government debt

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

https://gimms.org.uk/

 

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The Rise of the Right

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

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

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

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

The Rise of the Right cover

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

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

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It’s not balanced budgets that will save us. It’s the power of the public purse and our human values.

Person at a demonstration holding a placard with slogan "What lessens one of us lessens all of us"Photo by Micheile Henderson on Unsplash

Charles Dickens began his novel ‘Hard Times’ thus:

“NOW, what I want is, Facts. […]. Facts alone are wanted in life. Plant nothing else and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. [….] Stick to Facts, sir!”

Whilst one might dispute Dicken’s character Gradgrind with his miserable vision of human existence, facts can be very useful. They can trace the human misery caused by 9 years of austerity and the last forty years of a pernicious market-oriented ideology which has led to vast disparities in wealth distribution and caused huge damage to society by encouraging the pursuit of self-interest.  And yet it has to be said as the election campaign gears up, that in terms of monetary reality, of facts there seem to be very few to be had.

As political and economic commentators, not to mention politicians on all sides, emphasise daily their claims that the government finances are like a household budget, the public has largely remained stuck in the quagmire which is presented as monetary reality and distrustful of a political system which has failed them.

Looking at newspaper front pages this week you could be forgiven for thinking that we are headed for bankruptcy if Labour were to win the election or that their spending plans would cost UK households £43,000 each. A ‘reckless spendathon’ is in the offing according to a government spokesperson in a recent BBC television interview.

Aside from such narratives being a fallacy, they are designed to put the frighteners on people who are already suffering financial hardship caused by years of austerity and ideologically driven government policies. Those with a political agenda shore up those false beliefs that borrowing too much will lead to government insolvency. They cynically and callously terrify people that they will be asked to pay for those spending programmes when they will not. This is an establishment that is running scared that their reign of power is coming to an end. The means justify the ends!

It cannot be denied that if we are to escape the worst effects of a coming global downturn, an incoming government of whatever variety will need to implement adequate spending programmes and increasingly fiscal policy is becoming the ‘mot du jour’. However, the message is reinforced daily by all sides of the political spectrum that there are still financial limits to that spending.

Last week Ed Davey, deputy leader of the LibDems said of Labour and the Tories spending plans that they are ‘writing promises on cheques that will bounce’. The very same party that joined in with Tory austerity during the Coalition and voted for public spending cuts and welfare reforms.

In the same week, the Greens promised welcome public investment of £1trillion over 10 years to fight climate change, the money for which it said would come from ‘borrowing’ and ‘tax’ changes.

Then the Chancellor of the Exchequer in a ‘give with one hand take back with another’ message promised to increase borrowing to fund billions of pounds to pay for new infrastructure but then announced three new fiscal rules to ‘control borrowing, to control debt and to control debt interest’.

Stuck in household budget la-la land he said without a hint of jest:

‘like anyone who budgets whether it’s a household, or small business or large business, I know that we must keep track of what we are spending and what we bring in…. We can’t run an overdraft forever on day to day spending, so I can confirm that our first rule will be to have a balanced current budget. What we spend cannot exceed what we bring in.

Never mind that you can build as many hospitals as you like as part of an infrastructure spending programme but if you make up foolish rules about day to day spending those hospitals will remain empty of nurses and doctors and other health professionals to staff them.  And let’s not forget the bailing out of the banks or successive wars funded without a taxpayer in sight.

The same tired old tropes abound about taking advantage of ‘historically low borrowing rates’ and ‘living within our means’ remain the context for Conservative spending plans and figure in one way or another in the language narrative of other parties too.

In a similar vein this week, the shadow chancellor reinforced that same story when he tweeted:

‘The Tories can’t invest in the public services we need because unlike Labour they won’t raise taxes on the super-rich and take on the international tax dodgers’.

The implication being here that he will bring back the magic money tree from the Cayman Islands to pay for our public and social infrastructure.

Even the Leader of the Opposition has suggested that if they don’t tax the very rich, then Labour won’t be able to pay for public services.

As Professor Bill Mitchell commented in a blog in response:

‘The British government does not need to tax the rich to pay for first-class public services. It can do that at any time it can muster the real resources to accomplish that aspiration. It issues its own currency.

It might want to tax the rich because they have too much power but that is quite separate from justifying such an action because the government needs their ‘money’.

Although without doubt the proposals on the progressive left to tackle social inequality, rebuild public infrastructure and address climate change are laudable and indeed vital, it is to be regretted that the arguments for public spending programmes are being reduced to household budget frameworks of monetary affordability, where the money will come from and economic credibility. We have become fixated by the single idea that the country’s economic ‘health’ hangs on whether or not we run a deficit.

GIMMS will say it again. In reality, the only analysis that really counts when deciding which way to vote in any election is not a judgement based on a government’s financial record or whether it balanced the public accounts but what its economic record was.

We as citizens should be examining where the money was spent and who benefited. Did that spending ensure that its citizens were in secure employment and fairly paid, had decent housing and sufficient food in their bellies? Did it create a healthy and more equitable economy in which wealth was more fairly distributed? Did it ensure that the vital public and social infrastructure such as the NHS, social care, education and local government were adequately funded to serve the public purpose and not fill the coffers of private profit? Or was that public money sucked up by the private sector in a big free for all in which the state serves the interests of the corporations rather than the interests of its citizens?

And what about government policies on health, education, welfare spending and the environment? Did they create stable lives by improving the material, financial, physical and mental health of citizens? Did they ensure adequate investment to ensure that the nation can be as productive as possible through good education and training both for present and future generations? And finally, the environment – what actions did they take to address the climate crisis?

In other words, we should be examining what the real economic outcomes were.

After nine years of telling the public that there was no alternative to austerity and cuts to public spending because the coffers were bare, it’s amazing what the prospect of an election can do to turn the spending taps on. And yet the smoke and mirrors, lies and deception about how government spends just carries on relentlessly.

