Error message

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

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

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

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

Ursula K Le Guin

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Upcoming Event

Phil Armstrong in Conversation with Pavlina Tcherneva – Online

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

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

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

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

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

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

Tickets via Eventbrite


Past Event

Phil Armstrong in Conversation with Fadhel Kaboub – Online

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

Audio via the MMT Podcast here

Video will be available soon.


Join our mailing list

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

Support us

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











Viber icon

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

Bitcoin fixes Microstrategy (or does it?)

Published by Anonymous (not verified) on Sun, 10/01/2021 - 1:19pm in



Do you have a poorly-performing company that you don't know what to do with? Bitcoin fixes this! 

At least, that's what Michael Saylor seems to think. Since August 2020, Microstrategy, the company of which he is simultaneously CEO, chairman and principal investor, has invested heavily in Bitcoin. And Saylor has joined the select group of billionaires fronting the campaign to promote Bitcoin's widespread adoption (and talk up its price). 

Microstrategy has been bumping along the bottom for quite some time. MarketWatch helpfully reports the income statements for the last five years. They make grim reading. Here are the bottom-line net income and key financial metrics from 2015 to 2019 inclusive:

Yes, there's been some improvement in net income, but just look at that EBITDA....

The financials reveal a company that is making little money, generating little free cash and repeatedly reporting operating losses. Sales are disappointing and operating costs are high. At the time of these reports, it had an absolutely massive pile of cash which wasn't being using productively. As a result, the share price was in the doldrums:

"Zombie" is perhaps too harsh a word for Microstrategy, but it does seem to be living in some kind of twilight zone. Vibrant, it is not. And there is - or was - an awful lot of idle cash sitting around. Presumably the only reason it hasn't been a takeover target is that Michael Saylor, who owns about 70% of the voting shares (though only 20% of total stock), for some reason didn't want to sell the company despite its persistently poor performance. 

It does make sense for a company with an enormous cash pile to diversify its treasury management: supplementing operating earnings with income from external investments is far more sensible than sitting on a heap of cash equivalents, especially in these days of zero interest rates. But the mystery is why Microstrategy apparently has no use for this cash. It is hardly generating much in the way of sales or income. Surely some of the cash could be productively invested into developing new product lines and upgrading existing ones?

In August 2020, Microstrategy announced that it would make Bitcoin its primary reserve asset. And it proceeded to buy $425m worth of bitcoin, reducing its cash reserves by approximately 90% in the process. But August 2020 turned out to be not the best time to buy; Bitcoin's price promptly dropped, and by the end of September Microstrategy had been forced to impair the carry value of its newly-acquired bitcoin assets by $44.2m. It's perhaps unfortunate that this happened so soon after acquisition, but Bitcoin's volatility means there will inevitably be substantial impairments from time to time. Microstrategy now has little free cash to absorb these shocks, and it still isn't earning much in the way of income. Converting so much of its cash reserve to bitcoin has considerably increased its cash flow risk. 

Despite the impairment (or, perhaps, because of it), Microstrategy hung on to its bitcoins. And in December, as Bitcoin's price started to rise rapidly, Microstrategy announced its intention to borrow $650m to invest in yet more bitcoin. The debt offer completed on 11th December and Microstrategy duly spent the money acquiring bitcoin. It has now spent a total of $1.13bn on bitcoin, and its bitcoin holdings, worth some $2.7bn at today's prices, are by far its largest asset. 

Despite this, Saylor denies that Microstrategy is a Bitcoin ETF, insisting that Microstrategy's whopping bitcoin investment is simply treasury management. Frankly this excuse is wearing very thin. Microstrategy needed to diversify its treasury, yes, but buying massive quantities of bitcoin isn't diversification. And Microstrategy was probably insufficiently leveraged before - debt can be an efficient way of financing a business, after all. But leveraging it up purely to buy bitcoin isn't investing in the business, unless the business is bitcoin - in which case we are back to a Bitcoin ETF, aren't we? 

