Modern Monetary Theory

The Basics of Modern Money

Published by Anonymous (not verified) on Mon, 01/06/2020 - 6:54pm in

This is good:

We need a UK version....

I'll be working on it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

Congress and corporations join forces to crush American small business

Published by Anonymous (not verified) on Mon, 25/05/2020 - 1:57am in

Today, GIMMS shares a guest post by Jeff Epstein on the Payroll Protection Program in the United States.

Jeff is the host of the podcast, Activist #MMT (Twitter, Facebook, web), Managing Editor of Citizens Media TV, and author of several posts on Naked Capitalism (1, 2, 3, 4, 5, 6, 7).

The post originally appeared here.

SBA Payment Protection Program logoThe Payroll Protection Program (PPP), which is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is a Small Business Administration (SBA) loan program intended “to provide a direct incentive for small businesses to keep their workers on the payroll” during the COVID-19 health crisis.

Since its founding in 1953, the SBA, which is a federal program, has “delivered millions of loans, loan guarantees, contracts, counselling sessions and other forms of assistance to small businesses.” All SBA loans are approved and managed by local commercial banks. According to Modern Money Network Research Director Nathan Tankus, “the forgivable loans running through the Small Business Administration are underwhelming and have [historical problems], in terms of being administered by banks and being slowed down and filtered through all the biases that banks have.”

Some SBA-approved lenders also have difficulties following the law, such as Wells Fargo, which in January settled with the United States Justice Department for fourteen years of fraudulent activity against its customers, employees, and investors.

Although the PPP is a loan program, the loans are forgiven “if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.” It is required that at least seventy-five percent of the loan funds be used for these purposes.

The SBA processed more loan applications on the PPP’s first day than it did in the entire year beforehand. Unfortunately, large corporations have raided the PPP, with the vast majority of small businesses left in the lurch. A chaotic application process worsened the situation, ultimately resulting in only six percent of businesses receiving loans before the funds were depleted.

Huge corporations cut in line

As reported by Reuters on May 5th, at least forty-one companies received PPP loans despite “already [having] enough to cover basic expenses for two months or more when they applied for the funds.” Some of these companies even showed optimism in recent press releases and regulatory filings. For example:

  • Athersys Inc., a biotech company, had $37.5 million cash on hand (enough to cover around nine months of operating expenses) when it filed for a $50 million stock offering soon before securing a $1.3 million PPP loan. Soon after, its stock soared to a market value of more than $500 million.
  • Accelerate Diagnostics reported that it had a market value of around $570 million and $92 million cash on hand, just two weeks before receiving a $4.78 million PPP loan.
  • Enzo Biochem, with a market value of around $130 million and $48 million cash on hand (enough to cover seven months operating expenses), received a PPP loan of nearly $7 million.

Along with dozens of others, these companies certified on their PPP applications that “current economic uncertainty makes this loan necessary to support” their ongoing operations.

On April 21st, the Financial Times identified a total of “83 [publicly traded] companies that had collectively borrowed more than $330m from the PPP, on average $4m each.” On April 27th, the New York Times reported on Domio, a New-York based startup that “most likely had enough cash to last until 2021,” yet laid off staff, applying for and receiving a loan three days before the PPP’s funds ran out.

These companies took out loans despite already being flush with cash and despite also having access to capital markets, which means they have alternative methods for raising funds, such as by selling stock.

Some large companies like Shake Shack, which is worth $1.7 billion and received a $10 million loan, returned the funds in response to public backlash. In an open letter posted to their Linkedin page, Shake Shack executives argued that “the PPP came with no user manual and was extremely confusing.”

Graph showing unemployment claims in the USA from January 1967 to May 2020Unemployment claims during the crisis are unprecedented by orders of magnitude. Graph source: Federal Reserve Economic Data, or FRED, downloaded 7th May 2020.

Egregiously designed

Large corporations would not have been able to take advantage of the PPP if the program had not been, again according to Tankus, “egregiously designed from a budgetary point of view.” Despite small businesses needing at least $700 billion to fund their payrolls for three months, Congress allocated only half that amount. It took less than two weeks for the PPP to be emptied, now with the vast majority of its funds not in the hands of small businesses, but rather large corporations.

This happened in large part, Tankus says, due to the structure of the PPP, which has provided loopholes for large corporations, put roadblocks in front of small businesses, could exacerbate racial inequalities, and discriminates based on immigration status. To add insult to injury, twenty-four hours before the PPP’s launch, in response to pressure by banks, the Treasury Department (to which Congress provided discretion over loan terms) doubled the loan interest rate and greatly shortened the time small businesses have to pay it back.

