. If you don't know what I mean, go to his channel,
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sort videos by popularity. All the top ones will be things like Nigel Farage is a fascist,
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and everybody's a fascist, and, you know, Squirrels are fascist, Clouds are fascist,
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blah, blah, blah, blah, blah, blah. And you can watch his vitriol as he calls a bunch of milquetoast
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centrists, uniparty adjacents like Farage as these sort of goo-stepping fascists. And it's generally
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quite funny. It always makes me chuckle every time I watch them. But I think it's valuable to give time
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to lunatic perspectives. And this guy, well, look, he's a professor, I think it's Sheffield
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University or something like that, you know, one of those second league ones, and of accounting,
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apparently, but, you know, he's roughly in the financial world. And he is a proponent of MMT,
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which, of course, stands for Magic Money Tree that we have talked about before. I think he gives an
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alternative explanation. Modern monetary theory, I think, is his way he frames it. But it's basically
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Magic Money Tree is his take on stuff. And he put out this video. It's sort of half an hour long,
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and that's sort of ideal for our purposes, because by the time I've talked over the top of it,
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you know, we should get a full brokonomics out of this, and everyone will chuckle and we'll be happy.
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Oh, and also, by the way, like I said, I genuinely am a fan of Richard J. Murphy. I watch almost all of
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his videos because nothing else makes me laugh on YouTube. I'm not making it up. They genuinely make
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me laugh. So I'm a huge fan of Richard's. And if he ends up seeing this and he decides that he wants
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to come on, then by all means, I would be your hero of mine. So you are a YouTube hero of mine. So I
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would absolutely love to get you on the show for a discussion. And actually, it'd be quite interesting
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to see where we agree, because surprisingly enough, you know, we actually do agree fairly
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often, not on the solutions, but on the problem. Certainly, we agree more often than you would
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think, because I'm not a fan of the current system either. Although, of course, I'm coming
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at it from a slightly different perspective. So without further ado, let's hear from the good
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professor about what he thinks Rachel Reeves should have done. And I'll jump in every time he sort of
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makes a substantive claim or two and give you my perspective on that.
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Rachel Reeves is delivering her budget today. And you might well say at last. And if you did,
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you would not be alone, because this has been one of the most protracted budget processes
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that I have ever witnessed. And I've been looking at these things for nearly 50 years now. So here we
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are at last. And I can forecast that whatever she does today, it will be disastrous for her. Yes,
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for the Labour Party, for the country, and for our economy, as well as individual people, most likely
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including you and me. I mean, he starts off very bloody sensible, doesn't he? I mean, can't put a word
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wrong there. And that motivated me to think about what would I do instead. In 2015, I wrote my book,
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The Joy of Tax. And in it, I included a draft budget speech. It was how I concluded the ideas
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that I had explained throughout the course of the book. It worked well, my publisher was incredibly
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excited by it. And it seemed to literally bring the book together. So over the last couple of weeks,
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I have on the Funding the Future blog, and you should be subscribing to it, been publishing my
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alternative budget for 2025. And so today, in anticipation of what Rachel Reeves is going to say,
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I want to outline all the ideas that are in that alternative budget. Now, let me make it clear that
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the budget I wrote turned out to be over 20,000 words. And the budget that Rachel Reeves will deliver
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will probably be between 9,000 and 10,000 words, because that is the normal length of a budget
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speech. So I have written rather more than she did. But to assist the process, you can today
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download a copy of my alternative budget from our website, Funding the Future. And there, using the
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link that you will find down below this video, you can get the whole thing as a PDF looking quite smart,
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prepared by Tom, my son, and videographer, and now book producer. What have I got to say in that
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alternative budget? The summary is quite simple. I am saying that this should have been the day
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when Rachel Reeves announced that 45 years of anti-social, neoliberal economic failure had come
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to an end and she was going to put in place a budget that would end fear and restore hope for Britain.
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Right. Okay, I'm going to have to jump in early on this. 45 years of failed neoliberalism.
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And we're going to end it and restore hope. Well, we have become increasingly less neoliberal
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neoliberal over that time period. In fact, the last 15 years were the least neoliberal period in modern
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UK history. We've had absolutely exploding state spending, quantitative easing, money printing,
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effectively. I mean, he might quibble on that, but it is money printing. Relentless regulation,
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huge welfare, public spending payrolls. So you can't just say that it's neoliberal failure. What
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it actually is, is managerial statism plus printed money. So your solution is presumably going to be
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to doing more of what has already failed, only doing it with the brakes removed from the car.
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So I think we found our first point of disagreement. And this was also a day when she should have
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announced the funding programme to rebuild this country, which I will suggest during the course
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of this video is entirely possible. She won't do that, of course. That's not her style and it's not
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what she's going to deliver. But she should have said austerity has broken Britain's public services,
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but she won't because we'll get more of it today. And she should have talked about the curse of
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inequality, poverty and insecurity that is now threatening our democracy. But if anything,
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I'm expecting her to exacerbate all those conditions today. So we have a core crisis.
