government debt

Error message

Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in _menu_load_objects() (line 579 of /var/www/drupal-7.x/includes/menu.inc).

“Whatever great meaningful and impactful work we are doing now is only the beginning, let’s keep moving forward for a better tomorrow.” – George Stamatis

Woed Cloud economy unemplyment job debt money taxPhoto by PublicDomainPictures

According to the Office for Budget Responsibility, whose fiscal sustainability report was published last month, the news is bad. In its Executive Summary, it noted that the UK was on track to record the largest decline in annual GDP for 300 years. It has forecast that this winter, unemployment will soar to levels last seen in the 1980s under Margaret Thatcher. It recognised the government’s focus on managing the pandemic and reviving the economy through its fiscal spending programme, but went on to point out that the structural fiscal damage would likely lead to the need to increase tax revenues and/or reduce spending to put the public finances on a sustainable path.

Instead of examining the real human consequences of government policies over the last decade, or the huge fiscal response to the pandemic, the health of the economy more has often than not been reduced to the fiscal framework of household budgets. Over the last few weeks, GIMMS has been pointing out in the MMT Lens that the Debt Sirens are now working overtime to revive in the public consciousness the idea that there will be a heavy price to pay for the huge sums spent by this government.

In this week’s news, Rishi Sunak suggested that Britain cannot sustain the current level of ‘borrowing’ and Andrew Bailey, the Governor of the Bank of England, backed up the Chancellor when he said that there was no question of a wholesale extension of the Job Retention Scheme. The clear implication is that it’s not affordable! One wonders on this premise whether Rishi Sunak, like Labour’s Liam Byrne, might be obliged to leave a note in the Treasury when he finally leaves saying ‘There is no money left’. The Tories spent it all!

You might be forgiven too for thinking when TV journalists like Krishnan Guru Murthy then reinforce the false household budget narrative with statements like ‘The Government is running out of Money’ or when The Times publishes a provocative headline, as they did this week, designed to send pensioners into a spin ‘State pension fund ‘raided’ to pay for pandemic unemployment payments’ that they are pointing out the obvious. It is not possible to continue ‘spending like a drunken sailor’ without consequences. Surely the public might say? Notwithstanding that government spending is the only thing keeping the economy from tanking further.

Even the National Institute of Economic and Social Research, whilst opposing at the end of last month the Chancellor’s planned closure of the furlough scheme saying it was too early to do so without the probability of a surge in unemployment, then goes on to focus on the problem of higher public sector borrowing in its words ‘financed by higher private sector saving’. The money has to come from somewhere. Doesn’t’ it? Whether that’s borrowing or higher taxes.

And so, the public continues none the wiser and starts to prepare itself for hard times ahead. Such uncertainty will, in turn, lead to yet more economic distress as people fear the worst and retrench yet more. Those who can, will continue to save and indeed the figures show that during the pandemic savings have risen. At the other end of the scale, the choices for many are cutting their budgets or getting into debt. Either way, it is the worst economic recipe of all. Savings don’t always mean people are going to spend in an uncertain climate and for those lower down the wage scale, the choices don’t even exist. It becomes a vicious cycle of decline.

It’s time to break this cycle of lies.

To put it clearly, a sovereign currency-issuing government doesn’t have to borrow from the private sector in order to spend, nor raid the State Pension Fund to pay for the pandemic unemployment payments. And it most certainly can’t run out of money! After the big spend, a narrative is being constructed to justify more cuts to publicly provided services, just as happened in 2010 when the Tories came to office. While we clapped for our public services and key workers recognising their vital contribution to keeping the economy functioning during the pandemic, the Establishment has been planning its next coup which will focus on how to pour yet more public money, that apparently ‘we don’t have’ to invest in the public purpose, into private profit instead. As mentioned last week – the creation of UK plc.

While Rishi Sunak promotes, with great fanfare, his ‘Eat out to help out’ scheme (when many people are simply struggling to eat and for whom such a discount might represent a whole week’s food) and Boris Johnson unveils his £10m half-hearted plan to cut obesity (with those contradictions ringing loud and clear) the numerous elephants in the room remain seemingly invisible to policymakers:

  • The last 10 years of austerity which has left the economy in bad shape and the public and social infrastructure in a state of decay and unable to respond effectively. A social safety net which has been decimated and left many people hungry and homeless.
  • The precarious nature of employment with long hours, insecure working practices, and poor pay.
  • And now the prospect of mass unemployment adding to the already structural faults in the employment landscape.

The growth in self-employment with around 5 million people or 15% of the workforce, a growing number of which are women, has replaced well-paid and secure work. Presented as offering choice and flexibility it has, in fact, left many people in dire economic straits trying to make a decent living even before the pandemic and the rules on receipt of benefits over the last few months have further disadvantaged these people and left them without.

Currently, many people are now chasing too few jobs with employers receiving hundreds of applications for just one position. It seems that the message to people of working age is that you are on your own. You can either sink or swim! Then, in the event that your job is no longer viable in the longer term, the message from Rishi Sunak this week is to get on your bike and get retrained and, without a doubt, then if you still fail to find a job then you can be sure that the blame will be shifted onto you.  As Bill Mitchell said in a blog in 2009 during the Great Financial Crash ‘Training does not equal jobsthis will be yet again a government shifting responsibility elsewhere and abdicating its own for the economy and the welfare of its citizens.

The government’s continuing fixation on ‘debt’ and the unsustainability of ‘borrowing’, which is the driver for its October deadline for bring the furlough scheme to a close, combined with private sector redundancies or cutting workers’ pay (both of which are already happening) is a recipe for economic disaster and lies in flawed thinking. Indeed, if pursued, will do an immense amount of harm to an already ailing economy. In simple economic terms, the government’s deficit is the private sector’s surplus. In personal terms that we can identify with, that’s the money circulating in the economy. Who in their right minds would want to remove it at this critical time by abandoning the furlough scheme or even consider higher taxes? But still, the household budget drums beat! And still the shifting of public assets into ever fewer hands carries on.