[Tankus’ blog documents the intricate details of the United States’ inadequate response to the COVID-19 crisis, with a focus on the role of the Federal Reserve. His work has been quoted by politicians in the United States and abroad, and in academic papers.]

Infectious disease

In order to stop the spread of the virus, many who are ready and willing to work must stay home. In the words of economist Pavlina Tcherneva, “a recession is sadly necessary.” Instead of remaining in stasis until after the crisis, the lack of payroll funding forces small businesses to shed workers or their hours, beg for donations with GoFundMes, or shutter. This hurts employees and their families, and the businesses those families shop at. This in turn affects the employees of those businesses, and so on. In other words, the unemployment itself spreads like an infectious disease.

In fact, an April 3rd poll from the U.S. Chamber of Commerce [a pro-business organization unaffiliated with the United States government] and MetLife shows a large percentage of small businesses are considering permanent closure within the next three to six months:

 43% of small businesses say they are 3-6 months away from permanently shutting down, 24% say they are two months or less from closing permanently, and 1 in 10 that say they are less than 1 month away from permanently shutting down. 24% of small businesses report having temporarily closed their business in the last two weeks. Among those who haven’t temporarily shut down yet, 40% report it is likely they will do so within the next two weeks. This means a total of 54% of all small businesses are reporting they have closed or could close within the coming weeks. 54% of small business owners now rate the overall health of the U.S. economy as“poor,” and 32% feel the same about their local economy. 59% of small business owners feel comfortable with their cash flow, compared to 80% last quarter. The most common business responses to the COVID-19 disruption are shortening hours of operation (30%), temporarily closing (24%), and adjusting employee salaries or hours (17%). 84% of small business owners say they are concerned about the impact of the coronavirus outbreak on their business, and a majority (58%) are very concerned, especially those in the Northeast and in the service industry.

The reality of federal finance

Worst of all, the suffering is completely unnecessary. It’s an arbitrary political choice. As is the case with all federally administered programs and benefits, it is impossible for the United States Congress to “run out of money” with which to fund the PPP. According to Texas Christian University economics professor John Harvey, “there is 0% chance that the US will be forced to default on the debt.” According to former Federal Reserve Chairman Alan Greenspan: “there is zero probability of default.” And finally, economist Stephanie Kelton, who served as the Democrats’ chief Senate Budget Committee economist in 2015, and as senior economic adviser to Bernie Sanders’ 2016 and 2020 presidential campaigns:

Stephanie Kelton tweet "The appropriations pen is out of ink? I can’t believe we’re hearing, “We’re out of money” in the early stages of a crisis. AGAIN. The truth is, Congress can appropriate whatever it chooses. It literally cannot run out of money." with quoted tweet from Politico "Sen. Lamar Alexander: Congress won't be able to appropriate enough money to help everyone impacted by the pandemic"Link to tweet

Congress is the only entity on Earth constitutionally empowered to create US dollars, which it does out of thin air, and not so differently from how you or I enter the number 100 into a spreadsheet: by pressing one, then zero, then zero. [To be more specific, Congress authorizes its creation, which is executed by its delegated agent, the Federal Reserve. To be even more specific, see here.] In addition, because the United States has full financial sovereignty, there is no purely financial constraint preventing Congress from funding the PPP for the duration of the quarantine and beyond, regardless of its length.

Congress indeed has limitations, but they’re real, not financial. Sam Levey, Research Scholar at the Global Institute for Sustainable Prosperity, distinguishes between “real” and “paper” problems. Renowned economist Abba Lerner argued for federal finance to be geared towards achieving “functional”, not “sound” goals.

The button works fine!

The 2010 Citizens United v. Federal Election Commission and 2014 McCutcheon v. Federal Election Commission Supreme Court decisions made it possible for unlimited money to drown out small donors. On the ten-year anniversary of the Citizens United decision, the New York Times concluded: “The world Citizens United created — unlimited money in politics and legally unchallenged corporate personhood — is now simply the toxic civic air we breathe.”

Further cementing this reality, on May 8th, 2020, the Supreme Court ruled that many forms of political corruption simply do not violate federal law, “embracing a view of the world that is unbearably bleak.” Attorney, author, and Fordham University associate law professor Zephyr Teachout describes the “shell game” being played by the Supreme Court:

Here’s what should madden you: In his decision in Citizens United, Justice Kennedy said that we should not worry corporate spending would lead to greater corruption, because bribery laws would still deal with our corruption problems. Then the Court went ahead and weakened bribery laws.

Yes, the Payroll Protection Program has serious problems. The cause, however, is not just those who abuse the system, but those who designed it to be abused, chose to needlessly throttle it on top of that, and then voted it into existence. Once it became law, these legislators looked the other way while the abuse happened. Now when it’s too late, they turn around and act surprised.