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And the core crisis that my alternative budget addresses is the fact that this anti-social
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neoliberal policy has failed us. Our public institutions are now misdesigned as a consequence
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and wealth bias is embedded inside our tax system.
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OK, right. So our institutions are misdesigned because they're bloated and politicised and most
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importantly, they are insulated from feedback. There is no market mechanism applied to them. In fact,
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if they fail, they generally get more cash rather than going out of business and being replaced by a
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model which is more productive and adds more value, as happens in the private sector. So we're in this
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situation because, well, not because markets have too much power. You know, the UK tax system already
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heavily relies on capital and high earners. The real problem here is the bias towards unproductive assets.
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So, you know, housing, government debt. And these are created by the very low rate,
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high speed model that I believe Richard likes. So, again, I think you've got this 180 degrees wrong.
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These are the fundamental issues that should be addressed. The new understanding that we need
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is that our government creates all the money that it uses. And this is absolutely key to the
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reconstruction of Britain. There is no other idea that is now more powerful than this one,
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that the government is in fact in charge of our economy because it creates the thing that makes
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Okay, right. You've got the two sides of the ledger confused here, Richard. Okay, fine. Let's just grant
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you, it's a bit more nuanced than this, but okay, let's just grant the government creates all the
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money it uses. What you're doing is you're confusing the plumbing with the prosperity. So yes,
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the state and the banking system create money units, but that's not things, that's not resources,
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that's not services. It doesn't magically create skills or factories or energy or imports. Being
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able to print additional Bank of England tokens doesn't give you more stuff. It just changes
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the denomination that those, that stuff, it changes the price level. That's all it really does.
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And it also, it changes who gets first dibs on that stuff. But Richard seems to believe that
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if you just have money, there will be stuff to buy. But no, that's because you're putting it
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backwards. You think the thing that has the value is the money. No, the thing that has the value is
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the stuff or the services or the skills. That's what's scarce. That's what's important. And if you
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just create more money to go after it without any thought of the stuff and the skills being created
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in the first place, well, you won't be able to buy them because the denomination of those things
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will just be bidded up. This is again, 180 degrees backwards.
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I know that people say that banks create money, but they can only do so under license from the
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government. And the consequence is that all the power with regard to the money that is created in
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this country rests with the government. And it does never need to be in hock to anyone. There is,
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in fact, no such thing as taxpayers money because the government spends out of its own money and
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taxpayers refund the money that they have benefited from to the government to control inflation whilst
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borrowing, as it is called, is no such thing as far. OK, a couple of things there. First of all,
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licensing the banks is not the same thing as micromanaging them. Private banks, they ration credit
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based on risk. And the state has a long record of ignoring risks. And if your logic is, well,
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because we regulate them, we should basically nationalize them. I mean, that's how you create,
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you know, politicized credit allocation and zombie firms and sort of permanent stagnation.
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I mean, by that logic, you just regulate everything. And then you say, oh, well, because we're regulating
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it, we now own it. I mean, this is just straight up communist nonsense. And the second thing,
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which is even more egregious, is I think he just said that, didn't he? He said there's no such
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thing as taxpayers money. Right. Well, why do you need tax then? You know, in practice, every pound
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that the state spends comes out of somebody else's claim on resources. OK. Well, and you could do it
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now via tax, or you can do it later via borrowing, or you can do it by by stealth by inflation. But
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you're just rebranding those costs as if relabeling the bill makes it disappear. But I mean, come on,
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make your mind up. You either want a system which is reliant on taxpayers money to fund your
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your communist notions, or taxpayers money doesn't exist. Pick one. But if you're going with
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taxpayers money doesn't exist, well, stop taxing us then, because it doesn't exist. Why are you
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taxing something that doesn't exist? As far as the government is concerned, the government does,
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in fact. And yes, I do understand how you think magic money tree, modern monetary theory works,
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but it simply doesn't. You're confusing money with a claim on real resources. It's the real resources
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that matters, not the bloody money. Provide safe savings products for the benefit of the City of
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London, and it does not rely upon it. The fact is, therefore, that what is called the full funding
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rule, laid down by the Treasury, which says that the government must always either tax or borrow to
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cover it spending, is just a myth. Okay, look, if you just call a gilt a savings product,
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it doesn't change the liability. The government still has to service it out of future taxes or
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inflation. You can ignore the funding constraints, but the markets won't. And the moment the investors,
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the gilt buyers, think that you don't think that borrowing matters, that debt doesn't matter,
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well, they're not going to lend you anything. Well, at the very minimum, the yields will spike,
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and your safe saving product becomes a panic trade. Doesn't need to tax and borrow to cover its spending,
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because its spending was already covered by the Bank of England creating new money to fund it.
