public purpose

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The stakes are high.

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

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

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

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

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

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

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

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

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

Robert Frost ended his poem:

‘Two roads diverged in a wood, and I —

I took the one less traveled by,

And that has made all the difference.’

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

 

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

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

Image by Alexas_Fotos from Pixabay

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

Yeva Nersisyan and L Randall Wray

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

Change is not a pleasant process, but we must not shy away from it. There is an alternative. It’s time to engage. It’s time to make the world anew.

Published by Anonymous (not verified) on Mon, 11/05/2020 - 1:47am in

World in handsImage by Mariana Anatoneag from Pixabay

All labor that uplifts humanity has dignity and importance and should be undertaken with painstaking excellence.

Martin Luther King, Jr.

 

While the scale of the real human tragedy of austerity and lack of strategic planning continues to be revealed in our hospitals, care homes and community settings, this week the Bank of England warned that the UK was facing an historic recession. UK demand has plummeted, and consumer confidence has declined sharply as the unemployment rate has risen and people’s concerns are reduced to the daily task of just living in lockdown.

At the same time, in response to the government’s fiscal injection to mitigate the dire consequences of the economic slide that is unrolling before us, the debt sirens are predictably rising from the icy waters in an attempt to lure, yet again, an unsuspecting public into believing that there will be a future financial price to pay, when the human cost is the real issue. Given ten years of cutting vital public infrastructure, the consequences of which we are currently living through, the prospect of a deep recession which will last well beyond the end of the pandemic and the challenges we face from climate change are what we should worry about rather than the government deficit.

If we are to believe politicians and think tanks, there will be no option but to cut public spending to reduce public debt once the pandemic is over. Indeed, that message is being reseeded in the public consciousness by past and present Tory Chancellors of the Exchequer. With George Osborne calling for more austerity only a few weeks ago, Rishi Sunak waded in this week with the suggestion that he was preparing to ‘wean’ businesses and workers off the government’s furlough scheme by cutting wage subsidies as part of an attempt to get people back to work as and when the lockdown is eased in the future. The flaw in his plan is that is difficult to see at this precise moment in time where these ‘alternative’ jobs will come from – at least in the short to medium term.

He also claimed that the nation might become ‘addicted’ to state generosity. Apart from the offensive nature of this statement (which suggests that working people are living the high life and lazing their lives away behind the curtains on public money when in reality they are trying to make ends meet on 80% of their pay, or still waiting as self-employed to get any money at all), the idea that anyone would choose to remain out of work tells us two things; firstly that the government is not beyond using scare tactics to bully people back to work when they are already fearful for their financial security and secondly that the government’s fiscal injection, which was initially hailed as a positive step forward, comes with conditions that are still being framed in household budget terms. The narrative is being cynically being shaped for a new normal. The government, instead of serving the nation, is once again and predictably intending to serve only a small section of it while punishing the rest.

It would seem that under the radar the groundwork is being laid for an economic reset to complete the already skewed distribution of resources into ever fewer hands. More austerity, more cuts to our public and social infrastructure which is already on its knees and then the final ‘coup de grace’ or end game the privatisation of the remaining parts of the public infrastructure including the NHS. As we are already seeing, the government is using the pandemic to transfer even more key public health duties into the private sector. Government contracts are already being awarded centrally to the private sector under the emergency measures with no public scrutiny. Deloitte, KPMG, Serco, Sodexo and Boots are just some of the companies which have secured public funding to manage drive-in testing centres, purchasing of PPE and other vital equipment. This is disaster capitalism at work and the alarm bells should be ringing loudly. Allyson Pollock, who is director of the Newcastle University Centre for Excellence in Regulatory Science, co-author of the NHS Reinstatement Bill and NHS campaigner said ‘We are beginning to see the construction of parallel structures, having eviscerated the old ones. These structures are completely divorced from local residents, local health services and local communities.’

Democracy, both local and central, has over decades been undermined. Now, under cover of COVID-19, we are seeing the State using it to ally with big business to suit the continuing ideological interests of the former and the profit motives of the latter. Trade deals currently being negotiated with the US by the UK government are part of this growing globalised structure aiming to reinforce the power of corporations with state support and dictate the terms by which citizens live their lives.

In 2010 people accepted Tory austerity because they believed the narrative that Labour had overspent, and they had to get the public finances under control. They understood their own personal finances and thought, understandably, that the state’s must be the same. Even now, despite the growing number of people that know that the State’s finances cannot be likened to their own household budget, the government is trying to re-forge the worn-out austerity record anew.

Will the public be taken in yet again by this false narrative? The economist Danny Blanchflower said recently that he thought that people would not accept more austerity. If that were true, then at this moment of national crisis it should be a public wake up call. We don’t have to be economists to understand what the consequences are. Every afternoon at 5pm with the government’s daily briefing, the evidence is increasingly being revealed of the very real human costs as financial hardship bites and the death toll increases.

We need to learn that economics is then not the dry, boring subject that we have patronisingly been told should be left to the experts. Quite simply, it determines what happens to each and every one of us as a result of the ideologically driven political decisions made by our elected politicians. Although distrust, quite rightly, has grown about our political institutions, the truth remains that whilst we still have an important role to play in holding them to account for their policy decisions we can only do so from a position of knowledge and the willingness to challenge the status quo.

Over decades, we have been primed by politicians, institutions and the media to accept the economic narrative. We have stood by as our health and welfare systems have been cut to the bone. We have accepted that cuts were necessary rather than questioning the economic orthodoxy which spawned them. We have accepted the flawed, politically pushed narratives that deficit reduction or balanced public accounts were more important objectives than serving the interests of citizens. Those who have borne the consequences in terms of hidden poverty and inequality, attributed by pernicious ideology to their own failings, are now slowly waking up to the economic realities of their lives. Insecure employment and low wages, hunger and food banks and homelessness have all arisen from the pursuit of a damaging ideology whereby government has relinquished its responsibility to serve the best interests of its citizens and placed the blame on those citizens themselves. All the while also sowing division to serve its smoke-and-mirrors agenda – the expropriation of public wealth into a few private hands.

We have been persuaded by a false narrative that government deficits are a burden rather than an essential and normal mechanism to serve the national interest. While the government focuses on getting the ‘economy’ back to normal, as if it were an unidentified object out there in space, it has ignored that, fundamentally, the economy is its people. After decades of living in a financialised world of rentiers, hedge funders and money men we have lost sight of the real wealth – which consists of people and the natural and other resources which sustain life on our planet.

The economy is nothing without the people, or indeed those resources. Health and social care workers, teachers, local council employees delivering vital services, police officers keeping the peace, farmers producing the food we eat, factories processing it or lorry drivers delivering it to supermarkets and stores, those who collect our rubbish, clean the streets and provide all sorts of other services to the public, the list is long of essential workers whose value during this extraordinary event we are only just beginning to appreciate having taken them for granted for too long. It is not the billionaires that create the wealth of the country, it is the people. We make our contributions to societal and economic wellbeing, not through the tax we pay (which whilst essential is not required to fund government spending as we are led to believe) but through the vital work we do to keep society functioning.

It defies belief that whilst politicians and others are already preparing the public for more austerity, the Bank of England is warning that the COVID-19 crisis will most likely push the UK economy into the deepest recession for 300 years. At a time when the worst effects of a global economic crisis are yet to unfold (despite the Bank of England’s laughable and misplaced confidence that there will be ‘only limited scarring of the economy’ and it will ‘bounce back […]much more rapidly than the pull back from the global financial crisis’) a government of any political shade should be proposing targeted fiscal spending aiming at four objectives:

  • To ensure in the immediate future sufficient spending to keep people safe, fed and sheltered until the immediate threats of COVID-19 are under control and that strategic services such as health and social care, energy and food production and transport and communications can operate as effectively as possible with the least risk to their future stability. This might involve more state intervention, price controls and rationing if necessary.
  • To take back public services into the public domain and reinvest in our public and social infrastructure to secure the vital foundations for a healthy economy for today’s and future generations. It won’t be enough for Boris and his ministers – or indeed the public – to clap for our public sector workers. We need a commitment to changing the ideological narratives which have done so much damage and to reward those who make the real contributions to economic stability and social well-being.
  • To offer a permanent Job Guarantee programme to provide the necessary counter-cyclical mechanism to support people whose livelihoods are likely to be disrupted for some time in the future as unemployment continues to rise as a direct result of both the domestic and global economic slowdown. Unemployment is a political choice, not an economic necessity.
  • To develop a workable and just pathway towards a greener and more sustainable economy without which the future of the planet is in jeopardy.

