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Our choices today will define our humanity and our priorities.

Published by Anonymous (not verified) on Wed, 21/10/2020 - 6:50am in

People packing plastic bags of food at a food bankImage by Joel Munz on Unsplash

Overcoming poverty is not a task of charity, it is an act of justice. Like slavery and apartheid, poverty is not natural. It is manmade and can be overcome and eradicated by the actions of human beings.

Nelson Mandela

The health and well-being of human beings and the planet is still being pitted against an out of control capitalism defined by excessive consumption and unbridled growth compounded by the lie of balanced budgets and future tax burdens.

In this week’s news, the plight of many poor families struggling to feed their children has yet again come into the spotlight, in what has hitherto been one of the richest countries in the world. The increase in poverty and hunger demonstrated over a decade with the growing number of food banks and other charities has been noted on many occasions in previous MMT Lens blogs.

Covid-19 has exacerbated what was already a rising concern and has left many families stressed and under pressure. Back in July whilst Boris Johnson invited people to spend and spend some more, and Rishi Sunak offered his ‘eat out to help out scheme’ financed from the public purse, those already on limited incomes made worse by the current crisis had no such opportunity.

In the same month, the footballer Marcus Rashford raised public awareness of the plight of families struggling to feed their children and ran a successful campaign to force the government to provide funding for school meals during the summer holidays.

Following the government’s rejection of Rashford’s proposal this week to extend free school meals to holiday breaks including Christmas and Easter, he has pledged to continue his campaign.

He tweeted on 15th October:

It’s … not for food banks to feed millions of British children but here we are. 250% increase in food poverty and rising. […] For too long this conversation has been delayed. Child food poverty in the UK is not a result of Covid-19. We must act with urgency to stabilise the households of our vulnerable children.

His stark comments clearly point to government policies which have directly impacted on the lives of some of the poorest people in our communities, prior to and post-Covid and which, in the future, will affect a broader section of the working population as jobs are lost and the economy destabilises.

It has been estimated by the Food Foundation think tank that as many as 900,000 more children have applied for free school meals, adding to 1.4 million who have already claimed. This will most certainly be the tip of the iceberg over the coming months.

The picture that is increasingly emerging as the economy slows and with the prospect of more business closures and redundancies, should be a serious cause for concern in relation to the consequences for families and their children.

Earlier this week Channel 4 News covered a disturbing report about the rise in child poverty in the Midlands and the North of England where it is, according to figures just published, rising the fastest. Magic Breakfast, a national charity which shockingly provides 48,000 breakfasts nationally, says that demand has increased as a result of the pandemic.

With a particular focus on a breakfast club in a Birmingham school which is handing out breakfast parcels to children to take home, the headteacher said some struggling families had been unable to claim free school meals because they were not eligible for social security benefits and that others who had suffered cuts to household income could still not meet the threshold for free school meals. Commenting that school meals cost £45 a month per child which for many was a great deal of money she said that she had had cases where parents had come to the school with their household bills and bank statements to show that they can’t pay.

As the Channel 4 news reporter commented ‘Child poverty shamed Britain even before the pandemic.’

To highlight growing concerns in political circles a former advisor to the government on homelessness warned that the UK faces a ‘period of destitution’ in which ‘families can’t put shoes on children’. Dame Louise Casey indicated that the proposed reduced level of support would compound the problems faced by growing numbers of families. She criticised the government’s claim that its priority was to protect jobs and incomes saying that many people still risked ‘falling into poverty’.

Along with the threat that the uplift to Universal Credit and Working Tax Credit would not be extended beyond April 2020, the prospects for many families is potentially dire as many more people not able to cover essential bills fall into debt, thus putting further strain on their finances.

The question we should be posing is how has this situation arisen and what can be done to alleviate it? The trail leads always back to government.

While the government propaganda machine promotes Rishi Sunak’s generosity from an ivory tower of ministerial plenty and lauds its additional spending, it is in reality, a fraction of what it needs to do to protect citizens. Not just in the coming months but in the coming years, as the fallout from Covid-19 continues to play out on the economy and the lives of those affected not just by the pandemic but by the compounded consequences of years of austerity and employment policies which have allowed incomes and living standards to fall.

Whilst the government is certainly right to suggest that it should not be for schools to provide pupils with food during the school holidays, it has nothing to do, as the government keeps claiming, with its monetary generosity during these last few months (which one can most certainly take issue with).

The policymakers in Westminster have chosen not to acknowledge the impact of the political decisions which have led to this situation in the first place and well before the pandemic hit and indeed have tried to dress them up as successful outcomes.

Yes, we certainly need a long-term plan to combat hunger, but one that does not involve charitable organisations to fill the gap left by a deliberately negligent government or making people feel as if somehow it is their fault for the situation they find themselves in.

We must firmly reject the implied judgement on people who have fallen on bad times, not of their own making. For too long the blame game has allowed the government to divide the nation when the truth of the matter is that it is government itself which has failed citizens through its policy actions and spending decisions.

The cuts to public spending, the devastating consequences of reforms to social security, government’s ideological adherence to employment policies which allow business to exploit working people through controlling wages and insecure working practices have all played a role.

The rise in charitable food banks, community meal provision, homelessness and increasing private indebtedness is symptomatic of a government which has allowed this unnecessary and damaging state of affairs to exist.

The government’s justification for this truly repugnant state of affairs which has led the government to rule out giving more support to workers and businesses hit by this week’s new lockdowns in the north is because it claims it would cost too much. So once again we are in a situation where government ministers cynically use false narratives to explain their decisions.

The Communities secretary Robert Jenrick said earlier this week that the nation is in a ‘deep recession’, that the ‘the national debt is rising’ and therefore the government is limited in what it can do to protect jobs.

Once again this is a clear demonstration of the abdication of government responsibility for employment, social cohesion and economic well-being. People have become a secondary consideration to the corporate interests, politicians serve and benefit from through the revolving door.

It is regrettable, but understandable, that over a decade and more the nation has accepted the presence of food banks and other charitable organisations as an unavoidable and normal feature of British life, as if somehow the government had no other choice but to cut its spending. The public has up until now accepted the narrative that difficult decisions must be made to get the public finances in order.

After the huge rounds of public spending which challenge the ingrained public preconceptions of how the government spends, the shine of these fairy tale narratives is hopefully beginning to wear off – even as Rishi Sunak promises at the Conservatives virtual conference that the government can always be relied upon the ‘balance the books.’

It cannot be emphasised too strongly that the tragedy of hunger and poverty is one that is avoidable. The government could avert it with a simple instruction to the central bank to spend sufficient money into existence to alleviate that hunger and struggle at such a critical time. That it has been a choice not to, should be the point at which we stand up and argue for real change.

And yet, instead, the monetary reality of the government as the monopoly currency issuer is hidden behind a screen of smoke and mirrors which continued this week when the IFS (Institute of Fiscal Studies) suggested that taxes may have to rise at some point in the future given the huge spike in government ‘borrowing’ this year to deal with the economic fallout of the pandemic. Saying clearly and quite rightly that tax increases would be the wrong action at the moment, it then went on to reinforce the message that once the economy had been restored to health  the government would have to get the public finances back on track with a round of ‘fiscal tightening’.

And so, the active and deliberate reinforcement of a lie sets the scene at some time in the future for more unnecessary and damaging punishment which will not, in reality, be linked to whether it is monetarily affordable but the government’s political agenda in creating a flow of public money into private profit and the further destabilisation of public services.

After 10 years of fiscal tightening following the Global Financial Crash which has left our public infrastructure in tatters, have we learned nothing?

While the likes of the IFS and the IMF accept that we need to limit the economic damage caused by the virus and address poverty, unemployment and inequality through higher public spending, they always do so with false ‘borrowing cheaply’ narratives, pumping the belief that we are at the mercy of money lenders and the implication that with the exponential growth of public debt there will be a price to pay … but not quite yet.

Whilst there may be a sea change in economic thought occurring as governments spend to keep economies afloat, it is important that the work to raise public awareness of the real choices governments face continues. These are not linked to balance sheets they are ones related to real resources. In the words of the economist Ellis Winningham ‘, we will always have the ‘money’ to do whatever our real resources will allow us to do.’  That is the only constraint. And the challenge is both to match spending to available resources and determine how those resources will be distributed within the nation and for whose benefit.

Deborah Harrington, a member of GIMMS’ advisory board, also made it absolutely clear this week to those on the left who continue to tout the lie about taxpayers’ money on various social media sites that:

“Covid has demonstrated that the government does not need one penny of taxes to ‘pay for’ what it needs. It has neither raised taxes nor sold bonds to ‘finance’ its spending. The money has been created pure and simple. It wasn’t borrowed and it wasn’t collected in extra taxes – in fact, tax receipts have fallen, obviously, as incomes have dropped.

 

The whole story of tax and borrowing disguises this power at the heart of government. It makes people believe there’s a limited pot to dip into. That to pay Peter you have to rob Paul. It’s the driving argument behind austerity and if you continue to support it as an argument ‘we need tax rises/future generations will pay for it’ then you – yes, YOU, reading this – are giving your support to an agenda that destroys public services and leaves people in poverty and homelessness.

What we build society with and what we create goods and services with is our work. Government simply chooses how much money it will use in any given year to divert those resources, through its taxation and spending policies, to public purposes.”

 Whilst we seem a long way from it at the moment, creating a more equable, fair and environmentally sustainable world should be at the top of the political agenda. The only way of achieving those aims is a long-overdue public conversation about our political, economic and societal priorities, examined within the context of the constraints that exist to deliver them and how the share of finite resources should or could be redistributed to serve the public purpose.

The question always returns to what sort of society do we want to live in? One where excessive wealth in few hands dominates, where charity becomes the norm for delivery of services to a ‘deserving’ population and growth and consumption is the drug which drives the economy?

Or alternatively, a different but better world where people have the wherewithal to live comfortably and sustainably with hope for the future?

 

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The post Our choices today will define our humanity and our priorities. appeared first on The Gower Initiative for Modern Money Studies.

What is the real burden that the government’s “hard choices” will pass on to future generations?

Instead of more political rhetoric and more of the same orthodox solutions dressed up as change, we need radical progressive action to pave the way for a kinder, more equable and sustainable future.

 

Planet Earth in handsImage by Anja from Pixabay

After this crisis, if anybody dares mention a ‘need’ for austerity or tax cuts for ‘wealth creators’ aka useless parasites, or calls for pointless fiscal retrenchment, then ridicule their rank stupidity, economic illiteracy, immorality and their inability to learn simple lessons.’

Phil Armstrong, GIMMS Associate.

 

The debt warriors are continuing their rear-guard action. In the hope that all is not lost in the battle for minds as people get wiser; the battle to keep people believing that the vital extra spending, which has in effect kept the economy afloat, is going to have to be paid for. Sustaining the illusion is vital for their purpose and the people need reminders and nudges to keep them in the dark and demonstrate that the government is fiscally responsible. Where have we heard this before? And look how that ended up. Ten years of punishing austerity and the killing off of our public services in the name of balanced books.

This week, the Conservative MP Harriet Baldwin said on BBC Politics Live.

‘It’s the right time to talk about [balancing the books] because we have to maintain the confidence of the bond market.’ We have a plan to bring the public finances under control’

This little gem suggesting that government is beholden to the bond markets (when it is not) followed Rishi Sunak who said in his conference speech earlier in the week that he had ‘a sacred duty’ to ‘leave the public finances strong’ hinting that there might be tax rises ahead. He continued by saying that ‘If… we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?’

Hard choices would have to be made as he pledged to ‘balance the books’. He posited that the public would accept that taxes would have to rise given the size of public spending during the crisis and suggested that the government might have to break some of its manifesto pledges. Wait for it…it’s coming.

The implication is that those billions of pounds borrowed to keep the economy afloat and functioning will have to be paid for and that the burden, if not addressed, will pass to future generations in the form of higher taxes. Keeping the illusion going was further emphasised at the weekend when the government rejected extra support for workers in lockdown areas because ‘the national debt is rising’ and it would cost too much.

So deeply is the ‘tax pays for spending’ narrative embedded in the public consciousness that research published this week by Ipsos Mori suggested that of those responding almost half favoured raising taxes to fund public services in the context of Covid-19 with the most favoured option being a wealth tax for people earning over £500,000.

Still resolutely stuck in the ‘taxes fund spending’ mode, people implicitly understand that somewhere along the line they have lost out, not just personally but in terms of a public infrastructure which Covid has demonstrated is no longer fit for purpose due to cuts. And, quite rightly they want redress, as long as perhaps it’s not them that have to pay. Whilst there is a big difference in approving a concept and actually accepting it as the reality for one’s own pocket, the government is relying on that false narrative for it to get away yet again with murder.

In the light of monetary realities, knowledge of which is increasingly coming into the spotlight and challenging the status quo orthodoxy, in searching for answers the better questions to ask the public might have been:

Do you want the government to spend more on improving our public services in the interests of the nation?  

Do you want to restore those public services to publicly paid, managed and delivered provision?

For the truth is, that these decisions are political ones, not linked to taxes or borrowing or the state of the public finances.

At the other end of the political spectrum, this week on Double Down News Grace Blakely exposed, quite rightly, the increasing horrendous gap in wealth distribution and its damaging effects on society. However, she then went on to suggest that the billionaires should pay the costs.

At a time when the Swiss Bank UBS reported this week that billionaires increased their wealth by more than a quarter at the peak of the crisis when at the same time millions of people were losing their jobs or struggling to get by on furlough schemes and Universal Credit it might seem a just call to ask the extremely wealthy not only to pay what they owe but pay more. After all, over decades, working people have seen their living standards fall, as their share of productivity has ended up in the hands of ever fewer people so it is infuriating to see that the gap between the haves and have nots which was already huge, growing even more rapidly as billionaire’s wealth hits new highs. An increase in the pay of politicians announced late this week (the Tories having already rejected a pay increase for nurses) shows little solidarity with people’s struggles and it must surely start crossing people’s minds that something is seriously awry not just in terms of wealth distribution but also in the way they understand how power works and who pulls the strings.

But it is equally disheartening to note that we have left-wing economists and commentators reinforcing the mantra of ‘tax pays for government spending’ in the daily smoke of mirrors that suggests that state spending is like a household budget and that the solution is to get the filthy rich to pay more.

While our public infrastructure continues to crumble before our eyes and people suffer it’s time for the left to stop talking about getting the rich to pay for it, however much that appeals to a sense of fairness. Only by recognising how government really spends and using that knowledge to propose an alternative vision for the future can we win that battle. If it does not, then any plans that future progressive governments propose will always be constrained by this false narrative.

