tax

Error message

  • Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in _menu_load_objects() (line 579 of /var/www/drupal-7.x/includes/menu.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Notice: Trying to access array offset on value of type int in element_children() (line 6600 of /var/www/drupal-7.x/includes/common.inc).
  • Deprecated function: implode(): Passing glue string after array is deprecated. Swap the parameters in drupal_get_feeds() (line 394 of /var/www/drupal-7.x/includes/common.inc).

Growing discontent as the cost of living rise continues to bite

Published by Anonymous (not verified) on Mon, 27/06/2022 - 12:04am in

Demonstration by workers employed by Mitie on strike at st George's Hospital, Tooting.GMB members employed by Mitie on strike outside St George’s Hospital, Tooting, for better pay and conditions and to be directly employed by the NHS. Photo by Helen O’Connor

“An attitude to life which seeks fulfilment in the single-minded pursuit of wealth – in short, materialism – does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited.”

E.F. Schumacher –  Small Is Beautiful: Economics as if People Mattered

 

Anyone remember when Boris Johnson hid in a fridge to avoid being interviewed by Piers Morgan? It’s getting to be a habit. While the country’s economy reels, and people’s lives are wrecked by growing global instability, rising energy and food prices, and the consequences of 12 years of damaging Tory economic policy, Johnson decided to sneak off to Kiev instead of meeting Tory activists in Doncaster, prior to this week’s by-elections in Tiverton and Honiton, and Wakefield. As a Tory MP suggested, “The PM ought to be making every effort to support and respect the people who hold his future in their hands.” Not for the first time, he fell short of the expectation that Ministers should serve the interests of their citizens and not their own.

The by-election results are a testament to people’s growing disaffection, not just with the Prime Minister, but with the Tory government, which has demonstrated time and time again its priorities in terms of in whose interests they govern. Priorities which have impoverished many and enriched the few, and left the public and social infrastructure unable to respond effectively to the economic threats it has faced and continues to face. Thus, in a predictable flurry of tactical voting, Labour lost its deposit in Tiverton and won Wakefield, and the Lib Dems lost their deposit in Wakefield and won on a huge swing in Tiverton.

As positive as this might be viewed, and regardless of whether Johnson does the decent thing and resigns, the country still faces two more years of Tory rule, with all the economic pain that is likely to bring. Leopards don’t change their spots, unless of course it’s in their interests to do so, as is the case with Rishi Sunak’s reported decision this week to restore the pensions triple lock next year. Clearly a bribe to give their retired voting supporters a reason to put yet another x on the voting slip.

Worse, even if there were an election tomorrow there would be little choice on offer between three political contenders still wedded to serving the City and big business, and the neoliberal ideology that has dominated policy for decades.

We have three political parties whose policies are driven by the household budget narratives of government spending, rather than spending in the context of the real resources that the UK government has at its disposal, and which are the real constraints that need to be managed to avoid inflationary pressures. In the light of that framework, these are spending choices which are political and not monetary in themselves, and which determine who gets the pie. And over the last decade and longer, it is very clear who have been the winners and losers.

In this respect, the household budget narrative of how a government spends continues to frame the debate through headlines and articles which analyse the public accounts, and in doing so, keep the false mantra of public unaffordability in the public eye.

This week, Sky News in its headline suggested that the government had been ‘forced to hand over £7.6bn in record payments on public debt after inflation pushed borrowing costs to some of their highest levels on record’, and the same news outlet also reported that the National Debt had grown in April by £18.6bn. The Telegraph also suggested that it would cut the Chancellor’s ‘headroom’ for further spending or cutting taxes.

Just more of the same old nonsense.

The government has not, in fact, been forced to do anything of the sort. These references represent part of the smoke and mirrors that are intended to deceive the public about the nature of how the government spends. The government as the currency issuer is always able to meet any liabilities in its own unit of account which include maturing bonds. Those bonds do not constitute borrowing in any shape or form, any more than taxing creates the funds allowing governments to spend.

When Michael Gove warns ‘tough times’ are ahead and claims that the pressure of the public finances means that government is unable to provide the level of support to people it would like, it is a whopping lie of the first order.

It is vital, therefore, to bring clarity to the public about how government really spends. It boils down to a few simple facts: The government is the currency issuer and has to spend money into existence before it can collect any tax at all, or issue bonds. Contrary to belief, the issuing of these bonds does not constitute borrowing, rather they form a safe savings mechanism for big corporations which allows the Central Bank to manage its target interest rate. Furthermore, the government, as the currency issuer, can always meet those liabilities and any interest accrued upon maturity.

As for the National Debt, that is quite simply all the money the government has ever spent into existence and didn’t tax back. The money that circulated in the economy. Not something that anyone needs to spend time worrying about. People should instead be concerned about a government using the language of taxation and debt to deny them functioning and quality public services. And which, combined with government market-led policies, have been responsible for the low-wage economy and the growth in food banks and homelessness, while at the same time immorally lining the pockets of large corporations and their rich friends.

Sunak is endlessly given a platform by a compliant media to repeat his messages that government, ‘must take a balanced and responsible approach to support now, while also not burdening future generations’, or that it is, ‘making sure every penny of hard-earned taxpayer money is being spent on our world leading public services.’

On that last point, it is ironic that Sunak thinks that his government has created a world-leading public service sector, when it is clear that over the last 12 years it has done the exact opposite. It has devastated them whilst driving its privatising agenda. The state of our NHS is living proof of that, as a Panorama programme earlier in June demonstrated, as an undercover reporter exposed the scandal of a US-owned company, Operose, which is prioritising profit over patient care. With staffing shortages, rising waiting lists, crumbling NHS infrastructure and a demoralised workforce, we are paying a heavy price for government policies and insufficient public sector funding.

If governments seek to be accountable, that should be related to their policies and achievements, or not as the case may be, not whether they have been fiscally responsible.

As for the claimed burden faced by future generations which this blog has spoken about many times, the only debt that will be owed to those future generations will be the one created by government failure to invest in the country’s infrastructure today, to ensure that one can be as productive as possible tomorrow. Instead, based on our current trajectory, the country faces a bleak future based on using the public accounts as the measure of a country’s economic success or failure.

While the Tories bet on continuing to con the public with their talk of the necessity to be fiscally responsible, a couple of weeks ago Labour, in the same vein, took the Tories to task over its own published record on the public finances which showed that Labour presided over nine budget surpluses compared to the five under the conservatives. The data also indicated that the highest peacetime deficit came under the Tories during the pandemic. The report also said that Labour had ‘failed’ to set out how they would pay for their spending measures and attacked the party for its ‘reckless’ approach to the public finances and the third-highest deficit ever recorded after the second world war and the pandemic.

This is yet more of the nonsense which prevails in political circles and is reported by the mainstream media.

Firstly, whilst Labour chases rebuilding its reputation as being fiscally responsible, it, like the Tories, adheres to the false notion that balanced budgets and surpluses are the golden grail of public accounting. It is unfortunate that Labour and the Conservatives choose to conduct a war based on who supposedly has been the most fiscally disciplined, rather than examining the background to those surpluses and basing their critique on that. Surpluses, just as deficits are neither good nor bad in themselves and simply represent government spending and taxation in relation to the economic circumstances that prevail.

We should reject the implied notion that government surpluses create savings that can be used later to fund public expenditure. As Bill Mitchell explains:

A budget surplus exists only because private income or wealth is reduced.’

It is the context of that reduction that is all-important.

The real consideration should be an examination of why there is a surplus or deficit. What were the economic reasons? The pandemic, the global financial crash and now the global uncertainty arising from rising energy and food costs are three examples of why deficits of both political parties increased, to save an ailing economy facing recession and alleviate the associated human consequences. There was no alternative, unless one preferred economic collapse to ensuring that a country could function during difficult times. The point of contention might be who the beneficiaries of the government spending actually were, and the question was it a fair distribution?

Surpluses equally can arise when government fails to spend adequately, thus pushing the non-government sector into increasing its debt burden, which ultimately has an unavoidable consequence as debt levels become unsustainable as they did during the build-up to the Global Financial Crash.

As Bill Mitchell wrote in 2009 and as we are currently experiencing:

“In terms of fiscal policy, there are only real resource restrictions on its capacity to increase spending and hence output and employment. If there are slack resources available to purchase then a fiscal stimulus has the capacity to ensure they are fully employed. While the size of the impact of the financial crisis may be significant, a fiscal injection can be appropriately scaled to meet the challenge. That is, there is no financial crisis so deep that cannot be dealt with by public spending.”

What was true then is true today. So, whilst Labour and the Tories fight their battles on the premise of fiscal discipline, the elephant continues to thrash about in the room. It is worth reiterating that the only measure of a government’s economic success is what it actually did to preserve a functioning economy in good times or bad, and the outcomes of those decisions. Not whether they lowered the deficit, balanced the books or recorded a surplus. Our political parties have it all upside down.

Whilst the endless merry-go-round of public indoctrination and deception by politicians and a compliant mainstream media continues, scarcely a day goes by when that dreaded word inflation is not mentioned to keep the troops fearful and in their place as if they were not already suffering enough. Articles in the mainstream media castigate the Bank of England for not acting sooner to curb it with interest rate rises or suggest that it has to go much further yet.

As people struggle to keep their heads above the water as the rises in the cost of living continue to bite, the government once again shows who in the pecking order are its priorities.

This week the Treasury said that there would be no ‘inflation-busting’ pay rises for the public sector and urged private companies to consider similar pay restraint. At the same time, it defended its above-inflation rise for pensioners and its plans to cut limits on director and non-executive pay, as part of a package of business deregulation. On the last point, have we learned no lessons at all?

Whilst Sunak insists that pay rises for workers should be, ‘proportionate and balanced’, to prevent price pressures getting out of control, at the same time he claimed that the planned increase in state pensions was different because high pensioner incomes do not feed into the cost for businesses creating goods and providing services.

As Ben Riley-Smith from the Telegraph pointed out, Downing Street’s arguments about pay and inflation now make little sense. It seems yet again that in a low-wage economy in which working people were already struggling, the government are choosing to throw them under the bus yet again to curb inflation at a time when wages are already falling, and demand is sinking as retail figures showed this week. When costs rise, uncertainty rises with it, and then impacts the high street.

There is absolutely no distinction between income increases via pensions or pay all will add to aggregate demand and the capacity to spend. This is a deliberate choice by the government and smacks not of economic common sense but political bias. Long forgotten are the claps for the people who kept the economy functioning during the pandemic.

These inflationary pressures as Martin Lewis the Money Expert suggested, result from supply-led problems, not demand-led ones, and such interest rate rises will feed through into the cost-of-living pressures already being felt by working people.

And as the economist John T Harvey noted in an article in Forbes:

“… it’s abundantly clear that the lion’s share of what we are facing today is being driven by supply-chain issues […] Gas prices are not going up because people had so much money they wanted to do some more joy riding and oil companies couldn’t keep up.  Rather, as with the OPEC oil embargo in 1973, a geopolitical event has created uncertainty and a decrease in supply.  These are the factors responsible for our inflationary woes. […] Nothing in our current scenario suggests that lowering the level of economic activity […] would be helpful.”

And yet, as the TUC noted in an analysis, while bonuses paid to the bankers, insurance brokers and other financial sector employees have reached a record high, the rest of the country struggles with soaring cost of living pressures that are outstripping pay rises. Wealth inequity is built into our economic system and working people pay the price. The rising discontent is currently feeding through into industrial action or threats of industrial action.

So, what should the government’s strategy be? GIMMS Associate Neil Wilson suggests the following :

  • Interest rates should be going down, not up, because taxing young people trying to set up home and giving that to rich people with money is completely the wrong approach.
  • Instead, we need to understand that taxes are there to stop the private sector from hiring people so the public sector can hire them. If we have inflation, then we are undertaxed for the size of government we have.
  • Therefore we reduce the size of government, or we increase taxes on business so they hire fewer people. Employee NI changes should be shifted to Employer’s NI.
  • The number of people on out-of-work benefits is entirely in the gift of private sector businesses. All they have to do is offer sufficiently attractive wages and conditions. In other words, learn to compete and stop offering substandard jobs. Rather than out-of-work benefits we should provide a guaranteed living wage job for all, then it would be even clearer that the problem is with the quality of the private sector job offers, not the willingness of the people to work.
  • Since the inflation problem is a lack of energy, why are we arguing about money rather than talking about measures to use less energy?

Whilst the temptation is increasingly to focus on domestic issues, we ignore at our peril the global context of the effects of the pandemic and the conflict in Ukraine on world economies, not to mention the climate crisis which seems to have taken a back seat, or rather dropped off the agenda.

It is increasingly clear that there will be severe consequences for countries in the global south. Countries that do not enjoy food and energy sovereignty, are loaded with foreign debt, and who have suffered at the hands of the IMF which imposes tough conditions for bailouts, destroying public infrastructure and privatising public assets.

Countries who, on top of this, are also having to deal not only with the shocking rises in the price of food staples like grain and energy, related to the conflict in Ukraine, but also with the costs associated with western manufactured wars and economic exploitation, and human-caused climate warming.

There is not a week that goes by when those consequences are not laid bare. Those of a rotten economic system which favours the global north.

This week the UN warned that only an immediate scaling up of funds and humanitarian relief could save Somalia from famine.

In March and April, a brutal heatwave struck India and Pakistan which killed at least 90 people and led to wheat crop failures, power outages and forest fires.

This month, more than 110 people have died and millions have been stranded as excessive Monsoon rains devastate India and Bangladesh, adding to the damage already caused by unusually heavy rain which lashed north-eastern India and Bangladesh in March.

