Government surpluses don’t create cash piles waiting to be spent

The idea that government surpluses are good because they create piles of cash waiting to be spent in the event of a national emergency is absurd. All money paid in tax is cancelled on receipt by the government. So, all government surpluses actually do is reduce the amount of cash in the private sector economy.
#uk #money #economy #politics #government #tax #labour #starmer #keirstarmer
ABOUT RICHARD MURPHY
Richard Murphy is Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best known book is ‘The Joy of Tax’.
This video was edited by Thomas Murphy.
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[@Jenks1]

I used to think Govt could "save up" this way until I watched Richard's videos. Now I know better.

[@Grandude77]

You just need to think about it for a short while. Start at the beginning-there is no money; government issues money but they have it all;government gives out or spends money, government has a deficit but money exists in the world now.

[@nickhardy7310]

People like Richard are as rare as hens teeth. A voice of sanity in a helter skelter nutcase clown world.

[@col.hertford9855]

Can I recommend Mark Blythe, Professor of economics at Browns. He’s on a very similar page, but also challenges a few of Richard’s point (such as application of MMT by the UK). I’d love to have Richard and him discuss the application of MMT.

[@nickhardy7310]

@@col.hertford9855 Thanks for that info. I will investigate.

[@adenwellsmith6908]

@@col.hertford9855 They are both nutters. THey are playing fantasy economic where the pension debts don't exist. No basis in reality.

[@col.hertford9855]

@@adenwellsmith6908 yes buddy, sure…. Aren’t you supposed to sign off vote reform?

[@davidmcculloch8490]

​@@fburton8Gary Stevenson of the patriotic millionaires

[@shaunmiller7370]

Still a lot more that the general public don’t understand

[@Grandude77]

Rachel Reeves doesn't seem to understand it. She says its like balancing a household budget, working at the kitchen table.

[@g.p616]

So if running a surplus or deficit does not impact a governments ability to spend, why did the UK have to borrow £3.9b from the IMF?!!😂😂😂

[@lflaherty3937]

Recessions permit the media to talk about the need for austerity and reduced government services. They will quietly ignore the real causes of the problem as always.

[@wilsonrichard440]

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[@arktom7335]

Honestly, I'm surprised that this mrs Stacey Macken is mentioned here, came across a testimony about her from one of the beneficiaries on the CNBC news, she seems to be doing extremely well .

[@waynes4369]

Been debt free for two years thanks to Stacey Macken. So sad to see my friends in their 40s with car loans, mortgages and credit card debt

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[@KamranKhalil-br6dk]

I agree with you.I was 35 when I finally educated myself and started taking steps. I went from $176,000 in debt with zero savings or retirement to now, 2 years later, fully debt-free and over $1000,000 net worth. I know that doesn't SOUND like a lot, but I'm incredibly proud of it. Now I'm fast-tracking my wealth building (investing $400,000 annually) and don't owe a dime to anyone. It's a good feeling!

[@johnhealy6260]

Brilliant analysis.

[@truthseeker5911]

Richards points are all illustrated by the use of 'sectoral balances' and which were first highlighted by an economist named Wynne Godley who worked had for the UK treasury. In their simplest form they are expressed in the accounting identity (S-I) = (G-T) + (X-M), the three sectors of the economy, the private sector, the government sector and the foreign sector and all financial flows between them must net to zero as all surpluses and deficits cancel each other out.

[@TheMahayanist]

Government surpluses take money out of the private sector, government deficits put money in the private sector.

[@adenwellsmith6908]

When it comes to the debt you take money out of the people's pockets.

[@davidmcculloch8490]

To my knowledge, no government has been brave enough to embrace MMT, probably to maintain the status quo and preserve inequality by keeping power in the hands of the financial sector. I first became aware of MMT by reading Reclaiming the State (Mitchell and Fazi). Neoliberalism has suppressed growth by creatiing inequality and we need a government brave enough to reverse it.

[@blackbulldog4897]

MMT isn't something that's embraced or not embraced, it describes how our fiat money system works (particularly govt fiscal ops) now, today.

[@physiocrat7143]

​@@blackbulldog4897 Zimbabwe, Weimar Republic. Murphy is correct about money but the other side of the story is the need for a non-destructive tax system. Economic activity across a large tract of the country is simply not viable. Tax has pushed it below the margin and driven industry out of the country. The UK is far from the worst case.

[@blackbulldog4897]

@@physiocrat7143 there's a lot in there, firstly, please explain what you think the hyperinflation hyperventilator favourites ZimWie etc have to do with anything I posted m

[@blackbulldog4897]

Can you explain what you think ZimWei etc have to do with anything I said?

