Duncan’s Economic Blog

Other things I’ve written recently

Posted in Uncategorized by duncanseconomicblog on December 23, 2010

An article in Red Pepper on the corporate surplus, the deficit and investment.

An article from Soundings (written in May) on the Greece and the Euro Crisis, now available online thanks to the New Left Project.

Two articles on False Economy – one on multipliers and another on Ireland.

Plus, for those you haven’t – I’d recommend September’s ebook from the New Political Economy Network (pdf), which I was one of the co-authors of.

I’ll try and get one more post up this year – a sort of economic outlook for 2011.

Merry xmas all,



4 Responses

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  1. Agog said, on December 23, 2010 at 3:09 pm

    The surpluses that the corporate sector have been running over the past decade (mirroring to a large extent the government budget deficit) have been a bit of a puzzle to me. It’s hard (for me) to think of what large scale effects are behind them. One idea that sprang to mind is the pension fund ‘black hole’ thing – the change in demographics causing corporates to worry about employee pension provision causing accumulation of government bonds (among other things). That would show up in the figures contributing to the surplus, right? And a govt liability. But how big would the total of all that be? How large a fraction of the overall surplus?

    • Neil Wilson said, on December 23, 2010 at 5:05 pm

      That’s because the corporate sector surplus *is* the large part of the government deficit by accounting identity. The government deficit follows the spending and saving intentions of the non-government sector in our economy, because our sovereign fiat system is a ‘Spend’ and then ‘Tax’ structure operationally.

      In our system government bonds (gilts) are just saving certificates paying a higher interest rate than the Bank Rate. They serve no other purpose. Arguably they serve no purpose at all…

      Randall Wray, who has done a great deal of the ground work on Modern Monetary Theory, mentioned yesterday on a podcast that corporates are just scared to invest their funds , and banks are scared to create loans. Without those two engines generating spending the money never passes taxation points in our taxation structure.

      Government has to do something to reduce the fear.

  2. cjenscook said, on December 24, 2010 at 11:53 am


    I agree totally with the MMT premise that in fiscal terms Spending precedes Tax, rather than vice versa, and in monetary terms Credit creation precedes Deposits, rather than vice versa.

    Indeed I said as much on Labour List recently


    But I think the missing point here – and it’s the $64 trillion point – relates to the basis of taxation and credit.

    In my analysis, only the credit necessary for the circulation of goods and services and the construction of new productive assets is based upon the capacity of individuals to provide goods and services (aka ‘Labour’) .

    But in fact most credit in existence is based upon the use value over time of developed productive assets, particularly land/location, and the ‘capital’ invested/embedded in it.

    More than two thirds of money in existence came about through creation of interest-bearing credit by credit institutions (aka banks) and is therefore deficit-based but land-backed. This money does not circulate, but remains static, being tied up in the legal property claims of finance capital over the assets (Debt and Equity).

    In my view, land and improvements are ‘productive’ – having a use value over time – in a way that the owner is not.

    Our taxation system fails to adequately tax the ‘unearned’ (by the owner) use value over time of productive assets, and therefore the basis for the money supply is limited to ‘earned’ income from Labour only. I find it ironic that the anthropocentric Marxist view that only Labour is productive is also convenient for neo-liberals since it justifies imposing taxation only on Labour.

    There has been a disguised recession over the last 30 years where the fruits of productivity increases have gone almost entirely to capital, and real incomes have stagnated, with individuals making up for their lack of purchasing power by borrowing against property which thereby inflated in price.

    This process was evidenced by a secular decline in retail deposits vs wholesale deposits, which led in turn to the Northern Rock business model, and the credit crunch.

    The outcome from the combination of compounding debt and private property in land is once again – as it has been for thousands of years – a solvency crisis.

    The fact is that 90% of the population is now in debt to the other 10% of the population who own almost all of the unencumbered assets, and what ‘wealth’ the 90% do own is very much contingent upon infllated property prices.

    To conclude, stagnating/declining real incomes and this solvency crisis combine to create a systemic absence of purchasing power, and creditworthiness.

    So shareholders of corporates and banks are right to be fearful. It is their greed which led to the current terminally dysfunctional economy which only systemic fiscal reform can address.

  3. Neil Wilson said, on December 24, 2010 at 4:28 pm

    You don’t make the poor richer by making the rich poorer. We are currently losing billions of pounds a day in lost output because we have people stood idle. If we need money for anything it is to eliminate that vast real opportunity cost to the economy.

    The state can mobilise that force, and when it does we’ll have the beginnings of a ‘bubble up’ economy where productivity increases drag people further away from poverty rather than crushing them into it at present.

    We need to initiate a race to the top to replace the failed trickle-down race to the bottom nonsense we’ve been saddled with for a generation or more.

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