In Niger, people are on the other hand, praying for rain, as malnourished children die as the global food crisis worsens years of drought, caused by the climate crisis which has led to increasingly unpredictable patterns of rainfall and longer dry seasons.

And in Chile, working people are becoming desperate as a severe drought which is turning a reservoir into a desert has affected copper output, stoked tensions over water use for lithium and farming, as well as fuelling forest fires. Plans are now being drawn up for water rationing.

In the Congo, peat which stores vast amounts of carbon is under threat from climate-induced longer dry seasons, unsustainable farming practices and the possibility of significant oil deposits being exploited close to peatlands, with government already parcelling out blocks of land and seeking potential investors.

These events come as climate talks in Germany between rich and poor countries over funding compensation to deal with climate change caused by the emissions of richer countries, ended in acrimony as the US and EU fail to agree.

As Congo’s Environment Minister pointed out, ‘It’s time we understood that it is in our common interest to conserve [the peatlands]. Because if [the West] doesn’t help support our conservation work, we shall be obliged to use our own natural resources, because we need money simply to live.’

That goes for all countries faced with similar dilemmas, and we are as far away as we have ever been from developing global solutions.

With Sri Lanka’s Prime Minister warning this week that the country is on the point of economic collapse, it exposes the fundamental exploitative and toxic nature of the economic system. A country that has as the economist Fadhel Kaboub tweeted recently, ‘failed to invest in food and energy sovereignty, raced to the bottom chasing low value added export industries, remittances and tourism. All fueled by debt in foreign currency.’

The climate crisis, combined with the toxic economic system which is driving it, is posing an existential threat to humanity. The natural world and its biodiversity is under threat as never before, and yet despite the promises, we are now going backwards.

As Antonio Guterres, the head of the UN, made clear last week, fossil fuel firms ‘have humanity by the throat’, as the industry and its backers pull in record profits as energy prices soar, and governments give the go-ahead for further oil field development or re-opening coal plants as Germany is proposing to do. Suddenly the appetite for addressing the climate emergency has been supplanted by other immediate concerns, rather than the long-term effects of continuing to burn fossil fuels and use up the world’s finite resources to keep a dying economic system alive.

We have choices. They start with unpicking the lies about how the government spends, so the public understands the scam that has been perpetrated over decades by politicians, orthodox economists, and the media.

Change is inevitable. The question is what sort of change do we actually want for our children and what needs to happen to achieve it? We need an urgent challenge to a toxic system. Learning how money works is fundamental to that quest.

 

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post Growing discontent as the cost of living rise continues to bite appeared first on The Gower Initiative for Modern Money Studies.

True consequences of government policy are far worse than a waste of taxpayers’ money

Published by Anonymous (not verified) on Sun, 12/06/2022 - 1:06am in

Rishi Sunak holding a £1 coin while making a speechImage by HM Treasury on Flickr. Creative Commons 2.0 licence

“Real generosity towards the future lies in giving all to the present.”

Albert Camus, Notebooks 1935-1942

 

The Debt Doomsters are back (did they ever go away?). Rishi Sunak is accused this week of wasting billions of taxpayers’ money servicing government debt. In yet another smoke and mirrors exercise to keep the household budget model of Exchequer Accounting alive and well, Professor Jagjit Chadha of NIESR (The National Institute of Economic and Social Research) claimed in a BBC article that Sunak’s actions had left the country with ‘an enormous bill and heavy continuing exposure to interest rate risk’. While neoliberal think tanks like the NIESR continue to focus their attention on the false model of how the government spends, the actual consequences of years of government policies which are colliding with geopolitical events and the continuing effects of the pandemic on global supply, means that the economic crisis will not be solved any time soon, unless the government chooses to actively work to solve it with an understanding of monetary reality and the real constraints to its spending.

As many thousands of households face further pain, adding to the already existing misery, the cumulative consequences of a decade and more of Conservative policies which have put balanced books and a toxic, market-dominated ideology over public well-being, are plain to see. We are a country in crisis, not because the government failed to get the public finances under control, but because the government has chosen that route, through its spending and other policies.

As the academic Prem Sikka tweeted, responding to a BBC article which reported that people in receipt of tax rebate cheques were queuing to cash them at pawnbrokers because they couldn’t wait for the money:

‘Government measures don’t deal with poverty or corporate profiteering. There is no long-term respite. Cost of living crisis is systemic’.

The consequences are stark. Statistics translate into real people and their lived experience arising out of years of government policies. The exponential growth in food banks across the UK is a telling aspect of that failure which GIMMS reports on regularly, as is the hunger which forces people through their doors. When mothers can’t afford to buy baby milk formula as was reported by ITV News on Friday, or have to skip meals to feed their children, it is indicative of a society in deep trouble as the gulf between the haves and have-nots becomes ever wider.

This is not happenstance, and what is worse is that government ministers don’t recognise their own hand in this unacceptable situation. Last week, when asked to comment on Radio 4’s Today programme about the plight of a mother who was skipping breakfasts and whose son was concerned, the government minister Dominic Raab said, ‘I read that story – it just breaks your heart and melts your heart.’

Faux compassion. His own children will never have to face that realisation.

Raab’s voting record tells, in fact, quite another story and shows that he has consistently voted for reductions, like many of his colleagues, in spending on welfare and against raising welfare benefits in line with prices. So, it was not surprising to learn in the same BBC interview that he ruled out an expansion of free school meals, despite calls from teaching unions and charities to widen it out to all families in receipt of Universal Credit. According to figures published by the Food Foundation, around 1.7 million children are eligible for free school meals, but it is estimated that 2.6 million live in households that miss meals or cannot access adequate nutrition because they can’t afford to. The impact on the health of those families cannot be underestimated, nor on the economy itself.

The ONS noted in its reporting last month that wages were failing to keep up with inflationary pressures. As a result, credit card borrowing is rising at its fastest rate in 17 years, according to the Bank of England, despite its ill-advised interest rate increases. Increases that will do nothing to address the external supply issues which lie at the heart of the current inflation and can only add to the nation’s financial woes. Growing numbers of households are facing rising personal debt to pay bills, put food on the table and keep the lights on. People who are quite simply trying to keep their heads above the water are, however, not only victims of these current inflationary pressures, but also victims of decades of policies which have ensured that the share of the rewards of productivity has gone into ever fewer hands. Impoverishing many and enriching the few. We are now reaping the consequences.

Functioning economies don’t just happen. They are created by governments through their spending and legislative decisions. For too long, the public has been hoodwinked by politicians, and the mainstream media which repeats the mantra, into believing that a healthy economy demands balanced public accounts. It is unaware for the most part that the government, as the currency issuer, has the capacity to spend without tax collection, or indeed that taxation or bond issuance (incorrectly referred to as borrowing) can only happen once the government has spent the money into existence, which it does through its central bank on a daily basis in vast quantities, from paying pensions and benefits, to the salaries of public sector workers, and its contracts with the private sector.

The public is also largely unaware that the real challenge for any government is how it balances the economy, based on the real resources it has at its disposal, and what its political and economic priorities are. What the public hears instead is that the measure of good government is whether it has been fiscally responsible. The message is that deficits are bad, regardless of the economic circumstances. And heaven forbid that a government should incur public debt and create burdens for future generations.

In the UK’s case, the priorities, over a decade, have been less about the welfare of citizens and more about keeping a toxic economic ideology alive, and big business (who dictate the rules) on top, through adherence to this false accounting model. And yet, while public infrastructure decays, public money has been poured into corporate welfare, whether in bank or corporate bailouts, or favourable tax regimes that benefit those same business interests.

Whilst NIESR extolled the virtues of sound finance and berated Rishi Sunak, Boris Johnson suggested in a speech in Blackpool after his confidence vote win that the current tax burden was an ‘aberration’, that more state spending was not the answer to every problem, and that instead, we should focus on cutting regulation to unleash growth.

Haven’t we been here before? And look how that ended! The 2008 Global Financial Crash and the terrible loss of life that resulted from the fire at the Grenfell Tower revealed the consequences of allowing the financial sector to be a casino and businesses to do as they please. That is the real cost of deregulation.

Despite Sunak unleashing the power of the public purse, even if one notes that distribution was inequitable, favouring big business over supporting citizens adequately to navigate the current crisis, Margaret Thatcher’s ideas clearly still hold sway in the corridors of Conservative power. Perhaps, one might contend, not because they actually believe it, but because it suits their agenda.

Whether it’s Thatcher’s pronouncement that ‘It is your tax which pays for public spending’, or her insistence that ‘there is no alternative’ to the discredited notion of free markets, Will Hutton’s article in the Guardian last month, which claimed that Sunak is ‘dumping ‘Thatcher’s verities’, is clearly a little premature. As his neighbour in Number 10, playing to his audience in the re-constituted lobbying group Conservative Way Forward, founded by Thatcher and promoting free-market policies, demonstrates. Well, when you’re in a sticky corner you have to get support from somewhere to keep you in Number 10, don’t you?

In the same vein, at the end of last month, it was reported that Johnson had written to civil servants to justify his plans to cut 91,000 jobs, claiming that government must reduce its costs ‘just as many families are doing’. Arguing that since the UK had left the European Union and the threats posed by the pandemic were diminishing, he said that ‘we no longer require the state to have the same colossal presence in people’s lives’ [therefore] ‘we must ensure the cost of government is no greater than absolutely necessary.’

The notion being promoted yet again is that the government spends like the budgets of the families he refers to, and therefore it must show fiscal responsibility and cut its cloth to what is affordable.

The neoliberal narrative of the small state also predominates in this message, along with the story that the function of government is solely to facilitate the needs of big business so they can keep the wheels of the economy turning, through deregulation and keeping state spending to a minimum to reduce the tax burden on the corporate body. According to this mantra, it allows corporations to ‘invest’ their profits in innovative new technologies which, in turn, it is claimed creates employment and facilitates wealth creation, which then trickles down.

The lies they tell.

Never mind that that actually hasn’t occurred as corporate profits and top dog salaries have grown exponentially over decades, while at the same time working people and their families have suffered the consequences of a low-wage economy, based on precarious employment and exploitation. It is not a recent phenomenon and not confined to the UK. Whilst this article is dealing specifically with the UK, we cannot ignore the impact of this toxic economic system on global citizens who have borne the brunt, particularly in the Global South, and who are suffering the fall-out of the current crisis.

As Oxfam reported last month, as food and energy prices rose to their highest level in decades, billionaires operating in those sectors have seen their fortunes rise by $453 billion in the last two years. That combined wealth stands at $12.7 trillion, representing a three-fold increase over the year 2000. According to Oxfam, the fortunes of the richest 20 billionaires are greater than the entire GDP of Sub-Saharan Africa.

Corporations and the excessively wealthy have, over decades, profited from pain, and governments around the world have complied through failure to act. That’s a sick system in operation.

Returning to the UK, never mind either that the public and social infrastructure which includes civil servants, form the backbone of a healthy economy, or that there will be economic consequences at such a critical time to reducing the workforce as people lose jobs and the salaries that would be spent into the economy. People who will in some cases join the already insecure and badly paid employment landscape, the sickening consequence of the government’s hands-off approach and its failure to create a functioning economy that is fair to all, and lines the pockets of its corporate friends instead. For a party that claims to want to grow the economy, it’s going the wrong way about it!

In this light it is both infuriating and disgusting that Johnson, in his Blackpool speech, said that the government intends to ‘look at how we can give our nation of aspiring homeowners better access to low deposit mortgages’ and ‘extend the right to buy’, as if that plan will help people already on the poverty line, struggling to feed their families and pay their energy bills. The man with a plan – not! No change there then.

It is equally shocking, as already mentioned previously, that he raised the ’spectre’ of a 1970’s style ‘wage-price spiral’ if workers, in response to the cost-of-living crisis, demand higher pay. Whilst CEOs continue to rake in vast salaries and bonuses as did the Sainsbury boss who it was reported, saw his pay triple to £3.8m last year, the average Sainsbury employee earns183 times less than their boss. Johnson by recommending pay restraint to working people who have for too long been the victims of government policies which have benefited employers, this surely should be the wakeup call for change? A call for a fairer distribution of the country’s wealth.

The nation has lived through the consequences of over a decade of government austerity policies which have decimated our public and social infrastructure and introduced public sector pay caps, on the lie of unaffordability. This combines with policies that have also promoted a generally low-wage economy and insecure working practices, with the claimed advantage that it supports businesses to be competitive. If Johnson gets his way, he seems to be proposing to follow that same route again.

When it was politically convenient, and Johnson needed the votes of the so-called Red Wall, he promoted his levelling up project promising funding and support. But Boris Johnson’s so-called ‘defining mission’ has so far been little more than a damp squib and has failed to even start dealing with the systemic problems caused by 30 and more years of the adherence to an economic ideology which has bred the pre-existing poverty and inequality that has added to the current economic difficulties.

Now with the growing crisis resulting from the pandemic and the continuing conflict in Ukraine, if the Chancellor chooses to continue to play the household budget game to keep his reputation as a safe pair of fiscal hands, it is probably only a matter of time before any talk about levelling up or investment in the nation’s public infrastructure goes by the wayside, As we know from past experience of Johnson at the Dispatch Box, fancy rhetoric is easy to spout but clearly not so easy to deliver without a clear strategy or foregoing the rhetoric of affordability.

The government can talk as much as it likes about levelling up through local investment, but without addressing the key causes of the failure of local communities to thrive, which include wage rates and employment legislation, both determined by national government, it will continue to fail. Businesses will be reluctant to invest if they have no confidence that that investment will bring a return. When infrastructure is in a state of decay and people’s lives a constant struggle, an economy cannot flourish.