[@physiocrat7143]

@@blackbulldog4897 Everything, but I was replying to another commentator. It's what happens when governments create money and fail to withdraw it from circulation through an effective tax system. Murphy advocates taxes which slowly wreck the economy. His version of MMT is the road to ruin.

[@petersmith6520]

Please explain sovereign wealth funds, Richard. Are they not a product of long term govt surpluses?

[@Pinkdam]

Perhaps he could address Say's Law into the bargain.

[@blackbulldog4897]

Sovereign Wealth Funds, like Norway's for example, are an indication that you are exporting too much. In Norway's case it's the equivalent of digging holes to fill them in again and an attempt to avoid 'Dutch Disease'. The UK has it's own 'SWF' in the Consolidated Fund and Parliamentary authority.

[@roymillsjnr5172]

If you could create a system , how would it work Richard ,or wouldn't you change it .

[@michaelmayo3127]

Yes, unlike the governance of Norway, the Republic is being badly managed.

[@mishapurser4439]

Please could you explain what a Sovereign Wealth Fund is and how it works in relation to this?

[@SarahWalker-Smith]

Hi Richard. So government surpluses are sort of ‘ dormant money ‘, not circulating around the economy , not generating wealth or value . Could it be said that surpluses are a lack of investment which in time contribute to a downturn in the economy? Thanks

[@SarahWalker-Smith]

Sorry I think you answered that at the end.

[@taipizzalord4463]

It makes no sense to say that a currency issueing government can 'save' money. To spend more in the future as they can just create the money they want to spend in that time regardless.

[@adenwellsmith6908]

So cancel taxes. Print the vouchers.

[@gordonwilson1631]

@@adenwellsmith6908tax demanded in a currency validates that currency. Therefore I agree that tax should be on money and not on people.

[@taipizzalord4463]

@@fburton8 You realise gold/silver has never been used as money throughout human history. Because until recently it was impossible to find out the exact purities of coinage.

[@babayaga6376]

"You realise gold/silver has never been used as money throughout human history.". Tell me you're trolling...and you're not a delusional fuckwit who denies recorded history....

[@taipizzalord4463]

@@fburton8 I mean think about it. Gold and silver are too valuable to use except for large purchases like real estate or buying cattle/horses etc. Even if you knew the purity they still did not have accurate weighing scales back then. So exchanges could not occur.

[@thejovap]

First windfall from government to recipients who really don't need it and then austerity, debt and debt interest to all the rest. Debt interest as government expenditure is 109 billion GBP. Brilliant scheme.

[@GhostOnTheHalfShell]

So what this seems to mean long-term is that the part of the economy that needs that cash, everybody but the corporation camping in Ireland for its tax-haven, will be strangled of money. Isn’t that a recipe for recession or depression?

[@blackbulldog4897]

As Sectoral Balances show us that as a government deficit increases the net financial assets in the non-government sector, then a government surplus necessarily means a reduction in the amount of net financial assets in the non-government sector. So, government surpluses will be contractionary potentially leading to recession etc.

[@smellypunks]

Sovereign Wealth Fund

[@JohnBliss-w1k]

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[@JohnBliss-w1k]

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[@kevinsyd2012]

Government red is private sector black, government black is private sector red. A government maintaining a deficit is good for the private sector as surplus cash is available to the economy.

[@GhostOnTheHalfShell]

I would like Richard to clarify why tax shouldn’t be applied until there’s no inflation, because what he’s saying here is that price increases are exogenous to the money supply, which I know is true, but it would be a good point to discuss. I will emphasize that you don’t need inflation to ensure or prevent inflationary spiral so you just need to incentivize people to freaking spend money and again demurrage tax is the mechanism to achieve that.

[@ajn2370]

This is how deflation works.

[@kk-xj5oz]

You have to remember government's aren't self-reliant they need to import a big part of their resources, not all currency are accepted internationally. So if those countries print a lot of money then they'll devalue the currency compared to the dollar and euro.

[@martineyles]

Isn't it different for Ireland? They don't own the central bank in the same way that the UK government does and have a limit to how much money they can create each year. Couldn't they just keep the tax revenue generated by governments outside Ireland (eg. France) but taxed into the Irish economy like a local government could in the UK? Is there any way they can buy Euro bonds from private businesses operating elsewhere in the EU and actually suck money out of the rest of the EU for them to spend with later?

