The £60bn Route to Scotland’s Economic Independence

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The following Media Release was issued by the Scottish Land Revenue Group today

The £60bn Route to Scotland’s Economic Independence

Devolution of new financial powers to Holyrood could lay the foundations for an independent Scottish economy within the UK, according to a new Glasgow-based think-tank.

The Scottish Land Revenue Group (SLRG) estimates that Scotland’s government could expand the economy by £59.8bn over the 5 years up to the Holyrood election in 2021 if, as expected, it is given control of the Income Tax.

The forecast assumes that the government would use its powers to rebalance the tax system. The process would begin by zero-rating the Income Tax, scrapping the existing property taxes and replacing the revenue with a new charge on location rents.

The Income Tax now yields £11.5 bn. Studies commissioned by the SLRG show that replacing Income Tax with one charge on land rents would boost employment by 55,000 jobs.

According to Dr Roger Sandilands, emeritus professor of economics at Strathclyde University: “This is not a revenue-neutral policy. By switching the way revenue is raised, the losses caused by the Income Tax are turned into financial gains.

“This is an anti-austerity strategy,” Dr Sandilands stresses. “The tax shift means that government does not have to cut public services. Tax cuts would be self-funding. Under current policies, when taxes are cut, the money does not stay in people’s pockets. Ultimately, it flows into the land market. People have to pay more to buy or rent homes or commercial properties. By collecting that revenue in the form of location rents, government can maintain current spending on services like the NHS.

“So why switch the way revenue is raised? There are two benefits. First, without reducing people’s take-home pay, it becomes cheaper to hire people. Scotland would become a magnet for investors wanting to create enterprises within the UK. This reverses the drift to London and the South-east.

“Secondly, the so-called ‘deadweight losses’ caused by bad taxes would be reduced. There is a net gain to the economy. We estimate that, if Holyrood exercised its power to zero-rate the income tax, the Scottish economy would expand faster than the UK average. GDP would increase in a virtuous cycle of growth. The boom/bust property cycle would be damped down in Scotland, and our economy would leave the rest of the UK behind.”

These themes will be explored at an SLRG conference at The National Piping Centre in Glasgow on February 25. Speakers will discuss how communities can be rebuilt, trust restored in the institutions of governance, and investment in the economy can be increased without incurring government debt.

Conference Programme

Contact SLRG to book a place

Rewards from Eliminating Deadweight Taxes: The hidden potential of Scotland’s land and natural resource rents
by Professor Roger Sandilands.



Categories: Commentary, Common Good

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76 replies

  1. But will they let us?

    • This is part of what Philip Collins had to say in yesterday’s Times, in criticising the crudity of Labour’s mandion tax proposal:
      The beauty of the green and pleasant land as a taxable asset is that it retains its value because there is a fixed supply of 60 million acres and the maker has stopped making it. The windfall gains from land are often the result of public infrastructure development, which should be taxed. A levy of 1 per cent on the land would yield £50 billion. Once the deficit had been cleared, income tax could be cut by a third or corporation tax abolished.

  2. It took me a while to understand exactly what is being proposed here, as it is not made clear and assumes some prior knowledge of an ongoing discussion, however it seems to be this: http://en.wikipedia.org/wiki/Land_value_tax

    Not a new idea by any means, but definitely something to aim for.

    • The SLRG includes people who think that “land revenue” expresses the reality better than “land tax” – hence they’re speaking of LVR – Land Revenue Rating – instead of LVT (Land Value Taxation). I think that both are needed, at least when in transition if there’s going to be a transition, for the very reason of avoiding confusion that you’ve identified, richardcain2. This is so especially as most of the existing literature refers to LVT.

      • yes it is sad that the term tax was used in the first place as it is confusing when the wrong term is used. Confucius was right to say ‘that the solution to problems begins with calling things by their proper names’ We are now trying to correct the chronologically compounded error of this name, much in the way that historians now after years of repetitious error now refer to The Battle of Mons Graupius and not Grampius.

    • it’s about doing away with punitive imposts ( tax) on labour, production, sales and man made physical structures( domestic houses/ factories etc) and replacing the public revenue source by collecting land value rates created entirely by society’s demand for land. No,not new but perhaps one whose time has come.

  3. This change would be good for industries that employ people, but do not use much land – like the banking and service sectors; while this change would decimate industries that use a lot of land but do not employ many people – Agriculture would be hardest hit – with knock on effects on our food industries.

    • This is a common misconception regarding land value tax. The value of agricultural land is extremely low while the value of land in city centres is very high. Banks derive most of their income from land rents(mortgage payments), so they would be the ones to shoulder the biggest portion of the tax. It’s a land value tax, not a land acerage tax.

      • it’s not even a tax, just a collection of LVR created by us all

      • Agricultural land is not cheap – per person employed it is very expensive. £2,000,000 of Agricultural land might employ one person, while £2,000,000 of office space might employ 10 people. How is it fair that one person working in Agriculture has to pay the same ‘tax’ as 10 people working in banking?

        And if the tax rate is set at say 5% of land value OR equal to land rental price; then how is an exiting property owner going to pay his mortgage if his rent appropriated by the state – he will not be able to pay his mortgage, and he will go bust.

    • I think it would be easy enough to exempt agriculture from this tax.

    • You’re assuming that all land would be taxed equally, which is not practical or sensible. The tax would have to follow the value, so that inner-city high-value land, where banks etc prefer to be, would be taxed at a far higher level than arable land.

      Instead of automatically assuming that this couldn’t work, why don’t you research into some of the countries where this system already does work, such as Denmark?

      • I repeat, it is not a tax, but the collection of a societally created land value( land has no capital value). We do not need tax, just public revenue. Yes all land is not valued equally by society and you are correct in pointing out that highly desirable urban areas( like the ones that give ‘mansions’ their inflated value, not the bricks mortar and marble) will have a LVR much higher than agricultural land or on run down sink estates.

  4. We are not going to be granted such powers of change (unless you have a different draft to the one I’ve seen?). We can tinker but not undertake anything radical. This assumes anything gets through a Wesminster HoL vote.

    • Why not?
      What limitations are being placed on variation of Income tax? – none as far as I can see.
      What limitations are being placed on Land Value Tax? – none as far as I can see.

      • it is not a tax. The ideal income tax would be 0% and since LVR is 100% created by societal demand ( not by the private owner) a 100% collection rate of would be 100% fair and 100% unavoidable—even by nondoms.

  5. I think Economists would describe this as Land Nationalisation – with no compensation; or else Land appropriation. It sounds like a policy from the Green Party – or SSP. Land would end up with no value since all rent would be paid to the government. Anybody who has a mortgage or borrowings secured with land would find themselves in negative equity or even bust.

