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.








Growth & Structural Reform

Production Possibility Frontier & Aggregate Supply:

There are many determinants for a shift in aggregate supply; this would mean an increase in real output without an increase in the price level.


Some examples of the determinants are:

  • Education: Increased productivity, capabilities, and efficiency of the labour force
  • Innovation/R&D: The product may become more useful or easier to manufacture
  • Government Regulation or Subsidy: Encourages production, or deregulates an immobile market.
  • Transport/Infrastructure: If there was better transport then people could work more often rather than waste time in traffic,  development of infrastructure develops efficiency.


Analysis from Article:

Using Evidence from the Article Explain the Impact of Investment on the UK’s PPF?

Increasing the quality of university education and teachers may mean that the workforce becomes more efficient and productive. The article highlights the need to invest in human capital. This would lead to an outward shit for the PPF because there is a greater potential for production. If this potential were to be realised there would be a shift to the right for the aggregate supply curve.

The article mentions that the government should target investment towards equipment rather than property, increasing government investment into R&D and general innovation. The lack of innovation is identified through the lack of patents submitted. The issue surrounding R&D and capital investments are the long pay-off periods, whereas financial products pay-off in the short term. If more money were to be invested in long term research and development projects there is an outward shift for the PPF as there is a higher possibility of products being manufactured with greater efficiency.

Finally, the article recognises that British infrastructure is considered “mediocre” being ranked 24th in the world. It relates this to government failure, and the amount of time it takes to get energy bills through and the time it takes for projects to come to fruition. If there were to a boost in infrastructure spending, then there is the potential for an increase in productivity leading to an outward shift in the PPF.

Evaluate the Argument That Structural Investments Alone Are Not Enough to Stimulate Growth?

There are many theories and manners of approaching how best to stimulate growth, the article heavily leans toward the Salter Cycle. This can be summarised as an increase in productivity and efficiency, resulting in reduced inputs of land, labour, and capital while achieving a great output. This what the article highlights as structural investment, i.e. improving education, improving transport, and stimulating research and development. This does work to stimulate growth however it must be realised that humans can only ever be so efficient or productive, and that factors such as capital and land become scarcer in developed countries.

It is true that the government needs to stimulate development within Britain; it is unacceptable to continue supporting financial institutions that don’t contribute to growth. Energy and energy efficiency are two factors which are integral to stimulating growth within an economy, simply because when there is a greater quantity of energy and at a cheaper price more is used. This is where the American government unlike the British government took a lead and has effectively introduced shale fracking to slash gas prices down and increase consumption. The British government has been slow to develop supporting infrastructure and R&D for the implementation of fracking, when a recent geology report displayed the abundance of shale formation across Britain. This highlights the need for structural investments, but into sectors that have optimistic prospects for the future.

The other methods of approaching growth stimulus can be equally as effective. There is the classical approach of increasing free trade between countries, and the development of trade agreements to stimulate production resulting in general economic growth. In the article there is a display of a real GDP per person graph, it shows that Britain had the highest real GDP in 1870. This was a time when Britain had abundant trade from its colonies (without restriction due to naval dominance and to an extent exploitation), and the expansion of trade into the “new world”.

Structural investment will assist Britain in re-modernising; however it can be argued that it is best suited to developing economies that still have a greater abundance of land, labour, and emerging capital. One possible route is the development of military infrastructure; this would mean creating more aircraft carriers and submarines. This has worked to an extent to help stimulate American growth as it announced that two new aircraft carriers are going to be developed, and the roll out of the successor to the F-22 Raptor.

Another possible approach to growth stimulation is to induce a state of semi-isolationism which had worked for East-Asian economies in the 90s. The crash for the East-Asian economies can be attributed to the liberalization of markets which had stifled growth due to speculation. Creating a state of semi-isolation reduces the inefficiency of market speculation, and makes a country more self-dependent, and this may be realised through structural investment. Overall, it can be recognised that structural investment are a necessity, but it must be coupled with a new economic approach to achieve not only growth but sustainable growth.



10 Terms to Know For Microeconomics

Production Possibility Frontier (PPF):

A production possibility frontier represents where resources can be allocated to produce certain amounts of a good in comparison to another good. It represents the choice the market has in production between two different goods, limited by the factor that certain resources are scarce.


When there is surplus of labour which does not get utilised by the market. There are two manners in which to define unemployment. The first being the classic definition which states that if the price of employment increases above equilibrium there is more labour supplied but less demand. The second definition is “cyclical unemployment” where there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work.


Infrastructure is the physical structures that are required for the operation of society and enterprise; it provides the means for an economy to function.


Supply is the total amount of a good or service available for consumption at a given price at a certain moment in time.  The basis of the law of supply which states that as the price of good or service increases, the quantity supplied also increases.


Demand is a consumer’s desire and willingness to purchase a good or service at a given price at a certain moment in time. The basis of the law of demand which states that as the price of a good or services decreases, the quantity demanded increases.

Market Failure:

Market Failure is when there is the inefficient allocation of resources, the existence of a negative externality on either the consumption or production of a good or service, and the existence of a monopoly power.


An effect to a third party which was not accounted for in the price of the original transaction of the good, this can be either positive or negative.

Consumer & Producer Surplus:

Consumer surplus is where a consumer was willing to pay a price above equilibrium but only had to pay the equilibrium price, and producer surplus is where a producer was willing to produce at a price below equilibrium but was able to sell their good at equilibrium price.  Represented by the graph below:

P7 - Social Surplus

Public Good:

A public good is typically provided by the government, and it is meant to be non-rivalrous and non-excludable. Meaning that anyone can have access to it, you do not directly pay for it, and one person using it does not affect your usage of it. Some examples are street lighting, beaches, benches, and air.

Indirect Tax:

An indirect tax is paid through the consumption of good or services, whereas a direct tax is on your income. Examples of indirect taxes are Value Added Tax, Sales Tax, and Excise Tax. They provide a source of government income, and are a manner in which a negative externality can be resolved.