[@mortelski5814]

Makes you wonder why Norway bothers maintaining such a large sovereign wealth fund instead of spaffing it all against the proverbial public sector wall and running a “successful” deficit?? Ah yes, it is intended to protect their economy against fluctuating oil and gas prices, whereas the UK has been recently proved to be totally at the mercy of these (see cost of living crisis). They are also protecting future generations from accumulated debt, rather than completely shafting them like we are. The more I listen to lovely Richard, the more I begin to distrust the motivations that lie behind his economic propaganda. 🤔

[@JackMellor498]

God I hope Sinn Fein up their game and start making victories. The Fianna Fáil and Fine Gael duopoly needs to end, it’s not doing Ireland any good.

[@Fabbydabby1]

No but what it does is allows more money to be spent on things like the nhs & what it also means is not cut to the nhs budget like has been done before.

[@indricotherium4802]

Right wing politics is always about what feels right, not what makes sense. Brexit is a recent and prominent product of that mindset.

[@borderlands6606]

It's a philosophical question. Does the state, i.e. a cabinet self selected from a fraction of the available vote, have the right to remove a significant proportion of earned income? No competition for its services is permitted, only additional voluntary contributions to healthcare, education and so on. In a local context it would be called extortion. In government it's called welfare.

[@foxmoongaze]

Do people really think that MMT and Keynesian economics are good for the public in the longer term? To me, this fiat currency experiment fully adopted about 50 years ago is doomed to ultimately fail - all fiat currencies always have in the past. Looking at the value of most now, compared to their value 50 years ago (which is down to about 1%), it seems they are well into their death throes. Are we going to get a currency reset soon? Maybe 100, or 1000, to one?

[@AnBreadanFeasa]

Running a surplus transfers money from the private sector to the government and therefore dampens economic activity... paraphrased. Agreed when the tax burden is spread across the economy, whether to personal or corporate taxpayers. However, the recent settlement of the action taken by the EU to force Ireland to collect over 14 billion Euro from Apple seems a different situation. Technically this has transferred funds from the private sector to government coffers, but specifically it means that the Revenue Commissioners bank account is now bulging though general economic activity has not been impacted. The sole effect is that Apple's bank account is considerably lighter (tiny violins playing sad music in the background....). I'm Irish and fully agree that Irish corporation tax policy is a beggar thy neighbour scheme (though the economic history of both pre- and post-EU membership need to be taken into accoun). However, if Ireland's economy and tax environment are distorted by the transfer pricing and tax practices of MNC's, surely Richard's point does not apply? If Apple sells an iPhone is Germany and the profit is booked in Ireland then the only economic affect is the payment of (derisory) tax to the Irish Revenue, with concomitent loss to the German tax authorities. I know this is not the typical manner in which a country generates a surplus (feckin' austerity!) but in Ireland's case surely its government bank accounts are fattened by sucking in the tax gained from multinational corporations playing the system? Is this not the same result as when the Spanish mined huge amounts of silver in South America during the 16th and 17th centuries and convoyed the bullion back to Spain? The relative amounts being collected by Ireland are far smaller, but the Spanish accumulation of silver eroded the value of its currency, caused massive inflation, and was a major factor in the fall of the Spanish empire.

[@garycroft8213]

I thought the purpose of running a surplus was simply to pay down the national debt? (Which I'm aware can also be shrunk in real terms by growth). Ireland debt is about 42% of GDP, and I know there GDP is distorted by tax revenues from multinationals, but it appears far better than many countries that are over 100% of debt to GDP and are now paying large amounts of interest. I know from a previous video that the UK national debt interest is 2nd only to the NHS in terms of its size. It would be good if you could do a video as to what a sustainable level of national debt is and if there is good debt i.e. spent on infrastructure rather than debt just to manage day to day spending.

[@norab84]

Follow the money- who benefits from a surplus?

[@briankerrison8504]

To pay more tax (raising) is very unpopular in a greedy & wanting nation.. & would address public services issues..but instigating it would mean loss of position..it’s not government attitudes that need changing..it’s the ppl attitudes.. & that controlled by billionaire media moguls.. who have only their success at heart 🙄🙄🤔😎

[@physiocrat7143]

This really is very good as far as it goes, but it not the whole story. Paying down government debt means reduced interest charges. This provides leeway for government borrowing if the need arises in the future. The more important issue is the deadweight loss due to the dysfunctional tax system. At lest 25% of the economy is lost through having the wrong sort of taxes.