    • Almost rubbish. Only the rental value of land would be collected and there would be no council tax, no income tax and no corporation tax so all private property, corporate property and labour would have no imposts upon it. This is the antithesis of socialism as the state cannot collect rent from itself. For this to work, private tenure of land is vital. What level of state expropriation of labour ( income tax) would you consider fair and why?

      • But the value of land is mostly based on it’s rental value. So if the government appropriates the rental value then it also appropriates the land’s value.
        I have not made comment on whether I agree with this form of government revenue making part of the mix, I’m just pointing out some of the consequences. You seem to deny the existence of these consequence rather than accept them or justify them. You therefore seem to have nothing to contribute to this debate.

        • “But the value of land is mostly based on it’s rental value. So if the government appropriates the rental value then it also appropriates the land’s value.”

          That’s right, Andrew, ergo land becomes more affordable to all and less the preserve of speculators and the elite. But land value rating (or LVT) would have to be at a level that could be sustained by revenue from the system otherwise land would become a liability. It would in my view have to be a modest tax in the name of supporting other policy initiatives like social housing and land reform.

          I have yet to be persuaded by the notion that LVT can or should be a complete replacement for other taxes such as income tax or energy taxes. Also, personally I have no problem calling it a “tax” – but then, I see taxes as socially beneficial, the lubricant that runs community at the scale of the nation state. That said, I think the idea of replacing some of the income tax burden in Scotland with LVT has a stoke of genius to it given the limitations of what can be done within devolved powers.

      • Exactly Alistair. The rental value of land is created not by the owner, but by all of us a society. It is currently being expropriated by sectional private interests, so the full collection of LVR obviates this ‘theft’. On the other hand all the buildings, stock, physical infrastructure, indeed any man made’ improvement’ upon the land and all labour and products deriving from it, will through the cessation of the state ‘theft’ of income tax, rates, UBR and corporation tax etc, fully accrue to the occupiers/users of the land.. If he or they cannot make a tax free profit from their land use enterprises, they can try something else. sustain the loss or sell( tax free) Why should anyone just sit on land doing nothing and get a value everyone else creates?

      • The consequences are part of the desired outcomes, the existence is not denied and certainly not the existence of land-hoarding, land rent scrounging and tax avoidance/vasion.

      • The value of land is not ‘mostly based on its rental value’ and the proposal is not to appropriate that value anyway. This has nothing to do with nationalisation either! A number of these comments illustrate why we are stuck with the current iniquitous and ineffective system. (Why expect to understand the new when one hasn’t raised the same questions of the old? Is graspability without thought actually the best criterion for fiscal policy?) I think a couple of issues come through very clearly, though. One, in the current system, work is not a source of wealth, only of subsistence (but this subsistence is all we functionally tax). Two, say land, and people think bare-land or farmland (which it would be counterproductive to raise the majority of tax from, but ffs, do you think the professor didn’t *notice*?) They don’t, for some reason, think ‘oh yeah, the stuff *everything* sits on’. Three, there is no proposal – above, or generally re land – for extra tax: the point is that a significant economic asset of universal relevance is currently tax-exempt, while economic activity (what we want to encourage, and all benefit from) is heavily burdened. The suggestion above is essentially that instead of using complex, multiple, expensive methods to extract max tax from everyday small transactions, we use a simple, single, unavoidable method to capture a *smaller* proportion of massive transactions (which would still raise more overall). And for all the whining, the point is that land use is constant, and such capture will not (unlike with activity taxes) encourage or incentivise it’s decline. It is a very different idea, but innovation is not stupid, and it does work elsewhere.

    • Nationalisation means centralised command and control. Share land rent would be a requirement for an equitable and therefore peaceful anarchy.

      Under shared land rent we are all equal share landlords. No state apparatus required.

      So, only a blinkered ideologue would describe LVT as nationalisation. In fact, it’s a giant leap towards radically shrinking the size of the State, which has grown so large in order to mitigate the injustice caused by monopolization of land rent.

  6. If proven by due diligence to actually work, why would any Scot oppose , oh, wait a minute……..
    High time ALL people who live in Scotland had our own country’s welfare at their heart.
    So yes, I would go for it.

  7. This presents Land Value Revenue (LVR) (also known as Land Value Taxation, LVT), at a strategic level by which the income tax base would be replaced by a land tax base. I’m gong to reserve comment on such a wholesale approach as I don’t know enough about fiscal policy. What I would say, is not to overlook the tactical value of recognising the land as a revenue base. Here, land rating can drive specific policy objectives.

    For example, using it to raise funding to resource community land buyouts (with community land – as a public benefit – being tax exempt). This is already in effect being introduced with the proposal from the Scottish Govt to reintroduce the sporting rates that the Tories abolished in the 1990s, and using the proceeds for buyouts.

    Another example of tactical or sectoral benefit is that such revenue-raising would discourage land speculation, thus freeing it up for affordable housing. Yesterday, Holyrood magazine published a piece about this by Graeme Brown, the director of Shelter Scotland. See http://goo.gl/OgiQ1c.

    • Yes the land is being used as a revenue base by sectional vested interests by that guy called’ Mr Tesco-Amazon- Starbucks’ and other people like him. There is no point in spending our own money in buying them out if we can by collecting the LVR get them to finance their own extinction. If we communalise land and no money goes to local or national government for strategic service provision, how will you raise the funds? Swapping private monopoly of LVR for a state one takes us right back to square one. The state and society are not one and the same.

      • And it will kill ever bigger retail barns. Especially on former agricultural land on the edge of cities. And of course all those acres and acres of parking. The supermarkets will have to generate lots more value from their operations and perhaps charge for parking. Councils could invest the proceeds in public transport, obviating the need for parking. It might also increase the sort of pop up, trading out of a van operation in a corner of someone else’s land they need income from.

        Less urban sprawl too.

  8. If this would actually work to Scotland’s advantage, and it sounds like sense to me, for god’s sake keep quiet about it just now, or there is nothing more certain than the conniving, lying cheats at Westminster finding ways to exclude it as a possibility. Oh, wait – I forgot there are already ways. Just veto it, or better still, just abolish Holyrood.

  9. Another big advantage of this idea is that, if the land is in Scotland, we collect the revenue in Scotland and it doesn’t disappear into the Treasury who give us pocket money in return. Sounds a great idea to me!

  10. spot on Ann and no-one south of the border can say they are subsidising the Ghillie-Jockos.

  11. As a landowning farmer, I say please do not exclude agricultural land from the advantages of collecting the rental value of land. The present perverse tax system encourages speculation in land and discourages employment and enterprise. The current market price of farmland is at least three times what its productive capacity would justify. Collecting the rental value would allow many more people to farm because the incen tive for those with large farms to acquire more land will be removed and speculators will be out of the market.

