The Podcast of the Lotus Eaters

00:00:00.000 Well, ho ho ho, 0.99

00:00:29.480 and welcome to Brokernomics. It is the Christmas season. Lots of you will shortly be going into

00:00:34.880 debt to buy your loved ones overpriced tat from China. And I thought that at the end of this

00:00:40.220 dismal year, the first year of the Labour government, who have been so much worse than

00:00:45.060 even our low expectations, we would cheer ourselves up with a bit of fun. Now, whenever I need a bit

00:00:51.060 of fun, what I do is I go to the channel of Richard J. Murphy, and he did a video in which

00:00:58.940 he laid out an alternative budget that he would have given in the place of Rachel Reeves' ones,

00:01:05.720 because apparently Rachel Reeves was not sufficiently communist and was not taxing enough. 0.99

00:01:10.940 So we're going to hear from an actual sort of, well, he doesn't describe himself as a communist,

00:01:16.820 but I mean, he is. And we're going to listen to what he says. Now, I don't want anyone to get the

00:01:23.340 impression that I am not a fan, a genuine fan of Richard J. Murphy. I think this guy is absolutely

00:01:29.060 brilliant. He honestly does cheer me up. If you don't know what I mean, go to his channel,

00:01:34.200 sort videos by popularity. All the top ones will be things like Nigel Farage is a fascist, 0.76

00:01:40.120 and everybody's a fascist, and, you know, Squirrels are fascist, Clouds are fascist, 0.98

00:01:44.020 blah, blah, blah, blah, blah, blah. And you can watch his vitriol as he calls a bunch of milquetoast 0.99

00:01:50.440 centrists, uniparty adjacents like Farage as these sort of goo-stepping fascists. And it's generally

00:01:57.940 quite funny. It always makes me chuckle every time I watch them. But I think it's valuable to give time

00:02:05.140 to lunatic perspectives. And this guy, well, look, he's a professor, I think it's Sheffield

00:02:12.620 University or something like that, you know, one of those second league ones, and of accounting,

00:02:19.000 apparently, but, you know, he's roughly in the financial world. And he is a proponent of MMT,

00:02:26.020 which, of course, stands for Magic Money Tree that we have talked about before. I think he gives an

00:02:32.620 alternative explanation. Modern monetary theory, I think, is his way he frames it. But it's basically

00:02:37.420 Magic Money Tree is his take on stuff. And he put out this video. It's sort of half an hour long,

00:02:45.420 and that's sort of ideal for our purposes, because by the time I've talked over the top of it,

00:02:49.960 you know, we should get a full brokonomics out of this, and everyone will chuckle and we'll be happy.

00:02:55.940 Oh, and also, by the way, like I said, I genuinely am a fan of Richard J. Murphy. I watch almost all of

00:03:01.460 his videos because nothing else makes me laugh on YouTube. I'm not making it up. They genuinely make

00:03:07.060 me laugh. So I'm a huge fan of Richard's. And if he ends up seeing this and he decides that he wants

00:03:14.060 to come on, then by all means, I would be your hero of mine. So you are a YouTube hero of mine. So I

00:03:21.600 would absolutely love to get you on the show for a discussion. And actually, it'd be quite interesting

00:03:27.520 to see where we agree, because surprisingly enough, you know, we actually do agree fairly

00:03:35.400 often, not on the solutions, but on the problem. Certainly, we agree more often than you would

00:03:40.940 think, because I'm not a fan of the current system either. Although, of course, I'm coming

00:03:45.120 at it from a slightly different perspective. So without further ado, let's hear from the good

00:03:50.780 professor about what he thinks Rachel Reeves should have done. And I'll jump in every time he sort of

00:03:56.220 makes a substantive claim or two and give you my perspective on that.