But now it’s all OK (for the moment) the Conservatives have found the magic money tree, cutting the deficit has apparently given them some savings and the fiscal ‘headroom’ to spend. For those that know, this narrative is a fairy tale of epic proportions. For those that don’t, it should be enough to arouse a cynical response by a public which has been at the sharp end of those tax and spend myths which have formed the basis for its policies.

Indeed, only this week the following headlines should serve as the wakeup call for the public about Conservative economic credibility.

‘UK suffers biggest fall in jobs in four years’

‘UK avoids recession but annual growth slowest in almost a decade.’

‘Wage growth slows’

We can blame it in part on the uncertainty caused by Brexit, but the reality is that behind the faceless employment figures published by the Office of National Statistics are the lives of real people who have been affected by the government’s policies and spending decisions over the last 9 years.

To put it in basic economic terms, when a government spends it creates income for the private sector which is then spent into the economy. When it imposes spending cuts it is removing money from people’s pockets leaving them with only three options: Use their savings if they have any, take out credit or go without.

All spending, whether from government or the private sector, equals income for someone. What happens when you take that away? That’s people who lost their jobs in the public sector as local government, the NHS and schools were forced to pare down their budgets as a consequence of public spending cuts. That’s people constrained by public sector pay caps and pay cuts. That’s people who ended up working two or three jobs on low pay to keep a roof over their head and food on the table. That’s people working in precarious employment in the zero-hours or gig economy with no guaranteed decent income or sick or holiday pay. That’s people affected by the reforms to welfare and the introduction of Universal Credit, from those who are unemployed left with insufficient financial resources to make ends meet and those in work but not earning enough to keep their heads above the water to those left struggling to cope because of chronic sickness or terminal illness.

In seeking the nirvana of balanced budgets by cutting spending the Conservative government has not created a healthy economy it has done the very opposite. The statistics are the proof.  Without adequate spending, the economy suffers, and people pay the price.

And yet as political parties present their spending plans and worry about how they will demonstrate their economic credibility the elephant in the room is crashing about trying to make itself noticed. On one note it is pathetic to see the Conservative party take issue with the opposition’s spending plans calling them reckless and unaffordable whilst promoting its own as being fiscally responsible. On another, in their rush to spend, neither party seems to have considered the real resource factor and how that will be managed.

The IFS for all its neoliberal sins ‘gets’ the elephant in the room and recognises that whoever wins on December 12th their spending plans will be dependent on whether they have the right resources at their disposal to deliver.

After 9 years of insufficient spending into the economy to prepare for the future, will there be sufficient people with the right skills to meet the government’s needs? Whether that’s engineers and construction workers to design and build the proposed infrastructure or homegrown nurses and doctors already trained up to service the planned spending on the NHS? Or in these days of climate crisis we might also be talking about the resources needed to deliver the Green New Deal and ensure a just transition not just for those in the rich west but those in the global south whose countries have already been plundered of raw materials and impoverished so that we can maintain our standard of living.

For progressive parties like Labour and the Green Party who wish to deliver a left-wing agenda what they have to do is decide their key priorities, consider the availability of resources and how they could be freed up to deliver a future government’s objectives efficiently and effectively. A case in point this week is Labour’s plan for free broadband which has much to recommend it in terms of bringing communities together in an inclusive and connected society. Journalists and others predictably have asked the question where will the money come from? They have missed the point entirely and should be asking instead how many workers would we need to deliver it?

Ultimately, all sovereign currency-issuing governments don’t need to match their plans to tax revenue or determine whether the markets can lend them the money. The role of government in this respect is not to balance the budget but to balance the economy.

The public needs to understand that it isn’t the government’s ability to tax the rich but its power to run a deficit which determines the health of an economy. As the sovereign currency issuer, the UK government has the power of the public purse to fund the public works necessary to tackle social and wealth inequalities, deal with the current global economic uncertainty, and fund the Green New Deal, should it choose to do so.

However, at home, our public and social infrastructure is in a shocking state of decay caused by 9 years of cuts to public spending and lack of planning. Reversing that decline is not something that just promising to spend can solve in the short term.  There are important issues to consider for the long term which may not fit the short-termism of the political five-year framework and many politicians who have become used to serving other interests.  That is the scale of the challenges we face.

When all is said and done even though the Labour party persists with the household budget myths John McDonnell has it right in terms of what is required not just to reverse the social injustices heaped upon global populations because of pernicious ‘free’ market ideology or the threat to the human species at our own hand. As he said not only must the scale of investment match the scale of the crises we face both in ecological and social terms, but also if we don’t make these investments our future generations will never forgive us.

Let’s leave the final words to Professor Bill Mitchell who wrote a while back:

“My ideological disposition tells me that the pursuit of human values is the only sustainable way of organising and running a world. The neoliberal era has severely undermined that pursuit.

That’s what we must change and urgently if we want half a chance to save ourselves and our children’s children from disaster.

 

Note: GIMMS has a very good resource section on our website which takes you through how money works. From FAQS to resources sheets and external websites, videos and academic papers for those who want to take it further. For an introduction to how money really works follow the link here.

 

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The post It’s not balanced budgets that will save us. It’s the power of the public purse and our human values. appeared first on The Gower Initiative for Modern Money Studies.

We need to relearn the art of adequate spending for public purpose

Published by Anonymous (not verified) on Sat, 12/10/2019 - 9:30pm in

The GIMMS team have been away and had a very busy two weeks travelling between Brighton, London, Manchester, Leeds and Newport for a variety of events.  All in all, it has been very successful and well worth the effort. We’ve had the pleasure of meeting lots of enthusiastic and lovely people across the country and we hope that over time the interest can be carried forward into real action in local settings.

The recording of the Brighton Fringe Event at which Professor Bill Mitchell spoke is now available here and we are working on editing the training session in London and the recording of GIMMS event at the Green Party Conference.

So, from this week normal service is resumed for our MMT Lens with a round-up of the key events over the last two weeks.

