Deficit

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We need to talk about Tommy…the NHS: charity, taxes and MMT

Published by Anonymous (not verified) on Mon, 29/06/2020 - 2:05am in

Thank You NHS flag with rainbowPhoto by Red Dot on Unsplash

In this post, originally published on Medium, Michael Berks discusses NHS funding.

I’m sure you’ve all seen the story of 100-year old Captain Tom Moore, who, by walking 100 laps of his garden has raised over £23 million for NHS charities. It is, on the face of it, a happy, feel-good story — something we all need in these difficult times. And I’m certainly not going to knock Captain Tom— bloomin’ legend that he is, or complain at anyone donating to his cause. However, if your social media feeds are anything like mine, you’ve probably seen lots of counter posts, pointing out the inescapably true fact that we have a government with a remit to properly fund the NHS — the importance of which has never been clearer — and portraying the NHS as charity, reliant on the goodwill of donations to perform its everyday duties, far from a good thing, is actually a very damaging viewpoint to take.

The majority of these counter posts also point out something else seemingly obvious –the way the government funds the NHS is by collecting taxes from all of us and using these to pay for services. And if some of the rich celebrities cheering on all this giving would instead pay a fair share of taxes we really could fund the NHS properly without relying on charity! Amirigghht?!!

At this point, of course, my MMT alarm bells start ringing. In fact, I’d argue that framing the funding of the NHS in this way is only marginally better than seeing it as a charity case. In this post, I’ll try and explain why. It’ll be quite (ok very) long, but I’ve kept it as economic jargon-free as possible, so I really hope you take the time to read through and hopefully come away with a clearer idea of how government provision of services actually work.

The big problem with the taxes pay for NHS (or other government services) frame is it promotes the idea that money grows on rich people — and as a result, that rich people are thus some special species we must protect. We must nurture them, the wealth-generators, to harvest them for their taxes, without which, we can’t have the things we need to make society work. In other words, while we might want to collect more taxes from the rich, if we upset them too much, they’ll all leave the country — so now we’re even worse off than before. Or at the very least, they’ll just use creative accounting to squirrel away more of their earnings into tax havens so we won’t see any extra income anyway. More generally, just reducing their earnings in any way actively harms us — they earn less, we get less in taxes, our services suffer. We’re fed this narrative time and again, and ultimately it leads to absurd stories like this… a pay-cut to Premiership footballers will harm the NHS!

Let’s be clear what this is claiming. There will be a frontline member of NHS staff somewhere — say Charlie the nurse — who as a result of footballers having to take a pay-cut while not playing football, will have to lose his job.

Take a step back. Forget what you think you understand about economics or how money works for a second, and just try and think this through.

In fact, stop and say these words out loud:

“Because some very rich men don’t get to go out and play ball with each other, we’ll have to stop Charlie doing his job as a nurse.”

Sounds ridiculous right? That’s because it IS ridiculous.

Why should anyone not doing their job, prevent Charlie from doing his? Obviously if said person’s job produced food for Charlie, or his transport, or something else he needs to live and breathe and get to work on time each day, that might be a problem. In other words, all they key-workers we’ve suddenly realised exist — we need them to keep working. But footballers..? Not so much.

As long as Charlie is willing and able to be a nurse, our government has an infinite supply of pounds it can pay him. It doesn’t need your taxes or charity to pay him. Indeed creating money out of nothing is how all government spending works.

Oh God! I mentioned government spending and infinite in the same sentence. You’ve just put your economics hat back on, haven’t you? Inflation. Hyperinflation. ZIMBABWE!! Don’t I know what happens when governments ‘print’ money without limits?!

OK, calm down. Let’s work this through properly…

First up, I’ll concede there is some conceptual difference between the notion of Charlie receiving pounds created out of nothing from the government, and paying him with pounds directly linked to a tax or your charity donations. The former are new financial assets entering the economy, whereas the latter are the same pounds recycled from somewhere else in the economy. So on the face of it, paying Charlie with ‘new’ government money is increasing the money supply.

And with your economics hat on again, you’ve heard that increasing the money supply equals inflation. As the supply of money goes up, its value must come down — the pound in your pocket is worth less, and thus all the goods you need to buy will cost you more. Simple supply and demand. QED.

Again, slow down. Take a step back. In fact ‘money supply increase equals inflation’ is one of those ‘common sense’ bits of orthodox economics that has no basis in reality, and is completely disproved by all the actual data we see in economies across the world (if you really want a description of what happened in eg Zimbabwe, ask me in the comments).

To see why, stop thinking in abstract economic terms, and think instead about some real supply and demand you actually experience in everyday life. Take petrol prices. The average pump price of a litre of petrol in the UK at the end of January was just over 127p. Today it’s 109p [ed. this was mid-April]. That’s a 15% drop in 2 months. The money supply in the UK hasn’t shifted by anything like that in this time — and more specifically, government spending is rising significantly to meet the demands of the current crisis, so surely prices should be going up?

Of course you know why petrol prices have dropped. No-one is driving their cars, so no-one is buying petrol, both here and abroad. More generally, the demand for oil across the world has plummeted, and in turn, so has its price (indeed there’s been a way larger percentage drop in the price of crude oil — the reason pump prices have ‘only’ dropped by 15% is because of all the other fixed costs in the retail price of petrol). When demand for oil increases, prices will go back up. The point is, it isn’t the total supply of money out there driving changes in the price of oil, but money that is actually being used to try and buy oil. The same principle, give or take, is what defines prices for most goods and services. In particular, money being saved — by you me, or anyone else in the economy — is not being used to buy anything. It just sits there in our accounts, as numbers on a spreadsheet somewhere. It is not inflationary.

So now let’s go back to Charlie and our Facebook posts. “If only the government would make rich people pay their share, and collect some of all that loot in tax havens, we could actually afford a fully funded NHS”. Polls show this sentiment is pretty popular across the political spectrum. Obviously if you read the Daily Mail you hate Lewis Hamilton, whereas if you read the Guardian you hate Richard Branson — but one way or another, everyone, apart from the super-rich, hates a tax dodger.

And you might disagree on how feasible it is to actually collect those taxes (and therefore not believe it when party X includes that income in their spending plans), but assuming the government does find a way, everyone thinks it’d be great if we could use that tax as income to better fund public services.

But hold on. Those pounds we’ve just clawed back from the Cayman Islands were previously sitting in the accounts of Richy McRich doing nothing. If we now use them to pay Charlie to keep being a nurse they are every bit as ‘new’ pounds to the real economy as the government creating pounds out of thin air.

Take the following three scenarios:

(1) Richy McRich in an uncharacteristic display of generosity pledges a portion of his off-shore account to pay Charlie’s wages forever as a charitable donation to the public.

(2) The UK government in an uncharacteristic display of a government doing what it promised to do, closes a tax loophole and is able to collect from Richy McRich’s off-shore account enough to pay Charlie forever.

(3) The UK government uses its power as the sovereign monopoly supplier of pounds to pay Charlie forever.

The functional impact on the real economy — that is, what money is used to buy goods and services across the country, is identical in each scenario. But (3) had your head screaming about hyperinflation a minute ago, whereas (1) or (2) seem like the perfect win for society.

So if that’s true, does that mean we don’t need taxes at all?

Well no, of course not.

Firstly, what makes Charlie, or anyone else, want to work for the government at all?

This is where taxes come in. By making all of us pay a tax, that can only be settled using pounds (of which the government is monopoly supplier) — and moreover, having the authority to put us in jail if we don’t pay — we all have the incentive to either earn pounds by directly working for the government, or by providing good and services for people that do. The government pays Charlie to be a nurse, receiving pounds some of which he uses to pay his tax. You sold Charlie his car, or walk his dog, or clean his windows — receiving pounds from Charlie, some of which you use to pay your taxes. You use your pounds to go to the supermarket… And so on. That’s how a modern monetary economy works.

You might not realise this fundamental role of taxes –after all, it’s obvious why you need pounds when everyone ELSE values them too. But have you ever thought, why does everyone else value them too?

Put another way, the government doesn’t need our money, it needs us to need their money. That is why in MMT we say taxes drive the value of money. It is the ability of the UK government to tax us in pounds, that gives what is otherwise just a piece of paper with the Queen’s face on it (or some numbers on a spreadsheet) value.

So #1 — taxes drive the value of money.

Next, remember the first rule of MMT is: THOU SHALL NOT TALK ABOUT MMT.

Wait, that’s not true either, we bang on about it all the time!

The first rule of MMT is: “Societies are always constrained by the real resource limits of their economy”.

What does that actually mean? In this case, Charlie is our real resource.

To keep Charlie employed as a nurse, we need him to be not employed doing something else. In that sense, the government is in competition with all of us in the private sector for all the goods and services we can produce between us. If everyone has a job, and there are no more people with sufficient skills to be trained as a nurse (or a doctor or a teacher etc) the government can’t magic one out of thin air, just because it has an unlimited supply of pounds. It could double the wages of all nurses, and then offer new posts — which might cause some people to think, ‘hey, I’m going to quit my job and retrain as a nurse’. But this scenario absolutely is inflationary. The government is using its infinite supply of money to bid up the cost of wages across the economy.

So as well as driving the value of money, another important role taxes play, is to take away some of our spending power. That leaves less money in our pockets to bid away the services of Charlie or anyone else. In other words, taxes stop us (the private sector) from using real resources we might otherwise want, making them available for the government to buy and use instead.

If that seems to contradict what we said above about tax havens, the point is Richy McRich didn’t want to use his pounds to buy any more goods and services — he just wants to hoard them. That’s why he stashed them in an off-shore account in the Cayman Islands. So trying to tax them doesn’t actually free up any real goods or services this government might need.

It’s at this point people with left-wing/progressive views (and largely the people making and liking the fund-the-NHS-with-taxes Facebook posts) get a bit uncomfortable with MMT. After all, taxing the rich is a pretty core tenet of our beliefs. And now we’re saying you don’t need to? Well, fear not my lefty friends. Think about the three scenarios above. The first two actually give power to Richy McRich — it’s the money grows on rich people framing I talked about at the start. Which means if we make our public services dependent on the ability of us to get his money, we also have to accept when he lobbies the government to get his way (to reduce corporation taxes or ease environmental restrictions on his airline or make his offshore fund legal in the first place etc, etc). This is exactly how politics work now. That’s why framing the NHS as dependent on tax income is almost as harmful as framing it as being dependent on charity donations.