00:04:01.860 Rachel Reeves is delivering her budget today. And you might well say at last. And if you did,

00:04:09.540 you would not be alone, because this has been one of the most protracted budget processes

00:04:14.240 that I have ever witnessed. And I've been looking at these things for nearly 50 years now. So here we

00:04:21.460 are at last. And I can forecast that whatever she does today, it will be disastrous for her. Yes,

00:04:29.280 for the Labour Party, for the country, and for our economy, as well as individual people, most likely

00:04:36.580 including you and me. I mean, he starts off very bloody sensible, doesn't he? I mean, can't put a word

00:04:43.260 wrong there. And that motivated me to think about what would I do instead. In 2015, I wrote my book,

00:04:51.700 The Joy of Tax. And in it, I included a draft budget speech. It was how I concluded the ideas

00:04:57.600 that I had explained throughout the course of the book. It worked well, my publisher was incredibly

00:05:02.440 excited by it. And it seemed to literally bring the book together. So over the last couple of weeks,

00:05:08.460 I have on the Funding the Future blog, and you should be subscribing to it, been publishing my

00:05:13.600 alternative budget for 2025. And so today, in anticipation of what Rachel Reeves is going to say,

00:05:21.740 I want to outline all the ideas that are in that alternative budget. Now, let me make it clear that

00:05:29.180 the budget I wrote turned out to be over 20,000 words. And the budget that Rachel Reeves will deliver

00:05:35.420 will probably be between 9,000 and 10,000 words, because that is the normal length of a budget

00:05:41.120 speech. So I have written rather more than she did. But to assist the process, you can today

00:05:48.100 download a copy of my alternative budget from our website, Funding the Future. And there, using the

00:05:55.560 link that you will find down below this video, you can get the whole thing as a PDF looking quite smart,

00:06:01.520 prepared by Tom, my son, and videographer, and now book producer. What have I got to say in that

00:06:08.880 alternative budget? The summary is quite simple. I am saying that this should have been the day

00:06:15.580 when Rachel Reeves announced that 45 years of anti-social, neoliberal economic failure had come

00:06:23.920 to an end and she was going to put in place a budget that would end fear and restore hope for Britain.

00:06:32.360 Right. Okay, I'm going to have to jump in early on this. 45 years of failed neoliberalism.

00:06:40.660 And we're going to end it and restore hope. Well, we have become increasingly less neoliberal

00:06:49.280 neoliberal over that time period. In fact, the last 15 years were the least neoliberal period in modern

00:06:57.660 UK history. We've had absolutely exploding state spending, quantitative easing, money printing,

00:07:05.280 effectively. I mean, he might quibble on that, but it is money printing. Relentless regulation,

00:07:11.300 huge welfare, public spending payrolls. So you can't just say that it's neoliberal failure. What

00:07:20.840 it actually is, is managerial statism plus printed money. So your solution is presumably going to be

00:07:31.220 to doing more of what has already failed, only doing it with the brakes removed from the car.

00:07:37.400 So I think we found our first point of disagreement. And this was also a day when she should have

00:07:46.340 announced the funding programme to rebuild this country, which I will suggest during the course

00:07:52.700 of this video is entirely possible. She won't do that, of course. That's not her style and it's not

00:07:59.500 what she's going to deliver. But she should have said austerity has broken Britain's public services,

00:08:07.060 but she won't because we'll get more of it today. And she should have talked about the curse of

00:08:12.220 inequality, poverty and insecurity that is now threatening our democracy. But if anything,

00:08:17.700 I'm expecting her to exacerbate all those conditions today. So we have a core crisis.

00:08:24.980 And the core crisis that my alternative budget addresses is the fact that this anti-social

00:08:30.700 neoliberal policy has failed us. Our public institutions are now misdesigned as a consequence

00:08:38.460 and wealth bias is embedded inside our tax system.

00:08:43.840 OK, right. So our institutions are misdesigned because they're bloated and politicised and most

00:08:52.080 importantly, they are insulated from feedback. There is no market mechanism applied to them. In fact,

00:08:58.620 if they fail, they generally get more cash rather than going out of business and being replaced by a

00:09:04.940 model which is more productive and adds more value, as happens in the private sector. So we're in this

00:09:11.940 situation because, well, not because markets have too much power. You know, the UK tax system already

00:09:18.960 heavily relies on capital and high earners. The real problem here is the bias towards unproductive assets.

