The cost of government austerity has been a one of infrastructure decay and human suffering. Our nation has paid the price. Are we ready yet to re-imagine our world?

Published by Anonymous (not verified) on Sat, 18/04/2020 - 9:09pm in

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‘No society should need permission from wealthy people to operate in a high functioning way’

Nick Hanauer

 

A day of reckoning is coming. The exponential rise in deficit spending to manage the COVID-19 emergency is coming to crush future generations and will need action to address the prospect of a future burden of higher taxes to pay for it. Or so a briefing paper published by the Social Market Foundation claimed this week. The SMF (funded by Vodaphone, Barclays and KPMG amongst others) states in its report that public sector net borrowing could rise above £200bn per year which raises the prospect of an ‘Austerity Round Two’ leading to tax rises and spending cuts once the worst of the crisis is over. It calls for the economic costs of responding to the coronavirus pandemic to be shared fairly across the generations and says that ‘as we emerge from the crisis, older generations must uphold their part of the contract by bearing a fair proportion of future tax rises and welfare reforms.’

In short, it is suggesting that there will be a financial price to pay for the government’s increase in spending and recommending that the ‘triple lock’ which ensures substantial rises in the Basic State Pension should be replaced with a ‘double lock’ tying increases to earnings or inflation. This it says could contribute £20bn to deficit reduction over the next five years and reduce the fiscal burden on the working-age population.

Economic orthodoxy lives on. After the initial positive buzz which resulted from the government’s announcement of a huge spending programme to manage the economic and human fall out of the COVID-19 crisis (before we realised its shortcomings) the debt sirens are back beating the debt drum. Not surprisingly. The neoliberals have caught up with the challenge to their economic and monetary supremacy and are fighting back by posing the customary question about how it will be paid for. We can expect more as the weeks roll on. On this line of thinking someone, somewhere has to pay the financial cost sooner or later and the question will be who.

Of course, the usual response to the question is the taxpayer and that narrative is not just the line pursued by the right-wing. The household budget narrative dominates both on the right and the left. On the right, low taxes are the aim and have justified the slimming down of public services and infrastructure. Those who rightly wish to address economic inequality, do so by falsely suggesting that tax avoidance or evasion is a drain on the public purse, and we must ensure that the rich pay their fair share. The ‘solution’ on the left is to bring back that ‘ol magic money tree’ located in the Cayman Islands. Indeed, earlier this week, an editorial in the Morning Star suggested that the government should open up tax havens and tax the super-wealthy to raise the extra funds needed for welfare benefits, job support, training schemes and public services including the NHS.

The truth is that we are not dependent on the rich (or indeed anyone) paying their tax to fund public services and we don’t need to grovel or expect them to do the right thing as if somehow it is a charitable exercise in goodwill. We need instead to recognise the currency-issuing powers of government to pursue a public purpose agenda which serves the interests of the nation. Make the rich pay their tax for the right reasons, which are to do with redistribution of wealth through progressive taxation and not because it funds government spending. It doesn’t.

We need to recognise that the real costs of austerity are not financial but human ones. In fact, we are now paying the costs of that burden imposed in 2010 by the Conservatives when they cut public spending on our public and social infrastructure including our public services and welfare. The burden was never the financial one it was dishonestly described as; it has been the subsequent burden of infrastructure decay and human suffering as a result of austerity. We are now seeing its effects on the lives of our friends and families as we struggle to cope with the effects of lockdown; counting the harrowing cost on our financial, physical and mental health. It is a sad thing indeed that it had to be coronavirus that brought it to our attention as life as we know it stopped like a broken clock.

Past austerity has cut our productive capacity. That has built in the potential for inflationary pressures which could prove to be an issue with a critical global shortage of PPE and other vital equipment and import restrictions from affected nations.  While the government isn’t like a household in financial terms, it is clear that it has failed our nation on the very yardstick it chooses to measure itself by.  It has run down the essential supplies of critical equipment and materials to keep the public safe and compromised our national security by running the NHS at full capacity without the slack required to cope in a crisis. This will be the deficit that we inherit; not the spreadsheet balances. As Fadhel Kaboub noted in a recent podcast ‘It’s not about having the money it’s about having the real, physical productive resources’

And yet the economic orthodoxy that precipitated this destruction still looms like a bad penny on our horizon. Once again, the neoliberals are proposing to hit those who can least afford to pay with the very real costs of any future austerity. The SMF’s economic illiteracy, which suggests that today’s government spending will have to be paid back at some point in time and would thus be a burden on future generations, is a blatant misrepresentation of the truth.

The government does not need to find savings now and scrapping the triple lock on pensions in order to restore what is referred to as ‘intergenerational fairness’ will quite simply create more pensioner poverty than already exists, which in turn will have a detrimental effect on the economy. Quite simply, whether it is retired or working people, involuntarily unemployed or underemployed people, less money in their pockets translates into less money being spent into the economy which is what keeps it turning. Tightening the money tap will quite simply send the economy into a death spiral if it is not already there. And that cost will be even harder to bear, not just for the most vulnerable in society but also for the future of the planet.

As Prem Sikka suggests in an article this week in Left Foot Forward, the SMF has failed ‘to assess the impact of pension reduction on the life of retirees. With reduced income, retirees will spend less on good and services and thereby reduce the multiplier effect. The SMF proposals would ensure that retirees surviving the coronavirus pandemic will face a future of severe poverty’.

That is the real burden a human one. The role of government is not to balance its budget, but to serve the common interests of its citizens and in that its function is to ensure that its economic policy decisions result in a more productive nation. Future generations, or indeed retirees will pay the heavy price of both ineffective government inaction today and economic decisions to impose yet more austerity or increase taxes in the future.

In short, today’s government debt will not in itself be a burden on future generations. The real burden will be government’s failure to spend adequately today to ensure a better future tomorrow. Cutting spending once the crisis is over would be tantamount to ensuring economic collapse if indeed we haven’t already reached it before then.  Using ‘intergenerational fairness’ as an excuse to cut spending is designed to create smoke and mirrors and conflict between generations and is a sleight of hand to place blame anywhere but at the government’s feet.

In conclusion, we end this MMT Lens with a quote from a blog by Bill Mitchell.

“…the inclusion of public debt and unfunded pension liabilities for government workers in the index are based on a misunderstanding of what actually will burden the future generation.

The fact is that the current government has as much ‘money’ now as it had yesterday and the same amount it will have tomorrow. That is, it has whatever it wants to spend. It always has that. It has no more or less capacity to spend today because there were surpluses in the past than it would have if there had have been deficits in the past.

[…..]

Every generation chooses its own tax rates. That is, the mix of public and private sector involvement in the economy is a political choice. If the future generations want more private and less public they will choose lower tax rates etc.

Currency-issuing governments do not draw down on the savings provided by the previous government’s surpluses. It is a nonsensical notion thinking that a sovereign government would ‘save’ in its own currency.”

 “The idea that borrowing ‘takes money from the pockets of future taxpayers’ is nonsensical. The funds to pay for the bonds originate in the government net spending in the first place.

 Clearly, deficits now are in part helping the current generation with income transfers and the like. But they also facilitate public education, public health and other infrastructure which provide massive benefits into the future for the current generation and their children. 

Once you understand that then the idea that there is a future burden will make you laugh.

 

 

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The post The cost of government austerity has been a one of infrastructure decay and human suffering. Our nation has paid the price. Are we ready yet to re-imagine our world? appeared first on The Gower Initiative for Modern Money Studies.