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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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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 cost of Covid-19 is no reason to put off tackling inequality and climate change

Money next to piggy bank wearing surgical maskPhoto by Konstantin Evdokimov on Unsplash

“Emperor Nero, it’s said, fiddled while Rome burned. If you don’t want our politicians to continue to follow his example while the world burns, get politically active now.”

Thom Hartmann – Counter Punch

 

We live in a world of contradictions.

Every day we see warnings about human-induced climate change and its effects on the planet in terms of floods and droughts which is, in turn, impacting on global food production. From the US to Canada, South America, Australia, Asia, and Europe no continent has remained untouched.

In 2019, as reported in the Guardian, 11,000 scientists from 153 countries declared that the world was facing a climate emergency. William Ripple, a professor of ecology at Oregon State University said that ‘despite 40 years of major global negotiations we have continued to conduct business as usual and have failed to address the crisis’.

Two years on, the research team that issued the declaration has warned that ‘there has been an unprecedented surge in climate-related disasters including record-shattering heatwaves, wildfires, hurricanes and devastating cyclones’, and that ‘earth’s vital signs are still deteriorating’.

This week, new research shows a further dangerous slowing of the Gulf Stream. In 2019, currents were at their slowest for at least 1600 years, but a new analysis suggests they may be nearing shutdown, even though precisely when that might happen is still in question. Regardless, we have no time to lose. The Guardian article noted that such an event ‘would have catastrophic consequences around the world, severely disrupting monsoons that billions of people depend on for food in India, South America and West Africa; increasing storms and lowering temperatures in Europe; and pushing up the sea level in the eastern US. It would also further endanger the Amazon rainforest and Antarctic ice sheets.’

Not insignificant consequences, more life-threatening ones.

Niklas Boers, from the Potsdam Institute for Climate Impact Research in Germany who did the research, commented that ‘The signs of destabilisation being visible already is something that I wouldn’t have expected and that I find scary. And, according to the same 2019 analysis, the planet ‘may have already crossed a series of tipping points’ which will result in ‘an existential threat to civilisation.’

Peter Kalmus, a Climate Scientist at NASA’s Jet Propulsion Lab, and one of a panel of experts asked by the Guardian about when we need to start changing our economies and ways of consuming and producing said: ‘We have zero years before climate and ecological breakdown, because it’s already here. We have zero years left to procrastinate.’

Globally the signs are not good, and as the recent floods in London and many other climate-induced events elsewhere in the UK have shown, we are not immune. Scientists have said that the UK is singularly unprepared for what is to come, as recent floods have demonstrated. The once-in-a-lifetime events are likely to become ubiquitous features of our climate landscape, and yet we still procrastinate. The government’s recent multi-billion-pound investment in flood prevention is welcome, but it is still failing to deal with the underlying causes of climate change. The unsustainable way we live.

It was surprising therefore that the same Public Accounts Committee that warned earlier this year that the government was not doing enough to prevent damage from flooding, recently said that taxpayers will be left facing significant financial risk for decades to come because of the high levels of government spending on the pandemic.

Once again MPs, with their incomplete knowledge about how the government spends, are claiming that the debt will be a problem. Which then begs the question where do they think the extra cash will come from to deal with the increasingly damaging effects of the climate crisis? If, as they believe, taxpayers are going to be burdened with debt arising from the pandemic?

The contradictions grow daily.

Whilst Rishi Sunak is promising to restore fiscal discipline at the earliest opportunity, the media builds on the narrative that there will be a financial cost to citizens to restore the public accounts to health. While the water pours over our heads. We cannot apparently afford to save ourselves from planetary and human degradation. We must pay back the debt at the cost of human lives.

Surely, at some point, those that govern us will have to acknowledge monetary reality and accept that the real constraints to spending are not fiscal, but real resources and how they are managed to create a sustainable and fairer society.

Contradictions abound wherever you look.

Whilst the Guardian and other media outlets solemnly report regularly on the climate emergency, at the same time they glory, as they did last week, in the expected opening up of the economy to tourism. In this case specifically ‘to unlock more business travel to boost the economy’. We need more growth, but who cares what sort? News of changes to travel restrictions was greeted with a rise in the stock market value of airline companies and demonstrate everything that is wrong about how we determine value. It seems the prospects for a different way of doing things is not so straightforward. The old normal still has its attractions.

In November, the government will be hosting the global climate summit COP26, which is supposedly going to be yet another defining moment of change. Based on previous experience of similar ‘defining moments’ over decades, which promptly got put on the ‘to do’ list and were shelved as soon as everyone went home, why should we believe that this time will be any different?

If it is so important, why are we not grasping the nettle right now? Why are we waiting for another talking shop to tell us what we know today, right now? As has been pointed out in previous MMT Lens, the UK government’s commitment to addressing the climate crisis is lukewarm, known more for its fancy rhetoric than concrete action.

We must not let COP26 become yet another failed opportunity. The time for warnings is over. As Mike Hall, a recent guest on one of GIMMS ‘In Conversation’ events, commenting on social media this week about the slowing of the Gulf Stream, said:

‘This is really shocking. In order to act on, and sustain, any of this, planners and decision makers need to unlearn the mainstream economics drivel they were taught and learn how a monetary economy actually works – something we mostly knew in WWII in building a ‘Mobilisation Economy’. We need to ramp up action now in order to transform all of our major systems by 2050, energy, transportation, industry, agriculture, waste management. We’ll need to eat less meat, farm in ways that store more carbon in the soils, re-forest degraded or abandoned land and restore wetlands.’

But no, instead, the media talks about opening up, creating more unsustainable growth, and unlocking business to boost it, at a time when we should be urgently talking about how we move the global economy towards sustainability, and addressing the huge global wealth inequalities that have kept a destructive economic system in place for decades, creating vast wealth inequity and leading to the on-going decay of our public and social infrastructure.

For over a decade, working people and their families have been at the sharp end of those consequences, which have proved stark, not to mention disturbing, as public money has been shovelled and continues to be shovelled into private profit, whilst at the same time, further austerity in the form of higher taxes or cuts to public spending, is being promoted daily in the media as the solution to paying down the debt’. The message is stuck in a groove that seems inescapable and is preparing us for the next bout of fiscal retrenchment, not because the government needs to pay down the illusory debt, but because it forms part of its neoliberally driven political agenda.

That neoliberal ideology insidiously pervades our belief systems and is destroying us bit by bit. As George Monbiot wrote in an article in 2016

‘We internalise and reproduce its creeds. The rich persuade themselves that they acquired their wealth through merit, ignoring the advantages – such as education, inheritance and class – that may have helped to secure it. The poor begin to blame themselves for their failures, even when they can do little to change their circumstances.

 

Never mind structural unemployment: if you don’t have a job, it’s because you are unenterprising. Never mind the impossible costs of housing: if your credit card is maxed out, you’re feckless and improvident. Never mind that your children no longer have a school playing field: if they get fat, it’s your fault. In a world governed by competition, those who fall behind become defined and self-defined as losers.

 

Neoliberalism has brought out the worst in us.’

The adherence by all political parties to this toxic economic creed, over decades, is responsible for the exploitation of the planet’s resources and has caused huge environmental destruction, it has impoverished people financially and culturally, created huge wealth inequality, left our public and social infrastructure in tatters, and created huge societal divisions to distract us while the political elites continue to serve the insatiable god of unsustainable growth and their own bank accounts. It has divided us and diluted the concept of common cause and cooperation.

As a result, while we are facing an environmental crisis of gigantic, life-threatening proportions, we are now watching the Minister of Hard Decisions in No 11 evaluate options for paying down the non-existent national debt with the media savouring its role in keeping people fearful of the future. What will the Chancellor do? Almost daily that is the question posed. Will he remove the pension triple lock to reduce the pensions bill as if it were a question of monetary affordability, which it is not, or claim that it is a question of intergenerational fairness as if there were a finite pot of money, which there isn’t. Or will he continue with his plan to withdraw the £20 Universal Credit uplift from some of the poorest people in the country? People who were already struggling to make ends meet before the pandemic.

With this week’s announcement that energy prices will rise, charities are rightly warning that this will hit families very hard at a time when many household budgets are already stretched to the limit.

While the government spews out its rhetoric, our society is in meltdown and our children, who represent the future, are bearing the brunt of government failure. This week it was reported that high levels of deprivation in the north-east of England are driving more and more demand for children’s social care services. A Director of children’s services said that ‘poverty is stark, shameful and obvious. Life chances are blighted. I’ve worked in a number of local authorities all over the country, but I’ve never worked anywhere where poverty is as bad and life chances so poor.

Whilst directors are calling for a radical rethink of how to provide good foster homes for children who need them and recommend the removal or capping of profit-making opportunities in the residential care sector, we should also be looking at the origins of this failure, which is rooted not only in government cuts to spending over a decade, but also the insecure, low wage employment environment which has been promoted for decades and which, in turn, has impacted on the lives of many families.

The pandemic is not over, furlough is ending, and unemployment is predicted to rise as a result. The National Institute of Economic and Social Research said this week that the jobless rate would likely increase from 4.8% to 5.4%. Whilst an upbeat picture is being presented contending that the opening up of the economy will lead to new jobs, nothing is certain if the Chancellor continues along the fiscal retrenchment route. Cutting spending or increasing taxes as the Chancellor suggested earlier this year might be an option, would be, at this time of great challenge and uncertainty, the wrong path to take. As would increasing taxes to pay for social care as No 10 proposed last month or as Zoe Williams from the Guardian put it in an article this week the ‘blindingly obvious way’ would be to fund it with ‘inheritance tax’.

Again, we have politicians and journalists reinforcing the pervasive message that taxes fund spending, without even thinking about the economic consequences of doing so. Whilst they promote boosting the economy, they take away the means for that to happen. Again, contradictions.

Taking money out of people’s pockets when the economy is still emerging from the effects of the pandemic would be not just unwise, but hugely damaging. Adding to the harm already caused by 10 years of spending cuts and public policy decisions which have ravaged our public and social infrastructure, forced people into homelessness and hunger, driven poor wages and employment insecurity with all the associated consequences on people’s health and well-being, would be tantamount to madness. Combine that with the challenges posed by the climate emergency, such a route would be more than disastrous.

Worse, the fact that it is predicated on the lies of monetary scarcity or rising debt, which it is claimed will pose a financial burden on future generations, begs the question, yet again, in whose interests do such lies work? Certainly, not those of working people and their families and friends, nor the planet!

Although much improvement has been made through MMT education networks such as GIMMS and the MMT Podcast, with a nation still largely ignorant of monetary reality, there remains much work to do. At first sight, the mention of economics may be seen as irrelevant to people’s lives, inducing an immediate mental switch off. It is understandable. But once one realises the potential of such an understanding it becomes the art of the possible. Economics is not an arcane subject; it is about us and the impact of government spending and politically driven policies on our lives.  Nobody needs a degree to understand this, and the basics of how the government spends can be described very simply in less than 10 minutes, as the video below shows.

While the right-wing press cries wolf over public debt and urges fiscal retrenchment, those on the progressive left are still, disappointingly, adopting Margaret Thatcher’s narrative about how governments spend. Week in, week out, left-wing groups on social media are awash with memes decrying the Conservative record on deficits and debt. Progressive Labour politicians demand on their pages that the rich are made to pay their tax so that public services can be funded, when, instead, they should talk about taxing the rich to address wealth and real resource inequalities to remove some of their purchasing power and the political influence their wealth wields. That is just as powerful a message and stops dead the incorrect narrative that taxes fund spending. As Warren Mosler says, it’s all a question of sequence and progressive politicians need to understand that governments like the UK’s spend to tax not tax to spend, and whilst they also indulge in the illusion of borrowing, they can’t do that either until they have spent the money into existence. It’s simple when you know.

Instead of calling out the Tories on their economic record, those on the left allow themselves to be side-tracked by such memes which do more damage than good and reinforce in the minds of their readers the idea that the public finances are like their own household budgets. Instead of worrying about the size of the National Debt they could, instead and more productively, focus more on critiquing the economic policies which have, for more than a decade, created huge poverty and inequality, created vast disparities in wealth and destroyed our public infrastructure, whilst at the same time benefitting global corporations and those politicians that serve them through the revolving door.

At election time, the household budget narrative is used by politicians of all shades to discredit each other’s records on deficit and debt. The note left in the Treasury by the Labour MP Liam Byrne, claiming that there was no money left, is an example of this false narrative and proved a gift to the Conservatives allowing them to justify their austerity agenda.

This is absolutely the wrong measure by which to determine the efficacy or otherwise of a government’s time in power. Such beliefs will ultimately drive us into a destructive cul-de-sac at a time when we need to address the climate emergency and bring about a just transition towards a sustainable world as a matter of urgency.

It matters not who increased deficits or created the most debt – it is a red herring designed to take the public’s eyes off the real ball. What matters are the economic conditions at the time and how the government responded. What did they do or not do to ensure the economy could function effectively both in good times and bad? Who benefited and who did not?

Currently, as Frances Ryan, the journalist and disability campaigner, wrote in the Guardian this week:

‘The gap between reality and Boris Johnson’s “levelling up” rhetoric could hardly be starker. It is only concrete action that can lead us down a different path: on housing, disability, insecurity at work, and the gaping holes in our welfare state. A government that leaves millions of the public unable to even eat or wash has, by any definition, failed. Poverty is indeed a mark of shame – but one solely on ministers’ shoulders.’

It is interesting to note this week that Steve Baker, who is the Conservative MP for Wycombe in the traditionally conservative home counties, has urged ministers to abandon its plans to cut universal credit, remarking on the ‘intolerable’ hunger and poverty faced by many of his constituents.

These are the direct consequences of a decade and more of spending decisions and public policy.