We are, it seems, being presented with a choice. A stark choice. Follow the household budget narratives which ultimately will demand tough decisions on spending (notwithstanding that there will always plenty for the next war, or to fill the boots of big corporations) and accept there will be no alternative to more public infrastructure decay and worse more deaths of innocent people. Or we break free from the nonsense which asks, ‘but where will the money come from?’ The bottom line is that our public fixation with high levels of debt and the rising deficit is harming people, indeed killing people, and pulling the rug from under the feet of those same people threatened with the loss of their job, cuts to their wages or government-imposed public sector wage restraint. Indeed, thousands of NHS nurses and healthcare staff marched in towns and cities this weekend to protest about being excluded from the public sector pay rise announced by the government in recent weeks. Just how Rishi Sunak thinks he can stimulate an ailing economy by cutting the lifelines of working people is a mystery.

We need now to restore the diminished power of working people and resist the potential for driving down conditions and pay which most likely will be the result of mass unemployment as the power shifts remorselessly towards ever fewer people. We haven’t got one, but we need a government not only prepared to legislate to protect working people from the economic ravages of the pandemic, but also one that is committed to the principle of full employment through the implementation of a Job Guarantee. Instead of worrying about the size of the deficit, we should be looking at its size in relation to what it represents in real terms to the well-being of citizens and whether or not it corresponds to full employment.

So, why a job guarantee, why is it important and what would it entail? In simple terms, the job guarantee acts as a superior macroeconomic stabiliser providing a sustainable solution to the perennial problems of inflation and unemployment. Its aim is to create full employment and price stability through the government hiring unemployed workers as an employer of last resort.

Professor Bill Mitchell usefully clarified in his blog this week what it would entail:

  1. A guaranteed job for anyone who wants to work and cannot currently find a job.
  2. They would receive a socially inclusive minimum wage.
  3. They would receive holiday and sick pay entitlements, superannuation contributions from the employer, and other special leave entitlements that are common in the permanent workforce.
  4. They would be entitled to undergo training (on-the-job or in outside environments, including going back to school, college or university).
  5. They would receive social wage benefits – what some might call guaranteed levels of services – such as health care insurance, free child-care, transport allowances, access to legal aid supplements, etc.
  6. Family Income Supplements: The Job Guarantee is not based on family units. The Job Guarantee wage (available to anyone over working age) would be supplemented with benefits reflecting family structure. In contrast to workfare, there would no pressure on single parents to seek employment.
  7. They could choose whatever hours they desired to work – effectively eliminating time-based underemployment.
  8. IMPORTANTLY, a worker would be given a grace period on accessing the Job Guarantee. Their wage would start immediately but they could have 3-4 weeks before having to start work where they could sort out their affairs, ‘take a breather’, engage in job search if they wanted, etc. During this period, they would be paid the standard wage rate.
  9. The job would be permanent if they chose.
  10. The job design can be flexible to help workers with special difficulties enjoy a productive working life (for example, the provision of clinical support within the workplace to help people burdened with episodic illnesses).

To this, we would add a superior benefit system which would protect those who cannot work for any reason including illness and disability or carrying out caring roles along with Universal Basic Services.

The question must be answered. And we must answer as a collective. What sort of society do we want to live in? A dystopian Mad Max one where economic slavery and gross inequality dictates the terms by which we live our lives. Or something better?

 

 

Event

The Post-Covid Economy

We were privileged to be able to host GIMMS Associate Philip Armstrong speaking about how the economy works and what a Post-Covid Economy could look like.

Christian Reilly kindly recorded the event for us and shared it on The MMT Podcast here.

Slides available at https://gimms.org.uk/wp-content/uploads/2020/08/Phil-Armstrong-MMT-and-Post-Covid-Economics.pdf

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post “Whatever great meaningful and impactful work we are doing now is only the beginning, let’s keep moving forward for a better tomorrow.” – George Stamatis appeared first on The Gower Initiative for Modern Money Studies.

What sort of future do you want for yourself and your children? If it’s not more of the same, then it’s time for some radical thinking. 

Two children walking away on a path with their arms around each otherPhoto from Pxfuel

Three common neoliberal threads run through this week’s news: How will the enormous sums of money borrowed by the government to hold up the Covid-19 ailing economy be paid for? How can we fix the crisis in social care which has been starkly revealed over the last few months? And the continual covert shifting of responsibility from government to the public in the endless blame game which has created the narrative that poverty and inequality is a personal failure that bears no relationship to government policy.

Over several weeks now, and already noted by the GIMMS MMT Lens in previous blogs, the narrative of getting the public accounts back into balance has been a constant theme in the media; preparing us for the worst, preparing us for the inevitable. Revenue raising, public sector pay restraint and finding savings, returning to normal levels of ‘borrowing’, not to mention talk of plans to balance the books.

After 10 years of austerity and the very visible consequences which are wracking society, combined with the economic effects of Covid-19, the public should be shaking in its boots at such talk. Yet there is often a veiled acceptance that there will be no alternative. Only this week, Douglas Fraser in an article which appeared on the BBC website entitled ‘Is it time to rethink the tax system?’ repeated the common tropes that more tax revenue would be needed to fund government borrowing and the enhanced public services the nation is demanding. Quoting the Public Accounts Committee on the subject of tax breaks, it was suggested that they cost the public purse hundreds and billions of pounds in lost income as if somehow the government was a public limited company, a local government authority or indeed you or I.

Forgive us if we keep labouring the point, but wherever you look you just can’t get away from the false Household Budget version of the public money system – it pervades the public consciousness like a bad penny. Both on the left and right it informs every comment by journalists, politicians, government institutions and think tanks. From the wealth taxes to pay for public services suggested by the Shadow Chancellor Anneliese Dodds, to the price the nation will have to pay for all that additional spending. Never mind that its aim was to keep people from going hungry and being unable to pay their bills when the economy was going into a nosedive because of lockdown.

One might, of course, take issue with the way this fiscal programme was carried out, benefiting as it did businesses and corporations rather than working people directly, with the fact that many were let down by a welfare system which had already been proved not fit for purpose with many falling through the cracks, not to mention the vast sums of money poured into public contracts with the private sector. But such a fiscal injection was vital and will continue to be vital for many months to come, even as the furlough scheme is closed and we face the prospect of a huge rise in unemployment on levels not seen for many decades. These were political choices unrelated to monetary realities and we would do well to recognise and emphasise that fact when talking about how money works.

