The Strange Case of the Missing Money

Published by Anonymous (not verified) on Sun, 11/08/2019 - 11:58pm in

Woman holding coins and "make a change" written on a scrap of paperPhoto by Kat Yukawa on Unsplash

“Economics lie at the very root of practical morality”

Josephine Butler, English feminist, social reformer and campaigner against injustice.

Boris Johnson has been distributing largesse. Well, not quite distributing it; it’s still in the pot of promises. There will, apparently, be extra money for the NHS, money for policing and education and even some to manage Brexit. If it were true then potentially it’s a good thing, but of course like everything the devil is in the detail.

After 9 years of being told endlessly there was no money and that cuts were necessary to deal with Labour’s economic mismanagement suddenly it just appears out of nowhere. Shouldn’t someone be asking how are they going to pay for it? Has someone checked out their fully costed budget? If it were Labour doing the spending then, of course, these are exactly the questions that would be being asked, even though they don’t represent monetary realities.

Of course, in the lexicon of monetary orthodoxy, aka household budgets, we can all thank the previous Chancellor who squirrelled away money in the ‘rainy-day fund’ for just such an event! Except, of course, that the question of how we pay for it doesn’t reflect how money works at all; the rainy-day fund is a figment of former chancellors’ imaginations because governments don’t spend like households and neither have nor don’t have money; they cannot put money aside or save for future expenditure. Those of us who know how it works might suppose it is simply missing knowledge on both sides of the political divide but maybe it is just a torturous game played out in the Houses of Parliament over the despatch box to deceive the public and deliver political agendas.

On the other hand, the new Chancellor Sajid Javid doesn’t seem to get it at all – or maybe he does. Whilst Boris Johnson is going on a spending spree of promises to keep the nation sweet in the run-up to a possible election, deal with the initial fall-out from Brexit and avoid the possibility of recession (currently being blamed on Brexit by media pundits whilst carefully ignoring the impact of 9 years of cuts to public spending on the economy), Javid said this week that he’s not expecting a recession at all (he’s checked with the orthodox economic oracles). He has claimed that increased growth will allow the government to meet its spending pledges (despite a contraction in the economy between April and June). Presumably, he’s counting on the additional tax that will be poured into the government’s coffers in the event of the engines of the economy perking up. Just how that miracle will occur is anyone’s guess given that the government actually has to spend before anyone can even pay their tax! If he knew this long kept secret (except he probably does but must keep to the business of government’s fiscal discipline) he could increase spending at a stroke of a computer key to avoid or lessen the worst effects of any potential recession which of course he is denying is a possibility.

Apparently, according to him, ‘the fundamentals of the British economy are strong – wages are growing [and] employment is at a record high”. Did anyone tell that to the funeral director offering budget funerals in this the final episode of the BBC programme Broke who is working a variety of jobs over 120 hours a week to keep his and his family’s heads above the water? Or those other people featured in the programme series who struggle every day working long hours on low wages, on zero hours or in the gig economy to keep their household budgets balanced and out of debt or indeed live on the beach for want of proper accommodation? There is a huge dissonance between the spoutings of government ministers and the realities on the ground for ordinary people.

Now let’s get back to that extra money Boris Johnson was talking about. Boris made his announcement in an article in the Sunday Times saying, ‘It is thanks to this country’s strong economic performance that we are now able to announce £1.8m more for the NHS to buy vital new kit and confirm new upgrades for 20 hospitals across the country’. So here we are again back to the idea that a healthy economy with higher tax revenues allows a government to spend (not withstanding that the economy is currently spiralling downwards along with other economies across the world). The suggestion is that the Conservative government has been fiscally prudent and that its economic policies which have resulted in higher tax revenues allow it to spend more. Again, a typical household budget response to government spending which is a cynical deception to cover its ideological intent.

However, not long after this announcement it became clear that this £1.8bn cash injection for the NHS capital budget which covers buildings and equipment isn’t extra money at all. It isn’t even new money, and nor will it be sufficient to make up the loss of NHS funding after 9 years of cuts to public spending. Krishnan Guru-Murthy from Channel 4 in an excruciating interview with the health minister Chris Skidmore suggested that it was money hospitals had saved by cutting services that they were now able to spend on capital projects. Trying to get Skidmore to admit the truth he said:

“I’m trying to work out where this money has come from. Hospitals up and down the country have been saving money for years but have not been allowed to spend it. And the understanding from experts like the Nuffield Trust is that this is an accounting exercise which now releases that money to be spent. Money that they saved by cutting on services that they’re now able to spend on capital projects.”

It turns out that Trusts couldn’t spend the cash they had saved until of course Boris Johnson claimed in a fanfare of trumpets that he was giving the NHS more money. This is nothing but yet another act of sleight of hand meant to put the government in a good light in the event that it will have to fight an election.

