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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.”

 

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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

 

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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.

Unfunny Comedian Jokes about Killing Corbyn Supporters on Have I Got News For You

I didn’t watch Have I Got News For You last Friday. I’ve gone off the programme. It’s definitely past it’s sell-by date, in my opinion. Not only is it not as funny as it was when it first appeared in 1990 or thereabouts, I’ve got sick and tired of its right-wing bias.

Right-wing, when the Tories have also moaned about the Beeb being full of ‘woke’ lefties? Yes. A few years ago it was denouncing Putin’s invasion of the Ukraine, despite the fact that the Maidan Revolution was a very carefully planned piece of regime change by the Americans using the National Endowment for Democracy. The regime they had installed was definitely pro-western, and supported by real Nazis, who were goose-stepping around in uniforms taken from SS auxiliary units in the Second World War. And it seemed to me that the Russian and Russian-speaking Ukrainian population were being victimised, so under international law Putin, thug though he is, had every right to invade to aid them. But you didn’t hear this from the Beeb, and especially not on Have I Got News For You. Just more propaganda from the American and British establishments.

Ditto with the programme’s attitude to Corbyn. I stopped watching it because week after week, all you heard from Have I Got News For You was them pushing the anti-Semitism smears. Corbyn was an evil anti-Semite, and the Labour party was a foul, seething cauldron of anti-Jewish hatred. It was the standard media line, and shows the groupthink of the lamestream media. And it was the same on Friday, I gather.

According to a video put up yesterday by right-wing Youtuber and radio host, Alex Bellfield, the programme had included a comedian, Fintan Torbin/Toibin/Tobin, oh, whoever. Torbin was definitely a supporter of Starmer, and said that just when Labour looked like becoming a serious opposition, back came Corbyn. He then compared his supporters to fans of Bob Dylan, whom he considered to be just as infuriating. He said that they should all be killed by bombing Glastonbury. I’ve got a feeling this might be a reference to an incident at the festival a few years ago when the Labour leader appeared on stage, and was roundly greeted by the audience. That’s clearly rankled Blairites like Torbin for a very long time. It also makes you wonder about his hatred of Dylan. I can’t say I’m a fan of him, and some of his stuff is undoubtedly overrated, I’m sure. But it’s a bit much to talk about killing his fans.

Torbin’s joke is a clear example of Beeb anti-left wing bias. But not to Bellfield, who has a bitter hatred of the corporation. He has some kind of personal vendetta against them too, and so makes videos claiming that it’s full of ‘woke’, Guardian-reading lefties. pushing minority identity politics and gender confusion on the young. Now I think he’s right in that the Beeb does back, or wishes to be seen to back, anti-racist, feminist and pro-gay and trans policies. But when it comes to working class politics as a whole, the opposite is the case. It is very solidly pro-Tory, anti-Labour and anti-trade union, and has tireless and relentlessly pushed austerity, as the Kushner brothers have pointed out in their excellent book, Who Needs the Cuts?

Torbin’s unfunny joke obviously provoked outrage from the viewing audience. Bellfield considers this hypocritical, considering that Jo Brand was allowed to get away with a joke about stabbing Nigel Farage. Well, the arch-Blairite Labour MP Rachel Reed also made a comment about stabbing Corbyn in the front, but I don’t see Bellfield getting upset about that. Which shows just how partisan he is. He claimed that the outrage at Tobin’s joke was another example of the hypocrisy of the Beeb against right-wingers. He’s wrong. I think the Beeb, or at least the host, Victoria Coren-Mitchell, may have been genuinely surprised at the strength of the reaction against it. It seems to me that, considering their long record of pushing the anti-Corbyn line, the Beeb invited Torbin on because they knew he hated Corbyn and would make a suitable joke or comment about him. They just didn’t expect that a large, vocal part of the audience would take issue with it.

Just as the sheer strength of support for the Labour leader is causing problems for Starmer and the Blairites, who clearly hadn’t expected such opposition to their attacks on Corbyn and attempts to purge his supporters.

Just getting by is not enough

Woman shopping in a supermarketPhoto by Kevin Laminto on Unsplash

“The rich run a global system that allows them to accumulate capital and pay the lowest possible price for labour. The freedom that results applies only to them. The many simply have to work harder, in conditions that grow ever more insecure, to enrich the few. Democratic politics, which purports to enrich the many, is actually in the pocket of those bankers, media barons and other moguls who run and own everything.”

Charles Moore

In the light of the possible wage freeze for 5 million public workers, the economist Grace Blakely explained on Double Down News this week why billionaires should pay, ‘not working people who sacrificed their lives to keep our economy going.’ Whilst the sentiment is right that working people should not pay for the crisis, her suggestion that the billionaires should step into the breach and pay what they owe instead is just more neoliberally inspired claptrap. The implication that the very rich are stealing from the public purse and that we should bring back John McDonnell’s magic money tree from the Cayman Islands is a shameful and false narrative being peddled by a supposed left-wing economist who clearly is still caught in the headlights of false household budget accounting. By such shifting of blame elsewhere, Blakeley fails to acknowledge the real power of the public purse to spend, should the government choose to, on public purpose and also the power of the state to legislate to ensure that the rich pay what they owe. In this fairy tale narrative of taxes fund spending, she ignores the fact that, amongst other things such as redistributing wealth through progressive taxes, taxation is the mechanism to reduce the influence of the wealthy in the corridors of political power. That should surely be the left-wing argument for ensuring the billionaires pay their dues.

Blakely’s appeal came in response to the proposal by the Centre for Policy Studies for a three-year public sector pay freeze, which it claimed could save the government cumulatively £23m. It also suggested in its newly published report that the pain had not been shared equally and that private sector workers had suffered more than those in the public sector. The CPS put forward that NHS workers could be exempt from the freeze to account for their hard work and sacrifices during the pandemic giving an albeit reduced saving.

Robert Colville, the Director of the CPS, suggested that the public finances had been decimated and that it would be difficult to justify generous pay rises in the public sector when private sector wages were falling, given that there was a need to control public spending and reduce the structural deficit which the pandemic was likely to have opened up.