  12. right on the button Duncan

  13. can somebody just distil down the main points on how this works for us mere mortals please – kinda lost a wee bit on how it can replace income tax.

  14. Would this not disincentivise economic activity that would lead to adding value to land and as such would it not then depress the economy?

    • no, exactly the opposite as current imposts on economic activity would be lessened or removed. If you upgrade your house by adding insulation, triple grazing or converting your attic to bedrooms, the LVR would remain the same. If you have a widget factory and you find a better way of making widgets and you increase your profit margins by £500k, the LVR would not increase.

    • Taxes do suppress economic activity, that’s one of their functions. This and other LVT/LVR proposals advocate replacing some existing taxes though, so there’s no particular reason that it would be an additional suppression.

      The point of LVT is to shift taxes from earned income to rent, and given the inequalities of most western nations there’s potential for such a shift to produce significant improvement in those inequalities.

      This is particularly true for Scotland, given both the limited powers that are – and are likely to be – available to the Scottish government and the almost feudal distribution of land ownership.

  15. May I suggest a term used in the US (as I understand it) would perhaps better express the nature of the concept generally described as LVT that, as we have seen in the debate above, may cause understandable confusion? The term, which is perhaps a little clearer than LVT, is “site-value rating”.

    • I’d be happier making the argument that taxes aren’t bad, rather than avoiding the word. Taxes are just one tool that governments use, or should use, in promoting “public purpose”: the creation and support of a society which defends the fundamental wellbeing of all its citizens.

      The problem is not that tax is a bad word, it’s that governments do not promote that public purpose; they do not act in our interest. Avoiding the word implies that taxes really are bad, and that just makes it harder to develop a widespread understanding of what they do and how we should be using them, and other economic tools.

      • I was rather responding to the term used, LVT, which I thought – at least from the debate here – appeared to be potentially confusing. It is better to focus on the substance of the issue than on terminology; especially potentially ’emotive’ terminology.

        In the US the term “site-value tax” is also used; but in Scotland “rating” has a long and well-understood place in property (tax) history. In the US I believe there is also a development of SVT/SVR in Pennsylvania (and Connecticut?); “split-rate tax” (SRT) that separates the value of the site, from the value added by site development.

      • “I was rather responding to the term used, LVT…”

        Yes, I understood that, I just thought it was the T in particular that you wanted to avoid. SVR is fine if that makes more sense to people; what I object to is the avoidance of the word tax based on the fact that it is emotive. I’d rather work to remove that negative emotion.

    • note that we call ourselves the Land Revenue Group and we are talking Land Value Rating as the site comprises land as distinct from what humans have put on it.

    • ‘Tax’ has unfortunately through its abuse by the state, become redolent with pejorative overtones and to many become another 3 letter word for bad

      • I agree, but accepting that situation makes it very difficult to talk about taxation.

        If people hold the idea that taxes are bad then it automatically follows that reducing taxation must be good, and so the people are primed to accept neoliberal arguments about reducing the ‘burden’ of taxation.

        Right now the level of taxation in the UK is too high – and/or the level of government spending is too low – so a reduction would be good. That’s easy to argue for.

        At some point in the future we will hopefully have an economy running at capacity, with no unemployment. We might even have an overheating economy, with accelerating inflation driven by excessive demand, and that point we would need an increase in taxation. But if people believe taxes are bad then that argument is difficult to make.

        Taxes create demand for the currency, regulate the overall level of economic activity, make room for government spending, and can deter activities such as smoking. None of those things is inherently bad, in fact they’re positive. Provided they’re used appropriately.

        Taxation is a tool; it can be used well or badly. How do we talk about the appropriate use of that tool if we fail to argue against the idea that the tool itself is bad?

  16. Some interesting points. I agree with using the word “tax” when applied to smoking, when the object is to reduce it. Income “tax” reduces incomes too. But a charge based on land rent doesn’t reduce the amount of land, so I’m wary of “tax” in that context. Also, taxes as we know them don’t relate to benefits received in return – if I pay more income tax/council tax than my neighbour I don’t expect to jump ahead of him in a NHS waiting list or have my bins emptied more often than him. But a charge on land is directly related to the benefit of location – those enjoying the more sought-after locations pay more. It works rather like a parking fee or a theatre ticket – you pay more for the city centre parking places and the best seats in the theatre, but you probably wouldn’t call those a “tax”.

  17. Someone requested summary of the Wikipedia page? Here’s a quick effort (with a few diversions) , hope it helps – and I’m sure any errors will be pointed out in no time 🙂

    Land value = how much owner can sell the land for, or, how much they can make out of rent from leasing it out (for housing, farming, windmills or whatever).

    A ‘tax’ ( or common income for society ) on this land value would then be paid irrespective of if or how the land is used. (Two percent of land value has been used in some places, in canada for example.)

    The overall amount, or ‘supply’, of land is fixed. Nobody can create new land out of thin air or water. (Well, unless you go reclaiming sea like the Dutch polder, but even that is small fraction of total, check/reference.)

    And since this ‘supply’ is constant, then the amount of buying and/or leasing going on (‘quantity’) and at what ‘price’ follow what is called the demand curve: if demand is high, prices are high; and if demand is low, prices are low; but as prices rise people’s interest also tails off, and when prices drop low their interest picks up again.

    Think ticket tout prices for successful rock band A vs struggling rock band B playing at the Barra’s where venue size and # of tickets is fixed, and one gig sells out while the other is barely half full. The band A touted tickets go to highest bidder, 2or 3 times face value perhaps more, but at some point even the die-hardest fan says 300 quid? Nah… Will pass. Similarly, the silly tout who thought band B would sell out needs to sell below face value just to recoup some of their loss – at which point someone who wouldn’t pay full price to go might see a half price ticket as a good deal and take it up. )

    Land is unusual in this regard as in most other circumstances reality is more complex and demand and supply interact with and affect each other e.g. If rock band A’s gig sells out but gets moved to the much bigger Hydro from the Barra’s there will be many more tickets available (increase in supply) and so less demand for touted tickets meaning touts will have to sell their extras at face value or even for a loss. (This idea of dynamic changes in supply and demand is called ‘elasticity’ – but you’ll be pleased to hear that’s not an issue to understand LVT 🙂

    In general then, the more land there is, the lower the price, and the less land there is the higher the price. So it’s normal, in an open or ‘free market’* that a 2 bed semi in a rural village might cost less than a studio (or a garage) in the heart of the city. (*Where free market means buying and selling is left up to buyer and sellers to negotiate prices without any fixed min or max limits, or perhaps even other taxes, imposed by the law.)