 

Cardboard placard at a protest with the slogan "Fight today for a better tomorrow"Photo by Markus Spiske on Unsplash

Boris Johnson is spending. Well, not his own money, of course, but he has authorised a multibillion-pound government spending programme not to mention substantial tax cuts for the wealthiest. After nine years of unnecessary and harmful austerity politics a focus on fiscal rather than monetary policy, which is in a predictable dead end, is to be welcomed although strangely it seems to reflect many of Labour’s spending promises. They say that imitation is the sincerest form of flattery, don’t they?

As part of the spending review by Chancellor Sajid Javid some weeks back, Boris Johnson in his speech at Conference promised investment in the NHS and social care, education, transport and roads, local government, police and the environment. And again, strangely, all those things that it has been busily cutting over the last 9 years because it was claimed we couldn’t afford them are now back on the spending menu. It is tempting to ask the question but where will the money come from since it’s the one that the Conservatives have most often asked Labour when they have announced their policy and spending programmes.  It has also been tempting for some like Paul Johnson from the IFS to wonder whether Boris’s proposals for tax cuts were feasible given his public spending promises.  That is, of course, if like Paul Johnson you accept the too often trotted out household budget version of the state finances which says that government relies on tax and borrowing in order to spend which GIMMS readers surely must know by now they don’t in a country where the government is the sovereign currency issuer.

These spending promises and tax cuts drive a coach and horses through the notion that government spending is constrained by taxpayer revenue. It also tells us very clearly that some politicians know exactly how the money system works and let’s be honest it’s not been the first time that the Tories have opened the public purse to serve a specific political agenda! Those computer keys at the Bank of England will be red-hot if the promises are kept.

After having been told in no uncertain terms that there was no money and that we all had to pull in our horns to get the public accounts back into health suddenly there’s money but an equal question in people’s minds about how it will be paid for. And that cannot be surprising given that the household budget narrative reigns in the public consciousness.

As usual and in response to the government’s plans, some of which were announced prior to the Conservative conference, there have been alarm bells ringing in the usual quarters both political and institutional about the impact on the deficit and debt and borrowing levels.

The government’s spending plans sit contrary to the 2% of GDP limit which was set for the 2020-2021 fiscal year and suggests a rowing back from the traditional Tory mark of fiscal prudence. It remains to be seen how much of this is an electioneering ploy and whether it will translate into reality. However, interestingly, as government announced its spending plans there was trouble brewing in its own party as voices of dissent were being raised at a party fringe meeting where MPs, representatives from the Taxpayers’ Alliance and the Institute of Economic Affairs indicated that although they recognised that people had suffered through austerity they believed that the government had not gone far enough in cutting public spending. John O’Connell, Chief Executive of the TPA went as far as to reject the word austerity saying we should refer instead to ‘living within your means’.

It is shameful to note that there are people who, whilst acknowledging that austerity has caused suffering, want more of it. The household budget framework of taxing to spend and the resentment felt by some that ‘their tax’ is funding freebie public services for all lies at the heart of it and reflects the neoliberal ideology that the state should take a step back and abandon people as authors of their own fate. The idea that ‘living within one’s [financial] means’ is a better measure of economic success than pursuing public purpose to benefit people materially and in terms of well-being is an indication of how far we still have to go to challenge this narrative. Not only do we need to counter the notion of ‘taxing to spend’ with the correct description ‘spending to tax’ we need to correct the idea that living within one’s means relates to money. The only ‘living within our means’ we need to be doing relates to our resources whether that’s people or the materials used in the production of goods and services that we benefit from. The only balance we need to make is the one between spending and resources.

Predictably, news of the government’s spending and taxing plans brought out the debt sirens on the left who have been posting FB memes that the national debt has soared under the Tories to almost £1.8 trillion since 2010. It is disappointing to note in the face of the real consequences of austerity that the language narrative about how government spends is still dogged by household budget explanations, ‘rising deficits’, ‘increased borrowing’ and ‘mounting national debt’.

The Conservatives response has been that the government’s prudent management of the public accounts has given them the fiscal space to spend. In fact, the Prime Minister trotted out the usual nonsense that the Conservative Party had ‘tackled the debt and the deficit’ left by the last Labour government and suggested disingenuously that it has only been able to increase investment in schools and hospitals because it had ‘cleared up the wreckage they left’.

All these descriptions used by both the right and the left wing lie within a flawed mainstream paradigm. On the one hand, the Conservatives have used it to defend the need for austerity to deliver their own ideological agenda and claim fiscal superiority over their political rivals. On the other, Labour persists in the language of tax and spend and finding the magic money tree in the Cayman Islands to fund their laudable progressive programmes. Even John McDonnell could not resist saying that the proposed tax cuts would ‘rip out £10-£20bn a year from our already decimated public services’.  When clearly, they can’t and won’t!

It is regrettable that the public finds itself still caught in the headlights of a long deceased monetary narrative the consequences of which live with us now and will continue to do.

Instead of taking the debt sirens at face value in their criticism of the rising national debt under the Conservatives we should instead be evaluating their economic record. Who gained from their spending and taxing policies and who lost out?   Measuring success by the state of the public accounts from the size of the deficit/debt or whether the government has balanced the budget or achieved a surplus is quite simply incorrect and tells us nothing about the context of the state of the public accounts.

This can best be evaluated with a brief look at both the government’s spending plans, its policy agenda and the on-going consequences of cuts to public spending.

The government whilst it is planning to spend £25bn on improvements to the road network it has not been similarly generous to the bus network which amounts to only £220m. Combined with its already announced spending on the environment of around £432m which is a fraction of the amount needed to address the challenge of climate change demonstrates the Conservative’s complete disregard for the environmental challenges facing us. Apart from the fact that since 2010 government has cut spending on subsidies to bus companies which have forced the closure of 3000 bus routes (not to mention all the other consequences of cuts to public sector spending including the NHS, social care, education policing and local government) this would have been a good time for substantial investment in sustainable public transport instead of giving precedence to roads and cars.

