public services

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What is the real burden that the government’s “hard choices” will pass on to future generations?

Instead of more political rhetoric and more of the same orthodox solutions dressed up as change, we need radical progressive action to pave the way for a kinder, more equable and sustainable future.

 

Planet Earth in handsImage by Anja from Pixabay

After this crisis, if anybody dares mention a ‘need’ for austerity or tax cuts for ‘wealth creators’ aka useless parasites, or calls for pointless fiscal retrenchment, then ridicule their rank stupidity, economic illiteracy, immorality and their inability to learn simple lessons.’

Phil Armstrong, GIMMS Associate.

 

The debt warriors are continuing their rear-guard action. In the hope that all is not lost in the battle for minds as people get wiser; the battle to keep people believing that the vital extra spending, which has in effect kept the economy afloat, is going to have to be paid for. Sustaining the illusion is vital for their purpose and the people need reminders and nudges to keep them in the dark and demonstrate that the government is fiscally responsible. Where have we heard this before? And look how that ended up. Ten years of punishing austerity and the killing off of our public services in the name of balanced books.

This week, the Conservative MP Harriet Baldwin said on BBC Politics Live.

‘It’s the right time to talk about [balancing the books] because we have to maintain the confidence of the bond market.’ We have a plan to bring the public finances under control’

This little gem suggesting that government is beholden to the bond markets (when it is not) followed Rishi Sunak who said in his conference speech earlier in the week that he had ‘a sacred duty’ to ‘leave the public finances strong’ hinting that there might be tax rises ahead. He continued by saying that ‘If… we argue there is no limit on what we can spend, that we can simply borrow our way out of any hole, what is the point in us?’

Hard choices would have to be made as he pledged to ‘balance the books’. He posited that the public would accept that taxes would have to rise given the size of public spending during the crisis and suggested that the government might have to break some of its manifesto pledges. Wait for it…it’s coming.

The implication is that those billions of pounds borrowed to keep the economy afloat and functioning will have to be paid for and that the burden, if not addressed, will pass to future generations in the form of higher taxes. Keeping the illusion going was further emphasised at the weekend when the government rejected extra support for workers in lockdown areas because ‘the national debt is rising’ and it would cost too much.

So deeply is the ‘tax pays for spending’ narrative embedded in the public consciousness that research published this week by Ipsos Mori suggested that of those responding almost half favoured raising taxes to fund public services in the context of Covid-19 with the most favoured option being a wealth tax for people earning over £500,000.

Still resolutely stuck in the ‘taxes fund spending’ mode, people implicitly understand that somewhere along the line they have lost out, not just personally but in terms of a public infrastructure which Covid has demonstrated is no longer fit for purpose due to cuts. And, quite rightly they want redress, as long as perhaps it’s not them that have to pay. Whilst there is a big difference in approving a concept and actually accepting it as the reality for one’s own pocket, the government is relying on that false narrative for it to get away yet again with murder.

In the light of monetary realities, knowledge of which is increasingly coming into the spotlight and challenging the status quo orthodoxy, in searching for answers the better questions to ask the public might have been:

Do you want the government to spend more on improving our public services in the interests of the nation?  

Do you want to restore those public services to publicly paid, managed and delivered provision?

For the truth is, that these decisions are political ones, not linked to taxes or borrowing or the state of the public finances.

At the other end of the political spectrum, this week on Double Down News Grace Blakely exposed, quite rightly, the increasing horrendous gap in wealth distribution and its damaging effects on society. However, she then went on to suggest that the billionaires should pay the costs.

At a time when the Swiss Bank UBS reported this week that billionaires increased their wealth by more than a quarter at the peak of the crisis when at the same time millions of people were losing their jobs or struggling to get by on furlough schemes and Universal Credit it might seem a just call to ask the extremely wealthy not only to pay what they owe but pay more. After all, over decades, working people have seen their living standards fall, as their share of productivity has ended up in the hands of ever fewer people so it is infuriating to see that the gap between the haves and have nots which was already huge, growing even more rapidly as billionaire’s wealth hits new highs. An increase in the pay of politicians announced late this week (the Tories having already rejected a pay increase for nurses) shows little solidarity with people’s struggles and it must surely start crossing people’s minds that something is seriously awry not just in terms of wealth distribution but also in the way they understand how power works and who pulls the strings.

But it is equally disheartening to note that we have left-wing economists and commentators reinforcing the mantra of ‘tax pays for government spending’ in the daily smoke of mirrors that suggests that state spending is like a household budget and that the solution is to get the filthy rich to pay more.

While our public infrastructure continues to crumble before our eyes and people suffer it’s time for the left to stop talking about getting the rich to pay for it, however much that appeals to a sense of fairness. Only by recognising how government really spends and using that knowledge to propose an alternative vision for the future can we win that battle. If it does not, then any plans that future progressive governments propose will always be constrained by this false narrative.

In the words of Deborah Harrington, who sits on GIMMS advisory board:

‘Billionaires can’t ‘pay for’ the coronavirus crisis. Only governments can. The left should stop promoting the neoliberal theory that we are all dependent on and beholden to the rich for our public services. They are cheering their support for Thatcher, May and all the others who claim the government has ‘no money, only taxpayers’ money’. Tax the rich because they are too rich. Tax the rich because inequality is damaging to a healthy society. Tax the rich because they use their disproportionately accumulated wealth to buy government policy that makes them even richer. Have the courage to say that the extremely wealthy are a drain, not a gain, for society. Stop trying to push the idea that if you could only persuade them to pay their taxes willingly everything would be just fine. Even better, have pre-distribution mechanisms that stop them accumulating so much in the first place.’

The question some might ask is have politicians on any side learned anything? Forty years of economic orthodoxy have left many economies around the world in poor shape and unable to address the crisis. And yet whilst Rishi Sunak considers disingenuously and publicly how he is going to ‘pay for‘ his fiscal injection (to keep the right narrative alive in the public mind) it most certainly will not stop money pouring into the bank balances of private corporations.

And given the Chancellor’s Conference speech it will on the other hand most likely mean that the public sector will once again be squeezed. It is a guise for delivering what they have always intended – to destroy the public sector as publicly funded, managed and delivered infrastructure that serves the public good with no profit motive, through the toxic ideology that business is more efficient. The lie of a so-called small state is smashed by the realities that it increasingly exists to serve global corporate interests.

Whilst government ministers laud their actions and monetary largesse, anyone following media reporting or previous GIMMS blogs will know that the real beneficiaries of public money have been large corporations who have failed to deliver the promised efficiency and worse without public accountability. The prospect of Westminster Plc draws ever nearer.

And the promised levelling up? It will likely be just one more casualty of a wretched economic system, and just more of the typical political rhetoric which politicians are so good at – on both sides.

In the wake of the Chancellor’s speech, the Guardian in its unexpected and timely editorial this week noted ‘it makes no sense to compare personal experience with the economics of a nation’. Quoting the late Labour MP Roy Jenkins who observed correctly that a family budget was not the same as a national budget and said that Margaret Thatcher had traded in ‘lousy economics’, it noted how much of the political economy had been conceded to the right and that the present Labour shadow chancellor still in orthodox mode could not match his ‘unapologetic Keynesianism’.

Sunak’s speech seems indicative of what to expect in the future. Yet more penny-pinching when it comes to our public infrastructure. It suits a carefully crafted narrative to suggest that such spending would bankrupt the economy or burden future taxpayers. A narrative the public continues to buy for now, at least as a reflection of how it believes that government spends.

While our imaginations are still stuck in Mikawber mode, the real threats to the future are being cynically put on the back burner when those threats are the ones that we need to be addressing urgently. It seems that, in political terms, ultimately the quest to balance the books is being made to appear a far more important objective than addressing climate change and politically created and unnecessary inequality. Our planet is to be sacrificed on the pyre of balanced budgets and big business gets to create a greenwashed world in its image – that of profit and greed.

As we watch the fires in South America continue to burn as a result of deforestation to make way for cattle pasture and soy plantations, and the tropical wetlands continue to burn in the Pantanal, a combination of a man-made arson and drought caused by the climate crisis, we need urgently to shift the narrative to one of sustainability and human and planetary health.

This year of environmental disasters – fires, drought, floods and Covid-19 – is a reflection of our failure to act and should be the wakeup call we need. Our leaders, for all their fine words, are complicit in this destruction. Some wilfully and openly ignore the threats, others indulge in ‘environmentally friendly’, rhetoric whilst doing very little, and at the same time global corporations some of the biggest polluters sell us their greenwashing propaganda.

Along with climate change, poverty and inequality continue to rise. It was reported this week by the charity Save the Children that living standards for the UK’s poorest had plunged during the pandemic. It noted that over a third of families on Universal Credit and Child Tax Credits have had to rely on help from charities for food or children’s clothes over the past two months and two-thirds had incurred debt to get by. Half of those surveyed said that they were in rent arrears or behind on household bills. Earlier research carried out by Save the Children and the Joseph Rowntree Foundation in June revealed that 70% of people had cut back on food and other essentials when the pandemic began and the charity warned that the winter will be more difficult for many families as heating and other household costs rise and the prospect of further job losses increase the pressure on overstretched household budgets. With the threat of a cut in Universal Credit next April, the future is looking even more uncertain for some of the poorest people in our communities.

And we cannot ignore the global situation. Save the Children also noted last month in a jointly authored report with UNICEF that the number of children living in multidimensional poverty (access education, healthcare, housing, nutrition, sanitation and water) across the world had soared to around 1.2 billion due to Covid. To put it starkly, an additional 150 million since the pandemic began in early 2020. It also noted that around 45% of children were severely deprived of one of the critical needs mentioned above before the pandemic and that the picture is likely to worsen in the months to come.

