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The National Insurance increase shows that levelling up has been consigned to the Conservative bonfire of easy promises

Boris Johnson playing Connect 4 with an elderly lady and a nurse whilst visit Westport Care Home in East London 7/9/21Picture by Andrew Parsons / No 10 Downing Street. Creative Commons 2.0 license

A country ruled by criminals needs two revolutions, one small and one big: The small revolution is to overthrow the criminal government, the big revolution is to radically undo the damage these criminals have inflicted on the country!

Mehmet Murat Ildan, Contemporary Turkish playwright, novelist, and thinker

 

This week, Boris Johnson announced that his government would not ‘duck the tough decisions needed to get NHS patients the treatment they need’, or ‘to fix our broken social care system’. After all the fanfare and promises, from an already morally bankrupt government, the reality is somewhat different. The proposed solution to increase National Insurance will not only do nothing to resolve the growing crisis in social care, or create a fairer system for social care provision, it will also create further burdens on an economy already creaking at the seams.

When Johnson refers to a ‘broken’ health and social care system, he is ignoring the elephant in the room. Who broke it? The actions of successive Conservative governments are to blame, through a decade of cuts that have deliberately starved the public sector of adequate funding, along with decades of allowing a private profit-seeking sector to benefit from public money, at the expense of those needing health or social care services. It did so as a result of its fixation with fiscal discipline and market-driven economic dogma.

The Covid-19 pandemic has exposed the folly of austerity, the toxic and harmful obsession with private sector involvement in the delivery of public services, and the consequences of the lack of strategic planning for such events, which have resulted in the NHS and social care struggling to function effectively during this crisis and led to unnecessary suffering and deaths.

Adding to the already existing shortage of nurses (over 40,000) and other health workers, insufficient ICU facilities, ventilators, beds and PPE, were the warning indicators that something was seriously wrong, as hospitals burst at the seams with very sick patients needing treatment. As a result, we are now facing a growing backlog of patients awaiting diagnosis or treatment (or who have even died waiting), with experts warning of the future consequences on staff already suffering from burnout, stress, and exhaustion. It is humanly unsustainable.

Social care services have not been immune from the same economic illiteracy. The warning signs preceded the pandemic. Social care is in meltdown now, and the proposal to increase National Insurance will not only fail to enable the fairer payment system for social care promised by the government, but it will also do little to alleviate the immediate problems caused by government policies.

Government officials have been clear that most of the money raised by the new tax will be spent on the NHS in the first three years, on the assumption that demand for state-funded care will increase from 2026, as people reach the spending cap. These proposals make no attempt to deal with an already failing underfunded system, and social care providers and charities have already indicated that the extra resources would not be sufficient to improve standards.

The problems faced by social care have been longstanding, exacerbated over decades by a mishmash of reforms by governments unwilling to grasp the nettle, as a likely result of the uncomfortable, but false, question of affordability and how it would be paid for. As a result, under an unfair means-tested social care system, which has for decades been served by private profit-seeking companies and charities relying on state funding to function, social care services have increasingly been impacted by years of funding cuts affecting local council budgets, putting increasing pressures on care standards, wages and employment terms and conditions, as private providers struggle to make their businesses profitable.

This is just pushing the problem yet again down the line, when social care can already no longer meet the needs of those requiring support. Recently published figures showed that nearly 300,000 people are on local authority waiting lists for adult social care, a situation which has arisen as a result of funding pressures and delayed assessments. Figures also reveal a chronic shortage of care workers which has meant that those requiring a home care package have had no option but to accept a ‘temporary’ placement in residential facilities.

The government’s decision to increase National Insurance, a regressive tax that will affect the poorest, not the richest, will lead to many of those already poorly paid workers losing substantial income, as figures now show. Coupled with the looming cuts to the universal credit uplift of £20 a week and rising energy and food prices, it will add more unnecessary pain and suffering to people’s lives. A study published this week by the Health Foundation has shown that the UC cut will hit areas with the worst health hardest and is likely to widen inequality in health and wellbeing, running counter to the government’s promised levelling-up commitment.

Analysis by Policy in Practice noted that by April 2022, the combination of the new Health and Social Care Levy and the removal of the uplift to Universal Credit would mean that carers would be £1035 per year worse off, despite the planned (but scarcely generous) increase to the National Living Wage. Its Director Deven Ghelani said: ‘The unfairness of paying for social care through a rise in national insurance, whilst cutting support for the lowest earners at the same time, means those that kept us going through the pandemic are the ones hardest hit.’

It isn’t any wonder that the media reported this week that many were already choosing to leave social care and find work elsewhere. When Amazon becomes a better alternative to working in social care and playing a vital role in society, then we should question our societal values. When we are told that affordability is key to public service provision, the cruel consequence must be that, down the line, people must suffer higher taxes to balance the budget. How can that even be a consideration for a government which is a currency issuer and has the power of the public purse?

Astonishingly, even the free-market Adam Smith Institute called these plans ‘morally bankrupt’, saying that the government was asking ‘poorer workers to bail out millionaire property owners.’ They also criticised the plan as a ‘kick in the teeth for all the young working people of this country who have already been hard done by the pandemic.’

Whilst the solution is simple, ditching the for-profit motive and replacing it with an adequately funded, publicly paid for, managed, and delivered social care system, getting politicians to agree is quite another matter. Obsessing over how it will be paid for, we have two extremes of economic nonsense being touted in the news and on social media. Both sides of the political spectrum are dedicated to raising taxes to pay for health and social care. The Tories, as these plans show, through punishing already poor people, and Labour by taxing the rich to raise revenue.

Quite rightly, one should tax the rich for reasons of equity and to strip away the power and influence their wealth brings them, but this week some left-wing progressive MPs have flogged the ‘taxing the rich’ to pay for social care narrative to death on social media. James Meadway, a former advisor to John McDonnell, also got in on the act saying that Labour should, ‘seize the opportunity to make the alternative funding case’. A wealth tax and other changes to tax arrangements would fit the bill, he suggested. At the same time, as his party came under pressure to set out a ‘costed plan’, the leader of the Labour Party, Keir Starmer, suggested that Labour would consider taxing wealth even more heavily to raise funds.

How depressingly predictable that the question of how you are going to pay for it is the standard response to funding public services, but the same question is never asked for bailing out banks or going to war.

Yes, of course, we want to see a more equitable society, but playing to Mrs Thatcher’s ‘There is no such thing as public money. There is only taxpayers’ money,’ assertion is a highly damaging tactic. When those supposedly on the progressive left associate themselves with an acolyte of the arch neoliberals Hayek and Friedman, it is scarcely an advert for confidence in them. Although the fact that such views are still underpinning policies and spending is not surprising, given the entrenchment of such narratives in political discourse. Playing to the understanding of one’s audience works every time.

What we need now, desperately, is an opposition which is prepared to put citizens before the profits of private companies and for politicians to reject the gibberish that the belief that taxes fund spending represents. It is hardly progressive to reinforce in the public mind the false household budget narratives of government spending; that tax rises will be necessary to fix what actually has been a deliberately broken health and social care system, or that they could be needed to keep the public accounts straight, as per Sunak’s coming ‘hard choices’ in the October Spending Review.

The insistence that there is no alternative to tax rises to pay for social care is both macroeconomically unsound and cruel to those who are already struggling to keep their heads above water. The consequences of higher taxes in these still uncertain times will be very hard on some of the poorest and most vulnerable in our society, and will do nothing to support the economy, businesses or the working population and their families, as the UC uplift is terminated, and energy and other costs rise. There still remains the looming potential crisis of rising unemployment as furlough ends, and even if there are sectors crying out for workers, there will likely be a mismatch in terms of skills requirements to fill new posts, and that will take time to correct.

In this respect, the government has put all its eggs into the free-market basket, expecting it to come up trumps, and it has failed, unsurprisingly. This government and decades of previous ones have trusted in the market to deliver. The invisible hand of the market, whatever that mythical beast is, has done no such thing. The private sector is a profit-seeking juggernaut which puts its own interests over public purpose. And therein lies the heart of the problem. Government has put fiscal discipline above people’s lives and allowed the private sector to run amok, in an unforgivable free-for-all bonanza of deregulation and profit-seeking.

The question is never, ‘is there enough money’ or ‘how will we pay for it?’ The question is do we have the real resources to deliver a better health and social care service, and if not, what are the solutions? That is the role of the government to plan and deliver through its spending and taxation policies. The government should be us, but now democracy is made a mockery, as government and corporations become one and the same thing, serving not the interests of the people or indeed the planet, but their own rapacious greed.

The price of a hands-off approach has been and will continue to be a heavy one. Government, as an elected body, should have a responsibility to serve its citizens to ensure fair and equitable wealth distribution, to create the vital public and social infrastructure upon which the economy depends, to plan for the future whether in a post Brexit era, for future pandemics, or indeed for a just green transition to deal with the climate emergency. Words and actions, however, like oil and water, don’t mix in Conservative terms. It has done none of those things, and now we have seen how easy it was for Conservative MPs in the Red Wall, who were originally objecting to the NI tax rise, to dutifully line up behind their macroeconomically challenged leaders to vote for more pain and suffering. Levelling up has been consigned to the Conservative bonfire of easy promises, and the people yet again duped into acceptance that there will be no alternative to tax rises, either to fund social care or balance the public accounts.

The failure of government hinges on a lie used to justify austerity. The lie of monetary scarcity. Over decades, despite the rhetoric and promises, the issue of social care has been swept under the carpet, and now the system is barely functioning. It will not be fixed by increasing taxes of any sort. It can only be fixed by a government with the political will to do so. Shamefully, successive governments have made a political choice not to fund it adequately. They invited the private sector in, as if social care or the NHS should be beholden to the god of business efficiency and profit, not public service for human well-being. The real cost has been lives, disaffected, poorly paid staff who are on the edge financially and physically.

We should be shouting it out loud. We have a government that chose this path. A government that chose to let social care collapse for the lie of fiscal discipline. What a terrible price we and our loved ones are paying. It didn’t and doesn’t have to be like this.

There are two potential outcomes: Either that we carry on with ‘business as usual’, as the work and pensions minister Baroness Stedman-Scott put it earlier this week to the House of Lords, referring to the removal of the UC uplift, or something else.

We could imagine a world where monetary reality informs government policies and spending decisions. Where government puts its citizens first. A world in which we could have a functioning public and social infrastructure, funded, managed and delivered publicly. An economy, underpinned by full employment and a Job Guarantee, that works for everyone, not just for an excessively wealthy elite that uses its power and influence to dominate public policy. A society where real resources and wealth are distributed more fairly, and a just transition to a green agenda to address the climate crisis looming close behind. Just imagine! The way may be rocky and uncertain, but if we don’t try, we will never know.

 

 

 

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The post The National Insurance increase shows that levelling up has been consigned to the Conservative bonfire of easy promises appeared first on The Gower Initiative for Modern Money Studies.

The Most Fatal Ailment

Published by Anonymous (not verified) on Thu, 09/09/2021 - 12:42pm in

Part II of The Souls of the People series:

The souls of the people
The most fatal ailment
Ill fares the land

So long as you are happy
What we yearn to be
The sane and beautiful

The sum of what we have been
A little world made cunningly
Like a sinking star

The cries of the harvesters
The earth with its starkness
Written in blood

To do and die
In this fateful hour
So that we may fear less
The rags of time

Introduction

Kurt Andersen wrote a superb piece in The Atlantic on inequality (2020), especially its trajectory in the US, although much applies to the rise of neoliberalism everywhere. I highly recommend the entire article for the insight it gives into what the heck happened in the last 50 years. As I can write no better, I quote Andersen:

From my parents’ teenage years in the 1930s and ’40s through my teenage years in the 1970s, American economic life became a lot more fair and democratic and secure than it had been when my grandparents were teenagers. But then all of a sudden, around 1980, that progress slowed, stopped, and in many ways reversed…

In 40 years, the share of wealth owned by our richest 1 percent has doubled, the collective net worth of the bottom half has dropped to almost zero, the median weekly pay for a full-time worker has increased by just 0.1 percent a year, only the incomes of the top 10 percent have grown in sync with the economy, and so on. Americans’ boats stopped rising together; most of our boats stopped rising at all. Economic inequality has reverted to the levels of a century ago and earlier, and so has economic insecurity, while economic immobility is almost certainly worse than it’s ever been.

And this is no accident of history. As Andersen observes:

What’s happened since the 1970s and ’80s didn’t just happen. It looks more like arson than a purely accidental fire, more like poisoning than a completely natural illness, more like a cheating of the many by the few—and although I’ve always been predisposed to disbelieve conspiracy theories, this amounts to a long-standing and well-executed conspiracy, not especially secret, by the leaders of the capitalist class, at the expense of everyone else.

But it is not a conspiracy precisely, as Andersen notes. Although the most powerful part—the subtle, unceasing manipulation of law to favor the rich happens out of sight and thus out of mind of the average citizen. On the other hand, much of the tax part is brazen, as well as calls to stop the people from organizing—not unions (although that too), but from using their own government to organize the country’s strengths, its collective skill, productive capacity and resources, and apply these to public goods. This is discussed in a later post.

If the best way to rob a bank is to own one (Black 2005) the best way to rob a society is to be in control of its laws. Like a bank owner, this is both public and behind the scenes, and like a bank, viewed as boring and thus ignored. It doesn’t need to be a conspiracy.

These issues are yet again the problem of our age. Their seeming trajectory towards resolution post WWII, with widespread prosperity and a rising middle class, has been undone. What undid them points to the underlying problem: immediate causes include the spectacular increase in financialization and unearned rents (Fischer 2021), the lack of and lack of enforcement of progressive taxes, both in turn largely due to a shift in the public’s understanding of these issues. What caused this shift in public understanding is the age old problem—power and the lack thereof.

