It may surprise many that public spending is not funded by tax, nor by borrowing. Tax, and what we call ‘government debt’, serve very different functions in a modern economy than suggested by Parliamentary debate.

I’ve written before that banks don’t lend out depositors’ savings. A banking license permits a commercial bank to create money. When you take out a £200,000 mortgage, the bank credits your deposit account with £200,000 of newly minted money, entering your loan contract as an asset on their balance sheet. The bank taps a keyboard, rather than a pool of savers.

In a currency-issuing country, government spending follows the same principle. When government pays FM Conway £1m for street works, £1m of newly minted money is credited to Conway’s bank account with, say, HSBC, while the Treasury’s overdraft with the Bank of England is increased by £1m. The total stock of sterling deposits increases by £1m. The government’s payment is backed neither by tax revenues, nor loans from bond sales, but by IOUs with the central bank.

So what is tax? While mortgage repayments destroy newly created money from bank lending, taxation destroys excess deposits, whatever their origin: whether government spending, or bank lending. Fiscal and monetary policy work together to keep the stock of sterling deposits in equilibrium with the goods and services available to transact — and to prevent excess deposits destabilising asset markets. 

But if government can simply spend money into existence, why does it borrow? Here’s where the term ‘debt’ has exhausted its useful purpose. Governments do not issue bonds to borrow the currency they themselves create. They issue them because the private sector demands them, as the most trusted asset in the economy. What we call ‘total government debt’ would be better understood by the public were it called the ‘private sector’s safest asset account’. 

With monetary sovereignty — full control over a widely trusted currency — modern finance has evolved beyond recognition, while maintaining the metaphors inherited from the gold-standard era, or even earlier. Metaphors for economic realities long since abandoned. The real hinge for modern economies with free-floating currencies is not funding government — it’s controlling inflation.

The wrong metaphors encourage the wrong debates. Perceiving the public finances as analogous to household finances, public discourse clusters exclusively around the question of funding. But taxation is only mopping up excess deposits from the economy; what really impacts the way an economy works for its participants is upstream — in the realm of what created those deposits in the first place.

We’ve had bank lending for property purchases driving asset price inflation; we’ve had money creation in high finance for speculation, creating excess deposits; we’ve had government spending on entitlements driving consumer price inflation (at new levels, during and since Covid).

More impactful than sophomoric cries to ‘tax the rich’, would be a clearer public demand for money creation for purposes that expand our productive capacity, build useful infrastructure, and support human capability — rather than to bid up existing assets or to fuel speculative cycles.

Whilst a divisive figure, I hope we can mostly agree that Angela Rayner is amongst the least boring in the Westminster village. Many see the unfolding drama as an ideological hit-job — including me. But while the media focus on her stamp duty liabilities, there is a less-expected impropriety.

It seems increasingly clear that, whilst describing her prematurely born son as an ‘NHS miracle’, Rayner secretly made a six-figure damages claim against the NHS. This was paid into a trust for her son — with Rayner appointed to manage it. The details of this were protected by a court order. If not requested by her, it was certainly politically convenient.

She said that she had ‘acted as any parent would’, when implying that she’d transferred her home to the trust for her son’s benefit and protection. In fact, though, it appears she transferred the mortgaged property to the trust to expressly, in her capacity as trustee, (a) clear the mortgage, and (b) cash-out her equity.

The latter step required the house to be valued. Property price inflation in Ashton‑under‑Lyne since 2016, when she purchased for £375,000, would suggest a 2025 valuation at circa £500,000. The value contrived for the trust was £650,000 — the maximum valuation for a property asset to be transferred into a trust without an inheritance tax liability.

Crucially, this inflated the value of her equity in the house, at the expense of her son’s funds in the trust, to the maximum level possible without triggering an IHT liability. This also maximised a capital gain protected by primary residence CGT relief.

Having done so, she proceeded to live presumably rent-free in the property, now fully owned by a trust controlled by her — the mortgage lender displaced by her son. Manoeuvring herself from owner to trustee enabled her to purchase a holiday home without the additional stamp duty premium, whilst also claiming the Ashton property as her principal residence to avoid double council tax on her grace-and-favour apartment in London.

The latter points are well-reported, and blamed on poor advice. But it’s apparently a less newsworthy scandal than a moral one that she prioritised personal extraction of funds above her fiduciary duties to her own son’s trust. I’m surprised by that, and not a little disappointed.

