Debt

The Fall and Rise of Racket Capitalism

Published by Anonymous (not verified) on Sat, 06/07/2019 - 11:00am in

Frank Lee Delving back into the history of Economic Thought[1] perhaps the most important contributions were made by the British Classical tradition starting with Adam Smith (1723-1790) followed by David Ricardo (1772-1823) and finally Karl Marx (1818-1883) and Friedrich Engels (1820-1895), all of whom made significant contributions to the study of political economy and the politics …

Alberta must find alternatives to cutting social spending

Published by Anonymous (not verified) on Fri, 05/07/2019 - 5:13am in

I have an opinion piece in today’s Edmonton Journal about Alberta’s current fiscal situation.

Points raised in the blog post include the following:

-The Jason Kenney government will almost certainly announce cuts to social spending in the near future.

-Yet, more than 80% of Alberta’s kindergarten through Grade 3 classes currently exceed the provincial government’s own class-size targets.

-Tuition fees as a share of university operating revenue have roughly tripled in Alberta over the last 30 years.

-Social assistance (i.e., welfare) caseloads have risen substantially in Alberta since the start of the economic downturn.

-Alberta still has, by far, the lowest debt-to-GDP ratio of any Canadian province.

-Albertans are also taxed less than any residents of any other province.

-Meanwhile, Alberta remains the only Canadian province without a provincial sales tax.

The link to the opinion piece is here.

Alberta must find alternatives to cutting social spending

Published by Anonymous (not verified) on Fri, 05/07/2019 - 5:13am in

I have an opinion piece in today’s Edmonton Journal about Alberta’s current fiscal situation.

Points raised in the blog post include the following:

-The Jason Kenney government will almost certainly announce cuts to social spending in the near future.

-Yet, more than 80% of Alberta’s kindergarten through Grade 3 classes currently exceed the provincial government’s own class-size targets.

-Tuition fees as a share of university operating revenue have roughly tripled in Alberta over the last 30 years.

-Social assistance (i.e., welfare) caseloads have risen substantially in Alberta since the start of the economic downturn.

-Alberta still has, by far, the lowest debt-to-GDP ratio of any Canadian province.

-Albertans are also taxed less than any residents of any other province.

-Meanwhile, Alberta remains the only Canadian province without a provincial sales tax.

The link to the opinion piece is here.

Breaking free of neoliberal thinking to deliver progressive change

Published by Anonymous (not verified) on Sun, 30/06/2019 - 2:05am in

Man pushing the letters im away from the word impossible, leaving the word possibleImage by Gerd Altmann from Pixabay

What a week we’ve had. Or is that a decade?

After almost 10 years of cuts to public spending and their destructive consequences, the nation is weary. We are mired in controversy over Brexit.  We have a government in meltdown in which MPs are fighting like rats in a bag over a leadership race that shows every sign of descending into farce. And we should not forget the shameful behaviour this week of a Conservative MP at the Mansion House dinner and those who equally shamefully jumped up to defend his aggression or ignored it. The emperor’s nakedness is there for all to see in all its crude and tawdry coarseness.

We might feel slightly amused at the absurdity of it all if it weren’t so serious. Bemusement, head shaking and looking on in disbelief are natural responses to this on-going train crash come tragicomedy but looking at the candidates’ campaign promises, we can be reassured on one thing – it’s more of the same – only worse. Policies based on erroneous ideas of how governments spend and, of course, ideological preferences from tax cuts to help the rich and the corporations and diminishing the role of the state even further. And let’s not forget election promises also designed to garner support from the top end of town as if they haven’t got enough wealth stashed away in bank accounts and property already.

Boris Johnson defended his plan to cut income tax for those earning more than £50,000 as being ‘sensible’. The infamous ‘trickledown’ which harks back to Ronald Reagan and Margaret Thatcher’s economic dogma that prosperity for the rich leads to prosperity for everyone has been proved to be the biggest con ever. Tax cuts for the rich, as the 99% have discovered, don’t deliver; they just make the rich richer and the poor poorer.