    There are several implications to of all this – a major one is that the owner of the land pays the tax, not the tenant or buyer. Currently, a new tax on rental income or property sales would just mean increased rents and prices (part of our current problem in the uk) and tenants and new buyers would foot the bill not the land owning people already profiting from rental and sale values.

    Another major implication is to give incentives for land to be used productively, rather than lying idle. That could mean renting it out for allotments or recreational space (or a windmill), and in the case of accommodation making it available for rent rather than sitting empty. This can lead to more efficient use of space, re-use of existing city spaces that have fallen out of favour (post industrial areas, brownfield sites). It also removes disincentives for improvement of housing – such as increased rates or taxes or rents because of better insulation or extensions or interior work, as value not based on property but on the land.

    Best of all, it reduces speculation: people buying land cheap then doing nothing till the value miraculously goes up courtesy of other people or the state’s investment nearby, such as building a new road or bridge, extending a railway, or opening new businesses and factories. Every day a speculator owns land is a day it cannot be used for something productive such as new houses, growing food or capturing energy, causing these other necessary developments to expand out of cities into greenfield sites instead. LVT is an ‘Eco tax’ in this regard, and also helps avoid housing bubbles (inflated house prices) that can destabilize whole economies. It reduces opportunities for people to build wealth by doing nothing, just buying land and watching value increase, and puts into practice the idea that benefits ‘from nature’ like this should be shared throughout society.

    Unlike many other forms of taxation LVT is especially hard to avoid as you cannot move land to an account in the Camens, or physically hide it. It’s there, it’s visible, it can be inspected and valued. No matter how much you pay your accountant, or where your business has it’s headquarters, it is very hard to wriggle out of – especially when land values are public information.

    The rate at which the LVT tax is set is vital. Too low and not enough income is raised, but if too high it could cause chaos (owners unable to afford cost of owning try to sell to others who equally cannot afford to own) and land even being abandoned. The evaluation process can be tricky, and risk subjective human errors, but in fact much of this work is on going just now by ‘the market’ I.e. People who track sales and rentals prices, and insurance companies who separate value of ‘homes’ from contents already. ( ‘Home’ is not strictly ‘land’, of course, but point here is it that effective and appropriate evaluations could be done with some effort.)

    Some people argue land value tax could replace most, or all, other taxes. Mixed implementations are also possible/more common.

    This is not a system to introduce overnight, obviously, as it means a conceptual change in the whole idea of ownership – away from ‘saving’ or ‘for profit’, and towards productive benefit to society. (Large current landowners obviously have most to lose… As they would be taxed on the potential for their land not its current (lack of) use.)

    Various versions of LVT are in use around the world today, and the concepts of land ownership for a purpose not just a profit have been kicking around for millennia: book of Leviticus, Indian Vedic texts, Aristotle, Plato, Adam smith, Thomas Paine and others… Milton Friedman called it ‘least bad’ form of tax, (but we’re not sure if that’s a good thing…)

  18. a new tax is not being proposed, only the collection of a rental value created by society, that if collected and returned to public revenue would obviate the need for the suppressive/depressive taxes’ the’ deadweight’ crushing labour, enterprise and social justice. On the SLRG website section on land revenue Fred Harrison describes the ATCOR principle, briefly –all taxes come out of rent–so instead of imposing taxes, we should just collect the rent–all of it.

  19. It is pleasing to see so many comments which are supportive of the plan to collect the rental value of land to fund most of the necessary functions of government. The aims of the economic policy of every government should be to maximise the people`s standard of living, minimise their cost of living and minimise the cost of doing business. These aims are not compatible with keeping the present antiquated, complicated and disincentive tax system. It is clear that most people are demanding change from the politicians, but all they are offered is minor and ineffective tinkering with existing policies with their proven record of failure. The adoption of LVR will go to the root of our economic and social problems. We have had enough of politicians claiming to have answers which turn out to be the equivalent of putting a sticking plaster (previously used) on a broken leg.

  20. It could solve a lot of problems if implemented and makes perfect sense to me. However, I’m worried it might cause hyperinflation.

    Their theory is that taxes are used to pay for things like hospitals and roads etc but taxes are not used for these purposes. Infact, I don’t think taxes have ever been used to pay for anything. All government spending is just new money created out of thin air as debt going from one computer screen to another. If you handed pound notes into HMRC they wouldn’t know what to do with them.

    They SLRG say you could replace all taxes with LVR – Land value rate. Not a tax but a rate. This would create more revenue than all other taxes combined.

    To me, taxes are just another economic lever to either slow down the economy or speed it up. Think of the economy as one big department store full of all the goods and services we all produce and offer for sale every year. We all get paid enough in wages and profits to buy everything in that store, assuming we would spend all the money we earn and all the profits we make. (And if we borrow to spend, we can buy even more than there is in that store.)

    But when some of our money goes to pay taxes, we are left short of the spending power we need to buy all of what’s for sale in the store. This gives government the “room” to buy what it wants from the store, so that when it spends what it wants, the combined spending of government and the rest of us isn’t too much for what’s for sale in the store. There is no crowding out.

    However, when the government taxes too much – relative to its spending – total spending isn’t enough to make sure everything in the store gets sold. When businesses can’t sell all that they produce, people lose their jobs and have even less money to spend, so even less gets sold. Then more people lose their jobs, and the economy goes into a downward spiral we call a recession.

    Therefore, if the government simply tried to buy what it wanted to buy and didn’t take away any of our spending power, i.e there would be no taxes – it would be too much money chasing too few goods in the store, with the result being hyper inflation.

    So if LVR replaced all taxes how could the government speed up or slow down the economy. How could they make sure there was enough goods in the store and enough money to buy them ? Would it cause hyper inflation ?

    • Sorry, Derek, but you are mistaken in thinking that LVR differs from taxes in its effect on the circular flow of income. Each pound that I pay in LVR has the same immediate effect on my spending power as a pound I pay in income tax. And the government is just as free to put that LVR pound back into the spending-and-income stream as it is with income tax revenues.

      The big difference is in the effect the two types of revenues would have on incentives to produce, and on fairness.

      When LVR replaces all taxes, there would be a big boost to wealth creation. This would also be a big boost to the size of economic rents. (Quite apart from the fact that All Taxes Come Out of Rent: the ATCOR principle that Adam Smith taught us.) This increase in real GDP would boost government revenues under LVR. The government would then be free to spend these in a non-inflationary way, either on the likes of education and the NHS, on welfare payments, or on citizen dividends.

      Inflation occurs when the government spends more than it receives in taxes or LVR, and if it finances the difference through the printing press rather than via the issue of bonds to the public. In the latter case, the private sector retrenches its spending and _transfers_ its spending power, with the government restoring that spending power when it puts the receipts back into circulation.