Whilst this is what should happen, whether it does is yet another question. It is regrettable that government, whilst having seemingly recognised its sovereign currency-issuing powers to avert economic disaster, now seems to be rowing backwards at a time when government intervention is vital if we are to secure a future at all. The entire economic system has been built on sand. The 2008 Financial Crash was practice for what might come and yet our elected politicians failed to grasp the nettle in any meaningful way, tweaking here and there but leaving the status quo in place.

Without putting too fine a point on it, globally we are at a planetary crossroads and COVID-19 is just one issue of many which will necessarily have to drive a reset in how we do things. We certainly need an economic recovery, but the question is what values will it be based on, what will it consist of and finally and very importantly who will benefit? The big questions of our time remain unanswered for the moment and given this government’s ideological agenda it is difficult to see exactly where we may be going. Although one might make some educated guesses. However, with increasing public recognition of the mess we are in and how we got here, combined with a better understanding of how government spends and what the real limitations to spending are, we could take a first step towards that better world we aspire to create for our children. Change is not a pleasant process, but we must not shy away from it. So much depends on what we do next. There is an alternative – so let’s make sure we are part of it. Ignoring it won’t make it go away.

 

 

A Job Guarantee is fundamental to any healthy economy. To find out more follow the link for an in-depth look at what it is and how it works.

https://gimms.org.uk/job-guarantee/

 

 

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The post Change is not a pleasant process, but we must not shy away from it. There is an alternative. It’s time to engage. It’s time to make the world anew. appeared first on The Gower Initiative for Modern Money Studies.

The question is not how we will pay for the pandemic, but how government can use its currency-issuing capacity to deal with the most pressing issues of our time.

Published by Anonymous (not verified) on Sat, 02/05/2020 - 9:38pm in

Rainbow window sign with the slogan "Miss you" during the COVID-19 pandemicImage by Sara Holland

‘Care homes have been top priority for the government’ so said the health secretary in a COVID-19 briefing earlier this week. Daily the evidence grows that this is yet more political rhetoric aiming to create a purposeful narrative of a government that has acted in the best interests of citizens. However, the growing dissonance between politicians’ words and day-to-day realities for NHS and social care workers and many others across the country continues to stand out in sharp relief.

Whether it’s health workers or social care workers, still lacking adequate PPE or working in unsafe conditions risking their own lives and the lives of their patients as a result of hitherto inadequate testing capacity, we are witnessing the dire consequences of 10 years of ideologically driven austerity, cuts to public sector services, the whittling down of Public Health and local government services, unforgivable planning failures and government inaction early on, despite the World Health Organisation’s advice.

COVID-19 has revealed the extent to which our social care system has been hollowed out as a result of ideological cuts to funding for public services dressed up as financial necessity. It has highlighted, in the most tragic way, what happens when governments fail to serve the public purpose. Whether we are talking about nursing and residential care or help in the home, social care is in a state of collapse.

At a local level, social care amounts to almost 40% of council budgets and as a result of local government funding cuts, authorities (having lost 60p out of every £1 in central government funding since 2010) are likely to face a £3.6bn funding gap in adult social care by 2025. The UKHomeCare Association estimated in its 2018 report that almost one third of councils in England had seen homecare providers closing or ceasing to trade during that year. In 2018 more than 100 private care home operators collapsed, bringing the total over five years to more than 400.

The government’s promised review of social care has been on the back burner for many months but the delays in addressing the issue go back years. Jeremy Hunt, the former Conservative Secretary of State for Health admitted in a speech in early 2018 ‘In the past 20 years there have been five Green or White papers, numerous policy papers and 4 Independent Reviews into Social Care’ And yet nothing happened.  

Although the government is promising additional funds to deal with the immediate impact of COVID-19, the damage already caused by cuts to public sector spending on social care will not be quickly remedied.  The fact is that just promising more money does not necessarily translate into the capacity to provide the necessary resources immediately whether that’s PPE, which is still in short supply, or indeed, trained care workers.

Figures show that currently in the care sector there are over 120,000 unfilled vacancies with a growing reliance on agency staff to fill in the gaps (with all the health risks that that entails) which is particularly the case now as staff fall sick to COVID-19 and cannot work. Unless the government deals with the systemic problems caused by austerity and its belief in market solutions for public service provision, where profits are the driver and the focus quantitative rather than qualitative, the long term the future looks bleak for anyone who needs support as a result of sickness, disability or growing older.

The Resolution Foundation’s report ‘What happens after the clapping finishes? The pay, terms and conditions we choose for our care workers’ highlights the plight of many frontline care workers whether in public or private care environments.  It noted that around half of care workers, some 1 million people, were being paid less than the real living wage. In private care settings where the majority of care workers are employed as many as two-in-three earn below the Living Wage threshold. According to the report, many experience significant job insecurity and are four times more likely than average to be employed on a zero-hours contract. The Foundation stated that ‘Insecurity has become a structural feature of working life in social care. Zero-hour contracts have not been used sparingly, but instead have become the new normal in many settings. Blunt in its analysis it said ‘’Clapping is welcome, but care workers will value better pay and conditions even more’ and that ‘better pay in care should have long been a priority given the vital role care workers play in protecting the vulnerable’

Those hitherto labelled by politicians as ‘low-skilled’ workers are suddenly being propelled into the limelight and being lauded, quite rightly, as vital. Not just to meeting the challenges that COVID-19 is presenting, but also to the good functioning of society. And yet for decades, their contribution to the economy and to the wellbeing of society has gone unrecognised. The nation is learning this lesson the hard way as it watches the tragedy being played out daily as their friends, neighbours and family succumb to COVID-19 – people, not statistics.

Boris Johnson standing outside No 10 clapping for care workers is a clever distraction being cynically appropriated by a government whose political decisions over a decade caused the decay of vital public infrastructure, the provision of which does not depend on the healthy economy they claimed was necessary. Quite the reverse. Over 26,000 deaths already from COVID-19 can be added to the likely death toll of those who will have died at home or found themselves unable to present for worrying symptoms during the lockdown and the 120,000 which occurred as a result of harsh austerity measures which cut health services and welfare for vulnerable people. So, when the government says that their strategy in dealing with COVID-19 has been to ‘put their arms around every single worker’ we should see it for what it is. An attempt to create a caring narrative and expunge their austerity record.

But what if the country’s appreciation for its vital workers were to be rewarded in better pay and conditions? How could this be achieved?

Firstly, the care sector should be restored to publicly funded and delivered provision, rather than the profit-driven model which has dominated for decades as part of the neoliberal notion that the market delivers better outcomes.

The CHPI’s (Centre for Health and Public Interest) 2016 report noted that around £14bn is spent on adult social care annually in England, both for residential and home care delivered through local authorities. Authorities whose budgets have been cut over the past decade, leading to a decline in the numbers of older people receiving state-funded care services and who have no alternative but to fund their own care from their own financial resources.

It also noted that a significant number of care home providers are large chains which are backed by private equity – leaving them reliant on risky financial structures and exposed to collapse (as discussed earlier). It observes that over the past two decades, as a direct result of privatisation both the quality of care and the terms and conditions of the workforce have declined. Yet private providers have still managed to achieve significant rates of return on their capital investment.

The FT reported in February this year that there are growing concerns about public accountability of some of the larger private equity-owned care homes, particularly as failures increase. It quoted Nick Hood from Opus Restructuring who said ‘what has happened is that care homes have become financialised. Their owners are playing with debt and expecting returns of 12-14% and that is simply unsuitable for businesses with huge social responsibilities.

In those final few words stands the crux of the problem and at the same time the solution. Bring back health and social care as a publicly owned, publicly funded, publicly delivered and managed service.

Of course, the next pressing question is how will it be paid for? As a former Chancellor and initiator of the first round of austerity in 2010 George Osborne, clapped on by others, has warned that further severe cutbacks may be needed in the future to ‘pay for’ pandemic relief. Not content with having overseen the dismantlement of public and social infrastructure on the basis of its supposed unaffordability, he is recommending yet more pain which no doubt will be ‘paid for’ by yet more cuts or tax rises (except for the rich). Bringing yet more suffering to the most vulnerable, as the last foundational posts of a functioning society are kicked away in the belief that the rich are the wealth creators and we have to give them free rein to create it.

Despite the huge sums of public money being created to address the pandemic, the narrative that there will be a price to pay in the future continues to be pushed by those with an agenda. This extraordinary event is an opportunity to challenge the predominant descriptions of how money works in the real world. If the public genuinely comes to value those services which lie at the heart of a functioning economy, which after all is us, then it has a responsibility to get informed. An economics degree is not necessary to understand in simple terms how money works, what really constrains government spending and how we can build a better society to serve all.

