Deficit

Norwood Hanson, Paul Krugman and MMT

Published by Anonymous (not verified) on Sun, 29/03/2020 - 10:00pm in

Phil Armstrong, University of Southampton Solent and York College

 2020

 

 1. Norwood Hanson: Is the sun going around the Earth or the Earth going around the sun?

 

Norwood Russell Hanson (1961) considers the conceptual foundations of science; he notes that the work of scientists involves observation. However, such observation is likely to be interpreted differently by different observers, as consistent with an acceptance of the view that all facts are theory-laden (but, importantly, not theory determined). Hanson focuses upon how we conceptualise what we see into general systems, ‘Let us examine not how observation, facts and data are built up into general systems of physical explanation, but how these systems are built into our observations, and our appreciation of facts and data’ (Hanson 1961: 3).

Hanson considers how different observers perceive things differently. He talks about Tycho Brahe[1] and Kepler looking up at the sky, and asks a question, ‘Kepler regarded the sun as fixed: it was the Earth that moved. But Tycho followed Ptolemy[2] and Aristotle in this much at least: the Earth was fixed and all other celestial bodies moved around it. Do Kepler and Tycho see the same thing in the east at dawn?’ (Hanson 1961: 5). Hanson argues that ‘people, not their eyes, see’ (Hanson 1961: 6) and develops his story by noting, ‘Tycho and Simplicius[3] see a mobile sun, Kepler and Galileo see a static sun’ (Hanson 1961: 17) and later notes, ‘Our sense observation shows only that in the morning the distance between the horizon and the sun is increasing, but it does not tell us whether the sun is ascending or the horizon is descending…For Galileo and Kepler the horizon drops; for Simplicius and Tycho and the sun rises’ (Hanson 1961:182). Hanson points out that ‘There is a sense, then, in which seeing is a ‘theory-laden’ undertaking (Hanson 1961: 19) and ‘The observer…aims only to get his observations to cohere against a background of established knowledge’ (Hanson 1961: 20).

 

2. Paul Krugman like Tycho and Simplicius

 

Moving on from the solar system to the financial system we move from asking whether the sun revolves around the Earth (or vice versa) to asking if taxes fund spending (or vice versa); specifically, when we consider the dynamic nature of the efflux and reflux of credit and debits in relation to government’s account we might conceptualise what we observe in two ways:  first we may ‘see’ the taxation (or borrowing) as funding the spending or (lending) [view A]  or second, as the spending (or lending) funding the taxation (or borrowing) [view B].[4]

In this context, we might reasonably compare Paul Krugman to Tycho and Simplicius. By way of example, I might consider a recent series of Twitter posts from Krugman (I have collected them into one passage below).

“I’ve been getting some questions from readers wondering about the cost of the not-a-stimulus (it’s actually disaster relief) package. “Where’s the $2 trillion coming from? Thin air?” Basically, yes. We went through this argument back in 2008-2009, when many people (including some who should have known better) worried that government borrowing was going to “crowd out” private investment. There are times when that happens, but this isn’t one of them. In the most immediate sense, the govt. is going to borrow the money — and its borrowing costs are near record lows, despite the surging deficit…But where does the borrowed money come from? Basically, right now we have trillions in private savings with no place to go, because private investment demand isn’t sufficient to use them; who’s going to invest in the face of a plague of unknown duration? So government borrowing just draws on this pool of excess savings. Furthermore, in so doing it helps prevent an even steeper economic contraction” (Paul Krugman, combined 5 tweets 27/03/20, emphasis added).

It is clear from the text that Krugman implicitly accepts view A. The italicised sections show this most clearly. By acknowledging the possibility of ‘crowding out’[5], arguing that ‘the govt. is going to borrow the money’ and that ‘government borrowing just draws on this pool of excess savings’, it is clear that Krugman conceptualises the government as a currency-user; a position that, as I will show below – in common with Ptolemaic astronomy -is not consistent with the evidence.

 

3. Modern Monetary Theorists like Copernicus, Galileo and Kepler

 

Returning to our discussion of the solar system we might note that the eventual triumph of heliocentrism did not come quickly or easily. Much hard work from astronomers was required but eventually, the battle was won and, ‘By the eighteenth century, after the successes of Galileo, Kepler and Newton, the universe was construed as an intricate geometric-arithmetic puzzle’ (Hanson 1961: 66). I might argue that shifts in worldview are prompted by the observation of some deeply significant anomaly (or anomalies) (Kuhn 1962). In this context,  Hanson (1961: 68-9)  notes, “We ask, ‘What is its cause?’ selectively: we ask only when we are confronted with some breach of routine, an event that stands out and leads us to ask after its nature and genesis.” Hanson refers to retroduction[6] and argues “A theory is not pieced together from observed phenomena; it is rather what makes it possible to observe phenomena as being of a certain sort, and as related to other phenomena. Theories put phenomena into systems. They are built up ‘in reverse’ – retroductively” (Hanson 1961:90).

In the same way that Tycho and Kepler ‘see’ the same things, those who conceptualise the government as a currency-user – such as all mainstream economists and many so-called ‘progressives’ such as Krugman – and those who conceptualise it as a currency-issuer – notably the advocates of MMT – ‘see’ the same things. The issue is how to decide which view is consistent with the development of a theory with the most explanatory power? Returning to the issue of anomalies – or unforeseen observations – we have a clue to the answer. The economics profession has long argued that heightened public deficits would lead to higher long term interest rates and, in turn, that these higher interest rates would lead to lower private investment or ‘crowding out’. This hypothesis follows from their view of the government as a currency-user which borrows from a ‘fixed pot’ of saving in competition with private borrowers.  This prediction was decisively falsified during, and immediately after, the global financial crisis when all the world’s major nations with their own currencies, operating under floating exchange rates, saw declines, not increases, in long term interest rates on government debt[7]. It is true that some, although by no means all – Eurozone nations did see a rise in long term interest rates. However, since MMT explicitly recognises the distinction between Eurozone nations (which have ceded currency-issuing power to another entity – the ECB) and currency-issuing nations, it recognises that Eurozone nations should be conceptualised as currency-users meaning that this outcome is exactly in line with the expectations of MMT[8].

An understanding of MMT removes the supposed element of ‘surprise’ from what is a highly significant anomaly from the perspective of mainstream economics, The advocates of MMT are able – retroductively – to posit the structures and mechanisms which explain this contrast between currency-issuing and currency-using states and I would, therefore, argue that MMT provides the basis for the provision of a satisfying explanation of observed phenomena – absent from mainstream thinking based upon ‘seeing’ the state as a currency-user.

In contrast to perspective which underpins the comments made by Krugman, above, Modern Monetary Theorists contend that when a nation has its own sovereign currency and operates under floating exchange rates, ‘borrowing’ by the state is not operationally required. The government should be thought of as a currency-issuer; it spends first and creates reserves, ex nihilo. It is never revenue-constrained as a currency-user might be. The so-called ‘borrowing’ operation which removes the reserves is voluntary (Mosler 2012). It could allow any untaxed spending to remain in the system. However, such a policy would result in the overnight rate falling to zero (if no other action was taken, such as the central bank agreeing to pay interest on excess reserves).

However, it must be conceded that the difficulties involved in replacing deeply-embedded theories (or paradigms in Kuhn’s [1962] terminology) should not be underestimated and I would argue that this is particularly the case in economics. The economics academy has been highly successful in reducing the ability of alternative perspectives to gain traction. Contrary to their professed acceptance of the principle of falsification, mainstream economists have introduced numerous ad hoc modifications to their apparently failed theories (Armstrong 2018) to avoid falsification. However, despite this disappointing situation, the position of mainstream economics is far from impregnable and the advocates of MMT must continue to challenge its hegemonic status. We can only hope that mainstream economics and its conceptualisation of the state as a currency-user is eventually destined to be consigned to the status of an episode in the history of economic thought, following in the footsteps geocentric thinking in astronomy.

 

References

 

Armstrong, P. (2018), ‘MMT and an Alternative Heterodox Paradigm’, Gower Initiative for Modern Money Studies, https://gimms.org.uk/2018/12/26/mmt-heterodox-alternative-paradigm/.

Bhaskar, R., (2017), The Order of Natural Necessity, Gary Hawke (ed.), Luxemburg: CreateSpace Independent Publishing Platform.

Galilei, G. (1632/1953), Dialogue Concerning the Two Chief World Systems (Dialogo sopra i due massimi sistemi del mondo), Berkley: University of California Press.

Hanson. N (1961), Patterns of Discovery, Cambridge: Cambridge University Press.

Kuhn, T. (1962), The Structure of Scientific Revolutions, Chicago: University of Chicago Press.

Mosler, W (2012), Soft Currency Economics II, US Virgin Islands: Valance.

 

 

[1] Tycho Brahe (1546 – 1601) was a Danish astronomer who developed a view of the solar system which recognised that the moon orbits the Earth and the planets orbit the sun, but retained the position that the sun orbits the Earth.

[2] Claudius Ptolemy (c. AD 100 – c. 170) was a Greek mathematicianastronomer and astrologer whose Ptolemaic approach suggests that the Earth is at the centre of the universe.

[3] Galileo compares the Copernican with the Ptolemaic systems in Dialogue Concerning the Two Chief World Systems (1632). In the text, Simplicio presents the case for the Ptolemaic system and argues against the Copernican alternative. The character’s name is generally supposed to be derived from that of a sixth-century follower of Aristotle, Simplicius of Cilicia.

[4] A third view might be summed up by the question, ‘Is the distinction important?’ I would argue that the distinction is important since the government can spend without prior tax revenue whereas prior spending (or lending) is logically and historically required for taxes to be paid. Thus only view B above is valid.

[5] The crowding-ou hypothesis suggests that heightened government deficits lead to higher long term interest rates and that,  in turn, these higher rates, reduce – or ‘crowd out’ – private investment. Little or no evidence to support this hypothesis exists (Armstrong 2018).

[6] In the retroductive moment, a scientist imagines a mechanism or structure which, if it were true, would explain the event or regularity in question. It is the use of the imagination to posit explanatory mechanisms and structures’ (Bhaskar 2017: 28).

[7] Armstrong (2018).

[8] Armstrong (2018)

 

 

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Rishi Sunak is wrong. ‘Righting the ship’ won’t require any taxpayers to ‘chip in’ to cover the cost of his spending plans – not now, in the future, or ever. 

Published by Anonymous (not verified) on Sun, 29/03/2020 - 4:37am in

Scientists wearing masks holding sign with the slogan "Together we do it"Image by Gerd Altmann from Pixabay

Marcus Tullius Cicero was a Roman statesman, lawyer and academic sceptic philosopher. He wrote ‘The Safety of the People shall be the Highest Law.’

This week, it was reported that the former health secretary Jeremy Hunt was in charge when medical advice to stockpile protective equipment in event of a flu pandemic was rejected on the grounds that stockpiling would be too expensive. By this decision, it would seem that this government chose deliberately to put cost over the health of its citizens, thus perpetuating the myths about the unaffordability of public services. The health and safety of the nation has been in the hands of a government which thought saving money was more important than keeping people protected. Jeremy Hunt claimed a while back, that public services depended on a healthy economy. That falsity will come to haunt him as we find out the hard way that it is, in fact, the other way around. A healthy economy depends on a healthy nation.