While the arguments rage about the size of government, its colossal spending and future tax burdens, the cost of such arguments on human lives and the planet seem of secondary concern as the government continues to pursue its market-driven dogma which is neither free nor fair.

The promised V-shape recovery has not materialised and left prospects bleak for the Covid generation whose employment prospects are quickly vanishing into the mist and threatening their future health, security and livelihoods.

Instead of real jobs with good pay and conditions, Rishi Sunak is offering people ‘job coaches’ to beef up their CVs or training to improve their future job prospects. Never mind that without government intervention in the form of adequate spending and other targeted measures to improve the economic outlook, those jobs will never materialise. Relying on business to find solutions will lead us to a dead end.

Or as earlier this week the Conservative MP Robert Jenrick called for ‘grassroots volunteering and ‘togetherness’. Where was the government when it was telling us austerity was necessary to get the public finances straight as it dismantled our infrastructure and other vital public services? A government that also promoted individualism, greed and selfishness, has overseen huge wealth inequalities and divided our communities. The word ‘togetherness’ doesn’t seem to fit the bill.

Instead of real solutions, the government is offering the usual toxic rhetoric painted as positive proposals for a so-called new normal which aims to consolidate the toxicity, not address it.

At a time when jobs are being lost, GIMMS repeats its question. Why not rebuild our public sector offering good wages and secure employment? Why not introduce a Job Guarantee that provides a living wage, training and good employment conditions to bridge the gap when times get tough and provide a transitional staging post into private sector employment when the economy improves?

Rethinking the sort of society, we would like to live in will be of paramount importance in the coming months. The old model is not fit for purpose and we and the planet deserve something better.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

Event recording

Phil Armstrong in Conversation with Bill Mitchell

Bill Mitchell spoke to Bill Mitchell for GIMMS on 27th September 2020.

 

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The post What is the real burden that the government’s “hard choices” will pass on to future generations? appeared first on The Gower Initiative for Modern Money Studies.

Standing at a crossroads in time

Published by Anonymous (not verified) on Mon, 05/10/2020 - 3:38am in
‘Democracy is not just a counting up of votes, it is a counting up of actions.’

Howard Zinn
Crossroads signpost with signs saying "possible" and "impossible"Image by Gerd Altmann from Pixabay

Do you remember when Andy Haldane, the Chief Economist at the Bank of England, insisted that Britain was enjoying a ‘V-shaped’ recovery way back in July? Since then much has happened but not a V-shaped recovery and the future is looking pretty bleak. Despite that, Haldane’s concern this week that ‘our pessimism is holding us back’ and that companies hiring and corporate investment were the ‘missing ingredient in the recovery’ leads one to wonder if the Chief Economist is living on a different planet.

The prospect of a rise in unemployment by the end of 2020, less generous government support than hitherto, people saving more than spending and a collapse in business investment would suggest that people are retrenching as a result of lack of confidence. Businesses will not invest while they are unsure whether that investment will repay itself in increased profits and people won’t spend whilst their lives are turned upside down and they have no idea whether they will have a job next week. It seems that Andy Haldane is stuck in some other world that does not exist for the majority of people.

A combination of government policy, cuts to public sector spending over the last 10 years which has left public infrastructure in tatters, combined with the uncertainty caused by Brexit and the final straw of Covid-19 has left the nation in a state of collective inertia wondering what will happen next. Tin hats are the order of the day, not party bunting and champagne. Glasses of confidence are in short supply!

We stand at a crossroads in time and Covid-19 has revealed in stark terms the putrid underbelly of an economic system which has predominated for decades. Rising poverty and inequality, huge social injustice, wealth distribution skewed in favour of those who already have more than sufficient and the ever-present elephant in the room, climate chaos, all the result of a toxic ideology and excessive consumption.

This week the Royal Botanic Gardens of Kew published its fourth report in the ‘State of the World’ series. Professor Antonelli, the Director of Science wrote in its introduction:

Never before has the biosphere, the thin layer of life we call home, been under such intensive and urgent threat. Deforestation rates have soared as we have cleared land to feed ever-more people, global emissions are disrupting the climate system, new pathogens threaten our crops and our health, illegal trade has eradicated entire plant populations, and non-native species are out-competing local floras. Biodiversity is being lost – locally, regionally and globally [……]

We share this planet with millions of other species, many of which existed long before us. Despite the fact that an exploitative view of nature has deep roots in our society, most people today would agree that we have no moral right to obliterate a species – even if it has no immediate benefit to us. Ultimately, the protection of biodiversity needs to embrace our ethical duty of care for this planet as well as our own needs.

Whilst 40% of all the world’s plant species are at risk of extinction according to a report published last month by the UN the world has failed to achieve in full any of the biodiversity targets agreed in Japan in 2010 and indeed this is the second consecutive decade that governments have not done so. The Global Biodiversity Outlook Report offered a convincing and authoritative overview of the state of nature indicating that the natural world is suffering badly.

According to Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity, it underlined that ‘humanity stands at a crossroads with regard to the legacy we wish to leave future generations’ and that ‘earth’s living systems as a whole are being compromised. And the more humanity exploits nature in unsustainable ways and undermines its contributions to people, the more we undermine our own well-being security and prosperity’. It outlined the need to shift away from ‘business as usual’ across a range of human activities.

The bottom line is that our own well-being and survival are dependent on rethinking our relationship with nature and each other.

Amidst the disturbing backdrop of the threat to the planet caused by failure to address these serious biodiversity losses and the growing evidence of the consequences of climate change across the world from devastating droughts, fires, storms and flooding, the consequences of government political decisions and spending policies continue to play out daily in people’s lives.

Evidence of both ignorance and wilful conduct by our elected politicians is shocking. Whilst a household budget description of the public finances continues to dominate in political and establishment circles, the potential for addressing the consequences of spending cuts or indeed the serious challenges we face will always curtail any action.

The reverse of the toxic climate coin is the huge wealth inequality and poverty which has done so much damage to economies around the world.

In the UK, as many more people turn to the social security system for support as a result of the ending of the job retention scheme, many will find out first-hand how far from generous those benefits are and have been for those living on lower incomes. The ‘lazy scrounger’ narrative which has done so much harm will increasingly come into the spotlight as the middle-class professionals find themselves relying on state support. The real-life daily realities of many low-income families in precarious employment or subsisting on less than adequate social security payments will begin to emerge to a section of society which has hitherto thought itself immune.

The effects on the economy as incomes have plunged over the last few months, particularly for those in receipt of Universal Credit, will be further highlighted as the redundancies pile up and living standards begin to fall. It will bring into sharp focus the policies which over more than a decade have sought to divide people and create a two-tier society of ‘haves’ and ‘have nots’ on the basis of the lies trotted out regularly that such public and social infrastructure is dependent on a tax/contribution paying nation and that it is the private sector which creates the wealth to allow that to happen.

The argument that contributions paid in relate to a pot of money put aside by the state on our behalf must be knocked on the head and replaced with the real description of how the UK government actually spends. That what is paid out is a political choice determined by an agenda and is unrelated to how much revenue the government has collected. Household budget descriptions of how money works serve only to deliver that pernicious agenda and do not represent monetary reality.

It was depressing, therefore, to hear Labour’s Lucy Powell reinforcing the narrative of affordability when she was asked about Labour’s commitment to the pension triple lock earlier this week. She suggested that it would be dependent on knowing ‘what income you have got coming in and what outgoings you need to make’ and that ‘the single biggest determination of that is the level of employment, and level of growth in our economy’.

Once again, the suggestion is clear; that the government can’t afford to protect the incomes of retired people for whom the state pension is their only source. She, like so many others, makes a false connection between the health of the economy and tax revenue by suggesting that pensions, other benefits or indeed essential public and social infrastructure are dependent on a healthy economy and people paying their tax. It is disheartening that such economic ignorance lives on and the health of the economy is reduced to monetary affordability.

This was again brought sharply into focus this week by a report published by the Labour Women’s Budget Group which called for a universal care service. As has already been previously noted, Covid19 has highlighted the existing inequalities in society and the failure to invest in health and social care which has led to many preventable deaths both before and during the pandemic. In the midst of a climate emergency as the Women’s Budget Group points out, the pandemic has revealed huge cracks in our public and social infrastructure along with wealth disparities and social and racial injustice. The group underlined that business profit and greed has in recent times come before a caring more equal society. It called for reforms to create a caring economy ‘a blueprint for a world where work and care can be shared harmoniously, where the economy is measured in well-being and sustainability’.

These are laudable objectives, but yet again we hear the household budget tropes put forward to justify such action. That it would be a good time to consider a universal care service because interest rates are at historic lows and research has shown that taxpayers would be happy to pay extra. Once again, a constraint is immediately revealed by the suggestion that the limits to spending are monetary. Putting aside for a minute the fact that the constraints are not monetary but related to real resources, there is a better reason to consider such action:

Because a civilised society takes care of its young and elderly.

And far from being unaffordable in monetary terms, the government as the currency issuer can, assuming the real resources are available, make a political choice to invest in the lives of its citizens to improve their lives and ensure a vibrant, healthy sustainable economy.

And whilst tax plays an important role in achieving government policies, not only is tax not required to make such an investment, but also in these difficult days raising them would at this point depress the economy even further and may indeed turn taxpayers against such an expenditure.