And let’s not forget either that small issue of Boris Johnson’s big red bus and his promise of £350m a week for the NHS if we voted to leave the EU?  People may have thought it sounded a great deal of money when multiplied up but it wouldn’t even cover the real costs of the cuts the government has already made over the last nine years and is a few specks in the ocean compared to the annual government expenditure on the NHS which in 2017/18 was around £122bn, of which £108bn was spent on day to day running costs.  The well-being of the nation and the economy, which depends on a well-funded publicly paid for and managed NHS, has been at stake for the past nine years, while the government has pretended there was no money for our health service and pushed through reforms designed to irrevocably change it and finish the work of successive governments. The NHS has lost its ‘N’; services and treatments are being cut left, right and centre, hospitals closed or downgraded and ‘care in the community’ has become the next big byword for change to cut costs as private healthcare companies no longer taking over through the backdoor are brazenly and openly charging now through the front door.

In another analysis this week, on Johnson’s funding pledges for education it would also appear that things are not quite as they seem. The Prime Minister committed to ‘invest in our schools and close the opportunity gap in our country’. However, new research published by the Education Policy Institute this week has not only found that the pledge would cost double what the government has promised, but also that it would disproportionately benefit the least disadvantaged schools thus reinforcing the educational inequalities that prevent many children from getting the best start in life.

Furthermore, the proposed extra money fails to take account of the real-life circumstances of children who won’t only lose out from an unfair distribution of education funding. Combined with the cuts to public spending on services, reforms to the welfare system, poor wages, insecure employment, homelessness and poor housing not to mention children in temporary and unsuitable accommodation or coming hungry to school, the effects can equally compromise a child’s future life chances and ultimately that of the nation itself. Government cannot continue to ignore the social determinants of a healthy society which cuts to public spending have undermined.

GIMMS might have missed it, but the one spending commitment that seems to have been left off the list is the environment. If anyone can tell us differently then we would be pleased to stand corrected.

The most pressing issue that we humans face is global climate change and in the last few weeks our planet has been displaying extremes of heat, storms and flooding and wildfires in the Arctic. Professor Michael Mann at Penn State University, one of the world’s leading climate scientists confirmed in an interview last year that the impacts of global warming on our planet ‘are now ‘no longer subtle…[and] we are seeing them play out in real time’.

Scientists who were meeting in Geneva earlier this week are soon to publish a stark warning about the damage also being done to the land surface of our planet as a result of the human activities which have led to soil degradation and erosion, expanding deserts and the destruction of forests and biodiversity.  Land which has been an asset in combatting climate change has now been turned into a major source of carbon as the battle for land increases to grow biofuels, plant material for plastics and fibre, timber for paper and furniture and food for growing populations.

As citizens of planet earth, we should all be concerned about the lack of real action by governments across the world. Whilst we all can make our personal contribution to changing our own behaviours, the reality is that it is only government with its sovereign spending and legislative powers that can drive the level of change we actually need to save ourselves.  We have a choice, as Professor Mann explains, we can keep on walking out into the minefield or we can reverse course and get off as quick as we can.

When politicians and think tanks ask where the money will come from to invest in addressing climate change, it is the wrong question. We should instead be asking what the consequences will be of inaction, as increased consumption and growing world populations put ever increasing pressures on nature’s resources which are being depleted far faster than the planet’s ecosystems can renew them. This is the only overspending that we should be concerned about.

Arguments about the size of deficits and debt should be put aside for the more important arguments about how we address these challenges. We must identify what resources we have and how we can use them effectively, not only to preserve planetary life but also deal with the increasing poverty and inequality that has arisen as a result of both a flawed economic system and a warming planet, which are already increasing the pressures on land and water use.

An understanding of how money works combined with an appreciation of what a Job Guarantee is and a discussion about the Green New Deal are an important start to the public conversation about where we go from here. Certainty is an impossibility. Life doesn’t deal in chocolate boxes, but we have to start somewhere and as Professor Michael Mann said we have a choice we can keep on navigating the mine field or we can reverse course.

In a recent article, Larry Elliott and Richard Partington posed the question “Boris says he’ll spend but who will pay? Will they break with austerity even if that means higher public borrowing they ask? The article notes that the Institute of Fiscal Studies has indicated that Johnson’s tax promises are expensive commitments which could cost £9bn a year. The authors quote the OBR which said that it would push government borrowing and debt up from the levels in their forecasts adding that there was no war chest or pot of money set aside that would make them a free lunch. They refer to Gordon Brown’s ‘golden rule’ only to borrow for investment (now where have we heard that before?) and George Osborne’s pledge to eliminate the deficit within five years and quote the UK’s ‘total debt pile’ and the fact that the deficit is still a ‘problem’. They even refer to John McDonnell, who has suggested that Labour would ‘raise spending with greater responsibility, as the party would increase taxes on high earners and businesses.

This is the false language of household budgets and quite simply does not apply to a sovereign currency issuing country. A government that is monetarily sovereign neither needs to tax or to borrow in order to spend. And yet our politicians, many journalists and institutions hang on to outdated concepts, regardless of the realities of modern money. The discussion hangs on deficits and debt, balanced budgets and surpluses when these are no more than red herrings which take no account of the economic context, the economic record of the government or the consequences of government policies on the lives of citizens.

If the government is us then it is beholden on us to use our power to change how things work. Let’s not pay the price for not doing so. There is an alternative world out there if we choose to stand against the tide. The first small step is understanding that a government is defined by the spending choices it makes and that there is no scarcity of money, only lack of political will.

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The post The Strange Case of the Missing Money appeared first on The Gower Initiative for Modern Money Studies.