The neoliberal order which has dominated the global corridors of power for more than 40 years, combined with monetarist policies and more recently austerity following the global financial crash, has led to the destruction of public and social infrastructure not just here but in many developed nations around the world including the EU trading bloc. It lies at the heart of this crisis.

The horrors we are seeing in Spain, France, Italy, the US and other countries as the COVID-19 coronavirus compromises the ability of health and other public services to cope underline painfully the consequences of government decisions. Governments which rejected the power of the state to serve its citizens, promoting the god of the markets – the invisible hand – instead, have appeased it at every turn to favour the global corporations which have dictated the rules.

In the UK, despite the early advice from other experts in countries where coronavirus had already struck, government prevarication and failure to act expeditiously has allowed the disease to spread through the nation affecting many, not just those who are elderly with underlying health conditions. All human life is precious and yet this government has treated some as expendable and put the lives of those in the front line in the health service at risk.

As GIMMS noted in a previous MMT Lens, we will pay a heavy price for the ‘just in time’ approach to our health and public services and the lie that they were only affordable if the economy was doing well.  The media, having done little to hold the government to account for decades and especially in the last 10 years, has left us without sufficient nurses, doctors and health workers, beds, ventilators, ICUs and other equipment. Our health professionals are still crying out for Personal Protective Equipment (PPE) and are selflessly putting their own health at risk for others.  They are crying out for ventilators to keep people alive. They are crying out to be tested to keep themselves and their patients safe.

A healthy economy relies on public infrastructure, which is in short supply as a result of government choice. Ramping up the much-needed supplies is proving slow and difficult, not to mention demonstrating government incompetence. A good government delivering public purpose would have meant that we would have been better able to deal with this emergency and we might not be witnessing its current trajectory.

Our public infrastructure has been the victim of government cuts and we are now paying the price for the breakdown which is occurring as a result of limited or non-existent emergency planning, deregulation to suit market demands and privatisation – which have all been justified by the lie that the state had no money of its own and public services were a luxury determined by the health of the economy.

When the Chancellor got up to announce his spending plans and the measures to help those now unable to work, people cheered. If nothing else, this should have demonstrated quite clearly that the government was not constrained by tax or borrowing in order to spend, despite the charade that successive governments have played out about how its spending is paid for.

With big business queuing up for handouts (reminiscent of those banks that were too big to fail who were bailed out with public money) for others, it has been like squeezing blood from a stone. The very people who form the backbone of society, who keep it functioning and contribute to the economy through their work – the self-employed in particular – are being asked to jump through hoops to get any money at all, leaving them struggling and worrying about the future. People who for a decade have been living hand to mouth with scarce or no savings, working in zero-hours employment, the gig economy or in part-time work, will have to wait months for the government to pay up. Those in desperate need without employment are being asked to apply for Universal Credit for a measly £94.50 a week hanging on in telephone queues which can be as long as 90,000. It will not be long before those who congratulated the Chancellor for his largesse will have to think again, as bills go unpaid and people go hungry. People need support now, not later. The breakdown of society is in the offing if the government fails to act as it could now simply by authorising the central bank to make payments through HMRC who hold our data.

Alongside the tragedy which is playing out, the household budget narrative is never far behind, even in the words of Rishi Sunak who during his announcement of measures for the self-employed claimed that when this emergency was over we’d have ‘to chip in to right the ship’ promoting yet again that at some time in the future there will be a cost to taxpayers. Which in short there will not, since the government does not need to collect tax before it can spend!

Next, an ITV newsreader asked, ‘can the public finances take the strain?’ And this was followed by Robert Peston telling the TV audience that we’ll be ‘paying off the national debt for years’. To be clear – for the UK government, which is the currency issuer, there is no strain on the public finances and there will be no future burden on the taxpayer.

The Tax-Payers Alliance then announced that in future there would have to be ‘growth-enhancing’ measures and spending restraint’ both mutually exclusive positions which hark back to a false claim that cutting public spending could lift growth. The evidence is before us right now that this is not true.

Finally, the journalist Philip Inman suggested that Sunak’s budget spending spree could come at a high price, ‘fighting a war with borrowed money.’ Except that the government, as the currency issuer, does not need to borrow to cover its deficits; nor does it need to issue bonds in order to spend.

Our public and social infrastructure is under severe pressure and cracking under the strain, and people are suffering and dying. And yet they are still arguing about the financial cost of the Chancellor’s spending as if deficits and borrowing were the devil, balanced budgets the epitome of a government’s economic success or that there will be a price to pay if fiscal prudence is abandoned.

The ONLY cost in the future is the human cost we will face if the government fails to act in a manner that secures the lives of citizens, ensures they can pay their bills and eat during this emergency.  Fiscal prudence is the least of our worries!

We must today, tomorrow and in the future, keep holding to account government, politicians and all those who peddle the economic orthodoxy that there is no money. The Chancellor has shown that there is the possibility to spend without checking the public purse first. It is a political choice. So much is now at stake and we need as nations to keep pushing with more persistence until change happens. The battle lines are being drawn as we speak. The coronavirus, hard as it is, may be our societal wake-up call. Let’s hope so.

 

 

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The post Rishi Sunak is wrong. ‘Righting the ship’ won’t require any taxpayers to ‘chip in’ to cover the cost of his spending plans – not now, in the future, or ever.  appeared first on The Gower Initiative for Modern Money Studies.

A Short Comment on the UK Government’s Fiscal Policy in the Current Crisis

By Phil Armstrong, University of Southampton Solent and York College.

Man putting on protective mask and wearing latex glovesImage by Terri Sharp from Pixabay

The UK government’s significant fiscal expansion – in line with its ‘do whatever is required’[1] mantra – is, of course, welcome. However, I would argue that it is still far too small to deal with the massive demand shock associated with the coronavirus pandemic (Mitchell 2020a, 2020b) and also that it is incorrectly targeted. It pays insufficient attention to the poorest groups in society; the government has failed to take the necessary steps required to ensure the income of those most in need is adequately supported during the crisis. Clearly, the situation is evolving on a daily basis and, looking forward, it is highly likely that there will be continual calls for the government to increase its fiscal intervention from many sectors in society – not least business leaders who fear the effects of rapidly declining demand.

However, I would stress that the intervention is being enacted against an inapplicable theoretical and ideological backdrop, specifically the mistaken neoliberal framing of the so-called ‘government budget constraint’ (GBC). The logic of the GBC conceptualises the government as a currency-user, which might finance its spending by taxation, by borrowing (debt issuance) or ‘printing money’ (Mitchell 2011). According to mainstream thinking, each of these methods carries problems; increased taxation reduces non-government sector spending power and allegedly generates disincentive effects, ‘excessive’ borrowing leads to higher long term interest rates, in turn, causing ‘crowding out’[2] and ‘money printing’ inevitably results in inflation.   There is also an underlying ideology implicit in neoliberalism; that state expansion soaks up real resources which would be better (or ‘more efficiently’) used by the private sector.

In extremis, it appears that the Conservatives (who have shown a marked distaste for expansionist state intervention in the recent past) and even business leaders who would normally be opposed to increased government spending and enlarged deficits are now prepared to put their weight behind the fiscal expansion[3]. However, the underlying framing based upon the GBC is likely to come back to bite us all – hard – in the future. In line with the erroneous conceptualisation of the state as a currency-user, the government is presenting its current additional spending as being ‘financed’ by borrowing. The story is founded upon the idea that the government needs to spend significant extra sums now – owing to the severity of the crisis – and heavy borrowing is, therefore, essential (reinforced with the contention that it is cheaper for the state to borrow now than in the past as long term interest rates are very low) in the manner of household who accepts a very large credit card bill because there is no other way it can survive[4].

However, following this line of thinking will lead to a damaging and erroneous conclusion. It is highly likely that in the future – when the crisis has passed – mainstream economists will argue that there is a financial ‘mess’ to fix; ‘unacceptably’ large public sector deficits may well persist beyond the crisis alongside an ‘excessive’ national debt as a proportion of GDP. The narrative will then, no doubt, suggest that they need to be ‘dealt with’– possibly with another, even harsher, round of austerity than last time – and it will those least able to cope who are most likely to be the ones asked to bear the greatest share of the burden (as was the case the last time austerity was imposed).

This conceptualisation of the government as a currency-user suggests that money printing and bond issuance are alternative ways of financing a deficit, however, advocates of MMT conceptualise the state as a currency-issuer. From this viewpoint, in reality, they are not alternatives.  The government always spends by the creation of new money – both taxes and borrowing logically and historically follow spending (or lending). Only money that has already been issued by the state can be collected in taxes or used to buy state debt. When the government spends, it does so by crediting the bank accounts of its target recipients, simultaneously increasing the target’s bank’s reserve account by the same amount. When taxes are paid by a private sector agent, her deposit balance falls and her bank’s reserve account balance at the central bank (CB) is correspondingly marked down[5].  The purchase of government debt is best conceptualised as a reserve drain (Mosler 2012) which changes the composition of non-government sector holding of risk-free state debt but not its size.

I would argue that having this correct conceptualisation is the key to avoiding the return of austerity. In reality, the government sets its aims, determines its budget and spends by the ex nihilo creation of new money. When the operational reality of the financial system is correctly understood, then the expectation of a post-crisis ‘mess’ to fix disappears. Once the economy has recovered, that does not necessarily mean a need for austerity or even fiscal retrenchment – only the post-crisis economic outcomes such as growth, employment and price stability matter. If unemployment persists after the crisis has passed, then government net spending should still be regarded as being too low, irrespective of the size of the government deficit both in absolute terms and as a proportion of national income. Only in an economy suffering from inflation from excess demand would fiscal contraction be required.

These are challenging times for us all, but in the current crisis we have the opportunity to push forward the insights of MMT and to challenge established thought – particularly with respect to the inapplicable government budget constraint. If our understanding of the operational reality of the monetary system can be characterised by the insights of MMT, the full scope of existing fiscal space can be understood and importantly, the likely post-crisis push for fiscal retrenchment can be effectively countered.

 

[1] See Islam (2020).

[2] The crowding hypothesis is based on the contention that higher interest rates will lead to lower private sector investment, meaning that large government deficits effectively ‘crowd out’ private investment. Little, if any, empirical support for this hypothesis exists (Armstrong 2015).

[3] For example, Richard Branson expressed his support for fiscal retrenchment in 2010 (Stratton 2010) but changed his mind in 2020 when arguing in favour of a £7.5 billion government support package for the airline industry (Hockaday 2020).

[4]  ‘We are in an entirely new world. A wartime effort, with wartime deficits to cover it’, Rishi Sunak, quoted in Islam, F., BBC News online, 17 March 2020.

[5] It is important to stress that private sector debt or bank money cannot provide the final means of settling a tax bill which occurs when a taxpayer’s bank’s reserve account at the central bank is debited in favour of the Treasury account (Armstrong 2019).