In the words of Deborah Harrington, who sits on GIMMS advisory board:

‘Billionaires can’t ‘pay for’ the coronavirus crisis. Only governments can. The left should stop promoting the neoliberal theory that we are all dependent on and beholden to the rich for our public services. They are cheering their support for Thatcher, May and all the others who claim the government has ‘no money, only taxpayers’ money’. Tax the rich because they are too rich. Tax the rich because inequality is damaging to a healthy society. Tax the rich because they use their disproportionately accumulated wealth to buy government policy that makes them even richer. Have the courage to say that the extremely wealthy are a drain, not a gain, for society. Stop trying to push the idea that if you could only persuade them to pay their taxes willingly everything would be just fine. Even better, have pre-distribution mechanisms that stop them accumulating so much in the first place.’

The question some might ask is have politicians on any side learned anything? Forty years of economic orthodoxy have left many economies around the world in poor shape and unable to address the crisis. And yet whilst Rishi Sunak considers disingenuously and publicly how he is going to ‘pay for‘ his fiscal injection (to keep the right narrative alive in the public mind) it most certainly will not stop money pouring into the bank balances of private corporations.

And given the Chancellor’s Conference speech it will on the other hand most likely mean that the public sector will once again be squeezed. It is a guise for delivering what they have always intended – to destroy the public sector as publicly funded, managed and delivered infrastructure that serves the public good with no profit motive, through the toxic ideology that business is more efficient. The lie of a so-called small state is smashed by the realities that it increasingly exists to serve global corporate interests.

Whilst government ministers laud their actions and monetary largesse, anyone following media reporting or previous GIMMS blogs will know that the real beneficiaries of public money have been large corporations who have failed to deliver the promised efficiency and worse without public accountability. The prospect of Westminster Plc draws ever nearer.

And the promised levelling up? It will likely be just one more casualty of a wretched economic system, and just more of the typical political rhetoric which politicians are so good at – on both sides.

In the wake of the Chancellor’s speech, the Guardian in its unexpected and timely editorial this week noted ‘it makes no sense to compare personal experience with the economics of a nation’. Quoting the late Labour MP Roy Jenkins who observed correctly that a family budget was not the same as a national budget and said that Margaret Thatcher had traded in ‘lousy economics’, it noted how much of the political economy had been conceded to the right and that the present Labour shadow chancellor still in orthodox mode could not match his ‘unapologetic Keynesianism’.

Sunak’s speech seems indicative of what to expect in the future. Yet more penny-pinching when it comes to our public infrastructure. It suits a carefully crafted narrative to suggest that such spending would bankrupt the economy or burden future taxpayers. A narrative the public continues to buy for now, at least as a reflection of how it believes that government spends.

While our imaginations are still stuck in Mikawber mode, the real threats to the future are being cynically put on the back burner when those threats are the ones that we need to be addressing urgently. It seems that, in political terms, ultimately the quest to balance the books is being made to appear a far more important objective than addressing climate change and politically created and unnecessary inequality. Our planet is to be sacrificed on the pyre of balanced budgets and big business gets to create a greenwashed world in its image – that of profit and greed.

As we watch the fires in South America continue to burn as a result of deforestation to make way for cattle pasture and soy plantations, and the tropical wetlands continue to burn in the Pantanal, a combination of a man-made arson and drought caused by the climate crisis, we need urgently to shift the narrative to one of sustainability and human and planetary health.

This year of environmental disasters – fires, drought, floods and Covid-19 – is a reflection of our failure to act and should be the wakeup call we need. Our leaders, for all their fine words, are complicit in this destruction. Some wilfully and openly ignore the threats, others indulge in ‘environmentally friendly’, rhetoric whilst doing very little, and at the same time global corporations some of the biggest polluters sell us their greenwashing propaganda.

Along with climate change, poverty and inequality continue to rise. It was reported this week by the charity Save the Children that living standards for the UK’s poorest had plunged during the pandemic. It noted that over a third of families on Universal Credit and Child Tax Credits have had to rely on help from charities for food or children’s clothes over the past two months and two-thirds had incurred debt to get by. Half of those surveyed said that they were in rent arrears or behind on household bills. Earlier research carried out by Save the Children and the Joseph Rowntree Foundation in June revealed that 70% of people had cut back on food and other essentials when the pandemic began and the charity warned that the winter will be more difficult for many families as heating and other household costs rise and the prospect of further job losses increase the pressure on overstretched household budgets. With the threat of a cut in Universal Credit next April, the future is looking even more uncertain for some of the poorest people in our communities.

And we cannot ignore the global situation. Save the Children also noted last month in a jointly authored report with UNICEF that the number of children living in multidimensional poverty (access education, healthcare, housing, nutrition, sanitation and water) across the world had soared to around 1.2 billion due to Covid. To put it starkly, an additional 150 million since the pandemic began in early 2020. It also noted that around 45% of children were severely deprived of one of the critical needs mentioned above before the pandemic and that the picture is likely to worsen in the months to come.

While the arguments rage about the size of government, its colossal spending and future tax burdens, the cost of such arguments on human lives and the planet seem of secondary concern as the government continues to pursue its market-driven dogma which is neither free nor fair.

The promised V-shape recovery has not materialised and left prospects bleak for the Covid generation whose employment prospects are quickly vanishing into the mist and threatening their future health, security and livelihoods.

Instead of real jobs with good pay and conditions, Rishi Sunak is offering people ‘job coaches’ to beef up their CVs or training to improve their future job prospects. Never mind that without government intervention in the form of adequate spending and other targeted measures to improve the economic outlook, those jobs will never materialise. Relying on business to find solutions will lead us to a dead end.

Or as earlier this week the Conservative MP Robert Jenrick called for ‘grassroots volunteering and ‘togetherness’. Where was the government when it was telling us austerity was necessary to get the public finances straight as it dismantled our infrastructure and other vital public services? A government that also promoted individualism, greed and selfishness, has overseen huge wealth inequalities and divided our communities. The word ‘togetherness’ doesn’t seem to fit the bill.

Instead of real solutions, the government is offering the usual toxic rhetoric painted as positive proposals for a so-called new normal which aims to consolidate the toxicity, not address it.

At a time when jobs are being lost, GIMMS repeats its question. Why not rebuild our public sector offering good wages and secure employment? Why not introduce a Job Guarantee that provides a living wage, training and good employment conditions to bridge the gap when times get tough and provide a transitional staging post into private sector employment when the economy improves?

Rethinking the sort of society, we would like to live in will be of paramount importance in the coming months. The old model is not fit for purpose and we and the planet deserve something better.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

Event recording

Phil Armstrong in Conversation with Bill Mitchell

Bill Mitchell spoke to Bill Mitchell for GIMMS on 27th September 2020.

 

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post What is the real burden that the government’s “hard choices” will pass on to future generations? appeared first on The Gower Initiative for Modern Money Studies.

Standing at a crossroads in time

Published by Anonymous (not verified) on Mon, 05/10/2020 - 3:38am in
‘Democracy is not just a counting up of votes, it is a counting up of actions.’

Howard Zinn
Crossroads signpost with signs saying "possible" and "impossible"Image by Gerd Altmann from Pixabay

Do you remember when Andy Haldane, the Chief Economist at the Bank of England, insisted that Britain was enjoying a ‘V-shaped’ recovery way back in July? Since then much has happened but not a V-shaped recovery and the future is looking pretty bleak. Despite that, Haldane’s concern this week that ‘our pessimism is holding us back’ and that companies hiring and corporate investment were the ‘missing ingredient in the recovery’ leads one to wonder if the Chief Economist is living on a different planet.

The prospect of a rise in unemployment by the end of 2020, less generous government support than hitherto, people saving more than spending and a collapse in business investment would suggest that people are retrenching as a result of lack of confidence. Businesses will not invest while they are unsure whether that investment will repay itself in increased profits and people won’t spend whilst their lives are turned upside down and they have no idea whether they will have a job next week. It seems that Andy Haldane is stuck in some other world that does not exist for the majority of people.

A combination of government policy, cuts to public sector spending over the last 10 years which has left public infrastructure in tatters, combined with the uncertainty caused by Brexit and the final straw of Covid-19 has left the nation in a state of collective inertia wondering what will happen next. Tin hats are the order of the day, not party bunting and champagne. Glasses of confidence are in short supply!

We stand at a crossroads in time and Covid-19 has revealed in stark terms the putrid underbelly of an economic system which has predominated for decades. Rising poverty and inequality, huge social injustice, wealth distribution skewed in favour of those who already have more than sufficient and the ever-present elephant in the room, climate chaos, all the result of a toxic ideology and excessive consumption.

This week the Royal Botanic Gardens of Kew published its fourth report in the ‘State of the World’ series. Professor Antonelli, the Director of Science wrote in its introduction:

Never before has the biosphere, the thin layer of life we call home, been under such intensive and urgent threat. Deforestation rates have soared as we have cleared land to feed ever-more people, global emissions are disrupting the climate system, new pathogens threaten our crops and our health, illegal trade has eradicated entire plant populations, and non-native species are out-competing local floras. Biodiversity is being lost – locally, regionally and globally [……]

We share this planet with millions of other species, many of which existed long before us. Despite the fact that an exploitative view of nature has deep roots in our society, most people today would agree that we have no moral right to obliterate a species – even if it has no immediate benefit to us. Ultimately, the protection of biodiversity needs to embrace our ethical duty of care for this planet as well as our own needs.

Whilst 40% of all the world’s plant species are at risk of extinction according to a report published last month by the UN the world has failed to achieve in full any of the biodiversity targets agreed in Japan in 2010 and indeed this is the second consecutive decade that governments have not done so. The Global Biodiversity Outlook Report offered a convincing and authoritative overview of the state of nature indicating that the natural world is suffering badly.

According to Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity, it underlined that ‘humanity stands at a crossroads with regard to the legacy we wish to leave future generations’ and that ‘earth’s living systems as a whole are being compromised. And the more humanity exploits nature in unsustainable ways and undermines its contributions to people, the more we undermine our own well-being security and prosperity’. It outlined the need to shift away from ‘business as usual’ across a range of human activities.

The bottom line is that our own well-being and survival are dependent on rethinking our relationship with nature and each other.

Amidst the disturbing backdrop of the threat to the planet caused by failure to address these serious biodiversity losses and the growing evidence of the consequences of climate change across the world from devastating droughts, fires, storms and flooding, the consequences of government political decisions and spending policies continue to play out daily in people’s lives.

Evidence of both ignorance and wilful conduct by our elected politicians is shocking. Whilst a household budget description of the public finances continues to dominate in political and establishment circles, the potential for addressing the consequences of spending cuts or indeed the serious challenges we face will always curtail any action.

The reverse of the toxic climate coin is the huge wealth inequality and poverty which has done so much damage to economies around the world.

In the UK, as many more people turn to the social security system for support as a result of the ending of the job retention scheme, many will find out first-hand how far from generous those benefits are and have been for those living on lower incomes. The ‘lazy scrounger’ narrative which has done so much harm will increasingly come into the spotlight as the middle-class professionals find themselves relying on state support. The real-life daily realities of many low-income families in precarious employment or subsisting on less than adequate social security payments will begin to emerge to a section of society which has hitherto thought itself immune.

The effects on the economy as incomes have plunged over the last few months, particularly for those in receipt of Universal Credit, will be further highlighted as the redundancies pile up and living standards begin to fall. It will bring into sharp focus the policies which over more than a decade have sought to divide people and create a two-tier society of ‘haves’ and ‘have nots’ on the basis of the lies trotted out regularly that such public and social infrastructure is dependent on a tax/contribution paying nation and that it is the private sector which creates the wealth to allow that to happen.

The argument that contributions paid in relate to a pot of money put aside by the state on our behalf must be knocked on the head and replaced with the real description of how the UK government actually spends. That what is paid out is a political choice determined by an agenda and is unrelated to how much revenue the government has collected. Household budget descriptions of how money works serve only to deliver that pernicious agenda and do not represent monetary reality.

It was depressing, therefore, to hear Labour’s Lucy Powell reinforcing the narrative of affordability when she was asked about Labour’s commitment to the pension triple lock earlier this week. She suggested that it would be dependent on knowing ‘what income you have got coming in and what outgoings you need to make’ and that ‘the single biggest determination of that is the level of employment, and level of growth in our economy’.

Once again, the suggestion is clear; that the government can’t afford to protect the incomes of retired people for whom the state pension is their only source. She, like so many others, makes a false connection between the health of the economy and tax revenue by suggesting that pensions, other benefits or indeed essential public and social infrastructure are dependent on a healthy economy and people paying their tax. It is disheartening that such economic ignorance lives on and the health of the economy is reduced to monetary affordability.

This was again brought sharply into focus this week by a report published by the Labour Women’s Budget Group which called for a universal care service. As has already been previously noted, Covid19 has highlighted the existing inequalities in society and the failure to invest in health and social care which has led to many preventable deaths both before and during the pandemic. In the midst of a climate emergency as the Women’s Budget Group points out, the pandemic has revealed huge cracks in our public and social infrastructure along with wealth disparities and social and racial injustice. The group underlined that business profit and greed has in recent times come before a caring more equal society. It called for reforms to create a caring economy ‘a blueprint for a world where work and care can be shared harmoniously, where the economy is measured in well-being and sustainability’.

These are laudable objectives, but yet again we hear the household budget tropes put forward to justify such action. That it would be a good time to consider a universal care service because interest rates are at historic lows and research has shown that taxpayers would be happy to pay extra. Once again, a constraint is immediately revealed by the suggestion that the limits to spending are monetary. Putting aside for a minute the fact that the constraints are not monetary but related to real resources, there is a better reason to consider such action:

Because a civilised society takes care of its young and elderly.

And far from being unaffordable in monetary terms, the government as the currency issuer can, assuming the real resources are available, make a political choice to invest in the lives of its citizens to improve their lives and ensure a vibrant, healthy sustainable economy.

And whilst tax plays an important role in achieving government policies, not only is tax not required to make such an investment, but also in these difficult days raising them would at this point depress the economy even further and may indeed turn taxpayers against such an expenditure.

Such a care service should not only be paid for from public funds, it should be managed and delivered as a public service and not be in private hands.

If we want a caring and environmentally sustainable economy instead of yet more exploitation no matter how eco-friendly it is presented as, fundamental to that change is a government which puts people’s interests over and above the interests of capital. We need politicians that recognise both the value of a well-educated and trained workforce to address those challenges and the role a Job Guarantee might play to ensure a just transition for those most likely to lose out.