Saylor has good reason to insist his company is simply using Bitcoin as part of its treasury management. The SEC has blocked every application to establish a Bitcoin ETF so far, and says it won't approve one while Bitcoin's price remains open to manipulation. But the SEC has no jurisdiction over a viable if disappointing company that sells some real goods and services (though not enough to make a decent profit). Investing its entire cash reserves in a single, highly volatile, speculative asset might not be prudent as a treasury strategy, but it's not the SEC's job to tell corporate managers how to run their business. The treasury of a cash-rich company like Microstrategy looks like an ideal place to conceal a Bitcoin ETF. 

But if Saylor intended to use his company to conceal a Bitcoin ETF, why did he wait until August 2020 to set it up? Microstrategy has been both performing poorly and sitting on large amunts of cash for at least five years. During that time, Saylor did little to improve the company. He didn't sell the company, didn't significantly invest in it, didn't have much in the way of development plans, and didn't diversify its treasury. In the shareholders' letter of April 2020 he talks about growing the company through new product lines, but never mentions Bitcoin. So why, in August 2020, did Saylor suddenly decide to use the company as a Bitcoin investment vehicle?

Here's a possible explanation. The investment company Grayscale has a Bitcoin investment trust, known as GBTC or simply "BTC". The investment manager Hargreaves Lansdown describes BTC thus:

BTC enables investors to gain access and exposure to the price movement of bitcoin in the form of a traditional security without buying, storing and safekeeping bitcoin directly. BTC’s purpose is to hold bitcoins, which are digital assets that are created and transmitted through the operations of the peer-to-peer bitcoin network, a decentralized network of computers that operates on cryptographic protocols. The investment objective of BTC is for the shares (based on bitcoin per share) to reflect the value of the bitcoins held by BTC, determined by reference to the bitcoin index price, less the BTC’s expenses and other liabilities. The activities of BTC include issuing baskets in exchange for bitcoins transferred to the BTC as consideration in connection with the creations.

So, investors can buy shares in Grayscale's BTC trust instead of having to hold bitcoins themselves. It has been popular with big institutional investors, for whom Grayscale BTC shares allow them to gain from Bitcoin's rollercoaster ride while outsourcing the risks of investing in such a volatile asset. 

In August 2020, Grayscale's Bitcoin investment trust (BTC) ramped up its bitcoin holdings. It has continued to do so ever since despite Bitcoin's price fall early in September. And as Bitcoin's price first recovered then rose precipitately, so too did the trust's share price. Grayscale now plans a considerable expansion to accommodate high demand for its cryptocurrency investment vehicles. 

Did Saylor see what Grayscale was doing and think "I want some of that"? Is that what drove his decision to refocus his moribund company on bitcoin acquisition? It seems plausible to me, but there might be other explanations. We can never know for certain what goes on in someone's mind, or who influences their decisions behind the scenes.

Whatever the reason for Saylor's decision, the strategy is certainly paying off at the moment. The chart above shows that Microstrategy's share price has rocketed since the company started investing in bitcoin. It is now way overvalued relative to the company's fundamentals, though no-one seems to care about those any more. 

But while it is undoubtedly generating riches for Saylor at present, using Microstrategy as a Bitcoin investment vehicle for banks and institutional investors is a highly risky strategy. Bitcoin is notoriously prone to sudden dramatic crashes. The last time there was rapid price appreciation of this kind, it all ended in tears. Microstrategy has put all its eggs in a leveraged Bitcoin basket. A 2018-style Bitcoin crash could mean not just tears, but bankruptcy. 

This explains why Saylor has become a high-profile Bitcoin salesman. Bitcoin's volatility is potentially disastrous for his company. So his new job is to talk up its price. Well, maybe not a new job: arguably, this is his old job in a new form. He has a fiduciary duty to his shareholders, and his "treasury diversification strategy" exposes them to the risk of serious losses. It is his responsibility as CEO and chairman of the Board to do whatever it takes to deliver shareholder value - and that now means doing everything in his power to ensure that Bitcoin's price continues to rise indefinitely. Saylor is shilling Bitcoin in the best interests of his shareholders as well as himself.   