 

References

 

Armstrong, P. (2015), ‘Heterodox Views of Money and Modern Monetary Theory (MMT)’

https://moslereconomics.com/wp-content/uploads/2007/12/Money-and-MMT.pdf

 

Armstrong, P. (2019), ‘A simple MMT advocate’s response to the Gavyn Davies article ‘What you need to know about modern monetary theory’, Gower Initiative for Modern Money Studies,

https://gimms.org.uk/2019/05/27/phil-armstrong-gavyn-davies-response

 

Hockaday, J. (2020), ‘Airline bosses to ask for £7,500,000,000 bailout to survive coronavirus.

The Metro online, https://metro.co.uk/2020/03/14/airline-bosses-ask-7500000000-bailout-survive-coronavirus-12399300/

 

Islam, F (2020), ‘Coronavirus: Chancellor unveils £350bn lifeline for economy’, BBC News online, 17 March, https://www.bbc.co.uk/news/business-51935467

 

Mitchell, W. (2011), ‘Budget Deficit Basics’ 4 April

http://bilbo.economicoutlook.net/blog/?p=14044

 

Mitchell, W. (2020a), ‘The coronavirus crisis – a particular type of shock – Part 1’, March 10,

http://bilbo.economicoutlook.net/blog/?p=44484

 

Mitchell, W. (2020b), ‘The coronavirus crisis – a particular type of shock – Part 2’, March 11,

http://bilbo.economicoutlook.net/blog/?p=44488

 

Mosler, W. (2012), Soft Currency Economics II, US Virgin Islands: Valance

 

Stratton, A (2010), ‘Richard Branson backs Tory plans to cut spending sooner rather than later’, The Guardian, 16 February,

https://www.theguardian.com/politics/2010/feb/16/branson-back-tory-deficit-cuts

 

 

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The government’s spending promises have shown the need for austerity is a lie and a sham. It’s time to hold the government to account for its political decisions, not its fiscal prudence or otherwise.

Published by Anonymous (not verified) on Sun, 15/03/2020 - 10:21pm in

Man teaching girl to wash her hands properlyImage by CDC on Unsplash

In 2010 the newly elected Conservative government, using smoke and mirrors, turned what was a private debt crisis caused by global reckless greed and speculation by financial markets into a sovereign debt crisis. Liam Byrne’s stupid joke note left in the Treasury, suggesting that there was no money left, gave them the perfect opportunity to cash in by claiming that was no alternative to austerity and cuts to public spending. The then Prime Minister David Cameron and his Treasury sidekick George Osborne declared that ‘maxing out the credit card’ and putting off dealing with the problem would make it worse and suggested that without spending cuts we could end up like Greece. The Chancellor declared in his Spending Review – ‘we have taken our country back from the brink of bankruptcy.’

Believing that their own household budgets were like the state’s public accounts (a constantly reiterated message) it’s no wonder that the nation gave a huge sigh of relief. People were mistaking the prospect of “healthy” public accounts for a healthy economy. The nation, which accepted the false premise that there wasn’t any money left in the treasury coffers, subsequently paid a heavy price for this misunderstanding; a misunderstanding that was endlessly promoted by successive Chancellors.

What followed allowed the government to deliver a political agenda which had nothing to do with balancing the budget, even if presented as such. It was quite simply the mechanism to further hollow out our public services, reform the welfare system and sell-off and privatise public assets. It brought to its conclusion a decades-old plan which began as early as the 1970s and was pursued by Margaret Thatcher, as a result of her love affair with the ideas of the economist Friedrich Hayek and the Chicago School of economics; continued by Tony Blair and New Labour.

This Wednesday the new Chancellor of the Exchequer, Rishi Sunak, stood at the despatch box to give his first Budget. The public, from being told over 10 years ago that Labour had spent beyond its means and as a result, the nation would have to cut its cloth and make a sacrifice to restore the public accounts to order, suddenly discovers that the money we were told we didn’t have for public services which were previously “unaffordable”, can inexplicably appear, as if by magic. From apparent scarcity to abundance. Along with the Bank of England cutting its base rate in an effort to fight the impact of Covid-19 on the economy, the money taps have also been miraculously switched on.

As an aside, when public and business confidence is at rock bottom and fear is rampant, it beggars belief that the central bank believes that cutting rates will stimulate people to consume (unless it’s toilet roll, pasta or hand sanitiser) or businesses to invest. Ten years of reliance on central bank monetary policy to stimulate the economy has proved ineffective. The fiscal approach, i.e. government spending to support the economy and its public infrastructure, is the only route left to any government, left or right, if they are to address the prospect of recession as a result of 10 years of austerity or indeed economic collapse because of the coronavirus outbreak.

More importantly, the fiscal approach is also the only route available to fight the immediate consequences of the virus in terms of containing it; the government must use the power of the public purse, alongside its legislative powers, to ensure that resources are freed up to get help to where it is needed. Whether that’s financial support for individuals or businesses caught up in the coming economic slowdown or bringing private sector health companies into public use – meaning hospitals and trained staff – to meet increased demand.

That said, we cannot avoid the stark fact that after ten years of austerity, which have gouged out our public services and left them pared down and in an appalling state of decay with those working in them struggling to pay their way using food banks or in deep debt, it remains to be seen what can be achieved immediately. Austerity reduces our domestic productive capacity, laying the foundation for inflationary pressure when the economy needs to grow or when the nation has to respond to a crisis. The corona crisis will create inflationary pressures which will result in rationing access to real resources and public services. This and many other governments have for decades put bankers and the financial sector before the health of their nations and their citizens.

Just to be clear, in case there is some confusion, turning on the taps has nothing to do with printing money in the Treasury basement, collecting tax or borrowing from the market to fund its spending programme. It is doing what all sovereign currency-issuing governments like the UK’s can do and have been able to do since 1971 – spend the money into existence via a computer keyboard at the central bank, where an employee authorised by the Treasury enters numbers onto a screen and transfers to the appropriate accounts whatever sum of funding it requires to deliver its capital programmes or fund its day to day spending. The fact that government spending is still couched in household budget terms of collecting tax or borrowing serves an agenda and nothing else. It is worth repeating here that there was no such scarcity of money when it was a question of spending it to feather the nests of corporations, reduce taxes for the same or serve a specific government agenda, from bailing out the “too big to fail” banks after the 2008 financial crash to buying votes in the House to keep the government in power.

So, having presided over 10 years of the destruction of our public and social infrastructure, the ravaging of our public services and social security system and all that that has meant for the economy and some of the nation’s most vulnerable citizens, now suddenly it appears the government’s austerity breaks have been taken off and the gears crunched into fourth! If you are wondering how this has this happened, when up until quite recently being fiscally prudent has been all the rage, according to a government minister the sacrifice of the great British public has now paid off, enabling the government to spend. Dear Rishi and any others promoting this nonsense, please pull the other one, it has bells on! The veil pulled over the eyes of the British public who are now suffering the very real physical and economic consequences of government policies is now being torn away in the most brutal way.

The harsh reality is that the sacrifice was unnecessary and indeed damaging. It was justified on the back of a monstrous lie about how the state finances actually work. We heard them say that the nation had been living beyond its means and this required drastic remedial action to avoid bankruptcy. The myths about how money works have left our public and social infrastructure in such a state of decay that the last 10 years of austerity combined with the risks that the spread of coronavirus pose and its effects on the world economy are increasingly becoming self-evident. Government’s ideological choices, with their focus on keeping markets and corporations sweet, have been responsible, not lack of public funds. To put it bluntly, political choices are killing us.

However, before we get too excited about a change of direction (and how the government will explain it) whilst one can obviously support a fiscal programme of government spending as the right approach, one has to question who it will benefit. Whilst, of course, there is a role for the private sector in delivering big infrastructure projects they will continue to feather the bank accounts of big business. This means public money pouring into private profit whilst top management continues to pay itself big salaries, pensions and other bonuses. Whilst investment in our privatised railways has been promised, top management will continue to benefit from public money and pay itself handsomely whilst at the same time failing to provide good, reliable services as many travellers will attest. Government pours money in, but fails to dictate the terms in the public interest.

Sunak neither mentioned the perilous state of social care nor the appalling consequences of the introduction of Universal Credit on the lives of many involuntarily unemployed people and those with disabilities. And whilst he has announced a spending review, which will include local government, the combined effects of 10 years of cuts to funding will take more than a future spending review to improve the dire financial situation of local councils and the current parlous state of local infrastructure and services.

The economy is not some nebulous presence overseeing things from the heavens; it is us. From nurses, doctors and other health professionals, those that teach our children or lecture in other institutions of learning to ensure a healthy and educated society for today and tomorrow to those who sweep the streets and remove the rubbish along with the army of social carers looking after our loved ones in their own homes or in residential care. The government has failed the economy. It has failed us. It has, in fact, decided that some of us are expendable; surplus to requirements.

The ‘spend, spend, spend,’ message has however not gone down well in some circles and whilst we may think that household budget narratives have been swept away in favour of fiscal spending, the question of how it will be paid for still hasn’t gone away. A quick perusal of the government’s own Executive Summary for this week’s budget in which it talks about ‘creating a fair and sustainable tax system to fund first-class public services’, mentions that ‘over the past decade it has taken action to restore the public finances and reduced the deficit by four-fifths’ and suggested that the ‘historically low cost of borrowing means that it can support the economy and provide significant investment in public services and infrastructure’ is still nodding its cap to household budget narratives of how governments spend.

The reaction of the Adam Smith Institute which suggested that ‘spending like a drunken sailor…wasn’t the way to create a thriving entrepreneurial economy’ or the IFS which remarked that ‘The Chancellor seems to think the only best way to boost growth is through public spending’ shows that we still have a way to go in changing the institutional and press narrative.

With the mantra of low interest rates and borrowing to spend still prevailing even amongst what one might call ‘progressive’ left-wing economists and journalists, we seem to still be stuck in the household budget box of taxing and borrowing. Indeed, one economist and commentator claimed that ‘spending on growth-promoting investments would ensure that government wouldn’t have any trouble repaying its debts over the long term’. It is now the job of the left-wing not to question the fiscal prudence of government as in the usual ping pong of debate about the state finances – that train has now left the station – but to hold it to account for its political choices.

The house is still on fire, the emergency suddenly grew into one of huge proportions with increasing climate uncertainty, environmental catastrophes, the prospect of an economic collapse which will affect vast swathes of the world population and we still have people talking about being fiscally prudent in one way or another. It is time to wake up to the reality that it is not a balanced budget that will save us, it is a government which puts human beings at the top of its priorities instead of polluting, exploitative corporations and is willing to make the policies and spend within its resource capability to address the challenges we face for the future.

 

Events

Challenging the narrative about how governments pay for public services – Northampton

March 28 @ 1:30 pm – 4:30 pm

 

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The post The government’s spending promises have shown the need for austerity is a lie and a sham. It’s time to hold the government to account for its political decisions, not its fiscal prudence or otherwise. appeared first on The Gower Initiative for Modern Money Studies.

There is an alternative so let’s keep PUSHing until something happens! Keep challenging the status quo and undoubtedly it will!