This week, the government announced a package of measures that will allow people to study at college paid for by a national skills fund and a more flexible higher education loan scheme. Reminiscent of New Labour’s ‘Life-Long Learning’ programme, Boris Johnson announced a ‘lifetime skills guarantee’ promising that the government would help people to get the skills they need to navigate this quickly changing world. On the face of it, this is a good plan. However, training and skills in themselves good and positive as they are, are no substitute for actual jobs if, as Warren Mosler has pointed out, you’ve still only got ‘nine bones for 10 dogs’ people will still remain unemployed.

While the government continues to see job creation as a private sector exercise and absolves itself from the responsibility of governing in the interests of the nation as a whole, those jobs won’t be created by a private sector without confidence that their investment will pay a return. That confidence only derives from the actions of government through its policies and spending decisions.

For ideological reasons, the government never mentions job creation in the public sector which is where we sorely need investment. As has been pointed out many times in previous MMT Lens blogs, it could address unemployment through an expansion of the public sector (which has over 10 years been starved of funding and adequate staffing levels) to create a public and social infrastructure that meets the needs of the economy and is fit for purpose. That could be supplemented by a permanent Job Guarantee to manage the cyclical ups and downs of the economy by providing work, training and skills for those who will be most affected by this very different world that is heading our way. It is ironic that this government has cut funding to education and training over the last 10 years making it more difficult for people to gain the skills they and society needs.

Worse, over decades, starting with New Labour, it has also made education a cost to the individual instead of being funded by public money. As if somehow it is only the individual that benefits, when in fact society and the economy gain positively from a well-trained, educated workforce whether in public or private sector employment.

So where do we go from here? Are we asking ourselves the right questions? And are we prepared to make some difficult decisions?

We are at a pivotal moment in history and the future will depend not just on government action but the public willingness to engage in a serious adult conversation. Engaging requires the facts about what is possible and what is not and about the change that is needed to ensure a viable future for humankind. It requires understanding how we have been led down an alley without an exit by those politicians serving the interests of a tiny section of society. Those same politicians and institutions which daily use false narratives to suggest that there is no alternative to more pain in the future if we are to dig ourselves out of the financial hole all this spending is causing.

The only hole we have to dig ourselves out of is the hole that has been created by this false narrative that saving the planet is unaffordable, that the economic crisis caused by Covid-19 has made it even more unaffordable and making people’s quality of life better is far too expensive. Challenging such notions should be top priority. Whilst it remains to be seen whether such a government is on the horizon there is no excuse for inaction. For ourselves and for future generations.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

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The post Standing at a crossroads in time appeared first on The Gower Initiative for Modern Money Studies.

Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead.

£1 coin and £10 Bank of England banknoteImage by bluebudgie from pixabay

The old world is dying, and the new world struggles to be born; now is the time of monsters.

Antonio Gramsci

In the week that the Chancellor Rishi Sunak announced his latest Job Support Scheme, everywhere you look the TV journalists and other media pundits are bewailing the rising cost in terms of “borrowing” and government debt. TV presenters can’t help themselves. ‘We’ll be paying for it for years to come’, is the on-going mantra being drummed into the public consciousness, just in case we forget. It was even suggested on this week’s BBC’s Money Box programme that it would take 3000 years to repay the national debt! An astounding calculation made on the basis of current borrowing levels and the annual tax take. However, given that a sovereign currency-issuing government like the UK’s doesn’t even have to borrow to spend, it’s just another example of household budget accounting.

Whilst those of us with a better understanding of how money works shout at the TV with incredulity that the same falsities are being repeated endlessly, many of those same journalists and presenters fail to make the very real connections between government spending, the state of the economy and the lives of its citizens.

Whilst the implication of unaffordability and a future tax burden prevails as a reason to curtail spending eventually, the real price has been and remains a human one; economic instability and uncertainty for people and the prospect of more damage to the environment. We can’t afford to improve people’s lives or even save the planet! Apparently.

Whilst we read endless articles reporting on the declining state of our public services and local government, the injustice of a social security system which is failing too many people the elephant in the room largely goes unacknowledged; the role that government plays in the welfare of its citizens through its spending decisions. While we see huge sums of money being poured into private profit, our public and social infrastructure is in a state of decay. Their choice is clear.

At the same time, the left-wing social media pages continue to shoot themselves in the foot by posting articles and memes with language designed to increase the public’s fear of too much spending and its consequences on future generations; ‘UK national debt soars to record levels as Covid pushes up borrowing’ is one such posted this week.

Whilst such pages are clearly and quite rightly aimed at holding the government to account for their abysmal management of the economy and its consequences for some of the poorest people in our communities, they do so within the context of a household budget narrative. Such a narrative will, without doubt, constrain a future progressive government, not liberate it!

Instead of focusing on deficits as if they were a measure of good or bad stewardship of the public finances, we might better and more correctly point out the government’s economic record. How did it respond to the on-going crisis and the economic fallout? Had it, through its spending policies, ensured a well-functioning public infrastructure able to rise to the current challenges? Did it spend sufficiently to secure the financial stability of its citizens during this uncertain time? Or not?

In an unstable and uncertain environment, the job of the Chancellor is to mitigate those losses with sound policies and sufficient spending to keep the economic boat afloat as long as is necessary, whilst also ploughing additional investment into the public and social infrastructure to support the economy. Instead, government spending policies over the last 10 years have left the country’s infrastructure in a perilous state and unable to respond effectively. The price in human lives, poverty and rising wealth inequality is to be added to the devastating effects of the pandemic.

And yet, still in mainstream reporting, it’s as if people’s lives matter less than digits on a computer. And all this despite the growing understanding of the sovereign powers of a currency-issuing government. Whilst politicians, think tanks and journalists still have their heads firmly stuck in the sand like ostriches, people are led to believe that there will be no alternative to a future reckoning if the country is not to be bankrupted or future generations of taxpayers burdened with huge debt.

The role of the media and indeed the political opposition, if we did but know it, is to challenge government. Not to uphold and reinforce its power. Their role is to make the government accountable for its political and spending decisions and to bring to public notice when it abuses its sovereign powers in favour of other estates. Its job is to ask questions. Instead, whilst they approve of government intervention at this serious time they still prefer to talk about the state of the public accounts, rising public debt and the consequences for future generations. Thus, they continue to reinforce the myths about how sovereign governments really spend. The neoliberal economic orthodoxy rules.

The Chancellor’s plans sit very much within the neoliberal economic orthodoxy, despite the vast sums of essential government spending to prop up the economy and secure people’s financial security. He has already let it be known that he is considering a freeze of benefits and public sector pay and abandoning the pension ‘triple lock’. It will no doubt be presented as a necessity to get public spending under control and pay back the vast sums of money it has supposedly ‘borrowed’.

However, the truth is that it will be more to do with the government’s long term aim which had its origins in the actions of successive governments since Thatcher to transfer public provision to the private sector whilst ensuring the state’s role as a cash cow to the corporate sector.

Whilst Sunak’s increased spending was and remains vital, there has been valid criticism of his plans both early on and now with the proposed job support scheme which was referred to more correctly as an ‘unemployment creation scheme’ by the tax campaigner Richard Murphy. Sunak has failed on all levels and the promised V-shaped recovery is looking less and less likely.

Apart from being a short-term solution to a problem which is likely to persist for some time, it will require employers to share the cost of paying wages with damaging consequences. This will, without doubt, provide a significant motivation to make staff redundant, not preserve jobs. It fails to support those working in the hospitality industry whose businesses have been put on hold due to Covid-19 restrictions and furthermore the 3 million self-employed often working in creative industries have also once again lost out and will not benefit from these new measures. Far from being the party of the entrepreneur (unless of course, you happen to be rich one like Dyson and likely to contribute to your party funds), Sunak has shown complete disregard for the army of self-employed and small business entrepreneurs who make valuable contributions to the economy.

As the furlough scheme draws to a close, many thousands of people have already lost their employment and found themselves on Universal Credit. And yet many, despite the increased benefits now being paid, find themselves with insufficient income to manage their finances. Many hundreds of thousands will be added to that number over the next few months as the prospect of further restrictions resulting from the coming second wave of Coronavirus and the government’s inadequate plans.

The Resolution Foundation has suggested that it will be a significant mistake to end the £20 a week boost to tax credits and Universal Credit now being proposed by the Chancellor, the cut to come into effect next April. This the Resolution Foundation suggests rightly would clearly affect income and spending.

It has said that the rise in unemployment, combined with planned benefit cuts, means a ‘grim outlook for living-standards’. It has also noted that ‘The £20 a week boost can be seen as a reflection of the fact that out-of-work support was not adequate when we entered the crisis and – without the boost – certainly won’t be adequate in future. […] Ending the boost would mean withdrawing perhaps £8 billion from disposable incomes in 2021-22, precisely from those groups and places that need it most to support spending and the economic recovery in 2021-22.’ Removing that boost will have a huge negative impact on disposable incomes.

And here we come to the crux of the matter and one which the Chancellor cannot ignore. And that is, quite simply, that one person’s spending is another’s income. Rises in unemployment and proposals for public sector wage caps will drive the economy even further down the slippery slope.

On the one hand, Sunak says, ‘we must learn to live without fear’ and then counters that by saying ‘I cannot save every business. I cannot save every job’.

Whilst he implies he has no power to do otherwise and that people will have to bear the burden, he fails to mention that the government is in control. That it alone has the means, as a sovereign currency issuer, to mitigate the worst effects on the economy of the pandemic and indeed has the ability to use it to address the next great survival challenge bearing down on us like a tsunami – that of climate change (which seems strangely to have been put on the back burner).

The government, by dint of being the sovereign currency issuer, can spend what it needs to, within the limitations of real resources. It could rebuild a publicly-provided and paid-for infrastructure, both locally and nationally, thus providing more socially useful jobs paid at a living wage and could implement a permanent Job Guarantee to act as the economic stabilising mechanism to see us through this difficult time and most importantly to ensure a just transition towards an environmentally sustainable economy.

With such serious issues at stake, we must challenge the notion that the government cannot afford to deal with mass unemployment, poverty or climate change. We must challenge the notion that the government has to impose higher taxes or debt on the nation which limit what can be achieved to improve people’s lives.

Quite simply, the idea that there aren’t sufficient numeric digits available to make a better world is a fraud of the highest order. The future depends on our understanding it and challenging those that tout those lies either wilfully or unknowingly.

 

Further Reading:

National Debt https://gimms.org.uk/faq/what-is-the-national-debt/

Government Borrowing https://gimms.org.uk/faq/doesnt-the-government-have-to-borrow-when-it-spends-more-than-it-taxes/

The Job Guarantee https://gimms.org.uk/job-guarantee/

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

 

Event recording

Phil Armstrong in Conversation with Bill Mitchell – Online

An audio recording of the event is now available via the MMT Podcast here

 

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

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead. appeared first on The Gower Initiative for Modern Money Studies.

The environmental clock is still ticking onwards

Published by Anonymous (not verified) on Sun, 20/09/2020 - 5:25am in
We need a sustainable vision for the future and the political will to deliver it like never before

 

Orange sky over town in California duing 2020 wildfiresView from the top of the Humboldt County Courthouse with smoke from inland and Oregon fires covering the county. National Weather Service, Public Domain

 

“Have we fallen into a mesmerized state that makes us accept as inevitable that which is inferior or detrimental, as though having lost the will or the vision to demand that which is good?”
Rachel Carson, Silent Spring

 

Next month will be the anniversary of the launch of GIMMS and the first MMT Lens blog. In that blog, we covered the Economics of Climate Change following the comprehensive report published by the IPPC (Intergovernmental Panel on Climate Change) which warned that we only had 12 years left to half the worst effects of climate change.

Two years on, the battle to save our planet and ourselves continues, as the loss of biodiversity and human degradation persists. This week has been a depressing reminder that the clock is still ticking whilst many of our leaders still have their heads firmly stuck in the sinking sand.

This year we have witnessed devastating fires across the world. In states across Australia and its territories, the fire season has been unprecedented with an estimated 18 million hectares of fire destroying vast tracts of bush, an area greater than that of the average European country and over five times the size of blazes in the Amazon.

During the first seven months of 2020, more than 13,000 sq. km of Brazilian Amazon has been destroyed according to satellite data analysis. Fires in recent weeks of human origin in the race to expand meat production through vast deforestation have been exacerbated by the worst drought in 50 years.

And in the last few weeks, we have seen the on-going death and destruction wrought by the fires in California, Oregon and Washington states. The weather and warming climate with record temperatures, heatwaves and drought have played an important role in that devastation, as has human behaviour through poor land management and badly planned housing construction.

The consequences for a global environment under huge pressure and human health around the world will be, over time, devastating and has been made much worse by the incipient challenge presented by the Covid-19 pandemic which has both revealed how our behaviour has influenced viral threats and put real resources under severe pressure.

Alessandra Guató, a tribal leader in the Amazon wetlands, said of the destruction in her own backyard:

‘We are part of this nature we live with her day by day and it was all devastated.’

And yet her comment applies not just to the disaster that has befallen the Guató tribe which has left them without food and threatened their livelihoods it is also a warning to us all which we ignore at our peril.

This week, David Attenborough spelt out our potential fate in a sobering programme aired on the BBC ‘Extinction: The Facts’ which follows on from last year’s documentary ‘Climate Change: The Facts’. It focused, in an extremely hard-hitting way, on the existential threat posed by the loss of biodiversity. It showed clearly what that loss and extinction means, not just for the planet, but for the human species. And it demonstrated with icy clarity that human activity is driving that extinction and that we are at a critical point in our history.

David Attenborough’s documentary coincided with the fifth edition of the UN’s Global Biodiversity Outlook Report which noted the importance of biodiversity in addressing climate change and long-term food security. It concluded that action to protect it is essential to prevent future pandemics. Elizabeth Mrema, The Executive Director of the Convention on Biological Diversity said:

As nature degrades… new opportunities emerge for the spread to humans and animals of devastating diseases like this year’s coronavirus. The window of time available is short but the pandemic has also demonstrated that transformative changes are possible when they must be made.’

This is maybe our final wake-up call.

And yet, according to analysis by the RSPB (Royal Society for the Protection of Birds), the UK has failed to reach 17 out of 20 UN biodiversity targets agreed at the Convention on Biological Diversity in Nagoya, Japan in 2010.

Whilst the government claims a better record, Kate Jennings, at the RSPB commented that the government’s assessment was a rose-tinted interpretation with lots of positive rhetoric that was not borne out by action. The report suggested that the UK has gone backwards, and the government’s significant failures include insufficient funding for nature conservation. Jennings said ‘‘we’re fundamentally dependent on nature so God help the lot of us if we don’t make serious headway in the next decade … past performance doesn’t inspire confidence’.

