debt reduction

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The Government, like the Pied Piper, marches the nation back to Dickensian Britain

“Please spread the word. We need to end the ‘state is like household’ analogy. The main constraint on govt. spending is the productive capacity and resources in the economy and the risk of inflation – not the size of the budget deficit.”

Josh Ryan-Collins on Twitter

The Pied Piper of Hamelin playing his pipe and leading the children away from the town
The Pied Piper of Hamelin, print, Henry Marsh, after John La Farge (MET, 21.65.4). John La viola, CC0, via Wikimedia Commons

This week, the Chancellor of the Exchequer, after dragging his feet and protesting in his speech to the CBI that, given the external global circumstances driving the cost-of-living increases, ‘there is no measure that any government could take’, has now done an about-turn. After telling the public not so long back that his top priority as the dangers of the pandemic receded was to restore the public finances, the ongoing and worsening supply crisis has finally forced his reluctant hand, albeit as a temporary and inadequate measure as many charities and other anti-poverty groups have already noted in their analyses. He fails, yet again, to get to grips with the underlying structural problems caused by the policy decisions of successive governments. Decisions which have led to a low wage economy, and over decades driven poverty and inequality which has benefited businesses at the expense of working people. Existing problems which have severely exacerbated the current unstable economic situation.

It is, however, once again too little and too late. An afterthought for a man who appeared last week for the first time in the Sunday Times Rich List, who seems to have no concept of the difficulties in ordinary people’s lives. Andrew Harrop, of the Fabian Society, described the Chancellor’s measures as a ‘sticking plaster’. We have had a lot of those over the last decade as government austerity has resulted in the inevitable breakdown of public and social infrastructure, and of society and its values. Half-baked policies have glossed over the growing hardship this government has caused by doing nothing except revel in its rhetoric and smoothing over of the truth with its propaganda.

Societal breakdown is not an unavoidable destination, it is the result of the deliberate failure by the government to enact the policies that would keep its citizens safe and secure in a functioning, fair economy and ensure that in hard times it acts to cushion the blows caused by events out of its control. Furthermore, whilst many, with their hearts probably in the right place, talk about creating a fairer welfare system and higher benefits as a way out of this situation, in the long term that is not the answer, and buys into more dependence on the state, which, frankly, has already done its utmost through reforming the welfare system to punish those citizens who find themselves in involuntary unemployment or precarious employment, or unable to work through illness.

The solution lies in creating a fairer society that is predicated on better wages and terms and conditions of employment, not so-called welfare ‘handouts’ to those who are disparagingly referred to as the ‘deserving poor.’ As Hannah Fearn wrote in the Independent this week: ‘Benefits do not support the poorest to live a self-determining and fulfilled life, but trap them in desperate cycles of poverty.’

It also lies in creating a high-quality public service sector, instead of the diminished one we have today, the implementation of a Job Guarantee to support people, as now in this current economic climate, and for those that cannot work, a properly funded social security system which gives people dignity and sufficient income to live on.

It was shameful to note that in his speech, the Chancellor, announcing his spending measures, said that the government would ‘not sit idly by’. That would be laughable if things were not so serious. For over more than ten years, the Conservative government has ‘sat idly by’, as it cut spending on public and social infrastructure to the bone, on the specious lie of unaffordability, couched in narratives of sound finance. This is therefore not a new phenomenon. The price we have paid for that lie as the pandemic raged has been made very clear. The public infrastructure upon which society relies, both in good and bad times, fell short, from the NHS to social care, education, local government and other vital institutions. Everything that binds society together with a cooperative purpose has been whittled away.

The emphasis on balanced budgets to serve an ideologically driven agenda that benefits global corporations rather than delivering public purpose, has led to rising poverty and inequality, which have translated into hunger and the growth of food banks as families have struggled to put food on the table and heat their homes. GIMMS has covered these disturbing subjects endlessly in its MMT Lens, week by week, month by month, year by year, since its launch in 2018. The fractures began in earnest a decade ago, with unnecessary austerity, and a false discourse that governments are limited in their spending policy choices by the tax they collect or what they can borrow, which, in turn, according to the orthodoxy, has consequences for future generations in terms of higher tax burdens. An obscene deception in the light of what has followed, and which arose out of a political choice driven by a pernicious economic ideology, and not financial necessity. It is time to hammer home that the line so often used by Sunak and others is false. The future burdens won’t be tax ones, but human and environmental ones created by governments which have failed consistently to invest today to create a truly productive and sustainable future tomorrow.