Nothing’s changed in the economics departments of universities, apparently, since the Bank of England published a paper in 2014 explaining that most textbooks’ accounts of where money comes from were wrong.

By the 17th Century, necessity had transformed goldsmiths — traditionally responsible for fashioning items from gold — into the most secure places to deposit it. Before long, the paper receipt for a gold deposit was valued at par with the deposit itself — and somewhat lighter to carry.

Those looking to borrow gold could similarly deposit a paper promise to repay, in return for bullion. But soon a consensus emerged: the goldsmith had no need to pass the borrower physical bullion, when they could instead pass only a paper receipt for the value of the loaned deposit.

Goldsmiths quickly learned they could issue more deposit receipts than they held in bullion — as long as they held sufficient gold to fulfil the maximum physical withdrawal demand they expected at any one time. Goldsmiths’ deposit receipts were money, created with the stroke of a fountain pen on issuance of a loan; on repayment of the loan, the goldsmith tore up both the loan and deposit paper.

The Bank of England’s 2014 paper confirmed that, whilst the regulatory environment has changed — and gold replaced by fiat reserves — the principles have not. Money is created by the act of a commercial bank issuing a loan, and destroyed by repayment. For every deposit there is an equal and opposite loan; the total value of all the money in the economy sums to zero.

No covenant is more celebrated in the free world than the 13th Century charter to constrain the rights and entitlements of King John. That concomitant rights accrued to the barons — not us — is the most obvious flaw in the narrative, but not the most instructive. What’s missed in the celebration is the light never shone on the other side of the ledger. Rights, like money, are an asset for one and an obligation for another: demanding them binds one party and enfranchises a second. As aggregate monetary balances sum to zero, so too is every right matched by a corresponding duty.

The freedom the population is prepared to surrender — freedom, that is, in its most generic sense: to be able to continue as you are — defines the aggregate collateral from which rights and entitlements are underwritten. Activism in the UK and the wider western world is overwhelmingly dominated by the pursuit of new rights, rather than the defence of existing freedoms.

The failure to attend to this imbalance explains more elegantly than ‘political polarisation’ the rumbling frustrations behind today’s politics in primary colours. Like the Cantillion effect in economics — where the first recipients of newly minted money benefit before prices rise — there’s a lag between the benefits of newly minted rights and their cost to the system. Urban progressive activism is too purist to recognise its own success in expanding rights, and too single-minded to monitor the capital adequacy of the social collateral available to underwrite them.

A stable system rests not on the quantity of promises but on their credibility: the further pursuit of rights requires greater due diligence on the reciprocal constraints that others will actually bear. Our failure to do so augurs the socio-political equivalent of the Great Financial Crisis.

Frogs aren’t celebrated for their intelligence, but it still deserves a mention that they’ll starve to death beside a bowl of dead flies. To them, only fast-moving dark spots are food.

Rats have enough math to find that snacks are in every third box. But they won’t figure the snacks are in boxes 1, 2, 3, 5, and 7. In their universe, there’s no such thing as a prime number.

If we’ve similar limits to our own knowledge, what we call ‘truth’ is actually something else. As arguments rage, in playgrounds, boardrooms, households, and between tribes and nations, there’s news for all sides: you’re probably wrong. The default condition of knowledge is error. The evolutionary patch keeping us alive is not truthy intuition, but our ability to debug mistakes before they kill us.

For all our instincts on the role of community in survival, this is one where it falters. Put a dozen smart people around a table and they will volunteer to be stupider together than they are alone. The 1986 Challenger launch decision used to be the textbook example: valid concerns were voiced, suppressed, and ultimately overridden, because the room prized unanimity over accuracy. Now it’s Covid.

While social commentators lament a consensus crisis, hedge funds like Bridgewater institute guardrails against it. NASA does, now. There’s neither virtue nor utility in the pursuit of consensus on a chimeric truth. But error is trackable prey. We can have cohesion without consensus if we hunt it together.

Being a gentleman, Leonard Cohen only remarked that a man goes through five stages of physical attractiveness: attractive, unattractive, repulsive, invisible, and cute. As I continue to work my way down the ladder, the mysterious universe of Instagram Explore insists I’ve a daily reminder of those yet to begin the descent.

In apparent tribute to my wife’s ethnicity, and possibly to her supernatural immunity to time, the algorithm’s concluded that I’m only really interested in Korean girl bands. Armed, as I am, with modern ethical sensibilities and a ruthlessly rational perspective of my age, I choose not to look, click, watch, or pay any attention to this perpetual stream of twenty-somethings dancing provocatively.