Once again not only do we see the powers that be aiming to drive further wedges of envy between the public and private sector, but also a reinforcement of household budget accounting in terms of how the government spends.

Over the last six months and more, the public sector has stepped up to the plate in response to Covid-19. The Prime Minister and his Chancellor have stood in Downing Street to clap for the NHS and social care workers and the nation responded. The public sector – the NHS, education, social care, and services provided by local government – has, along with other key workers in the private sector, ensured that services were kept going. That care for the elderly continued to be provided in difficult circumstances, that the food and other vital supply delivery networks continued to function, that supermarkets and other shops were stocked and able to provision the nation.

The pandemic has demonstrated, as no other event perhaps could, how interdependent society is and that key workers in the public and private sectors, many of whom are low paid, underpin the foundations of society so that it can function effectively. The world of Mrs Thatcher’s ‘there is no society’ has been well and truly discredited.

And yet after all the clapping and talk of levelling up, the government might be on the brink not only of creating more societal division in a cynical sleight of hand to distract attention away from government actions, but also of freezing the pay of public sector workers who have already suffered the consequences of a decade of Tory austerity. It is time to question who the government is serving. The markets and exploitative corporations or its citizens?

We have been brainwashed into believing that the government is at the mercy of the market and must serve it. The public has accepted the lie that government spending is constrained and dependent on private businesses generating the wealth which in turn generates the taxes that we are told fund government spending.

And yet the reverse is true. It is the government which sets the economic bar. It is the government which spends to tax, which sets the price for labour and legislates for protective employment law. It has been a political choice to cede responsibility for ensuring that people both in the public and private sector are paid wages commensurate with a good standard of living, that would put paid to continuing poverty and inequality.

At the other end of the scale, the power of the public purse has been shown to work perfectly when it is a question of pouring vast sums into private profit, in many cases with little accountability. The term ‘chumocracy’ has also been applied to how many of these contracts have been awarded.

Only this week, we have seen yet another demonstration of how the use of the public purse is a matter of political choice as the government agreed a four-year £16.5bn increase in defence spending. Boris Johnson called it ‘a once-in-a-generation modernisation of the armed forces … [required] to extend British influence and protect the public’ and restore Britain as “the foremost naval power in Europe”. We seem to be going back in time!

Labour unsurprisingly has supported these plans, but did ask how they would be paid for. Patrick Butler from the Guardian questioned how such a vast amount of money was justified when the ‘public finances have been stretched by the pandemic’.

The vision of stretched finances appeals to household budget explanations of how governments spend and is designed to reinforce the narrative of scarcity of money. Over the last few months, it surely must start to dawn on the public that there is no scarcity of money. The public finances have not been stretched, indeed they have been positively overflowing. The government simply made a political decision to spend money on defence, just as it did to support furlough or after public pressure to feed hungry children in schools.

In terms of how the government spends, it does not have to choose one expenditure over another. It does not have to match its spending to tax revenue or worry whether it can borrow money. It is just a decision based on political priorities. Feeding hungry children wasn’t a priority until it became politically expedient for it to be.

It is disheartening that time and time again mainstream journalists persist in toeing the establishment line that money is scarce and there will be a future price to pay. In an article in the Financial Times this week, it was suggested that that the Exchequer was running on empty and that the Tories in the wealthy south will soon be asked to support tax increases to help left-behind regions.

Let’s reiterate yet again that the state of the public finances is not dire, the Exchequer is not running on empty and, since tax does not fund government spending, increases will not help left-behind regions. In fact, taxing more in a period of economic decline or as a country was coming out of one would be positively harmful.

When it is suggested that drivers could be charged for using roads to help Rishi Sunak cover a tax shortfall of £40bn caused by the rising popularity of electric cars, one is tempted to point out that there is no hole in the finances to plug. Whilst we might want to use taxation to encourage people to use public transport, the only holes to plug are the potholes caused by cuts to spending on our road network.

It cannot now be any clearer that the UK government, which has the power of the public purse to authorise spending through its central bank, is not hindered by scarce monetary resources. That it just spends. The clear political priority is to spend on defence to ‘extend British influence’ rather than invest in a public and social infrastructure that serves the interests of the nation or addresses the rising poverty and inequality which has arisen as a result of government policies over the past 10 years.

The question of affordability has been used by successive governments to justify their spending policies. And yet, whilst successive governments have always found money for defence or prosecuting wars, whether it can be found to pay public sector workers decent wages is quite another matter.

In the same vein this week, the Treasury was reported to have been reluctant to commit more money to delivering the Prime Minister’s 10-point plan for moving to a low-carbon economy. Aside from the usual puff and rhetoric from politicians on a practical level, there are still questions as to whether words will be translated into real, firm actions. In an open letter to the government, it was reported this week that the UK would not be able to deliver on its zero-carbon commitments unless it intervened in the energy from waste sector and that recycling rates have reached a standstill. Ministers have also been accused of using the pandemic to justify further delay on promised action on food waste reporting until 2021. While the planet’s biodiversity continues to decline as the planet warms and valuable resources go up in smoke with few constraints, the government continues to prevaricate.

In saying that hard choices exist in relation to public sector pay or suggesting that we haven’t enough money to address climate issues, the Treasury ignores the elephant in the room. That the real human and planetary cost of not spending on these vital things will be immeasurable.

Over eight years ago George Osborne criticised green policies as a ‘burden’ and a ‘ridiculous cost’ to British businesses. Since then the environmental landscape has changed irrevocably as the climate tsunami bears down upon us with ever greater urgency. Governments have become masters at making promises or giving speeches with hat tips to change, but which result in very little. To suggest that there is a monetary constraint reveals much about the ideology which governs the government’s policies and the constituency it serves, but in the end, the burden of not acting will not be monetary, it will affect every aspect of our lives – economic and societal.

This is an opportunity not to be wasted. We have allowed an economic system to exploit working people. Businesses have justified low wages and poor employment conditions as prerequisites to competitiveness. Government having abandoned full employment policies in the 1970s has rolled over instead of assuming its considerable powers.