00:09:27.320 So, you know, housing, government debt. And these are created by the very low rate,

00:09:34.840 high speed model that I believe Richard likes. So, again, I think you've got this 180 degrees wrong.

00:09:44.100 These are the fundamental issues that should be addressed. The new understanding that we need

00:09:48.600 is that our government creates all the money that it uses. And this is absolutely key to the

00:09:57.300 reconstruction of Britain. There is no other idea that is now more powerful than this one,

00:10:03.600 that the government is in fact in charge of our economy because it creates the thing that makes

00:10:09.160 it work, which is our money. Nobody else can.

00:10:13.680 Okay, right. You've got the two sides of the ledger confused here, Richard. Okay, fine. Let's just grant

00:10:22.480 you, it's a bit more nuanced than this, but okay, let's just grant the government creates all the

00:10:26.520 money it uses. What you're doing is you're confusing the plumbing with the prosperity. So yes,

00:10:34.760 the state and the banking system create money units, but that's not things, that's not resources,

00:10:40.900 that's not services. It doesn't magically create skills or factories or energy or imports. Being

00:10:47.920 able to print additional Bank of England tokens doesn't give you more stuff. It just changes

00:10:54.500 the denomination that those, that stuff, it changes the price level. That's all it really does.

00:11:01.240 And it also, it changes who gets first dibs on that stuff. But Richard seems to believe that

00:11:09.160 if you just have money, there will be stuff to buy. But no, that's because you're putting it

00:11:14.720 backwards. You think the thing that has the value is the money. No, the thing that has the value is

00:11:19.640 the stuff or the services or the skills. That's what's scarce. That's what's important. And if you

00:11:27.000 just create more money to go after it without any thought of the stuff and the skills being created

00:11:33.160 in the first place, well, you won't be able to buy them because the denomination of those things

00:11:37.840 will just be bidded up. This is again, 180 degrees backwards.

00:11:42.020 I know that people say that banks create money, but they can only do so under license from the

00:11:47.620 government. And the consequence is that all the power with regard to the money that is created in

00:11:53.120 this country rests with the government. And it does never need to be in hock to anyone. There is,

00:12:00.660 in fact, no such thing as taxpayers money because the government spends out of its own money and

00:12:06.000 taxpayers refund the money that they have benefited from to the government to control inflation whilst

00:12:13.440 borrowing, as it is called, is no such thing as far. OK, a couple of things there. First of all,

00:12:21.300 licensing the banks is not the same thing as micromanaging them. Private banks, they ration credit

00:12:28.160 based on risk. And the state has a long record of ignoring risks. And if your logic is, well,

00:12:36.400 because we regulate them, we should basically nationalize them. I mean, that's how you create,

00:12:41.120 you know, politicized credit allocation and zombie firms and sort of permanent stagnation.

00:12:48.140 I mean, by that logic, you just regulate everything. And then you say, oh, well, because we're regulating

00:12:52.640 it, we now own it. I mean, this is just straight up communist nonsense. And the second thing, 0.94

00:12:58.380 which is even more egregious, is I think he just said that, didn't he? He said there's no such

00:13:04.820 thing as taxpayers money. Right. Well, why do you need tax then? You know, in practice, every pound

00:13:16.380 that the state spends comes out of somebody else's claim on resources. OK. Well, and you could do it

00:13:25.540 now via tax, or you can do it later via borrowing, or you can do it by by stealth by inflation. But

00:13:31.580 you're just rebranding those costs as if relabeling the bill makes it disappear. But I mean, come on,

00:13:38.980 make your mind up. You either want a system which is reliant on taxpayers money to fund your

00:13:45.340 your communist notions, or taxpayers money doesn't exist. Pick one. But if you're going with