Considering all of the above, it is not surprising that programs like the PPP, along with many other United States laws, prevent help from reaching those who need it most, while allowing those who need it least to plunder without limit or consequence.

As the monopoly issuer of the US dollar, only the federal government, led by Congress, can backstop the economic devastation we currently face in a way that leaves all parties whole. Congress has decided instead to artificially cap the PPP at levels that are woefully inadequate. Congress uses its full authority at the push of a button when it comes to large corporations, corporate lobbyists, the military-industrial complex, and the fossil fuel industry. Unfortunately, when it comes to supporting American small businesses and the millions of workers and consumers who depend on them, Congress has decided – even though it works just fine – to leave that button unpressed.

Quote "Lobbyists have stepped up a campaign to make sure professional influence peddlers are eligible for the PPP, or P3, funds. The push also includes a demand for an additional $25 billion for canceled events and other lost revenue from the coronavirus pandemic. Senior Democratic lawmakers, including House Speaker Nancy Pelosi, plan to accommodate the demand and change the eligibility standard so that small business bailout money can flow to business advocacy groups."The Intercept reported on May 5th that House Speaker Nancy Pelosi supports an effort to divert small business bailout money to corporate lobbying firms. Here is the full bill, which expands coverage such that almost all 501(c)(6) groups would be eligible for PPP loans. (The Intercept article states “Many of the largest lobbying forces are organized under the 501(c)(6) section of the tax code as trade groups.”)

 

Not that Great

Let’s give the final word to Nathan Tankus, written on March 21st, when unemployment claims were only around a third of what they are today (from here, emphasis added):

[Many] don’t seem to realize how unprecedented a crisis this is. This is no mere recession. This is not even the Great Depression. This is the largest, fastest economic crisis that has ever happened. We’re hanging on a precipice and we need 3.5 trillion dollars distributed to households at a minimum – let alone the support system we need for businesses. … This is the biggest crisis we’ve ever faced and we need quick responses with trillions out the door now.

 

New York Times front page showing graph of employment dataAnother view of the data from the New York Times. Photo source.

Postscript: Sabotage, defund, claim it’s dying, repeat ’til it’s dead

The larger issue is that Congress imposes false scarcity on federal programs under the guise of concern for “fiscal responsibility.” The same false scarcity threatens to permanently shutter the United States Postal Service (USPS). As reported last month by Naked Capitalism:

Under the terms of PAEA [Postal Accountability and Enhancement Act, passed by Congress in 2006], the USPS was forced to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span” – meaning that it had to put aside billions of dollars to pay for the health benefits of employees it hasn’t even hired yet, something that “no other government or private corporation is required to do.”

By writing and then passing the PAEA, Congress has forced USPS to do the impossible, which, unsurprisingly, it has been unable to do. It is now being claimed with faux consternation that USPS is “going broke” and may have to be shuttered – forever empowering private shipping services such as UPS, FedEx, and Amazon.

[According to PhD political scientist Joseph Firestone, the onerous provision was rammed through by the then-Republican controlled Congress. The subsequent 2009-2010 Obama administration, which had control of both houses of Congress, could have repealed the provision but did not choose to.]

While the USPS, a federal agency, must pre-fund all its retirees for seventy-five years into the future, the executives at many large private corporations across the country get to further enrich themselves by brazenly plundering the pensions of their past, present, and future employees. Congress and the justice system have enabled this criminality for nearly a century, while providing essentially no justice for pensioners. [Here is an episode of the podcast Historic.ly that I recorded last year, where I discuss this topic in depth. The written description also contains a substantial overview.]

 "Stephanie Kelton @StephanieKelton When the #MMT coin drops and you realize the suffering is gratuitous." with quoted tweet from Tiffany Hayden "It’s been 1,737 days since Flint, Michigan has had clean water. It was already difficult to live with what has been allowed to happen, but learning that money could have easily been obtained, but wasn’t, makes this especially sadistic and cruel."Link to tweet

 

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The post Congress and corporations join forces to crush American small business appeared first on The Gower Initiative for Modern Money Studies.

‘Two roads diverged in a yellow wood’. The question is which one will we take?

Man standing in a wood at a fork where paths divergePhoto by Vladislav Babienko on Unsplash

Two roads diverged in a yellow wood’ are the opening words of a poem by the celebrated poet Robert Frost. Whilst he was writing about his own personal life’s journey, they are words that could not be more appropriate to the situation that not just the UK, but the planet, finds itself in. The COVID-19 pandemic which has brought world economies to a standstill and threatens a deep recession is uppermost in our minds, particularly those people who have been directly affected by the disease or by loss of their employment. But those immediate threats, devastating enough as they are proving to be with no immediate solutions and a government anxious to get the economy going again regardless of the potential human consequences, are overshadowed by another peril. Climate change remains the biggest challenge of all, risking as it does the very survival of the planet’s ecosystems and by implication human existence.