Published by Anonymous (not verified) on Sun, 16/02/2020 - 6:46am in

Slogan PUSH - persist until something happens“Austerity is theft, the greatest transfer of wealth from poor to the rich since the enclosures.”
― 
Fuad Alakbarov, Exodus

What links Spain and the UK?  Some might say tourism as millions make Spain their holiday destination every year for the weather, the beaches and its history and culture. However, not many people, if asked, would mention austerity. This week, Philip Alston, the UN’s special rapporteur on extreme poverty and human rights reported that Spain was failing many of its citizens, leaving them marginalised and living in extreme poverty. He noted the high unemployment and chronic youth unemployment, the shocking housing crisis and that fiscal policies had provided far more benefits to the wealthy than the poor.  The 2008 economic crisis and the implementation of neoliberal policies had left Spanish society fractured, he said, with conditions often worse than in refugee camps where families were raising children with a lack of adequate state services, health clinics or employment centres.

If not a mirror image, it all sounds pretty familiar and comes almost a year on from Alston’s report on the UK in which he noted that the UK’s social safety net had been ‘deliberately removed and replaced with a harsh and uncaring ethos’ and that the government’s ideologically driven economic policies in the form of cuts to public services had led to tragic consequences.  A year on, working people are still paying the price in ongoing austerity and rising poverty.

Austerity is not occurring in isolation. We often tend to think of it in terms of its damaging consequences for UK citizens and the public services on which they depend and yet it is being played out in many European countries including Greece, Spain, Italy and Portugal and more recently France where protests are continuing in towns and cities. From protests in 2016 against weakening employment rights, to President Macron’s more recent proposals for changes to welfare and pensions coupled with cuts to public spending in key public sectors, these demonstrations might be seen as emblematic of growing unrest across Europe and the rise of right-wing populism. Working people have suffered greatly from market-led EU policies which have weakened national democracy, put the corporate sector in charge in the corridors of power and imposed austerity at unforgivable human cost following the financial crash in 2008.

Whilst UK citizens have shouldered the burden of unnecessary austerity for ideological reasons dressed up as good housekeeping, i.e. a political choice, European citizens are paying a heavy price for a dysfunctional Eurozone and EU economic policies. This has trapped member states in damaging fiscal debt and deficit rules, combined with the EU Treaties which form part of an ideologically driven agenda which has enforced cuts to spending on vital public infrastructure and weakened working people’s employment rights. The loss of economic sovereignty of the member states has deprived Eurozone nations of the tools with which they can manage their economies effectively. Austerity is thus reinforced, both in ideological and in Swabian housewife terms.

We are living in ‘interesting’ times if not downright scary. Perhaps UK citizens thought that getting Brexit done would alleviate the uncertainty, but if anything, it has increased it. Trade deals are still a long way off, there is rising political insecurity on a global scale and a threatening worldwide economic slowdown.

Although the UK was thankfully not a member of the Eurozone, successive governments were ‘encouraged’ through the Stability and Growth Pact to keep to the same fiscal rules as Eurozone countries, which perhaps explains how spending plans were always seen through the lens of a household budget and their success or otherwise measured by the state of the public accounts. Although, of course, Margaret Thatcher should also share some of the blame by her declaration that ‘there is no public money, only taxpayers’ money’.  Deficits bad, surpluses good, is the political mantra, which as we know doesn’t tell the whole story. The state of the public accounts should be measured in a government’s economic record, not a balanced budget.

Indeed, the Conservative government’s spending has been tempered by fiscal rules and promises to balance the budget which were imposed by successive Chancellors – from George Osborne to spreadsheet Phil Hammond and lately Sajid David.  In recent months, there have been clear tensions between the Treasury and the Prime Minister’s office about future spending plans.  Over the last few weeks, the authors of the MMT Lens have posed the question as to whether the government’s spending promises would translate into real action, pointing out the nonsensical nature of Javid’s fiscal rules on day-to-day spending (those same ones promoted by the Labour Party) and asking what those spending plans might actually mean. Will they or won’t they and if they do who will be the beneficiaries?

It seemed over the last two days, following Sajid Javid’s resignation on Thursday after the cabinet reshuffle, that part of that question might have been answered. With a new chancellor, a former banker and hedge funder, the markets reacted accordingly and predictably at the prospect of a new broom and a fiscal stimulus. Heaven knows the economy needs one, although of course, it would remain to be seen what that would actually mean in practice!

However, it became clear only a few hours later that the new chancellor is very much in the mould of previous ones as he told ministers to identify ‘deep savings to allow him to turn on the spending taps’ so he could boost spending.  So, the good news about Johnson’s promise to spend on schools, hospitals, the police, buses and cycleways (not to mention his daft Bridge Across the Irish Sea) has been tempered yet again by faulty household budget economics.  Save a bit here and there to spend elsewhere! We’ve been here before. A world of costed budgets, higher taxation or borrowing to pay for spending or robbing Peter’s budget to pay for Paul’s.  The prospect of a fiscal stimulus was bound to bring out the debt doom-mongers asking how it would be paid for and talking about black holes and higher taxation as indeed the FT did last week.  Now it appears they don’t need to worry.

Instead of spending plans which rested on the simple understanding that government is the monopoly currency issuer, that spending comes before taxation and indeed that such a government neither needs to tax or borrow before it can do so, we are back to household budget square one.

However, let’s imagine for a moment that  Boris’s promises weren’t just a lot of electoral hot air and that his spending plans were not a mirage of the ‘now you see it now you don’t’ variety, the next question to be asked would be who would be the beneficiaries of this public spending spree and Johnson’s proposed tax cuts? The already excessively wealthy and the corporate sector, or working people? Handing tax cuts to the already wealthy would simply give them greater access to finite resources and reinforce the wealth gap whilst leaving working people still struggling.

As noted earlier, Johnson has promised spending on schools, hospitals and the police as well as pledging money for HS2, money for buses and cycleways and a Bridge over the Irish Sea.  A spending stimulus should, of course, be seen as a positive move for the domestic economy in the light of the already damaging cost of 10 years of austerity, the prospect of a global economic slowdown and to counter the trade uncertainties that exist as a result of leaving the EU. However, in the light of those 10 years of austerity policies and the government’s political agenda, we must carefully examine what it might mean.

Public and social infrastructure has been ripped to shreds, the NHS and education seriously underfunded, whilst local government is in tatters with further stringent cuts to come, which will have a devastating effect on many northern councils who are already wondering whether they can even meet their statutory duties. Cruel welfare reforms, which were presented as simplification but were in fact designed to cut government expenditure, have penalised families, children, sick, disabled and unemployed people through their stringent and unfair rules.  A big capital spending programme on infrastructure will not provide solutions to the impoverishment caused by such reforms, or the cumulative effects of wage caps, cuts to public services, and rising private debt and nor will it be intended to.  As Yanis Varoufakis commented in his book ‘Adults in the Room: My Battle with Europe’s Deep Establishment’.

‘Austerity is a morality play pressed into the service of legitimizing cynical wealth transfers from the have-nots to the haves.’

We can have ‘MMT for the rich’ whereby public money continues to pour into the corporate sector to provide services for profit whilst at the same time continuing with ‘rugged neoliberalism for the poor’ as Jeff Epstein, the progressive writer and podcaster, described it in a recent video. The winners and losers could be the same as they have been for decades under successive governments since Thatcher.

Without investing in the public and social infrastructure which ensures a healthy and educated population, provides well paid jobs alongside a Job Guarantee, looks after its most vulnerable citizens and provides the essential services that keep an economy running efficiently, a capital investment programme will prove a poor substitute for investment in national wellbeing if the same investment is not made to improve the lives of working people.  The foundations of a healthy society are laid by investing first in the real wealth creators; the working people of this country who form the backbone of a healthy economy.

Furthermore, if the Conservatives had been planning to implement a genuine capital expenditure programme using a modern monetary reality lens, which clearly it is not, then the question would never have been where the money would come from, but whether the nation had the spare capacity and idle resources to do this. Given the scale of the proposed capital infrastructure spending, it will require government planning and forethought to ensure that the country has the construction training programmes in place with sufficient trainers to train workers before a single brick, rail track or bridge tower can be laid. Indeed, it is not the primary role of government to balance the budget; its first consideration should be to deliver public purpose in the interests of those who elect them and the economy as a whole, not just an elite section of it.

Politicians on the left continue to play the game of ‘hard choices’ as one in the Labour leadership line-up did this week, or bang on about making the rich pay their fair share towards public service provision or indeed point fingers at the government for the size of its deficit or debt, so they are failing to focus on the government’s real failure on the economy. While this continues, the ability to deliver a truly left-wing agenda will simply keep on fading out of reach like a mirage. In an increasingly politically unstable world with all the challenges we face, not just in levelling up the distribution of wealth and ensuring that our public and social infrastructure meets the needs of citizens but also in addressing climate change, there is too much at stake to stick to these incorrect narratives. We must accept monetary reality.

 

Events

Professor Bill Mitchell and Professor Steve Hall Seminar – London

February 20 @ 1:30 pm – 5:00 pm

 

Professor Bill Mitchell and Professor Steve Hall Seminar – Manchester

February 21 @ 1:30 pm – 4:30 pm

 

MMTed Masterclass – London

February 22 @ 2:00 pm – 5:00 pm

 

Challenging the narrative about how governments pay for public services – Northampton

March 28 @ 1:30 pm – 4:30 pm

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

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The post There is an alternative so let’s keep PUSHing until something happens! Keep challenging the status quo and undoubtedly it will! appeared first on The Gower Initiative for Modern Money Studies.

Let’s have a conversation about what our values are and where we want to go. It’s time to recognise, in the words of Howard Zinn, that ‘We can’t be neutral on a moving train’.

Published by Anonymous (not verified) on Mon, 10/02/2020 - 5:10am in

Chalk board with the words "what's next" written on itImage by Gerd Altmann from Pixabay

‘For a decent standard of living, we all need security and stability in our lives – secure housing, a reliable income and support when things get difficult. For too many there is no such security. Millions of people in the UK are struggling to get by, leading insecure and precarious lives. It’s time to take action on poverty and put this right.

Joseph Rowntree Foundation

UK Poverty Report 2019/20

 

Warning…warning…black hole ahead!  No, not of the dense matter variety but one of the financial kind. That is, of course, if we are to believe the doom-mongering headline in the Financial Times this week that ‘Javid is set to miss his surplus target as finances head for £12bn black hole’.  It suggested that if the economy followed the Bank of England’s economic forecast, it would leave the Chancellor with a £12bn deficit by 2022-3 instead of the surplus he is aiming for and he might have to consider tax rises or more austerity to fill this ‘black hole’.

On the one hand, we have some in the government promising to splash some cash on our decaying school, hospital and other public infrastructure, a situation which has arisen as a result of a decade of government deliberately harmful austerity policies. And on the other, a Chancellor promising fiscal prudence having previously, it must be said, declared an end to austerity.  There seems to be some internal conflict on the subject! Oh, to be a fly on the wall in the conversations between No 10 and No 11!