Whereas in scenario (3) we just ignore Richy. We don’t need him to keep Charlie as a nurse or all our other public services running. This means if you want to shut down his Cayman Islands account or whack him with a proper inheritance tax bill, or whatever, you can do so without being told ‘no, you can’t upset the wealth-generators or we’ll hurt the NHS’. Ironically, by understanding MMT and the role of taxes, you have far more freedom to insist on a more redistributive tax system (if you wish of course — others on the right may disagree, remember ultimately MMT is agnostic left vs right, by all means, fight it out, just get your economics right first).

So how about the NHS now? What are its real resource limits? The COVID crisis is showing us we’re hitting a lot of them. We can’t suddenly magic more nurse, doctors, ventilators, ICU beds or PPE in to existence. And even if people, in general, are available, they still need to be trained and moved to the required location. An unemployed ex-factory worker in Hartlepool can’t suddenly be redeployed as a nurse in London.

Some of those shortages (eg a lack of PPE orders) appear to be down to current government incompetence, but a lack of nurses and doctors (and ambulance drivers, lab technicians etc) is a long-standing problem due to the continuous underfunding of the last decade. As a proportion of the population, we had more frontline staff in nearly all our public services 10 years ago. The reason we don’t now, isn’t because we ran out of people, but because we were convinced we’d run out of money. But as you hopefully now understand, the idea we didn’t have any money is, and always was, nonsense! In other words, the real resources were always there, and thus the government always had the ability to keep buying them.

Where are all those people who could have been employed in the NHS working now? Well, Charlie’s mate Emily was training to be an ambulance driver but is now a self-employed courier delivering next-day Amazon prime parcels. Steve wanted to be a teaching assistant but works for Uber instead, and Vanessa was going to be physiotherapist for stroke victims but freelances as a PT in her local gym. Where do you think the record employment in the private sector and the gig economy has come from?

If you detect a note of sneering there, I promise you there’s none. I’m not knocking any of those jobs or the people that work in them. They clearly have value to the economy — both to Amazon, who benefit from a nice low wage driver for their sellers, but also to us, who get our gadgets delivered seemingly before we’ve even ordered them. And who doesn’t love an Uber eats?

The question for us all, then, is what we want from our economy. Or more importantly, what do we want from ourselves. Our taxes haven’t gone down to make those resources available to us as private individuals, and they won’t need to go up, if we wanted to instead shift them back to working in the public sector for society as a whole. Ultimately, it’s a political decision, far more than it is an economic one. And it’s not for me to persuade you what your what political views should be. But now you hopefully understand the economics a little better, then next time you’re clapping for all our NHS staff, have a think about what you value most.

 

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The post We need to talk about Tommy…the NHS: charity, taxes and MMT appeared first on The Gower Initiative for Modern Money Studies.

‘What if the Public (really) Understood How Money Works?’ Just think what we could achieve!

Published by Anonymous (not verified) on Sun, 28/06/2020 - 5:54am in

Line graph with downward trend, virus image and word COVID-19Image by iXimus from Pixabay

“There’s something invigorating about people freaking out about modern monetary theory (MMT). They treat MMT as akin to the Ark of the Covenant in the first Indiana Jones movie. They are petrified that knowledge of the financial equivalent of the “holy of holies” will be released to normal people because they project their greatest terrors onto the possibility that the public will be transformed and empowered by their knowledge of matters that much of the financial world has understood for at least a century.”

Dr William Black

 

After having previously been ignored and disparaged for decades by mainstream economists and politicians, MMT has been making the headlines and finding its way into a growing public conversation.

Two significant publications over the last few weeks are challenging the very basis upon which government policy is determined; ‘does it fit with our political agenda, is it affordable’ and ‘how can it be paid for?’

The Deficit Myth’ by Stephanie Kelton was described by Professor Hans G Despain in a review in the LSE blog as a ‘triumph’ challenging, as he explained, the false idea that ‘deficits are irresponsible and ruinous towards the productive political activity of deciding which spending programmes should be prioritised’.

Hot on its heels came Pavlina Tcherneva’s book ‘The case for A Job Guarantee’ described by James K Galbraith as the ‘next big, common-sense idea for economic reform’. And in the words of Paul Prescod in the Jacobin Mag, the Job Guarantee ‘offers an inspiring vision of what society would look like if we utilized the various talents and skills working people possess’

Both these publications have stirred an already growing interest in that hitherto boring subject of economics, showing that far from being irrelevant to people’s lives it is critical to them in terms of human and planetary well-being.

Hitherto sceptical economists are now saying things like ‘well we knew it all along really’ and sovereign currency-issuing governments across the world have suddenly discovered the fiscal levers they denied us previously, to keep their economies from foundering as a result of the deleterious effects of Covid-19. Until now, there has been a depressing failure to make the critical connection between government spending and economic and societal well-being which are fundamentally two sides of the same coin. Whilst people may not make the technical connection, they are now beginning to understand the impact that government policies and spending decisions have on their lives. They live them every day.

Whether on the right, where politicians defer to the market as the wealth-maker, claiming that public services depend on a healthy economy to generate sufficient tax revenue, or the left, who scrabble for a limited pot of tax revenue, preferably from the rich, or through borrowing at low interest to deliver their political agenda, the orthodoxy prevails on both sides of the political spectrum.

After decades of being in the wilderness, MMT is happily beginning to make headway and that is very encouraging. However, over recent weeks, the Empire seems to have been striking back! Sensing a challenge to its economic and political hegemony, recent newspaper headlines are reinforcing the orthodox narrative of the public finances being like a household budget. Fake news to keep the population compliant in the false understanding that there are real financial constraints to public spending and to prepare them for the possibility of more austerity to pay back the enormous, eye-boggling sums spent by the government during the Covid-19 crisis.

In an article last month, the FT asserted that the Chancellor would ‘face tough choices’, and that ‘at some point, taxes will have to rise’. While tax increases would be an unpopular move, it said this ‘would send a signal that ministers are getting the deficit under control.’

And just this week, headlines aimed at eliciting a negative public reaction have dominated the news.

‘Britain nearly went bust in March says the Bank of England’.

And:

‘Borrowing cost set ‘set to rise’ as Bank sells off stock of gilts’

On the right, John Major waded in with a call on the government to ‘borrow heavily…to improve living standards’ and claimed that ‘taxes will eventually have to be increased to pay for an extremely expensive programme.’

And on the left, the Shadow Chancellor Annaliese Dodds said again this week that ‘it is only right that those with the broadest shoulders’, should make a bigger contribution as the UK recovers from the economic effects of Covid-19.

Whilst the IFS think tank couldn’t resist the following:

It is clear that the COVID-19 outbreak – and the public health response to it – will dramatically reduce economic activity in the second quarter of 2020. This in turn will depress tax receipts and add to government spending, increasing government borrowing and in turn adding to government debt […] A key issue is how quickly – and how fully – the economy, and with it the public finances, recover over subsequent years.

The economic pundits, institutions and politicians are reinforcing, as a deliberate tactic, that at some unspecified time in the future there will be a price to pay for all this spending. As Aldous Huxley, author of Brave New World said; ‘Sixty-two thousand four hundred repetitions make one truth’ the implication being that the more a statement is repeated, the more credible it is seen to be. And certainly, over the last decades in terms of discussion about the public finances, the household budget version rules in the public consciousness – even at the expense of its own well-being.

Just a quick look at recent headlines show the pernicious nature of such repetition on the health of the economy and its citizens, who compare the public accounts with their own finances.

It was reported this week that some of the UK’s largest councils may have to declare bankruptcy unless the government stumps up extra cash to cover the extra expenditure needed to deal with the impact of Covid-19. Nearly 150 authorities have predicted a combined budget shortfall of at least £3.2bn. Having already been struggling to deal with ten years of cuts to central government funding for local government, the chickens are now coming home to roost. Even the government’s proposed additional funding package will struggle with an already slimmed down local government infrastructure which includes people and services. However much money is allocated, local politicians and their officers will not be able to repair those losses to essential services quickly.

Also this week, the IFS reported that families who had become unemployed during the Covid-19 crisis would get £1600 less in benefits, on average, than they would have done without the damaging decade of Tory austerity. It warned that the UK, which had entered the crisis with an already less than generous welfare safety net combined with the worst decade for income gains since the 60s, would not ‘provide a good blueprint for a bounce-back’.

Pascale Bourquin, a research economist at the IFS, said that in the last decade the country had ‘witnessed the slowest growth in household incomes since records began as earnings and productivity stalled and working-age benefits were cut sharply’. And added that ‘we now have the dual challenge of trying to recover the ground people have lost in their careers and employment prospects and addressing the problems we already had’.

The narrative of household budgets is pernicious and yet it pervades the public discourse. On the one hand, the IFS recognises the damage austerity has caused and yet on the other still blathers on about the public finances and the national debt, hinting about the future cost we will all have to bear for this increased spending.

When Helen Barnard at the Joseph Rowntree Foundation, which funded the research, talks about ‘Finding a lasting solution’ she is demonstrating, just like the IFS, a woeful lack of knowledge about how governments actually spend. The solution is staring them right in the face.

The government has the power of the public purse to find solutions to unemployment, low productivity, poverty and inequality, not to mention the coming threat of climate change. It doesn’t matter which end of the political spectrum you sit on, whether you are on the right or the left, a healthy economy and societal and planetary well-being go hand in hand and should be a top priority for both.

This week the IMF warned of a deep global recession. This will, without doubt, lead to further poverty and inequality which will be worsened by the prospect of a world ravaged by human-induced climate change if we fail to act now. It is time for the public, politicians and institutions to put away childish analogies about how governments spend – that is if we really want to secure a stable future for those that will come after us.

In the words of Dr William Black ‘What if the public understood how money works?

Well, there might just be a revolution!

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The post ‘What if the Public (really) Understood How Money Works?’ Just think what we could achieve! appeared first on The Gower Initiative for Modern Money Studies.

Book Review: The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy by Stephanie Kelton

Published by Anonymous (not verified) on Mon, 22/06/2020 - 8:52pm in

In The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Stephanie Kelton dispels six key myths that have shaped the conventional understanding of deficits as inherently bad, instead arguing that deficits can strengthen economies and lead to faster growth. This book is a triumph, writes Professor Hans G. Despain, shifting normative grounds of government spending away from the false and unproductive idea that deficits are irresponsible and ruinous towards the productive political activity of deciding which spending programmes should be prioritised.

