Britain's GDP did grow for a while, but tanked when the oil money run out, while Norway's economy prospered under socialism and grew steadily rich. Today, Norway is one of the richest counties in the world, while most of Britain, except for London and the South, is one of the poorest countries in Northern Europe.
Wednesday, October 10, 2018
Why The UK Lost Its Oil Wealth (And Why Norway Didn't)
An awesome video, the Norwegians had a Labour government which kept its high taxes while investing its oil wealth, but Britain spent all its oil wealth on tax cuts (and it doesn't say here, but also on large dole queues as Thatcher destroyed British industry putting millions out of work).
Britain's GDP did grow for a while, but tanked when the oil money run out, while Norway's economy prospered under socialism and grew steadily rich. Today, Norway is one of the richest counties in the world, while most of Britain, except for London and the South, is one of the poorest countries in Northern Europe.
Britain's GDP did grow for a while, but tanked when the oil money run out, while Norway's economy prospered under socialism and grew steadily rich. Today, Norway is one of the richest counties in the world, while most of Britain, except for London and the South, is one of the poorest countries in Northern Europe.
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The main difference between the UK and Norway is that the UK is fully neoliberal [99% of the profits go to 1% of the population] while Norway is social democrat. (Not socialist, as some people believe.)
UK oil companies like Shell, Murco, and BP are privately owned. Norwegian oil companies like Statoil and Equinor are 70% government-owned.
What Scandinavians call the Nordic model starts with a commitment to equality and democracy.
The Anglo-American model starts with a commitment to greed, theft, hate, and exploitation.
For Norwegians, you can’t have democracy without equality, nor equality without democracy.
For the UK and USA, tyrannical plutocracy is called “democracy.”
The UK and USA operate by the profit motive, meaning all profits for me, with less than zero profits for you.
Norwegian feminists seek genuine equality, while Anglo-American feminists seek to destroy men. The latter want special rights, not equal rights. They serve the oligarchs by keeping the lower classes divided and bickering. When the oligarchs make war on the Anglo-American lower classes, the women call all men in the lower classes “rapists.”
Norwegians do not hate each other as much as Anglo-Americans do. They do not explode in rage when they hear that some average person is getting a government benefit.
For Anglo-Americans, only the rich deserve government benefits.
While Neoliberals destroy the UK and USA, they falsely claime that the Norway model is destroying Norway.
MMT writers appear to have a blindspot regarding sovereign wealth funds.
For example Bill Mitchell wrote: "sovereign funds are totally unnecessary and just hand over public spending to high paid financial executives and fuel speculation on assets traded by the top-end-of-town" - "The Future Fund scandal" 2009, http://bilbo.economicoutlook.net/blog/?p=1570
See also his"Myths regarding sovereign funds" 2014 http://bilbo.economicoutlook.net/blog/?p=28913
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Misunderstandings seems to stem from dogmatic chanting of the slogan that "a sovereign government is not like a household". This is supposedly because a sovereign government can always print its own currency.
But actually this slogan is completely false. Both sovereign governments and households can print their own tokens/private currencies to signify internal debts and obligations.
On the other hand both sovereign governments and households have budget constraints regarding spending in currencies other than their own.
Sovereign wealth funds (if invested in assets which can be sold for foregn currencies) are like the savings of private households in that they permit greater future spending than would otherwise be the case.
Kingsley Lewis
Thanks Kaivey for the video. It was excellent.
Kong King says (correctly I think) that “Both sovereign governments and households can print their own tokens/private currencies to signify internal debts and obligations.” Indeed, that idea was the basis of Warren Mosler’s hypothetical household where the parents issue money in the form of business cards.
Plus KK says monetarily sovereign countries do the same. Agreed - indeed every MMTer would agree as well I think. So where is the clash between KK’s points and MMT?
Ralph,
I entirely agree that Mosler's hypothetical household using tokens for internal transactions is analogous to a sovereign government with its own currency. That's precisely my point - sovereign governments are like households in essential respects. In addition to being able to print their own currency, both households and governments can benefit from saving and dis-saving financial assets denominated in other currencies.