The global pandemic which affected and is still affecting production, followed by the outbreak of war in Ukraine, have only served to highlight our strategic planning deficiencies and interdependence. Ukraine and Russia play a major role in global food markets (not to mention oil and gas) which, when increasingly combined with the growing consequences of climate change on food production, with India imposing a ban on wheat exports as severe heatwaves have damaged crops, and East Africa in the grip of a relentless drought, only serves to emphasise the real costs for governments which have prioritised keeping the global corporatised economic order functioning, and the capitalist gravy train, predicated on exploitation, rolling. The tsunami of climate change is bearing down upon us, and yet, the government still sees the future as being defined by increasing growth in consumption, regardless of its impact on the planet. We apparently have to make up for the losses of the last two years, even if that means abandoning our climate promises which now seem to have been lost somewhere in the ether.

Instead of focusing on sound, consistent, long-term strategies to secure food and renewable energy domestically, governments have allowed the global corporate juggernaut to dictate the pace, thus securing its power, influence, and wealth. But as we are belatedly discovering, the ‘Just in Time’ world in which we live has distinct disadvantages. Nature, disease, and geopolitics combined, have exposed the weaknesses of a decaying unipolar economic system, which, until recently, has based its ideas on the finite nature of money and persuaded an unaware public that there is no alternative. A system predicated not on cooperation but on dividing people and allowing, by design, an unfair distribution of real wealth and real resources.

The Global Financial Crash in 2008, the Pandemic and current economic uncertainties have changed all that, and governments have been driven, as a result, to ‘re-discover’ the power of the public purse to manage their economies in the face of the prospect of economic decline, although always with a view to constraining that spending at some future point in time, once an emergency is over. There is always a price to pay on this model of how government spends. But just when Sunak thought he could get back to ‘business as usual’, his plans were scuppered once again by the conflict in Ukraine.

Balancing the books is a perennial concern for all governments, sooner or later. The government should be a good manager of the economy by ensuring that the public and social infrastructure meets the needs of the people it serves, from individuals to communities and businesses, and by aiming to balance its spending with the very real resource constraints, which requires strategic planning. Instead, governments, the media and those working in think tanks, endlessly replay their messages of monetary scarcity which have played a cruel and destructive trick on the population. Such deceitful narratives ultimately constrain the actions that are needed to address poverty, inequality, environmental sustainability and planetary health. Should that, of course, be a government objective. However, these narratives are useful for governments who wish to avoid such actions. It doesn’t bode well for the now seemingly defunct concept of levelling up or addressing the climate emergency.

We are led to believe that government spending is constrained by taxation or borrowing, and the media without fail, reinforces those messages, as Larry Elliott did in an article in the Guardian at the end of April. On the one hand, journalists report the state of public services and other vital infrastructure, relate stories about how people are struggling to keep their heads above water and being obliged to use food banks or switch off their heating, and yet, in the next breath, in an astonishing display of cognitive dissonance, give their readers a blow-by-blow account of the state of the public finances, as if somehow it is of vital importance to know how well the Chancellor is delivering his fiscal objectives. Put the fear of God into a nation by focusing its attention, like a magician, on the wrong subject. It seems that they choose not to make a connection between government spending (or the lack of it) and the state of the nation. Those two things are not disparate subjects, they go together.

As the current government, like the Pied Piper, marches the nation back to Dickensian Britain, journalists should at least be challenging the accepted economic dogma which prevails, rather than reinforcing the message that sound finance trumps public purpose. That should be the role of the media. But then, of course, as Upton Sinclair so rightly observed, ‘It is difficult to get a man to understand something when his salary depends upon his not understanding it.

So, given his predilection for household budget accounting, it was not surprising that Rishi Sunak, the arbiter and promoter of sound finance, had to eat his words and do yet another about-turn, by stating that he will be imposing a ‘windfall tax’ on oil and gas companies (well sort of) so he can, as he claims, partly cover his spending pledges. Whilst some Conservatives are critical of the tax, suggesting it will reduce investment and goes against their low tax stance, (at least where the rich corporations are concerned), Labour’s calls over the last few months for a tax on extraordinary profits to help people manage their way through the energy crisis, thus have now been satisfied. Job done. That is, of course, if we believe the notion that has been drilled into the public consciousness that taxes fund government spending.