In the Resolution Foundation’s report referred to above, it said ‘…we have to recognise that we can’t just wish that social care workers were paid more and leave it at that. This is a large sector heavily reliant on public funding, that has been through an era of sustained austerity and operates on extremely tight margins. […] If pay is to go up, taxpayers or those receiving care will need to meet the cost’.

In short, we need to challenge the perception that there are financial limits to government spending and that if pay is increased for essential workers then there will be a price to pay in higher taxes. We need to get with the facts. The finances of a currency-issuing nation such as the UK are nothing like a household or business and there can never be any excuse for essential public services such as health and social care not to be properly funded. Quite simply, the UK is the monopoly issuer of its own fiat currency and neither needs to tax or borrow in order to spend. Social care does indeed operate on ‘tight margins’ but it does so as a centrally decided political choice. Local authorities as users of the currency have no alternative when their central funding is reduced – they either have to cut services or increase local taxes thus imposing even more economic difficulties for working people.

The real questions are about resources. In an article entitled ‘Can coronavirus bring Economics back down to reality’ in The Week, Jeff Spross wrote: ‘The coronavirus is going to teach – or, to be more precise, reteach – some hard economic lessons. One of them is probably going to be for policymakers to focus on money a bit less and real resources more. […] the coronavirus has forced us to grapple with the most concrete, flesh-and-blood questions: Do we have the equipment we need to protect the public and care for the sick? Do we have enough food to feed everyone? And if we do, how do we actually get the equipment and the food to the people who need it?

If a lesson is to be learned this is it, not how are we going to pay for it.

 

In February, we were delighted to have Professor Bill Mitchell and Professor Steve Hall speak at our events in London and Manchester. We recorded the events and decided that the quality of the Manchester recording was the better of the two.

Slides for Professor Michell’s talk are available here

 

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The post The question is not how we will pay for the pandemic, but how government can use its currency-issuing capacity to deal with the most pressing issues of our time. appeared first on The Gower Initiative for Modern Money Studies.

Fundraisers v Public Money for NHS

Published by Anonymous (not verified) on Mon, 20/04/2020 - 12:24am in

GIMMS is pleased to have permission to reblog this article from @pamos19. Originally published on her Idle Obs blog site here

 

“Charity is a cold grey loveless thing. If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim”…Clement Attlee

 

We love our NHS

The NHS is the ‘jewel in our crown’, our ‘national treasure’…. we love our NHS. In fact, we love it so much we’re pained to see its staff struggling to cope with the COVID-19 outbreak.

Our hearts go out to the families who have lost their loved ones from this terrible illness, and to the NHS staff battling to save them, who sometimes have to make the most difficult decisions about treatment pathways laid down by NICE guidelines.

Understandably, talking about the NHS brings out our strongest emotions. Knowing that NHS staff and Social Care workers are not being provided with adequate Personal Protective Equipment (PPE) in too many settings – hospitals, GP surgeries, Residential homes, ambulance crews, community nursing/caring, it brings out a natural response: we want to help.

Hence, there has been an explosion of fundraising activity on social media platforms. The biggest has been organised by NHS Charities Together.

Text Clap NHS Charities Together advertisement

Run for Heroes Instagram account

NHS Charities Together Virgin Giving page

As someone who has been a proactive campaigner in support of #OurNHS for three years, I fully understand the desire to help.

However… Stop It! Our NHS Is Not A Charity

Be warned, you may find what you’re about to read controversial. I ask for your patience in reading all the way to the end. I might challenge your perceptions, but bear with me, I hope by the end you will have seen why I felt it was important to write this blog.

I’m going to set the historical context first. Then I’ll demonstrate how the context has impacted our NHS and why it’s in the position of needing help and support today. Next, I will put forward the macroeconomic context, and finally, I intend to show that Public Money should be the winner in a Fundraiser v Public Money for our NHS argument.

 

The NHS – brief historical context

NHS: the Early Years

In post-war Britain 1948, the Labour government launched our National Health Service

Government leaflet sent out in 1948 explaining the National Health Service

A publicly owned, publicly run, and publicly delivered comprehensive *National* health service free at the point of need for all.

Birth to death…from the cradle to the grave. Eyes, ears, nose, mouth, mind, limbs, internal organs, disease, infection… Midwifery, District Nursing, Consultations, Tests, Treatments, Hospital stays, and Prescriptions were free.

Aneurin Bevan, Health minister at the time said:

Nye Bevan image and quote "No society can legimiately call itself civilised id a sick person is denied medical aid because of lack of means"

Many governments have come and gone, making changes such as implementing prescription charges, centralizing and decentralizing the ambulance service, and in 1998 devolution had some impact…

“The UK’s four systems were created very similar at the high-water mark of British political unity. They were all ‘national health service’ (NHS) systems, with the government directly owning hospitals, contracting with primary care General Practitioners (GP) and employing most other staff in a system centrally financed out of general taxation and provided for free at the point of service.”

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5127421/

 

Corporatisation and Markets

The internal competitive market and Foundation Trusts (run as businesses) were introduced early to mid-2000s.
But… every Secretary of State for Health of whichever political party in government had the responsibility to provide comprehensive healthcare for its citizens… until the Health and Social Care Act 2012 passed into law.

NHS Death Knell – The Lansley Act

Professor Allyson Pollock (March 2013):

“The UK NHS was created by national consensus in order to ensure that every citizen was guaranteed health care. Underpinning these arrangements was the secretary of state’s core duty to provide or secure a comprehensive health service, a duty repealed by the first clause of the Health and Social Care Act.”

This was passed at a time when the country was still reeling from the 2008/9 global financial crash and the coalition government had imposed severe austerity measures on public services. But more on that a bit later.

  • The Act opened up all our NHS services to the external market except for acute emergency and obstetrics.
  • It opened the flood gates for private sector provision of health and social care services
  • The Act also gave birth to four quangos: NHS England, NHS Scotland, NHS Wales, and NHS Northern Ireland each responsible for the provision of health and social care. Although still called NHS it was no longer a National Health Service
NHSE – The US model of healthcare comes to England

The appointment as head of NHS England was given to Simon Stevens, worked for the USA giant United Health Insurance company, where he was president of their global health division and CEO of Medicare.

His job as NHSE head was to oversee implementation of the complete reorganization of our health and social care service in England, by splitting England up into 44 regional health economies – ‘footprints’.

The aim was to establish Accountable Care Organisations (an American model) which we now call Integrated Care Systems/Organisations.[1]

These ICS/ICOs are contracted out to a body (which can be a private business or a combination of local authority and private partnerships) who are responsible for the provision of health and social care across their ‘footprint’ within a fixed budget. They are run like a business, so must balance the books or make a profit… they cannot go into deficit.

Government Austerity and NHSE Combine for Maximum Impact
  • Under Austerity, we saw swathing cuts in budgets to our public services from 2010 onwards
  • NHS trusts told to make ‘efficiency’ savings, savings targets set and if not achieved, financial penalties imposed. A Trust could even be put into Special Measures for being in ‘debt’
  • Staffing levels were cut, wards and small hospitals closed, bed numbers dropped.
  • Businesses have taken over services such as diagnostics, Mental Health, phlebotomy, radiology, cleaning, catering, ophthalmology, and so on.

In the private sector, the leanest service they can give the more profit they make. Our health service and social care system began to feel the strain.

“Sustainability” became the mantra of Government and NHS England chiefs.

By 2016 Sustainability and Transformation Plans (STPs) were published. These were the plans which would transform our health service and social care into ICS/ICOs.

Some STP Boards held Public Consultations

As small gatherings of ‘the aware’ sat and listened to highly paid NHSE employees give glossy presentations, telling us that our NHS will not survive unless we make these changes, which would improve the service… make it sustainable so it’s there for the future.

They asked for our views, which in practice were never going to make the slightest difference to their grand plans.

And Here We Are…

2019 saw our fragmented, under-resourced, under-funded, and under-staffed system in a very poor state:

  • 43,000 nurses and 10,000 GPs short
  • Hospital targets abandoned because they consistently couldn’t be met
  • Worn-out staff working longer shifts than they were being paid for
  • Cancelled appointments and operations a common occurrence
  • Little to no mental health support
  • 3 week waits to see a GP
  • Apps being touted as the answer to everything

People were dying who shouldn’t have been…

“Like many junior doctors who have worked in overwhelmed and understaffed A&E departments, I’ve seen things happen as a result of the overstretched conditions that I believe should be classed as “never events”. Since 2016, nearly 5,500 patients have died in England alone as a direct result of having waited too long to be admitted to hospital. To put that in perspective, that’s nearly twice the number of people killed in terror attacks in the UK  since 1970. We should be outraged”

https://amp.theguardian.com/commentisfree/2019/dec/10/doctor-johnson-thousands-deaths-nhs-patient

Now in 2020, the pandemic has hit an already ‘in crisis’ health care service (exacerbated by a chronic problem in social care)

 

Our NHS… Macroeconomic Context

It is political!