Even whilst the conversation is about how it will be paid back and in an age where national sovereignty has been deliberately ceded to global corporations, it demonstrates with stark clarity the real powers of a government which has sovereign currency-issuing powers to act quickly and with public purpose (should it choose to do so) without reference to the state of the public accounts (as was already patently clear from the bank bailouts in 2008 but which somehow we seem to have forgotten!)

In the review of a recently published book ‘Post Democracy – after the Crises’ authored by the academic Colin Crouch it notes that:

Globalisation having curtailed the ability of national governments to shape economic policy, the neoliberal ideology that drove it “has turned this weakening of the nation-state into a virtue”. For Crouch, neoliberals view governments as “almost by definition incompetent” and sought to strengthen the power of multinationals as more dynamic, efficient stewards of economic well-being. But neoliberalism was never about simply weakening the state –instead, it requires continual state intervention to create and shepherd market mechanisms, as well as obligatory bailouts and subsidies (as we see in the current crisis). The anti-statist rhetoric of neoliberal populism bears little resemblance to the actual practice of neoliberals in government.

Whilst denying modern monetary reality (even though that is what it has been doing in effect) the UK government has not had any financial problem dealing with the current crisis – funding its agenda or lining the pockets of the corporate beneficiaries who no doubt will continue to profit from the public purse. Contrast that with the false narrative being pursued about affordability and how it will be paid for ultimately and surely the contradictions are staring the public in the painfully in the face, particularly now.

Instead of examining this from the point of view of how public purpose can be served through government action, the myths and legends of how governments spend are being shamefully repeated to reinforce the desired message that it will have to be paid for. This strengthens the intrinsic public belief that our public and social infrastructure will have to bear the brunt in the end.

Many will approve of the government’s stated intention to create thousands of UK public sector jobs – from nurses to teachers and police officers – after years of unnecessary cuts which have damaged our public and social infrastructure. But seen alongside the narratives of rising ‘government debt’ and questions about how it can be paid for, they will understandably mistrust the government’s expressed intention, whether that’s rebuilding an already decimated public sector or levelling up society. Especially those who understand that cutting departmental budgets to find so-called savings which can then supposedly be spent elsewhere is a fantasy and a deception.

For many decades, the question of funding social care has been a reoccurring theme in political circles and this week it was brought yet again into public focus as it was revealed that the government was considering plans for over 40s to pay more tax or national insurance or self-insure to contribute towards the cost of care in later life either at home or to cover the cost of a stay in a care home. It would, in the words of the Conservative MP Damien Green, resolve the funding question, whilst the Liberal Democrat former MP Paul Burstow suggested that it would put ‘social care on a firm footing for the future … to ensure sufficient funds are raised’. The chief executive of NHS England, Simon Stevens, said in an interview in early July that he hoped that ‘by the time we are sitting down this time next year, on the 73rd birthday of the NHS we have actually as a country been able to decisively answer the question [of] how we are going to fund and provide high-quality care for my parents’ generation’.

That sticky, sticky question of how we will pay for it yet again raises its ugly head and yet again fails to acknowledge monetary realities. Aside from the facts that the flat-rate tax being suggested would be regressive and inequitable punishing those on already low incomes and that it would take income that would have been spent into the economy out of the economy at a time when it is already struggling (and will be likely to do so for some time yet, maybe even years), it does not represent the reality that such a tax does not equate to a pot of money put aside by government to pay for anything – let alone social care.

As Alan Greenspan said in response to a question by US Congressman Paul Ryan about personal retirement accounts helping to achieve solvency for the system.

Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”

The UK is no different. Importantly as Greenspan points out and which equally applies, although in a different context here, it could create the money to fund social care tomorrow, if it chose. The real constraints would be assuring that government had made provision to ensure that the real assets are available – in this case sufficient care workers with good pay and conditions and an adequate care home infrastructure to deliver high-quality care.

That requires both planning and political will and, for the best outcome, restoration of social care to the public sphere rather than being run by corporations who are intent on cutting costs for profit. The endless round of austerity has cut funding to local authorities charged with social care provision, combined with its provision through the private sector has been damaging. This and the colossal failure of care revealed due to Covid-19 show that it is time for a radical rethink about social care provision.

We need to stop thinking about how it can be paid for because with modern monetary realities in mind that is a given. Instead, we must start thinking about how we can create a decent social care system which offers dignity to those who need its services and fair pay and conditions for those providing them.

Finally, in this week’s news, there has been another frequent constant theme – blaming the populace for government failings. Whether it’s Matt Hancock blaming the public for the rise in coronavirus infections (notwithstanding the complete dog’s dinner that has been the constant theme of this government’s handling of the pandemic with its tardy and inconsistent communication and messaging), telling us we can save the NHS by cycling and losing weight (implying that you’ll be to blame if the NHS sinks beneath the waves) or the shocking comments by Jacob Rees Mogg’s sister Annunziata who tweeted that people on low incomes should buy fresh produce instead of junk food to save money and learn to budget and cook to improve their health. Rees-Mogg, speaking from her ivory tower of wealth and privilege, clearly has no idea about the lives and struggles of ordinary working people. Instead let’s blame, blame, blame.

The neoliberal notion of personal responsibility has become paramount in government messaging down the decades. One which has disputed the role of the state in creating a positive vision of society which puts collective action at the heart of government policies.

We all have a role to play as part of any collective action to improve the nation’s well-being, but such messaging is less to do with collective action and more to do with shifting the blame downwards so that government is no longer in the firing line and can thus abdicate its responsibility and deny democratic accountability.

It is time to acknowledge the government’s responsibility for the socio-economic conditions people find themselves in. Not just the consequences of austerity – the cuts to public sector spending on our NHS, social care, education, policing and local government – but also those policies which have decried full employment as a policy objective and left people in low paying, precarious employment with less protection against the ravages of capitalism. It is time to recognise the socio-determinants of the nation’s health and how governments have used the blame game to shift attention away from their real objectives. Serving not citizens, but global corporations and shovelling public money into private profit. Westminster Plc!

If the government can create money on a whim to fund its friends, then equally it can create money for the public purpose and to pursue full employment. Don’t let anyone tell you that it can’t. Learn the real story about money and what the very real constraints to spending are and how the government’s role is to balance the economy, not the budget. Our lives will depend upon it.