A recent report published by the Social Equality Commission quoted a female supermarket worker who said ‘when you dig really deep, I think it is about happiness and stability, and feeling valued … because money is secondary to all that. As long as you can get by, you shouldn’t worry about it.’

Happiness and stability are, without doubt, important but how such happiness and stability can occur when people are struggling to make ends meet is debatable. Just getting by is not enough and nor is it fair. Good wages and secure employment allow people to have a good standard of living, to be able to plan for the unexpected or indeed to save for the future. People are being brainwashed into accepting their lot on the lie of there being no alternative when there is such imaginable wealth in the hands of few people whose power and influence dictate its distribution.

From a macroeconomic perspective, the bottom line is that people with good wages and employment security spend their money in their local communities and the wider economy which in turn support local and national businesses. It seems the Chancellor, by suggesting he has to plug the hole in the finances either by higher taxes or public sector pay freezes, is displaying a deliberate ignorance, dictated by ideology, of the macroeconomic importance of people having money in their pockets. Let’s remember that one person’s spending is another’s income. It is fundamental!

To conclude this week’s lens, it is only right that we bring our readers’ attention to an editorial in the Guardian which highlighted that:

Coronavirus has thrown into sharp relief the inequalities in Britain. The bottom fifth of the working population have seen incomes cut sharply and their savings reduced to nothing. For the poor, there’s little or no cash to furnish even the barest of Christmases, while those at the top have seen cash pile up in bank accounts.

And then went on to criticise Sunak by saying that:

‘he continues to peddle the myth that the extra government borrowing during the pandemic means that he has to make “hard choices” to “balance the books”. The chancellor is softening the ground for austerity policies. Mr Sunak is making an ideological choice by using the wrong model of the economy. If he does not relent then he will be responsible for unnecessary unemployment and poverty.

It then urged Sunak to rethink his future policies by recognising that:

‘the government can take responsibility for maintaining the total level of spending in the economy at level that keeps the country as close to full employment as possible where a working week is at a reasonable length and paid at a reasonable wage.’

This is a moment of great change. A moment of great opportunity to create a fairer society for all. The economist Herman Minsky wrote: “a necessary ingredient of any war against poverty is a program of job creation; and it has never been shown that a thorough program of job creation, taking people as they are, will not, by itself, eliminate a large part of the poverty that exists”.

Unemployment and its associated economic and social ills could be mitigated by the introduction of a government-backed Job Guarantee, not only to deal with the economic fall out from the pandemic which will continue for some time to come but also act as a just transition mechanism as we address climate change. As a macroeconomic tool, it offers a cyclical approach to unemployment that would create a more stable economic environment to deal with the ups and downs of the economy with the added advantage that working people are not left to perish when times get tough.

Instead of talking about monetary scarcity and unaffordability, an argument which dominated the narrative for decades, the debate must now move to how we can create a more sustainable and equitable future in the context of the distribution of finite real resources and who gets them.

Society, through its elected government, has to decide its priorities. Real and sustainable human and planetary well-being delivered by powerful states with the power of the public purse governing in the interests of their citizens? Or a rehash of the current economic model which has at its heart a greenwashed control by global corporations.

 

Event Recording

GIMMS’ event “Phil Armstrong in Conversation with Neil Wilson” is now available as a podcast via the MMT Podcast. Our thanks to Christian Reilly for publishing it.

 

The MMT Podcast #75 Neil Wilson & Phil Armstrong: In Conversation

 

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The post Just getting by is not enough appeared first on The Gower Initiative for Modern Money Studies.

The deceitful image of money scarcity has no place in our society.

Hands of two women. A younger woman holding the hands of an elderly woman.Image by Sabine Van Erp from Pixabay

Society is indeed a contract. It is a partnership … not only between those who are living, but those who are dead and those who are to be born.

Edmund Burke
Reflections on the French Revolution – 1870

 

In the news this week the government did yet another turnabout following Marcus Rashford’s campaign and public pressure by announcing a £170m winter grant scheme to support low-income families. During the same week, the Trussell Trust reported that there had been a 47% rise in the number of parcels distributed via its networks in the 6 months to September 2020 compared to the previous year; that more than 1.2 million parcels were distributed, of which 470,000 were to children. And this was, it suggested, just the tip of the iceberg as these figures did not include the number of people helped by the numerous local organisations, independent food banks and local authorities who have stepped in to support their communities.

Whilst the Trust attributed some of these increases to the pandemic, which has had a devastating, effect the Trust was clear as to the underlying reasons why people need support. The key issues were related it said to a fundamental lack of income which has left people struggling to afford the essentials. As Emmie Revie, the Chief Executive of the Trust commented to the Guardian:

 

‘We have to find better ways of supporting one another as a society than leaving people to rely on food charity. It’s not just about ending food banks, it’s about finding an alternative to the need for mass distribution of charity food in the fifth wealthiest country in the world.’

 

The threads of poverty lie in adherence to a failed market-focused economic ideology and the government policies and spending decisions that result from it. Child hunger is just one of many interlinked consequences and research published this week by the Living Wage Foundation showed that during 2019/20 nearly three-quarters of independent care workers in England were paid less than the real living wage. They are, it said, among the 5.2 million workers in low paid, insecure jobs – 1.3 million of whom are key workers. The analysis noted that care workers earn an average of £8.50 per hour and 24% are on zero-hours contracts. It, like the Trussell Trust, highlighted the existing inequalities in our society which has hit the lowest earners the hardest and that was before the pandemic struck. Whilst the nation clapped with Boris Johnson Tabitha, a care worker, said:

 

‘I feel like a Roman Gladiator going into the ring on a night shift. Everyone is clapping for you, but you’re pitting yourself against a deadly disease without the proper pay and protection.’

 

As the government has increasingly ceded its responsibilities for its citizens through cuts to spending on public infrastructure both local and national, which in turn has led to an ideological and financial response at local level as private profit-seeking companies were invited to tender for contracts to deliver social care services, the consequences have been devastating. For those being cared for as much as those doing the vital work of caring for others.

As the government lauded its financial acumen in managing its accounts, its decisions have led to a vicious cycle of deprivation and poverty and public infrastructure decay. The connections are irrefutable. Surely it must dawn on the nation soon, as government and other institutions begin to wind up and reinforce the household budget narrative in support of action to get the public finances ‘back in order’ after all this spending, that its health and economic well-being is being reduced to one of balanced budgets and unaffordability.