Last week, it was astonishing to learn that the Prime Minister and his Home Secretary Priti Patel were proposing a new crime-fighting strategy consisting of ‘chain gangs’ of offenders dressed in such a way as to draw public attention to who was litter picking. Will they be calling for a return of the stocks next or public shaming? Apart from the vile nature of their proposals, reminiscent of Victorian ideals and Dickens novels, it is symptomatic of their singular neoliberal belief in the value of personal responsibility which, at the same time, ignores the role of government in creating an economic environment that strips people of the means by which they can live with dignity and sufficiency and is conducive to an increase in crime.

James Timpson from the UK shoe repair chain was critical of the proposals and tweeted in response:

‘Instead of making offenders wear high viz jackets in chain gangs, how about helping them get a real job instead? In my shops we employ lots of ex-offenders and they wear a shirt and tie. Same people, different approach, a much better outcome.’

Why not go one step further and introduce a properly funded Job Guarantee so that no one faces the indignity of involuntary unemployment? It would provide useful community-based work at a living wage, give people employment and training opportunities when they need them and allow them to make their contribution to society and the economy. It would, at the same time, also promote a sense of self-worth and improve their chances of transitioning into private sector work when the opportunity arises.

Over the past year, we have learned the value of real resources, in this case, the people who do the jobs and keep the economy functioning and productive. Leaving people to flounder, without good work or wages, is detrimental to those affected and detrimental to the economy. These are the people who should be paid decent wages and benefit from good terms and conditions, not be at the mercy of employers exploiting their labour for more profit. A Job Guarantee sets the price for labour and ensures that working people don’t have to work for peanuts or precariously.

This is a time for radical action. Not just to deal with the pressing and urgent climate crisis by rethinking how we live our lives, but also to deal with the vast global inequities of wealth and resources that have arisen over many decades as a result of the exploitation of both people and the finite resources that sustain our western lifestyles.

Time to think the unthinkable! Time to start thinking MMT.

 

 

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The post The cost of Covid-19 is no reason to put off tackling inequality and climate change appeared first on The Gower Initiative for Modern Money Studies.

Johnson’s levelling up programme is looking more like a sham

Published by Anonymous (not verified) on Mon, 19/07/2021 - 1:54am in

Photo by Neil Moralee on Flickr Creative Commons 2.0 licence

A system is corrupt when it is strictly profit-driven, not driven to serve the best interests of its people.

Suzy Kassem, Rise Up and Salute the Sun

 

Oh, the irony! This week in Boris Johnson’s ‘levelling up’ speech, he said: ‘It is an outrage that a man in Glasgow or Blackpool has an average of 10 years less on this planet than someone growing up in Hart in Hampshire’. He followed that by saying, ‘The Government’s mission’ was to ‘unite and level up across the whole UK, not just because that is morally right but because if we fail then we are simply squandering vast reserves of human capital, we are failing to allow people to fulfil their potential’.

Reading those words, it is difficult not to feel that one has been transported into an alternative universe, given that the poverty and inequality he is referring to can be laid directly at the door of government spending policies and the economic dogma which drives them.

Over the past year, we have learned the value of those key workers in the public and private sector who have, at some risk to themselves, kept the economy functioning during the pandemic, just as they did before its arrival.

This week, the TUC drew attention to the low pay and insecure employment which afflicts many in a variety of occupations, from social care to supermarkets and delivery drivers, and which were, it said, the principal reasons for ‘in-work poverty’. It makes it all the more difficult, then, to understand Treasury plans to cut the Universal Credit uplift, a move which will affect some of the poorest people in our communities, many of whom are in work.

Levelling up?

If Johnson’s vision for building back fairer and better is to be believed, it should start with recognising the value of those workers, as well as the economic improvement that better wages and terms and conditions could represent for the economy and people’s lives across the country. In this respect, it is the government which, through its legislation and spending decisions, has the real power to make that difference, if it chooses to do so.

And yet, even the Prime Minister’s own MPs are seeing through the rhetoric and are increasingly concerned that his words represent little more than soundbites, with little if no substance at all. This was noted by the Institute for Public Policy North (IPPR) who made the point that two years on since the promises to level up were made, there still exist ‘deep divides between and within regions’ which are continuing to grow, and that words had to move beyond mere rhetoric towards real action. So far, we have seen no sign of the promised ‘levelling up’.

This week the Birmingham Mail reported on a schoolgirl who was spotted filling her pockets with food for her younger sister, so she didn’t go hungry. It is yet another clear sign of the harsh reality of government policies over ten years, which have been reported on regularly by the GIMMS team in the MMT Lens. From the use of charities filling the growing gaps in public provision, the rise of food banks and homelessness and the decay of those public services which keep an economy and its people safe and healthy.

Yes, welcome to the 21st century. Britain regressing towards a return of Victorian values predicated, as it was then, on charitable works rather than government intervention.

In the same week, the findings of a report published by UK Children’s Charities revealed that council spending on early intervention services had halved, from £3.6bn to £1.8bn. It estimated that since 2010 a thousand children’s centres and 750 youth centres had been forced to close. The charities warned that local authorities were stuck in a ‘vicious circle’, meaning that a lack of funding forced cuts to services which then, in turn, resulted in more expensive crisis interventions and care placements later on.

The Chief Executive of The Children’s Society, Mark Russell, said: Behind the figures showing increased numbers going into care and becoming subject to child protection measures are heart-breaking stories of children facing sometimes horrific risks inside and outside the home, including neglect, abuse and exploitation.

And the Director of Policy and Campaigns at Action for Children, Imran Hussain, added that ‘An approach centred on firefighting crises is not a strategy that protects children.’

Again, this week, Channel 4 News reported on the consequences of the increased use of temporary housing on mental health. According to government statistics, more than 95,000 people in England are living in temporary accommodation which, according to previous reports, is often substandard and unfit for human habitation, with all that implies for both physical and mental health.

A study carried out by the charity Shelter and published in 2017 found a direct link, unsurprisingly, between poor housing and mental health issues. It revealed that more than half of the adults who were surveyed were suffering from depression, with children over three times more likely to demonstrate mental health problems.

That was before the pandemic. The housing crisis is not new, but the past year has made things much worse. It is a direct failure of the government to act legislatively to ensure that housing is fit for purpose and, through its spending decisions, to guarantee sufficient good quality housing at reasonable prices and truly affordable rents.

The problem has been compounded, over a decade, by the severe cuts to local authority funding from central government, which has impacted on its ability to ensure accommodation standards are maintained and that there is sufficient affordable housing stock available to meet demand.

While Rishi Sunak reinforces the concept of fiscal discipline, contrasting against the Prime Minister’s spending promises, the dire situation in social care rears its ugly head, yet again. It was revealed this week that at least 75,000 people are waiting for an initial assessment of their care needs after having contacted their local authority for support, and an estimated 159,000 (those already in the system and receiving care) were facing long delays in getting their annual care review.

Continuing lack of adequate funding has left local, government-run social care services more and more stretched and people are being abandoned at a time when they need support the most, and in some cases, may have died before getting the care they need. This is shocking and unacceptable in a civilised society. The Association of Directors of Adult Social Services said it was a ‘reflection of the parlous financial situation facing councils after a decade of cuts and a pandemic that had created staff shortages in care services.’

For a decade, this government has put fiscal discipline over the health of the public and has conned citizens into accepting the lie that there is always an eventual price to pay for its spending and borrowing. If Sunak gets his way, even after an astonishing display of the capacity of government to spend to prop up the economy in this time of crisis, that same lie is likely to be perpetuated, yet again, in the future. Already, ten years of selective government austerity has created a fragile society that is cracking under the strain and the public and social infrastructure is no longer fit for purpose. Can society cope with yet more?

And to make matters worse, it has been announced that Johnson, repeating his newly appointed Health Secretary’s suggestion that we could raise taxes to pay for social care, is backing proposals for a new tax to fund the ailing system. After having swept the issue into the long grass for too long, they have come up with a solution that continues to reflect the mistaken belief that tax funds government spending.

Great idea it is not! Taking money out of the economy, putting it into the metaphorical shredder and leaving people with less money to spend, is a recipe for more disaster. Such a solution would be harmful to an economy which has suffered from the consequences of previous government policies and austerity, and will add to the ongoing effects of the pandemic, which are far from over.

While the government emphasises its objective to get the economy ‘back to normal’, whatever that might mean, and at whatever cost to the nation or the planet, it seems that for a former Chancellor he’s not that bright. The logic of one person’s spending equalling another’s income seems to have escaped him. If you take more of that spending capacity away at such a time of economic uncertainty, you take away the income of those down the line. It is an inescapable fact. Such a solution would, quite simply, make a recovery even slower and harder to achieve.

Johnson’s levelling up programme is looking more like a sham.

Words are cheap. As Johnson promises the Earth, his Chancellor remains fixated on fiscal discipline. As always, the problem boils down to the false idea of monetary scarcity. So, after a year of vast government spending to manage the economic consequences of the pandemic, we are being wrongly told that there will be a price to pay in the end.

As we see over and over again, the public discourse is founded in both ignorance and political agendas. And again, this week, we were treated to yet another disgusting spectacle as the government won the vote to back the proposed cut in foreign aid, by a large majority, despite opposition on both sides of the House.

According to a poll, 66% of people backed the cut to aid, thus demonstrating once more the poison that spreads when people don’t understand how government really spends. That it is lying when it claims it has to cut spending because we’ve spent beyond our means, and must now tighten our belts in one way or another. It reinforces a message that then divides people in the belief that such spending could be at their expense, in terms of higher taxes or cutting their public services to pay for it.

This decision is short-sighted, particularly at a time when we need to work cooperatively globally to address the climate emergency, and also the poverty and inequality that has already derived from it and the decades of neoliberal dogma. Not just decades, but centuries, of exploitation of both the human and real resources that the west uses to maintain its people’s lifestyles, lie at the heart of the many problems faced by ‘developing’ countries.

Western institutions such as the IMF and the World Bank, through their imposition of unsuitable solutions to development, have made things worse; indebting many of those countries which then face the crushing burden of structural adjustment programmes that have ravaged them, creating yet more of the poverty and inequality which has become both endemic and destructive as a result.

In the light of the climate crisis, which is adding to those problems, it is only right that we reject the idea that we can solve them by pretending we live in a vacuum – the island mentality of pulling up the drawbridge. Our failure to act now, cooperatively at this crossroads in history, which will define what happens next, will be a failure for us all as a species if we fail to recognise that fact.

When the Prime Minister tells us that the cut is needed to keep public debt down, it is a lie. A lie with damaging consequences for some of the poorest countries in the world.

In stark terms, as Daniel Willis from the Campaigning Group Global Justice Now, commented, ‘when the inevitable death and suffering from aid cuts hits the news and every MP who has voted to sever the UK’s 0.7% commitment should know that blood is on their hands’. And, as even the former Conservative Prime Minister, John Major, said, ‘it seems that we can afford a ‘national yacht’ that no-one either wants or needs while cutting help to some of the most miserable and destitute people in the world.’

The economic ‘ignorance’, if that is what it is (and one must begin to question that assumption), is shocking. And the lack of compassion, unforgivable. This was further reinforced this week by the comments from a Tory MP, who enjoys the benefit of multiple homes and many thousands of pounds of public money claimed for hotel expenses, yet who voted for the cuts, saying, ‘we must not forget that, as my adult sons remind me regularly, every pound we spend on international aid is borrowed from future generations.’

The harm to future generations which include her sons, and any offspring, will not be future debt as a result of borrowing, or the threat of higher taxes to pay for it. Government is the currency issuer and has no need to borrow to fund its deficit. The burden of future debt is a myth promulgated by those serving an agenda. As Professor Bill Mitchell wrote:

“The idea that borrowing ‘takes money from the pockets of future taxpayers’ is nonsensical. The funds to pay for the bonds originate in the government net spending in the first place.

 

Clearly, deficits now are in part helping the current generation with income transfers and the like. But they also facilitate public education, public health and other infrastructure which provide massive benefits into the future for the current generation and their children.

 

Once you understand that then the idea that there is a future burden will make you laugh.”

The real harm to future generations will be a government that has failed people, both here and abroad, as a result of an inadequate response to the climate emergency and the vast levels of poverty and inequality deriving from a noxious economic dogma. When the suggestion is that the debt is more important than human well-being or survival, then we should start to ask questions. The so-called debt, that really isn’t one, concealed as it is by the smoke and mirrors of how government really spends, will still be there as the waters are closing over the heads of those same generations. That’s a big risk to take! Our children will not thank us.

On a connected point, it is also concerning to read, in this respect, the media headline this week ‘Global philanthropists pledge £94m to cover UK foreign aid cuts.’ At the same time as it is shameful that we have a government claiming, falsely, there is no money when we need urgent global cooperation to address the biggest challenge humanity has ever faced, it is, by abdicating responsibility, ceding power to philanthropists with political agendas, thus bypassing democracy. These are the equivalent of the Victorian ‘great and good’, distributing largesse to the deserving poor and then abandoning support when it no longer suits their corporate objectives.

This economic household budget bilge of unaffordability is not confined to the Conservatives. Labour continues to do an exceptionally good impression of bowing to the economic dogma of ‘hard earned taxpayer’s money’ which is, unsurprisingly, supported by many of the public whose ideas of how the government spends are couched in the usual household budget narratives.

A newly launched Labour group called Renaissance, rooted ironically in the language of ‘rebirth’, carried out a series of the ubiquitous ‘focus groups’ that it is so fond of, and now seems firmly committed to sticking to the notion that it will need to regain voters’ confidence in its fiscal integrity. Liam Byrne’s note left in the Treasury saying that there was no money left, which was so cleverly used by the incoming government of the day to justify its austerity programme, is still reverberating in the mind of voters today. Fiscal Discipline Rules! As for the concept of ‘rebirth’, it seems more like the promotion of the status quo. Hurry along now, nothing to see here.