Our daily routines have until now imposed a false sense of permanence. The illusion that despite the cyclical economic instability which capitalist societies are prone to, everything always, eventually, returns to ‘normal’. Even when normal has patently shifted. We have accepted this as part and parcel of how things are, even when it hurts people. But the severity of the pandemic is challenging that view. We are finding that in addition to the risky nature of life which COVID-19 has revealed, danger also comes from the fact that our economic system has been built on shaky ground indeed – one might say quicksand. The rolling death toll and the degradation of our public services is a daily reminder.

As the country moves towards a lifting of lockdown and a return to semi-normality, we are seeing more cars on the road, beaches crowded with day-trippers, people travelling hundreds of miles to visit beauty spots, the prospect of schools re-opening amidst huge controversy and airlines proposing to recommence flights, the question hangs in the air about what sort of future lies ahead. Whether we can indeed continue along the perilous path of growth we have been travelling along without some sort of future reckoning. And if not, what should our world look like?

COVID-19 and its associated threats have revealed in the starkest way possible that the economic system which prevailed for the last forty years and more has left the world unable to meet the challenges so cruelly posed by the pandemic. All as a result of a toxic neoliberal ideology which has left our public and social infrastructure in ruins, impoverished people as a direct consequence of a globalised world which has kept wages and living standards down and focused on the primacy of the individual over collective action. Politicians have listened to the so-called economic gurus and put their faith in a mystical market as if somehow it alone can direct the orchestra from the celestial podium. Letting it rip to find that non-existent perfect equilibrium by serving global corporations through legislative means, promoting the lie of trickle-down, and claiming that the public infrastructure depends on so-called ‘wealth creators’.

We have paid a heavy price and we are indeed at a fork in the road. Where we go from here is not clear. And yet the choices we make next will make all the difference.

Earlier this week, the President of the World Bank said that ‘the pandemic and shutdown of advanced economies could push as many as 60 million people into extreme poverty’. The Chancellor of the Exchequer in the same week warned that Britain was facing a ‘severe recession the likes of which we haven’t seen’ which would cause severe damage to the UK’s economy. He also went back on earlier predictions of an ‘immediate bounce back’ as the lockdown was lifted and said that there would be more hardship to come.

This came as the Treasury confirmed that around eight million UK workers have now been furloughed and two million are expected to receive support from the government. The government’s spending has risen massively to support those affected and keep businesses ticking over until such time as a recovery is underway.

Although there has been some talk of more austerity to pay for this spending, even the most hawkish of commentators from neoliberal institutions like the Adam Smith Institute recognise that the last thing we need now is to worsen the prospect of a full-scale depression, even if those observations are still couched in household budget terms. Borrowing whilst interest rates are low or growing the economy to improve tax revenues are the oft-repeated caveats to that spending. Clearly, this is not closing the door to such false household budget narratives.

It is politically expedient to accept the need for spending to stop the economy from collapsing and causing infinite damage to the business infrastructure and profits much as the Labour government did in 2008 when it bailed out the banks. But in time, those narratives will likely be given a fresh breath of life at least in terms of continuing to deliver a political agenda.

It will likely bring the next instalment of austerity for public services and their employees’ wages and carrying on along the well-trodden path which favours corporations by delivering a legislative framework not just at national level but international level through the pursuit of free trade deals.

The state with its power of the public purse being used, not for the public purpose, but for quite a different estate – the corporations and a few wealthy elites. Indeed, this week the media, economists, politicians and political commentators have been priming the public for the acceptance of more austerity by reinforcing the message that governments have to borrow or that government has to collect money from tax revenue or other charges before it can spend.

Both the Huffington Post and the BBC ran articles this week discussing how governments pay for the government’s increase in spending through bond issuance. Peter Hitchens tweeted that Rishi Sunak’s furlough billions were just giant payday loan that the country will have to pay back with interest (at some future date). And Boris Johnson when challenged about the decision to continue charging health and care workers to use the NHS (before the decision to rescind the charge) suggested that the money was needed to run the NHS. Indeed, Captain Tom has been knighted for his work in raising money for the NHS as if the institution was a charity and not a publicly funded organisation which does not require tax or other contributions to fund it.