Levelling up can only happen with a government that has the political will to use the power of the public purse and legislative capacity to distribute wealth more fairly and create the public and social infrastructure which underpins a fair and sustainable economy. It can only happen when the social determinants of a nation’s health and environmental sustainability sit at the heart of policy. It cannot be one based on growth for growth’s sake, to keep the profits high, and capitalism on a roll at the expense of people and the health of the planet which provides the means for human existence.

It can’t happen either in a government that still pretends that fiscal discipline comes before human security, health, and welfare, or indeed preservation of the planet. The idea that is promoted by politicians that those things are dependent on a healthy economy and the tax that derives from it is false. Thatcher’s faux model of the public finances is being used to serve the neoliberal agenda and keeps the public in a state of ignorance, fearful and therefore malleable to that agenda. It is time to challenge that economic agenda and the monetary model which drives it.

Let’s not be under any illusion. We are at a crossroads for humanity. We can choose the path of endless wars to fund a bloated arms industry that produces only death and destruction and continue with the harmful economic model which is driving poverty and inequality and making our planet a wasteland.

Or we can fix upon another path which respects the more productive human endeavour to create a fairer and more peaceful existence for all, to ensure that future generations can look back and thank us, not curse us. What we choose today will determine what happens tomorrow. As Albert Einstein noted: “The measure of intelligence is the ability to change.”

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post True consequences of government policy are far worse than a waste of taxpayers’ money appeared first on The Gower Initiative for Modern Money Studies.

The Government, like the Pied Piper, marches the nation back to Dickensian Britain

“Please spread the word. We need to end the ‘state is like household’ analogy. The main constraint on govt. spending is the productive capacity and resources in the economy and the risk of inflation – not the size of the budget deficit.”

Josh Ryan-Collins on Twitter

The Pied Piper of Hamelin playing his pipe and leading the children away from the town
The Pied Piper of Hamelin, print, Henry Marsh, after John La Farge (MET, 21.65.4). John La viola, CC0, via Wikimedia Commons

This week, the Chancellor of the Exchequer, after dragging his feet and protesting in his speech to the CBI that, given the external global circumstances driving the cost-of-living increases, ‘there is no measure that any government could take’, has now done an about-turn. After telling the public not so long back that his top priority as the dangers of the pandemic receded was to restore the public finances, the ongoing and worsening supply crisis has finally forced his reluctant hand, albeit as a temporary and inadequate measure as many charities and other anti-poverty groups have already noted in their analyses. He fails, yet again, to get to grips with the underlying structural problems caused by the policy decisions of successive governments. Decisions which have led to a low wage economy, and over decades driven poverty and inequality which has benefited businesses at the expense of working people. Existing problems which have severely exacerbated the current unstable economic situation.

It is, however, once again too little and too late. An afterthought for a man who appeared last week for the first time in the Sunday Times Rich List, who seems to have no concept of the difficulties in ordinary people’s lives. Andrew Harrop, of the Fabian Society, described the Chancellor’s measures as a ‘sticking plaster’. We have had a lot of those over the last decade as government austerity has resulted in the inevitable breakdown of public and social infrastructure, and of society and its values. Half-baked policies have glossed over the growing hardship this government has caused by doing nothing except revel in its rhetoric and smoothing over of the truth with its propaganda.

Societal breakdown is not an unavoidable destination, it is the result of the deliberate failure by the government to enact the policies that would keep its citizens safe and secure in a functioning, fair economy and ensure that in hard times it acts to cushion the blows caused by events out of its control. Furthermore, whilst many, with their hearts probably in the right place, talk about creating a fairer welfare system and higher benefits as a way out of this situation, in the long term that is not the answer, and buys into more dependence on the state, which, frankly, has already done its utmost through reforming the welfare system to punish those citizens who find themselves in involuntary unemployment or precarious employment, or unable to work through illness.

The solution lies in creating a fairer society that is predicated on better wages and terms and conditions of employment, not so-called welfare ‘handouts’ to those who are disparagingly referred to as the ‘deserving poor.’ As Hannah Fearn wrote in the Independent this week: ‘Benefits do not support the poorest to live a self-determining and fulfilled life, but trap them in desperate cycles of poverty.’

It also lies in creating a high-quality public service sector, instead of the diminished one we have today, the implementation of a Job Guarantee to support people, as now in this current economic climate, and for those that cannot work, a properly funded social security system which gives people dignity and sufficient income to live on.

It was shameful to note that in his speech, the Chancellor, announcing his spending measures, said that the government would ‘not sit idly by’. That would be laughable if things were not so serious. For over more than ten years, the Conservative government has ‘sat idly by’, as it cut spending on public and social infrastructure to the bone, on the specious lie of unaffordability, couched in narratives of sound finance. This is therefore not a new phenomenon. The price we have paid for that lie as the pandemic raged has been made very clear. The public infrastructure upon which society relies, both in good and bad times, fell short, from the NHS to social care, education, local government and other vital institutions. Everything that binds society together with a cooperative purpose has been whittled away.

The emphasis on balanced budgets to serve an ideologically driven agenda that benefits global corporations rather than delivering public purpose, has led to rising poverty and inequality, which have translated into hunger and the growth of food banks as families have struggled to put food on the table and heat their homes. GIMMS has covered these disturbing subjects endlessly in its MMT Lens, week by week, month by month, year by year, since its launch in 2018. The fractures began in earnest a decade ago, with unnecessary austerity, and a false discourse that governments are limited in their spending policy choices by the tax they collect or what they can borrow, which, in turn, according to the orthodoxy, has consequences for future generations in terms of higher tax burdens. An obscene deception in the light of what has followed, and which arose out of a political choice driven by a pernicious economic ideology, and not financial necessity. It is time to hammer home that the line so often used by Sunak and others is false. The future burdens won’t be tax ones, but human and environmental ones created by governments which have failed consistently to invest today to create a truly productive and sustainable future tomorrow.

The global pandemic which affected and is still affecting production, followed by the outbreak of war in Ukraine, have only served to highlight our strategic planning deficiencies and interdependence. Ukraine and Russia play a major role in global food markets (not to mention oil and gas) which, when increasingly combined with the growing consequences of climate change on food production, with India imposing a ban on wheat exports as severe heatwaves have damaged crops, and East Africa in the grip of a relentless drought, only serves to emphasise the real costs for governments which have prioritised keeping the global corporatised economic order functioning, and the capitalist gravy train, predicated on exploitation, rolling. The tsunami of climate change is bearing down upon us, and yet, the government still sees the future as being defined by increasing growth in consumption, regardless of its impact on the planet. We apparently have to make up for the losses of the last two years, even if that means abandoning our climate promises which now seem to have been lost somewhere in the ether.

Instead of focusing on sound, consistent, long-term strategies to secure food and renewable energy domestically, governments have allowed the global corporate juggernaut to dictate the pace, thus securing its power, influence, and wealth. But as we are belatedly discovering, the ‘Just in Time’ world in which we live has distinct disadvantages. Nature, disease, and geopolitics combined, have exposed the weaknesses of a decaying unipolar economic system, which, until recently, has based its ideas on the finite nature of money and persuaded an unaware public that there is no alternative. A system predicated not on cooperation but on dividing people and allowing, by design, an unfair distribution of real wealth and real resources.

The Global Financial Crash in 2008, the Pandemic and current economic uncertainties have changed all that, and governments have been driven, as a result, to ‘re-discover’ the power of the public purse to manage their economies in the face of the prospect of economic decline, although always with a view to constraining that spending at some future point in time, once an emergency is over. There is always a price to pay on this model of how government spends. But just when Sunak thought he could get back to ‘business as usual’, his plans were scuppered once again by the conflict in Ukraine.

Balancing the books is a perennial concern for all governments, sooner or later. The government should be a good manager of the economy by ensuring that the public and social infrastructure meets the needs of the people it serves, from individuals to communities and businesses, and by aiming to balance its spending with the very real resource constraints, which requires strategic planning. Instead, governments, the media and those working in think tanks, endlessly replay their messages of monetary scarcity which have played a cruel and destructive trick on the population. Such deceitful narratives ultimately constrain the actions that are needed to address poverty, inequality, environmental sustainability and planetary health. Should that, of course, be a government objective. However, these narratives are useful for governments who wish to avoid such actions. It doesn’t bode well for the now seemingly defunct concept of levelling up or addressing the climate emergency.

We are led to believe that government spending is constrained by taxation or borrowing, and the media without fail, reinforces those messages, as Larry Elliott did in an article in the Guardian at the end of April. On the one hand, journalists report the state of public services and other vital infrastructure, relate stories about how people are struggling to keep their heads above water and being obliged to use food banks or switch off their heating, and yet, in the next breath, in an astonishing display of cognitive dissonance, give their readers a blow-by-blow account of the state of the public finances, as if somehow it is of vital importance to know how well the Chancellor is delivering his fiscal objectives. Put the fear of God into a nation by focusing its attention, like a magician, on the wrong subject. It seems that they choose not to make a connection between government spending (or the lack of it) and the state of the nation. Those two things are not disparate subjects, they go together.

As the current government, like the Pied Piper, marches the nation back to Dickensian Britain, journalists should at least be challenging the accepted economic dogma which prevails, rather than reinforcing the message that sound finance trumps public purpose. That should be the role of the media. But then, of course, as Upton Sinclair so rightly observed, ‘It is difficult to get a man to understand something when his salary depends upon his not understanding it.

So, given his predilection for household budget accounting, it was not surprising that Rishi Sunak, the arbiter and promoter of sound finance, had to eat his words and do yet another about-turn, by stating that he will be imposing a ‘windfall tax’ on oil and gas companies (well sort of) so he can, as he claims, partly cover his spending pledges. Whilst some Conservatives are critical of the tax, suggesting it will reduce investment and goes against their low tax stance, (at least where the rich corporations are concerned), Labour’s calls over the last few months for a tax on extraordinary profits to help people manage their way through the energy crisis, thus have now been satisfied. Job done. That is, of course, if we believe the notion that has been drilled into the public consciousness that taxes fund government spending.

The government as the currency issuer has the capacity to spend what it needs to, to balance the economy in good times and keep it functioning during economic crises. It doesn’t have to go begging to rich people or large corporations to provide that funding, or impose windfall taxes, and nor does it have to borrow to do the same. That is all part of the smoke and mirrors that have created false narratives. The sequence is spend first, then tax, not the other way around.

The last two decades and more should have proved categorically that household budget economics, in terms of government spending, is a myth. The public is beginning to take note that there is always money to bail out ‘too big to fail’ banks and other large companies, fund wars or address the fallout from pandemics, when it suits the government to do so. As the contradictions become ever clearer, the public are slowly coming to understand the political nature of spending decisions, and that, by the same token, the UK government could, in the same way, create the money to fund public services and vital infrastructure, that poverty and inequality could be addressed to ensure that citizens have dignified and meaningful lives, and that the climate crisis could be tackled through legislation, and targeted spending and taxation policies, to drive change and force businesses to do or die.

As Josh Ryan-Collins, who is an associate professor in economics and finance at the UCL Institute for Innovation and Public Purpose wrote in an article in the New Statesmen this week, ‘Government spending power is limited not by tax revenues or borrowing but by the productive capacity of the UK economy and political will.’

Ryan Collins, promoting a new co-authored working paper, ‘The self-financing state: An institutional analysis‘, published by the UCL Institute for Innovation and Public Purpose (IIPP), which provides an in-depth analysis of the mechanics of the key institutions involved in UK government spending, demonstrates clearly in his article that the ‘British state always creates new money when it spends’. That is fundamental to what comes next.  It is the starting point for change.

The self-financing state: An institutional analysis

This paper is an institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom.

 

So, while Chancellors, politicians, think tanks and journalists indulge in relaying myths that describe how governments spend, and keep the prevailing economic system functioning in the favour of capital, the reality is somewhat different.

A challenge to that understanding and the economic orthodoxy which drives it, is, however, underway.

The World Economic Forum’s meeting in Davos this week has revealed the growing cracks. The realisation by the wealthy elites that the global economic system, which has created vast wealth for the few, whilst at the same time crippling poverty and inequalities in the distribution of real wealth for many others, is under threat. As working people in the global north wake up to their exploitation and the associated injustices, and those in the Global South begin to reject the economic solutions imposed by the north, under the tutelage of the US, its allies and the institutions which it controls – the IMF, the World Bank and the World Trade Organisation, those that have benefited over decades may, at last, be facing a rude awakening which could force a rethink. Not that one is holding one’s breath! But it should not be surprising that the Establishment which has dictated the rules for decades, feels threatened in this time of flux and uncertainty. Things ‘ain’t what they used to be’ and the certainties are slipping away.

Reuters reported this week that world leaders, financiers and chief executives were leaving Davos with ‘an urgent sense of the need to reboot and redefine globalisation’. Their version of globalisation has, hitherto, not been about real cooperation in the service of humanity, rather it has been the exploitation of human labour and finite resources in the service of greed and profits.  Globalisation has not been about planetary flourishing, it has proved to be the exact opposite, favouring the few, a billionaire class who, as Oxfam pointed out this week, were increasing their fortunes by $1billion every two days. Not because they worked hard but because the system is rigged in their favour. A system which allows them to amass vast resources and pollute the planet with their excesses, while the rest labour in low wage economies as slaves.

Its dominant position has been ably assisted by the notion of monetary scarcity, which has been hugely damaging as countries in the global south have been weighed down by foreign debt and forced to accept punishing bailout regimes, which have, in turn, forced cuts to public spending and decimated public infrastructure. This is the common link between the global north and the global south. The toxic economic system which prevails and leads Sunak to focus on fiscal discipline rather than public purpose.