Its report, which will be published later this year, reveals the concerns of voters about the national debt, and who also expressed the view that ‘it would be hard to trust Labour as the costs of the pandemic will have to be paid back for some time.’ Years of the endless retelling of the lies about the dangers of deficit and debt, or burdens on future taxpayers, continue to take their toll on the lives of working people.

Others in the focus groups were, apparently, concerned that centrally funded Labour local authorities were failing to do their job. It is regrettable that there remains a lack of public understanding of the background to some of that failure, which has affected Conservative and Labour authorities alike, forcing some even into bankruptcy.

Without an understanding of the difference between the currency issuer, which is the national government, and the currency user, in this case, local government, it is easy to appreciate voters’ concerns. And yet it is a situation that has been created by a decade of cuts to central government funding which have stretched local government budgets, forcing unpalatable decisions, either in cuts to services or increased local taxes and all that means for the health of local economies.

This is symptomatic of the hole that Labour has dug for itself over a decade when it had an opportunity to challenge this false narrative and build a new one. It rejected that opportunity and now is stuck with the consequences of that failure. Consequences that will reverberate for many years to come.

The household budget narrative is doing vast damage to future prospects both domestically and abroad, and yet we continue to accept it without question. It is doing vast damage to the prospect of managing the climate emergency, framed, as it is, in the false concept of monetary scarcity.

A report published by Vivid Economics has made clear, this week, that the commitment to dealing with the climate crisis is still lacking in real substance. It pointed out that the ‘green recovery’ promised by many governments last year had, quite simply, not materialised, and suggested that public money was being spent on things that harm the public. Jeffrey Beyer, a lead author of the report said:

 “With stimulus programmes winding down, it is the end of the beginning of the Covid-19 recovery. We can only build back better sustainably if we protect the climate and nature. Unfortunately, it is impossible to justify the fact that public stimulus money is doing more harm than good to our climate and biodiversity, which underpin our economy. Nature has been particularly neglected, with fewer than ten of the countries we studied investing in nature-based solutions such as reforestation or wetland restoration. Ignoring nature misses out on the triple-win opportunity for jobs and the economy, climate, and biodiversity.”

 

“We did not see a sufficient shift to green spending. It’s hard to be optimistic when you look at the evidence about how much climate change and nature have really not been considered in public spending decisions.”

The challenge remains, and so far, the UK’s response has been limited and lukewarm, forged as it is on fancy rhetoric rather than real action. And globally, we haven’t even got over the starting line as the key measures for change remain monetary affordability, rather than human survival.

At the same time as the excessively rich with money to burn fly to the edge of space, to create the next thrill to liven up their empty, boring lives, the government is ignoring its responsibility to drive change through its policies and spending decisions, which includes acting to restrain the irresponsible behaviour of the excessively wealthy, whose desire for pleasure come before planetary health.

It doesn’t have to be like this. There is an alternative that will protect future generations and create sustainable societies which would allow humans to flourish whilst respecting planetary and environmental boundaries.

There is still time to ‘take the road less travelled’ and move away from the maintenance of a damaging status quo. Knowing something about how the government spends could allow us to take that first step along the path.

 

 

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The post Johnson’s levelling up programme is looking more like a sham appeared first on The Gower Initiative for Modern Money Studies.

Politicians and the media coax the public to accept a new period of austerity

Elderly woman looking out of her windowPhoto by Kaspars Eglitis on Unsplash

“The political class in Westminster have failed us. They inoculate themselves against the pain that we suffer. We will not forgive them, and no, we will not be patient with their political ideology – a belief system which sees exploitation, grotesque levels of inequality, the constant threat of war and destitution as a fair price for the protection of a system which serves them and the richest so well. We have run out of patience with their destruction.

They wilfully look away at the crisis in housing, at poverty pay, they have encouraged a system of privatisation and fragmentation of our NHS, taking away more and more of our services, they stoke a despicable nationalistic racism and cultivate culture wars to distract us, to divert our attention and to obscure the truth. The truth is they refuse to serve our interests and they have disdain for our lives.”

Laura Pidcock

 

This week, the debt doomsters have been out in force! The media and politicians alike have yet again been trying to pull the wool over our eyes with warnings about public debt, handily reinforced by the publication of the Office for Budget Responsibility’s (OBR) Fiscal Risks Report.

Whilst Labour’s Rachel Reeves commits to a cosy conversation with the public about how we can pay for social care, saying that the party would be willing to put up taxes to do so, the OBR’s report has set off a spate of media articles designed to prepare the public for some ‘hard choices’, as Rishi Sunak has previously described it.

We are being primed for the government to abandon its commitment to the pension ‘triple lock’ with scaremongering about its cost, as Sunak claims that concerns about the 8% rise to the state pension due this year under the policy are ‘completely legitimate’, and that any decision will be ‘fair for pensioners and taxpayers.’ And thus, yet again, we see politicians creating and reinforcing societal and intergenerational division for a political agenda, based on the lie that taxes fund state pensions. By claiming that there is a limited pot of ‘taxpayers’ money’, they imply that the triple-lock for pensioners will deprive young people of a stable life and burden them with higher taxes in the future, leading to the conclusion that pension costs must be controlled to be fair to the young. At the same time, it ignores the ongoing reality of decades of government created pensioner poverty and the mess of government-encouraged private pensions that rely on a corrupt and unstable financial sector. Yet again, we see the government creating conflict and absolving its responsibility for its citizens on the false premise of monetary unaffordability.

Then, this week, it was announced that the government would be withdrawing the £20 a week Universal Credit uplift which gave people a lifeline during this difficult time, and went some way to repair the damage caused by 10 years of cuts to public and social security spending.

What sort of perverted logic claims that reducing weekly payments will contribute to getting people ‘back into work’? What sort of perverted logic suggests that people already in work and existing on low incomes and in precarious employment, and for whom the uplift represented an improvement in their living standards, should now be denied it?

Apart from lacking moral compass, such a decision is also macroeconomically bonkers, as it removes money that was being spent into the economy by both those unfortunate enough to have been made unemployed or indeed those receiving in-work benefits because of low incomes. In this respect, the government’s preoccupation with the economy is laughable, since it fails to recognise the role of private spending. It also fails to recognise that it is the government that is actually responsible for creating an environment conducive to the good functioning of the economy.

When asked how a cut would help people to find work, Sunak’s response was that the government was ‘making sure that people are funded by the government to get new qualifications and skills.’ However, as the parable about the 100 dogs and 95 bones (told by Warren Mosler, below) and the economist Bill Mitchell make clear, ‘training does not equal jobs.’

 

And as for job creation, we can look to the government’s Kickstart scheme which allows employers to offer a six-month work placement funded by the government. It was revealed this week by the work and pensions secretary, Therese Coffey, that just over 40,000 young job seekers had started work on the scheme out of a planned 250,000. A scheme that expires at the end of the year, and we are already halfway through. Not exactly a roaring success.

Those in government suggesting that reducing the current payments is a solution and would contribute to getting people back into work, presumably because then they will accept a low wage and insecure employment, clearly have never had a day of living with government-created want in their lives. Even former Tory work and pensions secretaries have asked that the government rethink, as government ministers have admitted that they have made no studies on how many more children the withdrawal of the Universal Credit uplift will push into poverty, with figures being suggested of over 400,000.

In that light, a report published this week by Loughborough University revealed that even before the pandemic arrived 4.3 million children were living in poverty, up 200,000 on the previous year – and up 500,000 over the past five years. It also noted that 75% of children living in poverty in 2019/20 were in households with at least one working adult, which was up 67% on 2014/15.

Anna Feuchtwang, Chair of the End Child Poverty Coalition said:

“The figures speak for themselves – the situation for children couldn’t be starker. We all want to live in a society where children are supported to be the best they can be, but the reality is very different for too many.

“The UK Government can be in no doubt about the challenge it faces if it is serious about ‘levelling up’ parts of the country hardest hit by poverty. After the year we’ve all had, they owe it to our children to come up with a plan to tackle child poverty that includes a boost to children’s benefits. And they need to scrap plans to cut Universal Credit given parents and children are having a tough enough time as it is.”

The solutions lie in a much broader and radical approach to unemployment which puts government at the heart of policy, rather than leaving the market to dictate unpalatable responses which are about maintaining a competitive environment to keep profits rolling in, but which are at the expense of working people. People who have been exploited and manipulated to serve an economic system that depends on keeping some of them unemployed to control inflation and benefit employers, by keeping wages low and jobs insecure, whilst at the same time blaming those very same people for being unemployed.

Given the huge environmental challenges ahead, we need a policy mix which includes expanding the public sector to restore its efficiency and effectiveness. We need to enable a shift in what we consider to be a healthy economy by moving away from endless growth and consumption of stuff to keep the profit wheels oiled, towards one which values human well-being and planetary sustainability as key to success.

This policy mix should be underpinned by the implementation of a permanent Job Guarantee to provide economic and price stability when the next recession hits, as most surely it will, along with a fit for purpose benefit system for those who are unable to work for any reason.

And yet while the very real challenges which will define our future remain, with respect to the consequences of climate change, the continuing exploitation of human beings, land and oceans for profit motives, we are being coached daily and relentlessly to accept the likelihood of increased taxes and more public sector austerity to pay for public debt, as the OBR’s report shows. Someone, somewhere, will have to pay in financial terms on this model.

The BBC, The Telegraph and The Financial Times, like many other news outlets covering the OBR’s report, focus yet again on debt piles and the so-called ‘eye watering’ record levels of borrowing. The Telegraph, quoting from the report, claimed that soaring costs would threaten to make Britain’s debt unsustainable, should interest rates rise to curb inflation. It painted a picture of a chancellor ‘battling to steady the public finances’, as if he is a captain straining to keep control of his ship in a raging storm. It suggested that addressing the spending pressures could require both cuts to the budgets of government departments and tax rises. It cautioned that the fiscal impact of achieving net-zero could add 21% of GDP to public sector net debt in 2050-51, that lost fuel duty due to the move towards electric vehicles would impact on the government’s fiscal position, and that investment in zero-carbon technologies would add to costs as it would only be partly offset by higher carbon tax revenues. The report also warned of the potential rising costs of servicing government debt in the event of what it called the ‘future shocks’ of higher inflation or interest rates.

The classic household budget narrative of how governments spend rules the roost, and acts to prepare the public for an unpalatable solution to rising debt.

Of course, this narrative does not reflect monetary reality, however hard the orthodoxy tries to suggest it does. The government doesn’t have a debt pile and the Chancellor doesn’t have to tackle it with tax rises or cuts to public spending in any government departments. There is no finite pot of money to share out.  The government is the financial and legislative ‘controller’.

The concerns about dealing with public debt and the potential ‘threat’ of the rising cost of borrowing, which would, according to the orthodoxy, place future burdens on taxpayers, are continuing headline themes on the right of the political spectrum. Whilst on the left, the message is that we must sting the rich to pay for public services, and that politicians must have supposedly ‘sensible’ conversations with the public about paying more tax to provide social care, or being able to borrow at low interest rates to spend on public infrastructure.

However, whilst the monetary orthodoxy prevails, it is becoming more and more difficult to believe that Rishi Sunak, at least, or his Treasury staff really don’t know how the government spends. One can only draw the conclusion that denying monetary reality allows them to continue delivering their political agenda by claiming that money is scarce. It is quite simply all part of the ongoing smoke and mirrors of how the government spends, which gives them power over the public purse and who benefits from it and who loses out.

At this point, it would be useful to revise the facts of monetary reality. It is not difficult to understand and doesn’t require the services of an economist to decipher. Such general knowledge could make a huge difference to how people view politics, which would allow them to examine the connection between government policies and spending decisions and who benefited and lost out as a result. Neither politics nor the economy exist in a vacuum; they both determine how well society functions or not as the case may be. Without that understanding, such narratives will always, in the end, put the brakes on government action, on the false count of unaffordability, and threaten the implementation of policies to deal with the climate crisis and rising poverty and inequality.

Firstly, the government is the currency issuer. It spends money into existence. That is where the story of how the government spends begins.

Secondly, as the currency issuer, the government neither needs to tax in order to spend, nor to borrow to cover its spending over and above its tax revenue. The government’s deficit, which sounds quite scary to ordinary people who compare it to a shortfall in their own household budgets, is everyone else’s surplus. That is the money in our savings and circulating in the economy, in our pockets. The use of the tax, deficit, debt and borrowing frameworks are just accounting conventions that bear no relation to the monetary reality of how the government spends.

Thirdly, by asking where the ‘money’ in our pockets and bank accounts comes from, we find that logically speaking the government must spend before any of us can pay our tax, and by extension before it can ‘borrow’, which is just another smoke and mirrors illusion.

The act of spending is the primary step, and on that basis, why would any government want to borrow money it had spent in the first place? However, the term borrowing’, which is often accompanied by the phrase ‘living beyond our means’, serves to keep the public on board with the idea of the need for fiscal discipline. Relating those concepts to people’s own budgets keeps people accepting the prospect of tax rises and cuts to public services.

In the Times this week in the light of the OBR’s fiscal risk report, the paper reported that Sunak had been warned by the OBR that the £10bn ‘deficit’ (which is the money in our savings and pockets) can be fixed only by taxation and yet more spending cuts, as apparently ‘there is no longer any easy way of cutting Britain’s debt.’

Referring to the ongoing challenges of clearing hospital backlogs, maintaining the test and trace and vaccination programmes, catch-up funding for schools and making up lost rail fare income would, it said, ‘add around £10bn a year on average in the next three years.’

 What can one say? Good luck with that Rishi! Thinking caps need to be at the ready! How will taking money out of an uncertain economy with a virus still raging and furlough unwinding help? The idea that the government needs any tax to reduce the deficit or pay down debt is quite simply yet more deliberately sowed confusion. Worse, to suggest more austerity when we are living the consequences of 10 years of public sector spending cuts, is, without doubt, absurd and would continue to damage an already fragile public infrastructure.