The narrative being reinforced in in the public’s mind is that at some time down the track it will all have to be paid for through more austerity or increased tax. It is worth repeating here that a sovereign currency-issuing government does not need to borrow in order to spend. Indeed, logically speaking how could it borrow money unless it had been spent by the government first? What looks like borrowing isn’t and bond issuance has quite another role. It is instead a smoke and mirrors exercise designed to give the appearance of borrowing and continue the narrative that governments are beholden to money lenders in private markets or that the markets call the tunes.

Dispelling the myths about how governments spend is a priority if we are to give ourselves half a chance to make a different and better world. As was indicated at the beginning of this blog COVID-19 and recession are just part of this picture. The talk about ‘getting back to normal’ overshadows the biggest threat that we still face – climate change and what our response should be. The false narrative of the burden of debt and paying it back will, if allowed to persist, persuade people that action to deal with any of those threats whether unemployment caused by a COVID-19 induced recession or climate change is unaffordable in the long term. That there is always a financial price to pay.

The reality is that the price will not be monetary, it will be in the lives of people who are unemployed, and a trashed planet not fit to live on. We will be rulers of a dead planet, poisoned by our own hand.

There is an alternative. It starts with knowing about how money works and being able to challenge the current narrative that success is to be judged by how well our politicians managed the public accounts.

Contrary to Mrs Thatcher’s oft-repeated slogan ‘there is no alternative’; there is one.

This is the moment to think about a permanent Job Guarantee to manage both the catastrophic effects of COVID-19 on people’s lives and the economy in terms of stabilising it through ending involuntary unemployment and facilitating the transition towards a green and sustainable world. So much potential but will our government act?

Maybe that time is coming; only time will tell. The political discourse has so far been dedicated to a return to normality, growth and rising GDP.

Fiona Harvey, the environment correspondent in the Guardian began an article this week with a stark warning:

‘Global leaders must heed the lessons of the financial crisis of 2008 when they look to repair the damage from the coronavirus pandemic, leading experts have warned, to avoid entrenching disastrous social, health and environmental inequalities and hastening climate breakdown.

The stakes are high.

Earlier this month the Oxford Smith School of Enterprise and the Environment published its paper ‘Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?

In its introduction, it noted that the crisis had demonstrated that governments can intervene decisively once the scale of an emergency is clear and public support is present. It went on to say that:

‘The climate emergency is like the COVID-19 emergency, just in slow motion and much graver. Both involve market failures, externalities, international cooperation, complex science, questions of system resilience, political leadership, and action that hinges on public support. Decisive state interventions are also required to stabilise the climate, by tipping energy and industrial systems towards newer, cleaner, and ultimately cheaper modes of production that become impossible to outcompete’

Its recommendations for contributing to achieving economic and climate goals were:

  • clean physical infrastructure investment
  • building efficiency retrofits
  • investment in education and training to address immediate unemployment from COVID-19 and structural unemployment from decarbonisation, — natural capital investment for ecosystem resilience and regeneration
  • clean R&D investment.

A state-run Job Guarantee implemented to serve both national and local community objectives offers the perfect vehicle to deliver a green-led recovery and reduce the inequality of past decades. Retrofitting existing buildings, creating cities which are cyclist and pedestrian-friendly, digging trenches for broadband connections, planting trees or putting in networks for charging electric-powered vehicles are just a few examples of the work that Job Guarantee participants could accomplish. Our imagination can determine the rest. Serving the public purpose must be the quest.

A Job Guarantee provides an immediate solution to the problem of rising unemployment to stabilise the economy, an opportunity for training the workforce and, out of the catastrophe of pandemic, also provides the perfect opportunity to start along the path towards a more equitable, greener and sustainable world.

We as a nation may also want to consider what sort of future we want in terms of public infrastructure to serve the public purpose. Do we want more state provision – a publicly provided and paid for infrastructure and employment to ensure that we can meet whatever the future holds? If the current situation is anything to go by, there are lessons to be learnt. Or do we prefer to continue as we are and move into a Mad Max dystopian type world where corporate profit is the guiding light and government is its servant?

Brian O’Callaghan, a co-author of the paper said that it was ‘this is the single biggest opportunity for the government to shape the future decade…’ which indeed it is.

Robert Frost ended his poem:

‘Two roads diverged in a wood, and I —

I took the one less traveled by,

And that has made all the difference.’

Therein lies the challenge. Not directly a personal one in this case but one which involves us all. Do we continue as we are or choose another path for the sake of the future and those that will inherit it?

 

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The post ‘Two roads diverged in a yellow wood’. The question is which one will we take? appeared first on The Gower Initiative for Modern Money Studies.