Because that’s of course a lie, I’ve the misfortune of being more acquainted than I’d like to be with K-pop — the chosen medium for South Korea to export what it hopes passes for ‘culture’. Well, I’ve news for the bureaucrats, intel services, media agencies, and whomever else is behind its staggering global success: there’s no ‘K’ in ‘K-pop’.

The pettiness of fame and fortune is anything-but for the kids on stage, who should be set for life. That is, if they survive mentally intact the transmogrification to whatever a celebrity is — some kind of Borg-like cartoon character cosplaying human, in service of the corporate advertising hive mind. But to those behind Hallyu, this is about soft power, not ticket sales; the Korean establishment’s instincts are to dine on Japan’s retreating cultural reach.

Yet optimising for success in this medium has involved stripping almost every national characteristic. It’s not so much the blonde hair (cute), blue contact lenses (weirdly cute), double-eyelids (meh), raised nose bridge (why?!), narrowed jawline (wtaf), and video filters for absurdly elongated legs (lols); it’s that if the stagecraft differed from American pop, it’d only be due to error.

The most Korean of Korean things — the language — has increasingly been determined an obstacle to success: 50% of leading girl band hits are in English. K-pop is a sub-genre of Anglo-American pop that’s as Asian as an ‘Asian’ conceit in a San Francisco porn production. Unless Seoul’s ambition is for Trump to invite Korea to be integrated into the state of California, K-pop is a roaring success in none of its geopolitcal goals.

There may be precedents for this, I know. The Prince Regent was determined to make London look more like Paris. Washington was modelled on Ancient Rome. And a confounding difficulty eradicating our signature from anything we do leaves vestigial characteristics of the culture: discipline; grinding effort in pursuit of excellence; group over individual; an arterial thread of grief, longing, and resilience, are all there for those given to scrutinise. But they’re backstage. Those learning Korean culture from Black Pink’s oeuvre have all of their work ahead of them.

This is a culture that has a mysterious power to reach into the soul and wrench so hard you don’t know, from one moment to the next, whether to collapse in laughter or sob your heart out. Think the civic order of Japan, but with the passion of Spain, the vivaciousness of Italy, and the mechanical precision of Germany. The performance below will give you a better idea than anything on my Instagram Explore page.

The outfits are great, though. 🙈 

— “Where does it all end?”

— “Same place it ends for you: in a wooden box.”

A sobering reminder from Gloucestershire’s best-known heroin addict that we’re given to exaggerate life’s inequities. But what’s more instructive than Alan Dainton’s surprising gift for pithy responses is what the art project dedicated to him — Behold The Man — gets wrong.

That is, the basics. A project about a homeless man living on the streets of Cheltenham while battling addiction was inadvertently about a man that was neither homeless nor wished to do anything about his addiction. Him telling me so precedes my opening quote.

Not all addiction seems best understood as either crime or disease. Alan’s most self-destructive behaviours are wilder than mine, but I’m unconvinced we engage in them for very different reasons. Enjoyment, mostly. The differences that matter are externalities: do they generate tax, or mayhem?

Conservatives will point to the failure of police to enforce the law on Class A substance abuse as the cause of its proliferation. But the absence here in Seoul of the walking dead, roaming the streets with rotting teeth and venous ulcers — asking for just ten more pounds to get a room for the night (coincidentally the price of a wrap) — isn’t just the presence of the police in society. It’s the absence of something from the culture. There is nothing universal about desperation, despair, and deprivation ending in a skag-head shuffle. Something else causes this. 

What? This matters enough for first order reasons, particularly when you pivot to the Alans in the capital, who outnumber the entire population of the City of Gloucester. But there’s then the street crime downstream from Raccoon City that’s also conspicuously absent from central Seoul. You can reserve your seat in Gwanghwamun Square with your iPhone.

Nothing says ‘It doesn’t have to be like this’ quite like inhabiting cities that aren’t like it.

Of the many differences between the UK and South Korea, one stands out here. Cultural norms in Korea are the cultural norms. And they don’t permit substance abuse. What passes for cultural norms in the UK comprise anything that’s grist for the attention economy. Anyone reading The Times these days would be forgiven for thinking half the population’s at some country pile for a sex party every other weekend. (It’s once a month, at best.)