While the planet continues to burn, and our public and social infrastructure further decays, the head bean counters in the Treasury and other public institutions are still tallying the public accounts on their abacuses. One hopes that we are starting to move away from such narratives, but equally one wonders whether the usual economic mantras will again kick back in? The Conservatives have dined out for decades on their reputation of economic competence and fiscal rectitude. They have used it successfully to mount attacks on the previous Labour government with the message that they had to sort out its mess (when the banks were to blame), and to justify dismantling the public and social infrastructure.

It has given them the perfect opportunity to deliver their ideological agenda of reduced state intervention, but at the time pour public funds into private profit. It has sold the public the incorrect narrative that our public services depend on collecting sufficient taxes which, in turn, they say depends on a healthy economy which, in turn, depends on businesses being able to make money with the least regulation possible.

The public has largely gone along with this narrative since understandably it measures the public accounts in the same way as its own.  Of course, private households – that includes you and me – ARE bean counters. We get an income, out of which we must pay our bills and settle any borrowing repayments with anything left over being used for discretionary spending or saving. If there is anything left over, that is.

The same goes for local government, which relies on government funding and local tax collection to fund its services. It also applies to businesses and corporations whose success, or otherwise, depends on their profit and loss sheets.  We are all users of the currency and as such dependent on the whims of government and its ideological agenda. Neither businesses nor local government have currency-issuing powers and nor do individual citizens unless, of course, they are breaking the law!

We have been led to believe that the health of the economy is measured in whether a government can balance its budget or save for a rainy day. We’ve gone down Alice’s rabbit hole and supped the ‘drink me’ potion with dire results. We need to rethink this accounting model which puts financial health above the health of the nation and the economy and does not represent actual monetary realities.

If we haven’t already, we should start by casting an eye over the consequences of the economic orthodoxy which has led to austerity and cuts to public spending.  Only this week the Joseph Rowntree Foundation published its report UK Poverty 2019/20 which provides a stark reminder of the dire effects of both the Conservative ideologically driven policies and its austerity agenda. The CEO of the JRF Claire Ainsley described the new government as having a ‘historic opportunity [..] to loosen the grip of poverty among those most at risk’ although its criticism fails to point the finger directly at government policies which have led to rising poverty and reinforced the gap between the rich and working people. It also fails to acknowledge an understanding of the long-term agenda that austerity has been – a cover for reduced state intervention, less democratic accountability and the promotion of the notion of self-reliance and personal responsibility.

The statistics should shock us:

  • The poverty rate is at 22% with little change in recent years
  • 5m people were destitute at some point during 2017 including more than a third of a million children.
  • Seven per cent of individuals have been in poverty for more than two years
  • Around 14 million people are in poverty in the UK, more than 1 in 5 of the population made up of 8 million working-age adults, 4 million children and 2 million pensioners.
  • In-work poverty has risen from 9.9% in 97/98 to 12.7%.
  • Around 56% of people in poverty are in a working family compared to 39% 20 years ago.
  • Seven in 10 children in poverty are now in a working family
  • In 2017/2018 31% of the 13m people with disabilities in the UK lived in poverty; that is around 4 million people.
  • There are 4.5 million ‘informal’ carers in the UK, of which nearly a quarter were living in poverty. More than half were women and three-quarters of working age.
  • Rates of poverty amongst Bangladeshi or Pakistani households is nearly 50%

This is but a small snapshot of the report which you can read in full hereBeneath these statistics lie the real lives of real people struggling on a daily basis to keep a roof over their heads, bills paid and food on their table whilst at the same time grappling with insecure employment in the low-paid, part-time, gig or zero-hours economy. And these things are no longer the burden of just working-class people, middle-class professionals, from nurses to teachers and academics, are now feeling the pinch as government has, over 10 years, cut its spending and made their jobs increasingly precarious.

Some would have us believe, like the political commentator Iain Dale, that cuts to spending were not responsible for the tragic death of the young French teenager at the Tate Gallery. Incensed, he stormed out of an interview on Good Morning Britain when Grace Blakely suggested that austerity had been at the heart of this terrible event and made the entirely valid point that our most vulnerable children have been failed by a government that is supposed to protect them.

And that is the nub of the question. What is the role of government? To balance its books or serve public purpose? We have been consistently failed by a government that has put bean-counting at the heart of its policies, not because it was essential to deliver a balanced budget, but to deliver its long-held belief in its political agenda, an agenda which has been pursued by successive governments on the right and left. The fact that it is promising to spend now (with caveats) should surely be a signal to ask why if there was no money yesterday there is today and why, when it suits, the government can always find the monetary wherewithal to spend?  The next question we should ask is who will benefit from this increased government spending if it goes ahead?

While the wealthy carry on getting richer and businesses continue to benefit from public money, whether in the NHS (minus its National) or education, social care, local government or other public institutions, the public and social frameworks are decaying by the minute with no apparent let up despite all the wonderful promises.  Time will tell, as will the next Chancellor’s budget in March.

In the meantime, the stories of those affected by government policy continue to cause concern.  This week, ITV published Department of Housing figures which showed that the numbers of people with disabilities and medical conditions waiting for housing had risen by almost 11,000 in two years – a rise of more than 10%.

The National Audit Office, as a result of the concerns about links between welfare reforms and declining mental health, reported on its investigation of how government monitored suicides among benefit claimants, saying it was highly unlikely that the 69 cases investigated by the DWP over a five-year period represented the overall numbers of self-inflicted deaths. It criticised the government for not having any robust record of contact from coroners about such cases.

Furthermore, a report published by the Office for National Statistics earlier this week revealed that people’s life satisfaction fell in July-September 2019 compared to the year before and that anxiety remained high as concerns about the future economic outlook and employment prospects grew. It also revealed that real household spending per person had grown at its slowest rate since the end of 2016.

As northern cities face huge cuts to council funding, adding to the already dire financial situation being faced by councils and the prospect of more cuts or local tax rises, combined with a country facing the prospect of weak growth as a result of government’s 10 years of domestic policies and a global slowdown, the future is not looking bright right at this particular moment. We have been led down a dark alley with a dead-end at least for the majority of citizens.

But it didn’t, indeed doesn’t, have to be like this. With the knowledge to challenge the notion that money is scarce and that there is no alternative to the market-led dogma which has dictated government policies for too long, we could turn things around. We are fighting an ideological battle dressed up in household budget terms and as a result, the future of our public and social infrastructure, not to mention our planet, is at stake.

In the light of the confusion and uncertainty which currently prevails and a divided left wing which is tracking backwards, we need a conversation about where we go from here. What sort of society do we want to live in? A dystopian Mad Max society which favours large corporations over democracy and puts individuals at the top of the pyramid or one which understands that humans flourish best where there is cooperation, compassion and caring?  It’s up to us. As Howard Zinn, the political activist wrote ‘You can’t be neutral on a moving train’.

The Gower Initiative was formed to begin that conversation and challenge the status quo. You can find out more here.

If you would like to be part of that conversation, we have four events coming up in February and March. Join us if you can!  Follow the links for tickets.

London

20th February

https://www.eventbrite.co.uk/e/gower-initiative-for-modern-money-studies-seminar-tickets-88843075029

22nd February

https://www.eventbrite.co.uk/e/mmted-masterclass-tickets-88855464085

Manchester

21st February

https://www.eventbrite.co.uk/e/gower-initiative-for-modern-money-studies-seminar-tickets-88853917459

Northampton

28th March

https://www.eventbrite.co.uk/e/challenging-the-narrative-about-how-governments-pay-for-public-services-tickets-89462136659

 

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

 

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The post Let’s have a conversation about what our values are and where we want to go. It’s time to recognise, in the words of Howard Zinn, that ‘We can’t be neutral on a moving train’. appeared first on The Gower Initiative for Modern Money Studies.

#RethinkMoney – The Greatest Lie Ever Told (Probably)…#TaxAndSpend

GIMMS is delighted to have permission from blogger Duncan Poundcake to reblog his article which was originally posted here

 

So what have we learned from the General Election of 2019?

Mainly the familiar cry of:

”How will you pay for it?”

”Labour ‘broke the bank”…

”Labour left a note saying  – We have spent all the money”…

Nothing very new in that. We have heard it on a loop for nearly 10 years from many Politicians. Policy Makers, Think Tanks, Economists, The Press and RW influencers, that:

  • For Her Majesty’s Government (HMG) to spend is a very bad thing to do.
  • HMG is at the largesse of the Tax Payer and is unable to spend for public purpose. HMG must either – a: Tax and/or b: Borrow before it spends.

Why?

  • There is an undefined and finite amount of Sterling that can ever be available in the economy.
  • Once this Sterling threshold has been reached, HMG must borrow back this Sterling from the private sector, to fund its spending.

Even Labour, with its £400bn spending bill, tells us; Tax, Borrow and Spend is the order of the day.

Unfortunately, yet again, Labour miss an opportunity and tell us the polar opposite of the reality…

1. The UK has ALWAYS been a Sovereign Fiat Currency Issuer

HMG has ALWAYS been able to create £s at will but there have been numerous times where, by circumstance, or design, it has been limited as to how many Fiat £s it can create.

Since 1971, the UK has been a Sovereign Fiat Currency Issuer, without restriction – In laymans language, HMG:

  • Has the legal monopoly on the creation (Issue) of its OWN currency.
  • Can create (Issue) Sterling at will, from thin air, with zero impedance.
  • Everyone else is a Currency User.

So why does everyone tell you otherwise?

Time to travel in the Monetary TARDIS…

2. A little bit of History repeating – The Gold Standard (Again):

Image by PublicDomainPictures from Pixabay

 

Over much of the 20th Century, the UK, US and other developed nations have been on and off variations of the ‘Gold Standard’.
In stark comparison to the economics of the last 40 years, when the Americans and British created ‘The Gold Exchange Standard in 1944’, their focus was:

  • To avoid trade deals which impoverished lesser trade partners.
  • An attempt to control flows of speculative financial capital.

The latter, in particular, had wrecked the global economy prior to the Great Depression, the outcome of which was seared into their collective memories:

  • A global depression,
  • Mass unemployment.
  • The rise of Fascism in Europe and Communism as a response.
  • Global War.
  • Millions Dead.

Post-War planners aimed to prevent the repetition of previous competitive currency devaluations but engineered not to force debtor nations to reduce their industrial bases to attract financial speculators and keep interest rates high.

British economic sage, John Maynard Keynes…

John Maynard Keynes portrait© National Portrait Gallery, London
Image cropped from John Maynard Keynes, 1st Baron Keynes of Tilton; Lydia Lopokova by Walter Benington, for Elliott & Fry bromide print, 1920s Given by Bassano & Vandyk Studios, 1974 Photographs Collection NPG x90117

again fearful of repeating the mistakes that led to Great Depression and carnage that followed, was the primary mover behind Britain’s proposal that Trade Surplus nations should be forced to use their trade surplus for good, or lose it for good:

  • Either import from debtor nations
  • Build factories in debtor nations
  • Donate to debtor nations.

The U.S. opposed Keynes’ plan and proposed creating the International Monetary Fund (IMF) with enough financial clout to counteract destabilising flows of speculative finance. However, in contrast to the modern IMF, the fund would counteract these speculative flows automatically, no political strings or agendas. An honest broker.