“We Worry Less”

In 1985 economist John Munkirs painstakingly demonstrated the interconnections of a corporate fraternity that essentially ruled the US economy, calling the shots on what does and does not happen in many spheres (The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning, 1985). This wasn’t conspiracy but fact, with details of the firms, interconnections, places and people as researched by a staid academic, not a wild-eyed conspiracist.*

And it was ignored precisely because of that. And because of the rise of the “economics” that would serve this new order. As a fellow institutional economist writes, “Unfortunately, as the corporations became more powerful and sophisticated in the post-war era, both the hoe and the hand upon it began to lose their vitality, as we institutionalists were ushered out of government and by and large made into second class citizens in economics departments.” (Sheehan in Neale et al. 1986).

And that was 1985. How far have we gone from there? Leaps and bounds it turns out. I note how bad the ailments related to inequality (in part stemming from corporate dominance of law) are now in the last post—many are worse than 1985, and inequality undoubtedly so. The gains of the post-war decades were lost as the wealthy managed to diminish them through law and finance. Just one example, by financial means: getting rid of “old-fashioned” pensions while enriching themselves in the process. With academic cheerleading not just from Chicago School types but New Keynesians as well, the “triangulation” strategies of the ’90s New Democrats, New Labour in the UK…you know it’s bad when an icon of 60’s counterculture and rock-n-roll is publishing the best economics reporting on a real issue such as this (Greed and Debt: The True Story of Mitt Romney and Bain Capital 2012, and Looting the Pension Funds: All Across America, Wall Street is Grabbing Money Meant for Public Workers 2013). The dominance and easy acceptance of this ethos by the 2000s was made clear in the inadvertently leaked and now infamous “Plutonomy” report by Citigroup. It opens:

The World is dividing into two blocs – the Plutonomy and the rest. The U.S., UK, and Canada are the key Plutonomies – economies powered by the wealthy…In plutonomies the rich absorb a disproportionate chunk of the economy and have a massive impact on reported aggregate numbers like savings rates, current account deficits, consumption levels, etc. This imbalance in inequality expresses itself in the standard scary “ global imbalances.” We worry less.

Citigroup, 2005

A year later Citigroup came out with a follow up, “Revisiting Plutonomy: The Rich Getting Richer.” Its summary:

Citigroup, 2006

A similar leak with much wider implications occurred in 2016 with the Panama Papers. If there was a hint at revolution at the end of the last post, I wonder why? You know it’s bad when The Economist asks “Can inequality only be fixed by war, revolution or plague?” (2018) and CNN notes “This billionaire warns that America’s massive wealth gap could lead to conflict” (2020).

The Non-Wealthy and Policy

There is a huge literature asking why the non-wealthy vote for candidates that support policies that harm them financially (against minimum wage laws, reduction in welfare programs, regressive taxes) or that do not support policies that would benefit them (public transport, healthcare, jobs programs, minimum wage laws, progressive taxes, environmental laws).

Two major factors commonly cited for the United States are:

  • Race (especially salient in the US; Alesina et al. 2001, see Zeitz 2017 for a thorough overview). Overall, racial divides across countries are highly predictive of less redistributive policies.
  • The Vietnam War. In the US in the late 1960s, unions and traditional Democrats became split from the anti-war and countercultural left, with significant numbers voting Republican. This split allowed for the rise of Republicans for decades, and eventually also the triangulation response of the Democrats, bringing the entire US political spectrum far to the right on core economic issues. (Frank 2004, Andersen 2020)

Other factors (note, of course, that these could all simultaneously occur with varying degrees of effect; the degree of the dilemma is enough to suggest there are multiple factors working simultaneously):

  • A federal system (especially in the US), making redistributive policies at the national level more difficult.
  • The Senate in the US (giving rural areas more power; rural communities may have traditional values that are against redistribution or “big government;” see Sargent 2021).
  • First-past-the-post electoral systems. The natural outcome of which is two parties; this may make a progressive faction less likely to influence outcomes, although other factors would need to explain why this seems to happen more to the left than right; e.g., corporate influence, other structural or sociocultural factors. This directly relates for another reason to lower middle-class apathy and voting on “values” rather than economic issues. There is a vague sense that there is no real difference on economic issues regarding regulation, corporations, free trade, investment in infrastructure, taxation, and industrial policy between the two major parties. There is little sense in voting for a third party in a first-past-the-post system, and the two main parties genuinely haven’t offered the working class true choices on economic policies. Given Democratic corporate connections, New Keynesian and neoclassical economic dominance, New Labour in the UK etc., this vague sense was well-founded.
  • The association, especially with 90s New Democrat and New Labour New Keynesian (not Postkeynesian!), pro-market, pro-privatization beliefs and the “triangulation” strategy of capitulation by the left. Relatedly, a disdain by the working class for a “liberal elite” real or imagined (see Frank 2016).
  • The emphasis on “values” and social issues by the right, sometimes with a bait-and-switch: a conservative candidate runs on values and emotive issues, then if wins actually focuses policy on economic issues in favor of the wealthy and corporations. When it is noticed that change on social issues isn’t happening, the politician blames a “liberal elite” for blocking them, thus setting the stage for another electoral victory on value issues in the next election. (see Why Working-Class People Vote Conservative 2012 by Haidt for an argument that voting on “values” makes sense to the working class; I disagree but it calls attention to key issues).
  • The influence of think-tanks. Directly on the public and media, and indirectly via academia on media and policy.

On a number of comment sections from articles on these issues there are comments “from the people” that should not be ignored—they are direct evidence of what people are thinking, and from my long personal experience working, living in and listening to working class America, they ring true (as representative of what the working class opine).

  • Service industry and blue collar jobs are both physically and mentally demanding and do not provide financial security, all in ways that are qualitatively different than professional and white collar jobs, no matter how hard the latter work. This combines with a strong traditional work ethic that makes “freebies” distasteful. “I work by butt off everyday and they can too.” This is greatly amplified when imagined and/or real increases in (regressive) taxes are claimed to be needed for social programs and public goods (because both Republicans and Democrats believe public projects can only happen with increased taxes). Even a small rise in taxes (or insurance rates, or rent, or inflation) significantly impacts the quality of life of the working poor, again in a way that is qualitatively different than for the financially secure. The middle class and above are secure and comfortable enough that they can afford the idea of paying a little more for redistributive programs (taxes don’t work like that at the national level. However, it only matters how people think taxes work, and they do indeed work like that at the municipal and state level, especially when they are regressive). This simple dynamic is vastly underestimated. The poor in America are deeply suspicious of government programs and redistribution and often the worse-off they are and the harder, less pleasant, and more precarious their job, the more they say that “if I can work so hard and make it with no welfare, then so can they” and then vote for candidates who are against social programs.
  • Successful underfunding and lack of exposure: these are somewhat similar and also reflect the success of conservative and/or libertarian long-term strategy. The right has managed to purposefully underfund public goods. In part, this directly achieves their end goal. More importantly, it greatly furthers the goal, as the right then uses poorly functioning underfunded systems as “examples” that “government does not work,” enabling an overall public sentiment that aids in their objective of reducing public goods and increasing profit-providing privatization (besides the US, this is occurring, for example, with rail transport and healthcare in the UK, and broadband in Australia [Mitchell 2017, 2019]).
    Relatedly, because of the lack of development or scaling back of public goods and services in the past, many Americans have not been exposed to quality public goods. To a degree that would scarcely be believed by a European who has not lived in the United States many Americans believe it is normal for healthcare to be incredibly expensive (with difficult paperwork involved, and tied to one’s employer), that public schools are necessarily low quality, have had little to no exposure to quality public transport (neither local nor long distance), and lack experience or perspective on other public goods such as civic architecture and an efficient bureaucracy (underfunded and unsurprisingly notoriously slow Departments of Motor Vehicles and the like; the experience with underfunded government at all levels fosters a belief that government doesn’t work, which is precisely what the right wants). Many now have low opinions of unions even in the North and coastal West; as a Southerner, I can tell you firsthand that a vast majority of Southerners literally have no idea what unions do and what they have accomplished in the past. This ties in with the dominance of neoclassical economics and the discredited belief that there is some “fair” and knowable distribution of wages and profit, when the truth is that wages and profit are always a political outcome. On two huge issues—healthcare and public infrastructure—and smaller ones as well, two generations or more of Americans literally do not know what quality public goods look like in practice. They won’t vote for what they don’t know.

The above ties in again to the deeply rooted success of think tanks, perhaps amplified by the internet. Again, through long personal experience, the amount of times one hears in conversations among the working class soundbites whose wording can only be from think tanks or think-tank-informed politicians—that minimum wage causes unemployment, that progressive taxes are unfair, that the wealthy create jobs, that welfare causes laziness, that government programs are always corrupt, that regulations stifle small businesses—is very high.

Note that explaining that the belief we must tax in order to organize public goods is a fallacy is a logical approach, as it is both true and should assuage the above fears (of the middle class on the ability to provide public goods). However, the message that social programs will lead to taxes and/or make people lazy is profoundly ingrained in the working poor and middle class in America, and may well make that approach unsuccessful despite it being true. Furthermore, taxes do raise funds for public goods at the state and municipal level. And those are especially regressive. Until those issues are fixed, the strategy to ignore taxation in order to facilitate public goods creation by separating it from the “tax the rich” slogan, will fail at those levels, and since many lump all taxes and public projects together, possibly at the national level as well.

The above attitudes and beliefs combine with the belief, whether cynically used by the right or legitimately held, that upward mobility is high, and high due to some kind of “free market” combined with a weak welfare system (maintaining “incentives”), and thus that 1) moving up is attainable and 2) progressive changes would somehow reduce upward mobility. As example, consider a primary benefit for the working poor in the US, the Earned Income Tax Credit (EITC). The power of a combined aspiration of upward mobility and disdain for “welfare” is common among the poor, e.g., “Because the EITC raises the incomes of so many, some low-income beneficiaries of the federal anti-poverty program regard themselves as middle class Americans—a struggling middle class who look down on “welfare cheats” but are confident nevertheless that upward mobility is theirs to claim.” (Why Working Poor Think They Are ‘Middle Class,’ 2015).

Note the irony that conservatives (and not infrequently, self-styled libertarians) vote in ways that increase government funding dramatically for corporations and the wealthy: subsidies, monopoly laws, corporate and patent law in ways that are interventionist and in favor of the wealthy (Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer 2016) not to mention interest on treasuries mainly held by the wealthy, laws favorable to individual asset holders and corporations (investments, real estate, anti-inheritance tax, liability laws, the 2008 bailouts and Federal Reserve/Treasury policies in general [TARP etc, “rescuing” rather than nationalizing failed companies and directly aiding individuals], or student loan bankruptcy laws).

Although the social and technological changes surrounding decades-long social change are of course vastly complex, the one thing that seems to always be just beneath the surface and that, both in their timing and mechanisms, seem causal, are economically conservative and libertarian think tanks.

The Influence of Think Tanks

These started early and highly ideological. By 1946 there was already a conservative reaction to the New Deal, The Foundation for Economic Education (FEE), whose aim “was to roll back policies of the New Deal. FEE opposed the Marshall Plan, Social Security and minimum wages, among other American social and economic policies” with corporate and industrial backing by “J. Howard Pew [President of Sunoco], Inland Steel, Quaker Oats, and Sears.” (“Foundation for Economic Education,” Wikipedia; see citations by Phillips-Fein 2009; Hamowy 2008; Schneider 2009 and Lichtman 2008).

FEE helped inspire and/or pay for the foundation of other conservative and libertarian groups, such as the Mount Pelerin Society and the Institute of Economic Affairs in the UK. There followed a long line of other think tanks, often umbrella groups which in turn funded or organized conferences, journals, youth outreach, and endless sub-groups funded or organized by an underlying foundation of think tanks, media owners, billionaires, and corporations (e.g., Koch brothers, Murdoch). Incidentally, the point that 1960s counterculture was part of what helped weaken Democrats/strengthen conservative and libertarian policies is supported by the history of the early (1953) and ultimately highly influential John M. Olin Foundation, with its effective fostering of the “law and economics” movement that would greatly increase conservative and libertarian views in law schools in the US. Although founded early, it was not very active until its founder was galvanized by the Willard Straight Hall takeover at Cornell University in 1969. It would go on to be a pillar of pro “free market” policies that law, above all else, could implement.

In total, the amount of influence via professorships, academic departments, organizations or institutes (George Mason, Mercatus Center, CATO, Mises Institute, the underestimated and extremely influential State Policy Network, the Fraser Institute), publishing and other media, programs for youth, providing an academic imprimatur to ideologically motivated economics, advising and consulting…all of these combined has cumulatively in size and over time had a massive influence, especially in the United States. Behind many politicians, talk radio and cable news hosts (and local news through the Sinclair Group) one can directly discern these earlier think tank writings and ideas, and at least indirectly, funding. Personal experience with how deeply their basic framing of issues shapes the acceptable range of discussion on economic issues suggests the impact runs deep (and shapes elections, e.g., Yglesias 2019).

Of course there are progressive and centrist think tanks (some are cited here), some of which predate the rise of conservative think tanks. Yet it seems their influence on the media and everyday people is far less. This is partly a question of funding imbalances (the wealthy and corporations can more easily fund think tanks with a wider academic and media reach than the working class can). Wealthy donors on “the left” seem to largely support what are in reality centrist think tanks; in the age of New Keynesianism this is hardly helpful. Overall the right supports what seems to many observers to be a more calculated, strategic, patient, and dogged approach, that has indeed had long term and fundamental impacts on framing and votes.