However, Bill Mitchell says "neo-liberals draw a false analogy between private household budgets and the government budget." This muddle leads him to the false conclusion that "sovereign funds are totally unnecessary".
I was especially pleased with this one, GLH. I'm glad you liked it. Kevin.
“Both sovereign governments and households can print their own tokens/private currencies to signify internal debts and obligations.” ~ KongKing
Anyone can print money. The problem is getting other people to accept it. If you were to print “Kingsley bucks” in your house, would anyone outside your household accept it? I doubt it. That’s the difference between “Kingsley bucks” and U.S. dollars.
“Both sovereign governments and households have budget constraints regarding spending in currencies other than their own.” ~ KongKing
That is true with most nations. Exceptions include the Australian, Canadian, UK, and US governments, since their currencies are widely spendable outside their borders. The USA, for example, uses U.S. dollars to buy imports. Hence U.S. government spending is not constrained by the need for foreign currency.
Naturally, no monetarily sovereign government faces budget constraints in the government’s own currency.
“MMT writers appear to have a blind spot regarding sovereign wealth funds.” ~ KongKing
Mitchell was referring to government “future funds” in the government’s own currency, and how politicians use these “future funds” as a gimmick to maintain the illusion that monetarily sovereign governments are revenue constrained in their own currency.
If a government can create its own currency out of thin air, then the government has no need of “future funds” in its own currency. This is a fact, not a “blind spot.”
In one of the two articles, Mitchell discusses Norway’s petroleum fund which, again, appears to be denominated in Norway’s own currency.
“It makes no sense to say that such a government uses the returns from the Petroleum Fund to provide itself with more capacity to spend than it otherwise would have – which is the meaning of the term funding.” ~ Mitchell
No sense indeed. Why does the Norwegian government need a “fund” in Norwegian kroners, when the Norwegian government can create infinite kroners out of thin air? The excellent public services that the Norwegian population enjoys are not the result of some “fund,” but of government political choices and the collective will of Norway’s population.
Nor are Norway’s public services funded by taxation, since the Norwegian government does not run on tax revenue in Norwegian kroners. In nations with monetarily sovereign governments, federal tax revenue in the government’s own currency is effectively destroyed upon receipt.
The video falsely pretends that Norway’s government relies on tax revenue from its own oil companies.
Norway’s “petroleum fund” is like the USA’s fictitious “Social Security Trust Fund.”
Social Security benefits are not drawn from some “fund.”
Instead, benefits are created out of thin air when the U.S. government orders a beneficiary’s bank to credit the beneficiary’s bank account. Hence the U.S. government has no need or use for FICA tax revenue.
"Bill Mitchell says 'neo-liberals draw a false analogy between private household budgets and the government budget.' This muddle leads him to the false conclusion that ‘sovereign funds are totally unnecessary’.” ~ KongKing
Monetarily sovereign governments can create an infinite amount of their own currency out of thin air. Private households cannot create any currency out of thin air that the general public would accept as legal tender.
This is a fact, not a “muddle.”
Regarding sovereign funds, if they are denominated in the government’s own currency, then they are totally unnecessary.
This is a fact, not a “muddle.”
This post and apparently the video is quite misleading. The sovereign wealth fund and oil have next to nothing to do with Norway's prosperity. Neither do high taxes in Norway or tax cuts in Britain have to do with Norwegian prosperity or British squandering of its oil wealth.
Norway was already a rich "Scandinavian model" country before the oil. People as always get things backwards. It isn't that a rich country or an oil state can "afford" a social democratic welfare state. It was that the social democratic Scandinavian model welfare states MADE Scandinavia rich - countries which had been among the poorest in Europe before.
Norway's sovereign wealth fund is not invested in Krone - they aren't that stupid, but in foreign assets. It is basically the same thing as central bank reserves of foreign currency, which is basically a dead asset, like storing valuables in a hole in the ground. So unless they are spent rather than accumulated (and lost in financial gambles, as Norway did in the GFC 10 years ago) they are useless.