In 2016, the WWF’s Living Planet Report warned that overall global vertebrate populations were on course to decline by an average of 67% from 1970s levels by the end of the decade unless urgent action was taken to reduce humanity’s impacts on species and ecosystems. It called on governments to fast-track action on conservation, climate change and sustainable development. Now, at the end of that decade, little seems to have been achieved despite the political rhetoric. In the words of Mike Davis in an article in the Red Flag, ‘our imaginations can barely encompass the speed or scale of the catastrophe.’ While we stand by and watch in horror, we should remember the dire warning that Mike Barrett from the WWF talking about the 2016 report when he said:

‘Humanity’s misuse of natural resources is threatening habitats, pushing irreplaceable species to the brink and threatening the stability of our climate.’

This week has been an opportunity to reappraise where we are. To examine our behaviour as a human species and to understand the stark reality that saving nature is about saving ourselves. We coexist with nature not apart from it.

It was, therefore, all the more surprising to hear a Cambridge Environmental Economist claim in an interview this week whilst discussing the environmental and biodiversity challenges we face that the reality was that governments were strapped for cash, as if somehow that was an impediment to action.

At the same time, David Cameron, in an updated foreword to his memoirs, suggested in a Daily Mirror article that austerity had ‘fixed the roof when the sun was shining’ adding that ‘Covid-19 was the rainy day we have been saving for’ and that their actions ‘meant that the next but one administration was able to offer an unprecedented package of measures to prop up the economy.’ This seems as usual to be the Tories re-writing history in the face of on-going disaster.

For anyone who knows something about how government really spends, this would be a moment to fall off one’s chair in astonishment, given that the consequences of cutting public spending have been disastrous in terms of the economy, people’s lives and the public and social infrastructure. It has left it barely able to manage the on-going challenges of Covid-19 and is now revealing serious fractures in society caused by economic decline, lack of investment in public infrastructure, low wages, hunger, destitution, and homelessness.

This is not the work of a government whose role should be to serve its nation with sound policies aimed at improving lives and addressing climate change for the benefit of future generations.

The same old tropes about how government action is constrained by lack of cash or the need to balance its public accounts should now be consigned to the dustbin of history. We have watched as the government has found no money shortage to deal with the crisis we are currently going through. We have watched as it has spent like there is no tomorrow on giving contracts to all and sundry with no checks or accountability. Remembering at the same time the same lack of scarcity when the banks needed bailing out in 2008.

At the same time as a means of exercising economic control, it has cynically put the fear of God into the mind of the public that there will be a future price to pay. That in itself should be our wakeup call that government spending is not dictated by the contents of the public purse but by government choice and the need to respond to both the economic, environmental and health threats we are facing.

With that in mind, it is sad to note that a Cambridge environmental economist who ought to know better is not acting as a good advert for his environmental concerns by suggesting that there is nothing to be done because the government is strapped for cash.

It isn’t!

A tweet from 2018 by Stephanie Kelton puts it simply in a few words.

How I imagine the conversation between the last two people on Earth.

“There were plans to save humanity, but they didn’t cost it out’

They should have learned #MMT’.

While we continue to think that cost is more important than saving the planet, we remain stuck in an economic paradigm which puts balancing the public accounts as being more important than a future for our children.

At the same time, with such arguments, we place similar constraints on our ability to ensure that our young people have the education and vital skills to challenge the existing narrative of ‘there is no alternative’ to create a better and more sustainable future and be in themselves a channel for the change we need.

According to the IFS in its 2020 report, state schools have suffered the biggest fall in funding since the 1980s and the promised additional expenditure by the government will not be able to reverse the cuts by 2023 leaving school spending 1% lower than in 2009/10.

This is absurdly the same IFS that whilst reporting on the dire state of our schools due to funding cuts at the same time bemoans the state of our public finances and worries about how government can pay for its huge round of public spending. A clear contradiction in terms.

As Mary Bousted, the joint secretary of the National Education Union, noted ‘It is a historic failure of the nation’s children’. All at a time when the government should be pulling out all the monetary stops to avoid the ensuing catastrophe both environmental and economic in terms of addressing climate change and levelling up society by dealing with the poverty and inequality. It is a bleak reminder of how government choices influence detrimentally the choices of others.

Our politicians, academics, unions and the public are caught in the glare of a toxic ideology which if not swept away will constrain the ability of the human race to build a better, more sustainable future for all.

The government has the means to manage these crises. It has the monetary tools to address climate change, unemployment poverty and inequality within the context of available real resources. It has the tools to implement a just transition towards a fairer, cleaner and more sustainable planet.

As the Reverend Delman Coates observed recently:

‘We must learn to see our government as a tool of empowerment for our communities, and demand it be deployed accordingly.’

It’s up to us to make that change happen.

 

 

Upcoming Event

Phil Armstrong in Conversation with Bill Mitchell – Online

September 27 @ 12:30 pm – 1:30 pm

GIMMS is delighted to present Phil Armstrong in conversation with Bill Mitchell. We invite you to join us for this informal event which we are sure will be both stimulating and insightful.

Register via Eventbrite

Join our mailing list

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

Support us

The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post The environmental clock is still ticking onwards appeared first on The Gower Initiative for Modern Money Studies.

What’s the choice?

Do we accept there is no alternative to our rotten economic system or demand something different? Let’s re-examine our values and use our imaginations to redefine how we work and live.

Sign that says "imagine" fixed to a stone wallImage by Belinda Fewings on Unsplash

“We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system, the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).
This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence”.

(Michał Kalecki, 1943)

In 2010 Professor Michael Marmot published his independent review (commissioned in 2008 by the then Labour government) ‘Fair Society, Healthy Lives’ in which it was concluded that reducing health inequalities was a ‘matter of fairness and social justice’ and that ‘tackling social inequalities and tackling climate change must go together’. It recommended that reducing them would require action on six policy objectives:

  1. Give every child the best start in life
  2. Enable all children, young people and adults to maximise their capabilities and have control over their lives
  3. Create fair employment and good work for all
  4. Ensure healthy standard of living for all
  5. Create and develop healthy and sustainable places and communities
  6. Strengthen the role and impact of ill-health prevention.

The general election which the Conservatives won was premised on the illusion that Labour had spent too much and that it was necessary to restore the public finances to health. This, we were told, would necessitate a programme of austerity to cut public spending and balance the books. The government spent the next decade doing just that but at huge social cost as, a decade later, the evidence shows.

In February, just before Covid-19 began to take its toll both in lives and on the economy, The Institute of Health Equity published an update to mark 10 years from the 2010 report in which it highlighted the following:

  • People can expect to spend more of their lives in poor health
  • Improvements to life expectancy have stalled and declined for the poorest 10% of women
  • The health gap has grown between wealthy and deprived areas
  • Place matters – living in a deprived area of the North East is worse for your health than living in a similarly deprived area in London, to the extent that life expectancy is nearly five years less.

The comparison between the objectives in the original report and the current situation is stark. As Professor Marmot who is a director of the UCL Institute of Health noted:

‘This damage to the nation’s health need not, have happened … Austerity has taken a significant toll on equity and health, and it is likely to continue to do so. If you ask me if that is the reason for the worsening health picture, I’d say it is highly likely that is responsible for life expectancy flat-lining, people’s health deteriorating and the widening of health inequalities. Poverty has a grip on our nation’s health – it limits the options families have available to live a healthy life. Government health policies that focus on individual behaviours are not effective. Something has gone badly wrong.’

Addressing the Covid-19 pandemic and its on-going consequences has been made much more difficult as a result of the pursuit of unnecessary austerity driven by political aims and not financial necessity. Not only has our public and social infrastructure been devastated, but government policies have wrecked people’s lives – either through punishing social security reforms or wage policies designed to favour the interests of employers over employees. All being enabled by the lie that there was no money

Instead of prioritising the existing health inequalities that the original report revealed, the newly elected government chose, through its spending and employment policies, to purposefully ignore them. It pursued quite a different agenda which has proved to be more about reducing state intervention (with the incorrect narrative of unaffordability) whilst at the same time endlessly promoting the idea of personal responsibility and self-reliance.

Responsibility for the social determinants of health which should lie within the purview of government through its policies to ensure a healthy nation and economy, has thus been shifted downwards to citizens. The social and economic conditions in which people live determine both individual and national health and we have lost sight of the fact that the health of the nation is one of its most important assets. Poverty, poor wages and working conditions, the scourge of unemployment, a social security system unfit for purpose, poor housing, poor food, and a deficient education system are disturbing indicators that something is very wrong and demonstrate very clearly the toxic nature of market-driven policies deriving from neoliberal ideology.

At the same time, as a report published in February for the ONS (Office for National Statistics) ‘Social Capital 2020’ revealed, we are becoming an increasingly fragmented and divided society as trust in government has fallen and our sense of isolation and lack of community belonging has increased having a significantly deleterious effect on social cohesion.

So, when Boris Johnson and his cohorts began talking about levelling up, people began to feel hopeful that the government was beginning to take responsibility as a potential architect for restoring social cohesion through its spending and policy decisions to improve the lives of its citizens and create a society which understands collective obligation.

And yet to date, there has been little sign of government intervention on that score. In fact, the words ‘levelling up’ have yet to go beyond mere words. And indeed, as the debate about how the government’s vast fiscal injection will be paid for only this week, a Conservative MP suggested that the pandemic will make levelling up even harder, once again implying that scarcity of money will, in the end, put the brakes on further government action. It plays to our false understanding of how governments spend and allows the narrative of more taxes or perhaps another round of austerity to be justified.

The plain truth is that as we are increasingly learning government has become the agent of big business rather than the driver of social cohesion and well-being whilst at the same time acting as a cash cow for businesses, all without public accountability. Contracts being dished out left right and centre!

As has been noted in previous blogs the price we are paying is a heavy one. As voluntary organisations step in to bridge the gap whether it is university law students providing legal advice to plug the gap in access to justice, volunteers in the health service to support an overstretched NHS, or indeed those involved in food banks to keep hunger from the door of its many recipients we are being primed by an appeal to our goodwill to accept the idea that there is no alternative since public funds are we are told unavailable.

We are moving towards such goodwill actions becoming indispensable and the societal norm. Only last year the co-founder of Probonoeconomics Andy Haldane suggested that volunteering could help society and provide the NHS with skills which would otherwise cost ‘hundreds of pounds per hour’. At the same time, we have private residential care providers suggesting that robots could take the place of human contact in reducing loneliness amongst residents. When cutting costs and profit becomes the sole driver for human activity it is time to challenge such notions before it is too late.

Volunteering cannot become the default to plug those deliberately created gaps in health and social provision to serve a toxic market-driven ideology. Indeed, it could not fill those gaps adequately in the long term.

The implication that the government is financially embarrassed must be challenged. At every turn, we are treated to household budget narratives to defend government spending policy. And yet whilst the government can find billions for a test and trace service for Covid-19 (outsourced to private companies – Deloitte, Serco and G4S) it cannot find the money for publicly funded and delivered public service provision both at national and local level, a state-backed job guarantee or a basic living wage income to ensure that those who cannot work for any reason can live decently and without fear.

One of the key objectives of the 2010 report from the Institute of Health Equity mentioned at the beginning of this blog was to create fair employment and good work for all.

Good, well-paid employment either in the private or public sector is one of the vital ingredients for overall economic stability and a healthy society. The role of government therefore should be to ensure full employment as a policy objective to create stability both in normal and abnormal economic times such as these.

And yet whilst government continues to grapple with the economic fallout from Covid-19, which is not over by any means, its Chancellor seems to be sticking to his guns on closing the furlough scheme regardless of its implications and is supported by the Bank of England’s chief economist Andy Haldane who has warned against its extension on the basis that such a move would prevent a ‘necessary process of adjustment’ taking place.

On that basis, it would seem that rising unemployment will be in their eyes an acceptable price to pay for this shakeout whilst ignoring its damaging consequences on the economy and the knock-on effects on people’s financial stability and their health. Can we also suppose that it will likely be used to drive a further extension of a low wage, insecure employment economy?

The former Prime Minister, Gordon Brown at the same time has attacked the Bank of England for failing to place sufficient emphasis on job creation. As the architect of the supposed central bank independence he claimed would give it the freedom to control monetary policy. But this was, in reality, a convenient sham – a mechanism to sidestep government’s responsibility as an elected body to deliver economic stability. As Professor Bill Mitchell wrote in 2017 ‘The point is that central banks can never be independent of treasury departments and claims to the contrary were just part of the depoliticization of policy that accompanied neoliberalism’. The central bank is the servant, not the master.

Economic stability is in the hands of government through the policy choices it makes and its spending decisions. It alone has the power, through its currency sovereignty, to ensure full employment. Given the dire predictions for the economy in this obvious time of great change related to the pandemic and also the need to address climate change, we need a government committed to price stability through the implementation of a centrally funded and locally organised job guarantee to guide us through these difficult times. Whilst magic bullets don’t exist, it will be important to avoid a 1930s scenario of mass unemployment and ensure a just transition whilst the great climate change shakeout progresses. We need radical solutions, not next week, next month or next year we need them now.

And yet while Rishi Sunak talks about tax increases to pay for the coronavirus bailouts and the Treasury Committee suggests laying out a road map for the autumn budget for repairing the ‘hole in the public finances’ with a proposal for a temporary abandonment of the triple lock on pensions, the public are once again being primed for bad news. Whilst tax reform should be on the agenda, raising taxes at this juncture would be a foolish path to take which would do nothing to support the economy. And instead of repairing the ‘hole in the public finances’ a monetarily savvy government would be looking to repair the very real holes in the public and social infrastructure it alone has been responsible for over the last 10 years.

With the government we currently have in place, we might be whistling in the wind as it clearly has other objectives and other estates to serve. However, that does not mean that we, as an increasingly informed public through the power of civil movements, cannot force the sort of reset that would benefit ordinary people by redefining the role of government as a servant of the people rather than the rich and powerful global interests which currently influence policy and economic direction.

 

 

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The post What’s the choice? appeared first on The Gower Initiative for Modern Money Studies.

Is the public purse empty?

The government wants you to believe that the public purse is empty and needs replenishing to set the finances straight. It’s not and it doesn’t. Time to challenge the lie or accept the inevitable economic consequences

 

Word cloud with the words tax, Challenge the lie, taxpayer, deficit, debt, government, prosperity, austerity, ideology, pandemic, Covid-19, coronavirus, treasury, money, spend, wealth,burden and recoveryOver the last few months, GIMMS has focused on the on-going impact of both politically derived austerity and the Covid-19 pandemic on the nation, along with the prospects for the economy in the future. Every week, we have aimed to build a picture of a nation where Covid-19 has revealed the stark nature of the consequences of economic ideology, government policies and spending decisions which have shaped our society over decades which has not only deprived many of economic stability in terms of employment and standards of living, but also skewed the distribution of wealth and resources towards an ever-smaller group of people. At the same time, we have continued to challenge the all-pervasive narrative that government spending is just like our own household budgets.