By extension, the false logic must surely follow that we cannot then afford to deal with the planetary emergency that threatens our existence, because there will always be a burden of debt hanging over us and a shortfall in revenues, which will require the government to make difficult decisions by increasing taxes, cutting its spending, or divvying up a finite money pot to serve its agenda. In the end, such narratives will always lead to the government putting on the spending brakes to balance the public accounts, regardless of the impact of such decisions.

The same false logic suggests that we cannot afford to rebuild our public and social infrastructure, even if we had a government with the political will to do so, rather than one that spent 10 years dismantling it. That we cannot address the growing poverty and inequality that has arisen over a decade, due to politically motivated austerity by a government which over the last year has shown its true colours, using its spending capacity as the currency issuer to benefit corporations with little or no accountability or transparency. Corporate welfare at the expense of public purpose.

By that false logic, abandon all hope ye who enter here because, apparently, we’ve spent too much and need to attend to the public finances. The deficit spending in itself, however, does not represent the material risk to the public spending outlook that is being suggested. In fact, we need to turn this argument right on its head and ask a different question.

Instead of worrying about the public finances and the size of the deficit, we would do better to consider first what the deficit represents, and who has benefited from the government spending and who has not. Secondly, rather than seeing the deficit as a problem, we need to examine how we can best address the future challenges before us through government policy and spending decisions. And thirdly, if finance is not the constraint, then what is?

If spending is always reduced to the concept of fiscal discipline to keep the public accounts in order – how much tax is collected and how much has been borrowed -then the future will most certainly be bleak. The cutting spending and increasing taxes recipe that the Chancellor will most certainly trot out on budget review day later in the year, will satisfy the Treasury bookkeepers tallying their modern computer-driven version of the public accounts, thus giving the government an opportunity to promote itself as a safe pair of fiscal hands in future elections. However, such thinking will fail at the first hurdle by creating yet more economic pain for a nation that has already had a bellyful, as delivering public purpose is relegated yet again to being unaffordable.

The real constraints we face are, as we are finding out, resource-driven, and the potential that creates for inflationary pressures. Early on in the pandemic, we experienced such pressures on the NHS when trying to source PPE and other equipment, not to mention the pressures on a service which was and remains short of over 40,000 nurses as a result of government policy and cuts to spending.

In recent weeks, the lack of HGV drivers has put increasing pressure on supermarket delivery networks. The construction industry is experiencing shortages of building materials and transport capacity and is being affected by long lead times for items coming from abroad. And then there is also a shortage of the semiconductor chips which form the basis for the technologically driven world in which we live, from TVs, PCs and cars to hospital and other vital equipment that drive our energy and water networks.

Even though the Bank of England has said that it expects these current price pressures to be temporary as economies start to open up, the inflation doom merchants continue to rattle their warnings about high levels of public debt and future financial burdens. They should instead turn their attention to the real issues related to continuing economic uncertainty and raised levels of unemployment, the all too real threat of climate change and managing our finite resources to create a stable and sustainable economy. That is the real role of the government, not balancing the books. Future shocks will have nothing to do with the rising costs of borrowing, but will be related to any government decision to cut spending or impose more austerity at the expense of people and the planet.

We have a government which must know about monetary reality by now, advocating fiscal discipline on the backs of human existence and abdicating its role in spending and legislation to drive public purpose aims. At the same time, it promotes killer growth and the role of the profit-motivated private sector as the mechanism for human betterment. A contradiction in terms. We have a government wielding the power of life and death for the supposed sake of balanced budgets and the maintenance of the status quo.

In the words of Naomi Klein:

Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.”

 

 

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The post Politicians and the media coax the public to accept a new period of austerity appeared first on The Gower Initiative for Modern Money Studies.

Neither Green Savings Bonds nor your pension money are needed for the government to invest in an environmentally sustainable recovery

Wind turbines in fieldsImage by Yves Bernardi from Pixabay

“We can pretend that extending the status quo into the future, unchanged, is one of the options available to us. But that is a fantasy. Change is coming one way or another. Our choice is whether we try to shape that change to the maximum benefit of all or wait passively as the forces of climate disaster, scarcity, and fear of the “other” fundamentally reshape us.”

― Naomi Klein, On Fire: The Case for the Green New Deal

 

This week, the Telegraph reported on a new poll saying that Rishi Sunak’s push to rein in government finances was backed by Conservative voters who were concerned that the government was spending too much and must do more to cut expenditure. According to Andrew Neil, who interviewed the Chancellor on GB News, he did not deny that he had indicated to Johnson that ‘he might have to take his credit card away’, and confirmed his statement made earlier this month that it was right that he should be ‘responsible with other people’s money’.  It would be interesting to be party to conversations between No. 10 and No.11 – Johnson promising the Earth without consulting his Chancellor – whatever next!

Whilst voters on the right worry about the state of the public accounts, on the left we have politicians supporting this narrative; Labour’s candidate for Batley and Spen stated in an interview with Owen Jones prior to election day that ‘People are … sick of thinking there’s a magic money tree, there isn’t, so we’ve got to be clear about that’.

You could not make it up! While the planet overheats, in some places literally, landscapes and oceans degrade, and biodiversity and the natural world is under threat as a direct result of human behaviour, the state of the public accounts takes precedence over addressing the vast man-made politically created poverty and inequality, and even human and planetary survival!

And while the toxic consequences of neoliberal economic dogma prevail, and people get poorer and less equal while the rich go on raking it in, balancing budgets is apparently far more important than advocating the creation of a fairer and more sustainable economy.

This ‘past its expiry date’ understanding of how the government spends spreads its noxious tentacles into every aspect of our lives, suggesting that government spending is constrained by a finite pot of money that depends on taxation and borrowing. And that is before the political pundits or orthodox economists even get started on fearmongering about the size of the national debt. And yet, as destructive as the narrative is, it forms part of public and political debate on a daily basis on the news and social media alike.

It is disappointing, to say the least, that the winning Labour candidate in Batley and Spen is happy to sign up to the right-wing narrative of fiscal discipline and to reinforce this to her electorate, a narrative so beloved by Margaret Thatcher, who claimed that there was no such thing as public money. Dealing with the key challenges of the day, including saving humanity is, according to that message, limited to the tax paid in by working people. By that token, we will have to save up for it, or not do it at all! But do not worry, it is only the planet at stake.

This week the Chancellor, in his Mansion House speech about the future of financial services, yet again reinforced the false taxation paradigm, by claiming that the financial sector contributed ‘£76bn in tax a year’, which he stated was enough ‘to pay for our entire police force and our entire state schools’ system.’ It must have made the chests of those present puff out with pride at their contribution. Of course, on paper, one can do those calculations or costings, but the truth is that government does not need their tax, or anyone’s tax, in order to spend.

The Chief Bean Counter, yet again, leads the public astray with his household budget descriptions of how the government spends, and later in his speech reinforced the lie that it needs to borrow to fund its programmes. He confirmed the ‘final part of his vision’ which would give the public, he said, an opportunity to invest in the government’s green initiatives through NS&I Green Savings Bonds. It seems after a bank bailout over a decade ago which failed to spill the beans on how the government really spends, combined with a year of government borrowing from itself to manage the economic fallout from the pandemic, it is choosing yet again to reinforce the message that government needs to borrow from people or institutions in order to spend to save the planet. However, gilt and bond sales, although presented as a borrowing mechanism, have a quite different role and do not equate with borrowing. For more information on that point, you can find out here.

The government does not have to issue bonds, green or otherwise, to fund its spending, any more than it needs to issue bonds to savers to fund infrastructure schemes and create green jobs. That is just the smoke and mirrors of paper accounting. The government is the currency issuer, and with that comes the capacity to invest in creating a sustainable economy and create jobs, both in the public and private sectors, or through the implementation of a Job Guarantee programme which would act as an automatic stabiliser to smooth out the ups and downs of the economic cycle. It is the only body that has the legislative power to do so, and it is the only body with the monetary firepower.

And again, this week, in yet another game of smoke and mirrors, it was reported that the Government had been in private talks to direct billions of pounds of pension money into infrastructure and start-up companies to boost the economy. Industry sources have apparently been discussing how a portion of workplace pension schemes – those which staff have to join – would go into a fund which will launch this year. Yet again we are faced with the same government-sponsored tall tale, but the government does not need to raid pension funds to boost an economic bounce back, or indeed pay for a green agenda.

Such false narratives strengthen the false idea, which has been drummed into the public consciousness over decades, that the financial sector and markets hold the key to economic health, and that the government relies on their expertise and ‘talent, energy and imagination’, as Sunak explained in his speech, to revitalise the economy, which, according to him, matters more for this industry’s success than any government policy.

Is that the same financial sector that crashed the economy in 2007/8? The same financial sector that operated like a casino whilst believing it was invincible, and, in doing so, ruined the lives of hundreds of thousands of people; destroying jobs, depriving people of their homes and contributing to huge economic instability, which in the end led to the poison of damaging austerity.

It calls to mind the words of another Chancellor, Gordon Brown who, addressing the City of London just two months before the run on Northern Rock said:

‘Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year after year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader… I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.’

No sooner had he said it than the financial edifice came crashing down. Clearly, the beginning of this new age was put on hold!

Like governments before, even in the light of the great financial crash politicians such as Sunak are following the same path, bowing to markets and the financial sector as if they are the authors of economic well-being.

And like governments before, it is relinquishing its responsibility for the state of the economy and the health of the nation or the planet, with the implication that the state’s role is a limited one. Even though its vast power has been demonstrated clearly over the last year and more and has prevented an economic meltdown.

It is government policies and legislation that make the rules by which private companies operate, and it is shameful that for decades successive governments have given the financial sector free rein to do as it pleases, with dire consequences. It is also shameful that the government suggests that it needs the money of private savers, the financial sector, or other institutions in order to spend. It is equally shocking that successive Chancellors have pulled the wool over the eyes of the public about how the government spends, by continuing to bow down to the gods of the market and the financial sector.

Wherever you look, the household budget paradigm rules, to the detriment of the biggest challenge we have ever faced. The future of humanity. And still, in the face of rising temperatures and seas, the question on everyone’s lips is: ‘who will pay for it?

This week, an article in the Guardian put the oil industry on the spot over the decades of denying the effect of their business on the climate. It suggested that whilst we cannot get back the 40 years lost to the oil industry’s climate lies, that it should now pay for those deceptions with higher taxes to fund the green agenda. Of course, again, the household paradigm rules in the same way as the left clings to the idea that we should get the excessively rich to pay more tax to pay for the radical environmental programmes that will be needed.

Again, the bottom line is that tax does not fund government spending; the only body with the real monetary capacity as the currency issuer to pay for what we must do is the State. That does not mean to say, however, that they should not be made to bear the burden of their lies, indeed they should – through legislation and taxes designed to drive a move away from damaging carbon-based energy towards developing sustainable technologies harnessing wind, water, and the sun. That is the power of the state, assuming it chooses to use it, rather than deferring to the market for solutions. So far, this government’s record on environmental action has been lukewarm and as changeable as the weather.

Again, this week, in another article commenting on the appointment of Sajid Javid to the position of Secretary of State for Health, the author focused on the problem of MONEY, or rather lack of it, writing:

‘But in every battle Javid fights from now on there will be another familiar problem: money. How to fund a reshaped, modernised health service from Treasury coffers already run bare by the pandemic. How to modernise social care without blowing another hole in the public finances, or putting up taxes, or slashing pensions

Putting aside the idea that this government has any intention of reshaping the health service or social care as publicly paid for, managed, and delivered services and has, in fact, been working for the very opposite, once again the ‘state coffers are bare’ message predominates. It reflects the strategies of successive governments for decades, on both the left and right, who have introduced the private healthcare sector into the mix, in the belief that the private sector is more efficient and uses public money wisely, regardless of the fact that public money is going into private profit and results often in poorer quality and restricted services. Corporate welfare has been the aim of the government game, influenced by those very same corporations advising on policy.

However, the idea that the government has to make choices between putting the finances straight and people’s lives, is not only cruel in its conception but also incorrect. The government does not have to blow any holes in the public finances, put up taxes or slash state pensions. Quite simply, all the government has to do is authorise its central bank to spend.

The question, as someone noted this week on social media, is not how are we going to pay for it, but how are we going to resource it? Do we have the nurses, doctors, other health professionals, hospitals, and other facilities, not to mention social care workers, to provide good health and social care? And if not, why not? Who has failed to make provision through its policies and spending decisions? Where does the blame lie? At the feet of the government, of course.

It is all the more concerning that Javid, a former chancellor who promised an end to austerity and then broke his pre-election pledges by ordering his ministers to identify savage departmental cuts, on the basis that they had been ‘elected with a clear fiscal mandate to keep control of day-to-day spending’, and who said that ‘this means there will need to be savings made across government to free up money to invest in our priorities’, is now in charge of the Department of Health and Social Care. The public should at least know what his priorities might be.

We now have a truly clear idea, based on previous and current experience, that it means pouring public money into big corporations and the pockets of relatives, friends, and mates of mates, whilst depriving the public sector of the means to function efficiently and effectively. Misusing their spending capacity for their own agenda at the expense of serving the public purpose.

The government does not need to examine the state of its finances or whether it can raise taxes or borrow to fund its spending or if it should cut back its expenditure, its role should instead be to look at the bigger picture of resource availability and decide what its priorities should be. What it does need to explore is how can it release the resources it needs to deliver those public priorities by reshaping the balance between private and public sector employment? And as the currency issuer, it certainly does not need to rob Peter’s department to pay Paul’s, or even make savings.

While the Chancellor considers his potentially cost-cutting or tax-raising moves, as a result the Prime Minister’s levelling up and other promised spending plans could be in jeopardy, if indeed they were ever intended to be more than hot air to make him look good.