Of course, as indicated earlier, it cannot be denied that a domestic spending programme is a good move at a time when the figures show that the world seems to be sinking towards recession. However, it should not be surprising, given who has authorised the spending, that it is still framed within a neoliberal framework of privatised public services and public money going into private profit whether that’s the NHS and social care or privatised transport networks. It does not suggest a reversal of neoliberally inspired agenda which the Conservatives have been pursuing under cover of austerity.

It also ignores the on-going consequences of public sector cuts, reforms to welfare and the introduction of Universal Credit on the well-being of citizens and indeed the economy.  The scandal of the huge rises in homelessness is bad enough (the Charity Crisis estimates some 24,000 people last year) but just last week figures published by the Office for National Statistics revealed that 726 homeless people died on our streets in 2018. The figures showed a 22% rise over 2017 which was the biggest increase since data was first collected in 2013

The Chief Executive of Crisis, Jon Sparkes, responding to the figures and at the same time putting a human face on the statistics said:

“It is heart-breaking that hundreds of people were forced to spend the last days of their lives without the dignity of a secure home. This is now the second year running where we have known the true scale of the human cost of homelessness, yet still the lessons from these tragic deaths go unlearnt.”

Add to this the record numbers of people, as reported by the Trussell Trust earlier this year, who are using foodbanks along with increasing food insecurity and the spectre of malnutrition, far from turning the page on austerity, the consequences of it remain with us and will do for some time to come unless we get a change in government.

Just a quick look at other news from the last couple of weeks emphasises that just the promise of spending is not going to fix the damage quickly. Behind just these few headlines lie the reality of the harm that has been caused by austerity and government policy choices.

“England sees ‘worst summer on record’ for A&E waits”,

“Alcohol tax cuts cause nearly 2000 extra deaths”,

“Severe obesity among children aged 10 to 11 at record high…. Figures highest among children from the most deprived communities”

 “Unprecedented’ rise in infant mortality linked to poverty”,

“Nursing vacancies hit record high leaving patient care at risk”

For the lie of balanced budgets our economy has slowed, people have got poorer and inequalities have risen, and our public and social infrastructure is cracking up. And all the while the rich have got richer and appropriated an immoral share of the country’s wealth – all with the helping hand of government.

But it doesn’t have to be like this. There is an alternative world and it is up to us to bring it about not just for our sakes but for our children who will bear the burden of our inaction if we turn away.

It starts by understanding these simple concepts:

“A sovereign government is never revenue constrained because it is the monopoly issuer of the currency. In other words, its public debt level is irrelevant in terms of its capacity to spend in the future, unless it deliberately constrains itself with voluntary fiscal rules.

Such a government is never financially constrained in its future choices by its past fiscal position. 

Fiscal Space is [not] about financial resources. It can only be about real resource availability in a modern monetary economy where the government issues its own currency.”

Bill Mitchell 2017

It is both encouraging and exciting that the orthodox narratives are being challenged now in the mainstream media as modern monetary realities get an airing even if sometimes critically. The debate is moving on. We just have to ensure it reaches a successful conclusion.

 

As we said in our introduction, the video of Professor Bill Mitchell’s talk on the Green New Deal has been published on our YouTube Channel.

 

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The post We need to relearn the art of adequate spending for public purpose appeared first on The Gower Initiative for Modern Money Studies.

To transform the world, we need a revolution in our priorities and values

Published by Anonymous (not verified) on Sat, 24/08/2019 - 10:34pm in

Rough sleeper talking to a shopper outside a Prada shopPhoto by Max Böhme on Unsplash

“We all need to work together, because there are no jobs on a dead planet; there is no equity without rights to decent work and social protection, no social justice without a shift in governance and ambition, and, ultimately, no peace for the peoples of the world without the guarantees of sustainability.” 

Sharan Burrow 

Now is the winter of our discontent…. Oops, let’s rewind somewhat and rewrite Shakespeare. Now is the summer of our discontent might be more appropriate, given the troubling state of the country and the media coverage which has been shining more light on the realities of life for many people in the UK; the growing inequalities and the declining state of our public infrastructure.  The austerity chickens are coming home to roost big-time for the current government. The promise that getting the public finances sorted would bring economic triumph is everything to them, but in the real world, cuts to public spending have brought pain, suffering and in too many cases early death. Worse still, the neoliberal ideological agenda is still being played out relentlessly by Tory politicians with a specific aim in mind – the dismantlement of the public and social infrastructure, including the welfare state, which has benefited citizens since its inception in 1948.  

First up is the publication of a new report by the erroneously named Centre for Social Justice, one of whose founders was Iain Duncan Smith, former Secretary of State for Work and Pensions, promoter of the mantra ‘work pays’ and the prime mover behind the now increasingly discredited Universal Credit system.  In its report ‘Ageing Confidently: Supporting an ageing workforce’ (funded by Deutsche Bank and the Joseph Rowntree Foundation) one of the recommendations is to raise the retirement age to seventy-five. Duncan Smith, in a tweet after its publication, claimed that ‘removing barriers for older people had the potential to improve health and well-being, increase retirement savings and ensure full functioning of public services for all’.  The public outcry has been quite understandably ferocious and the campaigner and columnist Frances Ryan’s response was acerbic ‘It’s a dystopian vision of life, in which capitalism tells workers who have already grafted for 40 years that working a five-day week through their 70s is, in fact, the path to a healthy body and society’. 

As was noted in last week’s MMT Lens, life expectancy varies depending on your geographical location and financial means. Figures show that improvements in life expectancy for older people has stalled since 2014 and is actually worsening as the gap between social classes and regions widens. Austerity and the political ideology of self–reliance over state intervention have taken their toll. The social determinants of health from income and employment, education and access to good health services and adequate food and housing have all been affected by the political choice to cut spending. As such, this proposal is offering a ‘work until you drop’ scenario where those most affected by government policies may die before they even reach retirement age unless of course, they are lucky enough to have the financial means to retire in good health.  