 

Upcoming Event

The Post-Covid Economy – Sat, 8 August 2020 18:00 – 19:30 BST

What could a Post-Covid Economy look like? Join GIMMS and our speaker Philip Armstrong to find out. 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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post What sort of future do you want for yourself and your children? If it’s not more of the same, then it’s time for some radical thinking.  appeared first on The Gower Initiative for Modern Money Studies.

“Either you guarantee employment, or you guarantee there will be unemployment.” – Pavlina Tcherneva

Unemployed men wearing hats waiting in employment benefit linePhoto by The New York Public Library on Unsplash. 1938 – Unemployment benefits aid begins. Line of men inside a division office of the State Employment Service office at San Francisco, California, waiting to register for benefits on one of the first days the office was open. Photographer – Dorothea Lange

This week the Learning and Work Institute published its July briefing on employment. Stephen Evans, its chief executive, made it clear that there were signs of an employment crisis ahead with payroll employment down 650,000 and the claimant count over double the level seen in March with the biggest rises in areas where unemployment is already high.

According to its analysis, the number of hours worked have plummeted 17% since the start of the crisis – the lowest level since 1997. It also noted the OBR projections that 15% of furloughed workers (1.4 million people) will not be able to return to their previous jobs.

Pointing to the current 2.6 million claimant unemployment, which is almost at the levels of the 1980s, it said that that could rise further with the withdrawal of the Coronavirus Job Retention Scheme at the end of October, risking a second wave of unemployment and adding to the redundancies already announced in recent weeks.  Modelling by the Learning and Work Institute has also warned that without adequate government intervention unemployment could be on track to exceed four million, which would be an unemployment rate higher than at any point since 1938, following the Great Depression.

According to the Learning and Work Institute and very worryingly the youth claimant count has already exceeded the peak of the last recession reaching 508,000 in June. The Resolution Foundation suggested in its ‘Class of 2020’ report, published in May, that the pandemic could push youth unemployment over one million.  It also found that education leavers were most exposed to the increase in unemployment and that they are likely to face reduced pay and employment prospects even after the economy has recovered.

Prior to the pandemic, the consequences of 10 years of cuts to public spending and government policies had already left people in precarious employment and on low wages – in poverty. The future is now even more uncertain for many of those people who will be joined by many others fearing equally for their prospects. ‘Can I get a job?’Will I still have a job to go to?’ And for young people ‘What sort of future will I have?’  Those fears are translating into falling consumer confidence and spending.  Andy Haldane’s ‘V-shaped recovery’ is looking less and less likely as people worry about the prospect of redundancy and decide instead to save what they can (and if they can) just in case the worst happens.

Jonathan Haskell, who sits on the Central Bank’s interest rate-setting committee, was clear in his analysis ‘The path of recovery crucially depends on the fear of infection, which in turn depends on the mix of public (track and trace) and private (screens in shops) health measures… It also depends on the fear, or realisation, of unemployment, as weak activity and capacity constraints on the operation of surviving businesses, and insolvencies, translate into a fall in the demand for labour’.

With the slowdown in economic activity across the world and the prospect of a deep global recession, the steep fall in household consumption and businesses which have closed, the already massive response from the government in the initial stages of the pandemic has now translated into the job creation programme announced a few weeks ago by Rishi Sunak to mitigate the worst consequences of the economic slowdown as we emerge from lockdown.

Sunak announced increased capital funding and plans for better infrastructure from roads to schools and hospitals as well as the creation of green jobs along with a youth employment programme.  Whilst they are welcome, such plans will not be ‘shovel ready’ or provide an immediate solution to the expected rise in numbers of unemployment. Furthermore, the Kickstart scheme for young people may not be workfare but leaves many questions unanswered: Will these jobs be mandatory with the threat of Universal Credit being stopped if they opt-out? Will they lead to permanent jobs? And could they undermine existing employees if employers choose to replace them with government-funded labour?

As Ellen Clifford (a disabled activist and author of The War on Disabled People: Capitalism, Welfare and the Making of a Human Catastrophe’) notes in her article in Novara Media ‘Throughout the pandemic, the Conservatives’ primary economic concern has been how to support business with little to no regard for public well-being.’

This phenomenon is not new. It has been the modus operandi of successive governments and reflects ‘free market’ ideology which places businesses as wealth makers, forgetting the role of workers in that wealth creation.  At the same time, it has been allowing vast sums of public money to be poured into private profit. As has already been noted by GIMMS in previous MMT Lens blogs, under cover of Covid-19 this process has speeded up.

As reported recently by the RMT, the privatised rail companies have been handed hundreds of millions in extra subsidies to run trains during the lockdown and they are now demanding even more. Add to this the state contracts worth over £1bn that over the last few months have already landed in the laps of private companies without a tender process or accountability. Companies such as Deloitte, PriceWaterhouseCoopers and Ernst & Young have all been beneficiaries of public money under fast-track rules. In other words, just more of the same corporate welfare which has been a key feature of successive governments over decades.

At the same time as our public services have been starved of funds on the grounds of unaffordability, the private sector has done very well indeed from the public money tap.  Whilst public money has been poured into private healthcare organisations the UK, according to recent research by the Nuffield Trust the NHS is near the bottom of the league for health resources – short of staff, beds, equipment and buildings. The commercialisation of our public service sector means that private profit trumps public well-being whether it’s the NHS or social care. Even our education system has been reduced to serving the god of the market.

And as Rishi Sunak bigs up his generosity by praising the role of public sector workers and rewarding some, he is at the same time playing a nasty, divisive game by increasing the pay of teachers, police and prison officers, the judiciary, civil servants, doctors and dentists and the armed forces whilst ignoring other frontline workers including nurses, midwives, hospital porters and other NHS staff who will not be included in this pay round. The very people who were instrumental in saving thousands of lives whilst putting their own at risk. The same people who despite a three-year wage settlement still have not made up for the lost incomes which occurred during the previous public sector pay freeze.