The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Stephanie Kelton. PublicAffairs. 2020.

Countries across the globe have shut down their economies in an effort to combat COVID-19.  Massive increases in government spending have offered relief to households and businesses, but according to many politicians and economists, this government spending has generated ‘national debt dilemmas.’

The United States and the United Kingdom are projected to have public debt levels soar above 100 per cent of gross domestic product (GDP). Japan’s public debt to GDP ratio is expected to grow above 250 per cent. The IMF anticipates the average debt-to-GDP ratios in advanced economies will rise above 120 per cent.

With debt-to-GDP ratios so high, mainstream economists warn there will be a debt overhang post-pandemic, which they proclaim will force a curtailment of public spending in the future and an increase in taxes. The increased taxes will lower consumption spending of households and investment spending of businesses. The result is slower GDP growth and stagnation in worker’s wages and salaries.

Stephanie Kelton, in her new book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, demonstrates that concerns about public debt overhang are ill-founded. Kelton argues that government spending properly targeted and government debt need not be problematic. Indeed, she argues that public deficits can be very healthy for an economy.  Kelton contends bigger deficits can strengthen an economy and lead to faster growth.

However, the conventional wisdom regarding deficits is that they impede economic growth and weaken the economy. Conventional wisdom warns against using ‘deficits to solve problems [when] we continue to think of the deficit itself as a problem’ (8).

Currently the US national debt is more than $24 trillion, 106 per cent of GDP.  However, $6 trillion of the national debt is held by government agencies such as the Social Security Trust Fund. If it seems strange the federal government can owe itself money, well indeed, federal debt is strange.

This strangeness is one of the reasons so many ‘myths’ cloud our understanding of public debt.  Kelton identifies six primary myths of public debt. The first six chapters of her book dispel each primary myth. Chapters Seven and Eight explain how deficit can be used to generate a stronger economy with shared prosperity to reduce inequality and other social ills. In so doing, Kelton’s book achieves two groundbreaking triumphs and has one major ‘shortcoming’.

First, the shortcoming. Kelton’s argument is based on modern monetary theory (MMT), which hinges on a critique of the orthodox view of money.  The orthodox view of money asserts that the value of money is based historically on its link to precious metals and especially on its function as a medium of exchange. MMT contends the value of (modern) money derives from its link to credit (and debt) and underscores the important role the state plays regarding the ontology of money. George Knapp (1924) called this ‘the state theory of money’, J.M. Keynes further developed it in The Treatise on Money (1930), and it has been most recently promoted by L. Randall Wray (1998) and Warren Mosler (1993).

Kelton does not address the ontology of money of MMT. This can be seen as a shortcoming because it leaves a theoretical understanding of MMT undeveloped. However, my reading of Kelton has the shortcoming as a great strength, because it makes her argument far more accessible to a wider readership. Moreover, MMT’s more esoteric theoretical and historical accounts of money are available elsewhere (e.g. Wray, 1998).

Kelton’s groundbreaking triumphs are twofold. The first is that Kelton shatters both the deficit hawk and deficit dove view of public debt. Deficit hawks constitute the conventional wisdom on debt and contend the government is being irresponsible when it has a deficit, and therefore needs to balance its budget at almost any cost. Deficit hawks argue that public debt is ruinous to a currency and the country itself. Deficit hawks argue a country should tighten its purse strings and suffer short-term consequences to avoid long-term disaster. Deficit doves agree, but contend deficits can be used in the short term for emergencies and overcoming economic crises.

Kelton contends this leaves the debate stuck in the faulty idea that deficits are sinful.  According to Kelton, we need to change our perspective and be wiser regarding deficits. Kelton calls herself a ‘deficit owl’ because owls have the ability to rotate their heads nearly 360 degrees for better perspectives and are associated with wisdom (76).

The conventional story contends governments levy taxes and then use them to pay for government spending. If government spending is greater than tax revenues, the government must borrow the rest by issuing bonds to investors (21-24). The conventional story contends government borrowing comes with huge snares. The increase in demand from loans increases interest rates. Government borrowing, via selling bonds, competes for the limited amount of savings so that private investment tends to fall, or gets ‘crowded-out’ (101-104), and GDP slows.  Further, deficits make a country dependent on overseas investors (81-84).

Kelton contends the conventional story is a series of myths. To begin with, Kelton takes on the myth that governments should be fiscally run like a household (Chapter One). This is false because the government is nothing close to a household or private business. The big difference is that households and businesses are users of money, while governments are issuers of money (17 – 18).

Think of it this way: if you were granted the legal right and the ability to print as many US dollars as you wished, would that change your debt? The answer, of course, is yes. Your debt would no longer matter, because you can always just print more money.

Second, to view public deficits as overspending is a myth (Chapter Two), because a government deficit creates a surplus for someone else. The third myth is that deficits burden the next generation (Chapter Three). It is false that deficits make the next generation poorer, and it is also false that reducing deficits will make the next generation richer. Rather, the historical record shows high national debt creates wealth and increases the income of the next generation.

The fourth myth is that deficits crowd out private business (Chapter Four). Kelton argues that deficit spending properly targeted stimulates, or ‘crowds-in’, private business growth. The fifth myth is that deficits make us dependent on overseas nations (Chapter Five).  Instead trade deficits should be understood as a ‘stuff’ surplus: e.g. China gets US Treasury bonds, and the US gets Apple computers and other ‘stuff’. The sixth myth is that Social Security and public health programmes are propelling us toward a fiscal crisis (Chapter Six); here, Kelton shows the governments can always meet demographic and healthcare fiscal obligations.

The current surge in public expenditure given the sudden economic shutdown is quite telling and supports Kelton’s argument. The government is self-financing: they do not necessarily need to collect taxes or borrow; they simply need to pay the dollars for the work activity they want accomplished. They cannot run out of money any more than a score keeper of a football game can run out of points. So long as a country is sovereign in its currency – that is, it issues and controls the supply of its currency (for instance, the UK and US governments) – it cannot run out of currency.

Government debt does matter, but we need to shift our understanding. Government debt is nothing like personal debt, because the federal government can issue more money. Nonetheless, it is not the imbalance between taxes collected and federal monies spent that matters. Rather what matters is the balance of real resources (257 – 260), to avoid generating bottlenecks, and the threat of inflation (44-47).

In the present moment, inflation is no threat whatsoever. The severe lack of consumption demand from households and investment demand from businesses makes deflation a greater worry than inflation. Once the economy begins to recover, policymakers will have to keep their eye on inflation. Nonetheless, for nearly 40 years, inflation has been well controlled. Partially this is due to international supply-chain competition and the business models of big corporations (Amazon, Wal-Mart, etc) that are built on low prices. There are several forces that will keep low inflation intact.

With no inflation and no bottlenecks, the government can address the true deficits (Chapter Seven), such as the good jobs deficit, the healthcare deficit, the education deficit, the infrastructure deficit, the green climate deficit and the democracy deficit, with no fiscal constraint. As such, Kelton contends the normative side of MMT should support building an economy that is geared toward people over profits and people over balanced budgets (Chapter Eight).

Kelton produces a dual shift in perspective. First, she demonstrates fiscal policy measures outdo monetary policy for steering, stabilising and managing the economy. Second, which specific fiscal policy measures are preferred are more a matter of politics and social preference than the science of economics. As Kelton states, the normative implications of her argument ‘can be used to defend policies that are traditionally more liberal (e.g. Medicare for all, free college, or middle-class tax cuts) or more conservative (e.g. military spending or corporate tax cuts)’ (235).

To be sure, the MMT tradition has promoted a job guarantee as the best fiscal buffer for the capitalist boom-bust cycle. Further, they have emphasised a guaranteed jobs programme should be built around public service and a ‘care’ economy. However, someone could fully agree with Kelton’s economics and disagree with her suggested priority of fiscal measures.

Kelton’s book achieves a revolution in political economy. Kelton’s first great achievement leaves the conventional hawk/dove conception of deficits shattered. She decisively shows there is no budgetary constraint on government spending; instead the only real constraints on government spending are the limits of real resources and the threat of inflation. Kelton’s second great achievement is to shift the normative grounds of government spending from the false and unproductive idea that federal deficits are evil, and to the productive political activity of deciding which spending programmes should be prioritised. Her Copernican achievements furthermore make esoteric debates on money accessible to a wide audience and wonky ‘pie-in-the-sky’ policy debates both comprehensible and realistic. The context of the current economic shutdown will place modern monetary theory and The Deficit Myth centre stage. Stephanie Kelton is the economist to carry this debate forward.

Note: This review gives the views of the author, and not the position of the LSE Review of Books blog, or of the London School of Economics.

Image One Credit: Photo by kaleb tapp on Unsplash.

Image Two Credit: Image by Krzysztof Dzwonek from Pixabay.

 


To rephrase Mahatma Gandhi ‘The future will depend on what we do today.’

Statue of seven children using a lever to move the world“Together for Peace and Justice” by Xavier de Fraissinette, Parc de la Tête-d’Or, Lyon. Image by Ben Kerckx from Pixabay

Just a brief look at the news headlines in the last few weeks should be enough to set the alarm bells ringing. We are watching as the nation suffers a train crash of epic proportions.

The Institute for Employment Studies reported in May that the number of people claiming benefits principally because of being unemployed had risen by 860,000 in the month to 9th April to just over 2 million, and that not since February 1947, the year of the big snow, had unemployment figures risen so steeply. It went on to say that that that figure was now likely to be in the region of 3 million, the highest since the 1980s, and that it will take years, not months, to repair the damage.

According to figures released by the Office for National Statistics (ONS), 600,000 jobs have already disappeared and many face redundancy over the next few months as economic uncertainty continues and employers begin to make plans to reduce their workforce as the furlough scheme is phased out later this summer. The ONS also noted that that there had been a record fall in job vacancies between March and May and hinted at worse to come. Jonathan Athow, from the ONS, commented that ‘the slowdown in the economy is now visibly hitting the labour market’

The consequences of Covid-19 on the economy, and let’s not forget the impact of 10 years of cuts to public spending and welfare entitlements, are affecting every aspect of our lives.  Thousands of children have been plunged into poverty and UK food banks are facing record demand with more than 100,000 carers forced to use a food bank in the UK lockdown. Two-thirds of families on universal credit have been pushed into debt, having had to borrow money including using payday loans or credit cards to keep their heads above the water. Put bluntly, that means people struggling to put food on the table, money in the electric meter or pay their rent, not to mention the impact on the mental health of parents trying to provide the basics or educate their children at home for three months without adequate access to the internet or computers.