To all the naysayers who shout “Keep politics out of our NHS”… you can’t.

“What does the Government do?

The Government is responsible for deciding how the country is run and for managing things, day to day. They set taxes, choose what to spend public money on and decide how best to deliver public services, such as:

    • the National Health Service
    • the police and armed forces
    • welfare benefits like the State Pension
    • the UK’s energy supply

What does Parliament do?

Parliament’s job is to look closely at the Government’s plans and to monitor the way they are running things.

Parliament works on our behalf to try to make sure that Government decisions are:

    • open and transparent – by questioning ministers and requesting information
    • workable and efficient – by examining new proposals closely and suggesting improvements, checking how public money is being spent and tracking how new laws are working out in practice
    • fair and non-discriminatory – by checking that they comply with equalities and human rights laws and by speaking up on behalf of affected individuals”

https://www.parliament.uk/about/how/role/parliament-government/

Government has control of the public purse its role is to spend public money for public purpose and social benefit.

“If the job is to be done, the state must accept financial responsibility“

Nye Bevan quote "Society becomes more wholesome, more serene, and spiritually healthier, if it knows that its citizens have at the back of their consciousness the knowledge that not only themselves, but all their fellows, have access, when ill, to the best that medical skill can provide. But private charity and endowment, although inescapably essential at one time, cannot meet the cost of all this. If the job is to be done, the state must accept financial responsibility."

 

So what is the public purse and public money?

  • The public purse is not a fund, and public money is not taxpayers money
  • The public purse is the Bank of England and public money is the creation of pounds sterling by keystrokes – entering numbers into banks’ reserve accounts so they in turn can credit the account of a person or company selling its goods or services to the Government – as instructed by the Treasury.

Having said this, I can hear you ask… but where does the money come from? It must come from somewhere?

The keyword is “creation”

The UK Government is the sole issuer of our sovereign fiat currency. Every time the Government (of whichever colour) spends, it creates pounds sterling out of thin air. If the government needs to purchase goods or services which are for sale in GBP, then it simply instructs the Bank of England to do so via the Treasury. The Chancellor of the Exchequer provides the Budget Statement ie ‘shopping list’ and this is administered by the Treasury’s Debt Management Office (DMO) and the Monetary Policy Committee (MPC) at the Bank of England.

There is no taxpayers money funding Government spending. The only constraints on spending are the availability of resources (goods, services, labour) and inflation caused by resource shortages.

Now ask yourself…. when the global financial markets collapsed in 2008 what shortage did this cause?

Government told us “There is no money! We have to tighten our belts… Austerity!”

Did anyone shout back “Hang on a cotton-picking minute… you create money!”

[To be fair, some did. But the response they got (and still do, but from fewer people) was “Venezuela” and “Zimbabwe”… which demonstrated how little they know about those countries’ economies.
See my blog https://idleobs.wordpress.com/2020/03/29/coronavirus-economic-stimulus-but-how-will-you-pay-for-it/ ]

The Truth: Our Government can NEVER run out of money

 

The Final Argument – Why we should not have to fundraise for the NHS

Current Shortages in our Health and Social Care Services
  • Nurses, Doctors, Radiologists, Social Workers, Care-workers ie labour
  • Equipment, especially PPE, COVID-19 Tests, and Ventilators ie goods
  • Diagnostics/Testing laboratories ie services
Labour – the workforce

500,000 volunteers have come forward to help our ‘NHS, there must be jobs that these volunteers are doing, and that is great. Practical help at a time of most need.

No shortage of people willing to work for no pay – although government could pay them via a Job Guarantee programme, and this could encourage more people into care-worker jobs.

However, the shortage of clinical staff and social workers needs addressing urgently through government investment in bursaries, decent wages, and free education, but will not help in the immediate crisis.

Goods

Through a combination of incompetence or deliberate policy, the government did not purchase goods listed above prior to the pandemic, despite being forewarned in the pandemic simulation report 2016. Government’s initial ’do nothing’ strategy exacerbated the situation as global demand for equipment and tests grew. By the time Matt Hancock and NHSE tried to get hold of, or refused to deal with certain suppliers of, what we needed, the goods aren’t there (although that’s debatable)

Volunteers across England are making PPE out of the goodness of their hearts and donated material. Practical help at a time of most need.

Services

Although slow to start, government are negotiating contracts with laboratories. Money is being created to purchase these services.

 

Conclusion

There can never be a shortage of public money to purchase anything if it’s available for sale in our own currency

There is not a shortage of money to attract, train and retain staff, only the shortage of will by the government to do it

There is not a shortage of money to purchase equipment, only the shortage of will by the government to do it, and at the right time

So why does the NHS need money from charity when government can provide it with public money?

It doesn’t and shouldn’t!

If the government keeps getting away with not accepting financial responsibility, they will keep starving our NHS of money to pay for the facilities, staff, equipment, and resources it needs to exist!!

Please stop giving money to charity for the ‘NHS’

Demand from government that it carries out its duty to use public money as it was meant: for public purpose and social benefit.

[1]Accountable in a financial sense, ie accounting Integrated in an admin sense ‘backroom stuff’

 

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The cost of government austerity has been a one of infrastructure decay and human suffering. Our nation has paid the price. Are we ready yet to re-imagine our world?

Published by Anonymous (not verified) on Sat, 18/04/2020 - 9:09pm in

Blackboard with the slogan "Upgrade thinking" written in white chalkImage by Gerd Altmann from Pixabay

‘No society should need permission from wealthy people to operate in a high functioning way’

Nick Hanauer

 

A day of reckoning is coming. The exponential rise in deficit spending to manage the COVID-19 emergency is coming to crush future generations and will need action to address the prospect of a future burden of higher taxes to pay for it. Or so a briefing paper published by the Social Market Foundation claimed this week. The SMF (funded by Vodaphone, Barclays and KPMG amongst others) states in its report that public sector net borrowing could rise above £200bn per year which raises the prospect of an ‘Austerity Round Two’ leading to tax rises and spending cuts once the worst of the crisis is over. It calls for the economic costs of responding to the coronavirus pandemic to be shared fairly across the generations and says that ‘as we emerge from the crisis, older generations must uphold their part of the contract by bearing a fair proportion of future tax rises and welfare reforms.’

In short, it is suggesting that there will be a financial price to pay for the government’s increase in spending and recommending that the ‘triple lock’ which ensures substantial rises in the Basic State Pension should be replaced with a ‘double lock’ tying increases to earnings or inflation. This it says could contribute £20bn to deficit reduction over the next five years and reduce the fiscal burden on the working-age population.

Economic orthodoxy lives on. After the initial positive buzz which resulted from the government’s announcement of a huge spending programme to manage the economic and human fall out of the COVID-19 crisis (before we realised its shortcomings) the debt sirens are back beating the debt drum. Not surprisingly. The neoliberals have caught up with the challenge to their economic and monetary supremacy and are fighting back by posing the customary question about how it will be paid for. We can expect more as the weeks roll on. On this line of thinking someone, somewhere has to pay the financial cost sooner or later and the question will be who.

Of course, the usual response to the question is the taxpayer and that narrative is not just the line pursued by the right-wing. The household budget narrative dominates both on the right and the left. On the right, low taxes are the aim and have justified the slimming down of public services and infrastructure. Those who rightly wish to address economic inequality, do so by falsely suggesting that tax avoidance or evasion is a drain on the public purse, and we must ensure that the rich pay their fair share. The ‘solution’ on the left is to bring back that ‘ol magic money tree’ located in the Cayman Islands. Indeed, earlier this week, an editorial in the Morning Star suggested that the government should open up tax havens and tax the super-wealthy to raise the extra funds needed for welfare benefits, job support, training schemes and public services including the NHS.

The truth is that we are not dependent on the rich (or indeed anyone) paying their tax to fund public services and we don’t need to grovel or expect them to do the right thing as if somehow it is a charitable exercise in goodwill. We need instead to recognise the currency-issuing powers of government to pursue a public purpose agenda which serves the interests of the nation. Make the rich pay their tax for the right reasons, which are to do with redistribution of wealth through progressive taxation and not because it funds government spending. It doesn’t.