 

The MMT Podcast with Patricia Pino & Christian Reilly: #131 Fadhel Kaboub: Free Trade Isn’t Free: Food Sovereignty And Why It MattersPatricia and Christian talk to economist and President of the Global Institute For Sustainable Prosperity Professor Fadhel Kaboub about how global food and energy systems have been fostered to benefit the global north at the expense of the global south, and how understanding modern money is vital to…

 

The damage that has been done over decades is incalculable. The events of the past few years have revealed the inherent weaknesses of globalisation and its bedfellow, neoliberalism.

As the effects of climate change, caused by the burning of fossil fuels, combine with the associated loss of biodiversity due to land mismanagement and exploitation, the degradation of soil, resulting from unhealthy farming practices and overuse of herbicides and fertilisers, along with changing global weather patterns, the world faces an uncertain future without adequate urgent action.

Ultimately, the UK does not exist in a bubble and must now see its future actions and policy decisions in a global context, but not the one we know. Not a continuation of the status quo which protects a rotten free trade system and sustains the wealth of the few, but an all-encompassing strategy for human and planetary fulfilment. It is not about pulling up the drawbridge. It is about ensuring that nations can help themselves to ride the economic and climate storms ahead, and work cooperatively to trade fairly and sustainably with their global neighbours.

Some might call this an unachievable pipe dream, given the current instability forged out of a toxic economic system and endless wars for global hegemony, and let’s be honest, theft of real resources. But it doesn’t have to be.

Our future depends on real and substantial change, not tinkering around the edges so that the global elites can maintain their power and influence. It begins with a public understanding of how the government spends, to challenge the status quo and set the scene for creating a fairer world, which has both a sustainable and liveable future. The way ahead may be bumpy but that’s no reason not to try.

 

Announcement

The GIMMS book ‘Modern Monetary Theory: Key Insights, Leading Thinkers‘ – Edited by Professor L. Randall Wray and the Gower Initiative for Modern Money Studies, is scheduled to be published by Edward Elgar Publishing in January 2023

For more details, please see the EE website via the link below:

 Key Insights, Leading Thinkers" draft front coverModern Monetary Theory’This is a fascinating, eclectic group of professional papers in which the reader may explore both the first principles of Modern Monetary Theory and many institutional and historical details that lend weight to the conceptual framework. This book is a landmark in the development of MMT, a boon for…

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post The Government, like the Pied Piper, marches the nation back to Dickensian Britain appeared first on The Gower Initiative for Modern Money Studies.

Journey to the heart of Argentina

Published by Anonymous (not verified) on Mon, 16/05/2022 - 6:00pm in
By Carlos García Hernández

Originally published in Spanish in El Común on 13th May 2022

 

Women and a child walking past ouses in La boca Buenos Aires, ArgentinaImage by Fernando Hidalgo Marchione on Flickr. Creative Commons 2.0 license

Between May 2nd and 5th, 2022, I had the opportunity to join economist Warren Mosler’s visit to Buenos Aires organized by Pymes para el Desarrollo Nacional and Grupo Bolívar.

In this way, the interest in modern monetary theory has allowed Mosler’s analysis to be oriented towards the specific case of Argentina. It has been a fascinating experience that has taken us to the bowels of the country’s economy.

The organizers asked Mosler to focus his proposal on two things: the possibility of achieving full employment without inflation (an economic state I have dubbed the Lerner point) and Argentina’s latest agreement with the International Monetary Fund.

Mosler presented his proposal at several public events, to managers of the Central Bank, to the leaders of the public financial institution Banco Nación, at the University of Moreno, in a visit to the Río Santiago shipyard and on the radio program Teoría Monetaria Moderna Presenta. His conclusion is that Argentina’s problem is primarily of a fiscal nature, since Argentina currently spends 8% of its GDP on interest payments derived from public debt securities and Mosler estimates that this figure will soon rise to 20%. On the other hand, the official unemployment figure is not very high (7%), but youth unemployment is over 30%. In addition, the real unemployment rate is much higher than the official one and poverty reaches 37.3% with a marginal poverty rate of 8.2%. Added to this is the enormous problem of inflation, which currently stands at 55.1% per year, but is expected to exceed 60% by the end of the year.

The specific measures he proposed were threefold: the adoption of floating exchange rates, a permanent 0% interest rate policy, and the implementation of job guarantees based on employment buffer stocks.

The adoption of floating exchange rates is the measure that would make it possible to carry out the other two, since only floating exchange rates allow for permanent full employment policies and 0% interest rates decided by the central bank. Currently, Argentina has a fixed exchange rate of the peso against the dollar. The reason for this is that there is a belief among the leadership and the general population that Argentina’s main problem is external constraint. Therefore, it is believed that the Argentine peso is worthless and that it is necessary to maintain large foreign exchange reserves in order to import and grow. This puts the Argentine economy at the mercy of financial speculators, since Argentina has to defend the exchange rate by buying Argentine pesos through its dollar reserves. The consequence is that Argentina periodically suffers debt crises and the risk of running out of reserves, which drives up interest rates, inflation and unemployment. Mosler’s proposal is to adopt floating exchange rates so as not to have to defend a fixed exchange rate by means of foreign exchange reserves and for the Argentine economy to function exclusively through the national currency. He gives as an example the debt crises of Mexico in 1994 and Russia in 1998. Both countries adopted floating exchange rate policies in the face of explosive debt crises resulting from fixed exchange rates. The consequence was that after the introduction of floating exchange rates, there was a sharp adjustment in which the Mexican peso and the ruble lost 66% and 75% of their exchange value against the dollar respectively. Thereafter, the value of the currencies stabilized and then gradually recovered. According to Mosler, something similar would happen in Argentina because the Argentine economy is similar to that of Russia and Mexico. Currently, the official exchange rate of the Argentine peso is 116.25 pesos per dollar and the exchange rate in the black market (the so-called blue dollar) is 202 pesos per dollar. Therefore, the devaluation resulting from the floating exchange rates would bring the value of the official peso to approximately the value of the blue dollar. After this adjustment, the value of the peso would stabilize and then recover progressively, as occurred with the Mexican peso and the ruble.

In response to this proposal, Argentine leaders argue that such a devaluation of approximately 60% would increase the price of imports and that the poorest classes would not even be able to buy food for subsistence. However, Mosler argues that this problem would be solved by means of subsidies in pesos to those who need them and an indexation of salaries that require it. In addition, Mosler also points out that the price of Argentina’s exports would become cheaper and therefore the devaluation would increase the country’s exports. In addition, annual inflation is already at about 60% or so, forcing periodic wage indexations. Therefore, floating exchange rates would require a new and final indexation before entering the period of stability.

This leads us to the second proposal, permanent 0% interest rates and the renunciation of issuing any public debt. Currently, Argentine interest rates are 47%. This reflects a self-defeating attitude similar to that of fixed exchange rates. Argentines believe that without very high interest rates like the current ones, the Argentine peso would lose all its value and therefore high interest rates are the only incentive for the currency markets to accept the peso. This generates a constant flow of pesos directly into the international currency markets where pesos are exchanged for dollars. This dynamic floods the foreign exchange markets with pesos and causes the peso to devalue constantly. This, according to Mosler, is the main source of inflationary pressures in Argentina.

Currently, Argentina spends 8% of its GDP on interest payments, but according to Mosler’s estimates, this figure will soon be 20%, mainly due to interest payments on inflation-linked debt securities, real monetary time bombs that already represent 20% of the total public debt and amount to 70 billion dollars. Mosler proposes to eliminate the issuance of public debt securities, since Argentina is a country that enjoys monetary sovereignty and therefore does not need to either collect taxes or issue debt to finance its public spending. He also urges Argentine policymakers to stop talking only about the primary fiscal deficit (which does not include the interest payments derived from the debt) and suggests that when dealing with the fiscal deficit, they should do so taking into account the enormous and unnecessary amount of pesos that are permanently going to the foreign exchange markets to be exchanged for dollars. In response to the unfounded expressions of fear about the value of the peso, Mosler pointed out that the value of the peso corresponds to the Argentine GDP and to all the products that can be purchased with pesos. To maintain that the peso would lose all its value if interest rates were 0% is as absurd as saying that meat, soybeans, grain, gas, oil, tourism and all the products produced by the Argentine economy would lose all their value. That is simply not going to happen, especially at a time when Argentine exports are reaching record levels. As long as taxes have to be paid in Argentine pesos, the value of the peso will never be zero. Only in an unimaginable case in which no taxes would have to be paid in Argentina would the value of the peso be zero.

With floating exchange rates, interest rates would no longer be determined by the markets, but by the Central Bank. Therefore, once floating exchange rates are adopted, the level of interest rates in Argentina should be 0% and the Argentinian government should renounce the issuance of debt securities.

All of the above brings us to Mosler’s last proposal, job guarantees based on employment buffer stocks. This proposal is only sustainable over time with floating exchange rates that avoid having to adopt fiscal austerity measures to defend fixed exchange rates. In addition, the job guarantee would eliminate any inflationary pressures that may have subsisted from floating exchange rates and the elimination of positive interest rates, since guaranteed labour acts as a wage anchor in both downturns and upturns.

As Mosler tirelessly repeated in his expositions, the price level of an economy, and therefore its level of inflation, can only be explained by the price that the State is willing to pay for the goods and services it needs to supply itself. This especially concerns the price of labour reflected in wages, since the origin of all goods and services is socially embodied human labour. According to Mosler, the wage level is not the cause of inflation in Argentina. Therefore, the State would have no difficulty in setting up a program similar to (but broader than) the so-called Plan Jefes y Jefas, which until a few years ago served as a job guarantee in Argentina. Under this model, anyone who wants and is able to work, but cannot find work in either the private sector or the permanent public sector, should receive a transitional job until he or she can be incorporated into work in the private sector or the permanent public sector. The purpose of the job guarantee is not production per se but to demonstrate the beneficiaries’ work capabilities, since the private sector generally only likes to hire people who are already working. Therefore, guaranteed work should be implemented after the government has decided on the desirable size of the public sector to ensure good quality public services.

The job guarantee wage would become the minimum wage of the economy and would act as an automatic price stabilizer in both expansionary and recessionary economic periods, while eliminating poverty and unemployment.

Before going into the IMF agreement, Mosler also pointed out that in Argentina there is a problem with market regulation. According to Mosler, this is due to a high concentration in strategic productive sectors that leads to oligopolistic practices. His proposal is to regulate these oligopolistic markets to limit their excessive profit margins and avoid speculative practices, especially in the banking and primary sectors.

Finally, he delved into the tempestuous field of the agreement with the IMF. This agreement includes a loan of $45 billion and numerous conditionalities that are very harmful to Argentina, such as the issuance of long-term debt securities and fiscal austerity measures. Mosler proposes to replace this agreement with one that is more beneficial to both Argentina and the IMF. His proposal is to repay the loan through a 3% tax on Argentina’s gross exports. These exports amount to a total value of approximately $100 billion per year. Dedicating 3% of that figure to loan repayment would be beneficial to the IMF because it would ensure that it would receive dollars from the only source of dollar inflows into the country, exports. This means that no currency exchange would have to take place to make payments. Moreover, the IMF would no longer have to worry about imposing any kind of conditionality on Argentine policies. For its part, the Argentine government would be able to exercise its political sovereignty without any constraint from the IMF in the form of conditionalities. Moreover, the 3% tax could be deducted from exporters’ other taxes if it deemed it appropriate, so that there would be no mandatory increase in the tax burden.

I believe that the Argentine government should listen to Mosler’s message and implement the measures he proposes. The achievements of an Argentina with full employment, price stability and well-regulated markets would be beyond imagination. If such a situation were sustained over a prolonged period of time, I am convinced that Argentina could once again become the great world economic power it once was and regain its rightful place of relevance on the international scene.

Euro delendus est

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post Journey to the heart of Argentina appeared first on The Gower Initiative for Modern Money Studies.

Splendour of the Queen’s Speech brings no relief for hungry people

Published by Anonymous (not verified) on Sun, 15/05/2022 - 5:47am in

Prince Charles sitting alongside the Imperial State Crown in the House of Lords at the State Opening of ParliamentCopyright House of Lords 2022 / Photography by Annabel Moeller. Creative Commons 2.0 license

The good we secure for ourselves is precarious and uncertain until it is secured for all of us and incorporated into our common life.
Jane Addams, US social reformer and suffragette (1860-1935)

 

How best to describe the state opening of Parliament this week? An anachronism in the 21st Century, bearing no relationship to the reality of people’s lives? Or, as Raphael Behr suggested in a Guardian article, ‘it was a reminder that much of what passes for a British constitution is actually fancy dress’. A King in waiting, dressed up in his military uniform, sporting medals and seated next to his mother’s jewelled crown, delivering a speech not actually written by her at all. You couldn’t make it up.

In terms of the reality of people’s lives, in these difficult and uncertain times, it proved as predicted, to be all show and no substance as the very real hardships being faced by people were scarcely acknowledged. No further solutions were offered to the growing financial insecurity caused by the ongoing fallout from the pandemic, global supply issues and rising inflation, along with the Ukraine war, which are all affecting the global economy with concomitant knock-on effects on individual nations.

The Spring Budget brought forth little relief, and the Queen’s Speech reinforced it. We have to bear the pain now to enjoy jam tomorrow! Michael Gove was adamant in ruling out an emergency budget during a televised interview earlier this week and blamed the current situation on global inflation, as if somehow the government had no tools to alleviate the growing pressures on families across the country.