The Joseph Rowntree Foundation, in partnership with Save The Children, are shining a light on the experiences of families and children in poverty; calling on the government to ensure that families are supported, not just during this lockdown period but also beyond it, to prevent increasing numbers of children being pulled into poverty. It points out that too many children are going without, due to income losses and the pressure that the lockdown has put on already overstretched budgets.

Whilst one must commend those who have performed extraordinary acts of public service during this pandemic, those who have raised money for the NHS and charities and this week like Mark Rashford who through a steadfast public campaign shamed the government into continuing its vouchers for free school meals during the summer holidays, we now urgently need a frank national conversation about where we go from here.  Not just about the sort of society we want to live in now or in the future, but whether we even want to protect our children’s children from the devastating effects of climate change; the threat of which is hanging like a tsunami over our heads while we queue outside Primark or Nike Town!

We are a nation that has been divided by a toxic ideology which has, until recently, ripped to shreds any sense of collective responsibility. We cannot stick our heads in the sand and return to the normal many are hankering for. Too much is at stake.

The pandemic has revealed the shocking state of the Social Care system which is in a state of collapse, an NHS battered by 10 years of cuts to its spending with reductions in staffing, beds and facilities, a social security system which has removed the support pillars and left people in dire poverty and children hungry, living sometimes in temporary accommodation with no sense of security.

The greatest achievements of the post-war world are being dismantled or outsourced to profit and are being replaced by the so-called big society which ironically is also collapsing due to cuts government cuts. As previously reported by GIMMS, Covid-19 has left one in ten charities facing bankruptcy this year and many struggling to provide services in an economic environment which has its roots in austerity.

Instead of state involvement in the provision of the fundamental structures that form the basis of a healthy economy and society which benefits everyone (even if those structures are not perfect), we are being prepared through constant propaganda and messaging to accept a reset. One in which the state continues to pour public money into private profit but at the same time claims there is no money for publicly paid for and managed services and an adequately funded social security system.

Our society is being impoverished, not just financially but in terms of its public and social infrastructure, culturally and the safety net which protects people when through no fault of their own the economy tanks. All on the basis of claimed unaffordability. The monetary largesse of these last few months is already in question and we face a return to more cuts to public spending.

Just this week it was reported that Leeds Council is considering closing its museums and libraries as it can no longer afford to pay for them. This is not just a localised problem; across the country libraries and museums have already closed or rely on volunteers to staff them. The pandemic is revealing the brutal cost of previous cuts to government spending that have left local and regional councils, particularly in the north and south-west, impoverished and with insufficient infrastructure to even deal with the consequences of Covid-19.

Aside from the valuable input to GDP (which ministers seem to conveniently forget), our cultural life is under threat as our museums and libraries face more closures as local councils try to balance their books. Our national and local theatres, art galleries, orchestras and all those things we value in terms of human enrichment and education face if not oblivion, then severe retrenchment.

While public money finds its way easily into private profit at the blink of an eye to provide public services in the name of the lie of market efficiency, our society is being prepared to accept a reset in which charities, public donation and volunteering, not to mention the philanthropy of the Victorian poor law boards, decide who gets what.

Is that the sort of society we really want to live in?

To recognise the alternatives, we have to understand how an alternative vision can be paid for, as that is the perennial question always asked by the public and politicians alike. If we fail to do so the future looks pretty bleak for us all now and for future generations who will be paying not the financial cost but the very real human cost.

We need to start with a basic understanding of how the UK government as the currency issuer spends. It is regrettable that across the piece left and right-wing economists, along with politicians and institutions are still stuck in the household budget narrative of how governments spend. For the right, the constraints lie in a scarcity of money (which they use to justify their political agenda) and on the left the answer is getting the rich to pay through their taxes or borrowing at low rates of interest to fund our public services, pay for public infrastructure or fund a green new deal.

Only this week the ONS focused its report on the public finances on the through-the-roof borrowing figures and, shock horror, it is apparently £173.2bn higher than it was a year ago at £1.95 trillion and the UK’s debt-to-GDP ratio has pushed above 100%. Such focus is designed to put fear into the hearts of people who don’t understand the working of the economy and the public finances and it is likely to enable the government to justify further austerity at some point in the future.

Indeed, the Chancellor Rishi Sunak it has been reported is preparing to scrap the triple-lock on the state pension on the basis that the already high cost of the Covid-19 pandemic could make it unaffordable. Officials have claimed that a temporary suspension would be unavoidable if the government is not to be faced with paying a massive bill next year.  The Pensions Policy Institute has already warned, quite rightly, that such a move would have serious implications for already existing and future pensioner poverty and the amount spent on other means-tested benefits such as housing benefit, caring credits and disability premiums. It would also impact on low earners who would have to put in an extra £540 a year to avoid poverty in retirement. How would punishing people even further help the economy or indeed serve its already beleaguered citizens?

Torsten Bell from the IFS in an article in the Guardian claimed that a survey of economists had proved that they were not keen on cuts or more austerity to reduce the deficit, but favoured tax rises instead. He further claimed that economists were turning into a bunch of radical lefties these days. However, whilst their support for austerity has dwindled perhaps, they still see the public accounts as a household budget whereby taxing and borrowing (at low rates of interest) form the basis for government spending. That cannot be considered radical in any shape or form and unless they can get to grips with how a modern monetary system actually works and reject the notion that spending now will create financial burdens on future generations, then sadly we will see more of the same orthodoxy rearing its ugly head.

To put it bluntly, in an economy that is facing wipe-out and serious future economic consequences, the idea that paying more taxes to pay for government spending which will do yet more harm to the economy as it takes money out of the economy is nonsensical, especially when you know that government doesn’t need those taxes before it can spend.

We need to ditch this narrative if we are to make a better, fairer world which also puts the environment as a top priority. Indeed, at the beginning of this week, the leaders of some of Britain’s top charities wrote to the Prime Minister to demand as a priority a green recovery and urged him to use economic rescue packages to build low-carbon infrastructure and stimulate the creation of long-term green jobs.

However, if we allow that sticky question of monetary affordability to dominate the debate, any future actions will always at some point in time constrain a government’s spending decisions.

We don’t have to be economists either to understand monetary realities or challenge the current false narratives which pervade the discourse.

There are just a few things we need to know or consider:

  • The UK government is the currency issuer.
  • It neither needs to tax in order to spend, or to borrow to cover its deficit
  • Such a government whilst not being financially constrained does face real resource constraints when deciding its spending policies. These include the human beings that do the jobs and the physical resources needed to provide goods and services.
  • If the nation decides ultimately that it wants the government to take a greater role in public provision of services to serve the best interests of citizens, it will have to accept that the government will have to procure those resources and thus may have to deprive the private sector of some of those resources in order to do so.
  • A Job Guarantee is fundamental to this understanding of monetary realities. It not only provides an essential automatic stabiliser in the economy ensuring that people are not left abandoned on the unemployment scrap heap during its cyclical ups and downs and values their contribution to making a more stable society but also plays a vital role in controlling inflationary pressures.

In the coming years, with the growing threat to climate change, it will also provide an essential mechanism to implement a just transition as jobs are lost in polluting industries and we move towards a sustainable economy.

In such an environment we will have to entirely rethink and redefine what work is and what our societal values should be. We need to ensure that we can offer our young people a future with good, non-exploitative employment which pays good wages and offers decent terms and conditions within the context of creating that sustainable economy.

Let’s not leave the future in the hands of the neoliberal orthodoxy which has done so much damage, created so much poverty, inequality and societal division. We do have choices. We don’t have to accept more of the same.

 

 

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The post To rephrase Mahatma Gandhi ‘The future will depend on what we do today.’ appeared first on The Gower Initiative for Modern Money Studies.

Pandemic economics: the role of central banks and monetary policy

Published by Anonymous (not verified) on Tue, 16/06/2020 - 3:21am in

Below are the slides from my presentation at Beyond Covid on 12th June. The whole webinar can ve viewed here.
The pandemic seems to me to resemble the "nuclear disaster" scenarios of my youth: hide in the bunker, then creep out when the immediate danger is over, only to find a world that is still dangerous and has fundamentally changed in unforeseeable ways. 
Rabbits hiding from a hawk is perhaps a kinder image, though hawks don't usually leave devastation in their wake. And I like rabbits. So this presentation is illustrated with rabbits, not nuclear bombs. 

This is where we were in March/April/May. Hiding in our homes, waiting for the danger to pass:

And this is what central banks should have been doing then:

To their credit, this is exactly what they did. By supporting sovereign finances and warding off a financial crisis, they enabled fiscal authorities to take the extraordinary measures needed to keep people and businesses alive in their burrows. 

Some economists mistakenly called for central banks to do demand stimulus such as helicopter money. But it was completely the wrong time for this. Why dangle carrots in front of the burrows to entice the bunnies out while the hawk is still flying overhead? Fortunately, central banks ignored them. 
This is where we are now:

Even if all restrictions were lifted tomorrow, demand recovery would be slow because people have suffered a severe knock to their confidence. Indeed, suddenly lifting all restrictions could send the bunnies scurrying back into their burrows. The world has become a dangerous place. 
So what should central banks be doing right now? More of the same, really:

While restrictions remain in place and confidence is severely dented, it is too early for major stimulus of household demand. However, central banks could at this point do limited stimulus aimed at businesses rather than households, such as conventional QE and encouraging bank lending to SMEs.
What does the future look like? Well, it won't be the same as before:

The economy will need a lot of support for a long period of time. How can central banks help to provide this support?

The implication of all this is that central banks need to rethink their mandates and their relationship with fiscal authorities:

The era of dominant central banks is over. Central banks' primary role is to support governments so that they can do "whatever it takes" to maintain jobs, incomes and prosperity. 
The responsibility of the major central banks, especially the Fed, extends to the governments of developing nations. FX crises in developing countries have a habit of coming back to bite advanced nations. And the humanitarian cost of failing to support countries with high FX debt through these exceptional times is far too high to bear. 
Related reading:
When is the right time for UBI and helicopter money?We must avoid repeating the same mistakes in our economic response to the coronavirus - The New European

Nothing is written in stone. There is an alternative. Let’s make this the era of people power; we can do this!