The two are intimately connected as political ideas and the usual explanation for why the government has to pull in its horns and reduce its spending. And yet in recent months as Rishi Sunak did what was necessary to keep the economy ticking over, bills paid and food on the table, people must surely be asking some difficult questions about why, if there was no money for public services in the 10 years leading up to the pandemic, that suddenly there is no shortage of it. How to explain this to the public? It seems contradictory to what we have been led to believe.

It has been encouraging to see that finally people are beginning to ask questions and that modern monetary realities are being discussed in the public domain. However, it would seem that as soon as a flicker of light at the end of the fiscal tunnel appears, the fiscal hawks get back onto their ideological saddles to keep the lie going that there will, in the end, be a price to pay.

Indeed, this week Philip Booth from the right-wing think tank the Institute of Economic Affairs claimed in an astonishing article in The Telegraph that young people should be just as concerned about rising public debt as climate change. He asked how can a young person be concerned about climate change and then complain about austerity but not be worried about increasing government debt that future generations will have to service?

Aside from the prospect of environmental decay and its human consequences – which surely must be a more pressing problem in terms of humanity’s future – in making an incorrect connection between an ageing population and a reduction in tax revenue, his words are aimed at creating more fear and preparing people in an endless repetition to accept there will be no alternative to tax increases to pay for it. While Mr Booth gets all hot and bothered at the thought of a £2 trillion debt noose which is more than 100% of GDP, he clearly missed the economic history lesson that after the second world war the debt to GDP ratio stood at 248% and yet we managed to build a successful economy alongside the public and social infrastructure that has provided a stable and secure framework for the nation’s overall health, until more recently that is.

Combining this fact with the monetary realities that sovereign currency-issuing governments like the UK’s have to spend first in order to collect any tax at all (which is exactly what the government has been doing even if it hides its action in the smoke and mirrors of ‘borrowing’) it is difficult to understand how in a sluggish or depressed economy such as will be likely maybe for years yet that the IEA would suggest increasing taxation. In an environment where demand is already suppressed as a result of Covid-19, that would be the most irresponsible action depriving working people of more of their income and forcing difficult decisions about their spending priorities – rent, bills, food or indeed discretionary items.

At the same time and in the same article, Paul Johnson from another right-wing think tank the IFS (Institute of Fiscal Studies) warned that the UK will have to compete for scarce finance as other countries run up ever-increasing deficits to fund their own Covid-19 recovery packages. The suggestion that money is scarce is just another distortion of monetary reality and fails to focus on the real challenge that all governments face – that of balancing the economy by matching their spending to available resources. There is no shortage of money, but it suits politicians and institutions to persuade us that there is.

The implication that rising debt poses a long-term threat to prosperity by imposing a debt burden on future taxpayers, or indeed that there is a scarcity of money, is just another irresponsible fear-inducing narrative aimed at restoring the household budget status quo which has suited and served the political, financial and corporate classes for too long. It suggests fear on their part that they are losing their grip and consequently a good time for a continuing challenge!

However, whilst the right-wing are preparing the ground to reinforce their political power, not just monetarily but through continuing with their long-held aim to destroy the last vestiges of democracy and our welfare state, the left-wing and other constituencies continue to shoot themselves in the foot, thus helping the right-wing to maintain the household budget illusions to serve their own interests.

The campaigning body 38 degrees sent a petition email to its supporters this week in which it said:

‘Rumours are swirling that [Rishi Sunak] is considering raising corporation tax to help pay for vital public services. It means companies will have to pay a little bit more tax, to help fund our schools and NHS and get out of this crisis.’

As already noted, this would be exactly the wrong time to increase taxes, but implying that such an action is needed to fund public services is just another example of how the household budget model reigns – not just in the minds of those in the political arena (even though one might question that they know perfectly well how the public money system operates) but also more broadly in the public consciousness, campaign groups included.

Let’s be clear at the risk of repetition: spending precedes taxation, therefore a sovereign, currency-issuing government neither needs to tax to spend or to borrow to cover its deficit. Once the monetary framework is understood, then it becomes clear that all spending decisions are political ones deriving from a political agenda. Who wins or loses out and how we want as a nation to see real resources distributed are the real question we should be asking; not mithering about the state of the public finances – that’s just part of the smoke and mirrors being perpetrated by government to serve their own agenda.

In this week’s Times, it was suggested that Treasury officials were planning to plug the ‘hole’ in the nation’s finances by raising corporation tax. At the same time, the left argues to increase it to pay for public services! As Professor L Randall Wray notes, ‘they compound their confusion – not only do they insist on being wrong about the purpose of taxes, but they also embrace one of the worst ones’. The stakes are high now in terms of the future of the economy so either argument is entirely based on the wrong premise that raising taxes will perform a specific function. However, the left wing’s focus on making the rich pay is as erroneous an argument as raising tax to get the finances back into balance is.

However, returning to the subject of corporation tax for a moment, whilst the government does not need tax to spend, it does need to implement tax reform within the context of creating a fairer distribution of wealth and resources – that being one of the real purposes of taxation.

The Covid-19 pandemic has revealed the already existing inequalities which have deepened over the last few months. Moreover, the economy over decades has been skewed towards benefiting those who are already some of the wealthiest at the expense of working people in terms of standards of living, well-paid employment and good terms and conditions.

George Osborne cut the corporation tax rate to one of the lowest in the world in the belief that wealth trickles down. Lower taxes mean businesses will invest more, employ more staff, increase wages or pass benefits onto customers in lower prices, or so the trickle-down mantra goes. What it does, in reality, is increase profits and any benefits that are accrued are passed directly onto shareholders, thus reinforcing the already existing inequalities.

However, it is important to note that tax reform will be but one of the ways of rebalancing these inequalities and should be combined with:

  • direct government action in the form of increased spending on the public and social infrastructure which supports a healthy economy and
  • a Job Guarantee to bring about a rebalancing of the power structures towards working people whose standards of living have been eroded by decades of wilfully created unemployment to suit the corporations.

In conclusion and with the question hanging in the air as to how this huge injection of public money will be paid for being raised daily, we point to Ari Rabin-Havt’s article in the Jacobin in which he notes that the ‘The government’s pantry isn’t bare – the people’s pantry is bare’ As he concludes:

We cannot simply be satisfied with making policy arguments against austerity and the serial exaggerations of fiscal warriors. We need to wipe from our lexicon their ignorant metaphors that equate government financing with household financing. When they are wielded as part of our policy debate it should be met with pure derision.”

 

 

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The post Is the public purse empty? appeared first on The Gower Initiative for Modern Money Studies.

While a governmental blame game distracts the public, what democracy we had is being further hollowed out.

Published by Anonymous (not verified) on Sun, 30/08/2020 - 6:00pm in

Before it’s too late let’s not let the window of opportunity pass us by. The government is us, or it could be.

Fingers pointing at the words "The others"Image by Gerd Altmann from Pixabay

As many of us sit in our living rooms watching TV it often feels that we are living in some sort of tragic farce being played out on the world stage. Or maybe even that we’ve been transported into the realms of the ‘imaginary’ Matrix of Agent Smith and Morpheus. It is difficult to know these days what is real, what is not or indeed what the future holds for us humans as Covid-19 brings a new normal and AI and automation becomes a seeming reality. We are coasting along perhaps hoping tomorrow will be another day and will bring better things.

Our illusory sense of stability and certainty is being replaced with deep anxiety. It is alarming for many to find that the foundations we have been standing on for decades were actually made of sand and prone to eventual collapse. On a daily basis, the pandemic reveals the gaping holes in public and social infrastructure provision that has resulted from over 40 years of neoliberal orthodoxy aided by the deeply held and politically inculcated public beliefs that there is always a price to pay for too much spending. We seem to have accepted instinctively that reducing inequality and poverty or addressing climate change is unachievable because governments are constrained by the scarcity of money. That nothing can be done.

We confuse Charles Dicken’s character Micawber’s dilemma as a currency user “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery” by translating that same household budget narrative into how the UK government spends. Instead of understanding that governments are currency issuers and cannot be confused with currency users, we believe in a logical but mistaken fashion that after the big spend the government will, like Micawber, have to pull in its horns eventually if it is not to end up in debtors’ prison or be proscribed by the ratings agencies as not good credit risks.

The ’there is no alternative’ mantra lives on as if somehow the market is all-powerful and governments must bow down to its all-knowing nature. And yet none of this is true. Sovereign currency-issuing government like the UK and many others not only hold the key to finding solutions to the economic chaos that is currently before us and the future challenges we face but also have the keys to the public purse. Unlike the commonly believed narrative, neither the bond markets nor the taxpaying rich determine how much the government can borrow or spend. These are government decisions relating to a political agenda and political will to deliver it with the resources it has at its disposal. It is beautifully simple.

The wreckage of 10 years of austerity, deliberate and continued shrinkage of our publicly managed and paid for infrastructure, as well as the increases in poverty and inequality as a result of a low wage, precarious economy is strewn in its wake. Combined with the on-going consequences of the pandemic on the economy in the form of increasing levels of unemployment then things are looking distinctly worrying.

Already this week more redundancies have been announced with Pret a Manger indicating that 2700 people will lose their jobs at its branches across the country as cities become deserts devoid of workers looking for their lunch. These will not be the last. As has been pointed out in previous blogs, many more will find themselves without employment over the next few weeks and months as the Job Retention Scheme comes to a close when many employers will find themselves with no choice but to let their workforces go. As Frances Grady of the TUC indicated this week millions of jobs are at stake.

This is the government’s wakeup call, but it is important to understand that what comes next will be a political decision unrelated to the state of the public finances. When the Chancellor Rishi Sunak says that the nation must buckle up and prepare for hard times it is almost as if he is saying that what happens will be unavoidable. It is as if he is saying that the short spell of propping up the economy with a round of fiscal intervention is unsustainable and that he will have no choice but to bow to the dictates of the market. We will have no option but to take the pain (by which he means us) to sort out the mess which will clearly mean a reset of the economy even if that means huge unemployment whilst at the same time as he has already intimated getting deficits and debt down and the public finances back into order. A recipe for disaster.

His job retention scheme and the much-praised ‘eat out to help out’ have shown what government can do, but those programmes have quite simply been skirting around the edges in terms of what government must do if we are to avoid a collapse of the economy and further hardship for citizens. It is avoiding the opportunities that exist to address the key challenges which face us in terms of climate change and indeed that ‘levelling up’ which Boris Johnson has spoken about which will be essential to ensure a fairer distribution of wealth and resources across the population. The truth is that we need an expansion of the public sector alongside a Job Guarantee and Green New Deal if we are to confront and address these challenges directly and effectively.

The implication of Sunak’s statement is that the government is not in charge and does not have the tools to manage the worst economic effects of the pandemic, nor indeed of coming climate change which will demand big solutions not just for the health of the planet but human existence.

It’s the market, stupid! It’s not the fault of government! That is what they want us to believe. The blame game lives on and not just in terms of the neoliberal diktat that the invisible hand of the market rules the roost. Like a magician’s sleight of hand which draws our attention away from the real trick being played on us, government has used the same mechanisms to ensure that the public is not looking at what is really happening and why. And more importantly who is responsible.

Indeed, this week the news was encapsulated in Boris Johnson’s statement that we had a ‘mutant algorithm’ in our midst. The computer had messed up apparently. Never mind the uncomfortable fact that computer programmes and algorithms are only as good as the person who programmed them.

It has become an on-going cause of criticism of government’s handling of this crisis and in particular of the Prime Minister that it is always someone else’s fault for the train crash that is occurring. Who has not come in for the opprobrium of various government ministers when things have gone wrong? From teachers to nurses, to social care workers and now civil servants who have either been sacked or had to resign in recent weeks and months.

Melanie Stefan, a computational neurobiologist at Edinburgh University, puts it quite clearly in a tweet thread she posted on the ‘A’ level results scandal which has ruined the chances of so many young people.

“Saying the computer got it wrong is doing two things: It makes it sound accidental, as if that was never really the plan. And it makes it sound like some weird computer uprising with no human agency or oversight involved.

Both are untrue. Humans are behind this. Humans made decisions, and in this instance the decision to further disadvantage students from already disadvantaged schools. This is a scandal, and we should be angry”

The fact is that it is humans in the form of politicians, their economic advisers and journalists who have been pumping out the false narratives and apportioning blame, that are in fact responsible for the disaster that neoliberalism and austerity policies have wreaked upon societies across the world.

The current government has done everything it can to avoid scrutiny of its actions and blaming the algorithm is a symptomatic example of its failure to accept responsibility for its policies over the last ten years and their damaging consequences. Others have conveniently become the fall guys for government failure, whether it is ordinary people being characterised as lazy scroungers living off the state, those who have been given the task of implementing government policy or those who speak out against the system. Government has turned its back on democratic accountability, seeking others to blame whilst at the same time encouraging us to turn on each other thus weakening the power we have to force the changes we so desperately need through the ballot box.

As Mary Bousted from the National Education Union commented this week ministers have a duty to parliament to account and be held to account for the policies, decisions and actions of their departments. Instead, they are doing the very opposite.

Our democracy both at the national and local level is under attack, our public and social infrastructure in decay, poverty and inequality rife and growing. Only this week it was suggested that by abolishing 213 smaller councils in England and replacing them with 25 new local authorities could save over £3bn.

In an age where deliberate government-driven austerity has almost brought local authorities to the brink of financial failure, the idea of saving money might seem attractive. However, in reality, it represents a further hollowing out of local democracy and its replacement with an impersonal money saving approach that no longer takes account of local people’s needs or serves their communities with targeted policies.

When the need to cut costs because of an alleged scarcity of money drives policy and replaces the need to meet public purpose and well-being, whether it is at national or local level, then we have been led astray.

When our social security system fails to serve those in most need both in these difficult times and normal times with adequate financial support then it is time to question those who promote such policies on the grounds of unaffordability.

When our public services are squeezed financially or put out to tender or privatised resulting in poorer services then it is time to dissent.

When a county council announces its intention as it did this week to shut most of its children’s centres reducing them from 38 to 17 saying that buildings do not serve communities then it is time to protest. Replacing buildings with outreach workers who will contact families instead makes the future of society start to look bleak as increasing social isolation threatens those very families who depend on these meeting places for comfort, support and conversation to help them through difficult times.

Money, or claimed lack of it, lies behind the dismantlement of those structures which form the backbone of a healthy economy and healthy citizens.

While we allow ourselves to be influenced by the cleverly executed blame game, our society is being deprived of the means to achieve a stable and secure future.