      • Inflation occurs when spending – government or private – exceeds the economy’s capacity to respond. If government deficit spending is within that limit then it will not be inflationary, whether or not bonds are issued to match the spending.

        In recent years we’ve seen a big reduction in the value of bonds in private – mostly bank – hands, and a corresponding increase in reserves, as a result of QE. There were frantic claims that this ‘money printing’ would lead to inflation and then hyperinflation. Not only did it not happen, but inflation dropped to zero.

        It didn’t happen because there is no mechanism by which bond-free fiscal deficit spending by governments can lead to inflation. Inflation is caused by excessive spending, from whatever source, and whether or not it is accompanied by by bond issuance.

        I’m a fan of LVT/LVR though, and just like ‘money printing’ it won’t cause hyperinflation. As you say, whether it’s called a tax or a rating, it’s still pulling money out of the economy.

        • It should be patently obvious that “money printing” can indeed cause both inflation and hyperinflation. But you are right that the effect depends on whether the economy is running at below capacity (especially if its cause is a prior excessive squeeze on public and/or private sector spending).

          I believe that a structural shift in the fiscal system toward LVR would boost the capacity of the economy and hence boost the corresponding amount of public or private spending that would not be inflationary. Indeed, if the money supply is not increased accordingly there will be a deflationary squeeze unless prices are extremely flexible downwards (thus ensuring an increase in the real value of a given nominal money supply). The technical criterion for avoiding both inflation and deflation is whether the supply of money is kept up close to the increase in the demand for money (to hold) desired and needed to support a higher national income.

          Your other error is in confusing an increase in QE with an increase in the money supply. If the bond purchases simply result in a massive increase in reserves held idle by the banks there is no increase in the money supply defined (as it always is or should be) as money in circulation, hence being spent. In fact the money supply actually fell for a while during the QE splurges. Since 2008 the growth of the money supply has been very sluggish. But it would have collapsed in the absence of QE. We should at least give the Fed (and other central banks) credit for not repeating the calamitous mistakes of 1929-34.

          There is currently a big overhang in the volume of bank reserves. This does represents a big future inflationary danger. It is the role of central banks to ensure a careful “tapering” of QE. This must ensure that as and when banks are more willing to lend and borrowers to borrow, the corresponding expansion of credit (i.e., debt) does not result in an explosion of money in circulation and its expenditure.

          • “It should be patently obvious that “money printing” can indeed cause both inflation and hyperinflation.”

            Excess spending causes accelerating inflation, so if ‘money printing’ is used to mean excess spending it will cause that inflation. If, as is usually the case, it is used to mean either QE or government deficit spending without bond issuance, then it won’t, because neither of those things causes increased spending.

            “Your other error is in confusing an increase in QE with an increase in the money supply.”

            This is the second time today that someone has accused me of making an error, and then proceeded to agree with my point. Twice in one day makes me think the fault is mine and I’m just not being clear.

            I’m not confusing QE with an increase in the money supply. QE increases narrow money, specifically reserves, but, as you say and as I agree, does nothing to the wider money supply, or to spending. That’s because there is no mechanism by which it can do so. Which brings me to:

            “There is currently a big overhang in the volume of bank reserves. This does represents a big future inflationary danger.”

            There is no danger, because there is no mechanism.

            Banks make loans, creating new money in the process, when they believe the loan is sound and that they will make a profit on it, or when they believe they can package the loan and pass it off to someone else, or, failing the above, when they believe the government will step in and bail them out in the event their loans go bad.

            The last two are not good, and not enough has been done to eliminate them.

            Banks acquire any reserves needed to meet regulatory requirements *after* they make the loan; given the requirements in place in the UK this can sometimes be weeks later. When banks need additional reserves the BoE *always* provides them, because the payment system depends on them and so a refusal risks bringing down the entire system.

            This may or may not be a good thing given the level of speculative lending that banks engage in, not to mention outright fraud, but it’s how things actually operate. Reserves are always available when needed, so the presence of excess reserves does nothing to increase a bank’s ability to lend.

          • RS: You write:
            > Excess spending causes accelerating inflation, so if ‘money printing’ is used to mean excess spending it will cause that inflation. If, as is usually the case, it is used to mean either QE or government deficit spending without bond issuance, then it won’t, because neither of those things causes increased spending.

            RS: So, are you trying to tell me that if the government increases deficit spending via an unrestricted access to new money (in the sense of an increase in its overdraft facilities with the central bank) this will not increase spending in the economy? Perhaps you believe in an extreme form of the “crowding-out” hypothesis? But if the government spending is from newly created money, how does this crowd out (reduce) other expenditures??

            You write (first quoting me):
            >“Your other error is in confusing an increase in QE with an increase in the money supply.”
            >This is the second time today that someone has accused me of making an error, and then proceeded to agree with my point.

            RS: I am certainly not doing that.

            > Twice in one day makes me think the fault is mine and I’m just not being clear. I’m not confusing QE with an increase in the money supply. QE increases narrow money, specifically reserves, but, as you say

            RS: Reserves are part of “the money base” but are not themselves money and are not included in the conventional definition of “narrow money”, namely currency in circulation plus demand (or chequing) deposits that can be used to settle debts directly, without first having to convert time or savings deposits into them. This is usually called M1 and embraces the most liquid means of payment. These also have the highest “velocity of circulation”. Wider definitions of “money” (such as M3) include time deposits. This aggregate is poorly correlated with M1 and has a much lower turnover.

            >and as I agree, does nothing to the wider money supply, or to spending. That’s because there is no mechanism by which it can do so.

            RS: But the existence of excess reserves means that banks are in a position to accommodate an increase in the demand for loans as an economy recovers. It is imperative that the loan demand does not increase the money supply beyond the capacity of the economy to deliver real goods and services. QE – which has prevented a 1930s-style Great Depression – has to be progressively reversed if we are to avoid a future Great Inflation. Remember that an increase in the demand for money to hold (a decline in the velocity of circulation) is the opposite of an increase in the (loan) demand for money to spend. To accommodate the latter is to let the money supply explode without limit.

            > Which brings me to:
            > “There is currently a big overhang in the volume of bank reserves. This does represents a big future inflationary danger.”
            >There is no danger, because there is no mechanism.

            RS: Yes there is: an increase in loan demand that is allowed to be accommodated if the banks are allowed to activate their excess reserves without restraint.

            > Banks make loans, creating new money in the process, when they believe the loan is sound and that they will make a profit on it, or when they believe they can package the loan and pass it off to someone else, or, failing the above, when they believe the government will step in and bail them out in the event their loans go bad. The last two are not good, and not enough has been done to eliminate them.