We need to recognise that the real costs of austerity are not financial but human ones. In fact, we are now paying the costs of that burden imposed in 2010 by the Conservatives when they cut public spending on our public and social infrastructure including our public services and welfare. The burden was never the financial one it was dishonestly described as; it has been the subsequent burden of infrastructure decay and human suffering as a result of austerity. We are now seeing its effects on the lives of our friends and families as we struggle to cope with the effects of lockdown; counting the harrowing cost on our financial, physical and mental health. It is a sad thing indeed that it had to be coronavirus that brought it to our attention as life as we know it stopped like a broken clock.

Past austerity has cut our productive capacity. That has built in the potential for inflationary pressures which could prove to be an issue with a critical global shortage of PPE and other vital equipment and import restrictions from affected nations.  While the government isn’t like a household in financial terms, it is clear that it has failed our nation on the very yardstick it chooses to measure itself by.  It has run down the essential supplies of critical equipment and materials to keep the public safe and compromised our national security by running the NHS at full capacity without the slack required to cope in a crisis. This will be the deficit that we inherit; not the spreadsheet balances. As Fadhel Kaboub noted in a recent podcast ‘It’s not about having the money it’s about having the real, physical productive resources’

And yet the economic orthodoxy that precipitated this destruction still looms like a bad penny on our horizon. Once again, the neoliberals are proposing to hit those who can least afford to pay with the very real costs of any future austerity. The SMF’s economic illiteracy, which suggests that today’s government spending will have to be paid back at some point in time and would thus be a burden on future generations, is a blatant misrepresentation of the truth.

The government does not need to find savings now and scrapping the triple lock on pensions in order to restore what is referred to as ‘intergenerational fairness’ will quite simply create more pensioner poverty than already exists, which in turn will have a detrimental effect on the economy. Quite simply, whether it is retired or working people, involuntarily unemployed or underemployed people, less money in their pockets translates into less money being spent into the economy which is what keeps it turning. Tightening the money tap will quite simply send the economy into a death spiral if it is not already there. And that cost will be even harder to bear, not just for the most vulnerable in society but also for the future of the planet.

As Prem Sikka suggests in an article this week in Left Foot Forward, the SMF has failed ‘to assess the impact of pension reduction on the life of retirees. With reduced income, retirees will spend less on good and services and thereby reduce the multiplier effect. The SMF proposals would ensure that retirees surviving the coronavirus pandemic will face a future of severe poverty’.

That is the real burden a human one. The role of government is not to balance its budget, but to serve the common interests of its citizens and in that its function is to ensure that its economic policy decisions result in a more productive nation. Future generations, or indeed retirees will pay the heavy price of both ineffective government inaction today and economic decisions to impose yet more austerity or increase taxes in the future.

In short, today’s government debt will not in itself be a burden on future generations. The real burden will be government’s failure to spend adequately today to ensure a better future tomorrow. Cutting spending once the crisis is over would be tantamount to ensuring economic collapse if indeed we haven’t already reached it before then.  Using ‘intergenerational fairness’ as an excuse to cut spending is designed to create smoke and mirrors and conflict between generations and is a sleight of hand to place blame anywhere but at the government’s feet.

In conclusion, we end this MMT Lens with a quote from a blog by Bill Mitchell.

“…the inclusion of public debt and unfunded pension liabilities for government workers in the index are based on a misunderstanding of what actually will burden the future generation.

The fact is that the current government has as much ‘money’ now as it had yesterday and the same amount it will have tomorrow. That is, it has whatever it wants to spend. It always has that. It has no more or less capacity to spend today because there were surpluses in the past than it would have if there had have been deficits in the past.

[…..]

Every generation chooses its own tax rates. That is, the mix of public and private sector involvement in the economy is a political choice. If the future generations want more private and less public they will choose lower tax rates etc.

Currency-issuing governments do not draw down on the savings provided by the previous government’s surpluses. It is a nonsensical notion thinking that a sovereign government would ‘save’ in its own currency.”

 “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.

 

 

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The post The cost of government austerity has been a one of infrastructure decay and human suffering. Our nation has paid the price. Are we ready yet to re-imagine our world? appeared first on The Gower Initiative for Modern Money Studies.

COVID-19 is our practice run. Our future survival may be at stake, but the solutions are within our grasp. NOW.

Published by Anonymous (not verified) on Sat, 11/04/2020 - 12:42am in

Planet Earch wearing a surgical maskImage by FunkyFocus from Pixabay

“How all this plays out ultimately depends on us. The emperor is now naked and the ground for a radical paradigm shift – one based on popular sovereignty, democratic control over the economy, full employment, social justice, redistribution from the rich to the poor, relocalisation of production and the socio-ecological transformation of production and society – is indeed more fertile than it has been in a long time. Yet change won’t come from above but only through mass mobilisation once the worst of the crisis is over.” – Thomas Fazi

 

 

The BBC reported this week that more than 150 top football players had launched an initiative to help generate funds for the National Health Service to ‘help those fighting for us on the front line’ during the Coronavirus Pandemic. It noted that whilst Premier League Clubs had previously said that they would ask players to take a 30% pay cut in order to protect jobs, the Professional Footballers Association had said that players were ‘mindful of their social responsibilities’. Matt Hancock, the Health Secretary, jumped on the solidarity bandwagon and according to the BBC ‘had warmly welcomed’ the ‘big-hearted decision’.

Of course, nobody would wish to deny public support for the NHS and its workers, or the growing solidarity with those who perhaps people are now just beginning to understand represent the backbone of our society without which nothing functions. As noted in an MMT Lens a few weeks ago, at this critical time people are beginning to realise the value of the public sector and other key strategic sectors of the economy. They are also beginning to question the long-promoted propaganda that society needs the rich to create wealth, which then trickles down from the top table like manna from heaven.

We cannot fail now to notice the huge wealth inequalities that have been created by the pernicious market-driven ideology, which have poisoned our human relationships with each other, sowed division and hatred, divided communities and working people and left our public infrastructure in a state of decay.

The upsetting and often poignant daily news reports which rend our emotions are making it ever clearer that something is very wrong, as the evidence piles up before our eyes as to the long-term consequences of austerity. Indeed, it was remarkable this week to hear a BBC journalist, Emily Maitlis, challenge the prevailing ideological dogma after having failed to do so for years when she said:

“They tell us Coronavirus is a great leveller. It’s not. It’s much harder when you are poor. How do we stop making social inequality even greater? You do not survive the illness through fortitude and strength of character, whatever the Prime Minister’s colleagues will tell us.”

A surprising but timely debunking of neoliberalism from an unlikely source. A challenge to the idea that individuals are alone responsible for their fate.  A first step? Let’s hope so.

It is also becoming clear that governments are much more powerful than they have been given credit for in a market-driven world. In fact, that the market is not an all-seeing god operating outside government control. That it is government alone, through political decisions, that provides the economic infrastructure for the market to exist. That only government can ensure that our public and social infrastructure is capable of operating in good times and bad and has the capacity to respond to emergencies like the COVID-19 pandemic or the very pressing challenges facing us with respect to climate change.

However, for too long, government has tipped its hat to democracy, relinquished its sovereign powers to deliver public purpose and served other masters all aided by a media owned by those same masters who manage the narratives for their own ends.

In recent weeks, however, we have been given an inkling of that sovereign power as the Chancellor of the Exchequer opened the spending taps, thus challenging the decade-long narrative of austerity that has been justified by the lie that Labour had overspent and that the State must now pull in its horns and get the public finances back into order.

It might be getting clearer, a week or so on, that these promises are not all they are cracked up to be, but it proves without doubt, that the world is not flat and that government, not the market, holds all the cards in terms of response, particularly when one notes the corporate queue at the door of the Treasury for handouts.  The government decides its spending priorities and indeed who benefits.

To return to the footballer story, on social media many noted the huge wealth inequalities that exist and expressed the view that it is only right that the rich, including footballers, share some of their wealth.  That, of course, would be a view that many of us would share and buys into the belief that we should all contribute our fair share in taxation for the public infrastructure that we all benefit from.  Indeed, for many people paying their tax is seen as their contribution to that infrastructure.

However, we need to challenge the notion that the public infrastructure requires charitable donations from the rich or for them to pay their tax to fund it. Because it is not true. The idea appeals to our sense of fairness and equity, particularly in the light of growing public awareness of the huge inequity and injustice which exists occasioned by governments who still favour tax breaks for the rich. But it reinforces the belief that without the rich we will all be poorer. The mantra of trickledown is still entrenched and this gives the rich more power, rather than diminishing it. The last few weeks make a serious challenge to the false assumption that the rich are needed as we realise what really sustains society when the chips are down.