The government as the currency issuer has the capacity to spend what it needs to, to balance the economy in good times and keep it functioning during economic crises. It doesn’t have to go begging to rich people or large corporations to provide that funding, or impose windfall taxes, and nor does it have to borrow to do the same. That is all part of the smoke and mirrors that have created false narratives. The sequence is spend first, then tax, not the other way around.

The last two decades and more should have proved categorically that household budget economics, in terms of government spending, is a myth. The public is beginning to take note that there is always money to bail out ‘too big to fail’ banks and other large companies, fund wars or address the fallout from pandemics, when it suits the government to do so. As the contradictions become ever clearer, the public are slowly coming to understand the political nature of spending decisions, and that, by the same token, the UK government could, in the same way, create the money to fund public services and vital infrastructure, that poverty and inequality could be addressed to ensure that citizens have dignified and meaningful lives, and that the climate crisis could be tackled through legislation, and targeted spending and taxation policies, to drive change and force businesses to do or die.

As Josh Ryan-Collins, who is an associate professor in economics and finance at the UCL Institute for Innovation and Public Purpose wrote in an article in the New Statesmen this week, ‘Government spending power is limited not by tax revenues or borrowing but by the productive capacity of the UK economy and political will.’

Ryan Collins, promoting a new co-authored working paper, ‘The self-financing state: An institutional analysis‘, published by the UCL Institute for Innovation and Public Purpose (IIPP), which provides an in-depth analysis of the mechanics of the key institutions involved in UK government spending, demonstrates clearly in his article that the ‘British state always creates new money when it spends’. That is fundamental to what comes next.  It is the starting point for change.

The self-financing state: An institutional analysis

This paper is an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom.

 

So, while Chancellors, politicians, think tanks and journalists indulge in relaying myths that describe how governments spend, and keep the prevailing economic system functioning in the favour of capital, the reality is somewhat different.

A challenge to that understanding and the economic orthodoxy which drives it, is, however, underway.

The World Economic Forum’s meeting in Davos this week has revealed the growing cracks. The realisation by the wealthy elites that the global economic system, which has created vast wealth for the few, whilst at the same time crippling poverty and inequalities in the distribution of real wealth for many others, is under threat. As working people in the global north wake up to their exploitation and the associated injustices, and those in the Global South begin to reject the economic solutions imposed by the north, under the tutelage of the US, its allies and the institutions which it controls – the IMF, the World Bank and the World Trade Organisation, those that have benefited over decades may, at last, be facing a rude awakening which could force a rethink. Not that one is holding one’s breath! But it should not be surprising that the Establishment which has dictated the rules for decades, feels threatened in this time of flux and uncertainty. Things ‘ain’t what they used to be’ and the certainties are slipping away.

Reuters reported this week that world leaders, financiers and chief executives were leaving Davos with ‘an urgent sense of the need to reboot and redefine globalisation’. Their version of globalisation has, hitherto, not been about real cooperation in the service of humanity, rather it has been the exploitation of human labour and finite resources in the service of greed and profits.  Globalisation has not been about planetary flourishing, it has proved to be the exact opposite, favouring the few, a billionaire class who, as Oxfam pointed out this week, were increasing their fortunes by $1billion every two days. Not because they worked hard but because the system is rigged in their favour. A system which allows them to amass vast resources and pollute the planet with their excesses, while the rest labour in low wage economies as slaves.

Its dominant position has been ably assisted by the notion of monetary scarcity, which has been hugely damaging as countries in the global south have been weighed down by foreign debt and forced to accept punishing bailout regimes, which have, in turn, forced cuts to public spending and decimated public infrastructure. This is the common link between the global north and the global south. The toxic economic system which prevails and leads Sunak to focus on fiscal discipline rather than public purpose.

 

The MMT Podcast with Patricia Pino & Christian Reilly: #131 Fadhel Kaboub: Free Trade Isn’t Free: Food Sovereignty And Why It MattersPatricia and Christian talk to economist and President of the Global Institute For Sustainable Prosperity Professor Fadhel Kaboub about how global food and energy systems have been fostered to benefit the global north at the expense of the global south, and how understanding modern money is vital to…

 

The damage that has been done over decades is incalculable. The events of the past few years have revealed the inherent weaknesses of globalisation and its bedfellow, neoliberalism.