At the same time as Rishi Sunak suggested that he may increase capital gains tax to pay for billions borrowed and the COVID-19 debt which is supposedly racking up, the Resolution Foundation published its report entitled Unhealthy Finances: How to support the economy today and repair the public finances tomorrow. In its report, it focused specifically on the dual challenge it believes the government is facing ‘to ensure that there is sufficient fiscal support through the crisis and recovery, and setting fiscal policy on a sustainable path.’

Even though it said that the government should commit not to start such consolidation until the economy had recovered, it still claimed that the government must do what is required to ensure that the public finances are sustainable and adopt a balanced current budget rule.

In the report, it suggested continuing to use low interest rates as a tool for supporting the economy and noted the fiscal damage being caused by lower tax receipts and higher spending. It proposed, amongst other things, reforming the tax system to raise revenue and imposing a health and social care levy to provide any additional revenue required.

Here we have all the usual implied but false language narratives about government spending – taxing to spend, borrowing and unsustainable public debt, repairing the public finances, financial sustainability, balanced budgets.

We’ve been here many times before and clearly the establishment is determined not to lose control of that narrative. The fightback is in full swing. The deficit and debt worrywarts are working overtime to keep the public in line. Heaven forbid that people should learn the truth about how the government really spends!

However, as that knowledge is going more mainstream, questions are being asked as it is becoming ever clearer that human and planetary well-being lies with government choice, i.e. who gets the money. It is therefore intolerable to think, in the light of this growing understanding of the spending capacity of government, that government and think tanks are suggesting that taxes be increased to pay for this imaginary round of borrowing and the subsequent imaginary national debt which has arisen from it.

Whilst one could certainly make a case for reforming the whole tax system to ensure a fairer distribution of wealth, the justification by the Resolution Foundation or the Chancellor for increasing taxes does not stack up for the following two reasons:

  • That such action would quite simply take money out of the economy at a time when it would still be recovering from the economic effects of the current crisis compounded by previous cuts to public spending which have had a cumulative effect on the economy. Private debt levels prior to the pandemic were already high but have soared by 66% since May to £10.3bn. The number of people in serious debt has doubled since March rising to 1.2m with a further 3 million at risk of falling into arrears. Raising taxes with this scenario in mind would seem self-defeating and destructive.
  • That taxes don’t fund government spending and cannot be used to reduce public debt

Quite simply the ‘taxes fund spending’ story is just a lot of accounting smoke and mirrors to suit an agenda which aims to keep people downtrodden and accepting their fate. The trope of financial unaffordability is deep within our own household budget psyches and shifting such narratives can be hard work. Much depends on loosening our attachment to them through knowledge and more importantly the desire for something better.

Taxes will not pay off the national debt any more than they will boost financially a failing social care system. Our public services including social care and the NHS are in crisis as a result of government choices, not a lack of tax money the government can collect. Privatisation and the profit motive, along with public spending cuts have both played a role in destroying what could and should have been funded publicly.

The deceitful image of money scarcity, with government reliant on taxes and borrowing to spend, has no place in our society as children go unnecessarily hungry and our young people face a gloomy future.

In this week’s Guardian, Patrick Collinson wrote that the COVID-19 crisis could have a lasting impact on young people’s pensions: indeed, the lives of young people have been turned upside down with future employment prospects damaged and life opportunities curtailed. However, future private pensions are the least of the worries of young people as they start out in life. It is the government’s role now to ensure, through its policies, that young people can thrive and build themselves a future and decent state pension provision should be a significant part of that.

We need to expose the con of private pensions which are reliant on fickle markets and a stable economy. Margaret Thatcher’s economic vision which was inspired by Friedrich Hayek and Milton Friedman reflected her belief in the superiority of the market. The idea implicit in this dogma was that the welfare state deprived people of the opportunity to make their own provision for old age. Thus, we witnessed the opening up of the market for private pensions in an attempt to weaken the state’s own pension provision. The current crisis is exposing their weakness which even before the pandemic was becoming clear and invites us to question the state’s ideological reliance on the private pension sector.

The solutions are to provide decent state pensions to give retired people financial security and ensure a decent standard of living and to reduce the pension age. The current round of retirement age increases is based on the lie that state pensions will become increasingly unaffordable as the birth rate falls and tax take reduces which will, it is claimed, cause an unacceptable burden on future taxpayers. We need to break the false connection between the payment of tax and receiving a pension.

The question of how it can be paid for doesn’t arise if we understand how the government spends. It would be paid for in the same way the government always pays for things; by creating the money out of nowhere. A simple transfer with a few computer keystrokes authorised by the Treasury and carried out by the Central Bank. We need to knock on the head the idea that a portion of our tax is being collected somewhere in a savings pot to be divvied out at retirement or indeed that taxes serve to pay for public services.

Assuming that government has invested through sufficient spending on public and social infrastructure including education, training, new technologies and by embracing full employment policies, then an earlier retirement and a good state pension is possible. Such investment will not put a financial burden on the lives of future generations, it will enhance them and those of retirees. We just have to decide as a nation how we want the real, but finite, resources we have at our disposal to create a better life to be shared out.

Earlier this week, there was an interesting exchange of views on a Facebook labour group when someone posted the following:

 

‘You do realise the Bank of England are printing new notes by the million. All we will get from Johnson is a bankrupt country.’

 

It is disappointing to observe in that post and the thread that followed that some individuals on the left seem to get pleasure from continually shooting themselves in the foot. By excoriating what they see as a reckless Tory government because in their view it is spending too much and driving us towards bankruptcy or hyperinflation, adds a certain touch of irony to the criticism since it was the Conservatives who used similar arguments against Labour’s spending plans in the last election. It all boils down to where is the money going to come from and who is going to pay?!