The cure for this economic mess is, according to Boris Johnson, to ‘revive Britain’s economic growth’, as if that could be achieved by next week. He told parliament on Tuesday that whilst his government would make every effort to help those struggling with rising prices, ‘however great our compassion and ingenuity, we cannot simply spend our way out of this problem, we need to grow out of this problem’.

Aside from the fact that compassion and ingenuity seem to be in very short supply when it comes to the economic strategies and spending policies of Johnson’s government, the focus on repairing the public finances, instead of maintaining sufficient spending (in good times and bad) to keep the wheels of the economy turning, will most likely drive the economy into recession. The signs are already there. Data from the Office for National Statistics shows that the UK economy contracted by 0.1% in March, after flatlining in February, with retail sales down, production falling, and spending on cars decreasing by more than 15%. The British Retail Consortium, backed up that data in its latest reporting, noting that retail sales had dipped in April, and figures from Barclaycard also showed credit card spending on entertainment and eating out, slowing. The cost-of-living crisis is beginning, predictably, to crush confidence and put the brakes on people’s spending. And whilst Boris Johnson pledges that the government will, ‘do things in the short term to ease the squeeze on living standards’, (no sign as yet), they will likely go the same way as all the rest, into the wastepaper basket of empty promises. It must be getting pretty full by now.

It beggars belief that The Telegraph published an article this week suggesting that, according to top economists, people should save less and borrow more to save the economy and prevent a recession. Martin Beck, who is the chief economic advisor at the EY Item club claimed that it was, ‘incumbent on households using their strong financial position to keep spending’, and that ‘the pandemic has left households very well prepared for this period of turmoil because they were able to save more and pay down their debts.’

Where do they find the economists who write this drivel? Aside from the fact that it is only government that can enact the spending policies able to stabilise the economy, the truth of the matter is that not everyone was in the fortunate situation of being able to save and pay down debt during lockdown, and in times of economic uncertainty, whether you have the money or not, spending, or borrowing (unless they are driven to the latter) is the last thing that is on people’s minds. Furthermore, an analysis of Bank of England data by the Debt Justice, revealed that the number of UK households struggling with high levels of debt had increased by a third in 2021, even before the rise in energy prices and the removal of the £20 uplift in universal credit payments. And indeed, as mentioned above we are seeing the signs that people are retrenching in the face of that uncertainty. Lack of confidence begets a reluctance to spend.

Furthermore, the mantra of growth, as promoted by Johnson as the route out of this impasse is based presumably on the promotion of the false logic that a healthy economy drives tax revenue and gives government fiscal space to spend on public and social infrastructure. Just more of the same garbage churned out daily by those who know exactly how government really spends, but use the myths of scarcity to serve a purpose and deliver their ideologically-driven narratives. A political choice at the expense of the health of the economy and those who underpin its success – working people.

A healthy economy doesn’t depend on government tax revenues or borrowing capacity, it depends on a government having the political will and the real resources to deliver it.

A healthy economy also depends on the public and social infrastructure being in place, FIRST, to support the people and the businesses who rely on it. That is the job of government and represents the vital components of a functioning economy, and is certainly not dependent on monetary affordability.

It also fails to acknowledge that in the light of the climate crisis, Johnson’s focus on growth per se, without a clear plan or a strategy to deliver a sustainable and fairer, more just society, will just keep the capitalist juggernaut hurtling towards its destruction. And in this respect, we don’t seem to be making much progress in addressing this emergency. COP 26 is but a distant memory, and growth at any cost seemingly the name of the game.

At the same time as Black Rock warned this week that it would not support shareholder resolutions on climate change this year because they were ‘not consistent with their clients’ long term financial interests,’ a new forecast by scientists led by the World Meteorological Association, found that the probability of one of the next five years temporarily exceeding the 1.5 global heating limit was now 50% up, from 20% in 2021.

As the climate crisis warnings become ever more insistent and visible in our daily lives, banks continue to fund investment in fossil fuels and governments allow them to, without censure. The mission to save humanity from planetary degradation is on the rocks, as governments put fighting wars and growth as a top priority, trumping a future for our children.

It is distressing that the idea that government spends like our own household budgets has tainted any public discussion about the way forward, whether it is dealing with the fall-out from the pandemic, the effects of poverty and inequality on economies particularly, but not confined to the Global South, and the affordability of addressing the climate crisis. The tools are there through an understanding of monetary reality to deliver a healthy economy within the context of available resources, which we emphasise again are the real constraints to government spending.

However, the effects of government austerity policies which have dominated the economic narrative for over a decade, and also led to the idea that cuts to the public sector were necessary to get the public finances back into order, have not only created an increasing burden on the working population and their families, but also have driven the process of stripping out the last vestiges of our publicly paid for and delivered public services, on the lie of its unaffordability. The price we are paying today is unacceptable

It fits very nicely with the neoliberal ideology which has prevailed for decades; that the state’s role should be minimal, that it exists solely as a cash cow for the private sector, that the charity and voluntary sector should step into the government’s shoes for the provision of services that are not profitable, and that the individual should be promoted over the now dying concept of collective action.

At the same time, that same government (and others before it) have dedicated themselves to serving their own interests and those of their wealthy and corporate supporters, as well as pouring public money into private profit, from arms dealers to healthcare. And there it is, the vital clue, that money is not a scarce commodity. Public money for the corporate beggars leaching on the state while the public sector begs for adequate funding.

The consequences of this long-standing toxic ideology are before us. The growth of a low wage economy, in hunger, food banks and homelessness, and the widening gap in wealth distribution, are just a few of its damaging manifestations, all the result of government choices.

The Food Foundation released data this week that shows that in the last three months there has been a rapid jump in the proportion of households cutting back on food, or missing meals altogether. It noted that in April, 7.3 million adults live in households that said they had gone without food or could not physically get it in the past month. That compared, it said, with 4.7 million in January. There had also been a sharp increase in the proportion of households with children experiencing food insecurity in the past month, at 17.2%, up from 12.1% in January 2020. That represents, the Food Foundation noted, a total of 2.6 million children under 18 who live in households that do not have access to a healthy and affordable diet, putting them at high risk of suffering from diet-related diseases. It has called on the Government to take urgent action to prevent further escalation of this crisis, to include increasing benefit levels in line with inflation, expanding access to Free School Meals and the Healthy Start Programme.

The National Institute of Economic and Social Research, following its analysis for Channel 4 last year, reported this week that more than 250,000 households will ‘slide into destitution’ next year, which will bring the total number in extreme poverty to around 1.2 million. The think tank, echoing the Food Foundation, said that without government action, more than 1.5 million will face a rise in food and energy bills, that will outstrip their disposable income and force them to use savings (if they have any) or borrow to get through.

Professor Adrian Pabst, who is NIESR’s deputy director for Public Policy, commenting in November last year said: ‘Britain’s broken economic model shows no signs of turning into a high-wage, high-productivity, high-growth economy anytime soon.’ Regardless of Johnson’s promises.

While government fails to deliver, people will continue to struggle. It is distressing to note that while people’s lives are being ripped apart by a government that has no solutions but book balancing, Tories remain in their ivory towers sitting in judgement on those who cannot feed themselves or their families adequately. Not because they lack cooking or budgeting skills as a Tory MP suggested this week, but because they don’t have enough money. First up, we had the Ashfield MP, Lee Anderson, speaking in the Commons debate on the government’s Queen’s Speech, claiming that there wasn’t a widespread need for food banks, and that hunger was rather down to the fact that too many people ‘cannot cook’ and ‘cannot budget’. Tell that to the Trussell Trust and the myriad food banks serving their local communities. It was an insult to those who are forced to use food banks through no fault of their own, and to suggest that one can cook a wholesome meal for 30p a day by cooking from scratch. Perhaps he should be issued with a challenge to do so. It shows completely how out of touch some MPs are with the lives of their constituents.

Secondly, the Metro reported this week on Dartford Conservatives tucking into a buffet of cakes and sandwiches, after cutting the ribbon for the opening of a new food bank, as if that were something to celebrate. Whilst, in the same church building, desperate families have to queue there for food.

In 2017, Tory MP Jacob Rees-Mogg called the support given to food banks ‘rather uplifting’ and ‘shows what a compassionate country we are’. Of course, it is human to feel compassion for others who have fallen on hard times and want to help, but the existence of food banks, whilst not a new phenomenon, is a stain on a government which has the fiscal tools to ensure that people have the dignity of well-paid, secure work, either in the public sector, or in the form of a publicly run Job Guarantee scheme, to support those caught in the inevitable ups and downs of the economic cycle, and extraordinary events such as the pandemic or war, from which now stems an increasing tide of hunger and poverty, to add to that already perpetrated by prior lack of adequate government action.

Nicholas Hair, a Labour council candidate, commenting on the event said,

‘Food banks are not heart-warming. They are evidence of a failure of government and of a society to seek social justice’.

That gets to the heart of the matter. A government which knows it has the tools, as the currency issuer, to support people through this difficult time, but has chosen not to. A government that fails to spend sufficiently to support an economy and its citizens, transfers the burden to those who can least afford it. The human cost of this failure to act now will be devastating for working people and their families.

The solution, however, is not as the Chairman of Tesco has suggested this week, to impose a windfall tax on energy companies, as if collecting that money would give the Treasury the funds to alleviate the cost-of-living crisis. And, in the same vein, neither will a windfall tax on North Sea oil and gas operators, ‘rake in’ money for the Treasury to soften the pain of rising energy bills as predictable analysis by the Labour party continues to suggest. Just more of the managed illusions politicians rely on to keep the public on side from the valid point of view of fairness. The government, as the currency issuer, could create that funding tomorrow by authorising its central bank to do so. And it neither needs to tax nor borrow to keep the economy functioning. Again, its only constraint is the availability of real but finite resources, and how they are managed to deliver government priorities and avoid inflationary pressures.

However, on the other hand, a big yes to taxing the energy companies whose profits have gone through the roof, along with executive pay, and whose business is polluting and contributing to the climate crisis. Tax them to force change and drive sustainable energy solutions, or tax them out of existence if they fail to comply, but not because it provides funds for the Treasury to spend. It doesn’t.

On one further point, one could not disagree with the Tesco Chairman’s view that Rishi Sunak should not have raised National Insurance. He gets it! He understands that removing even more of people’s income leaves less for essentials. His remarks may have been driven by clear concern for those who are rationing the amount of food they eat, but also, no doubt, by the effects of that on the business as less money circulates through the economy and into company profits.

On that basis, it also makes a nonsense of Boris Johnson’s announcement this week that the government plans to cut 91,000 civil service jobs, claiming that it will free up cash to tackle the cost-of-living crisis. Or as Larry Elliott suggested in an article this week that ‘harder choices will need to be made, and at a time when ageing populations are intensifying pressures for higher spending. What nonsense!

Aside from the fact that government, as the currency issuer, doesn’t have to rob Peter to pay Paul, and paints a picture of scarce monetary resources which have to be divvied out, it demonstrates blinding economic illiteracy. Again, involuntary unemployment is not only harmful to those affected by it, but under current benefit arrangements, people would be left with less money to spend which, ultimately, would also have a knock-on effect on businesses such as Tesco, in an economy already facing serious problems.

If the government can create funds for its wars, or to bail out banks with no problem, then the question we must ask urgently is why can’t it do the same to help people, and why can’t it invest in the vital public and social infrastructure it has destroyed in the last decade?

When a Treasury spokesman claims, as was reported in The Telegraph this week, that since ‘public debt is at its highest levels and rising inflation is pushing up debt interest costs, the government has to manage the public finances sustainably to avoid saddling future generations with further debt’, there is only one response. It is a damaging lie.

And when Steven Millard, an economist at the NIESR think tank commented that, ‘The Chancellor had the chance to help poorer households, to do something about this. But he chose not to. He chose instead to pay for the Covid Assistance, the added fiscal support, by running down the deficit’, he has understood the potentially catastrophic consequences of that political decision, even if he chooses, like many in his profession, to ignore the monetary reality of how government spends.

The crossroad is before us, there is an alternative. But the question is, which direction will we take?

 

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post Splendour of the Queen’s Speech brings no relief for hungry people appeared first on The Gower Initiative for Modern Money Studies.

Cabinet brainstorms quick fixes for the cost-of-living crisis to avoid the real solution

Published by Anonymous (not verified) on Sun, 01/05/2022 - 3:51am in

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

Jason Hickel – Less is More.

Boris Johnson holds a meeting of UK Cabinet minstersPPicture by Simon Dawson – No 10 Downing Street on Flickr. Creative Commons 2.0 license

According to the Telegraph this week, the Treasury has ‘raked in more tax than ever before’, thus putting the UK, it says, on course to have the ‘highest tax burden since the aftermath of the second world war’. The Chancellor, still counting his beans, was not in the slightest bit apologetic, making clear his assertion that he had no other option but to get the public finances back on track after the vast amount of public money that had been spent during the pandemic. Keeping the £12,570 personal allowance for income tax at its current level would, the author of the Telegraph article indicated, generate an extra £20bn for the Treasury over the next five years, thus reinforcing, yet again, the plainly wrong idea that government relies on tax to spend, or balance the public accounts. A government spokesperson called on for comment, said, wiping a tear away, that it had been forced to make ‘tough decisions’, but not to worry, in 2024 we can expect a tax cut bonanza just before the next election.

The Guardian took another tack, not taxes, but borrowing. In an article by Larry Elliott entitled, ‘UK government borrowing halves but is still close to record high’, he quotes figures from the ONS which reported that the gap between the state’s revenues and its spending was down on the previous year, but that despite the improvement over the year, the total deficit for 2021/22 was more than £20bn higher than forecast by the OBR. All as if borrowing figures were a sound measure of the government’s management of the economy. The Chancellor, trying yet again to sell his agenda of fiscal discipline, was quoted by Elliott, reiterating yet again, that ‘Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which means we must manage public finances sustainably to avoid saddling future generations with further debt’.