As the effects of climate change, caused by the burning of fossil fuels, combine with the associated loss of biodiversity due to land mismanagement and exploitation, the degradation of soil, resulting from unhealthy farming practices and overuse of herbicides and fertilisers, along with changing global weather patterns, the world faces an uncertain future without adequate urgent action.

Ultimately, the UK does not exist in a bubble and must now see its future actions and policy decisions in a global context, but not the one we know. Not a continuation of the status quo which protects a rotten free trade system and sustains the wealth of the few, but an all-encompassing strategy for human and planetary fulfilment. It is not about pulling up the drawbridge. It is about ensuring that nations can help themselves to ride the economic and climate storms ahead, and work cooperatively to trade fairly and sustainably with their global neighbours.

Some might call this an unachievable pipe dream, given the current instability forged out of a toxic economic system and endless wars for global hegemony, and let’s be honest, theft of real resources. But it doesn’t have to be.

Our future depends on real and substantial change, not tinkering around the edges so that the global elites can maintain their power and influence. It begins with a public understanding of how the government spends, to challenge the status quo and set the scene for creating a fairer world, which has both a sustainable and liveable future. The way ahead may be bumpy but that’s no reason not to try.

 

Announcement

The GIMMS book ‘Modern Monetary Theory: Key Insights, Leading Thinkers‘ – Edited by Professor L. Randall Wray and the Gower Initiative for Modern Money Studies, is scheduled to be published by Edward Elgar Publishing in January 2023

For more details, please see the EE website via the link below:

 Key Insights, Leading Thinkers" draft front coverModern Monetary Theory’This is a fascinating, eclectic group of professional papers in which the reader may explore both the first principles of Modern Monetary Theory and many institutional and historical details that lend weight to the conceptual framework. This book is a landmark in the development of MMT, a boon for…

 

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The post The Government, like the Pied Piper, marches the nation back to Dickensian Britain appeared first on The Gower Initiative for Modern Money Studies.

The needs of people must prevail over myths of a duty to balance the books

Published by Anonymous (not verified) on Mon, 11/04/2022 - 1:39am in

Chancellor Rishi SunakImage by HM Treasury on Flickr. Creative Commons 2.0 license

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage to move in the opposite direction.”
E.F. Schumacher

 

Illusionists with their smoke and mirrors and monetary make-believe rule the roost. After the Chancellor spent big, doing only what a sovereign currency-issuing government can do to stop an economy from collapsing, the message now being promoted by that same Chancellor is that fiscal discipline must take precedence; that getting the public finances under control is vital to the future health of the economy, but noting at the same time, that his £30bn ‘fiscal headroom’ could be threatened by energy market volatility. Sunak, still in household budget mode, has also been clear that he is not prepared to sacrifice his fiscal target of keeping debt falling, supposedly to protect future generations from excessive tax burdens.

The nonsense keeps coming. Here we have it yet again. Sunak claiming that he’s got a difficult job divvying up scarce monetary resources when nothing could be further from the truth. Or suggesting that too much spending now will burden future taxpayers.  All this is artifice and trickery and represents self-imposed and unnecessary targets for the public finances, not monetary reality.

The reality is that it is only real resources, not monetary ones, that give life to and sustain an economy.  From people to the physical resources employed in providing the things that keep society functioning. That is what must be managed for the public purpose. And the only burden that will be faced by future generations will be the one caused by insufficient government spending today to ensure a productive and sustainable future tomorrow.

Others, like Boris Johnson, alluding to the household budget narrative of how government spends, said this week that he had no problem with raising National Insurance contributions to help fund the NHS. The banker from the Department of Health, backing up his leader, suggested similarly that this increase was both right and a fair way to fund it.

In the light of the Chancellor raising the NI threshold, after the rise had been sold to the public as being necessary to fund the NHS and social care, it reveals a simple truth. It demonstrates the nonsensical position that taxes (of any sort) fund spending. Since, according to the prevailing myths about how government spends, the Chancellor will now have to find the funds to make up the shortfall arising from raising the NI threshold, and begs the logical question, where will the money come from to plug the gap? The Guardian suggests that it will come from general taxation, and yet again, we have the media, unsurprisingly, pushing a defunct model of government spending.

