austerity

Error message

Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in _menu_load_objects() (line 579 of /var/www/drupal-7.x/includes/menu.inc).

Shortfall

Published by Anonymous (not verified) on Mon, 25/01/2021 - 10:18pm in

Two years of context helps to understand the state Democrats' plan for UC, expressed in the Governor's budget proposal this month.

 In November 2019, UCOP sought to end UC's worst modern budget decade with a some meaningful funding growth. The 2010s had brought many negative net revenue effects:

  • state funding cuts and subpar annual general fund increments
  • tuition freeze (welding shut UC's revenue safety value)
  • restart of pension contributions with no permanent state support for employer share
  • end of state funding for new construction
  • no state funding for deferred maintenance (backlog estimates ranging from $6.2B to $14B)
  • Campuses had diligently followed instructions to seek multiple revenue streams.  The two most familiar are non-resident tuition and for-profit degree programs (SSDPs).  

    A third revenue stream has been institutional debt. It stands at $26.7 B (page 16), up 85 percent from $14.4 B in 2011 (page 15). (UC debt is also up year-on-year by around $2B from 2019, mostly in the form of new Medical Center Pooled Revenue Bonds. This does not include an additional $2.8 B in Covid-related borrowing in summer 2020, with more to come.)

    Even before Covid-19 appeared, three UC flagship campuses were projecting deficits in the first half of hte 2020s. See "Destined for Deficits" for flagship details; see "The Essential Charts" for the twenty-year system pattern. Funding crises have long been visible on the campuses: UC Berkeley's VP for Finance and Administration called the funding model unsustainable in 2013.

    Such news doesn't usually make it into presentations to the regents, so in this context UCOP's November 2019 budget document was unusually graphic.  It identified many areas of functional deterioration at UC. These included sharp increases in the number of students per ladder-faculty member, the same for student:staff ratios, and faculty salaries that had spent at least 20 years at around 10 percent below comparators. 

    The document identified a chronic problem with state funding that usually escapes notice: net new funding is generally a fraction of the headline state increase, because it must cover terminated previous one-time funding or new mandated activities. 2018-19's headline increase of 7.1 percent yielded 0.7 percent as a "net available for sustaining core operations"--a fraction of that year's 3.5 percent inflation rate (Display 7). 

    UCOP established this 2019 narrative of UC damage to justify that year's proposal for a modest "cohort-based" tuition plan, which would allow tuition increases at about inflation, fully in place after 4 years. It was a toddler-sized foot in the door, but it was a foot. The overall plan would have brought UC's state general fund allocation to just about $4 billion.

    The result: Newsom cut the Regents' request for $447M for 2020-21 down to an increase of $217M. Then there was Covid, and the state cut UC $300.8 M instead.  The Department of Finance puts UC's general fund allocation for the current year at $3.465 B.

    In November 2020, the regents adopted a UCOP request for an additional $518.2 M for 2021-22.  Once again, UC would be inching towards the magical $4 B level.  $300.8M of this was trying to fill in the 2020-21 cut--to keep that reduction from forming a permanently reduced baseline. There was $157.6 M for mandatory cost increases--salaries, benefits, and debt service--and about $60 M for improving student outcomes in ways mandated by the legislature.  

    This month, Newsom came back with a proposal for $136.0 M. He will not backfill the permanent cut of  $300.8 M, even on a one-time Covid-19 emergency basis.  UC keeps that hole and is to receive 86 percent of what it had defined as mandatory cost increases (negotiated wage increases and benefits, among other things).  That was one of five General Fund items the regents voted in November to request. They got none of the other four, though Newsom did recommend $225M in one-time funds for deferred maintenance and some other items.  The governor's proposal would put UC's general fund at $3.6 B. That's about the level of 2017-18. It's also about the level of 2007-08, unadjusted for inflation.

     In a regents' committee meeting on January 20th, UCOP officials summarized the governor's budget in a few slides. 


     The 3 percent base increase is on the new, permanently-reduced amount. The rest are line-items that normally a public university would fund out of general operating money. UC PRIME is an example-- a diversity-oriented medical education program for underserved areas that UC Health should just pay for out of operations. Same for legal services for undocumented students, which should be funded as one among many permanent student services.  

    Next slide: DM gets $175 M in one-time funds, and more earmarks are added. The DM figure is about 1.25 percent of a reasonable estimate of system-wide deferred maintenance, so at this rate UC will fix this year's back log about 80 years from now.   Except it's not annual money . . .


     The final slide notes the continuation of the tuition freeze and an accelerated deadline for closing equity gaps in student attainment.
    These are all long-established goals, particularly turning UC into a workforce training system, which hails from the 1980s and 1990s, and which was re-emphasized by Newsom in his first budget. Such goals are also priced in to allocations, so new efforts at pursuit will never receive a reward. 
    In short, Newsom restores Jerry Brown austerity in the form of frozen tuition and sub-inflation net state funding. We all hate the phrase, but this is classic "do more with less"--with no state interest in its effect on UC viability.

    This budget presentation to the regents was more negative than UCOP's previous messaging about the governor's proposal. After Newsom's release, the UC president immediately thanked him for, in effect, providing one quarter of his request. This signaled to the media that the governor was being very supportive of higher education and that his proposal was good news. Poor Teresa Watanabe, the LA Times's UC & higher reporter, with her colleague Nina Agrawal, had to try to write a coherent story. They cited all three system heads calling the budget a "welcome reinvestment," to quote CSU's chancellor Joseph Castro, while noting that Newsom did not use the unexceptedly good state revenue picture to undo the current year cuts or to come close to matching the requests. The only figure in the story who suggested damage to educational quality was a (former) chancellor,  George Blumenthal, with direct experience of a campus.  

    Taking the LAT coverage and the UCOP budget presentation together, we have these budget stories.

    • It's under control. Wait until next year (UCOP budget officials)
    • Funding is very complex. UC is the greatest public university (UC president)
    • The governor is reinvesting in higher education (heads of UC, CSU, & CCC)
    • California Democrats are degrading the quality of UC (and CSU & CCC) through underfunding (the occasional chancellor plus random bloggers)

    One of these tales is not like the others. It is far less pleasant to consider. It is also true. But in the absence of budget context, budget history, and budget needs--absences actively generated by the first three stories--the fourth can't establish a claim on reality.  The situation keeps the quality narrative obscure. If it does, the gap between means and funds will continue to grow.

    Figure 1: State General Fund Allocations to the University of California Compared to State Per-Capita Income Growth, 2001-2022, with Regents Budget Request 2020-22.


    The gap is learning and research (and eating and rent-paying) that doesn't happen.
    ***

    Data from California Department of Finance (UC general fund allocations) and from the Legislative Analyst's Office data and forecasts for state personal income growth.  Charts with tuition revenue and other details are presented and discussed here.   Photo Credit

    The need is to fix the system, not just to provide ‘sticking plasters’

    Food Bank Cupboard stocked with tinned and packet foodImage by Staffs Live (CC BY-NC 2.0)

    “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

    Franklin D. Roosevelt

     

    It feels lately that we, like Lewis Carrol’s Alice, have fallen down a rabbit hole into an immensely troubling surreal situation with seemingly no idea how we are going to extricate ourselves.

    Whether it is the distressing daily reports of Covid-19 deaths, the disturbing video accounts of the huge pressures on our NHS or care services, the political upheavals taking place across the Atlantic and elsewhere or the most serious challenge of all, climate change, it seems ever clearer that we are in Antonio Gramsci’s ‘time of monsters’ in which ‘the old world is dying and the new world struggles to be born’.

    What that world will look like remains to be seen, but recent political events would seem to suggest that we still have some way to go before the ‘old world’ breathes its last. The pandemic, combined with the consequences of forty and more years of Neoliberalism Central which has infected every aspect of our lives and dominates political decision making, has created not only public disillusionment, but also petrification as our institutions sit in their blinkered bunkers holding on for dear life to all they knew.

    Whether it’s the existing and growing union between government and global corporations, policy decisions which have increased inequality and poverty and encouraged charity, volunteering and philanthropy to take up the reins of public provision, or the promotion of sound finance as a vital component of good governance, the old structures are embedded in our consciousness.

    It wasn’t always like this.

    During the second world war, William Beveridge was appointed to investigate social security in Britain and his report, published in 1942, identified five major problems which prevented people from improving their lives. These were:

    Want (caused by poverty)

    Ignorance (caused by a lack of education)

    Squalor (caused by poor housing

    Idleness (caused by the lack of jobs or the ability to gain employment)

    Disease (caused by inadequate health care provision)

    It was recognised that government had a role to play in addressing those five ‘evils’ and as a result of the Beveridge report, the post-war government set up the social security system and pursued policies which aimed to address them including full employment. It may not have been perfect, but it changed people’s lives for the better.

    Over recent decades, that connection between the state and publicly paid-for provision, management and delivery of services has been broken. Responsibility for such provision is increasingly being shifted into the charitable/voluntary sector, whilst at the same time, the dominant orthodoxy of individual responsibility has led to shaming and blaming people for their situation as the government takes a back-seat role.

    Food banks have become a normalised feature of Britain, as Therese Coffey, the Tory minister for the Department for Work and Pensions, indicated last year when she referred to people using food banks as ‘customers’ and suggested they were a ‘perfect way to help the poor’. It implies that government has no role at all in ensuring the economic well-being of its citizens, and worse, that the 14 million Britons who do not have enough to live on are there through their own lack of moral fibre!

    When charities buy into this picture and act as mitigators for a rotten economic system (which drives the poverty and inequality, that drive, in turn, the consequences including hunger, homelessness, and illness), they are not aiming to fix the system, but to provide sticking plasters. As such, it demonstrates how they, too, have been captured by an ideology and accept it without question.

    This was made shockingly clear in a paid-for content article in this week’s Guardian. The CEO of the Bethany Christian Trust, when talking about tackling the problem of food insecurity said: ‘if by giving someone a meal we’re sitting them down with people they can talk to about debt counselling, mental health issues, addiction, domestic abuse, or whatever help they might need, then that plate of food can work so much harder’.

    Rather than starting with the political roots of these problems, charities increasingly view them as issues to be solved through improving the capacity of the individuals themselves to manage the challenges they face.

    Quite simply, this facilitates the shifting of blame onto people, rather than highlighting the failure of the government to make provision for its citizens and is classic neoliberal text. As Neil Valley suggests in his article in the New Internationalist ‘The Self-Help Myth’.

    ‘The pervasive rhetoric of personal responsibility has transformed the role of government and society in the neoliberal era. Where once the role of government was to safeguard the general happiness of the majority of citizens, albeit to varying degrees, its primary role now is to facilitate the conditions where each citizen can take on more and more individual responsibility, absolving the state from its responsibility towards its citizens.’

    Then step in charities to fill the gap in service provision and provide the mitigating support for the rotten toxic system which has created the need in the first place and designates those in receipt of such support as customers rather than victims.

    The increasingly pervasive narrative, which is being driven further by the pandemic crisis, is that charities and the voluntary sector should be at the heart of our local communities to ensure that vulnerable people don’t fall between the cracks, rather than publicly paid for, managed and delivered state provision.