Children wearing school uniform holding a chalkboard with the slogan "We are the future"Image by Gerd Altmann from Pixabay

‘Our economic and social prospects in the coming decade depend on today’s policies. The recovery will not gain steam without more confidence which will not recover without global cooperation.  Governments must seize this opportunity to engender a fairer and more sustainable economy. Prospects come from dialogue and cooperation at national and global levels.’

Laurence Boone – OECD Chief Economist

In the week that it was reported that in April the UK economy suffered a record slump with GDP plunging by 20.4%, the OECD suggested that it would likely suffer the worst damage from the Covid-19 crisis of any country in the developed world. It also noted in its most recent report that the global economy was now experiencing the deepest recession since the Great Depression in the 1930s, with GDP declines of more than 20% and a surge in unemployment in many countries.

It is clear that whilst many countries are now coming out of lockdown, the fear of a second wave and ongoing public and business uncertainty will continue to impact on future economic activity. Just this week there has been a slew of redundancy announcements.  BP is planning to cut its workforce by around 10,000 worldwide and in the UK British Gas by 5000 and the Chemicals firm Johnson Matthey by 2500. Heathrow is also launching a redundancy programme as the number of flights and passenger traffic has plummeted, with no sign of any recovery as travel restrictions continue.

This, unfortunately, represents just the tip of an iceberg threatening to sink economies around the world without continuing and adequate state intervention through increased spending. The ManpowerGroup, in its employment survey published this week, found that companies in all the major sectors of the economy are more likely to cut jobs than to hire over the next 3 months and revealed that it was the weakest forecast since records began in 1992. It has been estimated that the unemployment rate in the UK could reach 10% during the second quarter of 2020.

A report by Pro-Bono Economics also published this week reveals that despite the government bailout in April, one in 10 UK charities are facing bankruptcy by the end of the year as a result of financial shortfalls triggered by mounting demand for their services and lost fundraising income due to shop closures. The study said that two-thirds of smaller, local charities had made significant cuts to their services and one in eight were expecting to have to terminate their operations. According to the report it had also forced some big-name charities to use public donations to support those services provided under contract to local authorities and central government (we will return to this later on).

Alongside the economic consequences of the pandemic, Sara Caul, Head of Mortality at the ONS (Office for National Statistics) noted in the statistical report of deaths occurring between1st March and 30th May, that people living in more deprived areas had experienced Covid-19 mortality rates more than double those living in less deprived areas.

Not only are we faced with the very real tragedy of Covid-19 and its effects on the lives of those who have lost loved ones and those that have witnessed the ravages of the disease in our hospitals and care homes, the IFS (Institute for Fiscal Studies) in its Deaton Review observed this week how existing deep-rooted inequalities lay at the heart of the current disparities identified between UK regions.

The IFS then suggests that inequality can only worsen if ministers fail to act, and risks entrenching already deep divides. But confusingly and at the same time as recognising this, then goes on to suggest that the crisis is likely to leave challenging legacies for inequality given that the government’s capacity will be constrained by record peacetime levels of debt.

LET’S STOP RIGHT THERE.

Whilst the IFS deplores the existence of inequality and identifies some of its causes, it fails to grapple with the primary reason why inequality has risen and indulges in a false story which suggests that addressing it will be hindered by the already high levels of government debt.

What the report fails to mention, is that those disparities exposed via the pandemic are linked to the systemic frailty of a decaying economic paradigm. The decades of low wage growth which have left households unprepared financially to face involuntarily imposed unemployment as a result of Covid-19, the stark inequalities that have arisen as a result of an economic system which has penalised working people and impacted on access to good healthcare, education, housing and essential public services. It reveals how government, via its policy decisions and through a decade of austerity and cuts to public spending, has left a landscape ravaged by rising poverty and inequality. It has impacted communities across the country, particularly in the South West and the North, where cuts to local government spending, combined with increasing job insecurity and low wages have affected both poor white and ethnic populations to also create fear and societal division.

David Cameron’s big society, namely the charitable/voluntary sector, has also been affected by fallout from austerity, combined with the economic effects of Covid-19 on its finances.  Years of cuts to local government grants have, in their turn, affected many local charities who were already financially stretched. Closure of fund-raising avenues has left many faced with difficult decisions. This highlights what happens when government shifts responsibility for the provision of essential services to the charitable, voluntary sector whilst at the same time cutting public expenditure.

We are facing a disaster of monumental proportions. The economic fallout from Covid-19 is bad enough, but when combined with the threat posed to human existence by climate change, it is ethically and morally indefensible to hide behind false narratives which are designed to limit the actions a government can take to address these issues.  The crisis is systemic and it is incomprehensible that our leaders, along with think tanks such as the IFS and media hacks, are still working hard to keep the hierarchies of power in place with false narratives about how money really works whilst a credulous and uninformed public accepts the dominant paradigms as being unquestionable and unassailable.

For the moment the public purse has been opened to avert economic disaster but as GIMMS has discussed before how long will it be before the old narratives about unaffordability and paying the debt back creep back into the political and public discourse?

As Professor Prem Sikka wrote in a recent article ‘the right will try and push for a new round of cuts after this crisis. It would be economically illiterate to do so…It’s time to bust some neoliberal myths about debt’

If we continue to allow such myths to dominate, the consequences will be dire for the current and future generations.

As Covid-19 has dominated the news for weeks, it has already been made clear that health and wealth inequalities have played a tragic role in deaths, which combined with the future challenges posed by climate change will be a make or break moment for real and sustainable change.

In an open letter this week the UK Health Alliance on Climate Change, formed in 2016, urged the government to follow its six principles for a healthy recovery from Covid-19. It made clear its position that the health of the planet and the health of people are intimately connected and as such future government action must prioritise the health of both.

Whilst those principles are vitally important and essential to any future governmental policies it will be, as Prem Sikka has already observed, only be a matter of time before the issue of affordability and increasing government debt to pay for it will be raised.

However, without a sea change in the political market-led ideology which currently guides government policy, along with the acceptance of the very real resource constraints which all governments face when making their spending decisions, then those six principles will see little chance of being enacted to deliver those public purpose goals to secure the future.

Furthermore, whilst we remain mired in the household budget version of how government spending happens, we will equally accept its spending limitations and thus our own demise as a species.

This is our wake-up call to protect future generations, not from tax burdens as the orthodoxy prescribes, but from the burden of environmental decay and increasing climate uncertainty.

An economic recovery will depend on a new economic paradigm which puts people and the planet first – not more of the same with an environmental extra tagged on.  A Green New Deal combined with a Job Guarantee to allow a smooth and just transition is the way forward. That can only be underpinned by an understanding that government is not limited by money, but by the resources it has at its disposal to deliver its objectives. We can’t allow past narratives to dictate the future.

As a nation, it will be up to us to decide whether we go forward or stay stuck in the exploitative and destructive paradigm which is currently dictating the economic recovery in terms of more unsustainable growth, more futile consumption to feather the bank accounts of global corporations and more eco destruction.

Our future depends on understanding what is possible and what is not. And getting informed is the first step towards a better understanding of the choices we have.

As such, GIMMS can’t end this blog without a mention of two important books which were published this week, and which complement many others before them.  Firstly, The Deficit Mythby Stephanie Kelton shatters the myths that prevent us from taking action because we can’t get beyond the question of how we can pay for it. Whilst written for an American audience, it is equally applicable for the UK.

And secondly, ‘The Case for a Job Guarantee’ written by Pavlina R Tcherneva, which challenges the idea that unemployment is unavoidable and necessary for an efficient economy and invites us to imagine quite a different world where unemployment is eliminated and which has implications for the wider context of a Green New Deal.

And if you missed this first time around, readers interested in historical background and learning more about how money really works in the post-gold-standard era couldn’t do better than ordering Bill Mitchell and Thomas Fazi’s jointly co-authored book Reclaiming the State’.

And finally, don’t forget GIMMS website, which is a fount of information for anyone – from beginners through to those wanting more detailed information. Starting with our information sheet An introduction to Modern Monetary Theory’.

 

 

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To talk about the future is only useful if it leads to action now

Environmental protester at a demonstration holding a sign with a clean Earth and a dirty Earth and the slogan "You Decide"Image by Dominic Wunderlich from Pixabay

‘To talk about the future is only useful if it leads to action now.’

E F Schumacher: Small is beautiful: Economics as if people mattered.

The Bank of England in its Monetary Policy Report for May 2020 noted in its summary that the ‘unprecedented situation means that the outlook for the UK and global economies is unusually uncertain.  It will depend critically on the evolution of the pandemic, and how governments, households and businesses respond to it’.

Already, the consequences are being felt around the world and there remains great uncertainty about the future.

In April the price of oil plummeted into negative regions as world economies slowed due to COVID-19.

At the end of April, it was reported that two million Bangladeshi jobs could be at risk as western high street clothing shops closed their doors for lockdowns. Bangladesh is a major garment exporter and reliant on European and American orders with some 83% of its export revenue linked to the garment industry.

Factories across the textile sector in countries like Bangladesh and India are still struggling to stay afloat. There have been closures or reduced working hours which have had a devastating effect on jobs and income for those employed in a sector which already relied on poor wages and bad working conditions to compete.  The dependence of globalised trade on outsourcing and just in time logistics to be competitive is exposing structural weaknesses and emphasising its exploitative nature on both domestic and foreign populations. Pull one piece from the jigsaw and the whole edifice comes crashing down.

Since lockdown, many high street businesses have been forced to close their doors as well as those with a global reach.  Airlines have scaled down their domestic and global operations, grounding planes and staff with the prospect of thousands of job losses. Rolls Royce has also confirmed that it would be making significant redundancies in its civil aerospace business both here and abroad.

In response and across the piece fiscal interventions have become the ‘mot du jour’ not the least in the UK.

Whilst one can argue the detail about how it was done and point out the flaws of the schemes which has left many working people without support, Sunak’s fiscal intervention was the right thing to do. However, whilst the Chancellor acted quickly to protect working people, he did so in line with Conservative neoliberal ideology by channelling money into big business and not just through signing contracts with already discredited companies like Serco to provide government services with no accountability built in.

Last month the Treasury and the Bank of England, following a campaign by Positive Money announced that the names of those companies which have been bailed out through the Covid Corporate Financing Facility would be made public. The scheme allows ‘investment-grade’ companies to sell short term debt to the Bank of England thus allowing access for Britain’s biggest corporations to billions of pounds of cheap funding. Fran Boait from Positive Money said ‘“The Covid Corporate Financing Facility was serving as a secret bailout vehicle, allowing Britain’s biggest corporations to access public money without the public having to know.”