The government will, instead, as it did for the banking crisis in 2008, and the pandemic, create it out of nothing, as it always does. Because, quite simply, taxes do not fund government spending. But of course, it is not in the interests of the powerful for the general public to know that – they might in Oliver Twist style, revolt and ask for more.

This tax will do nothing to fund the NHS or social care, or any of the other things being claimed for taxes as a whole. Furthermore, it is a regressive tax which, regardless of the threshold rise, will do nothing to help the low paid, as inflationary pressures bite and the cost of living rises, taking as it does, more from the poorest than from the wealthiest.

The government, Johnson said this week, has to do ‘difficult things, … take big decisions.’  Gosh!  Really? So, when pressed about the cost-of-living crisis he agreed that people would have to choose ‘cheaper food, old clothes and no heating.’   It seems that hurting the poorest, sickest, and most vulnerable in our society, whilst at the same time driving the economy further into the ground and affecting everyone, is the price we must pay for the government’s economic mismanagement.

What government chooses to impose further harm on those who have suffered the consequences of government policies over a decade by suggesting again that there is no alternative to austerity? What responsible government chooses book balancing over national economic well-being at a time of economic uncertainty? This is a government with its currency-issuing powers shifting avoidable pain onto a nation already burdened and facing worse to come. As Michael Marmot noted this week ‘Poverty is literally a matter of life and death for those on the margins, and the government has so far failed to step in.

And yet, the illusion of truth continues to keep the public blindfolded and compliant to the message that fiscal discipline trumps human well-being. When there is an alternative.

As a result of insufficient government support, recession, which will affect individuals and businesses alike, cannot be far behind. These are not the actions of a government that has the interests of its citizens at the forefront of its mind, or a functioning economy. Without sufficient spending support, the economy will shrink. As people have less in their pockets to spend, businesses will stop investing and reduce their inventories, unemployment will rise and living standards will continue to fall. It becomes a vicious circle. Many think tanks, even while they promote the household budget model of the state finances, acknowledge that the Chancellor’s actions or lack of them will cause further harm to the poorest.

Clearly, Government ministers have also been on the orthodox economics induction course. Sajid Javid, the Secretary for Health, fresh from his 101 class said this week:

“When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it.’

For forty years, Margaret Thatcher’s dictums have guided the spending policies of both the right and left of the political spectrum. Whilst the right wing pushes its fiscal discipline message (with jam tomorrow, maybe, possibly, let’s see), the left wing embraces a false narrative by talking incessantly about raising revenue to pay for its programmes from taxing the rich, or most recently imposing windfall taxes on the fossil fuel corporations that have exploited the current economic instability to increase profits and CEO pay. Whilst it was shocking to learn last month that the CEO of Shell took home a monstrous £6.1 million pay package, it doesn’t change the fact that such ‘windfall’ taxes would not fund anything, let alone provide better public services or a fairer distribution of wealth. Indeed, taxation has quite a different purpose.

And yet as corporations price gouge and rake in higher profits, as reported in the MMT Lens two weeks ago, the Resolution Foundation forecast that the fall in real incomes would push a further 1.3 million people in the UK into absolute poverty, including 500,000 children, bringing the total to 12.5 million. When we talk about the cost-of-living crisis, it fails to convey what this means to some of the poorest and most vulnerable who are having to choose between heating and eating, a situation which, in fact, preceded the pandemic and is evidenced by the huge growth in food banks. Austerity has a lot to answer for. It is the difference between a good life without want and living in fear of it.

The blame lies with a government that has not only had an empathy bypass but also plays the blame game by dividing workers into the deserving and undeserving. But worse still, it has deliberately chosen this path, when it has the fiscal tools to avoid it. Currently, we have a prime minister who thinks that there is no alternative to more suffering. Whatever happened to the concept of ‘levelling up?’ And this is before we factor into the picture the effects of climate change on the poorest, who without action, will pick up the real bill, whilst the rich continue to live off the fat of the land, while it lasts, at any rate.

While the human suffering continues by government choice, the climate crisis seems to have been displaced on the front pages by the war in Ukraine and the associated consequences related to rising prices and shortages of oil, gas, food, and other vital resources. But it hasn’t gone away. It is the elephant still stalking the room.