It's possible that Bitcoin might fix Microstrategy. But it might also destroy it. Microstrategy is taking a massive unhedged long position on a highly volatile speculative asset, and its CEO and chairman is spending all his time talking up that asset's price. When the next Bitcoin crash happens, as it inevitably will despite Saylor's rhetoric, what assets will be left to repay those who have just bought $650m of newly-issued debt?

Related reading:

Clearing out Carillion's cupboards

The sad story of Maplin electronics

Why Bitcoin thrives (and why it won't replace the dollar) - Coindesk

2020 financial results - Microstrategy

Time to abandon fictions of how our economy functions

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

UK pounds sterling notes and coinsPhoto by John Cameron on Unsplash

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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Join our mailing list

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

Support us

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










Viber icon

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

Breaking free from false economic narratives

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

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

Dear Dominic

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

Financibus ad infinitium



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.’


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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


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


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


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


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


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


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


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


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


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


Early on Australian Prime Minister Scott Morrison said


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


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


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


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


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

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



Event Recording

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


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


Join our mailing list

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

Support us

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










Viber icon

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

The public sector can generate wealth as well as debt

Published by Anonymous (not verified) on Fri, 27/11/2020 - 6:50am in

Dag Detter, Stefan Holster and Josh Ryan-Collins

In his spending review this week, the Chancellor made clear the scale of the economic crisis facing the UK. Much discussion has followed as to the sustainability of the current spending commitments and public sector debt. Announcements of public sector pay freezes and cuts to foreign aid have been met with dismay.  

Might there be a better way of dealing with the longer-term economic costs of the pandemic? In a new report for the UCL Institute for Innovation and Public Purpose, we argue that the government should consider taking equity stakes in firms at risk of collapse to boost a sustainable recovery. Not only would this be preferential to piling up more publicly guaranteed debt on already highly indebted firms, but, once the economic situation has improved, it could generate a fiscal return.

The advantage of equity investment is that the state and taxpayers can recovery their money when an ailing firm gets back on its feet and is either sold off; or, in other cases, the state can make a longer-term investment, hopefully attracting in other forms of finance to support firms that private investors are not yet prepared to invest in. This avoids the socialisation of losses and privatisation of risk problem that has often occurred during financial and economic crisis.

Widespread government equity ownership in hundreds of thousands of small firms is neither desirable nor practically possible. But well-targeted state investments could help pull economies out of the recession and support longer term policy objectives at the same time. 

However, how to govern public assets to generate value has received little attention compared to the vociferous debate over whether or not to nationalise or privatise. If poorly managed, public equity bailouts risk damaging growth prospects.

Reviewing the evidence on state-owned enterprises across many countries, we find that they can be run effectively providing that the government ownership is institutionalized according to the highest standards of corporate governance and structured as ‘public wealth funds’ (PWFs) that combine arms-length independence from day-to-day politics with active and competent public governance.

The report argues for the creation of five different specialised PWFs: a National Wealth Fund in charge of mature assets such as airlines or energy companies; ‘mission-driven’ venture capital funds focused on innovation, climate transition and regional growth; and regional Urban Wealth Funds to support housing and urban renewal.

Successful examples of PWFs include Singapore which used these vehicles to help turn themselves from an economic backwater to one of the world’s richest countries in the space of a few decades from the 1970s onwards anda number of cities, such as Copenhagen’s City & Port Company and Hamburg’s HafenCity.

The costs of financing PWFs would be low. Even assuming that the suggested equity investments lose their value, the direct fiscal cost of investing in the above-mentioned funds would be small, only around 0.1 percentage points of GDP per year. Moreover, over time some of these investments would likely turn a profit. Historically, the yield on equity has been around 6 percent.

Managing public assets more professionally would also incentivise a wider rethink of public sector accounting, which is currently too focused on debt and short-term cash measures, and largely neglects public sector assets. A better approach for public sector accounting would be to focus on net worth (assets less liabilities) as the most comprehensive fiscal measure using accrual-based accounting. This takes into account both sides of the balance sheet and, when linked to the budget, would incentivise public sector investments.

As the IMF argued in report published last year, if the entire portfolio of public assets were properly accounted for and professionally managed, they could potentially generate some 3% of GDP in additional revenues to government budgets.