[@blackbulldog4897]

Couple of things to note: 1. Interest rates on debt and issuing debt itself is a purely political choice 2. The "debt" is simply the amount of £s govt has spent into the economy but not yet taken back via taxes. It's the net money supply. 3. The only "borrowing" the UK govt undertakes is via it's own bank, the BofE.

[@physiocrat7143]

@@blackbulldog4897 Not really. Interest rates are ultimately set by the market, and real interest rates have for centuries hovered around 5%. This goes with the old principle that 20 years' harvest buys the field. The Bank of England sells on the debt in the form of government bonds. These are discounted by the market and that establishes the market interest rate. Money has lost 98% of its value since about 1950. One of the consequences is that money is cannot effectively perform one of its main functions, which is to act as a store of value. There is also the moral implication that people are robbed of their savings; inflation is theft. The consequence is that people use real estate as a store of value. In reality, this is a cover for using land as a store of value, since buildings are a depreciating asset. That is the main reason why the UK economy fails to perform. The most reliable investment is land. This applies also to foreign investment. Oil producers and China have accumulated vast sterling balances which are mostly invested in real estate - land, adding nothing to UK productive capacity. It has, however, bought political influence and helps to explain the rotten politics.

[@benjaminguilatcoiv]

man Right or Left 'wing' doesn't really matter. It's always debts and deficits burdened upon the Govt. i.e. upon the people, upon the pension 'funds' etc. The wealth, the 'savings' by and large flows up the 'pyramid' going into the hands and pockets of the corporations and private banks i.e. the people and entities who own the corporations and the banks. Of course generous tips are always given to their best employees: the politicians, both of the right and the left and every one in between. Also the ranking beaurocrats/executives of both public and private sector depending on their usefulness and connections get a cut of the loot.

[@adenwellsmith6908]

So why doesn't the state invest the 18% NI contributions into a fund owned by the workers?

[@benjaminguilatcoiv]

@@adenwellsmith6908 bec the people in power don't have the people's best interest in mind. They may say it but that's just what's called: Propaganda or false advertising.. because the actions with the best outcomes for the people is not really what they bother about. It's only on very few specific instances when they're forced to 'do something' but it never lasts. Aren't these things clear from historical experience in every nation and country?

[@ChuckY229]

Debt interest is the second highest item of UK government expenditure after the non-functional £161 billion /year NHS. So the idea that "debt doesn't matter" is ludicrous MMT nonsense. As for Ireland, people are homeless there because of mass uncontrolled immigration.

[@markwelch3564]

Your numbers are broadly correct, but everything else is rubbish

[@adenwellsmith6908]

It's not that MMT is nonsense. Its that people who want to spend spend spend and cause inflation by printing are distorting it to their own ends.

[@adenwellsmith6908]

@@markwelch3564 30% gross profit on state services in the UK. Is that profit margin acceptable?

[@markwelch3564]

@@adenwellsmith6908 that sounds rather high - do you have a source?

[@jim-es8qk]

No, but low debt and tax does.

[@gregreynolds5686]

So, assuming that a country has its own currency, are you saying that reducing the amount of money has no positive benefit? Surely it would raise the value of the currency and thus be positive for a net importer like the UK.

[@brendansheehan7714]

I'm not sure that the description of the Irish situation is fully accurate. Given an MMT context what you say is true at the Eurozone level but not true purely in the Irish context. There is additional money for the Irish Government, who does not issue its own currency, to spend because of the surplus. I would agree that overall for the Eurozone economy there is less money in circulation as a result...eventually (it has to find its way back to the ECB). Yes the housing crisis is at the core of Ireland's problems right now but I would argue it is because of too much private sector activity. There are a lot of people with high paying jobs in the multinational sector in Ireland chasing too few houses whether to buy or rent. Does MMT handle how an individual economy such as Ireland's works within the constraints of the Eurozone? I accept MMT at the Eurozone, US, GBP level (although I have a question on whether Britain meets all the criteria for MMT to work). I just don't think it is a good tool to describe the Irish situation. It is a simple physical supply demand issue rather than a balance sheet problem.

[@brendansheehan7714]

A further thought since my last post. Where MMT would have helped with Ireland's housing situation was back during the financial crisis. It was clear that housing demand would come back and we should have prepared for it. However Ireland was constrained by the monetarist view of the ECB and so there were sadly many lost years of construction. Plus so much of the construction sector was damaged by the crisis and I would say has still not fully recovered. If the ECB had their MMT hat on we might have avoided the whole situation.

[@alansmith3733]

Doesn't reducing the money supply reduce inflation?