Government is the currency issuer. It makes the decisions. It decides what and who it will spend on. The future will be bleak if we continue to allow our societal voice to be drowned in a sea of naysayers who tell us that money is scarce and that ultimately there is no alternative to fiscal discipline and book balancing and that after the spending must come a reckoning.

The only balancing we have to do is linked to deciding upon how the available resources will be deployed, what should be provided and how it will be distributed. The questions we need to ask as a matter of urgency is what sort of society do we want to live in? Those are political decisions, not monetary ones. And, even if the mountain seems unclimbable, if we want to change things then as Bill Mitchell has said ‘The government is us’. Or it could be if we want it to be.

 

 

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Let’s not let the debt doomsters rule the roost!

Doing so will come at a huge human and planetary cost.

Silhouette of a businessman outside in a thunderstorm holding an umbrella and brielfase with lightning flashing behind himImage by Gerd Altmann from Pixabay

In this week’s news the train crash economics of neoliberalism continues to thunder on. The government, still ensconced in its ivory tower, continues to avoid taking any responsibility for its actions or policies passing the buck at every turn. And public money we didn’t apparently have for public services these last ten years continues to be poured into the bank accounts of its business friends with no accountability.

As the government’s furlough scheme draws to a close, M&S announced earlier this week that it is to cut 7000 jobs in the next three months and Pizza Express is to close 73 outlets making 1100 people redundant. This will add to the growing number of already unemployed which without continuing government action will set to increase over the next few months.

The actual shape of the labour market has been masked by the Chancellor’s job retention scheme which has kept people off the unemployment register. With vacancies having halved during the second quarter along with the doubling of the claimant count (figures from the ONS July 2020), which already stands at 2.7 million, the future is looking bleak for many in the aftermath of Covid-19. Add to this the reliance of the economy on the service sector, (retail, hospitality and leisure) which employs many workers in precarious, low paid, casualised employment and which has been hardest hit since lockdown.

Unless the government chooses to step in as the employer of last resort with a Job Guarantee or provide local authorities with the funds to hire workers lost to the austerity cuts in the regular public sector, then unemployment is destined to rise.

Covid-19 has laid bare the need for additional teaching staff, healthcare workers and prison staff. In every public service, a case can be made to increase staff numbers, hired into well-paid unionised jobs. With an expanded public sector operating alongside a government-backed Job Guarantee offering employment opportunities for those who need retraining to transition back into regular employment, we could avoid the worst consequences of a damaging recession and provide a stable framework for the future economy.

The government could also, if it chose to, invest significantly more in higher education to ensure that the country has sufficient engineers, nurses and teachers to secure the nation’s own productive capacity rather than stealing those workers from nations facing their own crisis.

The IFS reporting also this week noted that English councils are facing the prospect of having to cut even more services should the government fail to meet the additional costs of their spending on the Covid-19 pandemic. This will add to the pain that has already been experienced as a result of stretched local government budgets following cuts to their funding which has left them increasingly cash poor and having to make difficult decisions on public service provision to balance their budgets. With some already having faced the prospect of bankruptcy, even Tory-run councils, the future of local governments is also looking rocky. It reinforces, as already mentioned, the need for both increased funding and an expansion of local authority services.

In the same week as Matt Hancock, the Secretary for Health and Social Care, announced the abolition of Public Health England (in an exercise in passing the blame to take the heat of the government’s appalling handling of the Covid-19 crisis), Deloitte was awarded a government contract – adding to the already huge number of private companies which have benefited from public money both before and during the pandemic crisis. The myth of private sector efficiency lives on despite the growing evidence that public services would be better provided publicly – whether it’s the NHS, social care, the probation service, local government, or the test and trace programme contracted currently to the discredited private company SERCO.

Since the pandemic began, an estimated 20,000 households have been made legally homeless and 230,000 people face the prospect of eviction unless the government extends its temporary ban which it has renewed until September. Food banks continue to bear the brunt of years of austerity and the Covid-19 fallout with hunger being normalised rather than questioned as to why it is happening. Whilst the richer amongst us can take advantage of a temporary ‘eat out to help out scheme’ thus reinforcing the vast inequalities that exist in this country, it will do nothing to address both the systemic problems caused by the policies of successive governments, 10 years of politically induced austerity and the consequences of Covid-19 on the economy.

While we all clapped for the NHS (including Boris Johnson), nurses have lost out on salary increases and UK families who lost loved ones caring for patients will lose eligibility for welfare benefits if they take the compensation package of a measly £60,000. All at the same time as Dido Harding is appointed head of the new Public Health body to replace Public Health England despite her widely criticised leadership of the SERCO run test and trace programme and Sajid Javid, the former chancellor, takes an extra job as an advisor to JP Morgan on an undisclosed salary. These appointments add to the already long list of revolving door politicians on both the left and right who have joined the ranks of advisors to private industry including healthcare. Jobs for the boys and girls.

While the government sits in its ever-higher ivory towers praising its ‘world-beating actions’ and feathering the nests of corporations, the realities are stark for many. The economic ideology which has driven government policies on both sides of the political spectrum for over five decades is encapsulated in the ongoing redistribution of wealth upwards, privatisation and the dismantlement of our public and social infrastructure. The much-lauded shrinking of state involvement in the public sphere in pursuit of efficiency is a mirage. Instead, we have its marketisation acting as it does as a cash cow for corporations and which has also to their benefit created a distorted, unregulated capitalism with the sole objective of keeping the profits rolling and the power in the hand of a small elite. All at the expense of the health of the economy and its citizens.

And yet despite the fact that the pandemic has increasingly revealed the gaping holes in this pernicious ideology, right on cue politicians, institutions and journalists have begun yet again to reinforce in the public consciousness that there will be a price to pay for this vast (but necessary) fiscal response to the pandemic which should have proved beyond all doubt that the austerity narrative of money scarcity was a con job!

The alarming headlines in the media this week are designed to instil fear as they report that government debt hits £2tn for the first time ever. The Telegraph reported that ‘Britain is about to be sucked into a catastrophic doom loop with no escape hatch’ as government,  the author posits, will have no option but to increase taxes in an economy that is unable to generate enough money to pay for the government’s huge expenditures.

Then comes along the apparently left-wing London Economic, which one might have hoped would have a different emphasis than the size of the national debt, focusing on the amount of the UK’s ‘debt pile’ and the vast ‘borrowing’ figures. Instead of challenging Rishi Sunak who it quotes as saying ‘This crisis has put the public finances under significant strain …. today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions’ it appears to accept the narrative that there will be a future price to pay. Instead of examining what that spending represented in terms of a vital fiscal injection to save the economy – however skewed it was towards the interests of business or examining who were the real beneficiaries of that spending it focuses on the debt pile instead! If it had been a left-wing government response to the pandemic or addressing inequality and climate change how would they have pitched their argument?

Instead of pointing out the harmful consequences of the previous 10 years of austerity on the economy and people’s lives it goes along with the prospect of more cuts to spending in the future without questioning the premise for that possibility.

Even Annaliese Dodds, the Labour Shadow Chancellor, couldn’t get it right earlier this month. Spoiling her statement that continuing financial support for jobs and businesses would be vital until confidence and growth returned, she reinforced the household budget message by talking about putting off measures to rein in the UKs ballooning state debt. She added that whilst interest rates remained low the government’s ‘number one goal’ should be to keep the economy functioning rather than risking growth with ‘fiscal tightening measures’ to reduce the ‘debt mountain.’ Heart in the right place but with the wrong narrative.

Whether it’s reference to debt piles or mountains, borrowing and taxation to fund government spending household budget economics rules whichever side of the political spectrum you are on whether you are a deficit hawk or a deficit dove.

Even on the other side of the pond, as the race for the presidency hots up, only this week a Joe Biden aide Ted Kaufman, echoing Liam Byrne’s note left in the Treasury in 2010, suggested that if the Democrats were to win the ‘pantry is going to be bare’ as a result of the growing deficit and therefore spending options would be limited due to the rising national debt. Not exactly an invitation to put an X on the Democrat voting slip!

It has to be said that Rep. Ocasio-Cortez in raising the alarm by saying ‘We need massive investment in our country, or it will fall apart. To adopt … ‘deficit hawking now, when millions of lives are at stake is utterly irresponsible’ is, without doubt, speaking for us all if we did but know it.

Huge damage has already been done by the previous 50 years of a malignant economic ideology which has been compounded by a household budget economics understanding of the state finances and 10 years of the politics of austerity. To be talking again in terms of reining in expenditure whether in the medium to long term can only make things worse for the lives of citizens. As Stephanie Kelton said in January whilst in Adelaide ‘Government deficits are normal and even necessary to the health of most economies’.

The spectre of borrowingcontinues to haunt the public understanding of how the government funds its deficit as does the prospect of higher taxes to pay back what has been borrowed.

Only this week the BBC published a ‘borrowing’ explainer in the context of Covid-19 saying that such measures will prove expensive because when the government’s income reduces because there are more unemployed it leads to a tax shortfall which it then went on to explain meant that the government would have to borrow on the financial markets by selling bonds to fund the deficit.

But the reality is something quite different. What if we could knock this borrowing and debt spectre right off its perch?

In the minds of a currency user, the BBC’s description sounds like a logical proposition. When you spend beyond your income you may have to finance it by getting into debt by borrowing from a bank or building society or worse loan sharks charging huge interest. However, the state finances do not operate in this way. Whilst from an accounting position it certainly looks as if the government has to borrow, this is just smoke and mirrors designed to keep the household budget mirage going and the focus on fiscal discipline rather than delivering the public purpose within the context of finite real resources.

In short, that is because as the anacronym S(TAB) framework explains – spending precedes taxing and borrowing. Monetary sovereign countries like the UK as currency issuers can always meet their liabilities, provided they are denominated in that currency. As the Stirling Wolf noted in his excellent ‘borrowing’ explainer on how an independent Scotland would actually pay for its spending ‘the government is ultimately the boss’.

If the left-wing finds both the right leaders and the will to deliver a truly progressive agenda, then it will have to accept that shifting the narrative away from household budget language will have to play a role. It cannot as Biden’s Aide suggested fall back on images of the treasury being empty, if and when it comes to power which will, in turn, limit its political agenda. That would be more than foolish, it would be indefensible at a time when the challenges the world faces in terms of rectifying the huge wealth disparities that exist, dealing with the prospect of massive global unemployment as a result of the pandemic and finding solutions to the climate tsunami which is bearing down upon us. It would quite simply reinforce yet again the images of a scarcity of money and the need for fiscal discipline rather than meeting the needs of the economy, citizens and the planet.

It behoves a truly progressive left to challenge the economic shibboleths surrounding money and debt and unpick these destructive narratives. We need a government to take responsibility by recognising the power of the public purse. Otherwise, at some point in time, the ‘how will we pay for it?’ story will rule the day yet again at huge human and planetary cost. And we will rue that day.

 

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The post Let’s not let the debt doomsters rule the roost! appeared first on The Gower Initiative for Modern Money Studies.

We pay for it by spending the money

We would like to share an article by GIMMS associate Alan Hutchinson.  This article was posted on his excellent website Matches in the Dark here.

Alan Hutchinson portraitI use this as supporting notes for a talk I give on Modern Monetary Theory (it’s missing the jokes and the audience participation!). By Internet standards it is quite long, but it provides a good overview and should take no more than 30 minutes to read. If you want a quicker read I have something much shorter. This is a living document and will be updated to reflect changes to the talk and changes to economic data.

Let’s start by dispelling a myth: Modern Monetary Theory is not something that a government can choose to adopt. MMT is not something that can be turned on or off. In and of itself, MMT is neither of the Left or of the Right and it is not a policy, although there are policy prescriptions which flow from it. Modern Monetary Theory is simply a description of how the monetary system works — right here, right now.

In providing that description, MMT lifts the veil on a carefully crafted fiction about spending and taxation, one that provides the ideological backing for the form of late capitalism we commonly call ‘neoliberalism’. Unfortunately, that fiction is accepted as a universal truth by almost everyone, irrespective of their political affiliations.

Now, we all have some idea of how money works and lots of opinions about how it should work. I’m going to ask you to temporarily suspend those ideas and opinions while you read this, because MMT turns many of them upside down. Of course, it’s not just MMT that challenges the average person’s economic world-view and many are surprised by facts which are uncontested by mainstream economists. For example, I often start my talks with a question for the audience:

For every £100 the government spends into the economy, how much is returned as tax?

A typical lay audience will answer around £50. As I write this, the government gets back at £98 for every £100 it spends. Much of this article is about why it’s £98 and whether or not this is a Good Thing.

MMT may only just be seeping into the public consciousness, but the Financial Times has been writing about it for several years now and one of their journalists, Izabella Kaminska, has a good way of describing the effect MMT has on our understanding.1 She compares it to viewing an autostereogram — those pictures in the ‘Magic Eye’ books of the 1990s. Autostereograms appear to be nothing more than a random collection of coloured dots, but when you stare at them in just the right way a hidden three-dimensional image appears.2

Even with only a basic understanding of MMT, you will find that everything looks different — you start to see what’s hidden inside all the random noise that accompanies talk about money and the economy.

So, how does MMT help our understanding of economics? How does it help us build a better society? To keep this short, I am going to cover the two most important aspects:

  • First, MMT neuters the standard capitalist retort: How are you going to pay for it? In the new paradigm the question is rendered meaningless because we pay for it by spending the money — it’s as simple as that.
  • Second, MMT shows that unemployment is a choice made entirely and exclusively by the government of the day. The government chooses the unemployment rate.

Once these two points are understood by a (truly) progressive UK government it can set about implementing a radical economic plan, one which is built around first-class public services and a Job Guarantee programme. The Job Guarantee is at the heart of MMT because it does two things: it provides a meaningful job and a true Living Income to anyone who wants one, and it helps to control inflation.

In a nutshell then, MMT sweeps away all the nonsense about there not being enough money and all the nonsense about having to tolerate unemployment in order to keep inflation down.

Modern Monetary Theory is a descriptive endeavour which leads to some quite startling and world-changing prescriptive conclusions. Let’s start with the descriptive component. It details how the monetary system of a nation like the UK has worked since 1971, which was when the 1944 Bretton Woods system of international payments collapsed and the last vestiges of the gold standard were abandoned. To properly understand MMT you need to know a little bit about gold.

Prior to 1971, the UK government’s policy options were constrained by the gold standard. Sterling wasn’t directly convertible into gold, but the value of the pound was fixed against the US dollar and that was convertible. Having to defend the pound in a fixed exchange rate system forced the UK government to adopt policies which were not in the public’s best interest.

In simple terms, the number of pounds in circulation was restricted by the amount of gold and dollar stocks held by the government. The money supply had to be more or less static — if the government spent £100 into the economy, it had to remove £100 through tax or otherwise drain it by issuing bonds. The government appeared to be revenue constrained — an illusion was created that it could only ever get its money from taxes, with any shortfall covered by an action which came to be known as ‘borrowing’.