The holy grail of public asset management is an institutional arrangement that both removes governance from a government´s direct responsibilities, but at the same time encourages active commercial governance of public assets with the aim of generating value for the public and a dividend that can benefit society as a whole.

This blog was first posted on the IIPP web site

picture credit:

The post The public sector can generate wealth as well as debt</strong> appeared first on The Progressive Economy Forum.

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

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

Sustaining and creating employment now and post Covid

Published by Anonymous (not verified) on Wed, 18/11/2020 - 6:59am in

1.      The focus of economic policy should be on maintaining a high, sustainable level of employment. This is correct theoretically, practically, and socially. It counterbalances the capitalist market system’s tendency not to create a high level of employment; it largely pays for itself in generating revenue: it is socially right because it avoids the waste of human resources entailed by involuntary unemployment, crowding in activity that would otherwise be crowded out.  

Sustainability is a key requirement for any policy of high employment today. The workforce must be employable in work for which there is both demand, and which, by respecting nature, also secures the future of the planet.

These are general propositions for policy valid for most advanced economies, but they have a special application to our country at this particular moment in time.

2.       The consensus of forecasts is that the British economy will be more than 10% smaller this year than in 2019, with only a moderate recovery in 2021.  Unemployment is set to rise to at least 8 per cent (2.5m), with underemployment almost double this. The 16-25 age group is projected to take a disproportionate hit, shouldering up two fifths of the rise of unemployment to a million despite representing only a fifth of the workforce.

The roll out of the new vaccines and extension of the furlough scheme to March may postpone the worst effects of the predicted downturn but they offer no basis for sustained economic recovery: little or  nothing is in place to stop the gradual haemorrhaging of  businesses and their supply chains.  This means that job retention, which aims to preserve many jobs which two lockdowns have made obsolete, must urgently give way to job creation.

In conclusion the economy has to afford more employment opportunities, especially for the young. British capitalism – currently biased to short term value creation and rent extraction (rentier capitalism) – has to be repurposed to long-term, environmentally sustainable value creation. The international trade and financial framework must be as accommodative to these aims as possible. If these are the medium and long term aims, then the foundations must  be incorporated in any short term programme.  


  1. There are two urgent things the government should do now.

It must establish a tripartite Economic Recovery Board, incorporating a Taskforce on work. The Board’s task would be to identify those economic sectors, nationally and regionally, which could be a major source of future employment.  These are likely to be, indeed should be:

the green economy

the rural economy

the digital economy

the caring economy

the mentoring economy

The Task Force on work should be charged with identifying work and educational opportunities now available and linking them to these potentially expanding sectors. This would give short-term work and training schemes the focus and purpose which is largely lacking from emergency programmes – a bridge between the Job Retention phase of Covid-19 and the Job Creation phase which has to follow it. 

Initiatives deserving urgent consideration are:

  1. The government should build on its own Kickstart programme, the experience of the Future Jobs Fund and the model of  Roosevelt’s Civilian Conservation Corps  by ensuring  all  unemployed  18-25 year olds  are offered work and training  in urban conservation, rural regeneration and  digital skills. Kickstart is supposedly to generate 300,000 placements for the young people, largely from the private sector. No one now expects hard-pressed businesses to offer employment on anything like this scale in the coming months.  So the public sector will need to become “employer of last resort”. There should be a youth guarantee of work and/or training. The Roosevelt scheme provided  millions of jobs for young people in

“the prevention of forest fires…plant, pest and disease control, the construction, maintenance and repair of paths, trails and fire-lanes in the national parks and national forests and such other work…as the President may determine to be desirable”. 

A youth led National Youth Corps (NYC) should be created in the same Rooseveltian spirit ( one contemporary model is the Austrian Zivildienst) as the umbrella organisation in which volunteers, paid the minimum wage for a year and combining at least 3 months training, are able to work in a range of exciting and socially valuable projects across the country – giving them a vital role  and stake in stimulating recovery. The NYC should go beyond Kickstart to stimulate  local and central government, the private and third sectors to develop and create work-rich projects (see below), connecting volunteers to opportunities via a dedicated App, offering mentoring and crucially the chance of working away from home. With sufficient urgency such programmes could be up and running within the next six months.