As the IPCC (the Intergovernmental Panel on Climate Change) published its third and final report this week which draws on the work of thousands of scientists, the Cabinet Minister Jacob Rees Mogg suggested that the government wanted to extract, ‘every last drop of oil and gas from the North Sea,’ saying that ‘2050 is a long way off’. He said that the profits of the fossil fuel companies had to be protected from the prospect of windfall taxes, so that they could invest in further North Sea drilling for oil and gas. So much for COP26 and any hope that we can avoid the worst effects of climate change. The political priorities are clear.

Antonio Guterres, the UN secretary-general said this week, Nations and corporations are not just turning a blind eye to planetary disaster but adding fuel to the flames,’ and added that ‘it is a file of shame, cataloguing the empty pledges that put us firmly on track towards an unliveable world.

We are in the last chance saloon, and yet, western style, neoliberal oriented governments, that put markets and profit above people and the planet, are fixated with economic development, and uncontrolled growth at whatever cost, not to mention ramping up the war machine with public money, to keep the distorted economic system going, and the profits rolling in.

Remind us from where the money is coming for that dead-end exercise? When Rishi Sunak cuts spending on public and social infrastructure or fails to support the economy with adequate spending to match the economic conditions, or indeed allocate sufficient funding for climate action, all predicated on the lie of monetary scarcity and paying back debt, there seems to be an endless porridge pot for arms and killing people. When so much is at stake shouldn’t the public be demanding answers at the gates of Parliament? Monetary reality is displayed in those choices.

The fancy rhetoric of COP26 has been short-lived, and the promises watered down or swept away if indeed it was ever intended to fulfil them. The corporate body, which includes the damaging fossil fuel industry, dictates its terms using its huge wealth, power and influence, and governments around the world cosily comply as politicians stand to gain through the revolving door.

As the former astrophysicist and climate scientist Peter Kalmus noted in a Guardian Op-Ed piece this week:

‘Earth breakdown is much worse than most people realise … The science indicates that as fossil fuels continue to heat our planet, everything we love is at risk. For me, one of the most horrific aspects of all this is the juxtaposition of present day and near-future climate disasters with the ‘business as usual’ occurring all around me.  It’s […] surreal.  If everyone could see what I see coming, society would switch into climate emergency mode and end fossil fuels in just a few years.’

 

Kalmus joined over 1000 other scientists protesting around the world about the lack of urgent action and was arrested for locking himself onto an entrance of JP Morgan Chase in Los Angeles. They warned that the IPPC’s report language had been ‘watered down at the behest of governments unwilling to rapidly phase out fossil fuels.’

If we are to act at all, it cannot be piecemeal. It cannot be left to individuals, communities, or businesses to do their bit, however committed, without an overarching strategy in place. It must start with government serving its citizens as the planner, legislator, and currency issuer, to address the climate crisis and deliver a just green transition. Everything that comes next stems from that. This government has so far abdicated its responsibilities.

Based on current conditions, it is depressing to realise that we might be waiting forever for that, or that what is delivered is a greenwashed world, based on the same toxic and unjust economic model. But never let it be said it was not possible to change the very basis upon which our society operates and where the power lies.

As David Graeber, co-author of the Dawn of Civilisation, and Five Thousand Years of Debt, wrote  just before he died:

“… the crisis we just experienced was waking from a dream, a confrontation with the actual reality of human life, which is that we are a collection of fragile beings taking care of one another, and that those who do the lion’s share of this care work that keeps us alive are overtaxed, underpaid, and daily humiliated, and that a very large proportion of the population don’t do anything at all but spin fantasies, extract rents, and generally get in the way of those who are making, fixing, moving, and transporting things, or tending to the needs of other living beings. It is imperative that we not slip back into a reality where all this makes some sort of inexplicable sense, the way senseless things so often do in dreams.”

 The pandemic opened our eyes to a different way of thinking and doing things.  We cannot turn our backs on it, facing as we are the next great crisis, climate change, which, coupled with the human dimension of already existing gruelling poverty and inequality can only get worse if we carry on as we are. We must grasp the moment and push for concrete action, not half-hearted promises that are designed to go nowhere. Understanding how governments really spend offers us the framework for that change.

 

 

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The post The needs of people must prevail over myths of a duty to balance the books appeared first on The Gower Initiative for Modern Money Studies.