The IFS (Institute of Fiscal Studies) was critical in its analysis of the plan on the basis that it wasn’t clear that tax cuts would be compatible with ending austerity or ensure prudent management of the nation’s finances thus and not unsurprisingly, maintaining the mainstream illusion of the state finances as a household budget where government needs people’s taxes before it can spend. They compounded their inaccuracy by a reference to the state of the public accounts as if they were an appropriate marker for measuring the government’s economic record. We balanced the books but hey we trashed the country!

Examining the pitch of the other contender for the leadership, Jeremy Hunt, is even less encouraging from the perspective of his ideologically inspired policies combined with his ignorance (or is that part of the strategy?) of how governments spend.   He is laying out his campaign stall with a variety of proposals from cutting corporation tax to reforming social care, raising defence spending and buying off students as if business start-ups were more important than providing trained nurses, doctors, teachers and other professionals.  His pledges he said were ‘designed to turbocharge the economy’ claiming that ‘by growing our economy we can afford to invest in our public services, support the lowest paid [and ensure] that debt continues to fall”. His aim, he said, was to tackle the £3.5 billion ‘black hole’ in social care which would see money taken out of the pay packets of working people to fund their care in later life. He wittered on about being a country ‘where people save for their social care’ promising that those that did the “right thing” would have their care costs capped. Carrots and sticks in abundance.

Here we have classic responses from a politician whose government has spent the last 9 years telling us that: a) there was no alternative to cuts because Labour had overspent and the country had to live within its financial means and pay down the debt, b) privatising public services was the only option to keep costs down and drive efficiency and c) drilling into the public consciousness the neoliberal narrative of personal responsibility, which has divided the nation through building a tale of spongers on the state versus hard-working people.

It’s worth reminding readers that this is an imaginary black hole fashioned out of nothing but a political desire to create a false narrative to justify reform. The pretence that public services, the NHS and Social Care are unaffordable and that the only alternative is to shift financial responsibility onto ordinary people is a disgraceful manipulation of the truth. Telling them that they must provide for themselves is an insult to the many who don’t even earn enough to keep their heads above the water today, let alone save for the future. It denies the realities of the power of a currency issuing nation to pay for public infrastructure, from health and social care to education and welfare. To explain it away as a lack of money is a shameful distortion of monetary realities.

Furthermore, the suggestion that investment in public services depends on a growing economy is an equally pernicious lie that fails to acknowledge the role that public infrastructure plays in ensuring the health and well-being of citizens and economic prosperity. A prosperous economy depends primarily on public investment in health, education, transport and all kinds of other publicly paid-for services both for today and the future. We need to restore the long-dead idea that government is elected to serve the nation rather than its corporate buddies.

Only two days ago, council chiefs were warning that as a result of cuts to local government funding, social services were ‘fragile and failing’ and despite an increase in funding further cuts to care services would be unavoidable. The lie of lack of government funds and unaffordability is being used to justify this shift towards personal obligation.

However, the nauseating truth is that we have a government that has chosen not only to leave our elders fending for themselves but also to leave people working in social care on low incomes and in poor working conditions. This can scarcely be said to be a recipe for human well-being or a prosperous economy.  Austerity has always been a political choice and bears no relationship to the state of the public finances. It is designed to fulfil an ideological agenda of a diminished state which has abandoned democracy and public purpose to serve the interests of global corporations.

Again, in its analysis of Hunt’s plans, the IFS plays to the household budget narratives of how government spends by claiming that spending in other departments could suffer without tax rises or risk higher borrowing which would ‘amplify the long-run challenges facing the UK public finances’.  The IFS and other institutions like it reporting on poverty and inequality always do so in the context of the public finances being the measure of economic health and what spending options it leaves open to government. Building a picture where government has to rob Peter’s government department to pay Paul’s, raise tax or the spectre of more borrowing. All illusory narratives with no application to a sovereign currency issuing government.