The settlement did not include either the many thousands of brave and committed employees working for private care companies on low pay and with poor working conditions during the pandemic. This is a direct result of the brutal cuts to local government budgets which has left them between a rock and a hard place and having to drive hard bargains to buy care which in turn has a knock-on effect on workers’ pay. As an aside, isn’t it time for social care to be brought back into the public sphere rather than being open to abuse by big private companies obsessed with profit?

It is risible then that at the same time as recognising the ‘vital contribution’ made by our key workers, Rishi Sunak is now talking about the need to get the public finances back in shape and the possibility of further cuts to spending. This week he warned that public sector workers should expect further pay squeezes and has ordered government departments to find cost savings.  Suggesting that the money for the proposed public sector pay increases will have to come from existing budgets is likely smoke and mirrors code for the prospect of more cuts to public spending at some point in the future.

After a huge fiscal stimulus to keep the economy from tanking, which yet again has benefited businesses, the government is now rowing back and preparing us for the bad but false news that it will have to be paid for. And the media and economically illiterate journalists reinforce the household budget narrative to keep the public in line and compliant – ‘Covid-19 provoked a surge in borrowing’,…‘the UK public finances are on an ‘unsustainable path’‘tax rises are inevitable’ are dished out daily to subvert the truth about monetary reality. The desired response will be that the public accepts more austerity as the price to pay for government spending during the pandemic.

It’s time for the public to get ahead of the curve and stop bowing to the deficit hawks who spread misinformation which will deprive them of a better life.

Quite simply, such a strategy would further depress the economy at a time when it needs more spending, not less. Robbing Peter’s department to pay Paul’s is, in short, more austerity and more cuts to public spending based on the lie that there is a finite pot of public money. We should be clear here that it has nothing to do with the state of the public finances or modern monetary realities and is more to do with political choice and fulfilment of ideological narratives about the superiority of the market rather than the government recognising its role in serving the interests of the nation as a whole. The message of trickle-down has proved a lie, but they still try to promote it as a wealth equaliser.

If the Conservatives were really interested in really levelling up Britain and tackling poverty and inequality, then they would have to embark on a radical strategy which would include;

  • a central government paid for Job Guarantee serving the needs of local communities by providing useful, paid public sector work both to maintain economic activity in the real economy and mitigate the worse effects of the coming recession.
  • a permanent expansion of the public sector for education, healthcare and social care for the well-being of both the economy and its citizens.
  • Targeted government investment in training, education and re-skilling for the future and to transition towards a just green economy.

A Job Guarantee may not be a magic bullet in itself to solve all the problems we face but it is an essential framework upon which we can build a better society for all.  In the words of Pavlina Tcherneva, academic and author of The Case for a Job Guarantee:

“The guarantee part of the proposal is the promise, the assurance, that a basic job offer will always be available to those who seek it. The job part deals with another paradox, namely that while paid work in the modern world is life-defining and indispensable, it has, for many, become elusive, onerous, and punitive. The job component in the Job Guarantee aims to change all that by establishing a decent, living-wage job as a standard for all jobs in the economy, while paving the way for the transformation of public policy, the nature of the work experience, and the meaning of work itself.”

Hands up who doesn’t want a better life for themselves and their families?

 

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post “Either you guarantee employment, or you guarantee there will be unemployment.” – Pavlina Tcherneva appeared first on The Gower Initiative for Modern Money Studies.

Should the government keep running up debt to get us out of the crisis? Overwhelmingly, economists say yes

Published by Anonymous (not verified) on Wed, 22/07/2020 - 10:37am in

Overwhelmingly, the 50 leading Australian economists surveyed by the Economic Society of Australia and The Conversation ahead of Thursday’s economic statement want the government to keep spending to support the economy — even if it means a substantial increase in debt.

The question is the third asked in the Economic Society-Conversation monthly poll, which builds on a series of polls conducted by the society since 2015.

The economists polled were selected for their preeminence in the fields of microeconomics, macroeconomics, economic modelling and public policy. Among them are former and current government advisers and a former and current member of the Reserve Bank board.

Each was asked whether they agreed, disagreed, or strongly agreed or strongly disagreed with this proposition:

Governments should provide ongoing fiscal support to boost aggregate demand during the economic crisis and recovery, even if it means a substantial increase in public debt

Only three of the 50 economists polled disagreed with the proposition, none of them “strongly”.

It is one of the starkest results in the survey’s five-year history.

 6% The Conversation, CC BY-ND

Of the 50 economists polled, 44 supported the proposition, 33 of them “strongly”.

Of the remaining six, three were uncertain, and provided well-argued accounts of their reasoning which are published in full along the responses of each of the other participants at the bottom of of this article.

Debt now, concern later

Rachel Ong of Curtin University said the amount of public debt that has accumulated during the COVID-19 crisis was at a historical high and had to be repaid at some point. But she said governments had to be careful about removing support until the economy was clearly on a trajectory of recovery.

Nigel Stapledon of the University of NSW said while some level of on-going support was needed, at some point the cost would be larger than the benefit. Some sectors, including universities, will have to permanently adjust to lower incomes.

Read more: Bowing out gracefully: how they'll wind down and better target JobKeeper

The economists who strongly agreed said that if not enough support was provided or if it was withdrawn too early, the resulting recession would itself make the debt that had been run up less sustainable (Fabrizio Carmignani, Griffith Business).

Financial markets are keen to lend

Beth Webster of Swinburne University argued the only real limit to government spending was high and damaging inflation.

If the government was worried about debt, it could finance its spending in other ways, by borrowing from the Reserve Bank (which could itself create money and “monetise” the debt).

Sue Richardson from the University of Adelaide agreed, using a technical term to argue that the was economy was “so far inside its production possibility frontier” (producing so much less than it was capable of) and inflation was so dormant, that there was a case for creating money.

Saul Eslake said that wasn’t necessary. Even with the hundreds of billions committed, financial markets appeared to be comfortable with the debt and keen to lend.

Debt is how we do things

Reserve Bank board member Ian Harper said the Commonwealth could borrow for 30 years at about 1%. “Can we expect the economy to grow faster than 1% per annum in nominal terms over a 30-year horizon?” he asked rhetorically. “I would have thought that’s a shoo-in,” he answered. If so, then the debt would be easily serviced.