Out-of-touch Chancellor’s Spring Statement fails to help those most in need

“Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilisation.”
John Maynard Keynes  

This week, amidst continuing global economic uncertainty caused by the ongoing pandemic and the outbreak of war in Ukraine, the Chancellor, Rishi Sunak, delivered his Spring Budget. Unsurprisingly, it did little to help the very poorest of households, as the Resolution Foundation reported in its analysis that followed:

“Taking into account the measures announced by the Chancellor, the typical working-age household faces an income fall of 4 per cent, or £1,100, in 2022-23. But the greatest falls will be felt by the poorest quarter of households who are set to see their incomes fall by 6 per cent. This will see a further 1.3 million people fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise in poverty outside of recessions.

 

Incomes are on course to be lower at the next election (2024-25) than they were at the last (2019-20), with typical non-pensioner income projected to be 2 per cent lower. Such an outcome would make this the worst parliament on record for living standards growth.

 

The Chancellor pre-announced a 1p cut in the basic rate of Income Tax for April 2024, saving an average earner £243 a year. But the gains of this and the lasting impact of a higher National Insurance threshold are wiped out by previously announced tax rises.  In 2024-25, when the income tax cut comes into effect, 27 million out of the 31 million people in work will pay more Income Tax and NI as a result of personal tax changes announced by Rishi Sunak.”

Chancellor Rishi Sunak filling a red car with petrol at a petrol stationImage by HM Treasury on Flickr. Creative Commons 2.0 license.

While the Chancellor continues to count the tax beans and make his calculations, those who have already suffered the consequences of the last 12 years of Conservative policies will now be expected to take further pain in the form of a resurrection of harmful austerity dressed up in the concept of possible ‘jam tomorrow’. Cynically speaking, just before the next election.

In the light of a sustained round of higher government spending and the myth that we have borrowed heavily to sustain an economy hit by a global pandemic (even if much of that went into corporate pockets), some economically uneducated politicians are now appealing to the nation yet again to sacrifice their well-being on the altar of balanced budgets. We should be willing victims, according to this false logic. Despite the huge spending over the past two years, the household budget myths were never far away from the public gaze as the media pounded their messages about how there would be a price to pay, eventually.

At the same time as the Resolution Foundation lays it on the line as to the significance of the Chancellor’s budget, which yet again divides rich and poor, it then goes on to reinforce the myths about how the UK government spends. Tax receipts, it said, had come in much stronger in 2021/22 than expected, which would give the Chancellor ‘headroom against his fiscal rules’. The Independent claimed however that Sunak was keeping some of that tax bonanza back for a rainy day or to cover his planned tax cut in 2024. Whilst the Foundation’s analysis is stark on the consequences of this week’s budget, it is clearly still in the dark ages when it comes to describing how currency-issuing governments spend, as are so many think tanks and organisations on both the left and the right, not to mention a myopic media.

Charles Dicken’s character Micawber has been resurrected (if he ever went away) by a Chancellor who, after an astonishing fiscal response to the pandemic, is now re-donning Thatcher’s mantle, reinforcing the lie that taxes fund spending, or that government needs to borrow to fund itself over and above its revenue.

The suggestion by Torsten Bell at the Resolution Foundation, that these unexpected tax receipts would allow the Chancellor to consolidate the Treasury’s fiscal position and deliver his promises is just more shoring up of a myth that governments spend like our own households. And a bit of a joke because by any standards what the Chancellor, with his great wealth and extensive property portfolio, has done, is punish those who can least afford it and who do have to live within their financial means or face the prospect of debt because they are currency users, not currency issuers. The rising use of food banks and increasing homelessness can only get worse as his budget decisions begin to bite in April and our public services will continue to deteriorate without adequate funding.

Holding forth from his ivory tower, Sunak has not an ounce of understanding about the impact of government spending policies on the lives of working people, not to mention the economy. His decisions are directed by a desire to show himself fiscally prudent, not by public health and economic security.

When Rishi Sunak says, as he did earlier this week, that ‘we can’t help everyone because it’s too expensive’ or proposes an efficiency drive to cut £5.5bn of claimed government waste with a view to those savings being used to fund vital public services, it is quite simply a distortion of the facts to serve a political agenda.