All these promises by prime ministerial hopefuls won’t sit well with the Chancellor and the pervasive belief that the public accounts and the economy are safe in Conservative hands.  It would be interesting to be a fly on the wall at Number 11 as the candidates threaten his and his predecessor’s thrifty, penny pinching approach to public spending. Even Theresa May, the outgoing Prime Minister who was aiming to splash the cash on education as part of her leaving legacy, is having to reign in her expectations after discussions with the occupant of Number 11.  It’s astonishing how spending promises, or tax cuts coincide with elections, isn’t it! The magic porridge pot that just keeps on giving to suit political agendas.

In the light of this disarray and the realities of the impact of government policies on UK citizens, it makes perfect timing for left-wing progressive parties like Labour to shift the language framing about how we pay for a progressive agenda towards one that represents an accurate description of how money actually works. It is regrettable on that score that the household budget and tax and spend mythologies are part of the discourse. Fixating on sound finance and Fiscal Credibility Rules, both indicative of a neoliberally inspired household budget framework, do the concept of delivering a progressive agenda a disservice.

Just a quick search on the internet shows how these household budget descriptions have been, and still are, dominant narratives amongst left-wing progressives and shadow Chancellors.

“…the Tories’ tax cuts plans would mainly benefit the wealthy few, as well as depriving public services of much needed resources.

“[we] will properly fund our public services and ask the wealthiest and corporations to pay more to fund it.”

 “The budget deficit can be sorted if we set up a fair tax system which tackles the tax avoidance by the big companies and the very rich that costs us £100billion a year.”

 “We are embarking on the immense task of changing the economic discourse in this country. We are throwing off that ridiculous charge that we are deficit deniers,”

“We are saying, tackling the deficit is important but we are rejecting austerity as the means to do it.”

“We will make sure the debt is falling at the end of five years.

Transforming the way capitalism operates by continuing to frame the progressive discourse in the context of how we can pay for the radical root and branch change we need will end in disappointment, if not disaster. It certainly won’t happen by making compromises with it. The progressive left can’t have its feet in both camps on the basis that that’s the best way to fight fire. There’s only one winner in that scenario.

Addressing the twin evils of poverty and inequality, combined with the challenges of climate change will never be a quick fix. It will require strong national governments utilising their currency issuing powers for the long-term to ensure that the planet’s productive capacity does not exceed its resource limitations.

The progressive left needs the courage of its convictions to recognise the currency issuing powers of the state to deliver an agenda which serves both national and local needs, enabling citizens and the communities in which they live to address the challenges we face and create economies which are sustainable and a planet on which its passengers can flourish.

Events

MMT Talk and Social in Abergavenny – 13th July 2019

Free – details and tickets available from Eventbrite

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The post Breaking free of neoliberal thinking to deliver progressive change appeared first on The Gower Initiative for Modern Money Studies.

The Miners’ Strike: Renewed Class Struggle in Chiatura, Georgia

Published by Anonymous (not verified) on Tue, 11/06/2019 - 8:50am in

Sopiko Japaridze via Transnational Social Strike Platform Over 3,000 workers in the manganese mining town of Chiatura (Georgia) started a wildcat strike 15 days ago in spite of the three unions that operate there, including one that signed a collective agreement last year that forbids strikes for three years. The whole town joined them in …

Debt is the Hidden Issue in The European Elections

Published by Anonymous (not verified) on Wed, 22/05/2019 - 1:00pm in

The citizens of the European Union are called to vote this week for the European Parliament. It is not a real parliament, and it lacks prospects for becoming one, since all important decisions are taken by the unelected heads of the European Commission and the European Central Bank, dubbed “the worst-run Central Bank in the world”.

The question is not how we will pay for it but what sort of society do we want to create?

Published by Anonymous (not verified) on Sat, 18/05/2019 - 7:01am in

Homeless woman sitting on pavementPhoto by Nana B Agyei Creative Commons Attribution 2.0 Generic License

“Our human compassion binds us the one to the other – not in pity or patronizingly, but as human beings who have learnt how to turn our common suffering into hope for the future.”