    It was, therefore, all the more disconcerting this week to read the proposal in the left-wing publication The Tribune that a National Food Service should be set up. Whilst its aims to serve the public good rather than private profit are indeed laudable, one has to question the logic.

    Of course, one could not object to the removal of private companies delivering public services, given that the tentacles of private profit are growing exponentially as government distributes contracts to its friends and large corporations with few strings attached, whilst at the same time the coffers remain largely bare to serve the needs of those who have for decades been at the sharp end of government policies. The resulting poverty and inequality have been highlighted during this crisis.

    The proposal, however, seems to suggest that we mitigate for the crisis of capitalism being played out in the growth of hunger through mutual on the ground action, rather than dealing with its root causes – government policy driven by ideology. We don’t need a plan to ‘respond’ to this fundamental crisis of capitalism, we need a plan to change it; to put public purpose and the interests of citizens, not to mention the planet, at the heart of all government policy.

    Over the last few decades, working people have borne the consequences of a toxic economic ideology underpinned by the notion of monetary scarcity, which has led to the reduction in their share of their productivity, which has translated into lower wages, insecure employment and underemployment and a decline in living standards. Poverty is the direct result. The constant repetition of these ideas via politicians, think tanks, economists and the media has led us to believe that this is the inescapable default.

    Government, far from serving its citizens, has overseen through its employment and other policies, huge disparities in wealth and access to resources, allowing, for example, chief executives of big corporations to earn many more times that of their employees, not to mention garner political influence as a result.

    To add to this picture is the decimation of our post-war public and social security infrastructure, which existed to provide health and social care through various publicly paid for institutions, to ensure that those in need had access to shelter, food and warmth, in times of personal tragedy, sickness, unemployment or economic collapse. When this infrastructure was built, the profiteers had no place in this model and nor should they today.

    Whilst the human suffering continues to play out across the nation, the government cynically continues with its U-turns on policy in the vain attempt to keep its MPs and the public on side. Last week, as noted in the MMT Lens, Boris Johnson told MPs that ‘most people would rather see a focus on jobs and growth in wages than…welfare.’ This week, with his signature tune U-Turn, he has indicated a potential rethink of ending the £20 a week Universal Credit uplift, saying he wanted to ensure that ‘people don’t suffer as a result of the economic consequences of the pandemic’. You couldn’t make it up.

    Yes, indeed, to more jobs through the implementation of a Job Guarantee, to drive better wages overall and restore the government’s role as the price setter and rebuilding public service provision. But in the meantime, let’s ensure while the consequences of the pandemic continue to cause economic and social pain, that all people have enough to pay their bills and keep food on the table without worry, stress or having to get into debt to keep their heads above water. We have witnessed the power of the public purse, let us not allow that knowledge to be polluted by the restoration of household budget politics.

    It is regrettable that politicians, journalists, institutions and think tanks, in their weekly forecasts of doom and gloom, continue to build up the narrative of money scarcity and a future price to pay for this massive round of government monetary intervention. A narrative that will be used to justify eventual hard decisions or another round of austerity in some form or another.

    Whilst the livelihoods of many people lie in the balance, not just for now but in a rapidly changing world, we still have to endure the false notions of tax rises to pay for government spending and the penchant for sound finance. Such narratives suggest, not only that people must suffer, but also that the cost of saving our planet from climactic destruction will be too high.

    The fact that the government continues to find huge sums of money to support businesses and yet quibbles over a few pounds to working people, suggesting that it is unaffordable should surely be a public conversation starter!

    As the chancellor opines that there are some hard choices ahead, one of his treasury ministers clearly of the deficit dove variety, softens the blow by suggesting that the need for tax rises to tackle the record levels of government borrowing could be delayed at least until the economy ‘bounces back’. As if somehow increased tax revenues equate to the capacity to spend or pay down the national debt.

    The experts at the Institute of Fiscal Studies and other think tanks then put the fear of God into the public that £40bn in tax rises might be necessary to put the public finances back onto a sustainable footing. Thus, making that public even more cautious about the government’s future spending plans. Self-fulfilling prophecies come to mind.

    And then, just this week, when people thought that the vast round of government spending signified a change of approach to managing the economy, Rishi Sunak told Conservative MPs that he will be using his March budget to begin the process of restoring ‘order’ to the public finances through implementing higher taxes.

    To those Tories who would like to see the Universal Credit uplift continue beyond April, he gave a reminder of its high cost which represents, according to his calculations, an equivalent of 1p on income tax plus 5p per litre on fuel duty. Thus, further reinforcing the idea that the provision of higher welfare benefits means collecting tax from elsewhere to cover it.

    The ‘someone, somewhere will have to pay for it’ model of the state finances will no doubt be used cynically to drive further wedges between the haves and the have nots and justify the further decimation of the already inadequate social security safety net.

    According to this narrative, the magic porridge pot is running on empty and needs replenishing in order to pay down debt and avoid a giant burden for future generations.

    This tale of supposed coming woe serves to keep people in their place while reinforcing the old myths about how governments spend. It displays both economic illiteracy and a disregard for the lives of those who will lose out as a result, not to mention addressing the biggest challenge of all – climate change.

    And then at the ‘left’ end of the household budget scale, we have economists, opposition politicians, unions and other so-called experts, urging the Chancellor to take advantage of low borrowing rates of interest to avoid tax rises until the economy gets back on its feet and restores tax revenues, or reinforcing the false narratives about taxing the rich to pay for the pandemic. The household budget model is endemic and those on the political left keep shooting themselves in the foot repeatedly.

    A paper published by the LSE’s International Inequalities Institute last December, using data from 18 OECD countries over the last five decades, concluded unsurprisingly enough that tax cuts for the rich didn’t trickle down; that they contributed to inequality and did little to stimulate business investment.

    The authors then went on to suggest that it was time to tax the rich more to repair the public finances. This was backed up in the same month when the Wealth Tax Commission, founded in April of last year, concluded that a one-off wealth tax would raise significant revenue and be fairer and more efficient than other alternatives. To be exact, it suggested that a ‘one-off wealth tax on millionaire couples would raise £260 billion’ The implication being yet again that such a tax could be used to repair the public finances.

    Whilst we can’t avoid these false tropes, which lead the public astray and reinforce the messages that government spends like a household, we can challenge them. When Matt Hancock, the Secretary of State for Health and Social Care, bleats on as he did this week about the NHS Pay review body taking ‘account of the extremely challenging fiscal and economic context’ in its decision about future pay rises, we can show the public that such decisions have no connection, either with the current state of the public finances or the future monetary affordability of those pay rises.

    We can reinforce the message that curtailing public sector pay won’t increase the ability of the government to ‘set the public finances straight’, any more than the decade of austerity did. It could actually have a negative, indeed disastrous, effect on the economy at a time when it will, without doubt, need continuing government support.

    Aside from the fact that public sector and, indeed, other key workers have seen their pay dwindle in real terms as a result of a decade of pay freezes or inadequate employment legislation, and that the pandemic has revealed the vital nature of their contribution to society, all increasing taxation will do is leave less money for working people to spend into both the national and local economies. Also, should that increased taxation fall on corporations, (as is being suggested) who will likely pass that additional cost on through higher prices to working people anyway, it will create a double whammy effect.

    Whilst a pay rise will increase tax revenues, it will not increase the government’s capacity to spend. But we see the false narrative again in a study published this week by the London Economic Consultancy. The report claimed that the government would recover 81% of the cost of any pay rise in additional taxes, which would, in turn, have significant ‘knock-on’ benefits for the Treasury. Clearly suggesting that tax funds its spending.

    Whether from the left or right of the political spectrum, the public is treated daily to a mishmash of false information dictated by the dominant economic paradigm which masquerades as truth. It’s no wonder that people are confused and feel disempowered or turned off by politics and economics, which they feel do not relate to their lives at all, even though, in reality, these things have everything to do with them.

    While politicians, journalists and economists argue about monetary affordability and who should pay for government spending, people are dying and will continue to die for the want of a government that puts their interests first.

    What happens next will depend on a successful challenge through raising public awareness that there is indeed an alternative to the vast disparities in wealth, the rise of poverty and inequality, the whittling down of democracy and increased corporate dominance in our lives. And it starts with understanding how government really spends.

     

    Upcoming Event

    Phil Armstrong in Conversation with Pavlina Tcherneva – Online

    January 24th 2021 @ 4:00 pm – 5:30 pm GMT

    GIMMS is delighted to present another in its series ‘In Conversation’.

    Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

    Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

    Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

    We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

    Tickets via Eventbrite

     

    Past Event

    Phil Armstrong in Conversation with Fadhel Kaboub – Online

    Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

     

     

    Audio via the MMT Podcast here

     

    Join our mailing list

    If you would like GIMMS to let you know about news and events, please click to sign up here

    Support us

    The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

     

    Share

    Tweet

    Whatsapp

    Messenger

    Share

    Email

    reddit

    Pinterest

    tumblr

    Viber icon
    Viber

    The post The need is to fix the system, not just to provide ‘sticking plasters’ appeared first on The Gower Initiative for Modern Money Studies.

    The Covid-19 pandemic shows the need for change. For a real ‘Reset’.

    Button with label "Push to reset the world"Photo by Jose Antonio Gallego Vázquez on Unsplash

    ‘We live in capitalism. Its power seems inescapable. So did the divine right of kings.’

    Ursula K Le Guin

    The year 2020 will be not be remembered with any great affection. So much suffering, loss of human life and economic uncertainty has left the nation in turmoil. Whilst in normal times we would be welcoming the new year with resolutions and hope for better days to come, the prospects for the future remain very uncertain.

    Whilst the government’s handling of this pandemic crisis has been chaotic and indecisive with disastrous consequences, it has also revealed the dire state of our public and social infrastructure for which decades of ideologically driven government policies have been responsible. That, combined with the vast wealth and other inequalities that exist in both rich and poor countries across the planet and the climate tsunami following up frighteningly behind, should leave a bad taste in our collective mouth. It should start to make us question the very foundations of the economic model now turning to sand before our very eyes.

    Covid-19 has exposed in the most distressing way the damaging consequences of the pursuit of balanced budget narratives which have allowed governments to justify public sector rationalisation or austerity on the grounds of unaffordability, and overseen a huge increase in poverty and inequality. Successive governments have abdicated their responsibility for the lives of citizens; their responsibility to create a fairer distribution of wealth and real resources and ensure that the public infrastructure meets their needs. Instead, they have plumped in favour of that elusive but all-seeing ‘god of the market’ which, in real terms, has meant ceding control to global corporations who direct the policy orchestra and pouring public money into the pockets of those same corporations with little transparency or accountability.

    Whilst the government has found the power of the public purse to manage this crisis, there have been winners and losers throughout which reflect its ideological persuasion. It has only been with public pressure that it has been forced into political U-turns to help some of the poorest people in our communities, whilst leaving still others in distress and without adequate support. The road to Damascus moment still eludes a government which has chosen a path that so far has only led to economic hardship and inequity for many and yet great wealth for a few others.