This type of scaremongering is damaging to a left-wing agenda and is borne of lack of knowledge. It is regrettable that, even when presented with the facts about how the government spends, many still choose to persist in reinforcing the myths and ignore the fact that it is impossible for the UK government to go bankrupt or run out of money and that government does not need our taxes to pay for public services not even the taxes of the rich. Ultimately, that is to deny monetary reality and what that knowledge could mean for any future progressive government’s spending plans if such a government were to exist although that is currently quite another story!

If we are going to debate, let’s do it from a position of knowledge rather than making exaggerated and untrue statements about how we are all going to hell in a hand cart because the Tories have spent too much. Let’s remember that in 2010 the same arguments were being levelled at Labour following the Global Financial Crash; another era of suffering and hardship for many. And that it was the Tories who said in 2010 that there was no alternative to cuts to public spending to get the public finances back in order and yet have suddenly without a problem found the monetary wherewithal to save the economy from the worst effects of the crisis. For the left to use this argument against the Conservatives is counter-productive to future progressive agendas.

The household budget ping pong played by successive governments at election time, which examines critically the fiscal record of a government or asks how its spending plans will be paid for, has done great damage to society and the economy. Such arguments overlook the real measures of economic health relating to how government serves its citizens in real social improvements from the provision of health and social care, education, policing, a social safety net and public transport networks to local service provision of libraries, municipal parks and refuse collection. All these things which previously were determined as the public good have been attacked by a governing elite serving its own interests and those of its financial donors.

As Peter Fleming, professor of business and society at City, University of London wrote:  Austerity [redefined] these things as fiscal liabilities or deficits rather than shared investments in common decency’.

Let’s argue for a better, fairer and kinder society based on real knowledge of monetary reality and not baseless statements which only serve to promote continuing political inertia on the left in terms of understanding how money works and how that knowledge fundamentally changes how we can respond to today’s and tomorrow’s challenges.

 

Newly published

This week, we published a fact sheet on Negative Interest Rates

Negative Interest Rates

and a new paper by Phil Armstrong and Warren Mosler

Weimar Republic Hyperinflation through a Modern Monetary Theory Lens

 

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We can afford to choose public purpose spending

Published by Anonymous (not verified) on Sun, 08/11/2020 - 8:06am in
Public duty and the public purpose? Or, self-serving interest? Politicians have a choice. We have a choice.

A row of white doors along a wallImage by Arek Socha from Pixabay

The problems we face did not come down from the heavens. They are made. They are made by bad human decisions, and good human decisions can change them.

Bernie Sanders

 

In this week’s news, the economic train crash continues as it was announced that more than 7200 workers are set to lose their jobs as the pandemic continues to take lives and cause huge economic suffering to the lives of the still living with worse yet to come.

Boris Johnson said this week at one of the government briefings that we should be ‘humbled in the face of nature’, that the NHS could collapse if the government failed to heed the warnings of the experts and that he was not prepared to take a risk with the lives of British people. Those statements should have been the moment for a sharp intake of national breath in disbelief at the spinning of a story which belies a cynical sleight of hand to shift the blame from the real culprits and display feigned empathy that it has the interests of the nation at heart. Through 10 years of austerity politics, the government has willingly taken risks with the lives of British people with its policies and spending decisions which have stripped down our public infrastructure and led to over a hundred thousand preventable deaths through cuts to health and social care spending and social security reforms.

On the one hand, we should indeed be humbled in the face of nature as the consequences of human activity linked to the exploitation of resources and excessive consumption as the price for seeking the god of growth and profit begins to be made very clear. But that was not Johnson’s intention. It was yet another example of how the government manipulates the narrative through its use of words to shift the arguments away from its own disastrous policy and spending decisions that have exposed the gaping holes in our public and social infrastructure.

When the Prime Minister says we need a second ‘lockdown’ to stop our hospitals being overwhelmed, that cannot be the fault of nature. When we are short of 100,000 NHS workers of which 44,000 are nurses, that cannot be blamed on nature. When the Cygnus report published in 2016 exposed the serious gaps in Britain’s pandemic response plans, nature had no role to play.

Alluding to nature aims to take the heat off the government to make as if it were not responsible for this epic train crash of policies and spending decisions. We have limped from one mess to another; each crisis building incrementally consequences that could have been avoided. From successive financial crises to the arrival of Covid-19 and the subsequent government management of it. These were manmade not nature made, as were the disastrous solutions.

Austerity has brought us here and austerity kills and has killed. It is as David Stuckler explained in his book The Body Economic: Why Austerity Kills’

‘an economic ideology [which] ‘stems from the belief that small government and free markets are always better than state intervention. It is a socially constructed myth – a convenient belief among politicians taken advantage of by those who have a vested interest in shrinking the role of the state, in privatizing social welfare systems for personal gain.”

Our country didn’t just fall into this situation by accident; it happened as a result of a toxic economic orthodoxy which dominates policymaking at the heart of Westminster and indeed beyond nationally and globally from national governments to global institutions such as the IMF, the World Bank and the World Economic Forum. The destruction of our public and social infrastructure, in favour of market solutions, left us totally unprepared and yet still the market solutions command power. As public money continues to be dished out to non-accountable, profit-hungry companies, corporate welfare reigns at the expense of a publicly delivered, managed and accountable public service model. The corporatisation of everything is at a terrible human cost. The massaging of the public purse for corporate benefit, not public purpose. And anything goes!

This was further emphasised this week when Simon Stevens, a former advisor to Tony Blair who worked for the US private healthcare company United Health and now heads NHS England said ‘there is no health service in the world that by itself can cope with coronavirus on the rampage’. Whilst one cannot deny the enormity of this global health and economic challenge, this is yet another attempt to bypass or ignore the realities of a lethal economic ideology which has as one of its tenets the belief that cutting public spending is a necessary policy to balance a nation’s budget.

Ten years of public spending cuts in real terms, the ongoing damaging reforms to the NHS which have fragmented it and commercialised it; pared-down facilities and reduced number of beds (from 300000 in 1987 to 141,000 today), 100,000 fewer NHS workers than needed; and the failure to acknowledge the Cygnus report, has left the UK insufficiently prepared for the emergency we now have before us.