That most of the UK adult population have never experimented with illegal substances will be met with either disbelief or despair by the minority that have. UK cultural norms are downstream of media and entertainment. In Korea, they’re the sum of what most people actually think. It’s the alignment of the law with cultural norms — rather than policing policy — that makes it enforceable.

There’s a liberal trope about the kind of society we want to live in. The collapse of Japanese passport holders to 17% has settled that matter the other side of the East Sea. I predict a similar trend of Koreans abroad discovering life was better at home. Not captured by crime statistics is the degree to which these countries have a brand of crime you have to go looking for, rather than the kind that comes looking for you. For the peerless cultural freedoms and architectural riches of the western world’s greatest urban delights, there’s an alternative and under-indexed freedom in the megacities of Korea and Japan. One emerging from the orderly society possessed by the kind of social conservatism we mostly make a sport of denigrating.

Too much is made, in my view, of being unable to control what other people think and say about you. It’s a trifling inconvenience that Caroline Magennis has managed to turn into both a book and an article in The Times today, on her experience of being a woman without children or regrets.

Being childless myself, I’ve never had cause to be grumpy about others’ idle chat or casual queries on the topic. Ever surprised and grateful to be the subject of anyone’s conversation. I have, on the other hand, felt compelled to consider the statistical miracle that brought my wife and I into the world — and together.

A fair estimate of the probability of a pre-named sperm meeting a pre-named egg is somewhere around 1 chance in 40 billion. Then there’s both my parents. That’s the probability of winning the UK lottery 4 consecutive times, with a single ticket each draw. Grandparents? 10 consecutive lottery wins. Great-great-great grandparents? 87 consecutive lottery wins. But that’s just my lot. Then there’s my wife’s. And all that’s without parental meeting contingencies. My wife and I were born 5,000 miles apart and met in a bar in provincial England. That’s not in the model.

Us voluntarily childless can make a fanfare of our right to terminate that chain, but the real question is whether the right outpaces our responsibility not to.

We, and the growing number like us, are busy enough and happy enough without children. This is the reality of middle class life in a developed economy: the chief victim of its success is its prospect for survival.

That I’m entitled to have such a great time without kids should pass without comment. But it’s a vice that both culture and policy should unite against, not celebrate. Others contributing to the species’ survival are right to question it.

Average house prices as a multiple of average gross annual income:
1979: 4.5x —vs— 2020: 8.2x

Poor 2020 buyers, right?

Wrong.

In 1979, 31% of gross income went to HM treasury in taxes, 48% went straight to the bank as interest. Only 21% was left to pay equity on your mortgage and to fund your life.

By 2020, only 20% went in taxes, only 13% in bank interest, while 67% went into equity on your home and living costs.

By 2020, it had grown progressively easier and cheaper to buy a house — hence price rises. Moreover, buyers that slaved in 1979 are now passing that capital on to their grandchildren in the biggest transfer of wealth since the Spanish conquest of South America. The ubiquitous narrative that Baby Boomers had a better deal on housing than later generations is too entrenched to be dispelled. But it is bullshit.

There’s a window in life between coming of age and servicing a mortgage during which many make some time for social justice. The Iraq War stirred my lot. Previous generations were spoilt for choice. But it’s hard not to feel that we’ve reached a point where demand for causes outpaces supply.

This is an age in which a single mother on a social housing estate in Manchester can secure £1m of NHS funding for cutting edge gene therapy for an infant child. The military industrial complex and university campuses are in harmonious agreement over a land war in Europe. Both agree that the only public figure determined to end it is as villainous as the war’s belligerent. Student views on climate change are mostly indistinguishable from those of investment banks and private equity firms.

This has driven activism into the marshlands in search of discord with established norms. The assault on those relating to sex and gender extended all the way to the Supreme Court last week.

Draw a circle without a pair of compasses, and you won’t have drawn a circle. But we’ll know what you meant. The idea of a perfect circle survives a messier reality. And so it’s been with sex and gender, night and day, and even life and death (thanks to zombie movies and crack heads).

Under sufficient scrutiny, all meaning slides. Categories leak. In a search for something other than the machine to rage against, activists hit upon the soft underbelly of our civilisation: the fragile axioms that we struggle to justify.

The assault is faltering on a point of coherence, torn between dismantling the gender binary and demanding a chosen place within it. This, more than ideology, led the Supreme Court to defend a stable fiction over an unstable reality. But a more cerebral strategy might not fail indefinitely. Let’s hope those railing for a messier world have a formula for governing the complex truth that’s as functional as that which governs the simple fantasy.