    It has also done so with the usual threats of a financial price to pay in the future to keep the household budget narratives of state spending alive and well. It would not do for the public to be disabused of the notion that taxes fund spending, that government has to borrow to cover its deficit and that public debt is real and will require difficult decisions at some unspecified time in the future. Such narratives are vital to government and will, without challenge, allow them to be able to finish off the job of destroying publicly paid for and managed public and social infrastructure and thus ensure the continuing dominance of global corporate power. We do indeed face a continuing hollowing out of democracy in favour of a growing alliance between the state and big business and the big political revolving door.

    Whilst GIMMS and other educational organisations across the world have made huge strides in raising awareness of how money really works, the task ahead remains a daunting one. The weekly news is testament to the ongoing consequences of government policies and the spun narratives of how government spends but also encouragingly shows the power the public has to effect change, and not just through the ballot box. The on-going saga of free school meals continues to rumble on and elicit government U-turns. The latest, and most shameful, were the pictures on social media of the meagre ‘rations’ from a private company contracted and paid huge sums to provide substandard food packs which it turned out largely reflected government guidelines and did not meet the standards for the nutritious, balanced diet all children need to grow and thrive. It is to be regretted that the government, in the same week, went on to tell headteachers in England not to supply vouchers and food parcels to disadvantaged children during the February half-term, signalling it was already doing enough which is clearly not the case. There are no excuses for hungry children, or hungry adults for that matter.

    The fiasco was yet another example of public money being poured into private profit and at the same time failing to address the reasons for children going hungry in the first place. Poverty and hunger are not new phenomena. Covid-19 has, without doubt, put a spotlight on the prevailing economic system and the economic decisions of successive governments which have not only been responsible for increasing poverty and inequality through employment, welfare and taxation policies but also shifted blame and created widening societal divisions which allow the real authors of economic distress to go scot-free.

    It is therefore shameful that the Chancellor Rishi Sunak whilst facing opposition from campaigners is still considering cutting the meagre £20 per week universal credit uplift which has helped people struggling to get by during the pandemic. The consequences of the crisis will be with us for many months to come, possibly years, and therefore the government with its power of the public purse has no excuses when it comes to ensuring that its citizens can pay their bills and put food on the table while the disruption continues. Instead, its policy responses have proved not strategic but piecemeal and ill-thought-out with plenty of U-turns along the way.

    Whilst we need the power of the public purse to mitigate the economic consequences of the current crisis, we also need a government with a long-term strategy for addressing the poverty and inequality that has arisen over decades and which has allowed top managers to reap excessive monetary rewards whilst depriving working people and their families, whose standards of living have declined substantially through low incomes and insecure employment.

    Boris Johnson suggested earlier this week that he was still in favour of reducing Universal Credit saying:

    ‘what we want to see is jobs, we want people in employment, and we want to see the economy bouncing back. And I think most people in this country want to see a focus on jobs and growth in wages than on welfare’.

    A change of heart? Given that the Tory government has presided over exactly the opposite over the last 10 years through austerity and economic policies which have increased economic instability whilst at the same time serving the corporate estate, instead, it is likely to be yet another in a long line of so far undelivered promises to level up. However, the sentiment is correct and is what should be driving government policy. We need a recognition of the power of the public purse to pursue full employment through a Job Guarantee and the vested power of government to legislate fair employment terms and conditions with the aim of shifting the balance of power back to working people instead of where it currently lies in corporate hands with government approval. We need a government prepared to address the key issues of our time using its currency-issuing powers, not just for the coming months but for always. Whilst Rishi Sunak calls upon the nation to spend the savings resulting from lockdown to get the economy going again (aside from the fact that he is turning a blind eye to the many millions of people as reported by the Resolution Think Thank this week who have lost out or got into further debt as a result of the pandemic adding to their already insecure lives) the looming crisis of climate change has been put on the back burner and time is running out. The god of growth must be worshipped anew to get the economy back into shape.

    Aside from the fact that people are unlikely to spend their savings like drunken sailors in the near future, given the on-going uncertainty about the economy and jobs, exhorting the gods of growth and indiscriminate private consumption as a solution to economic slow-down would not only be folly but denies the clear power of government to spend to effect real and sustainable change.

    We need a sea change in how we live our lives to address the already happening climate catastrophe and indeed, it will only be through large scale government action in spending policies and legislation that will enable this to happen. There is a pressing need for a national investment strategy that includes a massive and long-term investment in education and training in order to secure our future productive capacity. We much focus on high-skilled, low-carbon and well-paid jobs both for the private sector and in a much-expanded public sector to ensure high-quality basic services are provided to everyone, including our disabled and elderly citizens. Our nation must become more productive if we are to reduce our working week and support our retirees and support to those nations without the necessary real resources to support their communities.

    The overarching need is to protect our environment for future generations which should also include acting to redress the vast wealth inequalities that exist. We need to restore our sense of the value of publicly paid for and provided public sector work to national well-being, implement a Job Guarantee to provide stability through an effective countercyclical response to the inevitable economic ups and downs all economies face, and a living income for anyone who is unable to work for health reasons or caring or other essential duties including higher education. Of course, these will not be magic bullets to bring about a perfect world, but provide a basis for a conversation that we need to have.

    These are important decisions, not just concerning the big macroeconomic questions about creating an efficient functioning economy, but also relating to the sort of society we want to see. For left-wing progressives, this would suggest creating a fairer and more equitable society where people have sufficient wages to live comfortably with adequate nutrition and good living conditions as well as good public services such as health and education. Assuming that the future will bring forth a political party that has the express intention of addressing these issues, change is in our collective hands as an electorate and we should not forget the power we hold.

    It is regrettable that currently there is no such party dedicated to the change we need and that all roads are still leading to an ever-distorted capitalism wherever you place the X on the ballot paper.

    Whilst the very real human consequences of government decisions and its policies continue to play out in our communities and our families the government, opposition politicians, economists and journalists continue to pound out the messages of monetary scarcity; either talking about the need for ‘hard choices’ to deal with the deterioration of the public finances or delaying the ‘repayment pain’ until economic conditions will allow.

    Whether it’s Rishi Sunak the Chancellor or his shadow opposition sidekick Labour’s Annaliese Dodds, they both adhere to a household budget narrative of the public accounts, in other words, the diktat of sound finance as if a government suffered from the same constraints as business. The operative question in either case being, at what point do you enact such fiscal tightening, not whether you actually need to. How the state really spends cannot have escaped their notice, and yet they stick to the orthodoxy like glue.

    Whilst that is undeniably to be expected with the Conservatives, whose agenda is more about creating an alliance with big business under cover of stories about monetary scarcity and ‘hard choices’, Annaliese Dodds in this week’s Mais lecture indicated clearly her party’s on-going adherence to the false notion that government constraints are monetary. Whilst, to be fair, she gave a cutting analysis of the effects of government policies on people’s lives both before and after the arrival of Covid-19, she stuck to the orthodox economic mantras. Namely keeping the City sweet by maintaining the joke of supposed Central Bank independence and having a ‘responsible approach to government debt.

    She summarised her approach to fiscal policy as requiring ‘a set of rules around both annual and the stock of debt, that simultaneously demonstrates a prudent approach to the public finances and leaves space for investment in the future and the ability to adapt to crises’. A sound approach to the public finances she said must ‘also include consideration of the quality and effectiveness of public spending.’ Whilst such evaluation should always be a part of government spending strategies (and clearly, we have seen in recent months and years the exact opposite) the concept of sound finance continues to be the guiding doctrine of politicians on both sides of the political spectrum. They might have different spending objectives, but both are couched within the clear limitations of household budget thinking.

    As society implodes as a result of rising poverty, inequality and ill health which has arisen as a result of government policies and placed increasing pressures on public services such as our NHS which this last year has bravely served the nation in a deliberately created environment of insufficient staff, facilities and other resources, there is only one direction in which we can place the blame. Governments whose decisions have favoured market solutions through privatisation and legislative policies which favour them – with shocking consequences.

    In similarity to nature’s web of life, which is defined by its interdependence, our economy does not exist as disparate parts. The economy represents the lives of working people and the businesses that employ them, and its health is reliant on the public and social infrastructure provided by the government to support it. Remove one vital link and you risk that eventually the whole will collapse.

    This is the frightening consequence we already face, not just in the real but finite resources upon which our societies are built and owe their existence, but also our dependency on the goodwill and care we express for others. As reliance on charitable institutions to feed hungry people or deal with rising homelessness increases, or rich philanthropists replace public institutions with the equivalent of poor law boards dictating the pace and deciding who will be a beneficiary, our society will continue to break down on the basis of a ‘convenient lie’ that the state has no money of its own and there is no alternative course of action.

    Instead of examining the public accounts and deducting from the financial position the health of a country, a future government should be turning that idea on its head to see the reality of the challenges we face. The reality of the real constraints which are not money but real resources and how they can be managed fairly in the interests of all citizens. The fast-approaching reality of climate change and its consequences threaten to engulf us if world governments fail to work together to create better, fairer and more sustainable solutions.

    We need a ‘Reset’. Not the ‘Great Reset’ being promoted by the World Economic Forum which, whilst sounding just the thing to address rising inequality and climate disaster, will maintain the same power structures with the same corporations dictating the rules in the interests of accumulating more profit and wealth whilst still clinging to the sham economic model which seeks to keep power in the hands of the few.

    We need quite a different ‘Reset’ as suggested by Associate Professor Fadhel Kaboub in a GIMMS ‘in conversation’ event last week. One where public purpose, not profit or greed, directs government spending and legislative actions for a sustainable and fairer future and without which the light at the end of the tunnel will recede, not get closer.

    There is an alternative and history is still to be written on the choices we make. We once believed that the Earth was flat, that it was at the centre of the universe and the sun and planets revolved around it. Those notions were disproved by the observations of scientists like Copernicus and Galileo. We need now to disprove the notions that money is scarce – not because knowing it makes a difference in itself, but because knowing it will enable us to decide what history will eventually record about the decisions that were taken as a result.

    We can be on the right side of history if we choose to be.

     

    Upcoming Event

    Phil Armstrong in Conversation with Pavlina Tcherneva – Online

    January 24th 2021 @ 4:00 pm – 5:30 pm GMT

    GIMMS is delighted to present another in its series ‘In Conversation’.

    Phil Armstrong, author of ‘Can Heterodox Economics Make a Difference’ published in November 2020, will be talking to Pavlina Tcherneva.

    Pavlina is program director and associate professor of economics at Bard College and a research associate at the Levy Economics Institute. She conducts research in the fields of modern monetary theory and public policy and has collaborated with policymakers from around the world on developing and evaluating various job-creation programmes. Her work on the Job Guarantee spans over 20 years.

    Author of the recently published book ‘The Case for a Job Guarantee’, she challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent living-wage work can find it – guaranteed. It will be of particular relevance as we begin to grapple with the economic fall-out of the Covid-19 pandemic but for anyone passionate about social justice and building a fairer economy it should be essential reading.