Thank goodness for the government’s ability to create money

Published by Anonymous (not verified) on Sat, 23/05/2020 - 12:44am in

I have just put out the following Twitter thread to address some of the nonsense being said about inflation risk today, and other comments that show incomprehension about money. And yes, I know som MMT quibbles could be raised - but this is seeking to reach a wider audience with ideas they will bot be familiar with:

The usual ridiculous claims about inflation risk are whirling around the media because the government is borrowing more, and some of that is being paid for with quantitative easing (QE). So it’s time for an explanation 1/

First, gov’t debt in the UK right now is low: net of QE it may be just 57% of GDP right now, which is insignificant in the grand scheme of things. 2/

Second, despite £575bn of QE in the last decade the government and Bank of England has dismally failed to deliver inflation that we require. That suggests we might need more QE to create inflation and not less, and inflation is no bad thing. 3/

Third, government debt is made up of three things. They are notes and coins; National Savings including Premium Bonds, and gilts, which are, in effect, National Savings for banks, pension funds and companies. Can anyone give a good reason why we should get rid of all of them, including our money? 4/

Fourth, if big savers what to save with the government because they do not trust commercial banks (which is what is happening) should we force them to take the risk of losing their money in commercial banks? If so, why, especially when smaller savers are protected? 5/

Fifth, shouldn't we instead see this move to save with the government as a vote of confidence in the government's ability to provide economic security and instead worry about why commercial banks are not as safe, and do something about that? 6/

Sixth, government has never repaid the national debt, or ever really tried to do so since it began in 1694. Why should we plan to do so now? What's the reason for changing a policy now that's worked for more than 325 years? 7/

Seventh, if the national debt is going up it's because the private sector is failing, and not that the gov't is. If we demand that the debt be repaid who are we repaying it to? Wouldn't we just bailing out the private owners of wealth? Why should we do that? 8/

Eighth, if 'repaying the debt' would really be about giving private owners of wealth back the money they're lost in preference to providing jobs for people who'll need them and tackling the climate crisis which we should be doing, what's the justification? 9/

Ninth, weren't those in the private sector who've lost as a result of this crisis aware that they were taking risk when investing in private business? When was it that the state gave them an undertaking to underwrite their losses, which repaying the debt would represent? 10/

Tenth, anyone who claims we cannot repay ignores the fact that the government can buy back its own debt any time it likes: it has had the Bank of England create £575bn of new money via QE to do this over the last decade and none of that has to be repaid because the gov't owns the BoE 11/

Eleventh, it's vital the Bank of England does do this money creation. Right now, government loans apart there's almost no new money going into the economy and given that all the money we use is created by borrowing if the Bank of England was not creating new money right now no one would be 12/

Twelfth, in that case without the injection of new government-created money that is happening right now into the economy it would literally grind to a halt. Would anyone prefer that to this new money creation which will be used to clear a large part of this so-called debt? 13/

Thirteenth, or would people prefer that we kept as much as possible of the economy going right now, knowing that the only cost of doing so is the Bank of England technically eventually being owed quite a lot by the government, which it never need repay? 14/

Fourteenth, and if in doubt about this, think how hard you'd find it to repay your borrowings if you owed them to yourself, which is what will happen with much of the new so-called government debt that's going to be created by this recession, but which will be owned by the BoE 15/

Fifteenth, so let's not panic. The amazing thing about modern money is it can be made on demand by the Bank of England to keep our economy going, to clear government debt and to create the cash we need to keep finance going all at the same time 16/

Sixteenth, so there's nothing to worry about - because if the worst comes to the very worst all this debt will just be owed by the government to itself - and that's just fine because what's left over after that is something you really like - new money that makes your world possible 17/

And because that new money simply replaces that which would normally be created by commercial bank lending which isn't happening right now there is no chance it will deliver inflation. Instead it just keeps is going. Thank goodness for gov't and its ability to create new money in that case, I say End/

Funding government spending: an explanation

Published by Anonymous (not verified) on Wed, 20/05/2020 - 4:17pm in

This is the third in my audio series on money. It explains how government spending is funded - and how this always involves the creation of new government-backed money. A transcript is to be found below the audio link.

Understanding how the government funds its activities is vital if the role of money in the economy is to also be understood.

Critically, it has to be remembered that government does not function like a household. When it wishes to spend it simply decides to do so. The decision making is embedded in its budget process, which is how it commits itself to a plan of financial action.

Once it has committed to this plan the government does not need to check whether it has financial resources available to enable it so spend. A government that has its own central bank and which is the currency creator for its jurisdiction knows it can always require that the money that is needed for it to spend can be created on demand. It simply makes the promise to pay and the spend can follow on from that: the central bank, which is the Bank of England in the case of the UK,  will make payment as instructed knowing that the government's promise to pay can always be fulfilled.