  • All regional and local authorities should be asked to bring forward plans for work which needs to be done in their areas  for strengthening local economic resilience and  improving local amenities and  which now languish for lack of money. Examples would be the widening of the Manchester Ship Canal and retrofitting local properties to create thousands of new jobs as well as scaling up local training programmes.

The government should allocate a quantum of money to regional and local authorities for at least one year leaving it the authorities themselves, together with private businesses, to decide what jobs and training schemes they want to create.

  • These initiatives should be supported by measures to sustain demand, given a savings ratio approaching 30 per cent, the imposition of a second lockdown and the likelihood of a thin Brexit deal (or No Deal).  There should be an acceleration and expansion of its national infrastructure programmes, along with a 12 month temporary cut in VAT for all goods and services which in 2008 proved a very effective stimulus in response to the financial crisis.

The government advanced a £8bn infrastructure spending earlier this summer. It should be expanded. The 3 year Comprehensive Spending Review should not be deferred, but instead brought forward to be announced in March 2021 at the latest. In particular the £40bn five year infrastructure plan should be front-loaded into the next two years, with priority given to big environmental projects, social housing and NHS/social care.  In doing so it would simply be following the advice of respected organisations like the International Monetary Fund. It writes

Empirical estimates based on a cross-country data set and a sample of 400,000 firms    show that public investment can have a powerful impact on GDP growth and employment during periods of high uncertainty—which is a defining feature of the current crisis. For advanced and emerging market economies, the fiscal multiplier peaks at over 2 in two years. Increasing public investment by 1 percent of GDP in these economies would create 7 million jobs directly, and between 20 million and 33 million jobs overall when considering the indirect macroeconomic effects.


  • Launch the investment covenant. A newly created bank ( either an arm of the National Investment Bank or  specially created “ bad” or refinancing bank) will buy corporate debt of distressed companies, partially underwrite the first tranche with a credit guarantee and package up the loans into single tradeable “ reconstruction” or “build-back-better” bonds. Banks and Insurance Companies will be required to hold these bonds as up to 10 per cent of their balance sheet assets. Companies accepting this debt relief will be contractually required to bring forward a proportional increase in investment spending – and accept reciprocal obligations (see below).
  • Roll over and extend all existing loan schemes but with reciprocal obligations (executive pay, commitment to train, participation in Kickstart and NYC, union recognition, adherence to Social Value Act, sign up to Corporate Governance Code, Sustainable development goals). These obligations should also be incurred by all companies being relieved of debt.
  • Transform the British Business Bank into a National Investment Bank, properly capitalised and with power to lend.
  • Banks to publish term structure of lending as part of drive for more long termism. A comply or explain regime to be created to explain why lending remains short term.
  • Corporate Governance Code to be toughened and adherence made mandatory
  • Pilot a perpetual bond


  • Follow through any EU trade deal with negotiations on service sector access, improved access for goods and mutual recognition. Either leading to  eventual full membership of single market and customs union or a unique European Economic Area plus 


British capitalism and financial system must be restructured around the pursuit of social purpose. Only thus can it take full advantage of digitalisation and protect natural resources and habitats in such a way as satisfies the demand for social fairness and equity between human demands and the logic of nature. Without such an economic and social settlement, the risk is ongoing degeneracy ultimately provoking civil unrest.