Nelson Mandela

For weeks, indeed months it can’t have escaped the public’s notice that Brexit has been appearing as the main headline story in the media. It has to be said that it has proved the perfect distraction from the real stories about the state of the UK and the effects of four and more decades of neoliberal thought which has dominated policy making and 9 years of crushing austerity in the form of cuts to public spending. Until this week that is. Three news items have by their proximity brought to the fore the consequences of the pursuit of ideology and austerity on the lives of UK citizens.

The IFS, in its recently published Deaton Review ‘Inequalities in the 21st century’, announced its intention to carry out a comprehensive five-year study with the aim of better understanding inequality.  It will, as part of its brief, look at the role of government policy in influencing the inequalities.

As the report noted, the UK has one of the highest Gini coefficients (measuring household income) in Europe. From being relatively stable in the 60s and 70s, it rose sharply in the 80s and has remained unchanged since the early 1990s. Charities working at the sharp end of the consequences of poverty and inequality have been reporting for some time on the huge rises in top incomes going to the 1% of richest households which has nearly tripled in the last four decades. However, the report also notes that there are other factors which determine how people view their wellbeing. Of course, people do care about how much they get in their pay packets and whether it meets their needs, but they also have other concerns. As the report suggests, dignity and security are not always to be measured in strict monetary value. People not only consider how their income is acquired, whether it is received in benefits or whether people are employed in stable jobs with decent pay, but also in terms of their physical health and mental wellbeing; whether they have stable and secure family lives and working environments, feel socially included and can make a useful contribution to civil society. The determinants of health and wellbeing are not to be measured purely in monetary terms but in the delivery of a vision which, instead of creating a society of left-behinds, puts public purpose at its heart and establishes an economy which works for everyone. These should not be aims related to a particular political ideology, but a common-sense approach. Politicians should be servants, not masters.

Since the 1970s a damaging ideology has coloured successive governments’ policies, and all the gains achieved as a result of the post-war consensus have been gradually whittled away. In the post-war period, citizens benefited from full employment and job security, higher standards of living and a fairer distribution of wealth. The nation benefited from a state which forged a dialogue with its citizens and engaged in the delivery of public purpose from the setting up of the social security system, a publicly funded and delivered NHS and state provided education. Those objectives were replaced with so called ‘free-market’ ideology which focused on diminishing the role of the state in public service provision in the belief that the ‘invisible’ hand of the market would create efficiency and value, and the primacy of the individual over the interests of the collective.  From the mid-seventies onwards, politicians developed an unhealthy relationship with deficit and debt; abandoning their role as keepers of a balanced economy for that of balanced budgets.

The consequences for the 21st century is a world in which poverty and inequality are rife and in which the primary role of the state has become one of banker to the global corporations whilst maintaining the pretence of a fully functioning democracy.

We are experiencing the effects of cumulative disadvantage, not due to individual failings, but rather the deliberate pursuit of policies reflecting a political ideology which has focused on serving the interests of business and global corporations and the creation of an individualistic, consumer society. We are verging on crisis, if we are not already there, as division fractures society and causes it to break down. The rise of homelessness, food banks, child poverty, insecure employment and crime. Increasing numbers of people with mental health problems and unable to secure the right support. People with disabilities being left on the edge due to a failing social security system which no longer provides any sort of safety net. The tragedy of people driven to suicide as the only way out of their problems. The IFS authors referred to it as ‘deaths of despair’. It is shocking, but not unsurprising to read in the report that evidence indicates that the rates of long-standing illness and disability among people aged 25-54 has been rising since at least 2013/14.  Just three years after the imposition of austerity by the current government.