We need to challenge the mindset that the NHS is a charity requiring donations. It does not. Aside from the fact that what is on offer is a mere drop in the ocean in respect to the annual NHS spend and would be a salve of conscience rather than real assistance, it is yet another example of the shift in public understanding that has occurred in recent years.

This has suggested that since money is ‘in short supply’, the Big Society, instead of the State should play a bigger role in public service – from lotteries to fund vital work in the community to the growth of charitable organisations providing services to volunteering to support the NHS and other public institutions, not to mention vital medical and other research.

The implication has been that the State can no longer afford to fund the public infrastructure and people’s generosity and desire to help has been cynically utilised to fill the gaps that have arisen by political choice.

In the meantime, COVID-19 has exposed – in the grimmest way – the state of our NHS, social care, policing and other public sector bodies like the civil service and local government. The poor state of these services being the result of government economic and spending policies.

We are at a crossroads in human history and as never before we need competent government to serve the people. COVID-19 may indeed be a practice for the greater challenges we will face in connection to climate change and human survival. We must strive to make it clear what is and is not possible and the constraints which will in future determine what can and cannot be done.

Essentially, that the government as the sovereign currency issuer makes its economic and spending decisions based, not on whether it has the money, but on ideological premises. Over the last 10 years, the coalition and Tory governments made a political choice to cut funding for the NHS and other vital public services and carried on the decades-old programme of privatisation.

There was, however, no shortage of money just as there is no need for the UK government to collect tax or borrow to fund its spending choices (although that is not an argument for not paying one’s tax and that is another matter). To reiterate the oft-repeated mantra – the government finances are not like a household budget.

We need to challenge our perceptions that government has a limited pot of money to spend and realise that the real constraints are real resources, not £ sterling. Indeed, there cannot be a starker acknowledgement as we are so poignantly reminded every day with the lack of PPE, ventilators, nurses and doctors and other facilities in an NHS cut to the bone.

The scale of the challenge may seem like a mountain to climb. This is not a moment, therefore, to challenge the validity of Modern Monetary Theory with spurious arguments as so many do, holding onto false narratives which suggest that we can’t afford to save ourselves.

We have nothing to lose by informing ourselves and challenging the entrenched notions which lead us by the nose. Indeed, our future depends on our willingness to do so.

 

 

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The post COVID-19 is our practice run. Our future survival may be at stake, but the solutions are within our grasp. NOW. appeared first on The Gower Initiative for Modern Money Studies.

Rishi Sunak is wrong. ‘Righting the ship’ won’t require any taxpayers to ‘chip in’ to cover the cost of his spending plans – not now, in the future, or ever. 

Published by Anonymous (not verified) on Sun, 29/03/2020 - 4:37am in

Scientists wearing masks holding sign with the slogan "Together we do it"Image by Gerd Altmann from Pixabay

Marcus Tullius Cicero was a Roman statesman, lawyer and academic sceptic philosopher. He wrote ‘The Safety of the People shall be the Highest Law.’

This week, it was reported that the former health secretary Jeremy Hunt was in charge when medical advice to stockpile protective equipment in event of a flu pandemic was rejected on the grounds that stockpiling would be too expensive. By this decision, it would seem that this government chose deliberately to put cost over the health of its citizens, thus perpetuating the myths about the unaffordability of public services. The health and safety of the nation has been in the hands of a government which thought saving money was more important than keeping people protected. Jeremy Hunt claimed a while back, that public services depended on a healthy economy. That falsity will come to haunt him as we find out the hard way that it is, in fact, the other way around. A healthy economy depends on a healthy nation.

The neoliberal order which has dominated the global corridors of power for more than 40 years, combined with monetarist policies and more recently austerity following the global financial crash, has led to the destruction of public and social infrastructure not just here but in many developed nations around the world including the EU trading bloc. It lies at the heart of this crisis.

The horrors we are seeing in Spain, France, Italy, the US and other countries as the COVID-19 coronavirus compromises the ability of health and other public services to cope underline painfully the consequences of government decisions. Governments which rejected the power of the state to serve its citizens, promoting the god of the markets – the invisible hand – instead, have appeased it at every turn to favour the global corporations which have dictated the rules.

In the UK, despite the early advice from other experts in countries where coronavirus had already struck, government prevarication and failure to act expeditiously has allowed the disease to spread through the nation affecting many, not just those who are elderly with underlying health conditions. All human life is precious and yet this government has treated some as expendable and put the lives of those in the front line in the health service at risk.

As GIMMS noted in a previous MMT Lens, we will pay a heavy price for the ‘just in time’ approach to our health and public services and the lie that they were only affordable if the economy was doing well.  The media, having done little to hold the government to account for decades and especially in the last 10 years, has left us without sufficient nurses, doctors and health workers, beds, ventilators, ICUs and other equipment. Our health professionals are still crying out for Personal Protective Equipment (PPE) and are selflessly putting their own health at risk for others.  They are crying out for ventilators to keep people alive. They are crying out to be tested to keep themselves and their patients safe.

A healthy economy relies on public infrastructure, which is in short supply as a result of government choice. Ramping up the much-needed supplies is proving slow and difficult, not to mention demonstrating government incompetence. A good government delivering public purpose would have meant that we would have been better able to deal with this emergency and we might not be witnessing its current trajectory.

Our public infrastructure has been the victim of government cuts and we are now paying the price for the breakdown which is occurring as a result of limited or non-existent emergency planning, deregulation to suit market demands and privatisation – which have all been justified by the lie that the state had no money of its own and public services were a luxury determined by the health of the economy.

When the Chancellor got up to announce his spending plans and the measures to help those now unable to work, people cheered. If nothing else, this should have demonstrated quite clearly that the government was not constrained by tax or borrowing in order to spend, despite the charade that successive governments have played out about how its spending is paid for.

With big business queuing up for handouts (reminiscent of those banks that were too big to fail who were bailed out with public money) for others, it has been like squeezing blood from a stone. The very people who form the backbone of society, who keep it functioning and contribute to the economy through their work – the self-employed in particular – are being asked to jump through hoops to get any money at all, leaving them struggling and worrying about the future. People who for a decade have been living hand to mouth with scarce or no savings, working in zero-hours employment, the gig economy or in part-time work, will have to wait months for the government to pay up. Those in desperate need without employment are being asked to apply for Universal Credit for a measly £94.50 a week hanging on in telephone queues which can be as long as 90,000. It will not be long before those who congratulated the Chancellor for his largesse will have to think again, as bills go unpaid and people go hungry. People need support now, not later. The breakdown of society is in the offing if the government fails to act as it could now simply by authorising the central bank to make payments through HMRC who hold our data.

Alongside the tragedy which is playing out, the household budget narrative is never far behind, even in the words of Rishi Sunak who during his announcement of measures for the self-employed claimed that when this emergency was over we’d have ‘to chip in to right the ship’ promoting yet again that at some time in the future there will be a cost to taxpayers. Which in short there will not, since the government does not need to collect tax before it can spend!

Next, an ITV newsreader asked, ‘can the public finances take the strain?’ And this was followed by Robert Peston telling the TV audience that we’ll be ‘paying off the national debt for years’. To be clear – for the UK government, which is the currency issuer, there is no strain on the public finances and there will be no future burden on the taxpayer.

The Tax-Payers Alliance then announced that in future there would have to be ‘growth-enhancing’ measures and spending restraint’ both mutually exclusive positions which hark back to a false claim that cutting public spending could lift growth. The evidence is before us right now that this is not true.

Finally, the journalist Philip Inman suggested that Sunak’s budget spending spree could come at a high price, ‘fighting a war with borrowed money.’ Except that the government, as the currency issuer, does not need to borrow to cover its deficits; nor does it need to issue bonds in order to spend.

Our public and social infrastructure is under severe pressure and cracking under the strain, and people are suffering and dying. And yet they are still arguing about the financial cost of the Chancellor’s spending as if deficits and borrowing were the devil, balanced budgets the epitome of a government’s economic success or that there will be a price to pay if fiscal prudence is abandoned.

The ONLY cost in the future is the human cost we will face if the government fails to act in a manner that secures the lives of citizens, ensures they can pay their bills and eat during this emergency.  Fiscal prudence is the least of our worries!

We must today, tomorrow and in the future, keep holding to account government, politicians and all those who peddle the economic orthodoxy that there is no money. The Chancellor has shown that there is the possibility to spend without checking the public purse first. It is a political choice. So much is now at stake and we need as nations to keep pushing with more persistence until change happens. The battle lines are being drawn as we speak. The coronavirus, hard as it is, may be our societal wake-up call. Let’s hope so.