Overall, there is a sense that in the United States especially, and in many other countries as well, policies that aid the wealthy at the expense of equality—if not the poor directly—are dominating. And as the ancient Greeks already knew, “An imbalance between rich and poor is the oldest and most fatal ailment of all republics” (Plutarch). The next post looks into the distribution of this imbalance at the the national and international scale.

________________

Notes & Selected References

* Munkirs’ aim is not related to conspiracy, but rather to highlight the unique, and essentially non-capitalist, system that had developed in the US. It is different than the centralized public planning of the USSR, the decentralized public planning of Western Europe, and from a Galbraithian decentralized private planning system; the US had by 1985 become a centralized private sector planning economy.

________________________

Note: I am interested in poverty and inequality everywhere. However, there is a default in this series towards the US, in part simply because I am from the United States, but also because the US, being an outlier among wealthy nations on poverty, inequality, and welfare, seems to offer useful lessons on what can go wrong even in a wealthy country with vast resources. Many countries are wealthy or becoming wealthy, and it would be a bad thing for them to fall into the traps that the US has. And the US is the third largest country in the world by population; it would be good to help the millions of poor or struggling Americans. Although inequality and poverty in developing countries is discussed some, the problem of poverty in developing countries is an entire field of study beyond the scope of this series. I hope this small series can shed some light or be useful in thinking about these problems more broadly, even with its focus on the US.

Update: Tom Hickey at mikenormaneconomics noted the relevance of the infamous 1971 Powell Memo. It powerfully demonstrates the concerted, intentional effort and outlines the succesful tactics of think tanks I discuss above. I overlooked mentioning it in the main body but its importance is difficult to overstate.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.
As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Powell Memo 1971

References

Alesina, Alberto, Edward Glaeser and Bruce Sacerdote. 2001. Why Doesn’t The US Have A European-Style Welfare State? Harvard Institute of Economic Research, Discussion Paper Number 1933, Nov.

Andersen, Kurt. 2020. College-Educated Professionals Are Capitalism’s Useful Idiots. The Atlantic, Aug. 7.

Appelbaum, Binyamin. 2019. The Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society. Little, Brown and Company (Hachette).

Baker, Dean. 2016. Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Center for Economic and Policy Research.

Black, William. 2005. The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry. University of Texas Press.

Fischer, Amanda. 2021. The rising financialization of the U.S. economy harms workers and their families, threatening a strong recovery. Washington Center for Equitable Growth.

Frank, Thomas. 2004. What’s the Matter with Kansas? Metropolitan/Picador.

Frank, Thomas. 2016. Listen, Liberal: Or, What Ever Happened to the Party of the People? Metropolitan/Picador.

Haidt, Jonathan. 2012. Why working-class people vote conservative. The Guardian, June 5.

Linden, Michael. 2012. The Rich and Powerful Really Are Rich and Powerful. Center for American Progress.

Madrick, Jeff. 2020. Why the Working Class Votes Against Its Economic Interests. New York Times, July 31. (Review of Reich 2020 and Teachout 2020).

McElwee, Sean, Brian Schaffner, and Jesse Rhodes. 2016. Whose Voice, Whose Choice? The Distorting Influence of the Political Donor Class in Our Big-Money Elections. Demos.

Munkirs, John. 1985. The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning. M. E. Sharpe.

Neale, Walter C., Michael F. Sheehan, and Ronnie J. Phillips. 1986. “Three Reviews,” of The Transformation of American Capitalism: From Competitive Market Structures to Centralized Private Sector Planning by John R. Munkirs. Journal of Economic Issues, Vol. 20, No. 1, pp. 203-215.

Reich, Robert B.2020. The System: Who Rigged It, How We Fix It. Alfred A. Knopf.

Sargent, Greg. 2021. The GOP scam is getting worse — for Republican voters. A new study shows how. The Washington Post. March 8.

Segelken, H. Roger. 2015. Why working poor think they are ‘middle class.’ Cornell Chronicle; on Sarah Halpern Meekin, Kathryn Edin, Laura Tach, and Jennifer Sykes It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World. 2015. University of California Press.

Teachout, Zephyr. 2020. Break ‘Em Up: Recovering Our Freedom From Big Ag, Big Tech, and Big Money. All Points Books/St. Martin’s.

Yglesias, Matthew. 2019. Fox News’s propaganda isn’t just unethical — research shows it’s enormously influential. Without the “Fox effect,” neither Bush nor Trump could have won. Vox, March 4.

Zeitz, Joshua. 2017. Does the White Working Class Really Vote Against Its Own Interests? Politico Magazine.

 

Absolutely idiotic hit piece on MMT by 3 clowns at the Richmond Fed.

Published by Anonymous (not verified) on Thu, 09/09/2021 - 6:59am in

Tags 

MMT

This is one of the worst hit pieces I have ever run across. Loaded with ridiculous strawman arguments, making claims MMT never made. A display of sheer ignorance and dogma. The authors clearly never read any of the MMT academic papers or literature. This should be a total embarrassment for the Richmond Fed or an indictment of how wedded they are to a deeply ignorant and inapplicable dogma.

Starts off with this ridiculous statement

During the past 25 years, low interest rates and highly expansionary monetary policy with little apparent inflation have created the illusion that a government can simply print money to fund exorbitant deficit spending with no repercussions. This core tenet of so-called "modern monetary theory" ignores the fact that deficit spending is constrained in the long run by a government's ability to satisfy creditors.

Satisfy creditors? "Exorbitant spending." They even start off talking about monetary policy when MMT spends little time on that, and in fact has stated how that's ineffective. MMT deals with fiscal policy space of a currency issuer. 

Even invokes the completely idiotic comparisons to Weimer Germany and Zimbabwe.

...economic history is awash with disastrous attempts to finance government spending and debt simply by printing money. These examples range from currency debasement in the Middle Ages to the hyperinflations of the 1900s (for instance, Germany in 1923, Hungary in 1946 and Zimbabwe in the 2000s). All of these examples demonstrate that MMT-flavored policies are, at the very least, poor solutions to fiscal problems.

Really, really, stupid.

There's a lot more misrepresentation, ignorance, and just plain garbage in the paper.

Read it here.

A Chinese socialist consensus

Published by Anonymous (not verified) on Sun, 05/09/2021 - 8:42pm in

By Carlos García Hernández (originally published in Spanish in El Común )

Deng Xiaoping and Jimmy Carter during Sino-American signing ceremony - 31/1/1979.Deng Xiaoping and Jimmy Carter during Sino-American signing ceremony – 31/1/1979. Photo: National Archives Catalog

“(a) the monopolistic political power of the Chinese Communist Party (CCP) must not be challenged; (b) within the confines of, and to strengthen, condition (a), economic development should be interpreted as the essence of socialism, and thus of the utmost importance; and (c) regarding the central decision-making process, personalistic regime should be replaced by party rule, i.e., a consensus based collective decision-making process.”

Third Plenum of the 11th Central Committee of the CCP, December 1978

The above quote reflects the consensus that has prevailed in China since 1978. This consensus marked the coming to power of Deng Xiaoping and the start of the economic reforms that have lasted until the present day, which marks the 100th anniversary of the birth of the CCP. The quote was collected by Xu Chenggang, professor of economics at the Cheung Kong Graduate School of Business in Beijing, in his seminal research work “The Fundamental Institutions of China’s Reforms and Development”. Building on this work and on previous articles on what I have called fiat socialism and modern money consensus, I will analyse the Chinese consensus in order to propose the socialist reforms that I believe would help to improve the living conditions of the Chinese people. To do so, I will interpret the information provided by Professor Xu on two levels, one ideological and the other economic.

Xu calls the Chinese economic model a “regionally decentralized authoritarian system”. According to this model, the central government and the CCP leadership control and decide on the political representation of the various Chinese provinces. Once these officials have been chosen, they are responsible for managing most of the economy, since almost 70% of public spending is carried out at the regional level and more than 55% at the sub-provincial level. Then, what is established is a competition between the different provinces. They are placed in a ranking of economic growth and have to compete with each other to climb up the ranking. The provinces are further divided into municipalities (or prefectures), the prefectures into counties and the counties into towns. Competition is established in all subdivisions, so that the most successful subnational governments are rewarded by the central power with more resources. Access to more resources is therefore conditional on success in economic management. This is the basis on which the Chinese economy is established and what distinguishes it from any other economic model ever seen.

The economic results of this model are spectacular. Before 1978, Chinese annual growth was 4.4%; between 1978 and 2011 it was 9.5%. The share of total factor productivity in growth was 11% before 1978; between 1978 and 2011 it was 40%. As a result, between 1978 and 2011, GDP increased 8-fold, a level of growth unparalleled in human history. As Professor Xu explains, one of the consequences has been that “The Chinese population in absolute poverty (defined as $1/day income) has dropped from 50 per cent to 7 per cent in twenty years, while the number of individuals in absolute poverty was reduced by almost 400 million. This number is nearly three-quarters of the poverty reduction in the whole developing world (World Bank 2003)”.

What political interpretations can be drawn from this? In my opinion, one above all: China has definitively broken the link that Karl Marx established between the so-called problem of the realisation of profits and Law of the Tendency of the Rate of Profit to Fall.

Let us recall that, in the second volume of Capital, Marx is confronted with an inescapable question: How is it possible that the capitalists constantly take more money out of circulation than they put into it? Of course, the origin of this subtraction must be surplus value, but “the question […] is not where the surplus value comes from but whence the money comes into which it is turned”. The answer to this question is a turning point in Marx’s work. His reasoning is as follows: the origin of the money into which surplus value is converted must be compatible with the Law of the Tendency of the Rate of Profit to Fall, the fundamental thesis that Marx wants to demonstrate in order to achieve his ultimate aim, which is none other than to expose the inevitable collapse of capitalism, understood as a productive system based on the private ownership of the means of production.

However, this is clearly ad hoc reasoning. That is, instead of analysing the question empirically, Marx designs the answer to the question of the money into which surplus value is converted to fit his predetermined conclusions. Marx thus answers the question by means of the transactions that take place in the private sector and he ignores the existence of the public sector, and for this he resorts to the maxim of Parmenides of Elea, ex nihilo nihil fit, “nothing comes from nothing. The capitalist class as a whole cannot draw out of circulation what was not previously thrown into it”. This is one of the moments when the existence of the gold standard becomes a fundamental pillar of Marx’s work, without which his thoughts cannot be understood. If money cannot be created ex nihilo, then it must be a pre-existing natural phenomenon. Gold and its extraction are the pieces Marx finds to solve the puzzle. Capitalists withdraw more money than they put into the economy because more money is created from new extractions of gold and silver. Thus, “[capitalist production] develops simultaneously with the development of the conditions necessary for it, and one of these conditions is a sufficient supply of precious metals”. Sufficient here does not mean that all money is backed by precious metals, but that the quantity of precious metals must be sufficient to permit the circulation of commodities, which also depends on credit. According to Marx, this credit granted to allow private sector transactions, added to the reserves of precious metals, is enough to enable and explain all the processes occurring in capitalism, which he takes up in his schemes of expanded reproduction and simple reproduction, and he does not hesitate to resort to magical thinking to conclude that “circulation sweats money from every pore”.

By not resorting to the public sector as a source of profit realisation, Marx also manages to save his Law of the Tendency of the Rate of Profit to Fall, since the production of gold and silver, with its particularities, is also explained as the production of the rest of commodities. Thus, the contradictions within the private sector, in which the capitalists are forced to constantly lower wages and increase working hours in order to be able to compete with each other, can only tend to increase to a point where the capitalists’ share of profit, due to the ever-decreasing consumption capacity of the workers, is so reduced that the whole capitalist system collapses.

Now we get into a time machine and travel about a century into the future. When we get out of the machine, capitalism is still there. It is the 1st of January 1979. Deng Xiaoping lands in Washington D.C. to meet with President Jimmy Carter. What happened at that meeting astonished the world. The top leader of the Chinese Communist Party outlined to Jimmy Carter the three points of the Chinese consensus with which this article begins. Unlike the Soviet leaders, Deng did not frame the relationship with the US as a confrontation between two opposing and competing economic systems destined to destroy each other. There were no references to inexorable historical laws. There were no mutual threats. What Deng offered Carter were trade agreements. Deng explained to the Americans that his goal was not the destruction of capitalism in the US, but economic cooperation based on non-interference. If the Americans recognised and respected the sovereignty of the Chinese people, China would not interfere in their internal affairs. On the contrary, it would offer US companies a mutually beneficial access point to the Asian market. Carter not only seized the commercial opportunity offered by Deng, he also officially recognised the People’s Republic of China that emerged from the 1949 revolution.

In my view, the intelligence displayed by Deng Xiaoping at the time was astonishing. I am convinced that it is only thanks to this that the CCP is still in power today. What did this veteran communist militant know that Marx did not? The answer can be found in the date of the meeting, 1st of January 1979, more than 7 years after President Richard Nixon ended the gold standard on the 15th of August 1971. That is more than 7 years of proving that money has always been created ex nihilo. Deng knew this perfectly well, as he was not only the heir to Mao’s revolution, he was also the son of the country that created paper money in the 7th century. To approach China’s relations with the US from a vantage point from which to advocate the imminent collapse of capitalism would have made no sense.