Such a care service should not only be paid for from public funds, it should be managed and delivered as a public service and not be in private hands.

If we want a caring and environmentally sustainable economy instead of yet more exploitation no matter how eco-friendly it is presented as, fundamental to that change is a government which puts people’s interests over and above the interests of capital. We need politicians that recognise both the value of a well-educated and trained workforce to address those challenges and the role a Job Guarantee might play to ensure a just transition for those most likely to lose out.

This week, the government announced a package of measures that will allow people to study at college paid for by a national skills fund and a more flexible higher education loan scheme. Reminiscent of New Labour’s ‘Life-Long Learning’ programme, Boris Johnson announced a ‘lifetime skills guarantee’ promising that the government would help people to get the skills they need to navigate this quickly changing world. On the face of it, this is a good plan. However, training and skills in themselves good and positive as they are, are no substitute for actual jobs if, as Warren Mosler has pointed out, you’ve still only got ‘nine bones for 10 dogs’ people will still remain unemployed.

While the government continues to see job creation as a private sector exercise and absolves itself from the responsibility of governing in the interests of the nation as a whole, those jobs won’t be created by a private sector without confidence that their investment will pay a return. That confidence only derives from the actions of government through its policies and spending decisions.

For ideological reasons, the government never mentions job creation in the public sector which is where we sorely need investment. As has been pointed out many times in previous MMT Lens blogs, it could address unemployment through an expansion of the public sector (which has over 10 years been starved of funding and adequate staffing levels) to create a public and social infrastructure that meets the needs of the economy and is fit for purpose. That could be supplemented by a permanent Job Guarantee to manage the cyclical ups and downs of the economy by providing work, training and skills for those who will be most affected by this very different world that is heading our way. It is ironic that this government has cut funding to education and training over the last 10 years making it more difficult for people to gain the skills they and society needs.

Worse, over decades, starting with New Labour, it has also made education a cost to the individual instead of being funded by public money. As if somehow it is only the individual that benefits, when in fact society and the economy gain positively from a well-trained, educated workforce whether in public or private sector employment.

So where do we go from here? Are we asking ourselves the right questions? And are we prepared to make some difficult decisions?

We are at a pivotal moment in history and the future will depend not just on government action but the public willingness to engage in a serious adult conversation. Engaging requires the facts about what is possible and what is not and about the change that is needed to ensure a viable future for humankind. It requires understanding how we have been led down an alley without an exit by those politicians serving the interests of a tiny section of society. Those same politicians and institutions which daily use false narratives to suggest that there is no alternative to more pain in the future if we are to dig ourselves out of the financial hole all this spending is causing.

The only hole we have to dig ourselves out of is the hole that has been created by this false narrative that saving the planet is unaffordable, that the economic crisis caused by Covid-19 has made it even more unaffordable and making people’s quality of life better is far too expensive. Challenging such notions should be top priority. Whilst it remains to be seen whether such a government is on the horizon there is no excuse for inaction. For ourselves and for future generations.

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

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If you would like GIMMS to let you know about news and events, please click to sign up here

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The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here

 

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The post Standing at a crossroads in time appeared first on The Gower Initiative for Modern Money Studies.

Was Mussolini’s 1931 Policy on the Banking Crash Better than Britain’s 2008 Bail-Out?

Here’s another interesting question posed by the changing policies of the Italian Fascist state towards industry and the financial sector. Fascism celebrated and defended private industry as the essential basis of the Italian economy and society. When Mussolini first took power in the early 1920s, he declared that Fascism stood for ‘Manchester School’ capitalism – privatisation, cuts to public services and expenditure and the lowering of wages and welfare benefits. But this changed with the development of the Fascist state through the establishment of the corporations – industrial organisations combining the employers’ organisations and the trade unions, which were supposed to take over the management of industry – autarky, which aimed to make Italy self-sufficient and the movement to a centrally planned economy.

This was partly achieved in the early 1930s when Mussolini set up two state institutions to buy out the Italian banks following the Wall Street crash of 1929 and the ensuing depression. These not only bought out the banks, but also the industries these banks owned and controlled, so that the Italian state ended up owning just under a fifth of the Italian economy.

This is described in a passage in the article ‘Industry’ in Philip V. Cannistraro’s Historical Dictionary of Fascist Italy (Westport, Connecticut: Greenwood Press 1982). This runs

Two public agencies were created to save banks and crucially affected industries: the Istituto Mobiliare Italiano (IMI) on November 13, 1931, which was to control credit; and the Istituto per la Ricostruzione Industriale (IRI) on January 23, 1933. IRI was by far the more radical solution, for it purchased all the shares of stock in industrial, agricultural, and real estate companies previously held by banks. (The banking law of 1936 prohibited banks from extending long-term credit to industrial concerns). Although the industrialists fully expected a return to “normalcy” and to private enterprise after the crisis had passed, Mussolini had successfully created an instrument for the permanent intervention of government in the economy. By 1939 IRI controlled a series of firms representing 44.15 percent of the capital of Italian stock values and 17.80 percent of the total capital of the country – hence, the Fascist government controlled a proportionately larger section of national industry than any other government in Europe except the Soviet Union. (p. 278).

This allowed the government to interfere and restructure the Italian economy leading to the expansion of the manufacturing economy and a reduction in imports. On the other hand, poor government planning and an inefficient bureaucracy meant that Italian domestic manufactures were frequently inferior and the country had a lower growth rate than many other western European countries.

But this contrasts very strongly with policy of Britain and America to the financial sector after the 2008. The banks were bailed out with public money, but were not nationalised and the government has continued with its ‘light touch’ approach to regulation. Meaning that the banks have been free to carry on pretty much as before. Public spending, especially on welfare, has been drastically cut. Despite the Tories claiming that this would boost the economy and they’d pay of the debt within a couple of years or so, this has very definitely not happened. In fact, the debt has massively increased.

This has added to the long term problems of Britain’s manufacturing industry. Left-wing economists have pointed out that Britain’s domestic industries suffer from a lack of capital because the financial sector is geared towards overseas investment. A situation that has no doubt got worse due to globalisation and the personal investment of many Tory and New Labour MPs in foreign industry and their savings in offshore tax havens. British industry has also suffered from the ignorance and neglect of successive prime ministers from Maggie Thatcher onwards. Thatcher couldn’t understand that her policy of keeping the Pound strong would damage British exports, and in any case did not want to rescue failing British industries. They were either to be allowed to go under, or else sold to foreign companies and governments. Tony Blair went further, and believed that manufacturing industry’s place in the British economy could be successfully taken over by the financial sector and the service industries.

But this has also been a failure. Ha-Joon Chang in his 23 Things They Don’t Tell You About Capitalism has pointed out that manufacturing industry is still very much of vital importance. It’s just that it has grown at a slower rate than the other sectors.

Fascist Italy was a totalitarian dictatorship where Mussolini ruled by fear and violence. There was no freedom of speech or conscience in a system that aimed at the total subordination of the individual, economy and society. Mussolini collaborated with Hitler in the persecution of the Jews, although mercifully this wasn’t quite so extreme so that 80 per cent of Italian Jews survived. The regime was aggressively militaristic aiming at the restoration of a new, Roman-style empire in the Mediterranean. Albania, Greece and Ethiopia were invaded along with Tripoli in Libya and Fascist forces were responsible for horrific atrocities as well as the passage of race laws forbidding racial intermixture with Black Africans.

It was a grotesque, murderous regime which was properly brought to an end by the Allied victory of the Second World War. It must never be revived and Fascism must be fought every where. But it does appear that Mussolini’s policy towards the banks and industry was better than that pursued by our supposedly liberal democracies. But the governments of our own time are also becoming increasingly intolerant and authoritarian. The danger of our country becoming similar repressive dictatorship under Boris and the Tories is very real.

We desperately need the return to power of a genuinely socialist Labour government, committed to investment in the welfare state and public services with a nationalised NHS, a mixed economy and positive commitment to democracy and freedom of speech rather than the illusion maintained by the mainstream media and Tory press.

And that will mean overturning over three decades of Thatcherite orthodoxy on the banks and financial sector, just as Mussolini changed his policies towards them with the aim of restoring and expanding Italian industry.

Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead.

£1 coin and £10 Bank of England banknoteImage by bluebudgie from pixabay

The old world is dying, and the new world struggles to be born; now is the time of monsters.

Antonio Gramsci

In the week that the Chancellor Rishi Sunak announced his latest Job Support Scheme, everywhere you look the TV journalists and other media pundits are bewailing the rising cost in terms of “borrowing” and government debt. TV presenters can’t help themselves. ‘We’ll be paying for it for years to come’, is the on-going mantra being drummed into the public consciousness, just in case we forget. It was even suggested on this week’s BBC’s Money Box programme that it would take 3000 years to repay the national debt! An astounding calculation made on the basis of current borrowing levels and the annual tax take. However, given that a sovereign currency-issuing government like the UK’s doesn’t even have to borrow to spend, it’s just another example of household budget accounting.

Whilst those of us with a better understanding of how money works shout at the TV with incredulity that the same falsities are being repeated endlessly, many of those same journalists and presenters fail to make the very real connections between government spending, the state of the economy and the lives of its citizens.

Whilst the implication of unaffordability and a future tax burden prevails as a reason to curtail spending eventually, the real price has been and remains a human one; economic instability and uncertainty for people and the prospect of more damage to the environment. We can’t afford to improve people’s lives or even save the planet! Apparently.