Consulting economist Rana Roy pointed out that public debt was “not an anomaly”. It was an enduring and defining feature of the modern economy, providing an enduring and defining asset class, sovereign bonds, which were in high demand.

Read more: Australia's first service sector recession will be unlike those that have gone before it

Of the three economists who opposed the proposition, Tony Makin of Griffith supported “supply side” measures such as JobKeeper that would keep firms in business but opposed “demand side” measures to boost consumer spending, saying they would ultimately prove counterproductive.

Escalating public debt would induce capital inflow, drive up the dollar and make Australian businesses less competitive. Although interest rates are at present low, they would increase when the debt had to be refinanced.

Doubts for differing reasons

Paul Fritjers of the London School of Economics said he would normally support running up government debt for the sake of the economy, but could not support it being run up to support an economy the government itself had run down.

The government should wean the population off of its “irrational fears” and letting “normal economic life return”.

Although strongly argued, these views were more weakly held than those of the majority.

 4.4% The Conversation, CC BY-ND

Participants were asked to rate the confidence with which they held their opinions on a scale of 1 to 10.

When adjusted for these ratings, the proportion prepared to countenance a substantial increase in public debt climbed from 88% to 92.1%.

The proportion opposing it fell from 6% to 4.6%.

Tommorrow’s economic statement will be the last budget and economic update before the budget itself on October 6.

Individual responses

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Peter Martin is economics correspondent for The Age and the Sydney Morning Herald.

He blogs at petermartin.com.au and tweets at @1petermartin.

We need a government that dares to think big and be more ambitious in its strategy to set our economy on a more sustainable and equitable pathway.

Man begging with sign that says "homeless and broke, please help if you can"Photo by Vincent Albanese

“The difficulty lies not so much in developing new ideas as in escaping the old ones.”
― 
John Maynard Keynes

When the world is facing one of the worst public health and economic crises since the Great Depression in the 1920s, Rishi Sunak excelled himself this week with his summer statement. Not in a good way one has to say. To put it bluntly, we have gone from Boris Johnson’s ‘New Deal’ pretensions to Rishi Sunak’s ‘meal deal’ as so neatly coined this week by the Labour party. At a time when unemployment has soared globally with projections that it will rise still higher, Sunak’s intervention could be said to be less than even a damp squib which fails to deal with the very real threats that the UK faces right now as domestic and worldwide demand plummets and people hunker down in uncertainty both for their jobs and their financial security.

That the Chancellor thought a ‘eat out to help’ scheme would help those 3.7 million key workers struggling to survive on less than £10 an hour shows where his head is firmly planted – in the sand. As Garry Lemon from the Trussell Trust noted ‘encouraging people to eat out is one thing but ensuring people can afford to eat at all must come first’. Ten years of austerity has left essential public services on the edge of collapse and people in insecure work on low incomes both in the private and public sector. Whilst giving a dining out discount to the already well-off it is quite simply a slap in the face for working people who have already borne the brunt of years of government cuts to public spending and yet who have proven their value to society in these last few months as key workers keeping the important services going as the nation locked down. The clear downside of his meal deal voucher is that you’ve still got to have the means to pay the other half of the bill when many are simply struggling to put food on the table!

And the bad news did not stop there, as government showed yet again who is to benefit from increased government spending. The proposed Job Retention scheme, which will replace the Furlough scheme ending in October, is just another mechanism for supporting businesses instead of working people and as the TUC commented it will do little to reduce unemployment. It will quite simply represent just more of the same corporate ‘welfare’ which has underpinned government policies for decades, whether bailouts for banks and businesses or employment legislation honed to serve private sector needs.

And then, to cap it all, a £1bn giveaway to second home-owners and landlords in the form of a reduction in stamp duty which once again favours the wealthier amongst us and does nothing for renters or indeed anyone purchasing a house in areas where prices are lower out of London.

Just how Sunak viewed these proposals as a mechanism to kickstart the economy is anyone’s guess, when there are already vast numbers of people struggling as a result of the combined consequences of government austerity and the economic consequences of Covid-19 with more hardship to come as the OECD projections make clear. The words of Marie Antoinette who was reputed to have said when there was no bread ‘Let them eat cake’ sums up the government’s response very simply as a complete denial of the extent of the poverty and inequality that exists which has been caused by a pernicious economic theory which has been used to justify greed and selfishness and put private over collective good.

Bread or cake, either way it’s just crumbs, when the strategy should be far bigger in terms of spending to alleviate the human cost to society and the economy and indeed dealing with the next big challenge bearing down over humanity – climate change. His plans do nothing to address the structural poverty which exists in the UK where food banks, homelessness and families living in temporary accommodation have become the norm and an accepted part of the way things are, as has blaming and shaming.

His plans do nothing either to reverse the cuts to public spending which have done so much damage to our essential public and social infrastructure, the consequences of which have been so much in evidence these last few months. After weeks of people clapping key workers on the doorsteps of their homes and politicians jumping on the goodwill bandwagon to give the false impression that we are all in it together, little has been said about the who is to blame for the worsening condition of our public services and what comes next. Johnson passing the buck for the care home crisis onto staff, along with his criticism of NHS England, Public Health England and SAGE’s responses to the pandemic should be a clue to where the government intend to shift the blame. Just more smoke and mirrors to distract from the consequences of government policies.

The fine words and expressions of solidarity with the working people of this country by Rishi Sunak are no replacement for real action to deal with the threats that face us. In the event that a second wave of Covid-19 can be avoided, unemployment is likely to rise to 11.7% by the end of the year but should we experience a second wave that could, according to the OECD, rocket up to almost 15% of the working population. The scourge of unemployment threatens young people in particular who stand to lose out as the labour market contracts.

So far, we have seen the government relying on the private sector to dig us out of this mess, whether it’s a Job Retention Bonus or the proposed apprenticeship scheme. It fails to acknowledge that continuing economic uncertainty will not bring about confidence, either for businesses to invest or consumers to spend. Furthermore, a £10 meal voucher or a reduction in VAT will do nothing to restore confidence when people are fearful for their jobs and their future income. It’s all sticking plasters and simply perpetuates the lie that it is only the private sector that can create the wealth in the end.