That said,  actual expenditure that a government undertakes is incurred through its various Departments. They, like the government as a whole, will commit funds in accordance with their budget. They will then make settlement of the liabilities owing through their clearing bank arrangements. However, the funds expended through these clearing banks will be supplied through the Bank of England.

The Bank of England will provide these funds in the way that every other bank does when advancing money: the Bank of England  makes a charge to the loan account it has with the government and provides credit to the clearing bank to which it has been instructed to make payment. This is a completely normal banking arrangement which the Bank of England has confirmed routinely happens.

However, equally routinely, in the United Kingdom at least, the resulting government overdraft with the Bank of England is cleared, at least once a week, and more often if necessary.  Excluding very short term arrangements there are four ways to achieve this.

Firstly, tax revenue collected by HM Revenue & Customs can be used to clear some or all of this overdraft.

Secondly, the Treasury can sell bonds to the financial markets and use the proceeds of sale to clear the overdraft.

Thirdly, as was commonplace until 2008, and is now scheduled to happen again from 2020 onwards, the overdraft can be left in place, being described then as the Ways and Means Account. This process is called direct monetary funding (DMF) of government spending by central banks.

Fourthly, and in some ways the most complicated arrangement, is what is called quantitative easing or QE. In this arrangement the government sells bonds, but the Bank of England then creates new funds by making a loan to a company that it owns to buy those bonds back from the financial institutions that have bought them from the government.

There are two consequences. First, UK government debt is reduced - because the repurchased debt is now owned by the Bank of England, which is owned by the government. So this funds the government.

Second, in practice the Bank has, to date, required that some of the cash created by the quantitative easing process be held by the U.K.'s clearing banks with it on what are called central bank reserves accounts. The clearing banks then use these central bank reserve accounts to make settlement with each other when, since 2008 they have not been willing to do so without this arrangement because they do not trust each other to be solvent. This process of central bank reserve accounting gives the Bank of England control over short-term interest rates, which are now largely determined by the rate paid on these accounts.

Add these arrangements together and government spending is funded by a combination of tax, bond issues, money creation through the government overdraft with the Bank of England and quantitative easing. All, however, are reflections of the fact that all government spending injects money into the economy at some point and the process of tax collection, bond sales and (in effect) central bank reserve creation all at some point take it out of circulation again.

Government spending always creates money: the question is how to cancel the inflationary effect of that. And critically, there are now multiple options to achieve that goal. The idea that government spending is funded by taxation is, then, part of history.

The following diagram may help some explore this issue in another way:

A larger version of this diagram is available here. Alternatively, enlarge your view using Cmd+.

Why discussion of tax increases at this moment is so utterly unnecessary

Published by Anonymous (not verified) on Tue, 19/05/2020 - 7:26pm in

There is something very strange going on in UK political discussion at present.

As The Observer noted at the weekend, right-wing think tanks have all appeared to accept that austerity is dead and unrevivable. They have accepted the idea that deficits are here to stay for the time being.

Meanwhile in the media and amongst some on the left discussion on the necessity for tax increases is commonplace. This is also true amongst mainstream politicians.

The paradox is obvious. The right gets the need for a Keynesian recovery. The media, and some in the left, and in politics in general, do not.

I should add, that on the right there may be some macroeconomic comprehension of their logic for making their suggestions. Elsewhere, I regret to say that macroeconomic understanding is very weak. And  modern monetary theory, with its emphasis on the spend and tax rather than tax and spend cycle, is at best, hopelessly misunderstood.

And that is profoundly dangerous. Unless we get tax right now the risk of economic harm is enormous, when the economy is already exceptionally vulnerable. So these are the stages required for the management of tax during this crisis.

Stage one

This is where we’re at. Nothing is required right now. Furlough and loans are doing the heavy lifting at present, although furlough cannot last forever and loan schemes need to be replaced with equity investments.

Stage 2

This period arrives as furlough and loans in demand come to an end. That is likely to be later this year. The sticking plasters are then over. The new economic reality will be emerging.

That reality will be horrible, with maybe 25% of the U.K. unemployed. The focus will be in getting people back to work. That will only happen if there is either a) new private sector demand or b) a Green New Deal. There really aren’t other options. Neither is helped by tax increases which reduce demand and create the sense that there is no money to risk on investment in anything green. Overall, then, deficit or not, this would be the last moment for overall tax increases.

That is not to say tax reforms are not needed in Stage 2: they are. We do need to tax wealth more. That’s to tackle growing inequality and the sense of social injustice it is creating. The Tax After Coronavirus (TACs) project explains why and how these reforms should be made. There are many of them. They are shovel ready. And they should be done now. But, crucially, the proceeds should be used to reduce tax on those with lowest earnings. Council tax reductions are one of the most obvious ways to deliver this reform. There are many others.