    We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

    Tickets via Eventbrite

     

    Past Event

    Phil Armstrong in Conversation with Fadhel Kaboub – Online

    Author and MMT Scholar Phil Armstrong talks to professor of economics and president of the Global Institute for Sustainable Prosperity Fadhel Kaboub about how MMT insights apply to the global south, colonial reparations, the MMT Job Guarantee contrasted with Universal Basic Income, and much more.

    Audio via the MMT Podcast here

    Video will be available soon.

     

    Join our mailing list

    If you would like GIMMS to let you know about news and events, please click to sign up here

    Support us

    The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

     

    Share

    Tweet

    Whatsapp

    Messenger

    Share

    Email

    reddit

    Pinterest

    tumblr

    Viber icon
    Viber

    The post The Covid-19 pandemic shows the need for change. For a real ‘Reset’. appeared first on The Gower Initiative for Modern Money Studies.

    January/February 2021 Issue

    Published by Anonymous (not verified) on Sat, 02/01/2021 - 2:36am in

    Tags 

    austerity

    January/February 2021 cover

    Our January/February 2021 issue is at the printers and will go out to e-subscribers very soon!

    The cover story, “State and Local Austerity: Are we doomed to repeat the mistakes of the past?,” by Amanda Page-Hoongrajok, is posted here, and John Miller’s article on why the stock market is soaring while the economy is so bad for ordinary people is posted here.

    Here is our p. 2 editorial:

    Against Austerity

    Who would have thunk it? A contributor to Dollars & Sense has been appointed as an economic advisor to a U.S. president! Heather Boushey, who will serve on President Joe Biden’s Council of Economic Advisors (CEA), wrote “Good Times, Bad Times: Recession and the Welfare Debate” for our September/October 2002 issue. (Boushey’s D&S piece was mentioned in that year’s Project Censored list.) Boushey’s research focuses on inequality and economic growth, and if you needed any more evidence that she’s in D&S’s camp, her article “Unbound: Releasing Inequality’s Grip on Our Economy” appears in the most recent issue of Review of Radical Political Economics, the journal put out by our comrades in the struggle for economic justice at the Union for Radical Political Economics.

    The other good news was the appointment of Jared Bernstein to Biden’s CEA. Bernstein, currently at the Center on Budget and Policy Priorities, served as an economic advisor to Biden during the first two years of the Obama administration, and was a senior economist at the left-leaning Economic Policy Institute.

    Having at least two economists at the White House whose research focuses on inequality and labor economics from a left perspective gives us some hope that the incoming president might resist calls for austerity in response to the current economic crisis.

    In this issue’s cover story, economist Amanda Page-Hoongrajok addresses the dangers of imposing austerity at the state and local level. Hampered by balanced-budget rules—or at least by misguided norms that dictate that expenditures must match dwindling revenues—states and localities are making budget cuts that lead to damaging job losses and reductions in public services when they are needed most.

    The federal government can play a role in preventing the downward spiral that state-and-local austerity creates, by relying on its ability to borrow at low rates to provide relief funds to struggling state and local governments. But as Page-Hoongrajok shows, there are alternatives if federal relief doesn’t come through. States and localities can raise taxes on the wealthy without worrying about dragging down demand, since wealthy households “spend smaller proportions of their disposable income than low-wealth households.” And cities and states can also buck the balanced-budget norm and borrow to meet today’s needs.

    The idea that “there is no alternative” to austerity is a focus of this issue’s excerpt from the late John F. Weeks’s book The Debt Delusion. Weeks shows how political frameworks and ideology, not economic principles, have for decades made it seem as if we need to hand over decision-making—about exchange rates, monetary policy, and fiscal policy—to “experts,” but mostly to the private sector. But there is an alternative: public, democratic control.

    The decades of ceding decision-making about the economy to private interests, along with the resulting massive growth of inequality, is what has created the situation that John Miller addresses in his “Making Sense” piece in this issue—a soaring stock market in the midst of an economy struggling to recover from pandemic-induced collapse. How is this possible? The answer is partly about investors’ choices—with interest rates low, investment in bonds is less profitable and the stock market is more appealing. But this, too, is the result of policy choices: a government that lavished “unqualified and unstinting support” on financial markets instead of preserving jobs and providing income-support.

    This issue also includes two features that take mind-bendingly broad perspectives on the global economy today. John Bellamy Foster and Itan Suwandi look at the role of global commodity chains and agribusiness in creating the conditions for the rise of dangerous diseases like Covid-19. (We have paired this with a primer on the “shock doctrine,” as applied to the current pandemic, by our own D&S collective member, economist Bryan Snyder.) And Sasha Breger Bush sketches out the vast scope of the global drug economy—enormous even before the operation of economies depended on finding treatments and vaccines for Covid-19.

    Last but not least, Steven Pressman reviews Thomas Piketty’s Capital and Ideology, and Gertrude Schaffner Goldberg reviews William A. Darity Jr. and A. Kirsten Mullen’s important book on reparations for Black Americans, From Here to Equality.

    The pandemic has reinforced the case for egalitarianism to define the ethos of the welfare state.

    Published by Anonymous (not verified) on Wed, 23/12/2020 - 6:38am in

    by Kate Pickett and Richard Wilkinson

    The living standards of the poor differ dramatically between low- and high-income countries. In India, living in poverty may mean living in a one-roomed shack with no sewerage, whereas in Norway it may mean living in a three-bedroom, centrally-heated flat with many modern appliances.

    But the overriding subjective experience of poverty is substantially the same, regardless of those differences. Interviews with those regarded as poor in richer and poorer countries found: ‘Respondents universally despised poverty and frequently despised themselves for being poor.’ By being poor, they felt that they ‘had both failed themselves and that others saw them as failures’ and their sense of shame ‘was reinforced in the family, the workplace and in their dealings with officialdom’.

    Inequality and hierarchy

    That poverty should make people feel so shamed, devalued and humiliated, despite such different material circumstances, highlights the overriding importance of relativities and of inequality itself. Inequality brings hierarchy into social relationships.

    The material differences in a society, the ‘vertical’ inequalities of income, wealth and power, are foundational. They are the inequalities through which the various ‘horizontal’ inequalities of ethnicity, gender, sexuality and disability are expressed and experienced. They create the social distances of class and status, of superiority and inferiority, exacerbating the downward prejudices and discrimination experienced by women, black, ethnic and other minorities. How large the overall ‘vertical’ inequalities are across a society—from the heights of privilege to the depths of deprivation and degradation—the scale of material inequality tells us how far societies are from treating all members as of equal human worth.

    Larger material gaps in a society make class and status differences more important. They increase the prevalence of a wide range of health and social problems associated with low status. Most of the problems that we know are related to status within societies become more common when bigger income differences make the differences in social status larger. Examples include health, child wellbeing, violence, social cohesion, social mobility, imprisonment rates and the educational performance of schoolchildren.

    Crucial importance

    The coronavirus pandemic has focused attention—once again—on the crucial importance of the scale of income differences. In a comparison of 84 countries as well as among the 50 states of the USA, coronavirus death rates have been found to be higher where income spreads are larger (after controlling for confounding factors).

    Societies with female political leaders have been more successful than others in limiting the pandemic. This appears to be because more equal societies are not only more likely to elect women to leadership positions but also, due to their greater equality, were already healthier and more cohesive before the pandemic.

    Although inequality increases violence (as measured by homicide rates), there are not yet studies of whether the rise in domestic violence during the Covid-19 lockdown has been greater in more unequal societies.

    Welfare system

    One of the most crucial functions of welfare states should therefore be to reduce inequalities in income and wealth. But that does not tell us much about what kind of welfare system is most desirable.

    As Gøsta Esping-Andersen and others have shown, bigger welfare states do not always produce greater equality. The relationship between different welfare-state systems and inequality is more complicated than might at first be imagined. The same system applied to different populations may produce different levels of inequality—depending, for instance, on the proportion of elderly or single parents in the population.

    Large-scale redistribution, through progressive taxation and generous social-security systems, is however essential. That is necessary not only to support the economically inactive population but also because the inequalities of pre-tax (‘market’) incomes are intolerably large.

    Over the last 40 years, inequality has increased in so many countries mainly because income differences before taxes and transfers have widened so dramatically—particularly as a result of the take-off of top incomes. It has thus also become increasingly important to reduce income differences before tax.

    The picture is broadly similar in many countries: the historic strengthening of the labour movement and social-democratic parties led to a decline in inequality from sometime in the 1930s. That continued through to the late 1970s, to be followed—because of the rise of neoliberalism and the decline of the labour movement—by the modern rise in inequality from around 1980. The politics behind these changes is illustrated clearly by the way trends in inequality in different countries almost exactly mirror changes in trade union membership.

    Economic democracy

    We need to develop new means of bringing top incomes under democratic constraint. Perhaps the most promising are forms of economic democracy—not only substantial and increasing employee representation on the boards of larger companies but also incentives to expand the small sector of more thoroughly democratic models, such as employee co-operatives and employee-owned companies.

    As well as smaller income differences, more democratic forms of management have many other advantages, including improvements in productivity. That is in stark contrast to conventional companies, in which those with the largest pay differentials perform less well than those with smaller differentials.

    Extending democracy into the economic sphere may have the important additional advantage of underpinning our political democracies—which have become increasingly dysfunctional—and embedding equality fundamentally in the social structure. Because some multinational corporations not only have revenues bigger than the gross domestic product of smaller countries but also exercise high control over the lives of hundreds of thousands of employees, they inevitably raise issues of democratic accountability. The same ethical justifications used historically to replace political dictatorships with democracy are just as relevant to the demand for economic democracy today.

    Reining in consumerism

    Greater equality is also key if, over the next 10 or 20 years, we are to rein in consumerism and waste and achieve carbon neutrality. Research has shown that inequality intensifies the status competition that drives consumerism. Inequality makes money more important: it becomes the measure of the person—so much so, that people living in more unequal areas have been found to spend more on status goods, including ostentatious cars and clothes with designer labels. Not only that but borrowing tends to increase with inequality and bankruptcies become more common.

    The pandemic has shown that our societies are more flexible, and their populations more vulnerable, than most people had previously recognised. Given the urgency of making the transition to sustainable wellbeing, these are valuable lessons. Greater equality has been shown to be a powerful asset, in increasing society’s flexibility and in reducing our vulnerability to Covid-19.

    The prize of sustainable wellbeing requires that populations of high-income countries abandon the goal of economic growth, which no longer improves the health or wellbeing of their populations, and turn their attention instead to improving the quality of the social environment. We know that social relations are powerful determinants of health and wellbeing—and both can be improved by reducing inequality.

    This is part of a series on the Coronavirus and the Welfare State supported by the Friedrich Ebert Stiftung

    This article first appeared in Social Europe on 25th November 2020

    photo credit flickr

    The post The pandemic has reinforced the case for egalitarianism to define the ethos of the welfare state. appeared first on The Progressive Economy Forum.