When you combine this proposal with the revelations this week in the report Pension Reforms and Old Age Inequalities in Europe which revealed that the proportion of elderly people living in poverty in the UK is five times what it was in 1986, the alarm bells should be ringing loudly. We are all going to be old one day. There is no escape!  

The author of the report, Bernard Ebbinghaus from Oxford University, said that ‘The United Kingdom is a good example of Beveridge-lite systems that have historically failed to combat old age poverty’. The research also revealed that the increasing focus on private pension provision was increasing the pre-existing level of social inequality. So even if you get to get to 75, you still face the prospect of an impoverished retirement.  

The arguments about pensions and retirement centre around an ageing population; the belief that because the number of elderly people is increasing faster than the number of those who are working, the impact on government revenues will leave it cash–strapped; that as a larger amount of its budget will have to service the costs of social security for the old, it will be left with less money for investment elsewhere. Indeed, the report makes such references:  

“Fiscal impacts: pensions and out of work benefits. The demographic shift to an older population raises concerns over the fiscal stability of the UK in the future.” 

“This demographic change has resulted in a decreased proportion of working age people, which presents significant fiscal challenges.” 

However, these are not new arguments and the public message has been that our welfare system and pensions are no longer affordable, and we have to accept later retirement and make our own preparations for old age. Mind you, how that works in a low wage and insecure employment economy where people struggle to feed themselves let alone save for their retirement is unclear.   

In 2015, Liam Fox described the benefits system as a ‘Ponzi scheme’ which would burden future generations, claiming that ‘we can’t afford it now, [and] we can’t afford it in the future and that we need to make ‘the adjustments… for us to be able to get back into balance’. 

These are the typical household budget descriptions of the public accounts which define the public understanding of money and how it works. First and foremost, it is important to note that any changes to benefits or pensions will be a government choice, based on a political agenda of limited welfare and self-reliance, and has nothing to do with the state of the public finances. Secondly, that a government which issues its own currency does not have to rely on tax or borrowing to fund its spending and that its real constraints are not monetary, but the real resources which our public infrastructure relies on to function for the health of the nation.  What we really can’t afford, is a government that fails to invest sufficiently in the public and social infrastructure, to ensure that the nation will be productive as it can be to provide enough goods and services for people to purchase in the future. Nobody is borrowing anything from the future, or its taxpayers. 

It’s worth repeating again that whilst it cuts spending on public services and welfare on account of financial concerns, this government has had no problem finding the money for its own pet projects such as HS2, funding wars or buying off the DUP, not to mention pouring funds into private businesses to run public services. The question is not how a government can pay for its policies, but what it chooses to pay for based on its policy priorities.  The health of the economy and well-being of society seems to come right at the bottom of the list and corporate welfare at the top.  

When we look at the chaos that is now ensuing as a result of damaging government policies, it should shock the public that the government has been happy to treat its citizens with such contempt whilst at the same time sending out its propaganda cavalry to smooth citizens’ concerns,  sweet talking them about its achievements and how the public’s sacrifice has been worth it.  

The public’s sacrifice has been a real one and nowhere is it more evident in this week’s other news. 

This week the Children’s Commissioner warned in a report Bleak Houses published this week that 210,000 homeless children are being housed in unsuitable accommodation. Families with children living in shipping containers, B&Bs, hostels, old office blocks and warehouses or even sofa surfing. Families living on top of one another, in cramped conditions, accommodation prone to damp, mould, cold and overheating, and spending sometimes years in temporary housing until permanent accommodation can be found.  

Polly Neate, the Chief Executive of Shelter, responded to the report saying that it was a damning indictment of the failure to address the housing emergency and blamed it on a combination of punitive welfare policies and a housing crisis along with excessive private rents, all of which were robbing hundreds of thousands of children of a decent and normal childhood. 

Combine this shocking state of affairs with the obscenity of up to four million children (more than two million under aged 5) going hungry through the summer holidays because they have lost their free school meals and one should be outraged that this is occurring in what is the fifth richest country in the world. The chief executive of the Childhood Trust, Laurence Guinness, reported this week that he had met young people who had been forced to sell drugs in exchange for food or children as young as 12 who regularly scavenged in bins for food. One, he said, had been reduced to eating toilet paper to stave off hunger pains. 

As a result of this devastating poverty and deprivation, which has its roots in a sham economic system that has prevailed for more than four decades and on the back of a lie about the unaffordability of public infrastructure and essential services, our children go hungry, are housed in appalling conditions and face long-term chronic ill-health as a result, the consequences of which will follow many of them for the rest of their lives.   

A report published by the Commons Housing, Communities and Local Government Committee has warned that our social care service for children is on the verge of collapse, following almost a decade of cuts to central government funding which has put a huge burden on local authorities. Local communities across the country have borne the brunt of draconian cuts in services which have put vulnerable families, disabled people and the elderly at risk. Such services traditionally respond to local needs and form the bedrock of a healthy economy and society.  

Austerity has also had a devastating impact on public health. As reported in the Journal of the Royal Society of Medicine a former director of public health warns that the very same organisations which have had to cope with cuts to central government funding (local authorities) and whose budgets have been slashed as a result have left environmental departments unable to meet potential threats to human health which have already caused failures in the public health system. 

It can’t be emphasised enough that this has always been an ideological choice unrelated to the public finances, which makes the government culpable for the chaos through its policy and spending choices. The blame lies at the government’s door and the solution is not, as has been suggested by some union officials, to allow councils to borrow more and raise income locally. In an economy that, as figures are showing is slowing, increasing local taxes will simply place an increased burden on the functioning of local economies as local councils do indeed have to raise tax in order to spend, unlike central government. Taking money out of people’s pockets is not the answer. The solution is for increased fiscal spending through central government which can then be targeted appropriately at a local level to meet local needs. That could be through managing a locally focused Job Guarantee programme to provide useful public work for those affected by involuntary unemployment. Or investment in public works to revitalise local economies and introduce local programmes aimed at creating environmentally sustainable communities.  