Whilst we read endless articles reporting on the declining state of our public services and local government, the injustice of a social security system which is failing too many people the elephant in the room largely goes unacknowledged; the role that government plays in the welfare of its citizens through its spending decisions. While we see huge sums of money being poured into private profit, our public and social infrastructure is in a state of decay. Their choice is clear.

At the same time, the left-wing social media pages continue to shoot themselves in the foot by posting articles and memes with language designed to increase the public’s fear of too much spending and its consequences on future generations; ‘UK national debt soars to record levels as Covid pushes up borrowing’ is one such posted this week.

Whilst such pages are clearly and quite rightly aimed at holding the government to account for their abysmal management of the economy and its consequences for some of the poorest people in our communities, they do so within the context of a household budget narrative. Such a narrative will, without doubt, constrain a future progressive government, not liberate it!

Instead of focusing on deficits as if they were a measure of good or bad stewardship of the public finances, we might better and more correctly point out the government’s economic record. How did it respond to the on-going crisis and the economic fallout? Had it, through its spending policies, ensured a well-functioning public infrastructure able to rise to the current challenges? Did it spend sufficiently to secure the financial stability of its citizens during this uncertain time? Or not?

In an unstable and uncertain environment, the job of the Chancellor is to mitigate those losses with sound policies and sufficient spending to keep the economic boat afloat as long as is necessary, whilst also ploughing additional investment into the public and social infrastructure to support the economy. Instead, government spending policies over the last 10 years have left the country’s infrastructure in a perilous state and unable to respond effectively. The price in human lives, poverty and rising wealth inequality is to be added to the devastating effects of the pandemic.

And yet, still in mainstream reporting, it’s as if people’s lives matter less than digits on a computer. And all this despite the growing understanding of the sovereign powers of a currency-issuing government. Whilst politicians, think tanks and journalists still have their heads firmly stuck in the sand like ostriches, people are led to believe that there will be no alternative to a future reckoning if the country is not to be bankrupted or future generations of taxpayers burdened with huge debt.

The role of the media and indeed the political opposition, if we did but know it, is to challenge government. Not to uphold and reinforce its power. Their role is to make the government accountable for its political and spending decisions and to bring to public notice when it abuses its sovereign powers in favour of other estates. Its job is to ask questions. Instead, whilst they approve of government intervention at this serious time they still prefer to talk about the state of the public accounts, rising public debt and the consequences for future generations. Thus, they continue to reinforce the myths about how sovereign governments really spend. The neoliberal economic orthodoxy rules.

The Chancellor’s plans sit very much within the neoliberal economic orthodoxy, despite the vast sums of essential government spending to prop up the economy and secure people’s financial security. He has already let it be known that he is considering a freeze of benefits and public sector pay and abandoning the pension ‘triple lock’. It will no doubt be presented as a necessity to get public spending under control and pay back the vast sums of money it has supposedly ‘borrowed’.

However, the truth is that it will be more to do with the government’s long term aim which had its origins in the actions of successive governments since Thatcher to transfer public provision to the private sector whilst ensuring the state’s role as a cash cow to the corporate sector.

Whilst Sunak’s increased spending was and remains vital, there has been valid criticism of his plans both early on and now with the proposed job support scheme which was referred to more correctly as an ‘unemployment creation scheme’ by the tax campaigner Richard Murphy. Sunak has failed on all levels and the promised V-shaped recovery is looking less and less likely.

Apart from being a short-term solution to a problem which is likely to persist for some time, it will require employers to share the cost of paying wages with damaging consequences. This will, without doubt, provide a significant motivation to make staff redundant, not preserve jobs. It fails to support those working in the hospitality industry whose businesses have been put on hold due to Covid-19 restrictions and furthermore the 3 million self-employed often working in creative industries have also once again lost out and will not benefit from these new measures. Far from being the party of the entrepreneur (unless of course, you happen to be rich one like Dyson and likely to contribute to your party funds), Sunak has shown complete disregard for the army of self-employed and small business entrepreneurs who make valuable contributions to the economy.

As the furlough scheme draws to a close, many thousands of people have already lost their employment and found themselves on Universal Credit. And yet many, despite the increased benefits now being paid, find themselves with insufficient income to manage their finances. Many hundreds of thousands will be added to that number over the next few months as the prospect of further restrictions resulting from the coming second wave of Coronavirus and the government’s inadequate plans.

The Resolution Foundation has suggested that it will be a significant mistake to end the £20 a week boost to tax credits and Universal Credit now being proposed by the Chancellor, the cut to come into effect next April. This the Resolution Foundation suggests rightly would clearly affect income and spending.

It has said that the rise in unemployment, combined with planned benefit cuts, means a ‘grim outlook for living-standards’. It has also noted that ‘The £20 a week boost can be seen as a reflection of the fact that out-of-work support was not adequate when we entered the crisis and – without the boost – certainly won’t be adequate in future. […] Ending the boost would mean withdrawing perhaps £8 billion from disposable incomes in 2021-22, precisely from those groups and places that need it most to support spending and the economic recovery in 2021-22.’ Removing that boost will have a huge negative impact on disposable incomes.

And here we come to the crux of the matter and one which the Chancellor cannot ignore. And that is, quite simply, that one person’s spending is another’s income. Rises in unemployment and proposals for public sector wage caps will drive the economy even further down the slippery slope.

On the one hand, Sunak says, ‘we must learn to live without fear’ and then counters that by saying ‘I cannot save every business. I cannot save every job’.

Whilst he implies he has no power to do otherwise and that people will have to bear the burden, he fails to mention that the government is in control. That it alone has the means, as a sovereign currency issuer, to mitigate the worst effects on the economy of the pandemic and indeed has the ability to use it to address the next great survival challenge bearing down on us like a tsunami – that of climate change (which seems strangely to have been put on the back burner).

The government, by dint of being the sovereign currency issuer, can spend what it needs to, within the limitations of real resources. It could rebuild a publicly-provided and paid-for infrastructure, both locally and nationally, thus providing more socially useful jobs paid at a living wage and could implement a permanent Job Guarantee to act as the economic stabilising mechanism to see us through this difficult time and most importantly to ensure a just transition towards an environmentally sustainable economy.

With such serious issues at stake, we must challenge the notion that the government cannot afford to deal with mass unemployment, poverty or climate change. We must challenge the notion that the government has to impose higher taxes or debt on the nation which limit what can be achieved to improve people’s lives.

Quite simply, the idea that there aren’t sufficient numeric digits available to make a better world is a fraud of the highest order. The future depends on our understanding it and challenging those that tout those lies either wilfully or unknowingly.

 

Further Reading:

National Debt https://gimms.org.uk/faq/what-is-the-national-debt/

Government Borrowing https://gimms.org.uk/faq/doesnt-the-government-have-to-borrow-when-it-spends-more-than-it-taxes/

The Job Guarantee https://gimms.org.uk/job-guarantee/

 

 

Upcoming Event

Phil Armstrong in Conversation with Warren Mosler – Online

October 17 @ 17:00 pm – 18:30 pm

GIMMS is delighted to present its second ‘in conversation’ event.

GIMMS’ Associate Member Phil Armstrong whose new book will be published in November (details below) will be talking to Warren Mosler. Warren, who is one of the founding proponents of MMT, has dedicated the last 25 years to bringing that knowledge to a wider audience across the world and authored ‘The Seven Deadly Innocent Frauds of Economic Policy, published in 2010. He also sits on GIMMS advisory board.

Register via Eventbrite

 

Event recording

Phil Armstrong in Conversation with Bill Mitchell – Online

An audio recording of the event is now available via the MMT Podcast here

 

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The post Time to worry less (or better not at all) about the national debt and challenge the government’s economic record instead. appeared first on The Gower Initiative for Modern Money Studies.

Labour Assembly Against Austerity’s Petition against Rishi Sunak’s Recovery Plan

Published by Anonymous (not verified) on Fri, 25/09/2020 - 11:34pm in

A couple of hours ago I got an email from the Labour Assembly Against Austerity. They are petitioning against Sunak’s support package announced earlier this week on the grounds that it doesn’t go nearly far enough in giving people the help they need. They wrote

‘Urgently Needed – A Plan for the People


Rishi Sunak’s announcement this week was too little, too late, and will not prevent a massive increase in unemployment. We need to fight for every job and we need to fight for an economic plan for the people. As part of this campaigning, over 9000 people have now signed up in support of this plan to fight the Tories and put people first. Please help us get this up to 10,000 by taking 30 seconds to:

  • Retweet it here
  • Share & Like our Facebook video here
  • Add Your Name here

Let’s keep fighting the Tories and for a better future – for people and planet,

The Labour Assembly Against Austerity Volunteer Team.’

The text of the petition runs

A Post-Pandemic Plan for the People – #PeopleBeforeProfit. Add Your Name!The economic crisis we now face is set to be the worst any of us have experienced. We urgently need to transform our economy and society to ensure that people’s jobs, livelihoods and health come before private profit.

DEFEND LIVINGS STANDARDS AND JOBS – INVEST IN OUR FUTURE

The fight to prevent soaring unemployment is paramount. We need to build a movement that demands the Government takes the action needed to create full-employment with well-paid secure jobs for all.
This will need massive, sustained investment in our infrastructure, in council housing, transport, public services, industry and beyond.
We must eradicate financial insecurity through a minimum earnings guarantee at a decent level, ensure Statutory Sick Pay at living wage levels, support for renters, and build a Social Security System that is universal and not punitive.
The crisis has shown we need trade unions more than ever. Greater union rights and freedoms will help end the exploitative zero-hour and precarious contracts that dominate our economy, save jobs and give workers a proper say in their workplace.