 

 

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The post Rishi Sunak is wrong. ‘Righting the ship’ won’t require any taxpayers to ‘chip in’ to cover the cost of his spending plans – not now, in the future, or ever.  appeared first on The Gower Initiative for Modern Money Studies.

A Short Comment on the UK Government’s Fiscal Policy in the Current Crisis

By Phil Armstrong, University of Southampton Solent and York College.

Man putting on protective mask and wearing latex glovesImage by Terri Sharp from Pixabay

The UK government’s significant fiscal expansion – in line with its ‘do whatever is required’[1] mantra – is, of course, welcome. However, I would argue that it is still far too small to deal with the massive demand shock associated with the coronavirus pandemic (Mitchell 2020a, 2020b) and also that it is incorrectly targeted. It pays insufficient attention to the poorest groups in society; the government has failed to take the necessary steps required to ensure the income of those most in need is adequately supported during the crisis. Clearly, the situation is evolving on a daily basis and, looking forward, it is highly likely that there will be continual calls for the government to increase its fiscal intervention from many sectors in society – not least business leaders who fear the effects of rapidly declining demand.

However, I would stress that the intervention is being enacted against an inapplicable theoretical and ideological backdrop, specifically the mistaken neoliberal framing of the so-called ‘government budget constraint’ (GBC). The logic of the GBC conceptualises the government as a currency-user, which might finance its spending by taxation, by borrowing (debt issuance) or ‘printing money’ (Mitchell 2011). According to mainstream thinking, each of these methods carries problems; increased taxation reduces non-government sector spending power and allegedly generates disincentive effects, ‘excessive’ borrowing leads to higher long term interest rates, in turn, causing ‘crowding out’[2] and ‘money printing’ inevitably results in inflation.   There is also an underlying ideology implicit in neoliberalism; that state expansion soaks up real resources which would be better (or ‘more efficiently’) used by the private sector.

In extremis, it appears that the Conservatives (who have shown a marked distaste for expansionist state intervention in the recent past) and even business leaders who would normally be opposed to increased government spending and enlarged deficits are now prepared to put their weight behind the fiscal expansion[3]. However, the underlying framing based upon the GBC is likely to come back to bite us all – hard – in the future. In line with the erroneous conceptualisation of the state as a currency-user, the government is presenting its current additional spending as being ‘financed’ by borrowing. The story is founded upon the idea that the government needs to spend significant extra sums now – owing to the severity of the crisis – and heavy borrowing is, therefore, essential (reinforced with the contention that it is cheaper for the state to borrow now than in the past as long term interest rates are very low) in the manner of household who accepts a very large credit card bill because there is no other way it can survive[4].

However, following this line of thinking will lead to a damaging and erroneous conclusion. It is highly likely that in the future – when the crisis has passed – mainstream economists will argue that there is a financial ‘mess’ to fix; ‘unacceptably’ large public sector deficits may well persist beyond the crisis alongside an ‘excessive’ national debt as a proportion of GDP. The narrative will then, no doubt, suggest that they need to be ‘dealt with’– possibly with another, even harsher, round of austerity than last time – and it will those least able to cope who are most likely to be the ones asked to bear the greatest share of the burden (as was the case the last time austerity was imposed).

This conceptualisation of the government as a currency-user suggests that money printing and bond issuance are alternative ways of financing a deficit, however, advocates of MMT conceptualise the state as a currency-issuer. From this viewpoint, in reality, they are not alternatives.  The government always spends by the creation of new money – both taxes and borrowing logically and historically follow spending (or lending). Only money that has already been issued by the state can be collected in taxes or used to buy state debt. When the government spends, it does so by crediting the bank accounts of its target recipients, simultaneously increasing the target’s bank’s reserve account by the same amount. When taxes are paid by a private sector agent, her deposit balance falls and her bank’s reserve account balance at the central bank (CB) is correspondingly marked down[5].  The purchase of government debt is best conceptualised as a reserve drain (Mosler 2012) which changes the composition of non-government sector holding of risk-free state debt but not its size.

I would argue that having this correct conceptualisation is the key to avoiding the return of austerity. In reality, the government sets its aims, determines its budget and spends by the ex nihilo creation of new money. When the operational reality of the financial system is correctly understood, then the expectation of a post-crisis ‘mess’ to fix disappears. Once the economy has recovered, that does not necessarily mean a need for austerity or even fiscal retrenchment – only the post-crisis economic outcomes such as growth, employment and price stability matter. If unemployment persists after the crisis has passed, then government net spending should still be regarded as being too low, irrespective of the size of the government deficit both in absolute terms and as a proportion of national income. Only in an economy suffering from inflation from excess demand would fiscal contraction be required.

These are challenging times for us all, but in the current crisis we have the opportunity to push forward the insights of MMT and to challenge established thought – particularly with respect to the inapplicable government budget constraint. If our understanding of the operational reality of the monetary system can be characterised by the insights of MMT, the full scope of existing fiscal space can be understood and importantly, the likely post-crisis push for fiscal retrenchment can be effectively countered.

 

[1] See Islam (2020).

[2] The crowding hypothesis is based on the contention that higher interest rates will lead to lower private sector investment, meaning that large government deficits effectively ‘crowd out’ private investment. Little, if any, empirical support for this hypothesis exists (Armstrong 2015).

[3] For example, Richard Branson expressed his support for fiscal retrenchment in 2010 (Stratton 2010) but changed his mind in 2020 when arguing in favour of a £7.5 billion government support package for the airline industry (Hockaday 2020).

[4]  ‘We are in an entirely new world. A wartime effort, with wartime deficits to cover it’, Rishi Sunak, quoted in Islam, F., BBC News online, 17 March 2020.

[5] It is important to stress that private sector debt or bank money cannot provide the final means of settling a tax bill which occurs when a taxpayer’s bank’s reserve account at the central bank is debited in favour of the Treasury account (Armstrong 2019).

 

References

 

Armstrong, P. (2015), ‘Heterodox Views of Money and Modern Monetary Theory (MMT)’

https://moslereconomics.com/wp-content/uploads/2007/12/Money-and-MMT.pdf

 

Armstrong, P. (2019), ‘A simple MMT advocate’s response to the Gavyn Davies article ‘What you need to know about modern monetary theory’, Gower Initiative for Modern Money Studies,

https://gimms.org.uk/2019/05/27/phil-armstrong-gavyn-davies-response

 

Hockaday, J. (2020), ‘Airline bosses to ask for £7,500,000,000 bailout to survive coronavirus.

The Metro online, https://metro.co.uk/2020/03/14/airline-bosses-ask-7500000000-bailout-survive-coronavirus-12399300/

 

Islam, F (2020), ‘Coronavirus: Chancellor unveils £350bn lifeline for economy’, BBC News online, 17 March, https://www.bbc.co.uk/news/business-51935467

 

Mitchell, W. (2011), ‘Budget Deficit Basics’ 4 April

http://bilbo.economicoutlook.net/blog/?p=14044

 

Mitchell, W. (2020a), ‘The coronavirus crisis – a particular type of shock – Part 1’, March 10,

http://bilbo.economicoutlook.net/blog/?p=44484

 

Mitchell, W. (2020b), ‘The coronavirus crisis – a particular type of shock – Part 2’, March 11,

http://bilbo.economicoutlook.net/blog/?p=44488

 

Mosler, W. (2012), Soft Currency Economics II, US Virgin Islands: Valance

 

Stratton, A (2010), ‘Richard Branson backs Tory plans to cut spending sooner rather than later’, The Guardian, 16 February,

https://www.theguardian.com/politics/2010/feb/16/branson-back-tory-deficit-cuts

 

 

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The post A Short Comment on the UK Government’s Fiscal Policy in the Current Crisis appeared first on The Gower Initiative for Modern Money Studies.

The government’s spending promises have shown the need for austerity is a lie and a sham. It’s time to hold the government to account for its political decisions, not its fiscal prudence or otherwise.

Published by Anonymous (not verified) on Sun, 15/03/2020 - 10:21pm in

Man teaching girl to wash her hands properlyImage by CDC on Unsplash

In 2010 the newly elected Conservative government, using smoke and mirrors, turned what was a private debt crisis caused by global reckless greed and speculation by financial markets into a sovereign debt crisis. Liam Byrne’s stupid joke note left in the Treasury, suggesting that there was no money left, gave them the perfect opportunity to cash in by claiming that was no alternative to austerity and cuts to public spending. The then Prime Minister David Cameron and his Treasury sidekick George Osborne declared that ‘maxing out the credit card’ and putting off dealing with the problem would make it worse and suggested that without spending cuts we could end up like Greece. The Chancellor declared in his Spending Review – ‘we have taken our country back from the brink of bankruptcy.’