Restoring fiscal discipline would put paid to those plans. You cannot do both. Government has the tools to improve people’s lives if it chooses to use them. Instead, it prefers to defer to market solutions again and again with damaging consequences.

Successive neoliberal governments have relied on the view that a light-touch regulatory environment is what is needed, and that letting the rich get richer will allow wealth to trickle down. All government has to do, apparently, is wait, and bingo! Poverty will be a thing of the past and public services affordable. And yet the evidence is now, and has been for some time, that doing so has led to the lives of the poorest continuing to deteriorate along with public and social infrastructure.

A paper from the London School of Economics (published in December 2020) which compared 18 developed countries that cut taxes in 1982, (when Ronald Reagan cut taxes on the wealthy) with those that did not, found (surprise, surprise), that instead of wealth trickling down to boost jobs and incomes, such tax cuts only helped one group – the already rich.

Over the last few years, the reality of the consequences of government spending and other policy decisions which have led to rising poverty and inequality, have continued to make media headlines. Along with the decaying public and social infrastructure facilitated by austerity-driven, neoliberally inspired government, we have seen, over the last decade, a continuing deterioration in living standards. Rising homelessness and food bank use, housing unfit for human habitation, compounded by unaffordable rents and insufficient housing stock, inadequate access to health care and good education, not to mention the hardship caused by low incomes and precarious employment.

A study carried out by an All-Party Parliamentary Group (APPG) has found that England’s poorest neighbourhoods have the biggest shortages of social infrastructure such as parks, playgrounds, pubs, shops and sports facilities. It also showed that such neighbourhoods are least likely to get government funding to support their communities and found that they were less than half as likely to have charities and community groups in their local area. These ‘left behind neighbourhoods’ as they have been called were, it noted, overwhelmingly concentrated in the post-industrial towns and cities of the north of England and the Midlands, as well as coastal areas of the south-east.

Whilst Sunak continues to tell the public that he has to be ‘careful with other people’s money’, alluding to the increasingly discredited view of Margaret Thatcher about state money, he is reinforcing in their mind that, at some point, there will be a price to pay in higher taxes or more public sector cuts, however damaging that would be to an economy still struggling to get back on its feet. He is reinforcing the idea that dealing with the key issues of our time is financially unaffordable, whether that is addressing the consequences of the climate crisis or the decades of neoliberally created poverty and inequality.

Neoliberalism is not dead, as some on the left seem to think. It is morphing into something else even less wholesome, and we still have major political parties signed up to the corporate charter of planetary destruction, whilst talking in the misleading language of green growth and the lie that we can continue as we are.

We must keep pushing back on these false ideas, which have already done vast damage to the planet and all life that depends on it being healthy to survive. We must acknowledge our connection to the natural world which sustains us and recognise our interdependence.

There are choices. We just have to decide on which path we prefer to stride. Balancing public budgets and allowing corporate control over the green agenda and the demise of our democratic values, such as they are, or accepting that an understanding of the reality of how money works must be the baseline for what comes next, and that such an understanding offers real opportunities to create the sustainable, steady-state economy that we seek.

 

 

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Reducing government spending now would be calamitous for the wellbeing of people

Elderly woman sitting on an armchair in the dark with her dog.Photo by Camellia on Unsplash

“If every politician asks the ridiculous question ‘how will you pay for that’ when it comes to full employment, universal healthcare, infrastructure modernisation, tuition-free university and sustainable energy, but no politician asks ‘how will you pay for that’ when it comes to military expansion, bombing other nations, corporate welfare, and bailing out banks, then that reality should tell you that something is completely amiss with the mainstream narrative that the federal government has no money of its own and must tax and borrow to pay for things.”

 Ellis Winningham – 24th June 2017

 

If it’s not the inflation hawks ruling the media roost with their dire warnings about rising inflationary pressures, then it’s those lamenting the huge rise in the national debt and discussing the options for Rishi Sunak to restore fiscal discipline. Both are positions of the economic orthodoxy, which believes that bankruptcy and inflation are the inevitable results of excessive government spending. Before long, journalists are rattling the inflationary cage, sometimes with headlines peddling false comparisons with Zimbabwe or the Weimar Republic, even though in both those hyperinflationary episodes, government spending was a response to rising prices, not a cause of it.

Those banging the inflation and deficit/debt drums ignore monetary reality by claiming there is a connection between the two, instead of looking at the real reasons why the deficit has increased and what might be causing a rise in prices. However, even that bastion of neoliberal economic thought, the Bank of England, rejected implementing an interest rate rise this week, with the Monetary Policy Committee saying that rates will remain at 0.1% until the economic picture is clearer and we see whether firms will find themselves under pressure to raise prices. A sensible decision. Even as the world economy starts to take tentative steps towards opening up, there still remains much economic uncertainty, combined with what is likely to be temporary price instability, and this is not a moment to hinder any recovery with interest rate rises. As the MMT economist Professor Bill Mitchell rightly suggested in a recent article in the Guardian, ‘price spikes’ are likely to be ‘transient and will be absorbed without any entrenched inflation emerging.’

Despite this, the media has again been rattling the debt and inflation chains loudly. From the Guardian to the Inews, Evening Standard and the Daily Mail, journalists continue to spread misinformation to the public about how governments spend. With references to government racking up its borrowing to make ends meet and rising debt mountains, along with warnings in one paper of the ‘big risk of inflation as government debt hits 99% of GDP’, one could be forgiven for thinking that the end is nigh, and we are on our way to hell in a handcart unless the government gets its spending under control. Indeed, a new poll has suggested that Rishi Sunak should ‘confiscate the Government’s credit card.’

At this juncture, a little bit of historical context would be helpful to put these alarming headlines in perspective. After the second world war, the national debt stood at 248% of GDP. Yet, the government of the day set up the NHS, an education system, a cradle to grave social security system and built hundreds of thousands of houses. The UK didn’t go bankrupt then, any more than it can go bankrupt today. If we understood better what the national debt actually was and what borrowing really is, then we might worry less about the public finances and focus on the truly important issues such as the climate emergency, rising poverty and inequality and the ongoing disintegration of our public infrastructure. When confronted with the question ‘how do we pay for government programmes?’, then we would know the answers without hesitation. The curtain would be raised on monetary realities and the con would be exposed once and for all. But we’ve still a long way to go to challenge the orthodoxy which dictates policy.

According to the INews, the Chancellor is under huge pressure to start restoring the public finances at a time when the Prime Minister has made dozens of spending pledges, including his levelling-up programme. There are also almost 30 policies listed in the Conservative election manifesto which remain to be delivered and will require additional funding if they are to go ahead. The spending pledges clearly seem to fly in the face of Sunak’s plan to cut the deficit later in the year, when he has suggested that he will begin the process of ‘fiscal tightening’. The conversations between the two politicians must be very interesting! Sunak is apparently ‘scrabbling to find other ways to raise money’ as he is restricted by manifesto promises not to raise income tax, NI or VAT. With the promises to cut business rates and lower interest rates on student loan repayments, the Inews suggest that both actions will reduce revenue overall, putting the Chancellor into yet another uncomfortable corner.

Where will the money come from?

As the above paragraph indicates very clearly, the premise that governments spend like households is integral to media messaging about government finances. But it is totally incorrect. The suggestion that there is a finite pot of money available, limited by taxation and borrowing, is not only inaccurate but is likely to be used yet again in the not-too-distant future to justify cuts to public expenditure on public services. Government promises to level up or deal with the climate emergency may yet find themselves relegated to the box entitled ‘unaffordable’. It remains to be seen.

However, from a macroeconomic perspective, reducing spending now to address a ‘debt’ that isn’t, (since the government is the currency issuer and has no need of tax revenue or to borrow to fund spending and can always meet its liabilities), would be calamitous at a time when the pandemic is still proving to be a serious challenge with huge uncertainty as to the future, when global inequality is growing, and when the climate emergency increasingly demands urgent substantial government action. The only thing we can’t afford is not to act decisively now.

While the media pundits and politicians continue to argue for fiscal discipline and the debt doomsters seem to prefer more austerity, thus logically extinguishing any hope of a sustainable future for all, one can only conclude that human and planetary well-being is at the bottom of the list of political requirements. The smoke and mirrors of the public accounts is in fact being used as a weapon over and over again against people around the world.

This week, it was announced that the government would delay its plans for the reform of social care. Yet again it is being brushed into the long grass, until at least the end of the year. How to fund social care is as equally problematic for this government as it has been for previous ones. As always, it is seen in terms of its monetary affordability, meaning how to raise the funds to pay for it. The now-former Health Secretary Matt Hancock suggested raising National Insurance, but that proposition went against government promises not to raise taxes and was rejected. Sunak seems to be relying on the prospect of better-than-expected economic growth to raise tax revenues, which it has been suggested would give him more ‘fiscal wriggle room’. On the other hand, the Prime Minister, it is said, would like to appropriate that additional taxation to fund public services and for the NHS to deal with the huge backlogs that have arisen as a result of the pandemic. According to the Guardian, Treasury officials are writing a series of papers on potential revenue-raising measures.

Again, how will we pay for it?

The household budget accounting narrative yet again pulls the wool over the eyes of the public by its suggestion that the money must come from somewhere – increasing taxation or relying on economic growth to increase revenues. Not only is this disingenuous, given that orthodox narratives are now being challenged in the mainstream, and as such politicians cannot be unaware, but it also suggests that this fiction may be used again to justify spending policies to suit political priorities.

The alleged problem of how we are going to pay for it haunts public policy and constrains the ability of government to work for the public purpose. Although of course, one might suggest that most governments are not actually working for that, rather they act on behalf of the corporations which influence their policies. As Professor Prem Sikka wrote in an article in Left Foot Forward this week:

‘The last forty years of neoliberal coup has restructured the UK state so that instead of being a provider of public services it has become a guarantor of corporate profits and the enrichment of the few.’

 And it is not just the Conservatives using this household budget construct. This week the Labour opposition, such as it is, rejected the motions of several Constituency Labour Parties calling for free social care. In the final version of the composite motion which originally contained two references to social care, stating that it should be ‘needs-based and publicly funded, free at the point of use’, all reference to free social care had been removed.

The Labour MP Thangam Debbonaire suggested that introducing free social care for disabled and older people would ‘give the Tories a stick to beat Labour with’, in a veiled reference to the accusation of Labour’s overspending, and claimed that such a policy would be too expensive. The implication of her words was that Labour has gone back on its leader’s pledge that he would introduce free social care if the party came to power.

According to the Disability News Service, a disabled member who attended the virtual meeting said that ‘Labour had betrayed and silenced its disabled members’ and ‘that the party was now run by ‘cowardly, unprincipled careerists’ who ‘wouldn’t know solidarity if it hit them with a big stick’.

Excuse us if we are blunt here. After a decade of unnecessary and harmful cuts to social security spending, which has left many disabled and older people struggling to get by and live dignified lives, Labour’s neoliberal foot soldier is saying, in effect, that people will have to die because we can’t afford to care. Once again, fiscal discipline must trump human well-being.

It is shameful, in a supposedly civilised society, that social care has largely been privatised and cut to the bone as a result of austerity, and that in 2019 there were an estimated 1.5 million people over the age of 65 living with unmet care needs (figures from Age UK).

The emperor definitely has no clothes. The emperor is definitely naked.

This is also clear in the supposed dilemma of the pensions triple lock and whether the Chancellor can afford to retain it in these supposedly cash strapped days for the government. It is yet again another prime example of how ‘monetary affordability’ is the measure which determines the level at which pensions are paid, and worse, it is used unscrupulously by politicians and other organisations to entrench intergenerational divisions and create resentment.

Professor Len Shackleton, from the free-market think tank the IEA, suggested a couple of weeks ago that as young people had lost out over lockdown, it would not be unreasonable to ask pensioners to share the pain. Flying in the face of data published this year, he claimed at the same time that ‘pensioner poverty is no longer the problem it used to be.’ However, according to Caroline Abrahams, Charity Director at Age UK, in 2019/20, 2.1 million pensioners were living in poverty after housing costs, representing a 200,000 increase over the previous year.

Labour MP Siobhain McDonagh backed up Professor Shackleton’s view, saying that ‘there is a need to step back and take a look overall’, adding that 44% of welfare spending goes on the pension, while young people are likely hardest hit by the economic damage caused by Coronavirus.

Once again both sides of the political spectrum fall back on the false, but self-serving, notion of monetary scarcity and unaffordability; that ultimately hard decisions will have to be made in terms of curbing government spending. Once again, the suggestion is that human beings can, and must, be sacrificed on the altar of fiscal discipline and balanced budgets. Worse, Labour seems to be saying that anything the Tories can do, they can do better, even if that means more suffering.

As the Chancellor juggles the economic balls, scrabbling down the back of the sofa for a few pennies, as the narrative goes, the real problem facing society is not whether there is enough money, but whether we have the real resources necessary to deliver political agendas. And whether the government has invested sufficiently in education, public services, and technology to ensure that the goods and services will be available for purchase in the future, and thus contain any inflationary pressures that might occur.

The future burden will not be one of debt or tax. It will be the burden arising from the government failing to act now. The real challenge, as demographic changes alter the balance between the young and retired people, will be how productive we can be and how we share the available resources equitably and efficiently. The only constraint faced by the government is one of real resources.

The government could pay better pensions tomorrow, it could ensure that the education system is fit for purpose, it could invest in publicly provided services including the NHS and social care. But to do any of those things it must have the real resources, whether human or other, to deliver its objectives. It is the only authority that can release (through its taxation and other policies) the resources it needs to move away from a society which has excessive consumption as the economic motivator, to one that is more publicly oriented and puts the needs of citizens and the planet at the heart of its policies. But will that be the political agenda? In the current environment, that seems doubtful.

