Getting the narrative right. Careful stewardship of the economy is not about balancing the public accounts; it is about serving the interests of the nation and delivering public purpose.

Published by Anonymous (not verified) on Tue, 21/01/2020 - 7:25am in

Hand holding note with the slogan "let's rethink"Image by Gerd Altmann from Pixabay

A month on already since the general election and as well as the usual post-Christmas/January blues, the nation still finds itself in a state of deep uncertainty about its future. The economic predictions are not confidence-inspiring. The outward signs of a downturn or a recession are building up.  Retail sales fell sharply in December and according to the ONS, it was the fifth month without growth. The Centre for Retail Research also revealed in its report that the high street had suffered its worst year of job losses for 25 years and is expecting that to increase significantly in 2020. It also reported that over 16,000 shops across the country had closed. Brexit uncertainty is blamed for the poor results, but of course, statistics don’t tell the whole story and there is more than meets the eye.

Whilst, of course, change in the way we shop may bear some responsibility, ten years of austerity and cuts to public sector spending, low wages, precarious employment and rising private debt must take a large portion of the blame.  Combine that with a slowing world economy, global political uncertainty and the prospect of trade wars, not to mention real conflict, it is surely enough to make us all hunker down and keep our wallets firmly zipped up. It has even been suggested that our fears about the environmental cost of our buying habits are making us think twice about how we consume.

This week Kristalina Georgieva, the head of the International Monetary Fund, warned that the global economy is at risk as a result of rising inequality and financial sector instability and noted that across the OECD, and in particular the UK, income and wealth inequality have reached, or are near, record highs. She also noted that social unrest is likely to be the corollary of rising wealth inequality and we are certainly seeing evidence of that around the world in Europe, the US, South America and Asia.   As an aside, it is ironic that the IMF in making these warnings seem to have no concept that it has been their own promotion of destructive economic orthodoxy which has led to this place of great uncertainty and rising inequality.

Boris Johnson promised the nation a ‘golden age’ and yet on that basis, the prospect seems elusive or more accurately an illusory pipe dream.  Whilst on the domestic front certainly the current government could do much to soften the effects of a global downturn through increasing public spending, it is still unclear as to whether they will keep their manifesto promises to invest in the NHS, schools and national infrastructure and if they do will it be enough and who will be the real beneficiaries?

Johnson would seem to have already reneged on his promise to find solutions to the social care crisis, saying that whilst the government would be bringing forward a plan this year it could take as long as five years to implement. Social care, which is already on its knees and facing further cuts and increased charges for its provision, as a result of cuts to local government funding, could find itself yet again put back in the slow lane for government action despite endless promises. The impact would be devastating for those who desperately need support now not in five years’ time.  The Stormont finance minister also said this week that the proposed financial package for Northern Ireland would keep it in an ‘austerity trap’ unless it was increased and that it would do nothing to fix the ongoing problems in health and education.

Daily media reports make it clear that austerity hasn’t ended despite the government’s promises. Our health service is in ongoing crisis due to lack of adequate funding, our school infrastructure and education system is in a state of decay and not fit for purpose, the reforms to the welfare system are reducing people to penury, hunger and homelessness while the green economy has shrunk since 2014 as a result of the substantial cuts to government subsidies, according to figures released this week by the ONS.

We were told there was no alternative to austerity and that the government had to fix the country’s finances to avoid bankruptcy and so it is perplexing to discover that the government has suddenly found some money to put right the ‘economic vandalism’ it has imposed as a result of its supposedly necessary policies.   It is equally surprising in the light of this ‘economic vandalism’ that at PMQs this week Boris Johnson defended it as ‘careful stewardship of the economy’.

It is also cause for concern to read this week that the Chancellor has hinted that there could be tax rises in the Spring or Autumn budget and that he was determined to take ‘the hard decisions you need to sometimes, especially at the start of a new government’. In the same interview, he also claimed that once the government had put an agreement in place with Europe that the UK would ‘continue to be one of the most successful economies on Earth’ which given the state of the economy at present would seem to be wishful thinking or delusional.

‘Hard decisions’ could be related to increasing taxes to fund the government’s spending plans (when of course they don’t) but equally, they suggest the same adherence to balanced-budget orthodoxy. Will the government’s attachment to fiscal discipline take precedence? Old habits die hard. Indeed, in a recent FT article, the Chancellor made it clear that money for Further Education colleges was not generally capital spending which would, under his new budgetary rules, give him scope to borrow, but was instead day-to-day spending, and as such there was little possibility of extra money. He also said that before considering increasing taxes he had told his ministers to look at their budgets and carry out an ‘exercise in prioritisation…. to release resources for his priorities’ which he hoped would provide the money to pay for rising costs of an ageing population in the 2020s which could threaten the public finances. He went on to say that low-interest rates were a market signal from investors that the cash was available to do something productive.  It doesn’t sound much like a brave new world in government monetary financing. But we shall see.

The public has been carefully groomed to accept the lie about how the government finances actually work. Careful stewardship of the economy in the case of the Conservatives implies fiscal rectitude and look where we have ended up as a result.  Whilst government continues to fob the public off with the lie that tax is revenue for spending, the wider implications for a slowing economy of increasing tax would be folly indeed. Further reducing the purchasing power of working-class people won’t mitigate the short-term problems of increases in food and fuel prices, nor help them pay down personal debts. Quite simply, he would be tightening the screw on the economy for no other reason than to inflict pain and create division. The Tories are on an ideology-affirming project; the Chancellor is an avid reader of Ayn Rand.

As an aside here on the subject of taxation, increasing it for the very rich who already have more than their fair share of the national resources might, in hands of a government serving the public purpose, be the right action to take.

More than ever, we need to convey the truth about how governments like the UK spend and that when it spends its focus should be not on balancing books but balancing the economy, in other words, matching spending to the productive capacity of the nation and ensuring full employment.

Whilst the role of government in a democracy is increasingly muddied by the involvement of global corporations in policy decisions, it is important not only that the public understands the basic realities about how governments which issue their own currency spend but also and more importantly that spending choices are the result of political decisions, not checking whether there are sufficient pounds in the public purse to pay for it.  Smoke and mirrors disguise in bare accounting terms the way in which money really works.

The reality is that a government with the power of the public purse can chose either to pour public money into private corporations to run public services, give tax breaks to the rich or indeed bail out banks and fund wars or equally choose to fund publicly delivered services, the public and social infrastructure and embrace full employment policies to deliver public purpose aims. When a government does the former there is generally silence on how it will be paid for and yet when left-wing politicians propose the latter, then the question on the lips of right-wing politicians, the media and economic pundits is ‘where will the money come from’? The fact is that such spending is a question of political choice, not whether there is sufficient money in the public purse through collecting tax or being able to borrow. A sovereign currency-issuing government needs to do neither.

We should also understand that the Conservatives, whilst framing their spending in household budget terms, already make those choices about who gets the money and who doesn’t, and we have experienced the dire consequences of those decisions for 10 years. Their spending plans have been skewed towards the interests of their rich friends and big corporations; the people of this country have been the losers.

What is important for the public to ask is who benefits from a government’s public spending programmes and whether it has the resources to deliver them, not how it pays for them.

If the left truly wishes to deliver real change and an inclusive progressive agenda which serves the interests of all working people, if it really is to challenge the status quo, it will need to change its thinking. It will have to change how it views monetary reality if it is to succeed.

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The post Getting the narrative right. Careful stewardship of the economy is not about balancing the public accounts; it is about serving the interests of the nation and delivering public purpose. appeared first on The Gower Initiative for Modern Money Studies.