  1. Macro Policy
  • Establish a new Macroeconomic Policy Framework which integrates Fiscal and Monetary Policy in pursuit of the single objective of a non-inflationary level of high employment. This recognises that monetary policy on its own cannot shield the economy against shocks to supply or demand or restore full activity level following a shock. The Bank of should be given a dual employment/inflation mandate  like the Fed. It should aim to keep down borrowing costs for the government; with forward guidance in the form of a promise not to raise Bank Rate till unemployment has fallen below a certain percentage. We cannot afford a macro-policy just based on an inflation target and a passive fiscal policy except in emergencies.
  • Fiscal policy framework. Borrow for capital spending but balance current revenues and spending. Accept debt service limit (10 % of tax revenues?)
  • Increases in capital gains, corporation, inheritance taxes. Introduce environmental taxes.
  • Set in train the reorganisation of tax system around the Mirrlees report (proper taxation of capital and wealth, environmental taxes, reform of council tax, try to avoid high marginal rates for low earners)
  • Build in green targets for all public capital projects (Green New deal)
  • Up to 600,000 public sector jobs could be created, with more than half in the NHS and adult social care, as part of rebuilding of public capacity and reversing hollowed out civil service.
  • Stakeholder Capitalism
  • The objective is to create a capitalism that is driven by purpose, long term value creation and sustainability – balancing the needs of all stakeholders and in partnership with an agile, capable, well-resourced public sector.
  • Legislate for the multi- stakeholder company. A new Companies Act incorporating hardened up Corporate Governance and  Stewardship Codes.
  • Encouragement of varying ownership forms – co-operatives, mutuals, public benefit companies, new forms of collective ownership.
  • Towards the digital trade union. Trade unions to use IT to ballot members etc as part of digital enablement of participatory trade unionism and 21st century collective bargaining.
  • Consolidate National investment bank with scaled up regional branches
  • Organise a regional industrial strategy. Key components to include a “scale-up” ecosystem around Catapult network, creating regional growth hubs focused on key sectors – space, robotics, new pharma. AI applications etc
  • Overhaul CMA
  • Support with roll out of British style Fachhochschule ( universities of applied science)
  • Overhaul educational curriculum with wider range of skills – emotional intelligence, digital, ethics etc
  • The social settlement
  • The guiding principles must be universality of provision and fairness.
  • All forms of work – whether part time, flexible or full time – to carry the same employment rights, creating a British system of flexi-security.
  • Fully fledged National Youth Corps as part of a Work Corps for all with training arm
  • Universal basic income for children up to 18 – child benefit etc
  • Universal basic services
  • Restructure care sector into NHS as part of drive for public health resilience.
  • Properly funded universal national tutoring service 
  • Pursue Devolution Agenda ,  including  tax raising powers (eg local income tax) for regional authorities.   
  • International
  • The system needs to be more resilient and sustainable
  • Procurement policy for essential services, particularly health and food not to be dependent on global supply chains.
  • Movement of capital and labour should also be aligned with national purposes
  • Work with EU and Biden’s US to reinvigorate WTO
  • Joint action on tax havens and tax abuse by High Tech
  • Intense commitment to UN Sustainable Development and climate change goals
  • Have a referendum on re-joining the EU in 10 years time

Photo credit flickr : IFA teched

The post Sustaining and creating employment now and post Covid appeared first on The Progressive Economy Forum.

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


Join our mailing list

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

Support us

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










Viber icon

The post The deceitful image of money scarcity has no place in our society. appeared first on The Gower Initiative for Modern Money Studies.

MMT: A Bankrupt Theory for a Bankrupt Capitalism

Published by Anonymous (not verified) on Fri, 13/11/2020 - 12:42pm in

image/jpeg iconkelton.jpg

Review: The Deficit Myth: Modern Monetary Theory and How to Build a Better Economy by Stephanie Kelton (published by John Murray, 2020).

read more

The ECB Umbrella is here to stay

Published by Anonymous (not verified) on Thu, 12/11/2020 - 5:07am in

On December 10th the European Central Bank Governing Council will likely announce new measures to support governments that have to reach to their wallet again to try to cope with the economic effects of the pandemic second wave. It would not be surprising that the ongoing asset purchase programmes will be extended in size and duration (currently, the Pandemic Emergency Purchase Program, PEPP, is scheduled to run until June 2021). There have been rumors in recent days that the ECB could use this increase in its firepower to put pressure on countries that do not wish to make use of loans from the Recovery Fund and the ESM. ECB board member Yves Mersch yesterday also suggested that the ECB walk that path.