Basically all the fx and wealth directly associated with the oil has been buried in the sovereign fund, and has had zero direct effect on the Norwegian economy. The only real effect has been Keynesian "multiplier" effects from the oil. Like any economic activity, like paying people to dig holes and fill them in or build pyramids it has had direct and indirect effects on employment and consumption.
This is stupider than some of what Britain did - tax cuts etc. But not as stupid as the real thing that Thatcher did to squander oil wealth - to use it to institute insanely destructive policies like having double digit unemployment. The oil was used to mask and make economically and politically possible all the other destructive and stupid policies of her class war, the attack of the rich on the poor. These policies were worse and more permanent than the oil was good, so Britain is probably worse off than if it had never had oil to begin with.
KongKing: When Bill Mitchell said "sovereign funds are totally unnecessary" - he did make the appropriate exception. So he should have not said "totally", because he didn't really mean that. Foreign assets, sovereign funds, central bank fx reserves can be used to buy foreign stuff, and will NOT cause inflation - maybe cause deflation even. Nothing else.
If you look at the last comment of the "Myths regarding sovereign funds" link, as Some Guy I have a link there to papers and writings on Norway by Michael Hudson, Arno Daastoel etc.
You're right about the often misleading nature of "a sovereign government is not like a household". They are very "alike" and even more - the core of MMT is that the same creditary concepts apply equally to households and firms and governments.
The problem with the mainstream is not so much with the terminology and concepts, but with the logic. They do not apply these concepts, equally applicable to each entity, in a logically correct manner. Their reasoning is filled with holes and non-rigorous and their conclusions like deficit-phobia are false. MMT is careful and rigorous and airtight.
A better slogan would be the clunkier one that a sovereign government is a household, but it is not a household within a household. Real households and firms are households within a greater household, the whole country (and world).
"Norway's sovereign wealth fund is not invested in Krone - they aren't that stupid, but in foreign assets. It is basically the same thing as central bank reserves of foreign currency, which is basically a dead asset, like storing valuables in a hole in the ground."
I tried to find out what currency the sovereign wealth fund is in. If it is is Norwegian kroners, then it is usless. If it is in foreign currtency, then it is foreign currency reserves, which many countries have. Do you have a link that clarifies what currency it is in?
"Basically all the fx and wealth directly associated with the oil has been buried in the sovereign fund, and has had zero direct effect on the Norwegian economy. "
Agreed.
"You're right about the often misleading nature of 'a sovereign government is not like a household.' They are very 'alike' and even more - the core of MMT is that the same creditary concepts apply equally to households and firms and governments."
A government is only like a household when we are talking about foreign currency, and when the nation has a trade deficit.
A government is not like a household when we are talking about a government's own currency, which the government can create out of thin air. A private household cannot do this.
Lots of info in English here:
https://www.nbim.no/contentassets/49715a01ed684b1686ff3c017f1efa12/annual-report-2017---government-pension-fund-global.pdf
Konrad: The Norwegians naturally measure it in their own currency. But what they do with it is buy foreign stocks and bonds. So they lost something like US$ 80 billion from gambling on Wall Street in the 2007-2008 crash.
Wikipedia has the basics Government Pension Fund of Norway. By value, it holds 1.3% of all the stocks in the world!
Here is a link to a comment I made at billyblog 5 years ago that has a lot of links, mostly to critics of the fund.
A government is not like a household when we are talking about a government's own currency, which the government can create out of thin air. A private household cannot do this.
A private household can do this, for purposes internal to the household. 19th century US company towns that paid workers in company scrip to use at the company store are a real example of this, as are "local currencies" like Ithaca dollars. If the household, firm, town etc is big enough and wealthy enough, you can get exchange rates between the local currencies and state money. It might make sense to for people near Ithaca say to save a few Ithaca dollars. The point is that the difference between anybody's credit/debt IOUs and the
most powerful nation's money is purely and merely behavioral and empirical, not conceptual.
Hi Calgalus, that's good to know that Norway's wealth came mainly from its social democracy. I did read once, that it was so cold in the Scandinavian countries during the winter they had to share resources to survive, and that's why social democracy comes easier to them.
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