[@garysmith5025]

Only if an excess of money caused the inflation in the first place. The most recent inflation spike was caused solely by global factors, i.e. the Russian invasion of Ukraine pushing up gas prices.

[@alansmith3733]

@@garysmith5025 the money must have been there to pay the prices. Did the amount of commodities, goods and services bought go down. I think greedy companies used the war as excuse. Unless you have data that says other wise. Everyone's consumption in my area went up.

[@garysmith5025]

@@alansmith3733 Money is always there to pay the prices, whether it's savings, disposable income or credit. What do you mean by "everyone's consumption in my area went up"? Consumption of what? Do you have data to prove it? Pull up any chart of natural gas prices you can think of and you'll see a spike in 2022, maybe some businesses were profiteering, but gas prices directly affect the cost of electricity, fertiliser, plastics, etc.

[@alansmith3733]

@@garysmith5025 what I'm saying is consumption should have went down significantly due to inflation and supply shortages. But I haven't looked at the data. It felt like consumption didn't change if anything it went up. And if the last inflation was down to supply issues why wasn't their period of deflation? Inflation is caused by an increase in the money supply rather than a decrease in the supply of goods or as some politicians were warning an increase in wages. As wages caught up inflation started to reduce. Listening to politicians explaining the reasons for inflation is a mistake. The last inflation could only have happened because of the quantitative easing during COVID just before the Ukraine war started. The natural gas prices and the Suez canal blockage can't affect your car insurance or mobile phone service.

[@jardenc]

So the credit-worthiness of governments doesn't matter? And is the '£20 billion black hole' just a fudge then?

[@adenwellsmith6908]

Credit worthyness, is just for the money owed to bankers. The money owed to the peasants doesn't count. The fudge and you can check. Why are the pension debts left off the books? Unfunded pensions, zero assets. How big is that black hole?

[@davidmcculloch8490]

Fiscal management matters in determining the exchange rate of the pound, which is about confidence. Spaffing money on faulty PPE was hardly likely to inspire confidence; investment in the public infrastructure and green solutions might well help.

[@adenwellsmith6908]

@@davidmcculloch8490 So prior to Covid, the NHS demanded and got automony. Government provides the money. NHS manages the money. Why didn't the NHS prepare and buy PPE? Why didn't it buy options on PPE to be exercised when needed?

[@adenwellsmith6908]

@@davidmcculloch8490 Investment. Can you produce the accounts for any past investment that shows borrowing cost against the return on investment?

[@blackbulldog4897]

The idea of creditworthiness isn't applicable to a currency issuing govt with it's own fiat, floating currency. Yes, the £20bn "black hole" is a nonsense.

[@johnbrooks3407]

How comes your the only head on here that put it the way it is and also simply.. please elaborate on everyone dream to be rich and how the more billionaires there are the more we have to scramble around for a ever srinking slice of the pie

[@adenwellsmith6908]

Ha ha. Government? Surplus? With a 16 trillion pension debt. Never going to happen.

[@blackbulldog4897]

It seems you don't understand how the state pension works; it's a case of how much of current production those under a certain age are prepared to give up to those over a certain age.

[@scottyfive4319]

@@blackbulldog4897 It was known when this was started that it would not always work, ALL governments have known this. The current "forced" pensions should have been done decades ago. It is probably the ONLY thing that the Tories have done that was worth the sweat.

[@blackbulldog4897]

@@scottyfive4319 I've no idea what you are trying to say. The reality of the state pension is exactly as I said above.

[@scottyfive4319]

@@blackbulldog4897 I am saying that the system of providing pensions setup in the late 1940's was doomed to failure, very simple really. Everyone and employers paying into a specific fund is and was the way to go. You pay for your future pension, there is only one proviso and that is that it is a properly managed and protected fund.

[@blackbulldog4897]

@@scottyfive4319 it's not doomed to failure, in fact it's the only way the state pension can work, as a direct transfer from workers to those who are retired. It's always a question of stuff and how much of it those below a certain age are prepared to give up to those over a certain age. It's never anything to do with money and "pots", there's no state pension "pot".

[@maxfellow-k8l]

I think it is cause They don't want functioning economy. That would mean ppl would have things and rich ppl wouldn't have as many things.

[@jenniferemile330]

You're talking absolute BS! Countries are not using the MMT system, central banks are independent and so governments have to tax or borrow to cover their expenditure! Norway has a huge sovereign wealth fund they have built up from their surpluses! I find it hard to believe you are actually a professor of anything!

[@blackbulldog4897]

MMT describes how fiat money systems work, now, today. The BofE is not independent in any way from govt.