    Time to abandon fictions of how our economy functions

    Published by Anonymous (not verified) on Sun, 06/12/2020 - 9:35am in

    UK pounds sterling notes and coinsPhoto by John Cameron on Unsplash

    “The point is, not every deficit serves the broader public good. Deficits can be used for good or evil. They can enrich a small segment of the population, lifting the yachts of the rich and powerful to new heights, while leaving millions behind. They can fund unjust wars that destabilize the world and cost millions their lives. Or they can be used to sustain life and build a more just economy that works for the many and not just the few. What they can’t do is eat up our collective savings.”
    ― 
    Stephanie Kelton, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy

     

     

    In last week’s MMT Lens, GIMMS lamented the appalling propagandised narrative being touted endlessly by the media and ill-informed journalists following the Chancellor’s spending review that the state finances could be compared to a credit card. The implied suggestion was that the ‘UK was going to sink like the Titanic under the burden of unsustainable borrowing and debt’ unless the government took steps to reduce its spending.

    This week a group of mainstream economists wrote to Tim Davie, the Director General of the BBC, to object that some of its reporting misrepresented ‘the financial constraints facing the UK government and reproduces a number of misconceptions surrounding macroeconomics and the public finances and pointing out that the ‘credit card’ analogy … is never an appropriate metaphor for public finances’.

    The signatories of the letter pointed to the responsibility of the BBC as an influencer and educator to ensure that they represented economic reality by avoiding household budget analogies. They suggested that the government should not focus on reducing the deficit but instead ‘embark upon a major investment package boosting jobs and growth’ which would be ‘in line with standard macroeconomic literature which stresses the beneficial effects of countercyclical government spending during crises’.

    So far … so good, and just what the economic doctor might have ordered if he or she understood how sovereign governments which issue their own currency spend. For too long, the public has been bombarded with such analogies promoted by mainstream economists, politicians, and institutions alike. Analogies which have formed an incorrect version of how the UK government really spends. Given the seriousness of the current economic emergency we are facing and the challenge of climate change, it was, and is, time to challenge the economic orthodoxy.

    But whoa … just as we start to get hopeful about a sea change in economic thinking, the signatories of the letter went on to spoil their clarification by reverting to norm. The household budget norm. The one that ultimately would constrain government spending – that of having to deal with an out of control debt burden at some unspecified time in the future.

    They claimed that increased deficit spending could be justified on account of interest rates on government bonds being at record lows which would mean that government would therefore spend less on debt interest over the next five years, despite the rise in national debt over the course of the next five years. They then went on to suggest that it was likely that interest rates would remain low for the foreseeable future and that these were not signs of an institution approaching its credit limits, rather they were a signal to government’s creditors to continue to fund its borrowing.

    Whilst criticising the BBC for the sin of allowing its journalists to refer to household budget accounting, it then goes on to reinforce that very same narrative. The one that involves government collecting money from us in the form of taxes and borrowing any additional money it needs to carry out its spending agenda. The narrative so beloved of Mrs Thatcher encapsulated in her much-quoted dictum ‘There is no such thing as public money … There is only taxpayer money. If the state wishes to spend more it can only do so by borrowing your savings or by taxing you more’ has informed the public and political debate about government spending for decades. The money has to come from somewhere and the question raised when politicians, particularly progressive ones, talk about spending is how will it be paid for? The spectre of debt hangs around our necks like a bad-smelling penny.

    As Stephanie Kelton, author of The Deficit Myth says, we have learned to accept the conventional description that ‘Taxing and borrowing precede spending’. But even though it is flawed reasoning, it dominates the way we think as we compare the state finances to our own household budgets. It sounds reasonable and rational. But as Kelton points out ‘We’ve got the whole thing backward’.

    Going against all of our carefully groomed preconceptions, the monetary reality is that the UK government neither needs to fund its spending by collecting tax, or match its deficit through issuing bonds (in other words so-called borrowing) or indeed buy them back via QE which is often confused erroneously with ‘printing money’. We have been living a lie propagated by a neoliberal establishment, both on the right and left, which has an interest either in keeping that narrative alive and well for its own ideological purposes or to appease the City.

    Getting the formula right is vital. TAB(S) = tax and borrow to spend, is replaced by (S)TAB = Spend to tax and borrow. In basic terms, this means that the sovereign currency issuer has to spend into the economy before it can impose a tax or indeed indulge in the pretence that it has to borrow – a left over function of gold standard days. The borrowing model exists as a sleight of hand, a smoke and mirrors which bears no relationship to monetary reality and suits politicians to scare the pants off people!

    So, some might say what difference does knowing any of this boring stuff make to my life? Well, in fact, a whole lot of difference. You don’t have to be an economist or understand economic formulae to see the effects of government spending policies on the nation, whether it is the 10 years of cuts to public sector services and welfare or indeed this round of fiscal injection which has sustained the economy during these last few months as Covid-19 has wreaked havoc on people’s lives. We are living the consequences of the decision to impose austerity, cuts public services and change the way the benefit system works. We are living the consequences of a market dominated economy which puts the needs of corporations above the needs of working people.

    This week the BBC published a distressing video report of conditions in Burnley which have worsened over the last few months. It was also a stark reminder that poverty and inequality is not a new phenomenon, it didn’t just happen as a result of Covid-19. It existed well before the pandemic arrived. The level of human degradation was shocking to see.

    The BBC analysis showed that the death rate from all causes between April and June this year in the most deprived areas was nearly double that of deaths in the least deprived parts of England. Whilst Boris Johnson talks of ‘levelling up’ he is, in fact, acknowledging the damaging consequences of his government’s policies over the last decade which have led to increased poverty, inequality and ill health across the country whilst at the same time shifted wealth into fewer hands.

    Over years right-wing politicians and the media, in an orgy of blame and finger-pointing, have created a narrative that people’s personal shortcomings lie at the heart of their poverty, not government inaction.

    Whilst the government has relinquished its responsibility for the overall economic and social health of its citizens through its spending and other policies, it makes it all the more depressing when the government then goes on to laud in cynical soundbites its additional funding (under pressure) for local authorities, for families to stay warm and fed and extra money for food aid charities. Forced to mend its own failures, caused not just by Covid-19 but by its ideological agenda, greed and to feather its own nest through the revolving corporate door.

    This is a systemic problem which has its roots in insufficient government spending on public and social infrastructure and employment legislation which has served the corporate body and poured vast amounts of public money into private profit and not just in these last few months.

    When queues lengthen for food banks, when children are ripping bags open for food because they are so hungry, when parents are feeding their kids before themselves and when someone says ‘a couple of days food means everything to us’, this is a systemic failure of a corporatised government serving other interests as if trickle-down of wealth was a real thing!  Covid-19 is not to blame. Government and its policies are.

    It was reported this week by the Trussell Trust that it 47% of households surveyed at food banks during the summer owed money to the Department of Work and Pensions due to loans and overpayment of benefits. Three out of four households on Universal Credit using food banks were repaying an advance payment to the government, a loan primarily taken out to cover the five-week wait for the first payment.

    Emmie Reeve, the Trust’s chief executive urged the government to stop taking money from people’s pockets during the winter months saying:

    “Our welfare system should increase people’s security, not suffering. But right now the government is taking money from the benefit payments of many people using food banks,

     

    “Taking money off payments to repay these debts makes it much harder for people to afford the essentials and can impact on people’s mental health – this isn’t OK.

     

    “With the pandemic continuing to hit people’s incomes, the government must pause taking money from benefit payments over the winter months until a more responsible and just system that offers security and support is in place. This would help people on the lowest incomes to keep every penny of their benefits to help afford the absolute essentials, instead of needing to turn to a food bank for help.”

     

    GIMMS would argue that it is not only cruel and inhumane to cause suffering, but that it is totally avoidable where the government is the issuer of the currency. The government is using the household budget model to claim, falsely, that it must be responsible and recoup taxpayer money where benefits have been overpaid. But with a S(TAB) model of the public finances (spending has to happen before a government can tax or borrow) this can be shown to be nothing but an accounting procedure to make the government look as if it is a good guardian of the public accounts. It bears no relationship to monetary reality and is both harmful to the economy and ultimately harmful to human and planetary health.

    When Emmie Reeve asks the government to stop taking money away from the poorest and most vulnerable amongst us ‘until a more responsible and just system that offers security and support is in place …  to ‘help people on the lowest incomes to keep every penny of their benefits to help afford the absolute essentials, instead of needing to turn to a food bank for help, that is indeed vital. However, it is not just the welfare system which needs to change. It is the whole vision of how our economy functions. How an understanding of monetary reality could, and should, determine the policies pursued by governments in the interests of national economic and social well-being.

    As discussed in last week’s blog, over recent decades the share of productivity has ceded into ever fewer hands leaving people poorer and living less equal lives than the richest who have benefited from ‘trickle-down’ policies at the expense of the poorest.

    We have a situation where our public and social infrastructure is in a state of decay and the language used to describe what is happening is about relegating blame to weakest and poorest in our society and our public institutions like the NHS. Only this week Dame Sally Davies suggested in an article in the Guardian that the COVID-19 response was compounded by groupthink and a ‘lack of resilience’ in the NHS’. It was as if the problem lay with the NHS and not successive governments from Thatcher to Blair and Cameron who are really to blame for pressures being faced by the NHS as a result of Covid-19. There was not one mention of government involvement through austerity, cuts to public spending and damaging reforms designed to fragment the service and make it ripe pickings for the private sector.

    Neoliberal groupthink and ideological arrogance would be a better description. The state has become nothing more than a cash cow for the private sector at the expense of government-directed public purpose, which includes full employment.

    The direction we are going in, which has been covered in many previous MMT Lens blogs, seems ever clearer as the State steps back from its primary purpose which involves a democratically elected government as agents of the people, inspired by the concept of public service to deliver the public good.

    In an article published in the Guardian in May this year, Andy Haldane, the Chief Economist at the Bank of England, suggested that civil society had been neglected politically and financially and quoting from Raghuram Rajan’s book ‘The Third Pillar’ wrote ‘We have let the local community pillar break down and wither’.

    Referring to the ONS (Office for National Statistics) which said that we should measure social value and its contribution to society he argued that we don’t see volunteering as work because it’s unpaid. “What could be more ‘doing things for others’ than volunteering?” he suggested.

    Referring to the fourth industrial revolution and the prospect of jobs being taken by robots, he asked how in such a scenario do we reward people. Although expressing some ambivalence about a UBI and with questions about its feasibility and financing his view was that a renewed civic sector could exist alongside a ‘more socially purposed corporate sector’ and a state and public sector that provides insurance and infrastructure support.

    Yes, indeed we have allowed the local community pillar to break down and wither, but not for the reasons he suggests. Ultimately, the charitable and voluntary sector (as was pointed out in last week’s MMT Lens) is a deliberate failure of government. A failure to spend sufficiently on delivering public purpose aims.

    Indeed, Haldane’s project to encourage volunteering in the NHS has been about mitigating for a badly funded and resourced public institution using an appeal to public goodwill to do so. His suggestion that volunteers could provide the NHS with skills which would otherwise cost ‘hundreds of pounds per hour’ is symptomatic of an ideology whose toxic roots are now bearing poison fruit in these difficult times. The idea being encouraged that charity and volunteering can play some part in state-funded delivery of services which puts cost above people under the guise of encouraging community cooperation. The false belief that there is a limited pot of money to be shared out is being used to justify this mega shift in how society operates and who controls it.