It has been revealed that among the companies which have benefited are Stagecoach, G4S, Rolls Royce, Easy Jet and Intercontinental Hotels. So far 152 companies have taken over £16bn with an expected total bailout of £67.7bn.

However, as the SourcenewsScot reported this week, one in five of firms receiving bailout money are airlines, oil and gas or car manufacturers and ‘the only strings which are tied to this cheap money is a request by the BoE to be restrained in paying dividends. It doesn’t matter if they are climate polluters or tax haven users or have exposed their workers to harm during the pandemic, the BoE will bail them out if they are making a ‘material contribution’ to the UK economy just so long as they are also corporate giants.’ So much for the government’s expressed commitment to a green economic recovery at a time when such commitment is vital.

Positive Money has also warned that it may not be long before they are back for more given that this crisis is unlikely to be over anytime soon.

It is yet again more evidence that the UK government with the power of the public purse can bail out whomsoever it chooses, just as it did the banks in 2008, with not a taxpayer in sight.

For many small high street businesses and medium-sized enterprises which are struggling and desperate to get back to some sort of normality, the future remains an unknown. The economic and employment uncertainty is likely to continue. This, along with the cumulative effects of reduced incomes on salaried workers and reliance on minimal state support for many self-employed (for those who are eligible for it at all) may cause people to be cautious about future spending.

Figures show that during lockdown consumers have been spending around £17.9bn less per month into the economy as spending habits shifted to accommodate the new normal. According to figures published by the Bank of England, in April households also repaid record amounts of debt accumulated on credit cards and personal loans amounting to £7.4bn. Whilst at the other end of the scale, figures from the Bank exposed a sharp increase in business debts as a result of the drop in sales.

At the same time, the New Policy Institute calculated that the richest 20% of UK households will have likely saved £23bn by mid-June, which is more than six times as much as the savings made possible by the poorest 20% of households. Even if the pandemic were to stop dead in its tracks or restrictions were to be eased or lifted, with so much uncertainty confidence may not return for some time yet.

Many businesses, with increased debt and little hope of regaining the sales ground they have lost, may yet go under, thus increasing unemployment. In the light of failing confidence, people may have no alternative but to continue to retrench and/or continue to save.  And those who have suffered cuts to their income, been laid off or furloughed or face the prospect of redundancy and who have never been in a position to save, will further be impoverished thus deepening the wide gulf that exists between the rich and poor and those of ethnic origin in what is an already divided country.

Shockingly it was revealed by the Health Service Journal (HSJ) this week that the government had removed a key section from Public Health England’s review of the relative risk of COVID-19 to specific groups which suggested that discrimination and poorer life chances were playing a part in the increased risk of contracting the disease amongst those with BAME backgrounds.

The HSJ noted Matt Hancock’s response articulated at a daily coronavirus briefing this week when he said that ‘he understood why many were ‘understandably angry about injustices’ and that he felt a ‘deep responsibility because this pandemic has exposed huge disparities in the health of our nation’ [saying also] that ‘much more work’ was needed to be done to understand ‘what’s driving these disparities’ before adding: ‘We are absolutely determined to get to the bottom of this and find ways of closing the gap.’

In the light of his response one has to ask oneself the question where has the government been? The last 10 years of government-imposed austerity, cuts to spending on public sector services, its ideological attachment to low wages and precarious employment to serve the business agenda had already taken their toll before COVID-19 even arrived into our midst. It is incomprehensible that politicians and their appointees don’t know where the inequality and poverty have come from! Wilful ignorance comes to mind.

So where might we be going now?

Rishi Sunak, the Chancellor, announced last week that the Coronavirus Job Retention Scheme (aka the furlough scheme) which has helped protect 8.4 million jobs is to be extended until October and those who were eligible for Self-Employment Support will be able to claim a second and final grant in August. However, his plan to taper pay-outs from August onwards from the current 80% will mean that employers will have to cover the difference.

The ending of the furlough scheme at such a crucial moment will, without doubt, have exactly the opposite effect to the one desired.  It is likely to lead to a steep increase in unemployment as businesses are forced to downsize their operations or go bust; making people redundant just at the time when the world is entering a recession, or worse. The UK does not exist in a bubble – it is also affected by world economic conditions, which are equally distressed.

The impact is likely to be devastating. An analysis published by The Institute for Public Policy Research (IPPR) this week suggests that by the end of 2020, 1.1million more people face poverty as a result of the coronavirus pandemic and that 200,000 more children will be among those expected to be below the pre-virus poverty line as job losses hit family incomes. It says that without urgent action to protect families from financial hardship it would bring the total number of children living in poverty in the UK to 4.5 million – an increase of almost 5%.

Its figures are drawn from Bank of England estimates that unemployment is likely to reach just under 10%, or around 3.3 million people, by the final quarter of the year. Claire McNeil, Associate Director of the IPPR, said ‘The government must apply the same level of ambition it had for supporting businesses and workers … to prevent a new generation of children and their families falling into poverty through no fault of their own.’

What we need now is the combined and continued power of the state and the public purse, to both stave off further damage and begin the vital move towards globally sustainable economies and the pursuit of a more equitable and sustainable sharing of global resources.

The economic policies of the preceding decades have been framed around three false narratives: That global corporations and financial institutions are the wealth makers and must be privileged, that the State is powerless to act in the public interest and that the public accounts are like our own household budgets with spending limited to income (in this case taxation) which requires a firm hand and iron fiscal discipline to keep them in balance.

We are now by dint of this tragedy discovering that the magic money tree, like the magic porridge pot, is showing no signs of running out of funds as Rishi Sunak is also apparently contemplating yet another package of measures to help the economy. The release of information about the details of this package have now been put back until the autumn as Sunak seemingly waits to see what happens. Perhaps he’s expecting an economic miracle!  It has to be said that this is a moment for bold thinking, not delay or prevarication.

In fact, what we now need is a revolution in thinking, not the stale economic orthodoxy which has already done so much damage down the decades.  It is disappointing when three former Chancellors of the Exchequer still frame their arguments in household budget terms when talking about the challenges ahead. It is also disappointing to read the OBR’s analysis of the furlough scheme which speaks in terms of costs to the public finances and debt, when the focus should be on the real benefits of government spending to the nation and its economic health at a crucial time and in terms of investment in the future.

In the case of Osborne, the architect of austerity, it was frustrating to note his continuing adherence to ‘handbag’ economics when he commented in an article in the Telegraph that ‘sadly we are poorer than we thought we were, and either we’re going to have to raise more in revenue or spend less than we were planning’.

It is clear that whilst the cash is being splashed for the moment, the magic money tree is likely to have a limited life or perhaps more accurately will only bear fruit to serve the interests of the global corporations and other wealthy elites. If this remains unchallenged it will not bode well for the future of the UK, not to mention the planet.

If some of us thought that COVID-19 might act as a wake-up call for the future, that scenario is still unclear. Not only in terms of the government’s priorities about who is to benefit from government spending but also looking at the general situation. Pollution levels are once again rising in China and it is expected that Europe will follow suit. The pictures of long queues outside Ikea paint a depressing picture as do the piles of rubbish left in beauty spots by people who travelled hundreds of miles in their cars to get there. It seems that while people were obliged to stay at home, they would bake, connect with one another through Zoom or contemplate a different way of doing things, they are still just as eager to pick up where they left off once the restrictions are lifted.

And yet while we are all dying to get back to normal there is still an existential threat to civilisation which we must address swiftly if we care at all for the fate of future generations whilst we still have some time left.

COVID-19 offers an opportunity to rethink everything and most importantly to challenge the received wisdom that ultimately there will be a financial price to pay for government spending too much! The price we will really pay for continuing with the narrative of financial unaffordability will be the health of our ecosystem and all those who depend upon its resources to enable and enrich their lives in every sense.

We can all play a part in bringing about positive change. However, it is only government with the power of the public purse and an understanding of the resource constraints that all governments face, that can demonstrate the real resolve through its legislative powers at national and local level to deliver public purpose goals. A green recovery is only possible with a government committed to real change in its spending priorities and through pursuing full employment policies. This could be through a combination of an expansion of the public sector combined with a Job Guarantee to allow the transition towards the green economy we need by providing the necessary economic stability.

Let’s not let this opportunity slip through our fingers.  It is only the people that can demand the change we need. It is only people with the correct knowledge that can pour scorn on politicians who continue to adhere to false narratives about how governments spend. The future is at stake now more than ever before.

If you want to know more the GIMMS website is a good place to start the journey to that challenge

https://gimms.org.uk/mmtbasics/

 

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The post To talk about the future is only useful if it leads to action now appeared first on The Gower Initiative for Modern Money Studies.

To Fight The IMF’s Dire Prediction We Need More Government Debt – 10 daily

Published by Anonymous (not verified) on Thu, 04/06/2020 - 2:29pm in

By Warwick Smith

This article was first published on April 15 2020 at 10daily, which has since shut down. I’m reproducing it here now partly to keep a record in case the web site ceases to exist.

Yesterday, the International Monetary Fund (IMF) released the latest World Economic Outlook, in which it predicted Australia’s economy would shrink 6.7 percent this year.

This would be the biggest single-year fall since 1930 at the height of the Great Depression. They expect unemployment to reach 7.6 percent this year and climb to 8.9 percent next year. Despite noting Australia’s very large government spending program, the IMF suggests that greater fiscal stimulus may be needed to avoid even worse outcomes.

Meanwhile, Australia’s major political parties are both stuck in misguided and outdated attitudes towards government debt and deficits. During last week’s parliamentary debate about the $130 billion JobKeeper legislation, Anthony Albanese said, “We are headed for a trillion-dollar debt… It is a bill that will saddle a generation.”

If this dangerous thinking is allowed to dominate both sides of the narrow political divide in Australia over the next few years, then we will see unnecessary hardship and further loss of jobs on the Australian people.

This misguided thinking comes from the notion that the federal government is like a nationwide household and that if we spend too much now, we, as a nation, will have to tighten our belts in the future to pay for it. This may make intuitive sense but much of the true nature of money is not intuitive.