As Josh Ryan Collins wrote in a UCL IIPP blog on Medium ‘The pandemic has raised the level of uncertainty in the economy to an all-time high. As John Maynard Keynes emphasised, at such times it is natural for firms and households to retrench. Under such conditions – and with foreign demand also crippled – the domestic government is the only actor able to stimulate the economy and prevent unemployment and recession’.  

The action needed to avert an economic crisis and address climate change is on a scale far greater than the one on offer by the Conservatives, who are picking and choosing the recipients of their spending based on a flawed economic model which puts the private sector as the wealth creator and denies the power of the state and its money issuing powers to address the serious challenges to come.

Government needs to restore its role as employer of last resort and focus its efforts on full employment through job creation – not as a temporary measure but as a permanent feature of public policy. At the end of the day, whether you are on the right or the left of the political spectrum, a mechanism for providing paid work at a living wage which supports the health and well-being of local communities in difficult economic conditions and at the same time keeps money in people’s pockets which then, in turn, flows through the economy and keeps prices stable surely should be the goal of any government?

But how could this be achieved? In two ways:

Firstly, with the introduction of a public sector Job Guarantee to provide employment for those who have been made involuntarily unemployed either as a consequence of Covid-19 or as part of a Just Transition towards a green economy as old carbon-based jobs become redundant and new green ones take their place. With a living wage and training, it would offer a stepping-stone into private sector work as economic conditions improved, would set a wage floor below which private employers could not offer employment and would serve local communities by providing worthwhile and useful public service work.

And secondly, with an expansion of the public sector, which hitherto has been shrunk to a shadow of its former self and is also short of hundreds and thousands of staff particularly in social care and health. As GIMMS has said many times before, the public sector provides the foundations for a healthy economy and any government of any political shade would do well to recognise that public service which serves the economy should not be in the hands of profit-hungry companies which are more interested in cutting costs than improving lives.

Not only do we need to rebuild the public infrastructure that has been shattered by the austerity policies and neoliberal narratives of small government, but we also need to recognise the real and tangible value of public sector work to the economic and social infrastructure.

Of course, without doubt, the next question will be ‘how will it be paid for’? Over recent weeks the debt scaremongers have been much in evidence from various media outlets to public institutions and public finance experts who show scepticism that even the current round of additional spending can be funded without taxing or borrowing more. They put the fear of God into the public consciousness that at some unspecified time in the future someone will have to pay and that someone will be the taxpayer.

Even the Daily Mirror this week helped to spin the lie to its readers that the government has to borrow to fund its deficit, that it will take decades to pay off the debt that has been accumulated as a result of the additional spending, and that the Chancellor will have to impose higher taxes eventually to pay it back. None of this is true and it is shameful that such lies continue to create such fear and uncertainty in the minds of the public.

By all means carry on with this nonsense but such beliefs will, by their nature, constrain any government’s capacity to serve the best interests of its citizens and the economy as a whole if people lose confidence and fear the consequences of such spending on their own future income. Instead of listening to the likes of the Daily Mirror, Rishi Sunak, successive shadow chancellors and other economic pundits not to mention the IFS which regularly trots out analyses of the public accounts as if it were a household budget, we should be challenging these false notions wherever they come from.

And then, when the National Audit Office adds its concerns about the increasing cost of rolling out universal credit and the rising impact of Covid-19 on job losses and Rishi Sunak announces that the number of work coaches in jobcentres would double next year to cope with rising numbers of unemployed people signing on, if you have even the most limited knowledge of how governments spend then you have to scratch your head in puzzlement.

The first thing to note is that the monetary cost of any programme is an irrelevancy for a government like the UK’s that issues its own currency. Secondly, it is not the monetary cost of unemployment or underemployment that is important, it is the social and economic cost to individuals and the economy as a whole that matters. And thirdly it won’t matter how many job coaches you put in Jobcentres – as Warren Mosler so aptly pointed out using the analogy of dogs and bones – if you’ve only got 95 bones and 100 dogs it won’t solve the problem of unemployment. Suggesting that the onus lies with the individual to shape up and be responsible for his or her own fate is a neoliberal narrative to blame and shame.

We need the state to recognise its responsibility as the employer of last resort during the economic cycle and we need a Job Guarantee, not a system of individual censure and humiliation.

The government needs to think big and be more ambitious in its strategy to help reset our economy on a more sustainable and equitable pathway. Whether it will, is an entirely different matter.

 

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post We need a government that dares to think big and be more ambitious in its strategy to set our economy on a more sustainable and equitable pathway. appeared first on The Gower Initiative for Modern Money Studies.

Britain was not "nearly bust" in March

Published by Anonymous (not verified) on Wed, 24/06/2020 - 2:49am in

"Britain nearly went bust in March, says Bank of England", reads a headline in the Guardian. In similar vein, the Telegraph's Business section reports "UK finances were close to collapse, says Governor":Eh, what? The Governor of the Bank of England says the UK nearly turned into Venezuela? Well, that's what the Telegraph seems to think: 

The Bank of England was forced to save the Government from potential financial collapse as markets seized up at the height of the coronavirus crisis, Governor Andrew Bailey has said. In his most explicit comments yet on the country's precarious position in mid-March, Mr Bailey said 'serious disorder' broke out after panicking investors sold UK government bonds in a desperate hunt for cash. It left Britain at risk of failing to auction off the gilts needed to fund crucial spending - and Threadneedle Street had to pump £200bn into markets to restore a semblance of order.

Reading this, you would think that the UK government's emergency gilt issues had triggered a sterling market meltdown, wouldn't you? If this is indeed what happened, then the Bank of England has strayed far beyond its mandate and compromised its independence. Why on earth the Governor would voluntarily admit this surely requires some explanation. After all, if it is true, it could cost him his job. The source for the Telegraph's extraordinary claim is this 51-minute podcast from Sky News, in which Sky's economics editor Ed Conway and former Chancellor Sajid Javid grill the Governor on his handling of monetary policy during the coronavirus crisis. The particular part of the interview that has raised eyebrows is in this clip, which I have transcribed here:

Bailey: We basically had a pretty near meltdown of some of the core financial markets….I got to Wednesday afternoon, and the markets team came down here, and you know it’s not good when they turn up en masse, and you know it’s not good when they say “we’ve got to talk”, and it wasn’t good. We were in a state of borderline disorderly, I mean it was disorderly in the sense that when you looked at the volatility in what was core markets, I mean core exchange rates, core government bond markets, we were seeing things that were pretty unprecedented certainly in recent times, and we were facing serious disorder.