They are all at it! Whether it’s former or current Chancellors of the Exchequer, journalists or orthodox economists, they all have one thing in common: their addiction to the false narrative of household budgets. The idea that governments are limited in their spending policies by how much tax they collect or what they can borrow. The false corollary of all that, is that without careful management of the public accounts, either we face the prospect of the UK going bankrupt, as former Chancellor George Osborne suggested to the public, or future generations will pay the price in higher taxes. All nonsense, of course, but it keeps the public in their place, meaning acceptance without question, that the government has limited fiscal capacity, and the message that government has no option but to impose belt-tightening policies, completely ignoring the fact that a government deficit represents a private sector surplus, in layman’s terms, the money in our pockets. Taxing away more doesn’t give the government more to spend, or to pay down public debt as is implied, and it certainly doesn’t help an economy to navigate difficult times.

We are now witnessing in the most distressing way, the terrible consequences of those narratives which are having a direct effect on the economy, or more precisely, the people who do the work to keep it functioning. Not just the effects of the last 2 years on people’s lives but the ongoing consequences of decades of successive government spending policies. Policies which have ranked fiscal discipline over economic health and public well-being, seen wealth distribution skewed to favour ever fewer people and overseen the selling off or privatisation of key public assets with vast amounts of public money syphoned off for private profit, along with the underfunding of vital publicly run and paid for public infrastructure which has left it in a state of ongoing decay. We have paid a heavy price as a nation for the economic ideology which prevails and dictates policy and spending.

From every corner, the warning signals have been ringing loudly. Last month, Martin Lewis, the Money Saving Expert, said that he was running out of tools to help people manage the cost-of-living crisis. He said that ‘it’s not something money management can fix, it’s not something that for those on the lowest incomes telling them to cut their belts will work, we need political intervention.’

Phil Andrew, the CEO of the StepChange Debt Charity, echoing Lewis, said that their advisers had been taking increasing numbers of calls from people who fear they won’t be able to keep up their debt repayments. With eleven million households facing Covid-related debt, and four million using credit to pay for essentials, he was clear:

‘For these households, rises in energy bills and the increasing cost of essentials are not things that make the difference between being able to afford luxuries or not. They are the things that genuinely make the difference between heating and eating.’

The Trussell Trust, which runs more than half of UK food banks, says it is witnessing an accelerating crisis across the UK as more and more people are unable to afford the absolute essentials necessary to eat, stay warm and dry, and clean. Figures released this week show that the Trust’s network provided more than 2.1 million parcels to people facing financial hardship from 1st April 2021 to 31st March 2022, which represents a 14% increase over 2019/20 – before the pandemic. And more than 830,000 parcels were provided for children, which represents a 15% increase from 2019/20, when 720,000 were provided. The Trust, again echoing Martin Lewis, said that there is still time for politicians to turn this situation around, saying that, governments at all levels must use their powers and take urgent action now to strengthen our social security system so it keeps up with the true cost of living and helps prevent hundreds of thousands more families being forced through the doors of food banks.’

These figures are a shocking indictment of a government that does have the fiscal tools to put in place solutions to mitigate the economic shock of Covid (although imperfect, already demonstrated), the effects of the war in Ukraine and last but not least to address a climate crisis which threatens humanity, but which seems to have been put on the back burner even as the planet’s life support systems continue to degrade and the social injustices intensify globally.

Our government has the legislative and fiscal tools, should it choose to use them, not only to mitigate this economic crisis in the short term, but also to challenge the market-driven ideology of decades. An ideology which has led to an increasing divide between the rich and the poor, with an ever-increasing share of wealth going into fewer hands, as wages have stagnated. A pernicious ideology that has created increasing reliance on an unfair social security system which punishes people rather than supporting them, whilst it has made the concept of real full employment a dirty word and allowed the corporate sector to get away with murder by paying low wages and setting working people against each other in the dash for a job and a modicum of security.

We may, as the Trussell Trust says, need a fairer social security system for those who cannot work, or who are caught in economic straits not of their making, but we also need a government with the political will to implement a Job Guarantee, not just to provide the vital cyclical economic automatic stabiliser at such times as these, but also to reverse the unfair advantage capital has had for decades over labour, which has been responsible for wages being driven down in a fight for competitive supremacy with all that entails in human deprivation.

However, apparently, the government is right out of tools, out of ideas, out of everything except perhaps its propaganda machine, which is working just fine. This week’s Cabinet ‘blue sky thinking’ exercise left many scratching their heads as Boris Johnson was reported as asking for proposals for tackling the cost-of-living crisis without actually spending public money. Ministers have been ordered to find new ‘non-fiscal’ solutions. Grant Shapps suggested making the MOT test biennial instead of annual. Is that a joke? If so, it’s in the worst possible taste, ignoring as it does the very real effects of higher energy and food costs on families across the country. Their problems won’t be solved by such crass intervention. And Johnson is said to have revived the Liz Truss proposal to cut childcare costs by lowering England’s legal limit on adult supervision for nursery children, even though such a move could well endanger the safety of these children. As we said – right out of ideas, well at least sensible ones like using fiscal policy to address the current crisis and indeed future ones. Meaning, spending newly created money as only a currency-issuing government can do.

Even Torsten Bell from the Resolution Foundation think tank, which has its roots in orthodox economic thinking, commented that he thought the government had ‘lost the plot’, if it believed that such ideas would improve people’s lives substantially.

It is quite shocking and disingenuous of a Chancellor who can afford a £600 pair of trainers, has an extensive property portfolio and will think nothing of spending £13,000 a year on heating a swimming pool, to tell listeners on Mumsnet this week, that it would be ‘silly’ at this moment in time to give poor families any further help with rising bills, when people are already feeling the pinch from record rises in energy price and steep increases in the cost of food and essentials. Sunak’s Spring Statement and previous budgets have been a kick in the teeth for ordinary people who have paid the price in living standards and rising private debt, caused by inadequate spending, not just by Sunak but also by previous Chancellors wedded to economic orthodoxy, and the lie that government spending is just like our own household budgets. People who have already been subjected to government policies which have driven growing poverty and inequality and decimated the public and social infrastructure over the decades which preceded the current emergency. They need help now, not later, when things are likely to be infinitely worse.

The Chancellor has at his disposal the fiscal tools he needs to address the current cost-of-living crisis and create a fairer and more sustainable society. But while he adheres to his fiscal discipline message that puts the household budget narrative of tax and spend, paying down debt, reducing public deficits or the objective of achieving balanced budgets or surpluses at the top of his agenda, regardless of the economic conditions that prevail, the lives of ordinary people can only get worse, and recession will be just over the hill. We are not all in this together under this regime.

There is an alternative. It’s just that we don’t have a government or other political parties willing to challenge the economic orthodoxy which drives spending and legislative decisions. The system has been corrupted to serve global corporations, whilst politicians have been bought, as a result, by benefiting through the revolving door. At the same time, the media plays out the narrative like a broken record, to keep the illusions going that governments are powerless to intervene when economic instability threatens, hamstrung as they are by scarce monetary resources, when the reverse is actually true.

What hinders government is not scarcity of money, but the recognition that it must align its spending to the available resources and the productive capacity of the nation, and make the political decisions about who gets the pie based on that. That is the real balancing act and the real starting point for a true understanding of what governments can do, with the political will, to create the sort of society which benefits everyone, by serving public purpose instead of corporate greed.

 

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post Cabinet brainstorms quick fixes for the cost-of-living crisis to avoid the real solution appeared first on The Gower Initiative for Modern Money Studies.

The needs of people must prevail over myths of a duty to balance the books

Published by Anonymous (not verified) on Mon, 11/04/2022 - 1:39am in

Chancellor Rishi SunakImage by HM Treasury on Flickr. Creative Commons 2.0 license

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage to move in the opposite direction.”
E.F. Schumacher

 

Illusionists with their smoke and mirrors and monetary make-believe rule the roost. After the Chancellor spent big, doing only what a sovereign currency-issuing government can do to stop an economy from collapsing, the message now being promoted by that same Chancellor is that fiscal discipline must take precedence; that getting the public finances under control is vital to the future health of the economy, but noting at the same time, that his £30bn ‘fiscal headroom’ could be threatened by energy market volatility. Sunak, still in household budget mode, has also been clear that he is not prepared to sacrifice his fiscal target of keeping debt falling, supposedly to protect future generations from excessive tax burdens.

The nonsense keeps coming. Here we have it yet again. Sunak claiming that he’s got a difficult job divvying up scarce monetary resources when nothing could be further from the truth. Or suggesting that too much spending now will burden future taxpayers.  All this is artifice and trickery and represents self-imposed and unnecessary targets for the public finances, not monetary reality.

The reality is that it is only real resources, not monetary ones, that give life to and sustain an economy.  From people to the physical resources employed in providing the things that keep society functioning. That is what must be managed for the public purpose. And the only burden that will be faced by future generations will be the one caused by insufficient government spending today to ensure a productive and sustainable future tomorrow.

Others, like Boris Johnson, alluding to the household budget narrative of how government spends, said this week that he had no problem with raising National Insurance contributions to help fund the NHS. The banker from the Department of Health, backing up his leader, suggested similarly that this increase was both right and a fair way to fund it.

In the light of the Chancellor raising the NI threshold, after the rise had been sold to the public as being necessary to fund the NHS and social care, it reveals a simple truth. It demonstrates the nonsensical position that taxes (of any sort) fund spending. Since, according to the prevailing myths about how government spends, the Chancellor will now have to find the funds to make up the shortfall arising from raising the NI threshold, and begs the logical question, where will the money come from to plug the gap? The Guardian suggests that it will come from general taxation, and yet again, we have the media, unsurprisingly, pushing a defunct model of government spending.

The government will, instead, as it did for the banking crisis in 2008, and the pandemic, create it out of nothing, as it always does. Because, quite simply, taxes do not fund government spending. But of course, it is not in the interests of the powerful for the general public to know that – they might in Oliver Twist style, revolt and ask for more.

This tax will do nothing to fund the NHS or social care, or any of the other things being claimed for taxes as a whole. Furthermore, it is a regressive tax which, regardless of the threshold rise, will do nothing to help the low paid, as inflationary pressures bite and the cost of living rises, taking as it does, more from the poorest than from the wealthiest.

The government, Johnson said this week, has to do ‘difficult things, … take big decisions.’  Gosh!  Really? So, when pressed about the cost-of-living crisis he agreed that people would have to choose ‘cheaper food, old clothes and no heating.’   It seems that hurting the poorest, sickest, and most vulnerable in our society, whilst at the same time driving the economy further into the ground and affecting everyone, is the price we must pay for the government’s economic mismanagement.

What government chooses to impose further harm on those who have suffered the consequences of government policies over a decade by suggesting again that there is no alternative to austerity? What responsible government chooses book balancing over national economic well-being at a time of economic uncertainty? This is a government with its currency-issuing powers shifting avoidable pain onto a nation already burdened and facing worse to come. As Michael Marmot noted this week ‘Poverty is literally a matter of life and death for those on the margins, and the government has so far failed to step in.

And yet, the illusion of truth continues to keep the public blindfolded and compliant to the message that fiscal discipline trumps human well-being. When there is an alternative.

As a result of insufficient government support, recession, which will affect individuals and businesses alike, cannot be far behind. These are not the actions of a government that has the interests of its citizens at the forefront of its mind, or a functioning economy. Without sufficient spending support, the economy will shrink. As people have less in their pockets to spend, businesses will stop investing and reduce their inventories, unemployment will rise and living standards will continue to fall. It becomes a vicious circle. Many think tanks, even while they promote the household budget model of the state finances, acknowledge that the Chancellor’s actions or lack of them will cause further harm to the poorest.

Clearly, Government ministers have also been on the orthodox economics induction course. Sajid Javid, the Secretary for Health, fresh from his 101 class said this week:

“When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it.’

For forty years, Margaret Thatcher’s dictums have guided the spending policies of both the right and left of the political spectrum. Whilst the right wing pushes its fiscal discipline message (with jam tomorrow, maybe, possibly, let’s see), the left wing embraces a false narrative by talking incessantly about raising revenue to pay for its programmes from taxing the rich, or most recently imposing windfall taxes on the fossil fuel corporations that have exploited the current economic instability to increase profits and CEO pay. Whilst it was shocking to learn last month that the CEO of Shell took home a monstrous £6.1 million pay package, it doesn’t change the fact that such ‘windfall’ taxes would not fund anything, let alone provide better public services or a fairer distribution of wealth. Indeed, taxation has quite a different purpose.

And yet as corporations price gouge and rake in higher profits, as reported in the MMT Lens two weeks ago, the Resolution Foundation forecast that the fall in real incomes would push a further 1.3 million people in the UK into absolute poverty, including 500,000 children, bringing the total to 12.5 million. When we talk about the cost-of-living crisis, it fails to convey what this means to some of the poorest and most vulnerable who are having to choose between heating and eating, a situation which, in fact, preceded the pandemic and is evidenced by the huge growth in food banks. Austerity has a lot to answer for. It is the difference between a good life without want and living in fear of it.

The blame lies with a government that has not only had an empathy bypass but also plays the blame game by dividing workers into the deserving and undeserving. But worse still, it has deliberately chosen this path, when it has the fiscal tools to avoid it. Currently, we have a prime minister who thinks that there is no alternative to more suffering. Whatever happened to the concept of ‘levelling up?’ And this is before we factor into the picture the effects of climate change on the poorest, who without action, will pick up the real bill, whilst the rich continue to live off the fat of the land, while it lasts, at any rate.

