Tag Archives: bbc

Nationalism, Governments and Currency.

The political left has always been suspicious of nationalism. Certainly it is easy to think of examples where nationalism has been taken to extremes with disastrous results. However we do, like it or not, all have to recognise we live in nation states. We might consider ourselves citizens of the world, or citizens of Europe or whatever, but that has to go along with being a citizen of a particular country too.

The traditional model is that we have a country, a government and a currency to go with it which is essentially an IOU of that government. So, for example, we have a country called Vietnam with its own government which issues a currency called the Dong. A neighbouring country, Cambodia, has its own separate government and uses the Riel. You might want to remember these names if you are into pub quizzes!

The people of Cambodia and Vietnam could, if they chose to, unite into a single country, have  a single government and a unified currency. That could make sense, but it would be entirely up to them to decide to do that. What would make much less sense is for them to try to share a currency without unifying their countries. The power of being able to control a currency is very considerable but not easily shareable. If we write our own IOUs as a settlement of a debt we want those IOUs to be unique. We don’t want anyone else writing them out on our behalf. So if Vietnam and Cambodia were to try sharing a currency it probably would not work at all well. There would soon be a dispute over how many IOUs each could create and the two countries would revert to separate currencies very quickly.

This is a similar pattern the world over. Canada has a different dollar from the USA. Australia has a different dollar from New Zealand and so on. There are seemingly some exceptions. Ecuador uses the US dollar. But it cannot create any US dollars of its own. Only the USA can do that, and as many as it likes to stimulate its own economy when needed. That puts Ecuador at a big disadvantage. I would recommend them to introduce their own currency! There is a similar situation in Puerto Rico which also uses the US dollar. But Puerto Rico is not considered part of the USA. If that were to change it would make much more sense for them to use the US dollar. Puerto Rico citizens would become American citizens and pay taxes to the US Federal Govt and receive the benefits of spending by the Federal Government. There would probably be more spending than taxation just as there is in other less affluent US States.  Then they would be truly sharing a currency and not just using someone else’s.

So one way we can define our own feelings of nationalism is by asking ourselves who we would like to share a currency, and a government, with. At present we, in the UK, share a currency, which we call the pound, between the countries of England, Scotland, Wales and Northern Ireland.  Other parts of the world, like Gibraltar and the Channel Islands use the pound but do not share the pound and so are not part of the United Kingdom. If Scotland were to become independent it could not share the pound, it could only use the pound. I am not sure if those Scottish nationalists who argue for a shared currency really appreciate the difference or the potential difficulty.

The big exception in the eurozone. We’ll look at that, and the problems it has, next.

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Muddled Thinking Watch # 3: Hugh Pym of the BBC with his coloured sweets

I do tend to bang on from time to time on just how hopeless the BBC is on economics issues.  It can explain very well what a Quasar is to the general public,  but on matters slightly closer to home,  it comes up with this nonsense from Hugh Pym, their chief economics correspondent -no less, on government debt!

This might be just about acceptable as a kindergarten lesson on how Mummy and Daddy have to borrow occasionally to manage their finances but as a lesson for adults on how  government finance works? I don’t think so.

The number of sweets the government has at its disposal is unlimited. That’s because its an issuer of its own currency -sorry  sweets. It can never run out.  It doesn’t need red, or debt, sweets. Only the government can create the sweets so there is no real need to borrow sweets from anyone else except if the owners of the sweets ask the government to look after them. Which they will of course. Afterwards, they’ll even give them back one or two extra!

The government needs to be like a responsible parent and not issue too many sweets. In that case they could end up unappreciated and the sweets would lose their value.

They do impose a continual sweet levy on the population though. That is to make sure the sweets are valued in the way sweets should be!  The government don’t need them for themselves. Why on earth would  they? They can make as many as they like!

I wouldn’t give Hugh Pym any sweets on the strength of this showing. He needs to ask himself if economics is really his forte !

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Edit: Alex Little and Neil Wilson suggested, via Twitter, the idea of complaining to the BBC. The BBC do make it very easy and its a step by step online process.

I received a reply too. It is a pity is was unsigned but at least it was a reply.

“Thank you for your email about Hugh Pym’s report on debt and deficit.
 
 This piece was not meant to be a detailed explanation of government finance. It was intended to be a  to the different meaning of the terms debt and deficit (which are often misunderstood or confused) for a general audience.

The Bank of England is independent and has made it clear that its role is not to buy up and cancel Government debt. It has purchased Government bonds as part of its policy to transmit newly-created money into the economy.”

My reply to the BBC:

“Thank you for your reply. Is the BoE independent? It is owned by the Treasury solicitor. Did it decide, independently, to buy some £350 billion or so of Government gilts from financial institutions as part of the QE program? Of course not.

Once it is seen that the BoE and the Treasury act solely as departments of government, the whole idea of government borrowing becomes questionable. You might want to read this 
and  watch this video and read this article produced by the BoE

The word “borrowing” suggests to the average person that a loan needs to be repaid. The  ND never gets repaid! Some individuals are so concerned by the National Debt they leave their entire estates to offset it! Its not really borrowing. It is more the process of issuing money, in just the right amounts, into the economy which is necessary to allow people and companies to save and allow the country to run its trade deficit.I understand that the average person may find this difficult and counter intuitive.  Your “quick and easy” would be fair enough if it were “quick, easy and right”. The BBC has a good record of explaining difficult scientific concepts to the public. Why does it shy away when it comes to economics?”
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Edit 2: Neil Wilson has suggested how the video should be corrected on 3spoken. Incidentally I would recommend Neil as the MMT’s “go to’ person on UK issues and 3spoken.co.uk as a good source of sector analysis data.