Deng knew that such a collapse was not going to happen. This allowed him to go beyond the Trinity Formula enunciated by Marx in chapter 48 of the third volume of Capital, according to which there are only three sources of income: capital-profit, land rent and labour-wages. Deng knew that there were not three sources but four, since to Marx’s list public expenditure must be added as a source of profit realisation. That is why China’s central bank, called the People’s Bank of China, has played a key role in the country’s development since 1978 by financing sub-national government spending and ensuring that competition between different provinces is on a level playing field.

As Professor Xu explains, this regionally decentralised structure “converts local officials into entrepreneurs”. Decentralisation allows successes or failures to be experienced first at the local level, without destabilising the country as a whole, and allows citizens to feel closer to institutions, which weakens political opposition. This is possible because China’s regions, being so big, are largely self-sufficient, allowing a wide range of goods to be produced. The number of goods under central government control has never reached 1000 and there are only 30 ministries in China. As a result, the central government is much smaller than in other socialist countries and it only controls essential economic sectors (land ownership, banking, energy, telecommunications, railways, etc.). If a reform succeeds in one province, it is possible that other provinces will adopt the same reform. If the reform fails, it is rejected. In any case, the stability of the country as a whole is not put at risk. This is how the transition from a centrally planned economy to a mixed market economy, in which there are all kinds of enterprises (public, private, cooperative, jointly owned, etc.), came about.

Being a mainstream economist, there is a moment in his paper when Professor Xu doubts and wonders how it is possible that China has been so successful. Mainstream economics is dominated by the Washington consensus and Say’s law, according to which non-intervention is essential for flourishing markets to emerge in which, by magic, supply creates its own demand. China is an example of the opposite. There, state and CCP intervention is enormous in all areas, however, economic growth is much higher than in the West. This shows that the Chinese model, despite its obvious shortcomings, is much less corrupt and much more efficient than that of Wall Street, the European Union and all other bodies governed by the Washington consensus, the absurd Say’s law and supply-side economic models.

However, it is also necessary to address the major deficiencies of the Chinese model, since these flaws arise largely from the introduction of neoliberal economic paradigms into its institutions. The most important example of this can be found in the person of Prime Minister Li Keqiang (to whom, fortunately, Xi Jinping does not seem to pay much attention). The economic policies promoted by Li, who holds a PhD in economics from Peking University, are markedly neoliberal in character and deeply influenced by the Washington consensus. As always in these cases, the neoliberal bias translates into an irrational aversion towards public deficits. On the 28th of May 2021, Li said during a press conference:

“The central government is taking the lead in living a tighter life this time. We will reduce the central government’s direct spending by more than half, so that funds can flow to grassroots enterprises and people’s lives. All levels of government must live a tighter life. It is absolutely not allowed to engage in formality, and do those things that spend a lot of money.”

The neoliberal bias of these statements is evident. According to Li, public spending confiscates savings that diminish investment. Like all neoliberals, he understands economic phenomena backwards. Government spending encourages investment because it increases the balance of bank reserves. This encourages demand and therefore investment. To reduce public spending and to think that companies and people’s lives will benefit from this is to miss the point. The reduction in public spending advocated by Li will only increase private indebtedness and unemployment.

This graph shows the evolution of China’s public deficit and its projected evolution until 2026.

 Source IMF

 

Source: IMF

COVID caused the deficit to increase to 11.39% in 2020. Thanks to this deficit, China was able to contain the pandemic. From a socialist perspective, this data should make it easier to interpret the public deficit for what it really is: a tool to tackle social problems, which in China’s case are many and growing in severity. Therefore, instead of making the reduction of the public deficit an end in itself, Li should forget about the level of the deficit and focus only on social problems. To this end, my proposal for fiat socialism is based on what I have called the Lerner index, which is calculated as the distance between a particular economic situation and one in which unemployment and the absolute value of inflation are equal to zero. In the case of China, the evolution of the Lerner index between 2000 and 2016 was as follows:

The evolution of the Lerner index in China between 2000 and 2016

Chart: year / unemployment rate / inflation rate / Lerner index

The method to bring the Chinese economy to the Lerner point should be the job guarantees based on employment buffer stocks, as these schemes turn permanent full employment, guaranteed by law, into an automatic price stabiliser. The process of reaching the Lerner point in China should not be very complex, since in 1994 the Chinese government took back tax collection as one of its functions and since then has been able to control inflation very efficiently. Therefore, the establishment of full employment and the corresponding price level should occur as soon as possible.

This should be the first step towards the achievement of what I have called the five goals of socialism, which let us remember are:

  1. guaranteed and permanent full employment.
  2. full and prudent use of natural resources.
  3. a guarantee of food, shelter, clothing, health services and education to every citizen.
  4. social security in the form of pensions and subsidies.
  5. a guarantee of decent labour standards.

China has sufficient resources and capabilities to guarantee these five points for its entire population. I am therefore of the opinion that these five points should be incorporated into the three points of the Chinese consensus established by the great Deng Xiaoping. The effort to achieve these five points should not be too great for the Chinese government and the benefits to it would be glorious. I think that is the spirit of these statements by Deng in 1994: “to build socialism it is necessary to develop the productive forces […]. Not until […] we have reached the level of the moderately developed countries, shall we be able to say that we have really built socialism and to declare convincingly that it is superior to capitalism. We are advancing towards that goal.”

Unfortunately, millions of people are not assured of these five points. In China, there are still conditions of misery and exploitation, as in the most savage of capitalist societies, that have made the country one of the most unequal in the world in terms of the distribution of wealth. If the CCP decided to end this exploitation by implementing the five goals of socialism, it would gain enormous support among the lower classes, the same classes that created it 100 years ago, and would strengthen its rule of the country.

Euro delendus est

 

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The post A Chinese socialist consensus appeared first on The Gower Initiative for Modern Money Studies.

Monetary Monopoly Model By Sam Levey

Published by Anonymous (not verified) on Sat, 04/09/2021 - 4:40am in

Tags 

MMT

Sam Levey has a new Levy Institute working paper: “Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment.

As I discuss in Section 4.3 of Modern Monetary Theory and the Recovery, the “Monetary Monopoly Model” is the core macro model that captures some of the key ideas of Modern Monetary Theory (MMT). The key concept is that the government needs to set a key price (or a set of prices) in order to determine the price level of a fiat currency. This is contrast to mainstream models, where pinning down the price level is an embarrassing theoretical muddle.

Price Level Determination Primer

For a commodity currency, real factors can be used to pin down the price level in a model. (Sure, the real world can be messier, but the model logic will still be present.) Let us assume that the currency is gold-based. We look at the number of hours of labour to mine an ounce of gold, and we can then get a fair value for an hour’s labour. We observe that mine owners should be able to mine gold with a profit, as otherwise no gold will enter the system. Once we determine the income split between miners and mine owners (which is either based on power relationships, or magical marginal thinking, depending upon ideological preferences), we get a fair value for an hour’s wage. We then can pin down wages in other industries via the level of gold miners’ pay, and then can back out other prices. The key is that real parameters within the model — productivity — pin down the price level for a commodity currency.

For a fiat currency, there are no real factors associated with the currency creation. We could multiply all prices by the same factor, and preserve all relative value relationships between all real goods. From a modelling perspective, this implies that the solution to the model is indeterminate: the set of prices implied by the model is the set of all scalings of any price vector that works as a solution.

We need something to pin down the set of solutions to the model, and the MMT solution is the government to fix a key price that forces a single solution.

Although this discussion refers to an abstract problem in economic model building, the argument is that price level instability in models is related to inflation control. That is, can governments set key prices to help stabilise prices? The MMT argument is that is exactly what a Job Guarantee can do.

Levey’s Levy Paper

Sam Levey’s paper steps through a sequence of models of increasing complexity. They are discrete time models in which the government is a monopoly supplier of money, and examines “the price of money” (ratio at which labour is exchanged for money).

He examines what happens when the government sets a price for labour via a Job Guarantee, competing against private sector demand for labour. Using his reversed definition of price, this can be thought of as the government having one price of money versus the private sector (when expressed in labour hours).

This framing then leads to the debate whether a fiat currency issuer truly has a “monopoly” on “money,” given that a lot of “money” are private sector liabilities (mainly bank deposits, but we get wackier credit instruments in broad aggregates). Levey writes:

An analogy can be drawn to the study of “durapoly,” a situation noted in mainstream antitrust and industrial organization literature in which there is a monopoly producer of a durable good and, once sold, this durable good can be “recycled” or resold by other suppliers back into the market (Orbach 2004). Of particular interest is the 1945 antitrust case of United States vs. Alcoa, concerning whether Alcoa, which controlled 90 percent of the production of new aluminum, in fact lacked monopoly power due to the existence of a competitive market in recycled aluminum.

There is significant mainstream literature on durable goods markets in general (Waldman 2003) and the Alcoa case in particular (Gaskins, Jr. 1974; Swan 1980; Suslow 1986). We need not delve deeply into the topic, but we can borrow a general result that a monopoly producer can retain pricing power over a durable good if there is some reason why outstanding units of the commodity become insufficient for meeting the community’s demand. This can happen if units are lost or otherwise unavailable for recycling, or if demand is growing.[3] One or more of these conditions, if continued indefinitely, will eventually force buyers of the good back to the producer, granting the producer bargaining power. For our model this will be taxation: in the absence of government spending, taxation would eventually drain the supply of state money to zero, creating “shortages” in the “secondary market,” forcing demanders of fiat money back to the government and thereby imparting it with pricing power.[4]

The argument is that setting the Job Guarantee wage alone does not fix the price level by itself, rather it operates in conjunction with the monetary drain of taxation.

I looked at the paper relatively quickly, but the models looked clean and seemed well laid out. Since I am supposed to be working on my own agent-based version of a similar model, I do not want to get too side-tracked on going through the details of Levey’s work just yet.

The true challenge with modelling the Job Guarantee is trying to pin down how private sector wages would be set versus the Job Guarantee wage. The standard belief is that private wages would be set as a markup to the Job Guarantee wage, with the markup varying with the cycle. Although that is reasonable (and somewhat non-falsifiable), the trick is modelling the markup. Given the lack of full scale implementations of Job Guarantee programmes, we do not have much in the way of empirical data to work with.

I might return to this paper later, but I just wanted to let everyone know that it is out.

Postscript: Agent-Based Version?

I am plugging away at my agent-based framework, which is an open source Python project. At this point, I have something resembling a closed loop model running. However, I am refactoring it heavily, so I do not consider what I have to be in any sense a completed model.

The problem with a complex agent-based model (like the one I am attempting to build) is that sensible looking decision rules require agents to have a lot of input data to work with, and they need to interact with other many other agents.

For example, the simplest production firm hires workers and then attempts to sell its output. Modelling this requires a few steps.

  • The production firm needs to get the posted market prices for its output, and have an idea what market wages are for setting hiring offer wages.

  • It needs to look at prices and wages (at least) and decide how many workers to hire. (Realistically, they would need more data to make more sensible decisions.)

  • It needs to interact with the worker agents to pay them salary, and with the government to pay withheld income tax.

  • The production event needs to follow its production function.

  • It needs to interact with the market to sell its output.

From a programming point of view, this means that the firm needs to interact with a lot of different other software entities — each of which also needs to interact with others. This turns into what is known as “spaghetti” in software engineering jargon.

I am in the process of creating a standardised interface so that all of the agents can make their decision process in a structured fashion. The agents just indicate what input data they need, and then when that data is supplied, they give a list of actions to be taken. The software framework then processes those actions, which means that decision-making code does not need to know how interactions between agents are implemented.

Going with this more elegant solution slows down adding new features. However, once it is in place, it should be easier to add new decision rules, which is ultimately the most interesting part of the project.

I write more about this project on my Patreon.

Email subscription: Go to https://bondeconomics.substack.com/ 
(c) Brian Romanchuk 2021

The Souls of the People

Published by Anonymous (not verified) on Thu, 02/09/2021 - 5:07am in

Photo by Dorothea Lange, Edison, California, 1940: “Young migratory mother, originally from Texas. On the day before the photograph was made she and her husband traveled 35 miles each way to pick peas. They worked 5 hours each and together earned $2.25. They have two young children...Live in auto camp.” Bureau of Agricultural Economics series on agricultural "Community Stability and Instability." National Archives.

[Introduction to The Souls of the People, a forthcoming sixteen-part series on economics and inequality]

Introduction

Even in wealthy countries, notably the United States,1 the poor suffer much more than the wealthy from private debt,2 incarceration,3 the inability to pay for healthcare,4 access to- and outcomes of education,5 have little recourse to workplace bullying6 and sexual harassment,7 worse consequences from substance abuse,8 9 suffer more domestic abuse,10 depression and mental illness,11 suicide,12 homelessness,13 exposure to crime,14 exposure to pollution,15 insecurity, stress and pain,16 and related problems. Many of these problems are getting still worse for the poor, as well as for the middle class as some sink into poverty.17 18 19

Besides these life-changing issues the “little” things also build to weigh down the poor, again notably in the United States. The working poor, if hired,20 are nickel-and-dimed,21 suffer ever more small miseries22 that “like small debts, hit us in so many places, and meet us at so many turns and corners, that what they want in weight, they make up in number” (Kipling; see for example Hard Work, Hard Lives23).