00:13:52.220 taxpayers money doesn't exist, well, stop taxing us then, because it doesn't exist. Why are you

00:13:57.240 taxing something that doesn't exist? As far as the government is concerned, the government does,

00:14:02.560 in fact. And yes, I do understand how you think magic money tree, modern monetary theory works,

00:14:09.880 but it simply doesn't. You're confusing money with a claim on real resources. It's the real resources

00:14:18.220 that matters, not the bloody money. Provide safe savings products for the benefit of the City of

00:14:23.640 London, and it does not rely upon it. The fact is, therefore, that what is called the full funding

00:14:30.120 rule, laid down by the Treasury, which says that the government must always either tax or borrow to

00:14:36.600 cover it spending, is just a myth. Okay, look, if you just call a gilt a savings product,

00:14:46.360 it doesn't change the liability. The government still has to service it out of future taxes or

00:14:53.220 inflation. You can ignore the funding constraints, but the markets won't. And the moment the investors,

00:15:02.780 the gilt buyers, think that you don't think that borrowing matters, that debt doesn't matter,

00:15:10.140 well, they're not going to lend you anything. Well, at the very minimum, the yields will spike,

00:15:14.480 and your safe saving product becomes a panic trade. Doesn't need to tax and borrow to cover its spending,

00:15:23.700 because its spending was already covered by the Bank of England creating new money to fund it.

00:15:28.480 Magic money tree. Instead, this process of taxation and deposit taking, which is what is really going

00:15:37.840 on, and deposit taking is just banking, by the way, for people who have excess money in their possession,

00:15:42.960 who want somewhere safe to put it. This process is simply an exercise undertaken to provide fiscal

00:15:49.520 balance within the economy, where fiscal balance means that we don't get inflation. Whilst we do get

00:15:55.900 growth, we do tackle inequality, we do support those in greatest need, and we do deliver against

00:16:01.260 the needs of this country. That is what fiscal balance means. It does not mean balancing the books.

00:16:07.900 Okay, well, for a start, you know, maybe with some future vastly powerful AI, what he's talking about

00:16:17.020 has a hope in hell. But all the time, mortals are doing this. This is pure fantasy. Effectively,

00:16:25.380 what he's doing is he's reducing taxation to a purely technocratic dial. You spend first,

00:16:29.860 and then you fiddle the tax after. But in reality, tax systems are political battlefields,

00:16:36.720 really. They're not smooth control knobs. We're not sat there on the bridge of the Starship

00:16:41.940 Enterprise with perfect feedback and commander data, sat there making these micro-adjustments.

00:16:46.620 You won't get a finely tuned fiscal balance. What you get is lobbyings and carve-outs, delays,

00:16:55.720 broad-rush politics, and people rewarding their friends and punishing their enemies. And even if

00:17:03.200 you have the purest of motives, which nobody in the Labour Party or communists, in fact, nobody on anyone on

00:17:11.880 the left of British politics, including reform and Tories, who I consider to be very much on the left,

00:17:21.000 none of them are capable of this sort of level of dispassion that you are imagining and also has been

00:17:28.680 tried many times before and always resulted in widespread starvation and death.

00:17:35.320 So we have to end this full funding rule, and the government has to realise that as a consequence,

00:17:43.720 it must take back control of inflation. And that's because tax is the single most effective instrument

00:17:51.000 that we have to control inflation. Inflation is not caused by excess money in the economy. Inflation is

00:17:58.680 caused by supply shocks and wars and speculation. And if it arises, and we have seen it do so because

00:18:06.280 we saw it after Covid, then that was exacerbated by the war in Ukraine and the speculative activity

00:18:13.160 that took place in the City of London and elsewhere as a result, then the government has to control that

00:18:18.440 through excess taxation at that point of time. But it does not do so by changing interest rates,

00:18:24.040 which normally have an impact two years after the event, by which time inflation has normally gone away.