REBUILDING TO TACKLE THE CLIMATE CATASTROPHE AND ACHIEVE SOCIAL JUSTICE:

We must rebuild in a way that tackles the existential threat of climate breakdown with ambitious, redistributive policies that put jobs, equality and improving people’s lives first. Research shows £85bn investment in green infrastructure could help create 1.24 million jobs in 2 years.
The state must urgently invest to create high-quality green jobs and technologies through a Green New Deal, providing a just, environmentally sustainable transition of our industries and infrastructure by safeguarding the employment of all.

UNIVERSAL, PUBLICLY-OWNED SERVICES:

Our public services provided the vital support needed during the pandemic. But this crisis also sharply exposed how a decade of austerity and privatisation has left them at breaking point. We need to rebuild them to be the world class services our communities deserve creating hundreds of thousands of socially useful jobs at the same time. Only public ownership and universality will ensure access to our public services.
Our transport system should be integrated and upgraded, with the railways and buses publicly owned and education properly funded and free for all. NHS under-funding, staff shortages and privatisation must end. We urgently need a public, universal social care service.

EQUALITY FOR ALL:

This pandemic has shone a spotlight on the deep structural inequalities in our society. Now is the time for real change. The dismantling of systematic inequality and liberation for all must be at the heart of how we rebuild better.
The Black Lives Matter movement has rightly pushed the structural racism to the top of the political agenda. Real government action, not just words, is now needed.
Women and disabled people have already seen a rolling back of equality gains under the Tories and these risk being further undermined, while LGBT+ people face a reactionary government which is not afraid to use the tactics of divide and rule. We must demand an end to the scapegoating of disabled people on benefits.

If you support it, please go over to their website and sign it, as I’ve done.

What’s the choice?

Do we accept there is no alternative to our rotten economic system or demand something different? Let’s re-examine our values and use our imaginations to redefine how we work and live.

Sign that says "imagine" fixed to a stone wallImage by Belinda Fewings on Unsplash

“We shall deal first with the reluctance of the ‘captains of industry’ to accept government intervention in the matter of employment. Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system, the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment (both directly and through the secondary effect of the fall in incomes upon consumption and investment).
This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous. The social function of the doctrine of ‘sound finance’ is to make the level of employment dependent on the state of confidence”.

(Michał Kalecki, 1943)

In 2010 Professor Michael Marmot published his independent review (commissioned in 2008 by the then Labour government) ‘Fair Society, Healthy Lives’ in which it was concluded that reducing health inequalities was a ‘matter of fairness and social justice’ and that ‘tackling social inequalities and tackling climate change must go together’. It recommended that reducing them would require action on six policy objectives:

  1. Give every child the best start in life
  2. Enable all children, young people and adults to maximise their capabilities and have control over their lives
  3. Create fair employment and good work for all
  4. Ensure healthy standard of living for all
  5. Create and develop healthy and sustainable places and communities
  6. Strengthen the role and impact of ill-health prevention.

The general election which the Conservatives won was premised on the illusion that Labour had spent too much and that it was necessary to restore the public finances to health. This, we were told, would necessitate a programme of austerity to cut public spending and balance the books. The government spent the next decade doing just that but at huge social cost as, a decade later, the evidence shows.

In February, just before Covid-19 began to take its toll both in lives and on the economy, The Institute of Health Equity published an update to mark 10 years from the 2010 report in which it highlighted the following:

  • People can expect to spend more of their lives in poor health
  • Improvements to life expectancy have stalled and declined for the poorest 10% of women
  • The health gap has grown between wealthy and deprived areas
  • Place matters – living in a deprived area of the North East is worse for your health than living in a similarly deprived area in London, to the extent that life expectancy is nearly five years less.

The comparison between the objectives in the original report and the current situation is stark. As Professor Marmot who is a director of the UCL Institute of Health noted:

‘This damage to the nation’s health need not, have happened … Austerity has taken a significant toll on equity and health, and it is likely to continue to do so. If you ask me if that is the reason for the worsening health picture, I’d say it is highly likely that is responsible for life expectancy flat-lining, people’s health deteriorating and the widening of health inequalities. Poverty has a grip on our nation’s health – it limits the options families have available to live a healthy life. Government health policies that focus on individual behaviours are not effective. Something has gone badly wrong.’

Addressing the Covid-19 pandemic and its on-going consequences has been made much more difficult as a result of the pursuit of unnecessary austerity driven by political aims and not financial necessity. Not only has our public and social infrastructure been devastated, but government policies have wrecked people’s lives – either through punishing social security reforms or wage policies designed to favour the interests of employers over employees. All being enabled by the lie that there was no money

Instead of prioritising the existing health inequalities that the original report revealed, the newly elected government chose, through its spending and employment policies, to purposefully ignore them. It pursued quite a different agenda which has proved to be more about reducing state intervention (with the incorrect narrative of unaffordability) whilst at the same time endlessly promoting the idea of personal responsibility and self-reliance.

Responsibility for the social determinants of health which should lie within the purview of government through its policies to ensure a healthy nation and economy, has thus been shifted downwards to citizens. The social and economic conditions in which people live determine both individual and national health and we have lost sight of the fact that the health of the nation is one of its most important assets. Poverty, poor wages and working conditions, the scourge of unemployment, a social security system unfit for purpose, poor housing, poor food, and a deficient education system are disturbing indicators that something is very wrong and demonstrate very clearly the toxic nature of market-driven policies deriving from neoliberal ideology.

At the same time, as a report published in February for the ONS (Office for National Statistics) ‘Social Capital 2020’ revealed, we are becoming an increasingly fragmented and divided society as trust in government has fallen and our sense of isolation and lack of community belonging has increased having a significantly deleterious effect on social cohesion.

So, when Boris Johnson and his cohorts began talking about levelling up, people began to feel hopeful that the government was beginning to take responsibility as a potential architect for restoring social cohesion through its spending and policy decisions to improve the lives of its citizens and create a society which understands collective obligation.

And yet to date, there has been little sign of government intervention on that score. In fact, the words ‘levelling up’ have yet to go beyond mere words. And indeed, as the debate about how the government’s vast fiscal injection will be paid for only this week, a Conservative MP suggested that the pandemic will make levelling up even harder, once again implying that scarcity of money will, in the end, put the brakes on further government action. It plays to our false understanding of how governments spend and allows the narrative of more taxes or perhaps another round of austerity to be justified.

The plain truth is that as we are increasingly learning government has become the agent of big business rather than the driver of social cohesion and well-being whilst at the same time acting as a cash cow for businesses, all without public accountability. Contracts being dished out left right and centre!

As has been noted in previous blogs the price we are paying is a heavy one. As voluntary organisations step in to bridge the gap whether it is university law students providing legal advice to plug the gap in access to justice, volunteers in the health service to support an overstretched NHS, or indeed those involved in food banks to keep hunger from the door of its many recipients we are being primed by an appeal to our goodwill to accept the idea that there is no alternative since public funds are we are told unavailable.

We are moving towards such goodwill actions becoming indispensable and the societal norm. Only last year the co-founder of Probonoeconomics Andy Haldane suggested that volunteering could help society and provide the NHS with skills which would otherwise cost ‘hundreds of pounds per hour’. At the same time, we have private residential care providers suggesting that robots could take the place of human contact in reducing loneliness amongst residents. When cutting costs and profit becomes the sole driver for human activity it is time to challenge such notions before it is too late.

Volunteering cannot become the default to plug those deliberately created gaps in health and social provision to serve a toxic market-driven ideology. Indeed, it could not fill those gaps adequately in the long term.

The implication that the government is financially embarrassed must be challenged. At every turn, we are treated to household budget narratives to defend government spending policy. And yet whilst the government can find billions for a test and trace service for Covid-19 (outsourced to private companies – Deloitte, Serco and G4S) it cannot find the money for publicly funded and delivered public service provision both at national and local level, a state-backed job guarantee or a basic living wage income to ensure that those who cannot work for any reason can live decently and without fear.

One of the key objectives of the 2010 report from the Institute of Health Equity mentioned at the beginning of this blog was to create fair employment and good work for all.

Good, well-paid employment either in the private or public sector is one of the vital ingredients for overall economic stability and a healthy society. The role of government therefore should be to ensure full employment as a policy objective to create stability both in normal and abnormal economic times such as these.

And yet whilst government continues to grapple with the economic fallout from Covid-19, which is not over by any means, its Chancellor seems to be sticking to his guns on closing the furlough scheme regardless of its implications and is supported by the Bank of England’s chief economist Andy Haldane who has warned against its extension on the basis that such a move would prevent a ‘necessary process of adjustment’ taking place.

On that basis, it would seem that rising unemployment will be in their eyes an acceptable price to pay for this shakeout whilst ignoring its damaging consequences on the economy and the knock-on effects on people’s financial stability and their health. Can we also suppose that it will likely be used to drive a further extension of a low wage, insecure employment economy?

The former Prime Minister, Gordon Brown at the same time has attacked the Bank of England for failing to place sufficient emphasis on job creation. As the architect of the supposed central bank independence he claimed would give it the freedom to control monetary policy. But this was, in reality, a convenient sham – a mechanism to sidestep government’s responsibility as an elected body to deliver economic stability. As Professor Bill Mitchell wrote in 2017 ‘The point is that central banks can never be independent of treasury departments and claims to the contrary were just part of the depoliticization of policy that accompanied neoliberalism’. The central bank is the servant, not the master.