Fines and fees that are of little consequence to the wealthy are onerous to the poor, and essentially criminalize poverty. In 2019 “53 million Americans between the ages of 18 to 64—accounting for 44% of all workers—qualify as ‘low-wage.’ Their median hourly wages are $10.22, and median annual earnings are about $18,000.” (2019)24 Fines and fees can and do send these working poor into a downward spiral.25 26 27

The “spiral of inequality” that Paul Krugman could write about in 199628 has only gotten worse.29 The working poor are losing faith in the system.30 The middle class is indeed shrinking and upward mobility out of poverty decreasing.31 32 And all the while the wealthy hide their assets,33 use law to enrich themselves further,34 protected by the courts or better served by them,35 36 even by the supreme court.37 38

This sixteen-part series, The Souls of the People, will explore these issues and the ideas and economics behind them. The values, origins, economics and philosophy behind the call to “cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub” (Norquist). The creation of think tanks specifically to provide a pseudo-intellectual foundation for inequality, and that along with media convince the middle class to vote against their own interests. The rise, reasons for, and effect of beliefs that markets without law allow for full employment and that wage laws cause unemployment. That competition alone can bring about good working conditions. The rejection of progressive taxes, and of the right to avail ourselves of the power and resources of the country through organizing public goods. And most importantly, how all of these are maintained by laws that impoverish the powerless and enrich the powerful, and thus are self-perpetuating. Yet if the laws don’t change, inequality will worsen. If inequality worsens, the laws won’t change. It is hard to know where to start.

And all the while “in the souls of the people the grapes of wrath are filling.”

The souls of the people
The most fatal ailment
Ill fares the land

So long as you are happy
What we yearn to be
The sane and beautiful

The sum of what we have been
A little world made cunningly
Like a sinking star

The cries of the harvesters
The earth with its starkness
Written in blood

To do and die
In this fateful hour
So that we may fear less
The rags of time

_____________

Notes & References

Steinbeck’s 1939 The Grapes of Wrath took its title from Julia Ward Howe’s “Battle Hymn of the Republic,” published in 1862:

Mine eyes have seen the glory of the coming of the Lord
He is trampling out the vintage where the grapes of wrath are stored
He hath loosed the fateful lightning of his terrible swift sword
His truth is marching on

which in turn is an allusion to The Book of Revelation 14:19-20:

So the angel swung his sickle to the earth and gathered the clusters from the vine of the earth, and threw them into the great wine press of the wrath of God.

________

[1] America’s Poor Are Worse Off Than Elsewhere. 2021. Confrontingpoverty.org.

[2] The Private Debt Crisis. 2016. Richard Vague, Democracy, Fall, 42.

[3] Connections Among Poverty, Incarceration, And Inequality. 2020. Institute for Research on Poverty, University of Wisonsin-Madison.

[4] Americans Near Poverty Line Face Significant Gap in Health Care Coverage, May Forego Essential Health Care. 2021. Skylar Kenney. Pharmacy Times, April 9.

[5] The impact of poverty on educational outcomes for children. 2007. Ferguson, H., Bovaird, S., & Mueller, M. Paediatrics & child health, 12(8), 701–706.

[6] Low-Wage Workers and Bullying in the Workplace: How Current Workplace Harassment Law Makes the Most Vulnerable Invisible. 2017. E. Christine Reyes Loya, Hastings International and Comparative Law Review, vol. 40 no. 2.

[7] Low-Wage Workers Aren’t Getting Justice for Sexual Harassment. 2017. Alana Semuels, The Atlantic, Dec. 27.

[8] Understanding the Relationship Between Poverty and Addiction. 2018. St. Joseph Institute for Addiction, June 18th.

[9] Addiction And Low-Income Americans. 2021. Addiction Center.

[10] Moving Families Out of Poverty: Domestic Violence and Poverty. 2001. Deborah Satyanathan and Anna Pollack, Michigan Family Impact Seminars Briefing Report No. 2001-2.

[11] Poverty, depression, and anxiety: Causal evidence and mechanisms. 2020. Matthew Ridley et al, Science Vol 370, Issue 6522.

[12] Poverty may have a greater effect on suicide rates than do unemployment or foreclosures. 2016. UCLA Newsroom, Nov. 16.

[13] HUD: Growth Of Homelessness During 2020 Was ‘Devastating,’ Even Before The Pandemic. 2021. Pam Fessler, NPR.

[14] Urban Poverty and Neighborhood Effects on Crime: Incorporating Spatial and Network Perspectives. 2014. Corina Graif, Andrew S. Gladfelter, Stephen A. Matthews, Sociology Compass Vol. 8, Issue 9 pp. 1140-1155.

[15] How and why are the poorest people most likely to have exposure to toxins? 2021. Medical News Today.

[16] The high costs of being poor in America: Stress, pain, and worry. 2015. Carol Graham, Brookings, February 19.

[17] The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply. 2021. Rakesh Kochhar, Pew Research Center.

[18] 8 Million Have Slipped Into Poverty Since May as Federal Aid Has Dried Up. 2020. Jason DeParle, New York Times, Oct. 15.

[19] Poverty In America: Economic Realities Of Struggling Families. 2019. Hearing Before The Committee On The Budget, House Of Representatives, June 19.

[20] Concentrated Poverty and the Disconnect Between Jobs and Workers. 2019. David Neumark, EconoFact- The Fletcher School, Tufts University, Jan. 22.

[21] Nickel and Dimed: On (Not) Getting By in America. 2001. Barbara Ehrenreich. Metropolitan/Henry Holt.

[22] Hired: Six Months Undercover in Low-Wage Britain. 2018. James Bloodworth, Atlantic Books.

[23] Hard Work, Hard Lives: Survey Exposes Harsh Reality Faced by Low-Wage Workers in the US. 2013. Oxfam America.

[24] Low-wage work is more pervasive than you think, and there aren’t enough “good jobs” to go around. 2019. Martha Ross and Nicole Bateman, Brookings, Nov. 21.

[25] The Steep Costs of Criminal Justice Fees and Fines. 2019. Noah Atchison and Michael Crowley, Brennan Center for Justice, Nov. 21.

[26] Fees and Fines: The Criminalization of Poverty. 2019. Kiren Jahangeer, American Bar Association.

[27] Fines and fees are a pound of flesh for poor people. 2021. Alexes Harris, Seattle Times, Feb. 25.

[28] The Spiral of Inequality. 1996. Paul Krugman, Mother Jones, Nov/Dec.

[29] Trends in income and wealth inequality. 2020. Juliana Menasce Horowitz, Ruth Igielnik and Rakesh Kochhar, Pew Research Center.

[30] Survey Shows People No Longer Believe Working Hard Will Lead To A Better Life. 2021. InsiderMag summary of the Edelman Trust Barometer 2020.

[31] The costs of inequality: Increasingly, it’s the rich and the rest. 2016. Christina Pazzanese, The Harvard Gazette, Feb, 8.

[32] Squeezing the middle class: Income trajectories from 1967 to 2016. 2020. Stephen Rose, Brookings, Aug, 10.

[33] How the Rich Hide Their Assets. Accessed August, 2021. Ad and discussion for Estate Street Partners, LLC.

[34] How Wealthy People Use the Government to Enrich Themselves. 2017. Jesse Singal, New York Magazine, Dec. 28.

[35] The rich get richer and the poor get prison : ideology, class, and criminal justice. 2010 (9th ed.). Jeffrey H Reiman and Paul Leighton, Allyn & Bacon.

[36] The Importance of Litigant Wealth. 2010. Albert Yoon,, 59 DePaul Law Review 59:2.

[37] How the Supreme Court Favors the Rich and Powerful. 2020. Adam Cohen. Time, March 3; adapted from Cohen’s Supreme Inequality (2020), Penguin Press.

[38] A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality. 2014. Michele Gilman, Utah Law Review, vol. 2014 no. 3.

Fairy tales and the vocabulary of scarcity. Protecting the wealthy and hurting the rest

Fairy tale princess and books in fantasy landImage by Mystic Art Design from Pixabay

“Last time, most of us fell for it. This time, it is critical that we do not. Because, in reality, the crisis we just experienced was waking from a dream, a confrontation with the actual reality of human life, which is that we are a collection of fragile beings taking care of one another, and that those who do the lion’s share of this care work that keeps us alive are overtaxed, underpaid, and daily humiliated, and that a very large proportion of the population don’t do anything at all but spin fantasies, extract rents, and generally get in the way of those who are making, fixing, moving, and transporting things, or tending to the needs of other living beings. It is imperative that we not slip back into a reality where all this makes some sort of inexplicable sense, the way senseless things so often do in dreams.”

David Graeber –  After the Pandemic, We Can’t Go Back to Sleep

 

 

Rishi Sunak is looking to raise funds! So says an article in the mainstream media this week. Raise funds for what? A gym, a swimming pool or perhaps tennis courts for his £1.5 million manor? No, nothing so trivial! The article, like so many over the past few months, was speculating on how the Chancellor might get the public finances back on track after the huge spending response by the government to keep the country economically afloat and functioning during the pandemic.

What’s it to be? Capital gains tax, targeting public sector pensions, abandoning the pensions triple lock, cutting public sector spending, raising taxes, or perhaps increasing National Insurance (to fund the proposed social care reforms if they ever get off the drawing board). After all, you’ve got to find the money from somewhere, haven’t you? At this point one cannot help but note with a hint sarcasm, that an excessively wealthy Chancellor is now considering cutting benefits for some of the poorest people in our society, putting balanced accounts over people’s lives.

Last week, the BBC covered yet another fake story about government borrowing. It reported that whilst overall borrowing was down on the same time last year, the government had spent a record £8.7bn in interest on repaying its debts in June, three times as much as in June 2020, as a result of inflation which had raised the value of index-linked government bonds. It also noted that debt to GDP was at its highest since the 1960s.

In the same article, the Chancellor, whilst patting himself on the back for the ‘unprecedented package’ of pandemic support, the only option that he actually had to keep the economy from taking a nosedive, commented that he needed to ensure debt remained under control in the medium term and indicated that his ‘tough choices’ in the last budget were ‘to put the public finances on a sustainable path’.

The IFS, relishing its doom-mongering task, as always, said in July that they expected that the ‘tough choices’ would continue, even if the economy appeared to be recovering more quickly than had been expected at the last budget. It noted that ‘permanent economic damage’ had been done by the pandemic, and that rising debt interest costs meant that, under their forecast, the Chancellor would have little, if any, additional headroom against his stated medium-term target of current budget balance (borrowing only to invest, not to fund day-to-day spending) in this year’s Autumn Spending Review. Analysts did, however, stress that despite record interest, debt servicing costs as a share of GDP remained low by historic standards.

Ruth Gregory, a senior UK economist at Capital Economics, said that ‘the public finances should reap the benefits of a fuller recovery in GDP than the OBR expects, meaning that the deficit will fall still further.’ Assuming of course that the proclaimed recovery remains on track, which is looking less and less certain.

You can trace in the above text a common theme. Tax, borrowing, deficit, debt, and fiscal headroom is the vocabulary of choice by politicians, journalists and institutions when describing how the government spends. It is, therefore, unsurprising that the public accepts the deficit and debt fairy tales.

Whilst it may be the case in terms of how the public accounts are presented, the reality is that it is merely an accounting framework which fails to reflect the capacity of the UK government, as the currency issuer, to spend money into existence, and is designed to keep a lid on monetary reality.

Instead, the media in its analysis, acts to reinforce the incorrect narrative of how the government spends, and focuses either on the capabilities of the chancellor of the day to manage the economy in a fiscally sound manner, or aims to shock the same public when the deficit and debt increase, leading to false accusations by the political opposition of economic mismanagement and spending beyond the nation’s means.

We can certainly expect more of this household budget nonsense in the months to come. After a vast round of government spending to prop up the economy, someone’s got to keep the public’s expectations in check, to keep the status quo in place by suggesting that government must balance its books, sooner or later.

In this, the journalists fall over themselves, as Will Hutton did this week in an article discussing the current economic situation, to frame the issues as per usual in terms of borrowing, deficit and debt, as if they represented monetary reality. To give him his due, he was clear, in a deficit dove sort of way, that the spending responses the government had made to address the prevailing economic conditions had been necessary to stop the economy from crashing, and went on to suggest that such spending would need to continue to support the economy. However, even if he didn’t say it, caught as he is like many others in the false paradigm of how the government spends, he will be equally quick to suggest at some time in the future that whilst we might continue to borrow while interest rates remain low, eventually there will be a reckoning and government will have no alternative but to curb its spending and restore fiscal discipline.

Now is the time to challenge this notion of monetary scarcity, and also the economic orthodoxy which has done huge harm to the UK, and also globally.

As the MMT Lens has noted many times before, it’s not the state of the public accounts that are important in themselves, but the economic conditions that lie behind them. What choices did the government make, faced with those economic conditions? What did the government do, or not do, who benefited and who did not?

The media, acting like a magician using his powers of sleight of hand, guides the public to be afraid of public debt and its consequences, when all the while the future of the planet hangs in the balance, not just in terms of planetary degradation, but also the poverty and inequality which will continue to grow without urgent action.

We need a State of the Nation Address to make clear what the consequences of the ideologically driven policies of successive governments and their spending choices have been, and most particularly over the last decade. While the rich have benefited from an ever-larger proportion of wealth, the living standards of successive generations have fallen, increasing poverty and inequality.

The ‘cheap as chips’ economy flourishes increasingly for only one section of it. The corporate sector. Earlier in the year, it was reported that the wealth of the world’s billionaires had grown by $4tn during the pandemic, despite the global economy suffering its deepest recession since the Second World War. Jeff Bezos, Mark Zuckerberg, and Bill Gates are just a few of those who have come out of the crisis unscathed, and in some cases even richer.

At the other end of the wealth scale, the gig economy continues to flourish for owners of exploitative companies like Deliveroo, whose workers can earn as little as £2 an hour, unscrupulous employers employing the dirty tricks of fire and rehire on the back of the pandemic, and a continuing low wage economy (even if some sectors are under pressure due to shortages). When the question is asked why such employment standards have been allowed by law and why have they persisted under successive governments, there is only one answer; that those successive governments have served their corporate friends and their own interests through the revolving door, rather than those of the electorate.