00:18:29.640 OK, so, right. OK, again, a couple of points to unpick here. And he kind of hit upon the key

00:18:36.360 problem at the end there, which is interest rates take a long time to take effect. But he thinks that he

00:18:41.640 can just twiddle taxation around instantly in order to do this. Raising or cutting taxes takes months or years,

00:18:49.880 and it usually requires legislation. And it's politically toxic at precisely the time that

00:18:56.440 you need to use it. So rates can be changed in a day. He says the effect takes longer, but you can

00:19:03.400 actually change rates in a day. His model assumes a fantasy parliament that can calmly vote tax hikes

00:19:10.280 during a cost of living crisis and survive. That just simply wouldn't happen. So, I mean,

00:19:18.040 presumably you're taking the next logical communist step, which is doing away with democracy, a bit

00:19:23.960 like they're doing away with trial by jury. So you might as well do away with democracy. I mean,

00:19:28.040 you might as well just have the state decide everything. But, you know, what he's describing

00:19:32.600 is completely incompatible with both human nature at this point and the political system.

00:19:38.760 And then he goes to talk about, you know, inflation is a product of supply shocks and speculation,

00:19:45.240 too much money in the system. I mean, well, fair enough. I mean, I call it debasement.

00:19:49.160 But supply shocks explain relative price changes, turning them to a persistent sort of broad inflation.

00:20:02.120 I mean, it requires demand outstripping capacity.

00:20:07.000 You know, too much money or credit chasing limited outputs. He's just airbrushed out the role of

00:20:15.800 quantitative easing, money printing here, ultra low rates and deficit spending. And he's turning a

00:20:23.400 temporary squeeze into a generalized price level jump. The underlying issue is the debasement of the

00:20:29.960 currency because they keep creating more of it, as we have covered on Brokonomics many times.

00:20:37.160 And so we have to understand that the balance of power within the relationships around the economy

00:20:43.800 will now be totally reset. And this idea is at the core of what I'm saying. The city is not in charge

00:20:50.920 of the economy by providing loans to the government. The city is not in charge of anything. In fact,

00:20:56.840 the city simply uses money entrusted to it by savers, you and me, as ever. And it is not the city's own

00:21:03.960 money. And it places it on deposit with the government, which is not very difficult for all

00:21:09.640 those smart people. That's what they do with most of the money they get. They just place it on deposit

00:21:13.960 and leave it earning a bit of interest. That's it. So we should never succumb to the city ever again.

00:21:21.000 Okay. So he wants the tax and pension receipts of the whole country, but none of the discipline

00:21:34.760 that capital markets impose. He basically wants all the breaks taken off the ability of the state to

00:21:41.000 spend whenever it damn well pleases. And yet he imagines that the people are still going to

00:21:47.880 lend. He assumes that people are going to have any money because so much money is going to be

00:21:52.040 printed under the system and people's incentives to work are going to be so utterly destroyed.

00:21:59.080 The point is, you can have as much money as you want. What you can't have is the underlying stuff.

00:22:04.440 That requires people to take risks to feel that they have a opportunity to profit. So it is worth

00:22:10.760 taking the risk and putting in the extra time. If you design the system, people will just do the

00:22:15.480 minimum, like has already been tried in the Soviet Union. And, you know, you can't treat investors as

00:22:23.000 a hostile enemy. And this notion about succumbing to the city and, you know, they're not in charge,

00:22:28.200 blah, blah, blah, blah. Well, when you're going to them for money, they are in charge

00:22:32.840 because they've got the money and the government ran out a long time ago and is borrowing money.

00:22:37.720 If you don't want the city to be powerful, well, stop going to them with a begging bowl

00:22:43.160 for money. If you enjoyed that content, and of course you did because you are a smart person,

00:22:49.320 then why don't you go over to lotuseaters.com where you can watch the whole episode for as little as

00:22:54.760 five pounds a month, which really is not much money at all. And you get loads of really good content.

00:23:02.840 Thanks for listening.

00:23:05.720 Thank you.

PREVIEW： Brokenomics ｜ The communist budget alternative

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