Although not specifically addressed by the IFS report, this has been accompanied by the wholesale selling off of the public assets which form the essential public infrastructure a healthy economy requires, along with privatisations of public services. The paradigm of public service has been replaced by one of corporate greed. It is instructive that only this week the government has decided to reverse its part privatisation of the probation service which failed as predicted. Added to the fate of Carillion and other state funded private companies this demonstrates the paucity of the claim that public services are more efficient when they are privately run. How many more will have to fail before the penny drops that public money going into private profit delivers benefits to no-one except CEOs and private company bank balances and when it goes belly up the public purse can always be called upon to settle the losses.  From banks to big companies it has become a question of privatising profits and socialising losses.

Added to the IFS report is the publication also this week of the ONS’ latest statistics on unemployment and pay.  Whilst government ministers give their policies the credit for the lowest unemployment rate since 1971, the reality on the ground is that people still struggle to make ends meet, with many subsisting in a zero-hours, part-time, gig economy with wages still lower than a decade ago.

The figures may look impressive and something to write home about, but the reality is something different.  The omission by the government in reporting this great ‘success’ is that in 1971 governments still pursued the goal of full employment as a policy choice something which was abandoned shortly thereafter. From then on, it was working people and their families who paid, and are still paying, the economic price in terms of loss of employment and income stability all to suit business to achieve a competitive edge. Dumping people on the scrap heap to serve a profit motive.

In other news, the National Crime Agency announced at a report launch earlier this week, that unless police receive significant resources it risks losing the fight against organised crime.

The breakdown of society is also shown very visibly in the rise of both violent and organised crime and while it is denied by ministers, these rises coincide with the imposition of government-led austerity and cuts to public spending. Since 2010 44,000 police officers and staff have been lost to cutbacks and according to the NCA, organised crime is at record levels. The author of ‘McMafia’ Misha Glenny who chaired the launch said:

 “In the past 10 years what is really striking is how this industry has grown inside the UK. Austerity has been absolutely critical in this, partly because of the reduction in police capacity but also because of the continuing increase in inequality. A lot of victims of organised crime tend to be people on the margins who don’t have a voice. When you get an impoverishment of the population, which is what we have had over the last 10 years, you get an increase in desperation, and that opens up opportunities.”

As a spokesperson for the NCA remarked organised crime undermines ‘the UKs economy, integrity, infrastructure and institutions.’

None of this was necessary and indeed has proved very harmful. Instead of a government serving citizens, it has used false analogies to drive its self-serving political agenda.  But there is an alternative.

If we as citizens could determine what sort of future we wanted for ourselves, our families, neighbours and friends what would we say? Opinions would no doubt be diverse and some downright offensive or even scary. But having been at the sharp end of austerity and cuts to public spending for the past 9 years and seen the very real, lived consequences on the lives of too many, if asked people might include on their list of priorities a fairer distribution of wealth, public services which work efficiently and effectively, a benefits system which is fair and doesn’t penalise those least able to help themselves, universal services free at the point of delivery for education and health, access to good, well paid employment and an affordable public transport system. And let’s not forget delivering on the environment to secure the future of humanity and the planet. Sounds pretty sensible, doesn’t it? These, what might be termed social goods, form the basis for a society that works well and supports a healthy economy which is also able to address the inevitable economic downturns which occur from time to time. Of course, with such a list without doubt the next question will always be ‘can we afford it’ and ‘how will we pay for it?’ Politicians, in particular, are adept at asking it if anyone presumes to suggest what we could achieve with the political will.

But in the world of monetary realities, any government operating as a sovereign currency issuer could choose to spend with that aim in mind. They don’t have to wait until enough tax has been paid to spend, they don’t even need to borrow to fund what is known as a deficit which, whilst having all sorts of scary connotations with the national debt, reflects our savings and the money circulating in the economy. It might be the government’s deficit, but it is certainly our surplus, without which the economy could not function.

The only consideration for any such government will be resources. Do we have them and if we do who will appropriate them and how will they be used? Having enough money should never be part of this equation. The continuing cost of austerity on society should be the wake-up call. The only thing we can’t afford is not to act.