The question is, what sort of society do we want to live in? To reiterate, in terms of monetary resources, we can afford to create a social care system that provides good care and dignity to its recipients. We can afford a publicly funded and provided NHS. Catch-up educational funding, paltry as it is (and which led to the resignation of the Education Recovery Commissioner this week) to mitigate for the past year of lockdown and its effects on children is not what is needed for schools. After a decade of funding cuts, we need the government to invest in the education system to create rounded individuals, not market-oriented automatons, with the focus on real skills and promoting creativity and imagination as a path to a better, fairer, and more sustainable society. We can afford good public services and fund local government to deliver social and economic objectives. The issue lies in how we want the finite real resources we have, which includes the efforts of people, to be used. Do we want them to be employed in creating more useless stuff, or do we want these resources to be utilised to create both real economic benefit and social well-being?

Instead, as the Chancellor claims the money box is empty (regardless of the fine rhetoric spouted by a Prime Minister about levelling up) we have a government seemingly bent on abandoning the public and social infrastructure that will sustain future generations. Regardless of what politicians promise, that is the only conclusion one can make if the household budget narrative of government spending prevails.

As the Chancellor threatens either more austerity of the public sector kind or increases in taxation to get the finances back in order, it begs the question how that can be reconciled with the need to address the climate emergency and the vast global inequalities that have arisen as a result of the toxic economic system which predominates. Perhaps he is expecting the private sector to come galloping to the rescue – he certainly has ensured their coffers are full to the brim over the last year.

But, in reality, it is only the State that can put in place the foundations for the economic and societal transformation that will be needed to address all aspects of the climate crisis, which include rising global inequality, resource use, and land and ocean degradation. It is only the State that has the monetary resources, the legislative capacity, and the political drive to do so.

As a landmark draft report from the IPPC leaked to the AFP (Agence France Presse) and reported on by phys.org made clear this week:

‘Climate change will fundamentally reshape life on Earth in the coming decades, even if humans can tame planet-warming greenhouse gas emissions. Species extinction, more widespread disease, unliveable heat, ecosystem collapse, cities menaced by rising seas — these and other devastating climate impacts are accelerating and bound to become painfully obvious before a child born today turns 30. The choices societies make now will determine whether our species thrives or simply survives as the 21st century unfolds’.

Boris Johnson made a glowing commitment last week at the G7 to address the climate crisis, and Ann Marie Trevelyan, the UK’s International Champion on Adaptation and Resilience for the COP26 Presidency, claimed in a recent Channel 4 News interview that the UK is leading the world on climate change. But we should not forget the political realities. Not so long ago the UK government, to the consternation of climate campaigners, was supporting a new deep coal mine in Cumbria, and it announced this week that it is considering allowing drilling for a new oil field in Shetland, containing 800 million barrels of oil, which will produce fossil fuels until 2050. Also, this week it was revealed that oil and gas donors gave over £400,000 to the Tories over the past year, whilst the government considered new licences to explore the North Sea for fossil fuel production sites.

This doesn’t sound much like a government deeply committed to carbon emission reduction, any more than one committed to addressing other key issues caused by decades of toxic neoliberally inspired policies which have been driven by the notion of the precedence of the market over state provision and monetary scarcity.

The path we choose today will shape our future. Grasping the real capacities of currency-issuing countries will be essential to influencing what happens next. Never let it be said by anyone that we didn’t know how governments spend, or that public purpose programmes were perfectly affordable within the boundaries set by real resources. Let’s keep PUSHing. Let’s ‘Persist until something happens!’

 

Upcoming Event

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GIMMS is delighted to present another in its series ‘In Conversation.’

GIMMS Associate Member Phil Armstrong will be talking to MMT activist Mike Hall.

Mike is a retired engineer and a liver of life of many parts including as an Industrial Controls Engineer, Windfarm Engineer, General Manager of IT refurb resale small business, Worker Co-op founder and local authority Co-op Development Worker. He studied for a Masters in Business Administration at Cranfield (UK) and has been an MMT activist for 11 years. He is also a grandfather and a lover of Jazz!

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The post Reducing government spending now would be calamitous for the wellbeing of people appeared first on The Gower Initiative for Modern Money Studies.

The G7 jolly – a symbol of everything that is wrong with the global economic system.

11/06/2021.Eden Project, G7 Leaders’ Summit, Cornwall. Her Majesty, Queen Elizabeth II, sits for a group photograph with all the G7 leaders at the Eden Project before the G7 leaders’ evening dinner and reception.Picture by Andrew Parsons / No 10 Downing Street Creative Commons License: (CC BY-NC-ND 2.0)

“The kind of transformation that is now required [to address the climate crisis] will happen only if it is treated as a civilizational mission, in our country and in every major economy on earth.”

― On Fire: The Case for the Green New Deal by Naomi Klein

 

Let’s start this week’s GIMMS MMT Lens with some good news! It might be from across the pond, but it is heartening to learn that this week John Yarmuth, Chair of the House Budget Committee, spoke on public television about the federal budget using an MMT framework. He explained that the US government is not money constrained and mentioned Stephanie Kelton’s book The Deficit Myth. Is this a defining moment? Can we make further progress within the ever-shortening timescale to address the key challenges the world faces? Let us hope so.



The deficit hawks and doves that have hitherto ruled the roost, basing their ideas on the false premise of monetary scarcity, will surely have to acknowledge the reality of how governments like the US and the UK actually spend? Unless they want to find themselves in the dock for wilful harm.

The challenges before us are vast; from addressing the climate emergency to the existing and growing global inequalities that have been driven by the toxic economic system which prevails and dictates policy around the world. Watch this space!

At the same time as Yarmuth revealed the truth about monetary reality to a US public who, like many, have been coached to believe that the state money system operates like their own household budgets, in the UK we still have politicians pulling the wool over the eyes of its own citizens.

In an interview with Andrew Neil on the newly launched channel GB News, the Chancellor Rishi Sunak suggested that we would have to take some difficult decisions to get the public finances back on track. He claimed, disingenuously, that in order to deliver the Tory manifesto of ‘more nurses, more hospitals, police officers, levelling up and investing in local communities’, they had had no option but to cut foreign aid, because apparently the government has a finite pot of money. Harking back to Margaret Thatcher’s lie that ‘There is no such thing as public money. There is only taxpayers’ money’, he said:

“Of course, I’m a fiscal conservative because it’s not my money, it’s other people’s money and I take my responsibility for that very seriously.”

“All governments have choices to make. [We are] making sure that we can invest in our children’s future and not have them constantly paying for the past.”

Apparently, even in the midst of the greatest challenge humanity has ever faced, one which affects both rich and developing countries, we still have politicians falling back on the lie of monetary scarcity; thereby suggesting that saving ourselves is unaffordable.

Politicians who claim that the choices governments have are limited by the tax they collect or their ability to borrow, and that balanced budgets should be the aim of spending policy to avoid a debt burden on future generations, are misleading the public. Either through their own ignorance (debatable perhaps given the growing awareness of monetary reality) or more likely with the objective of driving through a political agenda favouring global corporations, whereby the State has become a cash cow for their operations. All at the expense of publicly funded and provided services that serve the nation’s interests.

The last 10 years have been a case in point, as austerity drove cuts to government expenditure on public and social infrastructure, on the basis of the lie that there is a limited pot of money with which to deliver government policy; resulting in a decaying infrastructure and severely impoverished sections of society. What a terrible price we have paid.

At the same time as Sunak promoted his fiscally conservative credentials, Labour, under the newly appointed Shadow Chancellor Rachel Reeves, announced that the country had ‘lost’ £16.7bn in tax revenues over nine years due to slow economic growth caused by government policies, and compared the amount that could have been in the Treasury ‘coffers’ had the UK grown in line with the OECD average.

The Shadow Chief Secretary Bridget Phillipson referred to ‘a decade of misspending of public finances and waste’, which she said had ‘weakened the foundations of the UK economy and severely hampered Britain’s growth’. And indeed, one might make a very good case for criticising austerity, which cut public services to the bone on the false premise that it would grow the economy, a premise which has been exposed as a cruel falsity, both in the light of its consequences and also of the vast spending that has been undertaken by the government to keep the economy from tanking during this pandemic, when up till that point successive Chancellors were promoting fiscal discipline. However, setting aside the drive for growth for the moment (we will come back to it) Labour is still talking about taxes funding spending. What’s changed? Growth may indeed increase tax revenues, but those increased tax revenues have absolutely nothing to do with paying for government spending, paying down the national debt, reducing a debt burden on future generations or whatever other nonsense is masquerading as fiscal correctness.

If we genuinely want to address the climate emergency and the vast global inequalities that exist, it’s a story that needs to be consigned to the dustbin of history.

And as for Treasury ‘coffers’, the government doesn’t have any. None of this narrative is true. It represents the continuing smoke and mirrors of monetary scarcity played out daily by politicians, the media, and orthodox economists. As was pointed out this week by an MMT activist, if everyone knew how the money system worked the UK Chancellor would never get away with the austerity nonsense pedalled by his predecessors and other politicians for the purpose of delivering a political agenda, and which has done so much damage over the last 10 years to the UK’s public and social infrastructure.

The government, as the currency issuer, has as much money as it needs to deliver its political agenda within the context of available resources. That is its only constraint. It does not rely on growth to fund its spending through the increased taxes such growth might bring. In plain speak, the government is not a household and is not constrained in its spending priorities either by the tax it collects (for vastly different purposes) or by borrowing. It needs to do neither. Such narratives are deliberately constructed to justify the pursuit of a damaging economic ideology that has been exposed by the pandemic as unnecessary and indeed vastly harmful.

That should be the starting point for the public conversation on what comes next, not whether the government has been fiscally prudent by balancing its budget or needs to cut back its expenditure to do so, however appealing that message is to a public still firmly ensconced in its household budget comfort zone for understandable reasons. If you hear the narrative enough times, you come to believe it must be so. We must therefore double our efforts to challenge and unpick the false narratives. Much depends on it.

Last week the G7 met in Cornwall and showed yet again not only its myopic, status quo vision for the future, but also its contempt for the pressing challenges we face. As world leaders flew in from around the world, the Prime Minister arrived in Cornwall after a short carbon-intensive flight from London, whilst laughably at the same time lauding his commitment to addressing climate change with his usual hypocritical bluster. It was also revealed that trees were cut down to provide meeting rooms for the heads of state who were there to address the climate emergency, amongst other things. Those very same trees which play a vital role in planetary health!

The final communique detailing the deal that had been struck by G7 leaders was criticised heavily for its failure to bring new cash to the table. The Build Back Better mantra vaunted by politicians and global institutions such as the World Economic Forum and the World Bank, is nothing but a toothless symbol defined by empty political rhetoric.

Max Lawson from Oxfam said of it, ‘Never in the history of the G7 has there been a bigger gap between their actions and the needs of the world. We don’t need to wait for history to judge this summit a colossal failure, it is plain for all to see’. A rich nation’s club in service to a rotten economic system at the expense of the well-being of the planet and citizens across the world.

The G7 jolly, in which guests were wined and dined in luxury, also showed huge disrespect for a region impoverished by government decree, and the local inhabitants whose lives were disrupted to accommodate the event. A symbol of everything that is wrong with the global economic system. You couldn’t make up this nonsense! The huge chasm between words and actions is getting wider and wider, as the climate realities continue to bear down upon us and are reported on almost daily. From the report this week that despite the slowdown in air travel and industry over the past year, carbon dioxide levels in the atmosphere reached 419 parts per million in May – the highest measurement of greenhouse gases that have been recorded in the 63 years covered by the Mauna Loa Atmospheric Observatory in Hawaii, to the UN’s warning that urgent action is vital to address the growing global problem of drought which is affecting both developing and developed countries.

In the words of Mami Mizutori, the UN Secretary for disaster risk reduction,

drought is on the verge of becoming the next pandemic and there is no vaccine to cure it. Most of the world will be living with water stress in the next few years. Demand will outstrip supply during certain periods [and will be] a major factor in land degradation and the decline of yields for major crops’. Mizutori went on to make it clear that ‘Human activities are exacerbating drought and increasing the impact threatening to derail progress on lifting people from poverty.’

The United Nations World Food Programme has warned that unprecedented levels of drought across many African countries are threatening human existence in those areas, as land becomes parched and consequently infertile, and famine takes hold.

California and Arizona have been hit by multiple wildfires this week; hundreds of thousands of acres have burned as long-standing drought continues to affect the area. Scientists referring to it as a ‘mega drought’ say that it should be a wake-up call, as water resources providing crucial supplies to 40 million people and feeding the needs of agriculture are at risk, and may force drastic and perhaps unpalatable action. The nation’s largest reservoir is on track to reach the lowest level ever recorded. Cities like Las Vegas are baking in temperatures reaching historic highs and researchers are predicting that this heatwave will be one of many likely to hit the US South-West before summer ends.

In the UK, the government has equally shown disregard for the growing threats as a result of the climate crisis and continues to learn no lessons.

The 2016 report on Exercise Cygnus which simulated the consequences of a fictitious influenza pandemic, warned that ‘the UK’s preparedness and response, in terms of its plans, policies, and capability [was] not sufficient to cope with the extreme demands of a severe pandemic that will have a nationwide impact across all sectors.’

It should therefore not be surprising to learn that the same is true of the Climate Change Committee’s risk assessment on climate crisis preparedness, also published in the same year. The 2016 report warned that the UK was poorly prepared for water shortages and floods. In 2019 it repeated its warning that the UK still had no proper plans for protecting people from heat waves, flash flooding and other damaging impacts arising from climate change.

The government responded that it ‘welcomed this report and will consider its recommendations closely as we continue to demonstrate global leadership on climate change ahead of COP26 in November’. It is difficult to know at this juncture whether to laugh or cry. Just more bluff and lies from a government which promises lots and delivers nothing.