Consideration might also be given to an excess profits tax.

Additional funding for tax collection and enforcement would also make sense during this period. This would require, for example, full country-by-country reporting. It would also require that measures be taken to stop small business tax abuse through the use and abuse of incorporation. The reason for these measures is not their revenue-raising potential, as such. It is instead that these measures would substantially improve tax morale at a crucial time. When everyone is under pressure the idea that someone cheating is particularly unacceptable: that is why these particular reforms are needed. But, I stress, this would not be the time for overall tax increases. Tax cuts will be required.

Stage 3

No one knows when stage 3 of this process will arrive. But it will. Sometime in the next two years there will be a need for a new tax consensus to fund the post coronavirus settlement.

There will be post coronavirus settlement. As has been said by many, nothing will be the same again. I am not suggesting that I know what that settlement will be: I am suggesting that it will be different from the settlement that existed until February 2020.

Only at this stage will we learn what the post coronavirus economy might look like. It might be something new, where we have learned the value of care, of education, of the need for much enhanced public transport, of bicycle and walk-friendly commuting, of decent broadband so that people can work at home, of living with less because we have found we do not need it, and flying far less often. If that is the case then it is very likely that the proportion of our national income that will be spent through the state will increase.

If, and I stress only if, that is what becomes apparent as the new settled will of the economy, will tax increases be needed. And even then, they will only be required as we head towards full employment. That is because tax increases at Stage 3 are not required to fund the new level of state spending, which can always be funded by money creation if necessary without risk of inflation arising because we will not be at full employment. They are instead required  when we reached a point where there is competition for resources within the economy because full employment is being approached, and the desire is that those resources be directed toward state-run, and not private sector, activity. Then, and only then, will tax increases be needed to make sure that the space for those state-run activities exist within the economy by reducing the scope of activity within the private sector to make sure that overall there isn't excess demand for resources, which would otherwise lead to inflation.

And when those tax increases happen it is vital that they be consistent with the goals of the economy as it is then being run. So, they must be redistributive. They must support sustainability. They must address inequality. They must tackle rentier activity. Tax increases are not just about revenue raising: they are always about the delivery of the overall objective of a government.

Stage 4

Stage 4 is the longer term: the time when it is now commonly said that we must pay for the coronavirus crisis. However, that is not true. We will never need to pay for the coronavirus crisis.

The income of this period has been lost. Capital has been reduced as a result. And the only reason why we would wish to make payment for the coronavirus crisis would be if we wished to restore capital to the position that it had before that crisis began. And yet we know that there is, at present, massive inequality in our society. That is because capital is badly distributed, with a small minority holding far too much of it. And the question that has to be asked of those who claim that repayment must be made is, why would you want to restore that inequality? Why, in other words, do you wish to punish those who work for a living to restore the capital well-being of those who have savings and investments, when we already know that the distribution of wealth is harmful to many in society, to the extent that even those bastions of right-wing thinking called the World Bank, the International Monetary Fund and the Organisation for Economic Cooperation and Development all agree on this issue?

I suggest that we do not need to restore that inequality. As a result no repayment of the cost to capital (whatever that might be - and it is hard to tell, since no one is compelling anyone to buy government bonds right now) should be made in the future as a result of the cost of the coronavirus crisis. That cost should either be absorbed by the state by quantitative easing funding, with new money for use in the economy replacing the lost capital, or it should simply be allowed to wither away through long term inflation, which the use of perpetual bonds would permit. But what will never be required is that tax be used for this purpose.

Add all these facts together and the case for tax increases is remarkably weak, excepting for the reason of redirecting the economy for social purpose in Stage Three as (and when, I hope) full employment is reached again.

In that case, can the discussion be laid aside for now, please?

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

Image by Alexas_Fotos from Pixabay

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

Yeva Nersisyan and L Randall Wray

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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Thoughts on money

Published by Anonymous (not verified) on Sat, 16/05/2020 - 5:59pm in

I admit to feeling tired this morning. But the dog woke me wanting to go out quite early, and so I have been up and have been reading, as is my normal morning routine. A thought for a blog occurred to me, and normally I would have started writing. But I didn't need to write an early morning essay today, so I turned the microphone on my iPad on instead, and offer this as an alternative:

Money for nothing (and no, not the Dire Straits version)

Published by Anonymous (not verified) on Sat, 16/05/2020 - 5:02pm in

Peter May has added this video to the Tax Research wiki page on money.

As he says, this is:

Probably the best’ half hour video on where money comes from.

It is very good.

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