 

 

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The post The question is not how we will pay for it but what sort of society do we want to create? appeared first on The Gower Initiative for Modern Money Studies.

…And Forgive Them Their Debts

Published by Anonymous (not verified) on Sun, 12/05/2019 - 3:10am in

For millennia we've been told that Jesus Christ died for our sins. But what if as a social reformer Jesus was killed because he was talking about reforming the economics of his day?

The post …And Forgive Them Their Debts appeared first on Renegade Inc.

Repeat after us…there is no social care funding gap and no tax burden on future generations

Published by Anonymous (not verified) on Sat, 04/05/2019 - 2:04am in

Grandmother sitting with grandchildPhoto by Paolo Bendandi on Unsplash

Last week the House of Lords Committee on intergenerational fairness said that it was time to rebalance government policies to favour young people, or risk further shattering of the ‘social bonds’ between generations. It suggested that free TV licences should be scrapped, the threshold for free bus passes raised and the triple lock on pensions abolished. This was followed a few days later by a proposal drawn up by the Conservative Damian Green that over 50s pay more in National Insurance to help fund a fairer social care system which would ‘raise’ he said £2.4 billion.  Green also argued that the state pension should entitle everyone to a basic safety net and individuals should be encouraged to top-up that provision from their own savings or housing wealth.

Such ideas have been rumbling on for years, reflecting both the dominance of neoliberal ideology (which promotes the maximisation of personal interest over collective action) and incorrect notions of how a modern monetary system works in practice. How can we address perceived intergenerational unfairness and more importantly how, with an ageing population and falling birth-rate, can we pay for social care both today and in the future as tax revenues fall?

A two-year study by the Resolution Foundation led by David Willetts in 2018 suggested that every person in the UK should receive a cash handout of £10,000 when they turn 25 to help ‘redress the balance between millennials and baby-boomers’.  To fund this proposal a policy paper published by the IPPR suggested setting up a ‘Citizens Wealth Fund’ to help address growing wealth inequality. According to the IPPR, the objective of such a fund would be to give young people a stake in the economy to help them to invest in their futures ‘by buying property, investing in education or starting a business.’   It also suggested that the fund could be capitalised by selling public assets including the government’s stake in the Royal Bank of Scotland.

Even academics from City University weighed into the debate around the same time presenting a report arguing for a collectively owned social wealth fund to tackle key issues such as poverty, housing, the NHS and social care. “Remodelling Capitalism: how social wealth funds could transform Britain” focused on both creating a mutually owned financial fund and an Urban Land Trust to ensure that public land assets would be used to meet local community goals and help solve the social housing shortage.  The proposals were to fund it via borrowing, taxation, setting up a National Insurance Tax – a compulsory saving scheme – and wealth and corporation taxes. Such a fund, they suggested, could also be used to pay for a Universal Basic Income.

The MP John Penrose published a report in 2016 entitled ‘The Great Rebalancing: A sovereign wealth fund to make the UKs economy the strongest in the G20’, which focused on investing in economic infrastructure. He suggested that it was the only kind of spending that could be justified being paid for with long term debt, even though that meant eliminating the deficit and achieving a balanced budget would take longer. Penrose also stressed that we needed to address the generational burden of debt claiming that it is ‘unfair to saddle our children and grandchildren with the costs of our current spending’. A wealth fund would, he said, eventually supersede the taxpayer liability on state pensions and benefits.

Going back to 2014 Lord Hodgeson suggested a wealth fund with the proceeds from fracking which could invest money to help future generations. It was suggested at the time that the total reserves of oil and gas fracking could be worth over £1 trillion, raising the prospect of a massive tax boom the proceeds of which could be invested in a sovereign wealth fund. Lord Hodgeson said of it that it would be ‘akin to an everlasting pension fund for the UK’ and ‘might improve our financial stability in the short run’. (As an aside how ironic it was to suggest that fracking could help future generations!)

It doesn’t take an expert to detect the common themes.