As US President Joe Biden plans a huge fiscal injection to revitalise his country’s decaying infrastructure, which has arisen over decades through the overriding obsession of both Houses with balanced budgets and neoliberal dogma, our own over-privileged Chancellor is still bamboozling people with his nonsense about being a safe pair of fiscal hands. The only conclusion one can draw is that balanced budgets must trump human survival.

As the economist Daniela Gabor wrote in a recent Guardian article:

‘Climate activists should be prepared to fight the battle against fiscal fundamentalists with a simple message: the government is not a household.’

Also writing that:

‘We cannot rely on private finance to lead us out of a climate crisis it has systematically contributed to. We have to disempower carbon financiers, and we do that by making the democratic state – not investors – lead the way forward.’

The government has the capacity to be the real powerhouse in terms of both its currency-issuing and legislative powers, and contrary to popular opinion is not beholden to corporate dictat. Equally, in a truly democratic state as the economist Professor Bill Mitchell says, ‘The government is us’. We could be the real arbiters of change through our votes.

However, currently we have a democratic deficit reinforced by a toxic media which, as Raoul Martinez, the philosopher, artist, and filmmaker so rightly notes:

‘As long as the vast majority of wealth is controlled by a tiny proportion of humanity, democracy will struggle to be little more than a pleasant mask worn by an ugly system.’

Whilst the data shows that the world’s wealthiest 1% produce double the combined carbon emissions of the poorest 50%, and the Musks and Bransons of the world obscenely seek to exploit finite resources for thrill-seeking trips into outer space, such wealth inequality and unequal access to real resources are a degrading consequence of ceding power to the unelected, whose wealth buys them political influence.

We should instead be looking at how we reduce consumption of those same finite resources and at the same time put those we have to better use by creating a fairer and more sustainable planet. As it stands, their wealth brings the rich huge advantage, while the rest pay the price in increasing poverty, inequality, and planetary degradation.

At the same time, after an exceedingly difficult year of human suffering and economic pain, governments around the world are seeking yet again the holy grail of growth to keep the whole capitalist shebang on track and rolling. Often it is erroneously described in terms of delivering ‘green growth.’ This is a contradiction in terms, but invites us to believe that cosmetic changes will be enough to save us, and that we can continue pretty much as we are using new technologies; some of which are still in the land of imagination or have as yet to be proved.

We have reached a crossroads for decision making for the sort of society we want to see. As Jason Hickel, the author of ‘Less is more’ tweeted recently.

‘If your economy requires people to consume things they don’t need or even want, and to do more of it each year than the year before, just in order to keep the whole edifice from collapsing, then you need a different economy.’

Across the planet in both developed and developing countries, the prevailing economic system is built on the exploitation of humans and other real resources for profit at any cost and which is leading us down a path to no return.

And yet in the light of this, on the one hand we have the Conservative Chancellor promoting fiscal discipline and on the other, a Shadow Chancellor still grinding on about collecting tax from the rich to pay for public services, in a party beating its breast with mea culpa for there ‘not being any money left’ when it left office in 2010.

The continuing smoke and mirrors of public accounting will keep the lie going at huge cost. As climate change and the problem of the finite nature of real resources breathes down our collective neck, politicians are still asking the same old tired and irrelevant questions as to whether we can afford to save ourselves. All total baloney of course!

The G7 meeting has proved itself to be yet another talking shop and yet another of Boris Johnson’s ‘roadmaps’ to nowhere. The climate summit in November will undoubtedly take us even further down the greenwashing road to the maintenance of the status quo, given the current government’s ineffective, wishy-washy responses so far.

Worse, possible action is still viewed, at least in the UK, in terms of the state of the public finances and affordability. The government’s action on cutting foreign aid must put into question its commitment to bringing about change and addressing the vast global inequalities that exist largely as a result of neo-colonial domination and exploitation. We urgently need to acknowledge the vital role government can and must play in driving a real green agenda, not an apologist one serving the status quo.

The problem is this. What government that seeks re-election (unless you live in one of those countries which are suffering from the toxic consequences of capitalism and the neo-colonialism which continues to exploit and impoverish them, and who are unrepresented at the G7) is going to want either to deal with the hard truth or tell its populations that concrete transformational change to the way we live is needed. Not a change that aims to deprive people and make their lives miserable, but a revolution in the way we do things with the aim of changing our perspective, from one of endless consumption of stuff, to one of creating sustainable communities that put people and the planet at the heart of policymaking.

The sad truth is that governments currently exist for the benefit of global corporations, where profits matter more than people and the planet, and the rich are already looking for escape routes to safety – Mars might be a good choice. As the waters rise metaphorically and actually and nations start to fight over real resources, our children’s children will be the inheritors of the mess capitalism has made. Unless we do something different.

As Johnson spluttered on about the G7 rising to the challenge of ‘beating the pandemic and building back better, fairer and greener’, and bringing an end to entrenched inequalities’ after Covid, it seemed he had totally forgotten, as had his colleagues, that those inequalities didn’t just happen by themselves. They happened as a result of decades of neoliberal ‘free market’ dogma, subscribed to by political parties of all shades, and which has been firmly rooted over the last 10 years in unnecessary austerity policies in many major economies and also imposed on indebted developing countries. And does he recognise the global inequalities that have been created by the same toxic ideology, whereby the resources of developing countries have been exploited at a terrible cost to support the living standards of the West, and upon which the green revolution is planned? This is the same man who has been happy to go along with cuts to foreign aid because apparently we have spent too much and must look to counting the pennies to get the public accounts in balance. The word hypocrite comes to mind. With such a scarcity narrative, it might seem an uphill struggle to address the challenges.

What happens next will be determined by political will and public support. It is rooted in the reality that the Blue Dot we inhabit is all we are, and all we have. Seen from that perspective, it should be an invitation to explore how we can do things differently. MMT offers a lens on how we can achieve that. The road might be bumpy, and we might make mistakes along the way, but in the end, we’ve nothing to lose.

 

Upcoming Event

Phil Armstrong In Conversation with Mike Hall

Sat, 3 July 2021 – 15:00 – 16:30 BST

GIMMS is delighted to present another in its series ‘In Conversation.’

GIMMS Associate Member Phil Armstrong will be talking to MMT activist Mike Hall.

Mike is a retired engineer and a liver of life of many parts including as an Industrial Controls Engineer, Windfarm Engineer, General Manager of IT refurb resale small business, Worker Co-op founder and local authority Co-op Development Worker. He studied for a Masters in Business Administration at Cranfield (UK) and has been an MMT activist for 11 years. He is also a grandfather and a lover of Jazz!

Register for this free event via Eventbrite

 

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The post The G7 jolly – a symbol of everything that is wrong with the global economic system. appeared first on The Gower Initiative for Modern Money Studies.

Inflation is not what we should be worried about right now

Man sitting on a bench looking down at the ground, as if in despairImage by Manuel Alvarez from Pixabay

“The purpose of government is to ensure that everyone has what they need to live a good life. That means giving every child the very best start in life, caring for people when they need it throughout their lives and ensuring needs are met through a combination of universal public services, a secure living income and the basic human right to a home. A society that meets those basic needs of its citizens provides a foundation on which to build opportunities for individuals and our whole society to flourish.”

Social Justice and Fairness Commission

 

Wherever you look, the media is flashing its inflation warnings. ‘UK recovery overshadowed by inflation’ says the Guardian. ‘Serious inflation is coming and the time to start addressing it is now’, intones The Telegraph. Shock, horror says the Times, ‘Sirens over inflation are going off’ and ‘if it doesn’t get on with [unwinding QE] the Bank will end up like a fire brigade with no engines, no hoses and no water.’

We are all going to hell in a handcart, is the impression that readers might gain from these pronouncements. And yet, even as the headlines aim to create fear in the same way as they do when journalists sound the alarm about the rise in public debt, they often fail to tell the real story and lead people along with flawed narratives, which in some cases lay the blame on too much government spending, rather than examining the wider context of inflationary pressures. In this case, the evidence shows that it can be attributed to the ongoing reopening up of the economy (which may not be sustainable), price pressures on raw materials like oil, and rising commodity and freight prices. However, with the CPI standing at 1.6% last quarter and still under the Bank of England’s 2% target, inflation should hardly be a cause for concern. As Professor Mitchell noted in the conclusion of his blog on May 17th.

“Clearly, some areas of our economies will experience price pressures in the coming period given the disruptions in supply and various administrative pricing decisions by governments (reversing pandemic assistance in areas like rents, energy, childcare etc).

 

But these pressures in some segments of the economy are unlikely to instigate a major shift to high generalised inflation rates because the capacity of workers to defend their real wages is diminished now.

 

Fiscal policy has a long way to go yet in reducing unemployment and underemployment from their elevated levels before that capacity becomes functional again.”

Indeed, this week, Jan Vlieghe who is a member of the Monetary Policy Committee of the Bank of England, was clear in a speech to the University of Bath that the UK was ‘not yet out of the woods’, and that whilst there was a temptation to call the increased economic activity a boom, it was, he said, ‘more accurate to call it a prospective return towards normal’. He reminded his audience that the global situation will continue to affect the economy, not to mention the prospect of the risk of higher unemployment as the furlough scheme ends. He said that since the prospects for the labour market would remain uncertain, even when the economy reopens totally (if it does) there still could be the prospect of a rise in unemployment which would be of ‘macroeconomic significance’. He rejected the suggestion that increases to the money supply, commodity prices or wages were likely to increase the inflation rate permanently above the government’s 2% target.

However, even as Vlieghe refers to normal, we should remind ourselves in this context that prior to the pandemic life for many was not ‘normal’. The impact of government policies and spending decisions, originating with George Osborne’s austerity programme which began in 2010, has devastated many people’s lives, whilst at the same time the rich have gone on getting ever richer. Indeed, the Sunday Times reported that during the pandemic, the UK created a record number of billionaires, bringing the total to 171, 24 more than a year ago.

Austerity stripped out our public and social infrastructure, leaving it struggling to function even before the pandemic arrived. It has added to the woes of a society already disintegrating under the weight of huge wealth inequalities that have built up over decades. The pursuit of neoliberal dogma which has lowered living standards and led to the degraded infrastructure has been cruelly exposed over the last year.

As a Guardian editorial noted this week:

The reopening of our economy will reveal much weakness and high unemployment. This is a time for stimulus and repairing a broken social contract. Get people into work, especially the young, who have lost many opportunities in the past 15 months, and ensure key workers are better paid and protected. First things first.”

In short, neither Zimbabwe nor the Weimar Republic are on their way, and inflation is the last thing we should be worried about. We should instead be looking at the context at a time when there is substantial unemployment and underemployment, a phenomenon that actually precedes the pandemic and reflects the government’s misplaced obsession with cuts to public spending. It also reflects their use of unemployment as a mechanism to control inflationary pressures, by determining full employment to be anything but! Governments have, for decades, condemned too many people to a life of poverty and insecurity, whilst at the same time favouring businesses through legislation which allows wages to be kept low and employment insecure.

It is regrettable to note that according to an IPSOS Mori poll carried out for Kings College London earlier this year, many people still view poverty as a personal choice and believe that success is determined by hard work and determination. Meritocracy still rules as a guiding force in British life. The poll also revealed that even despite the exceptional circumstances of the pandemic, Britons were likely to think that job loss was the result of personal failure, rather than chance. It apparently does not seem to matter that prestigious institutions, thinktanks and charities recount week in week out the deleterious effects of poverty on people’s lives, and indeed on the economic health of the country, alerting the nation to the involuntary nature of unemployment and poverty. A divided society works for no one but the elites who push meritocracy.

Over the decades the concept of neoliberal meritocracy has held sway, the role of government appears to have become a secondary consideration. However, it has had no alternative over the past year but to prop up the economy with vast spending; clearly showing the capacity of currency-issuing governments to step up to avoid economic collapse. Such a capacity must then put into question the 10 years of austerity led policies and their consequences, which were presented as vital to the health of the public finances. The pandemic has shown without doubt that austerity was unnecessary; an imprudent policy that harmed the economy and people’s lives.

Even as the consequences of poverty and inequality become ever more apparent, our supposed freedom to be whatever we want to be has continued to be promoted as paramount, and led to a society divided by the notion of shirkers and hard-working people; lazy public sector workers against industrious private sector ones. This has enabled the government’s intent to divest itself of any responsibility for the well-being of citizens through its cuts to public spending, whilst at the same time pouring vast sums of public money into the ongoing scandal of government contracts; awarded without transparency or accountability to private companies or those with connections. No expense spared. The role of government has been subsumed into serving capital interests and endless growth, regardless of the impact on the environment and the lives of citizens.

Indeed, a case in point is the publication this week of the CBI report ‘Seize the Moment’, which focuses on addressing the long-term challenges facing the UK – ‘geographic inequalities, decarbonisation and innovation.’ No one would deny that we do indeed need to ‘seize the moment’, but how we seize it is the question we should be posing. Whilst the CBI sees partnerships, including with government, as an important part of this process and says that its members have an important role to play, it notes at the same time:

“Governments don’t create jobs. Governments don’t prepare people in the workplace for the skills of the future. Governments don’t suddenly invent new decarbonisation technologies. That’s what businesses do.”

The CBI seems to have misunderstood the primary role of government in creating an environment that is conducive to a successful economy. Governments can and should, through their policy and spending decisions, create the economic conditions for job creation, enable an educated workforce and ensure investment in research and development through universities. Investment that gives eventual life to new technologies and products that can be exploited by business.

We should not forget either the vital public infrastructure provided by government which keeps their businesses functioning, whether its education, health, or transport infrastructure. Government can also play a role in using regulation to ensure that business plays by the rules and does not overstep the mark in its search for profit. And, when trouble strikes it is only the government, not businesses, that can step in to support the economy.