            RS: The first is not a good criterion of central bank policy either. It is a fallacy of composition to believe that because a bank thinks a loan is sound, it will be sound. This is the discredited “real bills doctrine”. The central bank must think macroeconomically, and try to increase the money supply reasonable closely in line with the real growth potential (hence real growth of demand for money to hold). The banks need then to conduct their business within that parameter.

            > Banks acquire any reserves needed to meet regulatory requirements *after* they make the loan; given the requirements in place in the UK this can sometimes be weeks later. When banks need additional reserves the BoE *always* provides them, because the payment system depends on them and so a refusal risks bringing down the entire system.

            RS: This is true only of the need to ensure that bank customers can always access their own deposits. Failure to do so risks a run on the banks and, as you say, a collapse of the system (as in 1929). It is not true – or certainly should not be true – that the central bank will make available any amount of reserves to ensure that the banks can make loans without caring whether today they have adequate reserves to meet the legal reserve requirements. If they breach that limit the central bank should penalise them, not accommodate them. The latter is a guarantee of pro-cyclicality whereas the central bank should be ensuring counter-cyclical stability.
            It is true that there may be a lag, and that the central bank may provide the reserves meanwhile. But there must be a penalty for breaking the rules, so that the inflationary danger is reined in.

            > This may or may not be a good thing given the level of speculative lending that banks engage in, not to mention outright fraud, but it’s how things actually operate. Reserves are always available when needed, so the presence of excess reserves does nothing to increase a bank’s ability to lend.

            RS: But if excess reserves exist, the banks have little incentive to resist loan applications. That’s OK for an economy in the early stages of recovery. But if QE is not reversed the expansion could go on almost without limit The resulting inflation will encourage higher and higher loan demand, hence growth of money and spending, especially if (as is likely) the real interest rate turns negative in these conditions.

          • “So, are you trying to tell me that if the government increases deficit spending… this will not increase spending in the economy?”

            Of course not. Clearly, an increase in government spending is an increase in spending.

            What I’m saying is that for any given level of government deficit spending the inflation outcome will be the same whether or not that spending is accompanied by bond issuance.

            “Perhaps you believe in an extreme form of the “crowding-out” hypothesis?”

            Financial crowding out, as in the loanable funds model? No, I don’t believe in that.

            “Reserves are part of “the money base” but are not themselves money and are not included in the conventional definition of “narrow money”…”

            True, ‘narrow money’ was an error. My point was that there is no driving mechanism from reserves to spending.

            “But the existence of excess reserves means that banks are in a position to accommodate an increase in the demand for loans as an economy recovers.”

            But banks are *always* in a position to accommodate an increase in loan demand, because the BoE cannot refuse to create new reserves when banks need them.

            “It is imperative that the loan demand does not increase the money supply beyond the capacity of the economy to deliver real goods and services.”

            It is imperative that *spending* does not extend beyond the capacity of the economy to deliver real goods and services. The wider money supply includes money that is not being spent, and money that is not being spent cannot drive inflation.

            “QE – which has prevented a 1930s-style Great Depression – has to be progressively reversed if we are to avoid a future Great Inflation.”

            QE caused portfolio shifts to stocks and commodities, and associated problems for emerging economies. It was deficit spending by governments that prevented another depression, and where that spending did not happen – the eurozone – the depression did happen, and continues. Where deficit spending was reduced – UK coalition in their first two years in office – recession returned until the deficit reduction ended.

            “Remember that an increase in the demand for money to hold (a decline in the velocity of circulation) is the opposite of an increase in the (loan) demand for money to spend. To accommodate the latter is to let the money supply explode without limit.”

            Only if the accommodation is continuous, and I’m not advocating that. I’m saying that increasing the level of reserves does nothing to increase bank lending capacity.

            “Yes there is: an increase in loan demand that is allowed to be accommodated if the banks are allowed to activate their excess reserves without restraint.”

            Again, that capacity is always there, the presence or absence of excess reserves makes no difference.

            “The first is not a good criterion of central bank policy either. It is a fallacy of composition to believe that because a bank thinks a loan is sound, it will be sound.”

            I said nothing about whether or not the loans *will* be sound, merely that banks will make them if they *believe* they will be sound and that profit is to be had.

            “It is not true – or certainly should not be true – that the central bank will make available any amount of reserves to ensure that the banks can make loans without caring whether today they have adequate reserves to meet the legal reserve requirements.”

            Define “any amount”. It may be that if banks went *really* mad the world’s central banks would act, but the years leading up to the 2008 crash showed that banks were able to push pretty damned hard without central banks doing anything other than accommodating their excesses. Great Moderation?

            “If they breach that limit the central bank should penalise them, not accommodate them.”

            There’s the penalty rate, but it is minimal and merely tweaks the calculation of whether or not a given loan is likely to be profitable.

            “But there must be a penalty for breaking the rules, so that the inflationary danger is reined in.”

            There are several discussions to be had concerning the rules that are in place, and that ought to be. I don’t defend the banks or the system in which they operate, and I agree that there is an inflation risk with excessive bank lending, where that lending increases spending. I just disagree with the claim that excess reserves increase the likelihood of increased lending.

            “But if excess reserves exist, the banks have little incentive to resist loan applications.”

            They have the same incentive to resist whether or not excess reserves exist: will they profit or not?

          • “What I’m saying is that for any given level of government deficit spending the inflation outcome will be the same whether or not that spending is accompanied by bond issuance.”

            RS: It most certainly does.make a difference. If they borrow the money from the private sector it encourages the private sector to spend less than if the (metaphorical) printing press is used instead.

            “But banks are *always* in a position to accommodate an increase in loan demand, because the BoE cannot refuse to create new reserves when banks need them.”

            RS: The BoE certainly van and should refuse to create new reserves when banks “need” them to accommodate an increase in loan demand. Are you confusing the imperative on the BoE to accommodate an increase in the demand for cash (relative to bank deposit money). This was one of the big mistakes the Fed made in 1929-34. The demand for abnormal cash withdrawals is a very different thing from the demand for loans (credit).

            “It is imperative that *spending* does not extend beyond the capacity of the economy to deliver real goods and services. The wider money supply includes money that is not being spent, and money that is not being spent cannot drive inflation.”

            RS: I agree. That’s why I think the focus should be on the actual means of payment (M1) and I regret that the BoE no longer publishes data on M1. If the propensity to save increases, the holdings of time deposits rises and this is not inflationary. Focus on M3 can therefore give the wrong signals and cause the BoE to be too restrictive.

            “…that capacity [to increase loans] is always there, the presence or absence of excess reserves makes no difference.”