All these proposals are based on the erroneous idea that money is a scarce commodity. They are littered either directly or indirectly with economic orthodoxy and misunderstandings of how a fiat monetary system works in practice. Increasing tax to pay for public services; eliminating the government deficit to achieve a balanced budget; balancing the budget over the economic cycle; reducing the deficit and repaying borrowing; debt reduction to avoid burdening future generations; selling off publicly owned land to invest in social projects – the list is endless and represents the common misunderstandings which pervade public and political consciousness.

The question of funding social care or indeed social security including pensions or public services is one which politicians and think tanks have been ‘wrestling’ with for years. On the assumption that they are not affordable their solutions range from welfare reform to taxing people more or indeed creating sovereign wealth funds. It is therefore unsurprising that yet again the question is being asked about how we can address the crisis in social care and fill the funding gaps to avoid a debt burden for future generations. Inherent in these beliefs is that government spending is dependent on raising revenue in the form of general or other types of taxation such as National Insurance.

We are caught in a decades old narrative which has created ignorance about how a modern monetary system actually works. Margaret Thatcher’s ‘there is no money but taxpayers’ money’ has become the overriding mantra which dictates policy and spending decisions.

With politicians talking about taxing more to fund social care or even promoting citizen or social wealth funds to resolve these long-term issues there is a systemic failure to recognise that no government (unless in the Eurozone or a country pegged to a foreign currency) is revenue constrained.  Collecting tax of any sort or setting up sovereign wealth funds do not give a government any more or less capacity to spend. As Bill Mitchell, Professor of Economics at the University of Newcastle New South Wales, points out referencing the Norwegian sovereign wealth fund scenario.

The excellent public services that the Norwegian population enjoys are the result of political choices and a sense of collective will among its population. They have chosen this level of public provision.”

And that is the crux of the matter. It is a question of collective will and political choice. The power lies in the hands of the electorate to choose a government which puts public and social purpose at the heart of its policy making and spending choices. The electorate can only do that if it understands that monetary affordability is not the issue.

The alternative paradigm represents the current monetary reality and does not include raising tax from ordinary people, bringing back the magic money tree from the Cayman Islands or setting up sovereign or citizen wealth funds. Recognising the government’s fiscal powers to fund public services and make health and social care provision is crucial.  Such an understanding makes it clear that the arguments for taxing the rich more or saving through a National Insurance Scheme are irrelevant and ignore the economic realities of how our money system operates. Governments can’t ‘save’ and spending is not constrained by its tax revenues. Equally, such a government does not need to borrow to fund its deficits. Likewise, the implication that government debt will increase the burden on tomorrow’s tax payers is yet another myth designed to increase, quite unnecessarily, generational conflict. Again, Professor Bill Mitchell makes it clear:

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

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

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

There is absolutely no need to sell the dwindling stock of public assets to invest in future infrastructure, and central government neither needs to tax nor borrow to fund health and social care or public services whether delivered nationally or locally. With political will and, on the assumption that we have the physical and people resources to provide better public infrastructure, it is deliverable tomorrow.

The value that public services provide cannot be measured in money terms of affordability. They are to be measured in terms of the health and security they bring to citizens which in turn generate well-being and a more productive nation.

We are caught in an age of manufactured ignorance. Just as the tobacco industry fabricated doubt about the dangers of smoking and the oil industry created distrust in the science of climate change the public’s understanding of how the economy and money system works has been clouded by fake household budget narratives which restrict government spending to tax or borrowing and raise the spectre of a public debt burden on future generations.

On the right, those narratives are being used to to deliver a specific agenda to diminish the role of the state and welfare provision whilst at the same time lining the pockets of corporations with public money that we are told is unavailable for the provision of publicly paid for and delivered services. The left, with its radical, progressive agenda, maintains the same fake narrative with which it says it will deliver a radical, progressive agenda aimed at bringing about environmental, social and economic justice. The contradictions must be obvious to all and yet those promoting modern monetary realities are criticised and ridiculed by those that should be welcoming the mechanism by which a real political difference can be made in order to address social injustice and environmental collapse.