Paying attention only to money and debt often causes people (including economists) to lose sight of the real economy. The real economy is the production and distribution of goods and services. Our material standard of living at any particular time depends almost exclusively on the goods and services we are able to produce (and purchase from overseas) at that time. Is it possible for future generations to send goods and services back in time to pay for the current COVID response expenditure? Of course not, that’s a ludicrous suggestion.

Okay, so if we focus on the real economy and forget about the money for a minute, what are the real future consequences of spending now to support businesses and households? The fewer businesses go broke now, the quicker the recovery and the more rapidly we can get back towards full employment. The closer we get to full employment (and the full use of our infrastructure, factories, equipment, etc) the more goods and services we can produce and the higher the material standard of living we can have.

So what about the trillion-dollar debt then?

We have a very clear historical precedent we can use to shed light on the impact of debt and on the choices that lie before us. The highest level of government debt Australia has ever had was accumulated during World War II.

(Image: Ashley Owen, Stanford Brown)

This debt, 120 percent of GDP, would be equivalent to a debt today of well over two trillion dollars. If Anthony Albanese and Josh Frydenberg are right about the current debt burden, then post-war generations must have really struggled under that debt burden, right?

As it turns out, the opposite is true. The 25 years following WWII are often referred to as the post-war boom. We had strong economic growth, high wage growth, rapidly increasing material standards of living and falling inequality.

During this period governments of both political persuasions ran near constant modest deficits and the level of government debt to GDP fell sharply. This counter-intuitive miracle occurred because governments weren’t focussed on paying off the debt but were instead focussed on productivity and full employment.

Policy thinkers in the Curtin government, trained in the new economics developed by John Maynard Keynes, had seen massive unemployment during the Great Depression and then zero unemployment during the war. They figured that if the government could bring about full employment during the war then they could bring about full employment during peace time. They laid out this plan in 1945 in a remarkable white paper, Full Employment in Australia, that’s still very much worth reading today.

Australia’s unemployment rate, 1901-2001. (Image: Australian Treasury)

Arguably the 20th century’s most influential economist, Keynes said, “Look after the unemployment and the budget will look after itself”. In the 25 years following WWII, unemployment in Australia averaged two percent and, as noted above, government debt to GDP fell sharply, despite governments continuing to run deficits.

The same could be true in the recovery from the COVID-induced recession — if only our politicians could understand it.

Falling debt to GDP while governments run deficits could occur because the combination of economic growth and inflation saw the economy outgrow the debt. The debt was never really paid off, but the Australian economy was fully employed and was producing enough goods and services to provide Australians with an increasingly higher standard of living.

As I’ve discussed elsewhere, Menzies very nearly lost the 1961 election because unemployment was creeping up towards three percent as a result of reduced government expenditure. Menzies, chastised by the result, immediately adopted Labor’s policy of intentionally running a deficit in order to reduce unemployment — and it worked.

The dangers of austerity

If we adopt the attitude currently dominant in both Labor and Coalition party rooms that this debt is a burden that must be paid off, we will have the opposite outcome. This could entail implementing so-called austerity policies, lifting taxes and/or cutting government expenditure in an effort to pay off the debt. Both increasing taxes and cutting government expenditure remove money from the non-government sector, right when they need it for the economic recovery.

Cutting government services, including health, mental health, education, research, environmental protection and more in order to pay off government debt will inevitably result in higher unemployment, worse health outcomes and worse economic outcomes. We know, both from sound economic theory and from the lessons of history, that we don’t need to focus on paying off the debt. This means, if we do suffer as a result of government debt repayments, that we are doing so as a political and ideological choice, not out of necessity.

Instead, we should focus on full employment and on the real economy and let the budget take care of itself.

If you clapped for the NHS and key workers, now it’s time to ACT.

Published by Anonymous (not verified) on Sun, 31/05/2020 - 3:43am in

Chalk board with Together written on it and stick figutes holding handsImage by Gerd Altmann from Pixabay

“Governments stand because people sit; if people stand, governments will sit!”
Mehmet Murat İldan (Turkish writer).

Did you clap for the NHS and key workers? Did you cheer on Captain Tom? Have you been angered by what has happened to some of the most vulnerable in our society both in care homes and in our communities?  If so, then it’s time to take it a step further. Not putting too fine a point on it, clapping and anger are empty gestures without real action and sadly also have acted as a distraction to what is happening under cover of COVID-19.

Before it is too late to reverse the on-going creation of an all-powerful corporatocracy serving the few through government diktat, it’s time to recognise some difficult truths about what has been happening. Not just to our NHS but also to vital national and local public services which have been starved of cash, forced to reduce services and staffing levels and compelled to outsource or privatise those very services upon which we depend for national economic well-being. We are living the destructive consequences of an ideology that claims that private is more efficient, that our public services are dependent the state of the economy for funding and by association the false public assumption that a healthy economy increases tax revenues and enables public services to be paid for.

We are seeing first-hand what happens when the public purpose is subverted to deliver public money into private profit.  As George Monbiot put it in an article this week in his blog: ‘There is a consistent reason for multiple systemic failures the pandemic exposed: the intrusion of corporate power into public policy. Privatisation, commercialisation, outsourcing and offshoring have severely compromised the UK’s ability to respond to a crisis’.

The campaigning organisation WeOwnIT in partnership with the University of Greenwich published a report just over a week ago Privatised and Unprepared: The NHS Supply Chain which suggested our government is ‘asleep at the wheel’ although one might challenge that description for a more accurate one being ‘wide awake’. These are not failures of misdirected policies, they are deliberately constructed market-oriented strategies to favour corporations and serve a revolving door.

In a clear indictment of government actions, it describes a system which has been privatised to supposedly deliver efficiency savings but which in reality has left the country totally unprepared to address the COVID-19 emergency as well as seriously undermining the operation to protect the NHS, care staff and patients. Just in time systems, a fragmented supply structure in the hands of private profit-oriented organisations left the NHS and indeed care homes unable to access sufficient supplies of PPE. Privatisation and outsourcing have proven in the most tragic way that they are not the magic cure-all that was promised.

Worryingly but predictably the government, instead of stopping, is still pressing on with its plans as more and more public contracts are handed out to private companies without any accountability; fragmenting the emergency response even further at a time when it is essential for the government to act in the public interest, not to the advantage of private profit.

However, a privatised supply chain is just one piece of this complicated jigsaw. For decades and almost imperceptibly at least to the public the NHS has been undergoing a radical transformation. Behind its well-recognised public logo now sits a structure which has been infiltrated by private healthcare companies which have been directing the orchestra all with the approval of successive governments towards the creation of a US-style two-tier healthcare service. As our sister organisation, Public Matters, wrote in an article in 2017 ‘the Americanisation of the NHS [is] happening right here, right now.’  It is not a dystopian vision of the future.  Furthermore, this vision goes well beyond the national borders of the UK as Professor Steward Player (co-author of ‘The Plot against the NHS) wrote in an article published in the Socialist Health Association in 2017 in which he indicates that the ‘basic strategy now adopted for the NHS in England has its origins in the business-dominated international circuit of which the WEF (World Economic Forum) is the apex…[and] what is planned for the NHS in England is not a home-grown response…but what the global policy-making elite at Davos sees as a way of avoiding further growth of spending on publicly-provided health care.’

He noted that in early 2012 the WEF had considered that ‘national healthcare systems were increasingly caught between a rock and a hard place as fiscal crises were creating pressures to curb expenditure’. Professor Player also noted that as a result, it had set about the task of helping ‘existing models become sustainable’. The first report, co-authored with McKinsey and Co, looked amongst other things at the financial sustainability of health systems in the context of the level of public debt and declining tax revenues and the second at offering solutions which included ‘rationing, shifting the cost burden onto individuals and raising healthcare ‘productivity’ through delivering more services with fewer resources.’

It is instructive that once again we see the use of a false narrative about public debt and unsustainable spending which has underpinned government policies aimed at delivering a corporate, profit-led world serviced by public spending taps which can be switched on and off at will depending on the political objectives. And again, with the caveat that we’ll need more austerity in the public sector to pay down the debt incurred which in turn will lead to services being sacrificed, yet again, on the altar of efficiency and profit.

And now following Brexit, as if that were not enough, the health service which is already minus the ‘N’ for national’ is also being threatened by a trade treaty with the US. Even if the government has promised that the NHS will not be on the table, given the government’s obfuscation and lies trust in that promise has to be questioned.

COVID-19 is providing the perfect #disastercapitalism opportunity to drive these policies as we remain locked down and fearful for the future and also the daily reminders of the dishonest claim by politicians and their pals in the media who labour the point that someone will have to pay up in the end. Even when that is not true!

The same situation also applies to the Care Sector where, as covered in previous blogs, for the last few decades services have increasingly relied on market provision with tragic consequences, historically and as a result of the current pandemic. David Rowland who is a Director of the Centre for Health and Public Interest noted in a recent article in LSE Blogs that ‘using the market to deliver social care on a low-cost basis had manifestly failed even before the current pandemic’ pointing out that ‘one in five care homes are rated as inadequate or needing improvement, personal care is provided to people in their own homes in 15-minute slots, with the sector as a whole suffering from a 30% turnover rate – a fact which might explain why there are currently over 120,000 vacancies.’  

Like healthcare, the social care system is dominated by private residential and home care all competing for a share of the market, thus creating pressures on wages and quality of care. The workforce has become casualised with increasing reliance on zero-hour contracts.  As David Rowland points out ‘because the state has driven the cost of delivering care down to a bare minimum and because off-shore investors have sought to extract the maximum short-term profit out of the residential care sector, many care providers were teetering on the brink of collapse even before COVID-19 hit. He notes that this has ‘left the financial structure of the industry in such a fragile state that it is not able to withstand even a minor downturn in income or increase in costs’.

Austerity driven from the top has percolated into every aspect of our lives, leaving our local governmental structures unable to provide the necessary expert and logistical support. Privatisation equally has proved to be a killer. In short, whether it’s the NHS or the care sector as TJ Coles notes in his book ‘The Privatised Planet’ ‘the less care you give the more money you make’. And that is the crux of the threat that faces not just us but our fellow planetary citizens

Never has there been a more important time to challenge this ideology that the needs of the ‘market’ should trump public purpose and the creation of a healthy, educated, purposeful nation.