This week, the charity Citizens Advice warned, as many have been doing over previous months, that the government’s planned £20 a week cut to Universal Credit could drive 2.3million people into debt. That includes people who were already struggling to make ends meet before the pandemic as a result of government policies.

A survey had shown that more than a third would be in debt after paying just their essential bills, if their benefits were to drop by £20 a week. This increased to half of claimants in the so-called ‘Red Wall’ areas. The organisation is warning of a ‘triple whammy of benefit cuts, rising energy bills and further redundancies as the furlough scheme ends, which will push families into hardship.’

Dame Clare Moriarty, the chief executive of Citizens Advice, described the cut as “a hammer blow to millions of people”, saying that it undermined the chance of a more equal recovery, by tipping families into the red and taking money from the communities most in need.

Whatever happened to Boris Johnson’s levelling up plan? In his usual defence of cutting the Universal Credit uplift, he suggested that claimants should rely on their own ‘efforts’ rather than accept ‘welfare.’ More ‘it’s your own fault if you can’t find a job’ neoliberal twaddle!

Whilst some in the media suggest that cutting the uplift would create electoral risks for Conservative constituencies in the Red Wall, they often fail to bring attention to something much more significant. That the poverty which preceded the pandemic, although alleviated by the increase in Universal Credit, is not a blip of nature, it has been politically induced. Johnson’s mantra of ‘getting people into work’ is no option at all, if wages are not high enough to keep people out of want. It helps no one apart from profit-seeking business, and the irony is that in the end, the whole economy suffers. People are poor, not because of their shortcomings or because they are lazy shirkers and not trying hard enough, they are poor because the government has decreed they should be.

The media should name the economic ideology that drives poverty and inequality and creates the vast disparities in wealth that we are seeing today. Neoliberalism. A phenomenon which has captured political parties, institutions, and the media which parrots its tenets of faith. The fact that many on Universal Credit are in work, surviving from hand to mouth on low wages, is a red warning indicator that something is wrong. It is an indictment of the government that poverty and employment insecurity has been built into the system to serve its corporate supporters who lobby to serve their own profit interests. But neoliberalism teaches, falsely, that government has no power to change the economic paradigm, and that its policies are constrained by scarce monetary resources. It is the spread of neoliberalism’s teachings that has prevented people from seeing the possibilities for positive change.

It was depressing this week to read about Labour’s plans for overhauling the Universal Credit System through allowing low-income workers to earn more, without seeing a cut in their welfare payments. The phrase ‘making work pay,’ featured in the presentation of their plans, which was horribly reminiscent of Iain Duncan Smith’s dictionary of human torture which informed his welfare shakeup and the Universal Credit Plan in 2010, and which incidentally and shamefully Labour supported. What changes? Labour sharing a bed with its corporate friends alongside the Tories, when it had the opportunity to break free of the economic ideology which has done so much damage already.

With increased knowledge about the capacity of government to act, it doesn’t have to be this way. With a government that puts the needs of its citizens at the top of its agenda, it could, through adopting full employment as a policy objective, and the implementation of a Job Guarantee, ensure that people are paid a living wage instead of what happens now, which is, in effect, a wage subsidy to help out their corporate friends.

Since the government is the price setter for labour through its legislative capacity, a Job Guarantee would help both those in work on low wages and those who are involuntarily unemployed and seeking work. A centrally paid for employment scheme, paid at a living wage set by the government, would provide training, give people dignity and purpose as well as offer a transition into better paying, private sector employment, as and when economic conditions improve. That is the best option of all.

The macroeconomic bottom line is that people with more money in their pockets spend it back into the economy, thus benefiting their local communities and the wider economy. They can pay for the real essentials like rent, food, clothing, and travel, with enough left over for life’s pleasures. Nobody should have to rely on food banks to feed themselves or their children.

What’s not to like? It’s a no-brainer. The economy would benefit, (which in an alternative world to the one we currently inhabit should be the aim of all governments whichever side of the political spectrum they stand) and working people would benefit through increased financial security and improved health and well-being.

Furthermore, with the challenge that is being presented by the urgent necessity to address the climate emergency and work towards a just transition to a truly sustainable world, it offers us an important opportunity to rethink the way we do things, re-examine what work is, and move towards a world that is less oriented towards the consumption of things, to a world concerned with sustainable living and dedicated to fulfilling public purpose. We need to do this within the context, not of monetary constraints, but the very real constraints related to resources.

This week the Financial Times ran an article with the headline ‘Climate action will stall until the finance problem is solved’, in which it said:

‘The options are to raise debt, raise taxes (including wealth taxes) or adopt a wartime mentality. None are politically attractive which at a profound level is the reason why the finance question remains unanswered, and the climate crisis remains unresolved’.

On that basis, as humanity sinks beneath the waves, the politicians will still be puzzling their little brains about how to pay for it, when all the time they should have been looking at the real and finite resources we will need to deliver a green transition, and how they can be shared fairly to create a more equitable world. As a social media friend commented, referring to what would have happened if the government had said in 1939 at the beginning of the second world war, ‘We will not defend Britain until the finance is sorted’, it would have been lunacy. The government did what only it could do to prepare for the battles to come, it spent the money into existence, whilst at the same time, offering war bonds to remove private purchasing power to ensure that it was not competing for the resources it would need to prosecute the war. Those same tools can be used for a just, green transition.

When the fate of the planet and its citizens are at stake, it is a paltry and self-serving argument to ask how it will be paid for, or to claim that balanced budgets must come before action on climate, poverty, and inequality.

Whilst we may indeed have to develop a ‘wartime mentality’, we should interpret that, not as deprivation but as an opportunity for cooperation. A transformation from a society of endless consumption of things we don’t need, to one which really delivers public purpose, a society formulated around human and planetary well-being. A cup half full and not half empty.

Such a world seems light-years away, when the Business Secretary Kwasi Kwarteng, continues to advocate a ‘free market’ approach to the economy, that same approach which has created the structural weaknesses revealed over the past year and that will do nothing to save the planet. Whilst, at the same time, right-wing journalists mourn massive state intervention and a culture of unlimited spending (even though it’s poured vast sums of public money into private profit) and promote instead a return to the good old days of unrestrained growth and market dominance.

But in the light of the challenges we face, it is time to acknowledge the damage this approach has already caused and will continue to cause if we fail now to rethink how we live.

Finally, with the news that global trade uncertainty continues to affect the economy, retail sales suffered an unexpected fall in July, and figures show that consumption has levelled off. It rather takes the shine off the expectation that people would be anxious to spend their savings as soon as they were able to, thus saving the government from the ignominy of having to admit that its growth expectations were miscalculated or wishful thinking. The exhortation to spend has fallen flat on its face, for the time being at least.

The elephant in the room crashes about as the government continues to ignore its role in the economic trends, which were already weak before the pandemic as a result of cuts to public spending. And, that it needs to spend sufficiently to deal with the ongoing economic uncertainty and create confidence that government actions are operating in the favour of working people and their families, not the politicians’ corporate friends. In such circumstances, it is clear that those lucky enough to have savings are reluctant to splurge out, just in case things go pear-shaped, and it ignores the many who have no such savings and who have been living on the edge for years as a result of government spending and policy decisions.

While the government continues to threaten more cuts and more public sector austerity to pay down the imaginary debt, the removal of the Universal Credit uplift and potentially the pension triple lock, with the still to come uncertainty surrounding the planned withdrawal of furlough arrangements, people will continue to hunker down after a short flirtation with spending, if they had anything to spend.

Such a strategy, based as it is on a false narrative of government spending, and the evils of deficit and debt, and spending beyond the nation’s means, will constrain the government’s promises, weak as they are, to act on the climate crisis and address the consequences of their own ideologically-driven policies.

If we are to avoid further planetary degradation, destruction of land, resources, and biodiversity, and all that will mean for the future survival of human beings on this planet, we cannot afford to ignore the warnings. We have no monetary constraints, only real resource ones, and it is now for governments across the world to cooperate to ensure that we can deliver a sustainable global economy and a fairer distribution of real resources in both the poorest and richest countries alike. Everything is possible with political will, if we choose it.

 

 

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The post Fairy tales and the vocabulary of scarcity. Protecting the wealthy and hurting the rest appeared first on The Gower Initiative for Modern Money Studies.

Concentrate on real resources to solve real problems, instead of the financial cost.

Published by Anonymous (not verified) on Mon, 23/08/2021 - 1:36am in

Photo by David B Young on Flickr Creative Commons 2.0 licence

“When people live in a fair, caring society, where everyone has equal access to social goods, they don’t have to spend their time worrying about how to cover their basic needs day to day – they can enjoy the art of living. And instead of feeling they are in constant competition with their neighbours, they can build bonds of social solidarity.”

Jason Hickel, Less is More: How Degrowth Will Save the World

 

Over the last 11 years, this government has presided over a train crash of unnecessary austerity and cuts to public sector spending, justified on the spurious claim that they were not affordable due to the previous government spending beyond its means. The public were told that recovery could only be achieved if people pulled in their belts and made a sacrifice to get the public accounts back into order. Bankruptcy was just around the corner if we failed to do so. The public, none the wiser, accepted the household budget wisdom without question, it has been ingrained in the public consciousness since Margaret Thatcher. Since that time, every part of our public and social infrastructure has experienced the consequences of those public sector spending cuts, from the NHS to adult and children’s social care, along with local government and other public institutions whose budgets have been slashed to accommodate the scam narrative of financial affordability.

We have, over the last year, witnessed as never before the grinding reality of austerity and its consequences on the public domain.

A couple of weeks ago, a research economist at the IFS reported that more than four million people had been on an NHS waiting list before the pandemic and that Covid-19 had increased the pressures on the NHS. He warned that unless the NHS could find effective ways to ‘boost its capacity’, then longer waiting lists would be inevitable. No mention here of the fact that the government has starved the NHS of adequate funding, allowed vast sums of public money to pour into private profit, and is currently overseeing the end of the NHS, as we know it, through its US-style integrated care plans. The suggestion that the NHS is to blame and not the government is just a part of the trickery used by such institutions to shift public focus away from government spending decisions and policies. The reality is that you can’t run a public service on empty for too long before the cracks appear, and Covid-19 has split them wide. But still, the public are led by the nose to accept the notion of public sector culpability, rather than manoeuvring by the government to deliver political agendas.

Recently, the President of the Association of Director’s of Children’s Services, Charlotte Ramsden, asked ‘Where is the national plan for children?’ Yes, indeed where is it? The problem goes beyond the chaos of austerity within local authorities whose budgets have been slashed, forcing tough decisions about how limited funding can be allocated fairly across the competing needs of our communities. It also reflects the increasing pressures caused by rising poverty and families trying to survive on low incomes and being obliged to seek help at the growing number of food banks across the country. Tackling poverty should surely be part of the holistic vision for children’s social service provision, given that they are often dealing with the crises brought about by government austerity in the first place. It is shameful that this government has committed to removing the Universal Credit Uplift which has seen so many people through these challenging times.

While Rishi Sunak counts the beans, children count the real cost of successive Chancellors, more concerned with balanced budgets and their political reputation for fiscal discipline. As the Guardian put it succinctly in an editorial this week:

‘Reform is required as well as money. The children’s home sector requires rebuilding with children’s needs – and not financial incentives – centre-stage. Above all, poverty must be reduced. Its corrosive effects on family life, including poor mental health, addiction, homelessness, and hunger, are well known. To deny or ignore the impact of these on children is not only self-defeating, since the costs of treating the symptoms are so often higher than tackling the cause. It is also cruel.’

Also this week, a study published by the Sutton Trust and the Sylvia Charitable Trust noted that inequality in early years education wasn’t offering a fair start to children. Commenting on the government’s policy of funding only 15 hours of weekly childcare or nursery for three- and four-year-olds from low-income families, compared to 30 hours for children whose parents were in work, was deepening inequalities. Apart from the injustice of unequal access to child-care which favours the wealthier, it is short-sighted. Children who benefit from early years education and opportunities to socialise with their peers take those advantages with them throughout their lives. All children deserve a fair start. They benefit, and society benefits.

We should be looking at the roots of the additional pressures on public sector services, not just the services themselves. We should be examining them in the context of the social determinants of child health and security. Determinants such as poverty, the creation of low wages, precarious employment and involuntary unemployment, as well as inadequate, unfit for purpose housing, along with high rents and a crumbling public infrastructure. All these things create stresses in family life and give rise to the problems struggling people face. In turn, they affect the good functioning of society as a whole.

Over the past few decades, we have also seen increasing privatisation of both adult and children’s social care services. It has been based on two lies: that government has a finite pot of money; and that the private sector can deliver public services more efficiently and therefore more cheaply. For decades we have accepted the narrative of a competitive, for-profit model of social care provision, but its promises have fallen far short of the expectations in terms of delivery of efficient, high-quality services, and have impacted on those employed to deliver them in terms of low wages and poor terms and conditions of employment.

During the austerity years, as cuts to public spending increasingly fed through to local government and service providers, the crisis continued to intensify. The consequences of market-led provision, driven by competition, have progressively undermined the quality of care, and the last year has revealed the widening cracks; the result of a decade of government policy and spending decisions. Ironically, the assumed beneficiaries of this profit-led system of social care have suffered as cuts kicked in, leaving profit margins slimmer and companies considering exiting the care market. That is the prerogative of private companies whose rationale is making profit.

The virtues of the free market have been peddled for decades by governments serving the corporate estate and neglecting their responsibilities as elected bodies to serve the nation’s interests. Over the past year, it has been exposed for the con trick it is. This is exactly why we need to bring social care services back under the public sector umbrella of a publicly, paid for, managed, and delivered, accountable service.