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Magic money tree. Instead, this process of taxation and deposit taking, which is what is really going
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on, and deposit taking is just banking, by the way, for people who have excess money in their possession,
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who want somewhere safe to put it. This process is simply an exercise undertaken to provide fiscal
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balance within the economy, where fiscal balance means that we don't get inflation. Whilst we do get
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growth, we do tackle inequality, we do support those in greatest need, and we do deliver against
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the needs of this country. That is what fiscal balance means. It does not mean balancing the books.
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Okay, well, for a start, you know, maybe with some future vastly powerful AI, what he's talking about
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has a hope in hell. But all the time, mortals are doing this. This is pure fantasy. Effectively,
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what he's doing is he's reducing taxation to a purely technocratic dial. You spend first,
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and then you fiddle the tax after. But in reality, tax systems are political battlefields,
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really. They're not smooth control knobs. We're not sat there on the bridge of the Starship
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Enterprise with perfect feedback and commander data, sat there making these micro-adjustments.
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You won't get a finely tuned fiscal balance. What you get is lobbyings and carve-outs, delays,
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broad-rush politics, and people rewarding their friends and punishing their enemies. And even if
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you have the purest of motives, which nobody in the Labour Party or communists, in fact, nobody on anyone on
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the left of British politics, including reform and Tories, who I consider to be very much on the left,
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none of them are capable of this sort of level of dispassion that you are imagining and also has been
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tried many times before and always resulted in widespread starvation and death.
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So we have to end this full funding rule, and the government has to realise that as a consequence,
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it must take back control of inflation. And that's because tax is the single most effective instrument
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that we have to control inflation. Inflation is not caused by excess money in the economy. Inflation is
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caused by supply shocks and wars and speculation. And if it arises, and we have seen it do so because
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we saw it after Covid, then that was exacerbated by the war in Ukraine and the speculative activity
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that took place in the City of London and elsewhere as a result, then the government has to control that
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through excess taxation at that point of time. But it does not do so by changing interest rates,
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which normally have an impact two years after the event, by which time inflation has normally gone away.
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OK, so, right. OK, again, a couple of points to unpick here. And he kind of hit upon the key
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problem at the end there, which is interest rates take a long time to take effect. But he thinks that he
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can just twiddle taxation around instantly in order to do this. Raising or cutting taxes takes months or years,
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and it usually requires legislation. And it's politically toxic at precisely the time that
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you need to use it. So rates can be changed in a day. He says the effect takes longer, but you can
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actually change rates in a day. His model assumes a fantasy parliament that can calmly vote tax hikes
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during a cost of living crisis and survive. That just simply wouldn't happen. So, I mean,
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presumably you're taking the next logical communist step, which is doing away with democracy, a bit
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like they're doing away with trial by jury. So you might as well do away with democracy. I mean,
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you might as well just have the state decide everything. But, you know, what he's describing
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is completely incompatible with both human nature at this point and the political system.
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And then he goes to talk about, you know, inflation is a product of supply shocks and speculation,
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too much money in the system. I mean, well, fair enough. I mean, I call it debasement.
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But supply shocks explain relative price changes, turning them to a persistent sort of broad inflation.
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I mean, it requires demand outstripping capacity.
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You know, too much money or credit chasing limited outputs. He's just airbrushed out the role of
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quantitative easing, money printing here, ultra low rates and deficit spending. And he's turning a
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temporary squeeze into a generalized price level jump. The underlying issue is the debasement of the
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currency because they keep creating more of it, as we have covered on Brokonomics many times.
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And so we have to understand that the balance of power within the relationships around the economy
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will now be totally reset. And this idea is at the core of what I'm saying. The city is not in charge
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of the economy by providing loans to the government. The city is not in charge of anything. In fact,
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the city simply uses money entrusted to it by savers, you and me, as ever. And it is not the city's own
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money. And it places it on deposit with the government, which is not very difficult for all
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those smart people. That's what they do with most of the money they get. They just place it on deposit
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and leave it earning a bit of interest. That's it. So we should never succumb to the city ever again.
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Okay. So he wants the tax and pension receipts of the whole country, but none of the discipline
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that capital markets impose. He basically wants all the breaks taken off the ability of the state to
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spend whenever it damn well pleases. And yet he imagines that the people are still going to
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lend. He assumes that people are going to have any money because so much money is going to be
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printed under the system and people's incentives to work are going to be so utterly destroyed.
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The point is, you can have as much money as you want. What you can't have is the underlying stuff.
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That requires people to take risks to feel that they have a opportunity to profit. So it is worth
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taking the risk and putting in the extra time. If you design the system, people will just do the
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minimum, like has already been tried in the Soviet Union. And, you know, you can't treat investors as
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a hostile enemy. And this notion about succumbing to the city and, you know, they're not in charge,
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blah, blah, blah, blah. Well, when you're going to them for money, they are in charge
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because they've got the money and the government ran out a long time ago and is borrowing money.
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If you don't want the city to be powerful, well, stop going to them with a begging bowl
00:22:43.160
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00:22:49.320
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