The Overton window is shifting and as Gramsci noted about another era the ‘old world is dying and a new one struggles to be borne’. But as he also observed:

“What comes to pass does so not so much because a few people want it to happen, as because the mass of citizens abdicate their responsibility and let things be.”  

It is up to us to keep on PUSHing until something happens!

 

Events

 

Bill Mitchell, Warren Mosler and Martin J Watts to speak at GIMMS Seminar – Birmingham

May 11 @ 2:00 pm – 5:00 pm – Birmingham

Local Government Funding: Challenging the Status Quo

May 12 @ 3:30 pm – 6:00 pm – London

 

For more details and to book, please see our events page

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The post Repeat after us…there is no social care funding gap and no tax burden on future generations appeared first on The Gower Initiative for Modern Money Studies.

The fallacy of the savings rate

Published by Anonymous (not verified) on Thu, 25/04/2019 - 11:32pm in

In a recent Financial Times article, Chris Giles asserts that the “UK’s low national savings rate raises fear of trouble ahead”. After reminding readers that Adam Smith characterised Britain as a nation of shopkeepers, and highlighted by a mock-up photograph of two upper-middle class women on a shopping spree, Giles tells us:

“Today, the UK is simply a country of shoppers. Rarely has Britain been consuming so much and saving so little. As a nation — which statisticians break down into households, companies and the government — Britain spends far more than it earns. On this measure, the UK borrowed 5 per cent of national income in 2015, according to the OECD, the Paris-based international organisation”.

To some this report may seem quite shocking, suggesting that we are “living beyond our means” as a country. But reporting that the UK borrowed 5% of national income merely states that the country had a deficit on its external current account of 5%. When a country has a current account deficit – a negative balance on trade plus short-term money flows – it automatically borrows and the foreign debt increases.

Knowing this, we can update Mr. Giles’ numbers. Figures from the Office of National Statistics show that the current account balance reached its lowest point in 2016, standing at minus £103 billion (5.2% of GDP) in that year. In 2017 the deficit shrunk to minus £68 billion (3.3% of GDP), before moving to minus £81 billion (3.9%) in 2018. The explanation of the external balance deficit is not found in the behaviour of “shoppers”.

The external balance has shown a deficit every year since 1984, and deteriorated especially quickly in the years following 2011. The magnitude and persistence of the deficit in the years 2013 to 2016 is unprecedented. Those two dates provide a strong clue to the causes: the long-term effects of the policies of the Thatcher government and the short-term impact of fiscal austerity. In the 1980s, the Thatcher government initiated policies that led to the long-term decline of UK manufacturing.

In addition to industry-specific policies, the deregulation and rapid growth of the City resulted in a consistently high exchange rate for decades, as explained in a recent study of the distorting effects of large financial sectors. From over 20% of GDP in the early 1980s, manufacturing value added fell to 15% in 1997 then to 9% in 2008, where it remains. In effect, financial services and short-term financial flows replaced manufacturing in the UK current account.

Mr Giles’ profligate shoppers buy imported consumer goods because the growth of the financial sector undermined UK production. It is not true that “Britain spends far more than it earns”. Correct is the statement, Britain imports far more than it exports, and covers the difference directly or indirectly with earnings from finance. It is certainly true that many if not most British households on balance spend more than their incomes, but not in the aggregate. Since early 2017 the saving rate has been almost 5% of household income, approximately the same that it was in much of the 1960s and briefly in 1999.

As PEF Council Johnna Montgomerie has argued in her book Should we abolish household debts? (Polity), household debt is a problem of income distribution, not the feckless consumption habits of the UK population as a whole. To put it simply, the rich shop till they drop and never worry about their retirement pensions. The middle class struggles to maintain its standard of living in the face of stagnant real income and declining public services. The poor spend more than their incomes to try to survive. Ending austerity will be a step in the right direction to redress these inequalities.

Photo credit: Flickr / Adam

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