History demonstrates that on almost every point where the USA objected, Keynes was to be proved right.

3. Bretton Woods… 

The U.S. Secretary of the Treasury, Henry Morgenthau, Jr., addresses the delegates to the Bretton Woods Monetary Conference, July 8, 1944The U.S. Secretary of the Treasury, Henry Morgenthau, Jr., addresses the delegates to the Bretton Woods Monetary Conference, July 8, 1944 (Credit: U.S. Office of War Information in the National Archives).

 

In 1944, at Bretton Woods, the Allies met to plan a Post-War world and as a result of the collective conventional wisdom of the time, the Allied nations preferred to do this by regulating a system of fixed exchange rates, indirectly disciplined, by binding the USD to Gold at a fixed price per ounce.
This  system relied on a regulated market economy with:

  • Strict controls on the values of currencies.
  • Flows of speculative international finance would be stopped by channelling them through Central Banks. #Capital Controls
  • The intention being to direct international flows of investment.
  • The focus on using capital to building useful things that created jobs or benefited the public purpose, rather than financial speculation on the markets.

Interestingly, it was US planners who coined the phrase ‘Economic Security’, surmising that a liberal international economic system would enhance post-war peace and keep Communism at bay. This came from a belief, that causes of both World Wars, was ‘Economic Discrimination’ and trade wars. The main culprits being trade and exchange controls of Nazi Germany and the ‘Imperial Preference System’, where members, or former, of the British Empire were given special trade status, resulting in a German, French, and American protectionist policies.

*US Planners were shrewd enough to recognise that to keep Capitalism popular, taxpayers and workers, needed to see a benefit from it and to feel their lives being improved, rather than risk the alternative, Communism. To ensure this, regulated Capitalism was the solution and the irony is, we have the Cold War to thank for this Golden Age.*

In stark contrast to today, Bretton Woods participants agreed that a liberal international economic system ALSO required governmental intervention.

Following the economic turmoil of the 1930s, the management of economies had become the main activity of governments, taking on increasing responsibility for the economic well-being of its citizens. This had proved to be largely successful and popular. Employment, stability, and growth were the order of the day. In turn, the role of government in the national economy would continue. The Welfare State, which grew out of the Great Depression, had created a popular appetite for governmental intervention in the economy, and it was Keynes who made it clear that Government intervention was required to counter market failures.

Enter the era of State Capitalism…

Members of the Gold Standard agreed to closely regulate the production of their currencies to maintain fixed exchange rates, with a bit of wiggle room either side. The express aim being to make international trade easier. This was the foundation of the U.S. vision of a post-war world, Free Trade:

  • Lowering tariffs
  • Maintaining a balance of trade via fixed exchange rates that assists Capitalism.
  • Reduce trade and capital flows.
  • Revive the Gold Standard (Again) using USD as the world’s reserve currency.
  • Prevent Governments messing around with their currency supply, as they had between the wars.
  • Governments would be required to monitor the production of their currency and would refrain from manipulating its price.

4. Tax & Spend & Borrowing…

It is important at this point, to remind ourselves, HMG was still a Fiat Currency issuer but, up until 1971, had voluntarily limited its ability to created its own currency.

So following Bretton Woods, from 1944 until 1971, Gold was ‘Convertible On Demand’ into Sterling. This required HMG to have lots of Gold stashed away at the Bank of England (BoE) just in case anyone wanted to convert their pot of Gold into Sterling. Indeed, once upon a time, you could walk into the Bank of England with Gold and they were obliged to accept it and pay you cash.

Like all liabilities, it was worked out on risk. HMG surmised that only a small percentage of the public would ever demand their gold to be converted into Sterling, at any given time, so it only had to have a limited amount of Gold in reserve, just-in-case. Fractional Gold Reserve Central Banking, if you will.

However, because of the rules of the Gold Standard, HMG Currency Issuing (Spending) would be constrained by the amount of gold in the BoE vault.

The other issue HMG was acutely aware of, was spending Sterling for Public Purpose was in reality, spending the Gold it had in the BoE. The Gold never left the BoE but with a promise of convertibility into £s:

  • Limited how many £s could be spent at any one time
  • How many £s cash could be spent at any one time was…dictated by how much Gold it had in reserve.

So if HMG wanted spend more, it had to:

  • Find more Gold to allow it to create more Fiat £s to
  • Or, recoup Fiat £s from the private sector i.e: TAXPAYERS – BEFORE it could spend more. Welcome to…‘Tax and to Spend’.

Now to protect all that Gold in the BoE from a profligate Government, just creating Fiat £s to spend, they had a few tricks up their sleeve…

How could a Sovereign Currency Issuing Government, such as HMG with a self-imposed brake (The Gold Standard) on how many £s it can create and issue, spend more £s than it was allowed to create?

The Solution?

BORROWING BACK Fiat £s from the taxpayers’ savings – to spend again – rather than creating and issuing additional new Fiat £s, which might exceed the back-up supply of Gold. The plan being:

  • Why not get taxpayers to exchange their £s savings, for Sovereign Gilts, Treasury Bonds OR similar, that pay interest.
  • Taxpayers still get to benefit from the HMGs spending MORE £s each year than it intends to collect back in tax. Thus allowing taxpayers to continue to build their wealth of £s.

ERNIE

*One ingenious demonstration of this, was the infamous ‘ERNIE’, invented by a Bletchley Park codebreaker in 1956 and Premium Bonds, offering taxpayers another way to save outside of banks or building societies. Which of course, was not its main purpose. Premium Bonds were just another way to recoup £ from taxpayers, without actually Taxing. Recycled Money.*

 

And this is exactly how HMG ran Government spending up until the point Richard Nixon suspended US involvement in the Gold Standard in 1971 – due to the spiraling cost of the Vietnam War. US Government spending was outstripping its Gold Supply – and became a Sovereign Fiat Currency Issuer, without restriction.

*As Keynes had predicted in 1944, eventually the USA found itself in the inherent paradox of the Gold Standard:

1. It was required to be the Worlds Reserve Currency and as per the Bretton Woods agreement, keep USD flowing outwards to keep global trade moving.

2. However, this put a restraint on its ability to spend inwards, domestically.

A large percentage of its Gold Reserves had to be set aside to cover outward flows of USDs, restricting  USDs available to be created for domestic Public Purpose – which at the time of Nixon was Johnson’s: ‘The Great Society’ project.

Between 1944 – 1971, the US saw its stash of total world Gold Reserves shrink from 65% to 22%. The market speculated that the US has so many USD out in circulation, it was unable to convert USD to Gold, due to these dwindling Gold Reserves. The dollar depreciated. Inflation went up, employment followed suite and due to the spending spiraling requirements of the Vietnam War, Nixon saw the solution as suspending convertibility to Gold and to go 100% Fiat. No restrictions to USD creation.*   

The Gold Standard was effectively dead. The US now no longer converted USD into Gold and other nations bailed out in 1973. The Gold Standard was officially buried in 1976. The UK followed suit. However, the system for creating and issuing HMG money, DID NOT CHANGE and as I write, in 2019 nearly 50 years later, the Government still operates its finances as if it were on the Gold Standard:

  • So the HMG continues to sell Gilts, Treasury Bonds, Premium Bonds
  • So it can ‘borrow back’ £s from taxpayers
  • To spend MORE than it collected in taxation.

The one upside of this was/is a form of Corporate Welfare exchanging £s for Government IOUs, with the interest received, adding to private savings and wealth.

So we have ended up where the reality of Money Creation since 1971, is that HMG is not revenue constrained when it comes to spending for Public Purpose but continues to use a Monetary system that claims to be still on the Gold Standard.

To reiterate, for clarity, Her Majesty’s Government:

1. Is No Longer on the Gold Standard.

2. Is Not required to convert £s into any commodity to spend.

3. Is Not required to use taxpayers £s to spend.

4. Does not need to borrow or recoup Taxpayers £s savings to spend.

Yet, NO Government since 1971, has changed the from Gold Standard System to reflect the powers of a Fiat Currency Issuer. So HMG continues to tell us that it needs to:

  • Sell Gilts, Treasury Bonds. Premium Bonds, The Lottery etc.
  • Use the proceeds – Taxpayers’ Private Savings & Wealth to allow it to spend more than it collects in Taxes.

Now the rub with this is the interest, or payouts HMG needs to make to holders of these, all of which is added to the National Debt. So to pay for this, the Government needs to issue even MORE Gilts & Treasury Bonds etc. to cover the interest payments. Ad Infinitum…

HOWEVER…

A quick reality check via Quantitative Easing (QE) has shown us, if you are lucky enough to have owned £454bn of Gilts and Corporate Bonds, HMG bought from you, then you have become very rich indeed…unlike HMG which is falling ever deeper into debt.

Which is a complete MYTH and has created 50 years of confusion and a convenient smokescreen for those who see Government as a problem.

Even the BoE concurs: “Read my lips. No new taxes”…Does the Bank of England print money? – YouTube

5. Enter, Stage Right…AUSTERITY:

Now if you believe all this unwittingly, or otherwise, there is a logic in thinking that an ever-increasing National Debt is unsustainable and the ONLY solution is to REDUCE, substantially Government spending and to pay down the debt.

However, knowing that Gold Standard limitations no longer apply, the HMG has created a solution, to a problem that does not exist and ironically, created a further problem to the original one, which never existed in the first place. Think IMF Crisis, 1976.

The National Debt and the convoluted machinations of issuing ‘debt’ and accounting for it, as a brake to stop HMG from issuing more Fiat £s than it could guarantee with Gold, is a relic of history. Some would consider this insistence on clinging onto an economic fossil, to be stupidity, or perhaps a sign of something far more deliberate…

It is of course a legal requirement and not unreasonable, to expect HMG to keep a track of its spending. The much-vaunted DEFICIT:

1. The gap between £s out and £s in.

2. A balance sheet of the Fiat £s HMG has decided to spend into the economy but not redeemed in taxation.

When the HMG spends, this allows taxpayers to keep £s. When the Government reduces spending, this forces taxpayers to use their savings to spend and REDUCES private wealth. The less the Government pays for, the more you have to use your savings and income.

Repeat after me…AUSTERITY REDUCES PRIVATE WEALTH…

Questions to be answered…

1. If HMG fell out of the Gold Standard in 1971…

2. Which resulted in the £ no longer being required to be convertible to Gold…

3. Why do we still account for fiat government spending for public purpose as if we were on the Gold Standard?

4. Is it just welfare for taxpayers to exchange their fiat £s into Government Savings Instruments, that pay interest?

As QE has shown us, HMG Debt Instruments are not distributed equally across all taxpayers but are bought by a wealthy private and corporate elite.

Perhaps the most mind-blowing for taxpayers to get their head around is the ability for HMG to PAY OFF – at ANY TIME – the National Debt by purchasing all Debt Instruments in exchange for Fiat £s. Hello Japan…

So far from being ‘Fiscally Prudent’ by reducing the Deficit and running Government Finances like a household, only spending what is received in Taxation – the real-world outcome is to impoverish taxpayers and their well-being.