If we have to talk about unaffordability, let’s not see it in terms of money as a scarce resource which has to be shared out amongst competing demands. Let’s instead look at it from the point of view of resources, as they are the only real constraints which governments have to manage. Whether it’s having enough social care workers, nurses and doctors or public health officials as well as the public infrastructure to meet people’s needs – those are the real obligations that government must manage in the interests of citizens and the national economy. A government which fails to do so, fails for both current and future generations.  

Finally, in a week in which we have seen film of the devastation being caused in Brazil as a result of what are likely to be deliberate burning of swathes of the Brazilian rainforest to satisfy our thirst for beef, the publication of more and more scientific reports about the speed at which our climate is changing and the visible consequences on our environment, we need some of our economists to stop denying the realities of modern money.  

As Professor Stephanie Kelton tweeted last year:   

‘If you’re clinging to 100– year–old theories about how money works you are a climate change obstructionist.’  

In the face of the colossal challenges we have to save ourselves (the planet itself will get on very nicely without us) those that want to pick arguments revolving around the dangers of ‘printing more money’ should just take a short trip into history and wonder just exactly how we paid for the second world war. The government of the day didn’t have to wait until it had collected enough tax, it just spent the money on the military hardware it needed to fight the war. Nobody raised their eyebrows at the rising deficit and debt or pointed a finger at government profligacy. The money was created, and it was spent. And just to note, after the war when we had a debt to GDP ratio of 248%, we built the NHS and the welfare state. We didn’t go bankrupt then, any more than we can do so now. 

Let’s not squander the currency–issuing powers of governments around the world which can act together and make the difference between survival and extinction.  

And just to end on a very positive note, Peru approved a law this week that aims to put an end to the deforestation that arises from destructive palm oil plantations and production. It is a huge win for wildlife and sustainable agriculture. Let’s hope that this will be just the start of a process that will encourage other nations to take the bull by the horns and act to oppose more Amazonian deforestation; the forest is the lungs of this beautiful planet Earth, on which we all depend. 

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The post To transform the world, we need a revolution in our priorities and values appeared first on The Gower Initiative for Modern Money Studies.

The barbarians may be inside the gates, but we can still defeat them

Hand reaching towards the sunrise over a lakePhoto by Marc-Olivier Jodoin on Unsplash

The French have a saying “plus ça change, plus c’est la même chose.” With the events of the last few days, one might consider that nothing had changed; the Tories are still in the driving seat albeit with a new leader. However, with the election of Boris Johnson to the post of Prime Minister, followed by an ignominious line up of hard right, heavily male, privately-educated Cabinet appointments one can say, at least for those of us with a progressive disposition, that the country has reached a moment of even more uncertainty and fear for the future.

In his first speech as PM, Johnson promised a ‘new golden age’. Given previous history and his leadership campaign, one must ask the question “a golden age for whom?” Johnson and his friends are dyed-in-the-wool, free market fundamentalists who favour a deregulatory free-for-all. They individually, or collectively, support capital punishment, fracking, GM crops, a watering down of employment rights and privatisation of key public services such as the NHS (although the latter, of course, is vociferously denied) and worse still are climate change deniers.

Unless they have had a collective Damascene moment, which seems highly unlikely, the golden age will be about continuing to serve their corporate masters and the further weakening of democracy, not the public purpose. With little mention of our failing public services, a fiscal stimulus maybe but in whose interests? Twenty thousand new policeman sounds good but with so many police stations closed, the time it takes to train police officers along with the need for training facilities and trainers to train them, this will be a dead duck in the water. Furthermore, Johnson has failed to address the consequences of the Conservatives’ austerity policies on society as a whole which, without doubt, has increased the pressures on law and order. It’s all nothing but rainbow coloured whitewash or is that hogwash?

In all this, one might think that the appointment of Jo Swinson to the leadership of the Liberal Democrats is a side story which is unconnected. And yet it is. Whilst most would jump immediately to the Brexit connection, given the stands of both parties on this issue, the reality is that it is that something far more insidious links them – economic ideology and austerity.

Some have, of course, claimed that austerity created the conditions for the Brexit vote, but the working-class discontent related to reduced standards of living and increased poverty and inequality predates 2010, going back over 30 years. It is as much linked to the ideological agendas pursued by successive governments since Thatcher as it is to the last 9 years of austerity.

This has been a bubbling cauldron of long-term dissatisfaction which has driven people to want change. Brexit has been the expression of that desire – a rejection of the economic orthodoxy which has deprived them of good, well paid jobs and security and a rejection of the political and economic structures which have brought it about and led dangerously to the rise of the extreme right and nationalism in the UK (as well as in the US and Europe).

It is regrettable, however, that in the political maelstrom which is dividing the country the subject of austerity and the reasons for people’s discontent have taken a back seat as Remainers and Brexiters fight it out in an increasingly vicious war of words which often fail to promote cogent reasons for either.

Boris Johnson and Jo Swinson have one thing in common – they voted for austerity. Their voting records and actions whilst in coalition government attest to that fact and we must not forget it. The Liberal Democrats enthusiastically supported the false belief engendered by George Osborne in the Treasury and David Cameron that the financial crisis had been caused by too much government spending by Labour, rather than being one created by bankers and speculators. Public sector workers as a consequence bore the brunt of cuts to public spending.

The party gave the Conservatives every helping hand they could, including supporting the government’s Health and Social Care Act which was yet one more step in the creation of a two tier American style healthcare model, went back on their promise to oppose increasing student tuition fees and put disabled people in the firing line of austerity cuts as the campaigner Frances Ryan notes in her new book ‘Crippled’ mentioned in last week’s MMT Lens. And these are just a few examples of the way in which the Liberal Democrats shamefully enabled the Tory political agenda. The words ‘thirty pieces of silver’ come to mind.