    The suggestion that volunteering can replace good publicly paid for and provided services which provide employment and wages which in turn keep an economy functioning, or indeed that a UBI (Universal Basic Income) could mitigate for the prospect of industrial and technological change as part of a fourth industrial revolution sounds appealing. However, it is nothing but a neoliberal trojan horse which keeps working people in their place and the corporate sector dictating the economic rules for its own benefit.

    Furthermore, the idea that socially purposed corporate sector is the way forward ignores the fact that the corporate rationale is to make profits for their shareholders, usually through exploiting working people and other resources. If it indulges in social or greenwashing, it does so to persuade its customers that its motives are wholesome, yet another corporate sleight of hand.

    Haldane seems to suggest that government’s role should be reduced to one of being an insurer and servicer of corporate needs rather than those of citizens and that utilising a volunteer workforce to keep costs and spending down should play a part in that. It ignores the fact that it is the very power of the state, along with its spending and legislative powers, that allows these market structures to exist in the first place.

    Unemployment, underemployment, precarious employment, hunger, homelessness, decaying public and social infrastructure all are crimes being committed by this government against its people. Whilst corporations benefit from the sovereign currency powers of government, working people and their families pay a high price in growing poverty and inequality, which in the coming months as companies fail and unemployment rises can only get worse.

    In conclusion, it is worth repeating the final few words of last week’s blog:

    “Only the government can step in as the power behind the public purse, and such an acknowledgement offers huge opportunities to create an economy that works for everyone and not just the few. If a job needs doing, then it should be the state that provides the wherewithal, either through a job guarantee to smooth out the cyclical ups and downs of the economy, or through an expanded public sector. The only constraint any government will face is one of real resources and that is the real political challenge. How those resources are shared to create a society that works for all.”

     

    Join our mailing list

    If you would like GIMMS to let you know about news and events, please click to sign up here

    Support us

    The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

    Share

    Tweet

    Whatsapp

    Messenger

    Share

    Email

    reddit

    Pinterest

    tumblr

    Viber icon
    Viber

    The post Time to abandon fictions of how our economy functions appeared first on The Gower Initiative for Modern Money Studies.

    Breaking free from false economic narratives

    Published by Anonymous (not verified) on Mon, 30/11/2020 - 8:11am in

    Silhouette of a woman breaking a chain to free her hands as the sun risesImage by Elias Sch. from Pixabay

    Dear Dominic

    One all night sesh we had playing Monopoly in college and the banker ran out of money. We just wrote out more notes and it worked fine. Should I tell Rish?

    Financibus ad infinitium

    Boris

     

    Posted on Facebook by the author Michael Rosen

     

    Anyone watching the media coverage before and after the Chancellor’s Spending Review could be forgiven for thinking that the UK was going to sink like the Titanic under the burden of unsustainable borrowing and debt unless the government took the necessary step to control its spending. The party of fiscal sustainability which has been reworked over these last few months to keep the economy afloat is now rowing back and an army of fiscal hawks and deficit doves are now back to playing the household budget game of the public finances.

    After 10 years of punishing austerity and cuts to public sector spending, which have already done huge damage, Rishi Sunak told the BBC he would have to make tough choices on public pay.

    Torsten Bell from the Resolution Foundation claimed that the COVID-19 crisis is causing immense damage to the public finances and tax rises will be needed to cover the extra spending.

    Laura Kuenssberg, the political editor of the BBC, talked about the ‘eye-wateringly enormous levels of public borrowing’ as a result of the ‘massive gap between what the government takes in tax and what it has been spending’. Recalling David Cameron’s false claim in 2010 that the economy was nearly bankrupt, she suggested that the government’s credit card was ‘absolutely maxed out’ and ‘there was no money left’.

    Daniela Gabor, an economist from the University of West England, whilst on the one hand accepting that the household budget narrative of the public finances was flawed, she like many others reinforced it by saying that ‘interest rates on public debt were at historical lows’ and that government, rather than making cuts ‘should be using the opportunity to borrow more in order to finance the country’s recovery’.

    Tom Kibasi, a former director of the Institute for Public Policy Research (IPPR) thought that whilst we need structurally higher government spending that would, in turn, mean permanently higher taxes.

    A former Treasury Minister described it as a ‘multigenerational debt which will have implications for the rest of our lives in terms of what the British state can afford’.

    And the Shadow Chancellor Annaliese Dodds topped the titanic effort to mislead the public by saying ‘Britain must rebuild its economy after the Covid-19 pandemic with one eye on rising deficit and debt levels.’

    STOP!

    From politicians on both sides of the political spectrum, institutions and think tanks such as the IFS and the Resolution Foundation, and economists stuck in orthodoxy from fiscal hawks to deficit doves, all are choosing to be ignorant of how governments spend and all promote the same economic illiteracy. It seems that the Establishment is on a mission – to ensure that the public doesn’t get the wrong idea about the spending capacity of the UK government to address the fallout from the Covid-19 pandemic and to ensure that the lie of austerity is not uncovered and that cuts to public spending imposed from 2010 were driven, not by fiscal necessity, but by economic ideology.

    The political and media tale of the vast amounts being ‘borrowed’ is a cynical reinforcement of a false narrative that is setting up people for the expectation that there is always a price to pay in cuts, pay freezes or ultimately higher taxation.  Like many Chancellors before him, Rishi Sunak is hiding behind the smoke and mirrors of public accounting which does not reflect the monetary reality of how a government which issues its own currency actually spends.

    The most telling aspect of this narrative, which should instruct our views, is that the government has had no trouble finding the money to pour into the private sector and will continue to do so, as announced in Sunak’s infrastructure plan outlined in his Comprehensive Spending Review. This projects more than £100bn worth of capital spending next year on building projects for schools, hospitals, housing, transport and green projects. Whilst public money flowing into private profit in itself is not an issue unless we are talking about public services which should always be publicly funded and delivered, it will quite simply mean more contracts flowing to the private sector without parliamentary oversight and public accountability.

    At the same time, Rishi Sunak plans to cap public sector pay, reduce the planned increases to the national living wage (from 49p to 19p per hour), cut the amount of money available for low-wage tenants through housing benefit and he has left Universal Credit claimants in a state of uncertainty as to a continuation of the current UC uplift in April.

    After 10 years already of public sector pay freezes, imposing more will further reduce standards of living for public sector workers who have already suffered enough. As life becomes tougher and incomes even more stretched, less money will flow into our local and national economies – not exactly helpful at a time when the government should be ensuring sufficient spending to keep the economic wheels rolling.

    As so many are already on low wages or in precarious employment, this will quite simply drive people into even more poverty. And worse, is it right to further deprive people of an income which allows them to support themselves and their families without a daily struggle to make ends meet?

    Would it not be better, through adequate welfare and employment policies, to ensure that people did not fall into poverty in the first place, and not just in times of economic crisis? This is the moment for serious consideration of a Job Guarantee to get us through these dark days and beyond. Useful public work paid for centrally and organised locally at a living wage to keep money flowing through the economy.

    After the last few months, we have seen the very real value of public sector work, and indeed those key workers, often on low wages, who have kept the economy functioning. They are the linchpins of a healthy economy and society. Government ministers clapped for them and now they want to throw them under a bus. The government, which is the price setter for labour and thus determines both the wages of those in the public and private sector through wage and employment policies, is playing a cynical but not unsurprising game of divide and rule to keep working people subordinate to the needs of corporations. Businesses which profit from policies designed to keep wages down and profits up, as the share of productivity continues to be shifted into ever fewer hands, causing more misery along the way. The expected huge rise in unemployment will indeed play right into their hands although, of course, that will eventually come full circle as people on low wages spend less into the economy.

    These last few years, months and weeks, we have seen things that no civilised country should see, and not just in the UK. The huge growth in the use of food banks (covered in previous blogs) which predates the pandemic reflects government policies – people from all sections of society are now being driven to queue for food. Their stories should shame our politicians.

    Dame Louise Casey, a former homelessness Czar and advisor to 5 previous Prime Ministers, was clear ‘This is the UK in 2020 we should be able to do a better job of looking after the destitute and the hungry … and no it is not ok to leave that to charity… Unless something is done, a food emergency will follow the economic emergency’.

    Earlier this year, the Work and Pensions Secretary Therese Coffey described food banks as the ‘perfect way’ to help the poor, as if somehow the government had had no hand in their poverty. Which of course is the neoliberal way – blaming poor people for their situation. However, it cannot be emphasised enough that it is the government which has had a hand in their poverty. Not just this government, but successive governments who have idolised the god of the market and bow to its dictates.

    The decline of our public and social infrastructure, from the NHS, social care and mental health provision, not to mention other vital public services and the social security safety net, is not an unforeseeable tragedy borne of events outside government control which necessitates hard financial choices. It has been a deliberate act of neglect, which looks to continue.

    The former Liberal Democrat MP and care minister, Norman Lamb, whose voting record showed he generally voted for reductions in welfare benefits, bewailed this week the neglect of social care and mental health services. In the same breath, he suggested that the state of the public finances should be a cause of concern, implying that there was a lack of money to address the worsening state of our essential services. There is no lack of money. What we lack is a political will to act. The political will to serve the nation’s interests and those of some of the poorest and most vulnerable in our society.

    In this respect, and over decades, we have been witnessing the decline of State responsibility as philanthropy (with its shades of Victorian ‘do-gooding’ and social control), charity and volunteering have slowly been taking its place as a mechanism to deliver public goods. It is serving to substitute public spending, which is increasingly being withdrawn by the state on the premise of unaffordability whilst at the same time maintaining those public services that the private sector can run for profit and receive public money to do so.

    As evidence of this drift, this week Andy Haldane, the Chief Economist and founder of Pro-Bono Economics, said that civil society had been one of the unsung heroes of the pandemic crisis and that the social sector had been ‘operating as our institutional immune system’ supporting those most in need. It was heartening, he said, that civil society and charities have plainly risen to these challenges, helped by a surge in volunteering activity’. He then went on to note that the charity sector was in a fragile state financially with a funding gap for this year of around £10bn and this hit to income was expected to persist for the majority of charities.

    ‘An institutional immune system’? This gets to the nub of the issue. The idea that charities and volunteering can or should be a substitute for proper government-funded intervention and not just in times of crisis. The Big Society is now playing out big time. And whilst we should not criticise the goodwill of those people who give their time and energy to good causes, one might argue that the need for charity and volunteering is, in fact, a failure of the state. And as it is becoming very clear, such a model has one big flaw.

    Charities, like all organisations, depend on volunteers being available and donations and other forms of raising money to run their activities. In times of crisis like today, they too suffer as businesses suffer, as economic conditions decline, and people have less money in their pockets to spend. These days, they have become little more than businesses, making money and having the same hierarchical business structures of top management with top salaries and volunteer or low paid workers at the bottom. This is not a good or sustainable model for the delivery of public purpose, serving economic and social well-being.

    Only the government can step in as the power behind the public purse, and such an acknowledgement offers huge opportunities to create an economy that works for everyone and not just the few. If a job needs doing, then it should be the state that provides the wherewithal, either through a job guarantee to smooth out the cyclical ups and downs of the economy, or through an expanded public sector. The only constraint any government will face is one of real resources and that is the real political challenge. How those resources are shared to create a society that works for all.