Economic stability is in the hands of government through the policy choices it makes and its spending decisions. It alone has the power, through its currency sovereignty, to ensure full employment. Given the dire predictions for the economy in this obvious time of great change related to the pandemic and also the need to address climate change, we need a government committed to price stability through the implementation of a centrally funded and locally organised job guarantee to guide us through these difficult times. Whilst magic bullets don’t exist, it will be important to avoid a 1930s scenario of mass unemployment and ensure a just transition whilst the great climate change shakeout progresses. We need radical solutions, not next week, next month or next year we need them now.

And yet while Rishi Sunak talks about tax increases to pay for the coronavirus bailouts and the Treasury Committee suggests laying out a road map for the autumn budget for repairing the ‘hole in the public finances’ with a proposal for a temporary abandonment of the triple lock on pensions, the public are once again being primed for bad news. Whilst tax reform should be on the agenda, raising taxes at this juncture would be a foolish path to take which would do nothing to support the economy. And instead of repairing the ‘hole in the public finances’ a monetarily savvy government would be looking to repair the very real holes in the public and social infrastructure it alone has been responsible for over the last 10 years.

With the government we currently have in place, we might be whistling in the wind as it clearly has other objectives and other estates to serve. However, that does not mean that we, as an increasingly informed public through the power of civil movements, cannot force the sort of reset that would benefit ordinary people by redefining the role of government as a servant of the people rather than the rich and powerful global interests which currently influence policy and economic direction.

 

 

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Is the public purse empty?

The government wants you to believe that the public purse is empty and needs replenishing to set the finances straight. It’s not and it doesn’t. Time to challenge the lie or accept the inevitable economic consequences

 

Word cloud with the words tax, Challenge the lie, taxpayer, deficit, debt, government, prosperity, austerity, ideology, pandemic, Covid-19, coronavirus, treasury, money, spend, wealth,burden and recoveryOver the last few months, GIMMS has focused on the on-going impact of both politically derived austerity and the Covid-19 pandemic on the nation, along with the prospects for the economy in the future. Every week, we have aimed to build a picture of a nation where Covid-19 has revealed the stark nature of the consequences of economic ideology, government policies and spending decisions which have shaped our society over decades which has not only deprived many of economic stability in terms of employment and standards of living, but also skewed the distribution of wealth and resources towards an ever-smaller group of people. At the same time, we have continued to challenge the all-pervasive narrative that government spending is just like our own household budgets.

The two are intimately connected as political ideas and the usual explanation for why the government has to pull in its horns and reduce its spending. And yet in recent months as Rishi Sunak did what was necessary to keep the economy ticking over, bills paid and food on the table, people must surely be asking some difficult questions about why, if there was no money for public services in the 10 years leading up to the pandemic, that suddenly there is no shortage of it. How to explain this to the public? It seems contradictory to what we have been led to believe.

It has been encouraging to see that finally people are beginning to ask questions and that modern monetary realities are being discussed in the public domain. However, it would seem that as soon as a flicker of light at the end of the fiscal tunnel appears, the fiscal hawks get back onto their ideological saddles to keep the lie going that there will, in the end, be a price to pay.

Indeed, this week Philip Booth from the right-wing think tank the Institute of Economic Affairs claimed in an astonishing article in The Telegraph that young people should be just as concerned about rising public debt as climate change. He asked how can a young person be concerned about climate change and then complain about austerity but not be worried about increasing government debt that future generations will have to service?

Aside from the prospect of environmental decay and its human consequences – which surely must be a more pressing problem in terms of humanity’s future – in making an incorrect connection between an ageing population and a reduction in tax revenue, his words are aimed at creating more fear and preparing people in an endless repetition to accept there will be no alternative to tax increases to pay for it. While Mr Booth gets all hot and bothered at the thought of a £2 trillion debt noose which is more than 100% of GDP, he clearly missed the economic history lesson that after the second world war the debt to GDP ratio stood at 248% and yet we managed to build a successful economy alongside the public and social infrastructure that has provided a stable and secure framework for the nation’s overall health, until more recently that is.

Combining this fact with the monetary realities that sovereign currency-issuing governments like the UK’s have to spend first in order to collect any tax at all (which is exactly what the government has been doing even if it hides its action in the smoke and mirrors of ‘borrowing’) it is difficult to understand how in a sluggish or depressed economy such as will be likely maybe for years yet that the IEA would suggest increasing taxation. In an environment where demand is already suppressed as a result of Covid-19, that would be the most irresponsible action depriving working people of more of their income and forcing difficult decisions about their spending priorities – rent, bills, food or indeed discretionary items.

At the same time and in the same article, Paul Johnson from another right-wing think tank the IFS (Institute of Fiscal Studies) warned that the UK will have to compete for scarce finance as other countries run up ever-increasing deficits to fund their own Covid-19 recovery packages. The suggestion that money is scarce is just another distortion of monetary reality and fails to focus on the real challenge that all governments face – that of balancing the economy by matching their spending to available resources. There is no shortage of money, but it suits politicians and institutions to persuade us that there is.

The implication that rising debt poses a long-term threat to prosperity by imposing a debt burden on future taxpayers, or indeed that there is a scarcity of money, is just another irresponsible fear-inducing narrative aimed at restoring the household budget status quo which has suited and served the political, financial and corporate classes for too long. It suggests fear on their part that they are losing their grip and consequently a good time for a continuing challenge!

However, whilst the right-wing are preparing the ground to reinforce their political power, not just monetarily but through continuing with their long-held aim to destroy the last vestiges of democracy and our welfare state, the left-wing and other constituencies continue to shoot themselves in the foot, thus helping the right-wing to maintain the household budget illusions to serve their own interests.

The campaigning body 38 degrees sent a petition email to its supporters this week in which it said:

‘Rumours are swirling that [Rishi Sunak] is considering raising corporation tax to help pay for vital public services. It means companies will have to pay a little bit more tax, to help fund our schools and NHS and get out of this crisis.’

As already noted, this would be exactly the wrong time to increase taxes, but implying that such an action is needed to fund public services is just another example of how the household budget model reigns – not just in the minds of those in the political arena (even though one might question that they know perfectly well how the public money system operates) but also more broadly in the public consciousness, campaign groups included.

Let’s be clear at the risk of repetition: spending precedes taxation, therefore a sovereign, currency-issuing government neither needs to tax to spend or to borrow to cover its deficit. Once the monetary framework is understood, then it becomes clear that all spending decisions are political ones deriving from a political agenda. Who wins or loses out and how we want as a nation to see real resources distributed are the real question we should be asking; not mithering about the state of the public finances – that’s just part of the smoke and mirrors being perpetrated by government to serve their own agenda.

In this week’s Times, it was suggested that Treasury officials were planning to plug the ‘hole’ in the nation’s finances by raising corporation tax. At the same time, the left argues to increase it to pay for public services! As Professor L Randall Wray notes, ‘they compound their confusion – not only do they insist on being wrong about the purpose of taxes, but they also embrace one of the worst ones’. The stakes are high now in terms of the future of the economy so either argument is entirely based on the wrong premise that raising taxes will perform a specific function. However, the left wing’s focus on making the rich pay is as erroneous an argument as raising tax to get the finances back into balance is.

However, returning to the subject of corporation tax for a moment, whilst the government does not need tax to spend, it does need to implement tax reform within the context of creating a fairer distribution of wealth and resources – that being one of the real purposes of taxation.

The Covid-19 pandemic has revealed the already existing inequalities which have deepened over the last few months. Moreover, the economy over decades has been skewed towards benefiting those who are already some of the wealthiest at the expense of working people in terms of standards of living, well-paid employment and good terms and conditions.

George Osborne cut the corporation tax rate to one of the lowest in the world in the belief that wealth trickles down. Lower taxes mean businesses will invest more, employ more staff, increase wages or pass benefits onto customers in lower prices, or so the trickle-down mantra goes. What it does, in reality, is increase profits and any benefits that are accrued are passed directly onto shareholders, thus reinforcing the already existing inequalities.

However, it is important to note that tax reform will be but one of the ways of rebalancing these inequalities and should be combined with:

  • direct government action in the form of increased spending on the public and social infrastructure which supports a healthy economy and
  • a Job Guarantee to bring about a rebalancing of the power structures towards working people whose standards of living have been eroded by decades of wilfully created unemployment to suit the corporations.

In conclusion and with the question hanging in the air as to how this huge injection of public money will be paid for being raised daily, we point to Ari Rabin-Havt’s article in the Jacobin in which he notes that the ‘The government’s pantry isn’t bare – the people’s pantry is bare’ As he concludes:

We cannot simply be satisfied with making policy arguments against austerity and the serial exaggerations of fiscal warriors. We need to wipe from our lexicon their ignorant metaphors that equate government financing with household financing. When they are wielded as part of our policy debate it should be met with pure derision.”

 

 

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The post Is the public purse empty? appeared first on The Gower Initiative for Modern Money Studies.

While a governmental blame game distracts the public, what democracy we had is being further hollowed out.

Published by Anonymous (not verified) on Sun, 30/08/2020 - 6:00pm in

Before it’s too late let’s not let the window of opportunity pass us by. The government is us, or it could be.

Fingers pointing at the words "The others"Image by Gerd Altmann from Pixabay

As many of us sit in our living rooms watching TV it often feels that we are living in some sort of tragic farce being played out on the world stage. Or maybe even that we’ve been transported into the realms of the ‘imaginary’ Matrix of Agent Smith and Morpheus. It is difficult to know these days what is real, what is not or indeed what the future holds for us humans as Covid-19 brings a new normal and AI and automation becomes a seeming reality. We are coasting along perhaps hoping tomorrow will be another day and will bring better things.