Conway: How scary was that? What would have happened if the Bank hadn’t stepped in?

Bailey: “Oh I think the prospects would have been very bad. We would have had a situation in which in the worst element the Government would have struggled to fund itself in the short run”. 

So no, the market meltdown was not triggered by high government spending. The market meltdown was because of investors panicking about Covid. It did, however, threaten to cause a government debt crisis.

Or - did it? Government struggling to fund itself "in the short run" simply means that it might have needed to pay out money before it could raise it. Normally it would cover short-term cash needs by issuing Treasury bills, which are short-dated, highly liquid bonds with very low interest rates. But when markets are malfunctioning, it can't do this. And high-interest gilts or pandemic bonds would take time to issue. So it could potentially find itself short of ready cash for urgent spending. However, as I have explained before, not being able to raise immediate funds for an urgent purchase is not insolvency, it is illiquidity. Relieving temporary illiquidity is what central banks do, and have done since the time of Bagehot. Historically they have done so not only for banks, but also for governments. And in the UK, the Bank of England still bears this responsibliity. The Ways and Means overdraft (which was extended in April) is the living evidence of the Bank of England's role as liquidity provider of last resort for the UK Government. But it is simply a working capital overdraft, such as any solvent business would have. Using this overdraft in no way implies that the Government is "insolvent", "bust", "bankrupt" or any of the other inflammatory headlines that journalists like to use. And nor does it mean the Bank of England is financing government deficit spending on anything other than a very short-term basis. It simply smooths out cash flow. Conway's assertion that the Government was "within a whisker of insolvency" is total nonsense, as is the Guardian's claim that "Britain nearly went bust in March". The Government was not shut out of markets long-term, as an insolvent sovereign would be. It had short-term cash flow problems solely because markets were malfunctioning.  Indeed, in another part of the interview Bailey said exactly this (my emphasis):

Conway: At the time you were nervous about government not being able to finance itself. 

Bailey: Yes, because of market instability.

Bailey went on to explain that the reason why the Bank intervened was not because the Government was having funding difficulties, but because market instability was driving up interest rates across the entire economy, and indeed across the whole world:

How would this have played out if we hadn’t taken the action that we and other central banks took? I think you would have seen a risk premium enter into interest rates, I think markets would have priced in a risk premium, and it could have been quite substantial given the degree of instability we were seeing. That would have raised the effective borrowing cost throughout the economy. In terms of the Bank of England's objectives, that would have made it harder for us to achieve our objectives, both in terms of inflation and in terms of economic stability.

The market meltdown was weakening central banks' hold on interest rates. They had to act, not to protect government finances but to prevent monetary conditions from tightening sharply, potentially triggering a dangerous debt deflationary spiral. The first responsibility of central banks in this crisis has been to prevent an exogenous shock to the real economy from triggering a financial crisis that would amplify the shock and significantly deepen the inevitable recession. That's what the exceptional interventions by central banks, including the Bank of England, since March have been all about. 
Bailey observed that although the UK Government was the largest borrower in the sterling market, it was far from the only one. Big corporations were borrowing enormous amounts, both in the market and from banks. Interest rates were rising on their bonds as well as government bonds. So the fact that the Government was the largest borrower was "actually largely irrelevant to that argument about a risk premium and an increase in the effective rate of interest."Bailey said that the £200bn of QE announced by the Bank of England the day after his crisis meeting with the markets team was to provide emergency liquidity to the whole market.  By injecting very large amounts of liquidity into the market, the Bank of England aimed to slake investors' thirst for cash and stop the fire sales that were driving up interest rates. And it succeeded. As a by-product of this action, the UK Government regained access to short-term market funding. But Bailey insists that ensuring the Government could fund itself was not the primary target. Regaining control of interest rates was. 
The market meltdown in March also affected banks. It's a measure of how far we have come since 2008 that Conway & Co made nothing of the fact that the Bank of England had to provide emergency liquidity support to banks. Keeping banks afloat when markets are melting down is all in a day's work for a central bank, these days. Nothing to look at at all. But if a central bank provides emergency liquidity support to a government struggling to raise short-term cash when markets are melting down, that means the government is bust, the central bank is captive and the country is Venezuela? How utterly absurd. 
I found the interviewers' constant focus on government financing a serious distraction from what was an important story about the Bank's vital responsibility for ensuring the smooth operation of financial markets. When financial markets melt down as they did in 2008, the whole world suffers. Central banks saw the same thing happening again in March 2020, and acted to stop it. And their action was extremely effective. It seemed to me that this was the story Bailey really wanted to tell, but the interviewers were intent on pushing him towards the issue of monetary financing and the Bank's independence. Sajid Javid, in particular, seemed to want Bailey to paint the Chancellor's handling of the crisis as irresponsible and profligate. Which genius at Sky News thought it was a good idea for the Chancellor who was forced out of his job without ever producing a Budget to discuss the performance of his successor with the Governor of the Bank of England?
Finally, it is extremely unfortunate that none of the media reports highlighted Bailey's strong endorsement of the Government's exceptional measures to support people through this crisis:

It's entirely necessary that the state has to step in at this point. In a shock of this nature, you can't leave it to individual citizens to find their way through it, "well, good luck" sort of thing. The state has to assert its role at this point, which it did. It wasn't easy, but it did it. 

Fiscal policy is pre-eminent. The Bank of England's job is to ensure the smooth functioning of markets and keep the economy as stable as possible so that the Government can support people through this crisis. And that is what it is doing - successfully. This, not "Britain nearly went bust", is what should be on the front page of every newspaper. 
Related reading:
Pandemic economics and the role of central banksThe End of Britain?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Image One Credit: Photo by kaleb tapp on Unsplash.

Image Two Credit: Image by Krzysztof Dzwonek from Pixabay.

 


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So where might we be going now?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Viber icon
Viber

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Viber icon
Viber

The post If you clapped for the NHS and key workers, now it’s time to ACT. appeared first on The Gower Initiative for Modern Money Studies.

Pages