6. The solution?

A fundamental shift and an education of all taxpayers and the political establishment, to understand that:

As long as labour and sustainable resources are available, Government Spending is not only a good and positive but absolutely essential for the economy and the democratisation of wealth.

The ONLY limitations HMG has to spending for Public Purpose are:

1. The physical resources available.

2. The labour available.

3. Its own aspirations.

4. The taxpayers’ willingness to learn, deconstruct and the 1% and their cheerleaders across politics, the media and society who have used the confusion around Government Money Creation spending and taxing for the purpose of wealth extraction and power.

History demonstrates that the Tax and Spend myth, has resulted in dire and far-reaching consequences.

Roberts

In 1976, when HMG went to the IMF claiming to have ‘run out of money’ and in return for $2bn, Healey was required to introduce Austerity measures – which were a precursor to the economics of Margaret Thatcher – latterly Neo-Liberalism.

There was an alternative proposed some 3 years before, yet thanks to Wilson, Healy & Callaghan’s refusal to listen to Tony Benn, history unfolded the way it did and Healy capitulated to Hayek and his Neo-Liberals, who have spent the following 42 years capturing the state, media and democracy in the UK – and beyond – for their own benefit.

Oh and by the way, Britain never did go ‘Bust’, no matter what Mr Roberts writes…

 

 

 

 

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The post #RethinkMoney – The Greatest Lie Ever Told (Probably)…#TaxAndSpend appeared first on The Gower Initiative for Modern Money Studies.

The time has come to talk of many things; of taxing and spending and an economic system that needs mending. 

Protest placard with a picture of the Earth in space and the slogan "One World"Photo by Markus Spiske on Unsplash

In the news, the Prime Minister tells millions of  WASPI women affected by the changes to the state pension age that he couldn’t promise to magic up the money for them despite having found lots in the magic money pot for Tory manifesto pledges; the Home Secretary, Priti Patel, whilst visiting a food bank, claims that the Tory government was not to blame for poverty in the UK and, shifting the blame onto local councils, forgets to mention that central government funding has been cut by nearly 50% since 2010/11.

After 9 years of austerity, the consequences couldn’t be starker for our public and local government services, however, it is UK citizens, families and their children who have borne the distressing costs of cuts to social security benefits, both on their health and financial well-being. It cannot be clearer that the steep cuts to tax credits, child and disability benefits, ESA and Incapacity benefit and housing along with the introduction of Universal Credit have been behind the increases in child malnutrition, food bank use, homelessness and suicide.

The IPPR this week published its report ‘Divided and Connected’ which reveals that the UK is more regionally divided than any comparable advanced economy.

In the same week, the Resolution Foundation published its report ‘The Shifting Shape of Social Security’ It notes in its analysis of the manifestos of the main parties that child poverty is set to continue rising under the Conservative Party’s social security plans, whilst Labour’s £9bn of extra spending would mean 550,000 fewer children in poverty, it would not reverse the effects of the £5bn benefits freeze and could still see more children living in poverty in 2023 than do today. It noted that major policy changes have reduced support for working-age households since 2010 resulting in overall spending in 2023-24 being around £34bn a year lower on current plans than if the 2010 benefit system had remained in place, and that the cuts in support had fallen almost entirely on low-to-middle income working age families. It also noted that the Conservatives’ 2019 manifesto makes no changes to existing policy and as a result child poverty risks reaching a 60-year high of 34%.

Although the conservatives are promising more spending on health and education, it seems clear that they intend to carry along the same policy paths they have followed since they came to power in 2010 which have involved cuts to benefits, conditionality, sanctions and welfare to work. Clearly, they have no intention either of reversing the already implemented cuts or reforms which have done so much damage and left a trail of devastation in many people’s lives. Priti Patel’s remark about who is to blame for poverty is indicative of Tory neoliberal credentials of denying governmental responsibility and passing the buck along to others, whether local government who have been firefighting for lack of funds or indeed shifting the blame onto citizens themselves. Her position has not changed much since 2015 when she said, ‘There is no robust evidence that directly links sanctions and food bank use.”

In the light of the very real consequences on people’s lives of government spending decisions and policies, it is all the more depressing to read the two analyses of the party manifestos by the Resolution Foundation and the IFS which instead of looking at the real effects of government spending policies on the lives of real people, examine them in purely financial terms and arbitrary fiscal rules which as we may now be realising bear no relationship with how money really works.

Hunkered down in household budget explanations, the IFS, rather than considering the spending promises of all three parties from the perspective of potential outcomes for the economy and its citizens, examines them in relation to the prospect of raising taxes or borrowing and the likely impact on the deficit and national debt.  As usual, the question, if not asked directly, is how will the parties pay for their spending plans? When, instead, they should be acknowledging that the real question is how will a future government manage existing resources to meet government goals? This will be the real constraint that any future government will face, however progressive that government may be. The resource balancing act will be key to maintaining spending within the productive capacity of the nation to deliver public purpose.

The Resolution Foundation summed it up depressingly in its conclusion in saying that:

‘The priority that both main parties have placed on credible fiscal frameworks in this campaign is laudable. Such rules are hugely important for the government’s overall economic priorities. In setting out new fiscal rules, it is vital that they provide a clear framework for sustainable public finances, constraining the temptation for policy makers to promise unfunded giveaways.’

Such institutions unsurprisingly have focused on the notion that it is the role of government to balance its budget rather than serving citizens and improving their economic and social well-being. It is regrettable that a recent poll has suggested that many people doubt whether such spending plans are affordable and yet given the reality of the consequences of not spending adequately how could we possibly afford not to?

The nation is now paying the price for politicians pedalling the lie of the last forty years that money is scarce, that there is no such thing as public money and that good government is about fiscal discipline. Even if changing that notion in the public consciousness will take time, in the light of the urgency of the challenges to address climate change and social inequality we need an urgent step change in economic thought on a planetary scale since it is our survival on this planet which is at stake.

This is not, however, a time to make compromises with an economic system which has already done such huge damage. The seeds of an alternative model are already being hijacked by companies cynically promoting their green credentials with one aim in mind: to create more growth to keep the profits rolling. Reducing our plastic use and buying electric cars will scarcely make a dent in the scale of the changes we need to implement. We may have a broad vision, but that now needs to be developed into concrete realities. It may be still a work in progress, but it is a vital one we must not ignore.

This is a time to reimagine the world. A fairer and more sustainable approach to replace the one of endless growth which currently defines our capitalist economic system and puts profit before people and the planet.

Progressives on the left are beginning to initiate a much-needed conversation about what we need to do to reverse the decades of social injustice and challenge the idea that we can maintain the engine of growth on a finite planet.

However, and most regrettably, politicians on the left are still trying to have that conversation stuck in old economic paradigms of how money works. When they are asked how they will pay for these vital programmes the response is always one of tax and spend or borrowing to invest. Raising corporation tax, bringing back the magic money tree from the Cayman Islands, taxing the rich until the pips squeak or borrowing on the markets because interest rates are low. Instead of talking about taxing the wealthy to redistribute wealth by removing their colossal purchasing power and ability to influence politicians, they talk about funding our public services with the proceeds.

Again, on the left some politicians are suggesting that the government is akin to a business and that renationalising transport, our utilities, mail and the NHS will allow the government to plough back the profits back into public services. Yes, we need to end the rip-off of privatisation which has not benefited citizens and has allowed public money to flow into private pockets for profit motives, but let’s not buy into the idea that the government resembles a large corporation with a profit and loss sheet. It doesn’t.

The government is the currency issuer and neither needs to tax nor borrow in order to spend and nor does it need the profits of renationalised industries for us to have public services.  It just needs the political will to deliver them.

The role of government is to create the framework for markets to exist and dictate through legislation how they will function and in whose benefit. It taxes the populace, not to fund its spending but to manage its economic policies, from the redistribution of wealth to expressing public policy and is one of the key tools it can use to manage inflationary or deflationary pressures.

Government not only has the power of the public purse to improve the lives of its citizens it also has the power to legislate to drive its political agenda. All a question of choices which are not dependent on the state of the public accounts. Indeed, not only does it have the power to spend for the public purpose, it has the power to change the rules of the game. For example, it might regulate the financial sector to ensure that when people’s savings of whatever kind are put to work it is done to shift our negative and damaging behaviours towards creating a positive impact on society and our environment instead.

Outcomes are the measure of any government’s success. With the political will it could:

  • create the framework for good quality universal public services provide a social security system which is both not punitive in its functioning but also ensures a decent standard of living for those unable to work through disability, sickness or old age,
  • pay for a just Green transition,
  • offer a Job Guarantee as standard to create price stability and act as an automatic stabiliser for the economy to give people the dignity of proper, well-paid employment when needed.

All of these things are fundamental to the good functioning of society.

What are we so afraid of? A better future for our children? A more sustainable and fairer economy for all? Indeed, a planet for us to live and breathe on? What is not to like? So, when you hear interviewers berating left-wing politicians (who have not quite made the leap into monetary realities) about how they will pay for their progressive agenda ignore those questions and remember instead that a government’s economic record will be defined by how it serves the nation’s economy as a whole, improves the lives of its citizens and how it uses the resources it has at its disposal to achieve its agenda – not whether it balanced the budget.

 

For more in-depth information about how money really works, you can find all you need on our GIMMS website.

https://gimms.org.uk/

 

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The post The time has come to talk of many things; of taxing and spending and an economic system that needs mending.  appeared first on The Gower Initiative for Modern Money Studies.

We don’t need a perfect world; we need a fairer and more equitable one. Understanding how money works is the first step.

Published by Anonymous (not verified) on Sun, 24/11/2019 - 12:02am in

Person at the bottom of stairs climbing from darkness into the lightPhoto by Free To Use Sounds on Unsplash

As the election campaign rolls on and party leaders battle it out on our television screens, the Liberal Democrats commit themselves to more austerity and Paul Mason, left-wing journalist and former music teacher, indulges in some fantasy explanations of how money works. More on that later….

In yet another indication of how the austerity has not only done grave damage to those who least deserve it, but also to the economy, two more reports have been published to add to the already long list exposing the consequences of cuts to public spending.

The Scottish based Poverty Alliance organisation which published its report Righting the Wrongs: A manifesto to tackle poverty is urging the next Government to ‘put solving poverty at the heart of all that it does, including by creating a more compassionate social security system, [and] building a labour market that works for everyone….’

When confronted with the realities of people’s lives through their stories we can see the real tragedy behind the policy decisions and cuts to public spending of the current Conservative government.

Jamie from Glasgow struggling to raise a family on a low income described it as ‘like being stuck in the middle of a spider’s web with no escape route’ and Jackie, a community activist commenting for the Poverty Alliance report, said that ‘more and more people are being locked into poverty by jobs that are low paid and insecure. When people can barely afford to put food on the table and when parents working full-time are struggling to cope, there is something very wrong that we have to put right.

An analysis published by the TUC, also this week, has revealed that the number of children growing up in poverty in working households has risen by 38% over the last decade, bringing it to 800,000 since 2010.

