Between Debt and The Devil – Adair Turner

Adair Turner recently came to speak in the Bristol Festival of Ideas. With his talk being centred around the ideas he explores in his new book “Between Debt and The Devil: Money, Credit, and Fixing Global Finance”

You can find the recording of his entire talk in the link below, as well as an interview done with him which is particularly interesting:

He highlighted some feasible ideas, and some less so, but overall it was fascinating to see the opinions of someone who was in a position of considerable authority post crisis as he was the chairman of the Financial Services Authority. Below I have highlighted parts of his talk:

Turner outlined two main problems which he believes are facing modern economies

Problem 1

Rising Inequality

  • Problem of secular stagnation
    • Savings of the rich are too high (MPC too low)
    • Capital saturation especially in the US
    • Stagnated Wages
  • Specifically applied to the United States
    • Trickle down economics was invalid
    • Credit was the aspect of the subprime mortgage boom
    • People with low wages were finally able to access credit for toxic assets

The Role of Real Estate

  • Fundamentally ignored by Economics
    • Safe and over credit intensive
  • Turner highlighted that we need to address the credit intensiveness of our economies
    • Namely with suggesting that bank capital ratios should be around 20% rather than 4-5% if progress it to be made in this area.

Global Balance of Payment Imbalances

  • Surpluses are driven fundamentally by credit

Problem 2

“We have run out of ammunition to stimulate our economies”

  • Fall back of the central bank printing money to drive forward inflation and bump the economy
    • Severe deflationary trap can always be solved by helicopter money
      • Certain circumstances which can get us out of this trap
      • Not necessarily producing hyperinflation (smart printing)
    • The problems here are fundamentally political
      • Taboo of Money Finance amongst politicians
        • Once they realise its possible, what will stop them from doing it further
          • Suggesting political policy to moderate such a tool
        • Japan and Eurozone specifically need this
      • Between Debt and the Devil

Two ways to ensure expenditure in aggregate nominal demand

  • Print and Government Spending (Devil)
  • Private financial system to push through purchasing power rejuvenation
    • The free market in this case led to the extreme inequality
    • Markets fail and run out of control, and they were let free and not cared for
  • Choosing between alternative risks – private debt or government irresponsibility

The skeptic in me suggests that most of his proposed ideas were book selling ideas, but there is a valid discussion around the use of helicopter money, and our increasing lack of ability to dictate our economies when needed. We seem to be vehement supporters of free market economies, but then become increasingly frustrated when our targets of growth or inflation are not reached. So if this is to be the case it is clear we need to make some compromises in these areas, namely addressing economic literature and bringing it into use rather than going back to conventional heterodox policy and the shortcomings which have become frequently apparent.

One little area that annoyed me was his reference to how something like tax rebates would work in regards to spurring aggregate nominal demand, as a method of overt monetary finance. As it has been conclusively shown that consumers will not directly translate this into spending, and if so it is purely transitory and has no long run permanent effects. There is some merit in other examples he used of potentially using overt money financing such as introducing large infrastructural programmes. This has often been a go to idea though for trying to prompt long term growth, not saying that it is a bad one but we tend to mismanage our ability to commit to long term projects.

More to come this week, the next post on ‘Corbynomics’ and nationalisation.