Whether it is the Chancellor reciting the usual mantra about it being ‘vital that every single penny of taxpayers’ hard-earned cash is […] spent well,’ or the Shadow Chancellor and other uninformed left-wing politicians suggesting that they would fund public services via a windfall tax on energy companies, the public is being led by the nose in its ignorance of how government spends. An ignorance perpetuated by the daily narratives in both left- and right-wing quarters and by a compliant media singing from the same hymnbook. The economic orthodoxy rules the roost. And yet increasingly we are seeing the true cost of such narratives. They are not financial, they are the threats to human life, biodiversity, and a functioning planet.

Given the challenges we face from an increasingly forgotten climate crisis (and incidentally scarcely mentioned in the Spring budget), the ongoing exploitation of the global south, which has bled countries dry to sustain the lifestyle of the west and which is coupled with rising poverty and inequality affecting citizens across the world, it is time to challenge these myths which have served a political agenda and a toxic ideology. Keeping the myths alive for the purposes of social control and the profits rolling into private pockets with government serving its corporate masters.

Nothing is too expensive in monetary terms; government doesn’t have a finite pot of money with which to provide public and social infrastructure and neither does it have to doff its cap to the wealthy or large corporations to provide it. Contrary to the usual household budget narrative, when the government spends, it does so based on a political agenda, not the state of the public coffers. It just doesn’t want the public to know that, because it is a lie that can be used to justify its spending policies and who gets the money, or indeed yet another round of austerity when it suits. A harmful ideology that feeds government policies and spending decisions.

The proof of the pudding lies in the fact that when it serves that agenda there is always money to fund a government’s own political priorities such as war or defence spending, or public contracts divvied out to its mates with no accountability. Only this week, Sunak revealed that the UK had given Ukraine £100 million worth of weaponry. And yet at the same time, he tells us that savings in government departments must be found by rooting out waste which can in turn, according to the household budget narrative, be used to fund public services, as if a government that issues its own currency has no money of its own and has to tax or borrow or make ‘savings’ by robbing Peter to pay Paul to fund its agenda.

While the Telegraph talks this week about the parlous state of the public finances and running out of road, suggesting that excessive government spending was crowding out investment in the private sector by discouraging ‘innovation and competition in crucial sectors such as health and education’ (which tells us a lot about the priorities of those on the conservative right), it claimed also that government spending levels were ‘indefensible.’  These statements are predicated on the lie that money is a finite and scarce resource and that the State and its public infrastructure is wasteful of hard-earned taxpayers’ money!

While the Telegraph talks tough by suggesting that spending needs to be cut even further, the Spring Budget is already a kick in the teeth for those who are currently struggling to make ends meet and will mean even more hardship and poverty as energy, food and other costs continue to rise. The Chancellor has made a political choice to create further difficulties for already beleaguered citizens on the promise of ‘jam tomorrow.’ Fiscal discipline over national economic well-being. What a cruel way to view the lives of millions of people, who it seems have become expendable in some people’s eyes where government finances are concerned. Better a balanced budget than a happier, healthier more productive nation.

Let us ask what is the role of government? To balance the budget, keep the wealthy happy and the profits rolling? Or something else? What we should be discussing is not the state of the government finances, whether it has balanced its budget or gilded its reputation as being fiscally prudent, but how it has managed the real but finite resources it can, if it chooses, access through its tax and other policies to create a sustainable and functioning economy which benefits everyone, not just a small section of it.

Thus, a healthy economy depends primarily, not on a private sector paying its taxes to provide vital public infrastructure, for too long the public has been misled on this issue. It depends instead on the spending and legislative decisions taken by a currency-issuing government to create the publicly paid for and preferably managed national and local infrastructure upon which we all depend as individuals and businesses, from health to education, welfare, public transport networks, and employment. Government in service to its electorate, not the corporate body. That should be the starting point for a discussion about where we go from here and involves creating a better public understanding of how government really spends.

In short, the current economic problems and inflationary pressures are not caused by too much government spending as some would have it, but by supply chain disruptions resulting from the pandemic, the war in Ukraine and the growing effects of climate change on the world economy including food production. This is a moment not for fiscal retrenchment but thinking best how to support working people in these difficult days and planning for a sustainable and fairer future for all.

 

 

 

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The post Out-of-touch Chancellor’s Spring Statement fails to help those most in need appeared first on The Gower Initiative for Modern Money Studies.