Government puts in place the mechanisms to protect the economy in the event of external threats, such as disease or the cyclical downturns which afflict all economies from time to time. It does this through its spending capacity as the currency issuer, and we have seen those powers over the past year, as indeed we did in 2007 during the Global Financial Crash. When the chips are down, the government has no alternative but to act. It does not check the state of the public accounts, it just spends, even though the narrative of borrowing and taxation to fund it still sits at the forefront of both political and public understanding.

Wealth creation begins with the government, whose role is to lay the foundations for a successful economy. Not by serving profit-related interests through lobbying and the revolving door, but to serve the interests of the nation as a whole which includes those of working people. The function of businesses on the other hand is to make profits, and working people have often been the losers, given that in the current set up businesses are the beneficiaries of government policy, which may not always serve workers and their families.

The proof of failure to serve those interests is clear in the consequences of the policy and spending priorities of the current government. As reported by GIMMS last week, a damning report from End Poverty has shown that the number of children living in poverty, without sufficient nutrition, in unheated homes or facing the prospect of eviction, has shot up over the past few years in the North East. For all the promises made by Conservative politicians, levelling up still has to be translated into real action and reach those who need it.

The solution requires government action that starts with addressing poor wages and insecure work practices. As past figures have endlessly shown, many in poverty are in working families, existing on low wages and precarious employment. Marcus Rashford has done sterling work in raising money and awareness of the issues, but we should not need the charity industry or philanthropists to mitigate and pick up the pieces caused by a government that has abdicated its responsibility for those who elected them. Whether that’s rich individuals, food banks or housing charities. They are not a substitution. We need the government to do its job through spending and policy decisions that enable levelling up, through wage and employment legislation and by creating the public infrastructure which keeps the economy functioning and brings stability.

Instead, we have a government that has found how to loosen the purse strings for corporations, but is biding its time to tighten them yet again when it comes to public purpose. The revelations by Cummings told us what we already knew about the governing class, exposing an entire flawed economic system that is largely upheld by a media that has failed to hold it to account. This has had devastating consequences, not just this last year but for decades. As Aditya Chakrabortty noted in an article this week ‘it lies in a grotesque failure of the state.’ Not a mistake or an omission or a misjudgement. But the pursuit of self-interest and greed. The public purse has found its target while ordinary people have paid the price in unnecessary suffering and death, hunger, homelessness, and a degraded public infrastructure.

And consequently, daily, we are treated to media and political narratives which aim to prepare us either for further cuts to public sector spending and further hardship, or raising taxes to pay off public debt. Or at the other end of the political spectrum politicians who advocate collecting taxes from the wealthy to spend on public infrastructure. By creating connections between tax revenue and public spending, we hit a brick wall that stops us dead.

According to the first narrative, there will have to be an eventual reckoning given the ballooning public debt. This week the Treasury is alarmed as a result of its post-pandemic forecasts that claim that the value of future student loan write-offs and interest subsidies will eventually ‘hit the public finances’. Yes, the smoke and mirrors of public accounting will claim that they will, but the reality is the opposite for a sovereign currency-issuing country like the UK.

Our education system as a whole has paid a heavy price, not just in terms of cuts to funding across the board but also through its commercialisation. Universities have become fully-fledged businesses to make money and service the needs of capitalism, rather than the good functioning of society culturally, socially, and economically.

The plans to cut 50% of arts course funding because they are not ‘strategic priorities’ beggar belief. Aside from the cultural enrichment that the arts bring to people’s lives, they also make a huge economic contribution which runs into billions. In effect, the decision destroys the Treasury narrative that taxes are needed to fund government spending. Why would you in that case cut off your revenue streams? It seems that the Chancellor and his Education Secretary have lost their economic marbles. From an economic point of view, it is foolhardy and short-sighted. The future poses many challenges, and we will need to prepare for them.

In the second narrative, the Chancellor Rishi Sunak found himself under pressure from President Biden to back a global corporation tax, and the Shadow Chancellor Rachel Reeves, whilst supporting it as a mechanism to create a fairer playing field for UK businesses then spoiled it all by saying that it would bring in extra income to pay for public services.

Some on the left are like rabbits in the glare of an oncoming car – committed on one hand to creating a fairer society and addressing the climate emergency, but on the other, happy to be flattened through their adherence to a flawed economic model that suggests that affording everything a nation needs requires raising taxes at the top.

Yes, let us raise taxes on the excessively wealthy to remove some of their purchasing ability and the influence on the corridors of power that their wealth brings them, but let us stop saying it pays for government spending. Such narratives will in the end constrain public programmes, not to mention the capacity to address the climate emergency. The lack of money has nothing to do with revenue collection or the ability to borrow. The lack is a matter of political choice, and politicians pursuing an economic ideology that suits the interests of wealthy elites and their own personal gain. If that is not shocking, it should be.

This week, an article by the New Economics Foundation added to the confusion about how governments spend. On the one hand, it suggested that ‘Whenever new public finance statistics come out, what follows is: public debt fearmongering, false household analogies, and a flurry of commentary devoid of any semblance of literate macroeconomic analysis’. At first sight, a cause for a small celebration and thinking that on the ‘left’ there is a coming light at the end of the tunnel. But then it spoils it all by reinforcing the false household analogy, saying:

‘The fact that public borrowing has not been this high since the second world war is serious and should not be taken lightly. But equally, the fact that financing that debt has never been more affordable is also hugely reassuring. Yet despite having countless headlines on the former throughout the pandemic, there has been precious little attention given to the fact that the government’s debt servicing costs are at historic lows. […]

Next, they dig themselves ever deeper by suggesting that:

‘…for macro-economists, what actually counts is the cost (affordability) of servicing debt – whether the government can securely pay off debt interest payments. There are numerous tribal” battles across the schools of macro-economic thought. Yet, there is virtual agreement across the board that public finances are sustainable indefinitely when debt servicing costs are equal to or below the growth rate of the economy. The implication, drum roll please, is that increases in public debt may not require tax rises or public spending cuts in the future. If interest rates are lower than the increase in national income, the relative debt burden will shrink with it.

Blow me down with a feather! The NEF is right back down the rabbit hole of borrowing, debt servicing costs and all that nonsense and thus reinforcing the household budget analogy. It started so well!

If we thought that after a year and more of economic pain and suffering, which has been built on the backs of decades of neoliberally inspired public policy and spending decisions (which has infected all sides of the political spectrum), that the time has come to choose another path, then for the moment at least we might be disappointed.

But without doubt, the stakes are high. We must aim to create a fairer and sustainable planet, not based on the misplaced concept of green growth which implies maintaining our current consumption or growing it further, but on the understanding that there are real limits that relate not to money but finite resources. The CBI’s ‘Seizing the Moment’ report focusing on creating an extra £700bn of economic growth by 2030 is symptomatic of the problem we face. We have to consider that we cannot continue with life or business as usual. MMT as a lens on monetary reality offers us a perfect opportunity to view the world, not from a perspective of artificially created scarcity, but as Jason Hickel, author of ‘Less is more’ calls it ‘public abundance’.

Last year, GIMMS published an article by Carlos García Hernández. In his article, Carlos quoted Stuart Chase, an American economist who wrote in ‘The Road we are Travelling’ (1942) that all economic policy must meet five fundamental objectives:

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

That should be our starting point for what comes next.

 

 

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Modern Money Consensus

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

 

Caution tape in front of the Capitol building in Washington DCPhoto by Andy Feliciotti on Unsplash

I was prompted to write this article by yet another sad fatality, the death of British economist John Williamson at the age of 83. As Max Planck used to say, sometimes science seems to advance one funeral at a time.

Williamson became famous for coining the term Washington consensus in 1989, a compendium of 10 points in which he set out the common position defended by the US government, the International Monetary Fund and the World Bank on economic policy. Over time, these 10 points became fundamental pillars of neoliberalism and mainstream economics.

Below, I confront the ten points of the Washington consensus with what I call the Modern Money Consensus. In my view, these alternatives are the most advanced refutation that economics offers to the Washington Consensus.

 

Washington Consensus
Modern Money Consensus

1
Any fiscal deficit is counterproductive
The right fiscal deficit is the one that allows full employment of resources and price stability

2
Reduction of public spending and the tax burden
If there is unemployment or idle resources, public spending should not be reduced. Increasing the tax burden is justified if there are inflationary pressures

3
Broadening of tax bases and moderation of marginal tax rates
Reduction of taxes on productive activities and on labour income. The tax burden should fall mainly on speculative activities

4
Substitution of public deficits by positive interest rate policies
Permanent 0% interest rates

5
Exchange rate policies aimed at controlling inflation and increasing exports
Floating exchange rates

6
Opening of domestic markets to imports
Ability of states to pursue import substitution policies if they deem it necessary

7
Foreign capital intervention in strategic economic sectors through foreign direct investment
The maintenance of strategic economic sectors should not depend on investment by foreign companies

8
Privatisation of public enterprises
The size of the public sector should be decided by the government as a means to achieve its social objectives

9
Deregulation of markets
Strong public regulation of the labour market, essential services, the financial sector, and banking

10
Protection of property rights
Ability of governments to regain public control of any national resource

 

A fundamental point on which there is consensus within modern monetary theory is that states should only get into debt in their own currency. In this way, public debt is always sustainable and states avoid involuntary insolvency. In this context, as the Australian economist Steve Keen says, and contrary to the Washington consensus, it is not public debt but private debt that threatens the prosperity and sustainability of nations. Thus, the backbone of the modern money consensus is the fact that countries that are monetarily sovereign choose their level of unemployment, since thanks to their monetary sovereignty, they can always spend enough to hire the entire unemployed labour force through a job guarantee based on an employment buffer stock. This scheme allows full employment to be achieved without inflation. Therefore, the correct level of government deficit according to modern monetary theory is the one that allows for full employment without inflation.

In this way, modern monetary theory redefines the role of taxes and public debt. Modern monetary theory argues that taxes do not finance public spending, but have a triple function: they give value to money, they modulate inflationary pressures and they stimulate economic activities.

On one hand, the Washington consensus connects public spending to tax collection and debt issuance, and on the other it connects the reduction of public deficits to lower public spending rather than higher taxes. This resulted in the abandonment of a practice that until the implementation of the Washington consensus had been in common use, namely overt monetary financing. Through this financing, governments spent without issuing any debt securities, but through transfers from the central bank to the Treasury and to the bank accounts of individuals. The Washington consensus put an end to this, and since then governments spend by buying debt securities from private banks subject to interest, because this supposedly induces governments to spend responsibly. What modern monetary theory proposes is to recover the use of overt monetary financing.

The fiscal policy proposal of modern monetary theory is not aimed at reducing public deficits, but at modulating inflationary pressures. This means that tax collection could be done through a single property tax on land and real estate as proposed by Warren Mosler in his book “Soft Currency Economics”. Taxes would thus fulfil the three tasks outlined above, they would not interfere with productive processes, indirect taxes would be largely eliminated and property speculation would be prevented.

This means that the consensus within the field of modern monetary theory is that public policy should emphasise fiscal policy because it is much more effective than the monetary policy advocated by the Washington consensus. Modern monetary theory poses economic policy as a trilemma, since, in the words of Randall Wray in his work “Modern Money Theory”, “a country can choose only two of three policies: maintain an exchange rate peg, maintain an interest rate peg, and allow capital mobility”. The consensus among the ranks of modern monetary theory is that governments should not opt for fixed exchange rates, but rather let them fluctuate, and at the same time maintain a fixed interest rate of 0% and impose capital controls if foreign currency speculation and capital flight become destabilising factors.

Contrary to the Washington consensus, interest rates are decided by the Central Bank. As we have already said, as states do not need to issue any debt to finance public spending, interest rates should be set at 0% on a permanent basis. Attempts to control inflation by means of high interest rates have proved to be an inefficient and counterproductive method that only benefits the rentier classes.

The Washington consensus also advocates export-led growth strategies. In doing so, it confuses the national interest with the interests of export elites. The truth is that for national economies, exports are a drain of resources and imports are an income of resources. Therefore, the only reason why exports are desirable is because they allow an increase in imports, but they should not become the growth strategy of countries. The aim of governments should be that domestic production is consumed as much as possible at home, not that foreign countries enjoy domestic production. This also means that import substitution policies such as those advocated by Mexican economist Arturo Huerta are a perfectly legitimate tool to avoid dependence on foreign investment and to reinforce national sovereignty.

This is compatible with the existence of large public sectors made up of organisations that can guarantee their efficiency and proper functioning through external efficiency and quality controls if so desired. There is no justification that privatisation of public enterprises is an end in itself, nor that deregulation of markets implies greater social welfare. On the contrary, the consensus of modern monetary theory holds that the labour market should be regulated by public job guarantees based on employment buffer stocks, that it is the responsibility of governments to guarantee essential services, and that financial sectors should be very small in size and subject to strong regulation to prevent speculative practices.

The last point of the Washington consensus, according to which public sectors should not be protected and private sectors should, is therefore also unjustified. According to the Washington consensus, public bodies, once privatised, should become untouchable. Nothing justifies this position, and according to the modern money consensus, it is perfectly reasonable to opt for the renationalisation of companies if this is required for the better defence of national interests.

 

Tweet by Stuart Medina MiltimTweet by Stuart Medina Miltim which translates as: “The European Union has advanced to the extreme right of the USA: extreme right congressmen of the Tea Party want a constitutional amendment that forces the budget balance. The EU Treaties and the Spanish Constitution have already achieved this.”

 

After more than 30 years of the prevalence of the Washington consensus, the world has seen how its prescriptions have progressively undermined the living and working standards of workers around the world. This impoverishment of the majority has been accompanied by major economic crises and unprecedented enrichment of the financial elites. Despite this, the most extreme interpretation of the Washington consensus is more alive than ever in the EU treaties. They contain policies that only the American extreme right defends and has not yet been able to impose in its own country. Therefore, reactionary organisms governed by the Washington consensus such as the European Union must be abandoned.

Euro delendus est

 

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