This was cruelly demonstrated by the realities of the Nightingale Hospitals which were set up to manage the predicted overspill of Covid patients once established hospital beds had reached capacity. As a Keep our NHS Public publication revealed this week ‘the need for the existence of these urgently-created hospitals is a powerful illustration of how little wriggle-room exists in our hospital system and how resilience has been stripped away by chronic underfunding’. It also pointed to the fact that the Government had also failed to mention exactly who would staff the temporary hospitals when the nursing shortage was already so acute. ‘Robbing Peter to pay Paul’ was always going to be revealed as a huge PR exercise which led people up the wrong path but could not deliver.

Stevens also forgot to mention the pursuit of the same damaging neoliberal ideology arising out of the World Economic Forum’s concern for the financial sustainability of public health care which Stewart Player covered in this article from 2017. It showed the WEF’s influence in developing a world vision for health care and whose ideas we have seen reproduced here in the UK with the help of private consultancies such as McKinsey and Co.

It particularly looked at the ‘fiscal pressures to curb expenditure’ and the ‘wider economic context of high levels of public debt and stagnant state revenue.’ It examined in particular ‘various forms of rationing and shifting the cost burden onto individuals and employers through … mandatory insurance’ or ‘increasing tax revenue’ or potentially increasing healthcare productivity ‘through delivering more services with fewer resources’ which would ‘go a long way to ensuring their financial sustainability.’

This is the same Simon Stevens who has been a significant player in the damaging reforms to a now fragmented NHS to cut costs and make it a nice profitable opportunity for private healthcare companies.

Whether we talk about the NHS, education or other vital public services which provide the foundations for a healthy economy, the public is continually being programmed to accept the narrative of the problem with public debt and the need for financial sustainability as much as it is being programmed to accept that the private sector does it better or indeed that volunteering can take the place of government intervention.

After the very necessary big spend of trillions of pounds (even if as left-wingers we can argue about the details of that expenditure) ‘there will be a price to pay’ is the mantra still being touted.

Whilst the government pours vast sums into private profit, we see an on-going denial of government responsibility for public well-being through its spending decisions. As the government’s corporate friends gain access to the public purse with no seeming limits, our public support systems are denied sufficient funding.

From its decision not to extend free school meals, lauding of public generosity in donating to food banks or other charities to its appeals to people’s human empathy with invitations to volunteer, we are being sucked into accepting these things as normal. As they reinforce the narratives of fiscal responsibility, the public is being sucked into accepting that government has no role to play in public purpose. By the time the nation notices this trickery, it will be too late. We will have fulfilled willingly David Cameron’s Big Society dream without realising where it is leading us.

Whether its Lord Stuart Rose, Chairman of Ocado, who said on Channel 4 News this week ‘We have to be able to protect our economy and generate the sort of income that tax provides so that we can pay for the hospitals, pay for the services and keep the NHS going.[…]We’ve now borrowed £400bn this year that’s £40,000 roughly for every taxpayer in the UK … it is going to be a deep hole that we are going to have to dig ourselves out of later. Let’s talk about the 20-30-year-olds who are going to have to live with that for the next 20 or thirty years.’

Or the former Shadow Chancellor of the Exchequer Ed Balls suggesting that whilst governments don’t need to think about returning to austerity, spending cuts or tax rising ‘it’s gonna take fifty years or more to recover from the fiscal consequences of this pandemic and then going on to claim that ‘it was the children born in the 50s, 60s and 70s who ended up paying for the aftermath of the second world war and it will be future generations who will bear some of the burden of dealing with the pandemic …’

It shows very clearly how stuck politicians and business leaders are in the economic orthodoxy which has done so much harm already and their willingness to carry on with that harm. The suggestion that the children born in post-war years were burdened with paying for it through higher taxes fails to acknowledge that that spending created the public and social infrastructure from which they all benefited in successive years as did the pursuit by successive governments of full employment at least until the 70s when neoliberal orthodoxy began to take hold. With public ‘debt’ at 248% of GDP in the post-war period, nobody suffered, and everyone gained.

That investment which created the NHS, an education system and good local government providing essential services, all helped to enhance people’s lives and by dint of that construct a fairer economy. Later adherence to the concept of fiscal responsibility and its damaging bedfellow austerity created the exact opposite. Indeed, as David Stuckler observed in his book referred to earlier:

‘Had the austerity experiments been governed by the same rigorous standards as clinical trials, they would have been discontinued long ago by a board of medical ethics. The side effects of the austerity treatment have been severe and often deadly. The benefits of the treatment have failed to materialize. Instead of austerity, we should enact evidence-based policies to protect health during hard times. Social protection saves lives.’

Both of these public figures are promoting an idea that has had its day. If only they knew about modern money realities – or perhaps they do?

That the government:

  • is the monopoly issuer of the £ sterling
  • has to spend before anyone can pay their tax
  • doesn’t have to borrow to spend. That the term ‘borrowing’ is purely a convenient sleight of hand that suits politicians to promote to justify their spending decisions and serve corporate interests.

And that:

  • the size of deficits in themselves are not a suitable measure of any government’s economic record
  • the only burden that future generations will face is one caused by a government that has failed to invest today in the real resources whether its people or the things used in the production of the goods and services which enhance our lives and make a better tomorrow.

As Thomas Fazi, co-author of Reclaiming the State published in 2017, wrote a year later:

“One of the key insights [of MMT] is that the ‘deficit’ numbers by themselves – whether in percentages of GNP or in absolute quantitative terms – are meaningless. The government can ‘sustain’ any amount of deficit […] to pay its obligations. Of course, this is not a license for irresponsible spending. Creation of money, and its utilization in ways which do not enhance productive capacity of the domestic economy are sure to cause harm to the economy. Rather, MMT provides us with a license for responsible spending. If there are worthwhile projects which will utilize resources currently lying idle, then there is no need to be scared of the deficit numbers in spending on these projects. Viewed in this light, the project of building a million houses is not constrained by the budget of the government. Rather it is constrained by the availability of resources which are required for this purpose. If there is idle productive capacity in terms of labor, land, and materials, spending in this area will utilize them to the maximum. If the capacity does not exist, then a carefully balanced spending strategy, which builds capacity in a way coordinated with the increasing demand for utilization of this capacity, can be funded by deficit financing, without causing harm to the economy. Of course, it goes without saying that this requires skilful management and planning”.