    The bottom line is that in reality there is no shortage of money; just a shortage of political will which is borne of a toxic ideology that reviles the state delivery of public services, combined with the newly coined word ‘chumocracy’ which serves the interests of the friends of the government and the corporations who can ensure their place through the revolving door.

    On Tuesday’, Bill Mitchell hosted a guest blog by Professor Scott Baum, and it deserves to be quoted in this week’s MMT Lens. Whilst referring to Australia, it provides a valuable insight into where we are right now in the UK and what the challenges we face are in turning the ship around, or rather stopping it from sinking like the Titanic with all passengers aboard.

     

    “The fairy-tale of government working for everyone is continuing to result in significant social and economic pain for many individuals, their families and their communities.

     

    Why is it that the government says one thing, but then in practice does another?

     

    What has led us down this path of accumulated social wreckage?

     

    We know that it is not because sovereign currency-issuing governments are fiscally limited in their ability to work for the good of everyone.

     

    The government, if they wished, could intervene in a heartbeat to improve the precarious lives currently being lived by so many Australians.

     

    We have seen this during the COVID emergency where governments have been quick to step in and provide a wide range of support to a wider range of the population than has been the case in the past.

     

    Politicians have been allowed to leave their ideologies (think neo-liberalism) at the door.

     

    But what their ideology doesn’t allow them to do is to stray for long. Before too long they have to go back and pick up where they left off.

     

    The apparatus of justification that is so entrenched within the neo-liberal ideology means that even when ‘business as usual’ approaches have to be abandoned due to a crisis, it is not long before we turn back to the usual ideas that have led us to where we are today.

     

    Throughout the COVID slowdown statements by politicians have been steeped in this kind of ‘return to normal’ thinking.

     

    Early on Australian Prime Minister Scott Morrison said

     

    The measures are all temporary, targeted and proportionate to the challenge we face. Our actions will ensure we respond to the immediate challenges we face and help Australia bounce back stronger on the other side, without undermining the structural integrity of the Budget.

     

    Reading between the lines, yes, we had to do something we were not comfortable doing because the ‘system’ wasn’t working.

     

    But we can’t wait to get back to our comfort zone.

     

    In short, as a society, we are where we are because of the failures of the neoliberal system, the inability of politicians to see beyond their ideological views and the ability of those who benefit most to continue to legitimate the system.”

     

    Failure to leave our household budget comfort zone can only lead to more poverty, inequality, and environmental decay. As the pandemic has inadvertently set us on a different course, those of us who want to see a fairer redistribution of wealth and resources and a planet which can support future generations sustainably, need to ensure that the road taken is not a Great Reset towards a reinforcement of global corporate power and influence greenwashing its way towards greater control and higher profits.

    That’s some challenge, but it’s not insurmountable.

     

     

    Event Recording

    The video of GIMMS’ event “Phil Armstrong in Conversation with Neil Wilson” is now available:

     

    Also available as a podcast via the MMT Podcast. #75 Neil Wilson & Phil Armstrong: In Conversation

     

    Join our mailing list

    If you would like GIMMS to let you know about news and events, please click to sign up here

    Support us

    The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

    Share

    Tweet

    Whatsapp

    Messenger

    Share

    Email

    reddit

    Pinterest

    tumblr

    Viber icon
    Viber

    The post Breaking free from false economic narratives appeared first on The Gower Initiative for Modern Money Studies.

    The Provident Parent’s Guide to Government Debt

    Published by Anonymous (not verified) on Fri, 27/11/2020 - 5:09am in

    As government borrowing takes the ratio of public debt in Britain to national income above 100%, listen out for the alarms raised by fiscal conservatives that our profligacy is perpetuating debts that your children will have to pay. The alarms will be found most commonly in Conservative circles where fiscal austerity plays on fear of personal debt, and underpins the fundamental Conservative values of hard work and thrift (unless you have private income). These were expressed in very large figures for Government debt (£2 trillion!) announced by the Chancellor of the Exchequer in his Autumn Statement today.

    The usual (Keynesian) answer is that government debt doesn’t matter, since a government deficit activates a fiscal multiplier to allow debt to be repaid out of the resulting economic growth. However, recent evidence has cast doubt on the idea that the fiscal multiplier will be sufficiently high to generate sufficient economic growth. It turns out that the fiscal multiplier (the ratio of the fiscal deficit to the resulting economic expansion) itself may be ‘endogenous’, in the sense of being too low in recessions, or periods of low growth (secular stagnation).

    The first step towards understanding government debt is the realisation that government debt is not like the mortgage that takes a large chunk of working life to pay off. Looking at how debt structures affect the circulation of money shows up the differences. To start with a distinction emerges between borrowing abroad, ‘outside’ debt, and domestic borrowing, or ‘inside’ debt. ‘Outside’ debt is indeed pernicious, because it commits to the future transfer of resources to persons or institutions outside the economy. Such was the problem of British governments in the two World Wars of the last century, when Britain had to borrow abroad to secure supplies for the war effort and to feed, clothe and fuel the population at home. A similar problem is faced by governments of developing countries today which are encouraged to borrow abroad, when international money markets are liquid. The repayment effort then requires either refinancing (‘kicking the can down the road’ as it is called in banking circles), or a drain on foreign currency reserves, augmented by a deflationary squeeze on imports.

    Domestic borrowing, or ‘inside’ debt is, however, different. It commits to the future transfer of resources to persons or institutions within the economy. So, unlike ‘outside’ debt, it keeps resources within the economy, merely redistributing them. Whereas ‘outside’ debt is a burden on our children and grandchildren, ‘inside’ debt is merely a commitment to make our children pay taxes to defray the interest and repayments to our children who hold government debt. In other words, domestic borrowing commits future generations to pay money to future generations. This is a promise to transfer money within the same generation, rather than, as fiscal conservatives argue, between generations. External debt indebts our children to outsiders. Internal debt indebts our children to our children.

    This leads to a first principle of government debt management, namely that government borrowing should be domestic, rather than external, in order to keep financial resources within the economy.

    It is at this point that debt management and the incidence of taxation come into play. If we assume, for the sake of simplicity, that government borrowing is done through the sale of bonds, then those bonds will end up in the financial portfolios of those persons who are wealthy enough, or have sufficiently high incomes, to have savings backed by those bonds. However, payment of taxes is much more widely distributed. Government borrowing in domestic markets commits tax-payers in general to provide interest income to bondholders who are usually in rather more favourable financial circumstances than tax-payers. The outcome of this redistribution is therefore regressive, although the degree of regression depends on the structure of the tax system. Supposing that the costs of servicing government debt are paid for by an increase in Value Added Tax. Since this is a tax that is paid mostly by people on average or below average incomes, the result will be to transfer income from persons of modest incomes to those on higher incomes. The freezing of public service salaries announced in the Autumn Statement, represents a similar kind of regressive transfer.

    This therefore leads to a second principle of government debt management, namely that in societies characterised by inequality of incomes and wealth, government debt requires tax rates to be made more progressive as the debt rises, in order to avoid increasing that inequality. This is where the propaganda about government debt as a burden on our children is used for regressive purposes in persuading people of modest means that it is either them or their children who should pay off the debt. There is an alternative: people with higher incomes and owners of wealth should pay.

    There is a very sound economic reason for making wealthy people with high incomes pay the costs of government debt. These are people with savings. When their taxes are increased, this may affect their savings. But it usually has no effect on their expenditure. People with savings are also the principal holders (directly or indirectly) of government bonds. Higher taxes to pay for those bonds therefore take money away from the wealthy classes, and returns it to them in the form of payments of interest and principal on the bonds. The overall cash position of the wealthy classes remains unaffected by the higher taxes.

    By contrast, if taxes to service the government debt are raised on households and small businesses whose incomes are too low for them to be able to save, then their expenditures are in effect squeezed. What amounts to the same thing occurs if government employees find their salaries frozen in order to service the debt. The squeeze on household expenditure then tends to reinforce deflationary pressures in the economy, not so much because consumption is reduced, but because people who might not otherwise do so enter the labour market to earn additional income, and the added competition drives down wages.

    The third principle of debt management is therefore that, to avoid detrimental effects on economic activity, higher taxes to service government debt are best levied on higher incomes and wealth. This assures financial stability by maintaining a stable cash position among the wealthy, and has minimal effect on aggregate demand and economic growth.

    This should reassure prudential parents about the security of their childrens’ futures. However, the anxious parent will also wish to know whether there is any upper limit on this kind of ‘internal’ borrowing. This was suggested by Carmen Reinhart and Raghuram Rajan a few years ago, in a study that claimed to show that government borrowing in excess of 90% of GDP was usually followed by financial crisis. It turned out that the Reinhart and Rajan study was marred by some methodological flaws. But the principal reason why it should be dismissed by prudential parents today is because it muddled up ‘inside’ and ‘outside’ borrowing: The ruin of Florentine bankers by the default on King Richard the Lionheart’s borrowing to finance his crusades, like the Third World debt crisis of the 1980s, was clearly a case of ‘outside’ borrowing, whose dangers are not diminished here. A more relevant historical example is the British government debt after the Second World War, which reached 250% of Gross Domestic Product: far larger than any possible British government debt today. It was eventually brought down not by draining the resources of taxpayers with fiscal surpluses and public servants with penury, but by inflation and economic growth.

    The provident parent should therefore put away the piggy bank, reject Conservative alarums about public debt, and assist their children into a profession whose pension will be soundly backed by government bonds serviced by taxes on the rich.

    Jan Toporowski is Professor of Economics and Finance at SOAS University of London and a member of the Council of the Progressive Economy Forum. He has worked in international banking, finance and central banking, and has published ‘Why the World Economy Needs a Financial Crash’ and other Critical Essays on Finance and Financial Economics (London: Anthem Press, 2010).

    Picture credit flickr  www.epictop.com

    The post The Provident Parent’s Guide to Government Debt appeared first on The Progressive Economy Forum.

    What was Corbynism?

    Published by Anonymous (not verified) on Thu, 26/11/2020 - 2:47am in

    Much has been written about the accidents of Jeremy Corbyn’s astonishing rise to the the Labour leadership in the summer of 2015 (Ed Miliband’s reforms to the party’s leadership election rules, the famous last-second nomination that got him onto the ballot), but perhaps less about the social forces that actively enabled it and explain it. Corbyn was announced as the winner of the leadership ballot in September of that year, taking nearly 60% of the vote, and seeing off three established Labour politicians in Andy Burnham, Yvette Cooper and Liz Kendall. More than five years on, and nearly a year since Labour’s disastrous election performance spelled the end of Corbyn’s leadership, it’s now possible (and arguably desirable) to speak of Corbynism in the past tense, notwithstanding the ongoing rows surrounding Corbyn’s own position vis a vis the Labour Party and the EHRC report on anti-semitism.