As for paying for it (which is usually the next question) it is only the government that has the monetary and legislative capacity to address poverty and inequality and invest in public and social infrastructure to create a stable foundation for a successful and fairer economy. Whilst the government prevaricates, and discussion takes place about how social care can be funded, those needing support continue to be abandoned to fate. Last month, Boris Johnson, in the tradition of sweeping important decisions into the long grass (at least until the autumn) put on hold plans for a tax rise to fix the disintegrating care system, while further discussion continues.

With some MPs unhappy at the prospect of funding it through increases to National Insurance, a regressive tax which hits the poorest hardest, and others being concerned about what they see as intergenerational unfairness, they either lack the fundamental knowledge about monetary reality, or choose to ignore it. The facts would allow them to focus, not on how to pay for it, but on understanding the real issues that revolve around the real resources that will be needed to deliver a social care system that can function effectively, using the tools government has at its disposal, to ensure a fairer distribution of wealth and resources. An increase in National Insurance does not take into consideration the consequences of taxing people more during a period of economic uncertainty. Again, the principle of one person’s spending equals another’s income kicks in here.

No matter how much money you throw at it, if you have no strategy for ensuring that there is a functioning infrastructure for social care, with sufficient well-paid staff on good terms and conditions to deliver those services, you will fail. The question of how to fund it is a redundant one because the government is the currency issuer. But as it is also the political decision-maker, it can target its taxation policy to ensure it releases the labour and other real resources it needs to deliver a functioning social care system.

All talk about levelling up, or investing in public services cannot happen while we have a Chancellor dedicated to market solutions and fiscal discipline, and while politicians talk in terms of taxing to spend.

Last week, GIMMS reported on the IPCC’s report which put humanity on code red. As the droughts, wildfires and floods continue to be chronicled in the media, the UK government, as a host of this November’s COP26, persists with its rhetoric claiming that the UK is a climate world leader and that it has reduced its CO₂ emissions by 44% since 1990. This week the climate activist Greta Thunberg called out their lies and also suggested that global leaders were still treating the climate emergency as a ‘faraway, distant problem.’ She made those comments at a briefing, launching a UNICEF report, Children’s Climate Risk Index, which found that ‘approximately 1 billion children – nearly half of the world’s 2.2 billion children – live in one of the 33 countries classified as ‘extremely high risk’. These children face a deadly combination of exposure to multiple climate and environmental shocks with a high vulnerability due to inadequate essential services such as water and sanitation, healthcare, and education. The findings reflect the number of children impacted today, – figures likely to get worse as the impacts of climate change accelerate.’

While politicians, and the governments they represent, continue with their gilded climate rhetoric, in the same week, it was announced that the oil giant Exxon is expecting to produce 800,000 barrels of oil a day by 2025 in Guyana, which would exceed the estimates for its entire oil and natural gas production in the south-western US Permian basin by 100,000 barrels, that same year. It would represent ‘Exxon’s largest single source of fossil production anywhere in the world.’ Not only do experts believe that the company’s safety plans are ‘inadequate and dangerous’, but a top engineer has also said that worker’s lives, public health and Guyana’s oceans and fisheries, which indigenous locals rely on for a living, are all at stake particularly in the event of a spill. Vincent Adams, an environment chief said, ‘when they make all their billions, and they are ready to pack up and they’re gone, we’ve got to deal with the mess.’

While the company claims its climate goals are ‘some of the most aggressive’ in the industry, its oil operations in Guyana will flood the atmosphere with more than 2bn metric tons of CO₂. As environmental campaigners have suggested, ‘Exxon cannot reconcile the project with its public commitments to address climate change and reduce carbon emissions.’

Greenwashing on steroids!

Last week’s news that humanity may be on code red, will slowly but surely become tomorrow’s chip paper unless we take the warnings with the seriousness they deserve. The real commitment to radical change still remains on the drawing board with no clear direction or strategic plan, either domestically or globally, hinging as it does on the power of the global corporates to control the messages through lobbying and their financial firepower.

It is ironic that Alok Sharma points the finger of blame at the Chinese and suggests that we can only fight climate change if China does its part. Just another example of shifting the focus of blame; failing to acknowledge in the usual smoke and mirrors the connection between China’s exports and their destination.

Larry Elliott noted in the Guardian this week that China was responsible for 28% of global greenhouse gas emissions, with Britain, France, and Italy accounting for about 1%. However, he forgot to note at the same time that the consumables we all rely on in our homes, from electrical goods to computers, phones, and clothing, have been imported from China. As Sue Dalley in a letter to the paper said, ‘This suggests to me a rather different allocation of responsibility; it is time to engage in the urgent political review of just how we in the west must change our addiction to cheap mass consumption …’

It can be summed up by George Monbiot in an opinion piece in this week’s Guardian:

“The global emergency requires a new politics, but it is nowhere in sight. Governments still fear lobby groups more than they fear the collapse of our living systems. For tiny and temporary political gains, they commit us to vast and irreversible consequences. MPs with no discernible record of concern for poor people, and a long record of voting against them, suddenly claim that climate action must be stymied to protect them.

 

The Treasury refuses to commit to the spending needed to support even the government’s feeble programme. Johnson, charged with transforming the global response to climate breakdown at the November summit in Glasgow, blusters and dithers, seeming constitutionally incapable of making difficult decisions.

 

No government, even the most progressive, is yet prepared to contemplate the transformation we need: a global programme that places the survival of humanity and the rest of life on Earth above all other issues. We need not just new policy, but a new ethics. We need to close the gap between knowing and doing. But this conversation has scarcely begun.”

Whilst we as individuals can make our own personal choices, fundamentally it is only the government through its spending choices and policies that can take the radical action that needs to happen to ensure our children and their children have a future.

The government has many tools at its disposal to achieve its objectives, if it has any beyond ensuring the increasing disparities in wealth and allowing its corporate friends to continue to greenwash their way to continuing profits.

A mainstream newspaper this week ran an article about Green NS& I Bonds. Referring to the NS&I website which explained that all money invested in NS&I is passed onto HM Treasury and contributes towards government spending, it went on to indicate how that money would be used to fund green initiatives, from making transport cleaner, developing renewable energy, decarbonisation of public buildings such as schools, and investment in protecting the environment and the countryside.

Green Bonds could indeed play a significant role in a government’s climate agenda, but not in terms of funding such projects. That is just another example of the illusions which governments promote about how governments need to tax to spend, or to borrow by issuing bonds. The government has the capacity to fund green projects as the currency issuer. It doesn’t need to borrow from anyone or offer bonds to do so. The only benefit an investor might get apart from the interest at maturity is a nice warm glow thinking they’ve helped the government to achieve its green agenda, should it ever publish one.

However, as L Randall Wray noted in a recent MMT Podcast hosted by GIMMS Associate Members Christian Reilly and Patricia Pino, Green Bonds could play a valuable role as did the issuance of War Bonds during the second world war. Contrary to belief, they were not issued to pay for the war, they were issued to remove the purchasing power of citizens, to free up those real finite resources required to fight the war, and thus avoid the inflationary pressures which could have ensued. The same warm glow applied as people felt they were doing their bit to support the war effort, even if the reality was that the government did not need their savings to prosecute it.

That same principle could have the same applications in addressing a war of a quite different kind. The one concerned with human survival on a planet of finite resources. Only this time, we should understand the mechanics of Green Bonds, not as mechanisms to fund a green agenda but mechanisms to deliver a green agenda through re-allocation of resources.

 

 

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CBDC: The Power and the Profit

Published by Anonymous (not verified) on Sun, 22/08/2021 - 3:01pm in

With e-cash, any degree of privacy is an option, with any percentage of the system being allowed to operate with cash-like privacy an option, run by any degree of public/private mix. Maintaining physical notes and coins is an option.

Public access to reserves combined with peer-to-peer giro payments, regardless of the privacy aspect, makes the payments function of banks redundant.

Direct access to reserve accounts makes the savings function of banks and 100% safe treasury securities redundant. Holding reserve accounts with banks is a design option. Calling bank-loans “reserves” is an option. (A good overview of some issues: The Case for Digital Legal Tender 2017.)

The only thing banks do that is not made redundant with CBDC and that the government generally does not do is underwrite private loans. (“Government Sponsored Enterprise” being a large exception; the “quasi” status of GSEs, as we will see, is problematic.)

The Purpose

The payments system is merely a technical and bookkeeping question, mundane in the end. The idea of operating it with only reserves puts in stark relief a far more important question: What is the point of banks at all?

To answer this question we have to think more broadly about why we have government at all, and why we have private (or at least arms-length licensed/incorporated) banks/companies at all. What good do either do for us?

Government ultimately is about organizing desired public goods (Re-thinking the Definition of “Public Goods” 2014; 1000 Castaways 2019). Private companies are about profit, hopefully arising from competition-induced technological/organizational changes that lead to gains in productivity/efficiency (quantity, price), and/or quality.

Both public goods and private productivity aid wellbeing. And both aid each other.

Non-government production allows for an abundance of goods, including those with which the people provision their government.

Government not only organizes goods and services that the private sector would not; it increases the productivity of the private sector through healthcare, pure research, infrastructure, education etc. (See also The Entrepreneurial State: Debunking Public vs. Private Sector Myths 2013).

Either one (profit-seekers or government) without the other would lead to a society with less than its potential for wellbeing (abundant and varied material goods, safety, health, education, a healthy environment). Together, they each raise what might be considered a “wellbeing possibility frontier” to modify a mainstream concept, shifting it outward.

These two spheres, government and profit-seeking, are so different they can be said to have fundamentally different moral bases (Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics 1993). Indeed the differing moral codes of each is the reason there is such an (unfortunate) ideological clash between “supporters” of each. Because their inherent moral divide is not usually explicitly recognized or understood, debate becomes hardened around those exposed more to one or the other of these important belief systems, rather than understanding that they are both beneficial and reinforce each other. They must not be mixed, however; when government attempts to emulate the private sector (privatization, outsourcing), or when the private sector takes on the “guardian” morals of government, they not only fail, they become in essence evil (see Systems of Survival; the for-profit “colleges” fiasco is a good example; also Why Privatization is Wrong 2020; Jane Jacobs and the Problem of Monstrous Hybrids 2012).

The Profit

Bank lending, when done correctly, is about—and supports—what profit seeking companies do well, in the same way that government spending, when done well, organizes public goods. The government does not have the correct moral system to carry out what proper bank-lending to profit-seeking companies achieves. Banks should be licensed to underwrite loans at arms-length from government. But with common-sense, easy to enforce limits (Proposals for the Banking System 2009).

And it makes no difference that they do so with a CBDC—the credit they create is better understood by the public if it is on the same balance sheet as the entire system; under the current system, despite appearances, it may as well be. (Loans are either repaid or often insured if not; in neither case does counting them as reserves make a difference; the only thing that makes them special is the purpose for which they were originated).

Originating loans is second only to the sovereign ability to create a currency system through the imposition of liabilities, itself directly stemming from the monopoly on force that defines sovereignty. Thus the responsibility is immense, and oversight must be wise, unambiguous, and uncompromising. Poor loan provision engenders inequality, decreasing the wellbeing even of the wealthy (Top Incomes and Human Well-Being Around the World 2016) and ultimately destabilizes the entire economy (Keen 2012) and society (…and forgive them their debts 2018).

The benefit of a peer-to-peer giro system and disintermediation of banks (which is not the big deal some seem to think; giro systems have been the norm in continental Europe for a century with no harmful social effects from widespread disintermediation; see, for example, A Note on the Giro System 1959, see also 2016; I find it odd in discussions of banking, bank reform, crypto/e-cash etc. how seldom the widespread and long existing use of giro systems receives attention) from all but lending—streamlining and making the finance system more understandable to the public, is it puts into stark relief what banks are currently doing wrong (Those Who Forget the Regulatory Successes of the Past are Condemned to Failure 2009). If the public understands—and can see—what banks should and shouldn’t do, then the clear, common sense, and easy to implement/enforce regulations that would allow for a healthy, wellbeing-enhancing bank system to operate would be obvious (Proposals for the Banking System 2009). Banks, properly regulated, can enhance wellbeing rather than being Roving Cavaliers of Credit (Keen 2009) and private debt a prime source of social distress at the micro and macro levels (The High Price of Debt: Household financial debt and its impact on mental and physical health 2013). The rules surrounding profit-seeking more generally are crucial to society (The Code of Capital: How the Law Creates Wealth and Inequality 2019.)  

The Power (sovereign spending)

As crucial as it is to have a healthy banking system underwriting useful profit seeking, that is understood and regulated properly by the public, there is perhaps an even more pressing question that direct access to reserves via a CBDC makes clear.

The fundamental accounting of government spending is that spending equals taxes (extinguished public liability) plus savings (credits against unextinguished [future] liabilities).

Yet we have an extraordinarily complicated system that not only hides the fundamentals from the public by forcing 100% safe savings to be with a different government unit at a different agency with different perceived accounting. Worse, it gives the appearance that spending beyond taxes is borrowing. This is the exact opposite of the truth that spending beyond taxes is what allows for savings of the government credit.

The simple fact that the majority of the public believe the currency-issuing government borrows from savers is the single most important factor in maintaining wellbeing below its real resource potential. (Or its twin belief, that spending more than taxes—necessary for saving government units—necessarily, or even commonly, leads to inflation). It stops the public from organizing for itself the full amount of public goods that real resources allow, with an irretrievable shrinking of the “wellbeing possibility frontier.”