We need to re-create a model of good government in which politicians dedicate themselves to the concept of public duty to serve the public purpose and not their corporate friends, or themselves via the revolving door.

Newly published

 

This week, we published guides to quantitative easing, or QE.

Basic information is available in our FAQs here

and a fuller explanation is in our QE Fact Sheet

 

Upcoming Event

Phil Armstrong in Conversation with Neil Wilson – Online

November 15 @ 14:00 pm – 15:30 pm

The GIMMS team is delighted to host its next ‘in conversation’ event at which Phil Armstrong will be talking to Neil Wilson

Neil is an expert in finance and information systems and one of the UK’s leading thinkers about MMT. After more than 30 years in the systems business, Neil learned the hard way that operations rarely follow the manual. Moving from network crashes to financial crashes, Neil was intrigued as to whether the economy could be fixed with a reboot – which lead him to Modern Monetary Theory (MMT). His work challenges the high-priesthood of Important Grey Men who refer to people as ‘resources’ and who believe debt is bad for government and good for you.

He dreams of a world where everyone who wants a living wage job can find one, close to their home, their friends and family.

You are invited to join us for this informal event which we are sure will be both stimulating and insightful.

Register via Eventbrite

 

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Ending needless suffering

Published by Anonymous (not verified) on Sun, 01/11/2020 - 8:17am in

Hungry child with her hand in her mouthImage by Chitsu San from Pixabay

“When the MMT coin drops and you realise the suffering is gratuitous”

Stephanie Kelton

In this week’s blog, hunger is on the menu yet again. Gratuitous hunger and hardship. Gratuitous suffering. Whilst the government gives with one hand (not enough), lauds its generosity at every media opportunity and yet is selective in its distribution of public money, it is making it very clear that the magic money tree they swore blind didn’t exist prior to the pandemic does have limits and we can expect a tightening of the public purse in the future. Indeed, in a recent tweet Rishi Sunak made his position very clear in when responding to the question whose money are we spending:

‘… the simple answer is your money. The government is not some entity that has its own money. The government only has money because people pay taxes and we borrow money. That’s how we fund what we do.

 

That’s why I’m careful with how we spend that money. It’s why often I will say look we can’t do absolutely everything that people want. There’s obviously limits. I’ve got to try and balance what’s the right level of taxation, how much we can safely borrow, conscious that that will need to be paid back and the burden will fall on future generations.

 

We’ve spent an enormous amount and we’ve borrowed an enormous amount on everyone’s behalf.

We always have to be mindful of the money we’re spending. It’s yours, it’s everyone else’s and we need to keep an eye of needing at some point to know that we have to pay things back.’

Let’s not be under any illusions; Sunak may have found the money taps to mitigate for the worst effects of the pandemic and for their corporate friends benefit, but Maggie Thatcher’s dictum stands ‘There is no such thing as public money. There is only taxpayers’ money,’ when it comes to spending on the public and social infrastructure upon which our economy stands. Instead of focusing on the real limitations to government spending, which are our real resources, its fall-back line is that there will be a future monetary price to pay or future generations will suffer.

We are not so subtly being prepared for yet another round of some sort of austerity, more cuts to public spending and wage caps in the public sector (already on the cards potentially to be announced at the next spending review in November).

The government line of thinking seems to be yes, let’s clap for the NHS, give out awards for the ‘courage and dedication’ shown by frontline workers, as long as it doesn’t involve an increase in government spending on those very key workers who have gone beyond the call of duty during this pandemic.

Awards won’t pay the bills, but they will be the perfect distraction at a time when the country needs something more than a cynical diversion to take the public’s eye away from the realities of government policies. The household budget myth of how the government spends adds another layer of distraction and quite simply reinforce a useful lie to justify what comes next. And it’s not just more tightening of public sector spending.

This week Matt Hancock suggested with all seriousness that businesses, charities, and local government should be praised for ‘stepping up to the plate’ in support of Marcus Rashford’s Free School Meal Campaign. He said that he was ‘strongly on the side of those who have come out to help’.  ‘It’s brilliant’ he said and added ‘I saw that Marcus Rashford said what we need is collaboration, people working together … making sure that everybody gets the support that they need’.  It would be laughable if we didn’t know better what this distraction signals and it is much more cynical than at first sight.

Whilst Hancock praises the generosity of the nation, he hides a more insidious objective, which combined with the alarmist headlines about the huge levels of borrowing and trillions of public debt and on-going references to getting the public finances back in order by the Treasury should definitely set the alarm bells ringing.

Jack Monroe, the food writer, journalist and activist known for campaigning on poverty and hunger issues wrote in an article this week in the Guardian ‘long term, we need a reckoning as to how so many people have ended up at the doors of food banks, how so many people are falling into desperate situations’  A volunteer food bank manager at the Hillingdon Crisis Support Service in North West London pointing to the receipts for food that her team of volunteers purchased with their own money was absolutely clear when she asked the question ‘Where’s the government’?

Where is the government indeed?  On the one hand, Rishi Sunak talks about the government’s enormous fiscal response; a message which is then tempered by his warnings that there will be a future price to pay. Heaven forbid that the public might get to know how the government spends.

Then from the Tory propaganda units in the basements of Westminster, their PR men and women spend their days writing their media press releases and ministers get dizzy at their generosity, the dissonance between the government version of events and reality is becoming ever starker as the crisis deepens.

It is worth remembering that whilst the current government through its employment and other policies has consistently rejected its direct responsibilities towards the health of the nation, since 1948 all Finnish children have been served a free lunch every school day. Children learn cooking through school subjects, the effects of food on health, the environment, economy and culture and as such education plays a central part in the health of future generations and the Finnish economy.

A healthy nation equates to a healthy economy, a fact our government ignores whether we are talking about public health, education or those public structures which enable them. You know, those very things that are ‘unaffordable’.

Whilst the smoke and mirrors of blame have pointed only too often at irresponsible parents, lazy people and scroungers, the enormity of the economic crisis affecting all working people who have already lost jobs or will do so in the months to come, will increasingly begin to unravel the lies about who is responsible.