            RS: If there are no excess reserves, the banks are fully loaned up and they cannot increase their lending except by encouraging an increase in private sector savings or by seeking BoE accommodation. And that is the royal road to pro-cyclical instability, unless it is given only on penal terms. (Not one that is only a “minimal tweak”.)

            “I don’t defend the banks or the system in which they operate, and I agree that there is an inflation risk with excessive bank lending, where that lending increases spending. I just disagree with the claim that excess reserves increase the likelihood of increased lending.”

            RS: I do agree with you that in a deep recession an increase in reserves on their own may be an ineffectual way to boost the economy. This is why the major QE operations did so little to boost the economy after 2008. The problem was on the demand side: with little demand for loans from either the private or public sectors – both of which were trying to repair their balance sheets and pay down debt – the banks could not find profitable loan oppoortunities. There was a “credit deadlock”, in Sir Ralph Hawtrey’s terms. That’s why even Hawtrey was willing to advocate fiscal deficits in times of deep recession, but to finance them through the printing press rather than simply by buying bonds (QE), so that there would be less crowding-out. This has been the mistake of the last few years. QE could have been on a smaller but more effective scale if it had taken the form of direct financing of the fiscal deficits that necessarily remained even after their size was being cut by necessary austerity. That is, why not spend new money directly into circulation rather than rely on QE that mainly boosted bank reserves, lay idle, and threatens future inflation?

            QED??

            By the way, why is FlimFlamMan anonymous?

          • “It most certainly does.make a difference. If they borrow the money from the private sector it encourages the private sector to spend less than if the (metaphorical) printing press is used instead.”

            It doesn’t, because there is no mechanism there.

            In the UK we have no reserve requirement for banks. Prior to the introduction of QE there were voluntary targets agreed with the BoE, but the penalties for missing were minimal. And that’s all it was, there was no refusal to create new reserves, because the payment system would collapse if there were not enough to settle interbank transactions. With the onset of QE even that voluntary system has been abandoned.

            The bottom line is that bank lending is not reserve constrained. It is at least somewhat capital constrained, but only ‘somewhat’ since lending has the potential to create the very capital needed to meet requirements. And yes, there are perverse incentives there that can produce instability and outright fraud. See Iceland.

            “The BoE certainly van and should refuse to create new reserves when banks “need” them to accommodate an increase in loan demand.”

            It’s possible to create a system in which bank lending is reserve constrained, but we don’t live in that world.

            “Are you confusing the imperative on the BoE to accommodate an increase in the demand for cash (relative to bank deposit money).”

            No, I’m pointing out the BoE’s need, obligation, to maintain the stability of the payment system, and its inability to do so, within the systems that are in place, without making reserves available whenever banks need them.

            This need is currently moot given the excess reserves created by QE, but that’s evidence in support of my position: all those excess reserves have not boosted bank lending, because bank lending is not reserve constrained.

            “If there are no excess reserves, the banks are fully loaned up and they cannot increase their lending except by encouraging an increase in private sector savings or by seeking BoE accommodation.”

            Yes, and since that BoE accommodation is sought after loans have already been made, and given that the BoE has to maintain the payment system, the accommodation cannot be refused. Bank lending is not reserve constrained.

            “And that is the royal road to pro-cyclical instability, unless it is given only on penal terms. (Not one that is only a “minimal tweak”.)”

            Yes, and while we’ve not seen general inflation become excessive we have seen that pro-cyclical stoking of various bubbles, in land, shares, commodities etc. This is the world we live in.

            Again, I’m not defending the financial system. My main point was and remains that government deficit spending is no more inflationary if it is not accompanied by bond issuance than if it is. I want to see many changes to the financial system, but my comments are plenty long enough without going into them now.

            “I do agree with you that in a deep recession an increase in reserves on their own may be an ineffectual way to boost the economy. This is why the major QE operations did so little to boost the economy after 2008. The problem was on the demand side: with little demand for loans from either the private or public sectors – both of which were trying to repair their balance sheets and pay down debt – the banks could not find profitable loan oppoortunities. There was a “credit deadlock”, in Sir Ralph Hawtrey’s terms. That’s why even Hawtrey was willing to advocate fiscal deficits in times of deep recession, but to finance them through the printing press rather than simply by buying bonds (QE), so that there would be less crowding-out. This has been the mistake of the last few years. QE could have been on a smaller but more effective scale if it had taken the form of direct financing of the fiscal deficits that necessarily remained even after their size was being cut…”

            Okay, there is much here that I agree with. The slump in credit demand due to economic contraction and balance sheet repair, the ineffectiveness of QE – though I go further and say it is never effective – in boosting the real economy, crowding out has some basis in gold standard type regimes, and deficits have certainly been necessary.

            There was also a supply side problem with the banks, especially once they could earn via IOR without: no need to take the risk of making loans at all. Small and medium sized business in particular suffered from lack of credit where it would have been justified.

            “…by necessary austerity.”

            I can’t agree with this though. With the unnecessary constraint of the gold stand gone money is no longer scarce. Our constraints are now real. Politicians are fond of telling us we need to live within our means, and this is true, but those means are not financial. They are, as you said, our capacity to produce goods and services.

            When the 2008 crash happened we didn’t lose that capacity, what we lost was the private sector money creation necessary to maximise it. Governments have the capacity to fill that spending gap, and most did so, but not enough, and they quickly lost their nerve. As a result lives have been blighted and we have gradually lost real capacity as well. Mainstream economics has much to answer for.

            “That is, why not spend new money directly into circulation rather than rely on QE that mainly boosted bank reserves, lay idle…”

            Yes, I agree with this.

            “…and threatens future inflation?”

            But not this.

            “QED??”

            What’s the latin for: there are points of agreement?

            “By the way, why is FlimFlamMan anonymous?”

            Why not? I could give you a much longer answer involving data aggregation and mining, Edward Snowden, and creeping fascism, but that would be yet another discussion. If a person’s arguments are worthy of engagement, does the collection of symbols referring to that person matter?

          • As part of QE operations the bank of England injected large amounts of electronically created ‘money’ or ‘liquidity’ into the private financial system. They do so as part of their routine monetary operations, intended to maintain financial stability, to encourage bank lending and to influence rates of interest. There is nothing new about this: central banks have undertaken this role for about three hundred years now.

            This expansion of the money supply is achieved by the following means. The bank of England creates ‘money’ electronically and provides it to the corporate banks in exchange for assets (including government bonds or IOUs) owned by the participating banks.

            Just as credit is important to kick-start economic activity, so bonds, or public and private debt are central to the process of creating new money, or liquidity. Well managed debt is also important as an asset for safeguarding the future value of financial assets e.g. pensions.