After 1971, the pound was no longer pegged to the dollar and we entered the current era of free-floating currencies — where the value of the pound is decided on the international markets. Sterling became a fiat currency, one that is not backed by a commodity or tied to a foreign currency. The word ‘fiat’ is Latin for ‘let it be done’ and indicates that the currency is simply legislated into existence. The government says this is the currency and so it becomes the currency.

The policy limitations that resulted from the gold standard and fixed exchange rates no longer applied. With a fiat currency the idea of a ‘run on the pound’ is a meaningless concept and the government no longer has to contend with currency speculators or ‘bond vigilantes’. Nor does it have to worry about ‘propping up the pound’ or, to a large extent, the fact that we import more than we export.

Most importantly, there is absolutely no way the UK government can be forced to default on debt repayments. Default can only be forced on a country which is not sovereign in its currency. That includes all countries which use the euro because they are not monetarily sovereign. In this respect, Germany is no better off than Greece — both can be forced to default. Anyone, be it an economist, a politician or a newspaper columnist, who claims that the UK is at risk of default is talking nonsense.

All the worries about default or a ‘run on the pound’ belong to the 1960s and it’s staggering how they are still indelibly imprinted on the collective mind.3 Not having to deal with all these issues means that the government can use all the economic tools at its disposal to achieve domestic objectives — which should always include full employment.

Moreover, the claim that the government is revenue constrained — that taxes pay for spending — no longer makes any sense. From the government’s perspective, the age of money scarcity ended in 1971 and it’s been like that ever since.

Unfortunately, the illusion of revenue constraint is still with us today and that’s because gold-standard thinking suits the agenda of the rich and powerful. The economic elite — the section of society which we now call the 1% — set and control the dominant narrative in economics, so almost everyone still believes that government can only spend what it taxes or borrows.

I probably have to careful here that I don’t come across as a conspiracy theorist. I am not suggesting that there is a secret cabal busy organising a disinformation campaign to persuade us that tax funds spending. The economic elite believe this nonsense just like everyone else. But because it’s the stuff which justifies the elite’s position in society, it’s the stuff which gets column inches and airtime.

The elite and their political supporters achieve this by framing the debate in terms of simple metaphors related to our everyday lives. In particular, the idea that the government is constrained like a household is propagated by messages like:

“we need to balance the books and that will mean tightening our belts”;

“we must pay our way in the world”;

“Labour maxed out on the credit card.”

Don’t for one minute think that the household budget stories are confined to the political Right. When asked by Martin Wolff of the Financial Times ‘[Do you] share the view that ordinary people do not understand economics?’, John McDonnell answered:

Most ordinary working people know how to budget better than any politician, largely because they are living off low wages and they have to, therefore, make sure they can get to the end of the week. The best budget person I ever met that understood real economics was my mum. My dad would come in, hand her the wages and, because it was that sort of generation, she would look after the household and we would get by.4

Progressives across the political spectrum accept these assertions without challenge and unwittingly reinforce them with talk of increasing taxes on the rich and corporations. It’s a position which supports the status quo and stifles any meaningful debate.

Now, before I go any further, I must stress that although Modern Monetary Theory assists us in understanding the monetary system in any country, the policy prescriptions we come to later only apply to countries which are sovereign in their currency. There are three criteria which define a country with a sovereign currency:

  • it issues its own currency — so no using a foreign currency;
  • its currency floats free on the international markets — so no peg to another currency;
  • and it does not have debts in a foreign currency — so no borrowing from other countries or from the IMF.

MMT prescriptive policies apply to the UK, the United States, Japan and many other countries. The policies would be problematic if applied in Eurozone countries, be it Germany or Greece, because they all use a currency which is, to all intents and purposes, a foreign currency.

Don’t pay any attention to anyone who says:

What about Argentina? They have their own currency and they went bankrupt, didn’t they? What about Zimbabwe? They had their own currency and that didn’t stop all that inflation. And what about the current crisis in Venezuela?

Argentina does have its own currency, as did Zimbabwe when it went into meltdown. But both countries also had masses of foreign debt and at the time of the Argentinian crisis, the peso was pegged to the dollar. As for Venezuela, there is nothing MMT can do to ameliorate the combined effects of governmental incompetence, an economic elite determined to regain control and hostile interference from a powerful foreign entity.

The textbook way to further explain MMT usually involves an analysis of the flow of money between different sectors of the economy. The trouble with this route into MMT, the sectoral balances approach, is that it involves a little bit of double-entry bookkeeping — it’s not difficult, but some people may be put off by some of the terminology.

Here’s another way to get you started which requires no prior knowledge — all you need is an opinion about other peoples’ opinions.

Suppose a poll is carried out tomorrow, with a large and representative sample of the electorate. There are just three questions, the first two of which are very simple. See if you can guess how most people will answer them.

Here’s the first question:

Do you believe that the government deficit should be cleared within the next twenty years?

Given the current hysteria about deficits, I don’t think the answer is in doubt — most people are going to answer ‘yes’.

The thing I find worrying about this question is that a lot of people will answer ‘yes’ when they don’t really know what the deficit is. Moreover, I’m surprised by some of the people who struggle to provide a definition. I know quite a few academics who, with no hint of shame, admit that they don’t know what the deficit is — yet they still hold an opinion about it. For readers who are little bit unsure, the standard definition of the deficit is the difference, over a given period, between what the government spends and what it gets back in tax.

The second question is:

Do you believe that everyone should have the opportunity to save a small amount from their income?

Saving is usually seen as a good thing, so they are probably going to say ‘yes’.

These two answers demonstrate two things: that most people don’t understand how our system of money works; and that they have the ability to hold two contradictory beliefs at the same time.

It is impossible for a country like the UK to eliminate the deficit and still allow the domestic private sector to increase its stock of savings. Believing that the deficit can be cleared while we are still increasing our savings is just Orwellian doublethink.

We can start to understand the connection between the deficit and savings when we answer the third question. It’s a bit more complicated:

Suppose the government pays two people £100 each for some work. One is a window cleaner who is paid the minimum wage. The other is a PR consultant whose salary is £150,000. Now, a proportion of each £100 is going to go back to the government in the form of tax. Does the government get more back in tax from the £100 it paid to the window cleaner or the £100 it paid to the PR consultant?

How are people going to answer this one? It’s certainly a lot less clear-cut than the first two questions, probably because it appears to introduce a political element. It certainly seems more ideological, but it’s really no different from the first two questions. It’s just that most people see the earlier answers as obvious and ‘common sense’.

I find that people answer the third question depending on where they are on the left-right/poor-rich/north-south spectrum. Those at one end of society will say that highly paid consultants, being ‘part of the 1%’, will pay less tax because they can afford fancy accountants. At the other end of society is the argument that window cleaners, being members of the ‘devious lower orders’, will avoid paying tax altogether by insisting on being paid cash-in-hand.

So, what is the real answer? Well, it’s that in the long run there is no difference. The government gets exactly the same amount back in tax from the £100 paid to the window cleaner as it does from the £100 paid to the consultant. Over a sufficiently long period, the government will get back in tax pretty much all that it spends, no matter where it spends it and no matter what the tax rate is.

However, over the short term, there are significant differences as to how the spending affects the economy. Simply put, it’s better to spend the money on window cleaning.

Most people think the idea that government gets back all its spending irrespective of the tax rate is just crazy talk. They think it’s the ramblings of a loon because they have been conditioned to think of government spending and taxation in a way that supports a fundamentally neoliberal agenda. Specifically:

  • they think that tax is a burden placed on the private sector to enable the government to get its spending money;
  • they think that money is taxed only once, reinforcing the burden concept and leading them to focus entirely on the tax that they alone pay;
  • they have no regard for what happens when they spend their income or where it came from in the first place;
  • they don’t realise that all government sector spending initiates a spending chain in the non-government sector;
  • they don’t realise that at each link in that chain some tax is likely to be paid — income tax, national insurance, corporation tax, VAT, stamp duty, import tariffs;
  • and they can’t see that this means that government will always get back almost all that it spends.

To see how this works, let’s look at one of the payments from the question above and analyse the spending chain it creates. I am assuming a simple tax system where all transactions are taxed at 20%.

  • The government pays £100 to a window cleaner;
  • She pays 20% tax on the £100, so £20 goes straight back to government;
  • She spends the remaining £80 at Aldi for a week’s worth of food and essentials for herself and her daughter;
  • Aldi pays 20% tax on the sale and £16 goes back to the government;
  • Aldi uses the remaining £64 to pay someone to run its tills for a day;
  • He pays 20% income tax and government gets £13 back;
  • He is left with £51, which he uses to buy a train ticket to go and see his mum;
  • Virgin Trains pays 20% tax on the ticket price and another £10 goes back to government;
  • Virgin uses the remaining £41 to pay for a window cleaner to clean the windows at one of its stations.

And so it goes on, money moving along a spending chain (which sometimes doubles back on itself).

It is just a simple geometric progression where government spending causes taxation — not the other way around. This is a key point in MMT: the spending comes first and tax is a secondary operation. It’s the spending that makes the tax happen. Government spending bounces around the economy — generating income for households and firms — and a little bit goes back to government at each link in the chain.

If you have difficulty with the concept of spending preceding taxation, just ask yourself this question:

Where does the money to pay taxes come from in the first place?

Money in a modern economy is not something that pre-exists within the economy. It always comes from a higher source. Even in economies where money was based on precious metals, it was usually issued and controlled by a higher source. Consider the Robin Hood legend and money taxes (taxes paid in crops or labour are different). The king decreed that money taxes were to be paid in silver coins and used a Nottingham-based proxy to collect them. Where did those coins come from in the first place? What would happen if the king didn’t tax them back?

Our little model has shown that £100 spent by the government has spread out into the economy, creating £336 in personal and corporate income, and £59 has gone back in tax.

But we’ve only followed the spending chain for a few links. Any mathematician will tell you that, in this idealised model of the economy and with a flat transaction tax set at 20%, the process will continue until the government gets back all £100 and income amounting to £500 has been generated. What’s more, the government will still get £100 back if the tax rate is reduced to 10% or increased to 30% — there will just have to be more links in the chain. In the long run, and in this idealised model, changing the tax rate has no effect on the total tax take.

You may ask why we don’t reduce income tax to a flat 5% then. That’s because tax has purposes other than serving as a drain of government spending, the most important being that it allows the government to direct the use of resources — people and stuff — for the benefit of all. Tax takes away some of our purchasing power and in doing so leaves resources unused. The state can then buy those resources and deploy them to further the public purpose.

The real purposes of tax were explained in the 1940s by the US economist and central banker Beardsley Ruml. He saw tax as has having multiple uses, none of which had anything to do with funding spending:

  • to stabilise the currency;
  • to discourage bad practices and encourage good ones;
  • to provide clarity about spending by appearing to allocate tax to specific things;
  • and to ‘express public policy in the distribution of wealth and of income’.

Ruml summed up all this rather succinctly in the title of his article:

Taxes for revenue are obsolete.5

His work led to the MMT concept that taxes drive currency. This is a core concept which answers the question:

Why would anyone accept money that is not backed by gold?

They accept it because it’s the only thing with which they can pay their taxes — and a cosy little cell is always available for anyone who doesn’t pay up. Tax is not designed to give people a nice warm feeling inside when they pay it. Tax is not ‘the price you pay for living in a civilised society’. Tax is coercive. Tax is an expression of raw state power.

For some people, this is where the cognitive dissonance kicks in and they start to feel uncomfortable with MMT. They feel a bit queasy as the truth materialises out of the background noise and they realise that everything they believed about money and the economy isn’t true any more.

But let’s get back to our spending chain. Why does the government only get back £98? Surely if we follow the maths the government will get back all £100. What happened to the other two quid? Well, the bit that the government doesn’t get back is the bit that isn’t spent — twenty-pound notes hidden under a mattress, money in an ISA or retained corporate profits. Anything that isn’t spent is, by definition, our savings and money that is saved breaks the spending chain. Saved money can’t cause any further tax to happen.

Therefore, in any given period the difference between the amount the government sector spends and the amount it gets back in tax is equal pound-for-pound, penny-for-penny to the increase in the savings of the non-government sector.

Hang on a minute! Isn’t the difference between what the government spends and what it receives in tax the definition of the deficit? Of course it is. The thing we call the ‘deficit’ (which is universally perceived as a Bad Thing) is nothing other than an accounting representation of the aggregate increase in savings (which are universally perceived as a Good Thing). The deficit is savings.

It’s not accidental that the public suffers from deficit doublethink and it’s the result of 40 years’ worth of clever PR. Imagine you were a neoliberal strategist, hell-bent on reducing the size and reach of the state. Which term would you use to describe the difference between government spending and tax receipts? Deficit or savings? Terrifying black hole or national nest egg?

MMT goes on to show that net financial assets — which is just a fancy name that economists use for ‘savings’ — cannot come from anywhere other than from government spending. That’s because the real money in the system always comes from government. We’ll look at this in more detail later.

So far, so straightforward. However, there may be a bit of a problem: some of the terminology may be confusing you. I’ve said that the government ‘gets back’ through tax almost all that it spends and this may cause you to think that the money it ‘gets back’ is somehow available to be spent again. It isn’t, and this is where MMT provides a critical insight into the true nature of government spending. All UK government spending is new money which is eventually destroyed by taxation. The government doesn’t really ‘get back’ the money it taxes out of the economy — the money just ceases to exist.

I have also used the term ‘non-government sector’ rather than ‘private sector’. This is deliberate and is essential for an understanding of savings. The thing that MMT calls the non-government sector is made up of the domestic private sector — firms and households here in the UK — together with the foreign sector. When foreigners are paid for the things we import they accrue financial assets denominated in Sterling. When we export things we get some of these financial assets back, but we export less than we import and there is an imbalance in favour of the rest of the world.

It is important that the inclusion of the foreign sector in the non-government sector is understood. A common and invalid criticism of MMT is that it only considers a closed domestic system, without regard for the rest of the world. Any confusion usually arises from a deliberate misinterpretation of the term ‘non-government sector’.

This is where the concept of sectoral balances comes in, the bit that relies on double-entry bookkeeping. The sectoral balances approach says that however we split the economy into chunks — sectors — all those chunks must balance each other. The whole must sum to zero. This is because, just like a company balance sheet, for every asset in the Sterling economy there is always a corresponding liability and for every borrower there is always a lender.

Suppose we split the economy into government and non-government sectors, then if one sector is in surplus the other must be in deficit. The accounting tells us that it cannot be any other way. If the non-government sector is in surplus because of its desire to save, then the government sector must be in deficit. You can’t get away from this fact and no economist or chancellor will dispute it.

