Richard Murphy, the accountant and policy analyst, has just produced a video on the fallacy of the £20 billion black hole in government finances. It is worth watching, but can you spot the hole in his argument?
Murphy is partly correct, but also dangerously misleading. He has forgotten that there is a fixed supply of some things, such as land, which all buildings require—homes, factories, shops and offices. Creating money too freely leads to a land price boom. This was the main long-term effect of Quantitative Easing. It sent house prices sky high.
The notion that unemployment is due to shortage of aggregate demand is the great Keynesian fallacy. If Murphy understood the idea of the NAIRU (the Non Inflationary Rate of Unemployment), which has been around since 1959, he would know that pushing money into the economy cannot get rid of unemployment without causing accelerating inflation.
Money has lost 98% of its value since 1945. It is one of the reasons why Britain's industry has all but disappeared.
Governments can indeed create unlimited money but it then needs to be withdrawn from circulation through the tax system. When the tax system punishes honest work and wealth creation, it is not fit for purpose, but that is what we have had for the past 80 years.
The link to the video is here.
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