            QE also provides additional resources (via the commercial banking system) to those relatively select few institutions and individuals that own government and corporate bonds. It was supposed to make the corporate banks lend to the people who needed it. Instead commercial banks have taken the resources provided by QE and used these to clean up their balance sheets, where liabilities exceed assets.

            While QE can and does inflate the value of assets (government bonds, equities, property) bought and sold in secondary markets, it is not, aimed at the economy as a whole, and therefore does not cause price or wage inflation. Inflation would only occur if we had full employment. In this sense QE favours the wealthy, by inflating the value of their assets, while not affecting the prices of goods they buy, or the wages of people they employ. Indeed both prices and wages have fallen dramatically since 2008.

            QE helped bail out reckless and often fraudulent private bankers and others in the finance sector. However, Financial traders, hedge funds, investors, bankers, wealthy individuals, property-owners and speculators benefited most from the Bank of England’s QE, as the Bank itself admitted. But then so did pension funds – in which large numbers of people have a stake.

            They benefitted because they are lucky or big enough to own such assets. The poor, and a large swathe of the middle classes, tend not to own assets, and instead live not from rent earned on assets, but from wages, salaries or pensions. According to the Bank of England “the median household held only around £1,500 of gross assets, while the top 5% of households held an average of £175,000 of gross assets.” The Bank went on to calculate that the value of shares and bonds had been inflated by QE by 26% – or £600bn – equivalent to £10,000 for each household in the UK. 40% of the gains went to the richest households.

            The Bank of England’s QE resources did not, and cannot, reach or benefit the asset-poor; and did not, and cannot stimulate wider economic expansion. To repeat: this is because the purpose of QE is to influence monetary policy, and it does so via the financial sector and wealthy pension fund and corporate owners of assets.

            Only government investment and government spending can benefit the whole of society because of its wider impact on the economy.

            Not only did we as tax payers bail them out but we actually made them richer at the same time. Yet, it is us who is going to have to suffer this made up shit word – Austerity.

            QE was a transfer of wealth from the rest of us to those at the top – The Sunday Times Rich list shows who received the most.

            That’s why it did not cause inflation.

          • Thank you i’ll take a look at Singapore and has Demark used this as well ?

            And to Flim Flam Man. I’ve only scratched the surface about deficit owls and only read a couple of papers from the Levy institute. I’ve never been to Uni. Everything I’ve learned is self taught.

            I’ll certainly take a look at the functional thermostat it sounds as if that is the missing link. I understand that money could be put into the economy ( without cutting taxes) and without causing inflation. It’s the slowing down of the economy ( increasing taxes) that I need to understand a bit more. When talking about LVR.

            I’m going to the SLRG event to learn more.

        • I thought inflation only occurs if we are full employment ?

          QE did not cause inflation because we were not at full employment.

          Anyways my point was tax is used to slow down or heat up an economy it’s used to take away money or introduce more to the economy. It’s the only reason it is there.

          If LVR replaces all taxes how can LVR do the same ?

          This is what i’m trying to find out ?

          Especially when land is a limited resource it’s not as if we are like Hawai and we get new land every 5 mins. The rate will be at a certain value compared with the amount of land we have.

          Is LVR going to be like tax and we increase the rate and decrease the rate we need to. Then of course it is not a proper value.

          Also if LVR produces full employment over time are we not in danger of getting hyper inflation because of all this extra money it produces floating around in the economy ?

          • Derek: Don’t worry that LVT and its associated stimulus to growth would cause hyperinflation. Quite the contrary. In principle, if the authorities are taking measures to strictly control the money supply, the increase in real income would cause prices to fall. But a sensible monetary policy would increase the money supply more or less in line with the real growth of GDP; that is, in line with the growth of the real demand for money needed to support the growth of GDP. Then there would be zero or, probably better, mild inflation along with strong growth.

            From around 1960-2010 Singapore has had one of the fastest growth rates in the world – and also one of the most moderate inflation rates in the world. (They also took measures to ensure that land values are captured by the government to a much greater degree than in most countries.)

          • Derek

            Demand pull inflation does occur when an economy is running at capacity, but cost push inflation can happen when the economy is below capacity, especially when governments fail to react well. The stagflation fallout from the oil crisis in the 70s is a good, or bad, example.

            The worries over QE were about demand pull inflation; excess spending. As you say in another comment though, QE didn’t boost spending in the general economy, so there was never a danger of inflation in that way, even if the economy had been operating at capacity.

            The thermostat effect you mention is correct, but it is provided by both taxation and spending, so even if LVR were to reduce changes in tax/rating intake we could still operate the thermostat via changes in spending, including at full employment.

            You mention MMT and the deficit owls, so I’m sure you’ve read about the value of a Job Guarantee in providing a fair and functional thermostat.

          • What do both of you think about the

            MONETARY REFORM A BETTER MONETARY SYSTEM FOR ICELAND. Report by Frosti Sigurjonsson – Commissioned by the Prime Minister of Iceland ?

            http://www.forsaetisraduneyti.is/media/Skyrslur/monetary-reform.pdf

          • Thank you i’ll take a look at Singapore and has Demark used this as well ?

            And to Flim Flam Man. I’ve only scratched the surface about deficit owls and only read a couple of papers from the Levy institute. I’ve never been to Uni. Everything I’ve learned is self taught.

            I’ll certainly take a look at the functional thermostat it sounds as if that is the missing link. I understand that money could be put into the economy ( without cutting taxes) and without causing inflation. It’s the slowing down of the economy ( increasing taxes) that I need to understand a bit more. When talking about LVR.

            I’m going to the SLRG event to learn more.

          • The Icelandic proposal is a relative of Positive Money here in the UK, and I don’t support them.

            Bill Mitchell has just written two pieces on the problems with Positive Money in general, and the Icelandic proposal in particular:

            http://bilbo.economicoutlook.net/blog/?p=30827

            http://bilbo.economicoutlook.net/blog/?p=30833

            Neil Wilson here in the UK has a couple of very good pieces on the subject. One on the problems with PM:

            http://www.3spoken.co.uk/2014/11/the-sovereign-money-illusion.html

            And one laying out alternative changes to banking:

            http://www.3spoken.co.uk/2013/05/making-banks-work.html

            If you’re just getting started with learning about MMT Bill’s blog is a great resource, he’s one of MMT’s founders and he writes just about every day.

    • We have deficit hawks – osbourne

      We have deficit doves – Nicola

      We also have deficit owls now – Modern Money Theory.

      Defict owls are from the Levy institute and are indeed sitting around the table in the White House now.

      Check google more and more defict owls are being taken seriously. Hence their view on tax and how it works. Washington Post.

      it would be fantastic to have a deficit hawk, dove and owl at the SLRG meeting at the piping centre in Glasgow this month. You need to have the full picture.

      Especially with what is on the agenda.

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