The study also showed that government policies account for the majority of rises in child poverty, with more than 485,000 children (in working households) having been pushed below the breadline, not only as a direct result of the government’s in-work benefit cuts but also as a consequence of other major factors which include weak wage growth and insecure work. The report also noted that over the past decade workers have suffered the most severe wage squeeze in two centuries and although wages have just started to grow, weekly wages are still £14 below pre-crisis levels.

Frances O’Grady, the TUC General Secretary, commented about the report that no child in Britain should be growing up in poverty and cuts to in-work benefits have come at a terrible human cost.

Overall the poverty figures are shocking. As GIMMS reported earlier this year following a report by the Social Metrics Commission, there are now around 14.3 million people living in poverty, of which 8.3 million are working-age adults, 4.6 million children (of which around 2.9 million are in working households as identified in the later TUC report) and 1.3 million pension age adults.

Aside from these shocking statistics which represent avoidable and unnecessary human degradation, the combined effects of government policies and cuts to spending on public services have had a damaging effect not only on the lives of those caught in the austerity crossfire but also on the economy as a whole. A decaying public and social infrastructure and toxic welfare reforms have had a significant impact on poverty and inequality and show clearly in whose interests the government has been acting. The promotion of individualism and self-reliance, along with decreasing state intervention to replace our public infrastructure with private, profit-motivated services has been a long-standing agenda of successive neoliberally inspired governments.

Access to high-quality health and social care, education and training, well-paid secure work and good quality, affordable housing all play a vital role in the health of the nation and its economy. When people are denied those basic support systems it can only, in the end, lead to more deprivation, ill health, hunger, homelessness and increased crime, the consequences of which ripple into every part of society burdening it with both additional financial costs and societal breakdown.

As was reported by the BBC only this week more than 2 million adults are unable to see a dentist either because they can’t afford treatment, find an NHS dentist or get care where they live as a result of underfunding and recruitment problems. It is claimed that many people are being reduced to practising self-dentistry to alleviate the pain of rotten teeth which can cause all sorts of other problems like periodontal disease which can, in turn, lead to an increased risk of heart disease.

After nine years of cutting NHS spending in real terms, creating a pressured working environment for staff, capping their pay, stopping nursing bursaries and driving people away because of stress, senior NHS leaders are warning this week that hospitals are so understaffed lacking sufficient doctors, nurses and other health professionals to provide services that the ‘safety and quality of care are under threat.’ The latest figures show that the performance against key waiting times for A&E, cancer treatment and planned operations have fallen to their worst-ever level and that this could deteriorate even further as winter approaches.

NHS mental health services which have borne the brunt of cuts have become little more than a firefighting service to deal with the ever-growing numbers of people needing support.

Earlier this month the organisation State of Hunger published its report, drawn up in conjunction with Heriot-Watt University and the Trussell Trust. It revealed that more than half of households referred to foodbanks were affected by poor mental health, predominantly anxiety or depression, while 23% of people referred to foodbanks were homeless. The report gives a voice to those people who have paid the price for austerity and welfare reform – the worry about paying bills, keeping a roof over one’s head or having a job which pays enough.

“If I don’t pay my bills, then I’ll get the house taken off me. After paying arrears, I’ve got £8 a fortnight and that’s to pay for gas, electric, water. It’s just impossible, it really is. I go to bed at night wishing I won’t wake up in the morning.”

 

“I’ve used the food bank because I was on such a low income before I got my disability benefit… I had a mental breakdown because basically the amount they give me doesn’t cover the costs of my rent.”

 

Education joins health in forming the backbone of a functioning economy and societal well-being and yet, it too has suffered from crippling cuts to spending. Kevin Courtney, the joint general secretary of the NEU said this week that ‘The future of education hangs in the balance’.  Despite government promises of more money, the School Cuts Coalition made it clear only last week that four in five state schools will be financially worse off next year than they were in 2015 and this will affect schools in areas where there are already high levels of deprivation.

Even with the additional funding promised by government, there will still be a shortfall of £2.5bn in the year ahead after years of already damaging cuts. The consequences for schools are grim. More pupils per class, fewer teachers and support staff and reduced curriculums with subjects like music, language, art and design being cut as a result of the pressure, not to mention the reduction in capital expenditure on schools’ estate which has left it in a bad state of repair and not fit for purpose.

Our children represent the future and yet they are the ones that will bear the brunt of lack of adequate government spending and planning for an education and training system to meet the challenges they will face in the future.

A healthy economy demands a healthy and educated nation as a prerequisite. It demands quality housing, good secure jobs and pay. The last nine years of austerity and forty years of the pursuit of neoliberal dogma have pulled that rug from under people’s feet, leaving them in a world of increasing uncertainty.

It is regrettable in this respect that the notion that the state has a responsibility to ensure the health and well-being of all its citizens through the provision of universal services and other state-provided interventions is being mistaken for a ‘nanny state’ rather than acknowledging the value of such investment in society and its economy.

Whilst government has pursued its handbag economic strategy and ignored monetary realities for the lie of balanced budgets, it has failed in its duty as an elected body to serve the interests of citizens and the economy as a whole.

Whilst pursuing austerity, it has ignored the fundamentals of macroeconomics which it won’t hurt to repeat. Spending, wherever it comes from, creates income for someone else, whether that’s government which starts the ball rolling by creating the money into existence to pay for its needs which flows in turn right down to businesses, working people or even those having the misfortune to be involuntarily unemployed or coping with a disability or illness which prevents them from working. Through its obsession with austerity and lowering deficits at a time when it should have been spending more, it has weakened the economy and wilfully left people without the means to provide themselves with sufficient income to meet their daily needs.

As data from last year shows, it has left British households collectively supporting their spending through reducing savings (if indeed they had any) and taking on more debt. Quite simply government austerity has transferred the burden onto households which as private debt levels rise will prove unsustainable.

The fragile house of cards which represents the economy after nine years of government folly will either stagger on or fall into another recession unless the next government deficit spends sufficiently to promote full employment and serve the public purpose.

In the light of this, it is all the more incredible to note that after Ed Davey, deputy leader of the Lib Dems said earlier this month that Labour and the Tories were ‘writing promises on cheques that will bounce’ they have decided to make austerity their USP (unique selling point) for their election campaign. Yes, you read that right!

In his recent speech he positioned the Liberal Democrats as the ‘party of fiscal rectitude’ and the Conservatives and Labour as the ‘parties of fiscal incontinence’. Davey is proposing to adopt a fiscal rule for day to day spending aiming for current account surpluses in every year of their five-year costings.

With yet more household budget accounting and to meet its objective will require tax rises and yet more spending cuts. Furthermore, on the basis that achieving a surplus is not a saving and removes money from the economy and if our trading partners don’t spend all they earn thus taking even more out of our economy the net result will be a severe recession (as if we weren’t already heading in that direction). A bit of an own goal and a very foolish one at that!

And yet depressingly it has to be said another own goal was scored this week by the journalist and self-styled economist Paul Mason who presented a short promotional video for Novara Media explaining the deficit and debt in the language narrative of overdrafts, loans and mortgages along with that old ‘canard’ about paying for public services by taxing the very rich.

This is indeed ‘fantasy economics’ of the most damaging kind.

In response, the economist Professor Bill Mitchell explains it very succinctly and it is worth printing it here in its entirety:

‘This is the classic ‘soft’ mainstream macroeconomics that assumes the government is financially constrained and is thus not dissimilar to a household.

It is ‘soft’ because, unlike the hard-mainstream positions, it allows for deficits (‘funded’ by debt) to occur in a non-government downturn but proposes them to be offset by surpluses in an upturn, irrespective of the overall saving position of the non-government sector.

None of this framing or language is what I would call ‘progressive’.

It has the hallmarks of the way neoliberals construct the concepts and the narrative.

The inferences are also plainly false when applied to the British government.

  1. It is not financially constrained in its spending.

The constraints relate to real resource availability.

In terms of restaffing the NHS, for example, are there qualified labour resources available? What training would be required? Would this mean that British Labour is also going to be advocating open borders to ensure the staffing is available? [….]

  1. There is no meaningful knowledge that be gained by comparing a household with a home mortgage and a currency-issuing government spending its own currency.

The household is the currency user and the government is the currency issuer.

Totally different constraints apply.

  1. It is false to claim that it is virtuous to ‘tax the rich’ in order to fund essential health and welfare services.

This is one of the worst frames that the progressives now deploy.

The British government might want to tax the rich to reduce their power and influence (exercised via their spending habits) but it never has to do that in order to fund essential services.

The only constraint that exercise involves is the availability of real resources.’

  1. The British government does not have to issue debt to ‘fund’ its deficits. The capacity of the non-government sector to purchase the debt derives from past deficits that have not been taxed away yet.

Even if the government issues debt to match its investment in essential infrastructure to deliver better housing, transport health care, and engage in climate action etc, this investment is not linked at all to the current interest rates in place.

 

There is no meaning to the term “cheap” finance, when the spending does not need to be financed (in the currency the government issues).

The issuing of risk-free debt from a currency-issuing government really amounts to the provision of corporate welfare and no progressive should advocate its continuance.

  1. There is no meaning in saying the recurrent deficit is like an overdraft or the capital deficit is like a mortgage. Those terms gain meaning when applied to units that are financially constrained.

While left-wing progressive parties continue to frame their election campaigns in neoliberal terms and thus erect unnecessary financial barriers to spending that will prevent them from achieving their goals, the public will also remain in the dark about a subject which is of vital importance; how to answer the question about how government really spends, how its policies can be paid for and what  the real constraints are.

That said and despite the deliberate misleading of the public by Paul Mason, the UK needs a progressive government prepared to act in the public interest through investment in our public and social infrastructure and ready to take action to tackle social injustice, ensure a more equitable distribution of wealth and address the biggest challenge we face – climate change.

 

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The post We don’t need a perfect world; we need a fairer and more equitable one. Understanding how money works is the first step. appeared first on The Gower Initiative for Modern Money Studies.

The Rise of the Right

Published by Anonymous (not verified) on Thu, 21/11/2019 - 8:30am in

GIMMS is pleased to be able to present for our MMT Long Read two chapters of the book “The Rise of the Right – English nationalism and the transformation of working-class politics” by Professors of Criminology Simon Winlow, Steve Hall and James Treadwell.

“Throughout Europe right-wing populism has grown to the extent that we can now legitimately begin to think about the very real possibility of a fascist future. The new right-wing nationalism will not be a carbon copy of 20th-century European fascism, but fascism it will be, nonetheless. For years this seemed unthinkable…We must recognise that the adoption of hippy counter-culturalism was a colossal error, and then begin to repair some of the damage it has caused. The first step is to reconnect with the working class with a renewed order of grounded universal ethics and truthful symbolism comprehensible to all cultural groups…the left can be rehabilitated. Reconnecting with the working class and persuading them to believe in its project is a very difficult task, but it can be done.”

The Rise of the Right – English nationalism and the transformation of working-class politics

The Rise of the Right cover

Originally published by Policy Press in 2017.  Permission granted by the publisher to use this content.

https://policy.bristoluniversitypress.co.uk/the-rise-of-the-right

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