When asked during her leadership campaign, Swinson said that she had no regrets about her party’s role in austerity, claiming that there had been no alternative in order to get the country back on its feet. Never mind the realities of an economy which has shrunk by £100bn since 2010 or the pain, suffering and financial hardship that has been caused by those in acting in Coalition on the false notion that the public finances had to be put back in order and that the cuts were necessary.

And yet puzzlingly, in a tweet in May, she praised Jacinda Ardern’s well-being ‘budget’ saying:

“Economic transformation is about putting people and planet at the heart of our economy. We should be building on our existing work on wellbeing & making it central here too.”

A change of heart? One must question that in a world where politics is less about serving the people and more about gaining the power to pursue one’s own interests and serving global corporations through revolving doors. It is instructive that she accepted cash from a fracking businessman after having campaigned to save the environment. Her campaign tagline ‘Build an economy that puts people and the planet first’ seems a little less shiny with that knowledge in mind. She also failed to support proposals in Westminster aimed at fighting climate change and voted in favour of cutting the subsidy for electricity generated via renewable or low carbon schemes.

It is as if Swinson cannot or chooses not to make the connection between government deficit spending and delivering public purpose by putting the planet and people at the centre of economic, environmental and social policy. As Frances Ryan notes “austerity has harmed millions of people in Britain and continues to wreck lives.” Not to mention the economy!

Not only did she show herself to be impervious to the suffering caused by her party’s support for Tory policies, she also demonstrated the usual political ignorance about how the government’s finances work.

As the economist, Ellis Winningham said in a recent podcast (here)

“The only fiscal rule that should exist is one that targets prosperity. What I mean by that is plain and simple. Deficits should be targeted at full employment and public purpose. The people’s well-being should be looked after 100% at all times.”

Swinson’s words and actions have been in complete denial of this rule.

In these uncertain times, serving public purpose has been replaced with serving self-interest and in doing so well-being has been replaced by suffering and hardship. There cannot be many whose lives have not been touched in some way whether personally or via friends or family by government- imposed austerity. The collapse in social care and mental health services are just two examples. The lie of “care in the community” from support for elderly sick people being discharged from hospital to those suffering from mental health difficulties is being exposed on a daily basis and it is shameful. All of us hope that the services will be there in case of need, but increasingly they are not.

The social and economic impact of cuts to spending, both at national and local level, are leaving the most vulnerable without the care they need and leaving already financially hard-pressed families to take up the strain of looking after their loved ones. Those working in social care, which is often provided by private, profit seeking companies, are equally stressed with increasing workloads and poor pay and many are choosing to quit their jobs. In turn, local government with cuts to its budgets struggle to meet the costs of privately provided care and those care companies are increasingly thinking about exiting the sector as the public funding stream dries up along with their profits.

In mental health both for adults and children, the situation is equally grim. Premature discharge, either from community care or hospital, often leaves the vulnerable and marginalised to cope without adequate support or even any support at all. Sick people seen as troublemakers or attention seekers are abandoned to their own devices if they ‘fail’ to comply, or those with complex issues are off-loaded into private profit-driven facilities miles away from family and friends. In many cases families are left to take the strain.

In a target driven world where figures and balance sheets are more important than people’s lives, all serve to hide the actual scale of the problems being faced by people behind closed doors or on the street as a result of political and economic ideology. The health of the public finances has been used cruelly to justify austerity.

As noted in last week’s MMT Lens, we still have politicians, journalists and institutions who are living in fantasy land about public debt and deficit and woe betide any government that spends beyond its financial means. Fiscal Credibility Rules rule!

One such article appeared this week in the Guardian written by the economics editor Phillip Inman entitled “Labour and Tories both plan to borrow and spend. Is that wise?” Inman compares the British to the Italians who are proposing a fiscal stimulus on borrowed money, where of course no comparison can be made since Italy is the user of the euro as a foreign currency and has to issue debt in that currency to fund its spending, unlike the UK which has to do neither in order to spend.

Inman then proceeds to claim that whoever is making spending promises or tax cuts, Conservatives or Labour, it will require a huge increase in government borrowing. He claims that higher borrowing will put the public finances at risk and that in the light of worsening public finances and the coming ‘economic chill’ it would be better to ‘hunker down’.

With the nation mired in excessive household debt and the consequences of 9 years of austerity which has decimated public and social infrastructure, surely Phillip Inman might by now have come to the conclusion that hunkering down has not revitalised the economy. Instead, it has demolished it and worse harmed the lives of those who have had to live through it; from those who have the misfortune to be involuntarily unemployed to those with disabilities, the chronically or terminally ill, those without a roof over their heads and parents who struggle to feed their children. (For an excellent critique of Philip Inman’s article follow the link here.)

The public doesn’t need to take a degree course in economics to grasp the simple realities of how a government spends, or that it neither needs to get tax or to borrow before it can do so. These are elemental ideas. What the public does need to know is that government has deliberately made political decisions to cut investment in public infrastructure and spending on the services on which we all depend as well as deny those in need adequate financial support to live without fear.

The public needs to ask serious questions about why there is no money for the public purpose but plenty for buying arms, pursuing wars and bailing out banks, not to mention the many billions which find their way into private profit for delivering public services like the NHS. These are surely the clues that the public has been hoodwinked by a lie about balanced budgets being more important than the state of the economy and people’s lives. The answer to the question ‘where will the money come from’ is simple. The government spends it into existence. No tax or borrowing required.

Just imagine the revolution there would be if the public knew the truth. Just imagine how that knowledge could make the difference between saving or destroying the planet and creating a healthier, more well-balanced world for its citizens, where resources are more equally shared and political and economic solutions to poverty and inequality can be sought.

Modern Monetary Theory is but a description of how money works and of course, in itself, is not a magic bullet. There are no certainties. The rise of right-wing extremism in the US, the UK and Europe is worrying indeed, but that is no reason not to hope for something different. We have to start somewhere. Certainly, we can only work with what knowledge we have already, but that shouldn’t stop us using the full force of our human imaginations to create a better world for us all.