    Fiscal genesis

    Labour had lost the 2015 election somewhat unexpectedly, with most polls suggesting a hung parliament. The central dilemma that the party had found itself in over the previous five years was over its fiscal policy, with Neo-Keynesians led by Ed Balls arguing (correctly) in favour of additional stimulus to arrest what turned out to be one of the longest economic slumps on record, but Miliband and others sensing (also correctly) that this was a political trap laid for them by George Osborne, who relished every opportunity to present the economic crisis as the consequence of Labour’s earlier spending and borrowing. Labour were damned if they did, and damned if they didn’t, and in the end Osborne’s cynicism won the day, resulting in a Tory majority.

    The most significant catalyst for Corbynism was the introduction in July 2015 of a welfare bill, that proposed limiting tax credits to just two children. The timing of this bill was opportunistic, seeking to exploit Labour’s already crushed morale, and unsettle its leadership contest. The interim Leader, Harriet Harman, announced that Labour would “show it was listening” by not voting against the bill. Accepting Osborne’s framing of the previous five years, she said that “We cannot simply say to the public you were wrong at the election”. Corbyn, crucially, was the only one of the four leadership contenders who broke the whip to vote against the bill, and within two months was Leader of the Opposition.

    It had become traditional for Labour to welcome a figure from the hard left of the party on to its leadership ballots, to broaden the debate. Diane Abbott had stood in 2010. John McDonnell might have stood in 2015, but suggested Corbyn instead. In that sense, Corbyn might be viewed as just another representative of the Bennite wing of the Parliamentary Labour Party. But this is to obscure what was so distinctive about Corbyn as a figure, and to misunderstand both his timeliness and eventual failure as a leader. Corbyn was primarily an anti-War activist, whose central vocation was towards the moral denunciation of Western foreign policies, especially in the Middle East. What was distinctive about Corbynism as a phenomenon was how this political mission was wedded to a widespread sense of public fury with the social consequences of George Osborne’s fiscal policy. In sum, Corbynism was a temporary and surprisingly potent alliance between anti-imperialism and anti-austerity.

    Punitive neoliberalism

    There has been far, far too much psychological discussion and speculation regarding the moral character and prejudices of Jeremy Corbyn as a person. And yet on one particular matter, his supporters and foes seem to be agreed: he is energised by taking principled opposition to things, but shies away from inter-personal conflict. To put that another way, he is a devoted activist and moralist, but a poor political leader and strategist. He is quick to declare that policies and actions are ‘wrong’, but reluctant to impose his will upon others. It is scarcely surprising that someone of this character would feel more comfortable on the back benches and at protests than in high office.

    Yet it is interesting to consider why such a figure was, in many ways, peculiarly well-suited to the conditions of 2015-19. First of all, there is the obvious sense in which an ‘anti-politician’, an outsider, held appeal at a time when professional, mainstream politicians appeared to have become riddled with cynicism. Labour’s inability to defend the interests of poor families in July 2015 looked like evidence of what happened when ‘politics’ trumped basic morality, and made the case for electing a moralist as a leader instead.

    But there’s a more general sense in which the time was ripe for Corbyn, which relates back to what I’ve termed the ‘punitive spirit’ of neoliberalism that emerged following 2008. The aftermath of the financial crisis witnessed a resurgent politics of guilt, in which authority derived from its capacity to mete out punishment to those who had allegedly had it too good. As Lazzarato, drawing on Nietzsche’s Genealogy of Morals, argues very well in The Making of Indebted Man, debt occasions a brutal morality of unrelenting self-flagellation, that may be unrelated to any utilitarian calculus of efficiency or progress.

    So it turned out with austerity. Devastating cuts to the welfare budget and to local government (which is responsible for so much of what holds society together, via social care and children’s services) were notionally justified on a nonsensical macroeconomic pretext that they would generate growth and balanced budgets, but morally and psychologically justified on the basis that someone needed to suffer. George Osborne lost credibility in the eyes of the economics profession, but gained it in the eyes of baby-boomer middle-England, who were happy to hear that allegedly work-shy families in the inner cities and the younger, softer generation, had had it too good. Meanwhile, with all responsibility for macroeconomic stimulus pushed towards the monetary authorities, those same baby-boomers saw their house prices and pensions continue to grow, thanks to an abundance of cheap credit pushing up asset prices ever further.

    The point is that, several years before an unlikely figure from the Stop The War coalition became Leader of the Opposition, austerity had already been waged as a moralistic program based around a logic of innocence, guilt and punishment, overlayed on to a financialised economy divided (as Adkins, Cooper & Konings identify) according to a logic of assets and debt. The most egregious manifestations of this were sadistic in nature: benefit sanctions, the bedroom tax and the Work Capability Assessment drove people to despair and beyond. As symptoms of the ‘punitive logic’ of neoliberalism, many of these policies were later found to produce more health problems and costs than they alleviated, just as Osborne’s attempt to eradicate the deficit by cutting public spending frequently had the opposite effect. Public sector pay-freezes contributed to both macroeconomic and psychological depression.

    Osborne seized and channeled the moralism of debt-led neoliberalism with gusto, and it won him and Cameron a Parliamentary majority (which they got to enjoy for all of 13 months), but it unleashed a kind of legitimacy crisis that ultimately engulfed them. Whether expressed via Brexit (for which austerity carries not insignificant responsibility) or via Corbynism, political reactions to the new moral economy of punishment were expressed in similarly moralistic and punitive terms. As ever with rage and resentment, the targets were not always the most appropriate ones: Brussels, welfare-claimants, immigrants, universities and Israel are all potential scapegoats under these conditions. Underlying all of this is a break-down of the basic liberal compact of society (accelerated by events such as the 2011 expenses scandal), that reward is vaguely related to effort, and punishment to crime.

    There was evident relief for the Left and Labour members in having a leader who was, at the very least, willing to denounce the policies that had visited such pain upon people, purely due to accidents of birth, disability and class. In many ways, the senseless violence of austerity’s sharper edges called precisely for a spokesperson who had spent decades denouncing senseless violence abroad. Osborne encouraged the zero-sum (and ultimately, with Brexit, negative-sum) conditions of British politics over the last decade, in which all parties (with the possible exception of asset-rich Remainers) come to view society as a domain of acute unfairness. British capitalism’s crisis, post-2008, could be measured in terms of slumping productivity, wage and GDP growth; but it was also an acute moral crisis, in how reward was earned (or not) and how punishment was earned (or not). This produced an overwhelming desire for this to be voiced, including amongst the young, whose rent and student debt were escalating.

    Aftermath

    Whether he meant to or not, Corbyn stole the political limelight in 2015 at a time when society was already being forcefully split into the guilty and the innocent. Corbyn was no more morally divisive a force than the man who sought to divide society into “strivers” and “skivers”, accusing the latter of “sleeping off a life on benefits”. What Corbyn seemed to offer his followers was a chance to draw that line differently, such that the young, the distressed and the weak were no longer deemed responsible for their own fate, meaning that culpability lay elsewhere. We now know that some sought it via terrible conspiracy theories, and that Corbyn lacked the stomach to confront this adequately.

    Being more moralist than politician, Corbyn and his most loyal fans have often seemed unable to distinguish between his personal virtues (“kind”, “decent”, “principled”) and the broader consequences of his leadership. An unhelpful aspect of all this is the Christ narrative that has attached to the man himself, in which the more the press and establishment insist on his guilt, the more a section of his fanbase asserts his perfect innocence, whilst any kind of realism between the two becomes impossible. Something about the cocktail of righteousness and weakness that characterised the Corbyn leadership makes it very difficult to draw a line under.

    What deserves focusing on now is not an individual backbench MP but the conditions that were already firmly in place in 2015, and have deepened ever since. Had Harman whipped Labour to vote against the welfare bill in 2015, or had McDonnell stood instead of Corbyn, things would have worked out differently, but the background constraints would have been the same. Corbyn’s mild-mannered pacifism, activism and sense of ordinary decency were certainly an especially effective vessel for expressions of deep social injustice, but those sentiments (and their causes) would have existed regardless. Labour cut through effectively as an anti-austerity party in 2017 (the year of Theresa May’s excruciating “there is no magic money tree”), but equally effectively as an anti-imperialist party in 2019, for which read ‘soft on national security’. The unlikely achievement of a pacifist leading a major political party was remarkable (as I discussed here), but ultimately was what did for him, as this account from a Momentum activist attested.

    In policy terms, Corbynism offered to abandon the instruments and the decisions that had heaped stress and punishment upon those who deserved neither: tuition fees, public sector pay-freezes and benefit freezes would all be scrapped. Other instruments that caused stress to public sector workers, such as OfSted, would be abolished. In that sense, Corbyn offered a kind of mass ‘pardoning’ of all those on the receiving end of ‘punitive neoliberalism’. But despite the impressive range of economic thinkers that assembled around McDonnell, and the flowering of heterodox economic thinking on the Left during this time, it remained unclear how – if at all – the broader structural problems of rentier capitalism, asset price inflation and private sector wage stagnation could begin to be reversed, other than via a more active public sector. Ed Miliband’s slightly ill-fated 2011 dichotomy of ‘predators vs producers’ remained (and remains) the problem, and – until the furlough scheme was unveiled this year – there is still no mainstream vision of a welfare and labour market policy that provides genuine security to people, without accompanying distress. Many of the policies put forward by economists of inequality, such as Thomas Piketty and Tony Atkinson, are far more radical in terms of weakening the power of inherited wealth and targeting rent-seeking, than anything that appeared in Corbyn’s two proudly socialist manifestos. There is no reason why 2017 should be viewed as the high water-mark for the Left.

    Corbynism helped politicise the economy and mobilise people accordingly, raising public consciousness of intergenerational injustices and the extent of unhappiness with the status quo. What Keir Milburn refers to as ‘Generation Left’ outlives Corbynism and continues to expand with each passing year, and the problem of acute poverty will become exacerbated by Brexit and the pandemic. The shape of British capitalism is not morally acceptable. It shouldn’t be like this, and there are more people willing to stand up and say this in mainstream public life than there were five years ago. The Conservatives have grown fearful of appearing like George Osborne, if only as a reputational problem. The question is what, if anything, is to be done next.

    The post What was Corbynism? appeared first on Political Economy Research Centre.

    Zoom Meeting with John McDonnel Tonight on Sunak’s Spending Review

    Published by Anonymous (not verified) on Wed, 25/11/2020 - 8:20pm in

    I got this email message from Labour Against Austerity on Saturday, so I apologise for being so late putting it up.

    ANNOUNCEMENT: Hear John McDonnell
     respond to the Tory Spending Review.


    Wednesday 25 November 2020, 7pm.
    Register here // Share & Invite on FB here // Retweet here to spread the word.

     

    With: John McDonnell MP // RIchard Burgon MP // Pascale Robinson, We Own It // Apsana Begum MP.


    The #payfreeze news is more proof the Tories will always put the 1% first. The economic crisis we face is set to be the worst any of us have experienced.

    What’s the alternative & how do we build resistance? Join us to discuss how we transform our economy and society to ensure that people’s jobs, livelihoods and health come first.

    Join over 15,000 others in supporting the #PeoplesPlan at http://bit.ly/planforthepeople
     

    Register here // Share & Invite on FB here // Retweet here to spread the word.

    Pages