Our illusory sense of stability and certainty is being replaced with deep anxiety. It is alarming for many to find that the foundations we have been standing on for decades were actually made of sand and prone to eventual collapse. On a daily basis, the pandemic reveals the gaping holes in public and social infrastructure provision that has resulted from over 40 years of neoliberal orthodoxy aided by the deeply held and politically inculcated public beliefs that there is always a price to pay for too much spending. We seem to have accepted instinctively that reducing inequality and poverty or addressing climate change is unachievable because governments are constrained by the scarcity of money. That nothing can be done.

We confuse Charles Dicken’s character Micawber’s dilemma as a currency user “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery” by translating that same household budget narrative into how the UK government spends. Instead of understanding that governments are currency issuers and cannot be confused with currency users, we believe in a logical but mistaken fashion that after the big spend the government will, like Micawber, have to pull in its horns eventually if it is not to end up in debtors’ prison or be proscribed by the ratings agencies as not good credit risks.

The ’there is no alternative’ mantra lives on as if somehow the market is all-powerful and governments must bow down to its all-knowing nature. And yet none of this is true. Sovereign currency-issuing government like the UK and many others not only hold the key to finding solutions to the economic chaos that is currently before us and the future challenges we face but also have the keys to the public purse. Unlike the commonly believed narrative, neither the bond markets nor the taxpaying rich determine how much the government can borrow or spend. These are government decisions relating to a political agenda and political will to deliver it with the resources it has at its disposal. It is beautifully simple.

The wreckage of 10 years of austerity, deliberate and continued shrinkage of our publicly managed and paid for infrastructure, as well as the increases in poverty and inequality as a result of a low wage, precarious economy is strewn in its wake. Combined with the on-going consequences of the pandemic on the economy in the form of increasing levels of unemployment then things are looking distinctly worrying.

Already this week more redundancies have been announced with Pret a Manger indicating that 2700 people will lose their jobs at its branches across the country as cities become deserts devoid of workers looking for their lunch. These will not be the last. As has been pointed out in previous blogs, many more will find themselves without employment over the next few weeks and months as the Job Retention Scheme comes to a close when many employers will find themselves with no choice but to let their workforces go. As Frances Grady of the TUC indicated this week millions of jobs are at stake.

This is the government’s wakeup call, but it is important to understand that what comes next will be a political decision unrelated to the state of the public finances. When the Chancellor Rishi Sunak says that the nation must buckle up and prepare for hard times it is almost as if he is saying that what happens will be unavoidable. It is as if he is saying that the short spell of propping up the economy with a round of fiscal intervention is unsustainable and that he will have no choice but to bow to the dictates of the market. We will have no option but to take the pain (by which he means us) to sort out the mess which will clearly mean a reset of the economy even if that means huge unemployment whilst at the same time as he has already intimated getting deficits and debt down and the public finances back into order. A recipe for disaster.

His job retention scheme and the much-praised ‘eat out to help out’ have shown what government can do, but those programmes have quite simply been skirting around the edges in terms of what government must do if we are to avoid a collapse of the economy and further hardship for citizens. It is avoiding the opportunities that exist to address the key challenges which face us in terms of climate change and indeed that ‘levelling up’ which Boris Johnson has spoken about which will be essential to ensure a fairer distribution of wealth and resources across the population. The truth is that we need an expansion of the public sector alongside a Job Guarantee and Green New Deal if we are to confront and address these challenges directly and effectively.

The implication of Sunak’s statement is that the government is not in charge and does not have the tools to manage the worst economic effects of the pandemic, nor indeed of coming climate change which will demand big solutions not just for the health of the planet but human existence.

It’s the market, stupid! It’s not the fault of government! That is what they want us to believe. The blame game lives on and not just in terms of the neoliberal diktat that the invisible hand of the market rules the roost. Like a magician’s sleight of hand which draws our attention away from the real trick being played on us, government has used the same mechanisms to ensure that the public is not looking at what is really happening and why. And more importantly who is responsible.

Indeed, this week the news was encapsulated in Boris Johnson’s statement that we had a ‘mutant algorithm’ in our midst. The computer had messed up apparently. Never mind the uncomfortable fact that computer programmes and algorithms are only as good as the person who programmed them.

It has become an on-going cause of criticism of government’s handling of this crisis and in particular of the Prime Minister that it is always someone else’s fault for the train crash that is occurring. Who has not come in for the opprobrium of various government ministers when things have gone wrong? From teachers to nurses, to social care workers and now civil servants who have either been sacked or had to resign in recent weeks and months.

Melanie Stefan, a computational neurobiologist at Edinburgh University, puts it quite clearly in a tweet thread she posted on the ‘A’ level results scandal which has ruined the chances of so many young people.

“Saying the computer got it wrong is doing two things: It makes it sound accidental, as if that was never really the plan. And it makes it sound like some weird computer uprising with no human agency or oversight involved.

Both are untrue. Humans are behind this. Humans made decisions, and in this instance the decision to further disadvantage students from already disadvantaged schools. This is a scandal, and we should be angry”

The fact is that it is humans in the form of politicians, their economic advisers and journalists who have been pumping out the false narratives and apportioning blame, that are in fact responsible for the disaster that neoliberalism and austerity policies have wreaked upon societies across the world.

The current government has done everything it can to avoid scrutiny of its actions and blaming the algorithm is a symptomatic example of its failure to accept responsibility for its policies over the last ten years and their damaging consequences. Others have conveniently become the fall guys for government failure, whether it is ordinary people being characterised as lazy scroungers living off the state, those who have been given the task of implementing government policy or those who speak out against the system. Government has turned its back on democratic accountability, seeking others to blame whilst at the same time encouraging us to turn on each other thus weakening the power we have to force the changes we so desperately need through the ballot box.

As Mary Bousted from the National Education Union commented this week ministers have a duty to parliament to account and be held to account for the policies, decisions and actions of their departments. Instead, they are doing the very opposite.

Our democracy both at the national and local level is under attack, our public and social infrastructure in decay, poverty and inequality rife and growing. Only this week it was suggested that by abolishing 213 smaller councils in England and replacing them with 25 new local authorities could save over £3bn.

In an age where deliberate government-driven austerity has almost brought local authorities to the brink of financial failure, the idea of saving money might seem attractive. However, in reality, it represents a further hollowing out of local democracy and its replacement with an impersonal money saving approach that no longer takes account of local people’s needs or serves their communities with targeted policies.

When the need to cut costs because of an alleged scarcity of money drives policy and replaces the need to meet public purpose and well-being, whether it is at national or local level, then we have been led astray.

When our social security system fails to serve those in most need both in these difficult times and normal times with adequate financial support then it is time to question those who promote such policies on the grounds of unaffordability.

When our public services are squeezed financially or put out to tender or privatised resulting in poorer services then it is time to dissent.

When a county council announces its intention as it did this week to shut most of its children’s centres reducing them from 38 to 17 saying that buildings do not serve communities then it is time to protest. Replacing buildings with outreach workers who will contact families instead makes the future of society start to look bleak as increasing social isolation threatens those very families who depend on these meeting places for comfort, support and conversation to help them through difficult times.

Money, or claimed lack of it, lies behind the dismantlement of those structures which form the backbone of a healthy economy and healthy citizens.

While we allow ourselves to be influenced by the cleverly executed blame game, our society is being deprived of the means to achieve a stable and secure future.

Government is the currency issuer. It makes the decisions. It decides what and who it will spend on. The future will be bleak if we continue to allow our societal voice to be drowned in a sea of naysayers who tell us that money is scarce and that ultimately there is no alternative to fiscal discipline and book balancing and that after the spending must come a reckoning.

The only balancing we have to do is linked to deciding upon how the available resources will be deployed, what should be provided and how it will be distributed. The questions we need to ask as a matter of urgency is what sort of society do we want to live in? Those are political decisions, not monetary ones. And, even if the mountain seems unclimbable, if we want to change things then as Bill Mitchell has said ‘The government is us’. Or it could be if we want it to be.

 

 

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The post While a governmental blame game distracts the public, what democracy we had is being further hollowed out. appeared first on The Gower Initiative for Modern Money Studies.

Let’s not let the debt doomsters rule the roost!

Doing so will come at a huge human and planetary cost.

Silhouette of a businessman outside in a thunderstorm holding an umbrella and brielfase with lightning flashing behind himImage by Gerd Altmann from Pixabay

In this week’s news the train crash economics of neoliberalism continues to thunder on. The government, still ensconced in its ivory tower, continues to avoid taking any responsibility for its actions or policies passing the buck at every turn. And public money we didn’t apparently have for public services these last ten years continues to be poured into the bank accounts of its business friends with no accountability.

As the government’s furlough scheme draws to a close, M&S announced earlier this week that it is to cut 7000 jobs in the next three months and Pizza Express is to close 73 outlets making 1100 people redundant. This will add to the growing number of already unemployed which without continuing government action will set to increase over the next few months.

The actual shape of the labour market has been masked by the Chancellor’s job retention scheme which has kept people off the unemployment register. With vacancies having halved during the second quarter along with the doubling of the claimant count (figures from the ONS July 2020), which already stands at 2.7 million, the future is looking bleak for many in the aftermath of Covid-19. Add to this the reliance of the economy on the service sector, (retail, hospitality and leisure) which employs many workers in precarious, low paid, casualised employment and which has been hardest hit since lockdown.