Note: If you want to learn more, GIMMS has a simple to read introduction to Modern Monetary Theory, along with plenty of other resources to inform and challenge the prevalent narratives of how money works. (link here)

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Labour Should Not Fall For The Tory-Led ‘Costing’ Trick – Here’s Why

Published by Anonymous (not verified) on Mon, 15/07/2019 - 12:15am in

Ellis Winningham portraitAs the GIMMS team was busy preparing for its social event in Abergavenny this weekend we didn’t have time to write our usual MMT Lens. However, we are delighted to reprint a blog from the economist Ellis Winningham written in 2017 on the subject of costed budgets. Ellis explains why costing is nonsense and a fraud in a country like the UK’s which is monetarily sovereign.

Were Ellis an advisor to Jeremy Corbyn he would ask that he included this short passage in his speeches:

“Now then, the Tories wish for me to discuss costing. Fine. I will oblige them.
I should like for us all to ask what are the costs of seven long years of Tory-led austerity? What are the costs of long-term unemployment; of low-wage underemployment; of the rise in illness both mental and physical; of NHS privatisation efforts; of the number of deaths resulting from benefits sanctions; of the damage to our educational system; of the rise in crime rates and harm to our communities due to police reduction; of our crumbling infrastructure; of our nation’s real resources left deliberately idle?
If the Tories wish to discuss costing, then let us start there, shall we?”

Originally published here on June 1, 2017 .

 

This Tory-led ‘costing’ theme currently running rampant throughout the UK is pure political nonsense, the lot of it. Costing has absolutely nothing to do with anything when it comes to the UK.

The UK Government is monetarily sovereign. It has the exclusive, monopoly authority to issue British pounds. Pounds come from nowhere else. When the UK Government spends, it is literally spending pounds into existence to ‘pay for’ programmes. So, the question of ‘enough money’ is entirely irrelevant to the UK. When it comes to government spending, it is always a question of real resources: Enough workers, enough steel, enough food, enough hospitals, enough medicines, enough cars, enough of everything but ‘money’. Pounds are merely a voucher that the government manufactures to purchase goods and services created by the private sector.

Because the government taxes and declares a punishment for not paying the tax, people are then forced to obtain pounds. They do that by selling their goods and services to the UK Government and the government then manufactures pounds to pay for them. By being the sole, exclusive issuer of the Pound Sterling, the UK Government always ensures that it can purchase whatever it needs to function as government in perpetuity without fear of going ‘broke’. This is the entire point of the British pound – to provision the UK Government with goods and services.

Try to understand – a national government is set up with the intention of being durable, lasting into the ages. It has to be durable, otherwise the nation will no longer exist. Therefore, the responsibility falls upon the UK Government to find a way to obtain what it needs to survive throughout the ages. There are two ways the government can do this:

 

  1. It can simply walk into the private sector and take what it needs by force, or
  2. It can operate a monetary economy. It lays a tax payable in the government’s own currency (The Pound Sterling) and declares a harsh punishment for not doing so, which then causes the private sector to sell the government goods, services and labour in order to obtain the pounds necessary to pay the tax. Two things now happen:

 

  1. As long as the UK Government can enforce its tax collections, the private sector will demand pounds. Because the tax drives the demand for pounds, the UK Government can now purchase anything that it needs to function as government in perpetuity as long as it is for sale in Pounds Sterling.
  2. Since the private sector demands pounds to pay the tax and accepts the government’s pounds as payment for goods and services, wide-spread acceptance of British pounds is achieved and so the production of and the buying and selling of goods and services will take place in the private sector priced in Pounds Sterling.

 

In short, British pounds are manufactured by the UK Government when it spends to access the nation’s real resources, and then the pounds are used by individuals in the private sector to access those real resources for their own use. This is called a modern monetary economy and the UK Government alone commands both the pound and the economy. So, are there enough real resources for the UK Government to spend pounds into existence for the NHS, schools, benefits and other public purpose initiatives? The answer is yes. There always has been enough.

Since there are enough real resources, then should the government not spend enough pounds into existence, some of those resources will lay idle. Examples of idle resources are unemployment and vacant factories.

I wish to be very clear here: This ‘costing’ talk is utter nonsense, It is a sham; a fraud designed by the Tories to redirect discussion away from the need for a return to fully-funded public programmes such as the NHS, a return to full employment, and away from the damage done by seven years of Tory austerity.

Lastly, the Global Financial Crisis of 2008 had absolutely nothing to do with Labour’s spending. It is clear that the GFC was a global phenomenon that began in the US. Blaming Labour’s spending for the Global Financial Crisis was an outright fraud perpetrated by the Tories – full stop. The resulting austerity was opportunity-driven, conducted by the Tories with malice aforethought in order to privatise everything imaginable for the benefit of their wealthy friends.

This ‘costing’ nonsense is yet another Tory fraud; one in which the Murdoch-driven media is willfully complicit mind you. The intent is to force Labour to play on the defensive and to keep the voter confused and in the dark concerning the real issues facing the British economy, so that the Conservatives can finish the job they were paid to do by their wealthy friends many years ago: The butchery of Britain.

So, were I an adviser to Jeremy Corbyn, I would ask that he include this brief passage in his speeches:

“Now then, the Tories wish for me to discuss costing. Fine. I will oblige them.

I should like for us all to ask what are the costs of seven long years of Tory-led austerity? What are the costs of long-term unemployment; of low-wage underemployment; of the rise in illness both mental and physical; of NHS privatisation efforts; of the number of deaths resulting from benefits sanctions; of the damage to our educational system; of the rise in crime rates and harm to our communities due to police reduction; of our crumbling infrastructure; of our nation’s real resources left deliberately idle?

If the Tories wish to discuss costing, then let us start there, shall we?”

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