For those who are not into the European debate, it should be recalled that using the loans from European programmes (the ESM covid line, the SURE, and the quota of the Recovery Fund that is not grants) yields savings in interests: the EU will borrow on the markets at more favourable costs than many Member States and redistribute the amounts. If market rates are low, the gain in interest from European loans is reduced and may not be sufficient to offset the fact that these loans come with terms and conditions (and further problems in the case of the ESM). By reducing its purchases of reluctant countries’ assets, the argument goes, the ECB would raise market rates and thus make it convenient, if not inevitable, for them to use financing from European programmes.
I believe that it is very unlikely, if not impossible, that the ECB would engage in such nudging. Its umbrella will remain open for all eurozone countries for a long time to come. Instead of worrying about the presumed unsustainability of the debt that all European countries are accumulating, we should focus on how to spend the money quickly and well. Sustainability depends more on this than on unlikely ECB pressures or unlikely sudden reversals of market confidence.

There are three reasons to doubt that the ECB will use its purchasing programmes to interfere in the financing choices of European Governments. The first reason is technical. Since the Quantitative Easing program started in 2015, purchases of each country’s securities have been proportional to the so-called capital key, the shares of EMU countries in the capital of the ECB, which in turn are linked to population and GDP. This self-imposed proportionality was the price to be paid to avoid that the purchases were concentrated on peripheral countries’ securities, allowing them to pass on their debt to the supposed frugals through the ECB. When last March the new emergency purchase programme was introduced, the ECB relaxed the capital key so that purchases could initially focus on the debt of countries subject to market pressure and (contrary to what Lagarde has suggested just days before) keep spreads under control. However, even in this case, the ECB did not embrace complete discretion, as flexibility was only temporary: at a later stage purchases will have to be rebalanced in order to respect the self imposed proportionality at the end of the programme. Deciding now to move away from the capital key to put pressure on countries that do not want European loans would most likely meet the opposition of the core countries, that feel protected by them. It is interesting that Mersch himself, a few days before suggesting proportionality were scrapped to nudge Member States into EU loans, argued in an interview that “We are bound not by self-imposed limits but by red lines which are of a constitutional nature and which are in the treaty. The self-imposed limits only serve to respect those constitutional limits, which are not at our disposal.”

The second reason why ECB nudging is unlikely has to do with the current macroeconomic situation. One might in fact argue that, pretty much as in the current PEPP, flexibility and nudging could happen in the short run to eventually restore the capital key. But contrary to what many believe, today the ECB necessary to keep rates low. The crisis has generated an enormous mass of savings which, given the economic uncertainty, has mostly been channeled into demand for public debt of all countries. In October’s auctions alone Italy, one of the most problematic EMU countries when it comes to public finances’ sustainability, placed debt at different maturities (with rates close to zero) for around 33 billion euros against a market demand of more than 55 billion euros . Of course, it would be foolish to neglect the role of monetary policy: the ECB’s umbrella has contributed to making public debt safe and therefore attractive. But it is certainly not the only factor; the abundance of savings is increasingly a feature (and a problem) of our economies.
Last, but not least, political reasons, that encompass all th others, reduce the risk of ECB interference in countries’ financing choices. Since 2012, while it has struggled to convince markets of its credibility in sustaining growth and keeping inflation close to its target, the ECB has been very effective in curbing speculation. Ever since Mario Draghi’s 2012 whatever it takes speech, all it took to stop market pressure on peripheral countries, was the certainty that the ECB was ready to do everything (whatever it takes) to prevent speculative attacks to keep markets at bay, make public debt attractive and reduce spreads. A sort of (imperfect) lender of last resort, in sum. Even the PEPP programme, after some massive initial purchases, has settled on limited flows and proportionality is already almost restored. It is frankly quite implausible that the ECB will deliberately risk to increase uncertainty and let spreads widen again, squandering an hard-earned credibility capital just to push hesitant countries to apply for loans from European programmes.

Long story short, the ECB’s umbrella is set to remain open for a long time to come and will contribute, along with the mass of savings in search of placement, to keep the cost of debt low. We should resist getting entangled in the debate on how to finance (and repay) public debt, and focus on the use of the resources available. European countries need to efficiently invest in tangible and intangible infrastructures that will enable us to set out on a path of sustainable and sustained growth. After all, a healthy economy is the best guarantee of sustainable public debt.