The culprits lie at the heart of government; not just this government but successive governments who have bought into the lie of the superiority of markets, the scarcity of money and the unaffordability of spending on publicly paid for and delivered services. Our society is not just poorer for it, it is crumbling as a result.

The Joseph Rowntree Foundation warned in late September that if the government failed to keep its much-vaunted promises on protecting living standards and levelling up, then many more people would be pulled into poverty. It said that cutting the increased Universal Credit rate would hit those on the lowest incomes and families with children, and that the cut would impact on those who are having to turn to the social security system for the first time as a result of job losses caused by the pandemic as well as those who were already in poverty. This action, it said, would plunge 500,000 more people into deep poverty – 50% below the poverty line.

While Rishi Sunak reiterates the lie about ‘taxpayer’s money’ like a worn-out Thatcherite record, if people are not to face huge financial hardship this winter and if the economy is not to nosedive completely, particularly in the light of the prospect of a further lockdown, then the government as the currency issuer should do what only it can do; pay the people what they need to pay their bills and keep food on the table.

The rhetoric of generosity spouted by modern-day versions of Scrooge seated in Westminster should be ridiculed and shown up for what it is. Mean, monetarily unnecessary and very damaging to the health of the nation today and for future generations.

As the TUC and the IPPR made clear in their jointly authored research paper published this week, struggling families need an urgent cash boost and that strengthening the social security system (which is one of the least generous in the developed world), doubling child benefit payments or raising Universal Credit payments would make a ‘life-changing difference’ to many of the poorest families.

The IPPR’s executive director Carys Roberts made it clear that without a significant cash injection, more families would be forced to rely on food banks [at a time when donations in some areas are drying up as economic conditions worsen] and that putting more money into families’ pockets would ‘spare hundreds of thousands of children from the scarring effects of poverty over the next 18 months’ and would ‘also mean an economic stimulus to keep the economy going’

To this mix should be added, as a long term objective, a larger public sector to undo the damage caused by the last 10 years of cuts and the previous decades of shrinkage, a fit for purpose social security system, a permanent Job Guarantee programme to stabilise the economy when it falters and the implementation of a wage floor below which no-one can fall.

A government that fails to serve the interests of the nation is a failed government. A government that ignores poverty, hunger and hardship whilst pouring vast sums into corporate bank accounts is a rogue government.

As politicians cynically praise the public and local bodies for their collective action, it cannot be emphasised too strongly, as indeed GIMMS has done previously, that it is a signal of their real intentions to continue along a path reminiscent of the world of Victorian philanthropy in which the public’s goodwill is exploited and charitable donations and volunteering become the norm. A place where properly organised and publicly paid for public and social infrastructure (which lies at the heart of a functioning economy and the distribution of wealth and resources) becomes a mere shadow of itself, if it exists at all.

As the government faces more pressure to provide funding for free school meals, we need to examine this as just part of the vicious nature of government policies whereby power is being centralised, public money is poured into corporate delivery of public services and our local communities are dying a slow but quickening death, unable to withstand the pressures caused by a decade of austerity and now the pandemic.

When Johnson says ‘we don’t want to see children going hungry this winter’ but fails to provide adequate funding at national or local level, you can be sure that the opposite will happen. Whilst government ministers praise their response, they ignore the comments of local government leaders to the already spent allocation of funding; ‘the government’s rhetoric on the sums provided to councils was absolutely disingenuous’‘the north London local authority share of the £63m (government allocation) was not enough to even cover free school meals over half term and Christmas’ and ‘the council is paying for this out its existing budget’.

As we stand at a significant crossroads in the history of humanity, it is an opportunity to examine our consciences, our values and the prevalent prejudices that we hold as a result of the demonisation of vulnerable, unemployed, sick and disabled people. Instead of accepting the prejudices as truth, we should be looking more closely at the motives for such an agenda.

Whichever way we look, there is no-one to vote for who hasn’t or can’t be bought by a corporate establishment which has been allowed, through its excessive wealth, to buy power and influence whilst the revolving door keeps the political machinery oiled and functioning in its favour. This has been at the expense of working people and the infrastructure which form the foundation of a good society.

If we turn a blind eye now, we are turning a blind eye to the future of our young people who deserve something better – stable lives, stable jobs and a sustainable economy.

The mantle of fiscal responsibility worn by successive governments to justify their policies and spending decisions, which have been the measure by which a government’s economic record has been judged, should be at the heart of future discussion. If we are to challenge the false narratives which have allowed such wealth disparities, poverty and inequality to exist, we can only do so from a position of public knowledge.

If the media as part of that orthodoxy will not tell the truth, then it is up to others to be the bringers of that knowledge.

GIMMS and many other activist organisations which are growing across the world are committed to making a difference. As Stephanie Kelton so rightly said“When the MMT coin drops and you realise the suffering is gratuitous” that should be our lightbulb moment.

If you are interested in exploring further, you can find information here:

gimms.org.uk/mmtbasics/

gimms.org.uk/tools-and-resources/

pileusmmt.libsyn.com/

All that we ask is that you pass the knowledge on.

 

 

Upcoming Event

Phil Armstrong in Conversation with Neil Wilson – Online

November 15 @ 14:00 pm – 15:30 pm

The GIMMS team is delighted to host its next ‘in conversation’ event at which Phil Armstrong will be talking to Neil Wilson

Neil is an expert in finance and information systems and one of the UK’s leading thinkers about MMT. After more than 30 years in the systems business, Neil learned the hard way that operations rarely follow the manual. Moving from network crashes to financial crashes, Neil was intrigued as to whether the economy could be fixed with a reboot – which lead him to Modern Monetary Theory (MMT). His work challenges the high-priesthood of Important Grey Men who refer to people as ‘resources’ and who believe debt is bad for government and good for you.

He dreams of a world where everyone who wants a living wage job can find one, close to their home, their friends and family.

You are invited to join us for this informal event which we are sure will be both stimulating and insightful.

Register via Eventbrite

 

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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

 

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The post Ending needless suffering appeared first on The Gower Initiative for Modern Money Studies.

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