One million people have signed a petition calling for the resignation of Dominic Cummings and tens of thousands have written to their MP. His actions have stirred a wave of disgust at a time of national emergency and solidarity in a way that the loss of our public services has not.  Campaigns and demonstrations organised by committed individuals over the last 10 years have done little to raise real awareness amongst the general public about what has been happening with little or no public accountability.  When you are struggling to pay your bills, rent or mortgage, working for poor wages and in insecure employment, living in bad housing or unable to access good healthcare and education there is little time left to be concerned about the future when the here and now is all-consuming. A rotting economic system has deprived many of the will and energy to stand up.

With a media that has also reinforced the perception that our public services are either unaffordable or reliant on a healthy economy and taxes being paid, the public has not stood a chance to make its voice known. Until now perhaps?

The public has had a full-on very personal encounter with the vital nature of our public and social infrastructure and if change is to happen then it now needs to stand up and demand that our vital public services are not only funded properly but also restored to public provision. As part of that demand and with the knowledge that a sovereign currency-issuing government is not short of cash but more accurately short on political will, it must also challenge politicians and media pundits who are already talking about how it will be paid for.

The message is simple.  The government has the power of the public purse and the power to serve the public purpose if it chooses to do so. As the currency issuer, it neither needs tax or to borrow before it can spend, and that spending will not be a financial burden on future generations. Britain’s national debt which is predicted to hit £2 trillion for the first time will not be ‘the grim milestone’ it is claimed to be by a media pundit yesterday.

The real burden will be a government that has failed to spend sufficiently on delivering public purpose aims for today in the light of the damaging effects of COVID-19 on the economy which will continue for some time to come, and for future generations who will benefit or not as the case may be from government spending policies.

The political institutions, corporations and wealthy elites have gamed the system for their own purpose through domestic legislative means, trade deals and by subverting public funds into private profit. They are still gaming the system.  As Arundhati Roy put it in the Progressive International Our Task is to Disable the Engine’.  

 

 

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We don’t have to accept a corporate blueprint for a future world. The alternative is to forge a collective vision based on solid values and publicly provided foundations to enable human and planetary flourishing.

Image by Alexas_Fotos from Pixabay

‘We hope this pandemic will teach us that in normal times we must build up our supplies, our infrastructure, and our institutions to be able to deal with crises. We should not wait for the next national crisis to live up to our means’.

Yeva Nersisyan and L Randall Wray

Austerity and cuts to public spending have taken a wrecking ball to our public infrastructure, not least local government. As central government funding was cut as a deliberate austerity policy, councils have spent the last 10 years trying to balance their books by cutting services and increasing local taxes and other charges to make ends meet. In 2019 council leaders said that government funding cuts would leave a £25bn black hole – leaving some councils having to consider bankruptcy as an option. The COVID-19 crisis is revealing the scale of the damage which has been done to the vital public infrastructure, particularly that which serves our local communities.

Despite the government’s COVID-19 crisis bailouts amounting to £3.2bn last month and additional money for social care, the writing is on the wall. Windsor and Maidenhead District Council said it was ready to file for bankruptcy as a result of its predicted £14m shortfall with only £6m in reserves. Many other councils face similar dilemmas. What options are left when they have already cut their spending to the bone to keep delivering their statutory duties which include social care? Already, there have been huge cuts to local services.

Hundreds of libraries closed, children’s and adult social services cut, a public health budget which has faced hundreds of millions of pounds in cuts since 2014/15, fewer waste collections, cuts to parks, sports, arts and leisure services not to mention increased outsourcing of public services including social care to private contractors to cut costs. While the focus has been rightly on how rundown the NHS has become as a result of a decade of austerity, council services which have also borne the brunt of cuts have left the UK totally unprepared with insufficient staffing and a degraded infrastructure to cope.

And now the situation has become so dire that even statutory duties are no longer sacred. Last month it was reported that a number of councils had taken advantage of the government’s COVID-19 emergency measures which allow them to suspend their duties to provide elements of adult social care so that resources can be redirected towards coronavirus support.

While government ministers claim, from their ivory towers, that they stand behind councils and that they are giving them the funding they need, the evidence is to the contrary. The horse has already bolted from the stable and did so the day George Osborne imposed austerity on the nation. Ten years of cuts cannot be remedied quickly and easily; you cannot rebuild overnight that infrastructure that has been lost. Without adequate central government funding now, local government will remain a shadow of its former self or indeed may not survive in its current form. With social care budgets making up over half of what councils spend then it is clear that something will have to give. It is likely that the axe will fall not just on remaining services but also on social care; the review of which has yet to take place having been kicked down the road endless times by successive governments.

We are facing the demise of local government and local democracy for more centralised decision making which can only be to the detriment of our local communities who are served best by those that know them best. Local government needs a massive injection of funds to allow it to implement both central and local initiatives, not just to manage this emergency but to ensure that the economy can rebuild itself and flourish in the future. It needs to rebuild the infrastructure that currently sits in tatters as a result of deliberate government policies to dismantle it. All it lacks is real political will.

Some deride local government, but without the services that it provides our lives have become poorer. We are beginning to recognise that, along with our NHS and other public services, they form the bedrock of our local communities. COVID-19 has revealed their vital nature in this time of national emergency. As the spotlight falls on our public infrastructure which has been so cruelly stripped down, it highlights the terrible cost of austerity. Not just in deaths from COVID-19, the scale of which was preventable had the government acted sooner, but also deaths caused by government policies and reforms to the social security system which have dehumanised people, left them impoverished, hungry, homeless and sometimes suicidal.

While we witness the very real consequences of the economic ideologies pursued by successive governments, which have denied the value of our public infrastructure except in profit terms for private corporations serviced with public money, we are now also witnessing another battle. The battle about the affordability of the current round of government spending and the perennial question about where the money will come from to pay for it.

This week, two articles appeared in the Telegraph which is not known for its progressive stance. The first suggested that according to a leaked Treasury document the country could face a ‘sovereign debt crisis’ and it set out a package of tax rises and spending cuts which would be aimed at ‘enhancing credibility and boosting investor confidence.’ It proposed an end to the triple lock on state pension increases and a two-year public sector pay freeze (so much for all that clapping on the steps of No.10). In effect, it suggested that higher debt now will have to be paid for in the future to stabilise the debt-to-GDP ratio and ‘prevent debt from growing on an unsustainable trajectory’.

Then, in the same week, another more surprising article entitled ‘The Treasury is wrong’: we don’t need hair-shirt austerity’ contradicted that proposition and said that ‘it was a sure-fire formula for structural damage and an economic depression.’ It also suggested that ‘we should be cutting taxes to support the economy’ and said that ‘the idea that we need significant spending cuts or tax rises is completely wrong.’ The author ended by commenting that it was ‘extraordinary that a sovereign country with all levers of economic policy under its own control should contemplate such self-harm’’. Whilst it is true that the article is still couched in the orthodox household budget narrative that austerity would lower future tax take and thus would be counterproductive for the public finances, it does nevertheless point out that such a course of action would be tantamount to a ‘scorched earth policy’.

However, confusion seems to reign in Tory-supporting circles as on Friday Boris Johnson, rejecting the Treasury floated proposal for more austerity to cover the cost of the coronavirus crisis, said that there was no question of freezing public sector workers’ pay and that the government were intending to spend heavily on infrastructure as the country exited lockdown. On the other hand, whether one can trust Johnson’s promises is another matter, given his track record on truth-telling both before the crisis and through it. Whilst he has a very short memory it is also possible that it will be a short career as Prime Minister. Clearly, it reveals potential tensions between No 10 and the current occupant of No 11, but it also demonstrates that the standard household budget orthodoxy still takes precedence even if it is purely a mechanism to deliver a political agenda rather than a recognition of how governments really spend.

We should remember whose pockets have benefited these last couple of months from public money. Only this week, it was revealed that the government had awarded £1bn worth of contracts to private companies bypassing the tendering process and thus any accountability. It had also failed to use NHS Laboratory capacity for testing, preferring to give the work to private companies. The lie of the land is easy to see. There is never a shortage of public money for corporations, but when it comes to public services the magic money tree goes into hibernation.

That we are seeing challenges to the economic orthodoxy of the past few decades is a positive step forward. Less positive is that it is still being seen in terms of productive economy meaning more taxes and less debt as if the national debt were the single most harmful issue that the nation faces. The suggestion that the government could face a sovereign debt crisis is the same as David Cameron deceitfully suggested in 2010; that we were like Greece and could go bankrupt if we didn’t get our public finances under control.

However, as many more people are beginning to realise, the UK government as the currency issuer can never run out of money and cannot become insolvent. When it issues bonds, which are portrayed erroneously as borrowing, it can always meet those liabilities upon maturity including any interest accrued. In fact, it doesn’t even have to issue debt to cover its deficit.

The bottom line is that the national debt represents our assets – our savings – not a burden on the nation, either now or for future generations. In 1945, when our debt to GDP ratio was around 240%, we built our NHS and put in place a social security system to protect people from cradle to grave. That spending represented a real investment in the future of the nation and the economy and in doing it we didn’t go bankrupt then, any more than we can now.

It is vital to turn this damaging narrative on its head. Deficits do matter, but not in the way we tend to think they do. They are normal and necessary, representing as they do our savings and the money circulating in the economy. Rather than focusing on the size of the national debt, it would be better to ask questions about what that debt represents. What was it spent on and why and who benefited or lost out? The answers to those questions will vary depending on the economic conditions of the day and the political agenda of the government in power.

The record of any government, which includes a range of factors from social to economic including full employment, is the real measure of success. Not whether it was fiscally disciplined and achieved a balanced budget. Damaging a nation’s health and prosperity cannot in any way be defined as success. The Conservatives spent ten years destroying it and regardless of how much money is promised now or in the future, it will take time to rebuild that lost public infrastructure if indeed they choose to do so.

In these difficult times, we are seeing the consequences of austerity on everything that we have hitherto valued but have maybe taken for granted. We have allowed successive governments to whittle away at those public structures upon which the foundations of a fairer society were built in the post-war period. We have accepted, not just the lie of unaffordability because we understandably compared the state finances to our own household budgets, but also that the market provided better outcomes for publicly paid-for services as if the government could be compared to a profit and loss business. This, in turn, has given corporations huge influence and power in Westminster and has lined their pockets, at the expense of good quality publicly funded and managed provision.

Those lies are now unravelling. Let’s make sure they unravel to a conclusion which invites a re-examination of our values and a commitment to creating a collective vision of the future which is both environmentally sustainable and fairer for all. Failure to challenge the rapid transformation of our society into a corporate free-for-all will leave us impoverished automatons in its service.

 

 

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