Unless the government chooses to step in as the employer of last resort with a Job Guarantee or provide local authorities with the funds to hire workers lost to the austerity cuts in the regular public sector, then unemployment is destined to rise.

Covid-19 has laid bare the need for additional teaching staff, healthcare workers and prison staff. In every public service, a case can be made to increase staff numbers, hired into well-paid unionised jobs. With an expanded public sector operating alongside a government-backed Job Guarantee offering employment opportunities for those who need retraining to transition back into regular employment, we could avoid the worst consequences of a damaging recession and provide a stable framework for the future economy.

The government could also, if it chose to, invest significantly more in higher education to ensure that the country has sufficient engineers, nurses and teachers to secure the nation’s own productive capacity rather than stealing those workers from nations facing their own crisis.

The IFS reporting also this week noted that English councils are facing the prospect of having to cut even more services should the government fail to meet the additional costs of their spending on the Covid-19 pandemic. This will add to the pain that has already been experienced as a result of stretched local government budgets following cuts to their funding which has left them increasingly cash poor and having to make difficult decisions on public service provision to balance their budgets. With some already having faced the prospect of bankruptcy, even Tory-run councils, the future of local governments is also looking rocky. It reinforces, as already mentioned, the need for both increased funding and an expansion of local authority services.

In the same week as Matt Hancock, the Secretary for Health and Social Care, announced the abolition of Public Health England (in an exercise in passing the blame to take the heat of the government’s appalling handling of the Covid-19 crisis), Deloitte was awarded a government contract – adding to the already huge number of private companies which have benefited from public money both before and during the pandemic crisis. The myth of private sector efficiency lives on despite the growing evidence that public services would be better provided publicly – whether it’s the NHS, social care, the probation service, local government, or the test and trace programme contracted currently to the discredited private company SERCO.

Since the pandemic began, an estimated 20,000 households have been made legally homeless and 230,000 people face the prospect of eviction unless the government extends its temporary ban which it has renewed until September. Food banks continue to bear the brunt of years of austerity and the Covid-19 fallout with hunger being normalised rather than questioned as to why it is happening. Whilst the richer amongst us can take advantage of a temporary ‘eat out to help out scheme’ thus reinforcing the vast inequalities that exist in this country, it will do nothing to address both the systemic problems caused by the policies of successive governments, 10 years of politically induced austerity and the consequences of Covid-19 on the economy.

While we all clapped for the NHS (including Boris Johnson), nurses have lost out on salary increases and UK families who lost loved ones caring for patients will lose eligibility for welfare benefits if they take the compensation package of a measly £60,000. All at the same time as Dido Harding is appointed head of the new Public Health body to replace Public Health England despite her widely criticised leadership of the SERCO run test and trace programme and Sajid Javid, the former chancellor, takes an extra job as an advisor to JP Morgan on an undisclosed salary. These appointments add to the already long list of revolving door politicians on both the left and right who have joined the ranks of advisors to private industry including healthcare. Jobs for the boys and girls.

While the government sits in its ever-higher ivory towers praising its ‘world-beating actions’ and feathering the nests of corporations, the realities are stark for many. The economic ideology which has driven government policies on both sides of the political spectrum for over five decades is encapsulated in the ongoing redistribution of wealth upwards, privatisation and the dismantlement of our public and social infrastructure. The much-lauded shrinking of state involvement in the public sphere in pursuit of efficiency is a mirage. Instead, we have its marketisation acting as it does as a cash cow for corporations and which has also to their benefit created a distorted, unregulated capitalism with the sole objective of keeping the profits rolling and the power in the hand of a small elite. All at the expense of the health of the economy and its citizens.

And yet despite the fact that the pandemic has increasingly revealed the gaping holes in this pernicious ideology, right on cue politicians, institutions and journalists have begun yet again to reinforce in the public consciousness that there will be a price to pay for this vast (but necessary) fiscal response to the pandemic which should have proved beyond all doubt that the austerity narrative of money scarcity was a con job!

The alarming headlines in the media this week are designed to instil fear as they report that government debt hits £2tn for the first time ever. The Telegraph reported that ‘Britain is about to be sucked into a catastrophic doom loop with no escape hatch’ as government,  the author posits, will have no option but to increase taxes in an economy that is unable to generate enough money to pay for the government’s huge expenditures.

Then comes along the apparently left-wing London Economic, which one might have hoped would have a different emphasis than the size of the national debt, focusing on the amount of the UK’s ‘debt pile’ and the vast ‘borrowing’ figures. Instead of challenging Rishi Sunak who it quotes as saying ‘This crisis has put the public finances under significant strain …. today’s figures are a stark reminder that we must return our public finances to a sustainable footing over time, which will require taking difficult decisions’ it appears to accept the narrative that there will be a future price to pay. Instead of examining what that spending represented in terms of a vital fiscal injection to save the economy – however skewed it was towards the interests of business or examining who were the real beneficiaries of that spending it focuses on the debt pile instead! If it had been a left-wing government response to the pandemic or addressing inequality and climate change how would they have pitched their argument?

Instead of pointing out the harmful consequences of the previous 10 years of austerity on the economy and people’s lives it goes along with the prospect of more cuts to spending in the future without questioning the premise for that possibility.

Even Annaliese Dodds, the Labour Shadow Chancellor, couldn’t get it right earlier this month. Spoiling her statement that continuing financial support for jobs and businesses would be vital until confidence and growth returned, she reinforced the household budget message by talking about putting off measures to rein in the UKs ballooning state debt. She added that whilst interest rates remained low the government’s ‘number one goal’ should be to keep the economy functioning rather than risking growth with ‘fiscal tightening measures’ to reduce the ‘debt mountain.’ Heart in the right place but with the wrong narrative.

Whether it’s reference to debt piles or mountains, borrowing and taxation to fund government spending household budget economics rules whichever side of the political spectrum you are on whether you are a deficit hawk or a deficit dove.

Even on the other side of the pond, as the race for the presidency hots up, only this week a Joe Biden aide Ted Kaufman, echoing Liam Byrne’s note left in the Treasury in 2010, suggested that if the Democrats were to win the ‘pantry is going to be bare’ as a result of the growing deficit and therefore spending options would be limited due to the rising national debt. Not exactly an invitation to put an X on the Democrat voting slip!

It has to be said that Rep. Ocasio-Cortez in raising the alarm by saying ‘We need massive investment in our country, or it will fall apart. To adopt … ‘deficit hawking now, when millions of lives are at stake is utterly irresponsible’ is, without doubt, speaking for us all if we did but know it.

Huge damage has already been done by the previous 50 years of a malignant economic ideology which has been compounded by a household budget economics understanding of the state finances and 10 years of the politics of austerity. To be talking again in terms of reining in expenditure whether in the medium to long term can only make things worse for the lives of citizens. As Stephanie Kelton said in January whilst in Adelaide ‘Government deficits are normal and even necessary to the health of most economies’.

The spectre of borrowingcontinues to haunt the public understanding of how the government funds its deficit as does the prospect of higher taxes to pay back what has been borrowed.

Only this week the BBC published a ‘borrowing’ explainer in the context of Covid-19 saying that such measures will prove expensive because when the government’s income reduces because there are more unemployed it leads to a tax shortfall which it then went on to explain meant that the government would have to borrow on the financial markets by selling bonds to fund the deficit.

But the reality is something quite different. What if we could knock this borrowing and debt spectre right off its perch?

In the minds of a currency user, the BBC’s description sounds like a logical proposition. When you spend beyond your income you may have to finance it by getting into debt by borrowing from a bank or building society or worse loan sharks charging huge interest. However, the state finances do not operate in this way. Whilst from an accounting position it certainly looks as if the government has to borrow, this is just smoke and mirrors designed to keep the household budget mirage going and the focus on fiscal discipline rather than delivering the public purpose within the context of finite real resources.

In short, that is because as the anacronym S(TAB) framework explains – spending precedes taxing and borrowing. Monetary sovereign countries like the UK as currency issuers can always meet their liabilities, provided they are denominated in that currency. As the Stirling Wolf noted in his excellent ‘borrowing’ explainer on how an independent Scotland would actually pay for its spending ‘the government is ultimately the boss’.

If the left-wing finds both the right leaders and the will to deliver a truly progressive agenda, then it will have to accept that shifting the narrative away from household budget language will have to play a role. It cannot as Biden’s Aide suggested fall back on images of the treasury being empty, if and when it comes to power which will, in turn, limit its political agenda. That would be more than foolish, it would be indefensible at a time when the challenges the world faces in terms of rectifying the huge wealth disparities that exist, dealing with the prospect of massive global unemployment as a result of the pandemic and finding solutions to the climate tsunami which is bearing down upon us. It would quite simply reinforce yet again the images of a scarcity of money and the need for fiscal discipline rather than meeting the needs of the economy, citizens and the planet.

It behoves a truly progressive left to challenge the economic shibboleths surrounding money and debt and unpick these destructive narratives. We need a government to take responsibility by recognising the power of the public purse. Otherwise, at some point in time, the ‘how will we pay for it?’ story will rule the day yet again at huge human and planetary cost. And we will rue that day.

 

Event Video

The Post-Covid Economy

What could a Post-Covid Economy look like? GIMMS Associate Philip Armstrong explained at our online event this month

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The post Let’s not let the debt doomsters rule the roost! appeared first on The Gower Initiative for Modern Money Studies.

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

Woed Cloud economy unemplyment job debt money taxPhoto by PublicDomainPictures

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

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

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

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

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

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

It’s time to break this cycle of lies.

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

Event

The Post-Covid Economy

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

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

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

 

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

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