While the human suffering continues by government choice, the climate crisis seems to have been displaced on the front pages by the war in Ukraine and the associated consequences related to rising prices and shortages of oil, gas, food, and other vital resources. But it hasn’t gone away. It is the elephant still stalking the room.

As the IPCC (the Intergovernmental Panel on Climate Change) published its third and final report this week which draws on the work of thousands of scientists, the Cabinet Minister Jacob Rees Mogg suggested that the government wanted to extract, ‘every last drop of oil and gas from the North Sea,’ saying that ‘2050 is a long way off’. He said that the profits of the fossil fuel companies had to be protected from the prospect of windfall taxes, so that they could invest in further North Sea drilling for oil and gas. So much for COP26 and any hope that we can avoid the worst effects of climate change. The political priorities are clear.

Antonio Guterres, the UN secretary-general said this week, Nations and corporations are not just turning a blind eye to planetary disaster but adding fuel to the flames,’ and added that ‘it is a file of shame, cataloguing the empty pledges that put us firmly on track towards an unliveable world.

We are in the last chance saloon, and yet, western style, neoliberal oriented governments, that put markets and profit above people and the planet, are fixated with economic development, and uncontrolled growth at whatever cost, not to mention ramping up the war machine with public money, to keep the distorted economic system going, and the profits rolling in.

Remind us from where the money is coming for that dead-end exercise? When Rishi Sunak cuts spending on public and social infrastructure or fails to support the economy with adequate spending to match the economic conditions, or indeed allocate sufficient funding for climate action, all predicated on the lie of monetary scarcity and paying back debt, there seems to be an endless porridge pot for arms and killing people. When so much is at stake shouldn’t the public be demanding answers at the gates of Parliament? Monetary reality is displayed in those choices.

The fancy rhetoric of COP26 has been short-lived, and the promises watered down or swept away if indeed it was ever intended to fulfil them. The corporate body, which includes the damaging fossil fuel industry, dictates its terms using its huge wealth, power and influence, and governments around the world cosily comply as politicians stand to gain through the revolving door.

As the former astrophysicist and climate scientist Peter Kalmus noted in a Guardian Op-Ed piece this week:

‘Earth breakdown is much worse than most people realise … The science indicates that as fossil fuels continue to heat our planet, everything we love is at risk. For me, one of the most horrific aspects of all this is the juxtaposition of present day and near-future climate disasters with the ‘business as usual’ occurring all around me.  It’s […] surreal.  If everyone could see what I see coming, society would switch into climate emergency mode and end fossil fuels in just a few years.’

 

Kalmus joined over 1000 other scientists protesting around the world about the lack of urgent action and was arrested for locking himself onto an entrance of JP Morgan Chase in Los Angeles. They warned that the IPPC’s report language had been ‘watered down at the behest of governments unwilling to rapidly phase out fossil fuels.’

If we are to act at all, it cannot be piecemeal. It cannot be left to individuals, communities, or businesses to do their bit, however committed, without an overarching strategy in place. It must start with government serving its citizens as the planner, legislator, and currency issuer, to address the climate crisis and deliver a just green transition. Everything that comes next stems from that. This government has so far abdicated its responsibilities.

Based on current conditions, it is depressing to realise that we might be waiting forever for that, or that what is delivered is a greenwashed world, based on the same toxic and unjust economic model. But never let it be said it was not possible to change the very basis upon which our society operates and where the power lies.

As David Graeber, co-author of the Dawn of Civilisation, and Five Thousand Years of Debt, wrote  just before he died:

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

 The pandemic opened our eyes to a different way of thinking and doing things.  We cannot turn our backs on it, facing as we are the next great crisis, climate change, which, coupled with the human dimension of already existing gruelling poverty and inequality can only get worse if we carry on as we are. We must grasp the moment and push for concrete action, not half-hearted promises that are designed to go nowhere. Understanding how governments really spend offers us the framework for that change.

 

 

Join our mailing list

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

Support us

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

 

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post The needs of people must prevail over myths of a duty to balance the books appeared first on The Gower Initiative for Modern Money Studies.

Out-of-touch Chancellor’s Spring Statement fails to help those most in need

“Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilisation.”
John Maynard Keynes  

This week, amidst continuing global economic uncertainty caused by the ongoing pandemic and the outbreak of war in Ukraine, the Chancellor, Rishi Sunak, delivered his Spring Budget. Unsurprisingly, it did little to help the very poorest of households, as the Resolution Foundation reported in its analysis that followed:

“Taking into account the measures announced by the Chancellor, the typical working-age household faces an income fall of 4 per cent, or £1,100, in 2022-23. But the greatest falls will be felt by the poorest quarter of households who are set to see their incomes fall by 6 per cent. This will see a further 1.3 million people fall into absolute poverty next year, including 500,000 children – the first time Britain has seen such a rise in poverty outside of recessions.

 

Incomes are on course to be lower at the next election (2024-25) than they were at the last (2019-20), with typical non-pensioner income projected to be 2 per cent lower. Such an outcome would make this the worst parliament on record for living standards growth.

 

The Chancellor pre-announced a 1p cut in the basic rate of Income Tax for April 2024, saving an average earner £243 a year. But the gains of this and the lasting impact of a higher National Insurance threshold are wiped out by previously announced tax rises.  In 2024-25, when the income tax cut comes into effect, 27 million out of the 31 million people in work will pay more Income Tax and NI as a result of personal tax changes announced by Rishi Sunak.”

Chancellor Rishi Sunak filling a red car with petrol at a petrol stationImage by HM Treasury on Flickr. Creative Commons 2.0 license.

While the Chancellor continues to count the tax beans and make his calculations, those who have already suffered the consequences of the last 12 years of Conservative policies will now be expected to take further pain in the form of a resurrection of harmful austerity dressed up in the concept of possible ‘jam tomorrow’. Cynically speaking, just before the next election.

In the light of a sustained round of higher government spending and the myth that we have borrowed heavily to sustain an economy hit by a global pandemic (even if much of that went into corporate pockets), some economically uneducated politicians are now appealing to the nation yet again to sacrifice their well-being on the altar of balanced budgets. We should be willing victims, according to this false logic. Despite the huge spending over the past two years, the household budget myths were never far away from the public gaze as the media pounded their messages about how there would be a price to pay, eventually.

At the same time as the Resolution Foundation lays it on the line as to the significance of the Chancellor’s budget, which yet again divides rich and poor, it then goes on to reinforce the myths about how the UK government spends. Tax receipts, it said, had come in much stronger in 2021/22 than expected, which would give the Chancellor ‘headroom against his fiscal rules’. The Independent claimed however that Sunak was keeping some of that tax bonanza back for a rainy day or to cover his planned tax cut in 2024. Whilst the Foundation’s analysis is stark on the consequences of this week’s budget, it is clearly still in the dark ages when it comes to describing how currency-issuing governments spend, as are so many think tanks and organisations on both the left and the right, not to mention a myopic media.

Charles Dicken’s character Micawber has been resurrected (if he ever went away) by a Chancellor who, after an astonishing fiscal response to the pandemic, is now re-donning Thatcher’s mantle, reinforcing the lie that taxes fund spending, or that government needs to borrow to fund itself over and above its revenue.

The suggestion by Torsten Bell at the Resolution Foundation, that these unexpected tax receipts would allow the Chancellor to consolidate the Treasury’s fiscal position and deliver his promises is just more shoring up of a myth that governments spend like our own households. And a bit of a joke because by any standards what the Chancellor, with his great wealth and extensive property portfolio, has done, is punish those who can least afford it and who do have to live within their financial means or face the prospect of debt because they are currency users, not currency issuers. The rising use of food banks and increasing homelessness can only get worse as his budget decisions begin to bite in April and our public services will continue to deteriorate without adequate funding.

Holding forth from his ivory tower, Sunak has not an ounce of understanding about the impact of government spending policies on the lives of working people, not to mention the economy. His decisions are directed by a desire to show himself fiscally prudent, not by public health and economic security.

When Rishi Sunak says, as he did earlier this week, that ‘we can’t help everyone because it’s too expensive’ or proposes an efficiency drive to cut £5.5bn of claimed government waste with a view to those savings being used to fund vital public services, it is quite simply a distortion of the facts to serve a political agenda.

Whether it is the Chancellor reciting the usual mantra about it being ‘vital that every single penny of taxpayers’ hard-earned cash is […] spent well,’ or the Shadow Chancellor and other uninformed left-wing politicians suggesting that they would fund public services via a windfall tax on energy companies, the public is being led by the nose in its ignorance of how government spends. An ignorance perpetuated by the daily narratives in both left- and right-wing quarters and by a compliant media singing from the same hymnbook. The economic orthodoxy rules the roost. And yet increasingly we are seeing the true cost of such narratives. They are not financial, they are the threats to human life, biodiversity, and a functioning planet.

Given the challenges we face from an increasingly forgotten climate crisis (and incidentally scarcely mentioned in the Spring budget), the ongoing exploitation of the global south, which has bled countries dry to sustain the lifestyle of the west and which is coupled with rising poverty and inequality affecting citizens across the world, it is time to challenge these myths which have served a political agenda and a toxic ideology. Keeping the myths alive for the purposes of social control and the profits rolling into private pockets with government serving its corporate masters.

Nothing is too expensive in monetary terms; government doesn’t have a finite pot of money with which to provide public and social infrastructure and neither does it have to doff its cap to the wealthy or large corporations to provide it. Contrary to the usual household budget narrative, when the government spends, it does so based on a political agenda, not the state of the public coffers. It just doesn’t want the public to know that, because it is a lie that can be used to justify its spending policies and who gets the money, or indeed yet another round of austerity when it suits. A harmful ideology that feeds government policies and spending decisions.

The proof of the pudding lies in the fact that when it serves that agenda there is always money to fund a government’s own political priorities such as war or defence spending, or public contracts divvied out to its mates with no accountability. Only this week, Sunak revealed that the UK had given Ukraine £100 million worth of weaponry. And yet at the same time, he tells us that savings in government departments must be found by rooting out waste which can in turn, according to the household budget narrative, be used to fund public services, as if a government that issues its own currency has no money of its own and has to tax or borrow or make ‘savings’ by robbing Peter to pay Paul to fund its agenda.

While the Telegraph talks this week about the parlous state of the public finances and running out of road, suggesting that excessive government spending was crowding out investment in the private sector by discouraging ‘innovation and competition in crucial sectors such as health and education’ (which tells us a lot about the priorities of those on the conservative right), it claimed also that government spending levels were ‘indefensible.’  These statements are predicated on the lie that money is a finite and scarce resource and that the State and its public infrastructure is wasteful of hard-earned taxpayers’ money!

While the Telegraph talks tough by suggesting that spending needs to be cut even further, the Spring Budget is already a kick in the teeth for those who are currently struggling to make ends meet and will mean even more hardship and poverty as energy, food and other costs continue to rise. The Chancellor has made a political choice to create further difficulties for already beleaguered citizens on the promise of ‘jam tomorrow.’ Fiscal discipline over national economic well-being. What a cruel way to view the lives of millions of people, who it seems have become expendable in some people’s eyes where government finances are concerned. Better a balanced budget than a happier, healthier more productive nation.

Let us ask what is the role of government? To balance the budget, keep the wealthy happy and the profits rolling? Or something else? What we should be discussing is not the state of the government finances, whether it has balanced its budget or gilded its reputation as being fiscally prudent, but how it has managed the real but finite resources it can, if it chooses, access through its tax and other policies to create a sustainable and functioning economy which benefits everyone, not just a small section of it.

Thus, a healthy economy depends primarily, not on a private sector paying its taxes to provide vital public infrastructure, for too long the public has been misled on this issue. It depends instead on the spending and legislative decisions taken by a currency-issuing government to create the publicly paid for and preferably managed national and local infrastructure upon which we all depend as individuals and businesses, from health to education, welfare, public transport networks, and employment. Government in service to its electorate, not the corporate body. That should be the starting point for a discussion about where we go from here and involves creating a better public understanding of how government really spends.

In short, the current economic problems and inflationary pressures are not caused by too much government spending as some would have it, but by supply chain disruptions resulting from the pandemic, the war in Ukraine and the growing effects of climate change on the world economy including food production. This is a moment not for fiscal retrenchment but thinking best how to support working people in these difficult days and planning for a sustainable and fairer future for all.

 

 

 

Join our mailing list

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

Support us

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

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post Out-of-touch Chancellor’s Spring Statement fails to help those most in need appeared first on The Gower Initiative for Modern Money Studies.

Rishi Sunak’s market moralism

Published by Anonymous (not verified) on Mon, 14/03/2022 - 9:15pm in

Source: Bayes Business School

Overshadowed by the appalling news from Ukraine, Chancellor Rishi Sunak presented the annual Mais Lecture in London a couple of weeks ago. Traditionally used by Chancellors (and, sometimes, Shadow Chancellors) as a space to fill out the detail of their economic plans, and (they hope) give the impression of some depth of thought behind them, this was, as other commentators have pointed, out a comparatively rare insight into Sunak’s mind a few weeks of what will be, for him, another Spring Statement severely rattled by external events.

Battered by the pandemic, and subject to the whims of a once all-powerful Prime Minister, Sunak has spent two years in office cranking up government spending whilst offering variations of St Augustine’s prayer: “Lord, make me fiscally conservative, but not yet!” Mais Lecture was no different in this respect, once again promising the faithful that he would soon, very soon, start cutting taxes.

And of course you have to read the whole thing through a potential Conservative Party leadership battle. It helps to read British politics in general through the prism of a never-ending Tory leadership contest: like other semi-democracies, squabbles amongst factions in the ruling party matter far more than debates between the ruling party and the tolerated opposition – whatever the likelihood of any actual changes at the top.