Believing that their own household budgets were like the state’s public accounts (a constantly reiterated message) it’s no wonder that the nation gave a huge sigh of relief. People were mistaking the prospect of “healthy” public accounts for a healthy economy. The nation, which accepted the false premise that there wasn’t any money left in the treasury coffers, subsequently paid a heavy price for this misunderstanding; a misunderstanding that was endlessly promoted by successive Chancellors.

What followed allowed the government to deliver a political agenda which had nothing to do with balancing the budget, even if presented as such. It was quite simply the mechanism to further hollow out our public services, reform the welfare system and sell-off and privatise public assets. It brought to its conclusion a decades-old plan which began as early as the 1970s and was pursued by Margaret Thatcher, as a result of her love affair with the ideas of the economist Friedrich Hayek and the Chicago School of economics; continued by Tony Blair and New Labour.

This Wednesday the new Chancellor of the Exchequer, Rishi Sunak, stood at the despatch box to give his first Budget. The public, from being told over 10 years ago that Labour had spent beyond its means and as a result, the nation would have to cut its cloth and make a sacrifice to restore the public accounts to order, suddenly discovers that the money we were told we didn’t have for public services which were previously “unaffordable”, can inexplicably appear, as if by magic. From apparent scarcity to abundance. Along with the Bank of England cutting its base rate in an effort to fight the impact of Covid-19 on the economy, the money taps have also been miraculously switched on.

As an aside, when public and business confidence is at rock bottom and fear is rampant, it beggars belief that the central bank believes that cutting rates will stimulate people to consume (unless it’s toilet roll, pasta or hand sanitiser) or businesses to invest. Ten years of reliance on central bank monetary policy to stimulate the economy has proved ineffective. The fiscal approach, i.e. government spending to support the economy and its public infrastructure, is the only route left to any government, left or right, if they are to address the prospect of recession as a result of 10 years of austerity or indeed economic collapse because of the coronavirus outbreak.

More importantly, the fiscal approach is also the only route available to fight the immediate consequences of the virus in terms of containing it; the government must use the power of the public purse, alongside its legislative powers, to ensure that resources are freed up to get help to where it is needed. Whether that’s financial support for individuals or businesses caught up in the coming economic slowdown or bringing private sector health companies into public use – meaning hospitals and trained staff – to meet increased demand.

That said, we cannot avoid the stark fact that after ten years of austerity, which have gouged out our public services and left them pared down and in an appalling state of decay with those working in them struggling to pay their way using food banks or in deep debt, it remains to be seen what can be achieved immediately. Austerity reduces our domestic productive capacity, laying the foundation for inflationary pressure when the economy needs to grow or when the nation has to respond to a crisis. The corona crisis will create inflationary pressures which will result in rationing access to real resources and public services. This and many other governments have for decades put bankers and the financial sector before the health of their nations and their citizens.

Just to be clear, in case there is some confusion, turning on the taps has nothing to do with printing money in the Treasury basement, collecting tax or borrowing from the market to fund its spending programme. It is doing what all sovereign currency-issuing governments like the UK’s can do and have been able to do since 1971 – spend the money into existence via a computer keyboard at the central bank, where an employee authorised by the Treasury enters numbers onto a screen and transfers to the appropriate accounts whatever sum of funding it requires to deliver its capital programmes or fund its day to day spending. The fact that government spending is still couched in household budget terms of collecting tax or borrowing serves an agenda and nothing else. It is worth repeating here that there was no such scarcity of money when it was a question of spending it to feather the nests of corporations, reduce taxes for the same or serve a specific government agenda, from bailing out the “too big to fail” banks after the 2008 financial crash to buying votes in the House to keep the government in power.

So, having presided over 10 years of the destruction of our public and social infrastructure, the ravaging of our public services and social security system and all that that has meant for the economy and some of the nation’s most vulnerable citizens, now suddenly it appears the government’s austerity breaks have been taken off and the gears crunched into fourth! If you are wondering how this has this happened, when up until quite recently being fiscally prudent has been all the rage, according to a government minister the sacrifice of the great British public has now paid off, enabling the government to spend. Dear Rishi and any others promoting this nonsense, please pull the other one, it has bells on! The veil pulled over the eyes of the British public who are now suffering the very real physical and economic consequences of government policies is now being torn away in the most brutal way.

The harsh reality is that the sacrifice was unnecessary and indeed damaging. It was justified on the back of a monstrous lie about how the state finances actually work. We heard them say that the nation had been living beyond its means and this required drastic remedial action to avoid bankruptcy. The myths about how money works have left our public and social infrastructure in such a state of decay that the last 10 years of austerity combined with the risks that the spread of coronavirus pose and its effects on the world economy are increasingly becoming self-evident. Government’s ideological choices, with their focus on keeping markets and corporations sweet, have been responsible, not lack of public funds. To put it bluntly, political choices are killing us.

However, before we get too excited about a change of direction (and how the government will explain it) whilst one can obviously support a fiscal programme of government spending as the right approach, one has to question who it will benefit. Whilst, of course, there is a role for the private sector in delivering big infrastructure projects they will continue to feather the bank accounts of big business. This means public money pouring into private profit whilst top management continues to pay itself big salaries, pensions and other bonuses. Whilst investment in our privatised railways has been promised, top management will continue to benefit from public money and pay itself handsomely whilst at the same time failing to provide good, reliable services as many travellers will attest. Government pours money in, but fails to dictate the terms in the public interest.

Sunak neither mentioned the perilous state of social care nor the appalling consequences of the introduction of Universal Credit on the lives of many involuntarily unemployed people and those with disabilities. And whilst he has announced a spending review, which will include local government, the combined effects of 10 years of cuts to funding will take more than a future spending review to improve the dire financial situation of local councils and the current parlous state of local infrastructure and services.

The economy is not some nebulous presence overseeing things from the heavens; it is us. From nurses, doctors and other health professionals, those that teach our children or lecture in other institutions of learning to ensure a healthy and educated society for today and tomorrow to those who sweep the streets and remove the rubbish along with the army of social carers looking after our loved ones in their own homes or in residential care. The government has failed the economy. It has failed us. It has, in fact, decided that some of us are expendable; surplus to requirements.

The ‘spend, spend, spend,’ message has however not gone down well in some circles and whilst we may think that household budget narratives have been swept away in favour of fiscal spending, the question of how it will be paid for still hasn’t gone away. A quick perusal of the government’s own Executive Summary for this week’s budget in which it talks about ‘creating a fair and sustainable tax system to fund first-class public services’, mentions that ‘over the past decade it has taken action to restore the public finances and reduced the deficit by four-fifths’ and suggested that the ‘historically low cost of borrowing means that it can support the economy and provide significant investment in public services and infrastructure’ is still nodding its cap to household budget narratives of how governments spend.

The reaction of the Adam Smith Institute which suggested that ‘spending like a drunken sailor…wasn’t the way to create a thriving entrepreneurial economy’ or the IFS which remarked that ‘The Chancellor seems to think the only best way to boost growth is through public spending’ shows that we still have a way to go in changing the institutional and press narrative.

With the mantra of low interest rates and borrowing to spend still prevailing even amongst what one might call ‘progressive’ left-wing economists and journalists, we seem to still be stuck in the household budget box of taxing and borrowing. Indeed, one economist and commentator claimed that ‘spending on growth-promoting investments would ensure that government wouldn’t have any trouble repaying its debts over the long term’. It is now the job of the left-wing not to question the fiscal prudence of government as in the usual ping pong of debate about the state finances – that train has now left the station – but to hold it to account for its political choices.

The house is still on fire, the emergency suddenly grew into one of huge proportions with increasing climate uncertainty, environmental catastrophes, the prospect of an economic collapse which will affect vast swathes of the world population and we still have people talking about being fiscally prudent in one way or another. It is time to wake up to the reality that it is not a balanced budget that will save us, it is a government which puts human beings at the top of its priorities instead of polluting, exploitative corporations and is willing to make the policies and spend within its resource capability to address the challenges we face for the future.

 

Events

Challenging the narrative about how governments pay for public services – Northampton

March 28 @ 1:30 pm – 4:30 pm

 

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The post The government’s spending promises have shown the need for austerity is a lie and a sham. It’s time to hold the government to account for its political decisions, not its fiscal prudence or otherwise. appeared first on The Gower Initiative for Modern Money Studies.

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