As noted, government has a special role in organizing public goods that both directly increase wellbeing and amplify future wellbeing, as well as increasing the efficiency of the private sector and its role in production.

Doing less now than could be done irretrievably diminishes the potential level of future wellbeing. The loss is irrecoverable as children end up with less education, develop in worse living conditions, with less infrastructure, in a current population that is less secure, educated, efficient and healthy than it could be. Once this potential is not reached now, then that potential trajectory cannot be reached in the future. Lack of investment now condemns both the present and posterity to a permanent loss.

The primary confusing factor is the seemingly innocuous custom of not allowing savers to save directly in the tax credit. By allowing direct access to the tax credit, a CBDC, regardless of its other features, would allow for 100% safe savings without the misleading accounting of the current system. The (already existing) pointlessness of treasuries would be made apparent. 

Thus a CBDC can be important because of its transparency-increasing effects on both banking and on government spending/public saving. The savings aspect may seem trivial. Yet under existing arrangements spending operations render the system incapable of being understood even by “experts,” much less the public. The profound benefits of good governance are not, and cannot, be reaped. A rational, coherent public accounting of spending and saving would change that. 

The golden era of greenwashing

Published by Anonymous (not verified) on Mon, 16/08/2021 - 12:59am in

Fire fighters during a wildfire in Turkey in 2021Wildfires in Turkey – Image by Felton Davis on Flickr Creative Commons 2.0 licence

The “economy” is ultimately our material relationship with each other and with the rest of the living world. As today’s IPCC report settles in, we have to decide whether we want that relationship to be based on extraction and exploitation, or on reciprocity and care.

Jason Hickel, author of Less is More, and The Divide: A Brief Guide to Global Inequality and its solutions.

 

In 2018, GIMMS’ very first MMT Lens following its launch was entitled ‘The Economics of Climate Change’. In it, we reported on the just-published IPCC’s report on the state of the climate. Scientists warned that we only had 12 years left to halt the worst effects of climate change. The evidence even then was stark, and the clock is still ticking on the capacity of our natural world to support life.

As the world is beset by extreme temperatures, drought, wildfires, and floods, on Monday the UN-led IPCC issued its sixth and latest report, the work of 230 authors from 65 countries. It set out unambiguously the current state of the climate, and what steps we need to take to avert planetary catastrophe. The key takeaway from the report was that we have no more time to lose, and we must act with urgency. If we fail to do so, further climate changes are inevitable and will be irreversible. The UN Secretary-General, Antonio Guterres said ‘the IPCC report is code red for humanity. Alarm bells are deafening and evidence irrefutable; greenhouse gas emissions from fossil fuel burning and deforestation are choking our planet and putting billions of people at immediate risk.’

In anticipation of the report’s publication, Alok Sharma, the UK Minister presiding over the UN’s COP 26 climate talks in November, who is part of a government as always hot on easy rhetoric said: ‘This is going to be the starkest warning yet, that human behaviour is alarmingly accelerating global warming […]. We can’t afford to wait two years, five years 10 years – this is the moment’.

If your eyes aren’t out on stalks by now they should be! This really is a bit rich when the facts have been known for decades and conveniently shelved by successive governments of all shades, as being too hard to deal with and a threat to growth and company profits. We all know in whose pockets politicians lie. Little has been achieved and now we are in the last chance saloon. Saying we can’t afford to wait would be almost laughable if it weren’t so serious.

Politicians and corporations sell us the miracles of technological solutions, many of which are still on the drawing board and promote offsetting carbon emissions through such programmes as tree planting. The claimed answer to the capitalist prayer of business as usual.

As Oxfam noted earlier in the month when it published its report, Tightening the Net: Net zero climate targets implications for land and food equity’, just planting millions of trees to tackle the climate crisis is simplistic, given the huge amount of land that would be needed to offset global greenhouse gas emissions, which would, in turn, impact on the amount of land for crops at a time when climate change is already a growing threat to global food production and increasing levels of hunger.

And that doesn’t even reflect the growing knowledge about trees and the complexity of the environments in which they can exist successfully. Monoculture tree plantations are man-made and bear no relationship with old-growth forest with all the complexity of hundreds of years of growth and biodiversity. The land of easy solutions and a disappointing failure to grasp the reality of what we must do. Cut emissions urgently.

Danny Sriskandarajah, chief executive of Oxfam called, instead, for companies and governments to cut their emissions radically, rather than depending on offset, saying ‘Too many companies and governments are hiding behind the smokescreen of ‘net zero’ to continue dirty ‘business-as-usual activities’.

We are living in the golden era of greenwashing. A world in which the rich and powerful sell us the idea that we can have it all. This week, Linton Besser, Foreign correspondent for the Australian news network ABC, published his article entitled Dead white man’s clothes’, and revealed the dirty secret, as he called it, behind the world’s fashion addiction, with many of the clothes we donate to charity ending up dumped in landfill, thus, and not for the first time, creating an environmental catastrophe on the other side of the world. For example, plastic and other waste dumped in other nations – out of sight, out of mind.

Those on social media cannot fail to note the incessant sales pitches of ‘save the planet’ and buy ‘green, ethically produced’ clothing. As the environmental campaigner Greta Thunberg noted this week:

‘Many are making it look as if the fashion industry is starting to take responsibility, by spending fantasy amounts on campaigns where they portray themselves as ‘sustainable’, ‘ethical’, ‘green’, ‘climate neutral’ and ‘fair’. But let’s be clear: This is almost never anything but pure greenwashing. You cannot mass produce fashion or consume ‘sustainably’ as the world is shaped today. That is one of the many reasons why we will need a system change.

 

The fashion industry is a huge contributor to the climate-and-ecological emergency, not to mention its impact on the countless workers and communities who are being exploited around the world in order for some to enjoy fast fashion that many treat as disposable’.

It is indeed the golden era of greenwashing. Selling us ethical dreams tidied up in greenwashed advertising from clothing to electric cars, tree planting and eating choices (to justify that next purchase and give us a warm glow). How quickly the advertisers catch on. As the fate of humanity lies in the balance, the money makers continue to wallow in the hubris that we are gods with rights over nature and human beings to exploit and grow without end.

As Mark Blyth wrote this week in an opinion piece in the Guardian:

‘Instead, of telling us that we need to truly transform the way we live and organise society, we will be told that we can still carry on as we were, except perhaps with our fossil fuels and one-use goods replaced with green energy and recyclables. Maybe a bit less air travel, but still ‘back to normal’ with green edges.

 

This way of thinking is perhaps as dangerous as the climate crisis itself. While banging on about inflation as a threat to the poor, is a rhetoric of reaction, getting back to normal is a rhetoric of distraction.’

 Except that we can’t afford to continue as we are, or be distracted.

While the government expresses its commitment to action, the WWF (World Wildlife Fund), working in partnership with Vivid Economics, has revealed that only a small fraction of the budget had been pledged for new policies to tackle climate change, and that a substantial amount more had been apportioned towards measures that could push up emissions. It warned that despite the Government advisors’ estimate that investment of 1% of GDP a year from the public and private sector is needed to reduce emissions to net-zero, the policies announced in the budget actually equated to just 0.01%.

Isabella O’Dowd, who is head of climate change at the WWF, said that ‘It’s not too late to prevent global warming from rising above 1.5%, it is in our hands. But to do that, the UK government must play its part by keeping every climate promise it has made’. She went on to note that ‘The spring budget showed a disconnect between the government’s rhetoric and the reality of what it’s doing. The ambition [on emissions-cutting targets] is great, but now we really need to see the policies that will deliver.’

Disconnect? Chasm more like. The word ‘ambition’ seems incongruous here too. The government’s ambition is confined to fine words and not much else, as the WWF shows in its analysis.

There can now be no mistaking the seriousness of the situation. Whilst action should have begun decades ago, when the first warnings were being aired, we must now grasp the nettle for our children’s children.

There is an alternative to the path being promoted by governments across the globe, governments who are the lackeys of global corporates through their spending and legislative choices and bypass democracy at every level. And yet it seems the media, despite the clarity of the seriousness of the situation we face, can’t get enough of the messages that claim that financial Armageddon is on the way if we don’t get our public finances under control.

This week, Gerard Lyons headed his article in The Times, ‘Now is the time to tighten monetary policy’. No, it is not! It is time to do the opposite. The Chancellor is just as penny-pinching and anxious to secure his reputation for fiscal discipline, and, perhaps, his future political career.

The reported row between Boris Johnson and his Chancellor suggested that the Prime Minister was ready to sack him over disagreements about spending on the NHS and his levelling up agenda.

In the Telegraph this week, it was suggested that Rishi Sunak should embark on a round of free market, deregulating liberalism, and reduce state intervention and spending, to keep his party members and backers happy.

It beggars belief that people would actually support someone who is openly talking about how he is going to get the public finances back in order, although it is understandable given the false narratives about how the government spends.

Clearly, his ‘Eat out to Help out’ discount has clouded some people’s views, and the collective memory banks seem to be rather short, in some cases, on the lived consequences of austerity and public policy. The cuts to public sector services, social security and infrastructure, along with employment policies that have kept wages low and people living precariously, have been so damaging to the economy, and the lives of working people and their families.

Never mind the fact that poverty is rife and growing, people are hungry and homeless, that our public and social infrastructure is in a state of decay as a result of 10 years of government spending decisions and policies. Austerity. Sawing one’s legs off in one easy action. So, why not have some more? And that is without factoring in the urgency of addressing climate change, which was so clearly laid out on Monday. It is astonishing that some advocate a ‘return’ (did it ever go away?) to less state intervention, to market ideology and more growth, when clearly it has been very damaging to growing numbers of citizens and to the planet, whilst enriching a few others beyond belief.

In good times and bad, it is only the government that has the capacity to spend and legislate for change within the context of available resources, but whilst Rishi Sunak continues to promote fiscal discipline and getting the public finances on a ‘sound footing’, we are wasting valuable time. And it would seem that the mantra of ‘business as usual’ prevails both in spending policies and ideology, to the delight of business advertising and public relations executives, busily working out their greenwashing agendas.

We should stop asking where the financing will come from and ask the important questions about national priorities instead. As Professor Stephanie Kelton, author of The Deficit Myth puts it:

‘Are these things worth doing and do we have the real resources—the people, the equipment, the raw materials, and the technology—to do them? Will they make society better off, and do we have the political will to act?’

 As an editorial in the Guardian noted this week:

 ‘The state is, clearly, not powerless against global capital. During Covid it paid for millions of workers without breaking a sweat. Contrary to conventional thinking there was no threat from rising deficits to interest rates. Thatcherism was defined by Nigel Lawson as “increasing freedom for markets to work within a framework of firm monetary and fiscal discipline”. This saw the state put in service of business interests rather than mediating between labour and capital. It also left Britain woefully unprepared, and ill-equipped, for the pandemic. A Thatcherite approach will not produce a fairer distribution of growth. It will militate against support during downturns and plans to “level up” the regions. Ministers ought to outline a new role for the state rather than relying on failed ideas about what the market can do.’

On the one hand, we have those who note the future monetary cost of doing nothing, implying we could make savings on future public spending if we act now, as if governments are monetarily embarrassed, which we know they are not. On the other, Sunak is still counting the Treasury beans and stressing the need for fiscal restraint to determine if we can afford to act. And according to some experts, the Treasury is blocking those green policies vital to the government’s claimed commitment to net-zero emissions. This week, Nicholas Stern, author of a 2006 study into the costs of climate change, reinforced the message that the UK cannot fight the climate crisis with austerity and trying to do so would put the green agenda in jeopardy.

Sunak has contrarily claimed this week that the UK would not see a return to the austerity policies of the last decade, promising to rebuild the economy after the pandemic. Suddenly in step with the incumbent of No.10? Which is it Mr Sunak? Having already cut foreign aid spending, and frozen pay for some public sector workers on the basis of keeping public expenditure down, it will remain to be seen whether it’s just more electoral rhetoric of the Johnson kind, which will be abandoned when it suits, remembering he has to keep Conservative voters and backers happy. But it’s true to say he can’t have it both ways. Government spending for the public purpose and austerity are mutually exclusive propositions. We should perhaps, therefore, ask a different question. Who would be the beneficiary of the public purse? The last year should give us an indication. The Corporations.

At the same time, those very same actors continue to talk in terms of the risk to economic growth if we fail to act, with little reference to the threat to the planet and human existence as we know it, or the idea that we can have unrestrained growth and call it green.

If we want any sort of future for our children, the cost of counting beans instead of planetary health will be huge. Continuing to promote the message that with green growth we can have it all, is equally to wilfully misunderstand the vastness of the challenge we face, in terms of real resources and addressing the already high costs of an economic system which is based on the exploitation of human beings.

Climate action may be a bargain, but not a monetary one in terms of future fiscal savings. It is a bargain in terms of human existence and planetary well-being. We can talk glowingly about creating a green economy, but until the government sets out detailed policy proposals, having already been widely criticised in many quarters for its failure to do so, real change will not happen.

Such action must form part of a holistic strategy, directed by central government and flowing down to our communities and every aspect of our lives. It must take account of the lives of working people and the vast inequalities that have arisen over decades and will continue to rise if we do nothing. It must provide appropriate regulation and finance, as only the currency-issuing capacity of government can do, to ensure the innovation that could undoubtedly be unlocked by a government committed to change.

Despite Alok Sharma’s warnings prior to the publication of the IPCC report, the reality is that so far little commitment has been made, and the political will to act is shallow. We are scarcely off the starting blocks in terms of the action that needs to happen. A revolution in the way we live. That revolution must start with the basics of how governments spend.

 

 

 

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