But with Liz Truss letting her Tory MMT tendencies be known early on, judiciously making sure news of her indifference to deficits was leaked to the Times just ahead of Tory Party Conference last year, Sunak had to establish some clear blue water on the question of spending. Truss wants to cut taxes, regardless of the impact on government borrowing. Sunak “firmly believes” in low taxes but is “disheartened… by the flippant claim” that taxes pay for themselves. Tut tut. Once again, low taxes, but not yet.

What’s more striking is, as per usual, what Sunak doesn’t talk about. For a decade Tories noisily insisted that the government debt and the government’s deficit were the most important problem in the world, and that all other government spending could be sacrificed to shrinking both. Former Chancellor George Osborne used his own Mais Lecture to spell out the argument for immediate action on government spending, back in 2010. Osborne offered a cogent and closely-argued case for finding the poorest and most vulnerable in society and fiscally waterboarding them for a decade.

Never mind that the gurus he cited, Kenneth Rogoff and Carmen Reinhart, turned out to have made a spreadsheet error in their calculations on the impact of government debt on growth which rendered their most eye-catching claims useless. And never mind, too, that by the time he left office, Osborne had overseen the longest decline in living standards since the dawn of industrial capitalism, even as the government debt burden continued to rise. What matters here is the intellectual framing of the discussion around the role of government in the economy as entirely negative: that government, with its shocking debts and yawning deficits, was little more than a deadweight on a long-suffering private sector, yearning to be free.  Aided and abetted by a compliant media, who didn’t know better, and the Institute of Fiscal Studies, who should’ve known better, the economic illiteracy of the story mattered less than its political purpose in justifying the reshaping of the British economy back around the interests of its financial system in the years after the 2008 crisis.

So tightly were austerity’s mind-forged manacles that it took the triple shock of Brexit, Jeremy Corbyn and covid to break them. Brexit gave us a Tory Prime Minister who wanted to talk about the “burning injustices” of the economy. Corbyn, in turbulent years after the 2017 election, gave us a different Tory Prime Minister who consistently increased spending. And covid has given us a Tory Chancellor who scarcely references the government debt.

The contrast between Osborne and Sunak, then, is stark. The current Chancellor reflects a new consensus, apparent across the business press in recent months, that government spending in the future is going to be higher: on (his words) “health, pensions and social care” for an ageing population; on the “legacy of covid” in annual vaccination programmes, antivirals, and testing; on education; on government infrastructure investment, praised by Sunak; and of course on the military, where demands have been raised for a 25% increase in the current budget.

This isn’t the austerity economics of the 2010s. It is a higher-spending, bigger-state Toryism that means, come 2024, the difference between the two main parties’ spending plans – widening in elections 2015 onwards – is likely to be substantially reduced. Reduced, too, will be their rhetoric on the fundamentals of the economy: both accept a significantly increased role for government investment, including on renewable energy; both accept the need for  intervention in the economy to address inequality, beyond using the tax system alone (aka “Levelling Up”); both accept the idea that intervention can address the productivity problem. And both have decided to foreground economic growth as the key to a successful economy.

Market morality

It’s here that Sunak gets interesting, once we get past the boil-in-a-bag Treasury policy prescriptions for growth. Sunak wants to cut taxes on investment by businesses, invest more in “adult skills”, and spend more on R&D – so far, so familiar, although Sunak at least throws in the possibility of scooping up “entrepreneurs and highly skilled people” from all over the world, post-Brexit.

Instead it is when Sunak tells us about his desire to create a “new culture of enterprise” that we should be paying more attention. Sunak’s carefully-curated public image has been of a man somewhat wary of big ideas and book-reading (“all my favourite books are fiction”), but it is to Adam Smith he turns to make the link between culture and economic growth: not via the Wealth of Nations, but its forerunner, the Theory of Moral Sentiments: that a free market not only ensures outcomes that are economically efficient, but that markets themselves are grounded in morality, Sunak here referencing the late Jonathan Sacks’ own Mais Lecture. The process of market interaction itself (says Sunak) shapes morals and therefore culture. “Moral responsibility,” he claims “can only come from being exposed to the consequences – whether good or bad – of our own actions.”

This isn’t a conventional, libertarian-inclined defence of the free market, often associated with the Wealth of Nations, in which freely-transacting individuals are magically guided by the “invisible hand” to produce the best possible outcome for society. This “invisible hand”makes no claims about the morality of your choices, simply that everyone’s preferences will be met best if we allow it do work its mysterious magic. Sunak says this is reading Smith wrong: “Smiths account of the market economy, is not as some have suggested a values free construct which rationalised social choice.”

But this argument for market morality is also not quite that of Sacks’ original Mais lecture, which was a slightly more conventional take on how free markets, desirable as they for producing economic growth and productive cooperation, also require stable social institutions: family, religious organisations, community groups, and so on. We get on with our social interactions, the market sorts out that section of them we call the economy, and the greatest happiness of the greatest number is ensured. We learn our morals and “habits of cooperation” in “the domain of families, congregations, communities, neighbourhood groups and voluntary organisations”.

The invisible hand of Sunak, on the other hand, has a decidedly morally interventionist streak. We will have better moral characters if we allow a market-type process of rewards and punishments to shape them, facing the “consequences… of our own actions”. Happily, the shaping of our characters in turn shapes a culture which then creates the conditions for economic growth through the “universal and laudable desire to better the condition of ourselves and those we love”. A free market fosters an “enterprise culture” which will, in turn, make Britain more receptive to economic growth delivered by a succession of terrific new technologies, lead by Artificial Intelligence (as always).

Note the firm limits to “laudable” bettering here, and what it should be aiming for; and whilst Sunak identifies the need for government to provide some minimum level of support where needed, the boundaries for government action are constrained. Whereas Sacks suggests that economic growth, engendered by the free market, is just one part of a what makes a good society, and that this culture provides the necessary foundations of the market, Sunak’s rather darker argument is that the desirable culture is one that produces growth, and that market outcomes themselves are crucial to shaping that culture.

Sunak may talk up economic growth. He suggests he is an optimist on its future. But if the growth pessimists he cites are right, we left with only the moral claims. What he establishes here looks more like the moral and intellectual framework for a low-growth and significantly more authoritarian version of capitalism.

The post Rishi Sunak’s market moralism appeared first on The Progressive Economy Forum.

An Accounting Model of the UK Exchequer (the paper, and author interviews)

Published by Anonymous (not verified) on Wed, 26/01/2022 - 8:23am in

Portraits of Richard Tye Neil Wilson and Andrew Berkeley with Activist MMT logoRichard Tye, Neil Wilson and Andrew Berkeley

 

This post documents a 2020 paper (updated in 2021) called An Accounting Model of the UK Exchequer, and my seven-part series of interviews with all three co-authors: Richard Tye, Andrew Berkeley, and Neil Wilson. The paper, which was published by The Gower Initiative for Modern Money Studies (or GIMMS), painstakingly documents… the accounting model of the UK Exchequer. In colloquial language, the paper describes exactly how the British pound is created, moves through the economy, and is ultimately deleted. Its analysis is backed by a large amount of references to primary government sources, including legislation, public records requests, and historical documents going back all the way to the 12th century.

Additional sources are provided to learn more, and at the end you will find a brief-as-possible summary of the UK Exchequer by co-author Andrew.

This post was written by Jeff Epstein, host of Activist #MMT, the podcast (Twitter, Facebook, web, learn-MMT resources). Here is the original version, which was published at activistmmt.org

 

The reality of economic systems of other countries.

The UK Exchequer paper describes the reality of the economic system in the UK. The following papers document the same thing in other countries:

• The United States: the 1998 paper by Stephanie Bell (now Kelton): Can Taxes and Bonds Finance Government Spending?
• 2018 paper by Asker Voldsgaard Ruge: Master’s Thesis: Money and the Fiscal Space of Monetarily Sovereign Governments: The Case of Denmark

 

Background sources

This was a difficult paper for me. It’s also accounting heavy throughout. The authors explicitly decided to write a comprehensive reference, upon which more friendly works can be based. Before reading the paper, I recommend the following sources as important background:

• MMT Podcast interview with all three authors, parts one and two.
• Andrew Berkeley’s forty-minute presentation, as organized by my previous guest, Asker Voldsgaard (here’s parts one and two with Asker, which is on an unrelated topic).

 

My interviews with the authors

The individual interviews are largely personal and in the joint interview, I ask very specific questions on both the paper and the experience writing it. After consuming the above background sources and then reading the paper, I recommend listening to parts six and seven of the below interview series. Parts one through five can be listened to at any time.

Part 1: Richard Tye: The history of the U.K. Exchequer (and interdisciplinarity)
Part 2: Andy Berkeley, part one: Palestine and piano [NOT MMT]
Part 3: Andy Berkeley, part two: Confirming the theory applies to the real world.
Part 4: How Neil Wilson discovered MMT (and Reddit)
Part 5: Neil Wilson: Real-world economics requires understanding dynamics.
Part 6 and part 7: An Accounting Model of the U.K. Exchequer

 

A brief (as possible!) summary of the UK Exchequer, written by paper co-author Andrew Berkley.

The UK government spends by ordering the Bank of England to issue money. This process is mandated by law, with the Bank having no discretion in the matter. Rather, the only constraint on the ability of the government to spend is the authorisation of Parliament. In this manner, the UK Parliament essentially legislates money into existence.

When the Bank of England issues money in this manner it takes on a debt of the government as a balancing asset. In this way, the Bank hasn’t so much created money out of thin air, but has – like all banks – converted the IOUs of its customers into a form that can circulate more readily in the payment infrastructure of the economy, i.e. bank deposits. Most of the money used in the UK economy originates with commercial banks extending loans to the private sector in an analogous fashion. But with government spending, new money is held by the private sector (the recipients of the spending) without a corresponding private sector debt to the banking system. This new cash therefore represents a net financial asset for the private sector. The private sector’s net monetary wealth is supplied by the government going into debt.

The UK government’s IOUs are the most creditworthy IOUs in the economy because of the government’s unique ability to enforce taxation and the unquestionable claim over the nation’s resources that that implies. The government’s creditworthiness plays a highly significant role in the UK banking system and sterling monetary system more widely. Almost the entirety of the Bank of England’s assets are UK government securities and the government additionally supports the Bank’s activities with guarantees involving capital injections and indemnities. The UK government also provides guarantees to the commercial banking sector, with contingent liabilities in place to support failing banks and insure the deposits of their customers. The government’s creditworthiness clearly exceeds that of the institutions which create the instruments we think of as money (i.e. deposits and cash) and this money supply is ultimately underpinned by that security which is inherent in the UK government.

Some forms of UK government debt are held and exchanged by participants in the UK economy and as such fulfil a variety of monetary functions. Since the Bank of England undertakes an interest rate targeting monetary policy, it prefers to remove the central bank money added to the banking system by the government’s spending. This is achieved – at the discretion of the UK government – by selling to the private sector different forms of UK government debt known as Treasury bills and gilts (UK government bonds). With this, the private sector holds its net financial assets in the form of government securities rather than central bank deposits – the government’s debt is essentially shifted from the central bank into the private sector. The interest payments on this government debt are a straightforward consequence of the interest rate targeting monetary framework that motivated its issuance, and the circulating government debt represents the residual stock of central bank money that has been drained according to that policy objective. Banks choose to hold gilts and Treasury bills because they are the medium of exchange needed to obtain the central bank money that they require in order to settle payments between one another. Non-bank institutions such as insurance companies and pension funds elect to hold gilts because they are a more secure way to save very large balances in sterling when compared with commercial bank deposits – banks can go bust and default on their liabilities, whereas the UK government cannot (and only promises to guarantee a limited quantity of bank deposits per customer).

The UK government therefore underpins the entire Sterling Monetary Framework. It provides the central bank with the instruments which are used to undertake monetary policy. It supplies the most creditworthy monetary instruments to the private sector, which are then used by banks to access central bank funding and by savers as a supremely secure store of wealth. And it provides capital injections, guarantees and indemnities to both central bank and the commercial banking sector alike in order that their own forms of money (bank deposits) are sufficiently creditworthy for the maintenance of a stable monetary system. The government securities held by the private sector represent the provision of a net money supply. These securities are either held explicitly as monetary instruments by non-banks, or held by banks wherein they provide the basis for bank deposits to be issued without a counterpart private sector debt.

The government securities that fulfil these functions – both realised and contingent – are formally accounted for on a legal construct known as the Consolidated Fund, which governs the UK government’s tax and expenditure activities. Liabilities of the Consolidated Fund are created when Parliament authorises government spending, and are destroyed when that money is returned in the form of tax payments. To the extent that the cumulative historical spending of the UK government has exceeded cumulative tax receipts, the Consolidated Fund’s liabilities exceed its financial assets (although a formal balance sheet is not officially published!). This imbalance simply reflects the provision of a net money supply to the economy which has yet to be taxed, and the implicit, or sui generis, balancing asset is essentially the sum total of future government tax receipts. Whereas banks always create money as liabilities by taking a counterpart asset on to their balance sheet, the Consolidated Fund by contrast essentially creates something from nothing – a liability with seemingly no requirement for a formal counterpart financial asset. The Consolidated Fund can be seen therefore as the fundamental source of moneyness the UK economy.

 

Share

Tweet

Whatsapp

Messenger

Share

Email

reddit

Pinterest

tumblr

Viber icon
Viber

The post An Accounting Model of the UK Exchequer (the paper, and author interviews) appeared first on The Gower Initiative for Modern Money Studies.

Pages