Let’s look now at a three sector model, one made up of the government sector, the domestic private sector and the foreign sector. A few years back, before the Coalition took over, the government sector deficit was 10%, i.e. taxes destroyed about £90 for every £100 of government spending and £10 ended up as savings either here or abroad. The savings were split roughly fifty-fifty between us (the domestic private sector) and the rest of the world (the foreign sector). For each £100 the government spent about £5 ended up as financial assets held by UK households and firms, and £5 ended up as financial assets held by foreigners.

But then along came Cameron and Clegg who told us that the deficit was a Bad Thing and had to be eliminated. Hence austerity. But if you eliminate the deficit you also have eliminate someone’s savings and that is precisely what has happened. We are still importing the same amount of stuff as before and the foreign sector is still accruing savings amounting to £5 for every £100 of government spending. That £5 is being paid by £2 government deficit and £3 worth of dissaving by the domestic private sector. We are no longer saving overall. We are running down savings, selling assets or going into debt just to keep the country going. And we haven’t seen this level of dissaving pretty much since records began. It is not sustainable and is precisely the sort of thing that leads to recession.

So, not only does the ‘deficit’ have to cover our desire to save, it also has to cover our desire to import and that is always balanced by the Chinese and German desire to hold Sterling savings.

Now, the operative word that I have just used is ‘desire’ and it blows a big hole in the ideology of austerity. For the last 40 years, governments of all persuasions have told us that the deficit is a Bad Thing and then pretty much ignored it. Since 2010, however, the deficit has become a political weapon and the government has persuaded almost all of us that it must be eliminated.6 The government claims to have the power to rid us of the deficit and they tell us that the form in which that power must be exercised is austerity. It certainly sounds plausible: if the government spends less then surely the deficit will be reduced, won’t it?

But we now know that the deficit is actually a measure of our desire to save, our desire to import and the Chinese desire to save in pounds. So, deficits are neither good nor bad. They just show that money is flowing from the government sector to the non-government sector. The government creates the money out of nothing and some of it becomes our savings.

A government surplus shows the opposite — that the state is removing money from the non-government sector and destroying it. If we are going to continue to pay our taxes then, in aggregate, we are going to have to economise. The population as a whole will either have to reduce its spending or run down its existing savings. Imagine what that does to the spending chains and the livelihoods which depend on them.

If the administration doesn’t understand this, or chooses to conceal its understanding for ideological reasons, it is quite likely that the country will be worse off in terms of employment, health, happiness and all the other things that make up our collective well-being.

You can certainly try to debunk the concept of sectoral balances, but be warned: you will first have to disprove the science we call ‘arithmetic’. You will have to show that 2 − 2 ≠ 0. Good luck.

Right, just to make sure you are keeping up, here’s a quick recap of the two main points so far:

  • First, the ‘deficit’ is just another name for the flow of money into savings, both domestic and foreign, that takes place in the Sterling economy over a given period. Oh, and the thing we call the ‘National Debt’ is just an accumulation of previous deficits. The ‘debt’ is just the total stock of money held in savings at any given moment. The deficit and the debt are not things that we — or our grandchildren — ever need to worry about.
  • Second, spending precedes taxation. At the risk of sounding like Doctor Who, we need to reverse the polarity to understand the economy. Government spends new money into the economy and it is gradually destroyed by tax. The spending effectively pays for itself, so the question ‘How are you going to pay for it?’ is meaningless. We pay for it by spending the money.

Now, this bit about the government getting back £90 for every £100 it spends sounds too good to be true, doesn’t it? This seemingly magical rule doesn’t apply to you or me, to the corner shop or to the trans-national corporation. When we spend we get goods and services in return. When government spends it gets goods and services and it ‘gets back’ the money in tax. It’s one of two reasons why the government budget should never be compared to a household budget.

The other reason is that the UK government is the monopoly manufacturer of Sterling. Government is the currency issuer. A household, like everything else in the non-government sector, is a currency user.

I am going to make a quick detour at this point and talk briefly about banking. Some people are concerned about the apparent power that banks have to create money. It’s true that the banks create out of thin air an awful lot of stuff that people like to call ‘money’ and the economy would collapse without it. However, what’s always missing from these worrying analyses of bank lending is that all bank credit sums to zero. Every asset created by the banks always has a corresponding liability and any ‘money’ created when a loan is made is destroyed when the loan is paid off.

In fact, banks don’t create money; banks extend credit. And this means that savings can never come from bank loans. If you believe that net financial assets can come from bank credit then you believe that borrowing £100 from a bank at 6% and putting it in a building society account that pays 2% can be classed as ‘saving’.7

The difference between the money created by government and credit issued by banks becomes apparent if we think of government spending as an ‘interest-free loan’ into the economy. It’s a loan that’s gradually ‘paid off’ by the taxes that are raised at each link in the resulting spending chains. Except that it’s never quite paid off because we choose to save some of it. Try that with a bank loan and see how far you get. You have to pay off a bank loan in full and you have to pay interest. Wouldn’t you rather see poverty reduction enabled by government ‘loans’ than by payday loans?

Which brings us back to government being the only entity which can issue Sterling. To get savings in the system we have to have a special type of money — economists call it high-powered money — which is injected into the system from outside the system. All bank-created money is inside the system, but every penny of government spending is high-powered money.

The upshot of all this is that the UK government never needs to ‘borrow’ and — here’s the important bit — the government can always create as much currency as it needs. That means the government can buy whatever it wants that is for sale and priced in pounds.

At this point in the discussion the mainstream economists, locked into a world-view based on gold standard thinking, will jump in, screaming:

See! These MMT crazies think the government can just keep on printing money until the cows come home. We’ll be ruined by inflation! We’ll end up like Weimar Germany or Zimbabwe! We’ll be issuing trillion pound notes!

Well, no we won’t. All spending, whether by the government or the private sector, carries a risk of inflation, but money alone does not create inflation. The risk depends also on the availability in the economy of real resources — people and stuff. Sure, the UK government can always win a bidding contest with the private sector for any resources that can be bought with pounds, and this may force up the price if the resources are limited and there is significant private sector demand for them. So, yes, the government does need to be mindful of its unique power.

But what if the government were to buy up all the things which nobody else wants? After all, it’s difficult to force up the price of something if there is no demand for it.

Unfortunately, there isn’t enough unwanted stuff in the real economy on which the government can usefully spend its money. There are, however, lots of people who are classed as ‘unwanted’ — millions of them, in fact. By definition, the unemployed and the underemployed are unwanted in that they don’t attract a bid price from the private sector.

This is where the Job Guarantee comes into play. It is a core part of MMT — it’s the prescriptive bit — and it’s important because it helps maintains price stability. It helps control inflation through a constraint on government spending. But it’s not a revenue constraint; it’s a real resource constraint.

The dominant economic models tell us that there is an inverse relationship between inflation and unemployment. Mainstream economists, including all those Nobel laureates, say that attempting to bring unemployment down will always put inflation up. They say that, if we want to keep inflation at bay, it’s necessary to have millions of people unemployed or underemployed or in all those insecure, low paid jobs.

This is the Phillips curve and its cruel companion the Non-Accelerating Inflation Rate of Unemployment (NAIRU), theories which lead to the claim that there is a natural rate of unemployment at which the economy is somehow ‘optimised’. They are nothing more than ways to explain away failed models and ineffective policies.

The Job Guarantee shows us that there is another option to using a buffer stock of unemployed people to control inflation: we can use a buffer stock of employed people. It’s not a new idea and was first suggested in 1965 by Hyman Minsky:

Work should be available to all who want work at the national minimum wage. This would be a wage support law, analogous to the price supports for agricultural products. It would replace the minimum wage law; for, if work is available to all at the minimum wage, no labour will be available to private employers at a wage lower than this minimum… To qualify for employment at these terms, all that would be necessary would be to register at the local public employment office.8

The primary aim of the Job Guarantee is to provide useful and meaningful employment in the public sector at a fixed minimum wage to anyone who wants a job and can’t find one in the private sector — or, for that matter, doesn’t want to work in the private sector. Although the wage is fixed, it will be a socially inclusive wage set at the level society thinks is a fair and reasonable minimum for someone working full time. It should be a Living Income, not a Basic Income. I suggest that it should be at least £19,500 — that’s £10 per hour for a 37½ hour week — along with comprehensive rights and benefits, including paid holidays, paid maternity or paternity leave, union membership and ongoing training. There should also be the freedom to choose the number of hours worked each week, so people can allocate their time to other things too.

The Job Guarantee is not Workfare. Nor is it a job creation scheme which the government turns on and off depending on how an unaccountable committee interprets the ‘health’ of the economy. The level at which the programme runs depends entirely on demand from the people. If you want a Job Guarantee job, then it’s your right to have one and it’s up to the administrators to find one that suits you.

Crucially, that right extends to anyone who is currently in work and this puts very strong pressure on the private sector. If firms want to employ people then they are going to have to offer better pay and conditions than the Job Guarantee. In effect, the government, through the Job Guarantee, is using market forces to coerce the private sector into treating its workers fairly and responsibly.

But at the same time as providing work, the Job Guarantee also acts as a balance to the ups and downs of the business cycle. The Job Guarantee is a public sector auto-stabiliser, a counter-cyclical mechanism that evens out boom and bust in the private sector and anchors inflation.

Here’s how it works. When the private sector suffers a downturn there will be redundancies and anyone who loses their job can choose to take up a job offer from the Job Guarantee. This causes a significant and immediate increase in government spending into the economy, ensuring that the spending chains and all the other incomes dependent on them are maintained. The Job Guarantee keeps the economy going and stops a slide into recession. Just as important is the maintenance of our collective well-being by providing everyone with something useful to do.

Conversely, when business is booming, the Job Guarantee programme contracts as people are attracted away from it and into private sector jobs. As the programme scales down, government spending is automatically reduced, the economy doesn’t overheat and the risk of inflation subsides.

It’s a simple, elegant mechanism and because it’s automatic there’s no need for a bunch of technocrats to decide how much government spends into the economy. Moreover, it shows that recessions are discretionary. Just like unemployment, going into recession is a choice made entirely and exclusively by the government of the day. Remember, if the private sector is somehow unable or unwilling to provide full employment, then there is still one sector left which is always able and should be willing.

Under extreme conditions, the automatic stabilisation effect of the Job Guarantee may be insufficient and the government may need to raise taxes or reduce spending in order to prevent inflation. The first step should always be to raise taxes on the rich and if this causes redundancies then the Job Guarantee is always there to pick up the people who lose their jobs. The Job Guarantee curbs inflation by moving workers from an inflating sector to a fixed wage sector.

There is much, much more to say about the Job Guarantee, but I need to bring this piece to a close. However, I urge you to keep thinking about it. Try to make a mental list of all the jobs that we don’t do now, but which we could do under the Job Guarantee — all those nice-to-have jobs which would generally make the UK a better place.

Then there are all those unpaid jobs that we already do, work we take for granted which should be recognised. The Job Guarantee will change the definition of ‘work’, so the jobs don’t have to be profit-making or ‘productive’ in a private sector sense — anything that furthers the public purpose will do.

Look closely at the apparent randomness around you and, just like an autostereogram, those jobs will snap into focus. You will realise that there is always plenty to do and that should make you suspicious of the claim that, in the future, there won’t be enough work to go around. We can never, ever run out of useful jobs to do.

So, what’s next? Well, two things for starters. First, we have to explain the difference between ‘sound’ finance and functional finance. Sound finance is the myth that government budgets are the same as household budgets or, if you are a mainstream economist, that there exists a Government Budget Constraint. Functional finance acknowledges the power of sovereign currency and stresses that it is the job of government to use that power for the good of the people, particularly by ensuring full employment. It’s an idea posited in 1943 by Abba Lerner, the Russian-born British economist. Unfortunately, at the Bretton Woods conference in the following year the US ‘encouraged’ us to return to the gold standard.

Second, we need to start altering the discourse and the first candidates for change should be the phrases ‘taxpayers’ money’ and ‘government borrowing’. Taxpayers are not and never have been the source of currency. Similarly, government doesn’t borrow when it issues bonds; instead, it provides a safe place for us to store our savings.

We should also be careful about talking about the government ‘investing’ in the economy. All the talk of government ‘investing’ in the economy is a prime example of working within a neoliberal framing — trying to package up spending in a way that is supposed to look responsible, making it look as if government is some sort of business. We should be honest and tell everyone that the government just needs to start buying up all those unused resources — the ones without jobs. When anyone says ‘How are you going to pay for it?’ we tell them. The debate needs to switch from money to resources if a progressive agenda is to prevail.

Then, armed with the knowledge that a fiat currency provides the government with the ability to provide jobs for all, we need to question capitalist power relations — all that conventional wisdom about relying on the rich for their tax money, pampering the corporations because they alone create jobs, regarding the financial sector as an engine of growth, and believing that national governments are constrained by globalisation.

All that nonsense is just that: nonsense.

 

1.

It’s interesting how the Financial Times was covering MMT six years ago, but The Guardian is only just starting to catch up. See Why MMT is like an autostereogram, Izabella Kaminska, 22 February 2012, FT Alphaville.

2.

See Magic Eye, Wikipedia

3.

It’s worth noting that from 1990 to 1992 we returned to a pegged currency system when the UK became part of the European Exchange Rate Mechanism. The ERM was a precursor to the euro and required that the UK maintain the value of the pound within a narrow band. It didn’t go at all well, created a recession, and ended in an ignominious and very costly exit from the ERM on ‘Black Wednesday’. Still, a few speculators made billions out of it, so it wasn’t all bad.

4.

See Economics 101, 27 July 2018, BBC Radio 4.

5.

Taxes for revenue are obsolete, Beardsley Ruml, January 1946, American Affairs.

6.

Even the Labour Party is in on the act: ‘Our manifesto is fully costed, with all current spending paid for out of taxation or redirected revenue streams. Our public services must rest on the foundation of sound finances. Labour will, therefore, set the target of eliminating the government’s deficit on day-to-day spending within five years.’ Balancing the Books, Labour Party Manifesto, 2017, The Labour Party.

7.

Strictly speaking, it is possible to get net saving between different entities within the non-government sector using bank credit, but it’s not possible either at the individual level or at the aggregate level.

8.

Poverty in America, Hyman P. Minsky (Margaret S Gordon, editor), 1965, Chandler Publishing. Reprinted in Ending Poverty: Jobs, Not Welfare, Hyman P. Minsky, 2013, Levy Economics Institute of Bard College.

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The post We pay for it by spending the money appeared first on The Gower Initiative for Modern Money Studies.

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